Analysis: What Does Verizon iPhone Mean to The World?

Price pyramid becomes the decisive factor

I have calculated the price pyramid for phones sold worldwide in 2009, for the TomiAhonen Phone Book 2010 and it tells us that in 2009, only 5 percent of all phones sold worldwide were in the price bracket of the iPhone 4. Even if we take next lower price bracket and assume we can 'upsell' current mid-priced smartphone owners in the roughly 300 dollar smartphone price bracket, and upsell them to the iPhone in the 600 dollar (unsubsidized) price range, the combined market size of these two premium phone segments is only 14 percent.

What was Apple's total global market share of all mobile phones sold in 2010? We don't' have the final numbers, but in rough terms, the iPhone sold 4 percent. The Samsung Galaxy alone in 4Q is selling about 3 percent. Nokia's N8 as just one smartphone model from Nokia's range of several dozen sold about 1 percent in 4Q. Both are in the same price range as the iPhone 4.

Then we have Blackberries whose average price is near 300 dollars and they sell another about 4 percent of smartphones. That price bracket is very tightly contested by several dozen global brands from SonyEricsson and LG and Motorola to Lenovo and Dell and ZTE.

The competition is getting ever tougher for Apple as today every rival offers some touch screen based smartphones that are significantly cheaper than the iPhone, and in many cases offer at least some features now in early 2011, that are better than the iPhone 4 (bigger screen size, better camera, in-built slider QWERTY screen etc.).

The battle gets brutal at the top of the pyramid. In the US market it is not as clear-cut because American consumers are so wealthy, and the phones are subsidized. Apple itself admits its easiest markets are those where phones are heavily subsidized and Apple struggles most in markets where there are no subsidies like in China and Italy for example.

With this, I do think there is a natural limit which Apple is already approaching. In 27 years of selling the iconic Macintosh PC, which has a magnificent history of technological innovations, the Mac has always been a premium priced PC, and its global market share has settled very close to the 4 percent market share of all personal computers sold.

Now the iPhone is approaching that point in handsets (3.7 percent actually for calendar year 2010 . All major markets have now launched the iPhone, so there are no major countries left that would still be 'virgin' territory for Apple to launch in.

Its CDMA version will help sell more in North America yes, but mostly it means return customers from AT&T back to Verizon, and because of the vast prevalence of multiple handsets in America, the impact will be modest, further dampened by the 2 year contracts, and Verizon further hurt by a poor international roaming footprint, in the wealthy customer segment.

This is a good move by Apple to sell more in North America, and yes, they will sell more in the USA with both Verizon and AT&T than they would have done with only AT&T. This is a move that will be liked by its investors but it will more help Verizon than Apple.