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.
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.
His investing philosophy is simple. And it works. But few choose to listen.
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.