When will smartphones saturate?

GSMA Intelligence reports provide valuable statistics on the growth of mobile networks. One in particular shows the history of regional smartphone penetration.

I took the historic data and plotted it as follows:

Screen Shot 2014-01-07 at 1-7-1.43.56 PM

Note that I chose to model using the same logistic function that I have used to describe the US market (as measured by comScore) and the global Internet user market (as measured by the ITU) and the stove, landline phone, Electricity, automobile, consumer radios, washing machines, refrigerators, TVs, dryers, air conditioning, dishwashers, microwaves, VCRs, PCs, cellphones.

It’s also the same model used to show the rise and fall of energy sources, canals, railroads, roads and air travel.

If we believe that smartphones in parts other than US and Europe will behave the same way as all the other technologies listed above then the forecast penetration is likely to follow the thin lines in the graphs above.[1]

With the exception of Africa and Middle East, note that the primary difference between regions is not the rate of growth in penetration but rather the delay in adoption. I marked this delay as 4 years between US/EU and Central & Eastern Europe. An additional one year delay to Asia Pacific region and 4 years more to Africa/Middle East adoption.

The resulting smartphone user forecast is shown below.

Screen Shot 2014-01-07 at 1-7-1.36.39 PM

Although 2013 was often cited as the year when smartphones saturated (“everybody that wants one has one”), the total population of users will likely take another decade to reach maximum. The point of inflection in global growth could be expected in 2017.

What most observers sensed was the point of inflection in growth in North America and Western Europe. Those regions are 11% of the world’s population.

  1. This is a big if, and, judging by their forecast, one which the GSMA Intelligence team seems not to believe will happen. []
  • Henri Bergius

    Samsung’s recent guidance could reflect this:

    If the majority of growth in 2014-2017 will be coming from emerging markets, it will probably focus on cheaper smartphones. What this means for lines like Galaxy S and iPhone will be interesting to watch.

    • Shameer Mulji

      Maybe this is where the iPhone 5c comes in.

      • charly

        Way to expensive for that. They needed something cheaper than an 4s

  • Javbw

    So this is basically explaining why Tim Cook sees a “a huge opportunity” in China (and the rest of Asia) I assume. It will be interesting to see how things go with Africa too, which should be larger than the current markets of the Americas and Europe combined in the 2020’s. Would Apple have difficulty identifying unique “jobs to be done” to cater to these markets increasingly outside their usual ones, and does Africa and India eventually move to a distribution model & infrastructure that Apple is successful with?

    • charly

      Apple is priced out of the African market.

      • Nicolae_Mihalache

        For now. We have no idea what Apple will do in 4-6 years.

      • charly

        Do what they did in the early 90’s. Go broke. And there wont be a web to save them (but being Android compatible is easy so that is what they will try)

      • Shameer Mulji

        WTF are you talking about?

      • charly

        That they will experience the same problems like they had in the early 90’s

      • javbw

        So an entirely internal issue (bad management, lack of vision, and a lack of execution) is somehow now tied to an external issue? That internal issue was resolved and it’s solution engrained in the management who have been with Apple since it’s turnaround in 1997, trained under Jobs as well.

        Conflating the external as something that will cause a repeat of the internal problem – especially when Apple is showing all the signs of having moved on (and is basically a whole different company now) is very myopic, trollish behavior.

        oops, I fed the troll.

      • charly

        It was the same internal issue that struck Amiga, Commodore, RiscOS, SGI, OS2, that company Jobs founded and later took over Apple etc.
        That “internal” issue, being not number one in a win takes everything environment was solved when the primary task of an operating system changed from running programs to being a bootloader for the browser. Apple coincidently turned around when the browser became all important which was slightly before the return of Jobs.

        The “internal” problem for Apple in the early 90’s was being Number Two. Natural there were management problems but Microsoft had those too

      • StevenDrost

        It’s more than just price. What they are selling is very much a service. A service which is based on availability of mobile data, credit and even electricity. Something like a blackberry is a much better fit for the African market.

      • Paul Franceus

        There’s lots of iPhones in South Africa, and I saw several billboards along the side of the road for iPhone in Botswana too. Both countries are relatively rich for that continent. So the iPhone is definitely there. Ghana seems to have lots of smartphones too, and iPhones are definitely in the mix there too, though it does seem that Android might have an advantage.

        Definitely a segment of the African population that can afford iPhones.

      • charly

        South Africa is not really Africa

      • Javbw

        That’s like saying Japan really isn’t Asia in 1980, citing the large cultural and economic gap between Japan and it’s neighbors. But fundamentally it is part of the continent, and other economies can grow and change – Just like China and Korea did. Japan is now mired in regional politics with it’s new strong neighbors that are also it’s valuable trading parters now. It may take longer, but to discount the entire continent and separate South Africa from it is not smart in the long run.

      • charly

        From a market perspective Japan was completely different from the other Asian countries in 1980 because they were much richer, had cars and were socially totally different.

        Culturally Japan is closer to the West than to Asia

        I’m not discounting the whole continent but SA is different. They are much richer, have a much higher car penetration, urbanization rate is higher and that changes the market.

      • Paul Franceus

        Have you been there? I agree to some extent, but I don’t think that the Africa you are thinking of is the whole story. I gave a talk at a startup incubator in Accra, Ghana, for example and the people there are nuts for technology.

      • charly

        The Africa in the media is one of subsistence farmers. But i know that that is not the real Africa.

      • Paul Franceus

        Those people are definitely there. But they are there in Asia too. I think we forget about Africa too much in the west. There is a growing middle class there with money to spend and a hunger for modern things, and not just in South Africa. Some of the fastest growing economies in the world are there.

      • Accent_Sweden

        In November I spent two weeks traveling extensively in Ghana and meeting local officials, students, visiting development projects, and being a tourist. I saw zero iPhones other than those owned by people in our group, but most everyone who saw my iPhone knew what it was, commented on it and wanted one. I did see several iPads used by government officials, administrators, politicians, and preachers. So Apple definitely has the aspiration bit covered, even if money is lacking to achieve the goal of owning an iPhone. I spent only a few hours in the capital of Accra so the picture may be different there. Most people we met had a cell phone, most were early to mid 2000s dumb phones but also many dumbish Android phones which offered Facebook, email and a low quality camera. EDGE coverage was almost everywhere, 3G was very common, even in many remote villages. I used a local SIM and could buy prepaid cards for USD 0.85 a pop. A USD 4.25 card lasted for 1-2 days for me and let me update my Photostream, email, check my map and do some searching. While sometimes it was slower than normal, often it was equivalent to US speeds. I was impressed and, in general, I didn’t feel like I was off the grid.

    • Tatil_S

      I don’t think Apple will do anything special in Africa. It will target the top 1% income group at first. As the economy grows and people get richer, the top 5% will be in play, then 10% etc. I don’t expect Apple to do a dramatic cost down version of the iPhone, just as it did not enter the netbook market.

      • dajhilton

        And if the economies don’t grow and people don’t get richer?

      • Tatil_S

        I suppose iPhone sales growth would follow the trajectory of Lexus sales. It is a pity, but life goes on.

      • charly

        For the must have programs to be on your phone you need 10% of a market. Apple wont have that in Africa or any other place outside the Anglo-sphere and Japan so they will slowly wither away in Africa

      • Tatil_S

        No, you need to have a minimum market size, but overall market share does not matter if your app is only supposed to appeal to people who can afford certain things. iPhone may never have an app that lists wholesale price of different agricultural products that help just above subsistence level farmers negotiate a better price, but would you care all that much how many of these farming families are unable to access your app of if it is an online banking app that only caters to those rich enough to have savings accounts in major towns.

        Many good apps rely on icons rather textual buttons to avoid the need to painstakingly localize to hundreds of languages, especially on tiny screens. The few remaining bits are usually quite cheap to translate. In any case, you’d be surprised at how much advertising is done in western languages in many developing countries if there is not a dominant language group in a country and you don’t want to offend one linguistic group over another. The top income groups in many developing countries speak French or English, they are quite proud to advertise their foreign language skills, so they don’t quite mind using software that has not been fully localized.

      • charly

        Minimum market size is true for apps that are sold. Problem is that there are not that many must have apps that are sold

        It is less true for advertisement paid apps and absolutely not true for service apps in which market share rules.

        But the killer apps on smart phones are the facebook-, banking-, public transport- and airline apps and the market price app you suggested. The buyer of those commodities is probably a prime example of people who could afford an iphone in Africa. But he needs that app so he is lost to an Android compatible phone

        ps. Advertising in English and not the native languages like they do in Belgium

      • Tatil_S

        The share of people who cannot afford or have use for online banking or airline tickets has no effect on a developer’s decision on whether to support iOS for such service apps. Among the people who dabbles in such endeavors, the share of people who can afford an iPhone is going to be fairly sizable. When it comes to your other killer app, it is odd to think Facebook would not localize its iOS app, if it has not already done so for Android and the web. It is not like Facebook app has tons of textual buttons and menus. Hence, I don’t see why your proverbial rich enough customer would be unable to get the apps he needs.

      • macyourday

        So….charly lobs in flaming bags of dog exhaust and you all stomp on it….why?

      • Sharon Sharalike

        How do you support the statement that “you need 10% of a market”?

        And what market? Surely not “smartphones.” It’s wholly inadequate and blinding to lump all smartphones (and soon just “phones”) together. Buyers of premium phones behave much differently than the rest.

      • Walt French

        @Tatil_s wrote, “[Apple] will target the top 1% income group…”

        Maybe it would be more precise to say that Apple will offer products that the top 1% will be able to afford (justify), and some share of the next 9% will aspire to, or trade up to when it makes sense for them economically, in terms of the overall level of internet services that they want to consume.

      • Tatil_S

        Nah, too verbose. I like my version better. 🙂

  • Nalini Kumar Muppala

    If you thought more SIMs == more prepaid, think again, Finland, Denmark have the highest contract/prepaid mix AND the highest active SIM penetration.

  • Nicolae_Mihalache

    Excellent take, thank you. Great to see natural laws in action in society!

  • Ian Ollmann

    I’m chuckling about the use of NA (N/A?) here instead of “North America”.

  • poke

    So we have the point of inflection for the internet in 2016 and the point of inflection for smartphones in 2017. Investors will be faced with slowing growth industry-wide. We’re basically looking at the Tech Apocalypse here.

    • dajhilton

      Saturation does not necessarily lead to apocalypse. The automobile market is arguably saturated; but far from dead.

      • charly

        World wide it is not saturated. China grew from less than 1 million to 20 million in 15 year

  • dhsu800

    I agree with you using logistic regression curves, but I think you’re assuming that each logistic regression curve has the same parameters that determine their shapes (as evidenced by the righthand graph, which shows the basically the same slope for each continent over time). It seems to me that relative factors like wealth, education, technology, etc. would possibly give different slopes for each continent, which would drastically change your forecasts.

    • Horace Dediu

      The slopes are supported by fitting existing data (shown as the thicker lines.)

      • dhsu800

        OK, thanks — my eyes are picking up the outliers, wrongly, I guess.

      • dhsu800

        OK, thanks — my eyes are picking up the outliers, wrongly, I guess.

      • Walt French

        What is happening is that there are many, many factors such as you cite, that cause differences. But despite them, the penetration is more alike than different.

        I’d say, after we take in the implications of what Horace has found, then we can look at how the price and income and other factors will continue to change in the future, and wether the little differences in slope of the lines, end up in significantly different outcomes than the nifty projection suggests.

  • Dr. Rory Lewis

    Great article. The devil is in the outliers. Using Rough Sets and Extreme value theorems will may enlighten the outlier situation.

  • Dr. Rory Lewis

    Great article. I have a feeling that the devil will be in the details, as alluded to by dhsu800, will be in the outliers.. May extreme theory or rough sets? Yup that me below by accident as a guest.

  • Narain Jashanmal

    Great analysis in general but it’s rather misleading to lump Africa and the Middle East into the same basket, or even all of the Middle East into the same basket.

    There are significant differences between the states within the Gulf Cooperation Council (GCC i.e. Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Oman and Bahrain) which has among the highest per capita smartphone usage in the world (albeit not amongst a huge population, the GCC has about 45m people in it) and the rest of the Middle East (i.e. Levant: Syria, Jordan, Lebanon) and Israel.

    Likewise, there are notable differences between North Africa, Sub-Saharan Africa and South Africa.

    The region is extremely large and diverse and bears more granular segmentation.