Report: Amazon building smartphone to fuel mobile content sales

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Amazon is reportedly developing its own branded smartphone to more effectively compete with Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) in the battle for digital media supremacy.

Amazon Kindle Fire

The Amazon model is typified by the Kindle Fire (pictured).
Source: Amazon

Citing two sources with knowledge of the matter, Bloomberg reports that Amazon is working with Chinese manufacturer Foxconn to develop the device. The digital retailer is concurrently assembling a portfolio of patents covering wireless technologies to fend off potential allegations of infringement, other sources said: Amazon has been involved in five patent cases this year and 20 cases in 2011, according to Bloomberg data. The company recently hired Matt Gordon, who formerly served as senior director of acquisitions at Intellectual Ventures Management, which owns more than 35,000 intellectual property assets. Gordon will act as Amazon's general manager for patent acquisitions and investments.

An Amazon spokesperson declined to comment.

Amazon is no stranger to producing its own devices, following its Kindle e-reader series with the late 2011 introduction of its Android-powered Kindle Fire tablet. Unlike Apple, which relies on content from its iTunes digital media storefront and App Store to boost sales of hardware like the iPhone and iPad--and unlike Google, which looks to its open-source Android operating system to fuel revenues derived from its core advertising and search services--Amazon depends on affordable hardware to drive sales of e-books, music, movies and related content offerings.

The Amazon model is typified by the Kindle Fire, which is priced at $199, compared to $499 for Apple's cheapest iPad. The tablet offers consumers a single, portable point of access to a host of digital media initiatives including the Kindle e-book catalog, Amazon Instant Video and Amazon MP3, with all content backed up in the cloud. The Kindle Fire also integrates with the Amazon Web Services platform.

Amazon also has emerged as a major player in the mobile application retail segment since launching its Amazon Appstore for Android in 2011. Developers generate substantially greater revenues per user in Amazon Appstore than in the rival Google Play storefront, according to recent data published by app store analytics firm Flurry. For every $1 generated by Apple's pacesetting App Store for iOS, Amazon Appstore yields an average of $0.89 per user, while Google Play earns developers just $0.23 per user, Flurry reports. The company credits Amazon Appstore's success to the company's digital retail expertise, while Google's strengths are its search tools and advertising technologies.

In late May, AdAge reported that Amazon is exploring the possibility of acquiring a mobile advertising network, further escalating its fight with Google and Apple. Amazon's mobile ad value proposition presumably would hinge on the wealth of consumer information and purchase history data at its fingertips. The company already leverages online shopping histories to power its own product recommendations; in addition, its Amazon Appstore for Android storefront offers a series of automated marketing features extending its recommendation algorithms to mobile software merchandising. Those consumer insights also could buoy Amazon's attempts to compete in the smartphone space, enabling the company to suggest hardware, software and data pricing plans geared to each user's behaviors and preferences.

There remain many questions about the Amazon smartphone, however. It is unclear how the company will provision wireless services--in the case of the original Kindle, Amazon purchased wholesale service from Sprint Nextel (NYSE:S), which it bundled into the cost of the e-reader and e-book purchases.  At the same time, should Amazon choose to eschew Android or another established mobile operating system, it would lose direct access to many key Google services, including Google Maps. Earlier this week, Amazon reportedly acquired 3D mapping startup UpNext, and could leverage the startup's technology to build out its own mapping platform.

For more:
- read this Bloomberg article
- read FierceWireless' take

Related articles:
Report: Amazon acquires 3D mobile mapping firm UpNext
Amazon bringing Special Offers ads to Kindle Fire welcome screen
ComScore: Amazon's Kindle Fire grabs 55% Android tablet share
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