Analysts: New Amazon phone must reinvent shopping on smartphones

Amazon.com will announce tomorrow what many believe to be a new smartphone that’s built for shopping, online and offline.

“We’re going to see a smartphone optimized for shopping,” IDC analyst Ramon Llamas told VentureBeat in an interview. “If Amazon is good at one thing, it’s getting its members to buy more stuff.”

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But smartphones have never been that great for shopping. “People use phones for social networking, messaging, browsing the Internet, and taking pictures, but shopping is not usually mentioned,” Llamas said. “My challenge to Amazon is, How are you going to make it easy for me to shop on a smartphone?”

Indeed, the phone will enter a very crowded smartphone market, where big players like Samsung can afford to release a new phone every six months that pushes the boundaries on specs, features, and performance.

The hardware won’t be enough

So the new Amazon phone, which is rumored to run exclusively on the AT&T network, will have to offer a lot more than just phone features to compete.

“We’re at the point now where all of us have pretty damn good phones,” Gartner analyst Tuong Nguyen told VentureBeat. “So having really good hardware is just table stakes.”

Not that the Amazon phone won’t have some interesting features. The device reportedly will use front-facing sensors to detect a user’s movements and create an interactive 3D online shopping environment on the phone.

But even that by itself is not enough. Both LG and HTC have rolled out 3D phones, and the buying public, for the most part, has yawned, IDC’s Llamas pointed out. “Neither followed their initial 3D phones [with a] succeeding one,” he said.

Center of an ecosystem

Gartner’s Nguyen said the Amazon phone needs to act as a delivery point (and a shopping space) for all kinds of Amazon digital services. He points out that the Kindle was a big success, not because it was the nicest tablet on the market but because Amazon could sell products like ebooks and apps through it.

The Amazon Appstore now has over 240,000 apps and games, although some believe that number includes many duplicate apps. Amazon’s supply of apps could easily make or break its new smartphone. Of course, Amazon could also sell music and movies through the phone.

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“An Amazon smartphone would be less about profiting from device sales per se and more a way to pocket a larger share of multiple revenue streams, such as mobile retail sales, mobile content, and advertising,” eMarketer senior mobile analyst Cathy Boyle said in a statement.

In the U.S., retail sales on smartphones will increase 25.4 percent to reach $18.49 billion, according to eMarketer, representing 32 percent of all mobile retail sales, including tablets.

Advertising and cross-selling

Hopefully, we’ll see some moonshots tomorrow at Amazon’s event in Seattle. And we might. Jeff Bezos has been known to swing for the fence with game-changing new products, and his company has more than enough money to do it. Even if the new Amazon phone is a total flop, Amazon gets a lot of attention and barely feels the financial hit.

The really interesting and game-changing functionality that the phone might offer stems from the use of the rear-facing camera, and sensors that many believe will peer out from the front of the device.

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The new phone will likely recognize a retail item in the real world through its rear camera, then provide buying options for the same item at Amazon.

The front-facing camera and sensors could track lots of things. They could use your head movements to navigate shopping content on the phone.

It might be even weirder.

“With the cameras on the phone, they will be able to track and measure consumers’ reactions as they are opening a new app or scanning a bar code of something they want to buy in a store,” Albert Lai, chief technology officer at video advertising platform Brightcove, told VentureBeat.

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“For instance, if you’re in a store, shopping for grills, the phone might bring up listings for similar grills for comparison, or it might show the user offers for complementary products like steak knives, or even show digital assets like movies about the best ways to grill,” Lai says.

‘Showroomers’ may turn pro

And that’s where things might get dangerous for retailers. In the smartphone age, retailers have become used to losing sales to online stores as a result of “showrooming.” Showrooming is when would-be customers use their smartphones to compare the prices they’re seeing in a store with those available online.

Thousands of shoe buyers go to real-world shoe stores to find the right size, then go outside and buy the same shoes at Zappos with their smartphone. Some retailers, like Guitar Center, have given up the fight, guaranteeing prices lower than any that consumers can find online.

With the new Amazon phone, shoppers fond of showrooming may go pro. The phone will likely be able to recognize specific products on sight in a store, then present the user with an elaborate list of competing products and lower prices. Amazon could throw in free rush shipping to sweeten the deal.

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“They [Amazon] can essentially try to steal you away from whatever commercial retail experience you may be in,” Lai says.

Amazon’s real endgame may be forcing brick-and-mortar retailers to act as fulfillment centers for products that shoppers find on the screens of their phones.

We’ll know way more tomorrow, when Amazon rolls out the new device at an event in Seattle. I will be there. Stay tuned.