What Amazon’s new smartphone is really about: customer location data

To truly supplant brick-and-mortar retail, Amazon needs a spy in your pocket

Amazon Fire Phone

Amazon’s just-unveiled Fire Phone has a number of flashy touches, but it’s all about capturing your shopping data.

Amazon’s smartphone offering, which was unveiled today, isn’t about making video games more immersive with head-tracking cameras or watching 3D video without glasses. It isn’t even about streaming content. It’s about selling you more toilet paper, diapers and stationary.

To understand the Amazon Phone, you need to look back at a more obscure Amazon project. Earlier this year, the company revealed a product called Dash, which allowed users to order everyday groceries by scanning barcodes using a wi-fi wand. It garnered some mild, fleeting interest from the technology press, but basically no one was going to walk around holding a magic standalone Amazon stick just in case they ran out of shampoo. But by integrating its Dash technology into a new smartphone, Amazon ensures that it’ll receive a good chunk of your day-to-day shopping and grocery business without the extra effort—and, crucially, without the extra gadget.

Sure, Amazon will grow their content business by using a modified version of Android that replaces the Google Play store with their own store. But Amazon had $70.8 billion in sales last year mostly by shipping consumer goods—from $3 toothbrushes to $3,000 TVs. To truly supplant brick-and-mortar retailers, it needs to know not just what you buy online, but what you buy everywhere else. The way to do that is to hitch a ride in your pocket or purse.

With a smartphone constantly gathering data on your routine and consumption habits, Amazon sets itself up to deliver what you need, when you need it. Businesses are already making efforts to boost in-store marketing, with apps that remind you to pick up shampoo as you walk through the bath aisle. But Amazon’s system would pre-empt the trip to the store altogether. Using Dash, Amazon can ensure it corners the market on your grocery shopping by giving you the convenience of ordering stuff by pointing your phone at it.

READ: Location-based marketing has huge potential—if shoppers aren’t too creeped out by it »

Amazon’s MO has historically been to price its hardware as close to cost as possible, with revenue coming from the content sold on the device rather than the device itself. The company’s new smartphone is likely to be no different. Smartphone prices may be cratering anyway; Peter Nowak suggested it’s only a matter of time earlier this year:

Evidence of the bottom falling out of the smartphone market is mounting. Market leaders Apple and Samsung are seeing slowdowns while smartphone adoption leaders are experiencing shifts in customer buying habits. Australians, for example, are starting to shun long-term contracts in favour of shorter ones or buying their devices up front.

But the cost of the phone isn’t the point — if Amazon gets data on users’ spending habits and preferential access to that spending, then the R&D costs will be well worth it. Brick-and-mortar retailers with loyalty plans have been mining consumer data for years, with Shoppers Drug Mart’s Optimum plan and Loblaw’s PC Plus program being prime examples.

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Amazon is building a good old-fashioned vertically-integrated corporate behemoth. In the very near future, you could use your Amazon phone to order groceries on AmazonFresh, with your data transmitted via Amazon servers to an Amazon delivery terminal, and the groceries delivered via Amazon drones to your home.

With Chinese online retailer Alibaba looking to enter the US market and consumer-spending rebounding, Amazon’s smartphone play sets it up to retain its dominant  position. It’s Amazon’s end-to-end retail world, and soon we’ll all be living in it.