Microsoft and Amazon are reported to have placed smartphone manufacture orders with Foxconn International Holdings – part of a company which assembles a raft of devices including Apple’s iPhone – ahead of product launches in 2013.
Originating from Taiwanese publication DigiTimes – which has something of a chequered history in terms of its predictions – the reports nevertheless address rumours which have been widely discussed throughout 2012.
The potential Microsoft device, which would use its latest-generation Windows Phone 8 platform, is perhaps the one which causes the biggest questions.
The company has previously focused its efforts in the mobile market as being a platform provider, which has meant that it has not found itself competing directly with its customers. The launch of an own-brand device would change this – and it is not immediately clear how it stands to benefit.
After something of a false start with Windows Phone 7 (and its successor, WP7.5), the company has launched the latest version of the OS with some impressive handsets from Nokia, HTC and Samsung – which are already in the process of reaching stores.
According to recent reports, Steve Ballmer, CEO of Microsoft, had said that Windows Phone 8 is off to a “great start”, although without hard numbers to back this up it is hard to tell what this really means. But if it is failing, the quality of the available handsets seems unlikely to be the key factor.
While HTC and Samsung both use Android for the bulk of their smartphone shipments, Nokia is “all in” on Windows Phone, and can offer a broad distribution partnership that Microsoft would not hope to be able to rival on its own.
With Nokia and Microsoft having an especially close relationship (and Microsoft funding Nokia to support development of its early Windows Phone devices) it is this company that is most likely to be phased by an own-brand Microsoft device – even if its impact is limited.
Indeed, while Google introduces new versions of its Android platform with a “hero” device under the Nexus brand, these have been assembled by its existing partners – HTC, Samsung, LG Electronics and Asus have been chosen for either smartphones or tablets (or for Samsung, both). This enables it to drive development of its new flagship, without cutting its existing partners from the loop.
An own brand device would not achieve the breadth of reach of HTC, Nokia or Samsung, all of which have impressive global distribution networks and relationships with operators – which take years to build, not months. Meaning an own-brand device from Microsoft is unlikely to drive volumes, while simultaneously providing unwanted competition for the very vendors which can shift the units.
And with the new Windows Phone 8 devices, Nokia at least is starting to differentiate on the core Windows Phone platform, and if Microsoft is looking to encourage vendors to invest to bring more appealing products to market, competing directly with them seems a risky way to go about it.
Microsoft has already broken with its tradition of not competing with its partners by launching its own Surface-branded tablet, the news of which was not well received by its computing partners. It is not clear what it would hope to gain from its own-brand smartphones.
Amazon faces a different set of challenges to Microsoft in bringing a smartphone to market, and through the portfolio of content and apps assembled for its Kindle Fire tablet (pictured), it would be able to launch handset onto the market with a compelling set of content.
Unlike Microsoft, Amazon does not have any device maker partners to compete with and, following the launch of Kindle Fire, it already has significant momentum in the tablet space – something that a number of high-profile rivals have notably failed to achieve. Extending this to include a smartphone device seems a logical step forward.
And at least on the surface, Amazon has a ready-made distribution channel – it is, after all, an online retailer at heart. It could heavily promote a Kindle smartphone to customers, in much the way that it already has with its tablet and ereader devices.
The company also has the potential to adopt a disruptive pricing model, in order to offer the device at a low price. By offering the smartphone at close to cost price, it can undercut rival unlocked smartphones, with the intention of generating its profit from accessories and through its cut of content sales.
Perhaps the biggest challenge that it faces is that in the markets where it has launched Kindle Fire, and where it has a full range of content and apps available – where its proposition is strongest, in other words – the most common purchase model for smartphones is subsidised, through operators.
As Google found with its unlocked Nexus device, buying unlocked devices separately from services has not become a mainstream proposition for consumers, even if many observers have noted that the costs are similar whichever approach is taken. Whether Amazon will be able to change entrenched customer attitudes is yet to be seen – but for many, the operator is still the first port of call when it comes to phone purchase time.