) has unveiled its long-rumored Fire smartphone with some
distinguishing features. The phone's key features include Dynamic
Perspective and Firefly. The former uses sensors to enable the
smartphone to respond to the way it is held and viewed, while the
latter is a ground breaking technology that recognizes objects and
information including products, bar codes, music, videos, phone
numbers and web addresses. While this gives Amazon an edge over the
other smartphones in the market, there are some shortcomings too.
The underdeveloped app ecosystem with the inability to use some of
the most famous apps such as Google maps is likely to hamper user
experience. In addition, the high price point of $649 doesn't go
well with Amazon's image as a price competitive retailer.
Nevertheless, we believe that the company can develop Fire
smartphone as a competitive product overtime, which will not only
add to its margins but also help it drive its online sales.
Our price estimate for Amazon stands at $341
, implying a premium of about 5% to the market.
See our complete analysis for Amazon
How Fire Smartphone Can Help Amazon
Amazon clearly wants to sell as much digital content as possible
given the consumer shift to Internet for media and entertainment.
To do so, it not only needs to enhance its digital video and audio
library, but also open up as many marketing and distribution
channels as possible. Selling Amazon devices will help the company
establish a strong customer base overtime, wherein it will have the
ability to market and sell new digital products instantly to owners
of the Fire smartphone, Kindle Fire tablet and Fire TV.
Additionally, having Fire smartphones is an expansion of the
distribution channel for the online retailer. Firefly can help
customers identify products in the physical world and potentially
buy the same on Amazon at discounted prices. In a way, this feature
enhances the phenomenon of showrooming.
We believe that Amazon's agenda behind Fire smartphone also
includes enhancing its margins. Considering that the company's
EBITDA margins (earnings before interest, taxes, depreciation and
amortization) are extremely thin, selling a relatively high margin
product will notably impact the bottomline. Amazon had
237 million active customer accounts
at the end of 2013. If the company is able to sell its new
smartphone to even 20% of these customers over the next 6 to 7
years, it will add $9 billion in cumulative EBITDA, which will
account for roughly 10% of total cumulative EBITDA during this time
frame. This assumes EBITDA margin of roughly 30% for Fire
smartphone, which is notably lower than what we estimate for
Fire TV Is A Similar Attempt
Earlier this year, Amazon launched a media streaming device
called Fire TV, which will directly compete with other set-top
boxes in the market such as Apple TV and Roku 3. Fire TV will
include over 24 channels and allow users to stream video from
Amazon, Netflix (
), Hulu, Youtube and some other outlets. Additionally, customers
can buy gaming remotely and play games offered by Amazon. Looking
at the features, it is easy to notice that the new device lags
behind its competitors in some ways, but exceeds them in others.
The adoption is likely to be mixed, as there is neither a clear
competitive advantage nor a clear disadvantage. Without a doubt,
this is another one of Amazon's attempts to push sales of its
digital content. The company has also been marketing its Kindle
devices, including e-reader and tablet.
At just under $100, Amazon's Fire TV is priced exactly the same
as Apple TV and Roku 3. However, it boasts of a gaming pad that can
be bought for an additional $40, a faster processor and more
memory. Compared to Apple's 2 GHz single core processor and Roku
3′s 900 MHz dual-core processor, Fire TV comes packed with 1.7 GHz
quad core processor and GPU. This gives it a strong advantage in
terms of navigation and processing, and the overall user experience
is better, as expressed by a user in a review on Time.
Additionally, Fire TV comes with voice search feature which is
something that sets it apart from Apple TV. However, the voice
search results include only Amazon's listings while ignoring other
applications such as Netflix. There appears to be some bias here
which could put off some prospective customers. Amazon will also
lose out on many Apple customers who may prefer to sync their iOS
devices to Apple TV as Fire TV offers such support only for Kindle
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