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  • About Smartphone Saturation

    May 10th, 2016

    Do you know of anyone who doesn’t have a smartphone? I thought so. It’s hard to walk on any American street and not see someone staring down at one. Well, unless you happen to be strolling or jogging real early in the morning where there aren’t too many pedestrians about. Indeed, the number of smartphones in the average U.S. household is closing in on the number of TVs.

    To be specific, according to the Consumer Technology Association, a market research company based in Virginia, each household has an average of 2.4 smartphones. They also have 2.8 TVs. So it’s getting close, and as you probably know, growth in the TV industry has stalled. With the HD transition complete, sales are flagging in this country, and the TV makers are rushing to the bottom with cheaper and cheaper sets.

    No doubt the move to 4K has helped somewhat. But the share of Ultra HD sets is still low, and, as you might expect, the higher resolution models are getting cheaper all the time. Indeed, you can find plenty of worthy 4K TVs for less than $1,000. One of my colleagues bought a 49-inch 4K set last year for about $500, and it wasn’t a low-end model by any means.

    Just to bring this close to home. I have two iPhones; one for me, one for Barbara. But we only have one TV set, in the other bedroom. Well, if I don’t count the 27-inch iMac, which can be used as a TV set too for a lot of programming. I lived for years with sets having smaller displays.

    As you might expect, Apple and other smartphone makers are looking overseas for growth. For Apple it was China until the last quarter, where revenue dropped by 26% year-over-year. In addition to economic headwinds, makers of cheaper gear are evidently grabbing sales from makers of high-end gear.

    Apple, in turn, is trying to boost sales in India and other countries. Indeed, a key reason why the iPhone SE is relatively cheap, at least for an Apple handset, is the attempt to grab sales in countries where existing iPhones are too expensive. Well, and for people who still prefer four-inch displays. As you may have heard, Apple underestimated demand for the smallest iPhone, and it is still backordered.

    Some might suggest that Apple should have made a better guess at potential demand. I have no idea about the process that was used, but you know that political polls are occasionally way off the mark. So it’s possible that even the best projections may be inaccurate, not because the research is bad, but you cannot read everyone’s mind. Potential demand, no doubt, but not when those final purchase decisions will be made and acted upon, except with a margin of error.

    Meanwhile, since most people who want smartphones no doubt have them, at least in the more developed world, what can manufacturers do to entice them to upgrade? Certainly they aren’t going to last near as long as a TV set, where people keep them five or 10 years before replacing them, or just pawning them off to a child’s bedroom.

    It has been normal for people upgrade smartphones approximately every two years, the length of those mostly-abandoned carrier contracts. A relatively smaller number upgrade every year, and that’s easier now with these special buying/leasing programs, such as AT&T Next. Depending on which plan you select, you can upgrade to a new smartphone without a financial penalty — other than local sales tax — every 12 or 18 months with most plans.

    Now that wireless carriers have pretty much gone a la carte — separating the price of service from the price of the equipment — when you wait till the handset is paid off, your bill gets cheaper. If the unit is still meeting your needs, maybe you don’t care so much about the latest and greatest. So you hold off for a while. Maybe next year’s refresh will have a feature that is attractive enough to convince you to buy it.

    I’m sure all smartphone makers are confronting this dilemma, a situation sparked in the U.S. by T-Mobile’s “Uncarrier” promotion, and the decision of other carriers to follow up with their own unbundled pricing schemes. Apple’s iPhone Upgrade Program is part of this trend.

    It also puts more pressure on handset makers to concoct features that customers will find exciting, must-haves, and that’s more and more difficult. What’s left to add that anyone cares about anyway? Look at the iPhone 6s, which got off to a fast start, but the pace quickly tapered off. So how many people care so much about such frills as 3D Touch and Live Photo? I find it hard to think of a need, and I wonder how many buyers of the new models really gave a damn!

    That’s the dilemma facing Apple with the iPhone 7. Although rumors say it’s not going to be such a compelling upgrade, Apple won’t reveal the new features until September if it follows the past upgrade schedule. Maybe there will be something compelling there, or perhaps the people with handsets two or three years old will decide it’s finally time for something new.

    Until the next great thing arrives, however, the era of double-digit smartphone growth is probably over.



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