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The Future of Cheap Androids Begins Now

The arrival of low-priced smartphones is an event many have been waiting on for some time. Sure there are often buy one, get one deals or one-day specials where you can find a smartphone for as little as a penny, but in most cases, such deals are tied to expensive plan commitments that last for two years. For a real paradigm shift, we’ll need to see unsubsidized handsets priced at or under $100 that can be used on a month-to-month basis. We’re inching closer to that shift.

Take the LG Optimus V, for example. Virgin Mobile just began selling this Android smartphone for $149. Since Virgin Mobile is a pre-paid operator, there’s no contract involved. That means the company is selling the handset at full-price; there’s no subsidy, no contract cancellation fee and no commitment. You pay $149 and the phone is yours. Monthly plans that include unlimited mobile broadband access with Virgin Mobile — which uses Sprint’s (s s) network — start at $25 with a limited amount of minutes.

Think about that for a second. With a $149 initial investment and then an ongoing cost of less than $1 per day, someone can have a basic, but useful, smartphone in the U.S., with the flexibility of upgrading to a better phone or different carrier at any point in time. Granted, the Optimus V doesn’t compare to the high-end specifications of the latest and greatest Androids (s goog), Apple’s iPhone (s aapl), or other currently popular devices, but I’m not sure that matters.

I reviewed the LG Optimus T handset back in November, and it’s essentially the same phone as the Optimus V; LG is rebadging the basic design for different carriers. For a long-time mobile device user that values high performance, the Optimus may not be as fast or as feature-packed as what I’m used to. But that doesn’t mean it won’t provide value to those currently on feature phones or other low-end smartphones. In my review, I noted:

This handset does just about everything that my more expensive phone can do. You can install mobile apps from the Android Market (yay Angry Birds!), share pics on Facebook (taken with a decent, but not high-end camera), browse the web over 3G or Wi-Fi, manage email on the go, check-in on Foursquare, use Google’s Navigation (s goog) and use Google Voice services. The phone uses the latest version of Android, which helps boost performance. Plus, the 1500 mAh battery paired with a slower processor makes for an all-day device.

All of the essential functions are there: 3G, Wi-Fi, Bluetooth, a touchscreen display, GPS, a 3.2-megapixel camera and more. Plus, the handset can run a myriad of software found in the Android Market. Would I like to see the device have more guts than the 600 MHz processor provides? Sure I would, but each improved feature boosts the costs and puts the device out of reach for more consumers on a tight budget, and besides, I’m not in the target audience for this device.

The Optimus handset line, especially when paired with a low-cost pre-paid plan, represents the coming wave of cheaper smartphones: a slowly rising tide that will bring additional challenges to companies such as Nokia (s nok) that sell more feature phones than any company in the world today. Indeed, outside the U.S., where Nokia is a popular brand, such cheap smartphones may even greater risk to Nokia. Why? Because here in the U.S. our handsets are generally tied or locked to a carrier and we have two different network technologies. But in Europe and elsewhere, it’s not uncommon to buy a phone, then purchase a SIM card from whichever carrier is currently offering the cheapest voice and data rates. A cheap, no-contract handset can run on any number of networks in that case, making the device an even more appealing alternative to a feature phone.

Adding additional pressure is the likelihood of these Android handsets getting cheaper in the future. Brian Modoff from Deutsche Bank Equity Research yesterday issued this note:

By 2013, we expect 1 GHz smartphones to be available for $100. The combination of a $0 license for Android and the steady march of Moore’s Law could translate into $100 smartphones by late 2012 or early 2013. At that point, we think even the average emerging markets’ consumer shift their purchase sharply away from feature phones to smartphones, posing a serious challenge to companies such as Nokia without a clear strategy for low-end operating systems.

I agree with Modoff in principle, but I suspect the timeline he presents for a $100 smartphone is too conservative. By the end of this year, I expect to see no-contract Android devices costing $99 or less, paired with reasonably priced pre-paid plans. There may be a question of exactly when that will happen, but there’s no question that it will happen. And when it does, it will open up the floodgates for upgrades to those on feature phones and kick smartphone adoption into an even higher gear.

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29 Responses to “The Future of Cheap Androids Begins Now”

  1. I bought this phone on Monday and have been impressed with the overall value of it and Virgin’s pre-paid plan. I’d suggest that anyone doing mobile apps to go get this phone (or one similarly priced) and use it as your design center. It’s important to make sure your products will work for the millions of people that start using smartphones this year.

  2. I can’t wait to see the Androids selling for $100 at the end of the year, in the mean time I’m using Net10’s introductory level smart phone the LG900G which is only selling for $30 – $39 (out of pocket cost) and the Net10 plans are $15/$25/$50 unlimited. This phone’s got the qwerty (looks like a blackberry),fast web browsing,2mp camcorder, mp3, bluetooth, APP’s,e-mail access.
    This Net10 phone uses the major towers of Verizon,AT&T & T-Mobile so the receptions really good.

    This introductory iphone is affordable for a person earning a modest salary.

  3. The phone is really good, The article triggered me to buy the phone because of phone price and plan. The phone is really good. I never had a smart phone earlier. Data plan in Virgin Mobile (uses Sprint 3G) is good for the price of $25. Nothing to blame.

  4. Kevin there have been smartphones from Nokia/Samsung for more than 6 months for 100USD or less. with pretty much same functionality as the android devices.
    my guess is outside of US, masses of the people (Still) make their purchasing decision based on functionality, battery life, durability and brand of hardware; and android or iOS would take time to grow as a brand.

    • Praveen, of course you’re correct, but I’d argue that not all smartphones are equal. ;) Also a question: you say that ” people (Still) make their purchasing decision based on functionality, battery life, durability and brand of hardware” What else should they be basing that decision on? I’d add ecosystem and user experience as well, but curious as to your thoughts.

      • the reality is that here in the US many higher end smartphones are bought primarily as status symbols. among people spending big money to buy unsubsidized for prepaid usage this is even more so the case. i am not talking about the techies and geeks but rather the very material oriented customers you tend to find in urban prepaid shops that activate phones for cricket, metroPCS, and the MVNO’s. i know many customers who regularly drop $300 to $600 on phones and almost never use any of the functionality(although this is changing as they are becoming interested to primarily two features: 1. streaming videos and music and 2. tethering.) they buy them because ‘they like the way they look’ or the want to have ‘only the best’

  5. a couple things:

    the US desperately needs virgin mobile style pricing on an operator with SIM cards. in most countries prepaid and SIM card swapping go hand in hand. or at least virgin mobile should start accepting used sprint phone on their network. the closest that we have here is simple mobile(a t-mobile MVNO) with a $60 unlimited everything, but we really need something like the virgin mobile $25 deal.

    now for the killer apps on this thing. VOIP over 3G to add unlimited voice. and since i bet a lot of the people buying this phone have limited home access to the internet the other killer app is tethering.

    lately i have been running a phone flashing business converting verizon and sprint phones to cricket and metroPCS. one thing that i can tell you is that on cricket the demand for tethering on android phones is absolutely enormous, in fact in a lot of the small cricket dealers this has become the main selling point and is often the only reason for the customer switching from a basic or feature phone. also for now it is the only way to get unlimited internet over cellular since the dedicated USB dongles and MiFi’s are sold as metered buckets, but not the phone data plans.

  6. I picked up a T-Mobile Comet off-contract for $140 when my Nexus One was being repaired. It does most of the things that my N1 does (Google Voice, Google Navigation, Skype, etc) and at fairly decent speeds. Also it’s very easy to unlock it, just call T-Mobile and you’ll get an unlock code in 2-14 days (already unlocked 3 Comets within 2 weeks). No, it won’t replace my N1 (or other high end phones), but it’s very cool that you can get a quality smartphone for under $150 off-contract.

  7. They take from the 300 minutes all calls to voice mail, Google Voice and Skype. There are no free minutes (weekends, or nights). As you can see, there is no free lunch…

    • Correct, A Bello, there are no free minutes on the $25/mo plan, but you still have unlimited web and text. This is enough for many people.

      At $40/mo you get 1200 minutes and for $60/mo you get unlimited everything. The big carriers aren’t anywhere close to those prices… and these rates are available without a contract!

      The phone selection is limited, but I’m thrilled to see more agressive pricing on service plans. The current plans with the larger carriers are a joke ($20/mo for unlimited SMS messaging, seriously?) Hopefully the phone quality will continue to improve and put some pressure on Verizon and AT&T.

  8. Kevin, I think you are right on. These cheap Android handsets will be what drives mass adoption of smartphones. This is one reason why the iPhone will never be THE dominant smartphone in the world, cost. The “average” cell phone user just doesn’t want to pay the extra $30+/month for data for two years and/or the ~$600 for a smartphone. . . IMO.

    PS. . .
    enjoyed the last pod-cast.

  9. no its not – it already started when KIRF based cheapo android phones and tablets started pouring out of China.

    We have been getting $100 Android tablets for some time now.

    • I have come across many statistics which show significantly more iOS users in web statistics than Android. I have often wondered why this is the case… among my present day-to-day environment (high school in Atlanta area) I see a greater magnitude of Android cell phones by at least 10-1 to iPhones. Much of this probably has to do with area-specific things such as AT&T´s poor service and pricing, but nonetheless, it is not arguable that Android is quickly rising to dominance. Many of the various Android smartphones are quite a common occurrence, while an iPhone is more of a rare treat to see in my public.

      The first possibility I have considered is problems with how the OS is calculated. While on iOS there are a very limited number of browsers: essentially only Safari is allowed in the appstore and some others that do not do local rendering such as Opera Mini, there are multitudes of browsers on Android… ranging from mobile versions of Firefox and Opera to various Android-specific browsers. I can´t help but imagine even though the ones I have seen make note of Android somewhere that the general proliferation of different user agents between different phones and browsers causes some under-reporting.

      It may also be that strict browsing is not as dominant of an activity on the phone, which seems likely. if we take my personal experience of Android use to be the norm, which is a high appeal to teenagers, you are going to see that most use the ¨Internet¨ mainly for specific applications like Facebook, Twitter, and IM. While the Internet is still used on the phone, general surfing may be reserved for other devices.

      Furthermore, iOS has the example of a solid device that is essentially *built* for web surfing in addition to the phones; while Android has been tried to support other form factors, at its present state it is mobile phone-specific, which not as many people use for surfing in general; whereas the iPad works great for this with the added benefit of screen size.

      It would be interesting to know, still, why the iPhone user is more apt to surf than the Android user. I know I have found the browsing experience on my Droid 2 preferable to my iPod Touch due to better handling of text blocking in zoom, easier one-handed use, availability of plugins, less window/tab clearing from memory while surfing, and so on; but this may not be the consistent opinion.