Is Amazon working on a free smartphone?

Rumors of a smartphone from Amazon(s amzn) are nothing new. They have been floating around since before the inception of the original Kindle Fire. But a new report from Amir Efrati and Jessica E. Lessin (formerly of the Wall Street Journal) suggests that not only is Amazon working on a smartphone, but that it might offer it for free.

Yes, free. And not just free with a carrier subsidy. According to the report, “Amazon wants the device to be free whether or not people sign up for a new wireless plan at the same time.” Of course, Amazon wouldn’t just give its phones away if it expected nothing in return.

It is unclear, for instance, if Amazon will require customers to sign up for a subscription-based service like Amazon Prime. But this would make the most sense to me. In fact, this strategy actually sounds a lot like how wireless carriers work when you think about it. Carriers aren’t making much money off of device sales – they would never subsidize the price of phones so greatly if that were the case. Instead, carriers make money by requiring you to pay for their service every month. The same could hold true for Amazon if it requires customers to sign up for Prime, or some other completely new service, in order to use its otherwise-free phone.

And aside from the revenue generated by some sort of subscription-based service, offering its phone for free would allow Amazon to gain some else that’s just as valuable: marketshare. Apple(s aapl) and Samsung have proven to have quite a lot of control over the smartphone market, so it is possible that Amazon could attempt something drastic in order to shake things up.

An Amazon phone will likely be running a “forked” version of Google’s(s goog) Android operating system, much like the Kindle Fire tablets do. This means that a phone will use the open-source Android OS as the basis of its system, but it won’t won’t incorporate any of Google’s own apps or services. This would allow Amazon to include its own existing app store, and nurture the development of its own app ecosystem, which could mean another large stream of revenue.


But considering it takes around $200 to produce a smartphone on average, Amazon will have to think long and hard before deciding to go all-in with such an aggressive plan. Or it can take a page out of Xiaomi’s playbook, also mentioned in the report. The Chinese smartphone manufacturer is essentially selling its phones at cost in an effort to undercut it competitors, and plans to recoup the difference through software and services.

Most recently, Amazon has been said to have been working on two different smartphones, including one with a glasses-free 3D display, along with a lower-end model. It is unclear if these devices are still in the works, and if they are the ones being referred to in this report. Either way, it’ll be interesting to see Amazon enter the smartphone space, no matter the device and strategy.