Why do companies make Android phones if they can't make profits?
The smartphone business has never been more cutthroat than it is right now. It's particularly difficult if you're an Android phone manufacturer since low-cost competitors have made it very difficult to make any profits. So why do companies bother to sell Android phones if they can't make any money? A writer at The Verge recently explored this question.
Vlad Savov reports for The Verge:
Here's a quick survey of the traditional Android device manufacturer landscape: Samsung is doing alright, LG and Sony could be doing better, HTC doesn't know what it's doing, and Motorola is done. Smartphones have grown to be the most essential piece of modern technology, and yet the industry manufacturing them has backed itself into a corner where only two companies, Apple and Samsung, are generating any reliable profit.
The quarterly earnings reports keep painting the same bleak picture, with most phone makers barely breaking even in spite of increasing shipment numbers and constantly improving products. It seems a Sisyphean task, and it's been going on long enough to invite the question of why so many companies bother making Android phones at all.
It still costs a great deal of time and effort to build a great smartphone, but making a decent one is now easy. Android, even without any retouching or enhancements, is a first-class mobile OS, so all a manufacturer needs to do is figure out how to produce and sell the most attractive possible device at the cheapest possible price. History will record the names of Palm, Motorola, Sony Ericsson, and Nokia's device division as the victims swept aside by this rising Android tide.
What remains now are Apple and Samsung's tightly integrated monoliths at the top and a sea of Chinese competitors who seem hellbent on destroying each other (and, if they're lucky, Samsung too) through a rabid price war. The motivations of those market participants can still be related to profit with relative ease — whether it be some small sliver on big volumes of cheap phones in China or the prestige premium commanded by Apple worldwide — but what of everyone else?
Readers at The Verge shared their thoughts about profitless Android manufacturers:
Turbinereiter: "I think the main problem here is that those cheap Chinese phones often aren't worse than the big names. Or even better. Some companies put out trash and that's why they are in trouble. The HTC One models were flawed – especially the one with the weird camera, and that's why they tanked. Samsungs S5 was bad – tanked.
Their phones aren't good enough to compete with the iPhone and they are to expensive to compete with the Chinese. Who often are as good if not better, like the OnePlus devices i.e."
Onwu: "Didn't this happen with PCs until the market settled and we had fewer companies making money? I remember the likes of Time, Gateway and Packard Bell back in the day. Hopefully the same will happen for smartphones, because I don't see any of the alternative strategies you've highlighted really working on a global scale – Xiami's success seems tied to a different culture from what I've read."
Jimk4003: "I think you're exactly right. Market forces will eventually take care of the unsustainable businesses; leaving fewer, stronger OEM's. The parallel you make to the early days of PC OEM's is spot on.
Will they ever make Apple levels of margin on their devices? Probably not, but they won't necessarily need to.
The free market tends to work more often than it doesn't, even if the transitional periods can be bumpy for the players involved. I think we're just in one of those transitional periods at the moment."
Rodney: "Companies generally race to the bottom in terms of pricing, even running at a loss or near loss, because they hope to suffocate the competition. Eventually, if you're the last man standing, you can worry about profits, then. It's a traditional business approach. Shady but long standing."
Teqnick: "I almost feel like it's a shame that there's nowhere to go in the hardware innovation space because of the requirements for a big goofy screen. Remember when you had all the whacky designed phones that folded, pivoted, sprang and so on. Now everyone just wants their apps on a screen and there's no focus on interesting design."
Turbinereiter: "...the money is in software and services. That's why Samsung basically duplicates every service there is and puts and ‘S-' in front of it. But nobody likes those. I think that every single line of code Samsung writes that doesn't end up in mainline Linux1 is a complete waste of money. They think they have to try to bring up services, but they suck at it and they don't need to. What they need is to build great phones. They need to put their R&D money into building better components and into optimizing Android for their Hardware."