The continuing rise of the smartphone has been one of the most important digital stories of the decade so far. But compared to six years ago, growth opportunities have changed, homegrown mobile brands in the East have muscled their way in alongside Apple and Samsung and we’ve become accustomed to hearing that the remainder of the 10s will be characterised by a slowdown in demand.
Of course, China still represents the world’s largest smartphone marketplace, and with around 1 in 3 global Internet users being Chinese, any fluctuations in that country’s smartphone consumption patterns will inevitably have profound implications on the global outlook. But while China’s economic turbulence is undoubtedly having an impact on global demand for new smartphones, is it right to talk about a continuing slowdown? At a top-line global level, our year-on-year data for purchasing of mobiles might confirm a recent weakening in demand among existing Internet users, yet there are some vital nuances to this.
As a share of year-on-year global mobile purchases, the mature market regions of Europe and North America have indeed stagnated or contracted. There is good reason for this -- with Internet penetration rates upwards of 90% in these regions, and high smartphone ownership figures among these Internet users, mobile adoption has reached a saturation point. Consumers here are typically upgrading their existing phones at a leisurely pace, with very few of them left still to purchase a phone for the first time. Now that smartphones are so high in quality, people need much better reasons to upgrade rather than stick with their existing handsets.
Such a shift could be seen as a challenge for innovation as much as a threat, but it does also mean that additional features, services and accessories that can be monetised could become just as important as the initial outlay of cash for the handset itself. The fact that Apple’s services division (e.g., iTunes, Apple Music, iCloud) has become such a valuable income source for the company is crucial to this, and it’s certainly telling that this was the one section of Apple that posted particularly impressive growth in its most recent results. As more names compete in the smartphone space and people take longer to upgrade, average revenue per user could stand alongside the number of units sold as a vital performance metric. In short, buyers will be squeezed for additional revenue long after the moment of purchase.
But while demand in these mature markets as well as in China might be under pressure, look to other parts of APAC and there is a much brighter outlook. Now that China no longer appears to be the primary furnace fueling growth in the smartphone market, companies like Huawei and Xiaomi have been looking toward India (which is accounting for a larger share of new purchases than ever before). Thanks largely to mobile, it’s this country that has one of the fastest-growing online populations in the world -- and that it still retains a low overall Internet penetration rate means there’s plenty of further growth to come here. The same can be said for other big countries in the region, with places like Indonesia and the Philippines being obvious examples.
Clearly, the vast majority of the rest of this decade’s new Internet users will be from emerging markets like these ones. Equally apparent is that they will be coming online for the first time via a mobile device rather than other devices like PCs/laptops, underlining the opportunities that exist for smartphone manufacturers. Nevertheless, these new users will be entering a mobile landscape that is much more competitive and fragmented than ever before. Samsung and Apple might still command serious brand recognition and interest, but Google’s Pixel could be a major disruptor to this, particularly following recent knocks to the reputation of Samsung’s handsets.
In addition, the still-growing list of local competitors will complicate this further. Just as Xiaomi and Huawei have made major inroads in China, so the same is likely to take place in other emerging markets (especially as yet more home-grown brands enter the fray). That’s particularly important if you recognize how important cost will be for many of these new Internet users when they choose their first smartphone; while our data confirms that the iPhone is the most desired handset, its price-point means it could remain an aspirational rather than a realistic purchase for many. Apple’s challenge is to convert expressed interest and enthusiasm into actual sales. Domestic competitors can reap rich rewards from this, offering comparable functionality via more affordable handsets.
Arguably, then, it’s not so much that we’re seeing smartphones slowing down (even if that might be true in certain key territories). Rather, it’s that the producers and -- and users -- of smartphones are set to be squeezed like never before.