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  • A Brief Rant About iPhone Saturation

    October 29th, 2015

    The critics say that, any day now, Apple will hit the limits on iPhone growth. Sales will flatten and will eventually begin to drop. Perhaps that’s already happened with the iPad, witness the sales decreases since 2014, after a four-year run-up. Of course, tablets represent a different issue entirely that’s outside the scope of this column.

    Still, Apple has to prove itself each and every quarter. That the iPhone continues to gain against Samsung and other companies is evidently not so important. At one time, it seemed that Samsung was the unstoppable giant, until people decided that they weren’t so crazy about Galaxy smartphones despite all the praise lavished by some members of the tech press. Indeed, Consumer Reports continues to rate a Galaxy a tad higher than an iPhone, probably because it has more features. Less important to them is whether those extra  features really enhance the customer experience, or are merely window dressing to look impressive on bullet point charts.

    In any case, Tim Cook attempted to give the financial community reason to be optimistic during the quarterly conference call. He cited two significant numbers that indicate the potential. One was the fact that 30% of iPhone sales in the September quarter went to Android switchers. And that’s mostly before the new Move to iOS Android app appeared in Google Play. That app eases the process of moving your stuff from Android to iOS.

    But I do wonder how Apple managed to come up with that statistic, unless the numbers are based on some random surveys of new customers. It’s not that you have to tell them what you were using before you bought your first iPhone.

    Unfortunately, probing but sensible questions of this sort are never asked by the financial community or the few journalists who are granted an interview with Apple’s CEO. But I will take it as accurate until I have reason to be skeptical.

    Evidently that percentage has increased in recent months, and it may just be the result of the fact that Apple went to higher display sizes beginning with the iPhone 6 last year. That long-expected move essentially eliminated the key feature the competition offered that Apple couldn’t match. Yes, there are still wider ranges of display configurations on other smartphones, but a tenth of an inch or two is no big deal, although some desperate companies might want you to think it gives you a choice. To me, it’s a choice of confusion.

    The other figure is of equal importance, and that is that only a similar percentage of iPhone users have upgraded to the newer versions. That leaves a huge opportunity for sales to people who are upgrading their gear, and maybe this will be that year. Despite the similar look, it’s been shown that the iPhone 6s actually offered far more new and enhanced features than its predecessor.

    Cook also cites the sales opportunities in developing countries, particularly as they establish and expand LTE networks. This doesn’t mean Apple plans to cut the prices any, but evidently iPhones remain aspirational products that more and more people whose incomes are growing will consider.

    Certainly the wireless carriers are doing what they can to entice you to upgrade. New lease-purchase schemes allow you to pay a monthly fee and upgrade your smartphone every 12 months, 18 months, or even two years without an extra charge. I think there are one or two plans out there that’ll support upgrades every six months, although that hardly makes any sense unless you are never satisfied. Apple also offers such a deal at their U.S. retail outlets, and that might be expanded to other dealers and countries.

    In short, if you opt for such payment schemes, you will never stop paying. Well, amend that. You can continue paying without upgrading until the end of the contract, usually two years. You then own your iPhone free and clear.

    Such purchase schemes help the industry as they look more and more towards upgraders to fuel smartphone growth, or at least keep it from flattening. A combination of upgraders and people buying a specific model for the first time might work for a time. So long as Apple can count on a decent number of Android switchers, that will also push growth, although a plateau is inevitable. Otherwise, they’ve have to sell an iPhone to everyone on Earth to keep going.

    It does help Wall Street that Apple’s guidance for the current quarter is in the range of analyst estimates. If revenue matches those predictions, it’ll mean that the iPhone will continue to grow in the current quarter, though no doubt at a slower rate than last year.

    I also wonder how long customers will tolerate the endless upgrade cycle. Obviously people are keeping their iPads longer than expected, which is just one of the reasons sales have fallen short. So how long can Apple keep coming up with compelling reasons for you to buy a new iPhone? Isn’t there a point where even two years will be too short?



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    4 Responses to “A Brief Rant About iPhone Saturation”

    1. dfs says:

      One issue is that different devices may turn out to have different replacement cycles. It is commonly accepted that a computer becomes seriously obsolescent and requires replacement after 3 – 5 years. But there is no such consensus in the market regarding the life cycle of such devices as tablets, smartphones, and probably least of all regarding wristwatches (in some families watches of the traditional kind are passed down from one generation to the next, the premise that a Rolex or a Philippe Patek becomes obsolete within a few years would strike everybody as absurd).

      Case in point is Apple’s new scheme which allows you to pay a certain amount per month for an iPhone and replace it annually. The feature of this scheme which has largely passed without comment in the press is that for the first time Apple is making a tacit commitment to bring out a new iPhone more or less on an annual schedule, and an iPhone sufficiently improved over its predecessor that it is significantly more desirable (AT&T and its major competitors obviously feed off a similar expectation). In other words, it wants the purchasing public to accept the premise that the standard life cycle of a smartphone is one year. So it has painted itself into a corner where it is under pressure to justify this premise. As the product becomes more refined, sooner or later it may find that doing this is a hard thing to do.

    2. hotspring21 says:

      Apple introduced their biggest feature in iphone 6 – the big screen bump. That excited lot of people to upgrade and Tim Cook touted “huge android switchers”. Yet, if you look at global market share, Apple’s share has hardly moved the needle. It’s up from 12.5% 2014 to 13.5% 2015. That’s barely budging the global smart phone marketshare despite Apple pulling out all stops. Another point to think about is that whether iphone is really “aspirational” for people in emerging markets. When iphone 6s costs more than several month’s worth of pay, people often stop and think whether they really need an iphone. Even in China where it’s supposed to be gangbuster Apple market, average annual household income is only $10K. Apple had better take care of people of lesser means better if it wants to increase market share. Meanwhile, Android really going gang busters with amazing entry level phones like Xiaomi Redmi Note 2 which is better than iphone 6 in many respects (octa core cpu scoring 50K on antutu, 5.5 1080p screen, 2GB ram, removable battery/ SD card slot), yet cost $160. Soon (if not already) for most people entry level Android phone will meet all their needs, delivering buttery smooth performance and great experience. Only hard core gamers or people with cash to burn will want flagship for top of the line performance.

      • @hotspring21, You’re missing the point. It’s not market share. Apple scoops up most of the profits in the industry. It’s remains an aspirational brand, and that’s not showing any signs of changing, despite the spin of Android dominating everything. Android dominates mainly in the market segments were it’s almost impossible to earn a profit. Apple won’t go there.

        Peace,
        Gene

    3. hotspring21 says:

      Yes, missing point depends on what is your objective. Apple’s objective is to maximize the profit regardless of strategy. If it can make most money just by catering to billionaires only, it will do that. Google on the other hand, wants to maximize android smart phone usage by everyone on planet earth, direct profit on handset sales being secondary. So that’s the reason why Android so thoroughly dominates global smart phone market.

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