The Kindle smartphone is a game changer – But not as you think

1 year ago

Yesterday Amazon launched its new Kindle Fire smartphone.

“Ho-hum” you, and a lot of other people, said.  “Why?”  “What’s so great about this phone?”

The market is dominated by Apple and Samsung, to the point we no longer care about Blackberry – and have pretty much forgotten about all the money spent by Microsoft to buy Nokia and launch Windows 8.  The world doesn’t much need a new smartphone maker – as we’ve seen with the lack of excitement around Google/Motorola’s product launches.  And, despite some gee-whiz 3D camera and screen effects, nobody thinks Amazon has any breakthrough technology here.

But that would be completely missing the point.  Amazon probably isn’t even thinking of competing heads-up with the 2 big guns in the smartphone market.  Instead, Amazon’s target is everyone in retail.  And they should be scared to death.  As well as a lot of consumer products companies.

Amazon’s new Kindle Fire smartphone

Apple’s iPod and iPhones have some 400,000 apps.  But most people don’t use over a dozen or so daily.  Think about what you do on your phone:

  • Talk, texting and email
  • Check the weather, road conditions, traffic
  • Listen to music, or watch videos
  • Shopping (look for products, prices, locations, specs, availability, buy)

Now, you may do several other things.  But (maybe not in priority,) these are probably the top 4 for 90% of people.

If you’re Amazon, you want people to have a great shopping experience.  A GREAT experience.  You’ve given folks terrific interfaces, across multiple platforms.  But everything you do with an app on iPhones or Samsung phones involves negotiating with Apple or Google to be in their store – and giving them revenue.  If you could bypass Apple and Google – a form of retail “middleman” in Amazon’s eyes – wouldn’t you?

Amazon has already changed retail markedly.  Twenty years ago a retailer would say success relied on 2 things:

  1. Store location and layout.  Be in the right place, and be easy to shop.
  2. Merchandise the goods well in the store, and have them available.

Amazon has killed both those tenets of retail.  With Amazon there is no store – there is no location.  There are no aisles to walk, and no shelves to stock.  There is no merchandising of products on end caps, within aisles or by tagging the product for better eye appeal.  And in 40%+ cases, Amazon doesn’t even stock the inventory.  Availability is based upon a supplier for whom Amazon provides the storefront and interface to the customer, sending the order to the supplier for a percentage of the sale.

And, on top of this, the database at Amazon can make your life even easier, and less time consuming, than a traditional store.  When you indicate you want item “A” Amazon is able to show you similar products, show you variations (such as color or size,) show you “what goes with” that product to make sure you buy everything you need, and give you different prices and delivery options.

Many retailers have spent considerably training employees to help customers in the store.  But it is rare that any retail employee can offer you the insight, advice and detail of Amazon.  For complex products, like electronics, Amazon can provide  detail on all competitive products that no traditional store could support. For home fix-ups Amazon can provide detailed information on installation, and the suite of necessary ancillary products, that surpasses what a trained Home Depot employee often can do.  And for simple products Amazon simply never runs out of stock – so no asking an aisle clerk “is there more in the back?”

And it is impossible for any brick-and-mortar retailer to match the cost structure of Amazon.  No stores, no store employees, no cashiers, 50% of the inventory, 5-10x the turns, no “obsolete inventory,” no inventory loss – there is no way any retailer can match this low cost structure. Thus we see the imminent failure of Radio Shack and, and the chronic decline in mall rents as stores go empty.

Some retailers have tried to catch up with Amazon offering goods on-line.  But the inventory is less, and delivery is still often problematic.  Meanwhile, as they struggle to become more digital these retailers are competing on ground they know precious little about.  It is becoming commonplace to read about hackers stealing customer data and wreaking havoc at Michaels Stores and Target.  Thus on-line customers have far more faith in Amazon, which has 2 decades of offering secure transactions and even offers cloud services secure enough to support major corporations and parts of the U.S. government.

And Amazon, so far, hasn’t even had to make a profit.  It’s lofty price/earnings multiple of 500 indicates just how little “e” there is in its p/e.  Amazon keeps pouring money into new ways to succeed, rather than returning money to shareholders via stock buybacks or dividends.  Or dumping it into chronic store remodels, or new store construction.

Today, you could shop at Amazon from your browser on any laptop, tablet or phone.  Or, if you really enjoy shopping on-line you can now obtain a new tablet or phone from Amazon which makes your experience even better.  You can simply take a picture of something you want, and your new Amazon smartphone will tell you how to buy it on-line, including price and delivery.  No need to leave the house.  Want to see the product in full 360 degrees? You have it on your 3D phone.  And all your buying experience, customer reviews, and shopping information is right at your fingertips.

Amazon is THE game changer in retail.  Kindle was a seminal product that has almost killed book publishers, who clung way too long to old print-based business models.  Kindle Fire took direct aim at traditional retailers, from Macy’s to Wal-Mart, in an effort to push the envelope of on-line shopping.  And now the Kindle Fire smartphone puts all that shopping power in your palm, convenient with your other most commonplace uses such as messaging, fact finding, listening or viewing.

This is not a game changing smartphone in comparison with iPhone 5 or Galaxy S 5.  But, as another salvo in the ongoing war for controlling the retail marketplace this is another game changer.  It continues to help everyone think about how they shop today, and in the future.  For anyone in retail, this may well be seen as another important step toward changing the industry forever, and making “every day low prices” an obsolete (and irrelevant) retail phrase.  And for consumer goods companies this means the need to distribute products on-line will forever change the way marketing and selling is done – including who makes how much profit.

(Adam Hartung is the managing director at Spark Partners.)

To become a guest contributor with VCCircle, write to

View Comments
Who's CEO Of The Year Bezos Of Amazon Or Google's Page?

Who’s CEO Of The Year Bezos Of Amazon Or Google's Page?

Adam Hartung 5 years ago
Turning over a new year inevitably leads to selections for 'CEO of the Year.'  Investor Business Daily selected Larry Page of Google 3 weeks ago and...
Grow Like Amazon To Succeed; Invest Outside Your 'Core'

Grow Like Amazon To Succeed; Invest Outside Your 'Core'

Adam Hartung 6 years ago
“It’s easier to succeed in the Amazon than on the polar tundra,” Bruce Henderson, famed founder of The Boston Consulting Group, once told me. “In...
Why Jeff Bezos is our greatest living CEO

Why Jeff Bezos is our greatest living CEO

Adam Hartung 4 years ago
The Harvard Business Review recently published its list of the 100 Best Performing CEOs. This list is better than most because it looks at long-term...
Kalpesh Muchal . 4 years ago

Amazon is truly one of the top 10 innovations of our time… It completely redefined “The Shopping Experience”… While there are thousands of e-tailers that have followed suit, none of them have been able to replicate the success of…. Having a great idea is easy, implementing it is tough, but the real challenge is in sustaining the same… In this cut throat competitive environment one needs to continuously innovate to stay on the top…This is the hallmark a world class CEO.. Kudos to Mr Bezos…

Sidhartha Sen . 4 years ago

Totally Agree.. Amazon had the first mover advantage but not all companies are able to capitalize on that.. Take the example of social websites like Myspace, Orkut etc which were launched before Facebook but were not able to sustain or grow the userbase…

Abhishek Mishra . 4 years ago

Who is the greatest living Indian CEO ???

anoop . 4 years ago

Mr. A M Naik of L & T. He is neither an IIT or IIM. But see how he transformed L & T into such a professional conglomerate.

Abhishek Mishra . 4 years ago

A M Naik is certainly a gr8 CEO.. But my vote wud go to Y C Deveshwar..

Under his leadership ITC saw its value increse by over $40 bn…

Keyur Shah . 4 years ago

Hi Shrija.. I hv been a big fan of vccircle and of the blog section in particular. Specially since the time u got Adam Hartung to blog around a year back. I think.. I am awe of this fellow…u should get more international level bloggers on board.. I see that u hv Brad Fled already.. There are few more interesting ones like Fred Wilson, Marty Zwilling, David mc lure etc.. Keep them coming..

The Kindle smartphone is a game changer – But not as you think

Powered by VIP