following up on my previous post about the large contingent of non-brand (the “others”) Android vendors in China, it’s interesting to read this post in the Verge today. Essentially it’s about a non-brand handset vendor in Florida, BLU Products, that will sell high-end Android phones for $299.
What caught my eye was this intro paragraph from the post:
Sammy Ohev-Zion starts our chat with an economics lesson. It costs every company about the same amount to manufacture a phone, he says — the price of an Nvidia processor and a Sharp display is consistent whether HTC, Nokia, or Motorola is signing the check. But those costs are only a small piece of the price you wind up paying when you walk into a Verizon store and buy that phone — which either costs upward of $500 or requires a hefty two-year contract. You’re also paying for Samsung’s nine-figure marketing budget, HTC’s HR department, or Sony’s huge New York City skyscraper. What if you could buy the same high-end phone from a company without all that cruft and overhead? How much would it cost?
Ignoring the second half of the paragraph for a moment, and we can make a sharp observation from the first couple of sentences – horizontal integration business models (such as those employed by Nvidia and Sharp) have dramatically reduced the barrier to entry for a end-device manufacturer such as BLU. This is nothing new; it existed in the feature phone days, and it certainly existed in the assemble-your-own-PC days. What may be new is how assembly and manufacturing techniques have evolved to the point where a new entrant can storm into the market with devices that look almost as polished as those of the premium brands. In other words, the fact that these non-brands (BLU and the ones I mentioned in my previous post) are offering decidedly mid-market devices, and not just sticking to the low end of the market.
Again, this is enabled by horizontal business models across every layer of the value chain – since Foxconn owns the assembly lines that craft Apple’s devices, you can be sure that sooner (ever more sooner, these days) rather than later these manufacturing know-hows are enjoyed by Foxconn’s other clients. This leads back to the point I harped about in the previous post – hardware differentiation is no longer a source of competitive advantage, as no one can exclusively enjoy hardware differentiation for pro-longed periods of time (it’s now measured in months, not years); to achieve differentiation and therefore profits, players must differentiate on software – and thus all the players in the Android camp are in a battle till death.