Ignore the Samsung S4: there is a mobile metric that vendors and carriers fear to discuss
Yesterday saw the launch of the much awaited Samsung Galaxy S4 (and a worthy update it seems, if hardly earth shattering — much like occurred with the iPhone 5). There has also been much talk about Android weaknesses, hardware or software market specialization as well as Google’s rising share price (and Apple’s currently falling one). But what almost nobody discusses is: what will be the smartdevice replacement rate? This metric is beginning to matter more and more to a whole raft of audiences — from device manufacturers to mobile carriers to enterprises and to consumers.
When Apple launched the original iPhone it was correctly hailed as something special — because it was. The second iPhone was a significant improvement, both in quality (already high) but also in both form and function. But, by the time of the iPhone 4S and then the iPhone 5 the improvements had become demonstrably incremental rather than revolutionary.
The same is largely true of Android. Before the arrival of Jelly Bean in mid 2012 Android was pretty rough (but attractively open) and Android devices did not really match the iPhone. Then Samsung delivered the SIII and Note2 (and now the S4) while HTC has moved forward with its all aluminum One and Google with the LG-made Nexus. All these devices are, with Jelly Bean, now a match for the iPhone.
But here lies the rub. Once you have an iPhone 4S or 5 or HTC One or SIII or Note 2 or the latest Nexus — what is the incentive to replace these?
Of course there will always be a technoscenti who must have the latest device. They will not disappear but they are also not numbered in multiple millions (remembering that Apple sold 17M+ iPhones and Samsung sold 15M+ in Q4 of 2012 alone). One key to the future is, therefore, understanding the device replacement rate and then how it will affect different communities in different ways.
If you have invested in a shiny new smartphone (and this applies perhaps even more so to phablets and tablets) with processing power beyond what there are the apps to consume (for example the S4 will come with an octa-core processor and 2GB of RAM — as much as you would find on a full laptop of 2-3 years ago, or even today), why would you want to replace this next year, the year after or even the year after that? This is going to become the burning question and it is one with global implications.
The so-called ‘rich West’ may have had differing replacement propensities to the rest of the world. Furthermore, the case for multiple smartphones per person is not strong — and the arrival of dual SIM smartphones will only force additional device consolidation. The rest of the world may still be catching up on acquiring smartphones, but it will arrive at parity pretty soon. Yet what is clearly evident is that the cost of a smartphone is a much greater investment, as a proportion of disposable income, in the rest of the world which means that it will likely possess a much longer in-use life.
This means that, for mobile phone manufacturers, the alleged promise of a long term future selling into vacant smart device space will not last long when market saturation combined with the inevitable ‘loss of sexiness’ factor(also known as incremental improvements) occurs in the ‘rich West’. The result will achieve pretty much the same: expect smartphone replacement rates to match that of (say) laptops — which already have a life of 2-4 years.
[If you do not believe this, make a list of all your mobile devices (including laptops, mp3 players, phones, phablets, tablets, etc.) and indicate when each was bought and when you might plan to replace each. I did it for myself and, even though both an iPhone and an iPad were stolen in 2012 (and replaced by Android devices), the average age of my devices is already well over 2.5 years. As for replacement, the only device likely to see replacement in 2013 is the Windows tablet.]
Now consider the impact and implications if the smart device replacement rate is as slow as I argue it is going to be.
Consumers, whether in the rich or not-so rich worlds will not care much. They will replace devices when it suits them and value for money will count most of all. Here Google would be onto a great opportunity with its most recent Nexus, except these are so hard to find to buy. One oft-ignored aspect to remember here is that many consumers are also employees: with the rise and rise of Bring Your Own Device (BYOD) the existence of the previously parallel Enterprise and Consumer markets for smart devices is likely to disappear as the latter absorbs the former.
For device manufacturers, including Samsung and Apple, the years from 2015-2020 are going to be horrible — with high consumer expectations of ever greater cleverness being disappointed as each new evolution much looks pretty much the same. Apple may yet crack China as a cult product, and in so doing may make itself effectively a China oriented organization (after all China could absorb in number of smart devices what the rest of the world combined does). For vendors all this could be different if some new way (or category) of relevant (to the buyer) device emerges, as did the iPhone and iPad — but even this is likely only to put off painful days.
For mobile carriers and providers all this is an opportunity and a threat. The opportunity is to withdraw from the costly device-subsidy model which involves massive up front purchases from device manufacturers: eliminating this would free up significant resources, not least cash. The threat is that the 2 or 3 year contract model delivers ‘loyalty’. If the focus moves away from devices the mobile carriers will need to focus on the customer (thus far largely unheard of, outside France’s Iliad and one or two other refreshing organizations): service will be all important.
Finally there is the enterprise dimension. BYOD has the great advantage that enterprises can rely on employees to make the purchases, which frees up CAPEX and other resources. With vendors like Airwatch, Boxtone, Fiberlink, SOTI and Symantec, to name only five, offering increasingly sophisticated device and content management, having your employees buy their own devices is less and less the obstacle it was. In addition, especially if most BYOD devices stabilize around Jelly Bean (for Android), on iOS6 (for iPhones and iPads) on WindowsPhone 8 and Blackberry’s BB10, then enterprise app development will become (relatively) simpler (and many of the criticisms of a multi-furcatedAndroid, in particular, will diminish — though Apple is not as guiltless as it would like to make out) through greater OS consistency.
Indeed, as one thinks more and more about what the replacement metric means it is hard not to conclude that the long term winners are consumers and enterprises.