Almost four years after Apple’s iPad created the tablet category and opened up a new spigot of revenue for itself and, eventually, a growing number of competitors, the industry finds itself wrestling with saturated markets, slowing growth, lower average selling prices, and consumers who are growing tired of evolutionary improvements to the same basic products.
Deloitte’s annual Technology, Media and Telecommunications (TMT) predictions report says while projected US$750 billion sales of televisions, PCs, videogame consoles, smartphones and tablets – the holy grail of the so-called connected living room – in 2014 are up 14 per cent over 2013 and almost double 2007’s sales, there’s trouble ahead. Growth, which averaged 11.8 per cent annually over the past decade, double the global GDP, is expected to flatten significantly, with annual sales topping out at $800 billion by 2018. Consumers are tired of buying warmed over versions of the same old products. The rocket ride is over.
No one knows what’s next
As demand for these established products slackens, the industry needs a Next Big Thing, a new product category that reignites consumer passion and shifts the pressure off of maturing product lines to sustain growth and margin. Despite promising signals from emerging technologies like wearables and 3D printing, however, there’s little consensus over what that Next Big Thing might be, when it might appear, and who will drive it.
The mid-life crisis explains why Apple shares fell from a high of $700 to below $400 as investors fretted the company long known for opening up entirely new product categories – as it did with media players, touch-enabled smartphones and tablets – didn’t have anything truly new in its pipeline. Despite rumours of upcoming products that might include a smartwatch, television or home automation solution, not even Apple is immune from worries that its existing product lineup is showing signs of age. Apple’s shares have recovered somewhat, but the longer-term doubt remain. Beyond Apple, however, Deloitte’s data paints a worrisome picture in the five key categories:
PCs. Sales fell 12 per cent in 2013 to under $200 billion, and are expected to slip another 4 per cent in 2014. Things will get even uglier thanks to annual unit declines of 5 per cent and dropping average sales prices (ASP). PCs aren’t going away, but consumers will spend less on them, and won’t replace them as often as they redirect more of their budgets toward increasingly capable mobile devices.
TVs. Since sales topped out at $115 billion in 2011, consumers have yawned at new features that include 3D, integrated connectivity, and voice and gesture controls. ASPs have also been declining since 2007, and 2014 sales are expected to fall to $105 billion. Ultra-high-definition 4K screens will help 2018 sales struggle back to $115 billion – hardly the breakout hit the industry needs.
Video game consoles. A new generation of consoles is driving higher levels of consumer interest, and online gaming offerings are opening up new sources of revenue. But at $10 billion, video games represent a relatively small piece of the $750 billion converged living room market – and that won’t change anytime soon.
Smartphones. Now that most consumers have converted from feature phones to smartphones, the do-it-all device’s best growth years are now behind it. The average handset upgrade cycle increased from 19 months in 2007 to over 24 months in 2013. Emerging markets will primarily fuel future smartphone growth, but greater price-sensitivity will further erode ASPs, which were already off 4 per cent in 2013. While 2014 smartphone sales will rise 12 per cent to $375 billion, they’re expected to hit $430 billion by 2018, a tepid 15 per cent increase over four years.
Tablets. Strong growth since the category’s emergence in 2010 will see 285 million units sold and sales exceed $100 billion in 2014. Growing popularity of smaller-screened devices is putting pressure on ASPs, which were down 10 per cent in 2013. If this trend continues, Deloitte expects the category’s sales to flatline at $100 billion through 2018. After inflation, this newest, supposedly hottest category will shrink over the next four years.
To a certain extent, the industry is a victim of its own success. Consumer expectations have risen with each successive new generation of technology. The half-life of gotta-have-it new features is now measured in weeks as consumers navigate an increasingly hype-driven marketing cycle. As existing products mature and each new release becomes less revolutionary and more a warming-over of already-familiar features, consumers are holding onto their devices longer. And when they do buy in, accelerating competition squeezes margins and shortens product cycles.
Since the 1970s, Deloitte says only three categories of consumer devices – PCs, smartphones, and tablets – have resulted in over $100 billion in annual sales. The industry clearly needs a fourth breakout hit if it hopes to return to the glory days of double-digit growth anytime soon. While vendors dither and consumers play coy, the industry holds its breath and hopes a miracle lies just around the corner.