This is an aggressive expansion into a new market for Amazon. Photo: Getty
Show Hide image

Amazon's smartphone launch offers a prudent platform for growth

What the launch of Amazon’s smartphone tells us about the company’s future strategy.

Amazon, the e-commerce internet giant, is launching its first smartphone. Media attention is focusing on whether the phone’s features, such as its rumoured 3D interface, are really as cool as portrayed in its trailer video which aims to wow early users. But by entering into the fray of an already hyper-competitive mobile phone industry, Amazon is doing a lot more than adding another gee-whizz feature to a smartphone.

This launch tells us a great deal about CEO Jeff Bezos' strategy for his company – and what it might mean for the future of competition and innovation in our increasingly digital world.

First, let’s ask the obvious questions. Why is Amazon, known for internet retailing and related software development, entering a hardware market where leading incumbents like Nokia have already failed? After all, what does Amazon know about the telecoms business? Can it succeed where Google has failed?

We have seen Google, which has virtually limitless financial resources, enter the mobile phone handset industry by purchasing Motorola Mobile in 2012, only to take a heavy loss after selling it on less than two years later. Even incumbent firms who had a very strong set of phone-making capabilities have taken tough hits in this turbulent market – witness Nokia’s dramatic plunge, which led to a sale of its mobile phone business to Microsoft.

Platform Number 1

You cannot understand Amazon’s move without situating it in the broader context of platform competition. Platforms, these fundamental technologies such as Google search, Facebook and the Apple iPhone, are the building blocks of our digital economy. They act as a foundation on top of which thousands of innovators worldwide develop complementary products and services and facilitate transactions between increasingly larger networks of users, buyers and sellers. Platform competition is the name of the game in hi-tech industries today.

The top-valued digital companies in the world (Amazon, Apple, Google, Facebook) are all aggressively pursuing platform strategies. App developers and other producers of complementary services or products provide the armies that sustain the vibrancy and competitiveness of these platforms by adding their products to them. The more users a platform has, the more these innovators will be attracted to developing for them. The more complements available, the more valuable the platform becomes to users. It is these virtuous cycles – positive feedback loops, or “network effects” – that fuel the growth of platforms and transform them into formidable engines of growth for the companies and developers associated with them.

The smartphone is a crucial digital platform. Achieving platform leader status in this space is a competitive position all the hi-tech giants are fighting for. Google has its ubiquitous Android operating system, Apple has shaped the whole market with the iPhone, Microsoft has purchased Nokia’s phone business, and Facebook has invested $19 billion in WhatsApp among other acquisitions for its growing platform.

In fact, I suppose I should have rephrased my question a little earlier – why hasn’t Amazon already staked its claim to lead this digital space after having launched its Kindle Fire tablet and Fire TV set-top box?

Opening the door

Simply put, the smartphone is the main gateway to the internet today, and, in the hand of billions of users throughout the world, is the physical embodiment of a conduit that links those users to each other and to the whole content of the internet. There are almost 7 billion mobile phones in the world (and only 1 billion bank accounts). And the trend is staggering. Mobile payment transaction value surpassed $235 billion worldwide in 2013, and is growing at 40% a year, with the share of mobile transactions already reaching 20% of all worldwide transactions.

So, while risky, Amazon’s entry into the smartphone business is a classic play: a platform leader entering an adjacent platform market that is also complementary to its primary business. All platform leaders aim to stimulate complementary innovation (think how video game console makers aim to stimulate the provision of videogames), and they often attempt not to compete too much with their complementors in order to preserve innovation incentives. But at some point all platform leaders start to enter these complementary markets themselves. Google has done it through Android, Apple has done it with iTunes, Facebook has done it with Facebook Home.

It happens when platform leaders feel threatened by competition in their core market, or when they want to steer demand, competition and innovation in a particular direction. The idea is to use their own user base as well as their own content and technologies to create an unassailable bundle, one that is difficult for external competitors to break into. Think of it as creating barriers to entry, while expanding the core market.

The reasoning behind entering a complementary market is well known, and related to the benefits of bundling. In the case of hi-tech platforms, the benefits are even stronger. By optimising and controlling the interface between a platform and complements, a company can have a structuring impact on the evolution of the platform ecosystem – and that means on all the innovators around the world that invest and make efforts to develop complementary products and services.

In your hands

So, these are the reasons why Amazon is entering the mobile phone market, despite the difficulties inherent in taking on an über-competitive market. This strategic choice makes a lot of sense.

As to whether Amazon has a fighting chance of succeeding, there are reasons to be optimistic. Beyond its deep financial resources, Amazon has learned something of what it takes in the development and successful commercialisation of various versions of the Kindle. That has given it expertise in hardware, on top of its software background, and should prove a useful training ground to allow it to launch other consumer products such as the smartphone.

But the ultimate judge will be you, gentle readers. Will you be willing to swap your favourite mobile phone for a yet another new kid on the block, even if it does let you browse Amazon’s ever-growing catalogue in splendid 3D?

The ConversationAnnabelle Gawer does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

exseada/DeviantArt
Show Hide image

Why Twitter is dying, in ten tweets

It's ironic that the most heated discussions of the platform's weaknesses are playing out on the platform itself. 

Twitter has been dying since 2009, and commentators have pre-emptively declared it deceased pretty much every year since. To declare that it's on the downturn has become a bit of a cliché. But that doesn't mean that it isn't also, well, true.

Grumbling among users and commentators has grown to a roar over the past few days, thanks in part to a Buzzfeed report (refuted by Jack Dorsey, Twitter's CEO) claiming the service will move away from a chronological timeline and towards an algorithmic one. Users coined the hashtag #RIPTwitter in response, and, tellingly, many of their complaints spanned beyond the apparently erroneous report. 

They join a clutch of other murmurings, bits of data and suggestions that things are not as they should be in the Twitter aviary. 

Below is one response to the threat of the new timeline, aptly showing that for lots of users, the new feed would have been the straw that broke the tweeters' backs:

Twitter first announced it was considering a new 10,000 character limit in January, but it's yet to be introduced. Reactions so far indicate that no one thinks this is a good idea, as the 140 character limit is so central to Twitter's unique appeal. Other, smaller tweaks – like an edit button – would probably sit much more easily within Twitter's current stable of features, and actually improve user experience: 

While Dorsey completely denied that the change would take place, he then followed up with an ominous suggestion that something would be changing:

"It'll be more real-time than a feed playing out in real time!" probably isn't going to placate users who think the existing feed works just fine. It may be hard to make youself heard on the current timeline, but any kind of wizardry that's going to decide what's "timely" or "live" for you is surely going to discriminate against already alienated users.

I've written before about the common complaint that Twitter is lonely for those with smaller networks. Take this man, who predicts that he'll be even more invisible in Twitter's maelstrom if an algorithm deems him irrelevant: 

What's particularly troubling about Twitter's recent actions is the growing sense that it doesn't "get" its users. This was all but confirmed by a recent string of tweets from Brandon Carpenter, a Twitter employee who tweeted this in response to speculation about new features:

...and then was surprised and shocked when he received abuse from other accounts:

This is particularly ironic because Twitter's approach (or non-approach) to troll accounts and online abusers has made it a target for protest and satire (though last year it did begin to tackle the problem). @TrustySupport, a spoof account, earned hundreds of retweets by mocking Twitter's response to abuse:

Meanwhile, users like Milo Yiannopolous, who regularly incites his followers to abuse and troll individuals (often women and trans people, and most famously as part of G*merg*te), has thrived on Twitter's model and currently enjoys the attentions of almost 160,000 followers. He has boasted about the fact that Twitter could monetise his account to pull itself out of its current financial trough:

The proof of any social media empire's decline, though, is in its number and activity of users. Earlier this month, Business Insider reported that, based on a sample of tweets, tweets per user had fallen by almost 50 per cent since last August. Here's the reporter's tweet about it:

Interestingly, numbers of new users remained roughly the same – which implies not that Twitter can't get new customers, but that it can't keep its current ones engaged and tweeting. 

Most tellingly of all, Twitter has stopped reporting these kinds of numbers publicly, which is why Jim Edwards had to rely on data taken from an API. Another publication followed up Edwards' story with reports that users aren't on the platform enough to generate ad revenue:

The missing piece of the puzzle, and perhaps the one thing keeping Twitter alive, is that its replacement hasn't (yet) surfaced. Commentators obsessed with its declining fortunes still take to Twitter to discuss them, or to share their articles claiming the platform is already dead. It's ironic that the most heated discussions of the platform's weaknesses are playing out on the platform itself. 

For all its faults, and for all they might multiply, Twitter's one advantage is that there's currently no other totally open platform where people can throw their thoughts around in plain, public view. Its greatest threat yet will come not from a new, dodgy feature, but from a new platform – one that can actually compete with it.

Barbara Speed is a technology and digital culture writer at the New Statesman and a staff writer at CityMetric.