The $0.99 Amazon Fire and iPhone Pricing
AT&T Inc. (NYSE: T) has started to offer Amazon.com Inc.’s (NASDAQ: AMZN) Fire smartphone for $0.99 with a two-year contract. Analysts believe this is because the phone is selling poorly. Alternatively, like many other smartphone companies, Amazon may want to drive demand ahead of the iPhone 6 introduction. The new product may cost as much as $399. The bet other smartphone manufacturers have made is that they can undercut Apple sales before it introduces its new product.
Amazon is not alone in terms of offering aggressive pricing. AT&T sells Samsung’s Galaxy S5 for $199 with a two-year contract. This flagship product has been favorably compared to the iPhone 5. The new HTC One, which is supposed to carry the injured manufacturer to better sales, is priced as low as $49. Desperate manufacturers that have not been close to taking share from Samsung and Apple are similarly offering sharp price cuts.
The introduction of the Apple Inc. (NASDAQ: AAPL) iPhone 6 likely will follow the script of earlier iPhones. People will line up outside Apple stores and those of its carriers. These locations will run out of the iPhone 6 in a few hours. Apple’s website will also post that there is a hiatus for shipping the new product. Millions of people will happily wait to pay top dollar for the iPhone 6. Apple’s nightmare is that the lines will be short and supply plentiful. Part of the reason for a failure of the iPhone 6 could be lack of expected features. Another is that consumers are tired of the constant introduction of new features. The ones they have on their current phones are enough. People might upgrade for $0.99, but a $399 price tag is another matter.
Amazon has been famous for its willingness to sacrifice margins for market share. Analysts have assumed it loses money on some versions of its Kindle e-readers and Kindle Fire tablets. There is no reason the Fire smartphone should be any different.
Like Amazon, Apple competitors would like to soak up as much demand before and just after the iPhone 6 launch. If the public has become more price sensitive as they shop for smartphones, the gambit might work.