One of the reasons innovative startup smartphone makers like Essential and Nextbit have struggled to crack the U.S. market is the domination of the four major wireless carriers.
It’s long been assumed that carriers AT&T, Verizon, T-Mobile, and Sprint sold the lion’s share of new phones. And, since they require that all devices pass difficult and costly compatibility tests, the carriers generally haven’t been quick to add phones from smaller players to their store shelves. Essential, which did have modest backing just from Sprint, has canceled plans for a second generation update to its groundbreaking model from last year. Nextbit gave up and was sold off in January, and even the revived Nokia brand from HMD Global has struggled to get back in the carriers line ups.
On Tuesday, research firm Counterpoint Technology came out with some figures to confirm the startups’ worst fears.
Most smartphone sales still occur in physical retail stores, about 88% as of the first quarter, Counterpoint says. And, as the carriers have thousands of stores spread across the country, they capture three-quarters of the offline market, with Apple — not a venue that will be selling any startup’s phones ever — grabbing much of the remainder.
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That has left the startups trying to sell directly to consumers, both from their own websites and those of big e-commerce retailers like Amazon and Best Buy. But, that slender 12% segment of the market is highly fragmented. Here, the carriers plus Apple combine for only about two out of every five phones sold online, Counterpoint says. Amazon sells slightly more than one out of every five phones sold online, many through its “Prime Exclusive” line up. The remainder of online sales mostly go through the websites of retailers like Best Buy (bby), Walmart (wmt), and Target (tgt).
A lot of smartphone buyers want either some handholding from a human sales associate or some hands-on time with the device, Counterpoint analyst Maurice Klaehne explains.
“It is a complicated purchase, as these devices are frequently sold bundled with a plan, service upgrade, or accessories,” Klaehne notes. “People often need help in these situations to get their phone set up, data transferred to the new device, and have new features explained.”
Even with about 60% of the online market going through retailers like Amazon, the startups face a different challenge in the so-called unlocked market than they would in a carrier store. Many more brands compete online, including cheap models from Asian manufacturers like BLU, Lenovo’s Motorola and Huawei. Amazon’s (amzn) best seller list, for example, features a $40 model from BLU and Apple’s (aapl) 3-year-old iPhone 6S for $258.
To be sure, making brand new hardware devices and competing against well-funded giants like Apple and Samsung is no easy task, with or without carriers’ retail backing. Essential’s first phone was dinged for a poor camera experience and Nextbit was relying on crowdsourced funding.