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The smartphone price wars are not victimless

The smartphone price wars are not victimless


Going cheap is costing us in less tangible ways

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From a consumer's perspective, Google's Android operating system has been an exceedingly good thing. It's the only viable competitor to have kept pace with Apple's iPhone, and in its time it has stimulated grand battles between device manufacturers — first competing on specs, and now on price. All this competition has driven smartphone development forward at a blistering pace, and we're all profiting from it now, but it has its downsides, too. Today is a fitting day to take a closer look at those.

HTC, once the leading Android smartphone maker, has just announced it will cut 15 percent of its workforce in response to dwindling sales. That's 2,300 people looking for new jobs. Lenovo, one of the relatively recent and still growing entrants in the mobile market, is also scything off 3,200 jobs as it tries to adjust to competitive pressures. Both companies consider China a key market, but neither is finding success against a group of competitors that is, in the words of Lenovo CEO Yang Yuanqing, "playing irrationally."

Yesterday's mountaintop specs are on sale at rock-bottom prices today

As if to back up Yang's words, Xiaomi has today introduced the 799 yuan ($125) Redmi Note 2, which has the same screen size and resolution as the iPhone 6 Plus and is powered by the same processor as HTC's One M9+. The Note 2 also has a microSD card slot, an IR blaster, and phase-detection autofocus (a flagship-tier feature first introduced in the Galaxy S5 and now present in the iPhone 6). All that for $125.

Whatever profit, if any, Xiaomi is making on that phone is surely meager. And yet, Xiaomi knows that razor-thin margins for it are equivalent to major losses for its bigger competitors, who have to contend with the extra costs of maintaining a global support and distribution network. Even though Lenovo is also a Chinese company and well positioned to exploit the efficiencies that come from both manufacturing and selling phones in the same geography, it's simply not able to compete with an outfit like Xiaomi. And even as the latter company matures and takes on the costs associated with being an international phone vendor, there's a constant flow of anonymous upstarts ready to take its place, if only briefly.

Also read: China is rewriting the rules of the mobile game

A recent study of Android device manufacturers found that there are now nearly 1,300 distinct brands of Android phones floating around. That's almost three times as many as there were in 2012, but it's a ridiculous number in its own right too. How can there be room for 1,300 different companies in a market where the biggest names are seemingly constantly mired in financial worries? The answer is that there isn't. Most of the companies in existence today are unlikely to still be here tomorrow. That's what Lenovo's CEO describes as the descent into irrationality: there are businesses selling Android phones, particularly in China, that simply do not concern themselves with remaining sustainable for any period of time beyond the nearest of horizons.

The situation is unfavorable for the manufacturers of Android phones, but it's not all that awesome for us, the consumers, either.

We buy a lot of implicit assurances when we purchase a phone

Say that you do buy the rock-bottom-priced, Shenzhen-produced Android phone with the lofty specs from a random brand. It has a replaceable battery, but where will you get one when you decide you want a spare? It runs the latest Android today, but who will ensure it does so tomorrow? And who will bear responsibility for any overheating issues or display flaws?

We buy a lot of implicit assurances when we purchase a phone from an established brand. Even though HTC and Sony are struggling to keep their mobile divisions afloat, they will not disappear overnight. And even though their Android software updates could always be faster, these companies do at least endeavor to distribute them — and they are rightly pilloried when they fail.

The current trend is to quietly discard these certitudes in the pursuit of ever-lower upfront cost. OnePlus is among the leaders in this field, but then you've also got companies like Yota, which secured a lot of YotaPhone 2 preorders via Indiegogo before canceling its US launch. Lenovo's American subsidiary Motorola is embracing a similar direct-to-consumer approach this year, skirting carrier arrangements to sell the new Moto X and Moto G at impressively low prices. But are any of these ventures truly sustainable?

Why is no one talking about sustainability?

Like an accelerated version of Moore's Law, smartphone prices have been steadily declining while their capabilities have been consistently improving. It's a beautiful trend that should be celebrated, but in order to keep it going, we need phone manufacturers to also be sustainable businesses. Right now, Apple and Samsung are doing alright, and Android is increasingly pivotal to Google's profitability, but almost everyone else in the smartphone business is flirting with disaster every quarter. This isn't going to lead to better customer service for us, or better working conditions for the people assembling our phones. If we want those things, we'll have to pay for them.