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How much is an iOS user worth to Apple? About $150. Every year.

During the last WWDC Apple revealed that there were 54 million active Mac users. If we look at the history of the product we can see that it took about 5.5 years to sell 54 million Macs. If we assume therefore that the average lifetime of a Mac is 5.5 years and knowing that Mac sales generated revenues of about $73.8 billion then we can estimate the average revenues/year/mac user: $250.

Repeating the exercise with 180 million current iOS users who purchased about 200 million iOS devices and assuming a life span of 3.5 years gives the average revenue/year/iOS user of about $150.

These are recurring figures. If we assume these users are loyal then they will likely spend this amount indefinitely and each additional user will be worth a similar amount.

So, for example, if we assume that the number of Mac users reaches 100 million then we can also assume that they will generate about $25 billion/yr in recurring revenues.

Likewise, if we extrapolate growth of iOS to 500 million users then we can assume they will generate $74 billion/yr in recurring revenues.

Adding these together gives a potential recurring income level of $95 billion/yr for installed base alone (excluding iPods, Peripherals, iTunes apps/songs, and Software sales.) Today that figure is about $40 billion/yr. [1]

Interesting valuation exercises can follow. [2] It would also be interesting to perform a similar analysis for other vendors/platforms.

Notes:

  1. Note that actual sales are considerably higher than this figure as new customers are added. These figures should be considered “baseline” sales.
  2. Thanks to a kind reader for suggesting this line of analysis.
  • Gourav

    Isn't "assuming a life span of 3.5 years " for an iOS device optimistic? Typical mobile phones have a life of 18 months and iPhone users more often than not upgrade to the next version of iPhone immediately on release (my assumption, I don't have data for this :) ). May be a weighted average based on the device sales would make more sense? With iPods and iPads having a longer life than iPhones…

    • asymco

      Since most subsidies are indexed on a 24 month time frame I assume this is an industry norm for what users are likely to tolerate. Using the 3.5 year time frame is stretching the life of the device to a secondary market. These are conservative numbers.

      If we switch to a 24 mo. lifetime the rev/yr/user increases to over $250.

      • Gourav

        OK makes sense :) I guess I should have mentioned "pessimistic"

      • http://www.informationworkshop.org Mark Hernandez

        I upgrade my iPhone every time a new one comes out (early adopter), BUT each of my old ones is still in use by friends (3G and 3GS), so that average lifespan estimate makes sense.

        What likely forces the phone out of service is either a battery that won't hold a charge, or the device can't be upgraded to the latest OS anymore, but still there are still those who may not care (late majority and laggards. See must-see TED Talk by Simon Sinek. :-)

      • ScottyRad

        Simon Sinek's TED Talk (and book, Start With Why) is an excellent companion to the talk about Apple, and I think really effectively helps explain why Apple has succeeded while other companies that have as many resources opportunities have not (see Microsoft Zune etc.). Horace, if you haven't, you should definitely check it out!

      • cjackson

        Just watched that TED talk and it was mind-blowing. Highly recommended.

      • tom_thompson

        I have to agree. Although I don't upgrade every time a new iPhone comes out, when I do the old phone moves down the food chain to either the significant other (or is that up the food chain?), or to one of the kids. My daughter has the iPhone 3G after I bought an iPhone 4, and she will probably use it until the battery fails. It was bought in 2008, so that's already three years. At the place where I take my daughter for after-school gymnastics, I can see this same process happening, many times over: the parent has the latest-gen iPhone while one of the youngsters has inherited the old one.

        I'd say that 3+ years estimate for the lifetime of an iOS product is valid.

        BTW: excellent blog, Mr. Dediu.

      • Ted_T

        One anecdotal data point — I have an iPhone 3GS, which I eagerly await to replace with an iPhone 5. But, I still have my 4 year old iPhone which I actively use as a universal remote control/cooking timer/alarm clock.
        My iPad is on a 2 year upgrade cycle as well — the old one will get gifted to a relative. Not sure what I'll do with the iPhone 3GS. Possibly keep it as a spare in case my wife or I were to lose our current phone.

        Getting some combination of Apple/AT&T to officially unlock the 3GS, now that it is out of contract would be fantastic, but I don't see it happening without government legislation.

        Macs: I've been an Apple Macintosh customer since March, 1984. Way too many to list. I have never purchased a non – Apple computing device — definitely a customer for life.

        iPods I started with the iPod 2gen, and have only bought into the "classic: form factor — the last one from 4 years ago (160GB). Hoping it will last until the iPhone is large enough capacity to replace it. Any guesses on whether the 2011 iPhone gets bumped to 64GB — are single chip 64GB NANDs shipping in volume?

      • Phil

        Unfortunately, I don't see iPhones increasing in capacity with the introduction of iCloud. Apple is moving further and further away from being tied to local storage. With iCloud, if you don't have all of your music on your device, you can access it in minutes from Apple's servers.

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

      We use iPhones at work. We have around 10. We replace them every two years. At the moment we have iPhone 3's which will be replaced with the 5 when that is released, and some 4's which will be replaced when the 6 is released.

    • Hamranhansenhansen

      The intended lifespan of an iOS device is 2 years and for Macs it is 3 years. That is why AppleCare is exactly that long.

      it is not true that most iPhone users buy a new phone every year. Not even close.

      • Ted_T

        For every person who buys an iPhone every year, there are at least 2 if not 4 who wait for 3 years — I still have friends limping along on iPhone 3G. Two friends upgraded a couple of months ago from their original iPhone to an iPhone 4 (almost 4 years).

      • Yowsers

        I'm not sure I would necessarily draw a tight connection between the length of a service support agreement and the intended lifespan of the device. "Intended upgrade cycle" might be more accurate :-)

        Taking into consideration the overall build quality of the device with the expected lifespan of individual components (batteries etc don't last as long as the cellular chip or the screen, for example), AAPL may have come up with a reasonable support period in line with consumer and market expectations. At the same time, they can well expect a device to last 2X and 3X past that, or get data that shows devices in use for an average well past the support period (assuming batteries are replaced, etc).

        The secondary market is important, too. I've re-sold every iMac, MBPro, iPhone and Airport device I've owned. I've generally held them for a bit beyond their support period and then upgraded, and I fully expect the person after me to use them again as long as I did, or longer.

      • name99

        "The secondary market is important, too. I've re-sold every iMac, MBPro, iPhone and Airport device I've owned. I've generally held them for a bit beyond their support period and then upgraded, and I fully expect the person after me to use them again as long as I did, or longer."

        This is extremely important, and, as Horace said, justifies his numbers. If you think 5.5 yrs for a mac is too long, look at eBay or Craigslist at the cost of ancient second hand macs. Personally I think the prices are crazy high — I'd rather pay 30% more and buy today's model — but it cannot be denied that that is what the resale prices are, even for really old hardware.

  • http://twitter.com/tpauly @tpauly

    I have bought 2 of the 54 million Macs in the last 5.5 years and 3 of the 200 million iOS devices and, as far as I know, I am only one user. I have a five-year-old Mac that I still use but only because the recession has prevented me from replacing it. I don't see many Macs out there that are older than 3-4 years. 54 million users seems a bit optimistic.

    • asymco

      54 million is the figure cited by Apple. The only unknown is the average life span of a Mac and perhaps the average number of users per Mac. I started with 5.5 years and 1 respectively. I suppose I should use a range for lifespan.

      • Relayman5C

        I am currently buying a MacBook Pro about every four years (three years on AppleCare and one beyond it). Based on my purchases, I would consider 5.5 years reasonable.

    • tom_thompson

      I have an old TiBook that's about ten years old and is still serving me well. I use Rosetta to run old copies of Adobe Illustrator and Photoshop to produce technical diagrams for my work, as well as read this blog. The laptop started out running Mac OS 9, and now runs Tiger (OS X 10.4). It can be coerced to run Leopard, but I finally broke down and bought a new MacBook Pro last year to do iOS programming. Admittedly this is an extreme case, as I've replaced both its hard drive and DVD drive by myself at one time or another. Still, because of their build quality I think Macs are serviceable for more than 3 years, and that the 5.5 year lifespan is a fair assessment of their working lifespan.

  • Eric D.

    Thanks for yet another insightful analysis, Horace. Given the adoption rates we're seeing, especially in Asia, the future potential of the Apple juggernaut is staggering.

    Is it possible to break out the revenue per individual for iTunes apps and media? I'd also be curious to know what is the value of one PC buyer, both to Microsoft and to the average manufacturer, just as a baseline.

    • asymco

      I took a look at iTunes. The number seems to be around $25/yr/user with about 225 million users.

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  • pk de cville

    Horace,

    Stephen Rosenman has a great metric in OID (Operating Income per Device).
    http://seekingalpha.com/article/275406-research-i

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

    Very interesting way of looking at the value of customers for Apple.

    However, since at least the ASP of Macs has in my understanding come down during the 5,5 years, would it make sense to weigh the results somehow? That is, if I understood you correctly.

    Also, regarding future iOS sales, is it likely that the ASP will go down? If Apple does release a pre-paid iPhone at a significantly lower price point, doesn't it affect the calculations? Of course we don't know how the prices will develop in the future, but I think it would be possible to at least use the existing data to extrapolate the trend, and also perhaps create an alternate scenario with regards to the pre-paid iPhone.

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  • JonathanU

    That's still quite a large real terms decrease in ASP…

    5 years, average inflation 3%, compounded that's about a 16.5% fall in ASP just from inflation.

    • kizedek

      But it is also indicative of computing power and needs…

      Just as the mobile arena and cloud computing is starting to be technologically goo enough and fast enough to start to meet Apple's vision of Post PC personal computing, so has desktop computing advanced.

      I am a freelancer working mostly on web development these days, and maybe presentations, a little photography, some print work and a little bit of pro-sumer video thrown in. In the "old days" I would have always gone for a MacPro. Now, my new iMac more than suits my needs. I could probably do most of my work on a mini. Heck, I do a lot of my work on my iPad from which I can connect to sites via FTP apps and edit code while I am out and about.

      So, unless I was doing heavy image manipulation or video processing all day every day, I see no need for a tower anymore. I can be very happy with a 1500-dollar Mac, and not a 3000-dollar Mac.

  • http://deuschl.net/matthias Matthias

    And I thought iOS devices are an enabler / helper for iTunes sales: music, movies, apps, …
    Why do I buy music on iTunes and not at amazon? Because amazon is not available on my phone.

    • Hamranhansenhansen

      iTunes is a loss leader for device sales, not the other way around. People buy iPhones because it has easy 1-click music and movies. They don't even know Amazon sells music.

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

        Not a loss leader; it's also a significant revenue generator. It's just that iTunes isn't their business focus.

      • kizedekl

        The question in the title is, "How much is an iOS user worth to APPLE?"

        Yes, the iTunes Store generates significant revenues… but most of that goes to the media producers or developers. The small part that Apple keeps is for running the Store. Apple repeatedly speaks of the iTunes Store as being a break-even venture.

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

        Perhaps I'm being to pedantic, but that's exactly my point. It's not a loss leader in that it doesn't generate a loss. Your core point–that it exists not for its own success, but to help ensure the success of their hardware platforms–is correct. But it's not fair to call it a loss leader, as that implies that they're actually willing to throw away money in order to keep it alive.

        And while it may be something of a technicality, I think it's telling about Apple's general mentality that they aren't willing to throw away money that way. When companies run something as a loss leader, they often go about it half-cocked, and then it does not do the job it was hired for. The loss leader quickly becomes a bastard child, and it's eventually cut or monetized to stay alive.

        The difference with Apple is that they understand the value of the store, so they are actually doing it right. The only reason it isn't making a profit is because they have chosen to cut their own margins, moving that money into the coffers of content providers to ensure that they've got a healthy ecosystem.

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

    I'm struggling with the "so what" of this post.

    Factors that affect the revenue per user? ASP, product lifecycle/replacement rate, new adds rate, spend on apps/music/books. I guess if you could take it to that next level and compare vs other platforms you might get to some interesting takeaways.

    Or maybe it's the "Interesting valuation exercises" to follow that will spark my interest in these calculations?

    Apologies if there is something I'm just not 'getting'.

    • asymco

      Framing valuation and cash flow around users not on devices moves the discussion on to the question of loyalty and platform value. It also defines a new basis of competition. How much revenue/user/year is Windows worth? What about Google search? So what then if Windows has x users and Google has z? If and when Apple reaches half a billion users it will be easy to say what that's worth. Rather than saying how many devices they will sell that year we could suggest how much the base they built will be worth.

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

        OK. Fair enough. I can see the merit in that. Sounds like the start of a series.

  • Anthony W.

    I'm not sure what this analysis gets you. What's the upshot? What I'm reading is that you can project a 235% increase in "baseline" sales (95 billion / 40 billion) assuming that the customer base increases by 256% ((100 million + 500 million) / (54 million + 180 million). What does that analysis tell you? I could use some help.

  • Ted_T

    No, no they didn't unlock my original iPhone. I've never heard of Apple doing such a thing in the United States — it would be fantastic if they did!

    • mbaDad

      I don't think they want it to be common knowledge, but they will unlock them. Apple basically has a database of devices no longer locked to a carrier, and they just add your device to the list. You are then free to use it on any service that supports it (not much choice in US unfortunately).

      • Ted_T

        I'm having a really hard time believing such a service not only exists, but has been kept secret so far from they rabidly detailed Apple press. How does this work according to you — you go to an Apple Store and ask to have your old, out of contract iPhone unlocked?

        Has anyone done such a thing?

      • asymco

        I have. This service is available in many countries. I did it in Finland after my 3G iPhone was on contract for 2 years. I gave it to a family member who is still using it (with T-Mobile) as a legitimately unlocked iPhone.

      • Ted_T

        Horace, I don't doubt unlocking is available in Finland — most likely because it is a legal requirement. Indeed many countries, like Italy, only sell factory unlocked iPhones in the first place as locked phones are illegal.

        However unless I am really missing something, in the United States, your locked iPhone stays locked after your contract expires, and neither Apple nor AT&T will unlock it for you. Indeed AT&T (used to?) unlock every out of contract phone *except* the iPhone.

      • asymco

        Exactly right.

      • Chandra

         As many of us know, this has changed very recently. AT&T has started unlocking phones after the contract expiry.

  • mikecane

    Hmmm… I'd like to see you try this kind of analysis on the Amazon Kindle and/or Barnes & Noble Nook. That would be tricky, given the way they report their figures. But you're up to the challenge, no?

  • name99

    You don't seem to understand how the iTMS/App store works.
    To first approximation, content, etc, travels with your ACCOUNT, not with the HW.

    If I wipe my phone then give it to a friend, so he sets it up with his Apple account, then he has HIS interactions with the Apple store, not a continuance of my interaction with the store. He sees HIS apps, not mine.

  • chandra2

    Horace: I agree processes and assets map to "how" and "what", but "why" is much more an emotional one and somehow does not map well to 'priorities'. Priorities sound too much in the rational plane.

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

    I don't think you can look at the tApu worth to Google in isolation. First of all, the tApu is paying for hardware and network service. So, he or she is worth something to the manufacturers and he or she is worth something else to the network provider.

    Further complicating things is that there is no money flow from the tApu to Google. Google makes its nut from advertisers. So, to Google, the tApu is worth whatever price that Google can sell him or her to advertisers. The tApu is not Google's customer, the tApu is Google's livestock.

    When we discuss MS customers, there are two very different sets, as you are implying: home users and business users. How do we qualify the business users, though? A business itself is a customer. The employee making purchasing decisions can be considered a customer. What of the end users, the butts in the seats? Are they also customers?

    It's late and I get confused easily.

    However, I am reminded of MS's forays into selling software subscriptions. I didn't keep up with that aspect of their business; can anyone tell me how it fared?

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  • http://aaplmodel.blogspot.com deagol

    Horace, this is pretty much my methodology for modeling all product lines. Apply these installed bases and replacement life cycles over the historical data for all HW lines, Peripherals, SW & Services, and iTunes, back into a computation of how many new users per year (adoption rates) you're getting, and track how these replacement spending rates and adoption rates evolve over time, and you got the gist of my model. Good job in explaining it succinctly as I've had trouble doing so effectively.

    • asymco

      It makes a lot of sense. As Apple's business is more and more dependent on platform products, the loyalty or stickiness of the platform will drive the bulk of future sales. This is a fundamental difference in valuing platform or ecosystems vs. "sell and forget" devices.

      I believe Microsoft and Google see the world this way: how much is each customer worth to us, because he will come back again and again. You can then value the device business as a subscription service and make it much more predictable.

  • asymco

    The P/E multiple is an artificial way to value a stock. It's a handy way to go from earnings estimate value but it's arbitrary. Markets just deal with sentiment and supply and demand of capital. I think the vast majority of stock purchase or sale decisions have nothing to do with what the P/E is at a given time.

    • chandra2

      Agreed. That has been one of the fascinating mysteries for me. On a day to day basis, people buy stocks based on a lot of tactical factors ( "voting" ). But then over a period of time, people believe the stocks are valuable ( "Weighing" ). I guess if anyone figures a good correlation between the two, they will make billions ;)

      But over time, the P/E seems to reflect the future growth expectations. If the future growth expectations are very low, then they seem to trade at 1/(discount rate plus risk premium).. e.g 1/(5 plus 3) ~ 12 P/E That is why I was linking the Peak earnings with this 12 P/E . I just picked $200B as Apple's peak revenue/year.

      Question for Horace and the rest of you all: What is your estimate for Apple's peak earnings, no matter how many years it takes to reach there? Horace's per subscriber number seems like a great way to estimate this since the problem now moves to estimating the peak subscriber numbers for both Mac and iOS.

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