Are handsets the differentiator they once were? And if not, how can MVNOs benefit from consumer feature fatigue?
Remember the days when you couldn’t wait to get a new handset every year? Or how you railed against the move to two-year plans and counted down the days to your upgrade?
But then you once felt that way about your laptop. Today there’s less incentive to change laptop because they’ve hit a feature plateau and yesterday’s laptop is still pretty good – a fact reflected in dropping PC sales. It’s not that people aren’t buying new PCs, they’re just keeping them for longer because they moved into replacement rather than upgrading. That is, they buy a new one because their current machine is worn out or broken, not because some startling new feature is available. An effect driven by a fundamental change in computing – whereby applications and storage have moved into the cloud, reducing the demand on local machines.
This effect has also begun to hit the handset market. Applications and storage in the cloud, combined with the use of ARM processors which are powerful without being power-hungry, mean that handsets too are starting to reach a feature plateau, with replacements being less transformative than we have become used to in the last 10 years. This means that customers are becoming more willing to hang on to a handset for another six to 12 months on a SIM-only deal, rather than commit an additional £1000 on a new handset.
If you examine Q2 handset figures, you will see that this effect is currently most obvious in Western Europe, but what we may be seeing is the first signs of smartphone feature fatigue. Customers seem less impressed by the incremental improvements to screens or processor power that manufacturers rely upon to fuel sales.
According to the headlines the global smartphone market is still robust, with global sales reaching 347 million units in Q2 2017, up 4% from Q2 2016. Revenues were also up – by 9% – but only because the price of handsets had risen once again. To discover what’s going on though, we need to look carefully at regional patterns. These show that global sales are boosted by emerging parts of Asia, LATAM, as well as Central and Eastern Europe, while demand in Western Europe fell for the third consecutive quarter, this time by 3% over the same quarter in 2016, to 28.7 million units. Even China has seen sales plateau, with the same number of units sold in Q2 2017 and Q2 2016 (110 million).
What does this mean for MVNOs? If customers are starting to become fatigued or not able to justify the biennial upgrade, then MVNOpro believes they are more likely to turn to SIM-only plans – particularly monthly deals which are economical and put them in charge of their upgrade cycle. This favours the position of the MVNO that is able to support these deals. And if the MVNO performs well, the customer may decide to buy a standalone handset and move outside the biennial cycle of the MNOs.
This pattern is already being observed in markets such as the UK. MVNOs in other markets should take note and consider how they market and sell to customers with feature fatigue, when the handset upgrade becomes less compelling.