Amazon Fire Phone

The Amazon Fire Phone launch tells us that technology's most disruptive company is caught in too minds. The Kindle Fire must be failing, and the Fire Phone starts out on shaky ground.

Amazon last night confirmed the world's worst-kept secret and launched a smartphone. And when Amazon does anything, I watch closely.

This is, after all, the little book store that did big things. A company that went from book reseller to retail giant, to tech hardware maker to publisher and media company. All without turning much of a profit to speak of. All of which leads to a market valuation of around $150bn.

Amazon's founder and CEO Jeff Bezos is, simply, a visionary. He worked out how to sell books online. He then understood that Amazon wasn't a book company, it was a brilliant logistics organisation that could get you stuff the next day. And he also grasped two key truths:

1. People buy more stuff when it is easier to buy than it is not to buy.

2. US tech investors don't need big profits to invest in disruptive businesses.

Hence, Bezos is a rich man and you should pay attention when Amazon launches a new product. It's always interesting, often surprising. Last night was no exception. (See also: Amazon Fire Phone release date, price and specs.)

Amazon: disrupting markets since 1994

The Amazon Kindle popularised ebooks and changed the way millions of people bought- and consumed reading material. In doing so it took a chainsaw to the business of traditional book sellers such as Waterstones and Borders.

And then came the Kindle Fire. The Kindle Fire reversed the business model for tablets. A consumption device of similar physical calibre to the iPad, the Kindle Fire is a tablet that costs very little to buy upfront.

The catch, such as it is, is that you are locked to Amazon's marketplace for books, music, movies and apps. The idea being that in your lifetime of ownership you will generate more profits for Amazon than it cost it to build you your Kindle Fire.

Amazon Fire: a game changer (for Amazon)

What was most interesting about last night's announcement was the way it make clear that the model has now changed.

To recap: Kindle Fire is cheap to buy, and Amazon makes its money from the apps and media you buy. The idea is that the cheapness leads to volume, which is where a low-margin business such as Amazon makes its money.

But the Amazon Fire Phone is actually expensive for a handset with mediocre specs. It's a 4.7in smartphone with what is now a middle-of-the-pack display. The processor and RAM are what you would expect for a high-end smartphone, as are the onboard storage options. There is no expansion slot.

In and of itself the Amazon Fire is not spectacular - but we didn't expect that. We did, however, expect that it would be cheap. But at more than $600 SIM-free, the Amazon Fire Phone is a Galaxy S5/HTC One M8/iPhone 5s-type purchase. This is a mid-range phone priced at the top end of the market.

If you don't believe me, take this analysis from IDC's Francisco Jeronimo: 'The device brings nothing disruptive or particularly innovative to end-users to justify such pricing. This will be a tough sell when compared to devices from the likes of Samsung, Apple or Sony.'

And that could be a problem. If the Fire Phone is not cheap enough to attract casual users, it has to be awesome enough to convert iPhone or Android users. And at first blush it looks like neither.

Here's what Geoff Blaber of CCS Insight has to say: 'Amazon is a low margin business entering an intensely competitive and cost sensitive business in smartphones. To justify that investment and to drive Prime adoption Amazon has to be differentiating through disruption rather than joining the status quo.'

So obviously the device itself is not the point. Not the whole point, at least. (See also: How to get Amazon Fire Phone in the UK.)

Caught between two business models?

Amazon Fire PhoneWith the Fire Phone Amazon is selling not just a phone, but a portable access device to all of Amazon. The ability to purchase what you see in the physical world with a single click. And for that to work Amazon needs lots of manufacturers and vendors to jump on board. And to get them you need a lot of consumers to buy the Amazon Fire Phone - which makes the high-end price seem odd.

At last night's event spent Amazon loads of time talking about how much its customers love its services. It repeatedly stressed that although not many people use Amazon Prime, those that do use it absolutely love it.

It was noticable that in a hall that held only 300 people Amazon made sure a proportion of the audience were Amazon fans, and developers. They devoted a lot of the evening to getting those invited users and developers to talk about how great Amazon is. It felt a little forced.

I think Amazon is slightly confused as to its aims with the Fire Phone. That in turn makes me think it isn't making any money on the Kindle Fire model, and now they are trying to make sure that however many people buy Fire Phone they make a profit from each one. A profit from every customer, regardless of the margins it makes once the hardware is in action.

Francisco Jeronimo puts it better: 'The price of the Fire Phone may also suggest that the business model that Amazon tried on tablets with the Kindle Fire may not be working as expected. By making no money on hardware Amazon was expecting to attract users to their Kindle Fire tablet and profit from selling the content. If that was a success there would be no reason for Amazon not to pursue the same business model today. In fact, it is much more likely that consumers will shop more on Amazon with a smartphone than with a tablet.'

All well and good. Make an expensive phone, sell it for an expensive price. It doesn't need to be the most popular. And as Amazon said last night: it doesn't matter if few people use a product, as long as you make a good profit from each one.

But at the same time Amazon seems desperate to get developers onboard, because all of these sexy paralax and UI features will work only if developers create content for them. And the shopping function requires vendors and manufacturers. This requires Fire Phones to become mass market products with an audience that is attractive to developers and stores. And this itself seems unlikely when the Fire Phone is available from one network, in once country.

But without support from app makers and product vendors you have to wonder just how interested will be the majority of phone users in trading up to a phone that is locked to Amazon.

Fire Phone: flaming star or flipping burn out?

I don't know if the Fire Phone will fail, but I think its announcement tells me that Kindle Fire is failing. And there seems to be a lack of clear vision as to what and who the Fire Phone is for.

I'll give the final word to CCS Insight's Geoff Blaber: 'Amazon has been at the forefront of disruption in the hardware business but this announcement fails to repeat the impact of the Kindle or Kindle Fire tablet. This is contrary to the strategy of pricing hardware at cost to drive retail sales and service adoption – Amazon seems uncharacteristically caught between two business models.'

(See also: The 30 best smartphones: The best phone you can buy in 2014 and Apple won't lose sleep over Amazon's Fire Phone.)

Amazon Fire Phone