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Late late majority

Seven years after the iPhone was launched, 70% of the US population is using smartphones. Smartphones existed before the iPhone so the category is older than seven years but as far as adoption goes this is nearly the fastest ever.

The CD Player reached 55% in seven years and the Boom Box about 62%. If measuring the period between 9% penetration and 90%[1] the smartphone in the US will have a lifespan of about 9 years starting in 2008. Before this period, the product was largely experimental and participating vendors[2] mostly failed. After this period most products will be “commoditized” with decreasing margins and increasing consolidation.

The rapidity of growth is all the more remarkable given the penetration is at the individual, not household level. The total user base is therefore over 270 million rather than the 115 million usually targeted by consumer technology, nearly 60% more purchases. This is also remarkable because the product has a shorter lifespan of use (two years) than is typical for other consumer technology products[3]

We are therefore now in the “Late Majority” phase of the US market. This is not a surprise. The inflection point in the market occurred in mid 2012 so we’ve been in this phase for two years already. It’s not therefore controversial to predict two years of continuing though decelerating growth.

Screen Shot 2014-07-08 at 7-8-2.39.27 PM

As Geoffrey Moore explained, the marketing of technology products needs to be varied as we get into different phases of the market. Innovators (first 2.5%) need to be sold on the premise of novelty itself. Early adopters (next 13.5%) seek status and exclusivity. Early majority (34%) seek acceptance and Late Majority (34%) seek pragmatic productivity. Laggards (last 16%) seek safety.

One aspect of this adoption cycle that is misunderstood is the role of pricing. The assumption is that pricing matters more as adoption increases. This is misunderstood because pricing always matters and therefore it never matters. Pricing is one of many elements of marketing mix and at any time there are product choices across a wide spectrum of pricing. Pricing is also a signal which can be elaborately obfuscated through bundling and unbundling.

One way to illustrate this is to consider how Apple products behave in the late phases of markets. Apple products have notoriously firm pricing.

Screen Shot 2014-07-08 at 7-8-2.38.26 PM

The revenue per unit of Macs, iPods, iPhones and iPads remains stubbornly consistent. This is not to say that each unit sold is the same price. The company tweaks “the mix” of mid, low and high products to keep the average selling price constant. But fundamentally the average remains constant which means that regardless of market phase, Apple retains its margins.

So as we look forward to the last two years of growth for smartphones, how will Apple fare?

There are weak signals that it will do rather well. I looked at two sets of data for clues: the number of new-to-smartphone users being added each month relative to the increase of usage of either iPhone or Android.

Screen Shot 2014-07-08 at 7-8-2.40.19 PM

[Edit: The title of the second graph above should be "Number of new US smartphone users per week (3 month moving average)"]

What I’m looking for is a relationship between the rate of adoption of the overall product and the rate of adoption of iPhones. I measured the new-to-smartphone users as the change in user population (per week) and the preference for iPhone as a growth differential.[4] The data shows no perceptible correlation between adoption rate and preference for either platform, however when looking closer there is a  periodicity to the addition of users, especially starting in 2012.

The range is not insignificant, ranging from ~300k users/week to well over 1 million. The periods of growth of users could be due to new product launches or incentives and promotions done by the mobile operators. Whatever the reason, there is some flux.

If we look at the corresponding adoption differential in platforms the relationship seems to be that peaks in adoption are matched to Android preference and troughs to iPhone preference. This might seem logical: after the 50% saturation point, when promotions are run by operators, non-consumers are drawn in and they tend to adopt the “low-cost” product.

However, this is also paradoxical. Why, when we are in a late stage of the market, does the iPhone do well when users are not incentivized to adopt? The graph above shows that as we crossed 70% adoption, 1.4 million more users adopted the iPhone than Android.

Even if we look out to the last six months, iPhone added 15.5 million late majority users while Android added 14.2 million. If promotions decrease for the “late late majority” and laggards then would the iPhone do even better relative to Android?

The only answer seems to be that “low cost” is not what’s driving this market. But then again, it never did. Towards the end of the “pre-smartphone” market the most wildly popular voice phone in the US was the RAZR. And it was a premium product.

Notes:
  1. which I consider the “economically attractive” period of growth []
  2. Palm, BlackBerry, Nokia []
  3. e.g. TVs, Refrigerators, Radios, etc. []
  4. iPhone growth in millions of users minus Android growth in millions of users. Positive data points suggest iPhone grew faster in a period and negative points suggest Android grew faster. []
  • http://www.isophist.com/ Emilio Orione

    If one year is the life span of a (smart)phone, then there is a correlation in the graph.
    One year later a big preference for android phones there is a big adoption of iPhones.
    It seems like users are trying first with the cheaper phone and then after a year when they have matured an experience about smartphones and their possibilities they switch to the iOS platform.
    Horace have you any data on the churn between platforms?

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

      There is some data on switchers which shows more switching from Android to iPhone than vice versa. I think the source is Carl Howe from Forrester.

    • http://devnotes.posterous.com/ NotKatsu

      This is hard to evaluate, since the pools of people switching have their baseline numbers maybe two years ago, rather than today. Today, the numbers of Android users is larger, so two years from now I would expect the switchers from Android to Apple to be larger than from Apple to Android. It does seem like the leakage is skewed in Apple’s favor, though.

  • Boycott

    “However, this is also paradoxical. Why, when we are in a late stage of the market, does the iPhone do well when users are not incentivized to adopt? The graph above shows that as we crossed 70% adoption, 1.4 million more users adopted the iPhone than Android.”

    Isn’t a potential answer that the iPhone is winning users from Android rather than winning users who are new to smartphones?

    • Walt French

      the iPhone is increasingly winning users from Android rather than more than it’s winning users who are new to smartphones?

      FTFY.

      • Ian Ollmann

        “At this stage of the game, it’s quite clear that voice remains an important function of smartphones”.

        While it is true that it seems like a network product should gain adoption particularly fast when the growth is a networking phenomenon, there have been other network products that didn’t catch on nearly as fast. One can rationalize slow development of the telephone as being gated by Ma Bell telephone line installation. Closer to the mark is the original cell phone, which took quite a while to get off the ground.

        I am skeptical that the phone feature of a smartphone is what is driving adoption vs. non-smartphone users. It is not a differentiating feature. I would suggest that it is instead a mixture of computer+internet in your pocket (including most apps) and manufacturers who no longer make anything else and hence make the decision for you. In the late stages of adoption — not sure to what degree we are there yet — we may expect the latter to become significant for moving laggards forward.

      • Ian Ollmann

        Horace, it might be interesting to see a ratio of number of smart/non-smart products being offered vs. ratio of units sold.

        I find the notion of users being pushed into already over serving products, only to discover that the cheap models are not in fact over serving and then upgrading amusing.

      • Walt French

        I almost wrote, “voice barely remains…” but don’t really have a good metric to support it. After all, Americans who are only now buying a smartphone wouldn’t seem to be planning to talk a lot on it OR to be checking their Twitter or facebook feeds.

        I did go look up (one of?) my last feature phone, a RAZR v3i. My iPhone is about a quarter smaller in my pocket (by cubic inches) and is only 5 pennies (13g) heavier than the RAZR.

        Not to minimize the cost difference, but given that I want a phone with me when I’m out (or traveling, or frequently in temporary living/work spaces where setting up a landline is too costly or cumbersome), the iPhone’s app/messaging/computer capability comes essentially “for free” in space in my pocket and weight, versus a flip phone. So some fraction of first-time mobile users who aren’t too economically disadvantaged will go from non-use straight to a fairly sophisticated smartphone, figuring that whatever they discover they’ll want to do, they will be able.

        I bump into a lot of people—especially people in my post-50 demographic—who bewail the impersonalization of SMS, facebook and twitter, but have an iPhone out of that sense. Add in young people buying their first phone or getting a hand-me-down from a relative, and the networking is around the apps/use-case type of epidemiology I posted earlier here, not the “network” effects we normally think of.

  • https://twitter.com/irrpal Martin Hoffmann

    That’a very interesting analysis! Is one possibly reason why ‘low cost is not driving the market’, that the physical device is not the driver for the purchase decision, but the platform and access to content/apps? E.g. people choose to buy the iPhone either because they are already ‘locked in’ on the Apple platform, or have a preference for it for other reasons?

    • http://www.credii.com vammok

      The app ecosystem difference between iOS and Android platforms is almost nil, even as there’s a vast gulf between these two and the next most popular platform. Lock-in is probably more about perception (UI, brand) than real (can’t use a particular app anymore).

      • disagree

        “The app ecosystem difference between iOS and Android platforms is almost nil”

        Strongly disagree.

      • sggodsell

        When is the last time you even looked at Android, if ever?

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

        There is a difference of quality between iOS and Android apps and a difference in time of availability, I mean iOS apps have superior quality and are available first, if they succeed than an Android app will come. Like it or not, should be different or not, this is what it is now.

      • sggodsell

        Not everything comes to iPhone first. That’s a fact. There are some apps and games that have come to Android first. There is even 1.5 million Android apps now.

      • art hackett

        Have fun with that. Maybe you’ll find something useful amongst the key loggers and data miners.
        Personally, I’ve had it to the back teeth with the spam I cop from the compromised contacts lists of android and windows users who have my contact info. And by spam, I mean the filthy deluge of obscene and toxic garbage that clogs my mailboxes and Internet access, not just the “buy this useless piece of ripoff crap that doesn’t work”.

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

        That’s true some app is first on android and some app are android only (the one’s that can’t be made on iOS since apple does not allow them) and there are a lot of apps for android, BUT quantity does not mean quality and most of the new and best apps are iOS first or only.
        There are a lot of statistics, this is a fact like it or not.
        To evaluate quality just look at apps available on both, very few are equally well designed for android.

      • art hackett

        Do people really not get it, or does constant repetition make it true? Btw, your points should be obvious and well understood, or even just observed, but the continual denial or incredulousness gets a bit tired and rather boring.

    • Mark_42

      The main reason for ‘lock in’ is integration.

      Apple’s ability to integrate all its devices into one unit is very important to its customer base and is a huge reason why users remain loyal. This is normally completely ignored by the media when discussing the individual items. Understandable since no other company does this.

      I can already watch movies stored on my computer on my iDevices or use my iDevices to send media from my computer to my Apple TV, work on iCloud based documents on any device, all while using the current software and all without any configuration, yet few, outside of the installed customer base, are aware that this can be done.

      Apple really needs to advertise these capabilities and now that iOS 8 and Yosemite are on the verge of introduction, I suspect Apple will make more of this interoperability than they have in the past.

      • https://twitter.com/irrpal Martin Hoffmann

        That’s a good point! In addition to integration between devices, when I replace an old Apple device, let’s say a Mac, then I can easily copy the software with one click from the old to the new device. Makes life much simpler than having to re-install everything. It safes time to stick with one platform.

      • Mark_42

        True, getting a new Mac up and running is pretty painless. Just plug in your old computer or latest backup and run migration assistant. Even Windows is easier to deal with on a Mac. I run Win 7 under Parallels. The last time it got a nasty virus I just quit Parallels, copied the HDD file from my backup and was up and running in just a few minutes.

    • Walt French

      Do us a favor and cite the number of Mac or iPod users, and show how these are significant drivers for iPod adoption.

      Mostly, it seems to me, the iPhone, and now the iPad, are driving Mac adoption / upgrades, perhaps sustaining the iPod product line. Some of us may be locked in on the Apple line, but there really aren’t that many of us, especially compared to the huge number of people who are non-Apple customers, and the 95% of computer users who look at Windows all day and understand its ins and outs.

  • http://www.collideconsult.com/ Ed Dietrich

    Apple has always understood that their ability to hold prices lay in their singular value as an “aspirational” product. They maintain this high ground better than any other tech company. Their ecosystem integration cements this ability. I don’t think they’ll have any problem.

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

      The Apple word for “aspirational” is, I think, “better”.

      • http://www.collideconsult.com/ Ed Dietrich

        Totally agree with better, but it’s more. Steve Jobs understood the power of a family of products that people wanted to own not just because they were “better” but that in owning them, you would say something about who you were, and what you valued. Today, you see the importance they place on this in their hires, ex CEO of Burberry and ex VP Sales of Tag-Heuer. They know that if they ever lose that high ground, then they are in the same commoditization cycle as everyone else.

      • http://devnotes.posterous.com/ NotKatsu

        Perhaps, but the identity aspect of luxury items overshadows something Apple has that is different from that: true utility. “Better” meaning not made out of better materials, but “better” because of greater or better utility. Each breakthrough Apple “product” has also been backed up by a humongous built-out system. The “iWearable” will be no different, and it’s what’s taking the iTV so long … in fact the iTV (in whatever form) may never really break through.

      • http://www.collideconsult.com/ Ed Dietrich

        Agreed. The true genius has been in being able to combine true utility with design and what would normally be described as “luxury” values, although I see the value of their total ecosystem as more of a necessity than a luxury personally.

      • art hackett

        The only reason holding “iTV” back are the media owners and their desperate vice like grip on their precious regions, DRM’s and Machiavellian dealings. Apple can easily design a new paradigm for home theater and television, but until it can break through empire’s fortresses to have the kind of access required for a practical ux, it will have to settle for the frog in a pot approach. Even with Apple’s huge stake in Disney, they still have to take a softly softly approach so their prey doesn’t run off into the woods and spook the rest of the herd. Yes,I know there’s a melting pot of metaphors but they all seem to fit in the mélange of madness.

      • http://devnotes.posterous.com/ NotKatsu

        Yes, that is exactly what I meant. The humongous built-out system has to somehow deal with a mélange of frog-in-the-pot running off into the woods and spooking the rest of the herd, as you so aptly put it. It’s not just an engineering problem.

      • art hackett

        Touché. Cheers.

  • http://aaplmodel.blogspot.com/ Daniel Tello

    “Even if we look out to the last six months, iPhone added 15.5 million late majority users while Android added 14.2 million.”

    I get that over the last 12 months.

  • narg

    As much as I’d like to love Android, I get so tired of it’s failures in the things I do. Though I’m a power user, so the limits of iOS and WP sometimes bother me, at least they don’t fail and crash as often. In the terms of this much needed device, I’d rather it work than have a ton of uber-neato garbage.

    • sggodsell

      So you are a power user and you get your Android to crash all the time. I run all kinds of stuff on mine, and it certainly doesn’t fail or crash all the time like you make it sound.
      I like your last part that you added “In the terms of this much needed device, I’d rather it work than have a ton of uber-neato garbage.”. So if you really need a device that works, then why not tone down on all the tweaks and uber-neato garbage that is running on your Android. To tell the truth I believe you are not an Android user at all. You want to sew the seeds that Android fails and crashes all the time. For me and other Android users, we know better then the made up crap story you presented.
      Do you honestly believe when the iPhone 6 comes out that it won’t have problems at all? Just think about it. None of the existing iPhone apps will support its new resolution. With Android it doesn’t matter because its scalable. You can throw any display size at Android and it will just work. The same holds true for the 64 bit processing that is now hitting Android. The existing apps will not only work as they previously did, but will now take advantage of 64 bit processing without modifying any Android apps. Androids nature is to be agnostic. IPhone is anything but.
      Anyone who has seen or worked on the Android code knows that Android is better suited for future growth then iOS or WP could ever aspire to be.

      • scalable

        “You can throw any display size at Android and it will just work.”

        Then why are all the “tablet” apps unusable?

      • Steve

        ‘Work’ is a relative term for Android users.

  • Meaux

    The US Smartphone Adoption chart appears to predict that over 100% of incremental adoption will be iPhones, which seems a bit aggressive to say the least.

    • vastaman

      Well over 100%. It also predicts non-iPhone penetration will shrink! Fishy fishy.

      • stalled

        Is that fishy? Android penetration has been stalled for quite a while now.

      • vastaman

        “a while”? And has it been shrinking? I had the first iPhone and am on my 5th now, so not reflexively defending Android.

      • stalled

        Does since mid-2012 count as a while?
        https://twitter.com/asymco/status/484985982086037504

        It hasn’t shrunk significantly yet, hence “stalled”, but it’s not implausible.

      • Meaux

        That’s of the smartphone market, not the total market. It still implies growth as smartphone penetration increases. If Android stays at 50% smartphone penetration, they would be at 25% total penetration when smartphone penetration is 50%, 35% now and 45% when penetration is at 90%, the in the post chart shows Android smartphone share receding significantly.

      • stalled

        Yeah, I understand that. It should be clear from the context of the article and the comments I replied to.

      • vastaman

        Look closely… Android has leveled off, has not been shrinking. iPhone’s growth has come at the expense of RIM and the rest. For iPhone to get to the over 60% share in Horace’s graph, Android would have to drop at lease 15%! Horace’s predicted trend is very biased. I wish he’d answer these critiques.

      • stalled

        Hence the word “stalled”, yes. I only said it was not impossible that it would start shrinking in the future.

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

        The discussion on this topic took place some time ago. http://www.asymco.com/2013/11/06/the-diffusion-of-iphones-as-a-learning-process/

  • Karl Klept

    Clearly, smartphone holdouts have been waiting for this moment to buy a more expensive, inferior phone that depends on fanatical fan loyalty. Android is cooked, as usual.

    • facile

      Thanks for the facile response, Karl. You appear to have read a different article where someone was “cooked” and become upset enough to be insulting.

  • PeterJ42

    Excellent article. Thank you.

    One of the biggest marketing errors is assuming a greenfield site for every sale. Most people now buying a smartphone are moving from another, so loyalties, familiar ways of working and annoyances all play a key part.

    It would be interesting to see the replacement cycle mapped onto the Bell curve. Also to see the number of true switchers from Apple to Android or vice versa. I suspect it is quite small.

  • http://financial-alchemist.blogspot.com Turley Muller

    I don’t think your new user data is correct. According to ComScore, new smartphone users have been averaging 2-3M per month. Last month was 1.1M, lowest in 12 months. Roughly 30M new users per year, for last 2 years.

    One metric I find interesting is to take the gross adds, rather adding the decrease in users (churn) for those respective platforms and adding that to net adds. Had about 600K in defections and 1.1M in new users, equating to 1.7M gross adds, which is same as smartphone sales to those that are new or defected. Apple added about 1.3M users last month, which as a % of sales to new users / switch platform is 78%.

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

      There is an error in the labeling of the graph. It’s the rate of adds per week.

  • jameskatt

    The iPhone 6 will be the mother of all upgrades because despite a saturated market, both iPhone and Android users will be drawn to upgrade to the iPhone 6 as Apple’s first attempt at true functional sapphire-encased jewelry. The iWatch will be the second.

    • charly

      A can’t break is only an update after that what it replaces breaks. I don’t see it as a reason to upgrade for something that works.

  • Zach

    Great article, but I’m interested to know where you found the research showing that 70% of Americans are now using smartphones. I’d love to see that and what other data points were included if you could share the source. Thanks!

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

      ComScore Mobilens. See citation in the corner of the third graph.

      • Zach

        Great. Thanks for sharing.

  • obarthelemy

    Subsidies are the major driver of demand for iPhones.
    http://www.tech-thoughts.net/2012/05/proof-of-iphones-dependence-on-carrier.html

    • Mark Jones

      That’s old news. Since then, iPhone sales have been very competitive when sold through unsubsidized monthly installment plans (Next, Jump, Framily, etc). The iPhone cost doesn’t have to be hidden in the data plan; people are willing to pay, as long as it is not all upfront.

    • correlation

      This is obviously a correlative analysis, not a causal one.

      • correlation

        Along with the obvious data issues pointed out in the Walt French comment.

      • obarthelemy

        W French’s issues are about errors in the ppp calculation, that part is indeed invalid but has no impact whatsoever on the correlation between subsidies and iphone share. The post just fails to eliminate purchasing power as another possible factor. The calculation of the correlation between share and subsidies is unaffected and remains fully valid.

        Back to subsidies, subsidized iPhones have a 50+% share at Verizon, while unsubsidized iPhones have a 20% share at T-Mobile. Same country, so ppp is irrelevant, too.

        Another clue is unsubsidized Pad’s even quicker fall in share.

        At that point, talk about Aplle’s business that fails to first tackle the subsidy question is blinkered. The fact that the issue is not being adressed also raises the question of motives and agendas.

      • http://financial-alchemist.blogspot.com Turley Muller

        With regards to T-Mobile- it was last major US carrier to get the iPhone. Naturally, those who wanted an iPhone had already switched to AT&T. Or Verizon. Or Sprint. Since AT&T was first to get iPhone, as well as being exclusive for years, it sells the highest mix of iPhones. Verizon was 2nd carrier carry iPhone. And it has the 2nd highest iPhone mix. Sprint was third, and it has third highest mix. Last is T-Mobile. And it’s can be expected that it would have the lowest share.

        Subsidies are just a form of financing, Carriers recapture them with monthly plans.

      • correlation

        It fails to eliminate purchasing power as the cause of both subsidies and iPhone share, making it irrelevant, yes.

        “Back to subsidies, subsidized iPhones have a 50+% share at Verizon, while unsubsidized iPhones have a 20% share at T-Mobile. Same country, so ppp is irrelevant, too.”

        These are obviously self-selected samples, and therefore easily dismissed as useless. That they are the same country doesn’t make ppp “irrelevant” if their customers are segmented. etc, etc, etc.

  • the correlator

    I’d like to see charts comparing number of individual US AAPL stock holders vs US adoption of iPhones and the same with GOOGL/Android.

    My guess is that Apple stockholders, when it comes to renewing their phones, will go for an iPhone, other things being equal.

    So the appreciation in Apple stock, and general wealth effect among share-owning Americans of rising S&P, will contribute to iPhone sales in the US.

    But as more US investors start to own GOOGL, their loyalties will be split.

    Also, decreasing share ownership among American millennials will favour Android, because those phones tend to be cheaper.

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