A few weeks ago came the startling news that Apple has now been reduced to a niche player in the global smartphone market, at least from a "platform" perspective.
Android is now running away with the race with ~75% global market share.
Apple's iPhone, meanwhile, has only ~15% share.
Global Smartphone Market Share by Operating System by Quarter - By Share of Global Unit Sales - Q3 2009 through Q3 2012 - Gartner for Business Insider Intelligence (Click Image To Enlarge)
If the smartphone market were merely a "gadget" market, this wouldn't matter. Apple still has tremendous scale, and as its devoted fans often observe, it still arguably makes the best smartphones in the world. As a result, Apple is still the dominant player in the "premium" segment of the market, winning the hearts, minds, and wallets of rich consumers who have $600 to spend on a phone (or, more relevantly, carriers who will subsidize their phones).
But the smartphone market isn't just a gadget market. It's also a platform market. (Third-party companies build products and services that are built on smartphones.) And platform markets tend to standardize around the platform with the most market share, because it's easier and cheaper to build products and services for only one platform. Thus, in smartphones, platform market share matters.
Also, the "premium" segment of the smartphone market, the one Apple dominates, is already maturing rapidly.
More than 1 billion people worldwide now have smartphones.
These "golden 1 billion," not coincidentally, are the people who have most of the world's money. The next 6 billion smartphone buyers, meanwhile, don't have much money. So, for them, the price of their smartphone is going to be extremely important.
And, as yet, Apple doesn't offer low-priced smartphones that these folks can afford.
Kai-Fu Lee, a former Googler who now runs startup incubator Innovation Works in China, described the key dynamics of China's exploding smartphone market in a recent LinkedIn post.
The Chinese smartphone market is growing spectacularly quickly: From an installed base of about 50 million phones last year to a staggering 500 million by the end of next year.
Importantly, this explosive growth was triggered in part by the launch of affordable $100-$200 Android smartphones.
As in other areas of the world, Apple is a premium brand in China. But most Chinese can't afford to shell out $500 for a phone. And the Chinese wireless carrier business is not built around subsidies, the way the U.S. and European carrier businesses are.
So even though Apple is enjoying huge growth in China, it's missing out on the truly explosive growth segment of the market: Mainstream Chinese consumers.
Originally, China's market developed more slowly because of two reasons. First, usable 3G networks took much longer to develop than other countries. Second, there are few subsidies in China, so users had to pay one or two month's salary for an iPhone or Android. These inhibited the growth.
But both issues have changed. Broadband wireless is now over 58%, and smart phone prices have dropped to about $100 for an acceptable Android phone, and about $200 for a full-featured Android phone. Smart phones are now spreading like wildfire.
About a year ago, there were less than 50M users, basically affluent or tech savvy users who were willing to pay $500 for a phone and $30 a month for 3G. But now, students, young white collar, and even blue collar workers are swarming into the smart phone market!
The same thing is happening in India, another vast and burgeoning smartphone market. In India, though, Apple isn't even a strong "premium" brand, because it doesn't have the distribution system it has in China. Samsung and other Android vendors are cleaning up in India, while Apple tries to figure out how to sell $500 phones to people who don't make that much money in a month.
Apple's dominance of the "premium" segment of the smartphone market has allowed it to become the most profitable company in the world.
But the "premium" segment of the market is maturing, and the next phase of explosive market growth is going to come from lower-priced phones.
As Apple surrenders more and more market share to Android, meanwhile, it risks becoming an "also-ran" development platform. If that happens, the value of Apple's "ecosystem" will drop, and even the company's position in the premium segment might become threatened.
Apple isn't helpless here, but it also can't have everything.
As I described in a longer analysis of the smartphone market, Apple will soon have to choose between:
- Its extraordinarily high profit margin.
- Its global market share.
If Apple wants to defend, much less grow, its market share relative to Android, it's going to have to offer low-priced phones.
If it offers low-priced phones, however, its profit margin will almost certainly drop.
Defending market share is much more important to the company's long-term value than maintaining a particular profit margin, so this shouldn't be a tough decision for Apple. But it may cause some angst among the company's investors.
COMMENTARY: China now leads the world in smartphone activations.
Up until February 2012, the U.S. was the leader, claiming around 22 percent of the world’s Android and iOS activations. But between February and March 2012, China eclipsed the U.S. and now accounts for almost one quarter of smartphone activations globally.
This new data comes from mobile analytics shop Flurry, which in 2011 identified China as a mobile contender to watch out for and showed that Chinese consumers’ app sessions were growing by 870 percent during the first three quarters of 2011.
Now, Flurry is showing year-over-year growth between Q1 2011 and Q1 2012 at 1,126 percent — that’s for app sessions from Chinese consumers’ smartphones.
Here’s a chart showing overall smartphone activations for China and the U.S.:
Click Image To Enlarge
Since the U.S. has more longevity in smartphone consumption, Flurry still estimates that the U.S. has twice as many active smartphones as China. However, Flurry exec Peter Farago notes in the company’s report,
“With China now activating more devices per month than the U.S., this means that the gap is closing between the two countries in terms of installed base. Not only is China already the second largest app economy, but also could eventually overtake the U.S. as the country with the largest installed base of smart device users.”
China will be 2x the US smart phone market in a year! Only two years ago, China was a laggard with a tiny portion of the US. What happened?
Originally, China's market developed more slowly because of two reasons. First, usable 3G networks took much longer to develop than other countries. Second, there are few subsidies in China, so users had to pay one or two month's salary for an iPhone or Android. These inhibited the growth.
But both issues have changed. Broadband wireless is now over 58%, and smart phone prices have dropped to about $100 for an acceptable Android phone, and about $200 for a full-featured Android phone. Smart phones are now spreading like wildfire.
About a year ago, there were less than 50M users, basically affluent or tech savvy users who were willing to pay $500 for a phone and $30 a month for 3G. But now, students, young white collar, and even blue collar workers are swarming into the smart phone market!
Click Image To Enlarge
The figures above shows all numbers are off the charts -- Android activations, real usage of applications, broadband usage, and penetration into less developed areas. This year, there will be an installed base of 250M smart phones. Next year, there will be an installed base of 500M smart phones!
Right now, Samsung is the leader in smartphones in the Chinese market; however, as 4G LTE service comes to that area, the iPhone may see huge growth. Another vertical to watch in China is tablet adoption, especially as iPad adoption heats up there.
According to International Data Corporation (IDC), China is poised to displace the United States as the number one smartphone market worldwide in 2012.
Although China is only expected to surpass the U.S. by a very slim margin, Wong Teck Zhung, a senior market analyst with IDC's Asia/Pacific Client Devices team, warned in the report,
"There will be no turning back this leadership changeover."
Click Image To Enlarge
Along with increased competition in the region, IDC attributed Android smartphones priced below $200 and other low-cost smartphones as key drivers for growth of the smartphone market. Teck Zhung added:
Emerging domestic vendors will be another important engine of smartphone growth as giants Huawei, ZTE, and Lenovo continue to ramp up with big carrier orders due to their willingness to produce customized handsets. International players such as Samsung and Nokia are also expected to drive volume at the low end with cheaper smartphones.
Beyond this year, IDC researchers predicted that India and Brazil will enter the top five country markets for smartphone shipments by 2016, primarily thanks to the increased shift from featurephones to smartphones as 3G networks are built out in these regions.
Rest assured, the IDC acknowledged that mature markets such as Japan, the United Kingdom and the United States will continue to see their smartphone markets get bigger.
After all, a recent Nielsen study found that nearly 60 percent of all new cell phones sold in the U.S. are smartphones. Another report from Google in January found smartphone usage amongst consumers in the United Kingdom has jumped from 30 to 45 percent over the course of 2011.
Nevertheless, the rate at which they are growing is not expected to keep up with emerging markets.
Courtesy of an article dated November 21, 2012 appearing in Business Insider and an article dated March 15, 2012 appearing in ZDNet and an article dated March 21, 2012 appearing in VentureBeat and an article dated November 21, 2012 appearing in Business Insider
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