January 16, 2019

Don't Cry, the Smartphone Industry Didn't Die, It Just Reached a Point of Minimal Marginal Utility

Greg Burton

Greg Burton
CEO/UBsports Inc.

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Smartphones are ubiquitous. Everyone who should have one, and many who don't really need them, have them. People are wailing about how the smartphone industry is dead: I'm not planning on putting my phone, and therefore my connection with my world, in my drawer. In fact, I'm using it more than ever, hitting Shazam to find out what that song on the store's Pandora station is, checking when the bank closes, watching the news, randomly looking up information I'm not totally sure about, or seeing who's ringing the doorbell when I'm a continent away. I'm connected, and I like it that way. But I'm not putting a phone in my teeth, or in my glasses, or any other part of my body, so I'll keep my phone in my pocket, thank you.

I like my phone the way it is, and so do most of my friends. So...why do we need new ones? The consumer electronics market is slowing, because it is mature and saturated, which means they have to work harder to make their new phones more functional and cool, and better connected if they want us to replace our current ones with their latest, greatest, most expensive phones. The CES this year was mostly about 5G connectivity, which may be the last real reason we'll have to get a new phone for a while. But as for the phones themselves, what can the next phone do that I can't do on my current one?

The incremental benefits of the latest "breakthrough" phone won't affect 95% of users, so we'll stick with what we know, and what is cheapest to own. The big advances are with the gadgets, features and software, not the phones. The iPhone X's great claim to fame is its camera. In fact, the visual component (camera, full device screen, visual clarity), not the phone itself, has driven the majority of replacement sales over the past few years. 

At this point, with the iPhone X and similar Samsung and LG products, we're pretty much done with technical and electronic advances that humans will notice or appreciate. You won't notice processor speed, any more clarity on the screen, or the differences in operating system. They are all beyond our capability, as humans, to notice any further benefits. I was writing articles about this 20 years ago: As soon as the advances in a device outgrow the capacity of humans to appreciate them, the item becomes commoditized and future sales are driven by gadgets, interoperabilty, the "coolness" of the newest devices, and our being butterfingers and dropping them. So eventually, market growth is about new users and populations coming into the market and durability of the devices. 

How the phone enhances our daily lives is next: How will AI, geolocation and connectedness help us with the day-to-day, and how will the rest of gadgets and connected devices in our worlds "play" with our phones? Think Ring, Nest, Smart Houses, and an old Tom Cruise movie, Minority Report (for better or worse!). There are a bunch of really foresightful points made in that movie, and it's a fun ride as well: Imagine walking into a store and suddenly, without prompting, your phone notifies you of all the sales this week, of things you already bought before, but only if they have them in your sizes and colors. Cool.

Anyway, I still have my iPhone 7s, and I'm going to the iPhone X for the camera, the gadgets, and admittedly, for those cute new personal emojis. I don't NEED them, but it will be cooler, more fun, and I'll be able to take better pics.

There are benefits of a mature market: First, of course, we'll have our phones longer without needing to replace them due to obsolescence. Also, because the phones' operating systems and the phones themselves won't be changing as often, the people who develop the software and apps that run on your phones can invest more money developing them, and we'll get more complete products and more exciting experiences on our smartphones. Those are good things for us, not so good for Apple, LG, Samsung, etc.

But the phone companies aren't dopes: Have you noticed how, more and more, there are subscriptions, paid and unpaid, for cloud services for phone memory, like the Apple iCloud, and the LG and Samsung clouds? They offer just enough free storage for a low-end user. Sooner or later, you find yourself out of free space, and end up paying $6-$10 or more per month! for your cloud storage. This is how these guys are replacing the revenue they are losing from the sales of phones. And even better, for them, it's a big win. They lock in customers to their brands, because it's so tedious, complicated and actually scary to commute gigs of pictures or songs from one cloud to another.

You'll eventually buy a new phone, but unless you dropped yours in the tub, it will probably be for the coolness of the phone and the beautiful pictures you'll take with it, not because your old phone isn't letting you make calls. And for all you phone makers, don't worry, you'll survive in our mature market.

Comments? You can contact me directly via my ExecRanks profile.

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