Millennials and Apple

One of the key narratives I regularly encounter is surrounding the Millennial demographic and Apple. In our most recent millennial study, we included some sentiment questions about Apple we think give us some insight into the current mindset of millennials around Apple hardware. There are many data points collected by us and many other researchers to suggest Apple hardware is still highly desireable by this demographic and repurchase intent for iPhones in particular remains high among millennials. I have no data to suggest this dynamic will change and there was certainly a time when this group held Apple in the highest regard from an innovation standpoint. One of our questions was intended to see what 18-24-year-olds specifically felt about Apple when it comes to innovation.

In our last millennial study, we asked a specific question: “Which statement best reflects your feelings around Apple products?” We gave the respondents multiple choices which all reflect statements we heard frequently when we interviewed this demographic on this particular topic. The results were fascinating to dig into, particularly when you look at gender and platform. Here is the chart and answers to the specific choices we gave them.

It’s fascinating that millennial men have a much more critical eye and opinion of Apple’s perception as an innovator as compared to women. After seeing this data, it makes sense that the most vocal personalities on Twitter making noise about this are either men or millennial men. This chart also speaks volumes of a fascinating difference between the relationship men and women have with technology.

This chart below stood out to us as well. While the answers options we gave them were not necessarily limited to the notebook/desktop category, it was interesting to see this demographic’s answers when we looked at notebook/desktop operating systems — Mac and Windows owners.

Fascinatingly, Windows owning millennials feel like Apple should leave PCs to Microsoft. Another interesting statistic is nearly 25% of both Mac and Windows owners feel Microsoft is catching up with Apple in PC design and innovation.

I look at all of this in two ways. First, if the iPhone 8/X/Pro or whatever it is called is all we hear its shaping up to be, I think the perception of Apple and innovation will go up. However, that sentiment may still only be applicable to iPhones and some of the sentiment we see and hear around Macs may still exist until Apple revisits or does something to bring a breath of innovation back to the Mac. I still maintain the PC is an incredibly important platform. Even among those under 30, who still spend about four hours a day on their PCs or Macs, roughly about the same amount of time they spend on their smartphones per day. So the PC/Mac is still an important category from both a usage and engagement standpoint.

My other takeaway from this study isn’t charted here but has to do with Apple going beyond hardware with this demographic. Apple’s software (apps) only occupied two spots in the top ten of daily apps used by them — iMessage at #6 and Safari at #8. Both are good apps to have this demographic using daily but why not Mail? Gmail was number 5. This is why I hope efforts like Clips and other new apps for media creation and expression pay off for Apple. I hope Apple can engage this demographic in more ways than just hardware since that will be necessary in the years to come.

Smartphone Brand Stories in China

China is an incredibly important market for the global technology industry. It is also a fascinating one to study because, more often than not, the market as a whole is an anomaly. So we often see things that happen and work in China that do not provide applicable lessons for the broader technology market as a whole. One continual example of this reality is the smartphone market in China. Brands can seemingly come out of nowhere, sell tens of millions of phones in a year, then fizzle out. The technology battle that happens in China is very often one centered around brands. Chinese consumers are some of the most brand conscious in the world. It’s a fundamental idea to understand why Apple has had continued success in the region.

I decided it would be interesting to make a few observations on the Chinese market and the story of a few specific smartphone brands.
Take a look at this chart. I’ve shown the percentage of a few name brands in China and their presence by accessing a mix of Chinese apps and cellular network activity.

The data is collected from hundreds of millions of devices accessing developer tool kits provided by companies like Baidu (one of the standards for app development and analytics for Chinese developers). I see the analytics reports for all three major developer toolkits and have triangulated between them to make sure the above chart is consistent. The other point to note is this includes tablet traffic so, in the case of Apple’s share, it is what total iOS share makes about the analytics.

On the point of Apple, what you notice is the fairly consistent 30% device share using these metrics. The analytics data breaks down this data by device model for developers. They know what screen sizes, resolution, network capabilities, etc., have the majority share so they can is use their resources wisely. This is one reason so many developers in China continue to focus on iOS. Not only are Apple devices ~30% share of the market opportunity for them but Apple provides both better economic incentives for these developers (since they can make more money on iOS) but Apple also offers them far fewer hardware variables than the open ocean of Android devices that exist in China. A simple look at this data by any developer and it’s clear where your best software opportunity lies. Interestingly, the ~30% presence of iOS devices is pretty consistent with actual installed base estimates of iOS in China which we are confident is in the 30-35% range or about 280m iOS devices in total in use in China.

Samsung’s Decline
Perhaps the biggest storyline to me is Samsung’s decline in China. Before the smartphone era, and even into the beginning of it, Samsung was a dominant brand in China. Local brands becoming dominant in China is a relatively new phenomenon because, for a long time, Chinese consumers felt Chinese brands were not up to the quality of foreign brands and no one wanted to risk spending their hard earned money on a brand that could be lower quality. For this reason, Chinese consumers tended to purchase brands they were familiar with and knew were quality. Samsung was in that class. The other point to note here on Samsung is while their brand was viewed as reliable and high quality, it was also not playing in the high-end in China but competed with much more affordable, somewhat low-end devices on the price spectrum. This, I believe is the singular reason for their decline.

Apple has never competed on price in China. It kept them in a class unto themselves from a brand standpoint. Samsung’s strategy to compete on price and be affordable for a majority of Chinese consumers left them vulnerable once Chinese brands gained in recognition and were the same price or lower than Samsung. Perhaps a law of consumer electronics has emerged. Start by competing on price, and you will always compete on price. This is why we do not see brands that start in the low-end affordable market succeed in the high-end premium market.

Huawei’s Steady Climb
What impresses me most about Huawei’s growth in China is how remarkably steady their line is compared to other Android brands. This, I would argue, is the sign of a stable strategy in China and one that suggests to me they are not a “flash in the pan” story that grows fast and falls like other brands in the region.

The vast majority of data points we see on Huawei shows a continued rise in loyalty of buyers to repurchase a Huawei phone, not something we see of other Android brands in China. We also see the Huawei brand being one consumer are expressing a sentiment that they believe Huawei is innovative and, in some cases, Chinese consumers say as innovative as Apple. Also something that was not true a few years ago.

Huawei remains the brand to keep an eye on and, as I’ve said before, they are likely going to take over Samsung in many markets. I would not be surprised if, some day, Huawei takes Samsung’s place as the leader in smartphones sales worldwide.

Shooting Stars
Lastly, I want to point out the swap in places of Oppo and Xiaomi. Xiaomi was the solid number three brand in China, receiving all kinds of press, attention, and local love for their flare. Now, their trendline is in decline with no signs of recovery and Oppo is emerging as the clear number three brand with Vivo hard on its heels. It is notable Vivo and Oppo are a part of the same larger electronics company in China called BBK. If you look closely at the chart, BBK used to be a smartphone brand with Vivo as a sub-brand. Somewhere around the end of 2015, they decided to shift focus from the BBK brand to Vivo. Knowing this, if we add up the brand share of Oppo and Vivo, it comes out to 17.44% which means BBK devices as a whole would be the number two share leader in China above Huawei. This dual brand strategy of BBK is one to watch and the dynamic between these two brands, which can focus and compete in different areas independently, could cause Huawei some troubles they have not yet anticipated.

That being said, shooting stars in China can rise and fall quickly. It is important to not just look at who has the most sales share or a flashy sales data point and look at who is developing sustainable growth strategies that have worked over time, not just for one quarter. That is the broader story this chart tells.

Apple and Generation Z

I received a mixture of feedback on Twitter when I tweeted Phil Baker’s column from yesterday. Most of the feedback was critical of Phil’s point that Apple may be losing the younger generation. They argued that, because so many of them prefer Apple hardware to everything else, others do as well. This is a solid point and is mostly true. But, there are a few points worth thinking about on the subject of Apple and Generation Z.

First, I have two daughters of this generation. Second, it is nearly impossible to study this generation quantitatively because they don’t take surveys. In fact, most of the primary research we do at Creative Strategies never goes lower than 18 years old. Through some of our partner research we access, it can go as low as 16. I’ve never seen large quantitative studies from young people below the age of 16, though. Which means, for those of us working as researchers, all we have are our observational skills and an ability to study behavior and map it to future outcomes. With this point in mind, I’m going to make some observations I think will help us frame the question of Apple and the next generation.

Technology Observations of K-8th Grade Students
As a part of several research projects specific to education, I have been talking to both educators/teachers and IT managers deploying thousands of devices — Windows PCs, Chromebooks, iPads, and Macs — in their school districts. One inescapable reality I continually encounter in this research is the dominance of Google’s Chromebooks in the lower grades. When I dig into the realities behind this (which is a lot more than simply the cost of the hardware), the real value for students, parents, and educators is that they live on the cloud. I frequently heard stories of how great it is they don’t have to worry about things like file management since all assignments, documents, homework lists, projects, etc., are always stored in one central location accessible from any device they choose. This is the deeper value proposition and daily workflow this generation is using as they grow up. While it’s true to say this generation is growing up with technology, the more profound point is this is the first generation growing up depending on the cloud.

Technology Observations of Higher Education
As these kids get older and move on to high school and college, a few things change. First, they stop preferring Chromebooks and begin desiring something more like a Mac, a Windows PC, or a tablet. While their hardware desires change, they are still relying on the cloud on a daily basis. As they move up, new avenues to the cloud emerge. It is no longer just for staying connected with their teacher, managing personal assignments, etc., but it evolves to also include collaboration. The value of the cloud moves from a singular experience, one mostly via teachers and students/parents, to one that broadens to include fellow students as they collaborate on projects.

While I’m making a few big picture observations, the image I’m trying to paint is one where the cloud has become central to generation Z’s workflow. Most of the software and apps they use regularly are much more cloud-centric rather than being specific to any one hardware platform. These conclusions lead us to a few outcomes worth mentioning.

First, this generation is growing up depending heavily on the cloud. However, it is largely not Apple’s cloud. Second, the vast majority of their day-to-day software experiences are not one Apple provides — with the exception of iMessage in a few markets like the US and Safari on iOS. Things like Facebook, Instagram, Snapchat, Google Search, Google Docs, Gmail, Chrome, etc. all rank higher in daily usage than any of Apple’s first party apps on iOS for the majority of Millenials via a recent survey we just completed on 18-24 year olds.

My concern is that Apple, while still being a valued brand that makes high quality, desirable hardware for this generation, is simply becoming “just a hardware company” to them. At which point, their potential to switch to Android or something else entirely becomes more feasible when most of the main apps and services they use exist on other platforms. The reality of this, if it comes true, is Apple’s only sticky proposition to this demographic is the hardware. Which I fear runs the risk of Apple’s ecosystem lock-in wearing down over time.

If I was Apple, the first thing I would do is double-down on first-party software. I’d make sure I had a few must-have apps this generation can’t live without. Second, I’d go all-in on the cloud and try to create cloud services this generation “lives and dies on” — a phrase I have heard more than a few times from this demographic when it comes to Google Docs.

Fortunately, we have the ability and access to keep on eye on this and see what new developments take place with this younger generation of consumers. The big takeaway from me is just how cloud-centric this generation has become.

Unfortuately, while they may grow up with Apple hardware, they are not growing up in Apple’s services. Project out ten years from now, as more and more core computing experiences move to the cloud, and you can envision why that may be a problem for Apple.

Research: Who’s Buying What Tech around the Globe This Holiday Season

We have some research that gives us insight into what tech products are on the interest horizon for purchase over the next six months. While intent to purchase surveys don’t always lead to purchases, it does give us an indication of what products are top of mind and more importantly how that may differ from each region across the globe. This research comes from surveys across 32 different regions and over 30,000 people in total. With as much data as I have, I struggled with the best way to display it. Since percentages did not equal 100% and were also based on sample size from each region making the percentages vary, I decided to weight the values numerically by priority. 12 is the highest priority / interest to purchase over the next 6 months and one is the lowest.

Here is the chart from a global standpoint with all 32 regions included.

Screen Shot 2014-11-03 at 8.31.48 AM

As you can see, globally tablets, smartphones, and a PC (laptop) have the highest interest level/priority to purchase over the next six months. While mobile phone numbers shouldn’t be surprising, it is interesting that, in all regions, the tablet still remains the highest priority with the PC (laptop) third. As I look at what we see happening in the market, my gut tells me there is still a large number of global consumers struggling with whether to get a laptop or a tablet. I’ve been saying for some time that, when the consumer market moves and finally upgrades their PC, we will see how the tablet and PC conundrum plays out. Still, looking at the data, one has to believe companies like Microsoft and Intel look at this and believe the 2-1 value proposition is strong if a buyer is struggling between both products.

To look at the data more granularly, I’ve broken it out by some of the larger regions by population. The sample sizes were also quite a bit larger in these regions giving us better detail of who intends to buy what.

Screen Shot 2014-11-03 at 8.43.14 AM

As you see, most regions are prioritizing the tablet from a purchase intention standpoint. A few markets like China and the US are prioritizing mobile, thanks to these two regions being extremely seasonal with mobile purchases. When it comes to the PC, it still ranks high, but only Brazil consumers have it as their top priority over the next six months. What is interesting to me is other categories on this list which can also be served by a tablet should the consumer desire. Take the e-reader for example. While lower on the priority list, a tablet can also be an e-reader. Perhaps, as a consumer gets savvy to this, it sways their decision more toward a tablet or a 2-1 rather than a desktop or clamshell? The tablet or 2-1 could also conceivably fill the role of a game console or even a DVD player where access to digital movies exists. What this highlights is my point about the tablet as a much more diverse device due to its form factor than previous heavy computing devices like notebooks and desktops. The tablet form factor can simply “morph” into so many things thanks to the software and services. As consumers become more knowledgeable, I believe the value of the tablet increases.

One point that stands out and is worth highlighting is India’s intent to buy a mobile phone. Look at the data point and you would think buying a mobile is simply not a high priority for Indian consumers. When in reality it is the highest priority among the masses from a tech purchase standpoint. Keep in mind, to take this survey, you have to be online already in some capacity with a smartphone, PC, or tablet. The online population in India is still very small in contrast to India’s population (somewhere over 200m people are actively online). So people who are answering these questions from every region are already online in some way, shape or form. Google’s head of India estimated 5 million new Indian consumers are coming online every month. Most of those are coming from mobile devices. For the unconnected, the mobile phone is the highest purchase priority since it is most people’s first computer. Looking at the data, we are focusing a bit more on what the purchase intent of the already connected is for the next few months.

Where that reality stands out is when we look at what tech was purchased over the past six months. This is a question I like because it brings a bit more clarity to the picture since consumers are stating what they have actually purchased rather than what they intend to purchase. Similar to the above chart, I weighted the percentages numerically. The most purchased product over the past six months is a 12 while the least purchased product is a one.

Screen Shot 2014-11-03 at 8.59.54 AM

Here we see the clarity of the mobile priority. As expected the mobile phone has dominated purchases over the past six months. We also see the strength of the notebook and desktop rebound we are seeing as it shows up in this data. The desktop in particular was a frequently purchased product globally over the past six months. We had a hunch early last year the PC would do well this year and we were right. Partly based on similar intent to purchase data we got this time last year. In fact, the above chart showing who purchased what was very similar to the same intent to purchase data from a Q3 2013 survey.

We know about the centrality of mobile, but what intrigues me about this data is the continued interplay between tablets and PCs. As a part of my overall industry analysis of both categories, this remains a story line and one that does not have as crystal clear of an ending as other categories. I get this data every few quarters so we will check back early in 2015 and see how the story is playing out. My guess is that Mobile is still high, but where PCs and tablets fall is the key question.

Why The iPad Could Be Huge in China

I’ve stumbled across some interesting research from Citi Group Financial’s internal research group. The research report was specifically about tablets but the part I found interesting was their research related to tablets and China.

Citi surveyed almost 2000 people and found some interesting results globally for tablets. With the US they found that tablets and specifically the iPad were not an immediate threat to replace PCs. Their research pointed out that in the US only 8% had purchased a tablet with the intent of replacing a laptop. The bulk of the usage of tablets the research turned up was for more lightweight consumption. Things like web browsing, email, social networking and multimedia were the top usage models. Their China research however turned up very different results.

It appears that in China there are significantly more people looking at buying tablets and using them as a laptop replacement. 21% of the people in their China survey said they currently own a tablet compared with 17% in the US/UK. 26% of China respondents said they intend to purchase a tablet over the next 12 months compared to 12% in the US/UK.

More interestingly with this data was that 31% of Chinese respondents said that their interest in purchasing a tablet was to replace their notebook. Another 26% expressed interest in a tablet to replace their desktop and another 30% interested in replacing their Netbook with a tablet.

The reason the iPad could be huge in China is firstly because China is a huge market and second because they appear to be interested in a tablet as a PC replacement. Which is a fundamental difference than why US and UK consumers are buying tablets.

If it was clear before it should be crystal clear now why Apple is so laser focused on China. In fact all the trends in China are playing to Apple’s favor. The iPad for example has 73% of the tablet market share in China and we can expect that to grow over the next few months and even more with version 3.

The other interesting thing about China is that it is one of the fastest growing regions for PC sales. This data seems to suggest that China could also become one of the fastest growing regions for tablets as well.

When I first read this data, I thought it seemed a bit too optimistic about China and tablets. Mostly because we are constantly reminded by all the large PC vendors how fast China is growing as a market for PCs. So this data seemed at odds with the reality that PC sales are accelerating in China.

PCs are still maturing in China so why would there already be significant interest in tablets over PCs? The answer I feel lies with China’s need and desire as a market for small and mobile technologies.

Netbooks had quite a run in China and for many Chinese consumers Netbooks were the best priced and sized computers for their first PC purchase. The iPad in terms of size and mobility are highly desirable among the Chinese consumers and may be some of the central reasons they are attracted to tablets so heavily.

Because China is so large and because PCs are selling like hotcakes over there I don’t suspect that tablets will eat into PC sales in any way that should alarm manufactures. Both will continue to grow and accelerate extremely quickly.

It is important to note that the China based research was done with those who are in the upper and rising middle class, which is a large and quickly growing segment of China consumers.

Whether it is with iPads or Macs Apple has a huge opportunity in China.

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