According to reports, Amazon is working on its own Smartphone running a forked version of Android. Amazon already has its own Kindle Fire tablet which runs on Android. However, Amazong has cut Google out of its platform as user's can't buy content or apps from Google Play Store. On the contrary Google allows Amazon to sell their content on Android devices. So, an Android powered Amazon phone can be a lucrative market for Amazon as it has the entire ecosystem in place.
Google vs Amazon
The difference between Amazon devices and those of Google is control and freedom. Amazon devices have a lot of restrictions and locks unlike Google devices. At the same time Amazon also continues to push updates to break rooted devices. Google on the contrary encourages hacking of their devices. Another area which separates Google from Amazon is that Google is a huge supporter of open source and funds a lot of open source technologies, on the contrary Amazon despite being a heavy Linux user doesn't contribute anything to the development of Android or Linux in general.
The Amazon phone can be expected to be a low-end, low cost smartphone, which will be intended for content consumption similar to its Kindle Fire.
How will Apple respond to the Amazon phone, which is already engaged with the company in a legal dispute over the use of the term AppStore, is unclear. But Amazon is aware of the possible legal attack and according to The Verge, ...is reportedly working on building up a wireless patent portfolio that would allow it to release the device without fear of infringement allegations."