Kindle Phone Strategy – What Kindle Phone will Amazon release?

Rumors of a Kindle Phone have been circulating for over a year now. Releasing a Kindle Phone is a move that makes a lot of sense for Amazon. It can reach a lot more customers, it can sell them music and movies and games, it can sell them data plans, it can get them enrolled in Amazon Prime, it can sell Kindle Phones to its existing customers, it can strengthen its relationship with its customers.

With eInk Kindles and Kindle Tablets, Amazon has been polishing its hardware skills (perhaps not as much as we’d like). With a Kindle Phone it would go into what is perhaps the most profitable customer device business right now. Apple and Samsung have 57% and 43% of the profits right now (everyone else is negative) and it translates into $1 to $2 billion a month in profits for each.

That’s just a massive amount of money.

The huge profit opportunity creates an interesting quandary for Amazon -

1. Should Amazon release a highly profitable, high-end Kindle Phone that might, conceivably, generate $1 billion a month in profits for Amazon?
2. Should Amazon stay true to its DNA and release a barely profitable (or perhaps even loss-creating) Kindle Phone, that gathers a lot of customers for the Amazon ecosystem, and makes no profits?

Side Note: It would be truly epic if Amazon were able to create a loss-leader business in a smart phone market where Apple and Samsung are making $1 billion to $2 billion a month in profits each.

Amazon’s profits last year were – $676 million of operating income, $39 million of net loss. When you look at that, it’s easy to understand the temptation Amazon will face -

Let’s go into this market where Apple and Samsung are making $1 to $2 billion a month each from smart phone profits. Let’s blow it up. We might not make $1 billion a month in profits from it, but we’ll gather a lot of customers. As a side bonus, we’ll cut into Apple and Samsung’s profits.

Will Amazon be able to resist the temptation to destroy all that profit? Or will it finally focus on profits and capture some part of the immense profit available in the smart phone market?

What Kindle Phone will Amazon release?

Will Amazon release a Profits-Focused Kindle Phone?

Perhaps Amazon decides $1 billion to $2 billion a month in profits isn’t a bad thing. That God isn’t going to strike Jeff Bezos with lightning for embracing instant gratification.

Think of all the good Amazon can do with a Profits-Focused Kindle Phone -

1. Push things forward in a big way. Motivate Apple and Samsung to up their game.
2. Generate Profits. A lot of profits. Every single month. Actual profits – not just the promise of profits at some unknown time in the next few decades.
3. Make something beautiful. It must be painful to make device after device that looks like it was designed by the same people who designed that matchbox of a car (the name escapes me).
4. Get high-end customers. Customers who can afford a high-end phone and, this might come as a surprise, who have more money to spend. They will spend more money with Amazon if they buy a Kindle Phone. Surely, that has to motivate Amazon.
5. Make something that’s really, really good. Polished, smooth, easy to use software. High quality, beautiful, durable hardware. Even spending $50 to $100 more per phone on hardware and software improvements would result in a massively improved Kindle Phone.
6. Reach a lot of people who don’t really think of Amazon when they are looking for a device.
7. Fill some of the gaps that are beginning to show up as Apple gets ‘Designered’ to death by Jonathan Ive. His design sense makes me wonder if he grew up in one of those fancy British castles with embellishments and tapestry and paintings everywhere. Now he just wants to ‘simplify’ and ‘flatten’ and ’round’ everything to escape from the demons of his childhood (please … please … no more trays laden with 11 types of scones and 7 types of butter knives). This is actually a really, really big opportunity. After Steve Jobs’ death both Apple and Samsung are devoid of inspiration and innovation (both iOS7 and Samsung Galaxy S4 are emblematic of this). Anyone who gambles and releases a really beautiful phone can walk away with a lot of the profits in the high-end phone market. When there is a void – someone fills it. Why not Amazon?
8. Build a Cash Cow. Surely, it must grate on Amazon’s nerves that it’s the only big technology company that doesn’t have a cash cow. Forget its DNA spliced mutant Pig-Cow-Buffalo that will start delivering milk and Bavarian sausages and Bison Burgers in 27 years. There’s need for a cash cow right now.
9. Excitement. So many boring product releases from Amazon. Who wants to sit through another announcement where the highlight is a 25% improvement in screen contrast. Give us something we can see and touch and feel. Not something that has to be pointed out to be noticed.

So many years of putting customer acquisition before profits. So many years of toiling away for the promise of something better in the distant future. So many years of making cheaper and cheaper things to get more and more customers.

There must be a part of Amazon that wants to make something beautiful and profitable and something that is ‘the best’. It’s only human to want to make something beautiful. How can anyone be happy making second-rate violins when you could be Antonio Stradivari or Giuseppe Guarneri?

Unfortunately, I fear that Amazon is scared of taking up the challenge. That it is happy to slave away at making inexpensive devices that have no significance beyond customer acquisition. Customers who might not generate profits and customers who might never experience the highest levels of satisfaction with their devices. It’s all just a numbers game.

Hopefully it proves me wrong and releases a state-of-the-art Kindle Phone 3D with Gesture Tracking and Holographic 3D displays in a package that makes people happy, and not just when looking at the price.

Will Amazon release an ‘Allergic to Profits’ Kindle Phone?

Perhaps Amazon just can’t fight its DNA. Amazon starts off on Kindle Phone and its ‘Allergic to Profits’ DNA latches on to Amazon like a baby Alien latches on to a careless space marine.

This is perhaps the thought process that Amazon will go through when making Kindle Phone -

1. Let’s make the absolute best Kindle phone that we can make. But … what about the 6713 million people who would not be able to afford it.
2. OK, let’s make a really, really good Kindle Phone. But … what about the 5817 million people who can’t afford that. They are all potential customers, no?
3. Well, let’s make a very good Kindle Phone. But … what about the 3872 million people who can’t afford that. We are losing so much imaginary potential revenue. The pain. The pain.
4. OK, let’s make a good Kindle Phone. I regret to say there are still 3154 million people we can’t acquire as customers. Let’s make a Kindle Simple Phone for them. Yay! What an idea!

So it goes from ‘The Absolute Best Smart Phone that money can buy’ to ‘The Smart Phone that the Absolute Most people can buy’.

It’s a subtle difference … well, not really. It’s as subtle as dropping a hammer on your foot.

That is probably what will happen. Amazon won’t be able to stop thinking of the hundreds of millions of people who need to be able to afford Kindle Phone. It will, therefore, deliver a phone that is precisely that – a device meant to easily acquire hundreds of millions of customers.

That means we get some sacrifices -

1. You put in a processor that’s not quite cutting edge. Because $25 extra is too high a price for a silky smooth interface. We’ll just call the browser Silky Smooth and people won’t notice the difference (that Psychology 101 course sure comes in handy).
2. You put in 1 GB of RAM instead of 2 GB. A phone doesn’t really need 2 GB anyways. Hey, perhaps we can save another $5 and get down to 512 MB.
3. Screen. Do we use the 350 ppi $100 screen or the 190 ppi $35 screen? People can’t even see beyond 200 pixels. Easy decision.
4. SD Card slot. Why? They will buy less from Amazon. Let everything stay in the clouds.
5. 8 GB memory or 16 GB? Well, it’s an opportunity to save $20.
6. Aluminium or Plastic or Cardboard. What is that you say – Cardboard won’t work. That’s unfortunate. We have a ton of empty cardboard boxes from returns we could use. Plastic it is – Aluminium is too shiny. We don’t want crows and ravens running off with people’s Kindle Phones.
7. Spending money and time on polishing the hardware? But what about our design signature - boxy and sturdy and unsexy? It’s like bed-hair – it’s best when you don’t touch it much at all.

It’s death by a thousand price-saving cuts.

Of course, you do the get the ultimate customer acquisition device – a cheap Kindle Phone that has enough features to attract, but not enough quality or polish to thrill.

Will Amazon release both – a Profits-Focused high-end Kindle Phone AND a lots-of-compromises Kindle Phone Cheap Edition that targets the low-end market?

This might be the most interesting strategy.

Note: We do not mean the type of nonsense Amazon tried to pull off with the Kindle Fire HD LTE - where it added a LTE chip and priced a $299 tablet at $499. We mean an ACTUAL high-end Kindle Phone.

Here, Amazon would say -

1. We have a huge chunk of our customers who expect us to take losses and/or make zero profits on device sales. Let’s cater to them with a slightly cheaper Kindle Phone. It’ll be impressive and pack a lot for the price. However, it won’t be high-end.
2. We have a market that is helping Samsung and Apple make $1 to $2 billion a month in profits each. Let’s target that market using a high-end Kindle Phone built with zero compromises and built with the belief that ’the device sale is the only thing we care about’. None of the advertising stuff that people who buy low-priced stuff are OK with. High-end customers don’t want subsidies - they just want quality.

This would, obviously, be much tougher than the earlier two options. However, it has several important benefits -

1. Amazon can target both the high-end and the low-end markets. This is something that should not be under-estimated. A lot of the device profits are in the high-end. A significant portion of the ongoing revenues (though not necessarily profits) are in the low-end.
2. Amazon can actually build a profit stream using the high-end Kindle Phone. It’ll be a shock to Amazon (and to everyone else), but it’ll be well worth it. Imagine that - a company used to making next to zero profits making a billion dollars in profit each month.
3. With the low-end Kindle Phone Cheap Edition, Amazon can continue its DNA-dictated policy of taking losses up-front for the promise of future profits, which can then promptly be ploughed back into other ‘taking losses up-front’ businesses.
4. Amazon doesn’t know which will work. Perhaps Amazon finds that it’s better suited to the low-end of the phone market. Perhaps it finds that the high-end market is a lot more promising than it realized, and that it can play with the big boys.
5. It means more customers. There’s no reason to leave out people who are willing to pay a large amount up-front. Ignoring those customers is just wrong.

Perhaps it’s time for Amazon to explore more high-end businesses. Focus more on profit-generating customers. Focus more on customers who generate profits from the get-go.

It might be time for Amazon to focus on Profits

Amazon seems intent on entering the smart phone market with Kindle Phone. It would be entering at a time when the smart phone market has shown it can generate an incredible amount of profits – not just for Apple and Samsung, but also for wireless carriers and also for anyone who can deliver the hot new smart phone.

Amazon has an opportunity to tap into the billions of dollars of monthly profits the smart phone business is generating for smart phone makers. It can focus on profits and make a lot of money. It’s a market that has shown it can support multiple winners. Amazon doesn’t have to take losses. Amazon doesn’t have to spurn profits. Amazon doesn’t have to attack Apple or Samsung on price.

Amazon has a market where it can profit greatly. Let’s hope it focuses on Profits.

At some deep level, Amazon seems to not really understand that people who can generate profits up-front are LIKELIER to generate profits down the line. It has this belief that it can attract people who want cheap and free and then miraculously transform them into profit centers. Well, after 15-20 years of fighting reality, perhaps it should embrace reality.

If Amazon is courageous, and makes an excellent high-end Kindle Phone, it might be surprised by what it finds. While it’s harder to sell high-end devices that aren’t sold at a loss, it results in customers who generate a lot more profits. As a bonus, they generate profits both at first sale and afterwards.