Fast Company on the real story behind Jeff Bezo’s Fire Phone debacle.
Introduced with grand ambitions last summer, the Fire Phone is widely seen as a fiasco. Originally priced at $199 (with contract) and intended as an iPhone competitor, it now sells for 99 cents, and Amazon has taken a $170 million write-down largely attributable to unsold Fire Phone inventory. Yet Bezos finally answers the question with the kind of reasoning that investors, customers, and pundits have come to expect from him: Amazon is going to pour more resources into its phone. Defending the Fire Phone as a “bold bet,” Bezos argues that it’s “going to take many iterations” and “some number of years” to get it right.
That’s $170 million gone but more to be pumped into the Fire Phone pipeline.
But lately it’s not an answer that Wall Street has liked. In October, Amazon shocked shareholders when it reported a $437 million net loss for the quarter, its biggest in 14 years. Quarterly revenue hit $20.58 billion, but the company’s growth rate, once a bright spot for those leery of Amazon’s lackluster profits, is slowing. And prospects for the fourth quarter, which closed after this story went to press, were not much better: Over the past five years, Amazon’s fourth-quarter growth rate has steadily declined, from 42% in 2009 to 20% in 2013—and the company was projecting between 7% to 18% for 2014. “For years, the story has been that Amazon isn’t profitable because it is growing so fast,” wrote hedge-fund manager David Einhorn, in a letter to his Greenlight Capital investors. “Now growth is slowing, but rather than unleashing higher profits, the slower growth is leading to even greater losses. One of the principal bullish assumptions supporting many bubble stocks is, ‘The company is growing too fast to be very profitable.’ We think Amazon is just one of many stocks for which this narrative will ultimately prove false.”
Is Amazon choosing the wrong battle to fight?
What makes the Fire Phone a particularly troubling adventure, however, is that Amazon’s CEO seemingly lost track of the essential driver of his company’s brand. It’s understandable that Bezos would want to give Amazon a premium shine, but to focus on a high-end product, instead of the kind of service that has always distinguished the company, proved misguided. “We can’t compete head to head with Apple,” says a high-level source at Lab126. “There is a branding issue: Apple is premium, while our customers want a great product at a great price.”