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2014: The smartphone showdown ramps up

30 Dec

smartphones1With just about every major smartphone maker performing below expectations in 2013, it’s clear the market – at least in rich, developed countries – is starting to mature. As industry observers such as tracking firm IDC have surmised, that’s going to result in some good news for consumers in 2014 and onward: lower prices.

On the face of it, such a prediction makes sense. The likes of Apple and Samsung are going to want to continue selling people new products, yet with many smartphone owners either stuck in the middle of contracts or quite happy with their existing devices, there are going to be fewer takers than in previous years. Naturally, the best way for manufacturers to entice stodgy consumers into buying something newer and shinier is to offer it a lower price.

But, as I’ve written before, that’s not necessarily how the smartphone market works thanks to the presence of middle-men: wireless carriers. For the most part, it’s cellphone companies who buy the devices and then effectively resell them to customers, usually with subsidies in exchange for those long-term contracts. Those contracts then allow carriers to keep monthly service prices higher than they might be otherwise, since customers aren’t easily able to defect to competing providers, who might offer them a better deal.

Lower prices are thus about to butt into contract subsidies, which means that the interests of wireless carriers are about to clash with those of phone manufacturers.

A few scenarios could play out in 2014. A likely one could see manufacturers price their devices lower in an effort to spur sales, only to have carriers pocket the difference instead and not pass on the savings to consumers. Google’s Nexus 5, released this past fall, is a great example of this – while the company is offering the device directly to consumers starting at $349, Canadian carriers are amazingly selling it for $499, which includes their own healthy markup.

If such artificial price inflation continues, sales will continue to slow or stagnate, which means manufacturers will likely start to bristle, potentially leading to some strained relationships with carriers. Some could even be spurred to pull a Google, whereby they start focusing energies on selling directly to consumers, thereby cutting out the middle-men.

Either way, lower phone prices are on the way and it’s going to be difficult for wireless carriers to stop them. And, as devices get cheaper, the need for subsidies and therefore contracts is going to lessen. Stronger competition for customers’ monthly service will inevitably follow.

It’s not going to happen all of a sudden in 2014, but the wheels will most certainly start turning.

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1 Comment

Posted by on December 30, 2013 in apple, Google, mobile, samsung

 

One response to “2014: The smartphone showdown ramps up

  1. Jean-François Mezei

    December 30, 2013 at 12:15 am

    With Canadian Wireless carriers having raised prices for smartphone plan far more than the monthly difference for 2 vs 3 year subsidy amortization, even the iPhone is now often cheaper to buy directly from Apple at full price which then lets you choose cheaper monthly wireless services.

    At the wireless carrier level, while smartphone may sell at retail for pretty much the same price, carriers look at the true cost of acquisition which will vary. And a carrier is more likely to feature a more profitabvle phone on their advertising to push sales of that phone which costs less to acquire, yet generates the same monthly revenues.

    So while lowering wholesale pricing of smartphones may not translate into lower prices for consumers, it does result in higher sales for that smartphone because carriers will be marketing it more.

     
 
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