Can Amazon score in the smartphone game?

Amazon (AMZN), the e-commerce powerhouse, appears poised to begin selling its own smartphone, further cementing its foothold in the digital media world that began several years ago with the Kindle tablet. The device will be available exclusively through AT&T (T), according to The Wall Street Journal, and may be unveiled as soon as Wednesday.

Standing out in the already crowded smartphone market won't be easy, though the Journal noted that Amazon's phone will have some unique features, including one that lets users view 3D images without special glasses and another that lets them create hologram-like images. Amazon has been testing the device in its hometown of Seattle and in San Francisco, the Journal says.

However, reports about the device haven't wowed Wall Street, which has grown increasingly concerned about Amazon's inability to generate consistent profits along with CEO Jeff Bezos' plans to spend billions building up the business. Amazon shares have plunged more than 18 percent this year.

Another strike against Amazon's latest technology expansion is the failure of Facebook's (FB) smartphone. "They introduced it with great fanfare, and it was a total flop," said independent telecom analyst Jeff Kagan in reference to Facebook's phone. "It was pulled off the market within several months of its launch."

An AT&T spokesman declined to comment for this story, and Amazon didn't respond to a request for comment.

According to Bloomberg Businessweek, developing the phone, which was code-named Tyto, after a genus of owl, wasn't easy. The device 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.)"

At least Amazon has one advantage Facebook lacked: the Kindle.

"The chances of its success are much greater than Facebook," Kagan said. "Facebook had nothing for the consumers to compare to."

Kindle sales are expected to hit $5.5 billion next year compared with $4.5 billion last year, TechCrunch noted that unit sales of the devices rose by 2 million last year to 9 million, although Amazon's overall market share has declined as sales of Android-powered tablets surged.

How Amazon will price the phone will be closely watched. The company reportedly loses money on Kindale sales and tries to make up for that through sales of related products such as e-books.

For AT&T, the second-largest wireless company, the appeal of the Amazon phone is clear. As the U.S. wireless market matures, the only opportunities companies have for growth is by luring customers from rivals. They also are expanding via acquisitions, such as AT&T's planned $48.5 billion acquisition of DirecTv (DTV) and Sprint's (S) reported interest in merging with smaller wireless rival T-Mobile US (TMUS).

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