Amazon smartphone strategy: don’t care about making a profit -just want marketshare

[EbookReader]

http://gigaom.com/2013/09/03/why-i-think-the-7-2-billion-microsoft-nokia-deal-is-a-terrible-idea/

Oh, by the way, there is that other Seattle-based company: Amazon has been quietly working on its own phones and has plans to take on the current smartphone establishment. And they don’t even care about making a profit — they just want marketshare.

Amazon will likely duplicate Xiaomi strategy that has brought its wild success in China (20 millions smartphone to be sold in 2013) and $10 billion valuation. This for a company began selling phone less than 2 years ago.

http://techcrunch.com/2013/08/28/xiaomi-what-americans-need-to-know/

The company only started selling smartphones in October 2011, but it recently raised its sales target for 2013 to 20 million smartphones, up from its previous 15 million goal.

According to analytics firm TrendForce, Xiaomi is able to offer great hardware at a low cost because it shows off its products early (allowing time for components to get cheaper); it controls inventory by having customers pre-order phones en masse through its website (so it’s not left sitting with a bunch of unsold devices); and it relies on social media for marketing, so it doesn’t need a billion-dollar ad budget like Samsung, Apple, or HTC.

http://www.theverge.com/2013/8/29/4672668/what-is-xiaomi-china-smartphone-hugo-barra-android

What separates Xiaomi from other smartphone manufacturers, and makes the comparison to Apple tenuous at best, is its strategy of selling high-end smartphones at cost, with virtually no profit margins.

Co-founder Bin Lin explained to All Things D earlier this year, "We essentially price our phones at bill-of-materials." The Xiaomi Phone 2S, its most recent flagship, has top end specs competitive with the Samsung Galaxy S4 or HTC One. It sells for a bargain price of ¥2,299 (roughly $370) — roughly half of what the Samsung Galaxy S4 is priced at.

He also says the company has no marketing budget, doesn’t have to account for markups from resellers, and has no sales team.

European market has been moving toward "no subsidy" model.

In the USA, T-Mobile has already switched from subsidy model to a "financing model."


http://gigaom.com/2013/03/18/european-carriers-are-moving-away-from-handset-subsidies-analysts-find/

according to new research from Informa Telecoms & Media, almost 30 operators there have already dropped handset subsidies for some or most customers.

Amazon can use Xiaomi strategy of "no marketing budget, sell it straight from Amazon.com only (no markups from resellers/physical stores). Price it a break-even.

A $199 break-even no contract phone made by Amazon will have pretty decent specs.


It's just a matter of WHEN not IF when Amazon launches its first phone. kphone perhaps?

 

[kdarling]

Not to take away from the Amazon comments, but as far as the idea that Xiaomi makes nothing on their phones...

“Our flagship phone (the Xiaomi MI-2) has a lot of the same specs you’d see in high-end Samsung and HTC phones,” Lin said. “It’s got the same processor that Samsung uses in the Galaxy S4. But it costs about half as much. … We essentially price our phones at bill-of-materials.” - Xiaomi cofounder

That was their original plan. The founders were billionaires already and were okay with breaking even on hardware, whilst making money on software. However, hardware costs kept dropping...

What separates Xiaomi from other smartphone manufacturers, and makes the comparison to Apple tenuous at best, is its strategy of selling high-end smartphones at cost, with virtually no profit margins. - The Verge

That's their public sales pitch, but at the low end, their Red Rice model sells for $130, with a BOM of $85. That's a 35% gross profit margin over BOM.

Their high end model sells for $370 with a build cost of probably $240 (my estimate), also a 35% gross profit margin over BOM.

Fellow Chinese phone makers have come out and said that Xiaomi is actually making pretty good money. Some have estimated that adding in all the manufacturing costs, Xiaomi is making a gross profit of 20% to 30% per phone.

A $199 break-even no contract phone made by Amazon will have pretty decent specs.

Yep. Right now, a $199 break-even phone could be a nice upper mid-range device.

 

[blitzer09x87]

when you dont care about the profit, that's when the best things happen.
you go over the limit, you bring those tech pieces which the competition had planned for the future, all you do is listen to the consumers and then bring out the "perfect product".

great strategy by amazon, i hope to see some great tech from them.

 

[aristobrat]

when you dont care about the profit, that's when the best things happen.

My guess is that like Google, Amazon plans to make their money/profit by pushing people to use their services. With that model, they can sell the phone as a loss leader, but ultimately, I do think they care about profit.

 

[EbookReader]

My guess is that like Google, Amazon plans to make their money/profit by pushing people to use their services. With that model, they can sell the phone as a loss leader, but ultimately, I do think they care about profit.

if you sell it at break-even, it won't be a loss leader.

For example: Cost $180 to make. Sell it for $199 with the aim of break-even. The $19 leeway will take care of returns, warranty, customer service, warehouse etc...

The profits will come from the services: apps, digital music, digital movie, ebooks sold.

Selling physical CD, DVD/Blu-Ray, and physical books are a large part of Amazon business. And they know that these media are switching to digital. They don't want Google/Apple to take away Amazon customers who are used to buy media on Amazon.com

That's the main reason why it's certain that Amazon will sell a smartphone. Their tablet strategy was based on this (selling digital movies, digital music, ebook and apps).

 

[EbookReader]

Amazon strategy: break-even on hardware, makes profit on services from hardware

Interesting article about how Apple can be disrupted by companies who goal is to break-even on hardware with the aim of making money from services

http://stratechery.com/2013/if-apple-is-disrupted-will-we-blame-tim-cook/
IF APPLE IS DISRUPTED, WILL WE BLAME TIM COOK?

 

[EbookReader]

http://stream.wsj.com/story/gadget-wars/SS-2-51456/SS-2-319426/
Amazon.com considering offering a free smartphone

 

[ElectronGuru]

And they don’t even care about making a profit — they just want growth

Fixed that for you. Amazon's customers aren't the people who buy their products/services. They sell just about everything at cost, and take loss after loss on the shipping. All this is subsidized by their real customers - investors who care only about growth. Pay for things by selling stock and you can provide twice the service for half the price.

 

[Kashsystems]

Their high end model sells for $370 with a build cost of probably $240 (my estimate), also a 35% gross profit margin over BOM.

People tend to forget R & D, labor costs, operation costs. It is quite possible they are breaking even at that price.

 

[2298754]

I think Amazon can pull this off. They'll rely on Amazon services to make money. Not to mention, Amazon is pretty set when it comes to $$$.

 

[MRSucks]

(Lame) Kindle Fire smartphone (with it's meh ecosystem and endless marketing). Pass.

 

[MRU]

Amazon have come out and killed this rumor. No phone in 2013 and certainly if they do release a phone, they say it won't be free.....