Amazon Debuts Ad-Sponsored Smartphones

Offers New Motorola Moto G and Blu R1 HD Phones with $50 Discount

On Wednesday, Amazon announced significant discounts on two SIM-free unlocked Android smartphones exclusively available to its Amazon Prime members. The Motorola Moto GR and the Blu R1 HD devices are available for pre-order and are expected to ship on 12 July. The discounted phones will have Amazon apps pre-installed and will display lock screen ads and offers. The Blu R1 HD phone will be available for $50, half the ad-free price. The Moto G4 handset will cost $150 after a $50 discount.

The unlocked phones allow users to connect with a wireless carrier of their choosing, though they are limited by the device’s capabilities. The Moto G phone supports both GSM and CDMA and also supports the LTE bands of the four major wireless carriers in the US. The Blu R1 HD device is compatible only with AT&T and T-Mobile.

The use of the lock screen to create an ad-based subsidy model is not unprecedented for hardware. Amazon uses a similar subsidy model for its Kindle e-readers and Fire HD tablets. Users can dismiss the ads by unlocking the phone’s home screen, or click on the ad to receive more details. Recently Tesco Mobile in the UK also announced an ad-based service, Tesco Mobile Xtras, which offers a discounted bill in return for customers viewing adverts on their Android smartphones.

For US carriers, this is a growing challenge. Unlocked smartphones are being made available through more channels including directly from device manufacturers such as Apple, Motorola and Samsung.

This approach shows Amazon still sees potential in the mobile market, but is in stark contrast to its home-grown Fire Phone introduced two years ago. The Fire Phone was a failure resulting in significant losses, including a one-time write down of $170 million, underlining the risks associated with hardware design and manufacturing.

By abstracting the entry into hardware and subsidising other companies’ devices, Amazon is able to drive deeper interaction with committed Prime subscribers via targeted advertising and the inclusion of its apps, including Prime Photos, Prime Music and Prime Video. It should also be noted that these phones are standard Android 6.0 Marshmallow handsets, and unlike Amazon’s own devices, core Google services such as Gmail, Maps and YouTube will be included by default.

It’s not clear how consumers will view the concept of constant eyeball intrusion for a discount of $50. How the ads are implemented will be critical to the user experience and acceptance. The example shown in this video appears to indicate they will be relatively unobtrusive.

This initiative allows Amazon to test the waters of alternative sales models for devices, while getting its apps onto more phones. It’s highly likely that Amazon will make similar deals with other hardware manufacturers. Carriers in the US and beyond will be monitoring this closely, particularly as momentum grows around SIM-free devices and advertising becomes a more prevalent way of subsiding sales.