The New Age of Diminishing Returns: When Tech Can't Escape 'Good Enough'

When consumers believe the product is good enough, businesses struggle to innovate their way to increasing sales.

James Martin/CNET

Welcome to the very first edition of The QED Insights, a weekly Friday newsletter dedicated to exploring ideas, innovation, and their impact on humanity. I'm glad you're here.

For the majority of consumers, our household gadgets and appliances often remain unchanged for years before we consider replacing them. No one expects you to replace your washing machine or television annually, not even the manufacturers. In fact, durability is often a selling point, with manufacturers striving to differentiate themselves by producing durable, long-lasting products that align with consumer expectations.

However, the situation takes a different turn with smartphones, computers, and other smart devices. These devices seem to carry an expectation of frequent upgrades, with consumers subtly (and sometimes not so subtly) encouraged to upgrade frequently. While it would be absurd for a washing machine manufacturer to anticipate yearly replacements, the same cannot be said for smartphones. In reality, the average consumer retains their washing machine for a decade, and TVs last an average of seven to ten years before being replaced.

This pattern isn't exclusive to consumer tech products like smartphones and laptops. The software industry, largely adopted the "subscription as a service" model as a defense to address consumer reluctance to upgrade some of their applications such as Office and Photoshop with new editions.

So, why the disconnect?

"To understand why, let's explore the Innovation Lifecycle. The innovation lifecycle begins with an inventor or a company making a groundbreaking discovery or invention brimming with potential to transform our lives. And over subsequent years and generations of refinements and advancements, the full potential of this invention becomes unlocked, with new features and capabilities constantly added. 

The main reason for different expectations lies in the word "refinements." While technological advancements have leaped forward in recent decades, it's crucial to recognize that the software and computing industries are still relatively young. It took a long time and several generations of improvements for big inventions like the cinematography, washing machines, and TVs to become common, even though the basic technology was there. Comparatively, the iPhone, which came out in 2007—less than 20 years ago—is still relatively young compared with these historical examples. And for a while, various sectors of the computing and software industries remained in the early phase of the 'refinement' stage.

No one knows how long a product can remain in the refinement stage of the innovation lifecycle. But as long as a product remained in the stage, there are significant returns on innovation investment and companies can innovate at the speed of light. Successive generations of products are released with substantial improvements. And with each iteration, customers are happy to fork money, because they can feel and notice the impact of the changes.

Products like the washing machine have largely reached the end of the innovation cycle, with diminishing returns on further improvements. This doesn't mean innovation has stopped altogether in the washing machine industry. Rather, the level of innovation isn't substantial enough to warrant yearly replacements with consumers realizing the current products as "good enough,".

This explains why some products, such as washing machines, are rarely replaced for a decade, while others, like smartphones, are replaced more frequently. It all depends on the stage of the product in the innovation lifecycle. If a change is noticeable and the impact of improvements can be felt, customers are likely to upgrade and if the changes are minimal, customers are likely to consider their current product as "good enough".

Entering an Era of Diminishing Returns

The issue of diminishing returns is a widespread concern in various industries. But for the computing and software industry, my hypothesis is that, for the first time, the industry has entered an era of generally diminishing returns. Now, many companies will face challenges in navigating this new landscape as their products mature and significant advancements become less frequent.

The golden age of upgrades

Let's take smartphones as an example. Following the release of the first iPhone and Android devices, each passing year brought remarkable advancements, giving consumers strong incentives to upgrade.

Initially, phones had limited memory, often less than 512MB, which required users to close apps to multitask effectively. However, today, it's common to find smartphones equipped with 6GB or even 8GB of RAM. Furthermore, screens have significantly increased in size, boasting higher refresh rates and resolutions.

We've witnessed the rise of fingerprint sensors and optical scanners, as well as cameras with razor-sharp clarity that rival professional-grade technology. Additionally, other notable enhancements include faster CPUs, AMOLED screens, wireless and fast charging capabilities, sleeker and thinner designs, and waterproof models.

Innovation in Decline?

However, a closer look reveals that most of these innovations occurred before the 2020s. Recent releases often focus on incremental improvements in speed and camera technology. Even the aesthetic design of smartphones has remained largely unchanged, with manufacturers like Samsung maintaining the same look for years, signaling a slowdown in innovation.

This isn't because companies have lost interest in innovation. Rather, it's because consumers view current offerings as "good enough,"  reducing the incentive for significant investments in research and development.

Smartphones have reached a level of performance where additional improvements are often imperceptible to users. For instance, the distinction between watching a full HD movie and a 4K movie on a 6.6-inch screen is barely discernible. This trend extends to other areas such as cameras and RAM, where differences are becoming increasingly negligible.

And as diminishing returns creeps in into the smartphone industry, consumers will increasingly expect longevity from their devices, much like their expectations for washing machines and TVs. As evidence of this shift, many smartphone companies are now providing seven years of security updates, a departure from previous practices.

Beyond Smartphones: A Broader Trend

The phenomenon of diminishing returns isn't limited to just smartphones. Apple's M1 chip, released three years ago, represented a significant advancement that fueled consumer demand. However, the improvements in the upcoming M3 chip aren't substantial enough to persuade most users that their M1 chip is outdated. Consumers from other brands are also using their laptops and desktops longer and longer with each purchase.

Similarly, the software industry has also reached a stage of diminishing returns. Companies have had to resort to strategies like Software as a Service (SaaS) early on to justify products with minimal innovation, there are others important reasons for software companies for adopting the SaaS model, but a primary driver was for preventing customers not willing to pay for software upgrades.

The software industry has also reached a point of diminishing returns. To keep selling products with little innovation and maintain their stock prices, companies turned to strategies like Software as a Service (SaaS) or launching new product line. While there are other reasons for software companies to adopt the SaaS model, a key reason was to stop customers from refusing to pay for software upgrades.

Likewise, the game console industry will eventually encounter diminishing returns, albeit over a longer period of time. As consoles achieve peak performance and enhanced graphics, there will come a time when the differences between generations are less noticeable, and the current consoles will feel good enough.

The Challenge of Innovation When Products Mature

Once a product becomes "good enough" and reaches maturity, it becomes challenging to justify further investment in research and development (R&D), especially once the initial easy improvements have been made. Companies struggle to identify new enhancements and mostly turns to explore alternative revenue streams. This is why tech giants like Apple and Google heavily invest in so-called moonshot projects, diversifying from their core offerings.

Innovation is typically more straightforward in the early stages of a product's life cycle. Take the cinematograph, for example. Initially, the path forward was clear: improving sound, colour, graphics, and resolution. However, as progress continues, identifying the next level of improvement becomes less clear-cut.

Even when products mature and innovation appears to stall, breakthroughs like the transition from incandescent to LED bulbs are still possible, albeit without guarantees. Nonetheless, these breakthroughs often come from new and unexpected players, causing major disruption that established companies could not have anticipated or supported. A quick look of disruptive inventions reveals that they are primarily driven by newcomers to the area.

The Road Ahead

Similar to your washing machine, it's time for the consumer tech industry to acknowledge that consumers now expect their products to last longer—an expectation that has always been present. While this may surprise companies whose founders grew up in an era of frequent technological turnover, it's crucial to understand that such quick upgrade cycles were never meant to be permanent; they were simply a consequence of the industry's youth. Other mature industries have already embraced this reality.

The recent push for "smart" features in everything from TVs and refrigerators to even basic kitchen appliance can also be seen as an attempt of traditional manufacturers to maintain a faster upgrade cycle, mimicking the tactics of the young tech companies.

That is it for this week, in a future issue, we'll explore how companies are navigating this shift in consumer demand for long-lasting products. We'll examine both positive and negative responses to this trend, scrutinizing how some companies are innovating while others struggle to adapt or actively resist change.

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