Over the weekend - while everyone here at iMore worked feverishly to prepare for tomorrow's iPhone event - some noise surfaced about Amazon working on a phone, and one they could give away for free. Amazon has since denied the rumor, which is interesting from the "no comment on no comment" company, but the idea itself is worth some exploration...
Apple sells premium products. The upcoming iPhone 5s will be premium. The upcoming iPhone 5c will be less expensive, but like the iPad mini, still premium. One way to compete against Apple, historically, is by going cheap. That's hard for other hardware companies to do, because thinner margins means less profit. It's not viable long-term. For services companies like Google - and Amazon - hardware profits don't matter. In fact, devaluing hardware means more devices in more hands to monetize against services. It's in their best interests to make hardware as cheap as possible.
Amazon could certainly do in phones what they did in tablets - make a Kindle Fire Phone that's much cheaper than an iPhone, that's mainly a front-end to the Amazon store system, then they could leverage services and content, much like Google does, to keep it profitable.
Unlike Google, however, Amazon has so far been constrained by geography. They literally can't afford to sell their hardware in places that don't have Amazon digital content presence. That's why the Kindle Fire tablets are sold in only a handful of countries compared to Apple's massive multinational presence.
In the U.S., where Amazon is content rich, it could still be a smart play. In the increasingly important international markets, it's tougher to see.
With Nexus devices hitting those lower price points, however, it'll be interesting to see what the likes of Facebook and Amazon can and will do, and how Apple can and will respond. Anyone interested in a Kindle Fire phone?