Yesterday IDC released a report estimating that an astounding 450 million smartphones will ship in China in 2014, which amounts to approximately a third of worldwide shipments. It also means that next year, one in every three Chinese men, women and children will buy a smartphone. China is a tantalizing target for Apple, Microsoft and Google.
With the iPhone 5c’s $733 entry-level price tag in China, Apple will have a hard time taking significant market share from Google. Microsoft, fresh off its Nokia acquisition, may want to try. Earlier this month at the DMEXCO conference in Cologne Germany, Microsoft VP of Advertising and Online Frank Holland said:
"We are going to spend a lot of time in the next 12 months building a real presence on the low-end smartphone market with developing countries."
Android 4.4 KitKat is rumored to be released next month. Google posted a hint on its website that is related to the smartphone race heating up in China and other developing countries:
"It's our goal with Android KitKat to make an amazing Android experience available for everybody."
It seems clear that Google is targeting low-cost smartphones and Android-embedded consumer devices for its next release.
Google's plan for Android has always been to disrupt the smartphone market to prevent a single competitor, such as Apple, Microsoft, Nokia or BlackBerry from dominating and blocking it from mobile search and advertising. Google’s goal for Android has never included making money, which it licenses for free. Its real goal is to get Android onto a diverse set of devices, and by extension, its brand in the hand of everyone who owns them. According to recent IDC, Google is reaching this goal, with more than 75% market share. Android 4.4 is designed to defend this market share.
The developing markets are less saturated with smartphones, where many billions of people who still rely on feature-phones are poised for a smartphone upgrade. IDC reports that Android market share in India and China is over 90%. If Google is to hold its top position, it has to provide a feature-rich, cheap Android upgrade from feature phones. IDC predicts that Apple and Microsoft will increase market share in China over the next five years. Low-cost Android 4.4 smartphones will give Google an advantage defending its top position and winning over consumers when they buy their first smartphones.
Android 4.4 looks to be optimized to run on lower-power hardware, replacing Android 2.3 Gingerbread, which continues to ship on very inexpensive smartphones because it can run on slower, cheaper processors with small memories. For example, a generic unlocked Android 2.3 smartphone can be purchased online for $69. Replacing Android 2.3 with Android 4.4 will make the low-priced Android offerings more competitive by adding new features and alleviating a lot of the software development and malware headaches.
The Wall Street Journal story about Google’s development of an Android game controller and smartwatch are further evidence of this strategy. First, mover Ouya established its Android game controller pricing at $99, and pioneer Pebble set smartwatch pricing at $150. If Google is to match these price points, Android will need to be optimized for lower-powered, less expensive hardware. This will also benefit low-cost smartphone manufacturers.
There are many online examples of low-cost Android 4.1 smartphones, like the ones below. For illustrative purposes, these smartphones are compared to the top-end Samsung Galaxy S4 Android smartphone and the low-end Nokia Asha 311 feature phone. An optimized Android 4.4 that runs fast on low-cost, high-volume systems on a chip (SoC) processors such as the Qualcomm S4 Play will give smartphone manufacturers the ability to produce very inexpensive and competitive smartphones that will make any Microsoft challenge difficult.
The smartphone examples above show how the manufacturers have helped reduce cost:
- Slower processors
- Smaller memory sizes
- Lower-resolution displays
- Limit data speeds to 2G and 3G
Compared to the much more expensive Samsung Galaxy S4, these inexpensive smartphones would be a noticeable downgrade. In contrast, the consumer upgrading from a feature phone will get much improved capabilities, such as web browsing and the availability of more than one million apps for a little more money.
The iPhone is too expensive to compete in this market. Next year, Microsoft and Google will compete with cheap prices to put their brand in as many hands in developing countries as possible. Apple will join BMW in serving the growing middle class in these markets, where it can sustain its margins.