Technology

Essential Products, One Of The Hottest US Phone Startups, Puts Itself Up For Sale

essential phone compared to Galaxy S8, iPhone 7 Plus, Google Pixel XL, LG G6
Image Source: shop.essential.com (screenshot)

People, especially investors who poured in hundreds of millions of dollars in the company, had a lot of expectations from Essential Products. The startup was founded by Andy Rubin, the guy who created Android and sold it to Google in 2005. Inside sources familiar with the development told Bloomberg that Essential Products has put itself up for sale. The company has also canceled the development of its next smartphone. So, anyone waiting for an Essential PH-2 is going to be disappointed.

Essential Products launched its first smartphone in August 2017 amid great fanfare. Wireless carriers such as Sprint had run massive marketing campaigns for the device. Now Andy Rubin has hired Credit Suisse to consult on a possible sale. The startup has already attracted the interest of at least one potential suitor. Essential was part of Rubin’s startup incubator Playground Global, which he founded in 2014. Bloomberg said Essential was “now actively shopping itself.”

The report claims that Rubin is planning to sell the entire company including its hardware products, upcoming smart home devices, and patent portfolio. The startup’s engineering talent will also be part of the deal. Essential Products has hired engineers from Google, Apple, and other companies. Rubin hasn’t yet made a final decision on the sale. Following the report, Rubin sent out this tweet:

Since last year, dozens of engineers and executives have left the startup amid internal turmoil. It is unclear whether Essential will continue to support its current flagship Essential Phone after it gets sold.

The startup has raised approximately $300 million from multiple investors since its inception. It was valued at close to $1 billion in a funding round last year. Its investors include Tencent Holdings, Amazon.com, Redpoint Ventures, and Foxconn. Taiwan-based Foxconn also manufactures phones for Essential. Interestingly, Rubin & Company spent nearly $100 million developing the first Essential Phone. That’s about one-third of the funds it has raised from investors.

The Essential PH-1 was supposed to be a revolutionary device that offered pure Android experience with almost no bloatware. It managed to beat Apple in bringing the display notch and almost all-screen front. The phone was built using premium materials such as titanium and ceramic. However, it was criticized for its poor camera quality, problems with the touchscreen, and issues with making phone calls.

The phone was priced at $699 at the time of launch. The pricing was similar to the iPhones and Samsung Galaxy handsets, but it didn’t offer anything radically different from the iPhones and Galaxy devices. Also, it came from a startup that didn’t have a wide network of support centers. Given a choice, consumers are more likely to buy an iPhone for around $700 than a device from an unproven vendor at the same price. Chinese OEMs such as OnePlus make a strong case by offering premium specs at mid-range prices.

Rubin tried to differentiate the Essential Phone by offering modularity. It had a magnetic connector on the back where you could attach accessories for additional functions. But the startup came up with only one accessory: a 360-degree camera priced at $50. The Essential Phone sold less than 5,000 units in the first month of launch. A disappointing number for a device launched with so much hype.

The startup was able to sell only about 20,000 units at the base price of $699. In October last year, it was forced to cut the price by $200 to $499. The lower price helped it boost sales a bit. According to people familiar with the company, Essential has sold roughly 150,000 phones since launch. That’s not something to brag about.

Rubin has canceled the development of the second-gen smartphone. He has shifted engineers and resources to work on a smart home device, which is expected to go on sale next year. It doesn’t mean the company is exiting the smartphone business altogether. Essential was reportedly looking to hire a manufacturer other than Foxconn to develop phones with the Essential branding.

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