What do you buy for the man who has everything? An Omega watch of course…
Last night I was talking two a couple of my engineer friends at a party (As an Engineer I obviously get invited to, and organise great parties), about the future of consumer electronics. My conclusion was that everyone already owns 90% of everything they’re going to need in terms of consumer electronics:
- Smart Phone
- WiFi Router
- DSLR camera/compact camera/mirror-less camera
- Action camera
- In-car GPS
- Bluetooth Speaker
Beyond these ‘headline’ product categories, there’s no prospect for growth. I already own as many of all of the above items as I require. The consumer electronics industry is no longer about the fulfilment of needs (probably it never was) but more the search for novelty. What will we do when everyone already has 2 tablets, 3 bluetooth speakers and all the electronics retailers have closed?
There are two trends I can see:
1) Niches of niches – Every category is being sub-divided into 10 sub-categories, waterproof smartphone anybody? Mirror-less cameras are basically SLR’s for people with small arms, hands and fingers. Likewise having an MP3 player and a smart phone, and an action camera and a dash-cam. I want a product X in pink…etc.
2)Churn of churn – I’m writing this on a MacBook Pro I bought for a ridiculous sum of money in 2009. It still works perfectly, however I’ve seen plenty of other laptops go to landfill. Today you can easily pick up a reasonable spec plastic laptop for £300, when just 10 years ago you would pay £1000 for something with an equivalent historic market position. Take into account some inflation and today’s cheap laptop costs more like £100 in 2004 money. In summary, the cheaper the thing, the more often you need to replace it.
The main case study in these conclusions is Samsung. Which currently makes 1000’s of different smart phones (Android and Tizen), tablets, telephones, wearables, MP3 players, televisions, robot vacuum cleaners, laptops, computers etc. They have a massive share of the Android market, however these devices are the middle and low end of the smartphone and tablet sector, where margins are significantly less than those commanded by Apple who still hold the high ground. Consequently, Samsung need to shift a lot of product to make even close to the same headline figure as their fruity competitor, who make at least 40% margin (about $250 per phone) on the iPhone 6. Further, they’re heading into all kinds of strange and wonderful product categories (I’m mostly talking about their Gear range), for which consumer demand still seems unproven and recorded sales volumes so far are lamentably low, leaving to significantly reduced profits.
My conclusion for effect 1 is that companies are going to be pouring ever more R&D money (or perhaps consumers, via crowd-funding, as the recent Sony epaper Smart Watch campaign in Japan has shown), for ever smaller product niches. This inevitably means lower volumes. For effect 2, margins have fallen drastically on big ticket items, which is hurting tech companies. The only way to compensate for the lower margins is higher volume, which is achieved in part though the lower price, and in part through a shorter product life-cycle.
I bought a chromebook earlier this year and I love it. I’ve ripped out ChromeOS and it now runs Ubuntu very capably, however it’s never going to last as long as my 5-year-old MacBook. I like it because it’s light, portable and fast, consequently it’s also more likely to get destroyed when I take it out of the house. Where am I going with all of this?
There isn’t enough world for everyone to buy a new set of gadgets every 6 months. We’re going to run out of rare earth metals (that we can reach to mine economically anyway) and choke on toxic waste (if the CO2 doesn’t get to us first). The solution is higher quality, durable products with more in common to those produced in the 1950’s than the 2000’s. I want a laptop that lasts 10 years, a mobile phone that lasts at least 5 and so-on. Once you’ve hit the spot with decent hardware, selling novelty can be all about the software (which is more or less the Apple model these days).
The benefit of all of this? We’ll be a lot richer for it (in terms of natural resources), spend less time in shops buying junk and more time and money buying software which consumes only electricity – that could be generated renewably, or from Nuclear power. You might say that it’s elitist and undemocratic to push for higher quality items and the prices. How the worlds poorest 2Bn people are going to get the benefits of the internet if we raise the cost of a smartphone from $50 to $500 is a problem for another post.