Cheap smartphones will dominate the market by 2017

December 11, 2012
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"Am I cheap enough for you?"

“Am I cheap enough for you?”

Take a look at the smartphone you’re holding right now. Chances are, if you’re an Android or smartphone enthusiast, you’ll be holding a top-of-the-line device. You might even be reading this article on one right now. At the very least, it’s likely a mid-range smartphone or a top-end device from a year or two ago.

As much as 83% of smartphones sold in the U.S. in 2011 were priced at $250 and above. But according to a study by research firm Informa, this figure could drastically change. By 2017, entry-level smartphones will dominate the market. The analytics firm defined entry-level phones as those that cost $150 or less.

Informa says that by 2017, such device will take at least 50% of market share, while higher-end devices will dwindle to 33%.

Looking deeper into the analysis, we uncover a few trends:

  • Shift from expensive monthly plans to cheaper plans or prepaid. Carriers are moving away from the subsidy model, such as T-Mobile, which announced a full switch to Value plans by 2013. This means that consumers will start seeing how expensive devices really are once they start paying for the phones (even in installments). As such, your $200 phone will actually be $650 if not factored into the contract plan. Check out our guide to prepaid plans, in case you’re planning to shift to pay-as-you-go.
  • Shift in the manufacturing business models. Informa says there will only be two types of manufacturers. One is the innovator, which produces the more expensive, top-end gadgets. The other is the follower, which will adopt the innovations introduced by innovators and market these a few months or years down the line in cheaper devices meant for mass-market.
  • Manufacturers will feel the crunch. Informa says that brands that churn out high-end devices expecting a hefty profit margin will soon see their margins dwindle. Firms are expected to reduce their product lines to just a few quality models each year, and many companies will struggle to keep afloat given these market dynamics.
  • Apple and Samsung are still likely to dominate in the years to come. Android is growing, although Apple is still sitting on tons of cash, which means it can still compete even as it has begun shifting production facilities back to the U.S., which could potentially increase manufacturing costs and reduce their profit margins.

Informa says that by 2017, the market will be split between high-end smartphones that will require carrier subsidy and contract, and cheaper, sub-$150 smartphones that users are likely to purchase outright and without a contract. We are actually seeing the start of this trend already, with low-cost carrier offerings from both established carriers and MVNOs, including Boost Mobile, MetroPCS and the like.

In terms of the negative implications, there’s the possibility that the smartphone experience will be diluted because of the dominance of cheap Android devices. If you’re not getting the full capabilities of your device, then you’re probably not enjoying the platform to the fullest, which explains the so-called Android engagement paradox.

Of course, mobile users outside of the U.S. — such as those in Europe and Asia — are likely to attest to this trend already, with the carrier pricing models in these regions vastly different from those in the U.S. Are Americans ready to ditch the contract and subsidy, and go prepaid instead?

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