Smartphone manufacturers are increasingly subsidizing lower-cost hardware by embedding "bloatware," advertising, and revenue-sharing partnerships directly into the user interface. According to data from industry reports and manufacturer disclosures, this software-driven monetization model allows companies to offset thin hardware margins by selling prime digital real estate during initial device setup and through ongoing service integrations.
Why Manufacturers Pivot to Software Revenue
Hardware margins on budget-friendly smartphones are often razor-thin, forcing manufacturers to seek alternative income streams. Nothing, for instance, openly acknowledged this strategy when launching the Phone (3a) Lite. By pre-installing applications like Facebook and Instagram, the company signaled that software-based partnerships are a necessary component of the business model for affordable devices.
This shift is reflected in the financial performance of major players. Xiaomi reported billions in advertising revenue and billions from internet services outside of China during 2025. These figures demonstrate that the relationship between a user and a smartphone manufacturer does not conclude at the point of sale; it persists through the device’s software ecosystem.
The Value of the "First Run" Experience
The most valuable advertising space on a smartphone is the moment of activation. According to Xiaomi’s internal documentation for its "Mi Ads" system, the company utilizes the initial setup process—the Out-of-Box Experience (OOBE)—to present users with recommended app installations. These placements are highly coveted by advertisers because they capture the user before they have established their own app library.
Other firms, such as the U.S.-based Digital Turbine, operate as intermediaries, facilitating these distribution deals between app developers and hardware manufacturers. These agreements often involve revenue sharing, where the manufacturer receives payment for every app installation, ad impression, or user action generated through the device’s interface.
Market Variations and Software Fragmentation
The volume of pre-installed software varies significantly by region and distribution channel. A 2023 study presented at the WiSec conference compared Chinese-market firmware with global variants of the same devices. The research found that Chinese firmware contained an average of 36.7 third-party applications, compared to just 11.5 in global versions.
This fragmentation means that the user experience is not uniform, even for identical hardware models. Factors including regional regulations, operator partnerships, and local distributor requirements dictate the final software load. While the European Union’s Digital Services Act has introduced new transparency requirements for online advertising, it does not function as a blanket ban on pre-installed software, leaving the composition of the device firmware in the hands of the manufacturer.
Did you know?
Some manufacturers, such as Samsung, utilize alternative app stores like the Galaxy Store to capture a percentage of digital transactions. For a paid application, game, or in-app purchase via the Galaxy Store, Samsung retains 20 percent of net revenue as of May 2025, and 15 percent for subscriptions, creating a long-term revenue stream beyond the initial hardware purchase.
Pro Tips for Managing Device Software
- Audit during setup: Pay close attention to the final stages of the initial device configuration, where many "recommended" app installations are bundled.
- Check system permissions: Use the device’s privacy settings to review which services have access to your advertising ID and app history.
- Review notification settings: Many pre-installed "recommendation" services can be muted or disabled through the system’s notification management menu.
Frequently Asked Questions
Can I remove all pre-installed apps?
Not always. While many third-party apps can be uninstalled, some system-level applications or manufacturer-specific services can only be "disabled," meaning they remain on the device but do not run in the background.
Why do expensive phones also have pre-installed apps?
The practice is not limited to budget devices. High-end models, such as the Vivo X300 Ultra, may also include pre-installed partner apps like Temu or TikTok, as manufacturers seek to maximize revenue across their entire product portfolio.
Does this software affect my phone’s performance?
Pre-installed software, or "bloatware," can consume storage space and, depending on the service, may impact battery life or background data usage if the applications are constantly updating or tracking usage data.
Are you frustrated by pre-installed software on your new device, or do you view it as a fair trade for a lower price? Share your thoughts in the comments below or subscribe to our newsletter for more deep dives into the mobile industry.
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