Nothing Phone (1) is better off not launching in the US

Yesterday Nothing announced it’s coming Nothing Phone (1) would not launch in the United States† There were many people in the tech community who were outraged that Nothing marketed their device so much in the United States to just turn around and ignore it on their first major device launch. While it may feel like betrayal or that Nothing is ignoring millions of tech enthusiasts in the US, it makes sense that they wouldn’t launch the phone (1) here. Let me explain.

Brand loyalty is a huge deal

Look, brand loyalty is one of the largest sellers of products worldwide, both in and out of technology. in 2019, 90.2% of consumers reported being loyal to a brand – this is especially true when it comes to the US tech market. Customers who use products from Samsung, Apple, and Google will more than likely continue to buy from that company, and it’s extremely difficult to break that loyalty. Most of this is out of Nothing’s control. Even if they did, the customer acquisition cost (CAC) would probably be incredibly high, making it not worth the marketing dollars spent on it.

Even if we look at Nothing at a technical level, the phone (1) offers nothing meaningful new features or specifications to make it worth switching to a consumer. It is a $500~ phone with a mid-range processor with an average screen, dual cameras and a bland design, outside the LEDs on the back that’s just covered by a case. The device doesn’t offer anything that will create FOMO (fear of missing out) in customers, or features that make it exit a current and probably already heavily invested ecosystem. The brand loyalty of Samsung, Apple and Google is too strong and nothing offers, well, nothing.

Nothing can compete with Google, Samsung and Apple without carriers

There’s currently no room with carriers for the Nothing Phone (1): it’s another $500 phone that really doesn’t make it onto the table outside of an unusual design. There are plenty of better phones in that price range in the US market that carriers already sell from much bigger players. Nothing would ever be able to pay or manage carrier store salespeople on the scale of Apple, Samsung or Google to train store employees.

You may be wondering why I’m targeting carriers specifically. Well, it’s because that’s the US market.

According to the NPD Connected Intelligence research group, there were: 50.1 million active unlocked smartphones to be used in the US in 2020. That number of telephones is only 17% of the 294.15 million active smartphones in the US† There’s no point in focusing on the minority who are probably less willing to buy a device because they aren’t forced by contracts and payment plans.

Those other 244 million devices would be locked down and sold through carriers, likely based on payment plans that subsidize the cost of devices. This allows for great financing deals that keep you tied to the carrier and device, but also allows the price of a $1000 phone to be spread over payments of $24 a month for 36 months with a $150 down payment, the now standard term for a financing through a US provider agreement. With the average retail price of a 5G phone in the US most recent $815a $500 phone doesn’t seem to fit the market.

A $300 phone that could be given away as a trade-in or new line promotion would do well with carriers — as would a $1000 phone that could be funded. A $500 financing plan doesn’t make much sense if the difference between that and the $1000 funded is about $10 a month (since $500 phones usually don’t have a down payment).

Meanwhile, there’s also no point spending $500 in cash when the Pixel 6, a well-marketed device with a better brand name camera and processor, costs $600 and is likely discounted beyond the carrier’s subsidization. The Nothing Phone (1) is a phone with no place in a market that probably won’t accept it.

Ignoring carriers, if Nothing wanted to sell their device unlocked and offer their own financing to sell the phone (1) through their website, it would have to find a bank that would be willing to arrange the financing. Banks like TD Bank are the ones that arrange financing for companies like Samsung based on Samsung’s financing plans, not Samsung itself. In an unstable market, banks are likely unwilling to partner with startups to fund consumer devices like these. Without carriers subsidizing the phone, it’s unlikely there would be a massive sale.

To reach the US market in any meaningful way, nothing would need a unique flagship or very cheap device from a US carrier. The Nothing Phone (1) is neither and realistically could never make it to carrier stores at this point.

It would cost way too much to launch on carriers

Let’s put it simply: it costs a lot to launch phones in the US.

A Samsung phone on T-Mobile, for example, has 38 cellular bands (35 without mmWave), along with Wi-Fi, Bluetooth, wireless switching, and NFC — all of which the Nothing Phone (1) has. These all have to be tested and approved by the FCC, which can be incredibly expensive. Without this test, it is illegal to sell a device in the United States. Failure to meet FCC standards could mean weeks or months of follow-up engineering to keep the device operating within US standards, which becomes costly.

FCC testing itself isn’t that expensive, but Battery UL and carrier certification are. Battery UL certification, which tests to ensure that the battery meets a nationally recognized safety standard, is optional but almost necessary in the US and can cost tens of thousands of dollars. On the other hand, certification of carriers costs millions. If the phone also included mmWave, it would require Qualcomm’s mmWave certification and licenses for the mmWave patents, which can be up to seven digits. Added up, it can be incredibly expensive

There is also transportation certification. Manufacturers like Nothing should send devices to carriers like T-Mobile, AT&T and Verizon and have them tested on their networks. This is not just to be sold on those networks, but to use the networks’ full access. If the phone (1) did not meet any of the carrier’s standards, there would be no need to repair the phone and send it back for testing. Not only would that take weeks, but it would also delay software updates, as we see with Samsung phones. Without that carrier certification, you wouldn’t be able to use Voice over LTE on AT&T, along with no 5G, spotty (if any) service on T-Mobile, and no service at all on Verizon.

Nothing is a startup whether they feel like it or not

With all the hype for nothing, it may not feel that way, but the company is a startup.

Nothing doesn’t have the backing of a billion dollar multinational company like Xiaomi or OPPO when they need financing or parts. This means it needs investors and bank financing. This means debt, loans and huge lines of credit.

Nothing, unlike most companies, can’t afford for a phone to fail in a market. To be able to repay these debts, it can’t afford to fail – spending well into the millions of dollars not to recoup that just isn’t sustainable.

There are also charges that are going on after the device launches, including paying for carrier certification with every update it tries to push. With monthly security updates, that’s a monthly expense that’s only worth it if it sells well. If not, it’s just burning money. You might be thinking, “If it doesn’t sell well, just cut your losses and stop US updates.” That’s even worse, because it means bad press from all the major tech news outlets and YouTuber until Nothing agrees to burn more money, and probably burn bridges with customers too. Just look at the situation Qualcomm has been in recently in with his Snapdragon Insiders phone

Other than that, nothing would need a US customer service support line, a broken product repair program, a system to file warranty claims for devices, a distribution network to ship devices, warehouses to store the products, and much more that I did. ‘t list. These are all investments that make no sense in a market where the phone is doomed to fail.

After this news about the Nothing Phone (1) not launching in the US broke, I spotted a few: Twitter users saying something along the lines of, “If you don’t try, you can’t succeed.” Frankly, that doesn’t work for startups when it comes to risking millions of dollars. If this product fails, it could mean that they cannot invest as much in future products, future growth or support.

Think nothing will ever launch a phone in the US?

I wouldn’t be shocked if nothing took the time to launch in the US – I could see them waiting two or three generations for them to have a true flagship product. A true flagship device developed in-house cost $100 million; they can’t just raise $100 million+ of funding and investors to create such a project because it would likely fail without brand loyalty or track record. It will take time.

If and when nothing finally makes it, nothing could be a great phone for the US, but that time is not now. Instead, nothing is going to create a device that they know will appeal to everyone in markets that are less expensive to enter.

That’s all okay if Nothing can make it through a few more generations and release a few more devices – then maybe we’ll get what we want as tech enthusiasts. Until then, however, a little patience is required. Nothing knows what they’re doing; I trust that they will make the right decisions later on.

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