The future of smartphones may be more fluid than you think

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The XR Proposition

Last Friday, Apple officially launched the pre-orders for the iPhone XR, the latest addition to the current iPhone lineup. from consumer gadget sites unanimously praised the performance of the phone while eagerly pointing out that it is a lot cheaper than the premium-priced iPhone XS. The narrative developing in the media, it seems, is that the XR is the latest “low-cost” iPhone a la iPhone 5c and iPhone SE, two previous cheaper models that are intended for capturing price-sensitive customers, especially those in emerging markets.

However, it is important to note that the starting price of the iPhone XR is still $50 higher than that of the iPhone 8. The introduction of the iPhone X line last year conspicuously pushed up the average selling price (ASP) of iPhones and ushered in . The iPhone XR is not going to be of any help in bringing the ASP down to the pre-iPhone X level. So, even as the global smartphone sales at the beginning of the year, Apple is not exactly dropping the ASP of its flagship lineup to cater to the lower end of the smartphone market.

The starting price of the iPhone XR is still $50 higher than that of the iPhone 8.

Instead, as , Apple seems to be happy to let the growing “gray market” for refurbished and previously-owned iPhones do the work to expand its user base in the lower-middle markets. Apple has the key ingredients needed to sustain a functioning gray market for iPhone, and that is partly why it so confidently elevated the ASP of the iPhones and brought the entire high-end smartphone market with it in the process.

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                                            Source : Apple

 

One key advantage for Apple in the gray market over its competitors, however, is that their devices tend to , and there is always a steady stream of gently used iPhones flowing into the gray market thanks to early upgrade plans offered by mobile carriers and Apple’s own iPhone Upgrade Program. In a year or two, the iPhone XR will have moved down the pricing to make it a perfect phone for cost-sensitive markets like India.

The View from the Plateau

After over a decade of epoch-making rapid growth, the smartphone market has reached a plateau as user growth slows. In fact, a slight decline of 0.2% in 2018 for global smartphone sales, before it resumes a subdued annual growth rate of about 3%from 2019 through 2022. Most western countries, plus China, have reached market saturation, and climbing ASPs continue to dampen the growth of the overall market. this year showed that 77% of Americans own smartphones, a huge jump from 35% in 2011.

This slowdown is partly caused by a prolonged upgrade cycle as smartphone users start to hold on longer to their devices before getting the latest flagship. Besides device durability, the standardization of smartphone form factors and stagnating software features are the two primary contributors to the prolonged upgrade cycle. Yes, the processing chips are getting quicker and smarter, and the screens brighter and bigger, but in terms of user experience, smartphones seem to have hit the point of diminishing returns as it achieves near-ubiquitous adoption.

In terms of user experience, smartphones seem to have hit the point of diminishing returns as it achieves near-ubiquitous adoption.

Indeed, cameras are the one place you can still see in flagship smartphones, especially comparing over a timeframe of about 2 to 3 years (which coincides with the general upgrade cycle for most people). Even then, the cameras on the recent flagship models are more than good enough for mainstream users. As awesome as it is to produce professional-grade photos and videos straight from a phone, the innovations pushing the cameras into the spotlight, such as computational photography (think the bokeh effect on the new iPhones) and visual search, are all AI-powered software features added atop those “good enough” cameras. This means that better cameras alone are unlikely to drive much future growth for smartphones, even as camera-based features become more prominent on mobile.

While certain segments of the market are still willing to pay big bucks for premium features, they now also expect their device to outlast and outperform previous generations of the same device which cost considerably less a few years ago. And when that value proposition is not met, most appear happy to stick with what they have until it stops working. In a word, smartphones have become unexciting to many as we enter the full swing of the mobile era.

Services: Ghost in the Machine

Make no mistake, when we say that smartphones have gotten unexciting, we don’t mean that people are losing interest in smartphones. Quite the opposite, we are becoming more addicted to our phones than ever. According to a , the average smartphone user now checks their device 47 times a day, and 47% of smartphone users have attempted to limit their usage.

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                                         Source : Statista

But it is not the smartphone itself we are getting addicted to; it is the apps and services that we access on our smartphones. Social media is , and many apps employ to keep their users coming back for more. The smartphone itself may be stagnating in terms of form factors and user experience, but mobile apps and services, paid or not, are now the main attraction anyway. In other words, when hardware stagnates, software becomes the key differentiation point in determining the mobile user experience.

When hardware stagnates, software becomes the key differentiation point in determining the mobile user experience.

But not all smartphone makers are equally equipped to profit from the rising importance of mobile services, as most manufacturers are only in control of the hardware production. Apple, in contrast, enjoys a unique full-stack control over its hardware and software, thus allowing it to fully integrate its services, which includes iTunes and Apple Music, the App Store, iCloud, Apple Pay, and iMessage, into every aspect of the iPhone user experience. Those Apple services are crucial for Apple’s ecosystem lock-in and cross-device continuity, and it is no wonder they now account for 18% of Apple’s overall quarterly revenue, reaching an all-time high of $9.5 billion, according to .

Some tech pundits that do recognize that the iPhone XR is not a low-cost option tend to falsely paint the colorful new models as a desperate grab for Apple to milk more revenue from existing customers via elevated ASP. While that may be technically true, it loses sight of Apple’s larger growth strategy for iPhone. The elevated ASP is but a one-off transaction that happens with less frequency thanks to the prolonged upgrade cycle, and the real growth comes from converting the Android phone users and from its booming services business.

Being the default services on iOS devices gives Apple’s services a strong platform to acquire new users. Apple Music, for example, from less than 20 million subscribers a year ago to over 50 million users (counting both paid subscribers and those enrolled in a free trial) in May. By July, it has , the long-time market leader in music streaming, in terms of U.S. paid subscribers. And if the is to be believed, Apple has another big ace up its sleeve as it readies to launch its new TV service in the U.S. in the first half of 2019 and roll out globally in the following months. This will no doubt further fortify Apple’s service-hardware symbiosis, especially considering that Apple device owners will reportedly get free access to Apple’s quality original content.

Of course, the increasing importance of service integrations in the smartphone experience is not lost on other smartphone makers. In response to Apple Music’s rapid growth, Samsung and Spotify have struck that will make Spotify the go-to music streaming service across all Samsung devices, from smartphones to smart speakers and TVs. Xiaomi, a leading Chinese smartphone maker, is eagerly pushing its users to try out its slew of mobile services, including the Mi App Store, Mi Browser, Mi Music, and Mi Video apps, which generated in 2017. As the smartphone market reaches plateau, mobile-based services are poised to rise as a key value driver.

As the smartphone market reaches plateau, mobile-based services are poised to rise as a key value driver.

Future Value Drivers

Beyond services, look out for the rollout of 5G networks and advances in mobile AR to unlock new value drivers for smartphones. While some Apple competitors are still to come up with an iPhone killer, those alone are likely not enough to be a new value driver.

Experiments with smartphone form factors will likely continue, as , , and have both teased “foldable” models that can fold a tablet-size screen down to pocket-size. But as failures of previous experiments with and have shown, novelty in form factor alone is unlikely to spur another round of rapid growth for the smartphone market. Sure, a foldable smartphone sounds cool in theory, but when most flagship phones are already to handle with one hand, it’s hard to see what additional value a bigger, foldable screen really brings to the mobile experience.

Novelty in form factor alone is unlikely to spur another round of rapid growth for the smartphone market.

At the moment, 5G connectivity is the one emerging value driver that will likely spur the next super upgrade cycle for smartphones. As we explained in our , similar to the way that the upgrade from 3G to 4G LTE made it possible for data-heavy apps like Snapchat and Instagram to go mainstream and gave rise to the Stories format, the speed boost granted by 5G will no doubt unlock new opportunities in digital media and consumer technology. Mobile 4K or even 8K streaming, live or not, will be the new standard resolution for online videos, but even more exciting are the possibilities to beam high-quality AR and VR content to smartphones or mobile-powered headsets. When your phone can get online at an even faster speed, more content consumption seems like a given.

Then there is augmented reality. The quick development and adoption of mobile AR is already expanding the smartphone experience and redefining what a smartphone can do. Thanks largely to advances in computer vision and machine learning, the camera is quickly becoming more than a photo-taking tool. Instead, mobile AR could power an entirely new smartphone experience centered around the ever-improving camera and further blur the line between the digital and the real world. As developers figure out the right product-market fit for mobile AR applications in the coming years, AR could very well become the next key differentiation point and value driver for mobile.

AR could very well become the next key differentiation point and value driver for mobile.

In a way, these two future value drivers perfectly complement each other. Advanced AR experiences, especially group, real-time experiences, will require reliable fast-speed 5G connection to work, and in turn, mainstream 5G adoption will depend on carriers clearly communicating the benefits of a faster wireless network, one of them being advanced mobile AR. Together, this duo will continue to propel the smartphone market.

The Future of Mobile is Fluid

While 5G and mobile AR promise new sources of growth for the smartphone market in the following decade, we are just as likely to see mobile slowly disintegrate and merge with various IoT and wearable devices as the world of personal computing transition into the post-mobile era. The future of mobile is fluid, as various parts and functions of the smartphone become unbundled from the phone itself and integrate into the things we wear — be it smart glasses, smart earphones, or smartwatches — as well as the world around us populated by connected devices.

Already, early signs of such a fluid future have started to emerge. At its latest hardware launch event, Google introduced an intriguing new product called Pixel Stand, a wireless charging station that will activate a special user interface on the Pixel phone and essentially transform into a smart speaker equipped with a vertical display and Google Assistant. By design, it blurs the line between mobile and smart home, making the new Pixel phones a flexible device to power two vastly different digital experiences.

The rise of connected vehicles proposes another key area that the smartphone could be fluidly integrated with. Millions of drivers already rely on their smartphones for in-car entertainment and navigation, and it is not hard to see how smartphones could be further integrated into the future of mobility. Uber, for example, already has a feature called rider music experience that allows customers to play music from the Uber app by connecting their Pandora or Spotify Premium accounts. BMW, on the other hand, that aims to seamlessly connect your car and your smartphone to provide a holistic mobility experience.

As smartphones continue to pack an increasing amount of processing power, they are more than capable of being plugged into various contexts and power multiple user experiences as needed. One could even argue that to a certain extent, smartphones are already merging with wearable accessories. Given that the majority of smart watches in market today are still being powered by smartphones due to technological constraints in battery and chipmaking, most emerging wearable devices, be it smart glasses or smart clothing, will likely rely on the phone as the main source for processing power, at least when they first launch. Therefore, it would be difficult and futile to draw a definitive line in the sand to separate the mobile from the wearable when they work harmoniously together to create a cohesive user experience.

Ultimately, a lot of the needs that are being fulfilled by smartphones today will likely be taken care of by wearable and ambient computing devices, eliminating the need for everyone to carry around a tiny supercomputer in their pockets. But until then, expect mobile to become a more fluid concept that can be flexibly integrated with other emerging digital touch points throughout homes, cars, and even public spaces to serve either as a source of processing power or simply for identity authentication as needed.

Expect mobile to become a more fluid concept that can be flexibly integrated with other emerging digital touch points throughout homes, cars, and even public spaces.

For brand marketers, this means an omni-channel approach that reaches audiences on whichever device they are will be the best way to future-proof your media strategy. Mobile is diversifying and no longer a one-size-fits-all media channel, and shifting their media plannings around this evolving behavior throughout the second half of the mobile era. Brands can explore new consumer touch points, such as wearables and smart home to maintain customer relationships and keep delivering value to them. Above all, brands need to be remain agile and flexible to deal with the shifting consumer expectations that stem from an increasingly fluid mobile experience.

 

 

 

 

 

 

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