Amazon has replied to rumors they would be developing a free smartphone, saying that these rumors are false and the company is not preparing to launch a smartphone any time this year.
The rumor did shock some, since Amazon is known for taking cheap routes into markets and hitting big with software, applications, services and content payments. We do believe Amazon has looked at this strategy, the same way they have with the tablet.
The Kindle Fire was one of the first tablets to really undercut the iPad and this made Amazon, for a time, the second largest provider of tablets behind Samsung, with about 15 – 20% of the tablet marketshare.
Amazon’s CEO Jeff Bezos has said that the cost of the tablet hardware can be undercut to a minimal to make buyers interested and the company can make it back on digital purchases. Bezos does not believe a company should develop a great hardware product, but a great software experience that makes the user want to buy content and use their tablet.
This same move could be applied to the smartphone, we know from spec sheets that most smartphones only cost $150 – 250 to make with all parts included. Amazon may have said the user has to sign a two year Amazon Prime membership to get the smartphone and they would make up the rest with digital purchases on their Kindle Store.
Even though the smartphone idea is apparently not happening, we believe Amazon may try this on the Kindle. If a user gets a free Kindle Fire when they sign a two year Amazon Prime deal, that would be groundbreaking to the market.