Apple's (NASDAQ: AAPL ) iPhone 5s hit the market on Sept. 20, meaning that the top-of-the-line iPhone has now been available for six months. After Apple introduced the iPhone 5s (and its cheaper sibling, the iPhone 5c), many pundits criticized it for a lack of innovation, arguing that the iPhone 5s wasn't much of an upgrade over the iPhone 5.
Despite all of the critics' complaints, Apple has had no trouble selling the iPhone 5s. Even after six months, sales trends remain solid, and the iPhone 5s is on pace to become the most popular iPhone ever by sometime this summer.
iPhone 5s usage continues growing
A few companies, including Fiksu and Mixpanel, collect and report usage data for each iPhone model. This usage data provides a rough window into sales trends: Usage for a new model will tend to rise as the installed base increases.
While there are minor differences in the Fiksu and Mixpanel data, both show the same general picture. The iPhone 5s reached 10% of the active iPhone base within about three months of launch. Fiksu places the 10% usage threshold on Dec. 22, while Mixpanel puts it slightly earlier, during the week of Dec. 9.
The iPhone 5s has nearly doubled its usage share since then. According to Mixpanel, the iPhone 5s currently accounts for more than 20% of all iPhone usage, while Fiksu puts its usage share at 18.8% as of Thursday (six months to the day after the on-sale date).
This makes it the third most popular iPhone today. The iPhone 5 is still the leader of the pack, representing about 32% of all iPhone usage. The iPhone 4s also retains a nearly 25% usage share. On the other hand, the iPhone 5s has now surpassed the older iPhone 4 in usage.
The story behind the numbers
The iPhone usage data show that iPhone 5s adoption has settled into a steady growth rate in the past few months. Since the beginning of January, the iPhone 5s has gained 2.5-3 percentage points of usage share each month. The iPhone 5s is thus on track to overtake the iPhone 5 as the most popular iPhone by August, even allowing for a sales slowdown as the "iPhone 6" rumor mill heats up this summer.
The addition of China Mobile (NYSE: CHL ) as an iPhone carrier partner is contributing to this sales momentum, but not in a game-changing way at this point. China Mobile sold roughly 1 million iPhones in February, which was the first full month that it was carrying the iPhone.
China Mobile will have a bigger impact on global iPhone sales this fall, when it should get the new iPhone at the same time as the rest of the world. The impact of China Mobile on iPhone sales will also grow over time as the carrier rolls out 4G service to more cities.
In the near term, a bigger factor affecting iPhone sales trends may be the changing nature of phone subsidies in the U.S., Apple's largest market. AT&T (NYSE: T ) and Verizon (NYSE: VZ ) recently implemented policies requiring contract customers to wait a full two years (rather than 20 months) before upgrading.
The timing of when these policies went into effect meant that very few U.S. smartphone users became eligible for upgrades last quarter. At Verizon, the policy change had its maximum impact between September and December; at AT&T it was between November and February.
With upgrade eligibility returning to normal this month, the upgrade cycle should be gaining steam in the U.S. The Fiksu and Mixpanel usage data suggest that this is occurring, but we will know more when Apple discusses its March quarter results next month.
Longer-term, it's not clear yet how the increasing prevalence of no-contract/no-subsidy plans in the U.S. will affect iPhone sales. For now, two-year contracts are still the norm, but even AT&T is starting to emphasize cheaper no-contract plans to compete more effectively against T-Mobile (NYSE: TMUS ) .
While Apple's legendary customer loyalty reduces the likelihood of mass defections to cheaper Android phones, a move away from subsidies could still hurt Apple. The slowing innovation cycle means that loyal iPhone users are less likely to buy new phones every two years if they are paying the full cost.
Foolish bottom line
Critics may think that Apple has lost its innovation edge, but that didn't prevent the company from posting record iPhone sales last quarter. Usage data from Fiksu and Mixpanel indicates that sales momentum remains solid for the new iPhone 5s, which is on pace to overtake the iPhone 5 as the most popular iPhone this summer.
The next-generation iPhone is expected to have a larger screen, which should drive yet another year of record sales. Longer-term, bears have raised some valid concerns about how long Apple can keep iPhone users on a frequent upgrade cycle without cutting prices. However, by then, Apple will hopefully have new product lines that it can lean on for growth.
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