How many reasons Americans aren’t upgrading their phones?
Three big reasons why Americans aren’t upgrading their phones
Last month, Verizon and AT&T made official something you’ve probably been aware of for a while: American smartphone owners are upgrading a lot less than they used to. In fact, they’re hitting record lows at the two biggest US carriers, with people apparently more content than ever to keep hold of their existing device. This is a global trend, as the smartphone market is reaching maturity and saturation in many developed nations, and yet it’s most pronounced in the United States for a few reasons particular to the country.
THE APPLE AND SAMSUNG DUOPOLY
If you were to ask me to name the most exciting phones of 2019, top of my mind would be Huawei’s P30 Pro, with its exotic array of cameras and unmatched low-light photography, closely followed by the OnePlus 7 Pro and its gorgeous 90Hz screen. Is either of those phones available on AT&T or Verizon? Nope. Huawei is effectively banned by the US government, while OnePlus only has a distribution deal with T-Mobile in the country, which is better than nothing but still comparatively niche.
The typical American smartphone buyer knows a choice between only two brands: Apple and Samsung. Peruse the online offerings of AT&T, Verizon, T-Mobile, and Sprint, and you’ll see a parade of various models from those two companies, punctuated by the occasional LG also-ran and Kyocera obscurity. If you scroll down far enough, you’ll get to see the Red Hydrogen One, which is a garbage phone, but it’s from a US company, so they let it in.
Chinese phone brands like Huawei and Xiaomi have leading positions in most of the world’s markets now, but in the US they’re almost entirely absent. For a Chinese phone maker to get a device onto a US carrier, it has to do that via the backdoor means of putting a familiar brand on it, such as TCL is doing with its BlackBerry and Palm handsets. Even OnePlus is mostly a palatable brand in front of the same giant Chinese conglomerate that operates the Oppo and Vivo brands. The US government’s geopolitics is playing out in carrier stores, narrowing consumer choice to products from US companies, mainly Apple, or manufacturers from US-allied nations like South Korea.
THE APPLE AND SAMSUNG STAGNATION
Being limited to two providers might not be a problem if they were competing as hard as they possibly could, but both Apple and Samsung appear content with mostly iterative upgrades. “Incremental changes from one model to the next hasn’t been that great, and it hasn’t been enough of an incentive,” according to Verizon CFO Matt Ellis.
Think about the things that make a Samsung Galaxy S10 compelling: a beautiful display with tiny bezels, a very good camera, a large battery with wireless charging, fast performance, water resistance, and, as a bonus, a headphone jack. The three-year-old Galaxy S7 has all of those things. An S7 owner can absolutely want an S10, but they certainly don’t need one. It’s a situation that looks a lot like the one with Windows laptops, where screen bezels are disappearing, everything is becoming lighter and faster, but the rate of improvement is too gradual to compel most people to upgrade in a hurry.
Apple did have a major redesign with the iPhone X in 2017, sparking a wave of upgrades from people who’d been waiting for such a dramatic change, but the company has otherwise kept to a conservative cadence when it comes to introducing new hardware features and capabilities. You’d certainly struggle to tell the difference between an iPhone X and XS, just as you would struggle to differentiate between an iPhone 6 and a 6S on first glance.
Without the likes of Huawei to push them into more aggressive upgrade cycles, Apple and Samsung can afford to keep pace only with one another, at least in the US market. Huawei’s breakneck pursuit of new features has proven extremely enticing for phone buyers in Europe and across the rest of the world, with the Chinese vendor racking up 50 percent growth in phone shipments in the first quarter of 2019 while Samsung and Apple both faltered.
THE NEW ECONOMICS OF SUPER FLAGSHIPS
It’s a badly kept secret that mobile carriers worship at the altar of ARPU (average revenue per user). Increasingly, they’re bundling their phone line rentals with subscriptions to premium video or music services, and they’re offering long-term payment plans to help people buy the super flagship $1,000 phones that Apple, Samsung, and Google have been offering. That strategy has worked surprisingly well, with consumers seeing only a marginal increase in their monthly cost and valuing the increased capabilities (or sheer aesthetic and luxury appeal) of those exclusive-tier devices.
But there are two long-term issues for hardware manufacturers selling ultra pricey handsets. One is that the person that spends double what they previously did on a phone would, naturally, expect to keep their shiny new phone for somewhere close to twice as long. Apple has been great about supporting many generations of iPhones with its latest iOS updates, and even though Android vendors haven’t been anywhere near as good, many people can carry on just fine with an older version of Android as well. The other big issue is that the addressable market of people willing to spend four figures on a phone is inherently small.
Phone manufacturers and carriers in the US have shifted the most innovative and appealing devices to a price point that’s simply unattainable for a majority of people. They’ve masked it well, but it’s still a lot of money. Samsung’s cheapest Galaxy S10 variant, the S10E, is still $749. Americans’ smartphone budgets haven’t risen at the same pace as smartphone prices, and now when they look at their usual price range, they just see a lack of meaningful innovation. The OnePlus 7 Pro is a rare exception, bringing a devastatingly handsome, bezel-less display to the sub-$700 market.
Satisfied existing customers, a failure to deliver innovation to price points where people would be ready to upgrade, and the almost total absence of Chinese competition have sapped the US phone market’s vitality. Smartphones are still fun, exciting, and full of novel features, but you might have to go outside the United States to find one that’s both compelling and affordable.