Smartphones have been one of the most disruptive innovations of the past decade. They’re so ubiquitous it’s not surprising to see them in the hands of a 4 year old, a centenarian, or anyone in between. Their success has been a boon to manufacturers like Apple and Samsung. In Apple’s case, iPhone sales now represent approximately 70% of all company sales. The challenge that can come from that success is continued sales once the market reaches maturity and has been fully saturated.
To maintain that revenue stream companies have to continue to invest in innovation to develop new versions with features that compel customers to upgrade to a new model. Over time that becomes harder and harder to do as you get diminishing marginal returns with each successive generation. That challenge appears to be hitting the smartphone industry according to the Wall Street Journal article, Your Love of Your Old Smartphone Is a Problem for Apple and Samsung. (See access note below) The article talks about similarities between the smartphone market and the automobile market. The devices have reached the point that improvements from one model year to the next are no longer as compelling as they once were so more and more users are choosing to continue using an older device or buy a secondhand/refurbished device rather than buy the newest models. The combination of less compelling reasons to upgrade coupled with the continued increase in price is taking a toll on new phone sales. Consumers are now waiting 31 months on average to replace their phones as opposed to a 23 month average 4 years ago.
Ask your students what they would do if they were a smartphone manufacturer. Do you hold price to maintain margins or drop price to increase unit sales? Do you delay new releases to have more impactful versions and spread the costs out over a longer period? Do you decide the market is moving from maturity into decline and formulate an exit strategy and harvest what you can?
Please note that we generally try to avoid using articles from the Wall Street Journal because a subscription is required but they do generally provide trial access to allow non-subscribers an opportunity to view a few articles.