iPhone At 1 Billion. A Tipping Point.

by Brian S Hall   |   May 5th, 2014

What can you do with a billion iPhones? What can all of us do with a billion iPhones? 

Analysts, telcos, networking firms and research consultants expect more than 4 billion smartphones in use by the end of this decade, maybe sooner. I agree. Where I diverge from most other experts, however, is that I believe Apple is well positioned to capture a quarter of this market, possibly more. That’s one billion iPhones. 

What then? No, not what for Apple. I am not terribly interested in Apple’s valuation nor its ability to negotiate the best content deals or carrier subsidies. I am, however, extremely interested in what one billion iPhones means for all of us, as nearly everyone of these devices will have similar functions, use the same OS, possess the ability to track us in time and space and, through iTunes, include a user-specific payment service. That’s significant collective power. 

Making The Case

Are one billion iPhones in use possible? My math says yes.

There are approximately 1.5 billion smartphones in use today, still far short of the 4+ billion smartphones I am estimating for 2020.

A key driver of smartphone growth is affordable, accessible mobile broadband service (3G/4G). Ericsson estimates that mobile broadband connections around the world will quadruple by 2019. This will result in 5.6 billion smartphone “subscriptions.” Some people may have multiple subscriptions (e.g. using multiple SIM cards on same phone to minimize voice and data costs), so this number is higher than the actual number of individual smartphones in use. Being on the conservative side, I estimate 4.5 billion individual smartphones in active use by 2020, a tripling of what we have today.

What will be Apple’s share of those 4.5 billion smartphones?

Here, I get a bit aggressive. Apple has nearly 20% of the market for smartphones in use — about 300 million iPhones. (Over 500 million iPhones have been sold since 2007.)

If Apple can maintain a global marketshare at around 20%, and the smartphone market climbs from 1.5 billion to 4.5 billion as I expect, Apple has close to 900 million iPhones in use — within striking distance of a billion iPhones.

Confession: I think Apple will do better.

iPhone consistently receives higher customer satisfaction scores than competitive devices. A higher percentage of Android users switch to iPhone than the reverse. These trends disproportionately favor iPhone going forward.

Then there’s Apple’s secret sauce — slowly, slowly improving hardware and features while holding the line on price, even dropping the price at times. We can confidently expect iPhones to get better year after year even as prices fall. In a market that is rapidly expanding, this is a huge advantage.

Imagine if today’s iPhone 5s was faster, simpler, more capable, and Apple cut the price in half. I expect exactly this to happen, albeit in slow motion. When it does, many of today’s very best smartphone makers will be unable to effectively compete. This means even more room for Apple to grow. Indeed, I think most analysts, blindly focused on Apple’s current margins, are wildly underestimating iPhone’s long-term market potential.

Consider the following:

Smartphones and tablets are highly functional, highly personal computers. By this definition, nearly 95% of every computer Apple sells today is priced under $1,000. Note: I derive this 95% figure thusly: Last quarter, Apple shipped 43.7 million iPhones. Their highest-priced version is the iPhone 5s with 64gb hard drive. It retails for $849. Apple shipped 16.4 million iPads. The highest-priced iPad sells for $929. The company sold just over 4 million Macs, most of them priced above $1,000. Add it up and 60.1 million personal computers out of a total of 64.1 million are priced under $1,000.

Given Apple’s commitment to improvement while holding the line on price, I expect that in a few years, certainly before this decade is out, that 95% of every computer Apple sells will not be priced under $1,000, but perhaps even under $500, and far better than today’s very best. How will high-end and mid-tier competitors survive in such an environment? Will there be Panasonic smartphones in 2020? Sony? BlackBerry? Xiaomi? LG? I’m not sure. Apple? Absolutely. Remember, Apple actually earns a hefty profit on each personal computer it sells.

Add it up and a billion iPhones in use by 2020 is an extremely likely possibility.

At One Billion iPhones

Okay, so what then?

First, as this is about all of us, we must consider the potential of a billion iPhones in the aggregate, and not what a singular iPhone in 2020 will offer.

wisdom of the crowd

Let’s use Facebook as an example. They have over 1 billion active mobile users.  At last week’s F8 developer conference, Facebook offered new tools which enable deep linking and de facto integration across disparate mobile apps — taking you straight from your smartphone map to Yelp to your digital wallet, for example. This should prove useful for users and developers alike. This effort can only succeed, however, if there are enough smartphone users and enough of them have Facebook credentials and enough app developers can directly benefit by allowing Facebook to manage a user’s identity. Now there are.

Absolute numbers at massive scale enable new forms of innovation that otherwise could not exist. I expect the same to occur when we reach 1 billion iPhones.

Crowdsourcing Ideas For Peak iPhone

I am confident in my predictions and so I put it to you: where are your ideas?

My inclination is to focus first on media. The business model that today forces us to pay for content we don’t want simply to get the content we do want — aka cable television — likely fades away. Perhaps Apple offers a “Pandora for television” service, with virtually every TV program and movie available. With 1 billion users, it would be foolish to not let your content participate.

Mix iTunes, AirDrop and a billion users, all with their credit card info on file, and there now exists the potential to revolutionize how we consume and share media — it may become possible that each of us can financially benefit from our various online recommendations.

big house

Entirely new forms of social networking also become commonplace. Apple’s new multi-peer service (“multi-peer connectivity framework”) essentially enables ad-hoc, proximity-based, peer-to-peer networking of iPhones. Imagine watching the University of Michigan football team alongside 100,000 screaming fans. There’s a great play, which is instantly available on your iPhone. Share and discuss the play with thousands of others, in real-time, in physical space, and in forms not previously possible. Now take these tools to a political protest.

A billion users on the same platform, each with their credit card information stored by Apple, will significantly impact the direction of online and offline payments. At such a scale, retailers everywhere might readily accept cash, charge or iPhone. No need for Bitcoin, PayPal or any other digital alternative.  

Yes, Apple could indeed roll out its very own search engine with little concern of Google pushback should the company reach 1 billion iPhone users.

Perhaps it also becomes practical for every mall, every college campus, every city to place iBeacons everywhere, creating deeper links between people, place and time.

Of course, if Apple ever does reach a billion smartphones, the company’s value will almost certainly exceed $1 trillion. That’s Standard Oil territory, which resulted in a forced break-up. That idea also doesn’t seem farfetched.

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Brian S Hall

Brian S Hall writes about technology and greatness. His work has appeared in Techpinions, ReadWrite, Macworld, the Wall Street Journal, LinkedIn, and others. His latest novel is Love in the Time of Caller ID.
  • RAZ

    Have trouble believing Apple can hold a 20% worldwide share with much of the growth coming from price sensitive developing countries, China, India, etc. where there will be much cheaper alternatives that will be “good enough” for the large majority.

    Will there be enough users willing to buy a several years old 50% cheaper iPhone 5S instead of a new Android or specific to China OS to help maintain a worldwide 20% share? Guess I am skeptical.

    • stefnagel

      The real question is How many, of all adults worldwide who have credit cards, will use iOS devices? Answer: Hellava lot.

    • http://www.brianshall.com/ Brian S Hall

      Understood. I said I had to get aggressive with the numbers. But, I think as iPhone price goes down, as the benefits of connectivity go up, that it is legitimately possible.

    • Milkshaker

      Except isn’t it the goal of ‘developing’ to eventually develop? The price sensitivity is a temporary state. They ultimately become just regular ol’ countries with stable, diversified economies. The middle class expands. Buying power (and political power) grows. Tangential industries bloom. Quality of life increases across all economic classes. So on and so on.

      Then, often within a single generation, the buying behavior of people in those countries change. They stop making purchasing decisions based on survival or getting by. They buy just because they like…or because they can…or to present an image to others…or to make their life easier…or to give to someone they care about…and a hundred other reasons.

      Turns out these poor, huddled masses are human, with the same id/ego/super-ego issues as the rest of us.

      When talking of emerging markets, folks always seem to leave out that change in a society that comes from increased wealth and stability.

      • RAZ

        Have to think with the greatest growth coming in areas less affluent than US, Northern Europe, Japan, from an expanding base at the low end, even if buyers want to be aspirational, the good enough and much cheaper Android and OS’s we never think about here would be the entry choice for great majority. That’s looking ahead over the next few years. Beyond that maybe there will be a product we cannot imagine, as revolutionary compared to the present iPhone as the iPhone was to existing Smart Phones of the day when it was introduced, which would turn the Smart Phone world upside down. Don’t know if that will be the case, but if there is such a product I would like to think it will be an Apple.

    • Sammy

      Think of this predicament. The unified platform. 4.5 billion smartphones, 1 billion iPhones, 3.5 billion android users, and subtract 1.5 billion non Google android users in China.

  • Mauryan

    No company must be allowed to have monopoly of the market, Apple included. We saw how the Wintel system caused overall dissatisfaction and stagnation (especially from MS). Apple must be prevented from building walled enclosures and the same for Google / Samsung / Intel / Microsoft. There must be a standard protocol for mobile devices created from end user needs. This way customers are not penalized. Even iTunes can become a monopoly at some point. I am amazed that there is no successful equivalent to the iTunes (Google play etc are all there. But they do not stand up to iTunes). The mobile industry must not go through the mediocre monopoly of the PC industry. It is time governments woke up and set up regulations so that customers get to choose the best.

    • stefnagel

      No worries: Search VC Fred Wilson by 2020 Apple Won’t Be A Top-3 Tech Company

      • http://www.brianshall.com/ Brian S Hall

        Heh

    • http://www.brianshall.com/ Brian S Hall

      I am not expecting Apple to have a monopoly. Rather, about 1 billion users all on the same platform, so that’s rather significant collective power. However, the scope of iPhone + iTunes, I predict, will draw significant attention from government regulators.

    • Space Gorilla

      Apple will never be a monopoly because they only target specific segments of the market. Apple certainly dominates that segment, but by leaving the rest of the market to Android and others, Apple steers clear of any monopoly problems. You need not worry about customers being penalized, Apple plays very well with others when it comes to content and standards. I’ve never had a single problem in this regard for decades.

  • KevinDaleDavis

    >> Their highest-priced version is the iPhone 5s with 64gb hard drive.

    I still think a lot of analysts miss the fact that ~88% of Apple devices being used today are running the latest version of the iOS as of May 4, 2014. This is a huge advantage for Apple and iOS users. As a security issue is discovered, it can be fixed and pushed out to the users in record time. Of course, iOS users also get new features on a periodic basis. This might slow the refresh cycle in more price sensitive countries, because the value of Apple devices doesn’t diminish over time as quickly as Android devices. But this should help improve the market share some for Apple.

    Android will never be able to do that. Even Nexus devices or Silver devices will never match the longer term value of Apple devices. No Android manufacturer is able to update the dozens of models they produce every year. Unless someone new takes this as a goal.

    By the way, I disagree that iTunes is a monopoly. Anyone in the US and most other countries can get music from other sources. iTunes certainly has better coverage than other music stores, but local music is still available locally without iTunes.

    • http://www.brianshall.com/ Brian S Hall

      Absolutely agree. I touch on that above — nearly a billion on the same OS (little fragmentation). That did not happen with Windows, and probably won’t happen with Android.

      • Space Gorilla

        Has Google released activation numbers recently? Horace mentioned that on Asymco, that he hasn’t seen numbers of active Android devices from Google in a while. Usually when a company doesn’t report numbers it is because they aren’t great. Do you have any data on current active Android devices? It occurs to me, what if Darko was right all along? Yikes!

        • http://www.brianshall.com/ Brian S Hall

          Well, despite my assertions above, for now, Android is increasing its market share. If Google is no longer providing us numbers, then that is suspicious about what value they think Android activations are delivering.

          • Space Gorilla

            Yes, there’s no reality where Apple gains majority market share, that’s not the game they’re playing. But I do wonder if the active user gap is really as large as the market share numbers suggest. I doubt it. I haven’t looked hard for recent Android active user numbers, but I trust Horace when he says Google isn’t providing them.

            When viewed through the lens of engaged users on a single computing platform, all plugged into a single ecosystem, it seems obvious Apple is going to be the largest, and may already be the largest. But that is when viewed as a homogeneous blob, so to speak. Android will always be the largest by raw numbers. But Android’s strength (and weakness in some ways) is that it is not a homogeneous blob.

  • DarwinPhish

    Your math is a little fuzzy. The iPhone’s share of smart phone sales is down to 15%. If you take sales for the past 2 years, the iPhone is at 17%. So, saying the iPhone is at 20% of smartphones in use is a bit of an aggerration. The iPhone’s market share is shrinking and will likely continue to do so as long as the least expensive iPhone is over $400. The vast majority of the growth in smartphones is in the under $200 segment where Apple does not compete. I don’t think anyone expects the high end of the smart phone market is going to triple over the next 5-6 years which is what needs to happen for Apple to get to 1 billion iPhones in use. That said,1 billion iOS devices in use is a reasonable projection.

    • http://www.brianshall.com/ Brian S Hall

      I actually looked at multiple data sets. Most put Apple’s share at about 18%. However, more have the approximate number of smartphones in use at 1.5 billion and reliably have iPhone at 300 million. That said, I realize the numbers aren’t as clearcut as I want them to be.

      • Mark Jones

        Based on Apple’s quarterly reports, Apple has sold about 510m iPhones, of which about 450 million are iPhone 4/4S/5/5C/5S. (Apple sold 6m iPhone, 21m iPhone 3G, and 35m iPhone 3GS.) I find it highly unlikely that 1 out of every 3 of these iPhone 4 and later units is no longer in use.

        • http://www.brianshall.com/ Brian S Hall

          I agree. I have a hard time believing that over 200 million iPhones are out of use. That said, I looked at lots of different numbers and about 20% of 1.5 billion smartphones (300 million) is the max. I think the 1 billion mark is extremely possible.

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