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Summary:

Deep discounts are helping to push smartphones beyond early adopters and hardcore business users and into the hands of mainstream U.S. consumers, but they’re also stalling revenue growth, and demand for the sophisticated handsets may suffer once network operators do away with all-you-can-eat data plans.

Deep discounts are helping to push smartphones beyond early adopters and hardcore business users and into the hands of mainstream U.S. consumers, according to figures released this morning from The NPD Group. But those lower prices are stalling revenue growth, and demand for the sophisticated handsets may suffer once network operators do away with all-you-can-eat data plans.

Smartphones accounted for 31 percent of the overall U.S. handset market in the fourth quarter of 2009, up substantially from 23 percent during the same period a year ago. That growth can be directly attributed to the fact that prices for smartphones are often slashed within months (or even weeks) after they first come to market. But those price cuts are also why year-over-year smartphone revenue growth in the U.S. was just 21 percent in the fourth quarter of 2009, down dramatically from 37 percent in the fourth quarter of 2008.

“Although we are seeing more expensive models among the best-selling handsets, carriers are now offering some popular smartphones for less than $100,” Ross Rubin, executive director of industry analysis for NPD, said in a prepared statement. “As the average price of these highly capable devices continues to fall, the price of data plans and ease of use will emerge as more significant factors to limiting consumer sales growth.”

While handset manufacturers will surely continue to make smartphones easier to use for non-techies, it’s that other factor — the price of data plans — that is a looming headache for smartphone makers. Both AT&T and Verizon Wireless have increasingly spoken of the need to scrap unlimited data offerings in favor of metered offerings that will see prices increase for those who consume the most data — which will result in at least some degree of backlash from users who’ve long been accustomed to paying a flat monthly fee for as much data as they (or their phones) can handle.

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Image courtesy Flickr thejessie.

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  1. Anyone who really wanted the phone and walked into a phone store and saw the phone for sale at such an inexpensive price has now gotten their phone and that is why the trend is starting to come to an end.

    If usage pricing goes up that will also make a difference and slow sales even more. The only thing keeping the phones moving right now is pricing.

    I don’t however see this going on for a long period of time because the trend towards local and mobile business advertising will eventually push this back the other way.

  2. smartphone-guy Thursday, March 18, 2010

    I agree that this downtrend will end with the economic recession. Things are bad right now and discretionary purchases will continue to fall off as the only thing that matters right now are staple goods: food, toilet paper, toothpaste, etc. But as Scott pointed out, imagine being able to geo-target an ad down to the part of town someone is in. The day is coming when anyone pulling up to the mall is going to be pushed an ad on their smartphone about your store inside that is having a killer special.

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