Amazon unleashed its latest range of hardware products earlier this week, but at least one analyst finds the company's hardware strategy frustrating and confusing.
With a dirt-cheap $50 tablet, a couple of more powerful Fire tablet models and a new TV streaming gadget, Amazon seems keen on making it in the hardware market — even it that means discontinuing its ill-fated Fire Phone.
The company boasts that it's offering some of its best deals ever with the latest product range, even pushing a six-pack of tablets for bulk-buying budget shoppers (see image above).
Macquarie Research analyst Ben Schachter, however, seems mostly unimpressed with Amazon's hardware strategy.
In a new investors note, Schachter says that Amazon's hardware strategy "remains confusing" for the most part, and explains what would have been a better route.
The analyst focuses on the Amazon Prime service key element for Amazon's hardware strategy. Amazon Prime costs $99 per year and brings several benefits to members — but Amazon should leverage Prime more in its hardware efforts, Schachter argues.
"We are frustrated that Amazon doesn't give Prime members even more benefits related to hardware (lower prices, early delivery, more exclusive content, etc...), nor does it aggressively drive HW owners to become Prime members (at least not directly)," explains the analyst, as cited by Business Insider (BI).
It's no secret that Amazon doesn't draw its profits from hardware. The company sells its hardware products at prices just high enough to break even, but prefers to keep them affordable to lure in more buyers. Amazon makes money off its products after the hardware sale, when people start purchasing things on their new devices.
As a recent study from Consumer Intelligence Research Partners revealed a few months ago, people who own Amazon tablets tend to spend roughly twice as much on Amazon goods as those who don't own Amazon hardware.
On the other hand, Amazon sells a large percentage of its hardware products to non-Prime members, and not all of those buyers have a Prime subscription.
"We sell a large percentage of our tablets to non-Prime customers. A very large number. Do I hope that they'll become Prime? Of course. But they don't always," Amazon Devices SVP Dave Limp acknowledged to BI.
Nevertheless, Amazon is confident that even if all of their hardware buyers don't turn Prime, at least the vast majority spend money buying more things from Amazon, and that should drive enough profitability.
Schachter argues that Amazon should be pushing hardware owners more to join its premium Prime service, and he may be right.
Aside from a deeper Prime integration with Amazon hardware, the analyst would further like Amazon to talk more about virtual or augmented reality and its plans to get in the game. Heavyweight companies such as Google, Facebook, Microsoft are all working on some sort of VR or AR gadget, but Amazon hasn't revealed any plans on this front.
Schachter notes that Macquarie didn't expect Amazon to actually reveal any VR or AR wearable this year, but the company could have at least announced that it's working on something like this.
Lastly, the analyst states that Amazon made "compelling" efforts in home automation and voice control, but things are expected to heat up with growing competition.
