Look Who's Buying the iPhone 5c

Research published by Kantar Worldpanel shows that nearly 50% of Apple (NASDAQ: AAPL  ) iPhone 5c purchasers switched from competitor brands, particularly Samsung (NASDAQOTH: SSNLF  ) and LG.

It shouldn't be too much of a surprise that Apple's mid-priced phone is encroaching on Google's (NASDAQ: GOOGL  ) Android. Although analysts have suggested that the 5C was priced poorly, or that recent order cutbacks signify it was a flop, the new model is clearly effective in attracting U.S. customers.

The c doesn't stand for Cheap or China
Perhaps the c stands for conundrum. That's what the 5c has been for the last two months as it seems very few have a good grasp on where the new model fits into the smartphone market.

Kantar's research clears some of that up. The biggest demand for the iPhone 5c is lower-income households in the U.S. Twice as many 5c owners make less than $49,000 compared to 5s owners -- 42% vs 21%. The report also notes that 5c purchasers are on average 4 years older.

That's an interesting market, especially for Apple, which has long associated itself with a younger consumer. I think it's safe to say that the iPhone 5c is a successful product if it broadens Apple's smartphone market. So far, that seems to be the case.

The most valuable customers
Many smartphone analysts are focused on volume, the growth of emerging markets, and the dominance of Samsung and Android in both of those regards. That's only part of the story. It's also important, particularly to Google, to extract value from customers after the initial sale.

That's something Apple excels in, something Google is comparatively struggling with, and something Samsung is looking to improve.

Apple has over 600 million iTunes users, and collects an average of $16 per user in app purchases alone. Last year, Apple brought in $9.3 billion from the iTunes store.

Comparatively, the average Android user spends just $4.59 total in the Google Play store. Moreover, Apple encroaching on Android means that it's poaching Android's most valuable customers. Couple that with the increase of cheap Android phones in China, and I see Google trailing Apple in app store revenue for a long time.

Only 5.6% of app downloads on Chinese Android devices are made through the Google Play store. What's more, a lot of these devices (20% to 30%) aren't coming with the default Android apps -- GMail, Google Maps. That's a lot of missed revenue for Google.

Samsung appears eager to mimic Apple's model. Having established itself in China, the world's largest smartphone market, Samsung wants to build its own app store and operating system. Tizen, the rumored Samsung mobile OS, could be a huge boost to Samsung's profit margin on its low-end smartphones.

Google's biggest success, Samsung, has become its biggest risk. Google executives have noted this in the past, but are hard-pressed to find a hedge to that risk.

5c a success?
Apple has never focused on volume. Why did analysts expect that to start now? The 5c seems to have successfully expanded the iPhone's market without compromising margins, quality, or, most importantly, user experience.

Apple is going after the most valuable customers in the market: the ones that will pay a premium for their phone and will download apps, music, and videos later. This is a market that's important to both Google and Samsung -- where the biggest profits are -- and Apple is seemingly taking more of those customers from both companies.

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  • Report this Comment On December 03, 2013, at 4:52 PM, dbtuner wrote:

    Exactly!! Well said

  • Report this Comment On December 03, 2013, at 5:50 PM, xwallster wrote:

    I'm continually amused at the level of energy put into this discussion. On a two-year contract basis, each of these phones is still going to cost around $2K to own and operate. The difference in subsidized price works out to about 10% over 2 years.

    People buying the 5C either really like the colors, don't mind losing out on 5S features, or can't do arithmetic. Maybe all three.

    Still waiting for carriers to drop their service prices before I'm able to buy any smartphone. The device cost doesn't matter in comparison.

  • Report this Comment On December 03, 2013, at 7:55 PM, alwyr wrote:

    PLEASE, PLEASE, PLEASE, find some 'news' to report on.......OTHER than smartphones!!!!!

  • Report this Comment On December 03, 2013, at 8:04 PM, DEVO wrote:

    Mr. xwall, I agree with you on the first point. Who cares! However, as a recent 5C purchaser, for me it was the form factor, which you completely failed to address. The 5C is similar to the 3G iphone I was replacing. It's not as boxy as the 5S (or the 4).

  • Report this Comment On December 04, 2013, at 2:26 PM, johnestromjr wrote:

    Thanks for Apple's 5C update Adam. I thing [and hope] the 5C is going to be a far bigger hit once China Mobile is marketing them. :)

  • Report this Comment On December 05, 2013, at 1:35 AM, RgR13121312 wrote:

    @xwallster - Looks like you're never going to get a smartphone. Carrier pricing will never fall - you should've signed up 10 years ago and get the grandfather'd in rates. But likely, you thought those cheap prices were still too high and decided to wait. Obviously - you're apart of the older generation, where $2.99 of gas for youth is WOW CHEAP, while the older generation is still in disbelief.

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