I remember, over ten years ago, in Seoul talking to Samsung marketing and learning that one of the reason to generate so many new smartphones models in short period of time was the willingness of the South Korean market to get “the newest” (Samsung has delivered over 1200 types of phones since they started to produce cellphones, and half of those were smartphones, meaning some 5 new smartphones every months, on average, in the last 10 years). South Koreans could change their smartphone every 4 to 6 months and the average was around 1 year.
In other parts of the world the craziness was somewhat “lower” but still the average was less than 2 years (Mexico 1.5 years, India 20 months, world average 21 months).
More than that. Over the last two decades we have seen the adoption of cellphones increase and in the last ten years the number of smartphones has increased to the point that today there are, in several countries as shown in the graphics on the side, more smartphones than people.
It has been a time of growth and fast innovation for the industry. The need for huge investment in manufacturing and the need to keep smartphones affordable has led to thin margins (with the notable exception of Apple) leading to an industry consolidation: few huge companies have the grip on the world market.
The situation is rapidly changing. The replacement time for smartphone has increased (see first graphic) with the majority of people holding on their current model for more than 3 years. At the same time the penetration is approaching, and sometime exceeding 100%. This is leading to a decrease in the number of smartphones sold, a decrease of 150 million units in 2019 vs 2017.
The forecast for this decade is somewhat gloom. The number is unlikely to rebound, although the availability of 5G might stimulate some customers to change their phones. China is expected to see a growth as there is still a significant replacement opportunity for old cellphones by smartphones.
All in all, the industry seems to have reached a peak in terms of functionality innovation (the connectivity itself is not showing as a sales point, we will see if 5G might change this, I personally doubt, and the camera improvement has already reached a very good level making any further improvement not stimulating enough to motivate the replacement of the current phone).
Clearly in this space marketing reigns, much more than technology, AR might become in the next years a factor but it is likely that it could be delivered on current phones as well.
Personally, I think that the demise of the phone is not on the horizon, i.e. it won’t be replaced by a wearable anytime soon. Hence, my bet is that the industry will endeavour to inject innovation in the smartphones to stimulate replacement. AI, supported by dedicated chips in the smartphone (we have already started to see the first signs of this trend) might become a hit. The recently announced acquisition of Xnor.ai by Apple is a sign in this direction.