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Analysts keep faith in Amazon’s devices
From the Financial Times of Tue, 23 Dec 2014 19:30:03 GMT
Jeff Bezos, chief executive officer of Inc., unveils the Fire Phone during an event at Fremont Studios in Seattle, Washington, U.S., on Wednesday, June 18, 2018. Inc. jumped into the crowded smartphone market with its own handset called Fire Phone, ramping up competition with Apple Inc. and Samsung Electronics Co. Photographer: Mike Kane/Bloomberg *** Local Caption *** Jeff Bezos©Bloomberg

Jeff Bezos, chief executive of Amazon, unveils the Fire Phone in Seattle

Amazon marked the start of the holiday shopping season with its busiest Black Friday yet, and its own Kindle Fire HDX tablet was one of its biggest sellers. But as the ecommerce pioneer pushes further into hardware, not all of its devices are flying off its warehouses’ shelves.

The Echo, a short, voice-activated cylinder meant to make it easier for people to shop at Amazon, has left analysts sceptical and consumers puzzled. The $199 device has seven microphones that listen for commands, such as queries about the weather or requests to add items to an Amazon shopping list.

Amazon’s own promotional video for Echo has 2.5m views on YouTube. A parody, which depicts the device mocking its users, has 3.6m views.

“If they can get people to interact with Amazon literally anytime they’re in the house, there are obvious benefits,” said Yory Wurmser, an industry analyst with eMarketer. “At the same time, they’re crossing over into an area where they might start freaking people out.”

Amazon’s new smartphone, the Fire, received an equally chilly reception. Amazon unveiled the device in June but has already taken a $170m charge on production costs and excess inventory.

Such missteps are making it tricky to keep investors content. Amazon reported losses last quarter of $437m, from losses of $41m a year prior. Its stock is down 23 per cent this year.

But executives and analysts say there is still reason for shareholders to be optimistic and rivals to be worried about its hardware strategy, which includes investments in drones that may one day be used to deliver packages.

Unlike Apple, which obsesses over every product launch, Amazon takes an evolutionary approach to product development: launch, improve, repeat. That means, analysts say, that the next generation of the Fire or Echo, or whatever new products they inspire, will be far more competitive.

The first-generation product for Amazon is never the perfect product, but it really helps determine where Amazon will focus next

- Jefferson Wang, IBB consultant

“The first-generation product for Amazon is never the perfect product, but it really helps determine where Amazon will focus next,” said Jefferson Wang, a consultant at firm IBB Consulting who advises phone carriers.

Many companies try that model, he says, but Amazon has proven it can work: “The first Kindle was terrible, but now they’ve got their [high-definition] Fire HDX tablet, and it’s a really, really nice tablet.”

When asked in a recent interview whether the Fire phone was a mistake, Jeff Bezos replied: “It takes more time to analyse something like that . . . Ask me in some number of years.”

For Amazon, building on the Fire phone could open up new ways to sell to customers, much as the Kindle ereader and tablets spurred Amazon’s sales of digital books and films. Rivals, said Mr Wang, should keep a close eye on what Amazon does with Firefly, a feature of the phone that lets users take a picture of a book or box of cereal and be taken immediately to the item’s Amazon listing. That makes shopping on Amazon easier, and could encourage shoppers to turn to it for goods they now buy offline, such as groceries.

When combined with Amazon Prime — its premium service that offers unlimited two-day shipping for $99 a year or free with a Fire phone — the convenience of Firefly could drive substantial sales. Already, Prime customers spend twice as much as normal customers, according to outside estimates, and Prime shipping is the single most popular method of shipping on Amazon, with twice as many goods shipped via Prime as via the company’s free shipping option.

“The idea of visual search and audio search is going to happen anyway, the question is just whether they need to refocus on their visual and audio search tools in their iOS and Android apps,” said Mr Wurmser.

For now, the company has to manage the more than $80m worth of Fire phones it reports it still has on hand.

Recently, in the pop-up store Amazon opened for the holidays in a busy San Francisco mall, some models of the newest Kindle Fire were sold out, a clerk told one disappointed shopper. None of the browsing shoppers stopped to look at the bank of Fire phones lined up in the front of the pop-up kiosk.

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