Apple Still Dominates the U.S. Market

Apple (NASDAQ: AAPL  ) boasts a 40.6% market share of the installed smartphone user base in the U.S., according to the latest data from comScore. Though Samsung isn't too far behind at 24.1%, there's still no question whether Apple dominates the market. It does. Here's why.

It boils down to retention
Earlier this year I came across some very insightful data from Yankee Group. Predicting future market share isn't as simple as extrapolating current trends into the future. Retention matters, Yankee Group argued. For that reason, it should be considered in projections of future market share. On that note, Yankee Group set out to make its own retention minded projection.

Their study began with a survey of 16,000 consumers. Among their findings, the most notable was that 91% of iPhone owners said they intended to buy another iPhone, and only 6% of iPhone owners said they plan to switch to Google's (NASDAQ: GOOGL  ) Android. Research by Piper Jaffray's Gene Munster in July 2012 seconds this notion of the iPhone's impressive retention. According to Munster, the retention rate for the iPhone is 95.7%. Android? Only 76% of owners intend to buy another Android phone. Of the 18% who plan to switch, according to Yankee Group, they plan to switch to iPhones.

Taking this data into consideration, Yankee Group projects that Apple's share of annual smartphone sales (not installed base like the comScore data) will surpass Android by 2015 in the United States.

Source: Data retrieved from Yankee Group (via All Things D).

Yankee Group eloquently explains the projection using a metaphor of leaking buckets.

Think of the Apple and Android ecosystems as two buckets of water. New smartphone buyers -- mostly upgrading feature phone owners -- fall like rain into the two big buckets about equally, with a smaller number falling into Windows Phone and BlackBerry buckets. However, the Android bucket leaks badly, losing about one in five of all the owners put into it. The Apple bucket leaks only about 7 percent of its contents, so it retains more of the customers that fall into it. The Apple bucket will fill up faster and higher than the Android one, regardless of the fact that the Apple bucket may have had fewer owners in it to begin with.

Why the U.S. matters so much to Apple
While emerging markets and Western Europe are definitely important growth markets for Apple, losing touch in the U.S. could cause catastrophic damage to the company's stock. Though Apple doesn't break down revenue to show exactly how much is coming from the U.S., its Americas segment is by far its largest -- at 37% of the Apple's fourth-quarter revenue. Europe, the company's second largest geographic segment, contributed 21% of Apple's revenue.

Even more, the U.S. market still has a lot of growth potential. According to comScore, 149.2 million people in the U.S. own smartphones (62.5% market penetration). That figure was up 4.1% in just the last three months. This means that, in just one quarter, more than 6 million people in the U.S. who have never owned a smartphone before purchased their first smartphone. With sequential growth like this, it doesn't look like the U.S. smartphone market is even close to saturated.

The long case for Apple
With 40.6% market share of the installed base of smartphones in the U.S., and higher retention rates than the overall Android platform, Apple has a huge base of customers that will periodically upgrade. This is a recipe for continued Apple domination in the United States.

Though the Yankee Group projection is based on data from earlier this year, recent research by Kantar Worldpanel seems to suggest that Apple's new iPhones are, indeed, still influencing many smartphone owners in the U.S. to switch brands. 

Retention matters. And as long as Apple's retention rates exceed most of its peers, retention will be one of Apple's primary weapons against its competitors.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 08, 2013, at 10:27 PM, gsagi wrote:

    You totally get Apple: TOTALLY. It's about market penetration and market share—they totally tailor their products to the numbers. TOTALLY.

  • Report this Comment On December 08, 2013, at 11:38 PM, Mentallect wrote:

    Apple may continue to dominate the US, but America is only 1/28th of the world market, so Apple needs to penetrate into foreign markets because during economic downturns consumers abandon high end products for lower end ones, and Samsung doesn't need large margins due to its sheer volume. Blackberry found out how fickle the market is, and it was Apple yesterday to a lesser extent, but last year's juggernaut is now OOB.

  • Report this Comment On December 09, 2013, at 12:24 PM, Zergspower wrote:

    This article would be funny if it wasn't so sad.. This author is suckling Apple's teat so hard that he thinks that EVERY person switching from every phone will go straigh to Apple and not Android. Please Apple has been losing footing for a few years now, With Samsung leading the charge the other Android makers are coming out with far superior phones than what Apple produces (Seriously you STILL can't have NFC and MHL)

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