I believe we are in new territory for smartphone manufacturers. Although its true that there are still many people on the planet who do not yet have a smartphone, the reality is that the most mature markets are reaching the saturation point where most consumers–who want and value smartphones–have one. Which means that the battle for the bulk of mature market consumers are now for up-graders and no longer intenders. This changes things quite a bit.
This would explain the concerns over smartphone growth slowing in 2013. For several years the smartphone market was growing at over 50% a year. This year the growth is estimated to be around 30%. I think a better way to look at the growth is to look at the rate specific smartphone price ranges will grow. I think parts of the market may grow more than 30% this year. However, I am not convinced it will be the flagship top-tier devices that grow at faster paces this year but the more second tier devices. Of course this would seem logical given the growth in emerging market but I think this will even be the case in markets like the US and Europe.
If true this brings up an important observation about devices like the Galaxy S4, the next iPhone, and any other flagship device. And that observation leads me to the title of this column.
I think we are getting extremely close to a good enough sentiment by mass market consumers toward their current devices. The quality of most flagship phones and even many tier two phones has been continually raising to the point where they are lasting longer and meeting the simple needs for the mass market.
We have been living in a good enough paradigm in the PC industry for years now and consumers are consistently holding onto PCs longer because they meet their needs and they do not feel an urgency to upgrade their notebooks. I think the smartphone market may be in a similar situation.
The Burning Question
At an absolute fundamental level the biggest challenge smartphone makers face in 2013 is convincing consumers they need to upgrade their smartphones this year. The biggest part of the consumer market is not the early adopters but the early and late majority. These groups think very different about technology and what percentage of this market will routinely upgrade every year or even every two years is a big question mark.
When we talk with consumers and gather our market insights into this specific question, we continually get a sense that consumers are happy with even their later generation devices and don’t necessarily feel the need to rush out and upgrade their devices even if they are eligible. It appears that a growing majority believes their current devices are good enough. It doesn’t mean they won’t upgrade, just that there is no sense of urgency.
This brings up interesting implications for companies like Samsung and Apple. Both companies have garnered a large install base for their devices over the past few years. There will certainly be a significant number of customers who will be eligible in 2013 for upgrades but will they be compelled to upgrade at all? This, I think, is an interesting question.
With regards to the S4 I have my doubts. Samsung will no doubt sell a ton of these devices but will it sell better than the S3? I’m not convinced, and I am not convinced for one primary reason. The S4 runs the dangerous risk of over serving the market needs with the key innovations and features they added.
Horace Dediu tweeted out something I thought was very interesting last week.
Market over-service is a far more dangerous mistake than under-serving it.
Overserving the market means adding features and functions the mass market does not have a perceived need for or is not ready for. Often times when an offering is complex, it is hard to understand. This goes back to the point of what is good enough in today’s market and what is overkill. These are questions to wrestle with.
The S4 has some cool features. Once people get their hands on them we will see if they are just cool or actually useful. Cool and useful are often two very different things. What Samsung doesn’t need with the S4 is consumers hearing the pitch and wondering “why do I need that?” What if the S3 is good enough?
The S4’s biggest challenge will be to address the question in the minds of consumers as to “why should I upgrade?”
Of course Apple will face this question as well. We have seen Samsung’s flagship device and we are yet to see Apple’s. I think this is an interesting year for Apple. I’m not sure Apple has ever found themselves in a position in the past decade with such a strong competitor as Samsung, who is willing to spend more money than them on marketing to convince the world to buy into the Samsung brand.
This is perhaps the first year where I think Apple needs to do more with the next iPhone than the traditional strategy. For the primary reason that the iPhone 5 in its current form is good enough for the masses. If the next iteration of the iPhone does not offer either some entirely new innovation or feature not found on the iPhone 5 that provides an answer to the upgrade question, then I fear consumers who are in the market and eligible for the upgrade may just end up buying the iPhone 5 at a discounted price. Even if that happens it still means healthy sales for Apple but it begs the question about the necessity of a new flagship device it isn’t going to make a compelling upgrade case.
The question will be what features are worth a $100 premium in the good enough market that we find ourselves in. There are fascinating dynamics at play in the market right now from my viewpoint. I do believe that every smartphone maker is now entering uncharted waters due to the saturation and maturity of the smartphone market. It will be exciting to see how these new waters are navigated. I’m glad I have a seat to watch the show.