Report: Amazon wants to offer free smartphones without a contract

amazon-headquarters — Image used with permission by copyright holder

Reported by former Wall Street Journal reporter Jessica Lessin and reporter Amir Efrati this week, Amazon is currently working on a new smartphone that could end up being completely free to consumers. Different than the majority of smartphone contract deals, Amazon doesn’t want to require the user to sign up for a two-year contract. Likely similar to the design of the Amazon Kindle HD tablet line, the Amazon smartphone software would route all movie, television, music, book and magazine purchases through Amazon similar to Google Play on Android and iTunes on the Apple iPhone.

Hypothetically, Amazon could also require users to purchase a yearly subscription to Amazon Prime before getting access to the free smartphone. That would also be beneficial to the smartphone owner as Amazon Prime includes access to free streaming video on Amazon Instant Video as well as a free book rental each month through the Kindle Lending Library. It’s also likely that Amazon would send users into the same application store that’s available on the Amazon Kindle Fire tablets in order to purchase and download premium third party applications.

Amazon’s ability to pull off this type of aggressive move to enter the smartphone market will require agreements with hardware suppliers as well as partnerships with the main mobile carriers to provide wireless access on the Amazon smartphone. If Amazon is successful with this plan, the company could steal a significant amount of market share from smartphone manufacturers like Samsung and Apple.

amazon-smartphone — Image used with permission by copyright holder

Conversely, if Amazon enters the market with a $200 smartphone under a two-year contract, there’s very little incentive for smartphone users to switch from their current phone to a new smartphone that’s tied to Amazon’s content ecosystem. For example, someone that’s invested hundreds of dollars in App Store content on the iPhone simply isn’t going to switch over for the same deal with Amazon.

In addition to taking a percent of revenue on third party applications sold through an Amazon mobile application store, the retail giant could also make up the cost on each Amazon smartphone by displaying digital advertisements. Similar to Kindle devices with Special Offers, Amazon could constantly display advertisements on the phone upon start-up unless the user paid an additional fee to remove the ads.

Regarding the software, the Amazon smartphone would utilize the same open-source version of Android OS used to power the Kindle Fire tablets. This custom version of the Android software doesn’t offer access to any of the traditional Google applications, thus Amazon would have to expand its collection of core applications to accommodate smartphone users.

While Amazon has reportedly been working on a new smartphone ever since the release of the first Kindle Fire tablet, there’s no indication that the Amazon smartphone will be announced or released this year. When contacted about this report, an Amazon representative declined to comment to Lessin. However Amazon is expected to announce new Kindle Fire HD models this year, likely occurring within the next 45 days in order to release the new models prior to the start of the 2013 holiday shopping season.

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