Switching rates for US smartphone users suggest 50% penetration by August 2012

The latest comScore MobiLens is out and it allows an update to the picture of the US phone using population. Through the three month period ending May 2011, smartphones were in use by 76.8 million or about one in three US phone users. Here are some other highlights:

  • A total of 513k users switched into using a smartphone every week during the period, a rate of switching consistent with the last 17 periods (average of 510k/wk).
  • Penetration of smartphones increased by 940 basis points, slightly higher than the 900 bp increase in the last period but consistent with average.
  • Using a four-period trailing average and linear extrapolation, 50% penetration will be reached by August 2012. “Summer 2012” seems a safe bet as that target has not changed much.

I’ve updated the countdown counter (Phone Tipping point at top of right column on this page) to reflect the new date.

The following charts show the penetration and switching rates.

 

 

 

The Post-PC era will be a multi-platform era

Windows Phone Marketplace has reached 25,000 apps. That’s an impressive figure given that so few devices have actually been sold. Compared with Android which is activating half a million devices per day, Windows Phone seems like a rounding error. According to Gartner, 3.6 million smartphones using a Microsoft mobile OS were sold in the first quarter of 2011, of which 1.6 million were Windows Phone 7. That implies a daily activation rate of 17,500 per day or one WP device for every 28 Android devices.

And yet the number of apps on Windows Phone is more than 10% of the number of Android apps and Android Apps are about half of iPhone apps. As far as Windows Phone is concerned, apps are being added faster than users. Why is this?

If we take the point of view that mobile platforms behave like the computing platforms of years gone by (i.e. Windows vs. Mac) then this is inexplicable. Developers should not be bothering with a distant third. This would be like betting on the Amiga in the era of Windows.

But we’re not in the PC era any more. That era had very high software development costs. It had very difficult software distribution channels (retail box sales typically) and very few categories of software with high price points. It was also dominated by institutional buyers which did not give quarter to small vendors. It was also a time when there were orders of magnitude fewer users and even fewer buyers.

The post-PC era is characterized by an explosion of ideas and application of new talent to software. It’s an era of immediate gratification and painless, one click distribution. App production is a cottage industry not something entrusted to only a few experts or those who can raise venture capital. It allows the small to distribute widely and get a shot at stardom. It has been (thankfully) avoided by enterprise buyers. The result is an explosion of apps: well over half a million new apps have been built in three years on three platforms that did not exist three years ago.

So the very reasons which are driving developers to spread their bets across all and any new platforms should indicate the potential for new platforms and the sustainability of small platforms. The thesis that one dominant platform wins the mobile “war” is naive. The post-PC era will be a multi-platform era. Developers already understand this. Platform vendors know this. It’s time to unlearn the lessons of the PC era.

The Critical Path #3: It's Good to Be King – 5by5

The Critical Path #3: It’s Good to Be King – 5by5.

July 3, 2011 at 6:00pm

Horace Dediu and Dan Benjamin discuss the power of cash to control supply chains in the post-PC era and how Apple is challenging conventional wisdom about its value to shareholders.

RUNTIME: 57:19

The Critical Path is also available on iTunes. Don’t miss a show, subscribe.

The Android (in)adequacy: How to tell if a platform is good enough

About 10 years ago I met an advertising executive in New York who explained the difficulty of advertising a new brand of deodorant to consumers. “Most people never change their deodorant,” I remember him saying. “They pick one brand when they are young, and stick with it for a long, long time. If it works, why switch?”

The same theory can be applied to customers who are making the switch to smartphones today. Once they have picked a type of phone, whether it’s Apple iOS, Google Android or something else, it’s difficult, and often expensive, to switch. Consumers become comfortable with the interface and design of the phone and the apps they have purchased on that platform. If it works, why switch?

Many Smartphone Customers Are Still Up for Grabs – NYTimes.com

This quote says a lot. The notion that customers remain captive to a platform is well understood. After all, it seems impossible to get people to switch out of Windows (or Mac or iPod). Platform vendors are aware of this as the land grab for users seems to be running at full pitch.

However, there is a critical condition described in the quote above: “If it works, why switch?”  The condition which keeps users loyal is that the product they chose is good enough–i.e. “it works.” That’s a symptom of over-service and commoditization. If a product, like deodorant, is good enough you won’t be tempted to move to another brand even if it’s marginally better since the new brand has switching costs in the form of uncertainties (“Will it be as good? What if I don’t like the smell? etc.) People are inherently conservative and you can’t compete with comfort and familiarity by launching a marginally better product.

So with that in mind, why is it that millions are switching mobile platforms? Continue reading “The Android (in)adequacy: How to tell if a platform is good enough”

How much is an iOS user worth to Apple? About $150. Every year.

During the last WWDC Apple revealed that there were 54 million active Mac users. If we look at the history of the product we can see that it took about 5.5 years to sell 54 million Macs. If we assume therefore that the average lifetime of a Mac is 5.5 years and knowing that Mac sales generated revenues of about $73.8 billion then we can estimate the average revenues/year/mac user: $250.

Repeating the exercise with 180 million current iOS users who purchased about 200 million iOS devices and assuming a life span of 3.5 years gives the average revenue/year/iOS user of about $150.

These are recurring figures. If we assume these users are loyal then they will likely spend this amount indefinitely and each additional user will be worth a similar amount.

So, for example, if we assume that the number of Mac users reaches 100 million then we can also assume that they will generate about $25 billion/yr in recurring revenues.

Likewise, if we extrapolate growth of iOS to 500 million users then we can assume they will generate $74 billion/yr in recurring revenues.

Adding these together gives a potential recurring income level of $95 billion/yr for installed base alone (excluding iPods, Peripherals, iTunes apps/songs, and Software sales.) Today that figure is about $40 billion/yr. [1]

Interesting valuation exercises can follow. [2] It would also be interesting to perform a similar analysis for other vendors/platforms.

—

Notes:

  1. Note that actual sales are considerably higher than this figure as new customers are added. These figures should be considered “baseline” sales.
  2. Thanks to a kind reader for suggesting this line of analysis.

Nokia a trop écouté les réseaux télécoms

My thanks to Robert van Apeldoorn, journalist for Trends Tendances Magazine, for asking good questions. My responses are reproduced below. The article (in French) is titled “Nokia a trop écouté les réseaux télécoms” and can be found in the June 23rd edition of the magazine along with more details in the article “Comment Nokia peut-il renaître?”.

-About your post “Does the phone market forgive failure”, that puts forward the idea that all mobile device vendors experiencing losses never really recover… It seems that this possible “rule” is more severe than in the computer industry. If Digital Equipement, Compaq, WordPerfect did fail, IBM and, yes, Apple, did survive failure and rebound strongly. Do you think that there is a difference between the industries? What makes the failures more lethal in the mobile device market ?

The observation is unique to the mobile phone market and even there it’s only an observation not a rule. It could be that Nokia will be the first mobile phone company that will recover from severe crisis, but history shows it to be very unlikely. I try to shed some light on the reasons why it’s unlikely and what makes the mobile phone market so unforgiving. I think much of the problem rests with the fact that mobile phones are sold indirectly, through intermediaries who are amplifying both success and failure. A company like Apple was able to recover in the computer industry because it launched new products like iPod which could be sold directly to consumers. It had to convince the consumer and only the consumer. Having to convince a distributor, retailer, value added reseller, operator and consumer would be much more difficult. These intermediaries are “institutional” buyers who are risk averse and have low tolerance for untested ideas. Institutional buyers need to think about dealing with other people’s money not just their own so they are doing the right thing from their point of view.

Nokia needs to persuade first operators, then distributors and then consumers that its new products are great (even though maybe the old ones were not so great.) That’s tough. Apple works in the other direction. It creates consumer demand then “sells” that demand to the intermediaries as needed.

These intermediaries (which Steve Jobs famously called “orifices” to the market) Continue reading “Nokia a trop écouté les réseaux télécoms”

The iPhone at four; growing up or just growing?

Ever since the iPhone launched four years ago (to the day), the question on everyone’s mind has been: When will Apple expand the portfolio to reach into all market segments? I remember thinking in 2007 whether it would be in six months or a year that they would create a “mini”, “nano” and “classic” line-up which served them so well with the iPod.

Apple however took a different approach. To their credit, they focused on the platform and built a consistent experience around a fixed screen size to nurture an ecosystem. They also improved the power of the device so that experience would improve to be better and more robust. In other words, they treated every iPhone as not being good enough, needful of every megahertz of power, every pixel of screen and every minute of battery life. They polished the OS constantly and added APIs by the thousands.

In other words, they acted like a computer software company, not like a “device vendor” or like a handset manufacturer which was everyone’s (including mine) frame of reference.

Continue reading “The iPhone at four; growing up or just growing?”

Capital.bg | Nobody wants to buy RIM

Технологии и наука | Хорацио Дедиу: Никой не иска да купи Research In Motion RIM – Капитал.

My thanks again to Andrian Georgiev for interview questions [Bulgarian] related to RIM. My answers to his questions (in English) are below:

Q: What should RIM do to reinvent itself? Should it stray from its business-oriented image?

RIM had begun to move away from a business image already in 2005 or so when it started its “Pearl” brand and a consumer-oriented strategy. The company probably foresaw that business customers would not be enough to maintain the growth they had become accustomed to. The strategy has led to a growing popularity in Latin America and other regions like the Middle East where the product is used as a low-cost alternative to SMS for avid texters. Even in the US, many teenagers use Blackberries instead of iPhones because they can use it for the BBM service (at a lower cost). I believe that it is not coincidence that iMessage was launched.

The company’s salvation is not in branching into new markets but in establishing a credible platform. When Nokia announced that they would be the “third option” after the iPhone and Android ecosystems, they did not even mention the Blackberry. The fact that Blackberry is not seen as an ecosystem is the root of the problem.

Q: How should RIM accelerate the introduction of QNX?

Continue reading “Capital.bg | Nobody wants to buy RIM”

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