Amazon admits the Fire phone's pricing was a major mistake

Last week Amazon (NASDAQ:AMZN) shocked investors with a massive loss. Jeff Bezos’ company ended Q3 2014 with $544 million in the red, a bad loss even for a company that has longed delivered minimal quarterly increases in profits or even small losses.

While Amazon had some other big-ticket investments to explain the half a billion loss (including the acquisition of streaming platform Twitch), market watchers agreed that the bulk of it was owed to the Fire phone. Indeed, Amazon booked $170 million in losses related to selling the Fire phone, and admitted it’s sitting on $83 million in unsold Fire phone inventory.

Widely panned by critics, Amazon’s first smartphone launched in July to frosty consumer reception. The device has an abysmal 2.3 stars review average on Amazon’s product page, with users singling out the lack of apps, poor battery life, and bad value for money as the reasons they disliked the Fire phone. At $199 on-contract (quickly slashed to $1), Amazon’s phone simply could not compete with other devices in its price range.

Now Amazon is admitting it blew the Fire phone pricing. Talking to Fortune, the company’s SVP of devices David Limp said that abandoning Amazon’s typical strategy to sell hardware at a very low margin was a mistake:

“We didn’t get the price right. 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.”

According to Limp, the price cut to $1 from September yielded “significantly better sales.” Amazon also pushed a couple of firmware update to tackle some of the problems raised by early buyers.

Limp further insisted that Amazon is committed to the Fire phone:

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

Amazon is known for playing the long game, and it looks like the Fire is here to stay. With that said, it’s safe to say that the current generation of the device is pretty much dead. It’s likely that over the next quarters Amazon will have to write off much of the $83 million worth of Fire phones that are now sitting in its warehouses.

As for the next generation of the Fire phone, that could be a very different story, provided Amazon goes back to its roots and begins pricing its smartphones the way it prices its tablets, e-readers, and streaming devices.