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Is Motorola correct in predicting the death of premium smartphones?

Motorola's Rick Osterloh predicts that the premium-tier, $600 – $700 USD smartphones are in danger of disappearing from the market altogether. Is he right?
September 24, 2014
Apple iPhone 5s vs Motorola Moto X aa 16

I’m sure you have noticed by now that high-end smartphone manufacturers are having a bit of a tough time this year. Sales and market shares for the big OEMs are down, while more cost effective OEMs are taking off in Asia.

In a chat with Recode, Motorola President Rick Osterloh shared his observations on these recent trends, and boldly predicted that the premium-tier, $600 – $700 USD smartphones are in danger of disappearing from the market altogether.

Certainly we are in a very competitive industry. I think the days of the $600-$700 smartphone are numbered. People are realizing they don’t need to pay that much money. – Rick Osterloh

When you look at the tremendous value offered by smartphones like the Huawei Ascend Mate 7 or Xiaomi Mi4, which undercut competitors by hundreds of dollars, it’s hard to disagree with MR Osterloh’s prediction, given enough time.

Of course brand loyalty and premium build qualities still hold some sway at the moment. We are not looking at a sudden KO for the top-tier manufacturers, but rather a gradual decline. The poor support and questionable build quality of the bargain OnePlus One suggests that there’s still a little way to go before the West succumbs to the value proposition, but high-end tech is clearly reaching the point of diminishing returns.

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The smartphone market is more diverse these days, putting downward pressure on prices.
Consumers aren’t going to continue to pay higher prices for technology that isn’t noticeably improved.

We love to keep on top of brilliant new technologies that could improve our smartphones. But further display resolution bumps, MEMS camera lenses, IGZO backplanes, slightly slimmer bezels, or bendy displays aren’t going to rerevolutionizehe industry. Consumers aren’t going to continue to pay higher prices for technology that isn’t noticeably improved. Furthermore, the trend towards pre-paid handsets is only making value for money increasingly important, and technology that enables cheaper manufacturing is going to be more important than a few more pixels on the screen.

pre paid smartphone trend
With more consumers opting to buy devices off-contract, price tags are becoming increasingly noticeable.

Simon Hill also made an excellent observation about smartphone companies attempting to force new markets. The smartwatch trend is probably the best example, as are curved displays, with customer reactions remaining subdued despite the eagerness of developers to trot out products.

Our various polls over the past year have also expressed similar sentiments. Components of previous interested are deemed more than good enough already, and there is growing contempt for the lack of innovation and high price tags.

From our own polls we can see that consumers still want high-end hardware, that’s a market that isn’t going anywhere, but raw specs alone aren’t the driving force in consumer preferences that they were before. Better battery life remains a key demand, followed by pricing and atheistic features. A better balance between price and performance ranked very highly in our results too, echoing what we’ve seen in recent market data.

It’s not a stretch to conclude that it’s just a matter of time and resources until the trend towards more cost effective manufacturers that we have observed in Asia arrives in the US and Europe, and the healthier competition is something that we should embrace.

Do you agree with our and Rick Osterloh’s observations about premium products? Can you see yourself parting with the big brands in future, in pursuit of the better value for money?