A cautionary tale: What can we learn from HTC’s current troubles?
HTC has been around since 1997.
Watching them evolve has easily been one of the most exciting things I’ve ever seen as a fan of the mobile industry. For those not familiar with HTC’s history, they started out making mobile devices for other companies. Back then we called such a company an “ODM”, which stands for original design manufacturer. HTC didn’t have a brand in the 90s, but that didn’t matter since they would happily take money from just about anyone and then slap whatever logo they were presented with on the front of their devices.
Fast forward a decade and the launch of TouchFLO 3D was when HTC began realizing that they had to step up their game and stop letting others take responsibility for their work. TouchFLO 3D was a Windows Mobile 6.1 skin that premiered on HTC’s Touch Diamond smartphones. Those handsets were the first phones to actually be branded as HTC devices. Remember, this was back in 2008, the same year that the T-Mobile G1, the world’s first Android phone, also hit store shelves.
One year later, the HTC Hero was unveiled, otherwise known as the first phone with Sense UI. HTC basically took what they learned with Sense, ported it over to Android, and made good use of all the new enthusiasm surrounding Google’s up and coming mobile operating system.
So let’s recap, because it’s important to stress the transitions. HTC spent a little over a decade making phones for other people. They bought components, built assembly lines, manufactured devices, and the only customization work they had to do was slap a Compaq or Verizon logo on the front of their hardware.
Then, possibly inspired by Apple, we’ll never really know, HTC decided to put their brand front and center. Their key differentiator would be the software skin that they installed on their devices. The problem was that they bet on the wrong platform in 2008. One year later, with Android starting to pick up steam, HTC changed the horse they were riding and practically started printing money.
Sounds like a great story, right? So why is it then that HTC’s profits are down nearly 80% and revenue is roughly half what it was compared to the same time a year ago?
To understand that you have to see why today’s major players, Apple and Samsung, are healthy. They might make devices that look absolutely nothing alike, but both companies are organized with the same vertically integrated mentality.
Starting with Apple, here’s how they attack the market: All that money they made from the iPod back at the turn of the century, they give that to factories so that they can buy equipment and increase their output. Now everything that factory makes goes straight to Apple for the next few months. Apple also designs their own software, so they don’t have to license it from anyone. And finally, they use cheap Chinese labor.
Now Samsung’s turn: Samsung is to hardware what Apple is to software. Samsung makes their own processors, their own RAM chips, storage chips, displays, camera sensors, basically everything one would need to make a phone. Those various components then get assembled in a Samsung factory. Before the device is sealed for delivery, it gets flashed with software that was written by another company, except for a handful of tweaks that were made by Samsung themselves.
Circling back to HTC, today I like to think of them as a drooling child playing with LEGO blocks. They take chips designed by Qualcomm that were manufactured by TSMC, software that was developed at Google, screens from Sony or Samsung, camera sensors from OmniVision, and then slap all of those together. Each supplier takes a small cut, leaving HTC with practically nothing.
To truly understand the current state of HTC all one needs to do is to have a brief look at the One X. It’s gorgeous, it’s fast, it’s a great device, but it’s nothing more than the result of a couple of engineers putting pieces together instead of doing the “new” hard work of creating cutting edge technology (Samsung) or writing highly compelling software (Apple).
When’s HTC going to grow up? I honestly wish I knew.