The two big phone announcements of the week featured new Android devices — the OnePlus 2 and the Moto X Style — with specs that compete well with $600-plus premium phones, yet cost between $300 and $400. We also heard that Samsung plans to “adjust” (read: reduce) the price of its $600 – $700 Galaxy S6 phone after weaker than expected sales.
What’s it all mean? Could it mean that the $600-plus Android phone could become a thing of the past? The numbers seem to be pointing in that direction.
A glance at the IDC phone shipments data (courtesy of IDC analyst Tom Mainelli) tell the tale. In the Q1 2014 Android devices costing $600 or greater made up 9.1 percent of the worldwide shipment volume. By Q1 2015 that had slipped to 5.6 percent. Meanwhile, the percentage of iOS devices in the greater than $600 price band has grown from 70 percent to 80 percent in that same time frame.
However, none of the analysts I spoke with believe expensive Android phones are going away anytime soon.
“It has certainly gotten much harder for companies to find success at the high end of the market, but I don’t think that it goes away,” Mainelli says. “It just becomes an increasingly smaller percentage of total Android shipments.”
Over the past couple of years we’ve seen smartphone vendors switch focus to selling mid-priced smartphones at high volume into developing markets like China and India.
At the same time we’re seeing a smartphone market where Samsung still sells the most phones worldwide, followed by Apple. But Apple is unique in that it sells just a handful of smartphones, and they’re all premium phones. The margins on premium phones are much higher, and Apple uses its tremendous brand power to get people to pay the high price. A recent report said that Apple captures 92 percent of the profit made worldwide from selling smartphones.
Perhaps the best and only way for Android phone makers to capture more of that pool of profit is to offer devices that are comparable to the iPhone but at a much lower price. The Moto X Style and the OnePlus 2 may be on the front end of a trend toward much less expensive “premium” Android phones.
Current Analysis analyst Avi Greengart agrees that $600 phones aren’t going away, but they’re becoming a harder sell.
“As long as you have some vendors willing to sell phones near cost through a low-cost channel (direct to consumers), vendors selling at higher price points will need to have clear differentiation that justifies their added expense.” Both of the Moto and OnePlus phones mentioned above are sold directly to consumers, without having to cut in a reseller or a carrier.
Technalysis Research analyst Bob O’Donnell says the premium phone crunch is bigger than Android, and will increasingly affect Apple, too.
“The iPhone 6 and 6 Plus have sold very well just because people were dying for larger screens,” O’Donnell says. “But now that consumers already have a big phone they’re content, and they’re not feeling the need to upgrade as frequently as they have in the past.”
The biggest feature improvement in the new iPhones is expected to be Force Touch, which allows the user to press down on the screen to activate functions. O’Donnell says we’ll have to wait and see if the Force Touch screens on the new iPhones, which will be announced in September, will be enough to get iPhone 6 users to upgrade. He’s skeptical.
O’Donnell says Apple may not drop the prices of its phones anytime soon, but it will get harder and harder for the company to continue selling high volumes of them.
How has Apple managed to sell so many expensive phones in the past? Current Analysis’s Greengart says Apple has something Android vendors simply don’t have.
“Apple has done that through its unique ecosystem, design, and brand promise (that brand promise includes a simple and smooth user experience, top notch imaging, service/support, and longevity/resale value)” Greengart wrote in an email to VentureBeat. “Android vendors do not have a differentiated platform to sell, so they will need to find something else.”
That “something else” might very well be a lower pricepoint, as in the Moto X Style and the OnePlus 2.
We all like to talk and write about the sexiest and most powerful phones. That will not change. There will always be the top of the line. But phone makers might start relying less and less on expensive $600 phones — and more on mid-priced phones — to make their quarterly numbers.