Smartphone Cases: The Multi Billion Dollar Accessory Business

Repost from my consumeronomics blog - Title: Smartphone Cases: The Billion Dollar Accessory Business

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Smartphones are expensive and we like spending on cases and accessories that protect them, sometimes enhance them, and customizes them with each of our unique identity. 

I personally have three for my Nexus 4, a plastic shell with a retractable stand to watch movies on the move, a soft shell rubbery case which is great to hold, and an armband for the occasional run. An ABI Research estimates that a smartphone owner will spend on an average $56.18 on accessories per device. Amazon's accessory cases and covers page contains a whopping 7.9 Million items.

ABI also estimates that smartphones drove $20 billion in aftermarket accessory revenues in 2012, and is expected to reach $38 billion by 2017. That's a Billion with a 'B' if you didn't notice.

Why are cases so popular?

 Look around and you'll notice smartphones are getting slimmer designs, and  are made of glass and plastic to reduce their heft. Every new smartphone launch highlights the thinness and lightness of a modern smartphone. Hence protection has become an absolute necessity.

According to NPD’s “Mobile Phone Accessories Attach Rate Study,” recent mobile phone case buyers cited protection and durability (86 percent) as the top purchase influencers, followed by quality materials (73 percent), and minimal bulkiness (66 percent). Aesthetics and price play a lesser role in the purchasing decision, with just under half of recent case buyers considering these attributes important.

The study also found an interesting purchasing behavior among consumers. Nearly half of all consumers purchased an accessory at the time of purchase, in a retail store, spending nearly 3X compared to consumers who bought their phones through online or over-the-phone channels. After the initial purchase, 4 out of 5 consumers reported purchasing their subsequent after market accessory through different retailers, which offered them better choice and value, like Amazon and eBay.

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Apple, obviously has always been aware of the huge opportunity here and has been selling bumpers and cases for its iPhone lineup. Currently it sells a $29 and $39 case in multiple colors for both the 5c and 5s line of devices. The cost of mass producing these cases is estimated to be roughly around $1 a case. Apple generated $1.38 Billion just from accessories in 2013 Q2, a slow quarter considering they then hadn't announced their new line up. In the grand scheme of things, it's just 3% of the overall revenue, but has already surpassed their iPod sales.

According to NPD, the US market is dominated by 5 companies - Otter, Liverproof (now with Otter) Belkin, Speck and Incipio. Each of them are trying hard  to differentiate themselves from what Apple or other OEMs offer, in terms of more choice, better protection, designs, utility (like battery packs) etc. However, this category is evolving quite rapidly. The 7.9 Million listings in Amazon that we talked earlier contains thousands of small players, mostly from cheap Chinese vendors, offering similar features at a fraction of cost.

The accessory business is indeed lucrative offering generous margins, however is also increasingly crowded. Growing competition should help consumers in driving down prices and offering more choice. As smartphones become more pervasive, will be interesting to see for how long such exorbitant profit margins can be maintained.

So how much have you already splurged on an accessory for your smartphone. And which is your favorite one. Do drop your comments below.

Views from Apple's iPad Event - October 2013

credit: MacRumours
Apple hosted its iPad centric event today in San Francisco, just over a month after its iPhone event. The invite had read "we still have a lot to cover", and as expected, Apple revealed a slew of products. Though mostly incremental, here is a run down of what's new.

1. iPad Air and Mini

Apple refreshed both the 10 inch and 8inch models with their latest 64bit A7 processor and the M7 motion processor. And similar to the iPhone 5s, these are expected to have 8X faster performance and 72x better graphics performance. No benchmarks yet to confirm this claim.The larger iPad is now re-branded as iPad Air, and weights just about a pound (28% lighter than previous generation) and starts at $499.The Mini finally gets a well needed Retina upgrade, and starts at $399.
Despite the performance bump, Apple claims 10+ hours of battery usage on both models. I was disappointed that touch-id was missing. Rumour has it that it's a supply issue and hopefully next year all of Apple's flagship phone and tablets will sport the touch-id sensor.

2. Refreshed MacBook Pros

As expected MacBooks got the Haswell upgrade, boosting battery life to 7-9 hours. Interestingly, except a lone 13' model, all MacBook Pros now come with a Retina screen. I wonder who would pick the non-retina model, which is just $100 cheaper.

3. Mac Pros

Apple gave us a glimpse of the newly redesigned Mac Pros in their last event. Today, they announced that they will be available in December starting at $2,999 with a 3.7GHz quad-core Xeon, 12GB RAM, dual FirePro D300s, and 256GB SSD.

“It is a computer that packs an incredible amount of power into one-eighth the volume of the previous model,” Schiller said at the event. “It is our vision of the future of the pro desktop.”
Schiller emphasized how quiet the Mac Pro will be (as quiet as a Mac mini), and how it uses 70-percent less energy than the last version. Also of note: The Mac Pro will be assembled in the United States. There’s no word on pre-orders quite yet but the price/performance ratio for the entry level model looks quite enticing, that is, if you need such raw power.

4. Software, and it's all FREE

We were expecting Apple to reveal OS X Mavericks, which they did, but what was more interesting was the announcement that all Snow Leopard and later users were eligible for a free upgrade to Mavericks. Besides some incremental improvements, it is expected to give an additional hour of web browsing from under-the-hood optimizations.

Along with it, they also refreshed their line of iWorks and iLife, all "re-written from ground up" to support the 64bit support in both OSX and iOS 7. And they are free for all new Mac and iOS users.
Apple clearly is a hardware first company but wants users to use their software along with their iCloud service, competing directly with the likes of Microsoft and Google. Collaboration feature has also been added. Would be interesting to see if users shift from Google Docs and Office 365 to Apple's services.

Final Thoughts

Gone are the days when we expect the "one more thing", or a revolutionary, magical, blow our mind off unveil from apple. There is just so much you can really do, each year.
Most of Apple's announcements were expected but are solid iterative product releases. Their software play looks quite interesting. iPod wasn't mentioned and it's clear that they'll be slowly phased out. Lack of touch-id on the new iPads is a bummer but they need to let 3rd party apps use it, and not just restrict it to iOS and iTunes. If you could wait this one out, you won't regret it when they refresh it again next year. Finally, Apple announced they had sold 170 Million (!) iPads till date. Impressive numbers for a device which initially just seemed like an enlarged iPhone.

iPhone 5c - A sleeper hit or a mispriced flop?

Tim Cook's big reveal on September 10th, left a lot of us with mixed feelings. Amidst all the rumours, analysts and tech enthusiasts had expected Apple to announce two new models of their next generation phones. One, a premium, top of the line flagship phone, priced similar to last years iphone 5. And then a lower tier model aimed at emerging markets and budget conscious consumers.

On September 10th Apple announced 5c, a not so cheap, "Unapologetically Plastic" and colorful avatar of iPhone. With a new hard shell case, it has almost similar internals as last years iPhone 5, and is priced just $100 lower with contract than the more expensive and better built 5s.

Apple was quick to point out that 5c was no means meant to be a cheaper alternative. In all its marketing promos, Apple highlights design, fun and style, and never once mentions prices and features. In fact, the 5c, unlocked starts at a steep $549.

Apple recently announced that they had a record opening weekend, selling 9 Million iPhones.
This is quite fascinating, since it's 80% higher than last year's launch (5 Million). A key driver for this incredible figure is the first time, simultaneous launch in China. In fact according to Asymco, if you include last year's first weekend sales in China, the growth is actually a more modest but still strong 28%.

I was curious what population of Apple's customer segment would be interested in a cheaper looking phone with last year's specs. Would $100 lure them away from the iPhone 5s, which has far better build quality, a 64bit next generation processor, better camera and most importantly, the revolutionary touch-id sensor. Rather than cannibalizing their own product, Apple's play seems to be more towards attracting Android and first time buyers into their own ecosystem, meanwhile maintaining their high profit margins. But have they priced it too high?

Apple did not reveal the split between the two models, however initial reports suggest 5s outselling the 5c 2:1. Due to the lack of public data, I asked Google Trends, what people were searching for. And right now, iPhone 5s trumps 5c by 2.5-3:1. It's obviously unscientific to relate sales volumes with search queries and it needs to be taken with caution. However, it does reflect consumer interests around these two products.

Recent news suggests retailers like Walmart and Best Buy have already started discounting  iPhone 5c prices by $50 (via gift cards) to counter disappointing 5c sales. Consumer Research firm NDP also reported Apple cutting back 5c production by 35% and increasing 5s production by 5s to meet demand.

Regardless of how this plays out, Apple is all set to have another record quarter. They will sell millions of new iPhones. Apple, recently in a regulatory filing, also said that its sales and gross margin for the quarter ending this month will be at the high end of its forecast of $34-$37 billion in revenue and gross margin of 36 to 37 percent. As a tech enthusiast, I am just excited to see what they have in store for us in their big reveal this October 22. New iPads, macbook pros, and maybe something magical that you can wear on your wrist.