I'll be presenting these slides (or something pretty close to them) on 29 May at BEA in New York. They give a pretty good overview of where the industry sits today.
Both Apple and Google give occasional numbers for cumulative downloads of apps on their respective smartphone platforms. These are generally round numbers and they're often given at scheduled events (quarterly results, developer conferences), so we don't know how precise they are (did it pass 25bn yesterday, last week or last month?), but they're still useful. I've plotted the data sets in the scatter chart below: the wobbles in the lines are probably more to do with this precision issue than actual user behaviour.
Android started later and is catching up in cumulative terms. Both are now at or around 50bn: Apple announced 50bn on 15 May and Google announced 48bn on the same day at Google IO.
What does this look like on a monthly basis? It's possible to build a model that interpolates the run between the data points we're given to work out what the monthly run rate would have to have been. This isn't perfect, but it's all we have. The chart below shows my model's output for Google Play laid over the data from Google itself, to illustrate the process; I've done the same for Apple.
Working this through, we can infer:
- Android app downloads on Google Play in Q1 2013 were about 9.75bn
- iOS app downloads were about 5bn (conveniently, Apple stated 40bn in December and 45bn in March, which makes the maths easy even for a history graduate like me).
How does that relate to users, though?
If we take trailing 24m unit sales as reported by Apple, the iOS base was 400m at March 2013 and 370m in December, giving an average for the quarter of 385m. Hence there were an average of 13 app downloads per live iOS device in the March 2013 quarter.
Android is a bit trickier, for two reasons. First, to get to an active base we again have to rely on interpolating cumulative numbers, in this case Android activations, with the same precision problem. Doing this, and taking the same trailing 24m sales, my model says there were 590m live Android devices at the end of 2012 and 680m at the end of March, an average of 635m. This implies an average of 15 downloads per live device in the quarter. Given the degree of imprecision in the model, this is probably close enough to be the same.
Just to repeat - the data is not exact enough for these to be more than reasonable approximations. It's quite possible that Apple is at 15 and Android at 10, or the other way around.
But then there's the second problem: Google's data, both for activations and downloads, does not actually give the fully picture for Android:
- There are many third-party Android app stores, including Amazon's, for which we have no data, and piracy also appears to be more widespread on Android
- Android in China is largely absent from both activations and installs, since most Android in China is sold without any Google services and so never appears in Google's statistics
Finally, of course, we have no hard data at all for Google Play revenue. Apple gives cumulative revenue on the same basis. This allows me to estimate that gross revenue on the app store (i.e. including Apple's commission) is running at about $1 a month per live device, and has been stable for at least a year. Google is not so forthcoming.
Finally, these numbers are accelerating. Apple did 5bn downloads in the three months from December 2012 to March 2013, and then another 5bn from March to 15 May. The lack of precision means we can't say this was double the rate, but the trend is clear, and it looks the same at Android, which announced 'over 2.5bn downloads' in the last month' For all the talk of HTML5, apps are as popular as ever.
Note: both Apple and Google derive these numbers properly. Updates, re-downloads and downloads to a second device are not included. It's one download per user account per app. Matthew Panzarino at The Next Web went and asked.
Interesting that both Apple and Nokia are running campaigns around the camera. For Nokia this is a real point of differentiation: the Pureview camera tech is very good. For Apple it's part of the broader lifestyle positioning: don't worry about widgets, just enjoy your phone.
The poignant thing, of course, is that Nokia doesn't have Instagram, or many of the other photo-sharing services: it had to launch the new 925 with Hipstamatic (remember that?)
Both, incidentally, are doing good advertising at the moment, unlike some others in the space. Although I'm not sure about the wisdom of a close-up on the ISO settings in the Nokia spot...
There are all sorts of ways to estimate the addressable market for a high-end phone like the iPhone. One way is to look at price sensitivity, the propensity of lower income groups to spend on expensive entertainment products and how that might be affected by the increasing capabilities of cheaper devices. Another is to look at the mobile operators that do and do not actually offer the iPhone, which gives you a figure for people who cannot in fact buy one, at least on subsidy, even if they want to (assuming they're not willing to switch operator).
However, it seems to me that the central issue in sales of the iPhone and other high-end models is the availability of subsidies themselves. After all, if a phone is good enough for consumers to want it and the OEM has the scale and budget to provide it (an issue for some) then distribution is just execution and time, not a fundamental constraint. Ability to pay, too, is a moving target: people substitute spending for products they really want, and $600 isn't that much money over two years for a large proportion of the world's population.
So actually, the real questions are the big numbers: how many people are getting subsidies? How many are buying phones?
Hence, my first chart shows just how the smartphone install base compares to the total global population.
There were about 5.2bn adults on earth at the end of 2012. Of those, around 3.2bn had mobile connections, though not necessarily phones (some people have a SIM but no phone, and many have multiple SIMs, which is why the number of connections is well over 6bn). Within that, roughly 1.1bn had 'smartphones' at the end of 2012, of which around 900m ran either the iOS or Android versions of Unix. (As an aside, it is pretty striking that almost a fifth of the earth's adult population has a Unix box in their pocket.)
So how does that relate to contracts, and hence subsidies? According to my old colleague at The Mobile World, there were around 1.6bn contracts in place at the end of 2012.
For now, the overall smartphone base remains below the contract base, though it is growing fast. But the non-contract portion of the world's population is much bigger. If I turn the chart upside-down the point is clearer.
At the end of 2012, 2bn adults had yet to buy a mobile connection of any kind, and another 1.6bn were on prepay and not eligible to get subsidies. It doesn't matter how many operators Apple or Samsung puts on distribution: those people are not going to buy a $600 phone.
However, that leaves about 1.6bn who might.
Playing with a new chart format. This shows quarterly handset unit revenue at the 8 'branded' handset OEMs, over the past three years. It includes all phones, not just smart.
The polarisation of the industry is pretty clear. Not shown: the 'other category - Chinese OEMs making up increasingly large volumes for which this sort of data simply isn't available.
"History teaches us nothing except that something will happen' - Hugh Trevor-Roper
In the 1990s, the PC market was mostly a corporate market (roughly 75% of volume). Corporate buyers wanted a commodity. They were buying 500 or 5000 boxes, they wanted them all the same and they wanted to be able to order 500 or 5000 more roughly the same next year. They wanted to compare 4 vendors on price with the same spec sheet. They didn't care what they looked like (and they were going under a desk anyway) and they didn't care how easy it was for non-technical people to set them up because the users would never touch the configuration. Nor did they care much about the user interface, because most of the users were only going to be running 1 or 2 apps anyway.
Meanwhile with no internet, home buyers were mainly interested in a PC that ran the same software they used at work (and all of the games were for PC). They may have known Macs were supposed to be easier, but Apple had no shops of its own and what TV advertising it could afford didn't show off the user interface (it's hard to demo an desktop computer's user interface on TV). And, of course, Apple's computers were ultimately beige boxes and not really that much prettier than PCs anyway. And they were significantly more expensive.
Hence, in this market all of Microsoft's advantages were in play, and none of Apple's. Apple, in Steve Blank's phrase, did not have product/market fit. The Open model deployed by Microsoft and Intel produced a generic commodity product that was exactly what the market wanted: Apple's model did not. Fundamentally, Apple's selling points were irrelevant, invisible or both.
Today, of course, Android, combined with chip makers such as Qualcomm and MediaTek, is producing a quite similar flood of generic commodity smartphones. Hence, there's a pretty common narrative that 'we've seen this before' - that the same open approach, producing the same flood of generic commodity product, will crush Apple in the same way.
It would also, necessarily, crush anyone trying to make a living selling high-end Android phones, which are ipso facto much less differentiated from a $200 Android phone than is an iPhone. This is one reason why BIll Gurley suggested Android may be 'the greatest legal destruction of wealth in history' (link), at least for the tech industry.
However, I'm not sure that's true. If one looks again at all of those 1990s PC market dynamics, almost none of them apply to the smartphone market. Phones are NOT generic, fungible commodities:
- Phones are bought by individuals on design and user interface
- Phone are also bought on price, and the iPhone is expensive, but the subsidy system weakens the effect (to a varying degree depending on the market and on the proportion of contract versus prepay). Moreover, the price gap between an iPhone and a cheap Android is much smaller in absolute terms than the gap between a Mac and the cheapest PC.
- Apple has a massive retail presence and has premium placement in every mobile operator shop
- It is in the nature of a phone UI that you CAN show it off in a TV spot - which Apple can now afford (originally, thanks to the cash from the iPod)
- Apple is stronger in apps than the competition, and that shows no signs of changing
In other words, Apple has product/market fit in the phone market in a way that it never had in the personal computer market. ALL of the key dynamics that doomed it in the computer market are fundamentally different in the phone market - this time, they all work in Apple's favour, and in favour of the high-end market in general.
Now, it is unclear just how many more people can afford to pay the price Apple charges for the iPhone (link), and it is unclear how or whether Apple would offer a cheaper product (link). But the underlying structure of the market is vastly more favourable to Apple than the PC market ever was. Simply chanting 'open wins!', as though you suffer a form of tech Tourette's (a phrase coined by Fraser Speirs), isn't necessarily relevant.
I've written a long (36 slide) deck for Enders Analysis on Apple and the smartphone and tablet markets, which will be out for clients on Monday. There are lots of different moving parts, and lots of different things to consider. I wrote a good-sized blog post on the iPhone issues (i.e. is the market for $600 phones saturated?) here, which got 17k views.
Fundamentally, though, Apple is two stories: iPhone and iPad. The iPhone is a premium product and smartphones have now passed 50% of all phone sales - it is possible that the market for premium phones is now approaching saturation (though I'm not convinced). Meanwhile the iPad clearly is nowhere near saturation, but at the same time the potential of that product and indeed the entire market is much more speculative: the tablet market could be anything from 300m to 900m units a year (and possibly even more).
In other words:
- Potential limits to iPhone growth are clear and could be quite close
- Future growth of the iPad could be huge, but is much more speculative
Meanwhile there isn't going to be any new Apple hardware until the autumn (i.e. both the iPad and iPhone remain on an annual release cycle for now and the iPad moves to the Christmas buying period with the iPhone), and the sales cyclicality is intensifying so sales will dip down until then. That means that the next chance for a growth spike at Apple, and an answer to the 'is it growing?' question, won't be until the December quarter revenues come out in January 2014. That's going to be a long wait.
Numbers for the three big US operators that carry the iPhone (T-Mobile, which didn't in Q1, hasn't released the Q1 numbers yet). iPhone was 57% of smartphone activations and 49% of ALL contract phone sales. Smartphones are 86% of contract sales.
To be strictly precise, these numbers are a mix of 'activations' and 'sales', which are not always consistently reported. The main delta is in second-hand sales. However, these do not (yet) appear to be big enough to change these numbers much.