
Why do profit-seeking companies keep making profitless Android phones? - antr
http://www.theverge.com/2016/2/3/10894200/android-smartphone-oem-profit
======
inthewoods
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.

~~~
ignoramous
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
>> "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.

~~~
ignoramous
I help mod Android for a living. From my experience, there is a tonne of
things OEM want that improve either performance, stability, security, and
usability (atleast until Google cleaned up their act with JB).

------
specialp
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.

~~~
ZeroGravitas
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?

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

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

~~~
ZeroGravitas
I dunno, I see a lot of weird comments that seems to suggest low profits is
some kind of problem, rather than what the free market it supposed to ensure.
I can't take it for granted that someone saying that profits falling due to
competition will get "worse" actually thinks that's a good thing for
consumers.

I regularly see the phrase "race to the bottom" used without understanding of
the fact that theoretically it's a good thing when corporations race to the
bottom (modulo lawbreaking and market externalities) for example.

~~~
pionar
>I regularly see the phrase "race to the bottom" used without understanding of
the fact that theoretically it's a good thing when corporations race to the
bottom

It's not always though. Typically, that race to the bottom means lower
quality. Everyone loses there.

~~~
vilmosi
But the lower quality during the race to the bottom is way better than high
quality before. Objectively, it is better because everything (including high
quality components) gets cheaper.

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

~~~
lorenzhs
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.

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

~~~
motoboi
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
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).

~~~
amyjess
Yep, this is why I will never buy a non-Nexus phone.

Also, good lord Samsung's UX is just plain ugly. Everything about it,
including layouts, color schemes, etc., makes me feel queasy. Their design
aesthetic is why I go out of my way to avoid everything they make.

~~~
pjmlp
Ask those TI users how much having a Nexus helped.

Google has no process in place how to support their customers if an OEM
breaches contract.

------
roymurdock
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.

------
bobajeff
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.

~~~
downtide
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.

~~~
TheWiseOne
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.

------
joefarish
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.

~~~
a_c_s
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...](http://www.theguardian.com/technology/2014/jan/09/pc-value-trap-
windows-chrome-hp-dell-lenovo-asus-acer)

[2][http://recode.net/2014/11/06/mac-hits-market-share-
milestone...](http://recode.net/2014/11/06/mac-hits-market-share-milestone-in-
u-s-what-post-pc-era/)

------
a2tech
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.

------
venomsnake
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).

~~~
DominikR
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.

~~~
venomsnake
>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.

------
ck2
Check out what you get for $20 these days:

[http://www.walmart.com/ip/Straight-Talk-LG-Prepaid-
Destiny-L...](http://www.walmart.com/ip/Straight-Talk-LG-Prepaid-
Destiny-L21G-Smartphone/45822123)

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

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

------
grabcocque
The sunk cost fallacy, basically.

That or Stockholm syndrome.

------
ZeroGravitas
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.

------
DominikR
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.

~~~
tempodox
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
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."?

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

~~~
piquadrat
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/](http://fortune.com/2015/10/28/smartphones-huawei-idc/)

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

~~~
ocdtrekkie
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.

------
NetOpWibby
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.

:(((

------
mojuba
Free or ultra-cheap phones with ads anyone?

~~~
ck2
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

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

------
tempodox
> _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
In what respect?

~~~
motoboi
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.

