The Future of Smartphones Is Less About the Phone, More About the Ecosystem

Has smartphone innovation finally peaked?

That's the question a lot of industry watchers and consumers are starting to ask. For the past couple of years, there hasn't been much in the way of dramatic new features for our phones. Sure, screen and camera resolution keep getting better, there are new color and body options, etc., but for the most part, we seem to be at a stage where change is incremental, at best.

And with Apple's release of the new iPhone SE, a phone which goes back to a four-inch screen size, it's a good time to ask, "Is this as good as it gets?"

As LG put it at Mobile World Congress, we're at a point where everything is simply "good enough." The display on last year's phone, the camera, the body - they're all just "good enough."

If smartphone technology has reached a tipping point, where consumers can no longer distinguish upgraded features from older ones, where does that leave us? Device manufacturers will continue to look for new ways to distinguish their products in the marketplace. So where is the innovation headed?

As we look forward into the smartphone future, what stands out most clearly is that smartphone innovation will be less about the actual phone, and more about the ecosystems that center around it.

Virtual Reality

Perhaps one of the most significant new developments right now is the field of virtual reality, or VR. This technology has been in development for years, but is finally getting interest from major players in the market.

While VR headsets are being designed as stand alone technology, like Facebook's Oculus Rift, or gaming platform extensions like Sony's PlayStation VR, they're also being tied to smartphones, which serve as the engines that run them. For instance, Samsung's Gear VR, LG's 360 VR and Google Cardboard.

The smartphone-as-headset model has made VR more readily accessible to mainstream users in the short term, but it could also prove to be a highly effective strategy long-term as well. This design is likely to keep the price of hardware low, compared with dedicated products (HTC Vive's price is $799, Oculus Rift is $599), and make apps and games for more accessible, for cheaper.

With Goldman Sachs predicting the VR industry could reach $80 billion by 2025, it's likely to be a key focus area of mobile device manufacturers for the foreseeable future. Already Samsung, LG, Google and Microsoft are making significant investments. At some point, Apple will have to come onboard too.


Another obvious ecosystem is the wearable market, whether it's smart watches, health/fitness trackers, or other devices. Here too, the smartphone plays a key role in fueling these peripheral devices and synching your online experience.

Although the wearables market is still relatively new and doesn't feel like it's fully caught fire yet with consumers, expectations for it are high, with Gartner predicting 323 million unit sales globally by 2017, and watch sales alone estimated at 67 million by next year as well.

For wearables to truly take off, the key is to have richer features and functionality, or greater affordability. With so many players now entering the field (Apple, Samsung, LG, Sony, Asus, Lenovo, HTC, Fitbit, Pebble, Xiaomi, Huawei, Garmin, Tag Heuer, Fossil, Michael Kors, Guess), both seem more likely to happen. We're likely to see a great deal of innovation, in terms of hardware design, customized OS and focused apps that will make these products more compelling for average people.

In fact, the wearable market is one of the more exciting fields to watch right now, both in terms of innovation and new market entrants. While Apple claims a dominant lead in the smart watch category (52% market share, according to Juniper Research), this category remains largely undefined, with strong potential for 'unexpected' companies to carve out key niches.


The Internet of Things is another crucial category for smartphone companies.

It is sure to become a major area of competition among various device manufacturers and operating systems over the next few years, as the smartphone will be increasingly seen as the remote control for a person's life, capable of unifying and controlling a diverse range of technologies, from smart appliances, home automation, car settings, TVs and more.

Google is already developing its own operating system for IoT, known as Brillo. Apple too has the HomeKit.

As competition intensifies, we may see device makers differentiate their products by creating unique accessories (like small robotics - LG's Rolling Bot is one example), advanced diagnostics and monitoring, as well as adding new capabilities to the remotely controlled appliances themselves, available only through a customized OS or proprietary app.


The other big factor here is money.

Over the next few years, we're likely to see a greater adoption rate of mobile payment services like Google Wallet and Apple Pay, which effectively turn the smartphone into a credit card.

In fact, this is likely to go even further. The smartphone will probably play a more critical role as 'authenticator' - i.e., confirming the legitimacy of purchases and other financial transactions, through a combination of unique identifiers like GPS, biometrics and user data. It could also open the door for the more widespread use of crypto-currency, like Bitcoin.

Smartphones will also increasingly usurp the banking process, as the mobile platform replaces the ATM, local bank branch and even traditional online banking. Citigroup's recent Global Perspectives & Solutions report anticipates a 30% decline in US banking jobs by 2025, because of mobile phones and automation.

These new, emerging ecosystems will define the smartphone industry over the next 10 years, and will likely be the primary focus of innovation. As we'll see, the smartphone's role will change from that of a single device to a hub, or nervous system, controlling a wide range of peripheral products.