The smartphone has moved from a geeky plaything to a ubiquitous part of everyday life for many customers around much of the world. Close to an estimated 1.5 billion devices were sold last year. In the developed smartphone market, defined as North America, Europe, the United Kingdom, plus parts of Asia, many customers are on their second or third smartphone. There are relatively few new customers buying a new 'phone and this has caused smartphone sales growth to stall. Even including sales into emerging smartphone markets, such as India, global smartphone sales growth is expected to stagnate at only 0.6%. This small growth figure means that the world's smartphone market is jostling with fierce competition as manufacturers strive to bring the next great thing to the industry.
From a hardware perspective, this is becoming increasingly difficult – at least in the absence of a radical technological development, such as foldable screens or a device able to go for a week between recharging. Virtual reality is not there yet, nor is the imaging and situational awareness that Google's Tango technology brings. 2017's crop of smartphones are likely to represent an evolution of 2016's smartphones, with incrementally "better" hardware offering a modest real world improvement over the previous generation. One area where manufacturers have been able to show an improvement is in software support: older devices become obsolete after two to three years, and a period of time after this, are unable to run current applications. However, as smartphones become more and more expensive, so customers are keeping smartphones for longer. Citigroup estimated customers replace handsets every 31 months in Q3 2016 compared with inside two years in 2011.
For 2017 it is likely to be software that is a driving force behind manufacturers attempting to differentiate their products from the competition. Space in our homes, offices, cars and on even public transport is evolving with the introduction of more and more high tech gadgets to make life easier. Today we have smart speaker systems, ovens, door locks, laundry machines and dryers, home thermostats and even refrigerators. And despite the introduction of wearable technologies such as smartwatches, the smartphone is still at the center of our technological life: it's the platform almost all customers will use in order to control (or at least setup and perhaps maintain) the other electronic gadgets of our lives. It is increasingly becoming the remote control for our life, and it is also acquiring a smart technological underpin.
We have already seen smartphones accessing smart technologies such as the Google Assistant, but we are seeing software and hardware companies spending considerable sums of money into developing the next generation of smart software, with artificial intelligence and deep learning systems at the heart of this. The addition of smart software on our smartphones will greatly expand how useful these devices are. Artificial intelligence and deep learning technologies will mean we are able to talk to our smartphones using natural language and provide a number of sophisticated commands, or show our device something and it will recognize this. And whilst many vision and speech-recognition technologies are at least partially operated in the cloud, in order to access these technologies in a timely and efficient manner, our devices will need new hardware. However, although some hardware is either ready or very much at the "coming soon" stage, the software is not ready yet – the Qualcomm Snapdragon 835 is a flagship chipset and its underlying smart technologies are unlikely to be commonplace in early 2018.
When the software side of things has improved, customers will be able to use what some industry experts are calling "frictionless computing." Frictionless computing is the ability to naturally and easily communicate and instruct flexible, adaptable computers able to do many things for us. This is a vision shared by many science fiction authors and technology manufacturers, but we are going to need to wait until frictionless computing becomes affordable and practical rather than an "almost here" technology. This technology, if it requires a change in device, could fuel a boost in growth of smartphones but it is likely to be a short term impact.
Instead, the world's smartphone manufacturers must be considering changing their business models. We have already seen evidence of this: it is difficult to make a profit selling smartphones in today's market. Apple is one exception as the iPhone still produces significant sums of cash, although in 2016 iPhone revenue fell by 13%. At the same time, Apple witnessed 24% revenue growth from its services division, which includes Apple Pay and Apple Store. Apple's services division produces only a fraction of the revenue of the headline-grabbing iPhone business, but it may show an important trend. Samsung too is investing into it's smart technologies and of course Samsung Pay, and we have seen a number of other Android smartphone manufacturers scrabbling around to diversify their businesses.