Slow New User Growth
There is no doubt that Apple's user growth is falling. Much of this is because Apple is running out of premium smartphone users in key markets such as China and India.
Some people are convinced that slowing down user growth represents a warning sign for Apple. The concern is that Apple will again look at milking existing users with higher prices and services in an effort to compensate for lowering hardware sales. Much of this fear is based on where the lack of new user growth nearly killed Apple in the 1
In my opinion, this is a wrong way of thinking about the current situation.
Much has changed with Apple over the past 25 years. In the mid-1990s, Apple's user base was a fraction of the size of today's user base. Apple had around 25 million users in the mid-1990s. Simply put, Apple's user base was not large enough to achieve sustainability. Instead of focusing on bringing in new users, Apple took the easy route and just kept selling to existing users. Today, Apple has 40 times the number of users and brings in 25 million new users about every six months. Apple's billionaires include a self-sufficient ecosystem. The company has a strong position to sell more units and services to these billion users without jeopardizing the long-term health of the ecosystem.
New User Plateau
While new user growth is slowing down, it is not certain that Apple will reach any type of user platform. As Apple continues to move into several personal devices that are durable, the company's addressable market will expand, especially in emerging markets. In countries like India and Brazil, products like iPhones, iPads and Macs cannot be the best tools to bring new users into the ecosystem. Instead, poorer laptops can eventually open the doors to hundreds of millions of new Apple users in markets that have so far been out of reach.
Apple is a design company tasked with developing tools that can improve people's lives. Such a mission plays an important role in figuring out how to best judge Apple.
Apple does not think of financial items such as revenue or profit margins when developing products. The same principle applies to new user growth. Jony Ive and the industrial design group do not sit around a table and come up with products to bring new users into the ecosystem or increasing sales per user. Such motivations would have manifested themselves in a less focused product line over time.
But Apple is considering and thinking about how new products can fit within the existing product line. For example, Apple Watch was launched out of the port as an iPhone accessory. A pair of smart glasses will probably be the same as an accessory out of the door as well. These considerations are part of Apple's long-standing goal of making technology more personal and of having new products as simpler alternatives to existing products.
The implication in this product strategy is that one of Apple's key opportunities ahead has been found in developing and then selling new tools to existing Apple users. A feedback loop can then be created as new tools and services driving higher user loyalty and engagement and then even higher tools and services adoption. This will probably manifest itself in higher revenue per user over time, as Apple users rely on multiple Apple tools in their lives. As Jony has said in the past, financial items such as revenue and profit end up with the products of a successful product strategy.
This brings us back to the Apple revenue per user calculations from above.
200 million people spend on average $ 25 a year (people in the gray market).
620 million people spend an average of $ 260 per year (includes 400M iPhone users upgrading every four years).
180 million people spend an average of $ 500 per year (Apple's core US manufacturers and a handful of other countries purchasing a variety of Apple products and paying for various services and subscriptions).
Apple has a good position to run with the wear of some of the 400 million users who probably only have an iPhone to start using another Apple device. One way to measure this opportunity is that if 200 million people spend more than $ 350 a year against $ 260 per year, Apple could see another $ 18 billion of revenue per year. Another possibility has been found with the 200 million users who are part of the Apple ecosystem through the gray market. Assuming Apple can sell extra tools to some of these users, Apple would see something close to $ 12 billion in additional revenue per year (100 million people spend more than $ 150 a year against just $ 25 a year). These are large numbers talking to how much space the company has for existing Apple users to become more involved in the ecosystem. In the mid-1990s, Apple tried to melt its limited number of users of more money. Apple is now committed to expanding its user tools arsenal while continuing to add new users to the ecosystem.
While Apple will continue to face various risks of maintaining user loyalty and commitment, especially in terms of factors beyond control such as economic and geopolitical development, the big picture is that Apple's billions of users are a game shift. The company has reached a level of ecosystem strength that is still not completely digested by the market.
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