Whether it folds or it's just the size of a microhome, high-end smartphones are hitting an all-time high many of us aren't exactly loving: price. Now, this isn't a post about singling out Samsung in particular—they're merely on the cutting edge of what is a larger and growing trend. When Apple launches its first 5G iPhones later this year, you can bet your AirPods they'll come with an appropriately next-generation price hike. But at what point is enough finally enough for the mass market?
One thing I think we can all agree on is that technology, and microprocessors in particular, have resulted in a tremendous and demonstrable trickle down effect in the marketplace, driven by both commoditization and innovation. As there is more and more demand for the advanced components and processes necessary to produce smartphones, economies of scale drive the cost of those components and processes necessarily downward. And as new innovations are introduced in the marketplace, older technology becomes less competitive, and prices steadily decline and that technology radiates into a wider array of products at a wider array of price points. You can buy smartphones today for under $200 that would run circles around those that cost $700 five years ago, a result both of commoditization and innovation. We all understand these sort of things almost unthinkingly, because that's just how technology works.
But in the past two or three years in particular, we've watched smartphone prices climb at a fairly unprecedented rate. Last week, Samsung announced the $1400 Galaxy S20 Ultra, and the reaction to the pricing was almost universally surprise, and even a bit of shock. We all knew 5G would come with an MSRP premium, because that's what 4G taught us way back when, but I think this kind of pricing may even have a lot of the industry experts reeling a bit.
A $2,000 phone, even financed over 2 years, would cost more per month than typical postpaid phone service in the US.
Much of the anti-blowback on the subject of price shock focuses on the fact that the vast majority of people, especially in the US, finance their phones over around two years. That makes a $1000 phone negligibly more expensive on a monthly basis than a $700 one, and a $1400 one negligibly more expensive on a monthly basis than a $1000 one. Or so the logic goes. While I do agree with that logic, I do so only to a point, because I think there is a point at which it fails, one that is rapidly approaching. While Samsung's $1400 S20 Ultra is a strong $600 shout away from $2000, last year's Galaxy Fold brushed right up against it. Clearly, Samsung is flirting with the idea of a $2,000 smartphone, and I suspect the Fold's successor will run perilously close to that mark as well. And a $2,000 phone, even financed over 2 years, would cost more per month than typical postpaid phone service in the US. You're going to notice that on your bill.
And what of 2020's Galaxy Note phones? I have my suspicions they won't actually threaten to unseat the S20 Ultra as Samsung's MSRP top dog (the Note has been of declining relevance for years), but Samsung has clearly made room for them to get serious hikes as well. Prices will doubtless be up across the board in 2020.
With all of these ever-rising costs, I do think we're approaching a point at which consumers are more and more likely to start asking questions that phone manufacturers really would rather they didn't. Why is this phone so much more expensive? How much better is it actually than my old one? Do I need superfluous technologies like mmWave 5G or enough RAM to run a Windows installation with 30 open Chrome tabs? Are there cheaper phones that still do what I need?
It is easy to say that in a rich, consumerist nation like the United States, people will simply buy what the corporation with the largest ad budget and most influencer marketing tells them to buy, and that they will pay the price asked. And no, no one is forcing anyone to buy the most expensive phone: Samsung still has a very "reasonable" $1000 Galaxy S20 if you don't want the full-fat S20 Ultra. Options remain.
But as consumers choose to upgrade their phones less and less frequently (a trend for which there is ample data), manufacturers continue to raise prices in order to reap back the profits of what was once a reliable 2-year replacement cycle. And as those prices rise, consumers are becoming more and more conservative about replacing their phones, more frequently choosing to repair them when they break and generally hold on to them longer. With more reliable security updates, fewer truly experience-breaking changes in new Android releases, and the widening availability of screen repair and battery replacement services, it's easier than ever to just choose not to upgrade.
As we begin the slow descent from peak smartphone, competition on price and features is only going to intensify.
One of the real warning signs for this trend, in my view, has become the widening gap between the most expensive phones and the traditional "mid-range" phones in markets like China and India. While the high end of the market has always significantly outpriced the entry level, the proportion by which that is true has skyrocketed. What was once a factor of maybe two or three between a respectable mid-range value phone and a "flagship" is now five or six. But I don't think anyone could seriously and credibly argue you're getting five or six times the phone. That, to me, is the canary in the coal mine: while affordable phones really are getting much better—and importantly, staying affordable—the most expensive phones are making what are at best marginal advancements year over year, all while becoming markedly less affordable in the process.
As a pattern, it's hard to see how this is sustainable. And as we begin the slow descent from peak smartphone, competition on price and features is only going to intensify. While I agree that the US market has proven surprisingly resilient to the allure of smartphone affordability to date (and that there will always be a significant population who really do want premium products), I feel we're increasingly a wrinkle in a global trend, and one that will—eventually—iron itself out.