Friday, May 31, 2013

I've always maintained that the iPhone's business model stands on very shaky ground because globally, the iPhone never managed to achieve double digit market share when subsidy is not present. That is a fact.
Lately, I've been trying to find out how much of an influence carrier subsidy has on Apple's iPhone market share. Thanks to the magic of g+ and the generosity of one Mr. Sameer Singh, I managed to come across this article that he posted on May 29 2012.
Using Q1 2012 market share, subsidy, purchasing power data and statistical analysis, Sameer managed to come to the following conclusion about the connection between the three variables mentioned (mind you the analysis was conducted using last year's data when iPhone's market share was still significantly higher than it is to date):
Based on the outputs of our regression analysis, we see that the iPhone's market share is heavily dependent on carrier subsidies but, interestingly, does not depend on purchasing power in a given country. More than 70% of the variation in the iPhone's market share can be explained exclusively by carrier subsidies. This figure improves to more than 80% if we consider NPD's US market share figures, which not only proves the dependence of the iPhone's market share on carrier subsidies, but also that our model is fairly accurate*. We have also been able to prove that carrier subsidies have no impact on the market share of Android smartphones.
You can find more interesting points in his article such as this following gem:
Using the derived coefficients from the regression analysis, we can derive an estimation of the iPhone's market share in any country:
iPhone Market Share = 6.3% + 0.305 x Subsidy Index
The intercept of 6.3% gives us an indication of the impact of Apple's brand strength on its market share and a rough estimate of the expected market share in a world without carrier subsidies. Clearly, this is far lower than the impact carrier subsidies have on its market share.
The value of the intercept may not necessarily be accurate as it may depend on the brand loyalty for Apple in that particular country as compared to other manufacturers. But the model can accurately estimate the impact of changes in carrier subsidies on the iPhone's market share. For the US market, this translates into the iPhone losing roughly 4-5% in market share for every $100 reduction in carrier subsidies.
So basically, if we take subsidy out of the equation, the highest market share that we can expect from the iPhone is 6.3%. Remember this analysis was done using last years data.
Of course one can argue that it is silly to think that carriers will ever stop subsidizing smartphone prices; that subsidy will always be there because that's how they've been making their money all this time.
This argument, totally disregarded the fact that some markets have stopped using the subsidy model (Spain is an example, as does T-mobile's recent moves in the US) and most of the emerging markets where most of the worlds population live have never heard of subsidized plans.
But that's an issue for another day.
The thing is, even if we assume that subsidized markets will continue to be subsidized indefinitely, the iPhone is still in very deep trouble. Here's why:
We have established that the iPhone's market share is heavily dependent on the amount of subsidy it is given.
Well, subsidy is given in developed markets where the smartphone market had matured, thus growth had slowed down and will only continue to go down.
The only place where manufacturers can still see growth is in the emerging markets and we know that smartphone prices are not subsidized in these markets.
Hence, the deep trouble the iPhone is in.
PS: it would be great if +Sameer Singh can update his analysis using this years data.
#iphone #apple #android
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