3 Reasons Mozilla’s Firefox Phones Will Fail

Mozilla is launching cheap new phones for emerging markets. Here are 3 reasons that it could be a bad idea.

Jun 17, 2014 at 12:04PM

Microsoft's (NASDAQ:MSFT) Nokia Asha and lower-end Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android smartphones could soon face a new competitor in emerging markets -- Mozilla's Firefox phones, which run on the open source Firefox OS.

Two Indian companies, Spice and Intex, are building the phones, based on a processor from Chinese company Spreadtrum. The phones, which start at $25, will be available in India and Indonesia later this year.

The Wall Street Journal reports that Spice's model will "specifically target the affordable segment and first-time smartphone buyers." The device will come loaded with an app store, the Firefox Marketplace, which includes apps for Facebook, Twitter, Line, and Pinterest. Spice did not reveal the price of its device; Intex stated that its phones would be priced under $33.


3 Firefox phones (L to R) -- from Alcatel, LG, and ZTE. Source: Mozilla.

Spice and Intex's phones aren't the first Firefox phones ever -- Alcatel and ZTE launched first-generation Firefox phones last July. The two companies will also launch new Firefox phones this summer -- Alcatel's One Touch Fire E and ZTE's Open II. A pricier $170 model, the Flame, is manufactured by Chinese company Thundersoft, and will be launched as the "reference device" for other Firefox phone manufacturers and developers.

In my opinion, Firefox's ambitious efforts to launch a mobile OS are admirable but flawed. Here are three key reasons why Firefox's phones will fail to gain traction in lower-end markets.

1. Everyone wants a piece of the low-end market
"Focusing on developing and emerging markets" has become the new mantra for mobile phone makers tired of competing against Apple (NASDAQ:AAPL) and Samsung in developed markets. Nokia launched the Asha in 2011 and the Nokia X Android earlier this year in India. BlackBerry (NASDAQ:BBRY) tried it last year with the Q5, and Google announced that it will launch its modular Project Ara phone in emerging markets next year.

But the problem is that prices tend to drop rapidly in saturated markets. Indian handset maker Celkon just launched the Campus A35K smartphone, touted as the cheapest Android 4.4 (KitKat) phone in the world at $50. With a 1GHz processor, 256MB of RAM, and both back and front-facing cameras, it's a more impressive package than comparably priced smartphones.

Microsoft's Nokia Asha 501, which has less RAM and runs on the proprietary Asha platform, costs around $67. Although a difference of $20 to $30 doesn't seem like much to Americans, it matters quite a bit to the average middle class Indian, who earns less than $300 per month.

If Firefox phones can sell for $25, they will not only threaten low-end smartphones like the Campus A35K and Asha 501, but could possibly crush the market for dumbphones, which can cost less than $20. However, if the costs of Asha phones, Android phones, and other low-end devices keep falling, Firefox phones could be a tough sell in emerging markets like India.

2. A lack of developers
Meanwhile, getting developers to create apps for Firefox OS will be a tough task. IDC forecasts that Android will finish 2014 with a 80.2% market share, followed by iOS with 14.8%, Windows Phone with 3.5%, and BlackBerry with 0.8%. That leaves a tiny 0.7% sliver for everyone else in the mobile OS market.

An OS' market share is directly related to the number of apps on the platform, since software developers generally like to reach the largest market possible. As a result, both Apple's iOS App Store and Google Play have over 1.2 million apps. Windows Phone has around 250,000 apps. BlackBerry has around 120,000 apps, but 47,000 of them were made by a single developer, S4BB.

Both Microsoft and BlackBerry offered incentives to attract app developers. Microsoft paid $100 per published app, and reportedly over $100,000 to secure some more popular apps. BlackBerry also paid out $100 per approved app and $10,000 for early BB10 apps that met certain quality standards.

If Mozilla and its partners want to lure more app developers to its platform, which currently has a non-existent market share in smartphones, it might need to resort to the same tactics. But the problem is that Mozilla is currently seeking new ways to generate more revenue, not spend it, since 90% of its revenue in 2012 came from Google through its pull-down search box. Mozilla actually needs to diversify its revenue so badly that it has flirted with selling ads on "Sponsored Tabs" within its browser.

3. Emerging markets are richer than they seem
Last but not least, companies like Mozilla and Microsoft overlook the massive income gaps in emerging markets like India.

According to a recent OECD (Organization for Economic Cooperation and Development) report, income inequality has doubled in India over the past two decades -- the biggest jump among all emerging economies. The top 10% of wage earners make roughly 12 times the bottom 10%, up from six times in the early 1990s. Meanwhile, India's top 5% spends 21.3% of total expenditures in the country.

Therefore, more than a fifth of the money being spent in India comes from people who can easily afford higher-end phones like the iPhone or Samsung Galaxy S. In fact, sales of iPhones (all models), jumped 55% year-over-year in Apple's second quarter. According to IDC, Apple remains the third largest smartphone maker in the country, behind Samsung and Sony.

Therefore, Mozilla and Microsoft's Nokia might capture portions of the lower-end market in emerging markets, but the margins there are paper-thin and depend on high sales volume to make a noticeable difference on the bottom line. Meanwhile, companies like Apple, Samsung, and Sony can simply sell a lower number of higher-margin devices to generate higher profits.

The Foolish takeaway
In conclusion, Mozilla's efforts to penetrate the smartphone market are ambitious, but intense competition, the lack of developer support, and the need for high sales to offset thin margins could prevent Firefox OS from ever evolving into a mainstream OS.

Mozilla clearly hopes that Firefox OS will become the next Android, but I firmly believe that it will more likely be mentioned in the same breath as other niche open source systems like Ubuntu, Jolla Sailfish, and Samsung's Tizen instead.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Leo Sun owns shares of Apple, Facebook, and Google (C shares). The Motley Fool recommends Apple, Facebook, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Apple, Facebook, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers