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The Amazon Smartphone Launches Tech's Costliest War

Jeff Bezos, chief executive officer Inc.

Photograph by Stephen Chernin/Bloomberg

Jeff Bezos, chief executive officer Inc.

As Foxconn (2038:HK) prepares to start cranking out smartphones for (AMZN), as reported by Bloomberg, the rest of us should prepare for a spending spree the likes of which the technology industry has yet to see.

Amazon’s entry into the smartphone market signals that it wants full access to the big-boy club, whose members—(Apple (AAPL), Microsoft, (MSFT), and Google (GOOG))—are trying to provide a full range of mobile devices to consumers. E-readers and down-market tablets? No more. Jeff Bezos wants to own each mobile entryway that leads to music, movies, books, video games, and information storage.

If the rumors are to be believed, Facebook (FB), too, intends to make its own phone and throw its lot in against the big fellas.

It must seem so tempting to flirt with making your own hardware. Partly this is motivated by fear. Google has been a self-interested steward of the Android ecosystem, the software that will likely power phones by Amazon and Facebook. The search giant aims to highlight its own services on its devices, with prominent links to its music, video, and e-book stores, not to mention its Google+ social network. Jeff Bezos and Mark Zuckerberg must be terrified by the notion that Larry Page—and Apple’s Tim Cook—could stand between them and their customers. So they call up Foxconn, ask to see their best designs, and have engineers cook up a version of open-source Android to run on their devices. Thanks to Foxconn and the other Asian manufacturers, the Americans don’t have to deal with the muss of building factories and employing thousands of workers. Instead they can gamble.

For the companies we’re talking about, though, the stakes are much higher than putting out a device here and there. It’s not enough to make a phone or an e-reader, or to offer cloud storage. They will ultimately need a TV strategy, a gaming strategy, a retail strategy, a branding strategy, an IP portfolio, consumer chops, and media and data Web services on a massive scale. Otherwise, they might as well not bother to play.

Apple, Microsoft, and Google have built up immense chests of cash for exactly this battle. Amazon doesn’t have the cash of its rivals, but the company has over a hundred million customers’ credit cards and its own well-trafficked storefront—resources matched only by Apple. At this point, Facebook, with its relatively pint-sized business, could wind up struggling hardest to compete in the big leagues.

Vance is a technology writer for Bloomberg Businessweek in Palo Alto, Calif. He is the author of Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future (HarperCollins, May 2015). Follow him on Twitter @valleyhack.
Stone is a senior writer for Bloomberg Businessweek in San Francisco. He is the author of The Everything Store: Jeff Bezos and the Age of Amazon (Little, Brown; October 2013). Follow him on Twitter @BradStone.

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