Jeff Kagan: Will 5G and Smartphone Price Increases Stick?

Jeff Kagan  |

Image: iStock.com/sarayut

Many users are shocked at how the price of smartphones is skyrocketing in recent years. There are two reasons for this price increase. One, is the marketing move by smartphone makers due to slower sales. Two, 5G. So, is this new, high priced world going to stick around or will prices come down once again as 5G matures as has happened in the past?

If this price increase was just caused by 5G alone, I would say this could be temporary. However, because prices have been going up quite rapidly and quite substantially over the last couple years, and before any of it could be attributed to 5G, I think we can expect it to continue going forward.

First, the price of smartphones has been going up during the last couple years. Apple iPhone, Google Android, Samsung Galaxy are all on a rapid climb. Why? The answer is because smartphone are maturing and sales are slowing. Why are sales slowing? The answer is lack of innovation. The same number of users is no longer willing to trade up annually for little innovation.

Why Apple iPhone, Google Android, Samsung Galaxy prices increase

The next logical question is, if innovation is slowing, what makes smartphone makers think they can charge more? And that is the problem.

This kind of price increase makes no sense from the perspective of the user, but investors like it, and that’s why I think it will continue.

So, user upgrades to the next generation smartphones are slowing, but investors are still happy. However, at some point if the innovation wave does not pick up once again, this could backfire on the companies.

If innovation was there, users would upgrade as they always had during the last decade. However, because innovation is slowing, users have less incentive to upgrade.

It’s a good thing 5G is coming. Users will have to upgrade to get their new 5G device. However, if there is still a lack of innovation, they still will not upgrade yearly.

Innovation is the key to continual user upgrade

This creates a real risk with the investor in companies like Apple [ (AAPL)], Google [ (GOOG),  (GOOGL)] and Samsung. Investors are different from users. Investors are only interested in making money. And if they aren’t making money, they will go elsewhere.

That’s why smartphone makers need to keep making more money, year after year. They need to keep their investors happy so they can hang onto them. They apparently figure if they can’t do it the right way, through innovation, then they’ll do it the wrong way, through increasing prices.

However, customers are smarter than companies give them credit for. That logic will only go so far. That’s why this is like a black hole that could ultimately suck the life out of some companies unless and until they catch on and fix this obvious problem.

Prices increase for next generation 5G smartphones

The second part of the equation is the move to 5G. This wave is just beginning and will only grow over the course of the next several years. This is a double whammy for the user.

If it were not for the recent wave of price increases, I would have said that this 5G smartphone price hike may only be temporary and would settle back down over the next few years as the technology matures. This is what has happened in the past.

However, with the investor pressure, I would say this price increase will not be temporary. Rather, this is just the new reality we will all have to expect going forward.

Smartphone makers will say the price increase is because of 5G to help them hide the real reasons for these price increases. After a while the user may buy-the-bullshit.

The good news is the next innovation wave is coming on strong with 5G. The next question is this. Will 5G usher in a new wave of innovation, enough so the user will upgrade year after year once again? Or will the upgrade cycle not pick up?

Either way, I don’t think prices will come down again.

So, like it or not, I think this current wave of price increases will be permanent. I don’t think prices will ever go down again. While this is great news for the investor, it is not good news for the user. But by the time the 5G growth wave moderates, users will not likely remember the good ole days when they could get a new iPhone or Android for a few hundred dollars.


Jeff Kagan is an Equities.com columnist. Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst, Influencer, speaker and consultant. He follows wireless, wire line, telecom, Internet, pay TV, cable TV, IPTV, Cloud, Mobile Pay and communications technology. Email him at jeff@jeffKAGAN.com. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan.

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Equities Contributor: Jeff Kagan

Source: Equities News

DISCLOSURE: The views and opinions expressed in this article are those of the author, and do not represent the views of equities.com.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer. The author of this article, or a firm that employs the author, is a holder of the following securities mentioned in this article : none

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