How will Xiaomi’s launch into Europe impact the smartphone market?

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Steve Pappas, VP, Asset Value Recovery Services at HYLA Mobile, examines the likely effect of Xiaomi entering the European smartphone market.

The European smartphone ecosystem has welcomed a new player, Xiaomi, who has made an aggressive play for the market. The Chinese smartphone manufacturer has already gained a good portion of market share too thanks to its portfolio of cheaper devices, which seem to be appealing to price-conscious European consumers. The company’s Senior Vice President, Wang Xiang, has even stated that the operator’s differentiator is its “premium product” without the “premium price”.

Traditionally, consumers have invested in the latest and greatest smartphones as soon as they hit the market. Large players such as Apple and Samsung have brought new models and technologies to the industry each year, and we have seen national newspapers cover the queue of fans waiting outside brick and mortar stores to get their hands on these latest devices.

But today, consumers are holding onto their devices for longer, and in fact, are waiting 2.8 years before considering an upgrade. This trend can be attributed to the rise in device prices over recent years, along with a perceived lack of innovation from consumers.

So, with this in mind, and with Xiaomi now entering the European smartphone market with a more affordable alternative, what will this mean for the industry, its players, and their customers?

A new era for the mobile device market  

Mobile analysts have described Xiaomi’s devices as “looking like an iPhone, performing like an iPhone, but half the price of an iPhone”. In fact, its flagship Mi 8 model released in May has been described as brazenly copying the iPhone X, with similar features such as facial unlock and iOS-like Animojis. And at a much lower price point of £350, Xiaomi will be hoping to draw favourable attention from Apple fans unwilling to pay the £999 price tag of the iPhone X.

According to CCS, more consumers are searching for alternative means to secure a smartphone. More than half are on SIM-only contracts, which have been found to be better value, compared to purchasing a device and SIM separately. CCS’s research also revealed a growing interest from consumers in second-hand and refurbished devices.

For the cost-conscious consumer, it can be difficult to turn a blind eye to a device that can offer close to everything Apple can, without the hefty price tag. It’s entirely possible that we could see some Europeans seduced by the cheaper alternatives offered by Xiaomi, and move themselves away from their decade-long relationship with the likes of Apple.

But is Xiaomi ready to take on the likes of Apple?

Xiaomi appears to be a strong contender, having a 10.57% market share in Asia— not far behind Apple, who has a 13.14% market share. Now with its eyes set on the West, Xiaomi’s market share has grown by over 999% in the first quarter of 2018, as recorded by analyst firm, Canalys.

While Xiaomi is still in the early days of its European expansion, having only recently announced its expansion into Britain in May, is now the time for Apple and other manufacturers to reconsider their current marketing plans? We have recently seen Apple announce a “less-expensive” iPhone in September, the iPhone XR, as well as an even more expensive device the XS MAX. The lower cost device has been priced at £700—but this is still a considerable amount more than a Xiaomi device, which is priced anywhere between £300-£500, depending on the storage size.

But there is method behind Apple’s madness. With the launch of Apple’s latest devices, the manufacturer is able to target a slightly broader audience. First and foremost, with a more affordable device, Apple could tempt the cost-conscious consumer to upgrade to a newer device at a more reasonable cost, that could be made even less-expensive by trading-in an older device.

Secondly, consumers know that Apple is a premium brand; no matter the price, some customers will always be willing to pay the cost for the latest device. And that’s what it comes down to. People are invested in the Apple brand, and there will be some that always will be. What it boils down to is whether consumers are ready to try an unfamiliar brand, even if they know its capabilities and price?

There’s no doubt that consumers are searching for lower cost alternatives to secure the latest mobile device, whether that be through purchasing the device and SIM separately, purchasing a pre-owned device, or using their old device to offset the cost of a new one. The cost-conscious consumer is happy to hold onto their device for longer, and shop around for the best deal on the market in order to make the rising cost of owning a smartphone more affordable. And while Xiaomi’s entry into Europe has the potential to disrupt the status quo of the market, we won’t see dominant players, such as Apple, be overtaken just yet.

The sustainability model is driving customer retention and new revenues for operators

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Biju Nair, President & CEO at HYLA Mobile offers some insight into the pre-owned device market and how to make a few quid out of it.

The pre-owned device market is a lucrative global enterprise worth more than $17 billion in 2016 and expected to increase to $39 billion by 2025. And the growth shows no signs of slowing down – Deloitte has estimated the annual YoY growth to be 50 percent. It also forecasts that this secondary mobile device market will grow four times faster than the market for new devices.

However, there are millions of devices that are discarded every year and only a small fraction of these are recycled responsibly. Some are handed down to a friend or family member or left in a drawer to gather dust. But others, are unfortunately ending up in landfills. This is having devastating consequences for the environment.

You also have to remember what actually goes into the production of a smartphone. According to David Michaud of 911 Metallurgist, producing a single smartphone requires 34 KG of ore to be mined. 18 out of the 34 KG is mined to extract gold, which requires 100 litres of water and 20.5 grams of cyanide to extract the precious metal from it. These metals are precious not because they are rare, but because they are so difficult to mine.

This is one of the reasons that the pre-owned device market was born – a corporate social responsibility offering to prevent old devices ending up in landfill. By repurposing devices, the telecoms industry is able to avoid this arduous process, divert tonnes of e-waste from landfills, and avoid billions of gallons of water from being polluted. The mobile industry has itself committed to minimising environmental degradation as part of the Sustainable Development Goals. And operators, retailers, and OEMs all play a key role in this.

Thanks to trade-in and buyback programmes, millions of devices can be repurposed and redistributed into the market to prevent environmental damage. An operator can buy back a smartphone when a subscriber wishes to upgrade and resell it to a consumer looking for a high-quality device at a lower cost. But the possibilities for pre-owned devices goes much further than this.

Major global operators and retailers view sustainable practice as a key differentiator and continue to tie it into their corporate messaging. This doesn’t stop at the environment. This includes proudly offering mobile device trade-in programmes, mobile device recycling programmes and redistributing pre-owned, high quality devices to deserving consumers.

For example, AT&T has targeted the collection of more than 200 million devices for reuse, refurbishment or recycling by the end of 2020. At the end of 2016, the operator had refurbished or recycled approximately 120 million devices. The 2020 Goal enables AT&T customers to lead more sustainable lives by expanding access to technology and integrating sustainability solutions into products.

The likes of Best Buy, Apple and Facebook have shown that it’s not just operators looking to implement device recycling and redistribution programmes. As part of its internet.org initiative, Facebook is running its own programme to refurbish old devices and redistribute them as affordable alternatives to new smartphones in emerging markets. Facebook is keen that the majority of subscribers looking to internet.org that become connected for the first time receive the best possible experience. Pre-owned iconic smartphones such as the iPhone provide more reliable and functional solutions to the low-cost smartphones in the market that struggle to handle climatic conditions.

Apple on the other hand has developed a 29-armed robot called Liam that extracts precious and non-precious elements from pre-owned devices. Through this ‘urban mining’ process, Apple extracted 2.204 pounds of gold from broken iPhones last year. This process of parts harvesting preserves the high levels of purity from the elements, leaving them in perfect condition for re-use.

Best Buy lead the industry by being the first to accept damaged devices as a part of their trade-in program, giving their customers a remarkable experience, while not losing out on the opportunity to harness the residual value left in such devices.

Each of these programmes keeps devices out of landfill, but also redistributes them to people who need them most. While committing to these sustainable practices should be a priority, there is also money to be made.

It comes as no surprise that operators are beginning to turn their attention to trade-in programmes to capitalise on this growing market. An increasing number of US operators are using trade-in programmes to offset customer acquisition costs, as well as drive revenues. This is possible because the re-sale value of a one-year old iPhone is so strong that operators can reasonably expect to recover between $200 and $400 for a device in good condition.

Customers too are similarly realising the value that resides in their old devices. In fact, recent research from Canalys attributed the impressive iPhone X sales in Q4 2017 to this, as customers opted to trade-in their devices to offset the hefty $1,000 price tag. Putting money into the customer’s pocket encourages them to buy a better device or spend more on accessories, driving high-margin revenue for operators. Customers can get money in exchange for pre-owned devices and can upgrade to a new device that might otherwise be unaffordable.

Research from HYLA Mobile also illustrates the growing momentum for the global secondary mobile device ecosystem. Mobile device trade-in programmes put $2.156 billion back in the pockets of US consumers in 2017, an increase of $55 million from 2016. Consumers may be keeping their devices longer, on average owning a device for 2.66 years before trading it in, due to a perceived lack of innovation in new devices and rising prices. So, the opportunity to offset the cost by trading in a device is an attractive proposition for customers.

But it’s not just operators and customers set to benefit from the used device market. Increasingly more players are looking to capitalise with OEMs such as Samsung and Google, retailers and insurance providers all getting in on the act. Older devices can be refurbished circulated back into their Certified Pre-Owned (CPO) channels or used for insurance and warranty claims fulfilment. Any leftover devices that are unused find plenty of demand in overseas markets.

It’s a model where everyone wins. Customers get to upgrade to the latest greatest device, while operators get to hold on to the customer and can maximise revenues from the latent value within the pre-owned device. Then there is the silver lining of keeping devices out of landfills.

Not only are operators increasingly environmentally and socially aware, but today’s customers are too. Making customers aware of the effects of throwing away an old smartphone into a landfill or the monetary losses associated with leaving a device in drawer in anticipation of use someday, will drive sustainable practices within the telecoms industry further.

All stakeholders involved can benefit from sustainable practices of the trade-in model. The battle now is to educate them. Only then can the benefits be realised.

 

Biju NairAs President and CEO, Biju Nair is responsible for the execution and strategy of HYLA’s global business. He leads the company’s expanding effort to grow the company’s global strategic vision, with a focus on bringing new technology solutions and new business opportunities to the forefront. He is responsible for all aspects of ensuring the company’s short and long-term goals are realized and that the corporate strategy is secure and engaged. Bringing more than 20 years of experience to his role, Biju is a recognized entrepreneur and technology industry leader. Most recently, he served as the Executive Vice President and Chief Corporate Strategy Officer for Synchronoss, where he was responsible for leading the technology direction and strategic vision of the company as well as investor relations.

Innovation’s what you need, if you want to be a smartphone player

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Biju Nair, CEO at HYLA Mobile, looks at the current smartphone market and urges OEMs to keep innovating to prevent stagnation, and maintain the current commercial momentum behind pre-owned devices. 

Industry analysts CCS Insight, very recently gave a global summary of the smartphone market. It made my heart sink. Not least because it revealed what we all feared, that levels of innovation across the international device market are still in need of stimulation.

CCS predict growth of just 0.2% in global smartphone sales this year. The European market is expected to drop by 7%, the US by 3%. Is this a major surprise? Not really? As CCS themselves point out, the global mobile subscriber base appears content to hold onto their existing device for longer—in fact, our own data also shows that consumers are holding onto devices for around 2.66 years. OEMs are simply not giving them enough of a reason to upgrade sooner.

This is a disappointing reality to be faced with. What perhaps is worse, is the notion that many believe that the industry will continue to tread water in this way until the arrival of 5G. CCS Insight, and other industry commentators predict that mainstream, commercially available 5G devices won’t hit the shelves until 2021 at the earliest. That’s three years from now. Three years.

Can the OEMs really afford for smartphone sales to decline further for another three years? Surely there is sufficient R&D investment to re-capture consumer excitement in new features and functionality? All be it in a 4G guise?

Let’s be clear, it isn’t just the fortunes of the OEMs caught up in this smartphone market malaise. The device is often the catalyst for consumer excitement in consuming mobile content and services. Consumer affinity with the smartphone is the catalyst for operator and wider, third party service revenues. The device is the gateway to significant commerce and opportunity, that spans way beyond basic communications. It’s therefore vital that OEMs continue to inspire consumers to constantly want the latest and greatest available.

Let’s be fair, the OEMs are trying new things. The recent launch of the Samsung Galaxy S9 and its augmented reality features were the talk of Mobile World Congress, where the device launched this year. The iPhone 8 was all about wireless charging, a faster bionic processor, and the standard annual camera upgrade. Neither move by Apple or Samsung did much to detract from focus on the prices of the devices themselves and whether or not the features available justified the expense.

From my perspective, I think consumers can be a little less concerned about prices of new devices. Why? Well firstly, because operators, OEMs and other stakeholders are investing in building a secondary device market (through refurbished devices) that is seeing a significant proportion of latent device values in used phones being returned to consumers at the point of upgrade. Secondly, in the US, operators and OEMs are offering a variety of financing plans to make device upgrades more affordable. And finally, there will always be a group of loyal early adopters that will upgrade to the latest and greatest to avoid a fear of missing out on new features and functionality.

The market for renewed devices is helping change the rules of smartphone ownership to emulate that of pre-driven cars. Consumers base the economics of device ownership against the depreciation of each device, according to market conditions. For consumers, OEMs and operators to get maximum value from the secondary market, and to have optimal device user experience, they require upgrade cycles every 18-24 months. Consumers extract the maximum latent financial value from their old device, OEMs and operators receive new revenues from new sales and neither party are negatively impacted by performance and repair issues that blight older phones.

Let’s take the iPhone X for example. Yes, the device is very expensive, but it also retains much of this value at the point of upgrade, assuming the condition of the device meets certain criteria. That being said, according to our own data, more than $479 million was returned to US consumers in trade-in values for their old devices in Q1 this year.  This amount helped subsidize the purchase of a new iPhone X for those consumers.

The market for new devices therefore has a big impact on the secondary market. The combination of the two together provide significant incentive for OEMs to develop new features to drive new smartphone sales. I’m confident that the OEMs will rise to the challenge, and that it certainly won’t be three years until significant new device functionality is introduced.

 

Biju NairHYLA Mobile is a leading provider of software technology and services for mobile device trade-ins and reuse solutions. As President and CEO, Biju Nair is responsible for the execution and strategy of HYLA’s global business. He leads the company’s expanding effort to grow the company’s global strategic vision, with a focus on bringing new technology solutions and new business opportunities to the forefront. He is responsible for all aspects of ensuring the company’s short and long-term goals are realized and that the corporate strategy is secure and engaged.