The Earning Power Of The iPhone
Without the iPhone, Apple would not be towering over the tech sector like a Leviathan, and people would be a little less effusive about “the genius of Steve Jobs.” And yet the iPhone still has miles to go to satisfy its commercial potential. Currently (first 2 quarters 2010) Apple has roughly 15% of the global smart-phone market, RIM has about 19% and Nokia leads with 42% (according to figures from Strategy Analytics).
Smartphones are only 18% of the total market. So with 15% of 18% Apple isn’t even among in the top 5 mobile handset vendors and has a meager 2.7% share of the whole mobile market. By contrast Nokia has about 40% of the market. But when a market is in flux, it’s not market share that matters, it’s growth. And iPhone sales are growing like wild bamboo.
The March of the iPhone
That’s also true of the smart-phone market itself. It is growing at about 45% while the mobile phone market as a whole grows at only 22% per annum. If you assume those growth rates will remain the same going forward (unlikely perhaps, but not impossible) it will be 2016 before the smartphone market amounts to even half of the total mobile market. So if Apple’s market share simply remains at 15%, Apple will have just 8% of the whole mobile market by 2016.
That’s clearly nonsense. Apple is well ahead of RIM and Nokia in terms of consumer preference, and has been since the iPhone launch. The past 3 years have featured many constraints to iPhone growth. Apple is still a relative newcomer to the market and even now has not completed all the partnerships and channel arrangements for many foreign markets. The marketing power of its Apple stores is absent in many markets and so is its advertising push. And further, in some markets it has tied itself to exclusive deals which automatically constrain its market share. This is particularly the case in the US market where its market share could easily double if it had deals with all the carriers, especially Verizon.
Most of these constraints will be fade away over the next two years and the iPhone should start to have as much market share as it has mindshare.
What is the iPhone’s potential?
Aside from consumer perceptions which are difficult to predict or tract, the following factors affect the iPhone’s market share:
- The incumbent competition. Both Nokia and RIM are in trouble. The jury is out on Palm until Hewlett-Packard releases something, but it was already a wounded animal. At best, it is unlikely to return to health for a year or two. The (old) Windows Mobile market share is in precipitous decline. Product loyalty is relatively low in the mobile market, and rapid changes in market share happen quickly because users changes phones so often.
- The rising competition. Google’s Android is clearly the primary competition and it is rising fast. Android will provide the iPhone with fierce competition. I personally expect it to become the dominant smartphone platform. We will probably see that happen over the next couple fo quarters. A whole bevy of handset vendors are banking on it, Android is a low cost component (as an OS) and it has a vibrant brant app store. Windows 7 looks good in prototype. However, it has yet to enter the market, so no-one knows what impact it will have. It’s main challenge will not be competition from the iPhone, but Android. It will have to fight for mindshare amongst the vendors who already champion Android. Windows 7 could easily be sidelined, but even if it is not, it’s hard to imagine it winning anything but a bronze medal, with the iPhone and Android sharing silver and gold.
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Nice article. Thank you.
What are your thoughts on possible iPhone margin erosion overtime due to intense competition?