The smartphone industry may produce gleaming marvels of modern technology, but it is also ruled by the law of the jungle. Amazon has learned this the hard way. Its Fire phone range, unveiled to such fanfare in June, has been completely mauled by the competition.
During a conference call about its latest earnings report, Amazon announced that it would be preemptively recording a $170-million loss related to the Fire phone. The company also admitted that $83-million worth of unsold phones are currently sitting in storage. As the chief executive of AT&T tweeted: “Oops.”
Amazon is famously secretive. It usually only discloses the minimum details required by law. But its leadership must have decided that a flop this big was not worth trying to hide. In an interview with Fortune Amazon’s Senior Vice President of Devices, David Limp, blamed the phone’s high price point for the flop.
He has a point. Most commentators (including me) thought that $650 (or $200 with a contract) was too much for a handset that didn’t really have anything special going for it. That fact that Amazon has now dropped the price to 99 cents (on contract) may help sell a few more. But the Fire phone has drawbacks apart from price.
Existing customers are clearly disappointed with their Fire phones. Their thousands of reviews give the phone an average of just 2.3 stars out of 5. More than half the reviewers give the handset 1 star. Even some positive reviewers are now angry about the sudden drop in price.
Their complaints echo the critics’ predictions when the phone was launched: the number of apps is very limited, the bespoke operating system is buggy, the design is bland, the hardware is average. Reviewers describe trying to show off their new phones to their friends only to have them freeze or behave strangely.
But Amazon, true to form, is undeterred by the failure. Limp confirmed that the company will not abandon the smartphone market: “We are going to keep iterating software features to get it better and better. Each release that we’re doing, we’re learning.”
Amazon is used to playing the long game. It subsidised the e-reader market for years before it eventually took off. Critics mocked the first Kindle readers when they came out, and declared them dead in the water. Now Kindles account for 20% of all books sold in the United States.
But the smartphone market is not the e-reader market. Amazon has entered the fight late against bigger, more focused and more aggressive opponents. Apple and Samsung Electronics rule this turf. Other players like Blackberry and Nokia are barely hanging on to survival.
Amazon may still be able to salvage some pride and spend its way into the market in the same way that Microsoft is currently doing. But the chances of it taking the alpha male position are zero, and the chances of it losing a lot more money are high. Turning tail goes against everything that the company stands for, but it may be the most sensible thing to do.