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The Case For an Amazon Smartphone
CNBC.com | November 17, 2011 | 03:02 PM EST

Now that Amazon has launched the Kindle Fire —which is virtually assured to be the bestselling Android tablet of the year — there's a new rumor afloat: That Amazon is building a phone.

The first real fuel for that rumor came today from Citi analyst Mark Mahaney, who wrote in a note that his channel checks suggest Amazon is using some of the same partners that assemble the Kindle to put together a phone.

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To a skeptic, an Amazon phone might seem like a boondoggle. It's one thing for Amazon to sell bargain tablets, pricing the hardware at cost and counting on future retail business to provide the profit. But doing the same thing with phones? Seems like a non-starter. After all, carriers already subsidize the phones.

But here's why an Amazon phone might not be so crazy after all:

The main justification for Amazon doing hardware is that it paves the way for future merchandise sales. Putting a tablet in the hands of an upscale consumer is a little like putting a physical store in an upscale mall: It serves as both a visible reminder of the retailer's presence and as a way to crowd out competitors.

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