iPhone At 1 Billion. A Tipping Point.
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.
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.
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.