Amazon's $170M Smartphone Fire Sale: 2 Lessons Learned

Amid a disappointing Q3 earnings call yesterday, Amazon (AMZN) disclosed that it took a $170 million charge mostly related to Fire smartphone inventory and supplier commitments. Moreover, Amazon CFO Tom Szkutak conceded that Amazon had about $83 million worth of Fire smartphone inventory at the end of Q3. No doubt, the smartphone fire sale has already begun. But what went wrong with Amazon's Fire smartphone strategy -- and what can an I.T. entrepreneur learn from the missteps? The answer involves two clear learnings.

First, the media ran wild with rumors about the Fire's 3-D user interface before the smartphone launched in mid-2014. Geek sites kept comparing the phone's rumored interface to R2-D2's 3-D hologram projection of Princess Leia: "Help me Jeff Bezos, you're my only hope... vs. iPhone."

Amazon never officially commented on the rumors. By the time the smartphone debuted, the 3-D hype was out of control -- but the actual user "wow" factor never materialized. Yawn.

Lesson for I.T. entrepreneurs: Careful with viral messaging. By its very nature, if you take too long to comment the viral message will spread beyond your control.

Whom Do You Serve?

Even worse, Amazon put its personal business interests ahead of the customer -- way ahead of the customer. More than a smartphone, Fire is designed to be a mobile, digital cash register for customers -- tied to the Amazon Prime loyalty service. Those who carry the Amazon phone, CEO Jeff Bezos believed, would visit retail stores to "show room" products and then use their phones to buy the same products directly from Amazon.

Yes, Show Rooming is a trend -- but an organic one, at that. Bezos tried to artificially accelerate the trend with Amazon Phone. And he's failing miserably.

Within Amazon's R&D labs, Show Rooming undoubtedly was the killer app for Amazon's smartphone. But on Main Street USA, most consumers simply don't care -- and they'll continue using "good enough" show rooming apps on their iPhones and Android devices. 

Even when Amazon introduced a $0.99 price for the Fire phone, consumers apparently didn't budge. Amazon still hasn't commented about Fire unit sales -- but it's a safe bet the $170 million write off is all you need to know.

Lesson for I.T. entrepreneurs: When you launch a new product, be sure that it serves the customer -- instead of simply linking the "new" product back to your "legacy" business to win more revenue.

Keep Taking Risks

Despite the Fire smartphone debacle, I'm still a Jeff Bezos fanboy. The guy keeps taking risks. Big risks. Amazon and its investors occasionally get burned. But overall, Amazon has also executed on a range of big, hot ideas over the past decade.

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