Hiding behind the headlines of yet another record-shattering sales quarter for Apple iPhones and the never-ending procession of Samsung ads is a movement taking shape that could tilt the balance of power in the global mobile industry over the next few years.
Both cost about $150, or about a quarter of the cost of a high-end HTC One, Samsung Galaxy S or iPhone. And incumbents should prepare for further cuts with many in the industry expecting a fully capable smartphone to hit around $75 in the coming years.
Devices like $150 Sony's Xperia E4 are offering a compelling alternative to high-end smartphones at a fraction of the cost.
Although it remains an emerging trend in America, it has already taken hold in larger markets such as China, where Xiaomi often sells out of each production run of its affordable but powerful devices in just seconds.
This onslaught will be top of mind in Barcelona next week when the mobile industry superpowers converge at the Mobile World Congress trade show where the likes of Samsung and HTC are expected to trot out fancy new flagship models aimed at getting people to pay top dollar.
Cheaper smartphones have been around for a couple years now. But until recently they often came with weak processors, small screens and older software. Companies like Samsung, which offered these models, were able to woo consumers to trade up to models with better cameras and bigger screens — at higher prices.
That marketing trick will become harder. "People don't give a shit about their bullshit specs any more," said Kirt McMaster, CEO of open Android software maker Cyanogen. "The disruption now is the price point, end of story."
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Cyanogen has played a role in nurturing the trend. In addition to providing an alternative mobile operating system to the Google service-laden version of Android, Cyanogen powers the OnePlus One handset which helped kick off the move toward lower-priced phones a few years ago.
China's Xiaomi is among the earliest of the new wave of smartphone makers pushing prices down. Xiaomi focuses on direct sales to avoid the costs of a retail network or share revenue with partners.
The trend has also helped regional players, such as India's Micromax, which has a well-known brand and established distribution system in a fast-growing market.
"The other companies are going to follow," Xiaomi President Bin Lin told Re/code earlier this month. Lin said what makes his company different is that its business model expects to sell devices for roughly the cost of materials, without money allocated to marketing and distribution.
Lin said Xiaomi's ultimate goal is to make a profit by selling its software or other mobile services instead of its hardware sales, though he acknowledged that effort is in its early stages.
"We're not here to just not make any money," Lin said. "Running a business long-term we will have to make money."
The rise of low-priced, high-performance phones will hit Samsung hard. The South Korean electronics giant has historically blanketed the market with models at every size and price backed by big marketing budgets.
That has worked out well for Samsung, but it's unclear how sustainable such high cost structures will be against the latest trend. Android phone makers at the low end, including those that use Microsoft's Windows Phone and Mozilla's Firefox OS, will also suffer.
The trend is being further accelerated by the multiple, competing phone chipmakers. Eager to make it as easy as possible for hardware makers to get in the game, Qualcomm, Taiwan's MediaTek and others create near-final reference designs that make getting in the business not much harder than choosing a logo and color.
MediaTek, in particular, is focused on this low-end space, noting that the combination of a growing global middle class, the end of carrier subsidies and other trends are creating huge growth opportunities in that part of the market.
"What we've done as a company is making Internet-enabled consumer electronics affordable to consumers world over," MediaTek VP and general manager Mohit Bhushan said in an e-mail interview.
The last region this global trend will impact will likely be the U.S., as most mobile phone customers continue to rely on obtaining heavily subsidized phones with two-year contracts that obscure the full price being paid.
Carriers have introduced new phone leasing plans to reduce consumers' reliance on subsidies, which could make lower-cost phones more attractive.
It's also worth noting that Apple has managed to buck the trend, enjoying record sales without having to introduce significantly less expensive models.
How Apple and Samsung will manage to distinguish themselves on features from the lower-priced players is the biggest question.
—By Ina Fried, Re/code.net.
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