How HTC went from smartphone trailblazer to barely breathing

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It’s hard to imagine things getting much worse for HTC. After years of struggles, one of the pioneering companies that helped build the modern smartphone was recently removed from the Taiwanese Stock Exchange’s list of 50 largest firms. It’s still a part of the stock market, but it’s clear that HTC’s days of blazing trails and blazing profits are behind it.

What happened?

Despite helping to lead the charge to bring smartphones to the masses over the past decade and a half, HTC has little to show for it. The company has gone from being the most valued Android device maker in the world to a shadow of its former self.

How HTC rose to prominence is almost as impressive as the series of unfortunate events that has crippled the once valuable brand. From weak marketing to poor business moves, HTC’s forecast has grown windier and rainier every year. Is there sunshine ahead, or is this just the eye of the storm for the High Tech Computer company?

How HTC fueled the Android revolution

Though its massive success in Android didn’t start until 2008, HTC began way back in 1997 and became one of the largest (though largely unknown) makers of smartphones over the next decade. In 2000, it released one of the earliest touch-screen smartphones; in 2002, it created the first Windows-powered smartphone; and in 2005, it helped usher in 3G. It was also responsible for big early successes like the Palm Treo 650 and released several highly regarded Windows Mobile devices that helped push the platforms forward.

In 2010, HTC was named one of the most innovative companies in the world.

In 2008, its fortunes shot skyward with the release of the T-Mobile G1, the first Android phone. Throughout the next two years, HTC capitalized, launching the successful Droid Incredible on Verizon and the first American 4G phone, the Evo, with Sprint, along with a number of major successes. It even helped design Google’s first-ever smartphone, the Nexus One.

In 2010, HTC was named one of the most innovative companies in the world. It was quickly becoming one of the most valuable smartphone brands in the world, too, competing head to head with Apple in the U.S. and Europe with its flagship smartphones. What helped fuel HTC’s success was a little piece of software called TouchFLO 3D.

TouchFLO 3D was a customizable home screen that took the boring, spreadsheet-like home page for Windows Mobile and turned it into a sleek, useful way to search through contacts, make calls, check your email, and send messages. While Windows Mobile soon died and TouchFLO 3D with it, HTC ported the software to Android and rebranded. Today we know it as HTC Sense.

When HTC Sense first launched, the Android 2.1 (Eclair) interface was a total mess, hardly as intuitive and easy to use as it is today on Android 6.0 Marshmallow. HTC Sense filled in the gaps for Android users by providing a much sleeker experience from the home screen for viewing the time, weather, and other information at a glance. But despite all HTC accomplished, by 2011, the ground had already begun to shift.

To better compete, Samsung looked at what HTC accomplished and crafted its own themed Android home screen, called TouchWiz, with the Samsung Galaxy S in 2010. Then it began flooding the market with devices. HTC and Samsung both began to release phone after phone in a battle for supremacy, but with deeper pockets and better marketing, Samsung’s advantage quickly began to show.

The HTC vs. Apple battleground became Samsung vs. Apple as a series of mistakes sent the Taiwanese company spiraling.

Next page: How HTC’s strategies killed its growth

How HTC blew its early lead in Android

What started HTC’s long, slow decline was a mixture of mediocre business decisions and absent marketing efforts. With tons of cash in hand by 2011, and competition looming from Samsung and Motorola on the Android market, HTC needed to re-invest in mobile, and do whatever it could to stymie the growth of its competitors. Samsung and Motorola were not as popular as HTC, but both had made smartphones before, and were large companies with plenty of cash to spend against the Taiwanese phone maker.

Instead, HTC diversified its portfolio. First it bought S3 Graphics, a PC graphics manufacturer, to help secure patents against Apple, for $300 million. It was certainly a huge investment, but ultimately failed to create any new hardware for HTC to use in its phones or to license to other smartphone makers.

HTC’s most fruitful investment, a 51-percent stake in Beats Electronics, was sold before it realized its full potential.

HTC then looked to streaming content, investing nearly $90 million between OnLive, an online games streaming service, and Saffron Digital, a U.K. streaming service provider. OnLive has since been bought (and later closed) by Sony for an undisclosed amount, and Saffron was later sold for a very small profit.

HTC’s most fruitful investment, a 51-percent stake in Beats Electronics, was sold before it realized its full potential. HTC pumped $300 million in Beats back in 2011, only to pass it off two years later for a mere $56 million profit. Apple then gladly ate Beats for $3 billion a year later in 2014.

As HTC’s oddly diverse investments went nowhere, Samsung took advantage of its position in manufacturing, providing displays and flash memory for not just its own devices, but for other major players, such as Apple’s iPhones and even HTC’s own smartphones. While Samsung’s market share grew, its hold on competitors also became stronger, and the Korean company chipped away at HTC’s dominance bit by bit.

Woefully weak marketing

When most people think about the “Smartphone Wars,” they think of Samsung and Apple. Perhaps HTC’s biggest flaw — bigger than selling off Beats — was how poorly it marketed its products, while brands like Apple and Samsung dominated the marketplace.

From 2009 to 2013, HTC centered its marketing strategy around two words: “Quietly Brilliant.” An engineering company at heart, HTC believed that its brand name was enough for people to trust when thinking about quality for its devices. The company couldn’t have been more wrong.

While HTC was being “quietly brilliant,” Motorola was blaring Droid TV ads, and Samsung was mocking Apple’s “think different” mantra. They both left HTC in the dust. In 2012, Samsung was seeing year over year growth as high as 300 percent, according to IDC. Apple was nearing 200 percent growth, and HTC was practically standing still at a mere 17 percent year over year growth.

HTC naming scheme only exacerbated its perception issues. Every few years a new “HTC One” emerged, but it was difficult to tell if it was the latest version, last year’s version, or a budget version without looking at the specs. Samsung instead stuck with a simple, straightforward numbering process for its phones, centered around the “Galaxy” brand. Samsung and Motorola weren’t perfect, but they never blatantly named two devices the same as HTC did.

Worse than its odd and repetitive One branding, HTC also released two dozen phones in 2011 and a dozen in 2012 with absolutely ridiculous names: Desire, Incredible, Sensation, Evo, ChaCha, Salsa, Vivid, Velocity, Amaze, and Rhyme were a few. Its naming was so silly that one site created a graph asking readers “Is it a condom or is it an Android?

Meanwhile, Samsung and Motorola continued to chip away at HTC’s market share among Android devices. By 2011, HTC’s market share had shrunk in half from 67 percent to 32 percent, while Samsung’s market share grew more than 10-fold from 4 percent to 27 percent. HTC had, while attempting quiet brilliance, found itself unable to keep up with the relentless growth of Samsung and other competitors.

In 2013, HTC slowed down … another big mistake. It trimmed all its budget phones and tried to become Apple out of the blue. It created only four phones that year, but attempted to make up for it with an aggressive marketing campaign featuring Robert Downey Jr. The campaign helped the HTC One M7 achieve stronger sales, but it was already too late for HTC. The damage had been done. HTC is far from an unknown phone maker, but it’s no longer the ubiquitous brand it once was. For the last two years, it has struggled to release three devices annually. Once revered, it now struggles to get attention for its flagship devices.

Next Page: HTC’s fate, and a future of cheap phones

The future for smartphones is cheap

Things have changed since Steve Ballmer scoffed at the iPhone’s $600 price tag in 2007. There’s always a place for premium smartphones in both features and brand recognition, but one thing that’s certainly changed is that cheap prices are king, once again.

The world is a far different place from what it was during HTC’s peak in 2011: Smartphones are no longer subsidized; emerging markets are interested in cheaper phones; wireless service is more expensive than ever; and phone buyers aren’t necessarily looking for the latest and greatest anymore — they just want to get by with what’s cheap and what works for their budget. For most people, a $300 smartphone is more than enough. Even high-end Chinese smartphones like the OnePlus 2 start at just $330, a far cry from the $600+ for any premium HTC or Samsung device. To make matters worse, people are only willing to shell out the big bucks if they think the phone is as much a fashion statement as designer clothes or luxury watches.

Premium smartphones will always have their place, but the arrival of lower-cost smartphones is making many doubt the $600 price for high-end devices — unless they’re named iPhone. IDC’s latest data on market share shows how cheaper Chinese manufacturers like Huawei and Xiaomi are growing, while brands like Samsung fall. HTC doesn’t even make the top 10 among smartphone manufacturers anymore.

IDC: Smartphone Vendor Market Share 2015, 2014, 2013, and 2012 Chart

The spoils of victory never last long. It may have vanquished HTC from the throne, but Samsung is feeling the burn from consumers who are tired of high-priced phones. While Apple’s market share remains cyclical to its annual launches, Chinese manufacturers continue to challenge Samsung’s dominance in the Android world.

The rise of powerful low-cost phones represents what the next five years will look like for the industry. There will always be the high-cost, flagship phones from Apple and Samsung, but other manufacturers will start competing in the low-cost, mid-range market, and this spells even more trouble for small manufacturers like HTC. If HTC fails to breathe new life into its One line of premium smartphones, the company will be forced to compete on the even-thinner margins among Chinese mid-range and high-end devices.

HTC’s fate in the years ahead

So what will happen to HTC as these cheap, Chinese smartphones take the mobile world by storm? As much as HTC has fallen, the company isn’t about to go under. HTC is still cash-flow positive, despite years of poor performance, and its layoffs will likely help it weather through the next year, as long as things don’t get seriously worse. After all, even BlackBerry is still around despite its similar fall from grace.

HTC will need to make bold moves if it ever hopes to capture the hearts and minds of smartphone users again.

However, with HTC’s stock at an all-time low, the company is a prime target for acquisitions. With plenty of patents, brands, and other intellectual properties, the company could end up like Motorola — a once well-performing brand that was divided and conquered by the other wireless manufacturers for its name recognition, patents, and other intellectual rights. Google and Microsoft have already tried this strategy with limited success, so it’s difficult to say if any companies like Asus are itching to buy HTC.

Many of HTC’s devices are still among the best we review each year here at Digital Trends, and the company certainly has fans who hope it can reclaim its former glory. But HTC’s fall from grace was no accident: it’s the result of four years of crappy devices, poor sales, ineffective marketing, dumb investments, and bad decisions. It’s going to take more than a decent smartphone and a Superbowl TV ad to turn things around. HTC will need to make bold moves if it ever hopes to capture the hearts and minds of smartphone users again. Until then, it seems destined to slowly fade into obscurity.

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