Everybody panic!
Mary Meeker released her well-regarded Internet Trends Report this week. She said smartphone shipments grew by zero percent, the first time since smartphones existed that the market didn’t grow.
And IDC says the smartphone market will remain sluggish into the foreseeable future.
Some smartphone hopefuls have even had their hopes dashed in what has become a brutal and unforgiving smartphone market.
Android creator Andy Rubin’s Essential Products is getting out of the smartphone business.
Up-and-coming smartphone maker Maze Mobile has put its website up for sale. (Never a good sign.)
What’s going on?
As tempting as it is to attribute weirdness in the smartphone market to a single cause, the fact is that multiple trends are colliding.
1. China caught up
The smartphone industry got used to high growth, year after year. This was the result in part of China, the world’s largest phone market, making a late and aggressive transition from feature phones to smartphones.
Let’s look at the numbers.
IDC says global shipments (handset units) declined 2.9% in the first quarter.
Gartner said smartphone sales (money, not unit shipments) experienced growth in Q1, albeit a small 1.3% increase over the same quarter last year.
Because low-end, low-cost smartphones have gotten better, demand for sub-US$150 phones rose, according to Gartner.
Apple sales grew by around 4% (thanks in part to its super-expensive iPhone X).
The biggest reason for the overall worldwide slump is lower sales in China. Fewer than 100 million smartphones were sold there during the first quarter for the first time in five years, according to IDC.
That means the success of Chinese smartphone makers in Q1 depended entirely on what percentage of their sales were exports versus Chinese domestic sales.
Huawei held on to its No. 3 spot (after Samsung and Apple), but grew an impressive 18.3% during the quarter, according to Gartner. Huawei is a big seller in Europe, and the company reached a global market share of 11.8%, according to IDC.
Xiaomi was the biggest gainer. The company grew a whopping 124% during the same quarter worldwide, and an incredible 330% in the Asia/Pacific region. Xiaomi is a leading smartphone seller in India and Southeast Asia.
Samsung is still No. 1 — and still declining, having won 23.4% of the market in Q1, which is a drop of 2.4 percentage points from the same quarter the previous year, according to IDC.
Apple remains No. 2, posting a small gain in unit sales of 2.8% in Q1.
When you oversimplify the global market picture, you see Apple rising slowly, and the biggest Chinese companies rising at the expense of Samsung.
Outside of China and Europe, the smartphone market is doing OK. But the biggest factor in the global halt to growth is a decline in China. In general, most of the people who are going to get a smartphone in China already got one.
2. Low-end phones are getting high-end features; high-end phones are getting higher prices
In general, smartphone users are getting better phones at lower prices, except for the high end, where they’re getting better phones at higher prices.
IDC says that while buyers are upgrading to better phones, fewer are entering the smartphone world for the first time either as first-phone buyers or users upgrading from feature phones to smartphones.
However, the latest flagship phones from Apple, Samsung and Huawei broke records for high prices, and some analysts are saying that it’s these prices that are pushing buyers away from the flagship phones. (This may not be the case for Apple, which announced that its flagship iPhone X was the top-selling iPhone every week during the entire quarter. Apple lives in its own universe.)
I disagree with those analysts’ conclusion, for the most part. Reason suggests that if the better features were worth all that money, consumers would be happy to pay the premium. The reality is that the flagship features are a little better, while the price for those features is a lot higher.
Despite higher prices for the flagships, the average price of smartphones declined.
It’s clear to buyers that value exists in the midrange and low end, but not in the flagship stratosphere.
Savvy buyers know you can get a phone with 90% of the features at half the price. So that’s where the gravitational pull in the market is.
Another telling data point is the increasing popularity of refurbished phones, a trend that’s expected to continue. IDC says the used smartphone market will hit $52.7 billion in the next five years.
The bottom line is that only a tiny number of superfans are willing to pay the $1,000 and more that major phone makers are charging for their flagship phones.
The majority of buyers are suffering from “flagship fatigue” — a loss of enthusiasm for always buying a company’s best and most expensive phone — and are instead seeking out great phones at discount prices.
3. We’re reaching ‘peak smartphone’
The ugly reality is that smartphones aren’t all that interesting anymore.
Augmented and virtual reality are interesting. Artificial intelligence is interesting. Virtual assistants showing up everywhere is interesting.
Smartphones? Not as interesting anymore.
There are many shiny objects out there to get giddy about, and smartphones are not among them.
And that’s the good news
The trends of market saturation in China, flagship fatigue, the popularity of midrange phones and the embrace of refurbished devices all point to a healthy peaking of the incredible smartphone phenomenon.
This is not the end, though. Incredible things are coming to a pocket near you.
I’m predicting a resurgence of smartphone excitement because of a number of upcoming trends.
5G, which will slowly roll out over the next few years, will radically alter how smartphones look and work and how we use them. They could increase download speeds by 100 times. But there’s a catch. 5G signals are easy to interfere with. Simply holding your phone wrong can kill performance. So smartphones may have a small antenna in the future — more of a fin or ridge than a pull-out wire.
Fin or no fin, smartphones will soon become blisteringly fast, which will make using them super-enjoyable and will enable unexpected new features.
Also: Smartphones will serve as the central hub for emerging revolutions in virtual assistant technology, smart glasses and other wearables, augmented reality — and all these trends will be accelerated and magnified by artificial intelligence.
In other words, the supertrend is that smartphones will become more useful even as they become much cheaper, and they will be enhanced primarily by external technologies.
Today’s flagship phones, with their high prices and extreme features, are the last gasp of an industry desperate to make smartphones the only tech that matters.
Soon, those days will be gone. We’ll continue to need smartphones. But they’ll inevitably enter a commodity phase where the real differentiation takes place in the cloud, in our wearables, on our virtual assistant appliances and elsewhere.
Note that in all the doom and gloom about the smartphone market, nobody is saying they’re not getting better and more powerful. In fact, the opposite is happening. They’re getting ever more powerful and capable even as interest wanes.
So the news is bad only for some smartphone makers. For smartphone buyers, the news is all good. We’re getting better phones at lower prices, and a whole lot of external value to go with them.
So don’t shed a tear for the smartphone companies struggling in an increasingly brutal market. Instead, celebrate the coming boon to business, to productivity and to human enhancement that more powerful, less expensive smartphones will bring to the world.