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December 23, 2014

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Tester

You are mixing things up a bit. You have to look at this year's sales, not installed base. And there iOS has 14%.
Now the numbers look more sensible.

Overall, though, I think due to Apple's dominance in the highest price segments, concerning Tomi's analysis of other companies' prospects there, I'm a lot more skeptical.

These numbers really look like Apple will be the only one left selling in that segment a few years down the line - not because premium phones do not sell anymore but because the price point of premium Android will have fallen below the $450 line. So my guess is that the current premium segment will dry out, leaving only those who have to own an iPhone and willing to pay whatever Apple asks for it, regardless of justification for that price.

It'd also be interesting to know how many of the premium contracts are heavily subsidized. Those who need to pay full price for their phone tend to shop cheaper, at least that's what I get from talking with people. Today's $200 phones are already miles ahead of what was considered premium only 2-3 years ago.

abdul muis

Guys,

You digesting Tomi's number wrong.

First,
The 20% premium market segment is including the dumb phone too.
Without the dumb phone it would be 30% something.
Assuming all iphone in premium segment, iPhone 14% market share is not 50% of the premium market segment.

Second,
iPhone span in the category of premium and mid price.
The iphone 3G, 3GS that still on sell in india, malaysia, philipine, indonesia, vietnam.
and the iphone 4,4S, 5 that still on sell on many market is NOT in $500+ segment.


KPOM

Apple has something like 90% of the PC market above the $1000 price point (which, until the price drop on the base MacBook Air to $900 last year, was the entry point for a full-featured Mac). It would not surprise me at all if they come to dominate the premium phone market in the same way, unless Samsung hits it out of the park with the Galaxy S6 and/or Note 5. Lenovo has a maker of good phones in Motorola, but the latter was unable to turn critical acclaim into commercial success. Xiaomi has come out of nowhere, but they can't sell blatant ripoffs of iPhones and iPads in any Western market, and are having IP issues in India now, too, so will remain largely a China-only affair until and unless they start adhering to Western intellectual property laws.

Tomi talks about a $1000 smartphone. The 128GB iPhone 6 Plus is $949 ($500 with subsidies) and is the hardest one to find in stores here (though part of that may be supply given the issues Apple has had with the TLC NAND used in the 128GB model). And the US market is gradually weaning customers from subsidies, with AT&T Next and Verizon Edge following down the path that T-Mobile blazed 2 years ago by eliminating contracts, so not all the price is a result of subsidies.

Tester

@abdul muis:

Yes, you are right, of course. I didn't consider that when trying to correct Leebase. Now we are getting sensible numbers again.

But it's mostly Apple creating this lopsided result.

@Leebase:

I still believe that falling prices will eventually put Apple under pressure, too. You can't justify a $700 price tag if the competition offers the same specs for less than half of that.

@KPOM:
"Apple has something like 90% of the PC market above the $1000 price point (which, until the price drop on the base MacBook Air to $900 last year, was the entry point for a full-featured Mac)."

You, like seemingly everyone talking about this segment, constantly forget that most Windows PCs in that price segment are sold through smaller companies who custom build their systems. Yes, each one of them only has minimal market share, but together they's easily outclass Apple, they just do not appear on any chart because individually they seem insignificant. The mere fact that the big ones do not offer any product here is absolutely no sign that these systems do not exist. Where do you think that power gamers, for example, get their hardware? Certainly not Lenovo, Dell or comparable names. They go to a shop that custom builds to their customers' own specs.

And here's the big difference between phones and PCs. You cannot custom build a mobile phone. So all that market share belonging to the small shops has to be distributed among the big ones in the mobile sector. And this will not go to Apple.

baron99

Thanks for the stats!

KPOM

@Tester, if Apple has 90% of the premium market for PCs, that by definition means that everyone else combined has 10%. Apple isn't being "outclassed" at the high end. They essentially are the high end. I don't mean servers, which are a separate category that Apple no longer really competes in.

The question at hand is whether anyone in the Android market will be able to market on a large scale at the price points where Apple is for the newest iPhones. Samsung was really the only company who had been able to do so, but they have been faltering as of late. If Samsung has been ceding sales to the high end products of Lenovo, HTC, or LG, then it does suggest that someone, or maybe several players, can thrive by taking some of the premium market position. But if those sales have been going mostly to Apple then it's less likely. I think we'll need to look at raw unit sales of high end Android devices to know for sure. The bulk of the growth is at the low end, which will drag average selling prices down, but if raw unit sales of Android devices north of $450 continues to grow then we might see more differentiation.

Tomi T Ahonen

Hi All

Thanks for the great comments and questions. abdul muis did a great job answering the issue about the price pyramid stat. For LeeBase a quick addition. Its not that there are dumbphones costing 450 dollars (anymore). Its that the Price Pyramid covers all phones not just smartphones (or as abdul said 'including the dumbphone too'). So if it was just among smartphones, the above 450 dollar segment 'of just smartphones' would be about 30%. And as there are almost no dumbphones in that price range anymore that is actually rather accurate (the further down we go on the Price Pyramid the less that would hold). If we then use the current sales of smartphones market share stat - 14% for the iPhone, then the maximum Apple has of this market segment is 47%. I reality it is less than that because the iPhone 5C sells for less than 450 dollars.

Or to sanity-check this number, lets use 'all phones'. Then the premium price segment is yes 20%. We also have Apple's share of all phones (top chart) it is 9%. Again this is the ceiling of Apple's possible slice of the premium segment. It would be 45% (in reality it is less again because of iPhone 5C). Numbers are the same, that difference between 47% and 45% is only because of rounding off differences.

Apple has a huge slice of the premium phone segment but its not 90% it is less than 47%. And Apple's share is shrinking in the premium phone segment but it is growing in the middle price segment, exactly because of the iPhone 5C (or as I called it, the iPhone Nano entry-level or cheap model or mass market or emerging world iPhone strategy).

The weird thing is, that this type of Price Pyramid should be pyramid shape, so the top should maybe have say 12%, the second tier about say 18%, the third about say 25% and the bottom about 45%. But now the top is bigger than the second slice which suggests there is a severe market distortion ie the manufacturers aren't aware that a significant slice of the consumers would be willing to buy a far more expensive super-premium product. There is room at the top and I don't mean the Vertu or Lamborghini type of uber-luxury phone, I mean a $1000 - $1,500 dollar superphone. Incidentially if one manufacturer manages to do that trick, they could very well experience their 'Razr moment' that they could ride to iPhone or Galaxy type of market share, revenue and profit leaps. So I hope LG, Sony, HTC, Huawei, Lenovo, ZTE etc are listening haha...

Tomi Ahonen :-)

Tester

@KPOM:

"@Tester, if Apple has 90% of the premium market for PCs, that by definition means that everyone else combined has 10%. Apple isn't being "outclassed" at the high end. They essentially are the high end. I don't mean servers, which are a separate category that Apple no longer really competes in. "


Apparently you didn't read what I wrote:

Apple may make up 90% of what can be measured in this segment. But a large quantity of highly expensive computers is sold through shops that never even enter such statistics because they are too small. They are possibly lumped together among 'others' with no price category assigned, or escape these charts completely. I know many, many people who own a >$1000 custom-built system but I only know a handful of Apple users owning such expensive machines, most of which are professionals who often own a separate Windows PC, too. The only reason Apple features so strongly in this segment is because unlike Windows PCs nobody can custom-build a Mac, they are forced to buy from Apple's limited offer, so every Mac that's sold at such a high price point has to go to Apple. But very, very few sales in this price range for Windows PCs go to companies that register here. So you got a highly distorted statistic.

Tester

Re: Price pyramid

To be honest, I am not really surprised by this distortion favoring the premium end. Just one word: Subsidies.
It's hard to get 'normal' behavior here if there's so much price fixing and hiding the real costs going on.

A lot of people buy premium phones on a subsidized contract because all things combined make this an offer that's only marginally less attractive than using a cheaper phone.

It'd be interesting to split this off into different regions because with so different markets being mixed there won't be a clear picture.

What I don't believe is that there's room above the highest price point aside from true luxury products. Aside from the subsidy issue I think a bigger problem is that there's insufficient compelling offers in the mid range that set themselves apart from the cheaper phones and at the same time offer specs that may make a customer in the lower range of the premium segment decide to buy something cheaper.

Wayne Borean


Ah, but when looking at the 'High End' of the PC market, you are missing a major of point.

A $900.00 Apple Mac is equivalent to a $700.00 Microsoft Windows computer.

Seriously. Consider the cost of an antivirus subscription. Consider replacement battery costs (I'm still getting two hours of battery life from my four year old MacBook Pro). The if you are in certain specialized fields, like music or photography, consider GarageBand and iPhoto, neither of which has an equivalent bundled with Windows, and both of which would cost a minimum of $50.00 to replace.

Last but not least, consider maintenance costs for a Windows PC. My four year old Mac has had no maintenance (except backups).

The costs of running a Windows PC are far higher than the costs of running a Mac, which effectively means that a Windows PC is far more expensive than its stickered price.

Wayne

John F.

Today Samsung announced its closing its flagship store in London.
A few months ago it announced it won't sell notebooks in Europe as no one buys them.

For Q3 this is What Gartner’s report had to say about the three most closely watched companies:

Samsung: Sales of Samsung’s feature phones and smartphones declined in the third quarter of 2014, and Samsung lost market share in both markets. Samsung’s deepest decline came from feature phones, which decreased by 10.8 percent year-over-year. Demand for Samsung’s smartphones weakened mostly in Western Europe and Asia. Samsung’s smartphone sales declined 28.6 percent in China, the biggest market for Samsung.

and .....

Apple: Sales of iPhones grew 26 percent in the third quarter of 2014. With the introduction of two large-screen phones for the first time, the iPhone 6 and iPhone 6 Plus, Apple managed to neutralize the advantage of Android competitors. Gartner expects Apple to experience its biggest ever fourth-quarter sales, with both of its large-screen phones seeing demand exceed supply since their launch.


Wow, I think there is a huge crisis somewhere in the horizon for Sami never does wrong, market share strategy once again proves that Cash is king

John F.

Tomi,

Thanks for the price pyramid, a deeper study on the top 20% will appreciated considering the fact that reports mention that around 40% of samsung S5 is not selling, that is a massive miss. Difficult to digest and hard to understand when u consider that Apple increased their price and had a record breaking quarter

All your predictions about pricing are only killing Samsung not Apple.

Weird facts emerging as we close the year

Tester

@Wayne Borean:

We are posting a lot of FUD and nonsense, right?

1) Running a Mac without antivirus is as stupid as running a Windows machine without it. Despite all the denials of Mac users most security experts agree that this attitude is an open invitation for malware makers. A 10% share of computer owners who think they don't need protection are an open invitation for exploitation.

2) Replacement battery costs: Utter nonsense. If you buy cheap you get cheap. But don't pretend that Apple makes the best batteries. I don't buy that. My 6 year old laptop's battery is just fine, despite that thing having been in constant use for most of the time.

3) The software issue. Yes, for certain fields Mac offers better software - but these are isolated occurences, most fields are far better supported with Windows, so this is hardly an argument here.

4) Maintenance: That depends on so many factors that your point falls flat. A computer needs as much maintenance as its user makes necessary. I know people who are so careless that their machine will break down after a few months but I also know people (myself included) who can run a computer for many years without ever encountering a problem that'd require maintenance.

So all things considered: No, it's not Apple which is inherently better, what you get here is just the effects of higher build quality due to higher price. If you shop cheap on Windows you get shit, if you are willing to spend money and have a custom built system you mostly get something even better than Apple has to offer.

@John F.:

I think it's pointless to compare Samsung's third quarter with Apple's. Samsung had no new flagship device and is still suffering from the underwhelming Galaxy S5 while Apple's third quarter was massively boosted by the final missing feature of their older hardware. This is clearly a one time effect.
I'll hold my breath doomsaying Samsung until their next major release. If that also tanks, yes, then Samsung will be in trouble.


AndThisWillBeToo

@Tester
I personally think Samsung will report more bad news. Reason is that they are showing all the symptoms of year 2010 Nokia: declining profits for four consecutive quarters, declining market share, promise to cut portfolio to "improve cost structure" changes in management, unexpectedly bad performing device launch...

Time will tell but no good signs on Samsung front. It is unclear who the members of the church of market share will root for next. Lenovo, Xiaomi, Huawei are most likely contestants. I think the next darling is the one who enters western markets and India most aggressively.

Tester

@AndThisWillBeToo:

True about the symptoms. But there's one difference: Samsung is still on a competetive platform which makes recovery possible. Nokia didn't have that luxury - or to be more precise - they threw away all the chances still left to them in a rush of panic.

If there had been one criticism about Samsung's product line, it always was that the multitude of different devices was too confusing to the customer who just couldn't tell the differences between them anymore. So if they clean house a bit, their outside appearance may improve a bit.

Of course you don't do an Elop and reduce a versatile palette to almost nothing, but there's certainly a lot of redundancy in Samsung's catalogue.

Another thing that's often overlooked is that Samsung's drop in market share mainly comes from China where the government-sponsored local manufacturers have an unfair advantage. Their performance elsewhere wasn't nearly as catastrophic - so this may easily be a one-time event - just like the current boost Apple experiences with their first large screen phones.

AndThisWillBeToo

@LeeBase
I express my concern on Samsung ability to differentiate. They grew where they are by coming up with latest hardware (large screens, multi-core processors, etc.) before others or right after first ones. This was backed up by annual marketing push that exceeded the market cap of Nokia corporation - advertisement alone exceeded entire marketing budget of Coca-Cola company.

Today people are asking why they should pay for a Samsung phone when OnePlus One costs half of it with equal hardware and better access to Google ecosystem.
Samsung doesn't have differentiating services - they even ramped down their music service as it had too few users.

Samsung is faster than Nokia to react but they lack safety cushion.

Tester

@AndThisWillBeToo:

"Samsung is faster than Nokia to react but they lack safety cushion."

I don't think so. Samsung is one of the largest corporations in the world with such a diverse palette of products and services - not just electronics! - that they probably have one of the largest safety cushions in the world. If their mobile section runs into trouble they have enough reserves elsewhere to sit it out for some time. Of course, if they find out that mobile is no longer a business to compete in, they'd probably just quit without giving a shrug. But unlike Nokia they don't even come close to going bankrupt.

AndThisWillBeToo

@Tester
As I said, I'm worried about differentiation. Perhaps safety cushion is the wrong word. They lack customer lock-in. When competitors match their hardware and prices to that of Samsung, what will Samsung have to keep the customers on board? Samsung has UI that gets mostly negative reviews, services that they have traditionally not been good at (they already gave up with Samsung proprietary IM service too) and HW design that so far has not been the one that gets copied - Apple has that.
My colleague switched from SGS3 to OnePlus One. After sign in with Google account his apps and their settings were already a full copy if his previous device. Only reason why he didn't toss away the Samsung was that he might later find some photo, SMS or alike was left there and he needs it.
I saw huge customer lock-in to Google and none to Samsung.

LeeBase is right, as are you: Samsung is the profitable one and they have money to play the game. They can fund this play via their other business. But at current I don't see them playing other cards than price and marketing.

abdul muis

@AndThisWillBeToo

Samsung customer lock in in Galaxy Note is bigger than Apple iPhone lock in.

John F.


there is no company better positioned, better capable, or more competitive than Samsung ? ONLY if there is Cash to keep it going.

Well, this is where profits matter and market share kill dreams.

Reported news

2013 - Why are Samsung’s smartphones so dominant in the market when companies such as HTC, Nokia and LG have all released smartphones in the last year that are just as good if not better? A big reason is Samsung’s enormous marketing budget. Samsung’s marketing has spent an estimated $14 billion in 2013, more than quadruple what Microsoft and Apple together spent on marketing last year.

2014 - (Reuters) - Samsung Electronics Co Ltd, the world's biggest smartphone maker, said on Friday it planned to lower its mobile marketing spend this year relative to revenue, after big promotional spending hit fourth-quarter profit.


"When your brand doesn't have a clear identity, as is the case with Samsung, to keep spending is probably the best strategy," said Moon Ji-hun, head of brand consultant Interbrand's Korean operation.

"Samsung's marketing is too much focused on projecting an image they aspire to: being innovative and ahead of the pack," said Oh Jung-suk, associate professor at the business school of Seoul National University. "They are failing to efficiently bridge the gap between the aspiration and how consumers actually respond to the campaign. It's got to be more aligned."


Closing Stores, 40% dead inventory/S5 , 26% market share lost in China, 10% decline YoY in feature phones, many quarters of profit decline, and there is more.

Are people here delusional ? If those numbers would come fro Apple there would be HUGE headlines here calling for the end of the company and the disastrous high end market/price strategy and the hate would heat up to the max.

The problem for Samsung is not Apple, is every other cheap handset maker. The great dilema they are facing is that they can't compete with apple, by now it should be clear and the others are killing them

Samsumg = Compaq = IMB PC = HTC = every company that can’t afford losses and have no money to keep up with marketing expenses and inventory financing.

No one is locked to a toshiba PC or HTC phone. People were locked to the ecosystem ! It was microsoft, not Acer. It is Android not the handset.

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    Tomi Ahonen is a bestselling author whose twelve books on mobile have already been referenced in over 100 books by his peers. Rated the most influential expert in mobile by Forbes in December 2011, Tomi speaks regularly at conferences doing about 20 public speakerships annually. With over 250 public speaking engagements, Tomi been seen by a cumulative audience of over 100,000 people on all six inhabited continents. The former Nokia executive has run a consulting practise on digital convergence, interactive media, engagement marketing, high tech and next generation mobile. Tomi is currently based out of Hong Kong but supports Fortune 500 sized companies across the globe. His reference client list includes Axiata, Bank of America, BBC, BNP Paribas, China Mobile, Emap, Ericsson, Google, Hewlett-Packard, HSBC, IBM, Intel, LG, MTS, Nokia, NTT DoCoMo, Ogilvy, Orange, RIM, Sanomamedia, Telenor, TeliaSonera, Three, Tigo, Vodafone, etc. To see his full bio and his books, visit www.tomiahonen.com Tomi Ahonen lectures at Oxford University's short courses on next generation mobile and digital convergence. Follow him on Twitter as @tomiahonen. Tomi also has a Facebook and Linked In page under his own name. He is available for consulting, speaking engagements and as expert witness, please write to tomi (at) tomiahonen (dot) com

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