A decade ago the arrival of the smartphone changed the world, and these devices have become a fulcrum in all of our lives. So much so that today, it is estimated that of the 5.3bn people on earth aged over 15, around 5bn have a mobile phone. Incredible.
However, after 10 years of double digit growth in global smartphone sales, annual shipments have plateaued at around 1.4bn units and are trending downwards.
This plateauing is occurring despite the increased prominence of new players – particularly from China. OnePlus, Vivo, TCL, Xiaomi, and Huawei (despite recent troubles) amongst many others, have all gained a significant share of the global smartphone market. Added to the traditional players, consumers now have more choice, and more options than ever before so what is behind this slowdown?
While the aforementioned market saturation is likely a prominent reason, there is clear evidence that people are changing the way they consume mobile phones. For one, people are holding onto their phones longer – especially in the West. Research from 2018 suggested that US consumers were holding on to their phone for 9% longer than they had in 2016, while in Europe that increased to 12%. The notion is that people are satisfied with their phones and don’t require upgrades as frequently as they used to.
This is further supported by the rise of SIM-only deals and more consumers purchasing their phones outright. People seem to be shunning the traditional smartphone contract lifecycle – whereby people get a 24 month contract and then upgrade to the next one – for a more flexible system. Research by YouGov found that in December of 2010, only 5% of people had a SIM-only deal. By 2016, this increased to 19%, rising to 27% in 2017, and projected to increase at the same rate.
One key driver in this shift is the widely reported view that innovation has slowed in the smartphone space. Rather than seeing groundbreaking product evolutions, consumers are often being served up incremental changes: an extra camera lens there, a little more processing power here. Smartphone purchasers seemingly have fewer reasons to upgrade as frequently as they used to. That, added to the fact that there’s many more brands and handsets to choose from – all offering high quality and increasingly cheap smartphones – and a pandemic to contend with; means it is a hard market to maintain premium positions in.
How have smartphone brands attempted to counteract this shift?
There’s been a push to reinvigorate the sense of innovation in the category through radical format changes. Foldable phones such as the Huawei Mate X and the Samsung Galaxy Z Flip have been the most prominent examples of this. While the technology is impressive and has wow factor, the interest seems more niche. According to research from Statista, more common features such as battery life and camera quality are being deemed much much more important.
Another way to create differentiation and premiumise smartphones has been to create phone models specifically targeted at gaming – a space that is rising fast. This is particularly pertinent for smartphones as mobile gaming now represents 45% of the total ~$150Bn gaming market. The Honor Play, Razer Phone 2 and Xiaomi’s Black Shark 3 are all specifically built and marketed for gamers, with AMOLED screens, stereo speakers, gaming-specific controls and advanced cooling systems.
Despite these efforts, there is increasing desire for cheaper, longer-held handsets. Even Apple, who are famously resolute in maintaining their premium pricing, released the iPhone SE in April – a midrange smartphone which talks directly to those who want an affordable iPhone to use for a number of years. OnePlus’s Nord and the Google Pixel 4a are other examples of a similar shift in focus. The presence of high quality but affordable phones is likely to increase.
Where next for smartphone brands?
The obvious saving grace is 5G. Its very roll-out is likely to encourage people to upgrade to a 5G compatible phone. While this will drive short to medium growth, it may not counteract the underlying challenges we’ve seen.
That said, 5G is emblematic of a wider, more important shift that highlights a clear opportunity for tech companies and smartphone manufacturers – surmised perfectly by Samsung’s co-CEO Koh Dong-Jin:
“[The] previous 10 years, it was an era of the smartphone. From this year, maybe a new era is opening because of the emergence of the Internet of Things, 5G, AI, and all these technologies mingling together. The new era is in front of us. We must think rather than smartphones, we must think smart devices”.
Building on Mr Koh’s thoughts, it is clear that smartphones established the norms of smart devices that help us all interact with the world more seamlessly. Now, this same ideal is spreading to more areas of our lives through smart watches, smart homes, and smart offices. As we have seen previously, many people are open to, and ready for increased ‘smartness’, even if they’re still getting accustomed to the evolving technology. As consumers begin to build their smart worlds, tech companies have the opportunity to take control of this shift, and position the smartphone as the lead device that makes all the others connect together, and come to life in one unified ecosystem. If technology companies can get this right, we may see another growth spurt for smartphones in the decade to come.