Photo: news reports, company releases, BI Intelligence estimates
This is a news note from Business Insider Intelligence, a new research and analysis service focused on mobile computing and the Internet. Sign up here.Amazon is going to sell prepaid wireless service in Japan, Nikkei reports (via The Verge). It is entering the mobile virtual network operator (MVNO) market there.
This looks like an experiment that could presage an Amazon phone, which has been rumoured since Amazon forked its own version of Android to create a tablet.
And in fact, an MVNO is how we think Amazon should proceed. Here’s why:
- For Amazon to make a credible play for the phone market, it needs to stand apart from the incumbents in some important way.
- The way Amazon likes to stand apart is by offering cheaper prices.
Amazon can make a strong foray into the smartphone market with the following strategy: become an MVNO, charge lower prices, give away the smartphones, and make money on its software and media ecosystem.
Photo: Business Insider Intelligence
And on a smartphone, there are endless ways for Amazon to make money:
- From media sales (books and music)
- From software sales: not only from sales of third-party apps (and game virtual goods), but also by preinstalling phones with copycat versions of popular phone games (perhaps by acquiring a good mobile games studio) and reaping the whole reward of virtual goods and games
- From ads: Amazon is quietly becoming a formidable force in mobile advertising thanks to the strength of its data and Kindle ecosystem
- From commerce, of course.
The key thing to understand is that Amazon’s mobile platform is the most “locked down” of the big mobile platforms: Amazon decides what apps and ads go on each device.
So unlike Apple, which is content to make money on hardware sales, and Google, which is content to not make (much) money from Android, Amazon can grab most of the value from its ecosystem, and thus potentially make it a profitable proposition to subsidise both the handset and the telecom service.