Trillions and trillions: The iPhone revolution in dollars

The iPhone did in fact 'change everything,' in ways you can actually calculate

If you had lots of time and money and wanted to learn about the economic impact of iPhones and Androids, you could become a 21st-century Marco Polo. But instead of following the Silk Road, you'd travel on the smartphone highway, visiting at least four continents, hundreds of cities, and the headquarters of tens of thousands of companies.

The journey might start in Africa, where raw materials for electronics are mined, then continue on to semiconductor and display screen factories in Asia, assembly plants in China and Mexico, corporate offices of giants like Apple, Samsung, Google, AT&T, and Verizon, and the locales of thousands of independent software developers throughout the globe. The value chain finally stops in the pockets and purses of more than a billion people around the world.

If you started to add up the value created by all of that labor and genius, the numbers would be staggering. But let's start with one: worldwide smartphone sales in 2014. Apple reported iPhone sales of $102 billion. If you assume that represents about a 10 percent share of the global smartphone market, then subtract a bit because few companies can match Apple's prices, total smartphone sales likely totaled about $800 billion last year, says IDC research director Michael Palma.

That number is only a fraction of the economic output associated with the smartphone market. "We're certainly talking about a multi-trillion-dollar ecosystem," Palma tells me.

As the iPhone turns eight -- Steve Jobs introduced it during a speech in San Francisco in January 2007 -- I've been thinking about the economic revolution that began on that day. Not all of its results are positive, by any means, but they are profound. (The social and political consequences have been profound as well, but that's another story.)

The iPhone transformed Apple

The transformation of Apple from struggling computer maker to the world's most valuable company (measured by market cap) didn't take long.

"In 2006, the year before the iPhone, Apple revenue was $19 billion. That year, iPod revenue exceeded the Mac's, $7.7 billion to $7.3 billion ... but no one claimed that Apple had become an iPod company," former Apple exec Jean Louis-Gassée wrote in his Monday Note column.

By 2009, iPhone revenue was $13.2 billion; in 2012, the iPhone accounted for more than 50 percent of the company's $156 million in revenue and about two-thirds of its total profit.

Between 2008, the first full year the iPhone was on sale, and 2013, Apple sold 141.3 million iPhones.

And as Om Malik pointed out last week, "UBS Research is projecting iPhone sales alone will generate more than $43 billion in revenue for Apple during the three months ending December 31, 2014." To put that figure in context, as Malik notes, chipmaker Intel is expected to see about $55 billion in sales for the entire year, while Cisco Systems posted fiscal 2014 revenue of a little more than $47 billion.

A multi-trillion-dollar ecosystem

Calculating the real economic impact of smartphone manufacturing and that of related products and services is extremely difficult. But pieces of that huge pie can be identified, in addition to the $800 billion in smartphone sales last year.

Almost no one buys only a smartphone. They're likely to add protective cases, connectors, headsets, and the like. They also pay for connectivity and storage in the cloud and other places, and of course, apps. All of that probably added another $700 billion to last year's sales total, bringing the figure to about $1.5 trillion, estimates IDC's Palma.

Consider the market for apps. In the first week of January, "customers around the world [spent] nearly half a billion dollars on apps and in-app purchases," Apple said. "To date, App Store developers have earned a cumulative $25 billion from the sale of apps and games." (Apple earned about $11 billion in commissions from those sales.)

Even $1.5 trillion understates the economic impact of smartphone sales last year. After all, Apple and Samsung paid for all of the components inside those smartphones and those companies paid for the raw materials and labor to assemble, ship, and sell them.

Why am I mixing together iPhone and Android sales data? Because the iPhone is what created the market that Android now thrives in.

iPhone-induced jobs everywhere

Apple, which has been criticized for doing so much manufacturing in China, said last week that it has created or supported 1 million jobs in the United States.

Applications designed for Apple's smartphones and tablets have helped create more than 627,000 U.S. jobs, while 334,000 jobs have resulted from its spending and growth, and 66,000 people work directly for the company in the United States, Apple says.

All those people spend their income on food, shelter, transportation, entertainment, and the like. To better understand what economists call a multiplier effect, go to Detroit and see what happens when an industry craters. The opposite happens when a new industry is born and thrives.

"The iPhone is having a measurable impact," Michael Feroli, the chief U.S. economist for JPMorgan Chase, told the New York Times. He estimates that iPhone sales alone are adding one-quarter to one-third of a percentage point to the annual growth rate of the gross domestic product.

The number of companies, both domestic and foreign, that are part of the smartphone value chain is far too numerous to list. But think of the companies that make the chips, sensors, memory modules, batteries, and so on inside the smartphone, as well as the glass and plastic screens and cases on the outside.

Not everyone is a winner

A lot of digital ink has been spent recounting the terrible working conditions of laborers in Africa who mine coltan and assemble iPhones and other products in China. I won't repeat those stories because they are well known, and -- to be fair -- companies like Intel and Apple have responded to criticism by working to improve the lot of foreign workers.

But competition from iPhones and Android smartphones killed or crippled Nokia, Motorola, Palm, BlackBerry, and the PDA makers.

There's other fallout as well, and while it's less dramatic to recount, it's real. In an essay at Yahoo Finance, Rick Newman made this point:

Automation is nothing new, but what is new is the intrusion of technology into sectors that have long been dependent on a human touch -- or thought to be, anyway. Restaurants are beginning to take orders through smartphone apps or electronic tabletop menus, reducing the need for waiters. Online banking, via smartphone or PC, has cut down sharply on consumer visits to banks and the need for tellers. Utility companies are replacing meter readers with gizmos that automatically report usage.

Like the positive effect of the smartphone's economic impact, these negative consequences are difficult to quantify, and numbers don't tell of the pain that results. Revolutions are always painful.

Apple didn't invent the smartphone, but Steve Jobs was right when he said on Jan. 9, 2007, that the new product he was about to demonstrate "changes everything."

Copyright © 2015 IDG Communications, Inc.

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