Reliance Jio, the fastest growing phone services company in the world, has stopped production of the current crop of JioPhones and is in talks to bring out an Android-based phone, three sources have confirmed.

Currently, the JioPhone runs on KaiOS, an operating system that is a version of the Firefox OS. Jio, which counts over 100 million customers, seems to be having a rethink of its strategy of developing applications and offering services on this OS platform.

The KaiOS-based JioPhone comes with its limitation of apps. “There are not enough apps compatible with KaiOS but people are working on developing special versions for the JioPhone,” said a company insider, declining to be identified. FactorDaily had first reported that Jio is in talks with Facebook and Google to bring out compatible versions of Facebook, WhatsApp, and YouTube applications.

Negotiations are on with Google to bring down the royalty for Android, this source said. FactorDaily has sent a query to Google for comment and will update this story when we get a response.

Jio has bundled all Jio apps – from cinema to Live television to music to education and chat – into the JioPhone. “But that is not enough for its success,” said a second source, who is close to the company.

Targets for JioPhone remain

The company, which had six million units pre-booked after the Rs 1,500-phone was announced, had in August stopped taking further bookings citing an “overwhelming response” as the reason. In a clarification sent to FactorDaily after the story was published, a Jio spokesperson said the company “will soon announce the next JioPhone booking date”.

In the annual general meeting of Reliance Industries, of which Jio is a part, in July, Mukesh Ambani, its chairman, had set a target of making five million JioPhones available every week.

“It’s not that the target is changing… but a walled garden approach doesn’t work in mobile phones, it hasn’t worked in the past and it will not work in the future,” the second source said. Alcatel’s One Touch Go Flip phone and Intex’s Turbo 4G, two phones based on KaiOS, haven’t sold well in the market, for instance.

The price of the Android-based JioPhone has not been decided and it is not clear yet if the same tariffs will apply for the new phone. But, the underlying premise of Jio that an affordable smartphone will find takers hold.

Massachusetts-headquartered research firm IDC estimates there are 500 million feature phones in India, while there are just 285 million smartphones. There is a shift towards a larger adoption of smartphones. In 2017, smartphone shipments are expected to grow by 10%.

It is not clear if Reliance Jio will discontinue the KaiOS-based JioPhone, whose deliveries started around Durga Puja in end-September, once the Android-based JioPhone is released. The executive said that Jio is considering manufacturing of the KaiOS phone at least for a total of 10 million units.

A fourth source with knowledge of the JioPhone’s future said: “The company is working on India specific enhancements of the KaiOS platform to fulfil the demands. A large number of professionals are working to adapt popular apps for the JioPhone. JioPhone enhancement and delivery is in progress.”

What’s in it for Google

Data remains at the core of Jio’s strategy. It hopes to make money from subscriptions of apps, apart from making money from selling data and voice, as we detailed in this story: Free to profits: How Jio, Mukesh Ambani’s $30bn startup, will make returns. Some 60% of overall data usage on the Jio network is accounted for by YouTube, second being JioCinema.

“The expertise Google can bring with software is immense… It makes sense for Reliance to wait and go with Android Go. For Google, JioPhone can be an important vehicle to go after the next billion users,” said Faisal Kawoosa, principal analyst with CyberMedia Research.

Android Go, a lightweight version of the next version of Android, will focus on three important factors: affordability, limited connectivity, and multilingual capability. Google will also offer an optimised apps and play store with Android Go.

Industry insiders said that Jio’s shift towards Android came after rivals Airtel and Vodafone partnered with handset makers to come out with low-cost, Android-based smartphones that are comparable or better than the Rs 1,500-JioPhone on offer. When Ambani launched the JioPhone, the bet was that feature phone users will migrate to a stripped down, cheap smartphones as there were no low-cost 4G handsets available in the market.

The average price of the 4G phones was about Rs 10,000 until Reliance Jio came out with the JioPhone. But soon Airtel partnered with Karbonn to give a phone for Rs 1,399. Vodafone and Micromax announced a smartphone at Rs 999 if the buyer sticks to the plan for three years.

Analysts, however, believe that JioPhone opened up a new market for Reliance Jio. An upgrade to an Android-based phone will only help. “The trend is about migrating from a feature phone to a phone that supports data… If the user can upgrade to a smartphone directly, that will be a game changer for Jio,” said Jaipal Singh, market analyst (client devices) with IDC.

Singh also said that about 40% of the feature phone users have phones that cost above Rs 1,000. “It will be easy to migrate them to low-cost smartphones… The rest of the 60% don’t know how to use that,” he said.