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As happens from time to time, the suggestion has been made that Microsoft cancel Windows Phone, and instead fork Android. It's not the first time this suggestion has been made. It's probably not the last, either.
It's a poor idea. Google has worked to make Android functionally unforkable, with no practical way to simultaneously fork the platform and take advantage of its related strengths: abundant developers, and abundant applications.
The outline of the "Microsoft should fork Windows Phone" argument is as follows: Windows Phone doesn't have huge developer buy-in or sales success, but Android has both. By forking Android, Microsoft could provide unique value—corporate integration with things like Exchange, Active Directory, and System Center or InTune; full Office support; a polished user experience—and make the platform depend on its own cloud services (Bing, Bing Maps, Azure) rather than Google's. But simultaneously, it would still have access to all the Android applications that people depend on.
The result should be a platform that's somehow more attractive to consumers, by virtue of the Android brand and all those Android apps, more attractive to developers thanks to the Android APIs, and cheaper for Microsoft to develop, since core operating system development can be left to Google.
Where this falls down is that there's no good way to use the Android platform this way. It's not designed for it. In fact, with each new Android release, Google is making a forked operating system less and less viable.
Broadly speaking, Google produces two big chunks of code. The first is the Android Open Source Platform (AOSP) codebase. This provides the basic bones of a smartphone operating system: it includes Android's version of the Linux kernel, the Dalvik virtual machine, and portions of the basic user interface (settings app, notification panel, lock screen). This part is licensed under a mix of the GPL and Apache license. Google produces periodic code release of these open source parts, though has been criticized for performing the actual development largely behind closed doors.
The second chunk is called the Google Mobile Services (GMS). (Or at least, sometimes it's called GMS. Sometimes it's called just Google Services, and sometimes it's Google Play or Google Play Apps; GMS is what it's called in the code, though, so that seems to be the most common name). This has two big portions. The Google Play Services provides a wealth of APIs and system services: APIs for Google Maps, Location, and in-app purchasing; Google+ integration; Remote Wipe; Malware scanning; and more. Then there's the Play Store collection of apps: Search, Gmail, Chrome, Maps, and many more.
The GMS has a few important features. GMS isn't open source. Anyone can take AOSP and slap it on a phone. That's not true of GMS. To get GMS, the device has to meet certain technical requirements (performance, screen resolution, and so on), and it has to pass validation. Though Google says that the GMS suite is itself free, the validation process isn't, with reports that it costs around $0.75 per device.
GMS also seems not to be divisible: if your phone passes the GMS validation and can include GMS, it includes everything: both Play Services, and the various Google-branded apps that use those services.
The split between AOSP and GMS is not constant, either. Google has slowly been migrating more and more functionality to GMS. For example, in the latest Nexus 5, the core phone user interface—the thing that you use to launch apps and show icons—has been rolled into the GMS Search app.
Similarly, APIs have made the move. AOSP contains a location API, but GMS contains a newer, better one, with additional features. Google encourages developers to use the GMS API, and the AOSP Location API mostly dates back to Android 1.0, and hasn't seen any substantial changes since Android 1.5. The result is that many third-party applications are not merely "Android" applications: they're GMS applications, and won't run without the proprietary, non-open Google software.
Four ways to do Android
There are four ways that hardware builders can use Android on their phones.
The first is the way that Google really wants companies to use Android: by relying both on AOSP and GMS. Pass the certification, include all the Google services and Google apps. That's what companies like Samsung and HTC and LG do. Going this route still provides some facility for the OEM to customize. OEMs can provide their own apps to sit alongside the Google ones, for example. It appears that Google isn't completely happy about this—there are reports that the company recently made an agreement with Samsung whereby Samsung would reduce the amount of customization of the user interface and deprioritize or remove its apps that competed directly with Google-branded equivalents.
Taking this path provides the best compatibility with third-party applications by ensuring that they have both AOSP and GMS APIs available to them. It also provides the most consistent experience: in spite of the various customizations that are done, it means that Google's apps will be available, and those apps will work the same way on any AOSP+GMS device.
It also cedes most control to Google, and that level of control will only grow. Each new release increases the level of integration with Google's own services, and Google is moving more and more new functionality to GMS, leaving AOSP a barebones husk.
At the other end of the spectrum, you can ignore GMS entirely. Ship a phone with AOSP and perhaps some custom software on top of it to make the experience a little less rough for users, and call the job done. At the very cheapest end of the market, there are companies doing precisely this. If they choose, OEMs can provide their own stores and other services to fill the many, many gaps that omitting GMS leaves, but they're always at a disadvantage relative to GMS devices, because they won't be compatible with any third-party applications that use GMS' APIs. That's not a small category, either, since features such as in-app purchasing are in GMS.
The third option is the one that spans the two: ship a device with AOSP, and an equivalent to GMS that provides new implementations of substantially the same APIs. Provide workalike replacements for services such as location and mapping, but plumb into Microsoft services rather than Google ones. No company has really gone down this route. The closest is Amazon, which provides near-drop-in replacements for some Google APIs (in particular mapping), but which hasn't even begun to keep pace with GMS development in general.
Technically, however, a company with sufficient development resources could provide its own GMS replacement. The overhead would be not insignificant, especially as—to ensure optimal compatibility—the replacement would have to replicate not just correct functioning, but any bugs or quirks of the GMS implementation.
There are also lots of little awkward aspects of the GMS API; it includes such capabilities as "share with Google+" which few companies have any real counterpart to. Another example: there is an API for handling turn-based multiplayer gaming. A company could implement this API and have its own server infrastructure for managing the gaming sessions, but obviously these gaming sessions would be completely separate from Google's gaming sessions, fragmenting the player base in a way that game developers are unlikely to be keen on.
As an added bonus, should the ultimate resolution of Google's long-running legal battle with Oracle be that APIs are, in fact, copyrightable, this kind of wholesale reimplementation of GMS would become legally actionable. Google could, if it chose to, shut it down through the courts.
To these three options, one could perhaps add a fourth: use AOSP to provide a few essential services—support for hardware, telephony, and so on—but then build an entirely new platform and APIs to run on it. Aspects of Amazon's API support would fall into this category, with some of its APIs covering the same ground as GMS APIs, but in a completely different, incompatible way. It's not clear, however, that any manufacturer has entirely embraced this path, though one might argue that Ubuntu for Android is similar, at least in spirit.
You can have compatibility or control: Not both
The first of these options—AOSP with GMS—is the only option that provides the full Android experience. It's the only one that ensures developers can transfer their skills perfectly, the only one that ensures that the full breadth and variety of Android software is available. However, it's clearly not a good option for Microsoft, given that it would almost entirely cede control of the platform to Google—and judging by the advertising company's track record, it would cede even more control with each new Android release.
The second option—AOSP with a few extra custom extras—has the upside of providing an opportunity for Microsoft to integrate its own services. It would support some Android software, though exactly how much is unclear. It would certainly mean omitting any high-profile title using in-app purchasing, so, say, Plants vs. Zombies 2 or the latest iteration of Angry Birds would be out. If one were building a feature phone platform, this may be a somewhat reasonable path to take. When the phone is only really built for running the built-in apps (camera, browser, e-mail) the fact that many Android apps would be incompatible doesn't really matter.
The rumors of a Nokia-built Android phone suggest this kind of approach: AOSP under the hood, but with Nokia services, not Google ones, on top.
However, it's important to understand just how deficient this kind of device would be. Google has pushed very significant pieces of functionality into GMS, including messaging and the Chrome browser. The AOSP counterparts are buggy, feature deprived, and by at least some accounts, barely maintained. If a company wants to use AOSP without GMS, it has a lot of work to do if it wants to produce a high quality experience. The open source parts just aren't good enough.
Amazon's Kindle experience also demonstrates how even having an Android-like AOSP-derived platform is challenging. Kindle doesn't have the latest and greatest Android games, because their various developers haven't bothered making non-GMS versions of their games, even though the Kindle platform is very similar to Google's. In other words, the application challenge already faced by Windows Phone isn't solved by using AOSP. The only way to solve the application issue is to be not merely an AOSP platform but a GMS platform.
The third option—AOSP with a home-grown GMS equivalent—would solve this, but it would also maximize the development effort required by the forker. Providing equivalents to every GMS capability ensures at least that users get a decent experience. It would also reinstate the software compatibility that AOSP without GMS forfeits.
But this is a huge undertaking. For Microsoft, the effort required to build a GMS workalike on top of AOSP is going to be comparable to the effort required to build the Windows Phone shell and APIs on top of Windows. In fact, it's likely to be somewhat greater: Microsoft already has, for example, a browser engine that runs on Windows. It doesn't have one that runs on AOSP.
Moreover, it still implicitly gives Google control over the platform. Various aspects of how Android is used are determined by the underlying APIs: sharing between applications, for example, is done in a particular Android way. Any platform using Android in this way would have only a limited ability to take the platform in a different direction from the one Google chose.
The fourth option—use AOSP with an entirely new software stack on top—gives freedom and flexibility, but to what end? The kernel isn't the important bit. Microsoft already has a smartphone kernel. Windows Phone 8 already uses it. And strikingly, for Microsoft, ditching Windows Phone doesn't mean that the company can ditch development of this kernel. It's already being developed—for Windows! The kernel isn't the hard part.
If Android were an open platform in the way that Firefox OS or Ubuntu for smartphones were an open platform, the forking suggestion would make more sense. The AOSP/GMS split wouldn't exist. Everything would be in AOSP, so piecemeal substitution of back-end services without having to reinvent vast tracts of code and without any major compatibility implications would be practical.
But it isn't. Not only is it not this kind of an open platform, but Google is actively working to make it functionally less open with each new release. The result is that a forker has to make a choice: they can give Google control and get the all the upsides of the platform, or they can snatch control from Google and get almost none of them.
Android isn't designed to be forked. With GMS, Google has deliberately designed Android to resist forking. Suggestions that Microsoft scrap its own operating system in favor of such a fork simply betray a lack of understanding of the way Google has built the Android platform. ###
A recent leak of internal Google documents reveals that Google's dominant Android mobile OS isn't "open" or "open source," as the company claims. Indeed, licensing Android comes with a complex web of requirements that binds the hardware maker's devices to Google's extensive collection of online services and forces them to use Google apps as the default.
Put simply, Google is engaging in exactly the same product-bundling practices that got Microsoft in antitrust trouble around the world. But it is doing so with a far more invasive suite of services.
"In order to obtain key mobile apps, including Google's own Search, Maps, and YouTube, manufacturers must agree to install all the apps Google specifies, with the prominence Google requires, including setting these apps as default where Google instructs," Harvard University professor Ben Edelman writes in a blog post explaining Google's practices. "It's a classic tie and an instance of full line forcing: If a phone manufacturer wants any of the apps Google offers, it must take the others also."
The timing of this revelation is interesting, as European Union (EU) antitrust officials, having accepted a settlement of Google's sweeping antitrust charges related to search, are now investigating Android. I've alleged that Google has effectively "dumped" Android in the market—selling or licensing the mobile OS below cost, or at no cost, in order to quickly gain market share and illegally harm competition—but these documents reveal a new layer of wrongdoing: Google's agreements with hardware makers also come with important and potentially illegal strings attached.
With an ever-rising 80 percent market share in smartphones and 62 percent in tablets, Google is the dominant mobile computing platform and the obvious heir apparent to Windows, which still dominates the PC world. But there are many questions swirling around Android, including multiple accusations of intellectual property and design theft. Many believe that Android's dominance has come both unfairly and illegally.
The leaked documents hint at how Google monetizes something that is ostensibly free (not to mention "open," which it is not): Google requires hardware makers to agree to a Mobile Application Distribution Agreement, previously undisclosed publicly, that numerous Google mobile apps must be preinstalled on devices, that Google Search must be set as the default search provider, and that Search and Play Store icons must appear "immediately adjacent" to the home screen, with the other Google apps appearing no more than one screen swipe away. Because search is the main conduit for Google's only actual source of revenues—advertising—much of an Android user's daily activities feeds the Google financial engine.
In case it's not obvious, an intentional side effect of these requirements is that it places Google competitors, including Microsoft's Bing, at a disadvantage. And the only way to avoid the Mobile Application Distribution Agreement is to replace key Google services and create your own mobile app store—prospects that are obviously difficult and expensive, and beyond the capabilities of most companies. (Only Amazon has done so, and its store is a tiny fraction of the size of Google's.) Thus, Android licensees are locked into Google's web, as are Android users.
Professor Edelman ably explains how this practice harms everyone but Google: its partners, its competitors, and consumers. Even if a phone maker believes a competing mapping or search provider is better for consumers, they can't use it without losing access to all of the other Google services that make Android usable. This agreement "surpresses competition," he writes, because "alternative vendors of search, maps, location, email, and other apps cannot outcompete Google on merit even if a competitor offers an app that's better than Google's offering." And "consumers do not benefit when Google prevents phone manufacturers from installing apps in whatever combination consumers prefer."
Most chillingly, this product tying gives Google's weaker and otherwise uncompetitive services—Google Checkout, Google+, Google Shopping, Google Products, and so on—artificial prominence that could over time drive out the products and services that legally established themselves in their respective markets.
He cites Google Checkout as an example.
"Reaching users a decade after Paypal and competing with Paypal's huge user base, by ordinary measures Checkout should have been entirely stillborn," Edelman notes. "Indeed, Checkout's growth has been slow. But what would have happened if, rather than featuring a special logo only for AdWords advertisers who joined Checkout, Google had shown such logos for all popular payment intermediaries? Surely equal treatment of Checkout versus competitors would have reduced Checkout's adoption and harmed Checkout's relative prospects. Yet equal treatment would have provided consumers with timely and actionable information, and would have facilitated genuine competition on the merits."
That's Android, folks: everything that antitrust regulators complained about with Windows, but worse. And as a reminder, Microsoft was originally threatened with a breakup order in the United States for its own anticompetitive behavior. I'm curious to see what antitrust regulators think of this hairball. ###
ZTE, Huawei, Alcatel, and LG have all brought Firefox OS devices to this year's Mobile World Congress, with the latest generation of both software and hardware looking much more mature, complete, and potentially compelling. Whereas the very first Firefox OS phones had tiny screens with horrible displays and intolerable lag, the 2014 editions are much smoother in operation and more attractive in look and feel. Alcatel is leading the charge with three new handsets and a Fire 7 tablet, while ZTE is introducing the Open C and Open II phones.
Mozilla is aiming for a $25 smartphone
Handling the new devices with the latest version of the platform is like a night and day experience compared to prior Firefox OS smartphones. Apps open up much quicker, there is little to no input lag, and the browser is something that is actually usable for viewing websites on the go. Underpinning Firefox OS' on-device search is EverythingMe, which provides contextual results from the device and the web when you search for something like music.
The ZTE Open C's display is much larger and higher resolution than we've seen on Firefox OS phones before, and while it won't give a high-end Android phone anything to worry about, it does at least feel modern enough to be called a smartphone. Overall, the whole platform feels as if it's grown up a lot in the past year, and Firefox has addressed many of the performance complaints we had at its initial launch.
Apple and Google have reportedly asked a federal judge to dismiss all patent litigation between the two companies after four years of legal battles.
Reuters discovered filings posted on Friday in a Washington federal appeals court requesting an end to the patent war. The myriad of legal spats were consolidated into a single action back in 2012, and Friday's filing makes it clear that that battle is now over.
"Apple and Google have agreed to dismiss all the current lawsuits that exist directly between the two companies," the companies said in a joint statement.
"Apple and Google have also agreed to work together in some areas of patent reform. The agreement does not include a cross license."
Thus ends one of the most rancorous chapters in the patent wars currently being fought in courts around the world. Apple took on Motorola in 2010 as part of Steve Jobs' "thermonuclear war" against Android, with the Apple boss vowing to "spend my last dying breath if I need to."
A year later and he was gone, but Tim Cook and Apple's army of lawyers carried on the fight. Google bought Motorola in 2012, adding some much needed legal protection to the struggling smartphone vendor, and the Chocolate Factory and Apple have been duking it out in the courts ever since.
Judging from the carefully worded statement, this isn't the end of Apple's patent battles. It looks likely that Cupertino will carry on suing its competitors that use Google's operating system, unless some other deal can be struck with vendors such as Samsung.
That looks unlikely. Apple is currently beating Samsung like a red-headed stepchild in the courts, and secured a $120m judgment against the company earlier this month – although that is under appeal.
That sounds good, but the size of the settlement will barely cover Apple's legal bills in the case, and does nothing to stop Samsung from carrying on selling its Android-powered smartphones and fondleslabs.
It may be that Tim Cook, ever a man with an eye on the bottom line, has decided that going up against Google in court would be too expensive and show little financial benefit to Apple in the long term.
Those of you with seismology equipment may want to listen in California for the rumbling sound of Steve Jobs hitting 200rpm in his unmarked grave. ®
"The Samsung Z will no doubt help to boost the Tizen operating system though. Samsung already has Tizen-based devices in the market, after it used the operating system for its smartwatches — the Gear 2 and Gear 2 Neo – and just announced plans to introduce a Tizen-based SDK for smart TV products next month, but seeing it compete on smartphones will be a key test for the new operating system."
The Samsung Z is the world’s first Tizen smartphone, will go on sale in Russia in Q3 2014
Samsung has finally announced the world’s first Tizen smartphone, the Samsung Z. It will be available in Russia in the third quarter of this year, and Samsung says there are plans to expand it to other markets.
Other than being equipped with the new Linux-based mobile operating system, the Samsung Z comes with a 4.8-inch Super AMOLED display and is powered by a 2.3GHz quad-core processor and a 2600mAh battery. It also comes with a built-in fingerprint sensor, which Samsung first introduced in its Galaxy S5 flagship. The Samsung Z has an eight-megapixel rear camera and a 2.1-megapixel front-facing camera, while it also supports 2D and 3D graphics, and boasts a better scrolling experience and improved rendering performance for web browsing.
A widely expected deal that will see US operator Sprint acquire its competitor T-Mobile USA is nearing completion, according to a number of reports citing inside sources. News agency Bloomberg said that an agreement on the price, capital structure and termination fee is close and that the deal would value T-Mobile at $40/share, or roughly $31bn. At the time of writing T-Mobile USA was trading at $35.20. The agency suggested a deal could be announced in July.
Such a deal would create an operator with the same scale as market leaders Verizon Wireless and AT&T. A combined Sprint-T-Mobile would have 103.53 million customers according to the latest figures from Informa’s WCIS Plus.
In May it was reported by the Wall Street Journal that German incumbent and T-Mobile parent Deutsche Telekom (DT) was demanding a $1bn break-up fee be written into any deal with Sprint, which is majority owned by Japan’s Softbank. The payment, from Sprint to Deutsche Telekom, would be required should an agreed deal be derailed; perhaps blocked by regulatory or competition authorities.
DT’s enthusiasm for the pre-nup is based on rewarding experience. In 2011 it walked away from the collapsed $39bn takeover of T-Mobile USA by AT&T with $3bn in cash, substantial spectrum assets and a favourable roaming agreement. It was able to invest that sum into its network and has performed well in subscriber terms since.
And yet the firm’s financial performance has not reflected this trajectory. In Q1 this year, despite claiming to have taken “virtually all of the industry phone growth” in the period, T-Mobile USA posted a $154m loss, down from a $106m profit for the same period in 2013. The firm cited increased customer acquisition costs as having a significant impact on its bottom line.From June 2012 to March 2014 the operator increased its subscriber base by 48 per cent, from 33.17 million to 49.08 million, according to figures from Informa’s WCIS Plus. Over the same period Sprint’s subscriber base dropped by 2.8 per cent to 54.45 million, while AT&T’s grew 10.3 per cent to 116.04 million and Verizon Wireless’ by 9.8 per cent to 121.29 million. ###
Amazon CEO Jeff Bezos is rolling the dice once more with his riskiest wager yet.
When the Seattle e-commerce giant introduces its smartphone -- which is widely expected to happen at a company-hosted event on Wednesday -- it will be only Amazon's fourth device in the last seven years.
But where its first three products have skirted the edges of mainstream consumer electronic devices -- an e-reader, a budget-priced tablet, and a streaming Internet TV box -- Amazon is now jumping straight into the heart of an industry with the most personal and critical of tech gadgets. In doing so, Bezos is escalating Amazon's fight against Apple and Google for control of the hearts and minds of consumers by combining a branded smartphone with a set of services available through its Prime premium membership.
Amazon's anticipated foray into the smartphone world comes as its fellow tech titans have steadily expanded their own reach beyond devices such as PCs and smartphones, with Apple and Google -- as well as Microsoft and Samsung -- introducing an array of services. Their common goal: to power everything from thermostats to medical equipment to automobiles.
"The great ecosystem war has begun," said Ben Schacter, an analyst with Macquarie Research. "This is going to be a long, hard war with many battles."
For Amazon, it comes back to the smartphone, the one device many people won't leave home without, and its potential to be the remote control for all the other devices in our lives. The company likely sees it as the ultimate hook for its $99-a-year Prime service, which offers members two-day shipping, e-books, movie, and as of last week, a streaming music service. Bezos' bet is that Prime is more effective in keeping customers coming back to Amazon than any single device.
Here lies the company's main weapon. Bezos is more focused on making money off digital content and physical items shoppers buy through its hardware than actually making money off selling the devices.
Yet the e-commerce pioneer is treading into unfamiliar territory. The smartphone world is brutally competitive, with Samsung and Apple at the top of the market.
Amazon's phone is expected to feature 3D technology, enabled by four front-facing cameras, and to come with a service called Prime Data to encourage video and music streaming through the device. But it will take more than a gimmicky technology that hasn't worked in the past for other handset makers to win customers. In line with Amazon's usual hardware strategy, the phone is also expected to have a low price tag, which it needs to compete.
It will go up against the popular, and likely more expensive, Apple iPhone and Samsung Galaxy S franchises at the high end, and an increasing array of affordable, but high-quality smartphones including the Motorola Moto X and Google Nexus 5 for the more budget conscious.
The unique dynamics of the smartphone business will test the company's strategy of selling its products at cost to gain a price advantage.
Still, Amazon has as good a shot as any. The company has spent years turning its Kindle devices into a trusted brand, and it boasts the world's best digital storefront in the Amazon.com homepage.
The man behind the devices
Amazon's ability to break into the smartphone business comes down to Dave Limp, publicly named vice president of devices in April.
While Bezos spells out the vision for the company, Limp's job is to execute upon that vision.
"Every day, when I wake up, I read customer feedback," he told FastCompany, reciting a common mantra among Bezos' top employees. "Some days it's hundreds of emails; others, it's thousands. We get ideas from all of it. The feedback leads to rapid iteration."
A tech veteran who has worked on the Kindle business for the last four years, Limp joined Amazon in 2010 after serving as the chief operating officer of Limbo, a mobile entertainment company. He's worked with hardware before. Prior to Limbo, Limp was the chief strategy officer for Liberate Technologies, a pioneer of using TVs for additional services, like shopping or checking email, and even further back, he was chief strategy officer for Palm's PDA business.
Like Bezos, Limp has both technical expertise as well as business smarts. A graduate of Vanderbilt University and the Stanford University Graduate School of Business, Limp holds a B.S. degree in computer science and mathematics, and a masters in management.
During his time at Amazon, the company moved from e-readers to Kindle tablets and streaming TV boxes with this year's release of the Fire TV and, now, presumably, to smartphones.
"Our philosophy, which hasn't changed even as we add a third category of devices, is we try to effectively break even on our devices when we sell them," Limp told The Seattle Times at the launch of the Fire TV in April. "We want to make money when customers use the devices." All about Prime
Getting more customers to subscribe to Prime has been the primary reason behind Amazon's array of products. Amazon doesn't disclose how many Prime members it's garnered, saying only that the official tally of the service is in the "tens of millions."
The original Kindle e-reader drove e-book sales, and it has nearly dismantled the physical book retail industry. Amazon's line of Kindle Fire tablets, which run an altered, or "forked" version of Google's Android mobile operating system that omits key Google apps and services, presents Amazon services up front and even includes its own app store. The $99 Kindle Fire TV box also runs Amazon's variant of Android, and it's designed to take advantage of streaming video and downloaded media from Prime.
Amazon's smartphone is rumored to include a feature that displays images in 3D, which would make sense if the company views the device as an extension of its online store. 3D product images might entice more buyers to buy from their smartphone.
While Prime started as an option for fast, free shipping, Amazon has slowly layered more on top of the service, adding online movies, free e-books, and most recently a streaming music service, in a bid to secure the loyalty of its customer base. The company is highly motivated to sign up more Prime customers, who tend to shop more with the site.
"Every user that buys that device becomes your customer and then you own them," said Topeka Capital Markets analyst Victor Anthony. He estimates that of Amazon's 244 million active customers, roughly 25 million are Prime members.
Amazon's tactics in hardware show that Bezos is willing to bet big. While Apple boasts margins of more than 20 percent on its iPhone and iPad, and Google makes money from the advertising it delivers through its Android mobile OS, Amazon says it's happy to break even -- or even take a loss -- on its gadgets for the chance to win repeat customers who will keep coming back to the company's ecosystem and ultimately spend more money at its store.
Macquarie analyst Jeff Su called this the "Trojan Horse" approach to luring in customers.
Analysts say Bezos' strategy works. Kindle owners spend 30 percent more on Amazon than non-Kindle owners, according to a recent survey of 2,000 Amazon customers conducted by RBC Capital Markets. The results are even better for the company's main attraction: Amazon Prime members spend almost twice as much as non-Prime members.
A key dilemma for Amazon is what the company typically counts as an advantage: price.
Unlike other devices, smartphone pricing is skewed by the subsidies the devices enjoy. In exchange for a two-year contract with a carrier, what would be a $650 iPhone 5S ends up costing the consumer $200.
Even off-contract, there are a number of smartphones that offer plenty of bang for a reasonable buck. Both the Nexus 5 and the Moto X costs $349 unlocked. The Huawei Ascend Mate 2 phablet is available without a contract for $300 at GetHuawei.com.
The rumored Prime Data plan may offer customers an attractive way to save money in step with the growing popularity of streaming media, a service that increases the need for data. But it won't be easy.
Other non-telecom companies, such as ESPN and Disney, have released their own branded phones and services, but ultimately couldn't win enough customers to justify the devices or networks.
"There's a lot of corpses buried in the ground of companies who have tried and failed," said Julie Ask, an analyst with Forrester Research.
Still, there's room for growth in the smartphone market, and Amazon could capture some of the 70 percent of cell phone owners globally who haven't yet switched to a smartphone, according to Anthony, the Topeka Capital Markets analyst. In the US, however, that figure is less than half, with more people snapping up smartphones everyday.
Ultimately, it's not about selling more devices than Apple, or even getting Apple's customers to jump ship. It's about providing consumers with an affordable alternative, Anthony said.
And that goes back to Bezos' game plan: At the end of the day, Amazon doesn't care if it makes money off its devices as long as people shop more on its site.
"Amazon, no matter what ecosystem you use, they want you to buy their products," Anthony said. "Amazon wants you to shop no matter what device it is." ###