There comes a time when the status quo needs to be disrupted. All through my childhood, fast food was everywhere. And the companies that were everywhere were McDonald's, Burger King, and Taco Bell. For the longest amount of time, this was the standard. But a few years ago, there was something of a fast food revolution that became known as fast casual. This was a solution where people needed a quick lunch but did not want to settle for the perceived inferior quality of traditional fast food. As a result of this, restaurants like Chipotle, Panera Bread, and Five Guys have risen in popularity. Their rise has coincided with the market being fed up with unhealthy fast food options and wanting something different. This shift has caused traditional fast food to make moves to cater to this change in consumer needs. The state of the way we get lunch time food has now been completely overhauled.
There is a similar dynamic that is now happening in the world of smartphones. The prices of phones for years now have been slowly rising. Today, we have become desensitized to the idea of paying $1,000 for a phone. Almost every company has become guilty of this with countless phones crossing the $1000 threshold. A company that started to disrupt this trend years ago on an international scale was OnePlus. What started with the OnePlus One as a $300 disruptor fringe device, the Chinese company has continuously made compelling hardware around the $700 price point that compares favorably with the giants of the industry that charge hundreds of dollars more. It seems that after all these years of OnePluses and it’s Never Settle campaign, other companies are starting to take notice of the new segment that OnePlus has carved for itself as the affordable flagship.
The Mental Aspect of $1,000
In the build up of the average cost of our smartphones, companies were very cautious to cross the $1,000 barrier. There was a mental aspect to this, the idea that not seeing 4 digits on the suggested retail was important to manufacturers. This goes back to the 99 cent theory, where companies would charge a penny less than the rounded up amount to give the subliminal effect that not as much is being paid by the consumer (think of that candy bar that is $0.99 versus the one that is $1.09, the lower cost one feels like more of a bargain). Phone makers played with this for a couple of years by charging $949–999. In the last two years however, this threshold has been passed by phones such as iPhone 11 Pro Max, Samsung S20+, Samsung S20 Ultra, LG V50, and others.
There have been many reasons as to why this price bump has come to become the new norm. Materials being used are better than they used to be, as companies are adding more premium feeling glass materials into the manufacturing process. Apple has been using stainless steel as opposed to aluminum for a few years now. Camera sensors on smartphones have also been getting more and more advanced and that will also drive the cost up on phones. And lastly, the display technology has gotten better with higher resolution displays and higher refresh rates. But the most important thing to the normalizing of this is that we all collectively just accepted the pricing as part of doing business.
When Apple unveiled the iPhone X at a starting price of $999 in the fall of 2017, the idea was changed that going over $1000 was acceptable as the higher capacity versions of this iPhone crossed that price barrier. And despite a large number of consumers saying that they will never buy a $1,000 phone, sales of iPhone's and Samsung phones that have that price tag attached have continued to sell at a very high rate. This has normalized the $1,000 phone and now there is even more reason for the prices to remain that high: the launch of 5G. New processors from Qualcomm that have support for 5G radio technology have been priced at a premium cost year over year. This has caused some companies to realize that maybe taking another path is more prudent as in 2020 the elevated cost of a phone may simply just not be worth it.
The Opening of a Market
With the cost of the new Qualcomm SnapDragon 865 being priced at such a premium, a lot of companies like Nokia and LG are not seeing the value in staying at the ultra high end of the spectrum. It would appear that at this point in the game, the only two companies that are properly equipped to still charge these prices are Apple and Samsung. So what is a company to do? Focus on the segment where OnePlus has built up a bulk of its user base: the affordable flagship. This new market is generally for phones priced in between $600–800.
So what is an affordable flagship, and what is really lost from a full on flagship? Quite simply, these phones are designed for everyday use, with materials that are still premium with corners being cut in regards to the camera and some other features. Apple has a good example of this with the iPhone 11. The iPhone 11 is $300 less than the iPhone 11 Pro. The features lost are not that drastic: aluminum frame instead of stainless steel, lower resolution on an LCD display instead of OLED, and the absence of the telephoto lens on the rear camera. Other than that the experience is the same. Apple positions this as the 11 being the standard iPhone whereas the Pro is more designed for the power user.
Now Android manufacturers are starting to take note of this. Nokia has yet to announce a new model in their 9 series, which is their top of the line flagship. Instead, the company has announced the Nokia 8.3 which uses the Qualcomm SnapDragon 765 processor platform. This device will be officially released in the summer and is reported to cost in the general vicinity of $600. The appeal here is that the device is more affordable while offering much of the features that one would come to expect from a flagship device. Having the smooth performance, with a capable camera for social media, above average battery life, and overall reliability.
Ultimately, this is what most consumers want. As smartphones have entered the maturity phase of the product life cycle their capabilities have outpaced what the end user actually will use them for. The introduction of the SnapDragon 765 as a processor has opened the possibility for more companies to ship this chip as their main flagship offering instead of paying the SpanDragon 865 tax. Nokia has done this, a rumored new LG device is also slated to be running this processor instead of the latest and greatest from Qualcomm. When it all comes down to it, people are realizing that midrange is enough in 2020.
Midrange is Enough
Modern flagships have the type of power to do amazing things such as augmented reality, have professional photography chops, and even are capable of running their own desktop mode. These are all features that 98% of the cell phone using public will never use. In the modern day, people seem to be more concerned with the smartphone as a communication and content consumption tool. The dreams of the superphone are alive only among the super tech enthusiast.
This is why the Galaxy A50 was the top selling Galaxy phone last year, not the S10. While many have mocked LG’s mobile sales struggles, this struggle is not present on the low end and midrange. Their K line of phones have always sold well on the unlocked and carrier side of things. These phones do well because they meet the performance to price ratio very well. Walking into a carrier store these days, and the first iPhone being pushed the most is more than likely the iPhone 11 not the 11 Pro or Pro Max. That is because these types of devices are the new standard. The higher end devices are to be positioned as the extra devices. In many ways, the smartphone industry is now mirroring the PC market.
Most PC customers see more traffic towards a device like a Lenovo Yoga 740 as opposed to the Yoga 940, merely because premium midrange is enough for most all tasks that a user would need in our modern world. Smaller phone manufacturers are starting to see this and acting as such. Only two companies can really sell at scale with devices over $1000 and playing on the value proposition and the “it’s just good enough” pitch.
In good conscience, I cannot easily recommend a super high end device to most people that ask me for a phone recommendation. A friend of mine recently was talking to me about updating his Galaxy S8 and wanted to stay with Samsung. I ended up saying that he would be best suited with either an A50 ($349) or Galaxy S10e ($549) over a Galaxy S20. In addition to a lack of long term software updates from most Android manufacturers, the return on investment for a $1000 phone just doesn’t really make all that much sense. In many ways, flagships offer the bleeding edge. The midrange segment gets those features eventually. At this point in the life cycle of smartphones, that is enough. Midrange phones are now enough, and even the phone manufacturers get that now.