We’ve known for some time that Amazon.com, Inc. (NASDAQ:AMZN) is planning to make a smartphone, but now it sounds like the company actually wants to give it away for free. That’s according to a post by Amir Efrati and Jessica E. Lessin, formerly of The Wall Street Journal.
A free smartphone? How’s Amazon going to make money on that?
Of course the only reason many companies give smartphones away for free is because they attach strings to it. In most cases, the device is free with a two-year contract. However, at this point the strategy Amazon wants to use to make money off of it is unclear.
One of the speculations is that Amazon.com, Inc. (NASDAQ:AMZN) could require users to sign up for its Amazon Prime customer loyalty program. However, sources have apparently said that the company just wants it to be free, whether or not users sign up for a new mobile plan.
Amazon’s plan is still unclear
They said the company has apparently talked to mobile carriers about offering its phone, although it is expected to be available through Amazon’s website. At this point we don’t know when the company will launch the smartphone either.
The reporters’ sources said Amazon.com, Inc. (NASDAQ:AMZN)’s strategy of offering the device for free has not yet been finalized and will depend on a number of factors. For example, the company will have to make financial arrangements with the companies it partners with to manufacture the hardware. The sources were apparently skeptical that Amazon would be able to offer a smartphone for free.
Amazon operates on slim margins
Recently TechCrunch had an article focusing on the method to Amazon CEO Jeff Bezos’ madness. He runs the online retail giant on the slimmest of margins, and this strategy is clear in the simple thought of offering a smartphone for free with no strings attached.
It’s also the complete opposite to Apple Inc. (NASDAQ:AAPL)’s business model of the bigger the margins, the better. One of the concerns investors have had with Apple’s earnings reports over the last several quarters was falling margins. But Amazon.com, Inc. (NASDAQ:AMZN) clearly has more in common with companies like Google Inc (NASDAQ:GOOG), which make most of its revenue online through online advertising.
Google is able and willing to sacrifice some profits for market share because it makes most of its money elsewhere, so there’s a good chance that Amazon may be taking a cue from Google. The online retailer makes the bulk of its revenue through ecommerce, so it might be able to figure out how to offer a smartphone for free or at least at a very low price (a la Google) that could put more pressure on Apple’s premium pricing model.