drag2share: As Subsidies Fade, People Are Keeping Their Old Phones — And That's A Problem For Apple
In the mobile industry, growth is tied to the upgrade cycle.
The upgrade cycle is the frequency with which people ditch older phones for newer ones. In the U.S., the smartphone upgrade cycle has steadily gotten longer over the years, and reached 22 months in 2012, according to Recon Analytics.
Why is the upgrade cycle growing longer? Many smartphones are so good now that there's often little reason to upgrade, but also — carriers are cutting back on subsidies and moving away from rigid two-year contracts. Consumers are thinking twice about getting new phones as their upfront costs creep up. That spells trouble for Apple in particular, since the company has relied so heavily on carrier subsidies to get its phones in consumer hands, and its overall business model is so heavily reliant on hardware sales.
In a recent report, BI Intelligence, looks at the increasingly lengthy smartphone upgrade cycle in the U.S. and in other key markets. We discuss how less frequent smartphone upgrades will impact all the major players in the mobile industry, and predict how long the smartphone upgrade cycle will get.
Industry players want as short a cycle as possible, here's why.
- Smartphone manufacturers rely on upgrades to get their newly launched handsets into consumer hands.
- All the various, interrelated pieces of the mobile ecosystem work very well together if consumers have the latest technology in their hands. But when the upgrade cycle starts to sputter, the main engines for growth begin to fall apart very quickly.
- Carriers rely on new phones that are compatible with their ultra-fast 4G wireless networks in order to encourage high rates of data consumption and boost data revenue.
- Tech companies like Apple, Microsoft, and Google pre-load the latest versions of their mobile operating systems on new smartphone models, and these handsets help push consumer adoption of the new software. This is particularly important for Google's Android platform, which historically has had trouble getting its users to update to new versions.
- But as stated above, Apple is particularly vulnerable to the longer upgrade cycle, since their business model depends on smartphone sales, rather than advertising (Google is less concerned if its users are on older phones).
- App developers, in turn, design software! around t! he newest operating systems and devices, to take full advantage of available technologies. Without shiny new phones loaded with features, consumers tend to fall behind the curve.
- Marketers create rich-media and video ads that won't even load on slow smartphones.
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The report is full of charts and data that can be easily downloaded and put to use.
In full, the report, explains the reasons driving a longer upgrade cycle, including:
- Declining innovation in smartphone hardware
- Consolidation in mobile software and manufacturing, which cuts down on the number of key players and launches
- An increased focus among influential tech giants on software
- Changes in carrier strategies, especially a shift away from subsidies, led by T-Mobile and emulated by other carriers
For full access to the report on Smartphone Upgrade Trends sign up for a free trial subscription today. Subscribers also gain full access to our 2013 Smartphone Market Forecast.
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