Trends in Device Turnover
By CDATABy Tim Kridel for Digital Innovation Gazette!-- AddToAny BEGIN -->
What do the iPhone, the EVO 4G LTE and the Droid 4 have in common? They all have batteries that users can’t replace themselves when they start having problems holding a charge.
For developers, that design is noteworthy because it’s one of many factors that affect how often people replace their smartphone. Replacement rates affect the addressable market for apps built for each OS.
Smartphone vendors are increasingly using non-user-removable batteries because that design frees them to shoehorn in ones that last longer. If the battery wears out before the two-year contract expires, users have to decide whether it's worth paying around $80 to have it replaced or whether they should shell out the full, unsubsidized price for the latest and greatest model.
Other factors that influence replacement rates include:
- Prepaid or postpaid? If your app caters to demographics with a high percentage of prepaid usage, expect your customers to get a new phone much more frequently.
“Postpaid smartphone users tend to upgrade to a new phone every 18 to 20 months,” says Julien Blin, Infonetics directing analyst for consumer electronics and mobile broadband. “For prepaid users, I believe it is every seven to eight months because of the nature of the business.”
- The end of early-contract-renewal incentives. Until recently, some operators let customers upgrade to a new model at a deep discount even when they still had six months or more to go on their contract.
“Some carriers have started to cancel early upgrade programs because they are losing money on the subsidy cost and duration of the contract,” Blin says. “In fact, for the iPhone 5, it looks like AT&T might have phased out its early upgrade program. But some smartphones users (e.g., die-hard Apple fans) don't mind paying a premium to get the latest and greatest.”
Changes to those programs are particularly noteworthy for developers that create apps for specific operators. If eliminating an early upgrade program increases churn for a particular operator, then that app’s addressable market shrinks.
- The growth of the refurbished market. Today, most U.S. operators offer trade-in programs. Even so, less than 1 percent of phones are recycled, according to the Device Renewal Forum (DRF), a new organization that aims to increase that amount. One DRF member, ReCellular, predicts that within a few years, one-fifth of all smartphones and feature phones sold in the U.S. will be refurbished.
Refurbished smartphones are significantly cheaper than their brand-new counterparts. So if the selection of refurbished devices grows -- including models that are less than a year old -- it’s possible that more people will switch smartphones more frequently.
- The rise of the must-have smartphone. Some people don’t mind paying a hefty premium to have the latest model outside of new-contract or new-customer incentives.
“The refresh cycle is reducing year over year because of companies like Apple or Samsung who offer new flagship devices -- the iPhone 5, the Galaxy S3 -- every year,” says Blin, who was strategy manager at Samsung, where he advised the CEO about products such as the Galaxy family of tablets and smartphones.
Is There OS Loyalty?
When people replace their smartphone, do they stick with the same OS? Not surprisingly, the answer varies. For example, the week that the iPhone 5 launched, the analyst firm iGR surveyed 1,001 U.S. consumers.
“Eighty-eight percent of current iPhone users were likely to buy another iPhone, and 10 percent were undecided,” says Matt Vartabedian, vice president of wireless and mobile communications research. “Sixty-nine percent of current Android users were likely to buy another Android device, and 26 percent were undecided.”
An OS’s market share can change dramatically in the span of a two-year phone contract -- or even faster. For example, in late 2009, Android had less than 10 percent of the U.S. mobile market, IDC says. One year later, it was 45 percent. During the same period, BlackBerry’s share dropped from about 45 percent to 25 percent.
Another factor that affects replacement rates is the availability of OS upgrades. Smartphone vendors typically offer only one major OS upgrade for their Android devices, so customers who want the latest and greatest OS version have to decide whether to pay the hefty unsubsidized rate for a new phone before their two-year contract is up.
Apple is an exception because it typically provides OS upgrades to all but its most elderly iPhone models. That means the majority of iPhone owners will be able to take advantage of app features that require the latest version of iOS. In the case of iOS 6, it also means that developers have to move quickly to upgrade their apps so they don’t lose customers who dislike letterboxing.
How quickly? Less than a week after iOS 6 and the iPhone 5 debuted, 63 percent of Pocket’s iOS customers were already using the new OSPhoto: Corbis Images
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