Will Smartphone Innovation or Consolidation End Sales Decline in 2019?
Smartphone sales have fallen over the past four consecutive quarters, sparking fears that the industry has reached a saturation point and entered a recession. So how should the industry react and should we in the smartphone app business be overly concerned with the downturn?
Don’t Panic
The global smartphone industry might be in decline, but you’ll forgive us for being reasonably relaxed about the situation. We believe the market is just adjusting itself to new norms and there’s a lot to look forward to in 2019.
Before we start panicking about the threat of recession, we should consider the huge number of devices the industry is still shipping. In the third quarter of 2018, global smartphone sales topped 355 million units. That’s enough units to give every man, woman, and child in the United States a new smartphone and still have around 25 million devices spare. Compare this to 67 million personal computers (PCs) sold over the same period, and it’s easy to see the smartphone is still the top dog in the tech stakes.
Further Reading: Smartphone Sales Slump – Has the Bubble Burst? – https://www.digitalturbine.com/blog/smartphone-sales-slump-has-the-bubble-burst/
App developers can also be reassured that their business is still enjoying a period of phenomenal growth. It has been estimated that consumers will spend upwards of $92 billion on apps in 2018, representing a 24 percent increase on the previous year. 76 percent of this revenue comes from gaming. The device industry might be sluggish – but the opportunities for app developers have never been better.
Comparing Apples with Oranges
Comparing smartphone sales with another technology, like PCs, might be akin to comparing apples with oranges but there are some useful reasons for making the comparison.
As smartphone technologies evolve, the lines between what is a smartphone and what is a PC, are constantly blurring. This innovation, we believe, will ultimately take the smartphone down two different routes:
- The super-powerful device: Favored by business people, creatives and gamers. These high-spec., high-cost smartphones will erode PC market share even further as ownership of multiple devices because less appealing. If you can do anything on your smartphone, why would you need a laptop?
- The low-cost, “utilitarian” device: Favored by people who just want to use their phone to connect with their friends, surf the web and keep themselves entertained. Despite the low-cost of these devices, as super-powerful devices push the boundaries of technology, the more “utilitarian” smartphones will not be too far behind the more advanced models in terms of spec. These low-cost devices are also incredibly popular in emerging economies where they are doing more to bridge the digital divide than any other previous technology.
Further Reading: BRICS: A Smart Future Built on Affordable Devices – https://www.digitalturbine.com/blog/brics-a-smart-future-built-on-affordable-devices/
Technological Revolution
Essentially, the smartphone is on the verge of a new technological revolution – not seen since, well the introduction of the first iOS and Android-powered devices a little over a decade ago.
As smartphones become more useful and more accessible, older technologies like the humble PC will continue to have their market squeezed.
The latest advances in smartphone design, including the announcement of “foldable” devices from the likes of Samsung, Huawei, and Royale (a little known Chinese OEM who have beaten the big guys by releasing the first foldable device.
Are Foldable Devices Really the Future of Smartphones?
How the general public reacts to foldable devices remains to be seen, and early reviews of Royale’s Flexipai device have been mixed – but it’s clear to see where smartphone manufacturers want to go with this innovation.
https://www.youtube.com/watch?v=6A2UQPoNjGo
The likes of Samsung aren’t just out to “out-innovate” Apple (who some would argue have lost their mojo in recent years), they are after that last chunk of market share PC manufacturers are clinging onto. A foldable device gives the user the benefits of a bigger screen with the added advantages of portability. Yes, for many business travelers, the days of lugging two devices (a smartphone and a laptop) through airport security might well be a thing of the past.
While some might see the foldable screen as something of a gimmick – it won’t be a cheap one. Don’t expect any foldable device to fall into the sub-$1,000 price bracket anytime soon.
Buying Cycles
The price of devices is another thing that may have had an impact on smartphone sales. As devices creep over the $1,000 threshold, they become more of a considered purchase than a disposable piece of tech that needs to be upgraded every year. In such cases, any innovation needs to be greater than simple bells and whistles to persuade devices owners it is time to upgrade.
Even at the lower end of the market – it’s getting harder to encourage more frequent upgrades. Evermore powerful devices mean that users just aren’t outgrowing their smartphones like they used to. When you have more than enough space for all your apps, photos, music and whatever else your store on your smartphone – why bother upgrading.
So in many ways, the smartphone manufacturers have become victims of their own success.
Consolidation versus Innovation
If innovation in smartphone device is limited to bigger, faster, and bendier, we may start to see greater consolidation in the market.
Speaking at the Mobile World Congress in Barcelona earlier in the year, Huawei’s Consumer Chief, Richard Yu said: “In the future, only three to four vendors can survive, maybe only less than four. If your market share is less than 10 percent, you cannot be profitable. Over at 10 percent, at least, you can break even (and) over 15 percent you can make money.”
According to Yu, the Chinese market is already experiencing consolidation with many smaller vendors disappearing due to a lack of resources and investment in research and development, marketing, and branding.
Alternative Streams of Revenue
With device sales in the doldrums, smart OEMs are looking to drive revenues from other areas of their business, including the aforementioned app industry.
Digital Turbine work with OEMs to build alternative streams of revenue, delivered over the lifespan of a device, via pre-loaded apps and smart folders.
Further Reading: Monetizing the Mobile Eco-System: Driving Revenues over the Lifetime of a Device
To learn how Digital Turbine can help fuel innovation and manage the smartphone industry’s “new norms” speak to one of our device monetization experts today.
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