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Last week, NIO officially launched its second smartphone, NIO Phone 2, at the NIO IN 2024 event. As a flagship phone, NIO Phone 2 is equipped with the current highest-specification third-generation Snapdragon 8 mobile platform, a ceramic body and an excellent triple-camera imaging system.

In fact, the most popular feature of NIO Phone is not its flagship configuration, but SkyUI's "0 system ads". Bai Jian, head of NIO's hardware, said on a social platform,"We believe that for high-end flagship products, zero system ads should be standard."As soon as this statement was made, it immediately caused heated discussion.

(Photo source: NIO)

Smartphones have developed to this day, and the performance of hardware is beyond description. In the domestic market, even mid-range phones can have good performance, enough to support users' daily needs. However, the software experience shows some signs of "drag down", and it is these system ads that are the most annoying for users.

So, should flagship phones targeting the high-end market really cancel system ads as Bai Jian said? What is the reason why manufacturers are still reluctant to give up built-in ads?

NIO Phone is "far behind" in the number of mobile phone advertisements

Li Bin said at the NIO Phone 2 launch conference that the NIO Phone was far behind in terms of the number of advertisements, and it has always been behind and will always be behind. It is not difficult to see that NIO is quite confident in the design of "0 system advertisements".

SkyUI built into NIO Phone focuses on pure experience. In addition to "0 system ads", it also insists on not pre-installing commercial applications, which means that compared with other flagship phones, NIO Phone will have much fewer built-in third-party applications, almost none. In fact, as a car company, NIO always needs to consider the feelings of car owners when making mobile phones. When announcing the production of mobile phones, Li Bin also admitted that the goal of NIO Phone is to make iPhone users accept it, so system ads are naturally NIO's bottom line.

(Photo source: NIO)

On the other hand, in addition to considering the brand's own positioning and consumer base, Weilai Bai Jian's remarks also make sense. He believes that high-end flagship mobile phones should not have built-in system advertisements, which is actually the voice of many consumers.

In the smartphone industry, subsidizing hardware costs through advertising has become a common strategy.This is mainly because the cost of high-performance hardware is relatively high, and market competition forces manufacturers to lower retail prices to attract consumers. For example, top-level processors, high-resolution screens, and high-quality camera components will significantly increase manufacturing costs.

Xiaomi also mentioned in the early days of its business that the comprehensive net profit of hardware would not exceed 5%, so what about the overall profit? In addition to selling hardware, the profit of software services must also be calculated, such as built-in third-party applications and system advertisements. The profit of Xiaomi's "Internet Service Industry" project disclosed in 2021 reached 19.842 billion yuan. Excluding the proportion of the game business, the revenue of the advertising service business is also considerable.

(Image source: Xiaomi Pengpai OS)

Of course, the volume of NIO Phone also determines that NIO does not need to rely on this part of revenue to support the operation of its mobile phone business, just like Meizu in the past two years, due to the small number of models and low sales, it is difficult to obtain high returns even if it joins the advertising alliance. In this way, it is better to do a good job of pure system experience first and seize the word of mouth of consumers.

Why can’t flagship phones give up built-in ads?

When it comes to built-in ads in the system, Xiaomi users complain the most, and Xiaomi phones are also the fastest to change. In the early years, MIUI was complained by users because of built-in ads. Even for a long time, Mi fans attributed it to one of the reasons why it was difficult to "rise to a high level".

After Xiaomi upgraded to Pengpai OS, although it still retained built-in ads and third-party apps, almost all built-in system ads can be turned off. Users who are sensitive to this issue can also search for relevant tutorials online, and the operation is not difficult. As for OPPO's ColorOS and vivo's OriginOS, they basically follow the same logic, but unlike Pengpai OS, most of the system built-in ads cannot be completely turned off, such as vivo's weather app ads.

(Photo source: OPPO)

The reason why we stick to system advertising is actually a helpless move.In order to achieve profits while remaining competitive, most brands choose to add advertisements or pre-install applications in the user interface. These advertisements and applications can bring revenue to manufacturers, helping them to compensate for the high hardware costs while keeping the retail price of the product within a relatively reasonable range. However, this practice is particularly common in the mid- and low-end markets, because in these markets, price sensitivity is high and manufacturers need to find more ways to balance costs and benefits.

(Image source: Lei Technology Mapping/OriginOS 4)

However, for high-end flagship phones, users usually expect a pure ad-free experience, so even if they face the same cost pressure, high-end brands such as Apple usually do not adopt this subsidy method. This difference reflects the differences in brand strategy and market positioning, and also reflects the expectations and needs of different consumer groups.

For example, in the price-performance flagship battle in July, OnePlus Ace 3 Pro, iQOO Neo9S Pro+, Realme GT6, and Redmi K70 Extreme Edition are all equipped with flagship chips such as Qualcomm Snapdragon 8 Gen 3/Dimensity 9300+. Redmi has an IP68 dustproof design and iQOO has a single-point ultrasonic fingerprint recognition. These phones have hardware configurations comparable to flagship phones.But only flagship phones are less than half the price.

(Photo source: Lei Technology)

Most consumers can accept these phones with built-in third-party applications and system-built-in ads. After all, the hardware has been given preferential treatment, and the software is somewhat different from the flagship models, which is understandable. Moreover, according to laws and regulations, users can choose to delete or not the third-party applications built into the phone manufacturers. With the right to choose, it is not a problem.

But it is indeed hard to accept that flagship phones priced above 6K still have built-in system ads.Apple's iOS system is famous for not including any pre-installed ads. This strategy has not changed until the iPhone 15 Pro Max, which has helped Apple maintain the high-end brand image of its products and optimized the user experience. The upcoming Hongmeng NEXT does not explicitly open the interface for built-in ads. Perhaps, like Apple, it will not provide advertising services on the system's built-in apps.

If flagship phones start to reduce or cancel system-built-in advertisements, perhaps more consumers will be willing to pay for high-end products, breaking away from the fixed mindset and demand of “buying hardware” and allowing the market to enter a virtuous cycle.

Canceling system advertising is a new direction for the high-end market

The market demand for ad-free experience is increasing. According to a survey conducted by Pew Research Center, more than 58% of smartphone users said that system ads seriously affected their experience and they were willing to pay extra for an ad-free experience. This data shows that consumers are generally dissatisfied with ads, especially when they are interrupted by ads during key activities such as entertainment and work.

As consumers' tolerance for ads decreases, the market demand for ad-free experience is increasing. In the future, we may foresee that more smartphone manufacturers will choose to reduce or completely cancel system ads to improve user experience and enhance brand loyalty. The establishment of this trend may reshape the competitive landscape of the smartphone market and make ad-free systems the new standard for high-end flagship phones.

(Photo source: NIO)

Simply put, the gap between the current performance flagship and the high-end flagship is only the image and some special peripheral configurations, but relatively speaking, not many consumers are willing to pay more for better images. According to Digital Chat Station, in the Xiaomi 14 series, the sales of Xiaomi 14 and Xiaomi 14 Pro both exceeded one million, while Xiaomi 14 Ultra only sold a few hundred thousand. The Xiaomi 14 series is already a more representative model in this year's flagship series, but consumers who want to pursue the ultimate imaging experience are actually far less than the public imagines.

(Photo source: Weibo @Digital Chat Station)

As the imaging industry matures, mobile phone manufacturers may try to enter the high-end market by focusing on "services", such as NIO Phone's "zero system ads", which at least gives users a comfortable experience. However, such a solution is not easy to implement. After all, from the perspective of consumer psychology, every consumer wants to be respected enough, and disclosing the "experience gap" may make some users feel uncomfortable.

In the long run, as technology develops and user preferences change, the market is expected to tend to provide a more pure and ad-free smartphone experience. This is not only because users have a clear demand for this, but also because brands that can provide a better experience in the market competition will be more likely to gain user favor and market share.In fact, some emerging brands have begun to use ad-free experience as one of the main selling points of their products, trying to cut into the high-end market through this strategy.

NIO has the confidence to create "0 system ads", which is actually closely related to the proportion of its mobile phone business in the company's revenue. It is neither the main business nor a necessary profit project. It is a strategic deployment at best. However, considering that NIO Phone 2 has changed from being only available to car owners to being sold to the public, it means that NIO needs to accept a broader market test. Whether the "pure system" can support NIO Phone 2's stable position in the high-end flagship market will still be determined by word of mouth and sales.

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In the hottest month of July, Lei Technology's mid-year review is launched, summarizing the brands, technologies and products worth recording in the first half of 2024 in the technology industry, recording the past and looking forward to the future. Please pay attention.