Analyzing Apple’s Emerging Growth, iTunes, and Explaining iPad Woes

Apple surprised with iPhones and “disappointed” with iPads. While many in the media will overreact and question Apple’s growth prospects, I find myself as optimistic as ever about Apple and its future. The foundations for a long term, healthy ecosystem are starting to shape up. It starts with the iPhone.


Our biggest takeaway from the earnings data around the iPhone should be the success we are seeing in emerging markets and especially China. Key points:

  1. iPhone took 55% of the smartphone market in Japan according to Kantar Worldpanel
  2. Double digit growth in Taiwan, Indonesia, and Brazil
  3. Sales in India and Vietnam doubled
  4. 85% of iPhone 4S buyers in China are new to iPhone
  5. 69% of iPhone 5c buyers in China are also new
  6. Many of those are switching from Android

The story for the iPhone has to be its growth in these new markets. While readers of my analysis should not be surprised at the China stats, since I have long been saying the China opportunity is underestimated, the growth in these other markets is worth noting. While it is true Apple has a small base in these countries and the percentages look good because we are talking about small numbers, growth remains growth. In particular, Apple is seeing growth, even though modest, in regions which are viewed as “low end.” Most other analysts I speak with completely discount Apple in these markets and say they have no chance to succeed. Modest growth is still growth. Keep in mind this comes with Apple not necessarily changing their pricing strategy much. They keep their newest products at a premium and use their older generation products as entry level. This is the investment they have made in quality components, design, and build quality paying off. Products several years old can succeed as entry level products years later for markets who generally can’t afford the latest and greatest.

Another chart to ponder. Here is a look at the countries where Android is most dominant. We will keep an eye on these numbers.

Screen Shot 2014-04-22 at 8.35.53 AM


While it is a point Apple’s iTunes revenue has stayed relatively flat, we can’t ignore the now massive size of the iTunes active user base. Apple highlighted they have 800m iTunes accounts now and nearly all of them with a credit card on file. To put it into perspective, let’s look at the user numbers of other large user base companies.

Screen Shot 2014-04-25 at 5.02.46 PM

Thinking about the opportunity for an active base with nearly 800m credit cards on file is an extreme source of optimism. Tim Cook made a point on the earnings call to point out their loyal customer base begins with a product that gets new customers into their ecosystem. This is why the statistic of first time customers coming into the Apple ecosystem is key. Once into Apple’s ecosystem, customers are loyal and begin to invest. The relatively flat growth of the iTunes ecosystem is likely due to these first time Apple customers coming in at lower price points and therefore representative of an audience with monetary sensitivity. As I pointed out for Tech.pinions insiders yesterday, many consumers in these markets use payment mechanisms other than credit cards. If Apple can embrace these consumers, meet them where they are and cater to their purchasing habits beyond credit cards, I fully expect iTunes revenue from these customer to increase rapidly.

Screen Shot 2014-04-23 at 8.02.53 PM


There is a dynamic about the iPad I don’t hear many talking about. It is something we have become aware of due to recent research. Take a look at this statistic from a GWI report of 30,000 global consumers.

This shows the percentage of people who share specific devices with one or more people. What we have learned is 50% of tablet owners share their tablet with one or more people. This is a key observation. We have long debated whether the tablet was communal or personal. There is surely a case for both but what the research is showing us is for a large percentage of the tablet install base, just shy of 500m customers, the device is for the most part communal. Which means one or two per household suffices for the time being and the necessity for one per person does not exist. This dynamic completely changes how we think about tablets, their use cases, and their refresh cycles.

That being said, I am still extremely bullish on the tablet segment. We view this device as the true mass market computer. While it has tremendous benefits for enterprises and education markets, the pure consumer market is still ripe for tablet growth. In emerging markets we are already seeing tablet owners leapfrog the PC and go straight to the tablet computing form factor. All of these points are why we are confident this market is bigger than the PC market.

The iPad is in uncharted territory. We are still in an era where we are figuring out all the things it can be and do as well as how it fits between the PC and the smartphone. In 1978 Visicalc came out and immediately people understood how the PC was going to transform everything. The tablet has not had its modern day 1978. It will and hopefully sooner than later.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

8 thoughts on “Analyzing Apple’s Emerging Growth, iTunes, and Explaining iPad Woes”

  1. What’s interesting to me as well is how important the 4s still seems to be, especially in the midst of all the calls of Apple needing a _larger_ screen model.


    1. And aren’t we just now seeing the impact of the change in sales cycle for the iPad? That plus the slower upgrade cycle. I’m not worried about the iPad at all. As Tim Cook noted, the iPad is still the fastest growing product Apple has ever created. The iPad-is-doomed crowd would be wise not to shout “Victory!”, they’re going to look very foolish a few years from now.

  2. None of the analysts saw it coming. Epic fail. Analysts should be held accountable when they are wrong.

  3. I think you are underestimating the implications of flat growth. Look at the graph by Horace Dediu and you see few product survive long after going flat.
    Historically, flat sales imply being obsoleted, not saturation. Growth should continue, even after saturation so saturation alone cannot explain the current situation.

    My take is that Smartphones are making tablets obsolete for the average consumer. “VisiCalc” has to happen outside that space.

    1. I agree about the role the smartphone is playing. I have been saying this recently that the smartphone was underestimated. I think both this and the communal nature of tabs is the culprit.

      That being said larger screen devices are more capable in many ways. The nut to crack is the one that provides the use case that pushes the capabilities if these devices to become a necessity or transformational in some way.

      More on all of this to come from me.

      1. Over the long-term, I actually see phablets cannibalizing small tablets (7″ to 8″), while large-screen (10″+) tablets cannibalize the mainstream segment of the laptop market (ie: MBA) and the high-end (MBP) remaining as is.

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