One thing is clear about Jeff Bezos. He means business. Amazon Web Services went from a side-project to the most important service in one of the most important areas of technology, cloud computing. Amazon Prime Instant Video went from a nice add-on with reruns of old shows to a serious Netflix competitor, complete with original content and, now, HBO shows. And Kindle went from an expensive e-book reader to a family of devices and services designed to keep us locked into Amazon's ecosystem -- most recently with a new TV box.
Given all this, it's almost certain that Amazon will release a smartphone at some point. It's definitely working on one.
What makes this a beguiling possibility is that Jeff Bezos always seems to pull an rabbit out of his hat. Amazon sometimes copies other companies straight-up, but that seems to be the exception, rather than the rule. As Bezos himself put it, while Amazon pays attention to what other companies are doing and sometimes decides to follow them, it likes to put its own “spin” on it.
So when Amazon came out with its own tablet, it didn't just come out with yet another iPad knockoff. Not only did the tablet have its own platform, but it also came at a very aggressive price point and came bundled with Amazon products and services, including an Amazon Prime trial.
So if and when Amazon does come out with its own smartphone, we can expect to be surprised.
Let's start by asking what we know about what Amazon does when it introduces new devices.
First, and most important, it competes on price. Amazon sells its devices at cost, or even below cost, and tries to make up the money through content, services and ecommerce sales.
Second, the goal of Amazon with its devices is to pull you into its ecosystem of commerce, digital content and, increasingly, services.
So, what would I do if I were Jeff Bezos?
My smartphones would be dirt-cheap. Amazon can't compete with Apple and Samsung on design and the cool factor, although the recently rumored "tilt" feature would be unique. The target market would be cash-strapped teens, not hipsters and wealthy people.
One radical -- and therefore very Amazon-like -- way to make a really cheap smartphone would be for Amazon to become an MVNO. Not just offer the phone at cost, but also mobile service at cost. That would make the phone dirt-cheap compared with just about every other smartphone out there.
But, how would Amazon make money on this? This is where the truly radical idea comes in.
Amazon's phone wouldn't just run Android, it would run Amazon's own forked version of Android. One way for Amazon to make money from these phones would be to not just own the phone and the network and the mobile platform, but also the apps.
Not all the apps. But the money makers. The texting apps (with premium-priced smileys and other virtual goods). The casual games games with their countless micro-transactions -- after all, Amazon owns a game studio now, Double Helix, and it could knock off the most successful mobile games. The default mobile commerce app, perhaps connected to the long-rumored in-store payment system powered by GoPago, which Amazon bought last December.
There would be third-party apps too, of course. But Amazon's own apps would come pre-loaded and would be eavily promoted in the phone's app store.
Amazon would take the usual 30% cut on all third-party transactions. And -- why not? -- even sell all of the ads on its device.
Put all of these together, and it represents at least several hundred million dollars of high-margin revenue. That's a drop in the bucket for now, but may be enough to subsidize a phone-plus-service-plus-services package offering at a very attractive price, which would a self-reinforcing dynamic: The cheaper the phones are, the more people wbuy them; the more people buy them, the more they use them; the more they use them, the more money Amazon makes, which lets it lower prices even further. (Remember, when Amazon makes money, it always passes it on to the consumer -- the company has carefully managed its profit margin to keep it close to zero even as its revenue has skyrocketed.)
That would be a very Amazon-like offering: Basic, different, very ambitious, and all about competing on price and drawing people into its Kindle ecosystem.
It's just speculation, of course. But it would be fun to see.