Power

Between COVID-19 and 5G, the smartphone world will never be the same

With stores closed, an ongoing financial crunch and a key new technology, customers are changing how they buy phones — and which ones they buy.

Google Pixel 4a

Midrange phones like the new Google Pixel 4a are about to become all the rage.

Image: Google

Google wanted to ship the Pixel 4a months ago. The phone — a high-end device at midrange prices, and the successor to Google's most successful phone yet, the Pixel 3a — was originally rumored to land at Google's I/O developer conference in May. But when there was no conference because of COVID-19, there was no launch.

Besides, the phone wasn't ready anyway. "Our supply chain got hit really hard, and we had to continually adjust and readjust our launch timelines," said Sherry Lin, a product manager at Google who worked on the device. Even now, as the 4a actually launches, its rollout has changed. It'll launch in fits and starts around the world, and, as Lin put it, "we will be optimizing for online sales, given … the nature of the world."

The nature of the world, shut down by a pandemic, has forced the U.S. smartphone market to change in a big way. For years, Americans were an anomaly: Unlike most of the rest of the world, they didn't like to buy phones online. They preferred to walk into a store 24 months after their last purchase, talk to a salesperson, play with a phone or six, and then walk out with a new device and a new two-year contract.

With all those stores closed, buying a phone online is suddenly many people's best option. (Though Walmart's seeing record smartphone sales, too.) Brad Akyuz, an executive director at the NPD Group, told me that the percentage of smartphones bought online has roughly doubled in some places this year, from about 13% to 26%. (Compare that to the Census Bureau's finding that around 12% of overall commerce is done online, and smartphone buying looks like a fairly digital-first activity.) That puts the U.S. roughly in line with the rest of the world: a Strategy Analytics study found that 28% of phones will be bought online globally, up from 24% last year.

In some ways, Akyuz said, this is great news for carriers. "This increase in online sales has given carriers an opportunity to rethink their retail strategy," he said. No, they don't get a half-hour while people wait in line to sell them on accessories and upgraded plans, but they do get to stop bearing the giant costs of physical retail. Some carriers are already embracing the trade: AT&T announced it won't reopen 250 stores closed during the pandemic, and T-Mobile is closing thousands of stores after merging with Sprint. "Losing that retail touch with the customer is not something that they want," Akyuz said. "But at the end of the day, they don't necessarily need to have five stores within a 10-mile radius."

That's only the beginning of the change, too. A litany of changes may be coming to the smartphone world in the next few months. The Pixel 4a has a fingerprint reader instead of facial recognition, for instance, which might ordinarily seem like a downgrade from the newest available tech. But when everyone's wearing masks, Google sees it as a strategic advantage. Akyuz also predicted that eSIMs will become more popular, letting people activate a device without needing to get a physical card from a physical store.

Post-pandemic, though, the smartphone market is headed for a wild collision of market forces. On one hand, more people are more comfortable buying more things online, and that clearly includes smartphones. And when people buy online, they buy slightly differently. On the other hand, as 5G phones become more popular, the American phone industry seems destined for a few years of confusing carrier lock-in, where an unlocked device might only work in a couple of places. Maybe people will simply give up, go back to the carrier store, and make sure that their phone actually works.

There's also the question of price. Smartphones have for years resisted the downward-spiraling prices that come for virtually every other piece of technology. In fact, especially as people hold onto their phones longer, they're willing to spend even more to get the right device. It's roughly the same sales pitch as buying a mattress: You're going to be on this for eight hours a day, might as well get one you love. But now, there's a much larger contingent of price-conscious buyers, and Google and others have noticed. Selling the Pixel 4a for $349 was always the goal, Lin said, but a few months ago "it became nonnegotiable, given the economic climate. We were going to hit that price point one way or another."

For years, the American smartphone-buying process went like this: If you can afford the flagship phone, you bought the flagship phone. If you couldn't, you bought last year's model on sale instead. There was little room in the market for anything else, Akyuz said. And by bundling devices with contract upgrades, offering trade-ins and hiding the price inside users' bills, even high prices were easy to disguise.

That trend has been shifting for a while, though, led by cheaper devices like the Pixel 3a, the new OnePlus Nord and the iPhone SE. On Apple's earnings call last week, Tim Cook said that "the combination of a smaller form factor and an incredibly affordable price made the iPhone SE very popular." The iPhone 11 — also not Apple's flagship device — is its most popular phone, Cook said, but the SE "definitely helped our results."

5G is going to push that trend even more. As 5G gets more popular, every phone that doesn't support it becomes instantly obsolete, and carriers will be pushing users hard to upgrade. "Carriers really want to get as many 5G phones on their networks as possible," Akyuz said, "because there's a huge ROI question there." So phone makers will need to make devices that support 5G but don't come with flagship-phone price tags.

That may help explain Google's most enticing announcement around the Pixel 4a: that there's a 5G variant coming later this year for $500, alongside the Pixel 5 (which will also support 5G). Apple's reportedly announcing 5G-capable phones this fall, too, and Samsung has an event this week to launch its own new lineup of 5G devices. The flagship models will get most of the attention, as always. But as shopping habits, economic pressures and tech standards all simultaneously upend the industry, the midrange smartphone may be about to have its moment.

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