Tantrum

iPhone Apps: One Month, 60 Million Downloads

...and only 0.5% of all downloads.

iPhone Apps: One Month, 60 Million Downloads

Sorry Eric,
You're mixing up units sold (i.e. number of games) and revenues from apps sold $30 Million in the same thought stream. I'm happy that the top selling paid app is 1% of application downloads even though it's 10% of revenue.

iPhone Apps: One Month, 60 Million Downloads

300,000/30 million = 1%.

Apple's iPhone Shortage Is Probably Just That

iPhone exports are distorting demand in a big way. Unintended markets in developing countries are driving demand. Looking at Western Europe to figure out overseas demand for iPhone misses the point completely.

People in France and Ireland like the iPhone but they do not consider it value for money. No 3G and high price is a deal-breaker. People in China, non-industrialized Asia and Russia see the situation very differently. Perception of value is very different, cheap dollar is very good, people are used to buying things through grey market channels and Apple Store versus AT&T is obvious, no risk of bureaucracy.

The Case of the Disappearing iPhones

Looking to Western Europe to determine the success of the iPhone is misleading. Apple iPhone is good enough for the US, for now, not good enough for Western Europe and a smash hit in emerging markets that are on the up-and-up iPod adoption wave.

There are more iPhones in China (a non-market, developing country) than there are in France (a mature, developed market with high income). The factor is 5x or 6x, maybe more.

The Case of the Disappearing iPhones

It is simply too complex and difficult to launch a 3G iPhone within a month of SDK launch. FCC certification would probably leak unless they tested both radios in late 2006. Apple is simply facing a larger-than-expected demand-supply mismatch at its stores because of grey market exports, probably combined with growing US adoption. If 3G iPhone is released this summer, I will be very surprised if it's early in summer.

The research we're working on will be available later.

The Case of the Disappearing iPhones

Wall Street analysts like Gene Munster and Toni Sacconaghi continuously discount the role of international demand in iPhone sales. They do this primarily because they have a very America-centric view of the world in which this 5% tail wags the dog. Not in cell phones.

This is the issue. The customer-satisfaction numbers you see for iPhone in the US are no different internationally, in some cases they are much higher because the price ($399 and $499 is seen as perfectly reasonable, particularly in emerging markets used to paying higher premiums on US prices for BlackBerry and high-end Nokia phones).

Demand for iPhones outside the United States is out of control and has reached the point where it has started to impact Apple's normalized supply chain projections. It's okay to have a delta of, say, 100,000 units or so per year between actual and forecast. International demand is driving that delta upwards of 1 million. That's a whole different ball game for component sourcing, quality control and production ramp-up and some things are starting to come unstuck, even for a finely managed company like Apple.

What's driving this?

1. Free, out-of the box -ready, GUI-based network unlock solutions like Ziphone and iLiberty. Confidence in these unlock systems has grown significantly over time as technical expertise required to use them has fallen.

2. A large, very organized procurement mechanism for iPhones, particularly into Russia, Eastern Europe, India and China. There are people who go from store to store buying iPhones and aggregating them for export to "resellers" overseas.

3. Proliferation of Wi-Fi penetration and the recognition that in GSM countries, iPhone works simply and well enough. Wi-Fi hotspot usage is growing significantly around the world and the iPhone's superior web browser is taking full advantage to maximize customer experience. It's the right product at the right time for the macro-trend.

4. The iPhone is relatively cheap to emerging market customers used to paying $500 for a BlackBerry and a cheap US Dollar makes it an even better deal. For example in Russia, at $499, a16GB iPhone translates to around 12,000 Rubles. An 8GB Nokia N95 costs $815 or 20,000 Rubles. The value-for-money perception with iPhone is absolutely huge.

5. Zero or minimal compatibility issues on GSM Networks. I have used my iPhone with SIM cards from 32 different networks in Europe and developing countries. It works seamlessly. The iPhone is a quad-band GSM phone, meaning that it supports all four major GSM frequency bands, 850 and 1900 MHz bands which are used in the Americas, and 900 / 1800 MHz bands used in most other parts of the world, making it compatible with all major GSM networks worldwide. 2 billion people around the world use GSM phones.

To give you an idea of international demand; There are Nigerians shipping more than 500 phones a week from New York to Lagos and Nigeria is a third world country. The EDGE internet works perfectly, albeit just as slow, there and data is very, very cheap at $5 per 100 MB of usage.

"Data-driven" analysts like Munster and Sacconaghi get misled by the laziness of long-distance US-chauvinist analysis into making market projections based on perfunctory GDP per capita statistics and "population living on less than dollar per day" figures. They look at the wrong data because they think the world works in the same way everywhere. This weak analysis disregards latent middle and upper income demand in developing countries.

If you define a potential user as someone who can afford to pay twice as much for an iPhone and double what an AT&T subscriber pays per month, there are at least 7 million potential iPhone users in Nigeria, 9 Million in South Africa, 80 Million in India, 25 Million in Russia, 25 Million in Brazil, 8 Million in Indonesia and 100 Million in China. Not all of them will be users but just 5% of this number is way more than 10 million. Considering mobile phones are some of the most universally adopted products on the planet, a good GSM phone reaches Iran and Iraq much faster than people on Wall Street can ever imagine.

From research I'm conducting. we have conservative numbers of grey market as follows:
Russia 2000-4000 phones/week
China 4000 -6000 phones/ week
Demand from Western Europe is slower but still significant, averaging anything from 2000 -3000 units/week from New York and other big cities with international airports. Now, not all the phones shipped from New York are bought in NYC but the export pattern is clear and very strong.

I have completely ignored the cash-flush Middle East where Dubai has always been a world-leading port in grey market clearing and forwarding for consumer electronics.

Conservatively speaking, something is sucking 15,000-20,000 iPhones/week out of the United States. If this phenomenon is coinciding with steadily growing adoption among US customers, suddenly the slack Apple had is drying up.

Many of the millions of visitors coming to the United States every month are going back with a packed iPhone in their luggage. It's one of the things people are expected to buy when they come.
Foreign nationals are not very likely to buy iPhones at an AT&T store because the requirements are inconsistent (some stores were requiring SSNs, existing phone numbers and/ or activation), queues are long (non-starter for people with a limited window to get back to the airport), lack of other Apple products (iPods etc) and accessories and simply, AT&T stores are not landmarks.

Finally, the reason why used iPhones will begin to show up on eBay and other consumer-to-consumer sites in Europe is because individuals who speculatively buy an iPhone to resell are up against "organized unofficial" suppliers. You're much more likely to buy a phone from an expert hacker if you worry about fixes and other things. And yes, the parallel market is showing budding signs of getting sophisticated at providing some of the support Apple wont provide.

Oh well, maybe it's just version 2.0 coming out soon.
I think not.