Motorola is competing with Apple by choosing not to compete with the iPhone

Lower-priced “good enough” phones are popular in China and India

The Motorola Moto G phone, showing a number of coloured-case options


Never mind the iPhone 6, there’s a more important phone in town: the Moto G. Announced last week, the newest iteration of Motorola Mobility’s budget device is likely to stir the pot more than whatever Apple is unveiling this week for one big reason: price.

The first-generation Moto G, released in several countries last year, sold well for Motorola thanks to its sub-$200 price tag (that’s $200 without a contract). It pushed the Chicago-based company to 6.5 million phones sold in the first quarter of 2014 and then to 8.6 million units in the second quarter, according to ABI Research. That’s still a far cry from Samsung’s 75 million or Apple’s 35 million, but it’s pretty good for a company that was nearly dead just a few years ago.

“Our strategy is one we really like and we’re confident in it,” said Motorola Mobility president Rick Osterloh in an interview. “It’s resonating with consumers and we’re going to keep pursuing it.”

Motorola says the device, which sold particularly well in India and Brazil and re-established the company in the United Kingdom, is its most successful smartphone yet—even more so than its Droid a few years ago. The Moto G also did well in Canada, moving a reported 150,000 units.

The idea behind the Moto G is that it’s a “good-enough” phone. It’s not packed with the highest-end specifications and therefore doesn’t come with the price tag to match. The second-generation Moto G, on sale this fall, has slightly better specs than last year’s model – an improved camera and an SD card slot among them—and will also sell for around $200. As with the first iteration, a 3G model will be released first, followed shortly thereafter by an LTE version.

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“Consumers can pay a third of a premium smartphone price and get much of the same experience,” Osterloh said.

New devices from Apple and Samsung, meanwhile, will likely cost upwards of $700. A Samsung spokesman last week said the new Galaxy Edge, a phone with a curved screen along one of its edges, will be the company’s highest-end offering yet.

Motorola’s own flagship smartphone is a new version of the Moto X, which has a better camera, faster processor and the ability to take voice commands even when its screen is off. Though comparable to its Apple and Samsung rivals, the device will still have a considerably lower price, selling for around $500 this fall.

“For people that do want those features, it’s not necessary to pay that kind of price.” Osterloh said. “We’re going to offer a lot of the same capabilities of similar phones… for $100, $200 less.”

Cheaper phones aren’t just important for developing countries, where incomes are lower, they’re also key to the monthly fees that people in advanced economies pay. Expensive phones result in high subsidies from wireless carriers, who in turn charge subscribers more on their monthly plans to recoup those expenses.

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When phones are cheaper, carriers have lower subsidies to recoup, or customers buy the devices for full price outright. Either way, subscribers have less reason to sign on to long-term contracts. Without that lock-in, carriers have to compete more against each other and lower monthly prices are likely to result.

“The lack of price transparency [on phones] has made it so that there isn’t real, perfect competition,” Osterloh said. “Consumers aren’t always benefiting from price reductions and that’s a problem.”

Consumers in developing markets—which Apple has so far ceded to the likes of Motorola, Samsung and Nokia—consequently enjoy a lack of subsidies and contracts, which are advantages over their counterparts in some developed countries. The same goes for the phone makers themselves.

“We have fared exceptionally well in markets where price transparency is there,” Osterloh said.