May 25, 2018

Why it's so hard to break into the smartphone market

Andy Rubin. Photo: Essential

How hard is it to crack into the smartphone market? Even the father of Android can't seem to do it.

The bottom line: Rubin's plan was to start with a smartphone and then quickly expand into smart home and other consumer electronics products. But as I cautioned at the time, the smartphone market is brutally competitive. By starting with a phone, Essential was risking not being able to get to the next part of the plan.

  • Bloomberg reported Thursday that Andy Rubin's Essential has scrapped plans for a second smartphone and is exploring a sale of the company. Essential didn't confirm the sale talks but did say it has canceled some planned products.
  • Essential debuted its phone almost exactly a year ago after raising nearly $300 million from investors including Foxconn, Redpoint and Tencent, in addition to Rubin's Playground incubator.

Flashback: Here's what I wrote in August of last year: Starting with a smartphone, Rubin says, lets Essential kickstart the business by starting with a well understood and huge category.But, in starting there, Essential is diving into a brutally competitive and demanding market, meaning that a lot of energy is going to be going in that direction.

Why it's so tough: Even the most innovative of smartphone startups these days is building on Android, putting a realistic limit on how different it can really be than competitors. Nearly all the industry's profits go to Apple and Samsung with the remaining market share being divvied up in a brutal battle that includes a number of Chinese vendors Huawei, ZTE, Xiaomi, Vivo and Lenovo as well as Korea's LG Japan's Sony and others.

What's next: Bloomberg reported that Essential has engaged Credit Suisse to look at financial options. The Information reported Rubin e-mailed staff after the report to say that the company was in the process of trying to raise more money, and that the leak wasn't helping matters.

  • Meanwhile, a source says the company is putting its energy behind non-smartphone products where it feels it can better stand out from rivals.

My thought bubble: For an upstart to really crack the smartphone market, they'll probably need to have something as different from today's iPhone and Android as the iPhone was from the BlackBerry over a decade ago.

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