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iPhone and iPad: Fine Young Cannibals?

The iPad and iPhone came, saw and conquered new markets. But since the products launched the question on every analyst’s mind has been on how much have these products “cannibalized” their brethren the iPod and the Mac.

This notion of “cannibalization” applies when a product is designed to compete and “eat” the share of another product in a company’s portfolio. It has some negative connotations since it implies loss but many times the thinking is that it’s better to cannibalize oneself rather than have it done by a competitor.

But have iPhone and iPad taken share from their competitors?

The following charts compare the total units of iPhones vs. iPods and iPads and iPads vs. Macs.

The evidence does not show cannibalization.

Although both iPhone and iPad have crossed over and are selling more units than their internal competitors, the old guard has not faded away.

Indeed, the Mac shows resilience and the iPod, although not growing in units has maintained sales value. What we don’t see is a clear gain for the entrants at the expense of the incumbents.

We can’t be sure how long this happy co-habitation will last, but for now the new products are fine and young but not cannibals.

  • Joe_Winfield_IL

    I love looking at the quarterly iPod sales chart – it looks like a heart rate monitor. I wonder if iPad will exhibit the same type of pattern in the future, or if it will be more normalized, a lá Mac.

    • FalKirk

      I don't think the iPad will be seasonal at all. Now I could be wrong. iPad sales were very seasonal this year as it was one of the hottest holiday gifts going. But this is why I don't think sales will be seasonal.

      1) Business sales will occur all year long. 2) Sales will get an annual bump in April when the line is refreshed. 3) Sales will get a bump in the summer from Educational Institutions (where I think the iPad is going to be huge). 4) Sales will get a bump during the holiday quarter. 5) The iPad is a computer, like the Mac, not a discretionary purchase like the iPod. You'll buy it when you need it no matter what time of year that need occurs.

      • Ted C

        Fal,

        I think you're not right this year, but will become correct with time. This past holiday, the iPad was THE thing, and we will see a significant drop-off in consumer sales this quarter. Business sales will increase but still some of them will be waiting for iPad 2 and to assess the competition. However, I think being THE hot item for Christmas is not something you repeat, and this bump will dissipate with time. Course, I could be wrong too!

      • carlos

        I think it's safe to say that a majority of iPad sales are to consumers now will be over the next year. Even if over 50% of iPad sales goes to biz buyers the remainder being consumer will swing the volumes significantly each holiday season.

        WIth an ASP lower than the Mac and higher than the iPod I think it will follow a similar seasonality variance . . . more than the Mac but less than the iPod.

    • sweeps CA

      I think the iPad will exhibit a similar pattern to the iPhone. Given how young and huge the market is, I believe, like the iPhone, demand will outstrip supply these coming months and years, and Apple will sell the iPad as fast as they can make them. The iPhone (and iPod touch) cut trails thru the wilderness. They did the hard work. The iPad follows these paths into those growing markets, paving a road of success leading to more and more Mac sales, especially in light of the new Mac App Store ;).

      To roughly illustrate this, about as many iPad units sold in its first three quarters as the iPhone in its first six. 14.8 million units sold in 9 months! Now, perhaps it's a stretch, but let's fast forward four more years: How many HUNDREDS of millions of iPads will we be talking about? One hundred million? Two hundred million? Four hundred million? And for what it's worth, how many hundreds of millions of iPhones will we be discussing?

      As for cannibalization, I like Tim Cook's take on it: "If this is cannibalization, it feels really good."

      Fine, fine Apple has so much going for it, I consider it my perfect storm.

      • sweeps CA

        Side note: To be clear, I meant to write hundreds of millions of units sold since day one.

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

    Very peculiar how the iPhone does NOT show apparent seasonal patterns. Is it these 2-year-contracts or other reasons?

    • FalKirk

      I think the iPhone has a very distinct pattern. Sales jump in the September quarter when the new phone is introduced, rise during the December holiday quarter, slow during the March quarter and reach their nadir in the June quarter. This pattern is obscured because the phones refresh often leaks into the very last days of the June quarter. And the 2009 pattern was masked by the recession impaired holiday sales. And, of course, this year's pattern will be overladen with the introduction of the Verizon iPhone in the March quarter. Now you might say that my pattern has so many exceptions that it's not a pattern at all. But I don't agree. I think that beneath the several exceptions, the pattern still remains.

      • timnash

        iPhone 4 is not yet in supply-demand balance and therefore should show a rise in sales this quarter. So Apple's CFO could give aggressive revenue guidance for the March quarter while expecting Mac, iPad and iPod sales to fall from the December quarter.

  • juven

    Looking at the iPhone quarterly sales chart, it's interesting to see that there were large spikes from Q2 to Q3 for the iPhone 3G and iPhone4, but not for the iPhone 3GS.

    Is this because of the timing of the launch of the iPhone 3GS (with more of Q2 remaining at the time of launch) or is it something else (supply constraints or reaction to using the same form factor)?

    • juven

      Another thought is that the spike for the iPhone4 was an echo from the iPhone 3G spike with users coming off their 2 year contracts and upgrading. If so, does that mean we'll see a smaller spike for the next iPhone?

  • Hamranhansenhansen

    I didn't think iPad would cannibalize the Mac … I thought iPad would eat other $500 PC's. There is too much lumping together of PC sales. The $500 PC and $1000 PC are entirely different markets. The Mac has 90% of the $1000 market, it is not going anywhere, it is serving that market very, very well. The iPad serves the $500 market just as well. And for many people, a Mac and an iPad together are a ridiculously productive combination.

    Also, I think iPad is the best Windows XP upgrade you can get. It brings you a decade into the future overnight but let's you transition at your own pace because both devices continue to work side-by-side, unlike replacing XP with a newer Windows.

    • Narayanan

      Now that Canalys has grouped them together, we shall see the iPad impact soon.

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

    I think the notion of cannibalization is a valid one here but not sure it works when the company is growing share across potentially competing products. For example, didn't CTO Tim Cook imply cannibalization? I'm not sure your model would reveal if iPad, for example, is cannibalizing Mac sales that would have occurred if not for iPad.
    Though to be fair, that's a hell of a position to be in.

  • Steko

    "The evidence does not show cannibalization."

    Other then mac growth being killed by the Jan10 demo.

    Anecdotal evidence: my wife and I bought 5 ipods from 2003-2007 and zero since the original iphone came out.

    • mbaldwin

      which would then beg the question whether there's different adoption curves via geographic regions, cultural, economic. THAT would be interesting data to dig into.

    • SubGenius

      "Anecdotal evidence: my friend never owned an Apple product in his life until the iPhone. As a result of getting the iPhone, he bought iPod touches for both his kids."

    • asymco

      Mac growth is still positive 8x PC growth. I don't see how you interpret it as "killed".

    • Fred

      Ethnographic research:

      I bought my first desktop Mac in 1987. Bought two notebook Macs in the early nineties. Corporate forced me into Windows PC in the mid 90s to 2005. Then I bought a Microsoft Vista PC notebook for my wife. She divorced me. I divorced Microsoft PC.

      From 2004 to Dec 2010, I bought six iPods, including Touch (kids purchased about $1200 of iTunes). Bought two MacBooks four years ago. Bought an iPad last April. Bought a MacBook Air. Bought Apple TV in December (watch film-noir movies on Netflix). Will buy three iPad 2s when they come out. Will buy three iPhones in February (Verizon).

      I have been thoroughly network effected (brainwashed).

      If you want a sexy dominating mistress, Apple is perfect. Microsoft is old and bitchy. Google is cheap, but ugly.

  • Ian Ollmann

    "Anecdotal evidence: my wife and I bought 5 ipods from 2003-2007 and zero since the original iphone came out."

    There is a fine line between cannibalization and upsell.

  • anon

    Typo: shouldn't headline say iPad not iPod?

    • asymco

      Yes, fixed. Thanks.

  • Azazello

    The passage should read:

    This notion of “cannibalization” applies when a product is designed to compete and ends up “eating” the share of another product in the company’s own portfolio. It has this negative connotation since it means loss but many times the thinking is that it’s better to cannibalize oneself rather than have it done by a competitor.

  • Rob Scott

    Cannibalization applies when you were selling product A and you introduce product C, a customer walks in the store with an intention to buy product A but ends up buying product C with both products available in the correct SKUs. iPod shuffle is $49.00 and the iPhone $600, even the nano is a fraction of the iPhone cost, so the iPhone cannot cannibalize the iPod. The iPod will be cannibalized by cheap music phones but they will have to be of similar size to the shuffle and nano.

    • Rob Scott

      Just to emphasize cannibalization relies heavily on INTENT. If you do not know what the customer intended to buy you cannot claim cannibalization. Substitution is a better claim and easier to proved or at least to draw correlation.

  • Ted Harmon

    I would have purchased a new Mac this year, but bought an iPad instead. Count 1 cannibal. There are thousands of others like me. My 'truck', will get upgrades far less now that the more versatile car has arrived. Still, I think the halo effect of the iPad introduce many people to Apple who end up buying a Mac than those like me who will be buying fewer Macs. Net net…Mac sales grow as the halo surrounds the cannibal.

    • SubGenius

      This is what the future holds for me:
      New iPhone every 2 years
      New iPad every 3 years
      New Mac every 4 years

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  • timnash

    Chinese New Year sales could also be a major driver this quarter for the first time and as Apple builds its stores there this will at least affect the Retail sales pattern.

    In general while Macs grow market share there will be little apparent iPad cannabilisation (except to Wintel PCs) and iPod sales, while clearly at a plateau, are affected by a weak Nano design – see my article http://lowendmac.com/nash/10tn/6g-ipod-nano-marke

  • global.philosopher

    Totally agree. The iPad is as much a business computer as it is general consumer. Business needs will drive much of iPad sales.

  • dchu220

    A bit off topic, but I thought the readers here would like to know.

    Here's an interesting tidbit of info about the China market. My friend and longtime Android supporter recently told me that the iPhone has won in China. It's become the uniform of the affluent, just like an LV purse. All the celebrities wouldn't be caught with a different phone and in brand driven society like China, that matters a lot.

  • Iphoned

    IMHO. The reason Mac cannibalization evidence is not visible in the chart, is the counter-force of Macs taking market share from the much larger Windows pie.

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  • JonathanU

    Horace – I'm a tad confused by your assumptions that both the iPhone and the iPad are both not leading to cannibalisation of Mac's or iPod's. From your charts, on a per unit basis, it does appear that the iPhone is causing some cannabalisation of the iPod. Stripping out the effects of the recession in 2009, the unit numbers for Q4'10 do look to be about c.15% below those for Q4'08. I would argue that Christmas 2008 and Christmas 2010 were fairly similar in terms of consumer spending, albeit Lehman had just collapsed in 2008 and there was certainly a lot of uncertainty out there. You did however note that per dollar sales figures for iPod would suggest there isn't cannabalisation, but on a per unit basis, I think it's hard not to say there has been some? I would also argue that to measure cannabalisation you need to use unit numbers and not sales numbers as the iPod touch is only reflected in recent figures, not historically.

    On Mac's, I agree, the data doesn't suggest any cannabalisation, but then again I think one could potentially argue that it is still very early days with the data. Three quarters of data is probably still not enough to see the full picture. This time next year we should have quite a bit more to go on.

    Would love to hear your thoughts on this.

    Thanks,
    Jonathan

    • Joe_Winfield_IL

      One could also argue that the descent in iPod sales is more a result of maturation than cannibalization, that the iPhone's release is corollary but not causal to the decreased unit sales.

    • asymco

      The iPod is indeed in decline. The cause may be increasing use of iPhones, but the drop is nowhere near the growth in iPhones. A "perfect" cannibalization scenario would imply that every iPhone purchase would offset an iPod purchase. But it's not the case. There were 16.2 million iPhones sold in Q4. The loss in iPod volume since the last comparable quarter (Q4 2007) is about 3 million. What's more the value of those iPods has gone up in the same time frame because of the increasing mix of iPod touch.

      So even if we assume the loss of 3 million iPods at the hands of iPhone, the product line did not actually suffer economically. This does not look to me like cannibalization.

      I won't argue with the idea that the product usage is migrating, but the transition is remarkably painless.

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  • Abhi Beckert

    Could you repeat these stats with iPod touch vs nano vs classic?

    It seems like the nano cannibalized the classic and touch cannibalized both?