Analysts believe that the smartphone has reached the end of its growth phase, and that the future is a declining smartphone market.
Even in markets like India, cheap phones mean that the market is not as far from saturation as you might think, so sales numbers may not increase markedly – people will just buy more expensive models. Does that mean that Apple can ‘defy gravity’ and keep its own sales constant, or even growing, while the smartphone market as a whole declines? That’s the big question, say analysts and academics …
New York magazine has a lengthy piece by Jake Swearingen which kicks off with the big picture.
Developing markets are not the saviour some would suggest, argues Canalys senior analyst Ben Stanton.
In 2017, per the International Data Corporation, global shipments of smartphones declined year-over-year for the first time in history. In 2018, IDC says the same thing happened in the U.S. market. “We are at market saturation rates of 90 to 100 percent in many developed markets,” says Ryan Reith, program vice-president at IDC.
Much of the piece echoes things that are well established. Smartphone development has, for now at least, plateaued. This year’s models are not so different to last year’s models. And all-in carrier plans – where people automatically upgraded every year or two – are a thing of the past. Both factors mean people are holding onto their phones longer than ever before, so manufacturers are left with a smaller customer base each year. Including Apple.
The development plateau really comprises two elements, argues Gartner. There’s the fact that most flagship phones, and many midrange ones, now look very similar and offer very similar features. And also the fact that most of us have way more power than we need in a phone.
Apple has traditionally had two buffers against market headwinds. First, brand image. But that’s worth less when other phones look very similar. Second, the ecosystem. But while that’s extremely valuable in most parts of the world, it’s much less so in the world’s most populous country: China. There, the most important ecosystem is WeChat. So it matters much less whether you’re on iOS or Android.
Apple is now relying on a two-fold strategy. Make the phones more expensive, to bring in more revenue from a smaller number of annual upgraders, and focus more on service revenue. But two Harvard Business School academics argue that approach may not work long-term.
And consumers, who see that flagship models offer more phone than they need, may increasingly opt for cheaper models.
“Apple will exhaust that strategy,” says David Yoffie, a professor of international business at Harvard Business School. “When Apple is at an average selling price of $800, and the rest of industry is at $300, you can only defy gravity for so long.”
So Apple’s reliance on four-figure phone sales may also have a shelf-life.
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