Will Lenovo kill the low-cost Moto X and Moto G?

In this edition of Ask Maggie CNET's Marguerite Reardon offers her perspective on whether Lenovo will continue Google's strategy for Motorola of offering low-cost, high-quality unlocked smartphones.

Mobile bargain hunters throughout the US gasped earlier this week when they heard the news that Chinese PC-maker Lenovo plans to buy the handset division of Motorola from Google for $2.9 billion .

When the Google-controlled Motorola lowered the price of the Moto X last year and then introduced the sub-$200 Moto G, I wondered if these products and the prices the company was selling them for were simply too good to be true. Finally, US consumers had more than one affordable option when it came to buying a high-quality, unlocked smartphone.

Sure Google had offered that Nexus brand of smartphones for the past few years. And those have been very reasonably priced when compared to the retail cost of most other high-end smartphones. But what if you didn't want to spend $350 plus on an unlocked device? The answer was Motorola.

This is what I liked most about the Moto X and the Moto G. But now that Lenovo is buying the Motorola brand, what will happen to this strategy? Will the company abandon it? Or will it continue to build quality handsets and offer them unlocked at low prices? That's the question I tackle in this edition of Ask Maggie.

Getting out my crystal ball...

Dear Maggie,
I recently bought an unlocked Moto X and I love it! It offers everything I want and it cost me less than $400. I'm thinking about getting a Moto G for my mother and letting her use it on either a prepaid Straight Talk plan or a cheap no-contract plan from T-Mobile. I mean at $179 how could I pass it up?

My question for you is this. Now that Lenovo is buying Motorola from Google, do you think we'll continue to see such great phones at these low prices?

Thanks,
Moto fan

Dear Moto fan,
When I heard that Lenovo was buying Motorola from Google for $2.9 billion, this was one of the first things that came to my mind. As I have said many times in this column, I am a big fan of Motorola's Moto X. And for folks who are looking for an inexpensive smartphone to use on a prepaid service or a no-contract plan, the Moto G is also a great choice.

Moto X Sarah Tew/CNET

So to lose these devices, as well as future versions of these phones, would be a real tragedy in my book. My hope is that Lenovo will continue Google's strategy.

The fact is: there are already plenty of "hero" smartphones on the market. I don't think the US market needs another one from Motorola. But I understand that high-end devices produce heftier profit margins, so ultimately, Lenovo may have to at least offer a mix of both high-end and low-end devices.

The US market needs a Moto X and Moto G
That said, I truly believe there is an untapped market for high-quality, low-cost smartphones in the US. All the whiz bang technology of high-end smartphones doesn't come cheap. Smartphones, such as Samsung's Galaxy S4 and Apple's iPhone 5S, start out at full retail prices of $600 and up.

Now, this doesn't matter much to people who are willing to sign a two-year contract to get a new subsidized device from Verizon or AT&T. With a two-year service contract, most of these high-end smartphones sell for $200. Often carriers drop the price of these devices as they age, and when a new model is introduced, most are sold for a discount of at least $100.

But there are early signs the market be may be shifting. Recently wireless providers, such as AT&T and T-Mobile, have introduced new pricing models that provide incentives to customers to shop around for less expensive devices. These plans separate the cost of device subsidies from the monthly service fees, which essentially offers people discounts on their monthly service if they purchase their device at full price. As the wireless market in the US evolves away from device subsidies, there is a growing need for quality smartphones at lower retail prices.

In the latter part of 2013, it appeared the Google-owned Motorola was starting to seize this opportunity. The notion of offering mobile products at low prices is not a new concept to Google. It's been doing this for several years with its Nexus brand of tablets and smartphones.

Even though the Moto X and the Moto G are not in the same family of products as the Nexus 5, which is actually manufactured by LG, to consumers the products complemented each other nicely. The Nexus 5 with its high-end componentry and guaranteed latest Google software is geared toward a more serious smartphone geek. By contrast, the Moto X and Moto G are really meant as easy to use, stylish, and yet accessible devices for a mass market audience.

But all three devices are priced under $400 making them affordable for consumer on prepaid plans or no-contract service plans. The 16GB version of Nexus 5 starts at $350 unlocked. The Moto X is selling for $330 unlocked and also offers 16GB of storage. The Moto G, which doesn't support 4G LTE network speeds and doesn't have as robust of features as the Moto X, sells for less than $200 unlocked.

As my CNET Reviews colleague Brian Bennett explained in his take on the phone, the Moto X "squeezes a speedy camera and futuristic voice command capabilities into a well-crafted design that hits the sweet spot between screen size and comfort. The phone has great battery life and is available in an endless variety of customized designs."

That said, there are a few downsides to the phone. For instance, it doesn't come with expandable memory. Additionally, the screen resolution and camera are not up to the same standards as rivals' "superphones."

Unfortunately, when the phone was first introduced last summer, Motorola missed the mark on pricing. At $200 with a two-year contract, the Moto X, which was sporting last year's processors, cost the same as the highest end smartphones on the market, such as the Galaxy S4. While still a worthy phone even at this price, Moto X was too easy to dismiss by critics as overpriced. And I think this is why the phone didn't sell as well as Google had hoped.

The Google-Motorola team quickly realized their pricing misstep. And since then the company has lowered the cost. On contract, the Moto X can now be found for less than $50 with a two-year commitment to service. And as I mentioned above, the 16GB version of an unlocked Moto X can be bought for $330 without a contract. The 32GB version is $380.

The lower price-point in combination with the phone's practical functionality and stylish look, which can be customized by customers through an online portal, make it a perfect phone for consumers looking to avoid a carrier contract.

The Moto G, the Moto X's little brother, is also a good option for these consumers. At $180 unlocked without a contract, this device is a steal. But for this low, low price tag, consumers are sacrificing some functionality, namely 4G LTE support. Still, for the budget-conscious customer, this is a great choice if he can live with slower data speeds.

Low-cost, high-quality
The Moto X and the Moto G were what I hoped would be the beginning of a growing trend in the US mobile market, where handset makers would finally build low-cost, high-quality devices for prepaid and no-contract services. It's true that other phone makers have made lower-end Android smartphones for prepaid carriers, but none of them have been of the same quality as the Moto X or the Moto G. Most have used older versions of Android software that make them clunky at best. And lower-end devices made by companies like Nokia with its Lumia line Windows Phone smartphones have not been sold unlocked in the US market.

The big question now is whether Lenovo will adhere to a similar strategy and continue to develop and release great smartphones at an affordable price point for this sliver of the US mobile market?

It's hard to know for certain. My CNET colleagues and I have been debating this question for the better part of a day. CNET executive editor Roger Cheng seems to think that Lenovo will ditch the high-quality, low-cost efforts.

I'm skeptical Lenovo will let Motorola build another Moto G-like device. The margins on that phone were nearly non-existent, and that doesn't play well with the profitable growth bit that Lenovo stressed several times on its conference call. The Moto G was a legitimately good phone with a super-low price tag. That said, I do think Lenovo will continue those phone lines, but I'm not sure any follow-up devices will embrace the low price, high-quality specs, like Google had done. There will likely be another Moto G or a successor, but it might end up being a bland, cheap phone.

CNET mobile Reviews editor Brian Bennett is a bit more optimistic.

I'm thinking that Lenovo will want to do it all; keep the Moto X going to please Google, then make a halo superphone to beat Sammy and Apple over the head. Plus make a sequel to the Moto, which will secure greater market share in the global (unlocked) market. That's my two cents.

CNET senior writer Shara Tibken thinks that at the very least the Lenovo-owned Motorola could end up as a manufacturer of a new Google Nexus device.

You never know, though. Lenovo/Motorola could be one of the future Nexus makers. Those have been pretty good, inexpensive devices.

And CNET Reviews senior managing editor Kent German thinks that Lenovo will at least retain the novel notion of device-customization, which Motorola introduced with the Moto X. (Customers can select either a white or black front frame on the device and then choose from a variety of different colors for the back cover.)

If you asked me before this news was announced, I'd say that that the Moto X, or an equivalent customized phone, is not going away. Moto is building its e-commerce operation in Sunnyvale to revamp the ordering system that customers use to build their phones and they're hoping to expand it outside the United States. Now that we have the sale, perhaps that effort will end, but I doubt it."

What will Lenovo do?
So what do I think? I don't know whether it's just wishful thinking on my part or what, but I think that Lenovo may continue this Motorola strategy to serve this segment of the US market.

Here's why: The first thing to keep in mind is that Lenovo isn't buying Motorola necessarily for its technology or phones. It's buying the brand. Lenovo is actually the second largest smartphone maker in its home market of China, where it offers a variety of products at different price points. So it already has phones it can sell. The problem is that it's essentially an unknown brand in the US and other Western markets.

On a conference call with reporters and investors after the deal with Google was announced, Lenovo CEO Yang Yuanqing, called Motorola a "treasure." And he vowed to "not only protect the Motorola brand, but make it stronger." For decades, Motorola's brand has stood for quality hardware. So I don't see Lenovo abandoning that or risking it with cheap, subpar devices.

Many bloggers and writers have already pointed out that Lenovo's Motorola purchase looks similar to its acquisition of IBM's PC business almost a decade ago. And through that experience, Lenovo has already proven its track record in not only retaining a strong brand, but also truly making it better. Since its 2005 acquisition, Lenovo has been fiercely loyal to IBM's ThinkPad brand of laptops. And it's managed to take its own PC business from ninth place back in 2004 to first place as of last year.

What's more, in a market where innovation has waned in recent years amid profit margin pressures, Lenovo is a standout among PC makers, CNET Reviews senior editor Scott Stein told me. Lenovo is one of the few PC makers that has actually been building good quality products that take advantage of the latest Microsoft Windows 8 technology. Its Yoga family of Windows 8 hybrid laptops is a good example of this. Not only has Lenovo addressed the high-end of the market with these products, but it's also built products to serve more cost-sensitive consumers, too. And it's managed to this without sacrificing quality.

Can Lenovo strike gold twice?
CNET Reviews senior editor Dan Ackerman called Lenovo's original Yoga laptop a "bold take on the still-new Windows 8 hybrid genre." He recently wrote that the updated version, the Yoga 2 Pro, was "even better, adding a better-than-HD screen and updated components for just about $1,100."

He noted that this was a tough price-point for a Windows laptop or hybrid given how closely it matches pricing of Apple's MacBook Air.

Indeed, Lenovo recognized this issue and came out with a much less expensive version of the Yoga 2 that doesn't sacrifice too much of the innovative advancements in the pricier model. At $529 and $999 the 11-inch and 13-inch models of the Yogo 2 hit a price point that is likely to appeal to a much wider audience of budget-conscious consumers.

My hope is that Lenovo will use a similar playbook when designing, manufacturing, and marketing future Motorola handsets. Given that the company has already shown it can outperform its competitors in a weak PC and laptop market -- and still manage to boost profits with a mix of low-end and high-end products -- I'm cautiously optimistic it can do it in smartphones under the Motorola brand.

With any luck, in addition to high-end devices with hefty price tags that will likely compete against the likes of Apple's iPhone and Samsung's Galaxy series of smartphones, we will also see more low-cost, high-quality Motorola-branded smartphones for the unlocked smartphone market here in the US. I'll keep my fingers crossed.

I'd love to hear what other readers think about this, so please share your comments in the section following this post.

Ask Maggie is an advice column that answers readers' wireless and broadband questions. The column now appears twice a week on CNET offering readers a double dosage of Ask Maggie's advice. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.

 

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