Smartphone Market Reaches Plateau — What’s Next For Mobile?

The future of smartphones may be more fluid than you think

Richard Yao
Oct 25, 2018 · 11 min read
Image credit: 9to5Mac

The XR Proposition

Last Friday, Apple officially launched the pre-orders for the iPhone XR, the latest addition to the current iPhone lineup. The first round of reviews 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.

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

Instead, as Neil Cybart acutely pointed out, 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.

Source: Apple

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, IDC estimates 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. Surveys by the Pew Research Center this year showed that 77% of Americans own smartphones, a huge jump from 35% in 2011.

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 an obvious improvement 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.

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 2017 Deloitte survey, the average smartphone user now checks their device 47 times a day, and 47% of smartphone users have attempted to limit their usage.

Source: Statista

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 its latest earnings report.

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 experimenting with new form factors to come up with an iPhone killer, those alone are likely not enough to be a new value driver.

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 101 Guide to 5G for Marketers, 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.

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.

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.

IPG Media Lab

The media futures agency of IPG Mediabrands

Richard Yao

Written by

Manager of Strategy & Content, IPG Media Lab

IPG Media Lab

The media futures agency of IPG Mediabrands

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