The smartphone upgrade path may be fizzling

Buyer fatigue may be setting in with constant feature add-ons of limited value

Apple and Samsung dominate global smartphone sales with several new flagship models announced each year.

But after years of fantastic growth in smartphone sales, the pace of growth is slowing overall, including for the two smartphone giants. Market research firm IDC recently said that 2016 will be the first year that overall smartphone growth will slow to below 10%.

There is even talk among analysts that the latest models don't have enough compelling new features to lure customers to a competitor's device. Others say smartphone buyer's fatigue has set in.

Buyer's fatigue is a concern in the U.S. and other developed countries where the smartphone market is viewed as a "replacement" market because the market is already saturated: Nearly everyone already owns a smartphone. A focus on emerging countries by Apple and Samsung still requires them to find low-cost alternatives to compete with the likes of Huawei and others.

"Consumers are fatigued about new phone features that they can't easily relate to any improvement in their personal use cases," said Patrick Moorhead, an analyst at Moore Insights & Strategy. "Samsung has been one of the worst offenders of this in the last few years. If consumers can't relate, then they need to be educated."

Most recently, reports that Samsung would add a pressure-sensitive display and high-speed charging port to its Galaxy S7 phone drew a few yawns. That's because Apple added the pressure-sensitive display to the iPhone 6S last summer, and a new USB Type-C fast charging port is already available in LG and Huawei smartphones.

While it is to Samsung's advantage to keep up with Apple and others rivals, analysts disagree over whether these latest improvements will provoke an iPhone user to switch to a Galaxy. Moorhead said a faster Snapdragon 820 processor in the Galaxy S7 could make some iPhone users switch, but on that point there is also disagreement.

"It seems to me the processor race has been replaced by the higher megapixel display race, but the reality is that for your average consumer, neither of these features is easy to detect or appreciate, as they both depend [on software and] other things," said Carolina Milanesi, chief of research for Kantar WorldPanel. "A faster processor improves performance, but there are other factors such as poor wireless coverage that also impact performance, so it is hard for the user to really appreciate what is what. I also think a faster processor is not a high level upgrade."

What Milanesi pointed to as a reason to buy a new smartphone is not one feature, but a number of features in combination, which makes it tougher than ever for effective marketing by smartphone vendors.

"It's clearly getting harder and harder to get people to pay attention to smartphone upgrades from the vendors," said Jack Gold, an analyst at J. Gold Associates. "The features that get added are nice to have perhaps, but not critical enough to make a large number of people with relatively new devices go out and buy a new one, particularly if they haven't finished paying for the old one yet."

Gold noted that a faster processor or speedier charging capability will appeal to the 10% of tech savvy users who must have the latest device, but the vast majority of buyers don't make their choices that way. "Most buyers are pretty happy with what they've got," he said.

In emerging markets, like India, Malaysia and much of Africa, with many first-time smartphone buyers, the focus on features is less important than price, Gold noted.

Apple does the best at attracting customers with upgrades, even if they aren't earthshaking. "Some upgrades matter to consumers, but I am convinced that outside of Apple, it is extremely tough to get consumers to pay for these new features," said Ryan Reith, an IDC analyst.

"Putting money aside, I think that fast and wireless charging will matter to consumers soon," Reith added. "They will come to expect it." Buyers expect to see processor upgrades with new models but consumers, even Apple buyers, "won't pay specifically for CPU."

Reith said Samsung needs to focus on reducing the costs of its flagship Galaxy line, rather than "feeds and speeds," because Android competitors Huawei and Motorola will reduce costs. "Consumers are more likely to pay for nice esthetics than feeds and speeds," he added.

Reith said he's unconvinced that buyers are truly fatigued with feature upgrades, although there's no question that overall smartphone growth is slowing, even with growth in emerging countries, as IDC has shown.

"I'm not sure we're yet at a point where consumers are getting tired of smartphone upgrades. You have to keep in mind that the smartphone is the most personal and most used item that most people own," he said.

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