The iPhone growth rate

John Gruber puts things in perspective:

The key bit: “At the critical juncture […], when they should have gone for market share, they went for profits.” I think this encapsulates Jobs’s philosophy since taking over Apple in 1997. Take the high end of the market first, establish a brand and presence, then steadily start to expand.

Daring Fireball: N92.

I’ve long argued that Apple is in the phone business to win significant share (i.e. greater than the share they have had in the PC business).  Since the phone market is vast (1.2 billion phones sold in the last four quarters) iPhone volumes must be as well.

So how has share evolved, and what can we expect? This is a graph of quarterly share for iPhone including a four period moving average:

The trend is clear to see.  With seasonal variation due to the launch cycle, the share is likely to increase over 3% and keep going. How far can it go? That’s a strategic decision for Apple’s management. If we are to take Steve Jobs’ word that their plan is not to be a niche player in any market they target then I have to conclude that Apple is aiming above 10%.

The volume expansion in the US due to the end exclusivity is only the latest in a series of distribution deals that Apple has brought to bear: International expansion, dropping exclusivity in other countries and broadening the portfolio (including earlier models in current line-up) are all natural and obvious moves in a broader market push.

Pricing might be considered another lever that Apple could use, though that seems unnecessary today.

I conclude that growth in iPhone sales of 50% per year seems entirely possible for the next few years. Such growth would allow Apple to reach 10% of the world’s 3G subscribers by 2013. That would still be only 4% of all phones and 20% of smartphones.

  • FalKirk

    The consensus seems to be that It was inevitable that the sales of Android phones would overtake the sales of iPhones because there were so many more manufacturers making Android products. But does that even make sense? It is not the number of phones made that matters. It is the number of phones that people want to buy.

    Others feel that the number of carriers one is on is the key to gaining market share.

    I think the fact that Apple has been unable to supply enough iPhones to meet the demand has distorted our thinking. We are asking the wrong question. The question should be: "If there were an unlimited number of iPhones, Android phones and other phones availabe, which phone would be selling more?" The answer to that question, and that question alone, will determine which phone OS will ultimately rule the smartphone market.

    • The market is so vast and the growth is so high that it's inevitable that Android and iPhone will both grow. If iPhone grows at 65% and Android growth at 800% does that make iPhone a victim of Android? Not if the 800% came on top of nearly zero and not if the overall market grows at 20%.

      And as I've argued, the platforms will not converge toward a monopoly model as long as operators are involved in the selection process. It's in the interest of the operators to have a balanced platform supplier base so that there is no dominant orchestrator. The ebb and tide of platform share will keep things volatile but I expect four platforms to be splitting share roughly equally for at least another decade. Clearly iPhone will be one of them and that means 20% to 25% share is highly probable.

      However, iOS is more than phones, and when you take other devices into account, iOS could emerge to be part of a duopoly by end of this decade.

  • FalKirk

    I have been contending that there is only room for two, or possibly three platforms to survive because developers will be drawn to profitable OS' and will eschew new, unproven or unprofitable OS'.

    What do you think? Can four or more platforms co-exist or will app development economics crush all but the top contenders?

    • Four platforms can exist if one or two are actively supported by operators. Consider the case of Windows Phone. At a time when two platforms are attracting huge interest, we have more platforms being introduced (WP7 and Bada). This is not just because there is a herd mentality but because the new platforms have received orders or signals of interest from operators. The theory goes that if they push the product, by sheer weight of distribution, there will be volume and developers will follow.

      It goes without saying that this is not in the interest of consumers, or developers, but since when have operators acted in the interest of their customers?

  • JonathanU

    Asymco – any chance you could update your forecasts for iPhone units sold to 2013 taking into account smart phone market share growth, iPhone projected market share of this market etc.? I know you did this a few months back, and the figures were astounding. Was just wondering whether these numbers had changed or not?

    Similarly, was wondering whether there was any data out there to support the theory that Android is experiencing higher rates of growth in the US due to the AT&T issue (and whether Android is therefore more of a US phenomenon vs rest of the world). Personally living in London, UK, the only phones I ever see are BlackBerry's and iPhone's. Android doesn't seem to have made an impact so far. Perhaps an analysis of some market data on Android sales in Europe for instance, if it's out there?

    • Jonathan,

      My iPhone forecast is:
      2010: 43 million (with potential up to 50 million)
      2011: 65 million
      2012: 98 million
      2013: 148 million

      The iOS platform will easily exceed 100 million units next year with over 70 million this year. These numbers don't account for any new products like iTV.

      Regarding the geographic distribution of Android, I don't have details. They are published by Canalys and Gartner but they are behind a huge pay wall.

      I would say that Android is not a "phenomenon" as much as it's the natural reaction by existing vendors with existing capacity to distribute product having the possibility to offer a slightly more competitive product. This is the "smartphone gap" getting filled.

      The smartphone gap is wider in the US (both because of demand and because Windows Mobile abdicated its position). It's slightly narrower in Europe as Symbian/Nokia still fills a large part of the gap there. I'll think about how to illustrate this further.

      • Tom Ross

        Android sold 10 million units last quarter, and these couldn't possibly all have gone to the US. I'd guess at least 6 million went to the rest of the world.

        That, or Gartner, IDC and Canalys are relying too much on Google's unaudited daily figures.

      • Yes, I'm sure the majority were not in the US, but the world's a big place. It's easy to sprinkle 6 million phones all over. Consider that Windows Mobile still sold 3 million of its deprecated WinMo 6.5 doorstops. There's a lot of opportunity for purchasing mistakes out there.

      • Adam

        Tom Ross: "I’d guess at least 6 million [Android phones] went to the rest of the world."

        14.7 million smartphones were sold in the U.S. last quarter. Android devices represented a 34% share (±5 million units) of the U.S. market.

        Android sales amounted to 10 million units worldwide according to Gartner's figures. It seems that 5 million went to the U.S. and roughly 5 million to the rest of the world.

      • JonathanU

        Thanks for updating your forecasts. Impressive stuff.

        Another topic which I think could warrant some of your impressive analytical power might be in trying to value/forecast the size of the App Store and iAds businesses? I read how Eric Schmidt was saying that $10 per Android device in App sales and advertising should be achievable (meaning Android with a theoretical 1bn users would be a $10bn per annum turnover opportunity). I have seen a number of Wall Street analysts attempt to value iAds as well as the App Store, but both times the assumptions one had to make were so large that any forecast was almost pointless. However, I think iAds is a pretty huge opportunity, especially with the number of iOS devices increasing so dramatically.

        Any thoughts/data on this would make for some very illuminating reading indeed!

      • You're welcome. The value of the App Store has been elusive. The only hard data we have is listed here:

        As of June:
        Total sales: $1.43 billion
        Amount to developers: $1 billion
        Apps sold: 5 billion
        ASP: $0.29

        This was over approximately two years. Over the same time frame the iTunes store took in about $8.5 billion. Now I don't know for sure whether that $8.5 includes the $1.43 or the $0.43 or none of these sales. My guess is that it includes 430 million, making the music business about 16x the app business on a sales basis.

        I suspect Apple has only 10% gross margin on iTunes music or $800 million so arguably, the gross margin from music ($430 million) was only about twice the gross margin from apps over this period.

        Still, at the end of the day, Apple claims both operations are running at break-even.

        iAd will add another $100 million in sales in a year.

        Eric is just wishful.

  • A few speculations:
    1) According to Gartner there are currently over 1 billion mobile phones sold a year, roughly 15-20% are smartphones. Over the next several years as smartphones increase their market share it's reasonable to assume that the smartphone market will approach something like 1 billion units sold each year. if Apple could get 20% of the overall smartphone market at that point as Asymco postulates that would give them sales of 200,000,000 units per year an increase of over 160,000,000 units per year over what they're now selling. A big chunk of change for Apple regardless of the number of units of Android driven phones.
    2) Although bespoke apps are currently the rage, there may well be a shift for many kinds of apps towards HTML5 over the web as the market matures making the number of bespoke apps in app stores less relevant. There are already some pretty incredible experiments with HTML5 apps. Programmers would have an incentive to develop HTML5 apps because they are code once use anywhere apps. Obviously HTML5 is a big unknown at this point but they could have an impact on the calculus that only 2 or 3 platforms can survive the mobile OS wars because of the app market.
    3) Another factor to consider is the rise of oPhone ( like Android phones customised for ultra-cheaps marketed in emerging economy countries. Although these phones may be considered Android phones in smartphone market share counts, Google will likely get little in-app ad revenue because of the nature of the economies they're marketed to and the nature of in-app ads.
    4) Coupled with point 3, if Apple + the other dominant non-Android OS's preclude AdMob advertising on their platforms resulting in Android not driving enough in-app ad revenue Google's way because Google is blocked from something like 40% of the in-app market, Google may well decide to spin off all Android development to the open source community in order to have access to a much larger in-app ad market in which case Android may well become far less attractive to the likes of Motorola and HTC. What Google wants/needs to keep growing is access to as much of the wireless device ad market as possible. If the economics dictate they can achieve better financial results without Android than with it, then their links with Android will be counterproductive and severed IMO.

    And of course the future may hold other surprises.

    • Dylan

      On your point #2, is there any hard data out there that suggests that there's a sustainable business model selling web app/services?

      It seemed to me that part of the attraction of the iTunes store for developers was that 1) it made it easy for developers to get paid (no e-commerce hoops to jump through), 2) the nature of iTunes customers makes it a very valuable market to address: lots of disposable income, pre-disposed to buying online content of all types and a history of searching and buying that content from one source (iTunes) even when slightly cheaper alternatives are available (e.g. People will buy music from Amazon if it's a lot cheaper, but most would rather buy from iTunes to escape the hassle of integrating those non-iTunes mp3s into iTunes — marginally good for customer, better for Amazon, not very good for content generators who see less money from Amazon).

  • I think there are plenty of sustainable online business. Leaving aside that the future doesn't have to look like the past, 37 signals and their online team software are a successful service, the Wall Street Journal is a successful subscriber newspaper, live365 is a successful radio station creating subscription tool, is a successful learn software online service, youporn has been up and running for years serving porn, there's a huge online gambling industry just to name a few sustainable buisness models selling app/services.

    iTunes has its strengths and weaknesses depending on the userl and developers. Itunes is about to be totally rebuilt and reconceived so again the future may not look like the past.

    Having viable HTML5 web apps is part of Apple's strategy and has been since day 1 of the iPhone. Steve repeats this frequently. Apple has gone out of its way to support the very strategies devs need to make things happen. In fact, iAds is based on HTML5.

    Different developers will find different arguments attractive and many are not thrilled with how the app store works or would just prefer to be in total control and as you point out, for others it takes the hassle out of selling the app. I don't think Apple sees this as an either/or proposition, I'm sure that it's a both as appropriate proposition. Goodness knows the sex industry is not going to have a role to play in the app store. Nor the gambling industry I'd wager 😉 And these 2 alone are dramatically large. Will Adobe rather run a web app designed for the iPhone and then redesigned for Android and further redesigned to run on Win7 and maybe even webOS? Or would they rather create a photoshop app in HTML5 that is available to all portable devices with one code base that they can refine and alter as needs be?

    It's true that Apple won't get the marketing information from web apps that it gets from the iTunes app store. I'm sure Apple wishes there was a way they could. They're offering the choice none-the-less. And just because they're offering the choice doesn't mean that they won't market iTunes as the place to be for all its worth. I'm sure they will.