Smartphone Startup Fires Another Shot at Apple and Android Competitors

June 14, 2016, 5:00 PM UTC
The OnePlus 3

Apple and Samsung together cast a large shadow over the global smartphone market, making it daunting for even well-known tech and electronics players to break into the space. (Consider Amazon’s Fire Phone, if you can even remember it.)

Nevertheless, OnePlus, a Chinese startup founded in 2013, is still trying to push in anyway by churning out Android-based devices that emphasize both style and substance at a fraction of the overall cost of many other devices populating the Android (GOOG) ecosystem—not to mention the iPhone (AAPL), too.

However, despite already hawking its hardware in 42 countries, OnePlus isn’t exactly a household name in the United States, just yet.

Based on comments by OnePlus co-founder Carl Pei, the company’s success could hinge on recent shifts in how smartphones are bought and sold now that carriers have finally (but only rather recently) abandoned the old subsidized, two-year contract lock-in scheme.

Following up on an interview last fall, Fortune caught up with Pei this month as his company debuts its latest device: the OnePlus 3, encased in a smooth-edged, brushed-metal chassis with a 5.5-inch HD display, up to 64 gigabytes of storage, and dual cameras that would rival most point-and-shoots on the market. At $399, unlocked and without a contract, the OnePlus 3 is an attractive option—at least on paper.

Yet even with what is seemingly a bargain basement price for what OnePlus is pitching, the trick will be getting mainstream consumers unfamiliar with the brand to buy into an unknown over the likes of Apple, Samsung, and HTC, among others.

This interview was edited for length and clarity.

Fortune: What makes the OnePlus 3 different?

Pei: If I start with what’s the similar, it’s very a competitive smartphone to the latest Samsungs or Apples of the world. That’s both from a performance standpoint because it has state-of-the-art hardware, such as six gigabytes of RAM, compared to three or four.

We started off with a solid block of metal and carved that down to the shape of the phone rather than melting the metal. The result is a more robust build. On the bottom, there is a speaker grill, and the sides of these have a high-gloss kind of look. It’s a subtle detail. Design language-wise, we’re following the same philosophy as before. Basically, balancing softer curves with harder edges. You’ll see that the back tapers on both sides, but it’s surrounded by a solid line to give it a more masculine look.

What’s different is we developed a fast-tracking technology called “Dash Charge.” We’re positioning this as a day’s power in half-an-hour. The biggest difference is the power management happens in the adapter instead of the phone itself. On every other charging product, the technology happens in the phone, and this produces heat in the phone. But if the heat already happens in the adapter, and the adapter has a much larger volume, then we can safely pump more currents into the phone. So it really shines when the screen is on. It charges just as fast as if the screen was turned off.

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What were some of the mistakes you learned from and sought to correct over previous models of the OnePlus?

We’re a direct-to-consumer company. We cut out a lot of the middle men—no stores, no retail presence. Our team is smaller than others. We rely on our users to like our product to then go spread word-of-mouth. The goal is to create a product on par with leading smartphones but sell it at a price slightly more than half. It’s a new business model. After the success of our first year, we became a little bit more focused on the mainstream market than core users.

The absence of near-field communications (or NFC, a technology that lets people pay in stores by waving their smartphones in front of chip readers) on the OnePlus 2 raised some eyebrows. Has that been addressed this time around?

Not having NFC on our previous products was a mistake because our users are early adopters, and they would use the latest stuff. So we’re going back to basics by being more aware of where our users are and making products for them. NFC made a comeback. This clarity helps us make decisions when it comes to products. So far what we’ve been hearing from the tech press and beta testers is that things are positive.

(Ed. Note: The OnePlus 3 does include NFC.)

The OnePlus 2 came out only a few months ago. Why such a rush to roll out a new model? Can we expect similar turnaround schedules in the future?

We make one or two smartphones a year. The OnePlus 2 came out in July. The OnePlus X came out in October as a smaller device with a larger focus on design. It’s a complementary product line. Normally within this industry, you’d update your product line every year.

What we’ve been saying from the beginning is that we don’t want to make 20 mediocre products. Being a smaller company allows us to focus more. That’s the only chance to break through. If we made the same quality products as everyone else, no one would remember what we stood for.

The shopping process is different for the OnePlus 3 compared to its predecessors. Can you explain the strategy and rationale for that?

It wasn’t too different from a Kickstarter (an online crowdfunding hub) in the beginning. We didn’t know how many people would want to buy our products. So it was an invite-only system. It allowed us to control supply and demand better, and grow in a slower but safer way. We didn’t like the pre-order model on Kickstarter because there’s not a lot of trust there. A lot of Kickstarter products are often delayed rather than ship when promised.

This is our third year, so we’re no longer brand new to this industry. We can’t keep using the same excuse that we want to manage our risk. Every year, our fans have higher expectations of us. Therefore we’re removing invites forever. Because of the fact that people associate with us being difficult to purchase, we’re doing another thing that’s different. The OnePlus 3 will be available for sale the same day that it’s announced.

Why should someone buy this device over another Android phone or an iPhone?

I don’t think there are one or two defining features. We just met with another tech reporter, and what he said was that he tried to find weaknesses, but he couldn’t really find any. For a regular consumer, price matters a lot as well.

It’s more expensive to make because it’s being manufactured at a lower volume but with the highest-performing processors. The carrier model—I don’t think it’s in favor of consumers in the U.S. I think I read that 64% of consumers who are paying off their monthly contracts don’t know that they’re paying off the phone. There’s not a lot of education in the market for being savvy about smartphone purchases.

Given the consolidation around the iPhone and Android ecosystem by an increasingly smaller group of well-known electronics giants, how hard has it been to break into this market? Where has it been easier?

We see this as a positive thing. Companies that don’t put product first disappear more quickly from the market. For us, we’re not in the same playing field. We are an e-commerce, direct-to-consumer company. If you look at the U.S. market, unlocked smartphone sales grew by 150%. So what is decreasing is the traditional model of buying a phone at the carrier’s store.

Unlocked is a market that’s growing. We want to position ourselves as the premium player in this space. We’re seeing smaller brands come in and try to replicate that, but they usually can’t compete at this range of quality.

The OnePlus 3 is going to be $399, but in terms of features, performance, and overall polish—and when I say this, I think most tech reviewers would agree—it’s competitive with $800 smartphones.

For more about what a future iPhone could look like, watch:

Where does OnePlus go from here? Further international expansion plans? Doubling down at home in China or in the U.S.?

Our main focus markets are Europe, the U.S., and India. It will remain this way. Instead of going broader, we want to go deeper in the markets where we’re at. If we keep making good products, mainstream users will start to recognize our products.

In the beginning, our story was about growth and marketing, but in the end, it’s kind of missing the point. If you take the invite system, for instance, it created buzz and grew fast because of the invite model. But if the product wasn’t a good product, why would someone invite their friends to buy it? In the end, the story should be about the product. If you don’t create a solid product, then you don’t have a reason to be around.

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