Category Industry

How many Americans will be using an iPhone when the US smartphone market saturates?

As previously noted, the US smartphone market has followed an almost perfectly logistic growth. The measured data (via comScore, in green below) follows a predictive logistic function (thin blue whose formula is discussed here).

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The other notable market observation is how closely the iPhone follows the same pattern as the market. The red line representing the iPhone above is almost perfectly parallel to the green and blue lines which represent the overall market. The reason for this seems to be that consumers are absorbing the product in similar way to how they are absorbing the technology.[1] The “learning model” which underpins logistic models could offer clues as to the cause. It suggests that there is a direct communication that happens between the product and the consumer.

  1. Note that this pattern of adoption has happened even though the product has been at least partially unavailable to the entire market until quite recently. []

Updated US Smartphone Saturation Forecast

The latest comScore US smartphone survey showing three months’ ending October data has been released and there were no surprises. Smartphone penetration grew to 62.5% representing 149.2 million users. I made a slight adjustment to the predictive logistic function parameters (p1 = 93, p2 = 22.5).


The correlation between predictive and actual logistic function (P/(1-P)) is shown below.

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When will there be one billion iOS devices in use?

iOS unit sales crossed over 700 million units last month. That is a significant milestone but the total number of units in use is likely to be lower. My estimate based on device replacement assumptions is that about 500 million are still in use.

The estimated break-down of units sold and in use by device type is shown below:

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Seeing What’s Next

The adoption of smartphones in the US is on track for reaching 90% of the available audience by August 2016. This is a mere eight years after smartphones reached 10% penetration. As far as technologies go, that’s pretty fast. To get an idea of how rapid, I plotted a few other technologies and the time they took to grow within the US market.

Adoption Rates of Consumer Technologies

A few things to note:

A yardstick for capex

Photo credit: Wikipedia, CVN-78

I’ve been writing about Apple’s capital intensive operations for some time. The difficulty has always been in explaining the scale involved. I’ve compared the spending to that of Samsung, Microsoft, Google, Intel and Amazon. But these numbers still can’t be easily grasped. You can’t point to any comparable objects when you try to explain the figure. I struggle to create a less abstract notion than that of a “sea of tooling and servers.”

Instead, I’ve used the analogy of US aircraft carriers. Historically, Nimitz class aircraft carriers have cost a less than $5 billion. The USS Ronald Reagan, christened in 2001, cost $4.5 billion. Therefore I was comfortable saying that Apple spends the equivalent of about one Nimitz class aircraft carrier every six months (and that the Navy takes about six years to put it together.)

Unfortunately, costs for aircraft carriers have gone up. The USS Gerald Ford will take about $13 billion to complete. That places Apple and Samsung capital spending in the following context:

What’s an Active User worth?

Apple has sold 700 million iOS devices. Google claims one billion Android device activations. Microsoft has about 1.5 billion Windows users and Facebook about 1.19 billion. LinkedIn has 259 million users and Twitter has 232 million. Amazon has 215 active account holders and PayPal 137 million.

Markets place a value on these users implicitly when company shares are priced. For example, Twitter whose users are worth about $110 or FaceBook’s $98 and LinkedIn at $93.

This consistency suggests a universally accepted value per social media user but what is the value of an ecosystem user? Apple, Google, Microsoft and even Amazon aspire to enable ecosystems which should be seen are more valuable than mere communities. Ecosystems enable a higher level of economic activity because they are unbounded by the medium itself. Any number of media can be created. Or so the theory goes.

If we could determine a value for an ecosystem user we could test it against the going value of a social media user. Fortunately we have enough data to do so.

The total number of iOS devices sold per quarter allows us to measure the install base of device users. With some assumptions regarding the retirement and attrition rate we can get the following history:

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Since the total number of iTunes accounts is updated with some regularity I’ve added it to the graph. I’ve also shown on the same graph the total number of iCloud accounts. For calibration, I included survey data showing the number of iPhone users in two regions (US and EU5).

The diffusion of iPhones as a learning process

All theoretical and empirical diffusion studies agree that an innovation diffuses along a S-shaped trajectory. Indeed, the S-shaped pattern of diffusion appears to be a basic anthropologic phenomenon.

This observation dates as far back as 1895 when the French sociologist Gabriel Tarde first described the process of social change by an imitative “group-think” mechanism and a S-shaped pattern.[1] In 1983 Everett Rogers, developed a more complete four stage model of the innovation decision process consisting of: (1) knowledge, (2) persuasion, (3) decision and implementation, and (4) confirmation.

Consequently, Rogers divided the population of potential adopters according to their adoption date and categorized them in terms of their standard deviation from the mean adoption date. He presented extensive empirical evidence to suggest a symmetric bell shaped curve for the distribution of adopters over time. This curve matches in shape the first derivative of the logistic growth and substitution curve as shown below. Screen Shot 2013-11-06 at 11-6-1.51.57 PM

In the graph above I applied the Rogers adopter characterization to the data we have on the adoption of smartphones in the US. The latest data covering September is included.

  1. Tarde was probably influenced by mathematician Pierre François Verhulst who first published the logistic function in 1845 []

Do ads work? The ad budgets of various companies

Microsoft spent $2.6 billion for Advertising in the fiscal year ended June. Apple spent $1.1 billion in its fiscal year ended October.

Other companies will report their full year ad spending later but their previous years’ spending is shown below.

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I added a second graph showing the percent of sales that each ad budget represents. Note that Coca Cola retains the crown as the most prolific advertiser when it comes to budgeting.[1]

  1. Think of it as 7 percent of every Coke purchase going to pay for the ad that presumably got you to buy it. []

The Quantum Leap in Retail

In fiscal 2013 there were 395 million visits to Apple retail stores. In 2012 there were 372 million.

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The difference is approximately the population of Australia. This was in addition to the population of the US and Canada already passing through. Although this is a fun way to think about total traffic, it does not reflect performance of the stores themselves since new stores are always being opened. 21 new stores in 2013, to be precise.

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The better benchmark should be the number of visitors per store.

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This shows that, except for seasonal peaks, the visitors per store per quarter has been a fairly steady 240k since mid-2010. What’s more, this rate was also remarkably steady at around 160k/store/quarter from 2007 to 2010.

So what caused this quantum jump[1] in traffic?

  1. “Quantum leap” is often used to mean “giant leap” but in the original usage it meant a specific, discrete jump []

The value of zero-priced software

Apple’s latest product launch (new OSX, iPads, Macs and iWork/iLife) came with a change in pricing for software. OS X and iWork and iLife and updates are now made available free on new Macs and, in the case of the suites, on iOS devices as well.

Recall also that iOS updates are now free as well and that OS X had been reduced in price from about $129 to $29 with Snow Leopard in August 2009 and to $19 with Mountain Lion in July 2012. The iSuites have also dropped in price over time so the pattern of evaporating software prices is long-running.

But how fast and what is the impact? The historic performance Apple’s Software business is not easily determined since it was always blended with additional businesses. Until September of last year, Software was reported as part of “Software and Services” and since then as part of “iTunes, Software and Services.” Some assumptions allow the following picture to be drawn:

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One additional wrinkle to the Apple software story is that OS X and iWork/iLife are not all the software titles available. Apple’s software includes Pro apps as well as the non-free OS X server. The non-free software US prices are: