Razer finally has its own smartphone, but why?

(Source: Razer)

Few hardware startups have had the level of success that Razer has over the last few years. The company’s niche, high-end gaming products have helped it stand out from competitors and cultivate a positive image in the minds of consumers. Its Razer Blade line of laptops invites comparisons to Apple’s MacBook Pro.

All this success contributed to a successful initial public offering this month. On November 14, the company was officially listed on the Hong Kong stock exchange. Three days later, Razer did a curious thing: It announced a smartphone.

Fans and analysts knew this was coming. Razer announced in January that it was acquiring Nextbit, a company known for the Nextbit Robin smartphone with a unique cloud-based gimmick that didn’t catch on with consumers following the company’s successful crowdfunding campaign (a tragedy that befalls many ill-prepared hardware startups).

Even so, jumping into the highly-competitive smartphone market is risky. The Razer Phone did manage to attract some positive attention with its high-quality front-facing speakers and 120hz display (the first on a smartphone), but there is no compelling reason to choose this phone over a Samsung Galaxy S8, Google Pixel 2 or even an iPhone 8 or X. Those phones are arguably all more stylish and certainly more popular. The Android phones can run games just as well as the Razer phone, which uses the same Qualcomm Snapdragon 835 processor, and the iPhone has always been a top performer with a better selection of games.

Most companies (not to mention market analysts) also have no illusions these days about the state of the smartphone market. Globally, smartphone revenues have nearly plateaued, rising by only 1.6 percent from 2015 to 2016, data from Counterpoint shows. The bulk of the profits go to Apple. It’s not unusual for Apple to capture 80 to 90 percent of smartphone profits in a given quarter.

(Data: Crosspoint Research, Chart: Statista)

What makes Razer so confident about its prospects in this market? Razer could be looking at the few bright spots in the smartphone market.

Smartphone value growth is still projected to be above 15 percent in China, Latin American and emerging APAC countries this year, GfK data shows. In the latter region, projected growth is nearly 25 percent. Razer may understand the difficulties of making a dent in the mature US market but perhaps sees opportunity among the emerging Chinese middle class infatuated with mobile gaming.

(Data: GfK, Chart: Statista)

Another important aspect of this is that the Razer Phone is just one part of a larger Razer hardware ecosystem. Some companies seem to believe no hardware strategy is complete without a smartphone.

Maybe this is true for companies that reach a certain size and have a certain consumer base. For Amazon, this thinking turned out to be an expensive miscalculation. The Fire Phone was a huge flop and Amazon has since focused its efforts elsewhere. As a result, it created the enormously successful Amazon Echo line of devices that has inspired competitors from Google and Apple (along with a handful of Chinese companies that haven’t expanded internationally).

Other hardware companies have been trying for years to rely less on their smartphone business. Xiaomi has diversified into the Internet of Things, making everything from connected air purifiers to rice cookers. The company’s reputation is still inherently linked to its smartphones, though. So every year, new Mi smartphones are released like clockwork.

The world needs smartphone innovation, of course. That innovation is still happening, albeit at a slower rate. As flashy as the iPhone X looks, it’s hard to pretend it’s a significant leap over the iPhone 7 or 8.

For Razer, though, a smartphone seems like a small piece of the company’s broader hardware ecosystem. It may prove an important component of that ecosystem down the line, but Razer’s brand and ecosystem are the company’s real value.

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