Cheap Smartphones Will Create A New Breed Of Innovation

BIIThis year, for the first time, BI Intelligence estimates that more than one billion smartphones will ship globally. And many of those smartphones will be purchased by first-time users in emerging markets.

To move these consumers onto smartphones, more manufacturers than ever before will be offering smartphones at bargain basement prices. Recently, came news of Mozilla's upcoming $25 smartphone, adding to a flurry of new devices priced well below flagship phones from Apple and Samsung.

The race to build the cheapest smartphone will create a different kind of innovation than what we've seen before. New, exciting hardware features will be rare. Going forward, innovation at the top of the market will likely center on continuing to improve known features. And if a new functionality were to debut from one vendor, expect the rest of the market to catch on quickly. Meanwhile, lower-priced handset makers will use talent and creative thinking to incorporate premium smartphone capabilities into low-cost and mid-range handsets.

In a recent report from BI Intelligence, we look at how the smartphone market is shaping up now that we've entered the late stages of adoption. We outline where growth will come from next, how the average selling price of a smartphones will trend in the next few years, and whether real innovation will still be possible as manufacturers emphasize selling cheaper handsets to a wider swath of consumers.

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Here are some of the key facts from the report:

• Solid growth: We estimate smartphone shipments will grow 35% in 2014 to surpass 1 billion units shipped annually for the first time. Last year, shipments grew about 45%, reaching just shy of the 1 billion annual unit shipments milestone.
• The next billion smartphones: The next billion in smartphone shipments will come faster than the first billion did. It took about eight years to reach 1 billion annual units shipped, but with steady, new growth from emerging markets, we estimate the 2 billion annual shipments mark will be reached in 2017.
• Tapering: But because the base of smartphone shipments is much higher now, earlier growth rates are unsustainable and will continue to taper off in the coming years.
• Emerging markets: China will be at the forefront of new shipments growth. There will be about 600 million smartphone subscriptions in China by the end of 2014, which is nearly 50% growth over the estimated 400 million smartphone subscribers in 2013. China will account for a 35% share of global smartphone shipments in 2014.
• RIP, dumbphones: The end of the feature phone is in sight. We estimate smartphones will make up almost 70% of total mobile phone sales during 2014, and that share will gradually rise to almost 90% by 2018 as smartphones become more ubiquitous.
• Price is the key: A sustained decline in the global average selling price (ASP) of smartphones will drive growth. We estimate the global smartphone ASP will dip 10% in 2014 to about $250 per unit, and will ultimately fall to about $165 in 2018.

In full, the report:

• Provides a full shipments forecast for smartphones between 2014 and 2018.
• Discusses China and India's position as the leading markets for the next wave of smartphone shipments.
• Quantifies feature phone shipments to contextualize their increasing irrelevance in the global mobile market.
• Points to the role of local manufacturers in emerging markets - companies like Xiaomi and Micromax - in putting "good enough," cheap smartphones in consumer hands.
• Analyzes whether innovation in the smartphone market is sustainable amid all this growth or if these devices will become so commoditized that all competition will boil down to price.