Will Motorola’s new low pricing strategy worry companies like Samsung?

by: Gary SimsJune 3, 2013

woodsideDennis Woodside, the CEO of Motorola Mobility since its acquisition by Google last year, has declared war on high priced smartphones during the All Things D conference. While speaking on stage with Walt Mossberg, Woodside said that because Motorola is a more nimble company (than say giants like Samsung) it doesn’t need to worry about making very high profit margins on its smartphones. Instead the company’s new  pricing strategy is to build high-quality, low-cost devices.

[quote qtext=”The price of a smartphone is $650. That’s not gonna persist.” qperson=”Dennis Woodside, CEO of Motorola” qsource=”” qposition=”left”]

These comments are great news for consumers who could see the price of flagship smartphones fall if Motorola is successful in shaking up the market. But Rolfe Winkler of the Wall Street Journal also thinks that these fighting words from Woodside should have “executives at Samsung shaking in their boots.” He also thinks that “folks at Apple should also be sweating.” Is he right? Unfortunately no and here’s why.

Winkler is working on the assumption that Motorola, as a well known brand, will be able to sweep in and metaphorically pull the rug out from under Samsung’s (and Apple’s) feet by drastically reducing the cost of high-quality smartphones. Motorola will release its highly anticipated Moto X phone this fall and it is assumed that Woodside’s comments are about the pricing of the Moto X and other handsets that Motorola has in the pipeline.

Assuming the Moto X is in the same class as the Samsung Galaxy S4 and the HTC One, Winkler is predicting that Samsung and HTC will lose market share based purely on price. However he is wrong for several reasons.

First, although Samsung makes huge profits and has high margins on its phone sales (as does Apple) even if Samsung reduced its profit margins dramatically, the device would still sell for $500 or more. Although the component costs of the phone is under $250 that does’t include actually assembly costs, R&D and corporate overheads etc. If Woodside is only talking about a $150 reduction in the wholesale price, although welcome, that isn’t enough to revolutionize the market.

  • Piyush

    i don’t know about what Motorola thinks , but i only know that price is important factor , if right price is given for hardware people will buy it.

  • AndroidBrian

    It should. Maybe others will follow suit too. Besides that, by lowering something $50 that you sell 30 million units of is a lot. So of course apple and Samsung won’t like this. Are they worried about losing there #1 spots? No. But there scared there going to make less money. Those CEOs want to keep there insane salaries for as long as possible.

  • AndroidBrian

    & tablets and phones have taken a sharp turn to inexpensive. Thanks to Google’s Nexus devices, and there’s been a multitude of inexpensive tablets. Just a matter of time until phones drop in price like Tablets already have, because the competition is so fierce. Also consumers are realizing being in contract sucks and waiting 2 years for a new phone is stupid. If ur not under contract very few people are willing to pony up $600-700 for a phone.

    • APai

      “tablets and phones have taken a sharp turn to inexpensive”
      about time isn’t it ? the same thing happened to PCs and TVs. so why not to phones ? everyone seem to be moving onto wearable computing as their big ticket to big moolah anyways

      • AndroidBrian

        Hell yeah its about time

  • Tony Hoffman

    This article lacks foresight into the future of cell phone pricing battles and how a successful device could lead us into that land with time…it’s now about now or tomorrow but years to come. The biggest risk for Motorola at this point is not delivering on the user’s experience with the phone. The CEO feels confident that Motorola will deliver as no other companies has before. While Samsung makes great phones their features are often shock and awe more than they are increasing one’s personal interaction with their phone in a way that makes life easier and more efficient. If Motorola delivers on this with the price point they plan it will cause the ground to shake..immediately? Of course not, Rome wasn’t built over night.

  • orly

    Gotta sell phones first…

  • Mamoon Noorestani

    This is great news from Motorola. 550$ should’ve been the max off contract price of a smartphone. But now phones cost between 600$ to 750$ unlocked. Price, Hardware and at least 2 major Operating System updates are the factors which are the most important to me. My Motorola Atrix HD is an amazing phone. I can use it during any kind of weather because its waterproof inside and out.

  • The Nexus 4 didn’t sell as hot as let’s say the Galaxy S 3 simply because of supply issues. The demand was and still is HOT for a top-quality device at an affordable price, however LG could not meet those demands and the Nexus 4 suffered from multiple stock issues. If Motorola can meet the demands with a healthy stock, oh you better believe it’s going to get very interesting in the race to be #1. Give me a $300 stock-Android device with a Snapdragon 600, 400+ ppi 4.7 inch display, 3500 mAH battery, and 4.2.2 JB. On-board storage will probably be low but they could add a microSD card slot. Of course a good set of cameras and LTE are must-haves.

    • fandroid98

      No, what really happened is that Google only ordered so many phones. Google gave LG number (X) of phones, and LG made them. Google didn’t realize how many people would buy them.

  • Not to big a problem. The people who can afford a S4 will continue to buy the same priced phones thinking they are paying for quality.

    • APai

      I do think S4 offers a lot more than a nexus 4. google (and even motorola) might not give a few extras like large storage/ sd card slot, stylus like note 2, etc. so there are a few reasons staying with samsung for samsung fans. more than anything else google sucks goatballs when it comes to service.

      • David RT

        APai and samsung doesn’t lol ? last time i checked they are very late on updates and when i had an S2 that had a bleeding LCD I HAD TO PAY because they said it had water damage…..from an otterbox lmao yea right. I have dealt with google and CS was adequate. It all depends on who you get when you call and if they are having a bad or good day so please…stop throwing invalid points up as CS is dependent on the rep you get not on the company.

        • APai

          google simply does not have a adequate CS interface. look at the google apps mess – I had a ton of problems unresolved. they left it to the community for much of the issues. for a free product when it existed it was good. however the CS was non existent. in case of microsoft – apps for domains , the google equivalent – there are a few adins who at least respond, even if it takes a few days. I’ve had a few areas where google has had terrible CS.

      • AndroidBrian

        Who needs there cell phone manufacturers to have good customer service? I may be wrong, but how many times do you call Samsung?

  • APai

    nexus 4 was good enough for a lot of people. also nexus 4 was timed sweetly – so it would be future proof for at least 2 years. given that it gets the latest android first up – I would say yes to any nexus device. it’s also interesting to see more nexus experience devices out there. we need choice. choice was the premise for android – so hell yeah! motorola wants to do it ? sure! I for one would love to see it happen

  • EvenInTheDarkestHour

    Considerations for a new phone:
    1. Carrier. If it isn’t on my carrier it is a no-go, multiple line family plan, can’t change everyone over for my new toy.
    2. a. Quality
    b. Cost
    3. Durability
    4. looks, etc.

  • 윌 스튜어트

    Samsung phones are available everywhere on all networks/carriers, retailers and online. Moto X however will only be subsidized when brought through the Play Store and retailers will likely charge a premium for it (like the Nexus 4 in Europe). I’m sure its a great phone, but Google needs to find a better way to sell.

    • CoolCustomer

      While that may be the case in Europe in the US the nexus 4 (only sold at TMO) only came with a small premium ($70). If Motorola can get this on all the Big 4 Sprint, ATT, and VZW will subsidize it as always (hiding the real premium they are charging from the user) and TMO will likely sell it at or very near the Play Store price. The Nexus 4 was held back by availability (limited stock + only on TMO) as long as motorola handles availability well this should go platinum (or w/e the phone equivalent is)

      • 윌 스튜어트

        Honestly, Im not sure how the US system works. If I wanna buy a GS4 on Verizon, what do I do?

        • CoolCustomer

          Well with the Big 4 there are 2 systems: the contract route and the TMO route. The “contract route” has you pay a small price for a phone (between free and $199) and you are locked into the contract for 2 years, the actual cost of your phone is hidden in your monthly charges. The TMO route works like an interest free credit card, you make a down payment and then monthly payments. While they are technically the same with TMO your monthly bill goes down after 2 years (unless you get a new device immediately after paying off your old one) with the other carriers it doesn’t

          • 윌 스튜어트

            For contracts are the monthly charges arranged & fixed before you buy the phone or can carriers charge what they like? In the UK, if you want a contract phone you sometimes pay money upfront (depending on phone, retailer & carrier) and then you pay a fixed monthly fee, which normally includes a bundle of minutes, texts & data, phone cost and other costs networks take.

            As for T-Mobile USA, I actually understand what you mean and see the appeal.

          • g0vt_h00ker

            Yes, the companies are not allowed to violate your terms in the contract you signed. So if you started with a $90/500 mins, unlmtd data and texting, they can’t suddenly make it $120.

          • 윌 스튜어트

            Thanks for the insight! Is there anything else Im missing regarding US contracts?

          • CoolCustomer

            Outside of the fact that they suck I can’t think of anything else.

  • nishantsirohi123

    yeah motorola is more nimble
    only available on verizon

    shutting shop in Asia(china and india where 60 % of the world population resides)
    leaving flagship devices with no update and locked bootloaders
    and I can forgive that, but MotoBlur, never