The Value of Smartphones

Over the past few weeks, I have been asked a lot whether the prices of smartphones will continue to increase and if such an increase is justified. The success of the iPhone X took those who said people would never pay $1,000 for a phone by surprise. The iPhone X also gave hope to smartphone vendors that, while sales might be capping there is an opportunity to grow average selling price and possibly profits. Yet, the success of the iPhone X must be considered with some caution. Not everybody is prepared to pay that kind of money for a phone, and, even more importantly, not every brand can charge as much.

The Bill of Materials is growing

It should not come as a surprise that the cost of making phones is rising. Smartphones have come to offer as much as a PC does, sometimes even more. Storage, screen quality, more sensors, bigger batteries, premium materials, cameras, and a lot more software. While some of the technologies are well established, so their cost has come down, others are cutting edge and add a fair chunk to the bottom line. Think, for instance, at the different biometric solutions from iris scanning to fingerprint readers.

Let’s look at the two trend setters in the market to see what has been happening over the past year. According to the teardown analysis conducted by IHS Markit, Apple’s total cost to make the iPhone 8 Plus rose to $295.44, $17.78 higher than that of the iPhone 7 Plus. IHS Markit also estimated that the iPhone 8 bill of materials is $247.51, or $9.57 higher than the Phone 7 at the time of release. The Samsung Galaxy S9+ (64GB) carries a bill of materials (BOM) cost of $375.80, much higher than for previous versions of the company’s smartphones. The preliminary estimated total is $43.00 higher than costs for the Galaxy S8+. It is too early for a tear down of the Samsung Note 9 and we know nothing about the iPhone X successor but we know the 64 gigabytes iPhone X model carries a BOM of $370.25 and betting on a higher BOM wouldn’t be a bad idea.  

The Return on Investment is High

We understand now why the cost of the phones at the high-end of the spectrum is going up. But why are consumers prepared to pay those rising prices?   The answer is in the return users see in the phone they buy.

Smartphones have become a must-have for most. They have replaced other consumers electronics such as MP3 players, digital cameras, video cameras, portable navigation devices as well as some other things like watches, alarms, and wallets. We use them throughout the day, every day, whether we are at home, commuting, at school or at the office. Our dependence has grown so much that we have started to talk about addiction. Whether you are addicted or not, there is no question that a lot of value is given to this thing we carry in our pockets.

Adding to the practical side of what the phone does for us there is a more irrational value we see in these devices. The pictures we store, and for some even the music, offer a deep emotional connection to the piece of hardware. While your computer can store the same things, the phone has the huge advantage of being that thing in your pocket you always pull out, much like you used to do with those pictures in your wallet. Plus as much as your phone is the same as everybody else you feel you made it yours through your pictures, your apps…You now even start to feel that your phone knows you!

No Sticker Shock

The smartphone market is not that different from the car market where the price spectrum is more and more polarized. The higher end is getting more expensive while the lower end is getting cheaper and more reliable.

Moving from contracts to installment plans helped consumer appreciate that not all phones cost $199. But even then, consumers do not have to face the full price of a phone in one go. The biggest increase they see is on the initial payment which includes tax but that percentage on a $100 increase is negligible.

Buyers could object to the price more on principle. It is really, the idea of spending $1000 that seems ridiculous to some. This is precisely where the weight one puts on the usefulness of the device and that emotional connection I mentioned will determine if you are a “you must be kidding me” or a “where do I sign” buyer.

The Power of a Brand

There is also a final component that plays a big role at the high-end and that is brand. The brand is what turns the device into a status symbol, something some consumers are prepared to pay more for. And I am not talking about the technology, the design, the quality that goes into the devices made by these brands. I literally mean the name, the logo.

In the smartphone world, this is true for Apple and Samsung and possibly Google. Consumers see these brands as leaders and are willing to pay more for their products. Other brands, like Huawei or Xiaomi, while getting recognition for their technology advancements or design have not quite earned the right to grow their price tags as much.

How far prices can continue to grow is hard to say, but I do not see this formula of rational plus irrational value and brand change much over the next five years.

 

Published by

Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc, a market intelligence and strategy consulting firm based in Silicon Valley and recognized as one of the premier sources of quantitative and qualitative research and insights in tech. At Creative Strategies, Carolina focuses on consumer tech across the board. From hardware to services, she analyzes today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech, she drove thought leadership research by marrying her deep understanding of global market dynamics with the wealth of data coming from ComTech’s longitudinal studies on smartphones and tablets. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role, she led the forecast and market share teams on smartphones, tablets, and PCs. She spent most of her time advising clients from VC firms, to technology providers, to traditional enterprise clients. Carolina is often quoted as an industry expert and commentator in publications such as The Financial Times, Bloomberg, The New York Times and The Wall Street Journal. She regularly appears on BBC, Bloomberg TV, Fox, NBC News and other networks. Her Twitter account was recently listed in the “101 accounts to follow to make Twitter more interesting” by Wired Italy.

118 thoughts on “The Value of Smartphones”

  2. I was curious if you ever considered changing the structure of your blog? Its very well written; I love what youve got to say. But maybe you could a little more in the way of content so people could connect with it better. Youve got an awful lot of text for only having 1 or two images. Maybe you could space it out better?

    Reply

  11. I used to be recommended this blog by way of my cousin. I’m now not certain whether or not this submit is written by means of him as no one else understand such precise about my difficulty. You’re incredible! Thanks!

    Reply

  23. Greetings from Florida! I’m bored at work, so I decided to browse your site on my iPhone during lunch break. I love the information you provide here and can’t wait to take a look when I get home. I’m surprised at how fast your blog loaded on my cell phone .. I’m not even using WIFI, just 3G. Anyways, awesome blog!

    Reply

  27. Aw, this was an extremely good post. Taking a few minutes and actual effort to produce a really good articleÖ but what can I sayÖ I put things off a lot and never manage to get nearly anything done.

    Reply

  29. Normally I don’t read article on blogs, however I wish to say that this write-up very compelled me to take a look at and do so! Your writing style has been amazed me. Thanks, quite great article.

    Reply

  35. What’s Going down i’m new to this, I stumbled upon this I’ve found It positively helpful and it has helped me out loads. I am hoping to give a contribution & aid different users like its helped me. Great job.

    Reply

  36. Oh my goodness! an excellent article dude. Thank you However I’m experiencing problem with ur rss . Do not know why Cannot register for it. Could there be any person getting identical rss difficulty? Anybody who knows kindly respond. Thnkx

    Reply

  38. My brother recommended I’d similar to this blog. He was as soon as completely proper. This put up truly produced my working day. You could not visualize simply just how lots time I’d invested for this information! Many thanks!

    Reply

  43. I am really enjoying the theme/design of your weblog. Do you ever run into any browser compatibility problems? A couple of my blog audience have complained about my blog not working correctly in Explorer but looks great in Chrome. Do you have any recommendations to help fix this problem?

    Reply

  44. I do agree with all of the ideas you have presented in your post. They are very convincing and will definitely work. Still, the posts are very short for novices. Could you please extend them a bit from next time? Thanks for the post.

    Reply

  46. Generally I don’t read article on blogs, but I would like to say that this write-up very pressured me to try and do it! Your writing taste has been surprised me. Thanks, quite nice post.

    Reply

  50. You could certainly see your skills within the article you write. The world hopes for more passionate writers like you who aren’t afraid to mention how they believe. All the time follow your heart.

    Reply

  51. Attractive section of content. I just stumbled upon your weblog and in accession capital to assert that I acquire in fact enjoyed account your blog posts. Any way I will be subscribing to your feeds and even I achievement you access consistently quickly.

    Reply

  55. Outstanding post however I was wanting to know if you could write a litte more on this subject? I’d be very grateful if you could elaborate a little bit further. Kudos!

    Reply

  58. Together with the whole thing which seems to be building throughout this area, a significant percentage of viewpoints are fairly exciting. Nonetheless, I am sorry, but I can not subscribe to your entire idea, all be it refreshing none the less. It seems to everybody that your opinions are actually not totally justified and in reality you are generally your self not really thoroughly certain of your assertion. In any case I did appreciate looking at it.

    Reply

  60. What’s Going down i am new to this, I stumbled upon this I’ve found It positively useful and it has helped me out loads. I hope to contribute & assist different users like its helped me. Great job.

    Reply

  61. Thanks for another magnificent article. Where else could anybody get that type of info in such a perfect way of writing? I’ve a presentation next week, and I am on the look for such info.

    Reply

  62. I carry on listening to the newscast lecture about getting boundless online grant applications so I have been looking around for the finest site to get one. Could you tell me please, where could i get some?

    Reply

  65. You could definitely see your skills within the article you write.The sector hopes for more passionate writers such as you who aren’t afraid to mention how they believe.Always follow your heart.

    Reply

  67. Thanks for your post on the travel industry. I will also like to include that if you are a senior taking into account traveling, it’s absolutely crucial that you buy travel cover for elderly people. When traveling, older persons are at greatest risk of getting a professional medical emergency. Obtaining right insurance plan package on your age group can protect your health and provide you with peace of mind.

    Reply

  74. הוא אמר לה שיוצאים לאכול משהו ביער מה שהיא לא ידעה שהוא התכוון לאכול לה את הכוס…שירותי ליווי במרכז

    Reply

  77. Hi, I do think this is a great blog. I stumbledupon it I may revisit once again since I book-marked it. Money and freedom is the greatest way to change, may you be rich and continue to guide other people.

    Reply

  79. I precisely wanted to thank you so much yet again. I do not know the things that I could possibly have achieved without these advice documented by you over such a theme. It actually was an absolute intimidating crisis for me personally, however , looking at the skilled approach you managed it took me to cry over gladness. I’m grateful for this advice and hope that you know what a great job you happen to be getting into educating the others with the aid of a web site. More than likely you haven’t met all of us.

    Reply

  84. I beloved as much as you’ll obtain carried out right here. The sketch is attractive, your authored material stylish. nevertheless, you command get bought an impatience over that you would like be handing over the following. unwell no doubt come more until now once more since precisely the similar just about very incessantly inside of case you protect this hike.

    Reply

  85. Hello there, just was aware of your blog through Google, and found that it’s truly informative. I抦 going to watch out for brussels. I will appreciate if you continue this in future. Numerous other folks will likely be benefited from your writing. Cheers!

    Reply

  94. Usually I don’t learn post on blogs, however I wish to say that this write-up very pressured me to check out and do it! Your writing taste has been surprised me. Thank you, quite great post.

    Reply

  111. whoah this blog is fantastic i love reading your articles. Stay up the good work! You realize, a lot of people are looking round for this information, you could help them greatly.

    Reply

  112. Wow, incredible blog layout! How long have you been blogging for?
    you make blogging look easy. The overall look of your website is magnificent, as well as the content!

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *