Android: Race to the bottom

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News Orange will offer sub-£100 Android phones by Christmas has jolted manufacturers, especially those who have used Android to differentiate themselves

Google’s strategy in the mobile market is clear: to get its Android operating system on to as many handsets as possible, and to gain revenue from mobile advertising and applications in the mass market in the process.

And Android’s growth since its launch at the end of 2007 is astonishing.

Analyst IDC reckons Android, currently fourth for share of the smartphone market, will be the second biggest platform developer, behind Nokia’s Symbian system, by 2013, by when global smartphone shipments will have reached 390 million units.

Android handsets are already selling 160,000 per day, according to Android co-founder and Google vice president Andy Rubin.

Network operators are rushing to make real this democratisation of smartphones, and to see data revenues leap down the value chain.

The number of Android handsets available from them is expected to double to around 60 by Christmas, and make their hurried way into lower price brackets.

Orange said recently it will bring €120 (£98) Android devices by Eastern manufacturers LG, Huawei, ZTE and Gigabyte to market by then, available on prepay for half the price of most current Android models.

But with such democratisation comes commodotisation, inevitably, to the rising alarm of incumbent manufacturer brands that have caught a ride on Android’s coattails recently.

Make no mistake, Android saved Motorola’s handset business. It has given Taiwanese firm HTC a critical headrush and might afford the likes of Sony Ericsson jolts of new life.

The concern for these manufacturers, however, is they lose their edge as fast as they discovered it if Android becomes a leveller, and not a differentiator.

The giant leaps certain manufacturer brands have made with Android, particularly since Motorola’s Dext appeared last September, could be made pigeon steps immediately.

As one well-placed industry source summed up: “For a manufacturer just making Android phones right now, it is a scary place to be. There is this really fast wave of commodotisation coming.

“The Orange announcement is just horrible. It instantly drags the value out of the handset market; far too quickly.

“The basic Android interface is good, really strong. And for €120, you get that branded as you like. But it’s not just Android – it’s capacitive touch, WiFi, GPS, and a five-megapixel camera. For €120. I can see how Google wins. But if you are Motorola or Sony Ericsson, or whoever, enjoying that little lease of life Android has brought you, then it’s frightening.”

Market polarisation

There is a sense the middle ground in handset manufacturing is disappearing fast, and that the market is split between those who sell on price and those whose brand and engineering can demand a premium.

CCS analyst Ben Wood explains: “There is concern about a race to the bottom, here. We’re reaching eye-watering price points on Android.

“The old mid-tier that manufacturers like Motorola and Sony Ericsson used to reside in, trading handsets for £150-£250, has almost evaporated. We have this polarised market with low-cost smartphones coming in at under £150 and premium devices from Apple and BlackBerry for over £300. That middle ground has gone.”

The issue for part of the old guard is they are being squeezed from both sides. They cannot compete on price at the low end with these manufacturers from the East, and they struggle to match the brand kudos of Apple and BlackBerry within the premium smartphone market.

“In the Android space, companies like Samsung and LG are very good at building volume devices cheaply, and it also plays into the hands of Chinese manufacturers like Huawei and ZTE. It’s less good news for the likes of Sony Ericsson and Motorola. We’re going to see margins squeezed to the point it doesn’t make sense for them to compete at that level,” remarked one manufacturer source.

Full article in Mobile News issue 467 (July 5, 2010).

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