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Amazon’s Bezos on How the Fire Phone Is Like Chocolate Ice Cream; Amazon’s Fire Phone Is Too Much, Too Late

Jun 19, 2014

Amazon’s Bezos on How the Fire Phone Is Like Chocolate Ice Cream

GREG BENSINGER

Amazon.com AMZN -2.21% Wednesday introduced the Fire smartphone, a device the company hopes will stand out from a crowded field with face-tracking cameras and gesture-based navigation. It’s a big bet that Amazon can take market share in a cutthroat business dominated today by Apple AAPL -0.35% and Samsung.

The Wall Street Journal sat down with Amazon CEO Jeff Bezos to talk about how the Fire phone came to be, why it’s an important next step for the company and how it’s like chocolate ice cream.

Edited excerpts:

WSJ: The company is doing quite well selling merchandise, digital services, and tablets, so why bother with a smartphone?

Mr. Bezos: We wanted to build something that would be important to customers and could be useful. If you go back in time four years, we already had a device business. We had lots of hardware expertise and we’ve been growing that over time. We like to look around the world and see what’s there and do something that’s got some uniqueness to it that customers care about.

It’s easy to do something unique if you’re not constraining yourself by customer interest. What we’re trying to do always is something that’s different and better, at least in some dimension, and then a group of customers will find that useful and will adopt that.

My view is if you straight ahead clone a product, most times you get the result you deserve, it just doesn’t work.

WSJ: Can you talk about the process of making this device?

Mr. Bezos: The right mental approach for that kind of product development is to think about one customer, how are you going to make it better for one customer. Because the world is so big, you don’t need everybody to like everything. That’s why they make chocolate and vanilla. Some people like vanilla and some people like chocolate. You don’t need to make a flavor of ice cream that’s everybody’s favorite. If you can make it good for one customer and you’re patient, you can make that good for millions of customers.

WSJ: But it does other things, like collect data, right?

Mr. Bezos: That is in reverse from what works best. You don’t start with “How are we going to collect more data?” I like brainstorming from customer needs, backwards. Sometimes with transformative invention, the customers don’t even know they need it until they have it. Autoscroll (a Fire feature that allows a user to scroll through text by tilting the phone) is an example of one of those things customers wouldn’t have known they wanted, but once they use it they see it’s really useful.

As a user, you get inured to all the things that are wrong with your current products and you don’t even notice them.

WSJ: In the past, you’ve said Amazon’ s goal was not to make a profit on devices, but rather on the services that come with them. You haven’t said that about the Fire phone. Will this be a profitable device in its own right?

Mr. Bezos: We haven’t changed our approach. We have packed the Fire phone with premium materials, the industrial design is very high end. The $199 price point with a two-year contract is for the 32 gigabyte model, not 16 gigabytes. So we have taken a very aggressive price point position on this, plus the 12 free months of Prime.

WSJ: Smartphones are a tough market. What are you going to do about the competition?

Mr. Bezos: When I see “is it too late to enter the smartphone market” I think, if we’d been having this conversation five, six years ago, we’d have been talking about a whole different set of characters. When people take the position that this market is too established to enter and you take that to its logical extreme, what you’re really saying is there can be no new entrants. History proves otherwise in every field of endeavor.

I think you need to be a company that can be patient. If you just stay heads down focused on building the best possible for highly engaged Amazon customers, Prime members, and make that phone great for them, that’ll work.

WSJ: Is this a device that’s built for round-the-clock shopping? Is the Fire TV set-top box meant to sell more things too?

Mr. Bezos: They’re all things where we had an idea that we thought we could make it better. If you take Fire TV, we thought if we could take voice search on the remote and make that work really well, we can get rid of the grid that no one likes typing on. We had an idea that we could make streaming instant by predicting the things that you might like to watch.

The question we’re always asking is, how is this different? How is it differentiated, why is it better? For which subset of customers is it better?

WSJ: The phone’s sensors respond to movement. So what happens when you get bumped?

Mr. Bezos: Here’s one of the things people are going to be skeptical about. The gestures I showed today are actually robust. Other people, unfortunately, have come out in the past with gestures that are not robust. In the minds of many reasonable people the phrase “advanced technology” means technology that almost works. We put four years of work into these gestures and they are robust in the real world.

WSJ: Will the Prime membership always be fundamentally about shipping, with other goodies thrown in?

Mr. Bezos: People do come for Prime Instant Video. Certainly the founding feature of Prime is the two-day shipping and when we launched Prime Instant Video it was very much a “by the way” feature. But over time, what’s happened is people have seen we have some videos that are really good. And people like it for that reason. Some people sign up primarily for the shipping and they realize they like the videos and others sign up primarily for the Instant Video and realize they like the two-day shipping. Over time that will happen with our music offering, for some subset of customers that will be the front door for Prime.

 

Jun 19, 2014

Commentary: Amazon’s Fire Phone Is Too Much, Too Late

CHRISTOPHER MIMS

Please allow me to be the last to tell you that Amazon unveiled a phone, and among the first to tell you why no one will buy it.

It’s not because the Fire phone is packed with a range of what can only be called parlor tricks–that is, 3-D interface gewgaws of limited utility. Nor is it because the most interesting thing about the phone–a button that lets you buy anything you see in real life on Amazon–is probably more useful for Amazon than for its customers, and already exists on other phones anyway.

The central problems with the Fire, the factors that will kill its sales as surely as they have held Windows Phone to single digit market share in North America, are these:

  1.  People are loath to switch from the phones they already have, and in the process abandon all the apps and media they’ve bought.
  2.  The North American market for smartphones–and especially the market for high-end smartphones like the Fire — is heavily saturated, which means there are hardly any new users out there who might adopt the Fire as their first phone.

3. Fire can’t access the existing pool of Android apps. It’s missing critical ones like Uber (Bezos says it’s coming) and Snapchat (no word on when it will appear).

Taking these in reverse order, let’s start with the “app gap” between Fire and its competitors.

The reason Amazon’s phone has about a tenth as many apps as the iPhone or Android phones is that, though it’s based on Android, Fire OS is heavily modified. For this sin,Google GOOGL +0.77% has banned it from accessing the Google Play store, the official repository of Android apps.

Amazon is betting that developers will close this “app gap” quickly, and give the Fire all the capabilities its competitors have. But developers won’t jump on board with Fire OS unless people switch to it–and they probably won’t. It’s the classic chicken-and-egg problem of building an ecosystem of software around any particular piece of hardware.

As Damon Darlin succinctly outlines in the New York Times NYT +0.72%, switching from one phone to another is a frightening and difficult enterprise even under the best of circumstances. There are all those contacts and photos to be transferred (or, more likely, lost) and then there’s the not-trivial matter of learning a whole new interface.

Add to this the fact that the U.S. smartphone market appears to be nearly saturated. The market-research firm IDC projects that in 2014, growth in the North American smartphone market will slow to single digits.

In other words, barring the usual churn of young people entering the market, pretty much every American who is going to get a smartphone already has declared their loyalty to either Google or Apple AAPL -0.35%, and both are working like hell to keep people locked into their ecosystems, getting us to buy media and apps that work only on Android or iOS.

All together, these are a major problem for what appears to be Amazon’s larger (or perhaps backup) strategy for Fire: get people to equate Amazon’s services with a particular service, by way of a piece of hardware. It worked with books — Kindle is an object, a marketplace and more or less synonymous with e-books. It worked slightly less well with tablets — does anyone really equate the company’s tablets with streaming media?

And it won’t work at all with phones.

Fire’s big gimmick, the “Firefly” button that turns any real-world object into a “buy” button for its equivalent on Amazon, already exists in the Amazon app for iPhone. (It’s called “Flow.”) If we were reliving the history of the Kindle, the Fire would convince some people to bind themselves exclusively to Amazon’s services, and would have even more utility as an advertisement for those same services in the form of apps on Android and iPhone.

But without adoption of the Fire in the first place, it can’t succeed even as an advertisement for Amazon’s attempt to turn the real world into one big Amazon shopping cart.

 

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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