What Amazon’s Fire means for Apple

June 19, 2014, 2:24 PM UTC

Nobody in their right mind is going to swap an iPhone for an Amazon Fire — a shopping machine that calls itself a phone, as Quartz’ Dan Frommer deftly put it.

That said, the smartphone unveiled by CEO Jeff Bezos in a Seattle warehouse Wednesday is a serious device that puts the business models of two tech giants in a new light.

“Apple and Amazon are much more alike than they are different,” Asymco’s Horace Dediu wrote last summer in an essay called The Anti-Apple. They’re both in the business of “delighting customers” in controlled, predictable environments with convenience and ease of use. They both have huge customer bases (800 million for Apple, 250 million for Amazon). And now they both sell smartphones. For roughly the same price.

The main difference is that Apple’s (AAPL) mission, as Tim Cook never tires of saying, is to make the very best products.

Amazon’s Fire doesn’t have to be the best. It just has to be good enough. Its mission is to make impulse buying at Amazon’s (AMZN) growing retail empire even more friction-free. If it does that well — using a point-and-buy feature called Firefly — some portion of those 250 million customers will trade up for one.

But they won’t trade down. Compared with an iPhone, Apple loyalists sniffed Wednesday, Fire’s user interface is “a mess.” It only runs, for now, on AT&T’s (T) network. There won’t be a flood of new apps until developers are persuaded that it’s going to take off. And because it uses a forked version of Android, it can’t run apps purchased on either Apple’s App Store or Google (GOOG) Play.

Still, it’s better than a flip phone. It comes with 12 months of free Amazon Prime shipping. Its camera is said to be excellent. It boasts some whizzy features (3D, Mayday, scroll’n’roll). And Bezos is not too proud to stick an ad for it in the face of every Amazon user who logs on. Unless Fire melts down in real-world usage, it will probably succeed in establishing a beachhead in an over-crowded smartphone market dominated by Apple (which skims off the cream) and Samsung (which, if you’ll pardon a badly mixed metaphor, mops up most of the rest).

One more difference between Amazon and Apple, perhaps the most important:

Apple’s iTunes user base is growing exponentially but its sales per user are falling. Amazon’s user base is growing arithmetically, and its sales per user are relatively flat. (See Horace Dediu’s charts, reproduced below.)

“Apple’s user growth is a function of expanding its device portfolio and distribution,” Dediu wrote in April. “Amazon’s user growth is a function of expanding its logistics and merchandise mix. This is also not easy to do globally. Arguably, Amazon cannot scale in the exponential rates seen by Apple… because it has to depend on trucks and roads and regulators to complete most of its sales.”


Source: Asymco