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What happened to the Amazon smartphone?

Where is that Amazon smartphone

While Amazon CEO Jeff Bezos announced two new Kindle e-readers, an updated to the popular Kindle Fire, and an entire new tablet line under the Kindle Fire HD moniker, one thing was missing from yesterday’s launch extravaganza: a smartphone.

Speculation had been floating for months that Amazon was working on its own smartphone. After all, it seems like a logical step after moving from e-readers to full-fledged media tablets with the Kindle Fire. Yet reports that Amazon would debut a phone at yesterday’s Kindle product announcements proved to be a bit optimistic.

So what happened? As it turns out, Amazon may have skirted the need for one.

The Verizon deal

Verizon Amazon Shopping Apps

Separately from Amazon’s introduction of new Kindle hardware yesterday, Verizon Wireless announced it will be preloading Amazon mobile applications on selected Android devices.Not just a single app, either: Amazon has managed to get a whole passel of its mobile apps onto Verizon phones, including its mainstream Shopping app, along with its Kindle, Audible, and MP3 apps, an app supporting clothing sales through its Zappos subsidiary (smartphone users just gotta have shoes), and its IMDb app. Initially, these will crop up on the Samsung Stellar, LG Intuition, and the new Motorola Droid Razr M. There’s no word on whether the deal with be extended to other Android devices going forward.

Financial terms of the arrangement were not disclosed. We don’t know whether Amazon is paying Verizon to pack its apps into phones, cutting Verizon in on a share of revenues derived from the apps, or perhaps both. But money is almost certainly flowing from Amazon to Verizon, and not the other way around.

It’s easy to dismiss these pre-loaded apps as just-another instance of the kind of “bloatware” that has migrated from the Windows PC industry to Android smartphones: Carriers like to preload phones with selected software as a way to distinguish devices from their competitors’, as well as provide gateways into their own branded (and often fee-associated) mobile services. For many users, they will be just that.

However, for Amazon, these apps also convert those Verizon devices into Amazon storefronts, just like an Amazon phone would do. The deal is about more than being able to read Kindle titles or buy MP3s on the go: With Amazon’s shopping app, users can scan barcodes or take pictures of products while they’re out shopping and immediately pull up listings for the same products on Amazon. And guess what? There’s nothing to stop Amazon from using location information available in phones and undercutting retailers who might just happen to meet or beat Amazon’s prices. The app essentially converts smartphone users into Amazon agents, reporting back to Amazon about retailer’s products and pricing.

Amazon’s mobile apps essentially convert brick-and-mortar retailers into showrooms for merchandize sold by Amazon. See something you like in a store? Snap a picture and order it directly from Amazon. And consumers seem to love taking their mobile phones shopping: according to Nielsen, as of June 2012 a whopping 47 percent of smartphone owners were using a shopping app. Now, at least for some Verizon customers, the odds are going up that that shopping app is from Amazon.

So does Amazon even need a smartphone?

Amazon Phone

The argument for Amazon making the leap to smartphones derives from one simple fact: Far more people have smartphones than e-readers or tablets. At the end of 2011, 470 million people globally owned smartphones, while only 81 million owned tablets. If a company really wants to be a part of consumers’ buying and spending decisions, it needs to be on their smartphones.

In some respects, Amazon is well positioned to make that transition. Amazon is far and away the dominant player in electronic retailing, with a long history and millions of customers worldwide who turn to Amazon first for everything from books and music to tools, home appliances, and even groceries and furniture. Amazon already enables its existing customer base to easily make purchases and tap into their preferred media (music, video, and books) via their smartphones. However, the Kindle Fire brought Amazon integration to another level with a custom Amazon browser and even app store.

An Amazon smartphone could literally move the Amazon media and shopping experience right to the home screen, putting an Amazon-assisted shopping experience right at users’ fingertips, rather than buried in an app. A phone like that could be an easy sell to mobile-addicted shoppers — particularly those who are already members of Amazon’s customer pool. Amazon could attract even more customers through its famous little-or-no-margin pricing . An Amazon phone could sport high-end Android hardware at the price of a mid-level or even entry-level phone — after all, Amazon wants to make its money selling goods and services, not gadgets.

The case against an Amazon smartphone

Google Android Bikes

Of course, shopping and media consumption are far from the only things people do with their smartphones. That might be why Amazon (so far) hasn’t pulled the trigger on the idea.

Creating a customized “fork” of Android for the Kindle Fire tied users deep into the Amazon content ecosystem, while suppressing much of the noise and distraction that comes with a stock Android experience. However, it also came with a downside: no Google apps like Gmail, calendars, contacts, Google search, Google Maps, or even Google Chrome. Amazon’s Silk browser provides a ready substitute for one of them, but the company would need to many more of its own apps to develop a usable smartphone.

Amazon doesn’t have it’s own Web search, it’s own mapping, or its own email service. It would either have to roll its own (which is time- and resource-intensive: just ask Apple) or partner with existing players. It won’t be able to partner with Google or Apple, so that largely leaves Microsoft as the most logical partner for email and search services. For mapping, Amazon could try to make a go with OpenStreetMap, or make a deal with Nokia, whose Navteq subsidiary is one of the most robust and mature players in the industry.

Those kinds of partnerships would cost Amazon money — especially since, in the case of Microsoft and Nokia, Amazon phones would be competing against the Windows Phone platform. That, in turn, would drive up the cost of a hypothetical Amazon smartphone, making a it more difficult to hit a low price point and undercut the existing Android smartphone market.

Should Google be worried about Amazon?

Google CEO Larry Page

In the wake of Apple’s $1 billion court victory over Samsung, many industry watchers have been thinking of Apple as Android’s biggest enemy. After all, the late Steve Jobs regarded Android as a stolen product, and vowed to go “thermonuclear” to destroy it.

However, with Amazon, Google may face a serious threat from within its own ranks. If Amazon plays its cards right, the company could conceivably subvert the existing Android ecosystem and make Android a vehicle for its own services, rather than Google’s.

After all, Amazon’s content ecosystem is far more mature than Google Play. Amazon has its own forked version of Android, its own Web browser, its own app store, and it’s now producing hardware cheaper than Google’s own Nexus 7 tablet, and still on par with it. Amazon’s Kindle Fire is arguably the most successful Android tablet to date — Amazon claims its first Kindle Fire accounts for 22 percent of the tablet market, though it has declined to offer sales figures.

Now, Amazon is now inking deals with carriers to put Amazon’s retail and shopping offerings front and center on smartphones, displacing things like Google Shopping. If Amazon can continue to push its content and shopping ecosystems onto smartphones through carriers like Verizon, the rumored “Amazon smartphone” may remain exactly that — just a rumor.