Free Kindle Phone? Here’s how Amazon can make it work

Amazon Kindle phone is like a unicorn. Or maybe like an iPhone, in the years before it was actually launched.

Everybody has heard that such thing may exist, nobody has ever seen it, and everyone agrees that if it was real, it would be something different and really cool.

Today we get a new dose of Kindle Phone rumors, this time from a a well connected former WSJ reporter Jessica Lessin. According to her, Amazon is now trying to figure out how to offer Kindle phone for free, off contract.

Is that even possible?  Lets see how the free Kindle phone could work.

Building usable smartphones these days is pretty cheap. Xiaomi sells their Red Rice smartphone with 4.7” 720p display, 1.5GHz quad-core CPU, 1GB of RAM,  8 megapixel camera and Android 4.2.2 Jelly Bean for $130 in China, and it costs just $85 to make. You can also get off-contract BLU’s smartphones from $79.99 from Amazon  U.S.

The latter are somewhat obsolete by today’s standards, but it is safe to assume that if Amazon commits to a several million unit order, it could get Kindle phones delivered to its warehouses for something like $80 to $100 per device.

Kindle Phone Fire

Then it’s just a matter of recouping that $100 over the lifetime of Kindle phone. And the biggest hurdle to Amazon here will be U.S. carriers.

The problem with wireless market in the U.S. – are carrier subsidies. It doesn’t matter whether you bring your own phone to AT&T and Verizon, or take one of theirs. Their monthly post paid plans are the same. And they subsidize their own phones heavily. You pay  $200 for a handset that should cost $600, and you can get a smartphone that would otherwise cost up to $400, for free. It will be impossible for  Amazon to make Kindle phone  for $100, that is better than $300-400 phone from Samsung, LG or Motorola. And if your monthly installment for wireless service is the same, you will have no reason to chose Amazon’s Kindle phone over a free Samsung Galaxy S3, even if Galaxy comes with a two year contract attached.

Unless two biggest carriers decide to unbundle their service fees from phone subsidies, or Amazon is able to persuade them to create some special plans, two thirds of U.S. market is pretty much closed for free  Kindle phones.

That leaves T-Mobile, and smaller carriers like Metro PCS or Boost, that already offer cheap unbundled wireless plans. And this is where things get interesting, and where Amazon can gain a foothold with a free Kindle smartphone. The market covered by these operators is still big enough to make a difference, and Amazon could easily strike a deal with one or all of them for Kindle Phone customers. For a commission fee covering most of Kindle Phone cost.

It could work like this.

Amazon offers free Kindle Phone with T-Mobile or Metro PCS SIM card, locked to that particular carrier. No 24 month contract, but you still need a wireless service and have to pay $40 to $60 a month for it. And since Amazon is steering new customers to carriers in great need of them, it can demand a commission fee for each new client that signs-up for the service through Kindle Phone. The commission could be a flat one time fee covering most of Kindle Phone costs, or it could be a small fraction of carrier service fee paid in monthly installments, as long as Kindle Phone is in use – I’m sure they will work out the details.

The point is – with wireless data plans starting at $40 and up in the U.S, every new, even off-contract customer is worth a lot to the carrier. And that value may already be, or will soon be enough to cover most of the Kindle Phone costs.

And then there are Amazon services embedded in heavily forked Android Kindle OS. I have no idea how much per Kindle owner they are worth to Amazon, but they are definitely worth something. Otherwise Amazon wouldn’t be still selling and expanding their Kindle Fire tablet range. And, as Kindle ecosystem and digital offerings grow, that value with only continue to grow as well.

So to answer that question of whether a free Kindle Phone is possible?

Yes, it most definitely is.

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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