The strategy behind Amazon (NASDAQ:AMZN)’s Fire

Recently Amazon (NASDAQ:AMZN) released its own smartphone, called Fire, to further expand its share in the e-commerce market. Although this attempt to attract customers has proved to be quite successful, several reports have complained that this new smartphone traps the customers by depriving them from some of the most useful and basic apps offered by Google (NASDAQ:GOOGL).

Is it really a trap? According to Mike Gikas of Consumer Reports, Fire smartphone traps its users because the app choices available are restricted to Amazon’s app store, which does not have any Google apps. Although other smartphones such as Apple (NASDAQ:AAPL) iPhones and Microsoft (NASDAQ:MSFT) Windows Phones also restrict their users, they ensure that their customers get a diverse range of functions. However, the manufacturers of Fire negate this claim by explaining that Android and Apple (NASDAQ:AAPL) are also equally restricting their customers. Each company proves itself to be better than the other by making its users believe that it offers a unique experience. Moreover, it would be unjust to completely negate the functionality of Fire. This smartphone comes with more than 33 million songs, games and apps.

Amazon (NASDAQ:AMZN) also plans to release its new POS system known as the Amazon Local Register. This service will offer free hardware to new customers to entice them to try it out and as a result will enable the company to reduce its competition when it comes to cost. However, critics believe that this move by Amazon (NASDAQ:AMZN) is aimed to get access to customer data to enhance their own retail empire.

Experts warn retailers that they should think before using Amazon Local Register because giving Amazon (NASDAQ:AMZN) access to their sales data could be a huge risk. Although this strategy will enable the company to earn only a small profit, it will bring along a huge source of valuable data, which can be used to expand the customer base.

If we consider Fire to be part of a similar strategy, we can see how it will offer Amazon (NASDAQ:AMZN) a significant benefit in the retail arena. There is a huge possibility that the company could track the browsing history of its customers and then reconcile it with actual POS transactions to create a useful tool for analysis.

The stock is currently trading at ratio of 500 for price to earnings which is considered to be quite expensive. The company has continued to trade at such inflated multiples over the past many years and critics speculate that the stock will continue to do so. However, it is important to note that neither Fire nor Local Register will be sufficient enough to make the stock a viable option in the sector. Thus, being a seller of the stock is preferred over being a holder of the stock.

To sum up, the above discussed strategies used by Amazon (NASDAQ:AMZN) are only assumptions of critics and the actual intention behind the release of Fire or Amazon Local register may be different.