Samsung Must Be Sweating Bullets Over This Phone -- and So Should Apple!

The Oneplus One smartphone won't take over the smartphone market overnight, but Apple and Samsung must worry about what its arrival means anyhow.

May 6, 2014 at 11:00AM

Samsung is the undisputed king of global smartphone sales. In certain key markets like America and Japan, Apple (NASDAQ:AAPL) rules the roost. These two companies have divided and conquered the exploding smartphone market since Day One, and they earn more than 100% of this sector's total profits. In other words, if you're not Apple or Samsung, you're probably losing money on smartphone sales today.

But this duopoly is not bulletproof. There's one brand-new phone on the market that should have both Cupertino and Gangnam quaking in their boots. And it looks like this:

Image source: Oneplus.

The Oneplus One is a very modern handset. It comes with a high-quality camera, 3 gigabytes of RAM memory, one of the fastest mobile chip sets on the market today, and support for high-speed 4G LTE networking. The phone also features a 5.5-inch full-HD screen protected by Gorilla Glass 3, the latest and greatest 802.11ac Wi-Fi connectivity, and either 16 or 64 gigabytes of internal storage. Oneplus One runs a highly customizable Android version known as Cyanogenmod, previously only found installed as an enthusiast after-market option.

None of these details is enough to scare Samsung or Apple, of course. Other than the unusually large internal memory (most flagship phones today top out at 2 gigabytes) and the unique preinstalled Android platform, this handset simply stands shoulder-to-shoulder with today's best flagships. The Samsung Galaxy S5 and HTC One (M8) can trade punches with this thing all day. Apple's iPhone 5S also holds its own, and the upcoming iPhone 6 should blow these specs out of the water.

So far, so blah.

But have you seen the price tag on this thing? Here's where the Oneplus One really gets interesting.

The 16-gigabyte version will sell for $299 and the 64-gigabyte option stops at $349 per handset. That's the full sticker price, with no carrier subsidies or down-payment installment plans attached. No two-year contracts to sign -- just the undiluted out-of-pocket expense.

On similar terms, the Samsung Galaxy S5 will run you $649 per handset. So does the iPhone 5S. The latest HTC One costs $639 without a contract. All of these prices are for versions with 16 GB of storage capacity. A 64-GB iPhone 5S will cost you $399 with a two-year contract. Without, the price rises to $849.

So the Oneplus One delivers hardware that's comparable to today's finest smartphones at a 55% to 60% discount. And that's why the current market leaders should be worried sick about this new rival.

Too good to be true?
Of course, the Oneplus One isn't perfect. If you're looking for a premium feel, the metal casings of an HTC One or iPhone 5S will suit you better than the hard plastic used here. And Cyanogenmod isn't for everyone -- you'll love it if you enjoy personalizing your handset to the hilt, but hate it if you just want a smooth experience out of the box.

But otherwise, the Oneplus One's biggest failing is more of a business issue. There is no torrent of mass-production supply here, and you currently need a rare invite to get your hands on one.

On the one hand, you have to wonder what will happen to the already threatening price tag once economies of scale start kicking in. On the flip side of the same coin, it's hard to make a real dent in the market with a limited supply on hand.

So Apple and Samsung will probably have a couple of years to chisel out their responses to this low-cost, high-quality rookie. But handset could probably sell out at much higher price points, and I expect it to scale up very quickly.

The future starts now
The smartphone market has growth up a lot since Apple released its original iPhone in 2007. Even if the Oneplus One doesn't end up obliterating the market (and it probably won't, given the lack of large-scale operations and big-ticket financing), its arrival is a sign of maturity that points to fewer feature wars and more pricing skirmishes in the future. And all of this is happening just as the carrier sector stands on the cusp of a revolution, too.

The smartphone sector is ripe for a sea change. The winners in the next generation will have to survive the end of this era first. It will happen whether Samsung, Apple, and the leading networks like it or not. Consumers will get better devices and services at ever cheaper prices, and wireless profit margins will have to absorb the pain of this revolution.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days.

We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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