The two biggest phone makers are having to adapt to stalling sales and unstinting competition from China
 |
| © Photo by James Bareham / The Verge |
By Vlad Savov, The Verge
If there’s one thing we’ve learned from Samsung’s soft sales of the Galaxy S9
through 2018 and Apple’s dramatically reduced forecast of iPhone
revenues for the end of that year, it’s that most people who want a
great smartphone already have one. In his letter to investors
yesterday, Apple CEO Tim Cook spelled out the reasons why his company
sold (many) fewer iPhones than it had anticipated in the final quarter
of 2018, and a large chunk of them can be summed up as “too many good
phones already out there.” This statement from the boss of the iPhone
company is merely the crowning punctuation to a market stagnation that’s
been apparent to phone makers for well over a year.
Smartphones,
the iPhone especially, have been on a constant growth trajectory for so
long that we’ve come to expect them to keep perpetually expanding as a
category. But, just as desktop PCs eventually reached a saturation point
where almost every home that could afford a computer had a decent one,
smartphone shipments had to eventually hit a level at which demand for
them tapered off. That point was reached sometime over the past couple
of years, driven by three major long-term factors: the shrinking benefit
when upgrading from a recent phone to the latest model, the increasing
average price of new devices, and the concordant reluctance to treat
smartphones as things to be disposed of every year or two.
This was the first year in five that I didn’t upgrade my iPhone. Two reasons:— Casey Newton (@CaseyNewton) January 2, 2019
- iPhone X was really, really good, and battery life is still great
- The 2018 models were functionally identical to the iPhone X
So: not just China
https://t.co/e2dB1PfLTu
In July, the market analysts at IDC said “the combination of market
saturation, increased smartphone penetration rates, and climbing
[average selling prices] continue to dampen the growth of the overall
market. Consumers remain willing to pay more for premium offerings in
numerous markets and they now expect their device to outlast and
outperform previous generations of that device which cost considerably
less a few years ago.”
Phone innovation has hit a plateau — one of
great quality and maturity in most aspects of performance and design —
and until we get another groundbreaking, must-have upgrade, we’re set to
watch a smartphone market without meaningful additional growth. Prior
to 2018, there were successive waves of major upgrades worth having:
from 4G and the annual increase in display size and battery efficiency
to the additions of secondary zoom cameras, biometric ID systems,
wireless charging, and waterproofing. But now that all the keenest
upgraders have the full set of discrete features on their devices,
research is showing that people are holding on to their phones longer simply because they’re mostly satisfied with what they already have.
The
two premium brands, Apple and Samsung, have tried to offset the
reduction in units sold each year by raising the price per device, but
that’s only compounded their problem. Yes, Apple can sell a $1,000-plus
iPhone. However, the owner of that iPhone will be far less likely to
rush to replace it the way someone who’d previously spent a fraction of
that price might have done. Cook said that cheap iPhone battery
replacements in 2018 played into a tendency toward refurbishing existing
phones rather than buying new ones.
 |
| © Photo by Vjeran Pavic / The Verge |
The greatest innovation in the mobile world during the past year was Google’s Night Sight camera mode.
A piece of software. Google distributed Night Sight as an update to
every Google Pixel model, effectively diluting the most compelling
reason to buy a new phone. This is a trend that looks to be just getting
started: the smartphone user experience growing better through software
improvements in bigger steps than through hardware augmentations.
Apple’s gesture-based interface on the iPhone X is another example where
the new software design was more instrumental to the sense of an
upgrade than the hardware updates.
After all, there’s a limit to
how color-accurate a Samsung OLED display can get, or how many modules
of RAM a chipmaker can stack inside of a phone. But, as Google has
shown, those physical limitations don’t constrain the possibilities of
what can be done with the smart application of machine learning and
computation.
 |
| © Photo by Vjeran Pavic / The Verge |
As the world’s biggest smartphone market, China is singled out for
special attention in Cook’s investor letter. He argues that China’s
broader economic slowdown is to blame for Apple’s underperformance, and
there’s certainly an element of truth to that. The original iPhone was
released in 2007, and after the financial market maelstrom of 2008,
Apple and its competitors have been selling their devices into a world
economy that’s been getting progressively better. So their performance
until now has been buoyed by macroeconomic growth, just as it’s now
suffering from the effects of changing market conditions in China.
But
Samsung and Apple have deeper issues in China than just the overall
market. Both global companies are struggling to establish themselves as
the dominant players that they are in other countries. WeChat is
effectively the operating system in China, so Apple’s iOS and App Store
lock-in isn’t a thing, whereas Samsung’s generally being outpaced at its
own spec race by nimbler local rivals.
The Chinese consumer is
well-served by companies like Huawei, Oppo, and Vivo, each of which
delivers a great deal of spec-laden value for a shopper’s yuan. As
China’s appetite for the very latest smartphone also diminishes, those
same companies are transitioning into India,
the last remaining bastion of rapid smartphone sales growth, and
retreading their strategy of garnering market share through aggressive
pricing.
It’s fascinating to observe how, even as the overall
smartphone market has been in gentle decline for a couple of years, the
share of it held by each company and the geographies dominated by
various brands keep shifting and changing. Within the span of the past
decade, we’ve witnessed Nokia and BlackBerry supplanted by Apple and
Samsung, and now we’re watching the likes of Huawei and Xiaomi ascending
to offer a fresh challenge. Competition is likely to only intensify in
the coming years as every manufacturer competes for a slice of a finite
pie.
 |
| © Photo by Amelia Holowaty Krales / The Verge Samsung Galaxy Note 9 |
As to what might bring smartphone sales back to growth, Qualcomm would tell you 5G will trigger a new wave of upgrades, IDC anticipates Latin America and Africa showing greater demand, and Samsung, Huawei, and others are working on zany foldable devices.
Every avenue for hardware differentiation and leadership will be
explored, which, from a consumer’s perspective, bodes well for a future
of devices that are at the very least more interesting than the current crop we have today.
Smartphone
markets are slowing down in large part because they’ve served their
purpose. We wanted phones with great displays, fast connectivity,
all-day battery life, and a few extra luxuries thrown in, and now we’ve
got them in abundance. The system works. When the next truly compelling
upgrade shows up on the horizon, consumers will once again throw money
at the latest and greatest products. But until then, all this
competition makes for a bumpy ride for any company venturous enough to
be in the phone-selling business, including those at the very top.
COMMENTS