Those HTC guys are crazy to start a smartphone company now

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HTC has been losing a number of high-profile employees lately, and while CEO Peter Chou insists that it’s nothing more than regular turnover, the exodus – or at least the appearance of one – has been getting a fair bit of press. Last week, we heard that a couple of the guys who had left were going to join forces and launch their own smartphone company.

Former HTC UK head of sales, Michael Coombes, and the company’s UK marketing head, James Atkins, shared news of their new venture: Kazam. While we didn’t learn anything in specific about hardware or software the company might release, we heard them talk about plans for a concentration on the European smartphone market, with an emphasis on superior post-purchase support.

On the surface, that sounds positively lovely. These guys are clearly plugged-in to the European market, so maybe their firm might be better suited to serving it than smartphone companies based out of Asia. Of course, it takes more than skill and good intentions to succeed in business; will Kazam have what it takes to break into a crowded market and deliver something customers will flock to? Never say “never,” but it is going to require a near-miracle for an upstart like this to make any kind of inroads on the market. What are these guys smoking that makes them think launching a smartphone company now is a good idea?

An Uphill Battle

The things is, it’s not even that now’s a bad time to sell smartphones for any one particular reason – and the market is still growing as more and more users graduate from feature phones – but there’s no real “in” for Kazam at the moment. At least, I’m not seeing any seriously under-served niche of the market that’s clamoring for a company to swoop in and deliver.

Instead, Kazam will be competing against all the heavyweights, for the same users they are. What’s the European market look like now, anyway?

Well, it looks good if you’re Samsung, for one thing. Over the course of last year, Samsung’s share grew from about 18% to 32%. The big loser was Nokia, dropping from 28% to 16%, while everyone else sort of stagnated.

htc-boardSo already, we can see European smartphone shoppers eagerly responding to Samsung and its massive promotional machine, while passing on phones from a European company. That does not add up to a promising place to start for a company without Samsung’s massive advertising budget, and one that intends to have a European focus.

That’s going to make it quite difficult for Kazam to get noticed by doing pretty much the same thing as everyone else – how could it distinguish itself? The whole “importance of ongoing support” we’ve heard discussed could be a component of that, but I’m doubtful that could be capable of making a large enough impact on its own to make a winner out of Kazam.

What’s Kazam Got To Offer?

What about pricing? Any upstart is going to find itself at a disadvantage compared with larger smartphone OEMs due to economies of scale, but that’s not the only way to keep costs down. Kazam might consider lowering its own margins – like we see with Google and the Nexus 4 – in order to sell the phone at a pittance. That could go over really well in the European market, but would it actually be a smart move for Kazam?

New companies feel pressure to show profits (or at least progress towards that direction), and slim margins, combined with the sort of low volume we’d expect from a company in its early days, don’t make for a fiscally impressive way to get your business going. And then if you start out with a reputation for making affordable phones, how will your customer base react if you try and transition to a more traditional share of profit in the years to come?

I’m also not optimistic for Kazam’s chances for breaking onto the scene with some kind of “gimmick” phone. By that I really mean one with any new, unusual feature, but given the track record things like dual screens and 3D displays have had, I feel the need to get a little pejorative. I may be curious about e-ink displays on smartphones and what flexible screens will ultimately mean, but it’s hard to start a brand around ideas like that – you want to develop a reputation for yourself, and that’s best done with good, reliable, “traditional” designs. Maybe most importantly, phones like that are just safer – you don’t want to blow your start-up capital on a long shot.

And this timetable we’re looking at? Kazam intends to release “a line of smartphones” later this year. Line. Phones with an S. These guys are not wasting any time – they only left HTC in March, and aim to be competing with it with multiple phones in under ten months. That kind of ambition is bordering on overconfidence, and I can’t help but wonder how realistic those plans might be.

Finally, Kazam isn’t going to be the only new kid on the block. Instead of facing up against a lot of other new OEMs, it’s going to be dealing with new platforms: Firefox OS, Tizen, Sailfish, and the like. Even when there’s a smartphone shopper who’s fed up with current choices and wants to try something new, is she going to be more likely to check out something from Kazam, which is totally unknown to her, or maybe look at one of the new Samsung Tizen models?

In one sense, I’m not sure what WOULD be a good time to get into the smartphone game – maybe if Apple and Samsung sued each other into nonexistence – but to leap into it now, full steam ahead, is just fantastically risky. I wish Kazam all the best, but I’ll be surprised if we’re still talking about it a few years from now.

Source: comScore
Images: iFixit

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About The Author
Stephen Schenck
Stephen has been writing about electronics since 2008, which only serves to frustrate him that he waited so long to combine his love of gadgets and his degree in writing. In his spare time, he collects console and arcade game hardware, is a motorcycle enthusiast, and enjoys trapping blue crabs. Stephen's first mobile device was a 624 MHz Dell Axim X30, which he's convinced is still a viable platform. Stephen longs for a market where phones are sold independently of service, and bandwidth is cheap and plentiful; he's not holding his breath. In the meantime, he devours smartphone news and tries to sort out the juicy bitsRead more about Stephen Schenck!