As I pointed out in an earlier post, the iPhone is now roughy half of ALL smartphone sales in the USA, as reported by the operators themselves, who really ought to know:
And yet globally, Android is outselling the iPhone 2:1. How to explain the discrepancy? In a word, price.
Relative to most other developed markets, the US mobile market is structured around significantly higher usage, higher monthly bills and much less competition on handset subsidy:
Crucially, unlike almost everywhere else, US operators do not vary handset subsidies depending on what contract is taken out:
- The iPhone 4S 16Gb is available in the UK at 10 different prices (including free), depending on what contract you take out
- In the USA, it costs $200 on any contract
US operators also offer far less flexibility in the contracts that they offer, and have a much higher entry cost:
- For all 4 major operators the entry price to get a smartphone on contract is $80/month, including the minimum SMS and data packages, before any handset cost
- In the UK, for illustration, you can get a smartphone for £10 ($16) / month
The full spread of smartphone offers in the US and UK is shown in the chart below.
The iPhone’s factory gate price averages around $650, versus $250-$350 for the Android manufacturers, and this is reflected in the fact that the iPhone is priced at a premium in both markets. It is not subsidised more in the USA than elsewhere, nor is it subsidised more than other handsets in the USA. Rather, the difference is in the total cost of ownership - the TCO:
With a minimum entry price of $80/month and a handset price of $200, the minimum 24 month contract TCO for an iPhone 4S in the USA is $2,120, whereas the minimum contact TCO for a ‘free’ smartphone is $1,920. For a US consumer, the potential saving from getting a cheaper smartphone (on contract) instead of an iPhone is just 10% of the 24m TCO
Conversely the lowest TCO at which a consumer can get an iPhone in the UK is just $998. This is under half what they would have to pay in the USA: however, it is also possible to get a smartphone on contract in the UK for a TCO of just $384 – 20% of the US equivalent
Hence, an American can only save 10% over two years by getting a ‘free’ smartphone over an iPhone. In the UK, the iPhone is 160% more expensive than the cheapest smartphone offer.
(This is an extract from a report I published for Enders Analysis - contact me for details)
July 2012 update: This was written before some US operators started offering the iPhone on prepay, which of course changes the TCO options. However, prepay is a (very) small niche in the USA, unlike elsewhere. The new shared data plans also affect the dynamic.
The underlying point remains: American spend substantially more on their monthly phone bills than people almost anywhere else, making the iPhone price premium much smaller as a percentage of the TCO.