Smartphones Aren’t Great For Resale Anymore

Smartphones are one of the most popular items available to purchase for consumers today. The portable computer-meets-cellphone is powerful, capable of acting as the digital multitool we read about as kids decades ago. In many ways, it is the future, and that isn’t ending yet. Yet, if you want to resell yours, it’s getting harder and harder, no matter how many you’re attempting to sell. 

Apple’s recent major announcements concerning changes to the iPhone’s operating system are a clear sign that it isn’t going to get any easier. Which is, of course, not to say that the business of selling phones is going to disappear overnight, far from it. But profit margins may slip, and the burden of providing higher-quality devices will fall on the bigger players, while smaller firms and individuals will suffer because they can’t keep up or remain properly competitive.

Smartphones are ubiquitous

It’s easy to say that we all have smartphones, although it isn’t true. In the US over half of the population has a smartphone, which means even if we were to guesstimate that 40% of Americans did not, that would still leave over 100 million people using a standard feature phone, or else none at all. And that’s not likely to change anytime soon.

Around the world, it was only just announced earlier this month through a report from Ericsson that half of the world’s population of cellphone owners uses a smartphone, just barely beating out feature phones for the first time ever. That accounts to 3.2 billion smartphones out in the world today. With so many devices in the hands of consumers, and more than 80% of those using Google’s Android platform, there’s less and less need to upgrade.

In the US and Europe, where two-year upgrade cycles were introduced to help get the smartphone industry pumping new devices yearly while maintaining profit margins for both manufacturers and wireless providers, those deals have all but stopped. There are plenty of races fueling growth in the wireless arena, but adding new smartphones is now highly dependent on the region, not the industry.

In effect, the main reasons to upgrade smartphones is no longer economically sustainable for anyone except those with a lot of expendable income. They’re everywhere, and wireless providers aren’t subsidizing the costs as much, if at all, for purchasing a device that may cost upwards of $650.

On the opposite end, consumers no longer want to purchase upgrades so often because of the higher prices, and thus are happy to spend less money on a device a year old because the quality is decent, but, more importantly, the price is so much lower. And with smartphones everywhere, the pressure to always have the latest and greatest is only in higher-class areas, where public appearance and perception drives a lot of economic reasoning and purchasing decisions.

Smartphones are significantly improved

It used to be that phones were made of mostly plastic and a bit of glass. Now, devices like the iPhone 6s, Samsung Galaxy S7, and others have little to no plastic and are built with extremely strong and durable materials, such as hardened glass, metallic alloys, and of course higher-powered components internally.

The increase in the physical performance of these newer smartphones is incredibly powerful. Not only are they less prone to break; they are also faster, capable of doing more in less time, and taking over other functions that used to require separate electronics for. This isn’t new. For the past three years, a top-of-the-line smartphone to a mid-range device could remove the need to have a separate device from the following list:

• Flashlight
• Camera (stills)
• Camcorder
• Alarm clock
• Voice recorder
• Compass
• GPS
• Calculator
• eBook reader (or just physical books)
• Tablet (for large enough devices)
• MP3 player
• Video game system
• Virtual Reality (with an included headset)
• Wallet
• etc.

This list could go on and on if we included features not built directly into most smartphones too, such as word processing, a remote control for Internet-of-Things devices, and any number of applications previously limited to personal computers. Even this article, thanks to the simplicity and high level of design available in both smartphone apps and mobile websites, could have easily been written, albeit less comfortably, on one.

Yet while there are many who always, and loudly, state the need for growth in features and capabilities of smartphones, they are so powerful that they play a more important role than computers do. Yet in order to do so, they need to be capable enough of filling the niche of computing performance.

This is, in part, why Chromebooks have seen such a meteoric rise in the past two years: the low cost combined with good-enough web performance has struck a cord with anyone who needs internet access and a keyboard attached to a screen.

None of that changes the fact that even a four-year-old iPhone 5 is still perfectly capable of performing all of the tasks needed to use a smartphone on a regular basis. It was the most powerful smartphone at the time, and also was very well built, well enough that many continue to use theirs today. So upgrading hasn’t been necessary.

Regarding iPhones especially, Apple has had major problems with its customers upgrading hardware. The phones are so well built that there’s no need to upgrade them on a two-year cycle. This is partly the cause of rumors that Apple is moving to a three-year upgrade cycle, starting this year. Similar to PCs, which most people can continue using comfortably for 3-5 years, and with good care continue to use for up to 10 or even more, why should they upgrade?

Even this writer, who regularly works with new handsets to test and develop applications on, knows that, unless you want to remain on the cutting edge, or else in the case of smartphones that have never been up to snuff for you, a two, three, or even four-year-old model will work just fine. Which causes another major hurdle in reselling.

Demand for older/used smartphones is decreasing

With the lack of need to buy a different smartphone, be it an upgrade or otherwise, the demand of smartphones is dropping, and thus the supply is increasing. Retailers are perfectly aware of this, and the margins on new devices drop significantly as quickly as a month or two after release.

Indeed, our reviewed Samsung Galaxy S7, an international model, was purchased for $150 off just a month after the device started selling. This adds a bigger burden on anyone reselling smartphones, be they used or refurbished. It means the timing of such sales is more critical than ever. A month after Google and Motorola released the Nexus 5X, Google posted holiday sales and many retailers were selling the $450 devices for $320.

Anyone who paid attention could have easily turned over significant profit margins by buying up as many of the still very new smartphones as possible and reselling them immediately after those end-of-November sales ended. After all, not everyone does their holiday purchasing on the Black Friday-Cyber Monday shopping weekend.

Furthermore, many brand new smartphones are starting to sell for a much lower cost. Gone are the days where the average price of a handset is $650; today only the most expensive Android phones cost that much, while powerful devices like the Nexus 6P and OnePlus Three cost $450 and $400, respectively. This puts an incredible pressure on used smartphones, even if they are equally or more powerful, because they’re a generation older and were so much more expensive back then than a brand new device is now.

Case in point, this writer recently sold an older Samsung Galaxy Note 5. The new model hasn’t even released yet, nor has any formal announcement been made. It was purchased at a deal of $525 (MSRP was $725), and sold for just $385. This is, sadly possible because even though the device has several unique features — a stylus, virtual reality capabilities, and an extremely high build quality — it lacked one thing critical for buyers: a reasonable price.

In the wake of much cheaper yet powerful smartphones like the Nexus 6P or OnePlus Three, buying used versus new is a no-brainer. This drives the supply up and the demand down, which oversaturates the available stock and drives the price through the floor. Handset makers have already started to feel the pain of this as new smartphone purchases have dropped for the past few years.

Now even Joe consumer, looking to make a few extra bucks on Amazon or eBay, won’t make enough bang for his buck to make it worthwhile.

Not the end, just a new beginning

The obvious problem of a too-large supply and tiny demand will stir much unrest with smartphone manufacturers. Many of them are already hurting from the incredible competition. Sony has all but given up in the US, LG produces fewer and fewer devices, HTC has just one major smartphone release a year now and is attempting other businesses (including virtual reality with the Vive headset), and the hundreds of Chinese smartphone makers pop up and disappear as quickly as you can blink.

We may soon find major players disappear from the ring, along with dozens to hundreds of minor ones. At this point, it’s still too early to tell. However, with so many interesting new businesses popping up, smartphones are moving in brave new directions on a nearly daily basis.

Because of that, liquidation of smartphones isn’t going to disappear overnight, nor will it ever truly disappear, but it will change in the coming years. And, if anything, improve. That’s powerful. After all, with more and more devices connecting to your everyday smartphone, it’s only a matter of time before those who have refused to buy one change their mind about it, if only to access all of the luxuries and necessities that these smart devices now provide.

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