Messaging’s Crucial Role in Smartphone Market Share
The iPhone is massively more popular in the United States than abroad. Its domination of the US market recently helped Apple become the first trillion dollar market cap stock. But it begs the question what is the key difference between the American market compared to foreign markets that makes this difference so substantial. Developing countries naturally have a preference for smartphones at a different price point, but it’s surprising to see fully developed countries that have such different preferences.
The biggest factor preventing people from switching away from Apple products in the US may be iMessage. As the article explains, iMessage has been a key part of millenials and Gen Z’s social lives for a long time. The difference between blue and green messages is a substantial social factor. People without iPhones lose the blue message and often access to group chats, which can be socially important. However, In foreign markets this threat is nearly non-existent due to WhatsApp. WhatsApp is barely used at all in the United States, but it is largely the messenger of choice throughout the rest of the world (except China where WeChat is the most popular).
Both iMessage and WhatsApp have massive network effects among their user bases. People have more benefit from either messaging platform the more people they can use it to communicate with. The fact that WhatsApp is the core messaging platform across many foreign markets leads to the expectation that people will not lose out on the benefits of iMessage if they switch to Android or a different phone. In the US, market expectations are that everyone has an iPhone. As the article mentions, many parents are incredulous when teens come home and say that everyone else has an iPhone, but regardless of if it’s true many people genuinely believe it, and I was genuinely hard pressed today to find a single Android user at Cornell. Since these market expectations already exist, anyone switching phones would expect to lose access to the benefits of the iMessage network. It seems likely that the US is in or approaching a high equilibrium. In other countries, the expectation is usually that communication will be done with a separate app altogether regardless of if the user has an iPhone or Samsung, so these network effects completely disappear. This would indicate that countries like Germany and Japan represent an accurate equilibrium of consumer preferences without network effects (likely with adjustments for the preference of domestic products in the case of Japan).
Lastly, it provides an important insight for Apple. Perhaps even more than the design of the next iPhone or the retina display, iMessage might be the biggest advantage that Apple has in retaining US market share. Google has wisely decided to invest in a partnership with many cellular networks to provide a new messaging experience with RCS (rich communication services) an improvement on SMS. Just two days ago, Verizon announced that it plans to support RCS as early as 2019. If RCS can provide a similar level of experience to iMessage then it may help to change market expectations. Additionally, if RCS can provide a group chat service that can operate between iPhone and Android users then it could completely change the network benefits that iPhone users receive from being able to participate in group chats with other iPhone users.
If the main difference between the US market and other developed nations is in fact the network effects of messaging services, then a successful RCS could completely transform the US market. Apple should watch out for any resulting network changes that could lead to the iPhone having a market share in the US much closer to what it has in other developed countries.