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When will the European Union Five reach smartphone saturation?

Thanks to Symbian, the EU5 countries (France, Germany, Italy, Spain and the UK) had an earlier start in the conversion of phone usage from non-smart to smart devices. According to published comScore data, in July 2010 the EU5 were at 26.6% penetration of smartphones and the US was at 22.8%[1].

However, with the aid of mobile operator subsidies, by the beginning of this year, the US caught up. According to comScore EU5 reached 57% penetration in March 2013 while the equivalent figure for the US was 58%.

Using the logistic curve model introduced last week, it’s possible to get an approximate categorization of the adopters of the technology:

Screen Shot 2013-10-16 at 10-16-2.02.44 PM

As with the previous analysis, the graph identifies the following dates:

  • The Innovators’ period ended in the EU5 approximately in September 2006. (The equivalent period ended in the US in February 2007.)
  • The Early Adoption period ended in the EU5 in August 2009. (US: December 2009).
  • The Early Majority period ended in the EU5 in August 2012. (US: September 2012)
  • Late Majority will end in the EU5 in November 2015 (US: November 2015)

Therefore if we want to suggest that saturation happens near 100% then the answer to the question in the headline is “the end of 2020.” If we want to suggest that saturation is the end of the Late Majority then the answer is “two years from now.”

One final observation: the two markets appear to be converging thus placing the analyst in the comfortable position of forecasting the adoption of smartphones for a total population of 425 million people[2].

Screen Shot 2013-10-16 at 10-16-2.01.07 PM

If we define saturation as the end of the “Late Majority” period then the number of new-to-smartphone users remaining for the combined EU5 + USA markets is 110 million of which 59 million will adopt in the US and 51 million in Europe. They will all join ecosystems in the next two years.

Plan accordingly.

Notes:
  1. The population is defined as adults using phones for themselves. Meaning it excludes children and phones purchased by companies. []
  2. see previous note []
  • xavier itzmann

    Just how premium are those 110 million people, as well as the final 20% laggards?

    Certainly there are whole companies to be built out of them, but I’d wager you have to aim your company more towards bottom-feeders than anything else.

    With 47 million people now receiving food stamps in the U.S., maybe an app that checks your available food stamps gimme balance?

  • Micromeme

    Howard,
    there is another tipping point in these curves for the way producers understand the market. if one assumes an 24 month replacement cycle, where on the curve is the forward market (unserved) equal to the replacement market (ie the market of ~2yrs previous?) when do we hit that point on the curve? after that its all churn and preservation. Can you estimate that point for the EU5 and the US?

  • Chaka10

    When do you think the “saturation” of the high-end of the smartphone market will occur (has occurred)? For convenience, let’s define that as phones costing $400 and up (unsubsidized).

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

      I can’t say.

      • Chaka10

        Thanks. That’s fair. I think it has occurred, but that’s a hypotheses, from interpreting circumstantial, not direct, evidence. Thanks again.

      • Mark Jones

        Are you defining saturation as being the point where it is primarily a replacement market? I’d note though that there is still a small percentage of consumers (I’m excluding businesses who are not in these numbers) who are just discovering that smartphones can replace computers, and who will over time move up to the higher-end.

      • Chaka10

        Yes, thanks for asking the question and giving me a chance to clarify. As you may know from my prior posts, I have actually tried to move away from using the word “saturation” and all that implies (no growth), in favor of high-end “maturation”. By that, I mean simply that growth from first time adopter demand is slowing or has already slowed at the high end of the smartphone market. Simply, 6 years after the iPhone launch and with the appearance of competitive high end Android offerings in the last year and a half or so, the available pool of first time smart phone buyers is diminished, especially at the high end. It just seems obvious, and is supported, in my view, by circumstantial evidence, including the disappointing iPhone 5 demand, as well as disappointing S IV demand, relative to expectations and prior growth rates.

        Stated on terms of Horace’s S curve construct, I suppose I meant that the high end smart phone market is ready into the “late majority” stage, with decelerating first time adopter demand.

        HOWEVER, as I’ve said before and I’ll say again, maturing high-end smartphone market (in the sense of dwindling first time buyers), doesn’t mean no demand — rather it means increasingly demand will be driven by (1) replacement buyers, (2) churn from other platforms and (3) organic growth in the high-end smartphone “pie” (driven by continued demographic growth of the middle class in EMs and by 3-to-4G adoption). For the iPhone, I believe it will find sustainable growth (not at the 5 to 9 mm rates, but still nice growth), given its strengths in both customer loyalty as well as positive net churn from Android (in this sense, a smaller relative installed base is actually an advantage).

  • Will

    I know this is off topic but…

    “with the aid of mobile operator subsidies”

    Aren’t all these EU5 countries have subsidies in place? Often at much better value than the US because of greater competition in the marketplace?

    Pay as you go is just more popular than in the US but not because there are no subsidies…

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

      “[…] with the aid of mobile operator subsidies [and no option to forego the subsidies…]”

      Fixed. Neither VZ nor AT&T offer non-subsidized plans.

      • obarthelemy

        Don’t they have off-brands that use the same network though ? I’m not talking MVNOs, but an ATT- or VZ-owned subsidiary that sells pre- or post-paid discount contracts under a different name, serving the price-sensitive segment of the market while allowing ATT/VZ to keep their premium image ?

        I seem to remember reading about that setup in the US, which is the same we have in France (4 mainstream carriers, with the 3 biggest ones also having fully-owned discount carriers -the 4th one is 100% discount to start with-, and MVNOs to round up the suppliers -those are not faring well with mainstream and discount prices falling fast-).

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

        You pretty much have to get a phone for VZ’s network, so buying a phone meant that you had to take what was offered, and on prepaid, today, their best phone is the Samsung Galaxy Legend: [http://www.verizonwireless.com/wcms/consumer/shop/prepaid.html]

        For AT&T, things are less restrictive because they’ve been using GSM, but the same kind of barriers exist, but at least they have a prepaid device that wasn’t obsolete from the get go with the Note II: [http://www.att.com/shop/wireless/devices/prepaidphones.html]

        And these are what are offered today. Even those meager offerings are leaps and bounds over a few years ago.

      • Tatil_S

        AT&T has AIO wireless. The cheapest plan they have is $50 per month for 500MB of data and unlimited voice & texts. Last I’ve checked that is only $20 cheaper than AT&T’s own subsidized plan. Other then freedom to break away before the two year mark, the difference just about pays for the subsidy. Most people would prefer AT&T. They’d be locked into a contract, but they would also know AT&T cannot increase the price over that time period.

        Sprint offers much better values through a subsidiary, but as a CDMA carrier, they limit the choice of phones to some crappy ones and its coverage is sub par in many places anyways.

    • Mark Jones

      I think you have to read “with the aid of mobile operator subsidies” not in the context of US vs EU5, but in the context of US-before-smartphones-were-highly-subsidized vs US-after-smartphones-were-highly-subsidized.

      Back in 2007, iPhone was $500 (4 GB) and $600 (8 GB). Even subsidized Blackberries were $400. Finally, in July 2008, iPhone went to $199 and $299 subsidized. In time, Blackberries came down to $300, and eventually to match Apple and Droid at $199 and below.

      What happened in the EU5 is very different over the same time period, as you say, largely because of the competition arising from consumers being able to move easily from carrier to carrier.

  • Chaka10

    Curves within Curves:

    Within the broader smartphone curve, internal component curves would show the rise and decline of Symbian, Blackberry, Windows Phone…. Taking another step back, the smartphone curve itself can be thought of as an internal curve within the broader S curve for all mobile phones. From that perspective, mobile phone adoption is well towards saturation, and the smart-feature components are just changes in mix.

    My point is, these subtleties, curves within curves, are important. Macro analysis of “smartphone” adoption and saturation risk blurring important lines — just as macro analysis of “world-wide market share” blur important distinctions and differences between geographic regions, countries and markets. To put a fine point on it, looking at the macro curve of smartphone adoption wouldn’t have been very helpful for understand in the trajectory of Symbian or Blackberry devices a few years ago.

  • obarthelemy

    “with the aid of mobile operator subsidies” doesn’t make sense at all to me:

    1- the causation just isn’t there: “with the help of rapidly-falling prices and TCO” maybe, though as far as I know those are falling faster in EU5 than US

    2- the facts aren’t there either: as far as I know, subsidies are available across all EU5 countries, though not prevalent because subsidized contracts always end up more expensive than unsubsidized pre-paid or unsubsidized post-paid.

    I’m thinking this is an attempt at an ex-post justification for subsidies, but not at all a convincing one.

    • Mark Jones

      Between July 2008 and 2012, the use of subsidies and data plans in the US drove down the perceived entry cost of smartphones to free, with even the best phones priced at only $199. In other words, not much more up front than a featurephone. AT&T even allowed fully subsidized upgrades at the 11 month mark (that’s how I got my iPhone 4 after getting an iPhone 3GS 11 months earlier) because Verizon version was coming. And with the high iPhone resale value, one could actually make money on the device itself (which could be used to offset the data plan cost).

      But carriers have gotten smarter (or greedier) in 2013. The new family plans are much more expensive except for those who were already using unlimited everything. The 2 year upgrade is now rigidly enforced. Plus T-mobile’s installment plan reveals the true impact of those subsidies, especially for those who didn’t upgrade as soon as they could.

      • obarthelemy

        But how is that different from Europe ? I can get a 199€ iP5s with a 80€ 2yr commitment, too ?
        Of course, at 2.120€ , that’s a lot more expensive over 2 yrs than a full-retail 700€ iP5s (financing available) + 24×20€ all-unlimited contract, ie 1.180€ total.

        I don’t understand how having the same subsidized contracts choices than the US, but on top of that having way cheaper unsubsidized options, explains the EU5 slower rate of smartphone adoption ?

      • steven75

        It’s different because in the US, the option to bring your own device and get a $20/mo contract does not exist.

        With the exception of T-Mobile, the major carriers charge the exact same amount for a plan whether you brought your own device or signed a 2-year contract for a subsidized device. In my opinion it should be illegal to charge non-subsidized users at the same rate, but so far that is the state of the market.

      • obarthelemy

        OK. That biases the US market towards high-end smartphones (a point I’ve been arguing over the past few months). I don’t see how it boosts overall smartphone adoption though ?

        Are dumbphone plans with only voice + texts (no data) no longer available or horrendously expensive too ? In France it’s 2€ (about $3) per month for 2 hours of national voice (incoming calls are *not* taken off those 2hrs) and unlimited texts.

      • Mark Jones

        There’s likely some high-end bias because unsubsidized devices ranging from $100 to $600 are squeezed into a subsidized price range between $0 and $200 in the US. So you get a $400 discount on the high-end, while only $100 discount on the low-end, while still paying the same for the data plan.

        Smartphone adoption is also biased because you can get a dumbphone or smartphone at the same upfront price of free. In some cases you even need to pay $20-$50 for the dumb phone. And people don’t pay enough attention to the difference in ongoing data plan costs.

      • Tatil_S

        Dumnphone market is pretty much left to MVNOs, major carriers don’t bother advertising for such customers.

      • Chaka10

        “In my opinion it should be illegal to charge non-subsidized users at the same rate” I offer a different perspective of that in a long post elsewhere in this thread.

      • Mark Jones

        see my response to Will below. The US experienced a spurt in smartphone growth due to the large increase in operator smartphone subsidies beginning in 2008, that drove the top-end device cost down to $199, and the low-end device cost to free. Compare with pre-2008 in the US, not with the EU.

  • David V.

    I’m curious how similar Japan+S.Korea+Australia adoption is.

  • Chaka10

    Horace, do you intend a subtle message by labeling your chart with “iPhone 5C Launch”, instead of “iPhone 5s Launch”? Does that imply you abide by the view that the 5C is the “mainstream” new iPhone for this launch season (as in the phone Apple expects to sell the most)?

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

      One hypothesis is that timing of the new C variant launch was in function of this adoption curve.

      • Chaka10

        I see. That hypothesis still takes the 5C as a move “down-market” (maybe not much, but still in that direction). An alternative hypothesis is that the 5C is a continuation of the Apple strategy to address the same lower price points as it has in prior years with a price reduction on (essentially) last year(s) model(s) — same strategy but “even better”, with a largely cosmetic refresh that not only lowers production costs, but also enhances distinction from the 5s and creates a new look for (essentially) last year’s model.

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

        Had the “C” line extension launched last year it would have been exactly in the midpoint (inflection point) of the curve for the US/EU5. It might be that the one year delay was in anticipation of other markets to reach the early/late transition point. Apple has the data to model this on a country-by country basis.

      • Tatil_S

        If the idea is to differentiate the high and low end models, it would make more sense to change the looks of the high end model and leave the older one the same (or change them both). If 5c benefits from a fresh look, imagine how much a 5s could benefit from an exterior refresh in addition to its internals (and a 32GB min storage, but I digress.)

  • jameskatt

    This is why Apple created gold and other colorful iPhones: for the Asian markets.

  • mjw149

    I think the curve is already flattening.

    Phones, esp. feature phones, last a long time, clearly the mainstream carriers haven’t been offering them in some time. The other carriers that cater to the very low end or elderly won’t be updating their product mix because the feature phones have their own USP in those markets.

    People will be replacing batteries on old phones for a long time, and then all those cheap Galaxies (hundreds of millions!) have replaceable batteries.

    So while smartphone penetration will obviously increase, the market is already closing.

    But the curve that you drew ignores the flattening around 65%ish (check your earlier post where it isn’t smoothed). You’re matching the curve to your expectations, it’s far too aggressive, this isn’t a pure tech-based or price-based curve, it’s a behavioral curve.

    And we can call the Mobile Wild West closed now. Services will be the main activity, as the mobile services market takes over the PC and home entertainment space.

    • charly

      Amazon is Android. My guess is any slightly must have Android app will be in their store and if not Amazon could also make a “mistake” with their first generation that allows easy sideloading

      • obarthelemy

        Actually, that’s a good question: is Android the OS, or the PlayStore ecosystem ? I’ve never seen anything on Amazon’s ecosystem (ARPU…)

        As for “mistakes” that allow rooting, sideloading, custom ROMs or simply loading the Google Apps (gapps: playstore, gmail, maps, Now…), I always wondered if those were on purpose or not. Since Amazon want to make their money off apps and content, I’m guessing not ?

      • charly

        There are legal issues with using Google Android apps on not-Android phones. But i don’t think that problem is real with their near monopoly in smartphones.

      • http://www.isophist.com/ Emilio Orione

        Technically Amazon is not Android: they can’t use Android franchise, and if fact they don’t, nor they can use google services and play store.
        Amazon tablets run a forked version of Android and that means that developer can easily tweak their android app to run on amazon’s tablets to put them in amazon store, but the easiness of app porting is not what characterize a platform so Amazon is not Android even if every blogger count them as android’s tablets.
        There no reason to believe that the evolution of amazon o.s. and android o.s. will be similar, the two os could be far far away in a few years and the porting will be more difficult or they could be more close, but they will be always different.

      • charly

        You write technically but you mean legally. Technical Amazon is Android and it is more Android than Android as it is pure 4. without any 2.3 phone.

        It is also not porting as you don’t need to change anything on the binary level.

        There is nothing that would force Amazon to follow Android but they would be idiots if they didn’t.

      • http://www.isophist.com/ Emilio Orione

        You are right, I meant legally, but the sense was clear.
        By porting I mean verify compatibility (at least with amazon front end and hw specific, you know the fragmentation problem you always have to do that) and change what have to be changed, for instance connections to google play or use of google service not available.
        That is the porting required today, but it may be different in the future you have no assurance.
        You say it would be idiot, I don’t know, it could be google to include copyrighted code you will have to replace and so differentiate further your fork, or could be amazon to implement some new features to further differentiate their products, both hardware and software.
        Business decisions comes in different flavors.
        Amazon will loose easy porting, but that could be a limit only if their platform is not strong enough to engage developers, if they get enough traction, they will have no reason to remain attached to google code.
        To be able to maintain their own code and schedule their own release and develop their own features is a commercial advantage for amazon, no doubt about it.
        As soon as they will have enough force they will make it.

      • charly

        But if they have enough force means that their market is big enough to pull the app-makers to amazon. I don’t see that happening. It is also more costly for Amazon to depart to much from stock Android.

        Google could do it but why. Their unsactioned Androids work excellent in discovering new markets. See for example tablets, watches, tv-players, game consoles. They all started out outside Google and only later were they brought into Android stock. Android is also the first choice operating system if you need an operating system. They would loose that market if they were to strict.

      • http://www.isophist.com/ Emilio Orione

        For Amazon.
        They have enough money to start a proprietary development, the integrate hw+sw development is the winning solution for Apple, it is also the solution of Microsoft and Google (with Motorola) and it is the solution Amazon is advertising about, proprietary integrated development is advertised as an advantage. They are maintaining compatibility for platform reasons but if they can get traction (and that is what they are seeking) they will go by themselves.

        For Google
        I have red rumors about a friction between samsung and google, one solution for google could be to develop proprietary code for their motorola handsets and differentiate to stop samsung from being the android monopolist.
        I don’t know if it will happen but it could and amazon will have to separate. They are ready for it anyway and so is Samsung trust me, they are all in wait and see mode, but ready to switch.

      • charly

        Developing your own stack is expensive without any good reasons for Amazon to do it especially considering that Amazon doesn’t really do hardware. They only integrate the soc, memory, screen etc. to form a tablet but all those parts are already designed to end up in an Android tablet so integrating them to a something that is technically not Android is unlikely to bring any big advantages.

        Both Samsung and Google aren’t as strong as they look.

      • http://www.isophist.com/ Emilio Orione

        Saying that they don’t design hw since their tablet is assembled with external developed parts is misguided, only apple design their own chips, all the other hw vendors do what amazon is doing.
        If Amazon didn’t want to differentiate or be ready to differentiate, they could have gone Android from the start, it was free anyway so why not?
        The answer is: to be ready to go by themselves.
        Designing their own software or hardware chips is only a matter of traction, they will if they can make an apple like success, they will stay mainstream if they cannot sustain further differentiation.

      • charly

        but that is the point. They don’t make their own soc but one that is already designed to run Android so getting a lot of extra umpf out of it by going solo would be difficult.

        Amazon has much less reach than Apple. In most markets Amazon is absent so they will be to small even if they are a success in the US

      • http://www.isophist.com/ Emilio Orione

        Designed to run Android?
        Designed to be a general processing unit.
        Furthermore the amazon code to differentiate will be as google code, no need to change soc.
        Amazon is a big big company, they can have enough market to differentiate, the point is are they getting there?

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

      There is no data around 65%. The last data point was in March 2013 with 57%.

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

      This is also the first post on the EU5. I don’t have any other data on this market.

  • Chaka10

    The discussion in this thread raises, yet again, the debate between Europe and the US (see comments by Obarthelemey and others). Though telecoms markets are different, carriers world wide operate under two common realities:

    (1) Their networks are expensive and represent a sunk cost once built.

    The networks are scarce resources, i.e., their networks can support only so many users using so much capacity (they can expand their networks and increase capacity, but that costs money, and the expanded network remains a scarce resource — bigger but still not unlimited.

    That means the focus of carriers world wide is to gain as many high ARPU users as possible, and even more so, on a committed (contract) basis.

    I’m sure many considerations go into how carriers price their available (scarce) network resources — cost of building their network, their cost of capital (that they sink into building the network) and desired return thereon, demand/price elasticity, and competitive landscape, to name a few…. But I’m absolutely certain they do NOT price their services in order to sell a greater or fewer number of smartphones for the benefit of OEM vendors, not even Apple!

    I’m sure there are many reasons why there’s a 20€ all-unlimited contract available to Obarthelemey in France. But I believe it’s a big mistake to take that as proof somehow simply that Europe telco services are cheaper than in the US. One strong suspicion is that it’s not for the same service – if it’s not the service, why would it be surprising that it’s not the same price? I would ask Obarthelemey to refute this assertion, but I doubt his service is 4G (is it even 3G?). 4G service is only beginning to roll out in Europe, and that market apparently suffers from some structural/regulatory issues that have slowed development (I recommend the report by the GSMA from just this past September (“EUROPEAN MOBILE INDUSTRY AT A CROSSROADS”).

    In connection with a Twitter thread today, I took a look at the pricing scheme for Vodaphone UK for their “4G-ready plan”, which means “you’re all set for when we switch on our 4G network in your area”. The pricing is NOT obviously cheaper than in the US (not even taking into account the £3 per day cost to take your plan to Europe — imagine paying that to take your phone across state lines?).

    To compare for US, and to quote from Verizon’s latest earnings call:

    “… [A] significant percentage of our upgrades are smartphones which continued to benefit us from a service revenue perspective. About 33% of customers upgrading to smartphones this quarter were purchasing one for the first time. A majority of the remaining upgrades were moving from a 3G to a 4G smartphone which we are able to monetize through higher data usage and lower cost to serve. … Our retail postpaid churn was 0.97%.

    Next let’s turn to slide 10 [NOTE: the slide deck is available on VZ’s investor relations webpage] and take a look at device sales and our progress in 4G LTE. … 77% of [smartphone activations] were 4G LTE. The smartphone mix was fairly balanced once again, with roughly 51% of the activations being iPhones …. 4G device penetration within our postpaid base continued at a rapid pace, 38% of our retail postpaid connections are now 4G, up from 33% in the second quarter and 17% one year ago. More than 50% of our smartphones and 70% of our Internet devices are 4G. Currently, about 64% of our total data traffic is carried on the 4G LTE network. Throughout the rest of this year, we will continue to add capacity and optimize our 4G LTE network, ensuring that customers are receiving the quality and consistent reliability that they expect from our network and devices.”

    My supposition is simple. As VZ says, customers use more data services and carriers make more money (higher ARPU) as they transition to 4G (true mobile broadband), which will result in the cost of the handset being a smaller part of TOC and facilitate carrier’s ability to subsidize high-end 4G smartphones, especially those which encourge greater data usage (i..e., iPhone by far). I believe we’re seeing signs of that already — iPhone is gaining share in the UK and France, yes indeed.

    Regarding carriers “charg[ing] the exact same amount for a plan whether you brought your own device or signed a 2-year contract for a subsidized device”, and whether that ought to be “illegal”. Perhaps it’s helpful to think of it this way:

    It’s obvious that not all customers are the same for carriers. Those who spend the most money and are least likely to switch (“churn” adds to carrier’s costs in many ways) are the most valuable, and that’s why carriers are willing to spend money to acquire such customers (literally, and accounted for on their financial statements). They could do so in a number of ways, including by offering such customers a cash rebate. Doing a cash rebate would decouple the customer incentive to join the carrier from the handset — thus a person who brought their own device could pocket the money after buying a cheap device. THUS, the question is, why does it serve the carriers to tie their customer acquisition dollar to different smartphones? Note, even China Unicom ties it’s cash rebates (against month plan charges) to the smartphone. The reason seems obvious to me — it must be because different smartphones are helpful to identifying the attractive customers, i.e., different smartphones and different customers who prefer those smartphones are more attractive to the carriers, because they are high usage, low churn customers. That seems consistent, and ties back to, various usage and loyalty data points, in so far as the iPhone