In the fourth quarter of 2013, mobile phone sales in mature regions fell due to weaker demand.”Mature markets face limited growth potentialis the markets are saturated with smartphone sales, leaving little room for growth with declining feature phone market and a longer replacement cycle,” said Anshul Gupta, principal research analyst at Gartner. “Lack of compelling hardware innovation has further exacerbated replacement cycles for high-end smartphones in 2013 because consumers don’t find enough reasons to upgrade.” – Gartner
Anshul Gupta’s assertion of market saturation was not the first. IDC also cited “a number of mature markets nearing smartphone saturation” in late 2013.
Shortchanging the smartphone market is nothing new. It was happening very early in the market’s formation when initial growth was not as rapid as expected. I recall Nokia managers disappointed with sales growth losing faith in smartphones in 2004. Eleven years later, the market is still growing.
comScore reported that during the first quarter of 2015 the US market was adding over two million new smartphone users every month. These are not two million units sold every month but two million new users who began using smartphones for the first time ever, every month.
Since the end of 2013 when both IDC and Gartner declared the onset of saturation in “mature regions” 31.5 million new-to-smartphones Americans adopted the product. That’s an addition of 11% of the sampled market.
And the sampled market is just a subset of the addressable market. comScore only counts ‘primary phones’ in use and excludes company-purchased devices and any users below age 13.
So according to comScore’s data, the US market is at 77% smartphone usage. My assumption is that saturation would come at the earliest at 90% and could be 100%. The fact that conversion to smartphones is still proceeding at roughly the same rate it has been for five years, makes this assumption pretty safe.
The pattern of growth fits a diffusion S curve (Logistic curve) as closely as ever:
The history of the Personal Computer market (since 1981) is shown below:
Note that I added a forecast for 2015. Data from Gartner shows Windows PCs declining at a 6% rate in Q1 with a full-year forecast of -2.4% (including OS X). Assuming 20.7 million Macs, the Windows PC market will decline to 285.6 million units (from 295 million in 2014). My estimate is that iOS and OS X combined shipments will total about 302 million.
If this rather conservative forecast is correct then in 2015 Apple will ship more iOS and OS X computers than all Windows PCs combined .
Paying for TV has been a curious consumer phenomenon. There was a time when TV was free to consumers. It was delivered as a broadcast over-the-air and paid for either by commercials (US mostly) or by taxes on viewers (Europe mostly). The consumers were delighted with the idea as it was far better than radio and radio was delightful because it was far better than no radio.
The process of convincing consumers to pay for something that used to be free was quite interesting. The first benefit to be articulated was that the quality of the picture would be much better. It would, in essence, be noise-free.
The second benefit was an increase in the number of channels. VHF and UHF television would cover about three and 5 channels respectively while cable could offer dozens, many specializing on specific types of content like the Home Box Office (HBO) offering movies and ESPN offering sports only and MTV music videos and CNN news only.
The third benefit was fewer (or no) commercials for some of the channels. This was especially valued by fans of movies whose interruption by commercials was often detracting from the immersive value and continuity of the cinematic experience.
These benefits were very attractive during the 1980s, to the extent that about 60% of US households adopted cable. An additional group later adopted satellite-based pay-TV as the technology became reasonably cheap.
These benefits were priced modestly but as the quality and breadth of programming increased, prices rose. An average cable bill of $40/month in 1995 is $130 today. Some of that revenue went into upgrading the capital equipment in use (the plant) and some into paying for the higher production values. Yet more went to the sports leagues and their players whose business models increasingly depended on broadcast rights.
Like a siren, it calls.
The Auto Industry is significant. With gross revenues of over $2 trillion, production of over 66 million vehicles and growing it seems to be a big, juicy target. It employs 9 million people directly and 50 million indirectly and politically it must rank among the top three industries worthy of government subsidy (or interference). Indeed, in many countries–the US included–government interference makes it practically impossible for a producer to go out of business, no matter how poorly it’s managed or how untenable the market conditions.
But this might be the tell-tale sign that danger lurks. Theory suggests that incumbents going out of business is an essential indicator of industry health. Without their exit, entrants are never allowed to bring disruptive ideas to bear and innovation simply stops. Is this interference with mortality the only indication of entrant obstacles? Are things about to change? Is there pressure for innovation? Can we spot other indications of a crisis in this industry?
Taking the US as a proxy, here is a graph of the number of new car firm entries (and exits):
The total number of firms that entered the US market is 1,556. The blue line graph shows the entries and the orange line shows the exits. This sounds impressive, but note that the year when the peak of entries took place was 1914, exactly 100 years ago.
Horace presents the next class in The Critical MBA. Having too much of a fundamental footing could be a disadvantage when evaluating what theory might apply to a given situation. Could this be why so many fail to understand Apple? In the second half of the show, Horace and Anders discuss Amazon as retail goes online.
via 5by5 | The Critical Path #141: Old Dogs.
Apple paid $10 billion to developers in calendar 2014. Additional statistics for the App store are:
- $500 million spent on iOS apps in first week of January 2015
- Billings for apps increased 50% in 2014
- Cumulative developer revenues were $25 billion (making 2014 revenues 40% of all app sales since store opened in 2008)
- 627,000 jobs created in the US
- 1.4 million iOS apps catalog is sold in 155 countries
Putting these data points together with others from previous releases results in a fairly clear picture of the iTunes/Software/Services
The App ecosystem billings (what consumers actually pay) is shown in the red area above. 70% of those payments are transferred directly to developers and Apple reports the 30% remaining as part of its revenues. This view of the iTunes ecosystem shows the impact of Apps relative to the other media types. When we measure the payments to the content owners we can see that Apps also dominate:
1. Cyanogen. This company should develop a credible path for AOSP (non-Google Android) especially in India. I expect a lot of traction as OEMs who embrace Android reject Google.
2. iPad. Not as a consumer product but for the Enterprise. The iPad grows up into a solid product for business while being replaced by phones in consumer “jobs to be done”.
A few more ideas are listed here: The 2015 “Sleeper Ideas” List: Trends, Stocks, And Private Companies To Watch – Forbes.
As corporate romances go, IBM and Apple’s must rank among the most unexpected. As I wrote on the date they changed their Facebook status, the two companies were antagonists for the better part of twenty years and their rapprochement was met with a shrug mostly because yet more decades passed since.
Nostalgia aside, this new union is profoundly important. It indicates and evidences change on a vast scale. The companies’ antagonism was due to being once aimed at the same business: computing. Since the early 1980s, “computing” came to be modularized into hundreds, perhaps thousands of business models. It is no longer as simple as selling beige boxes. IBM was forced out of building computers and into services and consulting while Apple moved to make devices and the software and services which make its hardware valuable.
The convergence of interests which was consummated into a deal this year stems from the migration of computing around what has come to be called “mobile”. Apple intends to accelerate the adoption of its mobile platforms among the remaining non-adopters: enterprises–a group which, by now, qualifies as laggards. Simultaneously IBM intends to connect data warehouses at those same enterprises to their employed users.
This year’s Thanksgiving and Black Friday data from IBM shows a continuing pattern of growth for mobile devices. As the graph below shows, in the five years since 2010 mobile devices grew from 5% of the online shopping traffic to 50%. Traditional computing (desktop and laptop) made up the difference.
The graph also shows that sales value via mobile devices crossed over 25% of online spending. The fact that mobile shopping is not equal to mobile spending is due to the convenience factor of mobile. It’s more likely that users will spend idle time scanning for bargains or tracking down ideas from friends but wait until they are at home to make the final purchase decisions in front of a computer.
The transition to spending directly from a device is a slower process, but that process was also one that online had to undertake as buyers became comfortable with online commerce. When it comes to payment, buyers are understandably more cautious.
This does not change the prediction made last year that “the transition to post-PC consumption will also be practically completed by 2020”. That leaves six years for mobile saturation and a total transition time of one decade.
At that point I expect 90% of browsing and perhaps 75% of spending to be happening on devices. Some of this will undoubtedly be enabled by biometric authentication as shown by Apple Pay. Trust and ease of use in this technology will undoubtedly accelerate the transition making mobile payments more comfortable and secure than on the legacy computer.
What is less predictable is how much those devices will also be used to transact payments for the physical retail stores. In some scenarios it’s possible that by 2020 a majority of all shopping will be enabled by devices. That would subjugate the retail segment to the power politics of mobile platforms.
It is interesting therefore to note the mix between the platforms in the graphs above.
I tried to assess the opportunity of Apple Pay but found it to be mostly dependent on how quickly card payments will overtake cash. It seems that as payments move to a digital format they will move to a mobile device. The hurdle isn’t going from a card to a phone but from cash to card.
Data published in The Growth and Diffusion of Credit Cards in Society shows that between 1970 and 2001 households with at least one credit card in the US grew from 17% to 70%. More recent data shows 82% of US consumers have at least one credit card and 77% have a debit card.
The Total Addressable Market for Apple Pay then is dependent on how quickly this pattern repeats over the markets where iOS devices are in widespread use. Once cards are in use they are used with higher frequency and quickly overtake cash for the user.
The only assumption that needs to be made is that the device then replaces the plastic card. This seems a safe assumption as the benefits of the device as payment authenticator are high and the costs are negligible given a penetrated market.
The following graph shows an extrapolation of transaction volumes where Visa and MasterCard and Amex are showing moderating growth with UnionPay showing 20% constant growth through 2019.
Two more assumptions are needed: the share of transaction value captured by Apple Pay and the Apple Pay fee. I used 15 basis points ($15/$10000) as the assumed Apple fee and a share schedule as follows: