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American exceptionalism

The second quarter showed continuing growth for Android with 19 points of share growth from a year ago. Only Windows Phone showed a gain y/y in share up 1.6 points to about 3%. In the same time, Bada lost half a point, iOS lost 2.1 points, RIM lost 7.2, Symbian 11.4.

The result is shown in the graph below:

I also show a “before-and-after” pair of pie charts which show the difference in smartphone platform market share from the same quarter three years ago. Android went from 3% share to 67% while Symbian went from 41% to 4% and RIM went from 19% to 5%. iOS increased its share from 13% to 17%.

If this trend continues Android could reach 50% of all phones sold in a few years. That’s a run rate of 200 million per quarter. And it’s likely that 100 million of those will be shipped by Chinese vendors.

However, looking at the global picture can also miss some important trends in local markets. Had one looked at the global smartphone business in 2005, the conclusion would have been that Symbian would be the dominant platform in perpetuity.

What affected the global market was a change in the US: the launch of iOS and thereafter of Android. The US, a smartphone backwater until then, became the most vibrant market and today it’s the most penetrated and has the highest ratio of smart to non-smart of any of the major regions.

The curious thing about this vast market is that it’s still not truly open. There are technology and political reasons why some platforms are permitted to sell in one region or not. The iPhone is not available on either the largest Chinese operator or on the largest Japanese one. It’s largely absent from India because of distribution (i.e. subsidy) and much of South America. Even in the US, the iPhone is still, after five years, not available on one of the top four operators and has only reached another less than a year ago.

What intrigues me is what would the market look like if distribution were not an issue. What if there was equal choice to all buyers. We can’t test this question directly but we can ask. But there is some pattern we can look at in the US data. Thanks to recent revelations at the Samsung vs. Apple trial we can see the effect of increasing distribution in the US.

The data on smartphone market share by carrier can be blended with data from carriers about iPhone activations (which are a proxy for sales, see note below) to give a more precise figure of market share in markets where iPhone participates.

For example, when the iPhone was only available on AT&T, one could measure iPhone market share vs. the global smartphone market, or the US smartphone market or within AT&T alone. Some assumed that the AT&T share would be reduced once the product would become available on Verizon or other US carriers. However there was no appreciable drop. Share in Q4 2010 was 63% at AT&T and it was 63% a year later after the iPhone was available for four quarters at Verizon.

So the share of iPhone within those operators which carry it tells a story independent of distribution.

The following graph shows the share of the iPhone vs. Samsung in the market defined by its availability. (I.e. the volumes of smartphones sold by AT&T throughout the time period, Verizon Q1 2011 to end and Sprint in Q4 ’11).

The share of iPhone thus defined shows a slight decline but it’s an overall number that is remarkably resilient as distribution increases and is remarkably high overall. Note that globally, the iPhone gets only about 17% share of smartphones–a value that has not varied greatly since mid 2009.

So at least in the US, on carriers where it’s available, the iPhone is holding on to a significant share. In a global market it’s expanding distribution but not yet covering the world. As a consequence it’s keeping up with overall market growth and staying between 17% and 20% share.

The big question is what will happen if and when its availability matches that of Android in terms of points of sale. Or even that of BlackBerry or Symbian. Is America a different market from the rest of the world? It was different in being isolated while Symbian roamed globally. It was different in being a launch platform for BlackBerry and then iOS and then Android. But now that iPhone is beginning to be widely available there, will it be exceptional in how it rewards Apple?

Note:

  1. Activations data can be seen next to Apple’s testimony of US sales in the following graph. Note that more phones were sold by Apple than were activated in total of the life of the product. 86 million sold and 80 million activated. This implies that an analysis based on activations undercounts the iPhone. 
  • rob scott

    While US share of users is low relative to the rest of the world. Its share in terms of tech news is disproportionate, some estimating that up to 80% of tech news originate or are from US publishers (main media and blogs). So the US has huge influence on what gets adopted throughout the world.

    If Apple wins in the US 35% – 50% unit market share, resulting in increase importance of iOS users to bloggers and main media, a positively slanted editorial would results. That bias will propagate throughout the world resulting in positive feelings toward the Brand and Apple devices in general.

    I look like Apple will be able to take +40% share of unit.

    • JohnDoey

      Maybe you are only counting English language tech news?

      Anyway, very few iPhones are purchased because of tech news. More likely, People or Rolling Stone. Tech news spent 2007–2008 warning me not to buy an iPhone because there was going to be a free Android phone “soon” with more and better apps and $30/month data-only carrier plan.

      • http://twitter.com/handleym99 Maynard Handley

        This seems (I say this in all seriousness) something which could form the basis of a very interesting thesis in either the social sciences or marketing: go out and interview a large number of people about whether they bought iOS or Android, why, and whether they will behave differently on the next purchase.

        I think we on this blog (and throughout the tech blogosphere) can’t really trust our intuitions here: almost by definition, almost everyone we know either has a strong opinion about tech, or asked us what to buy. It is quite possible that the rest of the world’s opinions about Apple vs Samsung as a theological question (the basis for most discussion in the tech blogosphere) is as strong as your opinion on the difference between
        Mahayana vs Vajrayana Buddhism, ie you had no idea such a theological question even existed.
        And if this is the case, then why would one buy Apple? One can GUESS things like
        – ecosystem (do most people buying own macs — unlikely — or care about iCloud?)
        – apps (can you really have a strong opinion about this before owning both platforms)
        – Apple coolness, fashionability, and all those sorts of words
        – word of mouth of friends who are delighted by one vs the other
        – a belief that Apple is safe — they will treat you fairly if your phone breaks, will update it for some reasonable length of time, etc. (But how widely known are these facts?)
        – and, of course, things like lack of LTE (and slow cautious roll-out of HSPA features) hurts Apple rather less in countries that are only just getting HSPA+ than they might in the US.

        And of course the salience of the issues above is very different in, say Stockholm vs Jakarta.

        I honestly think we are all wandering around in the dark here, with opinions about what is happening, but, if we’re honest with ourselves, NO really useful data to go on.

  • http://twitter.com/m4rkusr Markus Ramstedt

    On AT&T iPhone share of smartphone activations dropped from 82% in Q4 11 to 75% in Q2 2012. On Verizon the numbers were 55% and 45% respectively. And despite continuous subscriber adds, AT&T smartphone activations for Q2 2012 were actually 500k lower than for Q2 2011. Adding 1H12 to the first bar chart would show a seasonality we haven’t seen before with Apple.

    • JohnDoey

      We have seen this seasonality for 10 years straight from Apple. They sell almost no iPods in August because the new ones come out in September. The iPhone took over the September event recently and now you should expect to see a non-Apple phone be the best seller every August, same as Sony Walkman was the best-selling music player in August 2010.

      • http://twitter.com/m4rkusr Markus Ramstedt

        What I meant was that we have not seen iPhone sales diminish after just two quarters of sales, with Q1 being higher than Q2. Saying that people start waiting for the next iPhone less than six months after the previous one was launched is not really being honest. The Galaxy S 2 has ramped up in volume since its launch more than a year ago. And for sure people were anticipating the launch of the S III.

      • https://twitter.com/#!/azulum azulum

        I’d say that Q2 2011 was the anomaly, not the drop off this year. Also, the 4S isn’t so much better relative to the competition that the 4 was then. Plus, there weren’t any prepaid plans available for the iPhone until two months ago? And finally, the 4S does not have LTE so Verizon and AT&T have stopped pushing it.

        And yet they still sold megatons of them last quarter.

      • DrewBear2

        Where’s the data that the S2 ramped up volume through its first 4 quarters? Samsung doesn’t provide ASPs, but I suspect that the S2 dropped in price within a few months of launch.

        The “waiting for the next iPhone” effect may be true in certain markets to some extent, but I doubt it is the most significant reason for the trendline of iPhone sales. Let’s remember that the iPhone 4S represents the first year where the cycle begins in Sep/Oct.

        I suspect that the two major holiday seasons (Christmas & Chinese New Year) in conjunction with the new iPhone launch will mean insane sales for the first two quarters. Sales declines in the following two quarters after launch are not necessarily a negative. It just means those first two quarters were monstrous and nearly impossible to top.

        Back to Samsung: I think they said their goal was to sell 40 million S3s in the first year. I have no doubt they will reach that goal, but I’ll bet they drop prices within the first few months (probably when the new iPhone launches). The 6th gen iPhone will sell over 40 million in its first quarter. Apple doesn’t drop prices until month 10 or 11.

      • http://twitter.com/m4rkusr Markus Ramstedt

        Samsung published milestones were 2M first month, 20M ten months, 26M first year.I need to check the numbers, but the average for the first year was higher than the first ten months.

      • http://twitter.com/WalterMilliken Walter Milliken

        Some of this change may be due to Apple’s faster ramp-up of production and distribution of the 4S — in previous years, it’s taken longer for them to come into supply-demand balance, I believe, and there was probably still “pent-up” demand in the third quarter. But that’s mostly from memory, someone would need to go back and look carefully at prior years’ balance timing. (Might make an interesting graph for Horace….)

      • http://twitter.com/handleym99 Maynard Handley

        This analysis does not take into account the timing weirdnesses of the US market. Consider the first quarter that VZW carries iPhone.

        You are NOT going to see everyone who wants a VZW iPhone immediately buying one in that quarter. Rather you’re going to see a steady increase in the number of iPhones bought over the next two years as people’s contracts expire. Of course there will be a pool of people who had expired contracts already, who can switch as soon as they like, along with a pool of people willing to pay the early termination fee. But I’d guess the number of people who figure they might as well just stick it out until their two years is over.(Superimposed on this, of course, is the usual fraction of people who then think “I might as well wait till the next iPhone comes out”.)
        Hence the big jump in Q411 (which is, on the other hand, STILL misleading, because we now get the lagging and stuck in a contract effect with the new Sprint base).

        We see both these effects in the VZW iPhone activations:
        http://www.forbes.com/sites/elizabethwoyke/2012/02/03/att-cmo-this-is-how-we-sold-millions-more-iphones-than-verizon-in-2011/

        Horace’s graph is useful for some purposes, but it’s misleading as far as this goes.

      • http://www.asymco.com Horace Dediu

        It all depends on efficiency of production and channel fill rates. The iPhone 4 was a mature product so launch ramp was near vertical. That meant they were able to get it in all markets faster than ever. I don’t know what SII looks like globally but a steady ramp would show up as steady growth. When it comes to production, you’re damned if you do (it well), damned if you don’t.

  • Mark

    Please keep in mind that not all markets are subsidised. In Russia, for instance, there are no carrier subsidies at all; you can buy an iPhone there but for $1000 – this alone makes the iPhone a very niche product.

    • Ilari Scheinin

      This is something that I don’t really understand; how can the unsubsidized prices vary so much between countries? I think it’s well known that the US market is an anomaly because of the enormous subsidies made possible by the really high monthly payments resulting from lack of (true) competition between carriers ( http://www.ben-evans.com/post/25177869096/iphone-pricing-and-us-market-share ).

      But why the variation in the unsubsidized prices? For example in Finland, just across the border, the unsubsidized and unlocked 16GB iPhone 4S is 629€ (772$).

      • TT

        Import tax?

      • JohnDoey

        It is the cost of doing business in those countries.

        Canadians — 90% of whom live near the US border — are used to paying 10% more for their Apple products than in the US because Canada has consumer protections and public infrastructure (e.g. public medical system, public housing) that the US lacks, and businesses both pay more and get more benefits from that (healthier workers, less crime.)

        In other words, a Canadian pays $50 more for his or her iPhone, but if they get hit by a car on the way home from the Apple Store, they don’t go bankrupt from private medical bills. So the Canadian iPhone is actually cheaper.

      • jdsweet

        You sounded so insightful up until that last sentence.

      • http://www.facebook.com/kris9k Kris Boonefaes

        Not sure about Canada, but sales tax normally isn’t used to fund socialized medicine, income tax is.
        Sales tax in Russia is 10%, while the EU averages about 20%. Yet unsubsidized iPhones are $250 cheaper in the EU than in Russia. Maybe some import tariff is at work here?

      • Wesley Hsu

        An unsubsidized Bic Mac doesn’t cost the same in all counties, nor does an unsubsidized Mercedes or an unsubsidized bottle of Ibuprofin. Why should an iPhone be different? Keep in mind that most nations don’t have Apple Stores, so you have local retailers and distributors, plus variant taxes and protectionist tariffs.

        Russia and India are actually very interesting case studies. Just Google “why no iPhones in India” and you’ll see how arcane laws can shackle a market.

    • Igor

      That’s why everyone I know who owns an iPhone in Russia, bought it elsewhere. Not only does it cost a lot more in Russia, than in the US, but it also launches with a significant delay. Apple really needs to do something about this.

  • Walt French

    “The US, a smartphone backwater until then, became the most vibrant market…”

    This is an important point to remember when we look at adoption rates of various technologies: the US, despite its high wealth, had a badly under-served communications sector. I combine this observation with the anecdotes of (a) what it took to get the iPhone on AT&T; (b) how Verizon unceremoniously showed Jobs & Co. the door when they first deigned to propose a partnership; and (c) Verizon’s pivotal involvement in building the “Droid” response, to note the sclerosis of American commerce in the sector. It’s a textbook-clear example of an important, ugly feature of oligopolies.

    OTOH, the unresponsiveness to latent consumer needs apparently created the huge profit opportunity for disruption of the entrenched approach. As yet, however, phone manufacturers have gone from perhaps a single-digit share of mobile communications profits, to perhaps a low double-digit share. The value stack of communications seems little-changed despite the sweeping changes in how we use mobile “phones.” So I take it that there’s still a huge disruption sitting out there. Who will lead the next revolution?

    • JohnDoey

      Apple, with a phone based on iPod nano that outsells all other smartphones within a couple of years.

      • https://twitter.com/#!/azulum azulum

        If they could fit a cellphone into that tiny package that would pair with an iPod Touch or an iPad, then you might be onto something. Interesting. Though the interface leaves a lot to be desired. Still, $250 for a watch-like nano phone and $200 for an iPod Touch, not a bad deal for the prepaid market.

        edit: though it wouldn’t be classified as a “smartphone”, just a watch with cellular technologies that you can use for any of your smart devices.

    • http://twitter.com/WalterMilliken Walter Milliken

      I think the latent carrier disruption requires some kind of carrier bypass: either an upstart carrier or some new technology (which brings in new carriers).

      I don’t think it will be an MVNO, since I’d expect the major carriers to put a stop to that (probably by gaming wholesale pricing as they did with DSL) if it ever began to really hurt them.

      In theory, someone with Apple’s market power could go into the carrier business directly, but there’s been a lot of discussion about why that probably wouldn’t work out.

      It’s also hard to see where an upstart could come from, since the existing carriers will gobble up any new bandwidth as fast as they can, since they know the risks of letting in new competitors.

      About the only potential I can see on the horizon is Google, which is already showing signs of wanting to be in the cable business. But that fits their business model much better than being a telco. I’m not sure they could afford to run a cell network on selling eyeballs. But I wouldn’t be surprised entirely if they decided to become an MVNO at some point, with some kind of advertising-subsidised rate plan.

      • Davel

        Both Apple and Google can buy bandwidth wholesale. It would however make them a small player with limitations in growth.

      • http://twitter.com/WalterMilliken Walter Milliken

        I think if Apple were going to go in that direction, they’d have done it at the original iPhone release, which is why I didn’t include them. It’s possible that if the carriers get nasty with them, they would reconsider, and I suspect this is a good threat from Apple to keep them from getting too nasty. (And they *will* if they have the upper hand.)

        A Google MVNO doesn’t threaten the carriers quite as much in some ways (they can get Android phones without Google now), and as long as the carriers own the infrastructure still, they’ve definitely got the upper hand.

      • Kizedek

        I think that Apple also has some potential to disrupt in this area, too; not just Google.

        There could definitely be some kind of carrier bypass:

        Just start using VOIP a lot more and see how the carriers react. If most comms start going over WIFI (or microwave or something) and everyone suddenly needs only half or a third of the minutes on their plans, then the carriers will have to respond.

        I use Skype for about 95% of my communication. Apple is already improving iMessage / Facetime, integrating them, etc. And I just read that H.265 video is about to provide twice the quality of H.264 — or the same at half the bandwidth.

        All Apple needs to do is provide real phone numbers like Skype. Plus some kind of Siri voice message to text / SMS push service for the times that you are not on WIFI (or when using iPad or iPod); and maybe a seamless transition to cell for iPhones.

        Personally, I don’t care if I can’t be reached every minute of the day by phone since I have always chosen to keep it that way; If I was offline, I’d be happy to get a Siri kind of translated text or query the minute I was back online. Siri: “Bob called and requested a meeting at 1pm, you have that hour free, so I have pencilled it into your calendar; would you like me to confirm the meeting with him, or propose an alternative?”

        True, many places in the world are poorly served by broadband internet at the moment. But that will just get better, and the technology is already in place — every Apple mobile device has WIFI built in. So, it’s more a matter of software and cloud advances, which I think Apple is already working on, to make this type of task more practical, user friendly and enjoyable. Just make WIFI the default and cell the fallback; bypass carriers altogether. No buying of networks necessary.

        Since the carriers are balking at Apple coming up with a complex universal card that switches up between carriers and settles the bill with each one according to minutes used, just have the same thing with WIFI networks — software that finds and connects you to free networks; and gives you one iTunes bill each month for any paid connections that were necessary.

      • http://twitter.com/WalterMilliken Walter Milliken

        I don’t think WiFi connectivity is going to work well enough — it’s certainly enough for some uses, but it’s too easy to break connections with movements of more than a couple hundred feet. It is not a “mobile” solution. I think we’re still going to have to have the cell carriers, or something very like them, to have the ubiquitous connectivity that’s one of the major selling points of cell phones. (Certainly call quality isn’t one!)

        And there’s the question of where the WiFi connectivity is coming from, and who’s paying for it and why. WiFi connectivity with very slow backhaul won’t handle heavy usage.

        I also note that the carriers have already figured out how to deal with Skype bypass in their newest “shared data” plans. They’re going to make you pay for tower access per device, and then data use, and give you all that great (and very cheap) classical voice and text service for “free” — using less classical voice or texts will no longer affect their revenues.

        Also, cell connectivity is about all there is in some of the less developed countries; I don’t necessarily see them deploying widespread WiFi infrastructure in any ubiquitous way.

        Much as I’d like to see the classical telcos fall by the wayside, I don’t see this happening soon.

    • Davel

      I wonder when the pre-pay model will prevail in the US vs the current vs the current contract one. Subsidies will decrease well costs will decrease also.

      • http://twitter.com/enoss elliot noss

        pre-pay vs. contract are artificial distinctions. take a look at what we are doing with Ting (http://ting.com). we do away with this bit of artifice, and a few others to boot.

        what is correct is that it will take a LOT before we, or any other MVNO, is big enough for the carriers to change. be assured that they are already taking notice.

  • Igor

    I think Apple made a mistake by making an exclusive agreement with AT&T. Other carriers didn’t have any choice but to promote Android and other platforms instead. Had Apple focused on expanding distribution from the start, chances are, Android would never have gained traction. Another reason is the whole model of subsidies, which is deeply flawed in my opinion. This allowed Apple to make the iPhone expensive, since it’s heavily subsidized by the carriers, but this model only works in developed markets, where the share of postpaid is very high. Apple has a much harder time competing in developing markets, where it’s mostly prepaid. Android is much more competitive there, since it’s selling at lower prices. If Apple had settled for lower iPhone margins from the start, it would have owned most of the market by now. Why? Because both the iPod and the iPad are lower margin products and have been able to consistently maintain 65-70% of the market share. No one can successfully compete with them. Of course, distribution is also not an issue for them, so that’s another major factor.

    • http://twitter.com/WalterMilliken Walter Milliken

      I don’t think Apple could have gotten the iPhone in its current form onto the market *without* the AT&T exclusive — they needed a desperate carrier to break ranks with the “own the customer” mentality the major telcos had.

      Otherwise, the carriers would have insisted on all the usual carrier control, and the iPhone would have been crippled at birth.

      • Davel

        I agree. They also needed a partner to help sell it even if AT&T resisted the phone in the beginning.

        Also Igor above does not take into account that Apple’s not chasing the low-margin low-paid market. Apple is a premium assessable brand not a low-cost one for the masses.

    • JohnDoey

      AT&T was the only US carrier that was technically able to run the first 3.5 iPhone models. If iPhone had been on Verizon instead — zero international sales.

      iPhone is the most popular phone on Verizon and Sprint now, anyway.

    • Walt French

      “I think Apple made a mistake by making an exclusive agreement with AT&T. ”

      If so, a big part of the mistake was due to Jobs’s belief/assertion that they were 5 years ahead of the competition; he apparently never envisioned the Google disruption. Of course, Google could not have done it alone; they required the heavy involvement of Verizon, also a stark turnabout from Apple’s assumptions, no doubt.

      • http://twitter.com/WalterMilliken Walter Milliken

        If Apple discounted Verizon’s desire to retain control at any cost, they’d be a lot more naive than I’d have expected. I’m sure they saw this in meetings with VZ. They might have thought it would take a few years to get any credible competitor (as opposed to cheap early copy-cats and/or heavy promotion of existing brands like Blackberry).

        Right now, iPhone sales on VZ seem to be impacted by VZ’s heavy promotion of LTE, but even that doesn’t seem to be hitting iPhone sales all that hard. Must make VZ’s marketing people really annoyed….

    • https://twitter.com/#!/azulum azulum

      I think Apple made a mistake by making an exclusive agreement with AT&T.

      What you are forgetting is that US carriers can be…whimsical. Palm, for instance, ran out of money because they built devices for Verizon that Verizon flat-out refused (jump to blowfish). Before the iPhone launched, the carriers controlled everything. The only way for Apple to get a chance to play was by doing one of these deals, a deal we know now was about five years of exclusivity. That exclusivity really only became a problem because they were successful.

      In other words, your hindsight wisdom benefits not only from hindsight, but forgetfulness as well — and so I do question its wisdom.

    • xynta_man

      While you may be correct, I think you are wrong for one main reason: by doing what it did up to now, Apple didn’t only became a big player in mobile (acquiring economies of scale, component and distribution deals, etc), but also made a s**t ton of money — money, which Apple can (and probably will) use to relatively easy launch new products and services, develop and buy new technologies, etc. It’s far easier to make millions of iPads with aluminum enclosures and IPS displays when you have that kind of money.

      The point is, Apple can “move down” in terms of ASP of their smartphones, if it will cause massive increase in sales, while most of its competitors can’t, since they are already “at the bottom”.

      • unhinged

        I agree wholeheartedly. Also, don’t forget the manufacturing ramp-up that has been an ongoing issue for Apple since the launch of the iPhone. If Apple had pushed for expanded distribution without the ability to service the additional channels, it would have hurt the positive vibe about the devices.

  • Gprovida

    So we might draw the following conclusion, that Horace has offered, iPhone will continue to capture significant share in the markets it’s available so it’s future seems bright. In the markets it’s does not compete Android is overwhelming the competition with Samsung the current led, but as Horace observed Chinese companies are about to create serious and sustained disruption to Samsung.

    So if we look forward 2 years that is fall 2014, we will probably see a continuing presence of iPhone at perhaps 25% to 30%, Android at 60% with Samsung dropping rapidly as Chinese makers take the lion share of Android. Samsung’s play on MS and perhaps it’s own Bada will be a big part of the remaining 10% of the market.

  • Oak

    Regarding the US market: I expect the arrival of the iPhone 5 to result in a flood of millions of perfectly functional 4S into the hand-me-down and used market. I expect this will dramatically cannibalize sales of new 4Ses. I also wonder if it will reverse the observation in Horace’s footnote, and so that activations will exceed new iPhones sold (assuming used and hand-me-down activations are counted in these numbers).

    • Ptmmac

      In my family it would just mean a 3gs would get retired or sold. I suspect there are alot of people with cracked screens that will benefit.

  • MKL

    How much does the 1st graph remind you of PC market share changes in the 80s ?
    Replace android with MS Dos/Windows and iOS with Mac.
    Does iOS and mobile follow the same trend through the 80s and 90s i.e. relegated to a niche product until another burst of innovation? It’s currently trending that way – iOS losing ground to a dominant but non-integrated hardware software platform JST as Mac lost ground to MS and the myriad of pc assemblers.

  • Jan

    Do you buy your computer from your internet provider? I don’t and I don’t care about carriers. If I remember correctly, the iPhone 4 was the first to be available without contract and carrier lock in Germany. I wanted an iPhone from day one, but I wouldn’t have bought it from T-Mobile or Vodafone or any other of the big carriers.

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