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Earlier reports that Amazon is preparing to enter the smartphone market are starting to gain further steam, with Bloomberg recently running a story about the subject. Besides citing anonymous sources saying that Amazon has picked Foxconn to manufacture the device, the Bloomberg report also points to the firm’s hire of a former Intellectual Ventures executive to head its patent acquisition strategy.

Blame me for being an overly excitable hype-monger, but I do find the idea of a heavily cross-subsidized smartphone very much worth an effort. I’m personally rather down on the mid-to-long-term prospects of making money solely from handset hardware. Our hands and eyes set a fairly hard cap on how much OEMs can differentiate by increasing the size and the resolution of the screen, and in my view also the ever-growing processing power is more or less a bluff waiting to be called. Unless we see an unexpectedly strong uptake of relevant content (meaningful Augmented Reality, graphic heavy games) the habitual doubling of processing cores won’t have much value, apart from marketing.

The bar for what your regular “early majority” consumers in a developed market will consider an “adequate” smartphone will be in relative terms much closer to what they consider a “super smartphone” than what it is today. We may see certain game-changers, such as flexible displays and wireless charging, but in general I believe that the spotlight will more and more be on software and content. And that’s why it would make sense for a firm like Amazon to venture and see how viable loss leaders smartphones would make. It wouldn’t be the first retailer to sell something at a loss in order to make money elsewhere.

More analysis, especially what all this could mean to mobile operators, will be available to ABI Research’s clients in the form of Insights.​​​​

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