What the $33 Mozilla Firefox Phone Means for Emerging Markets

Indian handset manufacturer Intex Technologies recently launched its low-end Firefox OS handset, the Cloud FX. The phone is being sold on Indian shopping site Snapdeal.com for a promotional price of 1,999 rupees ($33), making it one of the cheapest new smartphones in the world.

The Cloud FX has all the basic features which are required for a smartphone -- a 3.5-inch 320x480 screen, a 2-megapixel camera, a 1GHz processor, and 128MB of RAM. Intex is one of two Indian companies, with Spice being the other, which have developed low-end smartphones through partnerships with Mozilla and Spreadtrum, a fabless chipmaker in China. Spice's upcoming Firefox phone, the Fire One Mi-FX, which launch on Aug. 29 for 2,299 rupees ($38).

Intex's Cloud FX (L) and Spice's Fire One Mi-FX (R). Source: company websites

The Cloud FX and Fire One Mi-FX both have tremendous growth potential in India, since IDC estimates that 81% of the 18.4 million smartphones shipped in the country last quarter cost less than $200. Therefore, Microsoft (NASDAQ: MSFT  ) and Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) -- which are both depending on emerging markets like India for market share growth -- need to keep a close eye on this disruptive threat.

What Firefox phones mean for Microsoft
Last quarter, IDC reported that Microsoft's Windows Phone only controlled 2.5% of the global smartphone market -- down from 3.4% a year earlier. Meanwhile, Android and iOS claimed respective market shares of 84.7% and 11.7%.

Former Nokia CEO Stephen Elop, now head of Microsoft's Devices group, believes that selling low-end Windows Phones in emerging markets can help it reclaim market share. That's why Microsoft will replace the Asha, S40 devices, and the Nokia X Android phone with low-end Windows Phones like the new $100 Lumia 530. The 530 is the successor to the best-selling Lumia 520, which accounts for 30% of the Windows Phone market, according to research firm AdDuplex.

The Lumia 530 is technically superior to the Cloud FX -- it has a faster processor, four times the RAM, a 5-megapixel camera, and a higher-resolution 4-inch screen. However, it's unclear if those beefier specs can convince the average Indian consumer to pay three times as much for an entry-level smartphone.

Nokia's Lumia 530. Source: company website

Firefox phones could also hurt sales of Microsoft's Nokia feature "dumbphones," which it decided to keep selling last month with the announcement of the $25 Nokia 130. Thanks to its low-end feature phones, Nokia remains the second largest handset maker in the world after Samsung (NASDAQOTH: SSNLF  ) .

Feature phones still account for over 70% of the Indian market, but that market is shrinking fast -- Gartner reported that sales of Nokia handsets fell 25% year over year in 2013 to 251 million handsets, while sales of Samsung handsets rose 16% to 444 million.

Since Intex's Cloud FX offers much better features than the Nokia 130 for just a slightly higher price, Firefox phones could quickly kill off feature phones in key markets like India and China.

What Firefox Phones mean for Google
Google certainly isn't fighting for survival in smartphones like Microsoft, but cheap Firefox phones could disrupt its expansion of Android across the bottom end of the market.

Google's Android One program, which it announced at I/O 2014 in June, set minimum standards to produce low-end smartphones for under $100. Google has partnered with Indian handset makers Micromax, Karbonn, and Spice to launch the first devices in September, which will be equipped with quad-core processors, 1GB of RAM, 5-megapixel cameras, and 4.3 to 4.5-inch screens.

Android One devices could certainly crush Nokia's Lumia 530 in the $100 price range, but it's unclear if they can tackle $33 Firefox phones. However, Android devices are getting close to matching Firefox OS prices -- Celkon's Campus A35K, which runs Android 4.4, costs less than $50.

Celkon's Campus A35K. Source: company website

If Indian Android handsets close the price gap with Firefox ones, they will emerge victorious thanks to app superiority. Android 4.4 users can access Google Play's 1.3 million apps, while low-end Firefox phones can only download around 1,000 of the 5,000 HTML5 apps in the Firefox Marketplace.

Firefox phones might convert some of India's feature phone users, but they're not a major threat to Google, which is partnering with some of the same low-end hardware makers (like Spice) as Mozilla. Moreover, Google isn't shouldering any hardware risks like Microsoft -- the risks are all being taken by its Indian handset partners.

The Foolish takeaway
In conclusion, investors should be aware of two facts -- that the smartphone market is peaking in developed markets, but demand remains strong in emerging ones. Customers in India and China are expected to buy over 500 million smartphones this year, which accounts for half the total sold across 47 key markets, according to research firm Mediacells.

Google has a clear advantage in India and China, thanks to support from local companies like Micromax, Spice, and Xiaomi, while Microsoft's Nokia division has to do most of the heavy lifting on its own.

Mozilla's Firefox OS is a wild card which could squeeze into a niche market between feature phones and low-end smartphones -- which might not hurt Google, but could certainly trample Microsoft's dreams of reclaiming market share via emerging markets.

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