Amazon started its media blitz for its new Fire Phone last week, including TV ads starring precocious children extolling the various unique features of the phone. The phone is the latest attempt to transform the e-commerce giant into a bigger player in consumer electronics.
But the Fire Phone is going to turn Amazon.com Inc. (NASDAQ:AMZN) into something else: a much bigger advertiser.
That’s saying something because Amazon already spends a bundle on ads, largely to promote store items on the Web and to those searching for things on Google. Over the past few years, Amazon has added the Fire tablet and Fire TV, as well as a succession of new Kindles. Amazon has increased its ad spending significantly, up 26 percent in 2013 to $1.44 billion in the U.S., according to Ad Age Datacenter.
But that was before it got into the wireless industry and took on some of the world’s biggest consumer marketers waging an expensive feature war for new customers. It's an expensive proposition because in wireless a $100 million ad budget is merely table stakes. “Even second-tier players like Motorola and Nokia are spending $150 million to $200 million on advertising. Even HTC is spending $75 million,” Adam Kleinberg, CEO of Traction, an ad agency based in San Francisco, said.
Creating awareness as well as demand in the general public is going to require Amazon increase spending -- possibly by a wide margin -- again this year.
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The giants of mobile buy advertising buy in the hundred-million-dollar increments. Consider, for example, AT&T is the second-largest advertiser in the U.S. at $3.27 billion; Verizon is No. 6 at $2.44 billion. Then there are the top device makers like Samsung ($1.7 billion), Google ($1.27 billion, including Motorola Mobility before it was sold to Lenovo) and T-Mobile ($1.27 billion).
This is the cost of the media, such as TV time only. Each individual TV spot can cost upward of $1 million to $2 million apiece.
Amazon has some natural advantages in the tablet market, having popularized the e-reader, but it's starting from scratch in mobile, which means spending big to stand out in the market.
“Amazon has one advantage in that they own the largest e-commerce channel on the Internet, but they are going to have to pony up big time if they want to be a significant player in the phone market,” Kleinberg said.
Despite the new ads, Amazon didn't crack the top-10 U.S. TV advertisers last week, while Verizon, AT&T and Sprint did, according to iSpot.tv.
Amazon has two different ads for the Fire Phone airing on TV -- one version of the kids in an airport and one in a food court. To be competitive, the Seattle company will have to produce a lot more. Apple had 11 ads for the iPhone over the past year, LG had 10 different ads, and HTC had 8, according to Ace Metrix, an ad effectiveness firm based in Mountain View, California.
But the behemoth in advertising in wireless is Samsung, which has had 32 different spots for the Galaxy s5. “This is one of the most competitive categories that we see across all industries,” Jonathan Symonds, an executive vice president at Ace Metrix, said.
Amazon is also jumping into the market during a heated feature war in the mobile market. Samsung’s recent ads touting the water- and break-resistant aspects of the Galaxy s5 have been particularly successful.
“Everyone wants that phone because everyone has either dropped their phone or gotten it wet and that is very relatable to them,” Symonds said.
Amazon also faces the building hype for Apple’s next iPhone, expected to be released in September. In 2013, Apple spent $719 million on advertising to support all its products in the U.S.
The good news for Amazon is its phone has some unique features with which it can do battle in this environment, including the four-camera 3-D function, the Firefly app that allows users to click-to-purchase things they’ve photographed with the camera, and of course, a year of free Amazon Prime.
None of that will keep Amazon from having to spend big to let the world know about them.