In my previous blog, Dishing Out
Mobile Predictions, we explored Dish’s desire to launch an IoT-focused mobile network and how Amazon would be a natural partner in this enterprise. But, as predictions go, there’s a far more interesting potential opportunity for the two companies: a full mobile service offering for consumers. The combined efforts of Dish and Amazon could provide a truly disruptive consumer-based mobile offering that is worth exploring.
The result would be a win-win for the two companies, with Dish benefiting from Amazon’s consumer presence, and Amazon gaining another direct connection (one could argue, the most personal, important connection) to the consumer base for its Prime-based value adds, such as video streaming. Particularly in the new post-net neutrality era, Amazon would be able to provide fee-free access to its music, video, and related services using this network, not to mention expand the potential ecosystem around the Alexa service.
Shaking up retail… again
One of the key challenges for any mobile-wannabe is creating the retail presence. In a world of online shopping, mobile service has managed to stay very much a physical store product and this serves as a significant competitive barrier. Indeed, if Dish were to launch a consumer-focused service on its own, the company would face exactly this issue, needing to build out a major store presence in order to get the consumer’s attention, especially as Dish is known primarily for its satellite-based TV service.
Amazon solves this problem both with a conventional, as well as a non-traditional approach. First the conventional: with the acquisition of Whole Foods, as well as the opening of some Amazon Books stores, and partnerships with retailers such as Kohl’s, Amazon owns a physical retail presence that can be leveraged for a mobile service launch. That’s not a bad start as retail goes, but it is Amazon’s online presence, the very core of the company, that is its true strength. In many respects, the current mobile focus on retail stores is an artificial barrier created by the carriers in order to protect (and expand) their base. Amazon’s online retail presence is easily strong enough to breakdown that boundary - if consumers will buy clothing and shoes online, they will also purchase mobile service the same way. That is a game changer for mobile.
Further, we would expect the consumer mobile service to be focused on Prime customers, with whom Amazon already has a close relationship. Indeed, a “Prime Plus” strategy, with the service fees significantly undercutting the current mobile status quo, would be Amazon’s most probable approach. For these Prime customers, an online purchase would be natural.
Ecosystems are king
This would hardly be Amazon’s first foray into the mobile world. Previously Amazon took a hardware approach with the Kindle, which included cellular access, followed later by the Fire smartphone. More recently, Amazon has focused on Prime Exclusive Phones, which tie customers more closely to Amazon content in return for discounted, unlocked smartphones. And beyond mobile, Amazon has an array of tablets and streaming devices to deliver content and shopping opportunities to the consumer. But it was really the launch of Alexa that changed the potential dynamic, moving Amazon from a content and hardware provider, to an ecosystem owner.
This is not to say, of course, that the retail component is not still the core focus – it is. But by creating an ecosystem, Amazon keeps the consumer’s attention for more of the day, making it the natural “go-to” for everything. And with more content being viewed via mobile, not to mention more purchases made, being front and center in the mobile world will help to ensure that Amazon remains the dominant retailer. The key will be to ensure that the smartphone’s interface reflects Amazon’s ecosystem, rather than that of the smartphone OEM, with Amazon’s video, music, price match app, and Alexa being the dominant services that are available.
Priced to win
Pricing the service is where Amazon can have the most impact, as the company is in a unique position to price differently than the status quo. Mobile is another touch point for Prime customers, not the lead product and, as such, Amazon doesn’t necessarily need to make money directly from the mobile component. Rather, this is all about pulling the Prime customer into an even deeper relationship. Additionally, there are potential cost savings, as Amazon doesn’t need a dense retail store strategy.
This is particularly true if the mobile service is built with Dish, where there is a win-win for the two companies. This would be quite different from the typical mobile virtual network operator (MVNO) model, which wouldn’t allow as much freedom to price effectively. But more than that, Amazon has demonstrated its willingness to spend money to retain – and expand – its Prime base. Take, for example, the plan to spend $5 billion on original content for Amazon Prime Video over the next year.
Does Alexa need a mobile network?
It is worth a pause for thought: does Amazon need a mobile network in order to expand Alexa’s sphere of influence, or indeed for the other Amazon assets. All of these are available as apps that consumers can install already, after all. Further, consumers purchasing the Prime Exclusive Phones already get a more integrated solution without the need for Amazon to invest so heavily into mobile (and it will be a hefty investment).
But, we would argue that the Prime Exclusive solution is still a peripheral one that will not see a mass-market adoption, or possibly a means for Amazon to test the market’s willingness to purchase devices online. And while the apps are readily available for all other consumers, they aren’t integrated as well into the ecosystem as Amazon should want. Controlling the mobile network, and therefore the devices (to an extent) that leverage this network, puts Amazon in a far stronger position moving forward. And owning the mobile connection to the consumer allows Amazon to push the content services, as well as Alexa, in a more compelling manner.
One (large) roadblock on the mobile path
There’s a catch in our prediction for Amazon. The main goal of this approach is to build a tighter integration of Amazon services into the smartphone to drive continued and increased engagement for Prime customers. But to do this, Amazon needs to convince smartphone OEMs to allow more prominent placement of the Amazon services on the phone, such as leveraging Alexa as the main intelligent assistant. The larger OEMs may be understandably reluctant to do this, as it diminishes their own ability to differentiate and to create their own ecosystems. Consider the smartphone market leaders, Apple and Samsung. Apple will be highly unlikely to agree to any solution that means it relinquishes control of the interface. Samsung would likely take the same approach, as it is focused on developing a Bixby-based ecosystem. The lack of just Apple would cut out roughly 40 percent of the current consumer base, making Amazon’s task a little more challenging, and any compromise on how prominent Amazon’s content would be could make the mobile move less compelling.
But where there’s a will – and we suspect Amazon does have the will – there’s a way. The service can begin slowly, and without Apple if necessary. And even without such a strong interface linkage, there are still many benefits for Amazon to launch a mobile service. Not least is the significant revenue spike that Amazon would enjoy by launching a mobile service, and that is clearly a key metric that Amazon is judged by. Even without some of the additional synergies that come from the Prime linkage, and even if Amazon had to water down the “Prime” presence, such as not insisting on an Alexa-first hardware strategy, the benefits of pushing into mobile are there.
The (even) bigger picture
This brings us to an even bolder possibility... While we began by talking about a partnership between Dish and Amazon, the ultimate end game is perhaps for Amazon to purchase Dish. The combination of Dish’s spectrum, existing customer base for satellite TV and network operations skills, combined with Amazon’s content services and retail would make a compelling alternative to the current mobile/entertainment giants that are forming up. And of course, the network would also support Amazon’s drone service.
The potential loser in all of this would be Sprint, which would quickly begin to look even more isolated with a lack of strong content services. Softbank could choose one of several strategies to counter this: looking to merge with a cable company (again), such as Charter, or looking to double down on the investment, buying into the content market in some way. Or, perhaps, seeing if it can join with Amazon and Dish to form a Triple Entente of sorts. The next 12 months should start to show the path, and it’ll be fun to watch how, or if, this prediction comes to fruition.