Apple in the “Post-Mature Consumer” Era

The era of hyper growth in smartphones and tablets is over. Which also means the land grab for global consumers is largely over. The most important dynamic facing Apple today is a maturing installed base and globally maturing Android owners.

It was by no mistake Apple called out that the 4” iPhone form factor was serving as the global gateway for increasing numbers of brand new iPhone owners to enter Apple’s ecosystem. Much of this has to do with price more than size, but we can’t ignore the worldwide demand we see from customers in markets like China, India, Indonesia, and Brazil, who long to own an iPhone but simply can’t afford it. By essentially launching their first true mid-range priced iPhone with the iPhone SE at $399, Apple is targeting that market with a powerful offering.

Apple told us they sold 30 million 4” iPhones in 2015. That means 13% of all iPhones sold in 2015 were the 4” model, likely a 5s. They also said 33% of first time iPhone buyers bought the 4” model. While I’m not sure size was the primary reason, more likely price for this dynamic, it does suggest the strong entry level role this product plays. In a study we did recently, we found only 10% of consumers in our panel indicated their minds were made up to stick with the 4” device. 20% of the respondents said they had not upgraded yet because they were unsure if they would like the larger phones but they were not hostile to the larger phones like the 10% seemed to be. While there is certainly a portion of the developed markets which want to stick with this smaller form factor, it is emerging markets where I think this product is targeted. Particularly parts of China and India are seeing waves of consumers mature from their entry level Android phones and starting to look for more quality devices since their needs have also matured. In this role, the iPhone SE can compete on many performance specs and target the $300-400 Android premium mid-range effectively. The core point is Apple now has a smartphone offering for every end of the replacement market offering. Apple is not going after first-time smartphone buyers, and this understanding is key, they are positioning themselves for consumers as they mature.

The above observation sets the stage for what I think is where I think Apple will sit tactically for the next few years. Beyond the Apple Watch, all other categories they play in are very mature markets. Apple is selling to existing customers looking to upgrade and new customers looking to switch platforms. That is the battle they are fighting. Which is why it was by no coincidence they picked up on the 600m PCs in use 5 years or older. That’s just shy of 50% of the active PC installed base worldwide. The vast majority of that 600m number is consumer PCs. Apple, and every other PC OEM, is going right to the heart of this aging PC base to pick up share. Microsoft and their ecosystem with 2-1 PC devices and Apple now with the iPad.

Apple, for the first time, began positioning the iPad as the tablet which can replace your PC. This is now an all out battle for the aged PC installed base. But, here again, the replacement theme comes into play. This is Apple operating in a replacement market that is ex-hyper growth as smartphones and tablets now are. Which means the tactics Apple is now using and executing on will be different. What we are seeing is Apple develop a strategy for the post-mature consumer era, one that has bitten many companies who have massive amounts of stubborn users who hold onto their hardware longer than seems reasonable. But the dynamic of the consumer tech market that is glaringly obvious is, “If it isn’t broke, don’t fix it”. Surprisingly, for many consumers, their old tablet, old PC, and old iPhone aren’t broke. A key part of Apple’s evolution in the post-mature consumer era will have to include an evolution of marketing as well. We have seen Apple’s hardware strategy for the post-mature consumer tech era and near term it will be interesting to see how the marketing evolves as well.

Overall, it is hard to not conclude Apple has the strongest hardware lineup possible across the board. They have given consumers every reason to upgrade their smartphone or tablet in 2016. Over 30% of consumers in our panel have yet to make up their mind as to their upgrade plans this year so there is an opportunity. Our consumer studies are watching this closely but every time I survey the mainstream I’m reminded of how stubborn these customers can be. Even with a strong hardware lineup, Apple has their work cut out for them.

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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

16 thoughts on “Apple in the “Post-Mature Consumer” Era”

  1. Excellent analysis. I think the question for Apple is, is the combination of iPad Pro / iOS enough to convince a good portion those 600 million PC users to switch to iPad? As old as it is, there’s still the debate of whether iPad Pro can be a PC replacement

    1. “there’s still the debate of whether iPad Pro can be a PC replacement”

      Only in the minds of tech nerds. It’s very simple: for a great many nontechnical people, their computer gets used as an internet access device and that’s about it. In which case, there is no reason for them to have a PC instead of an Ipad.

      Whether they are going to be willing to spend money on an Ipad when they already have a PC is another question, but Apple wants to be there with something that they might consider getting as a replacement when their PC finally dies.

      Beyond that market segment, there are hundreds of use cases for PCs, in millions of combinations, with each person having their own combination of use cases. A lot (but not all) of those use cases can be handled by an Ipad, to a greater or lesser degree, with a greater or lesser degree of ease. Whether or not someone will be able to replace their PC with an Ipad for a given blend of use cases depends entirely on their specific needs and on their comfort with leaving behind the known and familiar for the sake of greater simplicity and ease of use.

      1. I tentatively agree that PC applications and iPad applications can be substituted for each other, but there is a whole question of a user interface.

        I have been using laptop as my primary PC for more than 10 years, but my parents who do not have the same eye sight are very reluctant to give up their PC. First of all, the screen of their PC is 22 inch is nowhere near iPad screen, so you need an Apple TV to connect to iPad to make use of AirPlay. If Apple had a $15 USB TV stick, like the one Google have for Androids that would have helped.

        Then how do you convert to a normal mouse-keyboard interface from a touchscreen? Some people may find touching the screen of their PC uncomfortable.

        1. Familiarity is the main reason why PCs are not being replaced with Ipads. PCs suck in so many ways, but if someone is familiar with them, the learning curve of starting over with a completely different UI paradigm and ecosystem is a bit much to ask. There’s also the whole eyesight problem — there are many people with crappy vision who find it hard to shift from a 19″ or bigger desktop screen to a 10″ or 12″ tablet screen, especially for use cases where you can’t tell the text to be bigger (eg, PDFs, comics, and sadly due to mobile Safari not supporting text scaling, websites).

          Sadly the latter problem is par for the course in the computing world. The rage and hatred I feel towards the 20-something nerds with rabbit vision who keep churning out websites that I cannot read comfortably grows with every passing year.

          1. I know. Apple TV is not very sexy for just beaming iPad to the screen. There are cables involved – not very easy for not technical people. Besides you can have many TVs in the house, you may want to go traveling with your iPad… Yes, I would love to have a USB stick.

      2. “It’s very simple: for a great many nontechnical people, their computer gets used as an internet access device and that’s about it.”

        If that’s the case, then what can a tablet do for them that a large-screen smartphone cannot?

        1. “If that’s the case, then what can a tablet do for them that a large-screen smartphone cannot?”

          1. Provide a comfortable 10″ screen to read on, for those who don’t have rabbit vision.

          2. render web pages at 1024×768 resolution instead of a cramped 736×414 (maximum points supported by the 6+) or smaller.

          3. Be $250 cheaper than the plus sized iphone (air 2 vs 6+)

  2. If we look at annual shipments, PCs are trending towards 250 million units per year (the majority of which may be corporate purchases). On the other hand, tablet sales (including Android) are already above 200 million.

    Hence in my opinion, at least in the consumer space where the majority of the 5-year old 600 million PC are, Phil Schiller was not talking about an aspiration. He was talking about something that is already ongoing.

    The issue seems to be less about whether the iPad or other tablets can replace the jobs-to-be-done of PCs, and more about the fact that the jobs-to-be-done of PCs, that cannot be satisfied with our smartphones, is actually quite small.

    In other words, I doubt that the market for 5-year old PC replacements is big enough to significantly increase sales of tablets above the 200 million that already sells every year. Even if iPads/Android tablets were considered to be good enough to replace 5-year old PCs, that wouldn’t provide much of a boost. The true market opportunities for tablets lie elsewhere.

    1. “The issue seems to be less about whether the iPad or other tablets can replace the jobs-to-be-done of PCs, and more about the fact that the jobs-to-be-done of PCs, that cannot be satisfied with our smartphones, is actually quite small. ”

      Does that imply that, for the consumer market, the combination of a thin / light laptop & smartphone might be the best solution? Although tablet sales were approximately 200 million last year, that’s after 8 straight quarters of negative YoY growth. I’m not confident that I see that changing.

      1. “Although tablet sales were approximately 200 million last year, that’s after 8 straight quarters of negative YoY growth.”

        You’re looking at it backwards. There was an intense need in 2010 for a portable, relatively inexpensive, user-friendly internet access device — something to let you surf at the coffee shop but that you could toss in your bag or purse without having it weigh you down.

        Netbooks sold so well because, crappy as they were, they kind of met that need. Ipads met that need far better than netbooks — so much so that they ate up the entire netbook market almost immediately. Their initial hockey-stick shaped growth curve was due entirely to that huge build up of unmet demand, and in no way reflected the actual size of the market for internet access devices with a 10″ screen. Tablet sales are now stabilizing at the actual level of market demand; they’re going to stop dropping and level out in the next couple years.

        1. I agree that to understand the future of tablets, you have to understand not only the current drop in demand, but also its rapid ascent 5 years ago. Any analysis that fails to do so is at best incomplete, and probably just plain wrong.

          Hence as you describe, to understand the jobs-to-be-done of 5-year old PCs and the rapid growth of tablets, you have to understand netbooks. By doing this you realise that the job was “internet access”, or more specifically, Facebook, email, e-commerce, YouTube, and browsing a few news sites.

          Back in 2011, these were much easier to do on tablets hence their popularity. However, as apps improved and sites like Facebook ditched their vain HTML5 only efforts, and also as smartphone screens got larger, smartphones became good enough for these tasks.

          If you see it this way, you realise that for the 600 million 5-year old PC users, there are very few jobs that they cannot now do on their smartphones. No need to buy a new PC nor to buy a tablet, ever.

          Hence the real issue is that the jobs for larger screen computing devices have not expanded. What is needed is a killer app that cannot be sufficiently performed on a smartphone. Without one, both PCs and tablets alike will decline in relevance, no matter their position relative to each other.

          This is why I consider education and the IBM partnership to be the real keys to future tablet growth.

    2. I agree. This is what I struggle with as well.. To answer your question, 56% of consumers with a PC 5 yrs or older have no plans to buy a new one in 2016. Similarly that same cohort, 63% have no plans to buy a tablet in 2016. So essentially most with an old PC don’t plan to get anything new in PC or tablet hardware in 2016…

      The question, and the way to look at any upside, is if they can be convinced they can and want to do more than they currently do with their smartphone. This is why I bring up that this is a marketing strategy at this point.

      1. Thanks yet again for the data!! I’m not absolutely sure if 56% is high or low, but it does seem that many people don’t think that they need a large screen device anymore, be it a PC or a tablet.

        I’m not worried though. The tablet installed base seems to still be growing, and I see more and more of them in the wild. I see tablets being used in new ways and the applications keep getting better. Satisfaction remains high. Hence I remain confident that tablets will create new growth markets for hardware, software and services. I see multiple new “hockey sticks” in the horizon.

        It’s just that I don’t see tablet growth coming from replacement of old markets and jobs-to-be-done.

    3. “even if they did break down, I suspect many of the users to simply abandon PCs.”

      Or replace it with a used PC — with software requirements plateaued, and with any PC from the past 8 or so years more than powerful enough to run today’s programs, I would not be surprised to learn that more people than in the past whose PCs die on them are turning to the used market — they can’t justify buying a new machine for $500 or whatever they cost these days, but something used for half or a third of that enables them to continue doing the things they were doing with their computer that they don’t want to or cannot do on a phone, without costing them very much money.

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