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Will Internet Companies Cannibalize Mid-End SmartPhone Market ?

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Xiamoi MI2 - Internet PhonesThe Entry Level SmartPhone / Feature Mobile Phone [Sub $200] market will be under the control of WhiteBox Phone Manufacturers in 2013. The Mid and High end SmartPhone market belonged to Brands such as Samsung, Apple, HTC etc. However, the equation is likely to change as we have already seen with the disruptive launch by Xiaomi in China.

Xiaomi launched MI2 based on QCOM’s first quad core processor, MSM 8064 (definitely the most powerful mobile processor in the world right now), with 2GB of mobile DDR, 4.3 inch HD quality display (342 ppi vs iPhone 5 of 326ppi and HTC One X of 312 ppi) and 8MP camera sensor with aperture of f/2.0. From a pure hardware perspective, MI2 probably has the most advanced hardware in the world and is also priced at only US$310, around half of the retail price vs smartphones with comparable hardware specs.

Internet / Software companies which have captured the Tablet Market with their zero hardware margin business model are likely to play a big role in the mid- to high-end smartphone market. Amazon will have a smartphone in June / July 2013 using QCOM’s 8960 Pro processor. Google is also very likely to have a smartphone in late 3Q13. Besides, Baidu, Tencent and Alibaba all have roadmap for smartphones. With respectable brands such as Amazon launching smartphones with comparable hardware specs to high end Android model and lower price than even the mid end Android models, I believe most of the mid end Android users could potentially turn to smartphone launched by Amazon or other internet / companies.

Google is already at loggerheads with Samsung over the proposed launch of its SmartPhone based on Android as the latter has threatened to abandon Android and adopt Tizen. Amazon smartphone may not have a big impact on a premium model like iPhone as iPhone users tend to be aspirational customers and rather insensitive to price points. Android phone users tend to be much more price sensitive, especially in the mid-end.

With advanced hardware, low price and strong brand recognition, I believe Internet companies like Amazon and Google could play a big role in the mid to high end segment. Also expect their US$250-300 models not only to wipe out the U$200-300 models from branded players but also to cannibalize the US$300-500 segment.

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