Is Amazon too ambitious with Fire Phone pricing?

Why Amazon is entering the smartphone market
Why Amazon is entering the smartphone market

As e-commerce giant Amazon unveiled its long-awaited Fire Phone, handset pricing was a big surprise as industry watchers had expected it to be notably cheaper than competing iPhones or Galaxy smartphones.

Amazon, famous for great deals, priced its first-ever smartphone at $199 for 32 GB and $299 for 64 GB with a two-year AT&T contract, or $649 and $749 sans contract, essentially the same as Apple's iPhone 5S.

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Pricing the device in line with premium smartphones is not without good reason, say analysts, noting that Amazon wants to make it clear that its hardware is just as good as its competitors.

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"Matching the pricing of Apple…that is surprising. [But] from one perspective, they don't want to go in there and present a phone that is differentiated, yet much cheaper," Jason Moser, senior analyst at the Motley Fool told CNBC on Thursday.

The 4.7-inch phone - equipped with 3-D imaging and gesture control - features "expensive, groundbreaking technology", and Amazon is using the price to signal that, added James McQuivey, principal analyst at Forrester.

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The high price tag marks a shift in strategy for Amazon, which offered its tablets at deeply discounted prices in order to hook consumers.

Will the 'Fire' catch on?

The phone appears to have gotten the thumbs up from investors, with Amazon's stock price rallying almost 9 percent to $334.38 by the close of Wednesday trade.

Ryan Huang, market strategist at IG says for it to be successful Amazon will need to entice a small portion of its 250 million active customers get the new smartphone.

The phone, described by some as a shopping device, includes a service called "Firefly," whereby the phone can identify products using its camera and add them to your Amazon account.

Loyal Amazon consumers connected to the device could boost sales of videos, music and merchandise from its website.

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A major challenge to the Fire Phone's success, however, could be convincing potential consumers to switch over to AT&T - the device's exclusive carrier - from other mobile networks, notes McQuivey of Forrester.

"[Amazon's] customers already have really good smartphones - and many of them aren't with AT&T. To convince those people to switch over you're going to have to do a little pushing. I think Amazon will have to offer more than just a year of free Amazon Prime service," he said.

Another year, another competitor

Brian White, analyst at Cantor Fitzgerald says while the Fire Phone will receive plenty of media coverage, it's unlikely to impact Apple's iPhone franchise.

"In our view, [Amazon's] announcement represents another attempt by Internet-related players to compete in the mobile device world. These initiatives have left Apple unscathed in recent years," White said.

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For example, Amazon entered the tablet market in the fall of 2011 with the Kindle Fire, which was dubbed by the media as the "iPad killer", but the impact to Apple has been almost non-existent, he said.

"The Fire Phone could have a minor impact on Android-based vendors, but we do not expect Apple to be affected. This is especially true in 2014, as we believe the larger-sized iPhone 6 will be tough to compete with this year," White concluded.