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.