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We are entering the age of peak smartphone. What happens next?

Paul Lee
TOPSHOT-SWEDEN-TRAFFIC-SMARTPHONES
smartphones are the most successful sonsumer electronic device of all time (Source: Getty)

A decade ago few of us imagined we would have a compact, sleek device that we could and would use for email, ordering groceries, taking and sharing photos and videos, tracking children, paying for the bus, catching Pokemon and occasionally making calls. Yet, nine years on from the launch of the first full touch-screen smartphone, can you imagine living without yours?

Today, four out of five UK adults (81 per cent) own a smartphone – the equivalent of 31m people. For 18-24 year-olds, this rises to 90 per cent. No other device has had the same commercial and societal impact as the smartphone, and no other device available today seems likely to.

Growth, however, inevitably slows. According to our Mobile Consumer Survey, published today, increases in smartphone adoption are slowing to a crawl: smartphone ownership in the UK rose by a modest seven per cent in the year to 2016, compared to nine per cent the year before and 13 per cent in 2014. I expect growth to continue rise even more modestly, by no more than two to four percentage points, over the coming 12 months.

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Smartphone penetration is peaking, but the devices and the networks they attach to will continue to improve markedly in the medium term.

Since the first touchscreen smartphone launched in 2007, there was significant and visible innovation for many of the subsequent years. Yet, in 2016, the contrast in looks, power and performance between a premium smartphone and last year’s equivalent is not as evident as it once was.

As such, a key challenge for handset manufacturers and network operators is the difference in perception about the innovation in a new smartphone. The pace of innovation may be obvious to the suppliers, but is less perceptible and valued by consumers. This means that some smartphone owners may no longer feel the same compulsion to upgrade their smartphones in 2016 as fervently as they would have done in previous years.

For instance, whilst chasing and collecting digital artefacts around the UK requires fast networks and powerful processors, it might be challenging to sell a handset on its suitability for playing a game such as Pokemon Go.

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In the post-peak smartphone age, one of the real winners is likely to be the used smartphone market. This year, globally, consumers will sell outright or trade-in around 120m used smartphones, generating more than £12 bn for their owners, at an average value of £95 per device. This is a 50 per cent increase from 2015, and we would expect the market to grow even more in the next year as we are nearing full smartphone saturation.

The approach of peak smartphone ownership needs to be put into some perspective; smartphones will not suffer the same fate as tablets. The replacement market is likely to remain healthy, and given the sizeable base of existing owners, smartphone sales are likely to remain in the tens of millions for the foreseeable future.

Globally, more smartphones are likely to shipped in 2016 than the aggregate of all PCs, tablets, televisions and games consoles. Although the ownership of the smartphone will inevitably plateau, it will do so at a level which positions it as the most successful consumer electronics device of all time.

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