iTWire colleague Alex Zaharov-Reutt wrote last week on the ability to launch your own smartphone brand for as little as US$20 each and it got me thinking – how long before consumers stop buying expensive smartphones and look for value instead?
This is not a rant against Apple or Samsung who seem to charge similar amounts – around $1K - for similarly specified flagship smartphones that cost around US$200 to make. Competitor LG knows this and while it has set a SRP of A$929 for its new and excellent flagship G4 you will find the Australian model H815 for under $700 online – and those resellers are making a profit too.
This is a serious question to all companies. The cost of technology has dropped 30% over the past five years according to Bloomberg Intelligence. The cost of Apple and Samsung’s flagships have not.
According to the Monthly Smartphone and Tablet PC FPD Pricing Report, 5" LTPS TFT LCD FHD (1920×1080) smartphone panels with IPS/FFS LCD technology experienced a price decline of 30% year on year. Smartphone average selling prices will continue to drop substantially.
According to market tracker IDC shipment growth slowed 19% in 2014 and will be in single digits by 2017 due to little growth in mature markets like North America and Europe that have reached saturation, and a possible contraction in Japan. IDC went on to say that flagship specified phones will drop to around $260 by 2018. IDG stated that premium smartphones have enjoyed watershed years that cannot go on indefinitely
Start-ups like Xiaomi, OnePlus and Oppo have bypassed traditional sales channels such as telcos and major retailers and are offering their flagship phones now for US$399 or less. For example Oppo’s new R7 – due for release in Australia in late July - offers flagship specifications like 5” 1080p AMOLED screen, octa-core processor, 3GB RAM, 16GB storage, microSD slot, and fast charging.
Meizu, a rising brand in China, introduced its new “No Blue Note” flagship specified smartphone equipped with a 5.5" FHD display which sells for just US$161. This model and pricing has been cited by many in the industry as a warning for upcoming price competition in 2015-16.
Xiaomi have become the world’s third largest smartphone distributor in less than five years. Its flagship Mi4 sells for around $300.
OnePlus took just two years to be a best seller in 35 countries.
This is largely due to two things. Google’s Android or CyanogenMod (the free Android), and companies like Qualcomm and MediaTek creating off the shelf reference designs – no expensive R&D required!
The lower cost trend has hurt Samsung – its saving grace is that it makes most of its own components. Apple does not make its components and will doggedly stick to premium prices for as long as it can. Both have tried to supplement revenue by creating eco-systems that keep the majority of revenue in their hands.
Were it not for Microsoft’s burgeoning Windows 10 ecosystem and its universal apps we may well have seen the end of Windows Phone/Mobile.
I wrote about the US market being saturated and losing interest in smartphones and today about saturated markets where expensive devices will simply not be replaced as frequently or with lower cost, and better value ones. More than 75% of every man, woman and child in Australia has a smartphone – there is little growth left here.
I am sorry to proselytize (attempt to convert people to a different point of view) but the world is still in the grip of a financial malaise and a $7.50 toaster from Kmart will still make perfectly good toast. In fact Kmart (part of the very successful Wesfarmers group) has gradually replaced most items with lower cost home brands and is making more money than sister Target which still sells toaster brands like Sunbeam, Russell Hobbs and Delonghi.
Last year I loaned my brother – a real brand snob – an Oppo Find 7 (flagship quality, QHD screen, Sony Exmore 13MP camera - top of the line at half the cost) and he loves it - puts his previous iPhone to shame.
At the end of the day, Apple’s brand stands for premium and has never been based on mass adoption. For the first time it is losing sales in China to the newer brands. Sure there are plenty of Apple aficionados with deep pockets who continue to queue loyally and buy the new iPhones.
But there has certainly never been so many quality devices available for more modest budgets, which is important as mobile is fast becoming be the primary platform for internet access.