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back to article Amazon to offer FREE smartphone?

Amazon may offer a free smartphone, as it contemplates another market to get into and sterilize. Though the strategy is a bold one, it is hardly new, and its basic idea goes back to Henry Ford. Bezos & Co are planning to launch a free smartphone, ex-Wall Street Journal reporter Amir Efrati reported on Friday, and hope to offer …

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Seems pretty hard to make back the price of a $100 phone

It wouldn't be anything like $200 to build like the article claims, that's iPhone and Samsung Galaxy territory. They'd save by leaving out LTE, go cheap with the camera, make it from cheap (but durable) materials, and so on.

Even if they made them for $100 each, the money would have to mostly be made up by in your face (and perhaps in your ear?) ads, because the kind of people attracted to something "free" and willing to be advertised to death to get it aren't going to be blowing a lot of money on apps, and probably aren't going to want to read many ebooks on a phone, either.

Of course Amazon seems to not care about making losses, since their shareholders seem stupidly content to let them make little or no profit for 15+ years now. Its the old "we'll make it up in volume" theory. Don't know how much bigger Amazon is going to get, even if they had 50x the revenue they have now they'd still be making less profit than either Apple or Samsung makes from phones alone!

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Re: Seems pretty hard to make back the price of a $100 phone

Plus if it is easily rooted for another os or removal of ads etc then it will be a disaster.

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Re: Seems pretty hard to make back the price of a $100 phone

If the punters do their family food shopping on it, from Amazon's grocery service, they could make the cost back in weeks.

Regarding profit, when you're in business, your profit margin is your competitor's collateral. When you have almost no margin, others cannot afford to compete with you. With tiny margins on colossal turnover, the tiniest future increase in margin will reap huge profits.

Simples.

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Re: Seems pretty hard to make back the price of a $100 phone

How stupid of them to value a stock that increases in value instead. Idiots!

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Anonymous Coward

Re: Seems pretty hard to make back the price of a $100 phone

With tiny margins on colossal turnover, the tiniest future increase in margin will reap huge profits.

Especially as the number of tiny margins keeps increasing, every time one of the uncompetitive competition goes out of business.

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Re: Seems pretty hard to make back the price of a $100 phone

I'm not so sure about the "leave stuff out and make it cheap" aspect, at least initially. My thought on this is for Bezos to make a phone that has ~90% of what the best phones have, in a durable, changeable case (with at least some being waterproof), with capacity for easy upgrades (SD slot, possibly easily changeable camera module etc), and definitely replaceable battery, with new versions of the OS pushed out as soon as they become available. You don't have to give out new phones to a huge percentage of people every 1-2 years - people will *buy* bits to customise their camera when it starts to meet whatever criteria they have for "it doesn't suit me any more". If he can defeat the "upgrade entire unit every x months" cycle, he may well be on to a winner.

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Danny 14: "if it is easily rooted ... then it will be a disaster."

What world do you live in? A tiny, tiny, number of people root their phones, no matter how easy it may be. Most people just don't care enough about tech to bother: they buy something that works well enough, and work with it. You're seriously suggesting that the product would be a disaster if it was rootable? That so many people would do this that Amazon would end up with too small a base of ad-viewing customers for the ads to be viable? You're so immersed in your own tech subculture that you've lost track of reality.

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Anonymous Coward

Re: Danny 14: "if it is easily rooted ... then it will be a disaster."

However, pretty much everyone who can root a phone will make sure they get the free offer from Amazon and do it, no? That could be expensive.

I suspect though that they'd manage to make it unrootable or complicated enough to make it an unattractive venue for both.

Aren't all Windows RT tablets supposed to be unrootable? What about Windows 8 phones? Many seem to be keen on a Nokia phone for the camera, with an Android hacked on it. I haven't heard of success stories though.

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Re: Seems pretty hard to make back the price of a $100 phone

Doug, you make it sound like its a crime for a company to spend it's income on expanding it's business. As though profits must be made. Why? Amazon don't hand out a dividend so shareholders wouldn't see any profit if any was made. And any profit would be taxable so a sizable chunk of those profits would go to the US treasury.

Instead that money is spent expanding the franchise which means handing the cash to employees (or people offering value added services) and supporting the huge army of business that are dependent upon the Amazon machine improving. What you see instead, is strengthening balance sheet.

This complaint about Amazon failing to make a profit was made two years ago when the 201010-K was released. At the time the stories were along the line "Amazon profit disappoints'. The stock price dropped. A closer reading of the 10-K showed Amazon investing in hardware so I bought and since the stock has risen 50%.

In the meantime the much vaunted Apple has tanked, it's stock price is among the most volatile. Oh, and though Apple makes plenty of profit, shareholders still see none of it because the Apple board doesn't want to pay Uncle Sam. Instead they invest in lawyers and tax advisers to keep cash in locations around the world. So your position seems to be: no profit is bad but shady tactics to keep cash away from shareholders and governments is good, right? Is that what you advocate?

Go read those economics text books and find out where it says it is imperative a company makes profit. Shareholders want it, governments want it, but what the incentive for a business especially one which is, essentially, family owned?

Oh, and by the way, I'm one of those who would welcome a free phone. I barely use my phone but in case my kids want to reach me or I need to make a call I have to put up with sky-high prices and a contract that doesn't get close to suiting my needs. There are millions of us. We don't wear labels, drive cars we don't need, eat at a place just to be seen or want Roll-Royce phones.

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Anonymous Coward

Welcome to the business model the rest of the world has operated on since forever. I've not paid for a handset in my entire life.

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Anonymous Coward

Well yes you have - even 'free' handsets are paid for (subsidised) by the airtime / data plan you are on - so of the £xx you pay per month some of it pays for the phone.

Perhaps Amazon is looking to take it a step further and try and make money from the airtime and the content.

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That depends. Some people have old contracts rhat are decent. All contracts, PAYG etc cost money so if you have a cheap one the telcos will still offer cheap or overstocked handsets just to keep the customers.

But it is true for the majority, a 30 contract with phone might only have 15 sim only value from elsewhere so that 15 is paying for your subsidised handset.

Sometimes you can get money back through cashback via sites such as quidco or topcash to help things along.

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Free... not

I could have got a free Nexus 4, with a 2 year $55 CND plan (only 1 GB data).

Or I could just buy the phone from Google, and get a $30 plan no contract, 5 GB data.

In another 2 months I break even and I'm saving money after that, and the phone is unlocked so I can go where I like.

That's what's missing from the story, who will provide the phone/data service and at what cost. They already have contacts do to their whisper net thing.

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Pirate

No, it's not an inkjet printer, it's an ink cartridge purchase assurance device.

Clever. And they can claim "good guy points" by supplying free cellphones to folks who can not currently afford them and the service contracts required for them to be of use. I'm assuming the service part is also free because some wireless providers currently offer free phones with a contract, an installment plan (price of the phone spread out over 24 months), and other "free-ish" options, and if Amazon wants to make a real dent they'd need to offer either free or deeply discounted service as well.

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Windows

If this does happen I think that both the..........

..........American and European competition authorities are going to have to decide what, if anything, they can do about Amazon's business strategy. Perhaps they might dust off the regulations concerning predatory pricing? After all the whole point of having a free market is continuous competition without any one company achieving ultimate victory - a victory that would most certainly not be in the interests of the customer.*

*Choice of icon? Historical irony.

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Re: If this does happen I think that both the..........

I heard they are already thinking of doing that somewhere... A country called Utopia if i am not wrong.

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Re: If this does happen I think that both the..........

If I go to the Carphone Warehouse website and look for phones with a cost of £0, I find there are 69 of them. However the cost per month of the cheapest phone contract to go with it varies from £7 per month for the Nokia Asha 300 to £42 per month for the Sony Xperia Z1, so it isn't really free, it is just a way of paying for the phone in instalments.

Most of the people I know have a SIM only contract and buy their phones separately. It works out cheaper that way, though you do need more cash up-front.

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Re: If this does happen I think that both the..........

Competition? What competition? The kind that's colluded to keep roaming and basic service prices high everywhere?

Oligopolies collude. They don't compete, because they don't need to.

Even if they did, the real competition is for shareholder cash. Customer cash is the product.

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h3
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Re: If this does happen I think that both the..........

Problem is the rest of the companies do so little to benefit the customer.

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Fair prices for technology

Anything that will drive down phone prices is good by me. I can't conceive why a new smartphone (locally in Canada) runs $600 to $800. Someone is taking a staggering mark up on these items.

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Re: Fair prices for technology

Those apple logos arent cheap you know!

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Re: Fair prices for technology

Those round corners don't make themselves you know.

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The name's already taken.

Henry Ford II (1917-87) son of Edsel and pretty effective boss of the company. Note how Ford has weathered the economic forces which have pared down GM and how Ford husbanded Jaguar, Aston Martin and Volvo while Saab died in GM's hands. The difference was Ford was run by car guys like Henry II while GM had bean counters at the helm.

I suspect parallels may be drawn with Amazon/Google and Microsoft -- the latter has lately been a mainly destructive force.

Not sure I agree with Henry's his famous saying "Don't Complain, Don't Explain" But I like the legend that when Enzo wouldn't sell Ferrari to Ford, Henry II got Lola to build the Ford GT40 which, with help from Carroll Shelby, soon beat Ferrari at Le Mans.

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Re: The name's already taken.

Jaguar Land Rover has being performing much better since Tata took it over from Ford.

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Re: The name's already taken.

Well, you're right in respect of sales, but the XF which has vastly outsold cars offered under Ford's stewardship was engineered under Ford. For example, the styling broadly follows Ford's European look.

The problem facing Tata may be to come up with a replacement.

If the F-Type sports car is a guide they should do pretty well

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Re: The name's already taken.

That still doesn't invalidate the relative merits of GM and Ford.

And I am sure you heard about how the most recent episode of Top Gear ended. If there is a pattern, it's of failure of the top-level management of large companies: the people we call "The City" and "Wall Street".

I think any large car company is going to have design problems for the next generation. The hybrid designs have a place, but they're a bit of a stopgap. How do you move away from liquid hydrocarbons? That's going to be the big test. And what is the lifespan of the battery-pack. hybrid or pure electric, going to do to the economics of vehicle use?

It's not unlike how we buy our smartphones, electricity and battery-packs instead of airtime and hardware.

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Re: The name's already taken. @jonathanb

"Jaguar Land Rover has being performing much better since Tata took it over from Ford."

True, but Ford kept them alive for Tata to buy. GM's appalling failure to keep a great marque like SAAB going shows it's utter incompetence.

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Re: The name's already taken. @jonathanb

No SAAB was always going to be squeezed, it was never an aspirational brand, so Mercedes/Audi et al had those buyers and Ford/Vauxhall etc. the non premium area.

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Re: The name's already taken.

> And I am sure you heard about how the most recent episode of Top Gear ended.

Clarkson : ... and on that bombshell, goodnight!

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Anonymous Coward

Like the Idea.

When and where can I buy?

The real cost to make a smartphone these days not more than $50 to $60 at most with all the gimmicks.

One can buy retail unbranded Chinese Androids for this sum..

So good thinking by Amazon, with economies of scale, its a good move.

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Loving my Kindle Fire HD

I'll buy a $0 Kindle Fire smartphone in a heartbeat.

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"After all, if Ford had also owned Standard Oil, he may have given his cars away for free."

A serious point.

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Anonymous Coward

Free handset, so long as you agree to watch an hour of adverts a day?

Or have all of your phone activity analyzed and data-mined.

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Paris Hilton

@ AC 1312h GMT -

> . . .

to watch an hour of adverts a day?

Or have all of your phone activity analyzed and data-mined.

<

You've written that down as if it wasn't happening anyway, here and now . . .

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Seriously, man... what's the catch?

Just reading all the comments about the "free" phone with a paid-for service contract, vis-a-vis inkjet printers -- and speaking of which: yeah, I'm down with that, bud. My wife and I have DeskJets which we got as "you gets" when she bought her iBook and I bought my G4 tower; that's basically how cheap HP DeskJets are now, but the cartridges -- cripes, man, they cost more than the friggin' printer.

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"Or have all of your phone activity analyzed and data-mined."

So your contention is, that's not already happening anyway ?

:-)

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IT Angle

shrinking the $200 bill

Why not give away cheap phones (or watches) and tether them to the kindle?

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Free or "Free"?

"Free" phones are nothing new. They're "free" when you sign up for a two year contract that adds up to far more than the price of any phone. Big whoop.

But if it's really free, that would be interesting of course.

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Re: Free or "Free"?

I dunno. I got a Sony Xperia SP as a 'free' upgrade on my contract. Cost me an 18 month extension to the contract that I pay just over £20 a month for.

So, over the entire period it's going to be a total cost of ~£370 plus any increase in charges.

If I had bought the phone upfront, the retail cost would have been around £280, according to Amazon. The contract package I get is the equivalent of the £10 per month SIM only deal that the ISP offers. This would make the cost of buying the 'phone up front and then paying for 18 months of the SIM only deal about £460!

This looked like a bargain to me when I was offered it, and still looks like it now! I've effectively got a discounted phone on 18 months free credit, and a reasonable phone package (which includes discounts on my broadband and home phone), and the bonus is that the phone is pretty vanilla, without any of the service provider bloatware loaded.

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h3
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Re: Free or "Free"?

If it is priced such that you just pay for you use like Amazon Web Services it might be good.

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Henry Ford?

Or King Gillette?

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Don't believe the hype

Really can't see it happening so don't get your hopes up.

Free on contract yes, free as a sim free purchase would be insane. Even if $100 is enough to cover hardware costs and patent costs.

Had Android for four years now and that's probably what I've spent in that time. Even including ad revenue just don't see how they can project decent revenue from these. Do they really expect people to buy so much media that it will pay for itself?

Could see the sense of doing it with a kindle but not on a phone.

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Re: Don't believe the hype

Amazon doesn't just sell ebooks, but the screensize on smartphones is a bit small for books and videos, at least for my eyes. I could see this working for something Kindle-sized, they have stuff they can sell, and keep selling.

As an occasional author, I am not sure that it is worth the hassle of selling though Amazon. I would have to sign up with the American taxman before I could self-publish through Amazon. For the sort of sales people get, I might as well give things away through Gutenberg. (Amazon play a statistical trick with "average" sales and the long tail.)

Does this depend on Amazon attaining a monopoly on cat videos?

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Anonymous Coward

smartphones are cheap

$100 retail gets you a phone with the same spec and screen as a Galaxy S3 , the MTK quad core chipsets are 12 months newer and draw less power.

Someone the size of Amazon making a phone for $200 would be making something similar to an S4 or HTC One the mobile phone companies are coasting along and keeping unlocked prices way too high. Why should I sign up for 24 months when I can get a phone for free from Amazon with the same specs.

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The Nokia angle

If Amazon manages to "sterilize" the smartphone market, Nokia's sale of the phone biz to MS may turn out to have been very smart. The nice thing about selling network equipment (which is what Nokia has been left with), is that operators have to keep buying it even when handsets become zero-cost.

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What do you really need from a phone?

I bought one of those cheap Chinese Android phones a few weeks ago. I have a Nokia not-dumb phone which is getting tired, and since it is pre-Android it isn't really much more than a phone with a camera.

Out of the box, it's limited by the amount of RAM. It's also running an old Android version.

After a couple of weeks, I took a deep breath, and rooted it: flashed the ROM and installed a utility that let me use the microSD card as if it were internal memory. Suddenly I have room for more than a minimum of apps.

I think we're likely to be unusual. How many people on the internet would be willing to do things like that? Make the product good enough, and why bother? I don't feel a need to do anything like that to my Nexus 7. In the long run, a low percentage of that sort of hackery is likely to be a good thing. It's a form of competition, a challenge to the official developers.

And, if you don't want to trust a modified ROM image, you still have to trust the NSA.

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ken@whitehouse.uk.net

"It's a strategy that goes all the way back to Henry Ford, who used a combination of good wages for employees"

I'm afraid the "pay employees enough to buy the product they're making" is a long-standing myth. Ford raised the wages for workers in order to retain workers in what was an increasingly competitive market. The same is happening today in China with huge pay rises by (e.g.) Foxconn. Except today no-one says that Foxconn is paying higher wages in order to help employees buy iPhones.

El Reg writer Tim Worstall explains in more detail here:

http://blogs.telegraph.co.uk/finance/timworstall/100016570/lefty-myths-of-our-time-why-henry-fords-pay-rise-for-workers-undermines-the-living-wage-campaign/

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Anonymous Coward

not free

And I would argue that Google play is a larger platform than Amazon's. It certainly has more apps and they are all current, not the sparse out of date out missing versions of Amazon's. and I would suggest Google also has better music and e-book coverage too. (And their ebooks are in the open and industry standard epub format)

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"Google play is a larger platform than Amazon's."

Wow, really? Google Play is selling shoes, paperbacks, trampolines, groceries, party balloons, picture frames, vacuum cleaners, and laptops now? I had no idea they'd expanded so much.

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