Why crowdfunded smartphones are almost always doomed to failure

By Ryan Whitwam

The explosive popularity of crowdfunding has resulted in some really cool products, services, and games coming into existence that otherwise might never have gotten out of the planning stage. However, it’s also given a lot of small companies a chance to get people hyped up for niche smartphones. Devices like the the Turing Phone, Saygus V-Squared (above), and Arubixs Portal have experienced endless delays and feature compromises. But many people still want to believe buying a phone made by a tiny company before it even exists is going to result in their dream phone becoming a reality.

The fact of the matter is that building a phone is hard — harder than any of the pre-order campaigns make it seem. All you have to do is follow the updates for some of these projects to see how many landmines they run into. I think outright scams are uncommon; the campaigners believe they can ship these devices, but there might be a touch of the Dunning-Kruger effect too. Let’s talk about why crowdfunded smartphones go off the rails so disastrously.

How much money is enough?

One of the first things people latch onto to express their disbelief and rage when a smartphone project begins to lag is how much money was raised. If project X raised $500,000, shouldn’t that be enough to get these phones out the door? For most of us, that’s a lot of money, but the costs to make a smartphone from scratch are astronomical. It basically always costs more than these companies think. If there isn’t another source of cash, things are going to get messy.

Look at the failed Ubuntu Edge campaign. Canonical is an established organization with experienced leadership and access to plenty of smart people. Everyone’s eyes nearly popped out of their heads when this campaign launched on Indiegogo in 2013 with a $32 million fixed funding goal. That’s many times what the campaigns for other phones have raised, but that’s probably closer to what it would take to build a new premium device and bring it to market (Canonical since settled for some budget phones made by manufacturing partner Bq). It’s astonishing they even made it to $12 million in pledges, but Canonical knew better than to overpromise and build a premium phone without enough cash.

A successful pre-order campaign might rake in a million dollars, sure, but that’s barely enough to pay a small team of engineers to work on a project for a year. Then you’ve got so, so many other costs. More money doesn’t necessarily solve all your problems, either. Campaigners don’t ask for more because they know they won’t get it, and I suppose they think something is better than nothing.

Supply chains are hard

One of the reasons Apple has been able to crank out millions of iPhones every quarter is that it has spent years assembling a supply chain that provides the parts that go into its phones. There’s nothing stopping someone with enough cash from contracting with the same (usually) Chinese factories established OEMs use to assemble their crowdfunded phone, but actually getting the devices built cheaply is tough.

With a million dollars in the bank, you can hire some engineers to design your phone, and you can even get a working prototype, but you might not get much further. Apple and Samsung are selling phones for around $600 full price, which seems like a lot of money, but the only reason that works is the huge scale of their operation. Anything you pay to have manufactured will cost less the more of it you want. Suppliers will lower the cost of components and factories cut you a break on labor if you’re a big customer. Building a few thousand phones as a one-off means your cost per unit will be astronomical without lots of negotiation and hunting around for deals.

I’ve spoken with a few companies that are building consumer products they expect to sell for a few hundred dollars. They regularly talk about the early prototype units costing well over $1,000 each, because they’re essentially custom built. Even the Saygus V-Squared with its $1.3 million campaign only works out to about 2,000 phones. That’s nothing compared with small smartphone OEMs.

The deleterious effects of having poor supply chain management are very real, even for established companies. When HTC’s fortunes began to fade a few years ago, it reportedly had issues getting suppliers to take it seriously. It simply wasn’t shipping enough phones to be a priority. This is widely regarded as one of the reasons its camera sensors have lagged behind in recent years. What kind of problems do you think a completely unknown company with a limited amount of cash is going to go through?

Software and certifications

Android is the natural choice for most crowdfunded smartphones, and with good reason. It’s the most popular computing platform in the world, and that means lots of application support. However, the campaigners rarely talk about all the things that need to happen in order to deliver the Android experience people expect.

Android is open source, so anyone can go to the Android Open Source Project (AOSP) and download the code. This includes all the core stuff like the UI, kernel, wireless stack, and a basic collection of apps. However, Gmail, Maps, Photos, and all the apps in the Play Store aren’t included in open source Android. OEMs need to have their device tested by Google, passing the so-called Compatibility Test Suite (CTS) to make sure the software adheres to established guidelines.

If Google finds something non-conforming, it won’t allow Play Services to be deployed on that device and the OEM will have to fix the issue and resubmit. This adds an additional layer of complexity that some companies simply don’t take into account when raising money. Or you could just drop Android like the Turing Phone (this is not a good idea).

Even before getting to that point, there are innumerable ways building software for a mobile device can get complicated. Unlike desktop operating systems, the OS has to be optimized for a specific piece of hardware. Many of the prototypes shown off at trade shows are running early builds of Android straight out of AOSP that lack promised features and haven’t been optimized for the hardware. It takes a lot of engineering hours to get from this early stage to a version that’s ready for consumers. Even worse, you can’t just change up the hardware as the delays pile up and your phone looks more outdated. If you’re optimizing for a Snapdragon 801, you can’t just switch to a shiny new MediaTek Helio.

When a device is done, it still needs to go through regulatory certification. Agencies like the FCC in the US need to make sure a smartphone doesn’t interfere with other wireless devices. It’s yet another expense that campaigns underestimate.

Release isn’t the end

Even when a phone makes it into the hands of backers, that’s not the end. Or rather, it’s not supposed to be. Because of the difficulties getting hardware and software to play nicely, then getting the device through certification, these devices often launch with older versions of Android. So, updates? Don’t hold your breath.

Again, we’re talking about hundreds or possibly thousands of handsets in a successful pre-order campaign. Employing a large staff of developers to build new versions of Android (i.e. free OTA updates) for that hardware is extremely expensive. It’s more financially viable to simply work on software for new phones that can be sold and bring in money. This is why many smaller OEMs that sell budget phones tend to be poor on updates.

Even if development has gone relatively smoothly, there’s no guarantee the financial incentive will be there to support a phone long-term. For example, the Nextbit Robin (above) might actually be released in the not-too-distant future thanks to a leadership team with lots of experience making smartphones. But is it ever going to get the proper update support?

Backing a phone that doesn’t exist is a huge risk — don’t let any slick Kickstarter page or pretty device render fool you. If you drop hundreds of dollars on one of these devices, you should be comfortable possibly losing that money. Perhaps somewhere down the line a device will show up on your doorstep, but it’s probably not going to be exactly the one you thought you’d get.