The $150 Android smartphone might kill the feature phone

October 8, 2010, 2:06 PM UTC

Just because it’s a smartphone doesn’t mean you need to buy a data plan.

There is a line between those willing to pay for mobile data and those people who “just want a phone”.  I’m always trying to convince my friends and family members who still use feature phones to jump on the smartphone bandwagon.  Just look at the compelling “free” offers combined with a two-year data smartphone plan.    By and large, the biggest inhibitor to buying a smartphone isn’t its complexity,  it is the initial cost and the added $30 or so per month in data costs.

As the price to manufacture smartphones comes down and WiFi nears ubiquity, a new breed of device may convert those remaining feature phone users.

Engadget posted a $150 (w/o plan) Huawei Ascend (pictured, right) yesterday.  It is a full-featured Android 2.1 (shame on you Dell and Sony!) phone with typical Android smartphone phone features.  Engadget notes:

… It’s got physical buttons in all the right places (including a bendy metal Send / Menu / Back / End panel on the bottom) and a surprisingly responsive Android 2.1 UI with a few neat quirks — like a nine-panel home screen — so we could honestly see this EV-DO Rev. A pretty fantastic handset for first-time  Android users.

We’d choose it over the Motorola Citrus in a heartbeat, that’s for sure, especially when Cricket gets its Sprint roaming agreement later this year.

What strikes me is that this Android smartphone costs about the same as a good feature phone.

This isn’t the only example of $150 outright Android smartphones.  The Orange San Francisco (which is actually a higher-end HTC phone with 480-800 pixel display) is selling in the UK for nearly the same currency-adjusted price on a pay as you go plan (meaning no subsidies).

There is something important happening here …

Why buy a feature phone when you can get a smartphone?  The price of the plan?  Here are some important things to consider:

1. Consumers can opt to purchase inexpensive voice plans for the Android and just use the Internet features when in range of WiFi (which is ‘usually’ for most people)  If they have a MiFi or your parents (for kids) have a Hotspot-enabled phone, they are pretty much never out of WiFi range.  While it isn’t a perfect solution, the alternative feature phone isn’t going to give you all of the market-leading Android smartphone features (MP3 player, Video player, Webkit web browser, apps) when in range of WiFi.

2. An interesting alternative is to do the exact opposite and purchase an unlimited data plan with no voice and use VoIP for calls.  I don’t think this is  a mainstream option because mobile VoIP clients aren’t mature (but look for Google Voice to change that in the coming year).  Virgin currently offers unlimited data on Sprint’s (S) network for $40.  The cost of the data plan could also be offset by customers who shut down their home Internet connections to use the unlimited wireless plan.

3. Companies like AT&T (T) are now selling their data in smaller tiers.  $15 per month for 200MB ‘if you need it.  This is likely to come down even further (both in price and data allowances).  Getting a smartphone that can go online only in emergencies might appeal to people currently on feature phone plans who don’t want to pay more for data on a monthly basis.

4. The $150 price point is only going to head south.  Maybe a $150 Android phone doesn’t make sense to the pay-as-you-go crowd, but a $99 might.  As an example, companies in India are busy building sub-$50 Android tablets.

5. At some point, the carriers will jump on board with this and offer voice plan subsidies, driving the price even further south toward free.

While RIM (RIMM), Android, Nokia(NOK), Microsoft (MSFT) and Apple (AAPL) compete for the mid- to high-end market with their new smartphone OSes and devices, only Nokia and to a lesser extent RIM are offering low-end solutions. But those often pale in comparison to what Android has on offer.

If you are looking at growth in the smartphone market, the high end is already saturated with Blackberry, iPhone and Android users.  The low end is ripe for picking as feature phone customers make the leap to smartphones. Android, with its free (Microsoft’s claimed patent subsidies notwithstanding) OS and gangbusters popularity is positioned to dominate this sector.

If you look at the global picture with the multiple billions of people using Nokia and Samsung feature phones who will be upgrading to smartphones over the next few years, the future is even rosier for Google.

Perhaps that’s why Google (GOOG) CEO Eric Schmidt could tell the Wall Sreet Journal, with straight face …

“If we have a billion people using Android, you think we can’t make money from that?” Schmidt asked rhetorically. All it would take, he said, is $10 per user per year.

A video of the 99-pound Orange San Francisco product is embedded below: