Andy Rubin, one of the founders of the Android platform, started a new business called ‘Essential’ in 2016. This business recently announced a smartphone and smart home automation hub. A short time afterwards, an analysis paper produced by Equidate has valued the company between $900 million and $1 billion, based on information prior to the official new product announcements.
Essential also added $300 million as part of a financing deal. Although Essential’s investors have not been disclosed, it is believed that Playground Global (a technology incubator company formed by Rubin in 2014 after he left Google) is a major investor and as such, has considerable influence or control over Essential.
Why would Essential need $300 million? In short, the smartphone market in particular is very cut throat and it’s expensive to make progress. The larger manufacturers, including names such as Huawei, Samsung, Apple and Lenovo, have considerable marketing clout and command a significant proportion of the world’s smartphone sales. Each company faces multiple challenges: it needs to evolve and refine the current portfolio without isolating established fans, innovate and improve technologies, and for those companies producing Android-based devices, work with Google. The finished product also needs to be marketed, which in many cases, includes negotiating deals with carriers. In most cases, companies usually compromise in some way, but it is still possible to refine and develop a successful product. Companies such as OnePlus have shown that it is possible to manufacture and produce a device that is well-respected, but takes time before the product gets in the hands of consumers. During this time, the business is spending considerably more than it is earning.
Of course, Rubin is well-respected in the industry but in the past this has not prevented competitors from blocking funding. One example is how Rubin negotiated to include the Essential company in a technology fund run by Japanese carrier, SoftBank. Another investor and potential rival blocked the deal. Although the other company has not been officially named, it is believed to be Apple, Inc. If Essential is looking to break into both the smartphone and smart home markets, it will need considerable cash reserves to develop and market products, as well as produce innovative products in the face of those companies that would stifle this development.
There is growth to be had in the smartphone market, but it’s the developing areas of the world that currently provide the best opportunities, where a $700 smartphone is unlikely to be a major sales success. Rubin’s company has the technical know-how to be able to take on the establishment in developed smartphone markets and the device already shows much promise. It’s still a risky business venture, but another $300 million of confidence is encouraging.