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AH Primetime: Are Premium Android Devices Endangered?

September 9, 2015 - Written By David Steele

From many perspectives, the Apple iPhone is an over-hyped, grossly overpriced, mid-range device with some premium features. When a company makes relocating the headphone socket from the top to the bottom of a device, this tells you they are scraping the barrel. However, Apple’s marketing engine is the best in the business: Apple were able to make the headphone port relocation a feature and quickly silenced those industry pundits reporting that the iPhone bends in use. As for the device being overpriced: this is only from some perspectives. It is worth what people will pay, but each device sold gave Apple somewhere in the region of $185 for the second quarter of 2015. Other smartphone manufacturers trying to compete in the same segment of the market (I mean “premium” rather than “over-hyped, overpriced mid-range” here) are making significantly less from each device sold. Of the top Android manufacturers, most are losing money on declining sales. Samsung are making a little over $33 a handset and LG almost two cents ($0.02). HTC, Sony, Lenovo (including Motorola), all lost money. Thanks to Samsung’s massive sales number, the overall Android premium device earned the industry just $15 a device. For reference, Microsoft’s Windows Phone lost $72 per device sold – and this is why Microsoft have effectively closed the door on Windows Mobile.

There are significant industry repercussions for this difference in earnings per device. Earning too much or too little from a device is a bad thing. For Apple, there is little reason to change the device and this is something we’ve seen. For Sony, HTC, Motorola and most of the industry, they face a difficult decision. There is nothing wrong with these devices, but their sales have been disappointing in the face of stiff competition. This is not a sustainable business and it’s no surprise that both HTC and Sony are facing intense difficulties. Lenovo are in a slightly different place in stiff competition with Xiaomi and Huawei in their local (Chinese) market, but they too will face the same commercial realities. LG have turned a tiny profit from each device sold, and Samsung are still making money – but face the same issue as the rest of the industry of declining sales numbers. There is also another factor to consider here, which is how tablet sales have also been declining and very few manufacturers are making any money from their tablets.

There are a number of reasons for falling premium smartphone sales but the two main ones are cost versus benefit in the developed smartphone market, and the rapid growth of inexpensive models in the developing market. The first is that the industry has matured in the developed smartphone markets. Many customers are now on their second device and the newer models have only a small improvement in features and specification but a large increase in price. In some cases, the 2015 flagship device is missing features that came on the 2013 model, such as a removeable battery and MicroSD card slot. Comparing a 2015 flagship with a 2014 or even 2014 flagship and the real world benefit is often limited. The second reason is that the developing market has a massive appetite for lower end devices, costing a hundred dollars or less. Because competition is so tough at this price point, manufacturers are working towards adding new features to the less expensive models to make them more competitive. These improved devices are bubbling up into the mid-range sector.

Mid-range smartphones could be called the “good enough” smartphones. The devices often have a smaller number of features cherry picked from the flagship models, such as lesser screens, processors and cameras, but at a significantly lower price. Customers moving from a 2013 flagship to a 2015 mid-range often benefit from a steep drop in monthly price and an equivalent device. The 2015 Android flagships are on the whole excellent devices, but have not sold in the numbers that manufacturers hoped for. However, there is another factor that we need to consider, which is the rise of the higher end Android devices selling for a much lower price than traditional flagships sell for. This includes devices from Xiaomi, Huawei, OnePlus and Oppo, plus the Motorola Moto X. These devices are much cheaper than the HTC, Sony, LG and Samsung flagships but offer customers a similar high-end specification and experience.

What could happen now? We may see the big Android manufacturers reevaluate selling premium devices. This may mean that they stop trying to compete with the iPhone by offering a device at the same or higher price, and instead refocus onto offering great mid-range devices. To come, this could stifle progress and development of existing ideas, but we have already seen this over the last two years with the manufacturers trying to push devices at the same level as the iPhone. We may see Sony and HTC leave the Android device market and this would be a shame, as both manufacturers have something to contribute. The industry is changing, as carriers encourage customers to buy their devices outright, and this would appear to favor those businesses able to release premium smartphones for a less-than-iPhone price. Motorola are already positioning their products for this change, OnePlus too. Xiaomi is coming to the American and European markets, too; perhaps in two years time the Android device marketplace will be very different?