Game of Phones

The greatest tragedy of modern time: no more “upgrades”. Okay, I’m being dramatic, but we all remember the collapse of the traditional wireless phone contract, equipped with two-year upgrades and access to the latest smartphones at a fraction of the price. Yes, this is old news, but its impact on the digital world, smartphone development, and software innovation is finally starting to become reliably quantifiable.

While the separation of service bills and smartphone payments alleviated some commitment anxiety and forced brands to introduce better service offerings, a whole new anxiety came to the forefront: sticker price. Pre-2013 (the year when phone upgrades started hitting the fan), the cost of the newest model iPhone was subsidized by your carrier with the remainder included in your monthly phone bill spread out over the two-year period of your contract. So, we were still paying for our shiny new phones, it was just hidden in our service bills. After 2017, the year that Verizon finally jumped on the bandwagon for all of its customers, that same purchase was much more apparent: showing up as an individual payment spanning the longevity of the plan you selected with your carrier. However, that visibility also creates a noticeable difference when your two year payment period expires and your monthly phone bill decreases by nearly $40 for a top notch smartphone *cue sigh of relief*.

In the meantime, as carriers have been busy making structural changes, smartphones have rapidly become your modern day bread and butter: an essential. Today, the difference between the capabilities of an iPhone and an Android are marginal, and consumers are beginning to make decisions based on price. Many consumers will settle for the older iPhone 8 model rather than make the hefty investment required of the new XS. Yes, there will always be the niche purchasers who, as soon as the newest iPhone or Google device hits the market, are in line eager to take it home. However, your average Joe doesn’t really need facial recognition and a dual 12-megapixel camera. Most people are bypassing the newest releases because they simple aren’t worth the money.

Okay, so we have two things here:

  1. No more two-year upgrades. Our smartphone payments are showing up in a much more apparent way.
  2. Smartphones aren’t really that different anymore. If it does what I need it to do (i.e. talk, text, take nice pictures, and be compatible with my favorite social media apps) then isn’t that enough?

This is where human nature kicks in. There’s extra change in our pockets, and we feel prideful that we finally paid off that hefty phone bill. We’re not willing to take on that same financial burden for another two years. Yeah, my iPhone 7 has a little crack in the top left corner and the charge doesn’t last quite as long as it used to, but if I don’t pay $40 a month on a new phone, imagine the possibilities? So what do we do? We don’t buy new phones.

Consumers, on average are waiting about 2.83 years to upgrade their smartphones, with Apple users taking slightly longer at 2.92 years (The Wall Street Journal). Families are making phones last longer by passing them from one child to the other, and getting them tuned up at brick and mortar repair shops for a fraction of the cost that it would take to deal directly with the manufacturer. Apple is releasing new models at least once a year, but consumers don’t seem to be keeping up. A phone call with my dad a few weeks ago, who recently switched to the Google Pixel and YouTube TV (sounds pretty hip huh?), echoed my opinion that there has been a significant decline in smartphone innovation. Sleek hardware is no longer a differentiating factor, we need something more to push us to buy new phones more quickly. It begs the question, how are smartphone developers going to begin to force their differentiation meaningfully in software and innovation, rather than hardware, and will consumers respond?

By differentiating in software I don’t mean the cool new features like group FaceTime and emojis that make us go “ooooh” and “aaaah”, but real, routine changing developments. Google hit a home run in their Super Bowl Ads highlighting some major work they’ve been putting in in this regard. Google showed off their translator developments, both old and new, and how they impact global connectivity, exploration, and peace. They developed a new “AR Mode” to Google Maps navigation, which allows you to view your location as you would through your own eyes, indicating which direction to turn based upon your view rather than a bird’s eye view of the street. Their Google Lens developments are employing visual research and the use of AI to bridge the gap between sight and search. These developments are not simply a more advanced camera, or a more usable interface, but impactful software and features that will change how our smartphones assist us in our day to day life. Yes, these features may be making our smartphones more “addicting”, but they are alleviating the issue consumers are facing: there is no value behind buying the newest model. These developments are providing utility that makes the newest models actually value drivers. This is the key.

This post isn’t necessarily a “Google is winning and let me show you why”, but rather, a recognition of how this market is changing, and how top players need to respond. Consumers no longer find value in the newest device if it doesn’t offer something substantially different from what they’re used to. Someone addressed this position last class: innovation these days is lacking because people are realizing that they can make a significant amount of money off of ads; you don’t need to create something great anymore to make a fortune. But I’d like to take a more optimistic standpoint. I think this noticeable market shift poses an exciting opportunity for the engineers and innovators of our time. There’s not only so many avenues for jaw-dropping developments, but there is significant marketable value (and bragging rights) behind creating them. Let the games begin.

11 comments

  1. Couldn’t agree more with this. I was just talking to a friend the other day about how we missed the days of free (or more free) upgrades. I feel like there used to be so much more anticipation about the release of the new iPhone because each time, it would be noticeably different and better. Now, I haven’t upgraded my phone in about 3 years, its pretty cracked and has more than its fair share of glitches, but do I have any intention of paying upwards of $1000 so I can have a marginally bigger screen and unlock my phone with my face? No thank you. Until a phone is released that has some substantial new features and upgrades (or my current phone dies a natural death, which is probably eminent), I will stick with what I have.

  2. Nice post. I have actually become an “every year” guy because I do the hand me down thing. Each one of my phones needs to last four years in the cycle, so getting the latest and greatest is the only way to ensure they last. I do like the Google AR angle, but that’s mostly a software upgrade, not a hardware one. I think the phones have evolved into their “final form” at least until bendable screens or something comes alive.

  3. I agree! I definitely miss the days of upgrades! And definitely, there is less and less of a difference each year between the smartphones out there, and even in years when Apple or Samsung comes out with some kind of groundbreaking tech, the others are close behind with imitations. While for some price is the only differentiating factor, I think brand and network effects are at work in influencing customers to buy the more expensive (cough cough Apple) phone more consistently. Speaking for myself, I always get a new iPhone every few years when mine finally breaks. This is definitely due to the network effects of having an iPhone in a culture where it seems like that’s what everyone has (access to iMessage and those blue text bubbles). But you’re totally right, the phones have pretty much the same abilities, so maybe when the phone I have now breaks I should seriously consider a cheaper option which definitely will perform exactly the same

  4. I completely agree. I recently upgraded my phone and gave my iPhone 7 to my younger brother. In the US, we don’t often consider other brands and just accept the changes Apple makes (removing headphone ports and changing the type of charger). I often forget, that outside of the US, Apple isn’t the most popular smartphone maker. Both Huawei and Samsung sell more smartphones worldwide than Apple. Huawei is able to accomplish these impressive sales without even touching the US market. In contrast, Apple taps into network effects that are unique to the US market, for example iMessages. iMessages allow you to send messages using wifi or data and access them from your phone or any Apple product. iMessages isn’t a selling point for many international consumers, because they use third party apps like WhatsApp or WeChat. I think that it is possible that strategic software updates focused on network effects forcing their current consumer base to upgrade will increase sales more than their hardware updates.
    https://www.businessinsider.com/huawei-smartphones-are-popular-all-over-world-not-united-states-2018-12

  5. This is a take that I think investors are often missing when discussing Apple’s performance. Its clear that the number of new iPhone purchases are going down (thus the thoroughly protested rises in price), but this end to the “upgrade” era likely has a big effect. I used to get a new iPhone every two years on the dot with an upgrade, I would even sometimes steal my brothers upgrade if it was deemed my phone was withering away faster than his and he would then later take mine. I haven’t gotten a new iPhone since the end of the upgrades and despite its every growing number of cracks I don’t plan on replacing it anytime soon. Thanks for sharing!

  6. First and foremost, I love that your blog is a twist on Game of Thrones. Very clever! This is a topic I’ve actually never thought much about, but now that I’ve read about it, I can see how much this holds true to me. Upgrades seem so nonessential nowadays. Sure, the new iPhone XS seems cool and all with its top-notch camera, but that’s pretty much the only thing that’s going for it (in my opinion). These upgrades are so minute with its bug fixes and slightly enhanced features. Hence, the reason why I’ve been ignoring the software upgrade notification on my phone for months now. I also agree with Prof. Kane’s comment that phones have evolved into their final form (for now), so I wonder what types of innovation can come into play in the near future to disrupt the phone industry. Just like the AR Mode on Google Maps, I hope to see more developments that can change how we go about our daily lives, offering greater functional value.

  7. Great blog post – I really enjoyed reading it. It’s so funny though because to me because I feel like I effectively live two very different lives between my US life and my Irish one.

    Everything I know to be true in Ireland is not the same over here. For example – upgrades are a still a thing in Ireland, but iphones are not (really). Having worked in tech in Ireland, the majority of people will look at you sideways if you have an iPhone because they are considered inferior both in hardware and software. Yet over here if you have a green text bubble you may as well be a social pariah. The iphone’s dominates in the US – still.

    For how long though I’m actually not sure – With hardware (as prof Kane said) reaching its end state for now, it becomes a battle of the software and as such the ecosystem. Apple crushed at this game early on in the US but it has not succeeded elsewhere which, I think is one of the reasons why they have diminishing market shares OUS. As we see the rise of the smart home and the successes of Nest (owned by Alphabet) and Alexa, I’m curious to see whether Apple’s dominance over the consumer electronic ecosystem in the US will hold. I personally don’t think it will unless they innovate or acquire quickly – however I could be wrong, it wouldn’t be the first time!

    OUS though I’m positive that the cannot thrive without significant innovation. As Allie mentioned What’sApp and WeChat have negated the networks effects that keep consumers tied to them in the US and so without the release of a really innovative product (something as innovative as the original iPhone was) then I can’t see recovery on the horizon for them any time soon.

  8. So glad to read about the details behind this because when my dad told me a few years ago that we weren’t getting new phones every two years anymore, I didn’t really understand why. I think Apple is still exploiting the excitement and comfort surrounding its products. It also knows switching costs are extremely high for Apple customers — if I want to switch to a Google phone, will it work seamlessly with my Mac, iPad, Apple Watch…? Probably not! But, Apple has been riding this wave for so long now that it has given Google, Android, etc time to catch with it. I agree with other commenters that Apple needs to wake up and realize their competitors have been innovating at a faster rate, or it might loose its dominance some time soon.

  9. Awesome post! I completely agree that the changes to my phones in the past few years have been minimal. Back when we still had the opportunity to get upgrades I would jump at a new phone as quickly as possible, but now I see myself following the pattern which you noted – I no longer feel the need to upgrade my phone as often. Although those seem like great upgrades to the Google products, it seems like Apple has really developed a cult following that seems difficult to disrupt. I assume it won’t be long until they develop their own uses for AR and reduce any competitive advantage Google may be creating. Additionally, the switching costs Apple has created for those owning multiple products from them has truly set them apart and enhanced the user experience with seamless interfacing between the products.

  10. I do remember as a high schooler asking my dad when my phone was eligible for an upgrade, my go to was the Sidekick phone back when AIM was a thing haha! I do have to say that phones for the most part will stay relatively the same at least for the foreseeable future. Samsung and Apple have been competing and their phones are so similar in design that people will ultimately just go with the one that has the features and functionality they’re looking for. Of course, Google comes out with the new pixel and people are raving about how great the camera is, but then complain that the interface just isn’t as sleek as maybe an iPhone. There will always be pros and cons to each device, but it will boil down to individual’s needs. I’ve become an every year guy with the Apple upgrade program because financially it’s a low commitment to pay on a monthly basis versus the upfront costs. Personally, it’d be interesting to see if Apple removes the notch at the top of the phone in their newest annual release this fall.

  11. I think your post is spot-on. Why upgrade a phone if the next iteration provides nothing radically different? Unless you are trying to show that you are able to afford the latest and greatest or you are trying to make a phone last through a few hand-me-downs, why replace it on an annual basis?

    One of my biggest concerns with this topic is not only that companies like Samsung, Google, and Apple have stopped innovating, but they are actually preventing competition which would force them to innovate. For example, Huawei phones have some amazing capabilities which blow Samsung and Apple out of the water but the US government has prevented them from coming into the US due to cybersecurity fears (warranted or not, that’s a separate discussion). By preventing competition, the US is creating an environment of technological stagnation and I feel like the cell phone market will be disrupted in the near future when a Huawei-type phone is released in the US.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: