Not too long ago, the talk was about how Nokia should learn from Amazon. How the e-commerce giant had cleverly made its mark in the tech world and even managed to churn out best-selling devices during the Holidays. It was known for effectively camouflaging the Android OS to push in its own services and app store on the Fire OS. From tablets and e-readers to e-commerce and TV entertainment, the company has been all over the place over the past couple of years.
At the Business Insider conference, Bezos explained it as, “It’s kind of like we built this lemonade stand 20 years ago, and the lemonade stand has become very profitable over time, but we also decided to use our skills and the assets we’ve acquired to open a hamburger stand, a hot dog stand—we’re investing in new initiatives.”
So far, even without making much profit, everything had worked for Amazon, until the smartphone debacle came along. The ambitious Fire Phone was one of the year’s biggest flops. Now, we wouldn’t doubt Amazon’s motive for building a phone. At that point in time, it seemed just the right move. After all, Amazon is known to build products that are future-ready. With everyone moving to smartphones, that was the only way it could stay connected with its users. Moreover, it had to deal with the impact of the falling tablet sales. Moreover, selling its services on other platforms would mean a cut in its already thin profit margins.
However, what’s worrisome is the fact that Amazon reported $437 million net loss in October 2014, the biggest in the last 14 years. In fact, the Fire Phone that was launched for $199 on contract soon began selling for as low as 99 cents (obviously with contract). Moreover, Amazon is known to have a large unsold inventory of the phone. Was it Amazon’s ambition to be a jack of all trades and master of none or too many resources were poured into building the Amazon Fire phone? Fastcompany’s Austin Carr spoke to several current and former Amazon employees to know what really went wrong with the Amazon Fire phone.
It is known that Amazon CEO Jeff Bezos prefers to invest in things that will drive business in the future rather than what brings profit today.
Citing former Microsoft CEO Steve Ballmer, the report states, “They make no money! In my world, [that’s] not a real business. I get it if you don’t make money for two or three years, but Amazon is, what, 21 years old?”
However, Carr points out that this time the criticism has surpassed it all and critics believe Bezos has lost focus.
“Understanding Amazon’s journey to create a smartphone, and why it failed, is perhaps the best way to understand the company’s evolving mission and values as it struggles to unearth its next gusher of revenue. Because the Fire Phone, as with most big innovations inside Amazon, came straight from Bezos’ brain. As one founding team leader of the project puts it, “This was Jeff’s baby,” adds the report.
The project codenamed Tyto went on floors in 2010, the same time we saw the iPhone 4 from Apple. Amazon is believed to start every project keeping the consumer needs and desires and then work to achieve them. However, this time, the consumer was Jeff Bezos himself. The report clearly suggests that it looked as if he was building the phone for himself, rather than consumers.
“Bezos, insiders say, was “the product manager” on the Fire Phone. (One research scientist refers to him as the “super product manager.”) “Even the very smallest decisions needed to go through him,” says a former senior member of the team that developed the Fire Phone’s cameras, recalling how Bezos personally chose to include a 13-megapixel camera rather than an 8-megapixel one,” points out Carr’s report.
Bezos got himself closely involved with everything related to the phone – software and hardware. While initially it looked like a perfect CEO caring for his products, it later got frustrating for the design team. “In essence, we were not building the phone for the customer—we were building it for Jeff,” the designer told Carr.
Moreover, he was reportedly driving the team on one specific feature – Dynamic Perspective. Yes, the 3D engine that doesn’t require 3D glasses and is allows efficient viewing from every angle. It’s also essentially what went wrong with the phone. When a team failed in achieving the same effect, the company started re-hiring for the same.
“In meetings, all Jeff talked about was, ‘3D, 3D, 3D!’ He had this childlike excitement about the feature and no one could understand why. We poured surreal amounts of money into it, yet we all thought it had no value for the customer, which was the biggest irony. Whenever anyone asked why we were doing this, the answer was, ‘Because Jeff wants it.’ No one thought the feature justified the cost to the project. No one. Absolutely no one,” a former engineering head told Carr.
Having said that, he also added that Bezos is immensely respected and has taken big risks in the past that have worked. This has ensured that he has lots of respect from his team and his decisions are usually accepted.
For instance, it was his decision that the original 2007 Kindle includes a cellular connection for customers to download and access e-books from anywhere. Though this idea was believed to cut into profits, it turned out to the biggest USP of the device. Another such opposed decision was in the e-commerce sector when he bundled free two-day shipping into Prime’s immensely popular subscription service. The service now has tens of millions of customers. Maybe Bezos has always got it right in the past, but the history didn’t repeat itself when it came to the Fire Phone.
In 2013, most of the Tyto work was scrapped. The project was renamed Duke and the work was started all over again. It also had a low-cost version dubbed “Otus” in mind. After all, aggressive pricing had been Amazon’s driving factor for years. “The strategy had enabled Amazon to swallow up entire industries and squash competitors, from Circuit City to Barnes & Noble,” adds the report.
“The high-end phone would be big, risky, different, and unexpected—not the cheap, unexciting device everyone would anticipate from Amazon. That helps explain why, for example, Bezos ordered the team to gussy up the phone’s Firefly feature, a service that can identify many types of products and media with the click of a button. Hover the phone over a physical book cover, for example, and Firefly can instantly dial it up on amazon.com or in the Kindle store. But Firefly can also be used to determine the name of a song in a bar, or to scan in contact information from a business card. And just one month before launching the phone, Bezos ordered the team to find a way for Firefly to recognize paintings and other works of art,” further adds the report.
In June 2014, the company finally unveiled the smartphone. However, soon people realised that the fancy features were a gimmick. The device didn’t come with an Apple industrial design or ecosytem. It was too expensive for consumers. Citing three sources familiar with the sales numbers, Carr states, “The Fire Phone sold just tens of thousands of units in the weeks that preceded the company’s radical price cuts.”
Though the first attempt at building a phone has failed, the company may come with its improved iterations. However, Amazon would first need to please its investors or would eventually go bankrupt. Amazon’s shopping-spree attitude could lead it into trouble.
Amazon executives had told TheVerge that, “they are learning from their successes and failures, and would be very selective about what opportunities they pursue in the future. But it did acknowledge that it was taking a charge of $170 million related to the costs getting the phone stocked and sold. It has another $83 million in Fire Phone inventory on hand.”
The first Amazon Kindle had a clunky design, but the idea behind it was original, and that is why it turned into a huge hit. Moreover, it is relatively simpler than building a smartphone. Bezos is known to be a team man, otherwise. He has earned a lot of respect from his “bold decisions” and “gamble” that has worked each time. The company’s driving point has been its aggressive pricing. People look at Amazon for a great device at an even better price. That’s the reason why Carr concludes, “Amazon is admired by customers for what it does, rather than loved for some iteration of itself that Bezos has clearly desired. The world doesn’t need another Steve Jobs. They just want Jeff Bezos, the way he used to be.”
Publish date: January 9, 2015 4:42 pm| Modified date: January 9, 2015 4:42 pm