2 Reasons Apple's iPhone Won't Take Two-Thirds of the U.S. Smartphone Market

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Based on the current rate of smartphone adoption, and more specifically, the rate of adoption of Apple's iPhone, analyst Horace Dediu at Asymco is projecting that, by the time the U.S. smartphone market nears total saturation (around 2017), the iPhone will account for about two-thirds of U.S. smartphones. In other words, Apple will have about 180 million loyal, U.S.-based iPhone users.

The rate of smartphone adoption in the U.S. has been fairly steady, and to his credit, Dediu has been able to successfully project adoption rates in recent years. At the same time, Apple's market share has stayed steady, while Apple's ecosystem keeps existing customers coming back.

Yet, there are factors at play that could spoil Dediu's projection: Carriers, like T-Mobile , moving away from subsidies, and the hardware innovations produced by Google's Android partners.

Carriers could ditch subsidies
It's indisputable: In markets where smartphone subsidies are generous, Apple's iPhone does extremely well. Where they are nonexistent, it struggles. Right now, U.S. carriers are happy to subsidize the iPhone, but that might not always be the case.

T-Mobile ditched smartphone subsidies earlier this year in favor of full retail pricing -- T-Mobile subscribers can buy their phone up front or pay for it in monthly installments, but either way, they're paying the full retail price of the phone. Although many thought T-Mobile would fall flat on its face (U.S. smartphone users were said to want subsidies), the carrier has found stunning success, and is now the nation's fastest-growing wireless provider.

T-Mobile's success has attracted the interest of other carriers. AT&T recently introduced a similar plan that allows subscribers to cut their monthly bill if they pay for their own handset while its CEO has been hinting that his company plans to ditch subsidies in the near future. If T-Mobile's policy becomes the standard, Apple could have a difficult time selling its expensive smartphones to U.S. customers (indeed, most T-Mobile subscribers are not Apple customers). Without subsidies, cheaper handsets appear more attractive.

Android's open model has produced far more innovation
Google's decentralized Android model has the potential to produce far more innovation than Apple's walled garden. The iPhone may have kicked off the mobile computing revolution, spawning numerous competitors (including, arguably, Google's Android), but in just the last year or two, Google's hardware partners have outpaced Apple.

In their quest to compete with both Apple and each other, Google's Android partners have introduced phones of every shape and size: Samsung introduced the first phablet in 2012; Sony's phones are waterproof; Asus' new phone can transform into a tablet; LG now has a phone that can heal itself.

While Apple can respond to these advancements -- it is widely expected to introduce a larger phone in 2014 -- it is only one company. Google's model may produce fragmentation, but it's inherently full of optionality. Bigger phones might not do it, or waterproof phones, or even self-repairing phones. But the nature of Google's ecosystem leaves the door open for something radical to emerge -- something that could steal many of Apple's customers one day.

The world in 2017
Of course, that might never happen -- Dediu's projection might play out perfectly. But I think investors should view it skeptically. Four years ago, Samsung's Galaxy lineup didn't even exist, and Apple was still fighting BlackBerry for dominance.

No doubt, times have changed, and the smartphone market is far more mature now than it was back then. But rapid advancements in technology are common occurrences -- trying to gauge the tech landscape four years from now is an exercise in futility.

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The article 2 Reasons Apple's iPhone Won't Take Two-Thirds of the U.S. Smartphone Market originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple and Google. 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.

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