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A version of this essay was originally published at Tech.pinions, a website dedicated to informed opinions, insight and perspective on the tech industry.
The more I have reflected on what is happening right now in the consumer technology industry, in particular Apple’s position, the more a key observation hits me. Apple is in uncharted territory. I don’t mean because sales of iPhones are slowing or because its stock has a more skeptical sentiment around it than in years past. What I mean is that Apple has never had a product like the iPhone that has reached such enormous scale, thus increasing its customer base to levels few thought the company would ever reach.
Apple has never had a product like the iPhone that has reached such enormous scale, thus increasing its customer base to levels few thought the company would ever reach.
Apple certainly had a mass market hit before the iPhone in the iPod. However, the iPod’s best year of sales was 2008, with 54.83 million units sold. The iPod helped Apple’s core customer base reach somewhere between 125 million and 175 million users. The iPhone has taken the company to an entirely different level. Last year, Apple sold 231 million iPhones. The iPhone is the greatest hit Apple has ever had, and its customer base grew from under 200 million users to now over 600 million.
Apple has never had this many customers before. More importantly, it have never had this diverse a customer set. That is why it's in uncharted water.
I’ve pointed out how the iPhone has spanned the entire customer spectrum. It is owned all the way from early adopters to technology laggards. A rare few products can make such a claim. However, for Apple, owning such large chunks of consumers across the spectrum is bringing new challenges by way of patterns of their customer’s behavior the company has not seen before. Apple learns new things about its customers on a regular basis, and has to plan and act accordingly. Nowhere is this better observed than with its customer refresh rates of new iPhones.
During its main growth period, Apple had been operating under a cycle of rather consistent upgrade patterns for iPhones. Depending on the specific country, the upgrade rate varied between 19 and 24 months. However, as Apple began to attract new customers, particularly those on the later end of the technology adoption spectrum, something interesting happened. Note this from Kantar Worldpanel on the U.S. smartphone market on Apple’s launch of the iPhone SE:
The move should, first and foremost, appease Apple’s user base, 58 percent of which still owns an iPhone 5s or older. The average lifecycle on these iPhones is 27.5 months, longer than the overall smartphone market at 20.9 months, suggesting that up until now these iPhone owners have been hesitant to upgrade. This is either because they prefer a more compact iPhone, or because they are not interested in investing in the new models.The key stat here is how iPhone 5s owners tend to hold onto their devices longer than the average. This is a new customer insight and, in this case, it is unique to a specific model of iPhone. There are significant portions of Apple’s installed base who do not behave like most other iPhone owners, and this could prove quite challenging, particularly as Apple looks to drive replacement rates within its installed base.
Prior to this last quarter, Tim Cook always gave us a statistic letting us know how much of the iPhone base had upgraded to an iPhone 6 or higher. For a few quarters, this number grew steadily, but now it is slowing. Apple has succeeded in getting most of its early adopters and early majority customers to upgrade to new devices, but its laggard base is clinging to their older devices and seeing no need to upgrade.
I was at the Jazz Fest last Friday in New Orleans, and did not miss an opportunity to make small talk with folks about their devices. At an event like Jazz Fest, we see a large representation of the mass market. I was surprised to see how many iPhone 5s are still in active use, and even more surprised to interview so many consumers who see zero reason to get a new iPhone. Looking at some fresh research from our most recent U.S. market smartphone study, 26 percent of current owners of a 5s or later have no plans to upgrade their smartphone in the next 12 months. While not entirely defined by the iPhone models they own, Apple has a sizeable user base that is likely to exhibit upgrade patterns the company has not encountered before.
For 25 years, we've had a technology industry, but only for the past 10 years have we had a true global-scale consumer technology industry.
The plus is that these will remain loyal Apple customers, and continue to spend money in Apple’s ecosystem. The negative is that they will be unusually slow to buy new iPhones, which, in turn, will have an impact on annual iPhone sales. In some ways, I’m not sure even Apple understands yet just how stubborn regular consumers are when it comes to replacing their stuff. And Apple has a lot of these regular consumers as its users, and they may likely behave in unpredictable ways Apple can’t anticipate.
In this post from 2014, I made the case we should understand tech history is being made, not repeated. This is as true today as it was when I wrote it.
For 25 years, we had a technology industry, but only for the past 10 years have we had a true global-scale consumer technology industry. This point continually goes underappreciated and misunderstood, but it is central to acknowledge as we learn new things about consumers in this still-young consumer technology market. These dynamics are new to Apple as they are to many companies competing for consumer dollars. At the end of the day, this diversity of global consumer behavior is what makes studying them fascinating and intellectually stimulating. But I sympathize with the companies for whom, I’m certain, these customers will drive crazy.
Ben Bajarin is a principal analyst 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. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Reach him @BenBajarin.
This article originally appeared on Recode.net.
