Essential Tried to Upend Smartphones. Now It is Shutting Down

By Sarah E. Needleman 

Essential Products Inc., the smartphone company from the father of Google's Android mobile software, is shutting down after less than five years in business and raising $330 million in funding.

The startup said Wednesday it will cease operations and no longer provide software updates or customer support for its $499 titanium-encased smartphone, with its 360-degree camera, 128 gigabytes of storage and minimalistic design. The company had been working on a new device under the name Project Gem, but it wasn't brought to market.

California-based Essential was attempting to take on technology juggernauts Samsung Electronics Co. and Apple Inc., which have dominated smartphone sales in recent years. Chinese internet company Tencent Holdings Ltd. and Amazon.com Inc.'s Alexa Fund participated in a $300 million funding round for Essential in 2017.

"Despite our best efforts, we've now taken Gem as far as we can and regrettably have no clear path to deliver it to customers," Essential said on its website. Neither an Essential spokesperson nor Andy Rubin, the company's founder, could immediately be reached for comment.

The company quickly rose to prominence largely because of its high-profile founder, Mr. Rubin, who sold his previous startup, Android, to Google in 2005. He then helped Google turn Android's software into the world's most-used smartphone operating system. Mr. Rubin left Google in 2014.

Around the time of his departure from Google, Mr. Rubin said he was starting an incubator for startups interested in building technology hardware. But a shareholder lawsuit filed in California Superior Court last year called into question the circumstances behind Mr. Rubin's exit from the company.

The lawsuit accused Mr. Rubin of sexually harassing a subordinate and that the Alphabet Inc. unit schemed to cover up the behavior. It also claimed Google paid exit packages to Mr. Rubin and another former executive accused of similar behavior that totaled roughly $135 million.

Through an attorney, Mr. Rubin has previously denied any misconduct. The attorney, Ellen Stross, pointed to the announcement of Essential's closure on its website and didn't address the matter of the lawsuit, which is ongoing.

Mr. Rubin founded Essential in 2015 with plans to take advantage of the company's small size to innovate faster than its large counterparts. In a blog post in Essential's early days, Mr. Rubin said he wanted to create a smartphone that wouldn't require an update every year or be bogged down by features such as preinstalled apps.

From the start, Mr. Rubin's company faced an uphill fight, producing a commodity handset for the already overcrowded Android smartphone market. In recent years, Apple and Samsung have worked to pack features into devices that can sell at a premium of $1,000 or more.

Three companies -- Samsung, Huawei Technologies Co., and Apple -- accounted for nearly 50% of smartphone shipments world-wide at the end of last year, according to Counterpoint Research. Overall smartphone sales world-wide also contracted for the second year in a row in 2019 after nearly a decade of growth, Counterpoint says.

Other startups have tried and failed to crack the smartphone market. Amazon.com Inc.'s Fire phone was a flop, and South Korea's LG Electronics Inc. made changes in its mobile division after efforts to differentiate its products through design ended up as a bust.

Write to Sarah E. Needleman at [e-mail]

(END) Dow Jones Newswires

February 12, 2020 17:55 ET (22:55 GMT)

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