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Amazon's Fire Won't Set the World Ablaze Just Yet

Photographer: Mike Kane/Bloomberg

Jeff Bezos, CEO of Amazon.com Inc., at the unveiling of the Fire Phone in Seattle on June 18, 2014. Close

Jeff Bezos, CEO of Amazon.com Inc., at the unveiling of the Fire Phone in Seattle on June 18, 2014.

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Photographer: Mike Kane/Bloomberg

Jeff Bezos, CEO of Amazon.com Inc., at the unveiling of the Fire Phone in Seattle on June 18, 2014.

Amazon.com had to make up for lost time today when Jeff Bezos introduced the company's first smartphone. The Fire Phone, the CEO crowed, ties seamlessly into Amazon's media services, providing movie rentals, TV downloads, e-book borrowing, and Prime video and music streaming wherever you go.

That "Prime ecosystem," as Bezos called it, is enticing — if you live in the U.S. The splashy product unveiling in Seattle was befitting for a global smartphone launch, but the device will be tied to one carrier in one country to start. The rest of the world will be locked out of some of the most compelling features in the Fire Phone when Amazon starts selling it on July 25.

People outside the U.S. who are drawn to the Fire Phone's new kind of 3-D display and Firefly image-recognition button can still pick up one of the phones, and marvel at those features. It runs on AT&T, which is compatible with cellular networks used in most places around the world, and the Amazon Appstore is open in nearly 200 countries.

But Prime Instant Video and Prime Music, the Spotify-like streaming service that debuted last week, are limited to Prime subscribers in the U.S. In fact, streaming, purchasing and downloading of videos from Amazon requires customers to be physically present within the country. (Amazon blames this on "restrictions placed on us by our content providers.") The Kindle First program, which provides early access to upcoming books, and the ability to borrow e-books are also U.S.-only. The 24-7 technical support, called Mayday, is just for Americans and Brits.

"There's going to be a relatively limited market for the phone," Ross Rubin, the principal analyst at consulting firm Reticle Research, said in an interview.

However, the U.S.-centric strategy may be a good place to start for Amazon, Rubin said. The company doesn't have all of the pieces in place to compete globally, and even if its services did work throughout Asia and Europe, those markets can be even tougher to break into, he said.

"Amazon is strong in the U.S., so it makes sense to do it there first," Rubin said. "It's a much stronger competitive environment outside the U.S."

The drawback is that smartphone growth in the U.S., even at the high-end, isn't what it used to be. The BRICs — Brazil, Russia, India and China — and other emerging markets are hot right now, which is why Apple, Nokia, Samsung Electronics and a slew of local upstarts are hammering away at those countries.

The Fire Phone's high price tag won't help it break into developing markets. AT&T will sell the phone for $200 with a two-year service contract, a standard deal in the U.S., or $650 without. That's comparable to an iPhone.

Ian Freed, Amazon's vice president for the Fire Phone, said the product comes with a yearlong Prime subscription, unlimited cloud photo storage and twice as many gigabytes inside the phone compared with a similarly priced iPhone or Galaxy S. "For a premium device, we think Fire is a great value," Freed said.

But that doesn't change the fact that the faster-growing market is the non-premium segment. The average price of smartphones fell 10 percent in the first quarter compared with the same period last year, according to data compiled by Bloomberg. The average price tag was less than half of the entry-level Fire.

"The price of Amazon's new Fire Phone may be too high, given a decline in average smartphone prices on a global basis, driven by the adoption of low-cost smartphones in emerging markets," according to a report today from Bloomberg Industries.

Amazon's Freed declined to comment on international expansion plans, urging us to "stay tuned." The company has also been working on a lower-cost smartphone without the fancy 3-D features in the Fire, Bloomberg Businessweek reported. If Amazon can get the price low enough — as the company has been known to do for everything from e-readers to toilet paper — that could turn out to be the phone that sets the world on fire.

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