On October 5th, 2011 I asked Why is there no iPhone 5? The question was prompted by the pervasive media surprise that the 2011 iPhone launch was the "4S" and not a completely new design.
I answered this question with the conclusion that an iPhone "5" in 2011 would over-serve the market by offering more than most buyers would be looking for. That was because there could only be three groups of users the iPhone 4S would need to target: existing iPhone users, smartphone non-consumers and non-iPhone smartphone users. The majority of iPhone users in late 2011 who would be willing to upgrade were iPhone 3 or 3GS users and for them the 4S would be a huge improvement. Non-consumers would find the 4S attractive, as they would any iPhone; and existing smartphone users (mainly Android) would still be in their first contract and not likely to be looking to upgrade. Given the conditions at the time, the 4S was an adequate fit with customer expectations.
I wrote "The question will be very different a year from now when most early Android buyers will be looking for a new phone and when most iPhone 4 users (all 70 million of them) will be looking for a new iPhone. That would seem like a good time to introduce a new iPhone '5'."
It is now a year hence and we can consider how these same three targeted user groups see the new iPhone:
Matteo Fumagalli is a student of economics at University of Insubria, Italy. He is writing a thesis for a bachelor's degree analyzing the smartphone industry.
He asked me to answer the following questions:
-First question is about you. Why did you found Asymco?
I founded the company to develop software, mainly apps. I began writing the blog as a way to drive traffic to the site. I would have preferred to build a blog only but did not think it was possible to earn any money doing that so I treated it as a hobby. Even after the site became more visible I changed from development to consulting and did not expect that writing in itself could be self-sustaining. It took about two years before I felt comfortable with the idea that I could do writing and speaking exclusively. I am still exploring additional business models however.
-You worked 8 years as analyst and business development manager at Nokia and you anticipated their current crisis with your first post on Asymco. Do you think Nokia will have the chance to recuperate, and eventually what will be the role of Windows Phone?
Nokia may recover or remain independent, at least. But it will be far smaller. The idea of a return to dominance or 40% share seems very unlikely. As I pointed out in the first post, the organization cannot cope with the new marketplace. Large organizations require extreme stress and damage to change. It's a phenomenon at all levels of society that success results in rigidity. From the individual to the nation to the civilization, success makes change very, very difficult.
Windows Phone is an attempt to create a third ecosystem. I am concerned that the logic of having a third alternative is not solving a consumer need but an operator need. In other words, consumers are not asking for a third option and when they are presented with a third option they are not excited by it. The consumer does not think in terms of increasing their options. They decide once every two years which phone to buy and that is the end of their thinking on the subject. By focusing on the operator's needs the platform is fundamentally mis-positioned.
What Windows Phone needs to be positioned as is either as fundamentally different, solving a different job for the consumer. Or fundamentally better along a new dimension like price or convenience. These are some of the claims it makes but they are very weak claims right now.
-What about RIM, other company which is going through difficult times? What do you think about their decision not to move to Android and stake everything on their closed OS?
The decision to remain with their own platform may sound risky but it's a simple decision about retaining their business model. RIM is not a general-purpose manufacturer. They have always made an incremental margin on services, messaging and email. For them to use a third party OS would force them to build within the constraints of that OS or platform. That would result in a difficult competitive environment and not one where the company could sustain margins vs. larger competitors. In other words, the company faced two risky alternatives. They chose the risk they were more familiar with or the one that they already had an operating company organized for.
-Recently Apple lost market share in Europe and China favoring Android. What will be the impact of iPhone5 on this situation? As expert of Apple strategy, do you think Apple has done something wrong in these last months?
Apple lost market share when considering the smartphone market. I agree with management (and I've argued this before they did) that the market for the iPhone is all phones, not just smartphones. In that context, Apple is increasing its share consistently. Since Apple has only one product in the market (with some residual older versions as well), it's very seasonal. It would be natural to see variance in share through the year. What should be watched is a four period average performance. Overall, Apple is growing its iPhone business faster than the overall phone market so it follows that its share is increasing. I see a long-term potential for the iPhone having 20% share of all phones. That would give it an installed base of over 1 billion users.
-Smartphone penetration is reaching 60% and we probably talk about saturation in next 2 years. What will be for you the future role of tablets and phablets, they will be threaths of substitution for smartphone or maybe an opportunity to offer complementary products?
The evidence so far is that buyers don't mind having more than one device. It makes sense if each device is hired for a different job and it cannot be general purpose enough. We've seen this phenomenon with mobile phones where penetration in many markets is above 100%. That implies that even a basic feature like a phone number cannot serve all the needs on one person. To me it seems likely that one person will have more than one device and more than one form factor.
-What do you think about legal battle between Apple and Samsung? There will be consequences also for Google and Android?
I defer to my blog post Deus Ex Machina. Legal battles are not strategy.
-What will be the role of the possible entry of Amazon in the smartphone industry? It's too late for them?
Amazon is a retailer. I find it hard seeing a retailer becoming a platform provider. Not only is retail a difficult to expand business model internationally, but it's hard to imagine partners being comfortable building an ecosystem on top of retail. Retail is not sufficiently flexible as a business model.
comScore data shows July penetration at 48.8% and a monthly growth in penetration of nearly 2 percentage points. Given the rate of growth, it's nearly certain that we've crossed 50% in August.
The historic growth is shown below:
The platforms making up the smartphone market in the US have seen unequal shares of this new population of users. The following diagrams show how the install bases have changed in absolute and share terms.
To round out the analysis, here is the net user gains for the platforms showing the net addition or loss of users since early 2010.
What I look for in this data are signs of slowing adoption (so far there aren't many), subtle shifts in platform performance (as seen in RIM's move from consistent net gains to consistent net losses) and signs of churn or the transfer of users from one platform to another (rather than from non-consumers to consumers.)
The story in the latest data seems to be that Windows Phone has turned in a first significant gain in users (378k new users). Its share seems to have stabilized at around 4%. This is in contrast to BlackBerry whose hemorrhage continues (a net of 7 million users defected from the platform in the last 12 months.)
On this occasion of reaching what I've called the tipping point, it's worth reflecting on just how far we've come. In December 2009 the total number of smartphone users in the US was 39 million whereas now it's about 115 million. That's a total of 75 million new users in a bit more than two and a half years, quite a story there.
And yet, half of the phone users still remain to be converted. It's possible that the growth in adoption will remain steady but it's also possible that it might slow down and follow the "S-curve" adoption rate that new consumer products typically follow, perhaps reaching saturation at some point below 100%.
If growth slows immediately then there will be more churn between platforms. If rapid growth can be maintained then there will be more competition with non-consumption rather than between rivals for some time still.
The changing character of competition will need to be reflected in product strategies. Non-consumption is typically an easier competitor to beat with features. Switching users from a comparable product is harder and may require pricing pressure. To solve this in a time of transition, new products will have to split into a set offered to new users and another set offered to switch users.
You can see the pressure of this on the Windows Phone platform most of all. As a late comer, does the Lumia range from Nokia fit the bill as targeting non-consumers or switchers?
In other words, has the brand been positioned as a "better" smartphone or as a "good enough" smartphone? It matters because the "good enough" position has been held by Android overall while the "better" position has been held by iPhone. However, not exclusively. We've seen "better" positioning from Samsung's Galaxy S and Verizon's Droid brand and "good enough" positioning from the older variants of iPhones.
So it's quite difficult to see where Lumia fits in the US. There is no obvious opening. The next 75 million first time US smartphone users may be attractive to Microsoft and Nokia but it's not clear why, having waited so long, those buyers will be persuaded by the new brand. Perhaps subsidies will help. As indicated with the first US Lumia launch, the product was priced at a discount to the prevailing price point for a premium smartphone. Perhaps that's the "good enough at a good price" strategy.
If so, it has not been a home run. Perhaps there is still time for this strategy to play out in 2013 but what if Lumia is not actually being marketed this way?
At launch Nokia has tried to promote the brand as something "better". Better camera, better charging, better maps, better screen, etc. They have promoted on Twitter with the #switchtolumia hashtag. Microsoft has had the "Smoked by Windows Phone" campaign targeting specifically existing smartphones.
I don't want to suggest that one positioning is more appropriate or more likely to succeed than another. That's a tough call. Either could be the right choice. What I would suggest however is that there needs to be clarity of thought and communication on the matter.
Perhaps the launch of the new Lumias (920, 820) is part of a clear positioning toward the high end. But the absence of pricing and distribution and how the operators will be engaged leaves the question open. The strongest criticism of the effort so far is this lack of clarity about how the product is intended to be perceived by the buyer.
A lack of clarity in positioning is symptomatic of a lack of clarity, or maturity in strategy.
``It’s costly and has unpredictable consequences. That makes it a very bad business model. I suppose both companies have agendas that are not visible in court and perhaps Apple is signaling to other parties, and perhaps Samsung is using it to raise its profile. It still seems that unintended consequences may arise and the result could be very bad for everybody,’’ said Horace Dediu, founder of equity-research firm Asymco, in an e-mail interview with The Korea Times.
The above was a quote from the article Samsung can’t afford to lose Apple fight by Yoo-chul Kim from The Korea Times. Yoo-chul contacted me via email with a series of questions. I want to share all his questions and my answers as well:
Samsung wides market gap with Apple, according to research firms. You think the gap will further be widen and please tell me why
As Samsung converts its phone portfolio to be all smartphones, it is very likely to reach much higher smartphone volumes. One year ago Samsung sold about 56 million feature phones. Last quarter it sold about 43 million. The smartphone portion increased from 20 million to 50 million. At the same time, Apple has maintained a growth in its smartphone business of about 100% on a yearly basis. I expect that to continue into 2013 as well. Therefore it's possible that Samsung could sell 290 million smartphones in the next 12 months and Apple could sell about 200 million in the same time frame.
However, it's important to understand that the companies compete on different bases. What I mean is that what generates a profit (i.e. payment by the consumer above what a product costs) is different for each company. Apple is a platform company that sells access to the iOS ecosystem across many other device types. Samsung sells consumer electronics with limited "network effects" but desirable features. In this view, the gap in device sales is "asymmetric" and not reflective of the actual competition which is between Google's Android and Apple's iOS as forms of access.
Samsung's rapid rises mainly due to the company's heady dependence on Google Android. If Google applies better software for Motorola, then you think Samsung will face difficulties?
Think of Google as a supplier to Samsung. No manufacturer wants to have a situation where they are dependent on only one supplier, especially when there are huge substitution costs for another supplier. And even more especially if that supplier owns one of your competitors. However, it's unlikely that Motorola will become a strong competitor to Samsung. I also don't expect Google will damage their OEM "customers" by favoring Motorola. Motorola can't become big enough quickly enough to be a threat to Samsung. What is more likely to be a problem for Samsung is ZTE and Huawei. They are on the same trajectory that Samsung was on 10 years ago. For Samsung to beat them in the future it will need to develop products that nobody can copy.
How about software? Samsung is good to roll out price competitive models, however, software is always problem. Any advice for this issue?
Software is hard and expertise can't be quickly acquired. It takes time. Only advice [I have] is that efforts must be patient and there need to be many experiments like Bada and Tizen. Google started with Android in 2005 and Apple started with iOS in 2003 or 2004.
How about the patent dispute with Apple and Samsung. The patent war is helping Samsung see a rise in its brand awareness and that also worked for Samsung to grab more shares in smartphones?
It's very difficult to measure the impact of litigation, both in the positive and negative. It's costly and has unpredictable consequences. That makes it a very bad "business model". I suppose both companies have agendas that are not visible in court and, perhaps, Apple is signaling to other parties and perhaps Samsung is using it to raise its profile. It still seems that unintended consequences may arise and the result could be very bad for everybody.
Samsung wants to become a market creator not just a fast follower. For me, it's quite negative for Samsung to create a wholly-new eco-systems because Samsung's edges are coming from manufacturing, not creative thinking. What do you think? If Samsung wants to be a creator, what conditions should Samsung need and what things should the company do?
Unfortunately, manufacturing excellence is not enough to remain successful long term. US companies were successful, then the Japanese, Taiwanese, Hong Kong, and now Chinese. Companies either adapt or become irrelevant. Building ecosystems is the new basis of competition but it's not the only option. Unfortunately we don't know what will be necessary to build the next basis. What matters is experimentation and the building of new businesses. I can't offer specific recommendations as there is no recipe book for how to create new markets.
For your views, who is much better so far since the trial has begun in the US. Samsung or Apple?
I cannot comment on this. Performance in court can only be judged by those present and I'm sure everybody present disagrees.
You think Apple is enjoying its so-called a homeground advantage for the trial and is there any possibility that the issue to go for the highest court in the US. My Samsung contacts say that's the possibility, though.
Again, I don't have an opinion on legal matters. Broadly speaking, IP litigation is similar to playing the lottery.
Need your perspectives about Google's support for Samsung. Google confirms its supports for Samsung for an united front against Apple because the fight between Samsung and Apple is a kind of version that represents Google and Apple fight. Any comments about that?
I believe Google does support Samsung. I question however how this relationship will develop over time. I attached below commentary from a researcher at Deutsche Bank on Android in China. I think it has some clues about how Google treats its partners.
What are pre-conditions before Samsung making an action to sign a peace treaty with Apple?
It depends on the motives behind Apple's actions. I think they want to see a "no copying" rule. They don't mind competition and Android could be a help in the long run by moving users from feature phones to basic smartphones which could later be upgraded to Apple phones. But what I think they want is to signal to others that direct copying is unacceptable. Essentially, the work of their designers is very important to them and copying destroys [the designers'] incentives to do breakthrough products.
The second quarter showed continuing growth for Android with 19 points of share growth from a year ago. Only Windows Phone showed a gain y/y in share up 1.6 points to about 3%. In the same time, Bada lost half a point, iOS lost 2.1 points, RIM lost 7.2, Symbian 11.4.
The result is shown in the graph below:
I also show a "before-and-after" pair of pie charts which show the difference in smartphone platform market share from the same quarter three years ago. Android went from 3% share to 67% while Symbian went from 41% to 4% and RIM went from 19% to 5%. iOS increased its share from 13% to 17%.
If this trend continues Android could reach 50% of all phones sold in a few years. That's a run rate of 200 million per quarter. And it's likely that 100 million of those will be shipped by Chinese vendors.
However, looking at the global picture can also miss some important trends in local markets. Had one looked at the global smartphone business in 2005, the conclusion would have been that Symbian would be the dominant platform in perpetuity.
What affected the global market was a change in the US: the launch of iOS and thereafter of Android. The US, a smartphone backwater until then, became the most vibrant market and today it's the most penetrated and has the highest ratio of smart to non-smart of any of the major regions.
The curious thing about this vast market is that it's still not truly open. There are technology and political reasons why some platforms are permitted to sell in one region or not. The iPhone is not available on either the largest Chinese operator or on the largest Japanese one. It's largely absent from India because of distribution (i.e. subsidy) and much of South America. Even in the US, the iPhone is still, after five years, not available on one of the top four operators and has only reached another less than a year ago.
What intrigues me is what would the market look like if distribution were not an issue. What if there was equal choice to all buyers. We can't test this question directly but we can ask. But there is some pattern we can look at in the US data. Thanks to recent revelations at the Samsung vs. Apple trial we can see the effect of increasing distribution in the US.
The data on smartphone market share by carrier can be blended with data from carriers about iPhone activations (which are a proxy for sales, see note below) to give a more precise figure of market share in markets where iPhone participates.
For example, when the iPhone was only available on AT&T, one could measure iPhone market share vs. the global smartphone market, or the US smartphone market or within AT&T alone. Some assumed that the AT&T share would be reduced once the product would become available on Verizon or other US carriers. However there was no appreciable drop. Share in Q4 2010 was 63% at AT&T and it was 63% a year later after the iPhone was available for four quarters at Verizon.
So the share of iPhone within those operators which carry it tells a story independent of distribution.
The following graph shows the share of the iPhone vs. Samsung in the market defined by its availability. (I.e. the volumes of smartphones sold by AT&T throughout the time period, Verizon Q1 2011 to end and Sprint in Q4 '11).
The share of iPhone thus defined shows a slight decline but it's an overall number that is remarkably resilient as distribution increases and is remarkably high overall. Note that globally, the iPhone gets only about 17% share of smartphones--a value that has not varied greatly since mid 2009.
So at least in the US, on carriers where it's available, the iPhone is holding on to a significant share. In a global market it's expanding distribution but not yet covering the world. As a consequence it's keeping up with overall market growth and staying between 17% and 20% share.
The big question is what will happen if and when its availability matches that of Android in terms of points of sale. Or even that of BlackBerry or Symbian. Is America a different market from the rest of the world? It was different in being isolated while Symbian roamed globally. It was different in being a launch platform for BlackBerry and then iOS and then Android. But now that iPhone is beginning to be widely available there, will it be exceptional in how it rewards Apple?
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Note:
Activations data can be seen next to Apple's testimony of US sales in the following graph. Note that more phones were sold by Apple than were activated in total of the life of the product. 86 million sold and 80 million activated. This implies that an analysis based on activations undercounts the iPhone.
Because that is an estimate. Of the 104 million Android phones shipped in the quarter (itself an estimate from another, possibly different methodology), I could only account for 7 million actually reported. That figure comes from a close reading of an investor presentation from Sony. HTC does not report their shipment numbers. It stopped some time late last year. Neither does Motorola now that it's a part of Google. Huawei is silent except for setting targets and ZTE published a press release citing IDC's estimate of its own shipments.
But most glaring of all is the absence of any mention by Samsung of its performance. The company stopped reporting any data on either overall phone shipments or of smartphones within that total since Q3 2011. We may have been able to estimate Samsung if we had more competitor actuals, allowing us to back into a figure. But we don't.[1]
Which leaves us with IDC's estimate[2]. But the problem is that since the industry is growing so quickly it is very sensitive to assumptions. Consider how difficult it is for consensus estimates for Apple's iPhone shipments to come near the actuals--and that's for one quarter, and knowing all the previous quarters with precision. The absence of visibility into the assumptions made by market analysts (or their methods) should lower confidence in the results.
Consider that IDC specifies 50.2 million Samsung smartphones, implying an accuracy down to 100,000 units. Is this accuracy believable?
There is reason for doubt.
I start with the following graph:
It shows the estimates for Samsung global shipments (latter four quarters are estimates without the benefit of company reports.) I separated the component of shipments that Samsung reported as part of its submission to the Samsung v. Apple trial in California. Note that this (orange) segment consists of most US smartphone shipments. It's not all US Samsung shipments. It notably excludes the Note, the latest Nexus and the Galaxy SIII.
Without these "non-accused" phones, it would appear that Samsung's US volumes dropped to 4% of global totals from a 10% average[3]. In order to return to 10%, the US totals would need to be adjusted as shown below:
I added 1.5 million units in Q1 and 4 million units in Q2 (to account for Galaxy SIII).
So far this seems consistent with the total estimated global shipments of 50.2 million from IDC. US units would result in 12% of global shipments.
However, there is more data we can test against. First, we are also given pricing for the US phone portfolio, or at least we have revenue per unit sold. This allows us to get an idea of what revenues can be obtained for the smartphones in the US, and possibly world-wide[4]. Knowing prices for smartphones and knowing global sales (which Samsung reports) and finally knowing global total phone shipments allows us to price the average non-smart phone.
Excluding the non-accused smartphones, the average revenue per smartphone in the US for Samsung in Q2 was $339. Adding in the estimated Galaxy SIII (4 million) at an average price of $470 gives a new "ASP" of $413.
This is where the analysis goes off the rails.
If we assume the global ASP is equal to the US ASP and knowing everything else about the mix of smartphones (54% of total) and revenues (as reported) yields a negative ASP for feature phones. Assuming the revenue figure is correct, either the number of smartphones is wrong (50.2 million) or the global ASP ($413) is wrong. The total phone number is also an analyst estimate which can be called into question.
There are many assumptions being multiplied here so I have very low confidence in the result, but we should ask "what do you need to believe" in order for the 50.2 million figure to be real. The following scenario for example has to be true:
Global Samsung phone shipments total 93 million units (which means 42.8 million feature phones sold as well as the 50.2 million smartphones).
6 million smartphones shipped into the US, equivalent to about 50% increase y/y, roughly in-line with market growth
4 million Galaxy SIII shipped (but not necessarily sold through) at an ASP of $450. This results in a US total smartphone ASP of $413
The global smartphone ASP is significantly lower (at 80% of the US or $330)
Global revenues of $18.14 billion is essentially all from phones
Global feature phones will have an average price of $36
If these conditions are met then it's possible that 50.2 million Samsung smartphones did ship.
The figure for feature phone ASP is difficult to accept as it would be lower than Nokia's. Also, the low global smartphone ASP is also difficult to accept but it might be possible to find a scenario with the above variables which makes the 50.2 million figure believable.
Unfortunately this is an unsatisfying analysis. I could propose another figure to answer the question in the title, based perhaps on more "believable" assumptions. But I have no means to defend my assumptions. The only option I have remaining is to caution that the total smartphones shipment estimate for Samsung remains precarious. The new evidence from the US trial places more doubt on it but it is not enough to disqualify it entirely.
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Notes:
This cone of silence over 93% of the most popular mobile platform is somewhat puzzling in contrast to the perfect information we are used to having about iOS, BlackBerry and even Symbian. It seems that the more open a platform, the less is revealed about its market performance. This extends to the licensed Windows Phone whose shipments are only revealed through Nokia's reporting of Lumia shipments.
In the PC market, vendors also selectively publish their units. The norm is, however, not to. As a result IDC et. al. are the only sources for global market data. However, the PC market can be sampled more easily than the phone market. PC retail measurement methods are more reliable compared with all the points of sale for phones.
Note that Apple sells about 30% of iPhones in the US.
Apple's pricing world-wide is very consistent with pricing in the US which makes sense from a channel management point of view. One would not want to create incentives for cross-border arbitrage of phones.
Samsung has been selling smartphones for a relatively short time. Although the company sold Windows Mobile, Linux and PalmOS during the last decade, it did not gain significant volumes until it began selling Android phones in 2010 with strong operator support.
That support was substantial in the US. The company crashed the Android party in mid 2010 with its Galaxy brand. Trial evidence reveals that the sales level for Galaxy S1 series phones burst out of the gate taking Samsung from 90k units to 2.5 million units in one quarter.
The following graph shows the unit shipments recorded by Samsung for a set of US smartphones.
Note that the profile of sales volume shows a cyclicality with respect to product launches. Each new generation overlaps with previous generations and "fills in" while the older generation product tails off in sales. This is standard portfolio strategy. It also shows the cycle time of launches is approximately four quarters. As the S1 was four quarters old, the SII launched and the SIII follows after four quarters of SII.
What is surprising is that the overall sales volume is not growing. At least for the products catalogued (which exclude the Note) growth for the last four quarters has been: 5%, 34%, 31%, -53%. These are in stark contrast to the iPhone pattern shown in the outline bars behind Samsung's.
The iPhone ramped slowly in 2007 and 2008 and has been showing remarkable generational growth.
Perhaps it's still early and Samsung SIII product will ramp up as the contemporary iPhones do, but if it doesn't we have entertain the possibility that the iPhone does not compete along the same basis.
What does it mean to compete on a different basis?
The basis of competition is the aspect of an offering for which a customer is willing to pay a premium price. It's hard to know (or to put your finger on) what the basis actually is, but we can test whether it's the same by measuring whether two products capture prices the same way. If one product that seems to resemble another can obtain price advantage consistently, then perhaps it's being bought for a different reason.
To test this, I produced the following chart showing the prices that Samsung's phones have been able to capture through their lifetimes; and the same for the iPhone.
I've narrowed the analysis to the first four quarters and summarized the price erosion across all the products as well:
[Note: iPhone 4S, Skyrocket, T-Mobile Galaxy SII showing only three quarters]
As mentioned, it's still early perhaps, but the pattern for the iPhone has been different.
Samsung's pattern is not unusual. I've seen similar pattern for almost all Nokia products. Prices drop. It's a standard industry phenomenon.
Therefore the question is not perhaps what is Samsung's basis of competition: it's the same as the overall phone industry. The question is what is the basis of competition for the iPhone.
According to data from comScore, in the past 24 months 50 million Americans became Android phone users. In the same time frame Apple added 24 million iPhone users. As I mentioned in my Asymmetric Competition post, it would be unwise to consider this data in isolation. Consider the following graph showing the net change in users in the US.
Android and iPhone grew mostly at the expense of non-smart users. The BlackBerry lost 8.1 million users and all the others only lost about 4.5 million.
With penetration at 50% it's still impressive that there is so little "churn" between platforms. In fact, measuring churn as the net platform user loss as a percent of all smartphone users, we get something less than 1% per month.
The smartphone competition is still primarily with non-consumption.
That will change at some point when smartphone penetration (shown below) will begin to saturate. The basis of competition will have to shift from converting non-smart users to converting users of other platforms while maintaining one's own user base.
The market has not experienced this sort of rivalry on a wide scale. The defections of BlackBerry and Symbian users are relatively rare events.
The US is a crucial market for both Nokia and Microsoft's strategies. This importance was highlighted during the launch at CES in January when not one but three CEOs (Microsoft's Steve Ballmer, Nokia's Stephen Elop, and AT&T's Ralph de la Vega) were on stage to launch the Lumia. Knowing how well this strategy is working would be very useful to understanding how this market behaves.
My first take on this was when I asked the question How many Lumia phones were sold in the US? The answer suggested through the combination of survey data from Nielsen and comScore[1] was 330,000. The figure is quite small compared to expectations. As it's so extraordinary, it should be supported by good evidence. Unfortunately the methodology used is weak. The figure itself is probably close to the margin of error of such sampling techniques. It would be nice to have another way to calculate this.
Today Nokia offered another set of data which might help determine how many Lumia phones were shipped in the US. (Note the shipped versus sold distinction. Companies report shipments while surveys nominally measure consumption or usage.)
Unfortunately, Nokia did not offer specific data on US shipments. What they did offer was:
Global Lumia shipments were 4 million in the last quarter
Global average selling price was €186 for a Lumia phone
North American[2] phone shipments were 600k. This includes all phone types and all operating systems.
North American sales were €128 million.
That's all we have. So how can this help with the question of US shipments?
As often happens, it helps to look at the data historically. The following charts show North American shipments and sales with the Lumia launch date highlighted.
While unit shipments were flat, revenues increased significantly. This suggests that we could plot the average selling price of phones in North America (NA) specifically. I did that in the following chart:
Here the effect of Lumia is clear. The average revenue per phone in the US (blue line) jumped dramatically after the launch. So much so that it actually overtook the average global ASP for Lumia.
What we need therefore is a way to estimate the "mix" or percent of smart and non-smart phones sold into North America and derive perhaps the US portion of that and then finally try to separate the Lumia from all the smart volumes.
To help, I plotted the historic ASP for Smart and non-Smart devices as provided by the company.
Using a simple formula[3] it's possible to derive the mix which is shown as Green and Blue lines in the following chart.
Getting estimates for smartphone shipments (blue line) is pretty close to Lumia shipments, but we still have to correct for US/Canada split (estimated at 90:10) and Symbian/WP split among smartphones (estimated 50:50 in Q1 and 20:80 in Q2).
The result is the red line showing US Lumia shipments. The sum of the two quarters then comes to 630k.
This is nearly twice the estimate from consumer survey data however I would not draw too many conclusions from this. Mainly because there are many assumptions place in both estimates, but also because there is the distinction between shipments and usage.
However, it might be safe to say that US install base is somewhere between 400k and 1 million users. Is this good or bad?
It's good because it's progress and there is some growth. It's bad because it's frightfully small relative to the competition. Nokia itself acknowledges the challenge and states that "We believe the Windows Phone 8 launch will be an important catalyst for Lumia."
It seems that what Nokia needs most today is time. That is a very expensive asset. Perhaps infinitely so.
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Notes:
A practice neither company would condone, principally because they are competitors, but also because they use different sampling methods.
North America I take to mean US and Canada. Although geographically, Mexico is part of North America it's usually grouped as part of Latin America as a category. I'd like to get this confirmed.
There are a few implicit and explicit assumptions: (a) Global ASPs are roughly comparable with NA ASPs but (b) smartphone ASPs are higher in NA by about 30%
Nielsen and comScore survey US consumers through different methodologies, however they both try to paint a picture of the smartphone patterns of ownership and consumption.
I regularly report on comScore's data as it's published on a monthly basis. Nielsen offers updates on a quarterly basis but there is more detail.
The latest report (for Q2) shows smartphone shares by both platform and vendor. The following graph is a treemap built with the Nielsen data:
The same data is also plotted below as a pie chart:
I also added the latest comScore mobiLens data in the pie chart to the right.
Note that both surveys agree in the main on the largest platforms. The difference seems to be within a reasonable margin of error. The details available in the Nielsen data are perhaps also interesting. The various Android OEM shares as well as the division between Windows Mobile base and Windows Phone (7) base could provide some insight. Nielsen's total Windows base adds up to 4.5% while comScore reckons on 4%. Within that total, Nielsen breaks out 3.2% for Windows Mobile and 1.3% for Windows Phone. Within the Windows Phone total, HTC and Samsung are shown as having 0.5% and Nokia 0.3%.
If we then use comScore's figure for total smartphone users (110 million) then the data would suggest that there are 330k Lumias in use in the US. This would have been accummulated over a sales period of about four months.
According to comScore, as of end of May, the ratio of consumer phone users in the US (aged more than 13) who use smartphones as their primary phone has reached 47%.
The question is whether this is reaching saturation. My guess has been that saturation will be at levels well above 80%. The data shows that during May the rate of smartphone adoption (first time users) was 630k/week. This number is a good recovery to above the historic mean indicative that saturation is not yet in effect.
50% penetration will happen this summer. A year ago the predicted "tipping point" date was also the same: August 2012.
The platform shares data is also returning to a historic consistency. A month ago I asked if there was "trouble with the robot" because Android net adds dropped to a level unseen for two years and the decline in net adds had been going on for four months.
This last report shows a recovery in Android net adds to about 1.5 million new users.
[Note here too that there is no sign of saturation: The net user gains are far above net user losses. Even BlackBerry showed a gain. In a market where there is saturation, net gains and losses among platforms would balance each other out.]
In terms of share, Android shows two months of no growth. The following charts show the history of platforms in terms of share and actual units in area and line charts.
I'd say the jury is still out on whether Android has "peaked" in the US. Globally, the rate of additions seems to still be increasing but in the US we might be seeing the effect of upgrades as many first time Android buyers are reaching the end of their contracts. iPhone and Android "purchase rates" are already at parity but the install base might take some time to converge.
With half the population still not using smartphones, there is still headroom for the platforms, but the inter-platform dynamics are becoming very interesting.
