Investors betting big on the Indian technology story often cite three fundamental reasons for their bullishness: a large young population, cheap mobile data, and falling smartphone prices. But have smartphones really become cheaper over the years? At first blush, most people would think yes. But a recent conversation forced me to rethink my assumption.
In the past five years, the price of major smartphone brands has increased between 50% and 90%, said Mandeep Manocha, chief executive of Cashify, a secondhand electronics marketplace.
Sample this: When Xiaomi launched its cheapest category Redmi Note 5 in India in February 2018, it retailed at $133. Today, the Redmi Note 10 costs $187 in the country. That’s a 40% price increase!
OnePlus, which famously launched as an affordable brand, now comes with Hasselblad optics and all sorts of other fancy features that have made the phones costlier. The launch price of the OnePlus 5 was $336, while the more recent OnePlus 9 is priced at $665. In the premium category, Apple’s iPhone prices have gone up by more than 80% since 2007.
“It is so counterintuitive. People think that phones are getting cheaper, it’s not,” Manocha told Rest of World.
As prices rise, value-conscious consumers who want a $100 smartphone are left with very few options. Even Xiaomi, the leader in the low-cost segment, has only two models in the $100 category. This means that much of the next generation of smartphone users who want to own “aspirational brands” will likely come in through the refurbished route.
Smartphone prices have gone up because both individual parts and the entire value chain have become more expensive. It’s nearly impossible for any brand to offer a high-quality smartphone at a price point below $100, and still make money on it. (Asia’s richest man Mukesh Ambani attempted to roll out a $50 JioPhone Next Android device that was dubbed “the most sluggish phone I have used in ages” by one reviewer.)
This constraint is likely to fuel the growth of the secondhand smartphone market. Currently, the estimated market opportunity for refurbished phones in India is about $12 billion, according to Cashify, which has over 2 million customers across 1,500 cities.
Modeled after the Chinese giant Aihuishou, Cashify procures pre-owned smartphones, and inspects, repairs, and resells refurbished phones at a 25% discount from the original price. So, instead of a new $150 smartphone, users can buy a refurbished phone with better specs like a larger battery, better RAM, and a higher resolution camera. The company said it is the biggest buyer of used smartphones from online marketplaces Amazon and Flipkart. A large number of shoppers on Cashify are students and gig economy workers who are price-conscious value seekers.
If Cashify plays its cards right, it might soon recreate the success of Aihuishou (meaning “love recycling” in Chinese), which in June IPO’d in New York at a $3.5 billion valuation.
