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?
Ohev-Zion, CEO of Blu Products, a relatively unknown manufacturer based in Miami, Florida, says it would cost $299. That's how much the company's latest flagship phone, the Blu Life One, will cost unlocked from Amazon or a handful of other retailers when it's available at the end of April. It's a 5-inch HD phone with a 13-megapixel camera and stock Android 4.2 (save for a Blu wallpaper), in a thin and light body that appears to hold its own next to the Galaxy and Droid devices of the world. $299 also buys the Blu Life View, with a gigantic 5.7-inch HD display, a 12-megapixel camera, and even a 5-megapixel front camera. It's not surprising that Blu's phones bear more than a passing resemblance to the iPhone and a handful of Android devices, but neither is it an accident. Ohev-Zion and Blu are betting that people want a good phone, but that they want a cheap phone more than they want a Samsung phone.
Blu Products isn't a household name, but prices speak loudly
You'd be forgiven for not having heard of Blu Products — it's a very small manufacturer, and has made inroads primarily with the Latin American community. But the company has larger, global aspirations, and the connections to back it up: CEO Sammy Ohev-Zion spent 17 years in distribution, working with what he calls "tier-one" manufacturers like Samsung and Motorola, before deciding to strike out on his own and create Blu.
He did so in 2009, partly because during the economic recession there weren't enough margins to pay distributors, and partly because the technology and manufacturing required to build a phone was more available than ever. "Previously," Ohev-Zion told me, "for a startup company to be able to manufacture — if you weren't one of these billion-dollar companies you didn't have the access or the technologies to make your own mobile devices." But that's all changed, and Ohev-Zion found that he could build a good phone for the same price as the other guys, and sell it for a lot less. He used his connections to get Blu phones in stock at Amazon, Newegg, Best Buy, and others, and began rolling out newer, better phones at a blistering pace. He believes, and says without a moment of hesitation, that Blu is going to be a real player in the smartphone industry sooner rather than later.
'The same thing, cheaper' is a pretty proven business model
There's some evidence that Ohev-Zion's confidence isn't totally misplaced. Take Warby Parker, for instance: the company circumvented an entrenched supply chain of designers, manufacturers, suppliers, and retailers, and in doing so found a way to sell equally high-quality eyeglasses for a much lower price. Or consider Nicky Bronner, whose father's connections helped him get Unreal Candy into CVS, Target, and elsewhere — he tweaked the formula of candies like Reese's Peanut Butter Cups to only include natural ingredients, and found a huge and willing audience as soon as he had a place on shelves. Vizio may be Blu's best analog, though. "Vizio is the #1-selling TV brand," Ohev-Zion says. "Why? Because people understand, 'listen, it's the same technology and I'm getting a much better value without the enormous, billions-of-dollars overhead.'" (Incidentally, Vizio seems to have noticed this too — the company announced its first line of smartphones at CES.)
Ohev-Zion believes there's a huge and willing audience for unlocked phones, too. He pointed to the Nexus 4's success — "it sells out in like five minutes whenever there's stock available" — as evidence that people don't want to be locked in to two-year contracts, and noted that thanks to MVNOs like Simple Wireless and Red Pocket, we're no longer forced to accept AT&T's brutal contract terms. If this becomes a trend, Ohev-Zion likes Blu's odds. "A lot of other companies aren't going to be able to keep up. It's a cycle... right now I think it's going to be very tough for the manufacturers who aren't Samsung and Apple to keep selling at the high prices they're currently selling."
But the company may find itself with a new list of competitors, like Alcatel, who realize that Blu's strategy — lower overhead, lower prices — may be repeatable. And the fact remains that Apple and Samsung are successful — the market for high-end phones at high prices isn't gone yet, and given those companies' volume and supply chain control they may be able to make phones for considerably less than $150 anyway. And, of course, it's hard to compete with Samsung without matching that nine-figure marketing budget (just ask HTC).
But Blu is growing — from 70,000 units in 2009, its first year, to 4.1 million last year — and it's growing in key areas. A third of the company's 300 employees are stationed around Latin America, where they're selling both feature phones and smartphones to a region that is only slowly adopting mobile technology. But as Latin American phone use grows, so will Blu: "we're in a supreme position" in the region, Ohev-Zion says. "We're the only ones."
And if the Nexus 4's success is any indication, Blu may have trouble keeping its flagship $299 phones in stock in the US as well.
Jonathan Friedman contributed to this report.