Refurbished phones now account for nearly one out of every 10 devices sold, and therefore represents the fastest-growing segment of the global smartphone market, according to a previous Counterpoint Research report.
In Q3 2017, the top three selling smartphone models globally (iPhone 7, iPhone 6s and Samsung Galaxy J2 Prime) were older models that launched in 2016 or earlier. This is because older models of premium phones stay relevant and functional for so much longer than other devices that they tend to have three to four owners before being discarded.
The three key trends in the evolving smartphone industry are likely driving the shift towards refurbished phones:
1. Elimination of contracts from carriers
When two-year carrier contracts were the industry standard in the U.S., subscribers could sign a two-year contract and get a new smartphone at what appeared to be a highly discounted rate (although later analysis found carriers sometimes recouped those costs by baking them into monthly fees). As of 2014, that cycle was so effective that US consumers were upgrading their smartphones every 23 months, according to BayStreet Research. Although these subscribers did have the option to buy a refurbished phone through their carrier contract plans, they may have been less compelled to due to the lower cost associated with new devices on contract plans. Some US carriers have implemented smartphone leasing programs to combat this issue, but these offerings haven’t reached mainstream adoption.
2. A lack of new, generation-specific features on flagship phones
As the technological gap between device generations decreases — meaning that older models are often very capable of handling the majority of the primary utilities smartphones afford — consumers are less inclined to purchase a new phone if a refurbished phone satisfies their needs. For instance, the iPhone 6s and 7 share many of the same handset designs.
3. Rising average selling prices of smartphones
The ASP of smartphones worldwide grew 10% year-over-year in Q4 2017 to $363 from $330, marking its fastest on-year growth yet, according to GfK. Overall, the ASP of smartphones globally jumped 6% YoY in 2017. Today’s premium flagship devices cost over $1,000. As the price of smartphones continues to rise, consumers may be more willing to purchase a refurbished phone that’s priced within their budget but comes with the majority of features that suit their mobile needs.
However, The trend is a double-edged sword for major smartphone vendors. On one hand, reliance on refurbished phones eats into the potential profits for high-end smartphone vendors like Apple and Samsung. On the other, the greater availability of refurbished premium devices can help smartphone vendors grow their overall installed base with a consumer segment that may otherwise be priced out of smartphone ownership.
However, refurbished phones also pose a problem for adoption of emerging technology. This is partly because older smartphones often don’t have the processing power or physical hardware to support new software like voice assistants, and virtual and augmented reality. For example, Google’s voice assistant Google Assistant is only available on Android smartphones running versions Android 5.0 Lollipop and up, meaning it will be supported on 80% of active Android smartphones, up from 53%