Why do profit-seeking companies keep making profitless Android phones?

http://www.theverge.com/2016/2/3/10894200/android-smartphone-oem-profit

by antr • 10 years ago

68 95 10 years ago

joefarish• 10 years ago

The mobile market is going to continue to grow for the foreseeable future. Getting in on the ground floor and "breaking-even" whilst getting a foothold in the market and building customer loyalty doesn't seem like a bad idea.

4ec327• 10 years ago

Agree with the idea of getting a foot in the door, but I don't think Android phone owners are very loyal.

Klathmon2• 10 years ago

I completely disagree.

My father in law won't buy anything else other than the Samsung Galaxy S series. To him it's not even android, it's a "Galaxy".

conceit• 10 years ago

I always assumed they went the big data way, seeing most are wannabe Apple copies using Google's android, to mine their customers for valuable data.

a_c_s• 10 years ago

How'd that work for pc makers? Their profit margins have shrunk from low to near-zero (>2.5%)[1] This is in contrast to Apple who has had healthy margins and have consistently improved market share nearly the last decade.[2]

In the electronics business, unless you are significantly differentiated there there isn't much customer loyalty to be had.

[1]http://www.theguardian.com/technology/2014/jan/09/pc-value-t...

[2]http://recode.net/2014/11/06/mac-hits-market-share-milestone...

dovdov• 10 years ago

Like nobody would pay someone money to put a tapping device into your pocket. ;)

amolgupta• 10 years ago

How long has this post been in the draft? Samsung's position is no more as great as it suggests.

vlehto• 10 years ago

How so?

exelius• 10 years ago

Samsung's position isn't great; but it's definitely better than LG, HTC or Motorola. Samsung's mobile division is at least profitable; which can't be said for anyone else.

piquadrat• 10 years ago

Also, no mention of Huawei, which is now in 3rd place in phones sold, and catching up with the two top dogs fast.

http://fortune.com/2015/10/28/smartphones-huawei-idc/

PaulHoule• 10 years ago

Stock Android is likely to be better than anything oems will modify it to be.

creshal• 10 years ago

Sadly, no OEM seems to understand that. Every single of their UIs either has a horrible UX, or is much slower than stock Android, or crashes, or all three.

Urgh, why aren't there any modern 4/4.5" Nexus phones. :(

gleenn2• 10 years ago

I used to buy this theory for a long time until I got my Nexus 5x. It has a lot of bugs. I actually miss the very polished feel of my Sony Z3 compact. Low ui tweaks, super dependable. It's a shame I hear Sony might be stopping its phone line, or maybe that's just a rumor.

alimbada• 10 years ago

Nexus devices aren't immune from this. I had a Galaxy Nexus. I'm now an iPhone user.

motoboi2• 10 years ago

Stock Android would kill them. For decades, didn't matter who built your computer, as long as it came with Windows.

Something similar would happens to Android world if people came to recognize that all phones' software were equal. It would lead to a race to the bottom in price terms.

ancientworldnow• 10 years ago

Instead they've created a world where I specifically avoid phones (Samsung for example) because their software is so awful and bloated (not to mention ugly).

AnthonyMouse• 10 years ago

People already know that all the software is equal -- or that the vendor's software is worse than stock. Which is what's killing them.

They're hardware vendors trying to compete on software. How about trying to compete on hardware?

jimbokun2• 10 years ago

Which is different from the current situation how?

pcurve• 10 years ago

I would agree, but not necessarily because OEMs don't have the skill. When OEM modifies it, they have to work within constraints of stock android.

Stock Android UX is average at best. It is too complicated and disorganized for ordinary people, and there is a lot of room for improvement.

DominikR3• 10 years ago

Well, when I look at younger people (18-24) I often see a pattern of users that don't own a PC and most of the time don't even own a laptop.

They use smartphones and sometimes tablets for most tasks.

That might change once they get older, but maybe it wont. So I think it's a good idea for any company that was/is in the PC/laptop business to try and capture as much mobile computing marketshare as possible.

tempodox4• 10 years ago

I use a tablet and a desktop computer besides my mobile phone and even for me, there is a noticeable gravitational pull towards “mobile computing”. While a dedicated screen and keyboard are clearly ergonomically superior, I just love the fact that I can hook a Bluetooth keyboard to my squawk box and make it a mobile remote terminal. All that's missing is infrastructure to log into your “home” (whatever that is) securely and with your privacy intact.

solnyshok• 10 years ago

can you elaborate on the "home" part of this? do you have a 24x7 box at home? then openvpn solves secure access part. or, did you mean the lack "needed but not existing yet home control hub for lights, heating, fridge, music, surveillance, etc."?

maxerickson4• 10 years ago

I think for casual users of any age, having a desktop at all has become atypical.

vilmosi3• 10 years ago

Younger people. As in unemployed or McJobs. They never had a PC.

For students, gamers and young professionals, they all have a PC.

DominikR3• 10 years ago

This is simply not true. I know many students that don't have a PC, only a laptop at most that is almost never used. (only to write papers)

Those students are not studying anything tech related. (Psychology and stuff like that)

And doing mundane tech related tasks only with a smartphone is not as bad or awkward as one would imagine.

For example for scanning documents I use my PC (built out of components I picked myself) that dual boots into Windows 7 / Mac OSX (Hackintosh - lots of fiddling around with drivers) that is connected to a scanner via network cable. (which often does not work without restarting the scanner)

My girlfriend uses a non modified out of the box iPhone and does the same thing with much less effort (if you count the time I invested in my setup and keeping it running) with an app that uses the phones camera to "scan" documents.

I was completely baffled when I first saw that. She doesn't have to care about setting up the OS (okay, you can buy a PC with preinstalled OS), dealing with updates and drivers, downloading and manually installing software from some website and managing storage.

I'm pretty sure she wouldn't even need a laptop if she had a quality tablet with a good bluetooth keyboard.

grabcocque• 10 years ago

The sunk cost fallacy, basically.

That or Stockholm syndrome.

homarp• 10 years ago

Maybe they should try to be different, instead of being iPhone clones.

Every one I know have a super slim phone, then a case to prevent it to be broken and make the phone not slim anymore and then a second battery. So why not make a less slim phone with hardened chassis and a longer battery ? And market it as such (you want slim that last 8h and you can't plug your earphones, go Apple, you want solid that last 2 days and you can plug your earphones, buy Me)

And they also should embrace XDA community who work for free in advocating "a phone".

And they should also accept that a premium 4.5 /4.8 screen phone is also in demand, not just 5.5 and 6.0.

And give removable battery so we, paranoid, can really unplug the phone without having to put in the fridge.

dorfsmay• 10 years ago

There are such models, the One Plus One is an example.

lorenzhs• 10 years ago

I own one and the OnePlus One has its own set of problems. Maybe most annoyingly, the touch screen doesn't work in warm weather. It also took them months to fix very basic functionality (the touch screen had ghost touch issues for a great deal of people in the beginning). Support barely exists (I don't know if they managed to improve on that by now). Also CyanogenOS is getting more and more annoying, with tons of crapware being bundled (a weird dialler, Cortana) and even ads (the "open with" intent chooser has suggestions to install Microsoft apps for certain file types).

Oh and it frequently doesn't play well with Google Play Services. There's an awful lot of battery drain because Play Services doesn't seem to like some of the modifications they made. Currently mine loses some 30% of charge overnight in airplane mode.

zanny• 10 years ago

Of maybe a phone that respected user privacy. Even if you couldn't open source the modem firmware due to the FCC, you could at least put it behind a IOMMU rather than having it as half the SoC with the power to take control of perpiherals and read memory whenever it wants, independently of what the CPU is doing.

Just give me something 5", with a big battery, big frame - as you describe - 1080p, I don't care about the display war, decent storage, usb-c, an sd card slot, and a camera that is alright and it is an instant purchase for myself and everybody whose tech purchasing I influence if it is FSF certified.

perakojotgenije• 10 years ago

You mean something like this? http://www.evolveo.eu/en/rugged

aembleton• 10 years ago

Sounds like the Oukitel K4000: http://www.gearbest.com/cell-phones/pp_237295.html

I got one a couple of months ago and it does seem to be well built. Most impressively is the battery life that goes on for days.

xgbi• 10 years ago

Reason for the cases is that it preserves the phone pristine condition.

Try to resell a phone that is rugged and suffered multiple drops and scratches, you won't be happy. Now, try to sell your phone without the wornout case, which looks close to new: a lot easier.

venomsnake2• 10 years ago

One of the things the article fails to mention is that both LG and Sony make damn fine devices (and superior to the Samsungs). Z compact series is the only small first class smartphone.

Why Apple succeeded? Because they did not allowed the carriers to interfere with their software and updates. Why all of those companies are in that position - because they did (honorable mention for WP7,7.5,8 and 10).

stevetrewick• 10 years ago

Definitely helps. Apple probably learned this from watching what happened with the most popular pre iPhone smartphone OS, Windows Mobile/CE. Good (for its time) OS ruined by OEMs and carriers.

DominikR3• 10 years ago

I fully agree, but I also doubt that Sony or LG are able to create a good enough OS for the consumer market. (I cringe when I think about the Smart TV OS they use on their TVs)

Apple can build, own and control every part of their hardware/software. Google could probably too, but they chose a different path to distribute their OS.

Edit: I don't mean to say that Sony or LG engineers are not great, it's just that you need to have experience with this type of product to build something that is really great.

Sony and LG always built their own software but not on that level as their focus was always more on the hardware side.

konceptz• 10 years ago

I believe that one of the tv systems (forgot who) is webos, a very fine mobile platform from what I recall. Purchased and reimplemented by (un)said manufacturer.

venomsnake2• 10 years ago

I fully agree, but I also doubt that Sony or LG are able to create a good enough OS for the consumer market. (I cringe when I think about the Smart TV OS they use on their TVs)

They don't need to. Stock android is stellar since 4.2. Just make the hardware and get out of the way.

nly• 10 years ago

Not so keen on LG myself. They were the flag-bearer for the Jelly Bean release by virtue of making the Nexus 4. The phone was beautiful, but they dragged their feet releasing firmware updates and introduced bugs they never fixed. Apps like snapchat, to this day, detect if you have a Nexus 4 and say "sorry, the camera related crashes aren't our fault". Its not uncommon to find this phone in a dead, red blinking state.

ZeroGravitas4• 10 years ago

Historically (pre-smartphones) Sony phones never made it big in the US. The reason apparently was that they didn't let the carriers mess with their phones so the carriers just didn't stock them.

zurn• 10 years ago

Pre-smartphone Sony was mostly just in the Japanese market. Then later in the early smartphone days Ericsson spun off their mobile phone business and got Sony on board, yielding Sony Ericsson. Then Sony bought Ericsson out and renamed it to just Sony Mobile.

tempodox4• 10 years ago

Android ... is a first-class mobile OS

While I wouldn't deny that, as an app platform it doesn't hold a candle to iOS.

rhodysurf• 10 years ago

In what respect?

motoboi2• 10 years ago

I think this used to be true because Android phones had worst hardware and Android versions market share were too fragmented.

We still have a majority of cheap android phones on the market (think outside the US), but Google is making a good advance in bringing new APIs to old versions.

tempodox4• 10 years ago

I guess iOS is more geared towards devs who have been building desktop apps while Android seems to be more approachable if you come from building web apps. There are corners in Android where “persistent state” seems to become a problem, even affecting UI. I'm sure one could expand the discussion, but let this suffice.

tempodox4• 10 years ago

I realise that saying anything ever-so-slightly non-fanboyish about Android is an irresistible licence to downvote, but really: can you try to behave less pavlovian?

ocdtrekkie2• 10 years ago

Well, Google's making bank on it. $31 billion. It seems like OEMs are burdened with most of the work and the costs of support and liability and update distribution (even if a software bug is Google's doing), yet Google gets to rake in the cash.

discreditable• 10 years ago

OEM's update woes are their own doing. The further they get from AOSP the more painful it is to hack updates together.

ocdtrekkie2• 10 years ago

That's kinda false on multiple fronts.

First and foremost: From everything I've heard Google doesn't go out of their way to support any hardware besides Nexus devices, so if you use any different chips, you have to do your own work to get it to work.

Also, Google often ships Android versions non-compliant with carrier requirements. I remember when the last Nexus 7 rolled out, it's radios were compatible with Verizon, but they couldn't meet Verizon's standards for certification until a later patch level of Android. OEMs often have to bear the burden of making Android actually work on a carrier.

And finally, the further they get from proprietary Google Android (it's not AOSP if it has Google Apps), the more likely they solve the 'lack of profit' problem. Google saps up all of the potential revenue streams for a manufacturer with it's various apps and services that OEMs are forced to install. Many of their own apps and customizations offer them additional potential for income.

a2tech• 10 years ago

Its the Dell problem-they think if they cut the margins to the bleeding edge they'll make it up in volume. Just like Dell though they all find its a tricky edge to walk. Playing the volume game means you're one bad quarter from your phone division tanking.

mojuba• 10 years ago

Free or ultra-cheap phones with ads anyone?

ck22• 10 years ago

You don't need ads when they can carrier lock like tracfone/net10/straightalk does (all same company).

But you now can get free service with ad supported networks like RingPlus

bobajeff2• 10 years ago

This article comes at a time when I'm looking for a new phone but nothing looks good to me. Not even the iPhone.

They don't want to make phones a small as I like and they refuse to make true standalone smartwatches that can make and receive calls/texts and use GPS by themselves.

roymurdock2• 10 years ago

If you're looking for a smartphone, I still recommend the iPhone 5/5s - the form factor is perfect, the price point is good, and the hardware should be new enough to handle anything you might want to throw at it for the next 2 years.

My iPhone 5 is reaching the end of its life...I'm planning on getting a dumb phone next with a ton of battery life, a decent camera, and a nice keyboard.

endemic• 10 years ago

Or the rumored new 4" iPhone.

maxerickson4• 10 years ago

It expects you to use a phone to manage it, but the Gear S is a phone in its own right:

http://www.samsung.com/us/explore/gear-s-features-and-specs/

LG almost brought a 4G one to market last fall but pulled it at the last minute.

downtide• 10 years ago

I think it's an inherent usablity issue. The two functions I'd like from a smart phone (other than calls and SMS), is mapping and the odd web lookup. I've currently got a Blackberry as a hand me down with the old form factor: half screen, half keyboard. Personally the keyboard is too much of a nuisance for me, and most websites just don't work that well on it. To the point, I'll only use it, if I really have to. So most of the time, I have an oversized item in my pocket, that I don't really care for, that runs out of battery quickly, and makes me curse daily.

A classic old phone (small nokia form factor) with WAP style browsing would actually suit me more.

But actually I think it's more a matter of coming up with a user interface that can work with a small screen. Pure text isn't that bad.

bobajeff2• 10 years ago

I think it's really just a inherent broken market issue. They already have a user interface that can work on a small screen they just demand that you tether it to a smartphone.

TheWiseOne• 10 years ago

Consider a Windows Phone maybe? It lacks a lot of apps but if all you are interested in is the basics (calls, messaging, GPS, etc.), then it's a pretty solid OS. And the Nokia Lumia lines of phones are outstanding when it comes to build quality and battery life.

Eridrus• 10 years ago

The big brands might not be willing to make smartwatches that don't require a phone, but you can sure get some off-brand ones: http://www.amazon.com/dp/B011IFQDTW?psc=1

roymurdock2• 10 years ago

Article gives 3 main reasons why companies such as Samsung, LG, Sony, and HTC continue to make smartphones (and lose money w/ the exception of Samsung):

1. every new smartphone bearing the company’s insignia serves as an engineering showcase for the various component businesses that comprise its vast conglomerate

2. LG believes it needs a smartphone to connect to its growing ecosystem of smart home, TV, and in-car gadgets, plus phones provide free and ubiquitous advertising

3. Others see smartphones as a conduit to generating profits elsewhere. Xiaomi is famous for selling phones at cost and then seeking to capitalize on a well-disposed user base by selling additional services and extras like luggage.

Of these 3, the only one that makes financial sense to me is 2. For companies that are so heavily invested in connected white goods and home automation, selling a smartphone that can control a home hub at cost is akin to giving away a free remote control for a TV. It helps bring users into the ecosystem and can help guide their fridge, TV, security network, etc. purchasing decisions.

inthewoods2• 10 years ago

I've never understood why OEMs think there is value in altering Android. As far as I can tell, it just gives them higher costs in exchange for some vague perception of additional value in terms of the customer value. It would seem more logical to me for OEMs to say "screw it, let's just make the best hardware" and minimize their software development costs which they are paying to Google.

I would have thought another lesson from Windows is that bloatware is hated and doesn't improve anything - although in the Windows world, the PC makers likely made money by including the bloatware on their machines.

Of course, none of this would solve the update issue as far as I can tell because the carriers are always involved in checking updates. Obviously, Apple bypasses this issue - but my question is why does it still exist for other phones? Carriers always say they need to check the phones - but why? And if so, why don't they need to check iPhone updates? My cynical assumption is that carriers want control and they add actually zero value but do this to maintain control.

rst• 10 years ago

Early Android native UIs were rough enough that manufacturer skins were arguably real improvements. That case has gotten a lot weaker since the Google mothership started getting serious about design.

frik• 10 years ago

Exactly. While Android 1.x looked more like Win95/WinCE, and Android 2x still had some rough edges. Samsung TouchWiz UI for Android 2 made it look modern and very similar to what Android 3/4 looked like.

ignoramous2• 10 years ago

Much of the customization stem from fixing android's perceived shortcomings by the product-management at respective OEMs. Besides, you must realise that Google doesn't engage OEMs as much as it should when it decides what goes and what doesn't AFAIK, Google does it own prod-mgmt. Android isn't a standard. Which is a good thing, 'cause it can move fast and break things (which it often does).

For instance, Amazon saw that the WebView was tightly tied with Android and that was security concern (up until it was freed in Android L), and so Amazon made it OTA'able in its third iteration of Fire OS (Android K).

Also, in a crowded market, you need a differentiator. If every phone is going to look and do the same thing, why would anyone buy one device over another? Samsung needs to market things with its offering, it can't just do so with Hardware. It needs the stylus to justify the exorbitant price tag on its Galaxy Note line of products. It needs floating activities on its mega-screen and wants people to get hooked on to that feature, to an extent that they can no longer do without it, which makes sure they'd buy and recommend Samsung over other OEMs.

Secondly, hardware is just one part of the equation. Sometimes you require vast changes in Software to make sure the hardware is properly utilized... Or you just have a better Software solution up your sleeve than what Google gave you.

Thirdly, some of the Google Apps aren't stellar-- Photos is miserable, Camera is a-okay, Music Player is a-okay, Video Player is miserable, Launcher isn't smart, Lockscreen isn't smart. You need premium apps for your devices. Besides, why would you want Google to walk away with the cake (usage information generated using all those apps) from a customer you acquired with all those hours you spent marketing the phone, establishing your brand, figuring out the quirks of doing businesses globally, toiling endlessly to sort out the logistics, whilst also fighting patent battles, as if the existing technology arms-race weren't enough... among a host of other commitments?

You and I (and I take that most of the HN community) are purists... not everyone else is.

avn2109• 10 years ago

> "Or you just have a better Software solution up your sleeve than what Google gave you."

Honest question, have you ever seen any OEM modification to Android that was a net improvement over stock?

Maybe someone has improved power management or some low level feature that I've never noticed.

pjmlp2• 10 years ago

The practice is older than Windows, it goes back to the bundles that were delivered with home systems.

Apparently they like product differentiation a lot.

xbmcuser2• 10 years ago

They source their hardware from Samsung or lg etc. Feel if no differentiation in software anyone could copy them. Samsung have enough hardware chops to make a pure Android phone that others won't be able to copy. But apple envy has caused them to lose the plot.

specialp• 10 years ago

This is going to continue and get worse. Margins are going to be under pressure even for Apple and Samsung. The technology in phones is leveling off. Chinese manufacturers that for a long time were making everyone else's phones are now making their own. This is a repeat of HDTVs march towards very low margins as technology converged, and Chinese brands took over.

Android provides an ecosystem for free*. Lately phone enhancements have been things like 0.2 ghz faster processor, larger screen, fingerprint reader. Reminds me a lot when HDTVs were offering higher refresh rates, gimmicks like 3D TV. Consumers decided they were not going to scrap their $2000 TV for another $2000 TV. Now those $2000 TVs are < $500.

So are consumers going to keep shelling out $600+ for a new phone every year or 2? Now in the USA they are more exposed to the price of the phone due to the elimination of contracts with phone subsidies. I suppose the fact that most phones are fragile causes them to break more and be replaced, but phones are commoditized now, and will continue to decrease in price and margin.

maxerickson4• 10 years ago

I think slipping margins are behind the move to the lease a phone model. The price point for a satisfactory phone is headed below $200, where most people are going to buy outright, or at least pay for it in 1 year. Lease a phone keeps them from thinking about the option to not have a phone payment.

ZeroGravitas4• 10 years ago

And when you say "get worse" you mean "get better"? Like, capitalism working vaguely like it's promised to and companies competing to provide maximum value at mininum price?

jimbokun2• 10 years ago

I think it's pretty clearly referring to the position of phone manufacturers.

But yes, it's working out well for all us consumers.

ck22• 10 years ago

Check out what you get for $20 these days:

http://www.walmart.com/ip/Straight-Talk-LG-Prepaid-Destiny-L...

(it constantly comes back into stock and sells out again)

quad-core cpu, 1GB of ram, 854x480 screen, Lollipop 5.1

http://www.lg.com/us/cell-phones/lg-L21G-destiny

it's gsm but you'll never unlock a tracphone for other carriers

ZeroGravitas4• 10 years ago

My question has always been: are the phones losing money, or the companies?

This is similar to the "Tesla loses X thousand on each car" thing. There's two ways to interpret that, 1) the more cars they sell the more money they lose, 2) as they sell more cars, they bring in more profit, and their total loss (from investments in factories etc.) divided across total sales will decrease, until it becomes positive.

So which is the case in Android land? I've never seen anything close to a thorough investigation of this point. Back in the early days of Android, the switch to Android seemed to bring companies back from making loses, into rough equilibrium, which always suggested to me that there was profit being made.

NetOpWibby• 10 years ago

The Aquos Crystal X is the best-looking Android phone I have ever seen...and I can't seem to get it here in the U.S.

:(((

Why do profit-seeking companies keep making profitless Android phones?

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