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Why Amazon is going to stop making its own stuff

After an unsuccessful foray into the mobile electronics market with the Fire Phone, Amazon appears to be rethinking its ambitions to become a major hardware maker. Just last week, the company let go dozens of engineers who worked on the flop of a smartphone—marking the first layoffs in 11 years for Amazon’s Lab126 hardware unit.

Backing away from hardware like the Fire Phone is the smartest thing Amazon (AMZN) could do. The company’s greatest product successes have been those that tie directly into the software offerings it sells, such as ebooks for the Kindle and Amazon Prime Music for the well-received Echo speaker.

Amazon’s amassed more than 40 million users by offering convenience and speed—from free two-day shipping with Amazon Prime to package pickup with Amazon Locker—in addition to selling everything under the sun via its digital storefront.

“e-Readers, tablets, and TV set top boxes are all focused on content consumption, where Amazon is more competitive,” says Avi Greengart, an analyst at Current Analysis. It’s also worth noting that Amazon has been an early entrant in many of these product categories, not an also-ran introducing its own take on a popular device.

A product like the Fire Phone, which focuses on Amazon’s own services rather than functioning like any other Android phone, requires users to adjust their expectations of a smartphone rather than raise them.

 

“The Fire Phone simply never caught the imagination of users,” says industry analyst Jeff Kagan. “Then again, neither did Facebook’s smartphone.”

Both products failed for similar reasons: They put the company’s priorities ahead of users’ preferences. As Kagan says, “Users can order on Amazon.com from their smartphone with the app and that is what they want.” To sell its vast selection of products to customers, the company hardly needs specialized devices.

When it comes to hardware—especially mobile, with so many competitive smartphones already on the market—Apple, Samsung, and many others can do it better. What Amazon can do better is seamlessly deliver its music, video, and Kindle content to users across a range of compatible devices, without any friction that could prevent customers from purchasing the company’s products.

One exception to the rule may be Kabinet, a device for the kitchen which, WSJ reports, is in development. The product will serve as an Internet-connected hub for managing tasks such as ordering items on Amazon. Here, though, the company wouldn’t be competing with other well-established products; rather, it would be developing a new device that ties directly into its product offerings while addressing the needs of a busy household.

As to what Amazon’s latest consumer-electronics flop could mean in the long term, Kagan says, “I don’t think this will have an impact on the company’s future. Amazon has grown and will continue to grow.”

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