Why are Smartphone Prices Higher Today and Rising?

Just take a look around at the modern world and you’re bound to see someone using their smartphone. These useful mobile devices are incredibly useful and ads for the latest models from Apple, Google Samsung, and other manufacturers are plentiful. But, many phones cost far more to purchase now than they did even a couple of short years ago. The latest foldable phones are typically priced at $2,000 or more and the pricing trend seems to be upwards. So, why are phones more expensive now?

The Rise of the Contract

When smartphones gained popularity many people decided to finance their purchase with a contract. A typical contract will run for 6-25 months, the buyer pays a monthly fee to cover the majority or the entire cost of the phone plus network fees for calls, data, and texts. At this time, the cost of a new smartphone could be around $200, but the real price was much higher and paid in installments. 

The Pay-As-You-Go Contract

From 2017 the number of consumers choosing a pay-as-you-go or SIM-only contract has become a more popular mobile deal. Many tech-field experts believe that this shift occurred because buyers correctly surmised that this route was cheaper than purchasing the phone outright. During the intervening years, the quality of phones has improved and that urge to upgrade every couple of years has faded. 

Holding on to Last Year's Model

Many people now hold onto their mobile phones for much longer than they did a few short years ago. This is reflected in a marked decrease in the number of people looking for an annual phone upgrade. With this lower demand for new models, the manufacturers were faced with a stark choice. They either charge more for each device or they would find a way to sell more phones. The former option was more viable, with fewer new phones to sell the flagship models had to be more expensive. This explains most of the reason for the price increases, but it’s not the whole story. 

Ongoing Innovation and Development Costs

To create improved phones there is a requirement to do far more than simply updating the existing hardware. Adding better cameras is a nice feature, but if you already have a good camera on your phone there isn’t likely to be much incentive to upgrade. Creating an improved device requires a lot of developers and skilled engineers. For example: Apple employs around 12.000 engineers in the U.S. and these skill sets are expensive. The salary for an Apple engineer starts at $71,000 and rises to $164,000 with greater responsibilities and experience. So, the average engineer's salary is around $117,500, this talent costs. Apple spends $1.5 billion annually just on developers and engineers! With increasing competition in the phone market, these costs are likely to continue to rise and the only way to offset these costs is to increase the prices.

Advanced Hardware and Material Scarcity

A modern flagship smartphone is one of the most technologically advanced devices ever offered to the mainstream. Some people wait avidly for the latest model and feel the need to upgrade on an annual basis. But, making substantial improvements to hardware presents a significant challenge. The upgraded phone will need improved hardware that can process faster, store more data, and add extra functionality. This is a problem because making new hardware is expensive and certain key rare earth materials are hard to source. These rare earths are seventeen chemical elements, including thulium, yttrium, dysprosium, and more. They are used in many modern devices, such as TVs, laptops, cars, and smartphones, and there are medical applications. As the name suggests, these chemical elements are rare, and as the demand for technology proliferates the demand drives the costs even higher. These costs are passed on to the consumer which contributes to the increasing costs of smartphones. 

The Reduction in Demand

Every smartphone manufacturer is trying to beat the competition to market with products that are more innovative. But, that desire to acquire the latest tech has diminished in recent years. Back in 2018, the market was stunned when global demand for new smartphones fell for the very first time. But, this shouldn’t be too surprising, even the earlier smartphone models have a feature set that’s far beyond what a dumb phone can offer. The processing speeds are fast and they got faster, there were connectivity improvements, data storage increased and AI features were added. That said, there is no way that these exponential improvements can continue indefinitely. 

Moore’s Law 

This is an observation that the number of transistors used in an integrated circuit will double every couple of years or so. This creates an increase in power with a relative cost decrease at an exponential rate. So, in an ideal world, our smartphones and other computing devices would continue to get better and cheaper at the same time. Many tech experts now claim that Moore’s Law has to all intents and purposes been debunked when it comes to smartphone development. The size of a typical modern transistor is only 10 nanometres which is incredibly small. But, even with these tiny components we are approaching the point where the growth of computing power within these physical limitations is becoming impossible. Computing power growth may end unless there is a drastic switch to a different manufacturing process that we don’t have yet. That’s why smartphones continue to get bigger as they become more powerful and why manufacturers have needed to switch focus. 

Form Over Function

To stand out in the market smartphone manufacturers have started to reduce the size and power of their devices in favor of other improvements. A prime example is the recent trend for folding screens to make phones smaller and easier to carry. But, these developments are largely superficial and the jaded buyers are not likely to buy these models in huge numbers. 

The Costs of Branding

Many people are prepared to pay more for a powerful brand, and this is reflected in the prices. Early smartphone models were sold almost entirely on the specs alone, but as the devices went mainstream they increasingly became status and fashion items. This is why Apple and other manufacturers place an increasing emphasis on aesthetic appeal and advertising. Making a device that is functional, stylish, and cool to own will inevitably drive up the costs and these are passed on to the consumer.