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Is Apple’s next big thing going to be its small new thing?

by John Krystynak on Mar 18, 2016
  • Almost 40% of iPhone owners still use a small-screen device
  • 7.8% of those using smaller phones use one with a 3.5” inch screen (3G, 3GS, 4, 4S). This represents 2.9% of total (big and small) iPhones in use
  • 47.3% of those using a smaller phone have an iPhone 5S. This represents 17.5% of total (big and small) iPhones in use
  • iPhone SE could represent 33% sales growth in iPhone category for Q2 2016

On March 21, Apple is rumored to launch the iPhone SE: a wholly new device with updated specs but in a smaller package. We wondered if, using our data, we could make any projections regarding how successful it will be. The short answer is that we think Apple’s Q2 2016 could see a 33% YoY increase in iPhone sales thanks to the SE. That’s because even though newer, larger phones are more powerful and are now standard, many users still cling to older, smaller devices for dear life. Indeed, according to our data, nearly 40% of global iPhone owners have an older device with a screen size of 4 inches or less.Applovin_iPhone_Screensize_Final1b

This finding is derived from an analysis of iPhone usage on our network, which serves billions of ad impressions per month. Because we serve hundreds of millions of ads per day, and each ad request indicates which model is being used, we statistically sampled request data from February 2016 to determine the mix of active users by model.

In addition to those who just keep whatever phone they have until it stops working, there are essentially three reasons why smaller, older phones are still in play: 1) there’s always a faction that buys a new larger model and then gets so frustrated with the size that they revert to their previous model; 2) then there’s the group that delays upgrading at all because they already know they just don’t want a larger phone (think of those who bought 5S models in 2013, have two-year plans, could have upgraded to a larger phone but didn’t); and 3) older models are more affordable ­— especially in developing countries where incomes are lower.

To be fair, Apple launching a smaller version shouldn’t be viewed as back peddling on a strategy. When the larger-sized iPhone 6 came out, 30% of its buyers quickly switched from an Android device. So when it only made smaller iPhones, Apple missed out on a valuable market. Now, Apple has addressed this deficiency in its product line, but those who like new, smaller devices can still have what they really want: top performance, pocket-sized. With the iPhone SE, Apple is poised to capitalize on a portion of that 37% who have, for whatever reason, dragged their feet on upgrading.

Digging a little deeper, we found that 7.8% of those using smaller phones use one with a 3.5 inch screen (3G, 3GS, 4, 4S). This represents 2.9% of total (big and small) iPhones in use. For users of iPhones with 4 inch screens (iPhone 5, 5S) 47.3% of them have an iPhone 5S. This represents 17.5% of total (big and small) iPhones in use.

Doing some back of the envelope math, Apple has sold roughly 500 million iPhone units in the last 30 months. Assuming some attrition in those numbers, a conservative estimate would be that 400 million of those iPhones sold are still in use worldwide. If you extrapolate from our data, 151.7 million of those are smaller-screened, older iPhones. Round that down to 150 million. If we estimate conservatively that 80% of those smaller iPhones are used by price-sensitive customers who can’t afford a newer model, that still leaves about 30 million customers who would be interested in buying a compelling iPhone SE model with a 4-inch screen.

To put that in perspective, Apple sold 61.2 million iPhones in Q2 2015, so when they release the new iPhone SE, those 30 million current small screen iPhone users (along with some 6/6 Plus defectors) could easily increase Apple’s iPhone sales by 33% YoY. This is assuming that two-thirds of those 30 million buy an SE within the first 90 days of April 1, 2016. Given the pent-up demand evident both in our data and anecdotally, we feel that a 33% increase in iPhone sales due to the new SE model is a conservative estimate. (However, depending on how Apple prices the SE, the ASP [average selling price] should decrease marginally).

Different iPhones models may be only tenths of an inch apart in size, but that is a crucial difference for users depending upon their preferences. By finally meeting the needs of some 30 million users, Apple isn’t just covering its bases in terms of user experience: it’s making a play that will likely have a massive impact on its bottom line.

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John Krystynak is AppLovin’s Chief Technology Officer.

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