This article may contain personal views and opinion from the author.
The big news today was that we finally got a date when it is expected that Samsung will be announcing the Samsung Galaxy S7. The big news from last week was that while Apple saw growth in its earnings call, it is expecting that iPhone sales will remain flat rather than see growth, as Wall Street demands; and, Samsung noted that there was a "slowing demand" for smartphones when it announced a slight decrease in smartphone sales during its own earnings call.
Both Apple and Samsung are facing the same market pressures and troubles. The market pressures are frankly somewhat absurd. Apple sold close to 75 million iPhones in Q4 with overall revenues of just under $76 billion. Apple also has enough money in the bank where it could give away all of its products for hundreds of years and still be in business. Samsung on the other hand had overall revenue of $44.2 billion. This is sort of the mirror of the numbers we saw for a while with Windows Phone.
Microsoft and its fans would trumpet numbers claiming huge percentage growth, but that's pretty easy to do when the numbers start out small. If you sell one million devices in a year, it may sound nice to claim 130% growth, but in reality that just means you sold 1.3 million devices. When Apple or Samsung add that same amount of growth, it's not terribly impressive, because the percentage is far lower.
Now, this doesn't mean that Apple and Samsung shouldn't be trying to grow, nor that investors shouldn't be asking for growth. I just think thinks should be put in perspective. Of course, if there's one thing that investors and Wall Street don't understand, it's perspective and mitigating expectations. When your life is run by capitalism, nothing less than growth is acceptable.
Growth barriers
So, how do companies as large as Apple and Samsung grow? I'm sorry to say, but the flagship iPhone and Galaxy S devices are not the answer to that question.
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The high-end market for smartphone is completely saturated. In Samsung's recent earnings call, the company said it "aims to reinforce its market leadership and drive growth with differentiated and innovative products." The trouble with that statement is that Samsung has been using the same tactic of trying to use differentiation and innovation to drive sales for a while; that's the definition of what all of the Edge devices are. Even so, the company has seen a drop in smartphone sales.
The vast majority of users in developed nations who want a high-end smartphone already have one. Sides have been chosen and the war is over. Sure, you'll still see people arguing one side over the other, but this is little more than tribalism. At this point, if you go into a store and buy a new iPhone or Android flagship, you're going to get a device that can do everything you want it to and probably more. Now, more than ever, your choice in smartphone is nothing more than personal preference because Android and iOS offer top-level experiences.
Differentiation and innovation may help get the most hardcore fans to upgrade faster, but it's not really driving growth. Of course, that leads to troubles when manufacturers try to keep growing. Carriers and Apple have tried to wring out more sales (and revenue) by pushing users towards getting new phones every year with various upgrade plans, but that's a minor measure at best. Apple was also hoping that China would be a market that would help extend its high-end market reach, but China's economy has taken a turn, so that plan isn't working out so well.
Differentiation and innovation may also be farther away than most think, at least for mobile devices. Just think about it - what new feature in a smartphone would be considered revolutionary? A leap in battery life would meet that standard, but it's more likely we're going to get faster and better recharging options before we get legitimately longer battery life. Foldable smartphones might be revolutionary, but we're still a few years from those being widely available. The best bet for revolution beyond that would be more dependent on devices that your smartphone would connect to getting more popular, either in TV, automobile, or Internet of Things (IoT) spaces.
Emerging markets
As we've been talking about for years, the real growth opportunity for smartphone makers is in emerging markets like South America, India, and Africa. Unfortunately, when the conversation shifts to emerging markets, the iPhone, Galaxy S, and other high-end flagships don't matter anymore. Even more unfortunate, the growth opportunity in these regions isn't something that can be seized simply by offering the right device at the right price.
The rise of low and mid-range devices has certainly helped, especially in regions like Brazil and India, because there has been a lot of investment in the infrastructure needed to make the most of those devices. There's a good reason why Google has been investing in Project Loon and why Facebook and Google have both been looking into providing Internet access with drones. A smartphone is only as good as the Internet connection available, and only as good as what a user can afford. Low-end devices getting better starts to sort out the latter issue there, but building the networks is a long and expensive process.
While we're waiting for those networks to be built out, smartphone sales may not move too much. Of course, growth in the mobile space may not be completely dependent on the smartphone.
New devices
Apple has been spending a lot of time over the past year talking about the new device categories that it is going after. The Apple Watch was released, then came the iPad Pro along with the Apple TV. There have also been consistent rumors that Apple is working on a car, and Tim Cook has expressed interest in virtual reality (VR) technology. Apple knows that smartphones and traditional tablets probably don't have much growth potential, especially since the company would not go after the true low-end market because that would damage its brand as a premium company.
Samsung has been doing much the same, but it's harder to list Samsung's offerings because the company tends to have a finger (or five) in every pie around. Samsung has TVs, appliances, Internet of Things devices, smartphones, tablets, hybrids, Chromebooks, laptops, cameras, wearables, VR devices, and more. Focus has never been one of Samsung's strengths, but at a time like this, that might not be so bad because it will have a headstart on paving the way in the next big market.
The most likely segments to be the next "big things" are VR (if the cost and use-case can be sorted), cars, TV (especially if Tom Wheeler can #unlockthebox), and IoT. The interesting nexus point for all of those devices is with mobile. High-end VR will run through a PC or gaming console, but average VR is being sustained by smartphones. The two fights in the auto space are self-driving cars, and whether Apple Carplay or Android Auto can make connecting your phone to your car's dashboard as seamless as possible. The smartphone is probably the best controller for new TV systems. And, your smartphone will likely be the control hub for IoT as well.
The new lock in
None of these new segments will spur growth in mobile, but they will certainly create stronger lock-in. As is, Apple, Google, and Samsung can try to lock in users through cloud services, content services, and app investment. But, all of that is on the software side, and can aide from losing money on app investments, most of that data can be switched relatively painlessly. However, it may not be so easy to change your car's software from Carplay to Android Auto if you want to switch smartphones. Similarly, if the appliances in your home communicate more easily with one platform over the other.
Apple and Google are working hard to extend the reach of iOS and Android beyond just mobile devices, not only because there are new device segments to explore, but also because smartphone growth is going to be harder and harder to come by. Soon, the fight won't be for smartphone growth but simply to keep the users that a company has on a regular upgrade cycle and keep users from switching to the competition. That will be a more subtle fight and not as focused on smartphones, but could be just as interesting.
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Michael Heller is known for his clear and informative articles on mobile technology. He explores important topics such as the rollouts of 5G networks and the advancements in mobile payments, offering readers insights into the evolving tech landscape.
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