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Amazon's Fire Phone could fuel $2 billion in sales

CEO Jeff Bezos is betting that customers who like its Prime service will also like the convenience of shopping on Amazon's smartphone. But will they pay for the privilege?

Amazon CEO Jeff Bezos holds up the Amazon Fire Phone. James Martin/CNET

Amber Corbin of Broken Bow, Neb., is a loyal Amazon Prime customer who has been a fan of the company's devices since the very first Kindle e-reader in 2007. She's bought hundreds of e-books, raves about Prime's two-day shipping, and owns several versions of the Kindle Fire tablet.

And now she's got her eye on the Fire Phone. One of 300 people selected by Amazon to attend the Fire Phone launch event in Seattle on Wednesday, Corbin gushed, "It is amazing. I got to play with it today and it is just unbelievable."

Many of the tech gadget-obsessed may be scratching their heads over why Amazon is even entering the smartphone business, which Samsung and Apple dominate. They're likely puzzled as to why Amazon CEO Jeff Bezos chose to release a feature-packed phone -- it's got six cameras and supports 3-D images and maps -- at a starting price ($199 with a two-year contract) that's comparable to that of Apple's popular iPhone and Samsung's Galaxy smartphones. After all, Amazon's standard approach has been to unveil budget-friendly gadgets, as it did when it began selling Kindle e-readers and tablets.

And there's the question of why Amazon is selling the phone exclusively through AT&T, a move that limits the number of people to whom Bezos can even sell the Fire Phone.

But Corbin doesn't have any questions -- or reservations. Her contract with US Cellular is up at the end of the month and she said she's ready to make the switch from her Galaxy S4 if AT&T can provide service in Broken Bow, a city of about 4,000 people. Her reason: She loves Amazon's products and the convenience they offer when it comes to buying things through the e-commerce site.

"I just kept upgrading, and I absolutely love each and every one that came out," she said in an interview Wednesday, after having her photo snapped with Bezos at the smartphone's launch. "I am already in love."

Bezos is banking that many of the over 20 million customers who pay $99 a year for Prime today will think just like Corbin does. Some of those Amazon shoppers already buy at the site through one of the company's devices, which are all designed to make it easier for people to shop and consume content.

The Fire Phone could help Amazon could generate about $2 billion from e-commerce products alone -- that's not including what it will make from content like streaming videos, music or e-books -- predicts Neal Doshi, an analyst with CRT Capital Group. That could grow to $5 billion or $7 billion in the next couple of years, he said.

It's a small chunk of change for Amazon, which had sales of $19.74 billion just last quarter. But it could boost mobile revenue, which accounted for about half of sales during the 2013 holiday season.

The key to Amazon's smartphone sales may be Firefly, the Fire Phone's built-in object recognition technology. It allows the phone to automatically identify items and then shows the product for sale on Amazon. The phone's audio recognition technology does the same for music and video content. Those products and content are then just a click away from purchase.

Firefly checks the price of more than 70 million products, according to Amazon's site.

"People who use this phone are going to be Prime users, and they are going to use this Firefly feature like crazy," Doshi said.

Firefly stole the show at the launch, with Bezos using the phone to correctly identify items. "It's the most sophisticated implementation I've ever seen on any device," said Patrick Moorhead, principal analyst at Moor Insights & Strategy.

He suspects that Amazon delivered a higher-quality and therefore higher-priced device to improve its hardware brand. "I think that Amazon recognizes that their brand is looking more like a Walmart than a higher brand like Macy's," Moorhead said.

Convincing users that it's worth the price will be a major challenge for the Fire Phone, which goes head to head with popular phones from Apple and Samsung. The Fire Phone will be available in two versions from AT&T starting July 25, and it will include a free year of Prime service. Current Prime customers who buy the phone will get a year added to their Prime service, Amazon said.

That's where Prime customers like Corbin come in. She was selected from 60,000 people -- including journalists and developers -- who applied for the chance to attend the product unveiling. In her application, she told Amazon about how many Kindle devices she owns and how Prime gives her quick access to goods she just can't buy locally in her small community, where she works for the local chamber of commerce. The bookworm already carries her Kindle Fire HDX everywhere, so why not a Fire Phone?

Said Corbin: "$199 is a very reasonable price for a phone with that kind of technology."