Mobile is so 2010. So why would Amazon throw its hat into the game of phones?
That’s the thing — it didn’t. The company is headed into battle in two other markets full of potential: real-world commerce and digital advertising.
Amazon has focused its business almost solely on e-commerce since its launch in 1994. Twenty years later, the vast majority of commerce still takes place in the physical world; a 2014 Q1 US Census report shows that digital sales account for just 6 percent of total sales.
So, if 94 percent of sales still happens in the real world, how does Amazon conquer this territory? It introduces a phone.
The Fire Phone can recognize a physical object, scan a bar code, and quickly provide you with Amazon’s prices, taking showrooming to a whole new level. And then, the company is able to unlock that other 94 percent of commerce spend that it previously couldn’t touch.
Should retailers be shaking in their proverbial boots? Probably.
With an active user base of 244 million, Amazon has become a trusted provider of goods. Now, those who trust the company already can buy an Amazon phone that makes it even easier to find what they want and order it with a couple of clicks. Even if just 10 percent of active users buy a Fire, that’s still 24 million people who will have access to Amazon’s low prices, vast inventory, and shipping.
But real-world commerce isn’t the only new frontier for Amazon; the Fire Phone unlocks mobile advertising opportunities for the company, making it the third viable player in the thriving space, along with Google and Facebook.
In 2014, mobile advertising in the U.S. will total $17.73 billion and reach over $35 billion by 2017, eclipsing online advertising spend, according to analysis from eMarketer. Google and Facebook combined took home over two-thirds of mobile ad spending last year. Now, Amazon could give these two companies stiff competition due to its customer relationships and new features on its phone that aren’t available on Apple or Android devices. Amazon becomes the third major player with a mobile device tied to an immense database of browsing and past purchase data.
With this phone, Amazon is able to do exactly the same thing as Google and Facebook: utilize customer identities and interest to bring targeted mobile ads to them on their phones. But Amazon has a distinct advantage: Its users have already bought something from them! As a result, the company is even better-equipped than other companies to use past purchase data to send highly tailored mobile ads to consumers. Amazon will be able to guarantee brands a pre-qualified, “in-market” audience. Who else can do that?
In his demo of the Fire, Bezos made the real-world connections for the phone absolutely apparent, talking about how easy it is to walk down the street and use Firefly to recognize signs, goods, etc. This feature opens up so many doors: the ability to recognize places in the real world, to search for things you want based on what Amazon knows you are interested in, and the ability for Amazon to harness that data for more relevant recommendations.
In effect, the Fire could provide an understanding of the physical world and merchant locations and, when combined with everything else Amazon knows about a user, actually deliver on the promise of “Marketing that consumers find really valuable, not intrusive.” Now imagine that they start pushing you the occasional recommendation when you’re near a physical store. Imagine you can get a reminder for something you have scanned when you’re near a place to buy it, with Amazon taking its cut for driving that real-world transaction. That massively changes the game of mobile marketing.
Rebecca Lieb, an analyst with the Altimeter Group, discussed the real impact of the Fire Phone with the New York Times: “Scan a product or listen to music, and you’re delivered straight to the page on Amazon on which you can purchase it. Impulse shopping just went to a new level.”
Amazon is not in the mobile business, the phone business or the Internet of things business. And while analysts appear divided on the short- and long-term impact of the Fire for Amazon’s overall business model, they should agree on one point: Bezos and Co. are the masters of the commerce business, and the Fire Phone is just one tool that can be used to help it gain its slice of the immense cash flow happening not online, but on Main Street.
I would even go so far as to say that the Fire Phone will be key to the Amazon growth strategy for the next 50 years. Congratulations, Mr. Bezos. Well played. The only thing I am wondering is, Why isn’t the phone free?