The Stickiness of iOS Makes It Tough for Apple Users to Stray
With whispers of slowing growth at Apple growing louder after a record earnings report that nonetheless sent investors fleeing into the woods, sentiment around Apple is the lowest it’s been in some time.
Apple’s new guidance methodology doesn’t leave much room for those old-school beats of which the Street was so fond, and concerns about the company’s ability to innovate at the same pace and level as the Steve Jobs era continue to dog it. Then there are the perennial worries about gross margins. Are more iPhone and iPad buyers gravitating to less expensive entry-level models? Will that depress the average selling price (ASP) for those lines? And if Apple does release that low-cost iPhone it’s reportedly developing, what happens to ASPs then?
There’s no question that Apple’s last earnings report suggests that the company’s blistering tear of the past few years is slowing as it transitions from a growth stock to a value stock. To be clear, the Apple growth story isn’t yet over. Average weekly revenue in the company’s most recent quarter rose to $4.2 billion from $3.3 billion in the year-ago quarter; that’s not exactly stagnant. But even if Apple is … downshifting from growth to value, however slowly, the Street would do well to pause a moment amid its current panic and consider the level of customer loyalty that the company’s iOS platform likely commands. Because iOS is sticky, and it’s sticky in a way that drives increasing value to Apple.
Users of iOS are spending a ton of money in the iTunes ecosystem. Indeed, Deutsche Bank analyst Chris Whitmore estimates that, cumulatively, they’ve spent some $54 billion on content and apps. In other words, there are a lot of iOS device owners out there who have made significant financial investments in Apple’s mobile ecosystem, enough to make them think twice about switching to a rival platform.
“Many are questioning the loyalty of users to the iOS platform and whether in an era of increasing competition Apple owners will remain loyal to the platform or consider alternative devices (e.g. 5” Samsungs, etc),” Whitmore explains. “We think most iOS users will remain loyal, and the reasoning is primarily economic.”
Whitmore figures the typical iOS device owner has spent about $130 on apps. That’s a significant sum. Add to that the personal time invested in configuring and learning those apps, and the money spent on music, videos and books purchased from iTunes, and you’ve got a pretty compelling case for sticking with Apple — even if you have begun to fancy a handset from one of the company’s rivals.
Says Whitmore, “Many Apple families have multiple devices with content shared across the various form factors, so the money invested per Apple household is likely much higher in multi-iOS device families. Nevertheless, the point is the same; iOS users have made a significant investment in time and dollars into the iOS platform and as a consequence the switching costs are remarkably high.”