Smartphone makers face a new problem: Consumers are holding onto their phones for longer before opting to upgrade to a new model. What was a predictable biannual upgrade cycle will soon stretch to 33 months—close to three years, according to a report from BayStreet Research LLC. And instead of buying the latest models, many smartphone buyers are opting for older or refurbished devices as average prices rise and new features are less dramatically different than in years past. Companies like Samsung, Apple, and Google must now figure out how to keep making money when smartphone profits are rolling in at a slower pace.
According to the Wall Street Journal, it’s a dilemma familiar to the automotive industry. Carmakers were able to get around this issue through leasing programs but mainstream smartphone buyers haven’t yet warmed up to the idea of leasing their handsets quite yet. However, unlike automakers, smartphone makers rarely just make smartphones. These companies can still make money off of those who insist on holding onto their phones for three—or four—years at a time by releasing compelling accessories that augment the smartphone experience.
When Apple and Google decided to eliminate the headphone jack from their phones, it wasn’t an accident. It helps make their handsets more watertight, but more importantly, it gives owners an enticing excuse to pick up a new wireless pair of earphones like Apple’s AirPods or Google’s Pixel Buds. A headphone jack and its associated circuitry doesn’t have to take up a lot of space inside a phone. And then there’s the rise of smart assistants in our homes. Amazon, which failed at successfully entering the smartphone market itself, has dominated this arena, but Google Assistant–imbued Google Home devices have proven attractive purchases as well. After a launch delayed until earlier this year, Apple has also entered this space with its HomePod speaker. Unlike with smartphones, which are a one-per-person product, many smart-speaker buyers haven’t stopped at one device and have instead opted to outfit their homes with multiple speakers of various sizes and price points.
Smartwatches and virtual reality viewers also fall into this smartphone accessories category. While you may not need a new phone, you may decide it’s time update your Rolex with a phone-connected competitor like an Apple Watch or Samsung Gear Sport. Eventually you may upgrade your phone and your smartwatch every three or four years, but on staggered cycles. Similarly, you may opt for a VR viewer to augment your smartphone video or gaming experiences. Again, you’d only need to upgrade your viewer as often as your phone’s form factor significantly changes—or if there’s a compelling improvement in the technology.
Another solution, as I’ve written about before, is on the services side. To continue profiting off smartphone owners despite their increasingly discretionary purchasing habits, companies like Apple should make it attractive—and more importantly, easy—to buy into a bundle of their digital services. Cloud storage, music streaming, access to original TV content—Apple, Google, and others can charge for a cable-like bundle of services, ensuring customers get all of the software features necessary to make the most of their device and further integrating them into their unique device ecosystem without additional hardware purchases.
Following this model, Apple, for example, may see its smartphone sales numbers may dip, but it will see increased revenue in its “Other” category compensate for that fall as iPhone owners grab Apple Watches, HomePods, software packages, and other connected accessories, instead. And once you’ve committed to the ecosystem with a handful of device purchases, you won’t be as likely to leave. You’re no longer a simple iPhone owner—you’ve become an Apple household.
For consumers, companies, and the environment, it’s good that our device upgrade habit is slowing. Smartphones use a lot of precious metals, and our current recycling techniques cause significant pollution. However, smartphones are increasingly becoming the center of our digital worlds. We should continue to expect Apple, Google, Samsung, and other phone-makers to deliver devices that augment our smartphone experience at home and on the road—even if the phone we’re using is three years old.
