Above Avalon Podcast Episode 148: Apple's Billion Users

Apple has reached a level of ecosystem strength that still hasn’t been fully digested by the marketplace. In episode 148, we discuss Apple’s ecosystem ahead of the company’s developers conference. Additional topics include how I estimated the total number of Apple users, various revenue per user figures for different parts of Apple’s user base, the difference between Apple in 2019 and the 1990s, and how wearables represent one of Apple’s key growth opportunities.

To listen to episode 148, go here

The complete Above Avalon podcast episode archive is available here

Apple's Billion Users

Apple’s ecosystem is massive. Approximately a billion people are using more than 1.4 billion Apple devices. Even as iPhone sales decline, Apple is bringing tens of millions of new people into its ecosystem each year. However, we are getting to a point where it is prudent to begin thinking about what user growth actually means to Apple.

Number of Users

Estimating the total number of Apple users is a relatively straightforward exercise. This past January, Apple disclosed that there were more than 900 million iPhones in the wild. Given that iPhones are not typically shared, Apple’s disclosure implied that there were approximately 900 million people using iPhones. Since the exact number of iPhones in the wild likely now exceeds 925 million, there is some wiggle room in that 900 million user total for the rare instances of people using more than one iPhone.

Apple also disclosed that there were 1.4 billion active devices in the installed base as of January 2019. The total was up by 100 million devices over the preceding 12 months and up by 400 million devices over the preceding three years. This tells us that there are 500 million Apple devices being used that aren’t iPhones. A majority of those 500 million devices are iPads. The Mac represents another 110 million devices, and a collection of wearables and home accessories make up the remaining devices. Given my Mac and iPad installed base estimates, a conservative estimate is that there are at least 100 million people who use either an iPad or Mac but not an iPhone. Adding these 100 million users to the 900 million people with iPhones leads to a billion Apple users.

A billion users is quite the accomplishment for Apple considering how the company does not give away or subsidize hardware. For context, Amazon has approximately 100 million Prime users. Twitter sells a “free” product and has 125 million daily users. A “free” Google service is widely considered a success once it surpasses a billion users. WeChat recently surpassed a billion daily users. Facebook sells a “free” product and has 1.6 billion daily users.

Revenue Per User

Using Apple’s current revenue run rate and my estimate for the total number of users, the company earns on average $258 from every user per year. There are limitations found with relying on averages. Apple’s ecosystem strength is dependent on geography. In addition, other factors like the gray market distort averages. Accordingly, it makes sense to segment Apple’s user base to gain additional insight into revenue per user figures.

There are approximately 200 million Apple users who have never purchased a new product from Apple or a retailer. Instead, these users rely on Apple products acquired or obtained via the gray market. The overall contribution to Apple’s revenue from these users is likely not too great - a few dollars per month, if that.

On the other end of the spectrum, the U.S. represents Apple’s stronghold when it comes to ecosystem strength. Add to hardware revenue various subscriptions such as Apple Music, paid iCloud, and various third-party subscriptions through the App Store. It is not unreasonable to assume that approximately 50 million to 75 million users spend an average $500 per year on Apple products and services. There are then other pockets of “core” Apple users in various countries including China, Japan, the U.K., and Australia.

Based on Apple’s installed base disclosure, we know there are at least 400 million Apple users who use only one Apple device: an iPhone. The actual number could be much higher. Given an iPhone upgrade cycle of four years and an iPhone ASP of approximately $750, this tells us that at least 400 million people are likely spending somewhere around $200 per year.

Accordingly, Apple’s billion users can be broken into the following groupings:

  • 200 million people spending an average of $25 per year (people in the gray market).

  • 620 million people spending an average $260 per year (includes 400M iPhone-only users upgrading every four years).

  • 180 million people spending an average $500 per year (Apple’s core users in the U.S. and a handful of other countries buying a number of Apple products and paying for various services and subscriptions).

Growth Driver

The iPhone has been Apple’s primary vehicle for bringing people into the ecosystem. No other Apple product has come close to the iPhone in this respect. Exhibit 1 includes my estimates for the number of users purchasing their first new iPhone directly from Apple or a third-party retailer. This serves as a rough proxy for the number of people entering Apple’s ecosystem.

Exhibit 1: Number of Users Buying Their First New iPhone

More information and discussion behind how I derived the preceding estimates is available here.

Based on recent iPhone sales trends, there is evidence of fewer users buying their first new iPhone. For example, my expectation is for 52 million people to buy their first new iPhone in 2019. This total is 60% less than the peak number seen in 2016.

After the iPhone, the iPad has been the second-largest driver bringing new users into the Apple ecosystem. However, given that the iPad installed base is a third of the size of the iPhone installed base, the new user totals just don’t compare to those of iPhone.

Putting all of the pieces together, Exhibit 2 includes my estimates for how Apple’s overall ecosystem has grown in terms of the number of users.

Exhibit 2: Number of Apple Users

Slowing New User Growth

There is no question that Apple’s user growth is slowing. Much of this is due to Apple running out of premium smartphone users in key markets like China and India.

Some people are convinced slowing user growth represents a warning sign for Apple. The concern is that Apple will once again look to milk existing users with higher-priced products and services in an effort to offset slowing hardware sales. Much of this fear is based on how lack of new user growth nearly killed Apple in the 1990s. Instead of focusing on new user growth, Apple milked existing Mac users for as much money as possible. The end result was a complicated product line that lacked focus and vision.

In my view, this is an incorrect way of thinking about today’s situation.

Much has changed with Apple over the past 25 years. During the mid-1990s, Apple’s user base was a fraction of the size of today’s user base. Apple had around 25 million users in the mid-1990s. Simply put, Apple’s user base wasn’t large enough to reach sustainability. Instead of focusing on bringing in new users, Apple took the easy route and simply kept selling to existing users. Today, Apple has 40 times the number of users and is bringing in 25 million new users roughly every six months. Apple’s billion users comprise a self-sufficient ecosystem. The company is in a strong position to sell additional devices and services to these billion users without jeopardizing the long-term health of the ecosystem.

New User Plateau

While new user growth is slowing, it’s not a given that Apple will reach some type of user plateau. As Apple continues to move into more personal devices such as wearables, the company’s addressable market will expand, especially in emerging markets. In countries like India and Brazil, products like iPhones, iPads, and Macs may not be the best tools for bringing new users into the ecosystem. Instead, lower-priced wearables may eventually open the doors to tens, if not hundreds, of millions of new Apple users in markets that up to now have been largely out of reach.


Apple is a design company tasked with developing tools capable of improving people’s lives. Such a mission plays a critical role when figuring out how best to judge Apple.

Apple doesn’t think about financial items such as revenue or profit margins when developing products. The same principle applies to new user growth. Jony Ive and the industrial design group don’t sit around a table and come up with products for the purpose of bringing new users into the ecosystem or increasing revenue per user. Such motivation would have manifested itself in a less focused product line over time.

However, Apple does consider and think about how new products may fit within the existing product line. For example, Apple Watch was launched out of the gate as an iPhone accessory. A pair of smart glasses will likely be similarly positioned as an accessory out of the gate as well. These considerations are part of Apple’s long-standing goal of making technology more personal and having new products serve as simpler alternatives to existing products.

The implication found with this product strategy is that one of Apple’s key opportunities going forward is found with developing and then selling new tools to existing Apple users. A feedback loop can then be created as new tools and services drive higher user loyalty and engagement and subsequently even higher tools and services adoption. This will likely manifest itself in higher revenue per user over time as Apple users rely on additional Apple tools in their lives. As Jony has said in the past, financial items like revenue and profit end up being byproducts of a successful product strategy.

This brings us back to the Apple revenue per user calculations from up above.

  • 200 million people spending an average of $25 per year (people in the gray market).

  • 620 million people spending an average $260 per year (includes 400M iPhone-only users upgrading every four years).

  • 180 million people spending an average $500 per year (Apple’s core users in the U.S. and a handful of other countries buying a number of Apple products and paying for various services and subscriptions).

With wearables, Apple is in a good position to drive a portion of the 400 million users who likely only have an iPhone to begin using another Apple device. One way of measuring this opportunity is that if 200 million people spend more like $350 per year versus $260 per year, Apple could see an additional $18 billion of revenue per year. Another opportunity is found with the 200 million users who are part of the Apple ecosystem via the gray market. Assuming Apple can sell additional tools to a portion of those users, Apple would see something in the neighborhood of $12 billion of additional revenue per year (100 million people spend more like $150 per year versus just $25 per year). These are huge numbers that speak to how much room the company has for existing Apple users to become more engaged with the ecosystem. In the mid-1990s Apple simply tried to milk its limited number of users of more money. Apple is now engaged in expanding its users’ tool arsenal while continuing to add new users to the ecosystem.

While Apple will continue to face various risks when it comes to maintaining user loyalty and engagement, especially when it comes to factors outside of its control like economic and geopolitical developments, the big picture is that Apple’s billion users is a game changer. The company has reached a level of ecosystem strength that still hasn’t been fully digested by the marketplace.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.

Above Avalon Podcast Episode 147: A Faster Bumper Car

In episode 147, we take a look at the changing competitive landscape facing the giants (Amazon, Apple, Facebook, Google, and Microsoft). Comparing the situation to bumper cars, we discuss why Google and Facebook have the slower cars that are no longer able to hide within the traffic. Additional topics include deep dives into three competitive battles in particular: Apple vs. Google, Apple vs. Facebook, and Amazon vs. Facebook vs. Google.

To listen to episode 147, go here

The complete Above Avalon podcast episode archive is available here

Tech's Tectonic Plates Are Starting to Shift

For the past decade, the giants (Amazon, Apple, Facebook, Google, and Microsoft) have been able to grow while staying out of each other’s lanes. This dynamic has been nothing short of remarkable. However, things are starting to change.

We are seeing the early signs of a new competitive landscape take hold in the tech space. Facebook and Google find themselves increasingly getting squeezed. Meanwhile, Amazon, Apple, and Microsoft are gaining competitive strength. Each is building stronger customer bonds while also expanding its respective ecosystem.

Bumper Cars

One of the best and easiest ways to visualize this changing competitive landscape is to think of the giants as bumper cars. In the beginning, the bumper cars were on a track with a guardrail in the middle preventing head-on collisions. All of the cars moved safely around the loop in the same direction. Despite a few bumps here and there, each company (car) was able to largely do what it wanted without running into too many competitive hiccups.

This dynamic has changed. The guardrail found in the middle of the track has been removed. Head-on collisions are becoming more common as there is no longer a right or wrong direction. Where did the guardrail go? Apple and Amazon tore it apart in their quests to strengthen their respective ecosystems. Apple now finds itself in a league of its own with wearables. In addition, Apple is reaching far beyond its core competency in terms of building out a content distribution arm based on curation. Similarly, Amazon’s Whole Foods, Ring, and Eero acquisitions are byproducts of a company following a singular goal of removing as many friction points as possible when it comes to online commerce. Amazon wants to know more about its customers in order to then be in a better position to sell products.

Sticking with the bumper car analogy, the companies with the slower cars fueled by ad revenue (Google and Facebook) are no longer able to hide within the traffic. Instead, they are increasingly vulnerable, getting hit from multiple directions by faster, more nimble cars fueled by non-ad revenue (Amazon, Apple, and Microsoft). In addition, those faster cars have become much more strategic in deciding when and how to go after the slower cars.


A number of interesting battles have been unfolding in the tech landscape:

  1. Google is being attacked by Amazon, Apple, and Facebook across a number of segments and industries ranging from AI and digital voice assistants to digital mapping and hardware.

  2. Facebook is being attacked by Apple in the areas of content delivery and private communication.

  3. Apple continues to face modest skirmishes with Amazon, Microsoft, Facebook, and Google when it comes to hardware.

  4. Amazon and Microsoft have their own unique battle forming when it comes to providing tools for businesses.

While these battles have been around for some time, Amazon and Apple are beginning to land some serious punches. For example, Apple shocked everyone when it came to finding success in the area of written content distribution with Apple News. At the same time, iMessage and FaceTime continue to gain momentum and now represent legitimate competition for traditional social networks. Amazon is increasingly becoming a thorn in Google’s side in terms of user data collection via subsidized services.

Three battles in particular stand out to me:

  • Apple vs. Google

  • Apple vs. Facebook

  • Amazon vs. Facebook vs. Google

Apple vs. Google

Google is a services company focused on offering free, data-capturing tools to as many people as possible. The necessity found with such a mission is having access to as many users as possible. This is where Google finds itself in growing trouble. Apple is gaining power as a gatekeeper between Google and the most valuable customers that Google needs for its services: Apple users.

Apple is a design company tasked with coming up with tools capable of changing people’s lives. These tools include a portfolio of hardware, software, and services. Apple is showing increased interest in stepping into Google’s turf and launching its own services where it feels it has something different to bring to the table. Such unique attributes can range from having a much-needed layer of design (i.e. a focus on the user experience) that Google struggles to add to its services, to data privacy and security.

Five years ago, the discussion was about Apple facing the risk of Google turning off its services to Apple users. Today, the reverse is true. Apple is now in the position of power. Google would find itself in deep trouble if its arrangement regarding default search on iPhones and iPads was put into jeopardy.

What changed?

Apple has been leveraging its hardware and software expertise to create a stronger ecosystem of products. This has given Apple the ability to strengthen its customer relationships while still attracting new customers. Said another way, the Apple ecosystem is gaining strength, and that strength is now beginning to extend to the adoption of Apple services.

Set within this changing dynamic, this year’s Google I/O keynote left me completely underwhelmed. Aside from a few flashy yet unmemorable demos, Google found itself relying on what it knows best: data collection and elevating technology over the user experience - neither of which is a winning strategy on its own.

The numbers speak for themselves. According to Apple, the iPhone installed base grew by almost 75M people in 2018. According to my estimates, approximately 40M of those users switched from Android. Google continues to lose its grip on the premium segment of the mobile market.

Apple vs. Facebook

The Apple versus Facebook battle has been the most surprising given how few people saw Apple having any overlap with Facebook. While some were busy suggesting that Apple needed to buy its way into social networking with a flashy acquisition, Apple was quietly putting together the foundation of a different kind of social network. iMessage and FaceTime comprise Apple’s identity network. As Facebook evolved to offer a curated version of the web via News Feed, Apple bet on the relationships that actually matter to people: family and close friends.

Given Facebook’s recently announced pivot to a privacy-focused social platform built around messaging, there is no question that Apple had the right strategy while Facebook went down the wrong path. Messenger and WhatsApp will now be increasingly positioned against iMessage and FaceTime.

With Apple News, Apple was able to crack content distribution in a way that Facebook failed at miserably. The secret ended up being human curation instead of machine learning. Apple continues to work on expanding Apple News to other countries with Canada being the most recent addition. Apple News may just be one of the best new services Apple launched from scratch in recent years.

Facebook vs. Google vs. Amazon

In the battle for commerce, Google, Facebook, and Amazon are increasingly becoming competitors and the battle for ad revenue is only the tip of the iceberg. At a fundamental level, Amazon is trying to systemically remove Google and Facebook from a customer’s memory when it comes to buying products online.

Given Facebook’s renewed push to position Instagram and Facebook as commerce platforms, it’s safe to say things are going to get dicey in the race for users’ attention. In fact, all three companies are targeting the home with hardware devices (speakers, screens, and other smart home devices) given how the home has become an e-commerce engine. In addition, our home is the delivery point for all of those goods. 

We are moving to the point where a consumer will have the opportunity to go all-in on an “Amazon home” in which Echo speakers, microphones, locks, a security system, a Wi-Fi router, and various third-party smart appliances with Alexa built in are all connected to Amazon.

What About Data?

One potential area of pushback to my comments would come from tech proponents who argue that Google is building an insurmountable advantage against peers given its data-capturing services. Such a view could best be described as the “data is everything” school of thought.

For example, voice first and autonomous driving advocates would likely take issue with the claim that Google is losing power in mobile. The fundamental issue that advocates of specialized tech verticals suffer from is not thinking enough about the user experience.

More people are switching from Android to iOS rather than the other way around. That sure doesn’t support the view that consumers are clamoring to use Google services given the company’s data superiority. Meanwhile, other clues such as Pixel smartphone sales being lackluster and smart speakers being used primarily for music consumption and not much more speak to the broader disconnect that has developed between “data is everything” proponents and how people actually use technology.

Changing Landscape

Up to now, many people would position Amazon, Apple, Facebook, Google, and Microsoft as equals when it comes to ecosystem strength and fundamentals. I don't think that is correct. Instead, two tiers have formed. Amazon, Apple, and Microsoft are in the top tier while Google and Facebook make up the bottom tier. Google is gradually losing its power in mobile as Apple and Amazon consolidate power within their own realms. Similarly, Facebook’s business model is coming under fire on all sides. Is it a coincidence that the two companies that originate the vast majority of their revenue from ads appear to be in the toughest positions going forward?

The much more interesting developments will be found not with the rivalry between Amazon, Apple, and Microsoft, but with the competition between the two tiers. As Amazon, Apple, and Microsoft continue to strengthen their ecosystems, a byproduct will be each company wanting to control more of the key attributes powering those ecosystems. This will leave Google and Facebook increasingly on the outside, looking in.

Apple’s licensing relationship with Google will likely be put in a brighter spotlight going forward. According to my estimate, Apple is receiving approximately $9B per year of licensing revenue from Google to be the default search provider on iPhones, iPads, and for Siri. This is a few billion dollars less than the amount of revenue Apple is taking in from the App Store each year.

Apple is increasingly being called a hypocrite in some circles for talking extensively about having a culture based on privacy while at the same time taking billions of dollars from Google to literally get in front of Apple users’ eyes. In my view, the issue isn’t so cut and dry. There is a critical angle to this topic that is often not discussed. Apple users do have the option to choose their own default for search. Apple’s licensing arrangement with Google is also likely tied to the number of users who actually use Google for search.

It’s fair to begin wondering about the long-term viability of Apple’s licensing relationship with Google. It is in Apple’s best interest to continue moving users off of Google services rather than to cancel or end the arrangement. The amount of money Google is paying Apple to be the default search provider will likely still increase. Google has little or no choice but to continue paying more to access what would be a declining portion of the Apple installed base.

Instead of looking for a company to implode as a result of tech’s competitive tectonic plates starting to shift, the equivalent of an earthquake or volcano are found with companies like Facebook and Google pivoting to privacy. While pivots, like earthquakes and volcanoes, are natural and essential, value is found in assessing how such pivots will change the overall landscape. We may never return to an environment in which the five giants were able to thrive next to each other peacefully.

Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.