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High-end device, low-end price: the race to the middle
With so much going on in the world of Android, it’s often hard to sleep at night. Lovers of mobile tech around the world, with visions of even better devices, dancing in their heads. And why not? There is not a single other industry that is as intensely competitive, that yields massively improved technology each and every year.
Anyway, I digress.
Cannacord Genuity’s Mike Walkey recently released some findings that led him to alter up his outlook for the 2013. Whereas he had previously estimated that 2013 would yield 979 million units, he now suggests that there will be around 959 million smartphones sold in 2013. For 2014, Walkey cut his estimates from 1.29 billion to 1.25 billion.
The S4 effect
Samsung’s S4 took three of the four top spots at tier one carriers like Verizon, Sprint, and T-Mobile. For AT&T, the iPhone 5 continues to be the bastion of best selling glory, most likely to the carriers chagrin due to the exorbitant costs associated with carrying it.
[quote qtext=”Samsung and Apple maintained top share of the U.S. smartphone market. In fact, our carrier store surveys indicated the Samsung GS4 was the top-selling smartphone at Verizon/Sprint/T-Mobile and #2 selling smartphone at AT&T behind the iPhone 5. Other top selling models included the iPhone 5 at all four tier-1 carriers, the HTCOne at AT&T/Sprint/T-Mobile, and the Galaxy S III at Verizon.” qperson=”Mike Walkley” qsource=”Canaccord Genuity” qposition=”center”]
If you’re reading this, and I’m sure you are, then you’re likely on the very bleeding edge. The Galaxy S4 is likely old news for you at this point. What’s next? Sony’s Honami? Samsung’s Galaxy Note 3? ZTE’s Tegra 4 beast? LG’s insanely thinly bezelled G2?
Our surveys indicated more affordable sub $400 Samsung Galaxy S IIIs and iPhone 4s continued to sell better than our expectations, while the iPhone 5 and Galaxy S4 sold below our expectations.
While we all celebrate thinner bezels, higher pixel densities, 4k video recording, HDR video and picture capture, more robust and sizeable batteries, there is a huge, like insanely huge market for devices that pack great technology and hit a price point that more consumers find easier on the wallet.
It’s a very large world out there. Indian, Chinese and African consumers alone comprise nearly 50% of the global population. Thankfully, what’s happening in the US, Canada and Europe is a harbinger of things to come. The fact is simple: smartphones are, more or less, good enough. The average consumer will never be able to distinguish anything beyond a 1080p display, and these will, by simple consequence of economies of scale, get cheaper and cheaper to produce. The same goes for SoC’s, which Qualcomm is churning out at a record rate.
At the end of the day, consumers vote with their dollars. Picture this – you’re a Mom of three kids, and they are all screaming for new devices. You go into your carriers’ store, and you see devices that, for all intents and purposes, appear to be the same. Both have ‘quad core’, both have HD displays, both have great cameras, but the price is either $99 or $249. Which one are you going to pick?
The research and surveys conducted by Cannacord Genuity’s Mike Walkey simply affirm the fact that the high end market has become saturated, and that consumers continue to opt for devices that blend compelling technology and aggressive pricing. Even though Samsung, for example, reported record earnings of 8.2 billion for the second quarter, investors were still displeased. [quote qtext=”our surveys indicated more affordable sub $400 Samsung Galaxy S IIIs and iPhone 4s continued to sell better than our expectations, while the iPhone 5 and Galaxy S4 sold below our expectations. ” qperson=”Mike Walkley” qsource=”Cannacord Genuity” qposition=”right”]Why? With billions of dollars at stake you know the world’s top financial research firms have invested heavily into being able to spot market trends before the market itself spots them. And, it is with this in mind that we can better understand why the market hasn’t lauded Samsung as it once did before. Meanwhile, savvy analysts know that Samsung’s real financial engine in its smartphone business is in its lower and mid-tier offerings.
What about Windows Phone?
It’s been a tough go for Microsoft, and for Nokia. Microsoft’s darling actually lost market share over the past several months, and it doesn’t look like the situation is going to change any time soon, despite the substantial investment Microsoft has made, and continues to make in advertising.
Despite gradual momentum for the Windows Phone ecosystem in the U.S. market, our surveys indicated consumers still mostly enter retail stores with the intent to purchase either an iPhone or an Android smartphone, resulting in Windows smartphone sales trailing these two ecosystems by a wide margin
While it’s still too early to say whether or not Microsoft has a legitimate chance of increasing its marketshare, it isn’t looking likely that they will be able to break beyond the sub 5% mark anytime soon. Achieving inertia in this business is no easy task, as we all know.
So, where does this leave us?
High end devices will keep improving, there’s no doubt to that. My personal prediction is that manufacturers will realize that their high end offerings are being increasingly cannibalized by their and competitors more compelling mid tier offerings, and that they will have to adopt a new approach to differentiate their highest end offerings. I predict that their will be a new class of devices, dubbed either premium, elite, or signature, and that they will contain more or less the same technology, but will be encased in more premium materials and will carry a more signature look. One important element that is often not considered in the massive multibillion dollar smartphone market is the concept of face. Face is, more or less, the notion of what others think of you, of what the public’s consensus is on you and your worth, as an individual. In highly developed economies, like in Japan, South Korea, or Hong Kong for example, HTC’s One was selling at an incredible premium of nearly 2 times its actual MSRP because of its lack of availability and also because it was immediately evident that you owned a very premium device, to which you were accorded higher status by an ever, hyper materially focused public. Both these two factor led the market to put a near 200% premium on its actual value.
In the end, we all win. Market forces dictate that manufacturers, in order to be competitive, must release products at all tiers of the spectrum. And, it just so happens that we’ve hit a bit of a plateau as far as specs are concerned. Sure, we could all do with better battery life, and devices with improved and more substantial batteries are on the horizon. Take Motorola’s rumoured approach, for example. Their alleged device portfolio seems to be strangely absent of an absolute bleeding edge, high end heavy hitter. Think back to Google I/O. With no new Nexii announced, Google was more keen to show what they’ve been working on, behind the scenes. And, what they’ve been working on is making our devices, our experiences, and the way we interact with our mobile tech more contextual. And this trend, and this paradigm shift in general aren’t just limited to Android and mobile technology specifically. It’s a simple fact that data is getting cheaper to crunch, and that more and more of it will be done in the cloud, and not locally on our devices. Complex associations and intelligent, preemptively determined suggestions are the new horizon for Android, for Nexus, for Google Now, and for how we interact with technology in general.
Anyway, it’s all good from here on in. High end offerings for great new smartphones will likely continue to fall in price until they hit the $500 USD mark by the end of 2013 / early 2014. Samsung and other ambitious manufacturers will likely release signature editions of their highest end offerings, and while some will be eager to lap them up, all consumers will reap the benefits of great technology at very aggressive price points, meaning we will get more for less, which is a very good thing.
And how about you? Do you care about marketshare? Do you really care what company manufacturers your device? What is the sweet spot for you, as far as price is concerned? Do Samsung and Apple deserve to be at the top of the podium? Any fan favorites in the crowd? As always, we greatly appreciate your comments. I’d love to know what you think!