Continue Reading Below
The iPhone 6 and iPhone 6 Plus. Photo: Apple
The iPhone 6 has been a tremendous success.
From the beginning of last October through the end of March, Apple sold a stunning 135.7 million iPhones, a record high for the company. But who, exactly, did Apple sell those iPhones to? Existing iPhone owners coming back for a larger screen? Or users of Google's Android operating system switching over?
In terms of Apple's earnings, every iPhone sold is still an iPhone sold, but winning Android converts offers long-term advantages.
A higher rate of switching
Apple's management believes that the iPhone 6 and iPhone 6 Plus are attracting more Android users than previous iPhone models. "We're seeing a higher rate of switchers than we've experienced in previous iPhone cycles," Apple CEO Tim Cook said on the company's most recent earnings call.
Continue Reading Below
Some research firms and analysts have backed up that claim. In March, Kantar Worldpanel, reporting on the five largest countries in Europe, said that during Q1, nearly one-third of Apple's smartphone customers were coming from an Android-powered handset. Analysts at Citi went further, claiming in a note published earlier this month that almost half of iPhone 6 buyers had previously owned a different handset, many of which were Android-powered.
Apple's customers are notoriously loyal -- about 90% of iPhone owners buy another iPhone when it comes time to upgrade. That gives it a large swath of loyal, repeat buyers to sell to, but its growth will certainly slow over time if it only sells to its established base. Converting Android users to iPhone allows Apple to continue growing revenue.
Market share is also relevant. Although Apple has been able to thrive with its 15%-20% share of the global smartphone market, taking a larger share should be beneficial over time.
One major advantage iPhone has over its rivals is its app ecosystem -- many mobile apps are written for iPhone first (or even exclusively). Twitter's Periscope stands out as a recent, notable example. Higher market share should entice developers to stick with Apple's mobile platform over time, thereby keeping iPhone desirable to app-conscious smartphone users.
The iPhone 6 and iPhone 6 Plus appear to have driven Apple's market share higher. Kantar Worldpanel noted that, during the first quarter, Android's share of the smartphone market fell 3.1 percentage points on an annual basis, while Apple's rose by 1.8 percentage points. In China, the growth was even more significant: iPhone market share rose to 26.1% from 17.9% in the same period last year.
But not everywhere
Yet Apple may not have had the same level of success capturing Android converts in every market.
In the U.S., for example, there's some evidence to suggest that Google's Android operating system is holding strong. Late last month, Consumer Intelligence Research Partners (CIRP) released the results of a study on the habits of U.S. smartphone buyers. CIRP found that during the first quarter, 18% of iPhone buyers were switching over from an Android smartphone -- nearly the same rate as in the first quarter of 2014.
Although its importance is in decline, the U.S. remains Apple's single largest market. It's also one of the most mature: CIRP found that a full 72% of first quarter iPhone buyers had previously owned an iPhone, up from 62% in the same period last year. Apple's iPhone isn't in trouble in the U.S., but these results may suggest that as smartphone markets mature, the opportunity for converting users of rival operating systems lessens.
Apple doesn't need iPhone converts, but every one should be cheered
Even if Apple doesn't capture any additional Android users, the iPhone 6 and iPhone 6 Plus still have plenty of upside. According to Apple, just 20% of the existing iPhone user base has upgraded to one of its latest models. Plus, while many established markets appear to be nearing the point of smartphone saturation, there are still billions of people in the world who have yet to purchase their first smartphone.
But given the iPhone's rate of loyalty, every Android switcher should be cheered by Apple's shareholders. Once captured, they may become permanent iPhone converts and longtime Apple customers -- a steady and reliable stream of revenue for years to come.
The article More Android Users Are Switching to Apple Inc.'s iPhone originally appeared on Fool.com.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Twitter. The Motley Fool owns shares of Apple, Citigroup Inc, Google (A shares), Google (C shares), and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.