Are value-added services and products deciding who succeeds in smartphone retail?

Global smartphone shipments have slowed, upgrade cycles are lengthening and hardware margins are thinner than ever. At the same time, services—from cloud storage to insurance to AI tools—are emerging as the new revenue growth engine for tech vendors. For open-channel retailers, who make up nearly half of smartphone sales worldwide, this transition represents both a major challenge and an opportunity—adapt to a service-driven model or risk being left behind.

Why services, not devices, drive retail profitability

Referencing the above example, value-added services contribute just 4% of retailer revenue, yet account for over 57% of gross profit. Accessories add only 1% to revenue but deliver 9% of profit. What is striking is the profit impact—less than 5% of sales revenue generates two-thirds of total profit, underscoring how critical value-added service and accessories attach rates are to the retail model.

Margins on smartphones are shrinking as the market becomes more saturated and commoditized. For retailers, surviving on hardware trading alone is no longer viable. Sales from value-added services like device insurance and accessories help, but they are still tied to the device. The real money—software subscriptions, apps and digital ecosystems—sits elsewhere, in the hands of software giants who rarely share it.

So retailers are left with the toughest question: while they shoulder the risk of financing and moving hardware, how can they capture a piece of the more lucrative service opportunity?

Open-channel retailers remain the backbone of smartphone sales

Open-channel (mainline) retailers account for over 45% of global smartphone sales and 78% in emerging markets. The smartphone trade blends the hardest traits of three industries—luxury-level prices with thin retail margins, FMCG-style inventory turnover and durable tech purchase cycles without the safety net of stock returns. It is a uniquely unforgiving business model.

While telcos and direct-to-consumer (D2C) channels are important, open-channel retailers are vital in delivering smartphones efficiently and affordably to the mass market. The industry’s combination of fast turnover and high device values requires a broad network of distributors, sub-distributors (master dealers) and retailers to spread credit risk and manage stock movement to end users. Even telcos and online players often rely on distribution fulfillment partners to handle the logistics and trading side of their device operations.

What is the path forward for retailers in a service-led future?

Smartphone retailers must embrace new models if they are to survive in a service-led future. Hardware margins are shrinking, customer acquisition costs are rising and most retailers lose visibility of the customer after the initial sale. This is a missed opportunity given their frontline role—they finance devices, carry inventory risk, understand local buying behavior and move high volumes daily.

Open-channel retailers are essential to distribution, but many still operate without the digital infrastructure needed to retain and re-engage customers. That is where recommerce platforms, fintech enablers, CRM providers—and increasingly, eSIM and MVNO service partners—come in, helping retailers stay connected across the full device lifecycle.

Recommerce, through programs such as Device-as-a-Service (DaaS) and trade-in schemes, is the most accessible starting point. Trade-in and finance models are not new, but today retailers can tap into a wave of investment and specialized tech providers to manage the complexity. Doing it alone is costly—partnering makes it viable.

This foundation enables a shift to Device Lifecycle Management (DLM), which flips the model from one-off transactions to continuous customer relationships. By connecting across setup, support, trade-in, upgrade—and even activation of eSIM or MVNO services—retailers create new touchpoints to upsell, cross-sell and re-engage customers to a variety of services.

Smartphone vendors: take the lead on services or lose the retail floor

Most smartphone vendors face the same issue as their retail partners. Hardware trading margins continue to erode and service revenue has not scaled fast enough to offset the decline. Advertising deals—where vendors capture revenue shares from digital ad platforms—are a logical first step, but they remain low-effort, low-impact plays. To truly build sustainable growth, vendors must own more of the value chain by developing proprietary subscription services that strengthen customer engagement and ecosystem stickiness.

Retail sales partners provide an underutilized channel to accelerate this push. Their in-store interactions with customers offer a rare moment of influence in an otherwise infrequent purchase cycle. By enabling promoters to demonstrate and upsell services alongside hardware, vendors can extend the value of every device sold.

Vendors already incentivize retailers on device sales. Extending these incentives to service subscriptions is a logical progression. While the revenue model differs—recurring monthly payments versus one-off hardware sales—the high margins in services create ample room to fund frontline spiffs. Imagine a Samsung Experience Store promoter upselling a Galaxy S25 buyer on a Galaxy Ring bundled with US$99 per year of premium health monitoring. That US$99 contains enough margin to reward the promoter just as a device sale does.

If smartphone vendors do not take the lead, others will. Software and AI players could easily step in with their own retail incentive programs. Imagine OpenAI or Anthropic pushing an AI assistant through store promoters, or a consortium of mobile-first app companies bundling productivity, gaming, and lifestyle services the same way. With the rise of eSIMs and flexible MVNO offerings, software players have more pathways than ever to go directly to consumers through retail without vendor involvement. If vendors neglect their retail partners in service monetization, software ecosystems will not hesitate to fill the gap.