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Amazon honcho: Fire smartphone flopped due to high price

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Amazon's Fire smartphone crashed hard and burned, causing $84 million worth of the handsets to stay on shelves, but the e-commerce company isn't ready to give up on smartphones just yet.

Amazon reported absorbing a $170 million charge for the Fire phone, its first venture into the smartphone market. When taking the Fire phone out of the equation, analysts agreed Amazon's third-quarter finances looked healthy overall.

The Fire Phone was offered exclusively through AT&T for $199 on contract. With features such as its 13-MP camera and Amazon-connected Firefly software, the Fire was priced and promoted as a Galaxy and iPhone rival.

And that was the big mistake, says an Amazon leader and an industry watcher.

"They were trying to sell what they thought was an entry-level solution at what turned out to be a premium-level price point," said Stephen Baker, a consumer technology analyst at market research firm NPD Group.

David Limp, Amazon's senior vice president of devices, admits the Fire phone was priced too high.

"We didn't get the price right," Limp said. "I think people come to expect a great value, and we sort of mismatched expectations. We thought we had it right. But we're also willing to say, 'we missed.' And so we corrected."

The correction Limp is alluding may indicate that another version of the Fire is in the works. Shortly after its debut the Fire was given an early price cut to 99 cents on contract, but that still failed to pull the handsets off shelves and into the hands of consumers.

"We are going to keep iterating software features to get it better and better," Limp said. "Each release that we're doing, we're learning. Beyond that, I leave it out there to see what people think."

The success of its e-reader Kindle series likely tempted Amazon into betting big on the Fire phone. Without disclosing numbers, Limp says his company's Fire TV has also been a success.

"When you're taking risks, they're not all going to pay off," said Limp. "Those are the facts."

Amazon may be preparing to take a big risk on another front. The e-commerce company is rumored to be preparing a physical store in midtown Manhattan, just in time for the holiday shopping season.

However, Forrester analyst Sucharita Mulpuru thinks it may be a bad bet on Amazon's part if the company tries to ship products out of the store.

"Amazon's value proposition is its huge selection and shipping that comes to me," Mulpuru said. "Both those aren't going to happen at a physical store in Manhattan."

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