How Handset Makers Are Trying To Keep Customers

In the span of about a decade, the smartphone has gone from revolutionary technology to an everyday tool that everyone on Earth carries in their pocket. Okay, not everyone – but that’s not much of an exaggeration. According to estimates, nearly 80 percent of the U.S. adult population carries a smartphone (95 percent have mobile phones), as does nearly two-thirds of the planet’s population.

It’s inarguable that the smartphone has become indispensable to most consumers – yet how they relate to smartphones is changing. As innovations each year are becoming more like iterations – and changes to form and function are becoming smaller – consumers are less likely to clamor, stay up late or sleep on a sidewalk to get the latest and greatest flagship phone. The era of the free (or sharply discounted) high-end phone is mostly dead, as phone prices have inched up consistently over the last decade.

As a result, consumers are holding onto their phones longer – the average lifecycle of a smartphone was 25 months at the end of 2017. By the end of 2018, that had swelled to 36 months. And the cooling passion for rapidly replacing phones is paired with a waning  enthusiasm for the highest end phones on the market, according to research from Gartner.

“Demand for entry-level and mid-price smartphones remained strong across markets, but demand for high-end smartphones continued to slow in the fourth quarter of 2018,” said Anshul Gupta, senior research director at Gartner, in a press release announcing the results of the research.

Apple has been hit particularly hard by the decline, given the centrality of the iPhone to its business. The firm stopped formally breaking out the iPhone’s sales figures as of Q4 2018 – and according to estimates, shipments declined 11.8 percent during the same time period.

He added that while players will often try to explain those costs with phrases like “cutting-edge materials, technology or manufacturing processes,” when consumers see phones with the vast majority of those “specialty” features at a fraction of the cost, “the jig is up.”

Is it time for phone makers to declare a new normal, and resign themselves to consumers who can be counted on to carry smartphones, but perhaps not the latest and greatest? It seems smartphone makers don’t think so.

Going Big on New Features: the Foldable Samsung

Whatever it is people will say about the newly released Samsung Galaxy Fold, no one is going to suggest that it looks like an iPhone.

Designed to act as both a smartphone or small tablet, the Fold looks nothing like anything else out there because, as its name implies, its screen can be folded in half at the middle.

According to Samsung, the “Galaxy Fold opens smoothly and naturally, like a book, and closes flat and compact with a satisfying click.” Consumers can slip the Galaxy Fold out of their pockets “for one-handed calls, texts and more, and open for endless multitasking and higher-quality viewing on our largest mobile display for presentations, digital magazines, movies and AR content.”

The release comes as Samsung has been hit by the phone sales slump, with its Q4 results indicating a 10 percent year-over-year revenue decline, along with an 11 percent drop in sales tied to mobile operations. The firm pointed to a “sluggish” smartphone market, coming right into a seasonal slowdown.

Samsung is hoping its new and very different-looking phone will put a spring back into the market’s step when it hits the U.S. through AT&T and T-Mobile in the latter half of 2019. But customers will need big budgets to go with their springy step: The entry price for the Fold is $1,980.

A high price tag – and perhaps a high risk, since high prices are increasingly unattractive to customers, and Samsung is not the only firm rolling out with a dual-screen 5G phone. LG and Oppo are both making similar moves with lower price points, and Oppo’s even imitates Samsung’s folding option.

How Huawei Stole Apple and Samsung’s Groove

According to recent data from Gartner, Chinese smartphone maker Huawei is starting to take a noticeable bite out of Samsung and Apple’s market share in the nation, through the power of feature-laden phones that come (comparatively) cheap.

Huawei’s share of the smartphone market climbed to almost 15 percent in the three months that ended December 2018, up four percentage points from the same period a year earlier. That still trails both Apple and Samsung, but barely: The two brands hold 17 and 16 percent of the industry, respectively.

“Apple has really been losing ground on a couple of things, especially when it comes to emerging markets like Greater China,” Anshul Gupta, senior research director at Gartner, told CNBC in an interview. “What we are seeing in China is that the leading Chinese players have raised the quality of their smartphones significantly.”

And as it turns out, Chinese customers like the features and are less married to the brand name – to the extent that Apple blamed its slow Q4 performance on Chinese sales that had fallen off 15 percent year on year. Cook blamed customers holding onto their phones longer; analysts like Gupta blame it on customers jumping ship.

“When you look at the flagship smartphones from Huawei, or from Oppo and Vivo, they have features that one can find in the flagship smartphones of Samsung and Apple, but at the same time the prices are quite low.”

And while Huawei is often singled out as the low-priced spoiler in the global smartphone race, notable brands like U.S.-based Google seem content to take a play out of their book. The latest rumor is that Google will be slicing the price of the next iteration of the Pixel to compete more head-to-head with the iPhone XR (currently priced at $745).

The Pixel is currently priced at $800. But that lower price gives Google a chance to push more people into the ecosystem it’s been building – and with hardware optimized to use it. And as consumers are connecting in more places, and to more things, using the phone as ecosystem bait could be the right play.

Capturing the Connected Customer

Consumers,  want innovative products – but they are looking for innovations that make their phones more usable tools.

“The question for a lot of customers is less about the phone itself, and more about what apps it connects to, how clear of photos does it take, how many functions can it carry out at once – and those are questions they are asking before they are asking about who made it.”

It is why Apple, facing a need to shift from a primarily iPhone-driven company, is reorganizing its leadership priorities around generating revenue from its services and other technological offerings. Services are expected to surpass $50 billion by Apple’s fiscal year 2020 and to account for more than 60 percent of total revenue growth at the company over the course of the next five years.

“Technology is evolving, and they need to continue to tweak their structure to be sure they’re on the right curve,” said Gene Munster, longtime Apple analyst and managing partner at venture capital firm Loup Ventures.

Whether those services will be enough to make iPhones stay sticky – when Samsung is building 5G folding phones and Google is pricing its flagship like Apple’s bargain-basement models to recruit consumers into its more robust ecosystem – remains to be seen.

But it’s clear that everyone has to do something – because for the first time in a decade, merely building the latest and greatest in phone technology, or announcing that you have, isn’t enough to ensure the customers will come.

And even if they do, there’s no guarantee they’ll be back anytime soon – or that they will loyally return in three years for the next latest and greatest.