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Half of US population to use smartphones by end of 2011

60.7 million people in the U.S. owned smartphones during the three months ending in October, up 14 percent from the preceding three month period, representing 1 out of every 4 mobile subscribers.[…] Despite losing share to Android, most smartphone platforms continue to gain subscribers as the smartphone market overall continues to grow.

via comScore Reports October 2010 U.S. Mobile Subscriber Market Share – comScore, Inc.

Separately, Nielsen reports on the same market:

29.7 percent of U.S. mobile subscribers now own smartphones that run full operating systems.

The most popular smartphones are the Apple iPhone and RIM Blackberry, which are caught in a statistical dead heat with 27 percent of smartphone market share in the U.S. Twenty-two percent of smartphone owners have devices with the Android operating system.

via U.S. Smartphone Battle Heats Up: Which is the “Most Desired” Operating System? | Nielsen Wire.

I’ve been tracking the Nielsen data and using it as a basis for forecasting the penetration of smartphones. While most coverage of this data focuses on splits between current OS platforms, I will look at competition with non-consumption and the impact on operator services.

The chart on the left shows the historic penetration of smartphones since mid-2009 based on Nielsen’s reports. The chart on the right is my forecast. This is an update from the last quarter’s chart here. My forecast was fairly accurate with respect to platform shares in the last quarter so I’ve had to make only small adjustments and extended the forecast one quarter further out. [1]

If my forecast is correct, smartphones will make up 50% of all phones in use by the end of 2011. That’s up from nearly 30% today and 18% a year ago.

One in three of all phones in use will be either iOS or Android. That adds up to about 80 million users; up from 35 million today. Overall, 120 million Americans will be using smartphones.

Now consider the consequences for how services are delivered by operators. The most popular product operators will be selling will be unlimited data plans. One year hence, by 2012, unlimited data plans may become the largest service revenue generator for mobile operators in the US. Pricing and competition will inevitably be in a state of extreme flux. I leave the consequences to the imagination of the reader.

[1] Note that the charts show share of phones in use, not phones sold in a particular point in time. In other words, this is measuring platform consumption, not units sold.

  • WWP

    I love your forcasts! But that still only includes information known today only! Apple is building a pretty sophisticated eco-system around iOS. That paired with Mac OS X integration that might come in future. Plus there's still plenty of room for apple to come down with prices, while other operators have little room there. And I have a feeling that most of the growth for Android coming from the fact, that you can't get the iPhone on other networks in the US right now. I think if Apple were to open their distribution to all operators that would lead to some serious break-down in Android growth. I can see that in Germany. Since iPhone 4 is now available on all operators, the new players (O2, Vodafone) can't keep up with demand. New customers have to wait over 4 months to get an iPhone 4. If the same happens in the US, my prediction will be that out of 10 Android buyers right now, at least 6 will get an iPhone. That changes a lot in this forcast. It's -4 for android and +6 for iPhone! And that on top of the current growth. Plus don't forget the network effets this causes. iPhone slowed down compared to Android only because of Apple's exclusive distribution and that combined with their higher pricing. If we would put both on par for Android and iOS devices, I think it's pretty obvious that iPhones would outsell Android by far. Another point to consider is, that most people getting their smartphones get a relatively cheap Android phone first just to "test" the smartphone waters. In the end, I think they are likely to settle with iPhones when getting their next smartphones. While I don't think too many iPhone users would replace their iPhone for a blackberry or Android device in comparison.

    • asymco

      Thank you. Note that I don't consider the share split between smartphone OSs as important as the split between smartphones and non-smartphones. Only once the market saturates (at 80%?) will there be significant competitive dynamics between the platforms. Right now it's a land grab.

      To your point about Apple innovation. I fully expect Apple to be a serial disruptor and iPhone 5 to be a significant upgrade. However, note that this is only a 4 quarters/12 months/one year forecast. Very short term. Apple will grow iOS as fast as it possibly can but that's still not as fast as all the other vendors switching their portfolios from dumb phones to Android phones.

      • WWP

        Thanks! 100% Agreed.

      • http://twitter.com/_ChrisHarris @_ChrisHarris

        iPhone 5 is an interesting conundrum. I believe that it will not be perceived as a significant upgrade because the form factor may well be identical. Here's my predictions:

        Same form factor – too much has been invested by FoxConn on special machines to fabricate it, and the cases will be in place.

        Multicore Processing – Grand Central (Mac OSX technology for parallel processing) will come to iOS in version 5.

        NFC Near field communications for contact-less purchases. Rolled out through all Apple stores as a beach head.

        1GB Ram

        Everything else important will come through iOS improvements.

      • FalKirk

        You may be right, but the 3GS had the same form factor as the 3G, but I believe it was perceived as a significant upgrade. Interestingly, if the iPhone 5 has all of the improvements you mentioned I, for one, will certainly view it as a significant upgrade.

      • http://twitter.com/_ChrisHarris @_ChrisHarris

        Yeah you're right, I'm just going to be jealous because my iPhone 4 won't be due for an upgrade :)

      • http://twitter.com/aegisdesign @aegisdesign

        Faster hardware is a given but that's not really disruptive. I'd be very surprised if they DON'T have multicore processors, NFC and 1GB RAM next year bearing in mind the competition has those now – maybe not all together – but it's almost standard.

        Software is where they have to be disruptive. The problem with Apple is they're always attracted by the new shiny stuff and neglect the core. You can see this on the Mac. Each release gets a new whizzy feature (Expose, Time Machine, Launch Control) when what people want are the bugs fixed in bluetooth support, solid network sharing, calendar support and the Finder fixed.

        I can't see this changing. iOS brought Facetime. It didn't bring a bluetooth stack, SIP, OpenGL 3. Core stuff that isn't as easy to market.

    • Rob Scott

      @ WWP

      I agree with most of your arguments. There is definitely a significant upside for the iPhone especially in the US. I have also been of the view that with iPhone going multi carrier and maybe widening the range Android will lose share. But to asymco's point, the market is so big that everyone can continue growing until at least the majority (he says 80%) have smartphones. Two, Android OEMs are addressing the entry, sub $100 price points making switching from a feature phone to an Android based handset an non issue, most of these will be free on contract.
      Android has an amazing momentum, and so is Apple with the iPhone.

      • WWP

        Thanks! Also 100% Agreed :D

      • http://twitter.com/aegisdesign @aegisdesign

        Sub $100 price points are already the norm for the iPhone in the US.

        The problem isn't the phone hardware, it's the expensive data contract in the US. Cheap Android phones are pointless if you're still tied to a $45 plan.

    • kevin

      Agree. Just an anecdote: I was at a Best Buy on Saturday. Best Buy is selling at least one smartphone per carrier for free each day, altho this past weekend, it was all Android (Experia, Droid Incredible, Optimus, etc) for free. (This is not BOGO, it's just free with 2-year contract.) Still, the three people who entered the phone area, who were all on Verizon, all asked the salesperson about the iPhone on Verizon. One of the three decided to upgrade to a Droid Incredible for free after the salesperson said the iPhone won't come until at least February, and more likely March. The other two left the area.. I do expect to see another surge this quarter for Android on Verizon.

      Also, AT&T itself was selling at least three of its Windows Phone 7 phones for free during the weekend.

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  • JP Chicago

    Excellent, as always. A rapid expansion of smartphone usage next year brings iOS full circle.

    iPhone was first to market, drawing the aspiration of millions who have not had the funds (or the right carrier) to purchase it, since it's debut. iOS cultivated the market that competitors now enjoy, and remains the main catalyst for all smartphone sales. Once iPhone is more widely available, a significant percentage of Android and Blackberry users will switch to iPhone, yet iPhone will retain the lion's share of their base.

    Said differently, Apple will likely sell more phones in the next two years because of competition preparing everyone for what will be as ubiquitous as the television is today.

    A dependence on software makes it likely that platforms will converge on two options: a free ad-supported smartphone, or an iPhone.

  • LL in Iowa City

    My husband and I have most of Apple's products but not the iPhone. We don't use a phone much at all and can't see buying massive numbers of minutes that will never be used. Do you suppose that the telcos will offer iPhones with data primary and per call phone service or something pay as you go?

    Thanks for your work. This is the first site I visit every day.

    LL in Iowa City

    • asymco

      Flexibility of plans is another type of competition. In countries where smartphone penetration is highest, there are many ways you can buy an iPhone. From zero price with lots of service to full price and no service at all. It seems logical that operators should try to cater to all tastes. That's not happening now in the US because the product is still used to "skim" the top of the market. There was a time when BlackBerry was similarly seen as a premium, high revenue product.

  • http://twitter.com/michaelflux @michaelflux

    I think "use" is too strong of a word. Perhaps "own" would be better? It's just like with computers, just because someone owns a computer, doesn't mean they know how to use it beyond pressing the power button, freaking out that the computer is broken because the monitor power button doesn't turn on the actual computer or vice versa, and if all is well with the power buttons, going to facebook.

  • dms

    Any guesses on what the saturation point is? 70%? 80%? I'm assuming a certain percentage of the market will always prefer dumbphones, for various reasons.

    Things will get a lot more interesting as we approach that point and the big players are starting to fight for a smaller and smaller base of new users. I can see Apple introducing something like a iPhone Nano at that point to reach a lower price point and address the dumbphone market.

    • asymco

      I believe it might be even higher. Mostly because vendors will stop making dumbphones. Rather like black and white TVs. They lasted for a while even though the market had been saturated by color. But eventually there was no point to it. Color could be delivered to sets of any size and price point.

  • http://stewartmccoy.com @stewartmccoy

    I am reading this article from a smartphone. When will asymco roll out it’s own mobile strategy/mobile-optimized site?

    • Steko

      The whole point of modern mobile phones is not to have to look at dumbed down mobile sites with broken redirects. I would pay $20 for an iphone app that websites think is running desktop safari.

      • Itimpi

        You could try the icab browser on your iPhone. One of its settings options allows you to make it report itself as any of the major browsers. Price is a lot less than $20 :)

      • Steko

        i love u

    • asymco

      Depends on what smartphone you have. The site should be optimized on an iPhone.

      • stewartmccoy

        Why optimize only for the iPhone? Apple's mobile market share was recently passed by RIM, and Android isn't far behind. Modern browsers support CSS3 techniques for viewport optimization, which is simple to do if you're only optimizing a blog. Check out Ethan Marcotte's article on responsive web design: http://www.alistapart.com/articles/responsive-web

      • kevin

        "Apple's mobile market share was recently passed by RIM," Bzzt. Wrong.

        Apple started from zero in 2007, and has just caught up to RIM in overall market share.

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  • http://ad-venturemedia.com barry bryant

    How are you factoring mobile payment providers as a driver to smart-phone adoption? Or are you considering mobile commerce / mobile payments as an influence / incentive for adoption?
    Does your forecast include adoption of ISIS carrier based mobile NFC payments?

    • asymco

      This is not a bottom-up forecast. In other words this is not taking the drivers of growth, of which there are many and adding them up. It's a top-down forecast where platform historic trends are considered.

      There are various other ways to do this as well: adding up each competitor's likely growth or each platform.

      NFC payments will contribute but this forecast is only 1 year and we may not see a huge impact until 2012.

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  • http://twitter.com/Niilolainen @Niilolainen

    Ah. Lovely graphs.

  • kevin

    I think 50% will be low. Four reasons:
    1. Smartphones are being sold for free – not BOGO free, but just free with 2 year contract. This promotion will go away in Jan but likely resurface as a regular promotion (not just for Christmas) by April for non-iPhone smartphones.
    2. Verizon/AT&T now offer cheaper $15 data plans. (Sprint/T-Mobile already offer cheaper voice-messaging-data bundles.) With more expensive "4G" services arriving, the 3G plans will look cheap by comparison, and become attractive to the "value-oriented".
    3. The smaller carriers (Virgin Mobile, Boost, MetroPCS, etc) now sell Android-based phones for their cheaper unlimited data plans.
    4. The next round of smartphones/apps will become more attractive as it replaces more gadgets, cards (credit, membership, etc), and paper (tickets, etc). See post at http://www.devost.net/2009/06/18/23-devices-my-ip… The PR for iPhone 5 will create more awareness among mainstream population. More people will see the smartphone allowing them to remove stuff from their wallet, purse, and/or car. For example, I see many now use the smartphone as airline ticket.

  • Woochifer

    Some nitpicking on your stats … you might want to clarify what you define as "U.S. population" since the projected U.S. projection for 2011-2012 is somewhere around 316 million. Even though 120 million smartphone users would represent huge market growth, it falls well short of half the projected U.S. population.

    If your population pool only includes cellphone users (your graph kind of implies universal cell service penetration, which is definitely not the case), then 120 million likely comes closer to half of THAT population. Keep in mind that there remains a fair number of people who don't carry cellphones (a survey I saw last year indicated that household penetration for cellphone service was somewhere around 80%, which is comparable to cable/satellite TV service and higher than broadband internet service).

    I also wonder if the Nielson numbers account for those who carry more than one smartphone (for example, those who use a Blackberry for work, and iPhone for personal). If anything, the Nielson numbers have typically trended towards the high end of the market penetration estimates I've seen, and it would be helpful to see how or if they eliminate double counting.

    • asymco

      Points taken. By 'population' I did mean the number of mobile phones in use where that does not correspond 1:1 to users of mobile phones. In the US phone penetration is still below 100% of population. There are around 285 million phones in use or 91% of population according to Wikipedia (http://en.wikipedia.org/wiki/List_of_countries_by_number_of_mobile_phones_in_use) as of one year ago. The largest segments of the population that does not use a mobile phone is the very young and the very old. I would guess that by the end of next year the ratio should reach closer to 95%. The US phones/population ratio is in the lower half of the countries listed in the wiki page, slightly lower than Algeria, Turkey and Peru.

      • Woochifer

        Thanks for the reply. Indeed, the very young and very old would constitute two groups that have by far the lowest cellphone usage — they are the primary reason why you will never have 100% cell service coverage (if using population units as the market penetration measure).

        But, I also think that the number of cellphones in use should not be used as the measure of cell service penetration, given how many people have more than one cellphone (and again, the best examples would include those who have separate phones for work and personal use). You're right in that the number of cellphones in use will continue to increase. But, IMO if you use household penetration as the measure, that number might not move up quite as fast, since there will continue to be some households with no cell service, and others with more than one cell phone per person.

        Even technologies that we would think are ubiquitous, still don't have 100% household penetration. For example, many U.S. households (some estimates up to ~10%) don't have TVs. And other technologies viewed by techies as obsolete remain widely used; for example, the majority of U.S. households still have landlines, and that will remain an obstacle to universal cellphone usage, if for no other reason than consumer resistance to paying for more than one phone service.

        Great site, I appreciate the insights that go into it.

      • asymco

        You're absolutely right. The point of my story here is that smartphones are growing so rapidly as to very quickly swamp any other category of phone. It's perhaps not a clear-cut definition of "dominance".

        But what I want to emphasize is that the days of saying that smartphones are somehow different from "regular" phones is rapidly coming to an end. Market analysis should focus on all phones because they will all be "smart" very soon.

  • http://MichaelScharf.us Michael Scharf

    Depending on whose numbers you read, there are between 240 million and 290 million US cell phone subscribers today. These phones are on an approximately three year replacement cycle.

    If (per ComScore) 60 million out of 240 million smart phone owners in the US and 80 million phones will be purchased in 2011, virtually all of them would have to be smart phones…

    That's 20 million out of the existing 60 million smart phones will be replaced plus 60 million out of the 180 million feature phones. The smart phone users will probably stay with smart phones, but why would all the feature phone users move to smart phones?

    I'm sorry, but if the current smart phone sales rate is 50% today, can anyone explain how it will get to 100% in 2011. Or better still, what will cause the phone replacement rate to soar in 2011, with even higher early termination fees than there were in 2009, so that we would reach this number of 120 million smart phones in use by 12/31/2011.

    • asymco

      Recently, smartphone growth rate has been 90%+. Your conclusion that virtually all phones sold in the next year will be smartphones is pretty much my thesis. Replacement rate can be increased through incentives. Competitive dynamics from Android and iOS and Blackberry and operator price competition can easily cause this vortex of adoption.

      Having said that, this is an aggressive forecast. If it's in error then it's only on the time frame. Penetration of smartphones will reach 50% sooner or later. This was not a widely accepted assumption even a year ago.

    • Woochifer

      I think it ultimately boils down to cost. The hardware prices are tumbling fast, but they remain significantly higher than basic feature phones.

      Another potential stumbling block to wider smartphone usage (at least in the U.S.) lies with how smartphones get tethered to separate data plans. The hardware subsidies only make sense if consumers sign on for long-term voice and data commitments, and there's definitely an upper limit on how many users are willing to pay those costs.

      I get the feeling that what will ultimately happen is that line between feature phones and smartphones will blur, with the lower functionality of feature phones getting taken over by smartphone OSes, especially as hardware prices push downward. Smartphones will continue to advance, and functions that we currently associate with smartphones will find their way into the feature phone price points.

      Even if the more basic form factors used in current feature phones remain on the market, I can see those basic phones still powered by some form of a smartphone OS. I'm just not sure that will happen in one year. A lot of people I know still just want a simple phone with legible buttons, and don't care one iota about whether or not the phone comes with a touchscreen.

      Using myself as an example, I use a basic pay-as-you-go phone for voice and texting, and carry an iPod touch for other functions. I simply don't want a contract, and don't want another monthly payment. I don't think I'm alone.

      And in the prepaid phone market in the U.S., smartphones have barely even begun trickling into the mix. I saw an estimate that around 2/3 of new mobile activations in the 4th quarter of 2009 were prepaid phones. I understand that prepaid phone accounts have significantly higher churn rates, but for smartphones to achieve close to 100% of mobile phone sales, they would have to make inroads into the prepaid market and do so very fast. I'm sure it will happen someday, but I can't see it happening in the next year. The prepaid market is an example of a big part of the mobile market that likely will not adapt that quickly.

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