Marketing

Inside the Secretive R&D Lab Behind the Amazon Phone


Disclosure: Brad Stone is author of The Everything Store: Jeff Bezos and the Age of Amazon. The book is published by Little, Brown & Co., a division of the Hachette Book Group (MMB:FP), which is currently involved in a contract dispute with Amazon that is affecting the availability of The Everything Store and other Hachette books on the Amazon website.

On Wednesday, Amazon (AMZN) will release a smartphone. It’s a huge bet for the online retailer and, in the moment, a nice vindication for the product managers and hardware hackers at Lab126, Amazon’s secretive Silicon Valley hardware division.

More than 1,600 people claim Lab126 as their employer on the professional networking site LinkedIn (LNKD). Just a few months ago, Amazon investors might reasonably have demanded to know what those expensive engineers and product managers—and many others working on device hardware and software from Amazon’s offices in Seattle and in Cambridge, Mass.—were actually doing.

But this is turning out to be a big year for Lab126. Amazon released its Fire TV set-top box in April, to good reviews and endless promotion on the Amazon home page. Around the same time the company started quietly distributing the wand-like Amazon Dash, which lets users of its AmazonFresh grocery service scan barcodes of everyday items and add them to their online shopping lists. Tomorrow’s announcement—and refreshes to the e-reader and tablets that are no doubt coming later this year—will make this the most productive year for Lab126 since Chief Executive Officer Jeff Bezos established the group to pursue a digital reading device back in 2004.

Many Amazon watchers struggle to explain just why the online retailer and cloud services provider is in the risky business of making hardware in the first place. That’s the wrong question to ask. Lab126 is in the business of asking: Why the heck not? Fueled by his pride in Amazon’s inventiveness and his stubborn refusal to cede even an inch of the tech landscape to other companies, Bezos provides much of the motivation at Lab126, pushing it to develop mainstream hardware devices, as well as a variety of so-called “science projects,” many of which have yet to see the light of day.

One group at Lab126, for example, is working on a device that projects a computer image onto any surface. A second is developing a wireless speaker that responds to voice commands. Apparently there are many more. Lab 126 insiders whisper about a credit-card reading device similar to Square, which could help propel Amazon’s fledgling payments business, plus a remarkably thin upcoming version of the Kindle Paperwhite, code-named Ice Wine.

The smartphone project has been one of the longest in development at Lab126. Interviews with multiple Lab126 employees over the course of many months—all conducted with promises of anonymity because Amazon fiercely guards such information—suggest that the phone project was started as far back as 2009. One of the inspirations was this famous video by hacker Johnny Chung Lee, now an employee of Google (GOOG), who demonstrated that by reversing the position of sensors on the Nintendo (7974:JP) Wii, you could create a display that tracked people’s heads and presented images that moved along with their vantage points. It effectively created a 3D display without the need for special glasses.

The Amazon smartphone took off from there. It was at one point code-named Tyto, after a genus of owl. The project was accompanied inside Lab126 by a lower-cost smartphone design without the 3D effect, code-named Otus, for another owl genus. That Amazon would name its smartphone projects after birds of prey may not come as a surprise to anyone who’s paid attention to the company over the years.

The development of Tyto, however, was bedeviled by technical and organizational challenges, including getting the right cameras to produce a stable 3D effect and controlling the cost of the handset—as well as figuring out just why smartphone owners would need such a feature in the first place. (It won’t be clear until the phone actually goes on sale whether Amazon has actually figured that one out.) Lab126 employees say the phone group was reorganized several times. Leadership changed, and turnover was high. Bezos himself spent part of last summer with Lab126, which may have sped things along and instigated the current flood of hardware roll-outs.

The smartphone project ultimately ended up with the code name Duke. As other sites have documented, in addition to the standard front-facing and rear-facing cameras, the new phone will have four infrared cameras which track a user’s gaze by flashing light off his or her pupils, allowing the image to move with the user and creating the 3D effect. A gesture-control feature will allow owners to operate the phone and play games without having to touch the screen.

Amazon teasingly hinted at all this in a video accompanying its event invitation. The clip showed the phone’s users waving their heads and swaying from side to side, suggesting that identifying Amazon phone owners on the subway could become an entertaining pastime.

First, though, Bezos must persuade practical-minded customers that this feature is appealing. That challenge may have contributed to the phone’s long gestation. A decade ago, Bezos delayed the roll-out of the original Kindle e-reader until he felt the catalog of available e-books was robust enough. Now he must ensure that smartphone buyers will have enough apps to choose from in the Amazon Appstore. This week the company heralded that over 240,000 apps and games were available on its devices. Amazon will also need a stable of services that take advantage of Duke’s 3D effects.

It also remains to be seen whether Amazon can get creative with the phone’s price and data plan. According to the Wall Street Journal, AT&T will be the only carrier that can sell it; that partnership may defray some of the costs of the phone’s unique apps. Amazon may also sell the device directly to customers on its website at close to cost. Such a strategy has worked extremely well for Chinese smartphone maker Xiaomi.

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Stone is a senior writer for Bloomberg Businessweek in San Francisco. He is the author of The Everything Store: Jeff Bezos and the Age of Amazon (Little, Brown; October 2013). Follow him on Twitter @BradStone.

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