How Amazon Could Make Its Phone Free

Exclusive: Amazon Wants To Offer Its Smartphone for Free. Who Will Follow?

It’s not that hard.

Amazon has the lesson of China’s Xiaomi.

Xiaomi sells its phones just about at cost and makes their money selling services, apps, and accessories. They also make their phones in limited batches. They don’t do the kind of long production runs we here in the West expect, like Apple does with the iPhone. This is why Xiaomi is so damned hot in China. And also why Xiaomi has gone to a valuation of $10B in just a few years. Whether that valuation is true or not, don’t carp. The same could be said of Amazon for years!

Unlike Xiaomi, Amazon has tons of data about its customers and there’s many ways it could roll out a free phone and pull it off. Without me straining my head — because, you know, cleaning up the Goodfellas line, pay me for real thinking — they could:

1) Offer it to their Best Customers first. The people who spend the most at Amazon.

2) They could further slice Best Customers into tranches in ways that would make the phone valuable to those customers as well as to Amazon. For example, a customer who spends $1,000 on digital goods might be worth more as an Amazon phone owner than someone who spends $2,000 a year on paper books.

3) After Best Customers, they could roll it out to their Prime Members. Again, these customers could be sliced into tranches as well.

And they do the above by following the Xiaomi model of limited batches of phones. So, for example, 50,000 phones are made and given to the customers they select. Those phones start generating income and Amazon can see how this model is working. Then they do another batch. And they keep iterating the phone, just as Xiaomi does.

Customers who got Amazon Phone One can’t complain when the next group of people get a better Amazon Phone Two because, hey, it was free. If they want Phone Two, pay for it.

This kind of exclusivity would make an Amazon free phone even hotter than a Xiaomi phone is in China.

So, yeah, Amazon could do this. It’s probably the only company that could pull it off.

But the question that looms over all this is how long can Amazon get away with using forked Android? At some point they’ll need their own OS. Will they buy Jolla or Blackberry or just roll their own?

Oh, and one more thing. I didn’t even bring up advertising revenues. Because I did that back in June: This Is Why Amazon Will Do A Phone

4 Comments

Filed under Amazon Kindle

4 responses to “How Amazon Could Make Its Phone Free

  1. E.T.

    When prioritizing who gets a free phone, the potential for increasing revenue from a given customer is more important than how much revenue said customer is currently generating.

    • mikecane

      And Amazon has all the data to model that, unlike everyone else. My examples are just that, not necessarily what Amazon will do.

  2. John

    You didn’t address an important question. Why in the world would someone want a cheap Amazon phone? Wouldn’t they be embarrassed to show that in public? I guess they could buy a case that would make it look like a good phone. Amazon could probably give away cubic zirconia jewelry but people would still value real diamonds.

    • mikecane

      Millions of people walk around with cheap phones. That’s how Metro PCS, Boost Mobile, etc, make their money.

      But who said the Amazon phone would be cheap?

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