What happens when there are few significant benefits to upgrading?
Apple stock, along with much of the market has seen a decline recently. Apple has also seen a decline in their smartphone sales. This should really come at no surprise to anyone paying attention. Nothing stays “new and exciting” forever, but a lot of people seem to have a hard time grasping this. Perhaps this lack of foresight is why so many people lose money in bubbles.
Smart phones had a boom because they were new and exciting. But even more important than that, they were exclusive. When the iPhone first came out, the majority of people did not have smartphones. Due to their game changing technology, demand was high. As the technology matured and improved, it became “hip” to have the latest and greatest smartphone. With their growth in popularity, more and more people abandoned their old flip phones and Blackberry phones for smartphones.
The popularity reached a point where the release of a new iPhone model had people camping out on the street in long lines to be among the first to buy them. And this occurred at or near the peak of significant technology upgrades. New models would come with significant upgrades from the previous model. You weren’t “hip” if you didn’t have the latest iPhone. It was a legitimate form of social status for many.
However, over time, the updates become less and less significant. New models were only small improvements over older models. It was around this time that “iOS” updates became a stronger motivator to upgrade. Basically, older phones were terrible at handling the upgrades and the functionality would get so bad upgrading became the best option. But like everything else, people eventually got wise to this and started abandoning the iPhone for other smartphones.
Market saturation is another factor. Its been almost 12 years since the release of the first iPhone. The market is now saturated with smartphones and almost everyone has one. Its no longer a “big deal” to have the latest iPhone like it once was and other brands are making phones that are debatably of equal or greater quality.
So, should a sale decline really surprise anyone? When almost everyone has a smartphone, there are a lot less “new customers” to reach. Demand has leveled off. Manufacturers are mostly limited to selling replacements at this point, which are less frequent now as there is not a huge benefit to upgrading regularly.
One way to fight this problem is cutting quality to make phones die faster and not last as long. But with your competitors making a similar product, this is a very dangerous game to play. The success of Japanese cars like Honda and Toyota in the 1980’s and 90’s is a great example of this. When your product is inferior or unreliable, people will just abandon it for something better. Especially if they can get something better for the same price or cheaper
In the end, what goes up must come down. Banking on any commodity staying “exciting” long term is usually a bad bet. Yet, some people really believed smartphones would keep flying off the shelves forever.