It’s been about three-weeks since Amazon unveiled its first smartphone to the world: the Fire Phone. Now the dust has settled it’s possible to try and understand exactly what Amazon is trying to achieve with the Fire Phone pricing.
Some commentators have criticised the company for not doing what it’s done in the past with the Kindle and Kindle Fire – sell at an incredibly low price to sell as many devices as possible and make money selling content. Admittedly, that was what I was expecting before the announcement.
However, when you look at what the device actually does it becomes much clearer why this isn’t a device being sold cheap. A feature Amazon took time to talk about during the announcement was Firefly. The technology allows you to use the phone’s camera to identify literally millions of different objects. Once identified you can then very simply purchase them from Amazon. It’s this feature which hints at the Amazon’s strategy – the whole purpose of the Fire Phone is to get users to buy more goods from Amazon and bring them ever more into the Amazon ecosystem.
So what does this mean for the Fire Phone price? Or put another way: why isn’t it cheap? Surely the more people who use this phone the better for Amazon? Possibly not.
For the answer you need only look at IBM’s latest report into mobile shopping. The report shows shopping via a mobile device to be growing at a fast pace and beginning to account for a significant chunk of total online spending. The IBM report details that the average online transaction in the U.S. is worth $132. This compares to $124 for tablet users and $108 for smartphone users. And here’s the nugget that we’re looking for: users of Apple’s devices outspent Android users by 37% in November 2013. Why? Well users of Apple’s devices tend to be wealthier quite typically because Apple prices its devices much higher than competing Android devices. And for that reason they have more money to spend.
And that’s why the Fire Phone price isn’t as cheap as other Amazon devices. It needs to sell the device to people who then have the disposable income to buy goods from the company through the phone. Selling the device at cost would most likely sell more devices, but if Amazon’s strategy is for users to then buy goods from the company via the phone then this would be unlikely to happen if those users have a lower level of disposable income.