Price Matters: Amazon Fire Blew It, Will the iWatch Learn from That Mistake?

There were early, hopeful rumors that Amazon's smartphone would be free. What a radical move that would have been.

That free rumor was quickly quashed by Amazon. Indeed, when it showed up last week the Fire phone was priced like an iPhone: $199 with a two year contract or $650 unlocked. I was very surprised by this "premium" pricing. 

Amazon CEO Jeff Bezos feels he's developed a premium phone and that consumers will also see it that way. True, Fire does have a number of stand-out or innovative features:  

  • 13MP rear camera
  • Firefly: Shazam for the real world.  
  • Unlimited, free cloud photo storage
  • Deep integration of the Amazon content and services ecosystem 
  • Free “MayDay” video customer service
  • Dynamic perspective: a kind of 3D experience on the home screen and for games
  • Free year of Amazon Prime for new customers

Yet one can't escape the feeling that this device has been designed almost entirely to promote Amazon, its content and e-commerce. The user is somehow secondary or merely a vechicle for the realization of Amazon's broader mobile ambitions.

The early reviews have been very mixed. Consequently few iPhone buyers will switch and the same is probably true for those loyal to Samsung Android devices. Amazon's loyal customers are the likely buyers of this handset. While that's millions of people it's not enough to make the phone a true hit. 

Had the phone been more aggressively priced, as the Kindle Fire tablet was when it launched, the story would be very different. In all but a very few cases price matters. An unlocked $199 Fire or, ideally, unlocked $149 Fire would generate significant sales. Then, I believe, Amazon would have had a massive potential hit on its hands. 

Consider that Motorola sells the 4G Moto G Android phone for $179 -- unlocked. Between the Amazon phone and the less flashy but still well-equipped (and much cheaper) Moto G, the choice is obvious: Moto G. 

As with the Fire, now destined for disappointing sales absent a price cut, the price of Apple's forthcoming iWatch matters. The device (or devices) will be released, according to reports in October.

Financial firm Piper Jaffray surveyed 100 people (too small a sample) and asked about interest in a $350 iWatch. Apparently only 14% (or 14 people) said they were willing to buy a $350 iWatch. The survey extrapolates limited demand from those findings. 

The conclusion of that there's only limited interest in smartwatches is wrong. There's considerable interest in the market. Surveys by Opus Research, Nielsen and others suggest a potential market in the US of more than 100 million people. There are two key variables however: design and price.

The Samsung Galaxy Gear watches failed not because of price ($299) but because they were ugly and poorly designed. We can expect Apple's iWatch(es) to be well designed but the price is an issue.

If Apple can price these devices below $300, and preferably below $250, they're likely to see considerable sales volume. But above $300 the market will be more limited, as the Piper Jaffray data suggests.  

Apple needs another hit product so it would do well to take a lower margin on the iWatch in favor of boosting sales and making it more accessible and affordable for a larger population.