Smartphone unit sales will decline for the first time ever this year, after growing about 16% annually from 2012 through 2017. Apple’s stock is off 25%, due in large part to disappointing sales of its latest series of iPhones—most notably the iPhone XR. It appears that we have reached ‘peak smartphone’. It’s difficult to envision anything in the pipeline that will spur a new wave of significant growth in unit sales—in part because today’s devices are so good, and in part because that next level of innovation is just more difficult to come by. Perhaps it will be flexible displays, a major improvement in battery life, or a unique experience catalyzed by 5G. But it could be some time before any of these potentially game-changing innovations come to market.
This has led me to think a bit about the history of cell phones, and other "peak periods," to consider whether there are any parallels or lessons in this new "post peak" era. Since the advent consumer cellular services in the early 1980s, I’ve identified five particular peaks in the history of mass market cell phones. What lessons can we learn?
Motorola StarTac. Introduced in 1996, the StarTac was the first ever clamshell (flip) phone and, really, was the first blockbuster consumer wireless phone. Wireless went quickly from being a utilitarian, business-centric service to a more consumer-driven industry, with fashion and design taking center stage. Motorola sold some 60 million StarTacs worldwide, which was an incredible number at the time. Sales started to tail off with the advent of the candy bar phone and, more importantly, with the launch of the Nokia 6160.
Nokia 6160. This was the signature candy bar phone. And it was an "old reliable." But the real catalyst for this next wireless peak was that AT&T twinned this $200 (subsidized) phone with the introduction of its Digital One Rate plan in 1999, which eliminated long-distance and roaming charges. This ushered in the next phase of wireless industry growth, vaulting both AT&T’s share of service provider market and helping Nokia to dethrone Motorola. At its peak, Nokia was selling 130 phones annually.
Motorola Razr. This was the last major hit of the "feature phone" era, ushering a resurgence of fashion and cool as a signature selling element. Introduced in 2004, Motorola sold 50 million V3s within six months and some 130 million over a four-year period. The era of the "thin clamshell phone" had a fairly extended life, sharing the market quite happily with some of the first popular smartphones (Blackberry, Treo) until the iPhone started surging in popularity in 2008. Nokia’s share started a steady decline—initially when it failed to capture the "cool" of the Razr, and then when it failed in the smartphone market (not for lack of trying).
Palm Treo. More than even Blackberry, the Palm Treo launched the smartphone era. This device was incredibly innovative for its time. The initial devices were released in 2003, but peaked in the 2005-2007 era with the advent of color touch screens based on Palm OS 5. They were a worthy competitor to the surging Blackberry for some years, but peaked in the 2006-2007 period. Ultimately, Palm could not innovate and iterate quickly enough on the product side, losing out to Blackberry in the business market and then the iPhone.
Blackberry. Even though Treo had a loyal following and was in some ways the more innovative device, Blackberry had a great peak run from 2006-2011. At its peak in 2010, Blackberry had 22 million users, or nearly 40% of the U.S. smartphone market. Its life was extended somewhat by Verizon, which needed a counter to AT&T’s, three-year "exclusivity" period on the iPhone. Verizon relied heavily on Blackberry in the first couple of years of the iPhone era, but then worked closely with Google to cultivate an OS counter to the iPhone with Android. Blackberry continued a decent run in the enterprise segment. But ultimately, the combination of 3G and then 4G, app stores, better browsers, continued design innovation, and improved email/security features on iOS and Android devices, ushered in the fairly rapid decline of Blackberry.
OK, interesting retrospective, but what lessons can be learned here? Like some of the other peaks, I think we’ve reached the apex of "Big I" design innovations with respect to the smartphone form factor. Screens can’t get much bigger and still be usable as a phone. And improvements in other areas, from processing speed to cameras to power management and even features such facial recognition, will be modest and not likely move markets (or share). It would be nice if one could buy a device like the iPhone XS or a Galaxy S9+ for half the price (you can, but it’s from Huawei). But the real innovation in the smartphone experience is coming less from the design of the device or hardware specs and more from AI-driven usability improvements such as voice-based assistants.
What about 5G? Verizon helped spur a surge in iPhone sales when it introduced an LTE iPhone in 2011, capitalizing, in part, on AT&T’s well-publicized network capacity problems at the time (ironically caused by unexpected data growth due to the iPhone). We won’t see a replay of this with 5G, since there’s not nearly the same delta in network capabilities between the major operators that there was ten years ago. I don’t believe there will be any 5G-centric phones over the next 2-3 years that will be big hits in and of themselves. In fact, I don’t think it’s going to be a device that is a catalyst for 5G, or conversely, that 5G will cause a resurgence in smartphone sales. It will more likely be an app, a particular game, or something in the AR/VR arena that gets folks excited about 5G and perhaps pay a premium price for a 5G phone. In this way, the smartphone is evolving to be more like the PC—somewhat utilitarian in its essence with a set of foundational specs that provide a gateway to a world more driven by how AI, software, super-fast networks, and the cloud come together to drive new user experiences.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is managing director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.
Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.