Why The Amazon.com, Inc. (AMZN) Smartphone Phone Matters

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June 17, 2014 10:25am NASDAQ:QQQ

amazonJay Taylor: Amazon.com, Inc. (NASDAQ:AMZN) is the world’s largest internet-based retailer. It has a mobile payments arm, produces shows, plus has an e-reader and tablet. Oh, and it also sells books. And just about everything else.

Now, the company is expected to release the Amazon smartphone.

The Seattle-based retail giant has a launch event scheduled for Wednesday. It is widely reported that CEO and founder Jeff Bezos will introduce an Amazon smartphone at this event.

The exciting feature expected from the Amazon smartphone is the 3D screen, the “wow factor” alluded to in a teaser video Amazon posted to its YouTube channel.

The Amazon phone is a big deal for one key reason: the Amazon ecosystem.

Google (Nasdaq: GOOGL) dabbled in producing a smartphone, the Nexus one. After a lackluster response, the company bought Motorolla’s mobile phone unit. The aim was to merge Motorolla’s successful hardware with Google’s successful software. That effort was less than successful and Google dumped its Motorolla unit soon after.

As Blackberry (Nasdaq: BBRY) struggles to avoid becoming a footnote in the history of mobile devices,Microsoft’s (Nasdaq: MSFT) Windows phone has only a few percentage points of the global smartphone market share.

Apple (Nasdaq: AAPL) and Samsung are clearly the dominant players in the smartphone market, with Apple taking much more of the profit per user with its higher margin phones that lock users into the Apple ecosystem.

The key word is “ecosystem.”

Though Amazon’s ecosystem may not be as polished and robust as Apple’s, the amount of services offered by Amazon’s ecosystem could dwarf what is offered by Apple.

Just last week Amazon launched Amazon Prime Music, an ad-free unlimited streaming service included with its Amazon Prime membership. Though it was a direct shot at popular streaming services like Pandora (NYSE: P) and Spotify, none of the big players in music streaming seem too concerned.

I think this is a mistake.

Amazon Prime Music currently offers a library of around 1 million songs compared to the 12 million offered by Spotify. But to focus on this metric misses the point entirely.

Amazon may not offer the best and most complete streaming services to its customers. But it doesn’t need to. Amazon’s competitors come from a large number of markets because Amazon offers services from a large number of markets.

Netflix (Nasdaq: NFLX) and Pandora may have the best streaming services in video and music respectively. But they don’t have hardware to deliver it to customers. Apple may have a more polished and complete App Store and media experience. But it doesn’t include unlimited access to its library at a single price. And it can’t ship unlimited merchandise to my house in two days.

The reason the Amazon smartphone matters is that it will tie the Amazon ecosystem together for consumers. With the Amazon phone my $99 Amazon Prime membership will get me unlimited video and unlimited music that I can consume from my Amazon phone and Amazon tablet.

Frankly, who cares that the libraries aren’t huge? Libraries can be filled in over time. No one else offers what the Amazon smartphone is about to offer to consumers.

 DISCLOSURE: I personally own shares of Amazon.

This article is brought to you courtesy of Jay Taylor from Wyatt Research.

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