The upgrade cycle is critical to Apple’s business. While manufacturers of Android handsets are going after new users in emerging markets with lower-priced phones, Apple has staked its growth on higher-cost premium products. This means they need to keep selling devices in developed markets, where the smartphone industry is fairly mature. Apple needs people who already have smartphones to keep buying new ones — often.
But a recent report from BI Intelligence shows that these customers are dependent on upgrades tied to contracts and carrier subsidies in order to get new Apple devices. But they ware waiting longer and longer to upgrade their phones. In the United States, the upgrade cycle remained pegged at 21.7 months for several years, according to Recon Analytics. But this year, BI Intelligence believes the upgrade cycle is likely to rise to 24 months.
Why is the upgrade cycle growing longer? In the report, we find that 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 and subsidies. 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.
But the reason industry players want a shorter upgrade cycle isn’t just about selling more phones. Here’s why else a short upgrade cycle is important:
- 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.
- App developers, in turn, design software around the 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.
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 latest Smartphone Market Forecast.
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