Tuesday, December 11, 2018

"Global, U.S. Growth in Smartphone Growth Starts to Decline"

Excellent article on the state of the smart phone market by Jake Swearingen of New York magazine. There's nothing particularly surprising about the story it tells. When first introduced, the iPhone integrated and made fully portable some of the most popular and important technologies of the late 20th and early 21st centuries, PCs and the Internet, GPS, digital cameras, and cell phones. The result was an incredibly appealing product with an abundance of low hanging fruit for improvements that would keep people rushing out to buy each new model for a while. Inevitably though, these improvements started approaching the asymptote of discernibility. As the author points out, you often have to hold them side-by-side to tell the difference between your old phone and the new and considerably more expensive upgrade. The S-curve levels off and improvements in functionality start taking a second-place to reductions in price.

What is surprising about this story is that so many people found it surprising.

But just like every Scorsese movie, the party ends. Smartphone growth began to slow starting in 2013 or 2014. In 2016, it was suddenly in the single digits, and in 2017 global smartphone shipments, for the first time, actually declined — fewer smartphones were sold than in 2017 than in 2016.

Every smartphone manufacturer is now facing a world where, at best, they can hope for single-digit growth in smartphone sales — and many seem to be preparing for a world where they face declines.


If you’ve bought flagship phone in this year, you likely won’t need to buy a replacement until the next decade. “Most people have more phone than they can handle, or need,” says Gartner senior principal analyst Tuong Nguyen. “It’s similar to what you saw in the PC market for while — people had really powerful PCs but they barely used it for anything. It’s the same with phones.”

Your smartphone camera is good to great, and you mainly share those photos on social media, where photo quality doesn’t matter much anyway. Barring a few high-end 3-D games or technologies like augmented reality, your processor can handle everything you throw at it, and will for a while. Your screen is bright and sharp, and while there may be slightly better screens out there, you’d only be able to tell by holding the two phones side-by-side. Durability has vastly improved; waterproofing is now standard on smartphones, so a brief dip in the sink or toilet doesn’t mean you need a new phone, and the weakest links in smartphone hardware — batteries which tend lose their ability to hold a charge over time and screens that crack and shatter — have improved.

As the market reaches maturity, smartphones are verging on becoming a commodity — a fate the major smartphone manufacturers like Samsung and Apple desperately want to avoid.

“Commoditization is the normal cycle for most products,” says Willy Shih, a professor of management practice at Harvard Business School. “When the first Xerox plain-paper copier came out, they were really cool and Xerox became a fabulously successful company. But then their patents expired, and other companies like Canon came in and introduced low-cost office copiers. Now, copier machines are a dirt-order commodity.” Think very hard about your own office — can you name the brand of your office copier?

Or take televisions, another commodity where consumers show little brand loyalty, allowing for upstarts like Vizio, TLC, and Hisense to strip market share away from established players like Sony or Panasonic — which, of course, had displaced established players in television like Magnavox or RCA.

“Once you get driven into the commodity space, you start to think, ‘Oh, I’ve just got gotta come up with the next great feature that will cause people to buy my product over the others,’” says Shih. “But at some point, you way exceed what consumers need or are willing to pay for. And then you become a commodity.”

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