Introduction
The mobile device and smartphone market is one of the most fascinating in the modern economy. Its rapid growth, innovation, and profitability over just a decade is almost unprecedented and, in some ways, defies economic models. Furthermore, the impact that mobile devices have made in society, leading to widespread adoption is interesting to examine from an economic and business perspective.
The group selected this market due to these factors and an inherent interest to examine these popular consumer products which have people more excited each year than seemingly any other industry. Considering that the group and everyone in our surroundings has a smartphone and possibly other accessory devices, it is vital to examine how consumer choices reflect on the market tendencies in the industry. This report examines the mobile device market and its structure while conducting a supply/demand analysis, evaluating opportunities and challenges, as well as attempting to research forecasts for the future.
Market Description
The mobile device market is generally considered to be an oligopoly, most likely one of the most extreme examples in the modern era. There are two primary mobile operating systems, iOS made by Apple for its own produced devices, and Android, an open platform utilized by all other mobile device producers in the market. At any given time, the industry is dominated by a handful of companies that hold a large majority, of over 70% of the market share.
The past decade had Samsung and Apple in competition, rapidly capturing market share year over year. Recently, with the expansion of the market discussed below, other companies such as Huawei and Xiaomi have emerged with a fair share of the market. However, as has always been the case, no more than 4-5 companies hold relevant or significant shares of the mobile device market despite there being a handful of smaller producers attempting to either break into the industry or gradually exiting from it.
Supply/Demand Analysis
For the past 10-15 years, the mobile device has been growing exponentially. Cell phones, tablets, portable devices, and others have become a central concept in society and a “must own” product. As cellular phones and other devices have begun to offer a greater range of features, they continue to take away market share from traditional domestic technologies such as televisions and computers. The leading tech companies in this industry are continuing to see profits on a yearly basis.
Top-tier mobile phones, particularly iPhones from Apple where all models are all relatively expensive and have their own ecosystem, do not abide by the traditional rules of price elasticity of demand. The concept states that as price goes up, demand decreases, especially for non-essential goods such as a mobile phone. However, iPhones, for example, follow vertical price elasticity of demand, where the demand remains relatively stable despite yearly hikes in prices.
This is most likely due to the proprietary nature of the iOS operating system and aggressive marketing that has integrated users into it over the years, leaving users no choice but to buy the expensive Apple iPhones and increasing the steepness of the demand curve. Meanwhile, the counterpart operating system of Android which all other producers use is a commodity operating system with such services and software. Therefore, the demand for these phones is more elastic in comparison to Apple.
However, the market has experienced a strange trajectory. For years, prices on cell phones have been growing rapidly, particularly for flagship devices from companies such as Apple and Samsung. Although there has never been a necessary shortage of supply, the price of both product and sales, made such phones a rather limited market, mostly in developed nations. Eventually, over the past couple of years, in particular, there has been stagnation and even a drop in sales of these premium devices.
The factors leading to this will be discussed later, but price growth and other influences have led to a saturation point of the industry in a developed nation. Thus, demand is growing very slowly as the general upgrade cycle for consumers has increased to approximately two years as evident by certain peaks in demand when a particularly innovative device releases. In fact, most companies have taken this into account for their flagship phones, only making significant innovations every 2-3 years, while releasing devices with incremental upgrades in between.
Meanwhile, supply is steadily increasing in the market. First, this is due to the expected yearly releases of mobile devices. Second, due to the high costs of flagship devices which most outside developed countries cannot easily afford, there has been an emergence of smaller players on the market attempting to capture the low to mid-tier market share. These companies (primarily Chinese) have attempted to create a balance between supply and demand in the market through innovation but many affordable prices as well as used robust sale approaches. However, the strategy has been for supply to exceed demand, driving the price down.
Taking these tendencies into account, there are a number of factors that influence the modern mobile device market. The industry remains highly competitive, largely due to the similarity of devices and technology, thus requiring companies to differentiate themselves from consumers. Innovation is the primary factor as technology evolves to be more sophisticated as well as meet consumer needs in the all-in-one device.
Currently, the innovation factors are focusing on the transition to a faster 5G network and implementing better screens, cameras, and operational capabilities that would make the smartphone and its accessories a universal tool for practically any digital activity. Another variable affecting the market is price and branding as there are increasingly more offerings with each company offering its unique signature that is exemplified through price, design, or operating system.
Global economic forces are also impacting the market, as top-tier cellphones are a non-essential consumer product. Therefore, in times of economic crises, demand has decreased or shifted towards the low-end spectrum of the smartphone market. Finally, the industry heavily depends on the availability of certain natural resources such as rare metals and other elements used in electronics production. With current mineral deposits being rapidly decreased or concentrated in a few regions, there is a potential that this could affect the market supply in the near future.
Evaluating the Market
Despite high saturation and stagnating innovation, there are numerous opportunities in the mobile device market. First, with more possibilities available, smartphone makers are actively working on creating a full-screen device (removing the visible camera and bezels in the front) as well as other technological breakthroughs. It is also important to consider that the mobile device market consists of more than smartphones but can include smart watches, wearables, headphones, and other smart devices designed as accessories or complements to the smartphone.
These aspects remain largely underdeveloped and could be capitalized on for mass adoption in later years as an opportunity to diversify profits away from smartphones. For the next few years, it will be both an opportunity and a challenge to break into new developing markets with affordable smartphones, expanding market share and potentially pushing back a complete saturation. Another opportunity for companies is to expand the use of mobile technology in other industry-specific contexts such as health and education which could also contribute to the growth of the market.
Nevertheless, the mobile device industry also faces a fair amount of challenges and constraints. Oversaturation discussed in the previous section is a potential concern as the decline in overall profits was seen in latter 2017 and 2018, and potentially indicating the challenge that must be overcome. Smartphone prices and better longevity are prolonging replacement cycles to 2-3 years. The industry must be able to address the saturation issue without negatively impacting quality.
Another aspect is innovation, which was discussed as an opportunity, but can also be a challenge, particularly with the primary smartphone device. The technology in itself is reaching the end of what can rationally be done with the device in the currently available possibilities.
Therefore, in the next few years, innovation will require bigger breakthroughs, costly development, and other technical barriers as challenges. At the same time, the market leaders face the challenge of keeping prices consumer-friendly in the midst of costly R&D and increasing prices on electronic components. The market has indicated that current prices have reached a maximum of what consumers are willing to pay for the price/quality ratio offered. Henceforth, industry leaders may need to address pricing, albeit at the cost of their own profit margins.
The mobile technology market is playing a significant role in the Middle East and North Africa region economy. The penetration rate of unique mobile subscribers has reached 69% or 375 million people, with an expected annual growth of 2.5% until 2025. The market is profitable in the region, resulting in $68 billion in operator revenues and investment. Overall, the mobile industry contributes $165 billion or 4% to the regional GDP and is expected to grow to $200 billion by 2022.
Also, the market provides approximately $17 billion to public funding and offers 1 million jobs in the region. While it is recognized that subscriber growth is stagnating, there is still potential for growth as the Middle East and North Africa are the second least penetrated region globally for mobile technologies. More developed states such as the Gulf Cooperation Council are actively embracing mobile technologies and associated industries and attempting to use the opportunities to expand too much poorer nations in the region, thus contributing to their economic development through this market.
The UAE is seeing the tremendous growth of its mobile device market, increasing by 7.3% in 2018. Although the market is faced with challenges due to a lack of disposable income in the population, along with GCC, the UAE is attempting to become a leader by adopting 5G mobile services. The public and private sectors are actively implementing mobile technologies in improving the efficiency and quality of their operations. Therefore, an expansion of the mobile market and widespread adoption on both, consumer and enterprise levels, greatly contributes to the country’s long-term economic prosperity and economic diversification.
Summary and Conclusion
It is evident that the mobile device market is global and inherently complex. It maintains an oligopoly structure with major companies rotating over the years, but the market remains dominated by Apple and Samsung. The demand for mobile devices continues to increase but the market has reached a point of saturation in developed countries, leading to stagnant growth for the global indicators.
However, the unique tendencies of vertical price elasticity of demand for top-tier smartphones help the profitability of the industry leaders. The market is affected by a number of aspects such as prices and cutthroat competitions, innovation, and global economic forces as well as the supply of necessary components. These aspects both, provide opportunities for development and innovation while posing significant short- and long-term challenges for market growth and profitability.
The future of the mobile device market is uncertain and strongly depends on the strategies taken by industry leaders. The market will likely grow at slow rates of 1-3% annually if there is successful expansion into developing markets and wearable devices.
Eventually, it is likely that saturation globally will reach an all-time high and the market will decline for a period of time. Until there are either significant innovation breakthroughs or the world economy will demonstrate growth leading to consumers to spend more money on mobile devices, it is unlikely the market will see the levels of unprecedented growth as in the previous decade. However, the market and industry remain critical in global technological development and will continue to remain relevant for years to come.
Reference List
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