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Measuring Platform Churn

The latest comScore data shows consistent growth in US smartphone penetration. The rate is now 58.4% of adult consumers who own phones. This is up from 20% only three years ago. The rate of growth remains a remarkable 1.2% per month. That’s 700,000 new-to-smartphone users every week. The historic average over 3 years has been 1.07%/month This after having crossed over 50% on schedule in August 2012. There appears to be no slowing.

Screen Shot 2013-05-06 at 5-6-5.42.50 AM

The next milestone I have pencilled in is the 80% mark which I extrapolate to be achieved by October 2014. 80% could be considered “saturation” which would signify a rapid slowing of new user addition. However, that might still not happen until 100%, depending on the availability (or lack thereof) of non-smartphones to buy.

This time frame is important because it would imply that essentially all mobile users in the US (some 234 million) would be a part of one ecosystem in about 2 more years. That’s less than the life cycle of the typical mobile contract (and thus the life of one phone). Put another way, by the time a new buyer today is ready to buy the replacement to their phone the market will be saturated.

This implies the mode of competition will be changing to smartphone replacement rather than smartphone adoption. To some degree this is already happening but as the net user gains data shows only BlackBerry and Windows platforms have had any net user declines in the last two years. “Platform churn” is still a relatively rare phenomenon.

How that will change post-saturation will be a crucial determinant to platform growth. The data today points to a higher degree of loyalty for iOS users and potential erosion in the Android user base as a result. There are ways of forecasting this on the basis of survey data as Carl Howe did. However, the data from comScore has already begun to show that Android may have peaked around 54% share. Android share is now at the same level it was in July while iPhone share has grown by more than 6 points since then.

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There is a pattern of higher growth into the end of the year and an iPhone plateau into the first quarter, undoubtedly due to holiday buying favoring the iPhone. I don’t want to discount the possibility of some change in this pattern but so far there seems to be a plausible reason for it: with iPhone pricing and availability in the US offering no advantages to alternatives, Apple’s product is the most popular. Nearly more popular even than all the other competitors combined.

  • obarthelemy

    That’s it ?

    I think churn is indeed a relevant and interesting subject, but there are a lot of unanswered questions:

    1- what are current churn rates, worldwide. The US are a big market, but not *that* big, and a very unrepresentative one. US results can’t be extrapolated wwide.

    2- how good have current churn rates been at predicting actual sales and future churn rates ? Like for political polls, there are probably large discrepancies between what people say they’ll do, and what they actually do. Also, I like to think people evaluate alternatives before buying a phone, I know I spent a few hours researching the new one I bought last Friday… but then , I leave in a country where we actually pay for our phones, I’m sure subsidized countries work differently at least regarding price, though maybe not regarding features. So, the churn rate might end up being as volatile as the sales figures: depends on what’s on the market when I want to buy a new gizmo

    2b- is there an “ecosystem lock-in point”, at which people start to switch significantly less ? Is it at $10, $50, $100 spent on content/apps/peripherals ? Is it measured in numbers of devices or apps, not dollars ? Or in months/years of use ? Numbers of devices ? I’d assume someone who has a couple of Macs, an Apple TV, an iPad and an iPhone is significantly less likely to switch.

    3- what foreseeable disruptions might impact those churn rates ? I’d think Apple going downmarket, ecosystem/OS/hardware features, prices, subsidies politics… will probably have a big impact on each ecosystem’s desirability to various segments, hence on churn rates (as well as on sales rates) ?

    • Guest

      Its clearly evident that when Apple has all the important pieces on the table ( all products, best prices, all services, Apple Stores, all carriers, multiple distributors, localisation, best support, culture of buying) its strategy wins.

      However, whether they will be able to place those pieces in the other important countries besides the US before its competitors remeins to be seen.

    • handleym

      “Like for political polls, there are probably large discrepancies between what people say they’ll do, and what they actually do.”

      The war on Nate Silver continues, six months after Romney lost the election…

      • obarthelemy

        Nah, I’m French, I only follow the US elections for entertainment value… which means I do follow them a lot :-p
        I’m a bit unsettled at the thought we’ll be getting the same level of discourse 10 yrs from now; it’s already starting with the hysterics over gay marriage :-/

      • jamiek88

        To be fair, its not in America that there are huge marches against gay marriage, its is in France.

  • Space Gorilla

    I would think churn matters quite a bit once the market is saturated. Apple has a distinct advantage here with the ability to deliver a high touch well supported consumer experience. Anyone ever try to get support from Google? It’s not especially pleasant. With Apple I enter my phone number on a website and I get a callback ten seconds later. The question consumers will begin to ask is “Who do I call when something goes wrong with my device?” It’s important how that experience goes.

  • Sacto_Joe

    Note that “saturation” will presumably happen in the U.S. long before it happens world-wide. And what this chart can’t show is the relative sophistication of the competing systems. I think that’s what gives Apple a distinct edge, and hence the ability to keep growing even after “saturation” completes.

    • http://www.noisetech-software.com/Home.html Steven Noyes

      @_Joe

      Do you see the US market as more critical? If we look at a platform as a systems issue with software at its heart, I see the critical software platforms on the world market being (no specific order):

      FaceBook
      Google
      Apple
      Microsoft
      Oracle
      SAP
      Amazon
      Baidu

      Of these, only SAP and Baidu are non US companies and neither of them has a solid mobile strategy. Oracle also has no mobile strategy.

      All the others, however, have a strong mobile strategy and are US based entities. What do you see as the strength in picking to win the US first and then concentrate on other regions afterwords? Given the mobile platforms seem all be US based (let me know if I am missing some important ones), it seems easier to grow out once you have a very solid home base and then extend your reach.

      Likewise, this could be a function of Apple Retail Store density.

  • Chaka10

    While the overall US smartphone market may not reach saturation until late 2014, I believe, as I’ve written with some repetition in other blog comments, the HIGH END the smartphone market will reach that point much sooner, and is already at or near saturation. For that reason, I don’t agree with Horace assertion that “‘[p]latform churn’ is still a relatively rare phenomenon.” While Android may still enjoy overall “net user gains”, that doesn’t mean it is not suffering net negative churn vs iOS (ie, more Android users switching to iOS than the reverse) — it’s entirely plausible that Android is mire than making up net losses to iOS with new Android users from first-time smartphone adopters and net churn in Android’s favor wrt other (non-iOS) smartphone platforms. As I’ve previously posted, believe the increasing saturation of the high-end, with replacement demand not yet able to catchup given the steep adoption ramp, is the structural reason for the perceived “below expectation” demand of the iPhone 5.

    • Chaka10

      And, as I have previously posted, I believe this structural issue will dissipate as soon as the coming holiday quarter when a massive block of 4S users come up for replacement and longer term, the advantages of iOS and iPhone (that are already showing up in the US data) will ensure continued growth, even as the smartphone market saturates, growth albeit at slower rates than during the incredible adoption ramp of the last few years, and growth increasingly from churn from Android (for this, the lower iOS market share is actually a bullish factor).

      • obarthelemy

        I’m not sure general churns rates are applicable to the high end. Anecdotal evidence from around me suggests high-end users are quite features-oriented, and looking at bigger/better phones more than the general public. We’ll see how this pans out when time comes to walk the talk indeed.

      • Chaka10

        I don’t think we’ll have to wait long…. The first confirmation of this market dynamic that I look for is the failure of the spec-focused SIV to live up to sales expectations, in particular, such failure notwithstanding Samsung marketing spend/efforts and such failure in the absence of another high-end Android handset to take its place (the HTC One will be successful, but not nearly at the level expected of the SIV). After that, we will see how the fall launch of a new iPhone does, especially in the holiday quarter and the quarter thereafter.

      • Chaka10
      • obarthelemy

        The Android high-end is no longer Samsung alone.

      • Chaka10

        You’re wrong in suggesting that this is about Samsung losing market share to other high-end Android vendors. Show me some data.

        Meantime, see more walk for the talk:

        http://finance.yahoo.com/news/samsung-elec-loses-12-billion-074617492.html

  • http://twitter.com/gnomehole The Gnome

    I bought a BMW last time around. I didn’t buy it because it sold the most cars in the US or the globe… I bought it because it has style and fits my needs better than a cheaper model could. There are a lot more people buying cheaper cars… and many are probably happy with their purchases as well. Why don’t Ford drivers sit and drool over how many more vehicles they sell than BMW? The number of devices sold is interesting, but the whole idea that it means the one that does is best is naive at best. That Apple even holds its own against the onslaught of cheap plastic Android devices says a lot more. That iOS sells less but is used way more as a real smartphone defeats the idea that numbers = developers as well.

    You win when the phone you buy is fun for you to use. You lose if you have to spend your life pointing out why someone elses phone or company sucks.

    • http://twitter.com/JessiDarko Jessica Darko

      Platform based competition is starkly different from cars, because cars have rather weak network effects.

    • obarthelemy

      Well, for some people it’s “fun” (that’d be teens), for others it’s “easy” (that’d be my elderly parents) or “productive” (that’d be me and most other adults around me).
      As for “winning”, all phones are compromises, you win some, you lose some. And better phones come out every 3 months :-p

      • Walt French

        (How) does this have to do with churn and loyalty? There are obvious network and style effects that most people largely discount in say, autos. In my many years, I’ve owned two Honda Motor Co cars and two Nissans but a whole range of European, US and other Japanese nameplates, too. The closest I got to a brand experience was that I got used to the Nissan climate controls and prefer ‘em when I rent.

        That’s not much compared to having maybe a hundred dollars worth of apps (about my commitment), or experience in how one gets support, updates, new apps and the like. Maybe most buyers think their local carrier store is where they’ll get support for any brand, but once you own a phone for a while, you start visiting the store, dealing with software-specific support issues, etc.

        If my experience is anything like the ordinary consumer’s, the second phone one buys has a whole different set of priorities — some “path dependent” in that you get locked into a platform — but nonetheless very evolved from what you used a couple of years ago.

    • http://twitter.com/bennomatic bennomatic

      There is indeed a pretty significant market segment of people who are zealously brand-loyal within the automotive market. Particularly among people who would call themselves “car guys”–maybe they’ve raced, or they restore cars, or they do their own repair work–you see intense loyalties. At the top level, it’s to American cars: there are guys who will go to car shows and simply not bother to look at imports. Pushing a BMW on one of these guys would be like pushing caviar to someone who wants a meatball sub.

      But even within that set, there are rivalries. There are Chevy guys and Ford guys just like there are Apple and Samsung fans. I know multi-generational Ford and Chevy families where they would never consider the other brand. I know a guy whose favorite movie was The Adventures of Ford Fairlane (which was terrible), and he named his son Ford, all because his family has been buying Ford cars and trucks since the dawn of time.

      People are actually willing to spend money and space in their windows insulting rival brands (see http://www.signnetwork.com/Calvin-Pee-on-Chevy-decal-2-p-126956.html). This sort of tribalism is not new; it’s not unique to Apple/iOS and Samsung/Android. I’d suggest that the focus on market share is an artifact of two things: the greater significance of network effect in the computing market, and the relatively recent advent of easy-for-everyone stock trading.

      But those are just details. The tribalistic behavior is endemic to the human animal.

  • OviP

    I love the fact that Android is peaking in the US now. Wait until the 5 becomes free with contract next year.

    • obarthelemy

      All platforms have a tendency to “peak” the quarter before major product launches…

    • abelz

      Android is clearly living on borrowed time.

    • MarkS2002

      There may, at least, be some likelihood of rooting for the home team in all of the Apple/Samsung brouhaha on these comment boards. Certainly, more Koreans buy Samsung than Apple and likely more Chinese buy Chinese brands than Apple.

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  • jchen

    When people can afford it, they clearly choose iPhone by a large margin. I work for a small company (~150 people) that did very well over the last few years (and has profit sharing), and we don’t have anybody with a Galaxy. Have one guy with some sort of HTC phablet, one Windows phone, couple few-year-old still functioning RAZRs, and over 100 iPhones.

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  • mieswall

    All this nonsense analysts comments about iPhone loosing marketshare, lack of cheap alternatives, etc. They don’t have a clue of what’s happening. Or they do, and they are profiting from it.

    Apple knows YEARS ahead the trends depicted by Horace here: when the market will saturate, what the churn rates are and will be, what’s the effect on sales of the price points of their offers and when and where to launch them, what would be/not would be more appealing features to include at each phone release (when to launch NFC, for example). If they were navigating blindly, an instant mid-level phone would already be in the market and all those nonsenses would’t be heard: they would have put a Broadcom 3g chip inside iPod touch, sell it for ASP 350, and Samsung would have almost disappeared. Instead of that, they are leaving sammy to transpire, opening low-income markets, for Apple to come later to really profit from that. Sammy knows it too, and are spending billions in marketing to counteract. Apple has a plan: harvesting phase is about to begin. Time to sue Sammy all over the world, cut supply deals, etc. They are not useful anymore.

    Apple also knows the explosion of revenues that the ecosystem will produce once the supplemental incomes (iMoney, specifically) from a saturated market, when the profits will be by services, not devices (do you know iPod?). After all, they have all the money of the world to have the best possible forecasts.

    Accordingly, they know about the best suitable timing for supply shortages, which are unavoidable due to manufacturing process and material changes. Even the best timing to modify warranty policies. They also know what is the market capacity to sustain a high valuation (after all, the real stockholders are the funds; they have limits on what to have on one stock; and they are the ones that seat Apple board members in their chairs). They knew that a buyback was unavoidable because of this, and that the timing to do it was once the market overreacted to these transitions that the company had to have.

    Do you really believe Cook is surprised by these stock fluctuations? Do you really think that nobody at Apple thought there could be a supply problem modifying the schedule of timed product release to a all-in-one fashion?. The guy may be boring, but he is extremely intelligent, cold-blooded, and with nerves of steel.

    Ive & his Jedis may be already testing a phone that last a week without recharging, made of a one-piece liquid metal, with a screen that never shuts down, and that never scratches because it is flexible. Same must be happening with TV’s, watches, etc. They must have daily laughter sessions when they read blogs and analyst notes about Apple defeat, because they are unable to launch a cheaper phone.

  • James Hein

    Over the years (as a columnist) I found that Apple lovers were truly hard core as evidenced by the current favourable comparisons of the iPhone 5 against the Galaxy S4 out of that group. By hard core I mean unable to accept that any of their products could be in any way less than anyone else’s.

    World wide (outside the US) the story is fairly clear: that Apple is declining in the world marketplace.

    Yes they were once great and the first iPhone was truly ahead of its time but those times are past. What people are really starting to focus on these days are open (Android) versus closed (IiTunes) highlighted by incidents like Bruce Willis exposing that you don’t really own anything you buy from iTunes but are paying just as much to rent it.

    People want an open environment in the future not a perpetually closed one and this along with the technologically superior architecture found in some non-Apple models are what is drawing attention away from hte iPhone and will continue to do so single bumps notwithstanding.

    • hmm

      Does this comment have anything to do with the article at all?

      • http://twitter.com/zaktaros Zaktaros

        No, but some people must constantly flood every forum with anti apple propaganda. Makes you wonder if there is an underground campaign financed by Samsung to tarnish Apple’s image.

    • dniles

      Agree with the poster 200%. What people are also really starting to focus on these days are ads. Who wouldn’t want more ads? Why would I ever choose a closed platform with no ads over an open platforms with ads? The more obtrusive ads the better. And privacy. Can’t wait to give away my personal information to advertisers. Viruses always make things more entertaining. And, while we are on the subject of entertainment, don’t forget porn! Where do I sign my kids up?

    • Canucker

      Odd the luke-warm (at best) SG4 reviews are from reviewers who are hardly in bed with Apple. Fact is that all smartphone makers are facing relatively flat sales as the markets start to saturate and features round out. That’s where other fundamentals kick in such as stickiness vs races to the bottom in price where losing OEMs have nothing else to lose.

      As for owning content in iTunes, if you don’t know how to store your media legally in an open format, you likely can’t root your Android device either.

  • mieswall

    comScore data is consistent with NetMarketshare, globally showing the following IOS progression (March):
    2010: 44.2%;
    2011: 47.8%;
    2012: 59.8%;
    2013: 61.4%.
    These numbers have a probably seasonal slowdown in april, to 59.0%. (others: android: 4.3-14.2-18.6-24.8%; symbian: 12.3-8.5-2.8-1.7%; java: 42.8-25.0-15.1-8.1%)

    The peak of Android in USA also seems to match NetMarketShare worldwide data: android 2.3 was 11.9% jun12; 11.9% nov12 (peak); 7.8% march. Android 4.0: 2.3%, 10.2% and 7.6%, both showing the same peak at November as comScore.

  • http://twitter.com/davlund David Lundholm

    Belated comment on this useful data.

    Worth looking at this emarketer study of the UK ecosystem, amongst the most developed worldwide

    http://www.emarketer.com/Article/iOS-Still-Leads-Smartphone-Tablet-Internet-Traffic-UK/1009867

    53% of smartphone and 83% of tablet data going towards IOS devices.

    According to Comscore data from Q1, 64% of UK consumers use smartphones (and in Spain, it’s 66%). 82% of the phones acquired in December 2012 were smartphones. That leading indicator is a good one.

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