Amazon Fire Phone is more than the sum of its BOM

31 Jul 2014

I don’t usually pay a lot of attention to smartphone breakdowns, where an analyst cracks open the latest device and reverse engineers the bill of materials (BOM) to see how much of a margin the manufacturer is making from the RRP. But IHS Technology’s breakdown of the new Amazon Fire Phone is interesting because it illustrates that the device really is more than just the sum of its parts – and that could also be its downfall.

The short version is that the Fire Phone – which is ostensibly an Android phone designed to be tightly integrated with Amazon’s shopping and media ecosystem, and is currently retailing for $650 before subsidies – costs $205 to make (including manufacturing costs).

That may seem like a healthy margin, but as IHS points out, the BOM doesn’t include the massive amount of R&D that went into the Fire Phone. From the press release:

“The features that differentiate the Amazon Fire Phone – particularly its unique Dynamic Perspective interface – required the development of specialized hardware and software,” said Andrew Rassweiler, senior director, cost benchmarking services for IHS. “This kind of R&D effort is expensive and can only be paid off through major sales success.”

As an example, the 3D-like Dynamic Perspective – which allows one-handed access to menus and shortcuts by tilting or swiveling the phone, or peeking at the display – works by tracking the user’s head, and that requires very specialized hardware, says IHS:

To make the Dynamic Perspective technology work, the Fire uses hardware not found in any other smartphone: four camera-like sensors that coordinate their activities with the applications processor. The sensors are placed in each of the Fire’s corners, detecting the user’s perspective relative to the display. The IHS Teardown Service revealed these devices to be monochrome sensors with a resolution of 400 by 400 pixels.

There are also four infrared (IR) light emitters, one in each corner of the front bezel. “These emitters may project more than just a blanket of infrared light,” said Rassweiler. “These IR emitters may broadcast an array of light ‘points,’ which are then ‘seen’ by the cameras, providing the camera with a ‘map’ of its surroundings. Though we are not sure at the moment, it is assumed that the Amazon Fire phone sensors work in a similar manner to the technology used in Microsoft’s Xbox Kinect.”

That’s just the hardware innovation. There’s undoubtedly a wealth of innovation invested on the software side not only for Dynamic Perspective, but apps that tie into Amazon’s shopping business – particularly Firefly, which enables the Fire Phone to recognize physical products, images, text, video and music, match them with actual products for same on Amazon and stick them in your shopping cart via a button on the side of the phone. So all up, the hardware BOM doesn’t provide the full picture of what Amazon has sunk into its first smartphone.

Granted, this is true of other smartphone makers as well. Apple, Samsung and Microsoft all pump a lot of R&D into the software as well as the hardware. The difference is that they’re all established players in the device space. Amazon is not. The overall point IHS is making is this: Amazon has undoubtedly sunk a major chunk of money into developing the Fire Phone beyond the actual cost of making one, and it’s going to have to sell an awful lot of Fire Phones for that R&D investment to pay off.

Ian Fogg, senior director for mobile media at IHS, isn't optimistic about Amazon’s chances: “This is a high-risk launch-price strategy which is unsustainable for a smartphone market entrant like Amazon. Simply having a well-known brand on the box is not enough to sell smartphones, as Nokia and Motorola know well.”

And unfortunately for Amazon, online reviews of the Fire Phone seem to bear that out. The general sentiment seems to be: it’s a good smartphone, but not so good as to give up your existing smartphone unless you’re a heavy-duty Amazon Prime member who really, really needs a phone that makes it easier to use Amazon services.

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