Apple (AAPL +2.66%) and Samsung (NASDAQOTH: SSNLF) still need to worry about the OnePlus One smartphone. The handset is the vanguard of a market pricing shift that could eventually force the current smartphone leaders to change their ways. If OnePlus One gains traction and starts a trend, consumers will soon demand high-powered handsets for much lower prices than those of today's flagship models.
But not quite yet. OnePlus has massive distribution problems.
The bottleneck
So far, the only way to get your hands on a OnePlus One has been to score a purchase invitation from the company. When you get one, you don't get to pick which variant of the smartphone you want to buy. My invitation was for a Sandstone Black handset with 64GB of storage. If I wanted a white one, or the 16GB version, I'd have to wait for another invitation or barter for one of those via online trading sites.
And, of course, these invites were never plentiful. At launch, the Chinese company held a contest with 140,000 entrants fighting for just 100 handsets. In August, a wave of 10,000 invites went out to winners of a larger contest. Early October saw "enormous batches of 20,000 and 30,000" invitations hitting prospective buyers around the globe.
An improvement, for sure -- but still not an impressive shipping volume in an industry often measured by the millions.
OnePlus is doing away with the invitation-only system. But this is not the opening of the floodgates that could transform the mobile industry. Instead, it's another restrictive system that will keep shipping volumes very low regardless.
Next week, OnePlus will accept pre-orders for the OnePlus One. As far as I can tell, Sandstone Black 64GB will be the only model on sale this time. And, the company has even set up a pre-preorder system.
That might be necessary, because the pre-order window will only be open for one hour. At 3 p.m. GMT on Oct. 27, OnePlus starts accepting preorders for exactly 60 minutes. Miss that window and you'll have to wait for the next preorder opportunity -- or fall back on the old invitation system, which keeps running for the time being.
In short, OnePlus One handsets will still be in very short supply and the company is taking steps to limit the demand.
That's a shame, because the OnePlus One is a great product -- but to dent demand for other handsets, it must be shipped out in huge volume.
What's the big deal?
Don't get me wrong, the OnePlus One is a great handset from many angles.
In many ways, the phone is a functional clone of the Samsung Galaxy Note 3. The two handsets are about the same size, support the same network standards, and come with very similar feature sets. The Note 3 has a slightly nicer screen; OnePlus One sports a slightly faster processor and 50% more RAM.
The One is also a good-looking phone with a premium texture that feels good in my hand. It's made from plastic, but that's not always a bad thing.
What makes the OnePlus One a big deal is its ultralow pricing. You get a top-shelf handset with 64GB of storage for $350. The Galaxy Note 3 costs $517 or more, depending upon your carrier, and you'll have to settle for half the storage.
Phones like this one have the potential to change what consumers expect from their smartphones, and at what price. OnePlus doesn't make you choose between high quality or low price -- you get both.
It's a consumer-friendly strategy that runs counter to anything we've seen before. Imagine what would happen to Apple's profit margins if the next iPhone had to compete with equally capable handsets at half the price. Samsung might have to rethink its entire smartphone strategy, given its minuscule profits on market-leading shipping volumes.
But the OnePlus One will not be a real threat to the current smartphone industry until the company can pump out quantities to match the demand. The exclusive invitations and blink-and-you-missed-it order windows are holding the company back.
OnePlus can't afford to overestimate the demand for its goods, of course. It's a small start-up that depends on third-party companies for its manufacturing and component sourcing needs. Some parts must be ordered up to three months before building the device. So the company has to plan ahead before building anything. Ordering too many parts too quickly could leave OnePlus with warehouses full of unsold handsets -- leading to another failed start-up company.
So Samsung and Apple can breathe easy until OnePlus figures out the whole supply and-demand equation. Until then, this handset will remain a rarity, giving a handful of customers a great phone for a very low price.
Growing this business model into an industry-shaking menace that forces bigger companies to change their margin expectations? It's possible, but it could take years.
