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The First Trillion Dollars is Always the Hardest

In its first 10 years, the iPhone will have sold at least 1.2 billion units,[1] making it the most successful product of all time. The iPhone also enabled the iOS empire which includes the iPod touch, the iPad, the Apple Watch and Apple TV whose combined total unit sales will reach 1.75 billion units over 10 years. This total is likely to top 2 billion units by the end of 2018.

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The revenues from iOS product sales will reach $980 billion by middle of this year. In addition to hardware Apple also books iOS services revenues (including content) which have totaled more than $100 billion to date.

This means that iOS will have generated over $1 trillion in revenues for Apple sometime this year.

In addition, developers building apps for iOS have been paid $60 billion. The rate of payments has now reached $20 billion/yr.

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Not included in this payment total are “mobile-first” or “mobile mainly” businesses such as FaceBook, Twitter, Linkedin, Tencent, YouTube, Yahoo, NetEase, Pandora Radio, Google Search, Baidu, Google Maps, Gmail, Instagram, Amazon, eBay, JD.com, Alibaba, Priceline, Expedia, Salesforce and Other Enterprise Software, Ride Sharing Apps, AirBnB and many other services which monetize independently of the App Store.

I estimate that the cumulative revenues enabled by iOS across these businesses have exceeded $500 billion, with a rate of revenue soon to reach $300 billion/yr.

The revenue numbers can only hint at the change in behavior among users. An iPhone is unlocked 80 times a day. Assuming 600 million devices in use there are 48 billion sessions on iPhones every day. 17.5 trillion sessions every year. It is these instances of interaction and engagement which are desired by all businesses built on top of the ecosystem.

These instances of engagement must be multiplied by the quality of the customers which Apple captures. iOS users spend more and are more loyal than those on alternative platform thus qualifying the platform as “premium” and thus adding to its value in the eyes of developers, content producers and service providers.

As the install base of iOS increases and as users hire the devices to do more and spend more time with them the virtuous cycle of value creation will continue and accelerate.

There is a temptation to think that such a business is fragile and will be disrupted. Challengers appear daily and the number of iPhone “killers” is not measurable. One can cite the billion users of Nokia phones which defected. One can cite the loyalty of BlackBerry users that evaporated. One can even cite the juggernaut of Windows and how it became impotent. One can cite the vast number of Android devices offered at low prices.

But there are reasons to believe that the iOS empire is far stronger and resilient.

Unlike Nokia’s phones, Apple’s product is an ecosystem with network effects and dependencies on software and services. It’s also a monolithic product with a singular interface and form factor.

Unlike BlackBerry, the iPhone does many jobs–too many to count. Indeed the iPhone evolves and changes its core value over time.

Although different in many ways from Windows there are strong similarities in terms of loyalty and persistence of users. iOS even developed a dominant position in enterprises. Microsoft’s attempt to become a hardware company is a testament to the confluence of the two business models.

And whereas Android was originally seen as the “good enough” iPhone, potentially disrupting it, it turns out to be the ersatz iPhone. Chances are higher that users will switch from Android to iPhone and not the other way. Again, the reasons have more to do with the ecosystem and quality of users (which are hard to measure) than with the hardware (which is easy to measure.)

As we look toward the second decade of the iPhone, the expectation isn’t one of another “big bang” but a process of continuous improvement. The market is nearing saturation so the goals must be to capture more switchers from Android. Apple has achieved this with the Mac: survival, persistence and eventual redemption.

More exciting is the apparent expansion of a network of ancillary “smart” accessories. The Apple Watch, the AirPods, Pencil and possible new wearables point toward a future where the iPhone is a hub to a mesh of personal devices. The seamless integration of such devices is what has always set Apple apart.

 

Notes:
  1. Includes forecast for first six months of 2017 []
  • http://www.noisetech-software.com/Home.html Steven Noyes

    It’s good to see your analysis view again on the mobile industry. Good read but:

    “As the install base of iOS…” should be “As the [installed] base of iOS…”

  • Shameer Mulji

    “One can even cite the juggernaut of Windows and how it became impotent”

    With a user base of approximately one billion users, Windows still is a juggernaut.

    • Fran_Kostella

      I think Horace’s point isn’t about the size of the user base, but that nobody outside of corporate IT really seems to care what happens on Windows. I haven’t used it for a decade and I can’t name one reason why I’d even bother to check out the latest version. I work with a lot of startups filled with younger people and they all use iOS, macOS, Android and I see the occasional Chromebook or linux machine. I don’t think they hold a negative view of Microsoft, but none of them know or care about Windows. It like Aol, still there, but not very important.

      So it isn’t about the size of the user base, it is about the acceleration and the direction of growth. Does anyone imaging that a new version of Windows matters?

      • Shameer Mulji

        Good point. I thought Surface Pros / Surface Books were popular with the young crowd. I’ve been told by some of my college-going relatives that they see them more and more on campus.

      • Narg

        Most bloggers state 2016 was the year MS beat Apple on all hardware releases as far as popularity.

      • ggruber66

        Then again, most bloggers are idiots.

        Microsoft surely had some very interesting new products, like the Surface Studio, but that one is a very niche product and is outsold significantly by the iMac. If you want to call them design wins, I might agree to an extent.

        Secondly, Surfaces still seem to trail MacBooks and many corporations are still sticking with HP, Dell or whomever they bought before. Some of those vendors are making Surface knock-offs (as expected and perhaps desired by Microsoft). Not to mention that iPads — even with their downward trajectory — probably outsold Surfaces by a wide margin. So as a single vendor, I don’t think it’s accurate to say Microsoft was more “popular” than Apple, but to look at the market as a whole (PC v. Mac + iPads), perhaps. But is that any different than the last 30 years?

        Lastly….http://www.computerworld.com/article/3155369/windows-pcs/microsofts-os-supremacy-over-apple-to-end-in-2017.html

      • tmay

        2016 was the year that Apple released an accessory that will likely produce some 20 million sales and $3B in revenue in 2017; Compared to MS, I’m thinking that popularity still sits solidly with Apple.

        Oh, and that accessory is the AirPod.

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

        Good lesson on why one should not base decisions or judgement on blogger commentary.

      • art hackett

        Most bloggers you choose to read apparently. Popular with anyone that counts?

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

        If you go on shops after holidays you can see the bunch of stuff that didn’t sale as expected and are now abandoned in outlet drawers. It gives a concrete sensation of how the products behave in the season.
        This year I have found drawers full of heavy discounted surface accessories, more than the usual mess of android’s. Some bet has been lost I suppose.

      • art hackett

        Not only that it doesn’t matter, but irritates the, er, stuffing out of virtually all users, especially corporate IT.

    • art hackett

      A juggernaut suggests irresistible forward movement.

  • hannahjs

    The expectation isn’t of another big bang. It never is, and that is why the one in 2007 took everyone by surprise. There are still residual dissidents along the lines of Fred Hoyle, but the rest have folded their hands. Instead, there emerged a new expectation: that there cannot be another big bang. But I will hold my mind open and ready for the wonders sure to come, despite the oracular pronouncements of shamans steeped in yesterday. Surprise is the one thing I expect in this marvellous universe. And when the pundits are confounded, I laugh. Oh, how I laugh!

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

    If you see a product as something hired by the buyer to execute a particular job or a set of jobs, the iPhone is really something particular.
    The jobs it can handle are software enabled and revisions of hardware or creation of dedicated accessories enhance and multiply the jobs.
    As you say “Indeed the iPhone evolves and changes its core value over time”.
    The creation of accessories is an effective way to contrast disruption, the iPhone periodically updates the jobs it can be hired to do and adapts to market needs.
    The very small number of different iPhones models, each one can do every job, has been a very smart move by Apple, way way better than having tens of different models with different jobs to do.
    Could we say Horace that a focused product family is more resilient to disruption than a bigger one.

  • Jared Porter

    Horace is correct to point out under-recognized unique innovations like Apple Watch and AirPods.

    As white, wired EarPods were the best advertisement for iPods back in about 2005, in 2017, white, wireless AirPods will become a huge advertisement for IPhone and mobile, wireless iOS. They will start showing up in commuters’ ears and the campus Starbucks set. Control the volume with the rocker buttons on that iPhone in your pocket by touch or by your Apple Watch. I can’t make mine fall out and I’m confident most wearers will say the same. Who wants to keep untangling wires each time you need headphones? If you want to wear cans, what pocket do you stash them in? Apple was brilliant to delay the introduction for a few months. If they had come out at the same time that iphone 7 were introduced, the extra $160 cost would have been a deal breaker. But now it is a newly-reviewed, sexy addition to iOS. The novel look of wireless AirPods now, will become the coveted look of intimate, convenient mobile podcast listening in the near future.

    • handleym

      re unrecognized innovations.
      I’d urge everyone here to read through this PDF:
      https://www.microarch.org/micro43/pages/files/ARM-state-of-the-future-MICRO-2010.pdf

      It shows ARM’s vision (in 2010!) of where we’re headed. The stuff of immediate relevance to this post starts at page 54, but most of the rest is just as interesting, albeit more technical.
      Unlike 95% of internet commenters, our man in ARM clearly understood
      – the constraints on future products (and so what made them interesting)
      – how better technology enables new form factors which in turn enables very different use cases

    • BMc

      I agree. While on the surface AirPods are just “wireless earbud headphones”, there is something that I (and many others it seems) find “magical” about them. Perhaps the most magical Apple product since the iPhone (and I love my Apple Watch). They really just are a joy to use to listen to anything (music, movies, phone calls…).

      It is a combination of being two separate truly wireless pieces, the ease of putting them in & having them automatically activate, the ease of setup and use across all devices without hassle, the “very good” sound from them, the small charging case that holds them perfectly…. They are so light and comfortable, you forget they are on, and you are just surrounded and immersed in the sound.

      Apple should really advertise AirPods with association with Apple Watch. The two could really reinforce each other, and could lead to a great 2017 for both products. If we consider the ASP of AW potentially at around $350 (combinations of Series 1 and 2, 38mm and 42mm, and an extra watch band), plus AirPods, you get to a combination (~$500) that is approaching iPhone territory.

      Give it another 3 years (AW with cellular data for standalone use), and these two products together will likely be Apple’s “next big thing”, perhaps bringing in as much revenue as the iPad line, or more.

  • iLove

    The author Horace Dediu is over optimistic. I just read an article pointing out by Peter Thef that Apple era is over. In addition, Apple has been bashing constantly by its CEO is gay and incompetent. They made it like Apple is in big trouble and would file bankruptcy in the near future and any given time a negative article was published then AAPL tanked. We’re living in a crazy world.

    • melci

      Dediu backs up his “optimism” with numbers iLove. What evidence do you have that he is incorrect?

      Oh and I don’t know why you think sexual preference has anything to do with the topic, but the irony is Peter Thiel (not Thef) also has the same orientation.

  • eselimgonen

    Thank you for the insights, I really like the session approach.
    A quick question:
    How do you see Apple’s chances if top used apps such as Facebook, Snapchat, Google Maps, Youtube, Spotify etc (which have been becoming more and more indistinguishable in terms of user experience in both platforms) increasingly capitalize those sessions to an extent experience becomes mostly the same?

  • Space Gorilla

    “a future where the iPhone is a hub to a mesh of personal devices”

    Yes. I’ve been calling this the Apple Network of Things for years.

  • berult

    Peculiarly, this trillion in iPhone dollars can be characterized as seed money. This is a running, self-fulfilling prophecy on the future of humankind. Money is no object here. It is pure subject of foresight, with no end in hindsight. The iPhone is humankind’s ‘Jobs One’, eventually either downscaling to naught or upscaling to infinity, downscaling to infinity or upscaling to naught. The iPhone arose as the 50/50 existential juggernaut in a world of ~20/80 rationales.

    Our future depends on a completed us, mortality seekers…or immortality achievers…

    It’s really, really hard, impossibly hard to shrink the timeline of a boundless daydream to its serendipitous abacus dimensions. Wherever our mind sets as a species, the iPhone mindset begets. Whenever the iPhone mindset begets, our mind sets…

    Depends on a fulfilled us… A ‘danse macabre’ into wishful extinction, a ‘pas de deux’ into hemispheric sublimation. Homo sapiens sapiens terminus, Homo sapiens sapiens…sapiens ad infinitum… berult.

  • Don Joe

    Looks like North America is still obsessed with the iPhone despite the demonstrable fact that it did not revolutionize the smartphone market either at home (didn’t beat the Blackberry for the first 4 years of iOS existence and even when it did it just inched a bit forward) or internationally (it was dominated by Symbian until Android came out and then it was – and I suspect continues to be – dominated by Android in terms of total number of devices).

    It’s a spurious and very non-humanist analysis to measure “success” in dollars spent, where the iPhone owes part of its “lead” to simply being an overpriced device sold mostly in the richest countries. All the while, much cheaper technologies or inventions may have made a far greater impact to actual human quality of life on the global scale and should probably be hailed as the better ideas we’ve produced as a civilization.

    • phatejack

      have you been in coma the past 10 years? You think you owe the use-revolution to Android or Blackberry? Really?

      • Don Joe

        Sorry, what was that? I couldn’t hear you over the sound of actual statistics from physical reality: http://static6.businessinsider.com/image/525c66a369bedd583b84c278/one-in-every-5-people-in-the-world-own-a-smartphone-one-in-every-17-own-a-tablet-chart.jpg
        https://9to5mac.files.wordpress.com/2016/06/world-wide-smartphone-market-share.png

        So on graph #1 we can see that around the beginning of 2010 the smartphone ownership trend takes a visible turn upward. Looking at the smartphone OS market share trends on graph #2, can you tell me which OS took off toward the moon around that time? This should be an easy one, you got this.

      • Space Gorilla

        Yes, around 2010 Android got a lot better and became essentially the cheap iPhone, and that’s a good thing, the iPhone was never going to serve the majority of the market. Something else has to serve the rest of the market. But you’re deluded if you think Android wasn’t guided by the iPhone. Just as all computers now work pretty much like the original Mac, all smartphones now work like the original iPhone. Both the original Mac and original iPhone were widely criticized as failures of design, innovation, vision, etc when they were first launched. Today we know both the Mac and iPhone were spot on, because everyone eventually copied them.

        You have to get out of the mindset of winners and losers. What has happened is that both Apple and Android have won. iOS isn’t going anywhere, and neither is Android, and they mostly serve different segments and deliver different kinds of value and experience. Apple gear isn’t overpriced for me, because it delivers a ton of value and benefit. You may not be looking for the same value/benefits, so for you Apple gear is overpriced. But you must understand this is not a universal truth, it’s only your perspective.

      • Don Joe

        Like Apple would ever allow its most lucrative ideas to just be copied by another company and used to achieve and maintain the dominant position on the global market. Now who’s delusional?

        No, Android never copied iOS, only the most generic ideas of what a GUI should look like to be usable by humans. The most important thing Google did with it was the one thing that blindly greedy corporations like Apple and Microsoft have always fought against, which is creating an open-source platform that allows tinkering and innovation – the true way forward for software of all kinds and the main reason Android achieved and maintains user base _and_ market dominance to this day.

      • katherine anderson

        I imagine that if Steve Jobs were alive today he would be pleased to acknowledge that the business imitators, even the copycat businesses that make the cheaper copycat Android devices, have not only impacted millions of people on a global scale, but have impacted their lives in truly life-altering ways …

        Imitation is a fact of the human condition. Imitators can also be correctors; they can make improvements on a product or a device … they may get their ideas from places like Apple, but they can also extend on those ideas, and in the process they can offer a base for future developments.

        When Steve Jobs was a boy Japan was the poor, imitator nation … and anything “Made in Japan” was the mark of low standards, but the Japanese automobile industry shows how the country surpassed itself as an imitator nation, just as China is making the transition now.

        So, I guess you are probably right, it is possible that Android might one day surpass itself in the imitation business?

    • althist

      Android wouldn’t exist, as it does, without the iPhone.

      • Don Joe

        The iPhone wouldn’t exist, as it does, without Windows. Or windows. Or chairs.