Story of the Day: The Explosion of Cheap (Android) Smartphones

A story getting a lot of comments and play this morning is last week's Fortune article: 2011 will be the year Android explodes. The story is about how cheaper chips will likely bring down prices of smartphones to under $100 and Android handsets in particular. The story, using analyst and OEM estimates, argues that Android growth next year will be explosive. 

If the prices do in fact come down to $100 or less -- or handsets are fully subsidized by carriers -- we will see huge growth as the article suggests. Unless AT&T and (soon) Verizon are willing to be extremely generous with their subsidies, the iPhone will not be able to compete for the low-end of the market with Android -- although today you can get a refurbished iPhone 4 from AT&T for $99 and 3GS models for as little as $44. 

Nielsen has long predicted that 2011 (now Q4) will be the year that smartphones cross the 50% threshold in the US. Morgan Stanley famously predicted earlier this year that 2014 would see mobile Internet access surpass PC access.

If nothing else this blog is dedicated to the idea that there are radical implications flowing from these developments and we've been discussing and speculating about many of them for that past few years. We also argued that Nokia, the dominant handset maker in the developing world, had much more to fear from Android than from Apple's iPhone:

Apple can't and won't offer low cost handsets to the market in these places; it's the premium brand and wants to ensure a uniform experience. Eventually we might see a single lower-cost handset from Apple (something like the iPhone Nano perhaps). But that won't be coming very soon, if ever. 

Google by contrast doesn't have any of those same brand-related concerns. If there are lousy Android handsets in the market it doesn't really diminish Android the OS as a whole. There's room for much more experimentation on Android.

Apple has charmed and captured the "high end" of the market. Google and its OEMs are competing there but can also compete at the lower end with lower price points. That's the area where Nokia is dominant. But for how much longer? 

Nokia may wind up adopting Android itself, but that remains to be seen. 

Android is the "Windows of the mobile world." Apple is, well, the Apple: a premium brand that seeks to maintain higher price points and margins accordingly. Just as there are lots of generic and "crappy" PCs we're going to see plenty of crappy low-end Android handsets. The image above is of the Samsung Intercept, one of these lesser Android devices. But to someone coming off a flip phone it's a revelation. 

If these low-cost Android handsets flood the market and become widely available, we'll see people trying to pair the best of lower-end Android handsets with the cheapest plans (i.e., Boost, Virgin). The only way for carriers to maintain the prices of their plans will be to limit the availability of the best handsets to their post-paid subscribers. Lesser phones on slower networks will be available to pre-paid subscribers. 

Regardless, there's enormous room for growth in the US market from non-smartphone users. If we accept the Nielsen figure that 28% of US mobile phone subscribers have smartphones that means (of course) that 72% do not. Cheap smartphones paired with cheap data plans will drive a huge number of that 72% into the smartphone -- and mostly Android -- camp over the next two years. 

One can never overestimate the impact of price on markets and consumer behavior.