Amongst the recent slew of financial reports for technology companies, Apple’s results stood out for good reason: making the most profit of any company, ever. The $18 billion Apple made in profit exceeded expectations, as did the 74 million iPhones sold (34,000 phones every hour, every day, for three months). Along with the 500 million visits to physical and digital stores, Apple had a very good Christmas.
A few short years ago, it seemed the company was on the back foot: the growth of Samsung and Android was rampant, Apple seemed to be failing to deliver new product lines and had failed to attract consumers in emerging markets. These worries are now dispelled. A large component of the company’s profit was of course driven by the iPhone, being sold in international markets. Apple has managed to defy the law of demand with the iPhone, by creating a “Veblen good” – a product that has a demand proportional to the price – the iPhone now has a higher Average Selling Price (ASP) than when it was released in 2007. Contrasting this to Samsung, which suffered a 23 percent drop in mobile revenue for 2014, Apple now has a near monopoly on the higher end of smartphones. Tim Cook, speaking on the earnings call said that “I would point out that only a small fraction of the installed base has upgraded. And so there is a lot more people within the installed base….we had the highest number of customers new to iPhone last quarter than in any prior launch. …the current iPhone lineup experienced the highest Android switcher rate in any of the last three launches in the three previous years.” This would seem to indicate that consumers who have used high end Android devices are now moving towards iPhone. Along with stunning growth in China – 70 percent increase revenue for the quarter year-on-year – it would seem Apple has resolved most of its problems.
As the number of devices has increased, so has usage of Apple services. The app store experienced a 41% increase in revenue. Swift, the programming language designed to speed up iOS development, was downloaded 11 million times. Over 600 developers are using HealthKit to develop products. Apple Pay now accounts for 2 out of every 3 contactless dollars spent in the United States – Whole Foods has seen a 400% increase in contactless payments. It seems Apple’s hold on the mobile ecosystem increases with every phone sold.
Despite these successes, key questions will remain for Apple in the future. Apple Watch is on track to be released in April this year. Despite the optimism and promise it has shown, the market for a digital watch may be limited. Some forecasts estimate 30 million units sold in the first year – quite limited demand when contrasted with the iPhone. How will Apple create the demand to turn Watch into a mass market device? The position of the iPad is also unclear. The ASP for iPad has declined since its released, and whilst sales and the install base are still good by most measures, Apple has not convinced consumers that iPads need replacing more than every three years or so – much like a laptop. Should Apple try to increase innovation in tablets? As technologies behind Augmented/Virtual Reality improve, will Apple be accused of failing to innovate yet again if it doesn’t develop capabilities in the field? Despite future questions, Apple’s results do demonstrate the power of the iPhone, and how important mobile has become for consumers everywhere.
Written by James Ellis, Mobile Strategist at M&C Saatchi Performance
