Amazon hopes to catch up to Apple and Samsung Electronics with a new smartphone that out-features the competition. But what it doesn't do is compete on price.
Amazon historically has undercut the competition with new hardware products. In 2013, it introduced a new tablet, the Kindle Fire, which sold for about half the price of the iPad.
But Amazon's Fire will be priced at $199 with a two-year contract from AT&T when it goes on sale July 25. It costs a whopping $649 without service. Google last year sold several phones direct to the public for $300.
(Amazon did offer one price break — one year free of its $99 yearly Prime offerings —free two-day shipping and streaming of movies, TV shows and music, to new Fire buyers.)
The phone is the latest hardware addition from Amazon, following a set-top box for streaming video, a wand for scanning and ordering groceries from home and an updated version of its Kindle Fire tablet computer.
Investors were impressed with the Fire Phone. Amazon shares rose 2.7%, to $334.38, in trading Wednesday.
The pricing "makes it much harder for Amazon to sell these things," says Jan Dawson, an analyst with Jackdaw Research. The Fire tablets sold "because they were cheaper than iPads. I don't see any compelling reason to get this over the iPhone, unless you were a major Amazon nut."
SunTrust analyst Robert Peck believes a hit phone for Amazon in a field dominated by Apple and Samsung could mean up to $2 billion in revenue. He estimates sales of 2.7 million phones, mostly to Amazon Prime customers. "We assume that each new customer buys 10 items per year" from the phone, Peck says, at $50 each.
The new Amazon phone features include a 3-D-like viewing experience, four front cameras and a function, called Firefly, that recognizes products, faces, songs and TV shows for one-click buying. Yet they don't go far enough to wean consumers from Apple and Samsung, says Forrester Research analyst James McQuivey.
Firefly is likely to make an impression, and not a good one, on retailers, McQuivey says.
Showrooming, in which consumers compare prices on their phones at retail locations, then go home and buy it on Amazon, "was already a problem," he says.
"Now, they point the phone at a product, and don't even have to get the bar code," McQuivey says. "Retailers will hate this."
What's not in doubt is the innovation unleashed Wednesday. Consumers haven't seen anything like Firefly before. Roger Entner, an analyst with Recon Analytics, called the Fire "a fresh look on a tried and true product."