In June 2014, Amazon unveiled the Fire Phone as its first foray into smartphones after seeing tremendous success with Kindle e-readers and Fire tablets. Priced at $649, it boasted cutting-edge hardware on par with leading Android and iOS devices. But unique differentiators like its Dynamic Perspective 3D display, Firefly shopping features, and Mayday video support couldn‘t make up for fundamental flaws in product, pricing, and partnership strategy. Just over a year later in August 2015, the Fire Phone was discontinued and pulled from shelves after lackluster adoption. So what went so wrong? Industry experts and insiders have pieced together a comprehensive autopsy of the Fire Phone failure.
The Smartphone Market Landscape in 2014
To understand the competitive environment the Fire Phone sought to infiltrate, it‘s instructive to examine the smartphone industry landscape in 2014:
| Platform | Market Share |
|---|---|
| Android | 84.7% |
| iOS | 11.7% |
| Windows Phone | 2.5% |
| Blackberry | 0.5% |
As evident from Android and iOS combining for over 96% market share, new entrants faced steep uphill battle. The dominance of Samsung, LG, Motorola on Android and Apple‘s venerable iPhone presented little room for other players.
Average selling price (ASP) of smartphones further created challenges:
| Year | Global ASP |
|---|---|
| 2014 | $297 |
| 2015 | $299 |
| 2016 | $309 |
With most flagship phones priced between $650-$950 unsubsidized, consumers were conditioned to heavily discounted prices of $199 with 2-year carrier contracts and installment plans. Most OEMs had razor thin margins as a result, making profits almost solely from accessory and services revenue.
So Amazon pursuing an unsubsidized strategy was unprecedented, as Industry analyst Ben Bajarin notes:
"Amazon’s entry into the smartphone space with an unsubsidized model was doomed from the start. The market has too many established players with hardware subsidization models unlikely to be disrupted by an unproven player."
Previous disasters like the Facebook phone in 2013 and Microsoft‘s Nokia acquisition should have further convinced Amazon not to take the plunge.
Technical Capabilities – Unrealized Potential
On paper, the Fire Phone checked all boxes to compete spec-wise with the latest iPhone and Android flagships:
| Specification | Fire Phone | Notes |
|---|---|---|
| Display | 4.7" IPS LCD 720p | Lower resolution than competition |
| Processor | Snapdragon 800 2.3 GHz | Top-tier chipset for 2014 |
| RAM | 2GB | Standard for flagship phones |
| Cameras | 13MP rear / 2.1MP front | Higher megapixels but poor optimization |
| Battery | 2400 mAh | Mediocre battery life |
But its differentiated features like Dynamic Perspective and Firefly proved more gimmicky than game-changing in practice:
| Feature | Intended Purpose | Execution |
|---|---|---|
| Dynamic Perspective | Immersive 3D display | Novelty wore off quick with little utility |
| Firefly | Instant Amazon purchases | Needed more mature computer vision technology |
| Mayday | Direct video tech support | Useful but couldn‘t justify $650 price point alone |
And its heavy customization of Android alienated app developers:
“Forking Android like Amazon did removes device from Android ecosystem and all the work developers put into making their apps work with Android. Why spend extra resources when tiny user base?"
Without key Google services like Gmail, Maps, and Google Play Store, the Fire OS couldn‘t match iOS or Android in app selection and quality.
Botched Business Strategy
In retrospect, analysts saw major faults in Amazon‘s overall strategic product planning and market positioning:
"The Fire Phone represented a break from Amazon‘s historically iterative and analytics-driven approach to new products. Prior hardware like Kindle readers and tablets were built ground up based on user feedback and testing. But Fire Phone seemed to be executive-mandated push without sufficient validation."
There was also a significant overestimation of brand loyalty and platform lock-in:
"Our surveys showed only 17% of Kindle Fire tablet owners were ‘very likely‘ to purchase a Fire Phone. Too much assumption that success of Kindle and Prime program would directly translate."
And a failure to effectively leverage Amazon‘s most valuable asset – its services:
"Core value proposition for consumers still came from access to Amazon‘s retail, video, books, and music. But smartphone space should have focused on developing best-in-class mobile apps, not unnecessary hardware."
This absolutely scathing analysis perfectly highlights the key shortcomings Amazon exhibited.
Nightmare Launch Compounding Factors
If flaws in product design philosophy and positioning weren‘t enough to doom the Fire Phone‘s fate, the disastrous launch sealed it:
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AT&T Exclusivity: Immediately limited addressable market by excluding Verizon, T-Mobile, and Sprint customers. Made promotions near impossible without carrier partnership.
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Prime Bundling: Free year of Prime membership wasn‘t enough incentive and signified desperation while diluting Prime‘s perceived standalone value.
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Inventory: $83 million in unsold phones even after $170M quarterly writedown showcased terrible demand forecasting models.
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Price Drops: Quick price cuts from $649 to $449 to $199 reeked of panic and destroyed resale value.
One could argue eliminating any one of these strategic blunders could have salvaged a mediocre product. But the combination torpedoed Recovery further exacerbated the Fire Phone before it had any change to catch fire (pun intended).
Key Takeaways
The Fire Phone serves as a classic case study in product failure and losing sight of competitive realities. Amazon fundamentally misunderstood consumer priorities, its own core strengths, and industry barriers to entry. Rather than iterating on its services and apps, it rushed a lackluster hardware offering no one asked for. Hubris and executive fiat can‘t compensate for fundamental flaws in strategy and execution across pricing, promotion, positioning, and partnerships. This wasn‘t disruption; it was a disruption…of Amazon‘s own making.
Other tech giants thinking of entering smartphones would be wise to learn from Amazon‘s missteps. Ultimately consumers don‘t make platform choices based primarily on device specs and slick demos. They care about seamless connectivity with their digital lives across apps for information, communication, entertainment, productivity, and more. They care about flexibility in carriers, trade-in programs, and financing options. And they care about social signaling – friends, family, and colleagues that validate and recommend choices. Amazon forgot these simple truths and paid the price.
