May 3, 2014

Death of smartphone super profits?

I recently purchased a Xiaomi (RedMi) smartphone. I had to get one in a hurry after losing a high end smart phone and this was on sale. The so called sale price in Singapore was actually much higher than regular price charged in other places, but this is usually the case with many tech products for inexplicable reasons. Despite this, I paid only $200 for the phone with a spare battery, without any contract.

The feature set of the phone manages to find the precise sweet spot between what's usually considered luxurious and bare necessity. The screen size, 4.7" dual sim facility, screen quality, replaceable battery, Micro SD slot, Gorilla glass, you name it  - all the features that a typical buyer would deem important are there. A few they would not dream to find in a phone at this price are also thrown in - a reasonably fast processor, nice UI, responsive OS, decent build quality, clean design etc.

You can actually buy a decent point and shoot camera and a good MP3 player and perhaps even a Amazon Kindle along with a HongMi and still have money left for a few good dinners instead of splurging on a high end S5 or Z2.

That brings us to a question. Who in right mind would pay $900 for a Sony Z2 when such phones become more common? Obviously the comparison is unfair as Z2 is very high end. But then the price is almost 5 times! Same goes for Apple IPhone 5, Samsung S5 and LG's top end models - all of them seem to offer a bit more for a lot more $.

Is this the end of era of super profit in the smart phone business? Once carrier subsidies are withdrawn and phone companies forced to compete on price and features not obscured by such subsidies, I think the game will be over. In fact in such countries (India for example), it is very hard to sell a $1,000 phone except to very few. Even in countries with higher affordability like Singapore, without subsidies, very few will upgrade every year and go for the top end models. They may settle for much less frequent upgrade cycles and lower end phones.

Today we find many companies quitting the PC laptop business and increasingly, the LCD TV business too. Perhaps smartphone too would join the list soon.

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