CXO

Android One too pricey to attract one billion more internet users in India

​In India, one of the world's most attractive smartphone markets, a phone for the masses has to be priced considerably less than $100.

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Image: Google

Last week, Google launched its ambitious Android One platform globally by unveiling the first in a series of Android One phones, priced at $105 and over, in India, the world's fastest growing smartphone market. At the event, Sundar Pichai, senior vice president of Google for Android, Chrome, and Apps, said about four billion people in the world do not have internet access and a billion of those are in India. Pichai said Android One hoped to boost smartphone usage from the current 50 million to hundreds of millions.

The Android One platform pledges to deliver sturdier devices and a superior user experience at the lower end of the smartphone market in emerging markets like India. Additionally, Google is hoping to influence buyer psyche with the promise of seamlessly updated versions of its Android operating system, pre-loaded Google apps, as well as user-friendly features like offline browsing of YouTube content.

Together with the Android One phone launches, 2014 is turning out to be a year of a glut of smartphone launches and price wars in India, the world's third-largest smartphone market after China and the US. But $100 phones, including the newly-launched Android One series, could not be the phones that snag the next billion internet users in India, experts said.

However, prices are dropping and, significantly, the differences between low-cost smartphones and expensively-priced devices are narrowing. Brands are advertising specifications like multi-core processors, increasing megapixel counts, and ever-rising gigabytes of RAM to lure buyers.

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Hemant Joshi
In order to snag the next billion internet users in India, handset pricing is key. "Phone manufacturers have to figure out more affordable handsets, and operators have to make voice and data services cheaper. That could set off a second round of cell phone explosion in India," said Hemant Joshi, a partner at advisory, Deloitte Haskins & Sells.

The argument for cheaper devices is straightforward. Over 80% of all Indian users are still feature phone users, and the transition presents a huge opportunity.

Large Indian cities are blanketed by mobile users where mobile penetration is 138%, but in rural India where many poor Indians live, the coverage is approximately 43%. The first-time phone buyer segment in India is huge, and device makers targeting just this segment at the right price could be winners.

At the mid to top-end of the price spectrum, fewer phonemakers compete for slimmer volumes. The majority of current users, about 60%, are in the sub-$150 category. Indian phonemakers such as Micromax, Karbonn, and Spice (the three that launched the first of the Android One devices last week) have been the most successful in this price band.

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Tarun Pathak
"The 0-$150 is the most competitive, and any vendor looking to sell millions of phones has to launch in this category," said Tarun Pathak, a senior telecom analyst at consultancy, Counterpoint Technology Market Research. Many global Tier 1 vendors such as Motorola, Nokia, and Sony too are moving into this category lately. "They are sacrificing profits and breaching newer price points every few months," Pathak said. Motorola shipped 1.6 million devices to India within months of launching at competitive prices earlier this year.

More device makers are aiming for the $50 price point, but the real inflection point will be the launch of $25 devices, said Joshi of Deloitte. "At that price point, the vegetable vendor, the rural school teacher, and the farm worker can all aim for a phone, and the market will boom," he said. If the large device makers can set off the next revolution by working on the price, "There is a huge opportunity waiting in the horizon," said Joshi.

India is on the cusp of an explosion of inexpensive smartphones with reasonable features. In the next 18 months, several Android One phones in the sub-$50 price range are a distinct possibility, said Pathak. "Technology will change, BOM (bills of material) costs will decrease, and today's cheap $100 3G smartphones will come at half price the same time next year," Pathak said.

Images: Mr. Joshi's photo is courtesy of Deloitte Haskins & Sells, and Mr. Pathak's photo is courtesy of Counterpoint Technology Market Research.

About Saritha Rai

Saritha Rai is an India-based journalist and commentator who covers technology, business and society from her ringside seat in Bangalore.

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