The smartphone refresh cycle has lengthened over the years as vendors struggle to introduce compelling new features, but that could be about to change.
2020 should be the year of the 5G smartphone. 19 million were shipped last year, which was more than expected, but that was mostly about pace-setters Samsung and Huawei. This year the market is expected to explode with the launch of the Samsung Galaxy S20, the expected arrival of the first 5G iPhones in September and the rest of the Chinese vendors getting their 5G acts together.
Traditional smartphone refresh cycles have been around two years in markets with a heavy emphasis on postpaid contracts, as consumers are enticed into upgrading by operators keen to keep them. But those cycles are getting closer to three years these days as people realize their two-year-old phone still works just fine and they can switch to a much cheaper SIM-only deal.
The only reason to declare a perfectly good device obsolete is if newer ones offer a must-have feature set or design. But the smartphone form factor matured very quickly and new handsets tend to offer little more than a spec upgrade over their predecessors. That’s why the once-in-a-decade arrival of a new generation of air interface excites anyone with a professional interest in that refresh cycle contracting.
On such company is Blancco, which offers services such as data erasure and diagnostic software to facilitate the second-hand smartphone market. It recently published a study called ‘5G Smartphone Upgrades and the Secondary Device Deluge’, apparently designed to investigate the extent of the ‘secondary device’ opportunity created by 5G.
The study is based on a survey conducted by Sapio Research in November 2019. Respondents were 5,000 consumers divided equally between the UK, the United States, Germany, India and the Philippines. The headline figure is that 68% of them would be willing to trade in their current device when they upgrade to a 5G one. From that Blancco concludes over 800 million devices globally could enter the secondary market this year.
“The global momentum being built by the secondary device market shows no signs of slowing down,” said Russ Ernst, EVP of Products and Technology at Blancco. “The widespread global availability of 5G in 2020 is going to significantly increase the number of used devices coming back to operators and OEMs through buy-back and trade-in programs.
“Secondary market stakeholders must be ready to deliver an excellent customer experience, and that means securely and efficiently processing devices through various customer touchpoints and processes—from the retail store and back through to the reverse supply chain.”
Blancco’s vested interest is clear and undisguised, but that doesn’t mean it’s wrong. With the possible exception of Apple, which seems to offer insulting rates, retailers are pretty bad at engaging their customers on the matter of trade-ins. There’s presumably a few quid to be made there and this year looks like a good time for the telecoms industry to raise its game in this area.
As predicted, many global consumers have been holding on to their current smartphones in anticipation of 5G. Not only will 2020 see a huge number of 5G smartphone upgrades, it will also see hundreds of millions of used device trade-ins. This exclusive report will reveal:
- The extent of the used device deluge facing operators, OEMs and third party logistics providers in 2020
- The high levels of complexity these stakeholders already face when receiving, processing and re-distributing used devices
- The proactive steps they must take to guarantee the best possible user experience and preserve data integrity amidst this device deluge
Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this article, Alan Bentley, President, Global Strategy at Blancco, looks at anticipated 5G device sales forecasts and considers the impact that they could have on the secondary device market.
The global device market has been under criticism in recent years. Many industry commentators have bemoaned slowing levels of innovation when it comes to new smartphone functionality. Global OEMs have been trying to maintain high prices for premium high-end devices, despite minor improvements in features and technology. While on one hand, device prices have sustained themselves, on the other, consumers are keeping their old devices for longer and global smartphone shipments and sales have started to decline.
Global OEMs and operators have been looking to accelerate their sales figures. Both have pointed towards 5G as the catalyst to build much healthier pipelines and grow revenues. 5G promises greater capacity, richer content and faster processing speeds. The hope is that it will excite mobile consumers in new ways and persuade them to part with more money for the privilege of consuming it.
5G device demand is looking strong
The good news is that industry predictions seem to support these hopes. Only last week, industry analyst Canalys predicted that 1.9 billion 5G smartphones will ship over the next five years. Global volumes will increase from an anticipated 13 million devices this year, to a daunting 774 million by 2023. This suggests that the current period of smartphone upgrade inertia we’re experiencing will end.
However, the success of the secondary mobile device market will be a significant contributing factor to the success of 5G devices and network service uptake. Over the past few years, it has helped improve consumer affordability for high-end devices, while helping OEMs sustain high prices. In other words, if OEMs and operators hope to sell high volumes of 5G devices, they must also be ready to collect almost the same number of used 4G smartphones.
Secondary strain from primary market pain
There is a clear link between the success of the new smartphone market and the secondary device ecosystem. If the primary market stalls, so will the secondary market. The affects of this link have been felt over the past year. According to Counterpoint Research, the secondary market grew just 1% in 2018, compared to around 13% the year before. The primary reason was the 11% drop in new smartphone sales in the same period. If consumers aren’t upgrading, old devices simply can’t be collected. However, the secondary market still grew. Consumer appetite for 5G is reflected by the 5G device shipment forecasts and there is also increasing comfort for engaging in the secondary market, assuming data security standards remain high. This will lead to a deluge of 4G devices hitting the secondary market in the next 12-18 months and the supporting ecosystem needs to be ready.
Is the secondary market ready?
The commitment from every stakeholder within the secondary market ecosystem is clear. OEMs, operators and the logistics providers that manage buyback and trade-in programmes on their behalf, are investing significant time and money to scale secure device collection. While Canalys predicts that 582 million 5G smartphones will ship in 2022, Counterpoint Research predicts that less than half, just 220 million devices will be collected in the same year.
This feels conservative. Operators and OEMs are marketing buyback ad trade-in programmes very hard. Earlier this year, Apple’s Tim Cook openly stated that its iPhone buyback programme was central to its strategy of stimulating device sales and maintaining premium pricing. Several of the world’s largest operators are known to be predicting or expecting significant revenue from used device collection and resale this year (and in future years).
Most now advertise their buyback programmes on their website homepages and include the ability to trade-in used handsets for all new device purchases. There is also strong consumer incentive to engage in the process. Recent statistics from HYLA Mobile suggest that the secondary market returned more than $2 billion to US consumers that traded in their devices in the US last year alone. All secondary market stakeholders have significant incentive for the entire ecosystem to deliver.
More devices, more speed, more risk
The significant increase in 4G devices hitting the secondary market will drive greater efficiency enhancements across an increasingly complex supply chain. Mobile device processors will be judged according to a variety of factors. Perhaps the main one is speed – of device diagnosis, repair and resale. Technology advancements, including the use of AI and automation continues to drive through mobile device processing efficiencies. Mobile devices can now be processed in seconds, rather than minutes. This is vital in retaining as much of the latent value held in used devices as possible.
However, with greater speed comes greater risk, especially given the importance of maintaining consumer trust in data management practices tied to the secondary market. If consumers lack the confidence in operators, OEMs and logistics companies to keep their data secure, they won’t trade-in their old devices. What’s more, upgrade inertia will continue.
The mobile industry is dependent on 5G to grow revenues. This requires a healthy device upgrade cycle. It’s time for all parties in the process to play their part in ensuring that the secondary device market is booming, for a strong and secure future.
Alan Bentley is President, Global Strategy at Blancco. An industry veteran, he joined the company in October 2016, and has worked closely with Blancco’s many customers and partners to implement data erasure solutions to mitigate security risks and ensure regulatory compliance. This gives him a unique insight into the market and business requirements driving the needs of today’s businesses.
With western smartphone markets in steep decline the secondary market is gaining traction as a counter-intuitive way to reverse that trend.
On first inspection a vibrant secondary (i.e. used) smartphone market seems like a threat to sales of new phones. Why would you bother buying a new one when you can get a decent second-hand one for a fraction of the price? But dig a bit deeper and you can just as easily conclude that making it easier for people to flog their old phones could incentivise them to upgrade more frequently.
The latter position is one adopted by smartphone security specialist Blancco, which has just published a report entitled ‘The Critical Importance of Consumer Trust in the Second-Hand Mobile Market’. The report is based around a survey of 5,000 punters from the UK, US, Germany, India and the Phillipines, which looked into their attitudes towards the secondary smartphone market.
As with all reports published by a company with a product or service to sell, it’s safe to assume there is a business reason for such an undertaking. In this case one of the things Blancco does is manage the data erasure on used devices when they’re collected to make sure no consumer data is hacked/breached/misused, so they have an interest in generating demand for such a service. That said, let’s have a look at the findings.
58% of those surveyed had never traded in a device and in the first table below you can see the stated reasons why. Cutting to the chase, people were then asked how concerned they were about their data security if they were to flog their old phone and, as you can see from the second table, the majority of people in all the countries surveyed had at least some concern.
“The secondary mobile device market is a huge success story,” said Russ Ernst, EVP, Products & Technology at Blancco. “Each of its major stakeholders – operators, OEMS and 3PLs [third party logistics] – have so much more value to extract from it as more global consumers choose to sell or buy used equipment if they trust in the process of used device collection and redistribution.
“Without a common, mandated and regulated rule book for smartphone processing, the ecosystem will be subject to abuse and malicious attack. The current ecosystem is made up of multiple stakeholders that collect devices from various touchpoints and redistribute them to many other parties.
“Since the speed of device processing is the only critical success factor, and as more devices flood the market, the chances of data breaches or issues related to data misuse will become increasingly likely. The secondary device market remains an amazingly lucrative and exciting opportunity for everyone, but only if it retains full consumer confidence built on trust and data integrity.”
Apple is being especially proactive in the secondary market by letting its loyal punters trade in their old iPhones as part of the price of a new one. The UK trade-in page makes it very easy to get a valuation and cleverly they will even accept non iPhones. Having said that they’ll only give you £445 for a 64GB iPhone X that they can resell for twice that amount so they’re not being that generous.
But Blancco does seem to have a point about the growing secondary market and it stands to reason that trust plays a big part in it. Presumably Apple fanboys are more likely to trust Apple itself than their operator or some random third party. While we don’t accept it as a given that a strong secondary market necessarily equals a strong primary one, it looks like there’s at least some money to be made from being a trusted reseller.
The second-hand mobile device market is a big and lucrative success story. Mobile operators, OEMs and third-party logistics providers (3PLs) therefore remain committed to its ongoing success. This global study from Blancco underlines the significance of safeguarding consumer trust in the used device buyback process and warns against complacency when it comes to keeping consumer data secure.
Download the report to find out more.
Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Alan Bentley, President, Global Strategy at Blancco looks at the success of the secondary device market but warns against data security complacency.
The secondary smartphone market continues to grow, delivering new revenues and new opportunities to every one of its stakeholders. In fact, according to Counterpoint Research, the market for refurbished smartphones is now growing faster than for new smartphones. A staggering 140 million used devices have now been collected for redistribution. Last year, according to Persistence Market Research, the secondary device market was worth US$19 billion, and is set to more than double in size and reach a valuation of US$44 billion by 2026. That’s impressive scale for a process that started to keep used old devices out of landfill (which remains a critical focus for the secondary market today).
Big business, but time is money
From an operator perspective, the secondary device market is big business. Revenues extracted by unlocking the latent value of old devices is one of the few revenue streams available to them which continues to grow. This is a big deal given how hard new revenues are to come by, and the cannibalisation that has impacted many of their core service revenues from voice, data and messaging.
Operators and OEMs that manage device BuyBack processes, either directly or through partners, can, on average, extract between $100 and $300 per smartphone according to its model, age and condition at the point of upgrade. Realising optimal value depends on how efficiently an operator can process a used smartphone. It begins at the point of collection, goes through diagnosis, repair and refurbishment before being prepared for re-distribution. Put simply, with mobile device processing, time is money. The longer it takes to process a used smartphone, the more of its latent value it loses. Operators, OEMs and the third-party logistics providers that serve them both are all incentivised, therefore, to make marginal gains at every opportunity to protect optimal value.
Efficiency matters, but not as much as customer data integrity
Operators, OEMs and third-party logistics providers have fine tuned mobile processing. While the process from device collection to re-distribution is very involved, it is not unusual to be able to process several hundred devices each day. Typically, the process includes automated device testing, identifying key locks and determining device value. It then quickly and securely erases data stored on each device using properly scoped hardware and configuration, all in line with the necessary certification guidelines. Ideally, each device will then be given a certified tamper-proof audit trail, backed by a certification of data erasure.
With so much focus on operational efficiency, there will always be a temptation to dispense with some of these key steps. At present, the secondary device market is light on regulation. In North America, the leading global market for used smartphone collection, there are the R2 standards. These unite the leading carriers, OEMs and third-party logistics providers behind some common rules – but they are not a mandate, merely guidelines. In truth, pretty much every player in the secondary device ecosystem is R2 compliant – they have to be in order to do business with each other. However, R2 guidelines were not created with the collection and processing of used smartphones in mind, leaving many to consider their relevance and applicability to the larger, much more significant ecosystem that exists today. For example, R2 states that performing a ‘factory reset’ on a device is sufficient in ensuring all data is fully erased. In some cases this is true, in many others it isn’t.
Not a time for complacency
Without a common, mandated and regulated rule book for smartphone processing best-practice, the ecosystem will be subject to abuse and malicious attack. Let’s be clear, the secondary device market has functioned perfectly well up until now. R2 and other standards have done their job, consumer data has, in the main, been preserved. The current ecosystem is made up of multiple stakeholders, who collect devices from various touchpoints and redistribute them to many other parties. Since the speed of device processing is the only critical success factor, and as more and more devices flood the market, the chances of data breaches or issues related to data misuse will become more and more likely.
If operators or OEMs want a lesson in the damage caused by data breaches and the misuse of customer data, they need only look at Facebook. Operators have built a strong sense of trust with their customers – they have historically been reluctant to offer freemium services in return for customer data that can then be resold. This leaves them ideally placed to capitalise on this goodwill, create a raft of new offers and partnerships and target their customers with new digital services. This opportunity will only exist if they remain diligent to all threats and focused on the responsible management of customer data. The secondary device market remains an amazingly lucrative and exciting opportunity for everyone, but only if it retains full consumer confidence – confidence that is built on trust and data integrity.
Alan Bentley is President, Global Strategy at Blancco. He joined the company in October 2016 as VP of Sales, EMEA and more recently, has taken on the role of President of Global Strategy. In this role, he is responsible for overseeing sales efforts globally. As an industry veteran, Alan is responsible for leading the sales teams to develop sustainable and scalable revenue growth. Since joining the company, Alan has worked closely with Blancco’s many customers and partners to implement data erasure solutions to mitigate security risks and ensure regulatory compliance. This gives him a unique insight into the market and business requirements driving the needs of today’s businesses.