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Why Amazon's New 3-D Smartphone Is a Head Scratcher

A look at the prospects of Amazon's latest product before the expected release Wednesday.
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Amazon, a company of seemingly boundless ambition, appears to be venturing into yet another market: smartphones.

The corporate juggernaut that started out with books and soon moved into music, video, cloud computing, and Kindle e-readers is hosting a launch event Wednesday in Seattle, and media reports indicate the product will be an Amazon phone--perhaps one with multiple cameras that can produce 3-D photos.

Amazon declined to comment, but analysts said the goal is almost certainly a device designed to get customers to buy more things from Amazon. It might include an Amazon shopping app or other features tied in tightly to the products the company sells.

"It's Amazon," said Ramon Llamas of the research firm International Data. "That says to me the core value proposition is going to be about shopping." 

Amazon's phone, which will be exclusively available through AT&T, comes at a time when the nation's largest e-commerce company is at a crossroads.

Its stock, which surged for years despite narrow profits, has dropped 18 percent in 2014 to about $326, in part because investors have been losing patience with its habit of plowing revenue back into new ventures.

Analysts said the move into smartphones is a bit of a head scratcher, given that the company is a late entrant into the highly competitive market.

For all its success with other products, Amazon will be hard-pressed to compete with Samsung and Apple, the No. 1 and No. 2 mobile-phone companies, respectively, in the world.

Globally, Samsung led mobile-phone manufacturers with 31 percent of the 288 million units shipped in the first quarter, followed by Apple at 15 percent. In the U.S., Apple dominates with more than 37 percent of the 34 million units shipped, with Samsung at close to 29 percent.

Some analysts have speculated that the 3-D feature might tie into an Amazon shopping app. Shoppers might be able to use the phone to take a 3-D picture of a product in a store, then search for the object on Amazon and buy it online.

Analysts said the phone could also come with a data plan that could let owners use Amazon services without using up any data.

"Anything that generates more repeat orders and more frequent purchases is probably part of what they intend to do with this," said R.W. Baird analyst Colin Sebastian.

To compete, Amazon needs more than an expected 3-D viewing feature, which has been tried before by smartphone makers like HTC and LG, Llamas said.

Competing on price won't help if it leaves people with the impression that the device is cheaply built, and getting customers to buy a phone without being able to touch it first could prove difficult, he said.

"If they sell it only online, as Amazon sells many of its goods and products, that could be a challenge," Llamas said.

Here's a look at the impact Amazon has had in music, video, and other markets it has entered:

BOOKS

Amazon.com started as an online bookstore in 1995 in CEO Jeff Bezos's garage in Bellevue, Washington. As more and more bookstores have closed, Amazon is now believed to be the nation's largest bookseller, with an estimated 30 percent of a total book market that PricewaterhouseCoopers estimates hit $34.9 billion last year, and 60 percent of an ebook market that PwC pegged at $7.9 billion.

Mike Shatzkin, founder and CEO of book-industry consultancy The Idea Logical Co., said book publishers view Amazon with "a mixture of dependence and fear."

"They can't live without Amazon's sales, and they can't live with Amazon's market power," he said.

MUSIC

Amazon is a major player in music. It has sold compact discs by mail since 1998 and digital downloads since 2007.

Russ Crupnick, managing partner of consulting company MusicWatch, pegs Amazon's share at 18 percent of the $2.8 billion digital download market in the U.S. last year and 23 percent of the $2.1 billion market for CDs. In comparison, Apple's iTunes commands about 67 percent of digital downloads and doesn't sell CDs. Amazon is the only competitor to Apple of any real size.

Amazon last week launched a music streaming service that makes more than one million tracks available to members of its $99-a-year Amazon Prime subscription plan.

TABLETS

Amazon took over the ebook market soon after its first Kindle was launched in 2007. It took a big step by introducing its full-color Kindle Fire tablet in 2011, with a price starting at $199 and a screen just 7 inches diagonally.

"At the time, none of the other vendors had something similar," said Jitesh Ubrani, an IDC analyst.

But since then, others have matched the size and price, especially Samsung, which has made big gains. Amazon's share of global shipments has slid from more than 7 percent in 2012 to 2 percent in the first quarter of the year.

"Other vendors have cheaper, better products," Ubrani said.

MOVIES AND TV SHOWS

Amazon is a large retailer of DVDs and Blu-ray discs and also offers online rentals and purchases of digital video products.

Amazon has 15 percent of the $1.8 billion U.S. market for movie and TV show rentals and downloads, trailing Apple's 58 percent, according to Dan Cryan, an analyst with market research firm IHS.

As for subscription video streaming, Cryan estimates Amazon accounted for 15 percent of the 43.6 million active U.S. subscribers of streaming video plans through its Prime Instant Video service. Netflix accounted for 73 percent of active streaming subscribers, while Hulu Plus had 12 percent.

CLOUD SERVICES

Amazon essentially created the marketplace for what is known as cloud infrastructure as a service in 2006 with Amazon Web Services. That is where it allows its servers to be used by third parties to host the data and applications they need to run mobile apps, websites, and other services.

As the overwhelming market leader, Amazon maintains five times the computing capacity of the next 14 service providers combined, according to Gartner analyst Lydia Leong. Amazon is aggressive with price cuts and innovation, which will probably keep competitors like Microsoft from catching up for years, Leong said.

OVERALL RETAIL

Amazon sold $40.8 billion worth of goods in North America last year. That's 17 percent of all e-commerce, according to Anne Zybowski, vice president of retail insights at research firm Kantar Retail.

--Associated Press

Last updated: Jun 18, 2014




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