In less than a decade, smartphones have become central to our lives. For many people they are the privileged access point not only to all the information available on the Web, but also to our social networks, from the familiar ones to the more extensive ones of social networks, with hundreds (sometimes thousands) of people with whom we share many aspects of our existence. Between 2007 and 2013, smartphone sales increased enormously, even during the most difficult years of the economic crisis, effectively creating a new economy with billions in revenues and millions of new jobs. Their growth year after year seemed unstoppable, with a frenzy in pursuit of the latest and most powerful models. But now that the smartphone market has reached a certain maturity, with proven and increasingly reliable technologies, the golden age for mobile phone manufacturers seems to be heading towards the end, with a normalization of sales that will cause major changes in a ' industry still very young, and with benefits for us consumers.
As Jack Swearingen explains in a detailed analysis published in New York Magazine, between 2013 and 2014 the growth in smartphone sales began to slow, going from double to single digit percentage. In 2017, deliveries of new smartphones decreased for the first time, with fewer devices sold than in 2016. The main manufacturers are resigning themselves to a very different reality compared to that of a few years ago, with the prospect of largely reduced sales markets, including emerging markets where they were confident of maintaining high levels of sales for longer.
Leveling of sales
For some years now some analysts have argued that smartphone sales would soon be leveled, given the impossibility of their growth without end. In 2012 it was not foreseeable when this would happen, but the causes were already imaginable and identifiable in two main factors.
The first is that over the years the innovations introduced in the new smartphones have gradually been decreasing, or have at least become less interesting than in the past. Swearingen gives the example of iPhones, among the most famous and expensive devices: those who bought an iPhone 3G in 2008 and in 2010 switched to an iPhone 4 – with a much better screen, a more reliable battery and a totally new design – he could see the difference. The same cannot be said of those who bought an iPhone 6 in 2014 and then switched to an iPhone 7 in 2016: the differences were there, but both models were two powerful smartphones of sufficient quality. The incentive to switch phones had suddenly become less pressing.
The second factor is closely related to the first and concerns a general reduction in sales. From 2015 to 2017, around 1.4 billion new devices were sold annually globally. The figures for 2018 are not yet definitive, but there are numerous clues that point to a decline and the fact that the peak has been passed. Most analysts are convinced that it will not rise again and that there will be a slow, but progressive, decline in sales. Many markets, starting with the United States, have reached the saturation level, with most of the users happy with the smartphone that is a few years old in their possession, and therefore little or not at all inclined to change it.
Something similar is happening in developing markets, seen by smartphone makers as a reserve in which to grow further. India, Southeast Asia, parts of Africa and South America have not reached saturation, but we are witnessing a collapse in prices caused by the entry of producers who with less than 200 dollars offer good smartphones, with sufficient capacity for the needs of buyers. Profit margins are very low and for already established manufacturers, such as Samsung, it becomes difficult to compete with other companies, especially Chinese, which give up most of the profits in order to expand into new markets.
The end of the two-year cycle
Especially in the United States and part of Europe, the first years of existence of smartphones coincided with a sales cycle based about two years. Basically, most of us bought a cell phone one year, then replaced it with a new model two years later. The trend of this cycle was determined by the telephone operators, with their two-year plans to have a very expensive smartphone and pay for it in installments, over the course of 24 months. At the end of the two-year period, the operator proposed to switch to a more recent model, starting a new two-year cycle for payment in installments. The telecom operators have been very adept at handling these offers, reaping good margins from selling smartphones for which their customers paid more, compared to a one-time purchase. The same price increases of the expensive models were hidden, thanks to the possibility of spreading them over 24 months of installments, with an increase of a few euros on the monthly bill.
The ability to move to much more advanced and innovative models was enough incentive to push mobile operators' customers to start a new cycle, but with the flattening of novelties and longer life of smartphones, things have now changed. At the end of the installment contract, many prefer to keep their smartphone, paid month after month, and switch to cheaper contracts, saving some money on the bill. In the United States, where the renewal frequency of smartphones was very high, it has now gone from 20.6 to 24.1 months. In Europe, many markets have slowed further with customers keeping the same smartphone for years, until it breaks down beyond repair.
A product like any other
Swearingen writes that as the sector matures, smartphones increasingly become a product like any other, a common object that is not more necessarily defined by its brand. It's an inevitable process in the consumer economy, but it's the thing that scares the most Apple and Samsung, the world's two most famous smartphone makers, who owe part of their success to their brand recognition and reputation.
The television market is an excellent example in this respect. From being an exceptional commodity and for the few, television has become a very common product, gradually reducing consumer loyalty to specific brands. New companies recently in the market, such as the Chinese Hisense, are producing good TVs with characteristics similar to those of the most famous brands and are undermining companies such as Sony, Panasonic and Samsung. The latter, moreover, had in turn undermined and then defeated other television manufacturers in the previous decades.
When a commodity becomes common, it is very difficult to find something that makes it exceptional again in the eyes of buyers. TV manufacturers tried it a few years ago with 3D and curved screens, an attempt to revive their sales that proved unsuccessful. Now the frontier is to offer more and more defined screens, but from HD the improvements in image quality are so slight that they are superfluous for most people, who do not even realize it (unless they have two screens in front of different definitions for make some direct comparison).
Except for big thoughts by some manufacturers, something similar to televisions and other consumer goods is happening with smartphones: there is no longer this big difference between a model released today and one a year ago, consumers are aware and are more reluctant to spend money to change, and if they do they turn to cheaper brands, but which still offer good products.
The big risks for Samsung
Among manufacturers, according to analysts, Samsung is one of the companies most exposed to the slowdown and changes we are witnessing in the market. Sure, its high-end smartphones such as the Galaxy S and Galaxy Note series have a loyal user base, but a substantial portion of the revenue comes from the sale of cheaper models, also based on Android like hundreds of other phones produced by its. competitors.
Samsung believes it still has a good edge in the growing markets where many lower-mid-range phones are sold, but is underestimating the growing competition. Interested in expanding quickly and as much as possible, Chinese companies such as Xiaomi, Huawei and Oppo offer good products at very advantageous prices, even if this means giving up more substantial earnings. They can do this thanks to more agile structures, tax incentives, lower production and personnel costs than Samsung, which risks losing important market shares.
The case of Apple
At least in the short term Apple is less exposed to the passage of smartphones to any good. The company has an extremely loyal customer base and, over the years, has been able to build services to keep them more and more and get them to buy more of its products. Some call this strategy “the golden cage”: I offer you beautiful and powerful products that allow you to do many things, but within certain limits and at a high price. IPhones were the first successful smartphones, the ones that seriously opened up a new economy, but some of their strengths could turn into weaknesses in the next few years (and some of the transformation is already happening).
In the United States and in several European countries, iPhones are among the most popular smartphones, with their iOS operating system that integrates with most of the other Apple devices, acting as a lever to induce the purchase of a MacBook instead of a PC or a HomePod to listen to music at home and use Siri, instead of an Echo from Amazon or Google Home.
Globally, however, the story is different: iOS is not as widespread. If in the United States it occupies 40 percent of the market, in the world it is just 14 percent, crushed by Android and its countless versions. For most people, the operating system of a smartphone is not at all decisive, especially if, all things being equal, it allows you to use the same applications. When a smartphone is compatible with WhatsApp, takes pictures in a decent way, allows you to surf the web and use some social media, for most people it is enough.
However, Apple has the ability to exert considerable control over its most loyal customers. Aware that the amount of smartphones sold will start to decline, a couple of years ago he started following a new strategy: charging his iPhones even more and getting more people to subscribe to his subscription services, such as Apple Music and iCloud. The strategy seems to be working for now, but in the medium term it could prove harmful. Fewer iPhones sold, albeit at a higher price, implies a smaller scale of mass production and therefore higher costs, not to mention the risk of further decreasing the diffusion of iOS and exclusive services for that operating system.
Apple is positioning itself in a position where it sells a smartphone for an average price of around $ 800, while new competitors offer quality models for $ 300. Such a marked difference in price, justified only in part by the greater value of the product, could push several loyal customers to change brands and abandon the iPhones. For Apple it is a great risk: although very solid economically, the company in recent years has not differentiated its activities at all. The vast majority of its revenues, whether direct through sales or services on iOS, depend on iPhones: if iPhone sales go bad, the rest of the company is bad. This explains, in part, the negative performance of Apple's stock market in recent weeks, with investors worried and already intimidated by the prospects of a more general crisis in the technology sector.
And us in the middle?
The slowdown in smartphone sales and the emergence of new companies with cheaper products will have great repercussions for current manufacturers, some very negative. To put it in cold utilitarian terms ed economic, they will essentially be theirs: we will be spectators of important upheavals, but we will be able to benefit from them by obtaining cheaper smartphones that last longer.
In a certain sense, writes Swearingen, the sector will take on characteristics such that it can be treated like that of the car: “If some fool breaks your side mirror while maneuvering in a parking lot and does not leave you his data, do not throw away your car and get a new one: get the mirror repaired. If you break your smartphone screen, don't get a new one, get it repaired “.
And just like with cars: when your smartphone can't stand it anymore, it is on for a few minutes or it is missing parts, do not throw yourself into the purchase of the very expensive model that has just come out. Few people buy new-to-market cars when they have to change theirs, simply because it doesn't make much sense in economic terms. A car depreciates enormously in just a year, so for many it makes more sense to focus on used or unsold models, zero-kilometer and without the latest fashion options.
The used smartphone market is not yet very flourishing and is not always reliable, even if more and more opportunities are emerging with “refurbished” models: smartphones now used and returned because they are damaged, refurbished and sold at reduced prices. The most economically sensible strategy remains to focus on recent models, but not new ones that have already been out for at least a year. A Google Pixel 3 is an excellent smartphone recently released and costs 899 euros; the previous model, the Pixel 2, is less than 600 euros. On models from manufacturers such as Xiaomi and Huawei, the price differences with the one-year older models are even more pronounced, due to their pricing policies. Apple and Samsung will go to war with each other, with probable benefits for us all.
