The iPhone’s GOLDEN Opportunity in China

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We are at the point in time with relation to Apple’s September 10th event that we have to start taking many rumors very seriously. In that light, we have heard whispers of a gold colored iPhone option. I have to admit when I first heard this rumor I discounted it immediately. I even stated on Twitter that I was extremely confident there would be no iPhone. Then our friend at iMore, Rene Ritchie, wrote this on the gold iPhone. I talked with Rene a bit about this on Twitter and was forced to reconsider my position. Then today M.G Seigler wrote this article on TechCrunch. After much thought we must seriously consider this rumor. And even if it doesn’t happen, which is possible, then this will at least have been an interesting discussion and scenario analysis.

Very early on in discussions I have on this subject I added this caveat to my opinion. Although, I personally don’t like the idea of a gold iPhone I can see it being big in certain markets and namely China. In M.G’s original column he did not mention the idea that a gold iPhone may be big in China. In fact, many have missed this point. After M.G tweeted his column, myself and apparently many mentioned to him on Twitter that it may be a good strategy for China. He then proceeded to update. But this point about a gold iPhone being potentially large in China is worth analyzing.

I tend to gather a lot of data on China and usually it is only technology focused. However for the past few month’s I have intentionally begun collecting data on China’s luxury goods market. I’ve done this specifically because although most technology products and brands are not considered ‘luxury brands or items’ in China, Apple’s happen to be. So any peripheral data related to China’s luxury goods market became interesting.

The luxury goods market has seen some ups and downs in China last year and this year due to issues in China’s economy. ((China’s luxury market grew just 7 percent in 2012, compared to 30 percent in 2011.)) Yet all the research I have gathered suggests that China luxury goods market has not necessarily been slowing but it has been shifting. Consumers in China are maturing and gaining more affluence at a rapid rate and markets are maturing in near real time. From data I have read from many management consulting firms and marketing firms from the region recommend a change in tactics to capture this shift in China’s consumer market for luxury goods. One report specifically contained this point that I found interesting:

consumers are putting a lot more emphasis on quality & function, not just the label, with brands focusing increasingly on memorable customer service and exclusive products.

Another key point that stood out in a similar report on luxury goods in the region specified this about Chinese consumers:

“brands will have to bring luxury back to basics, which means providing a unique experience, backed up by high-end quality and service,”

All things that Apple does well.

Why gold? Of course every region values gold, but some certainly more than other. Gold sales have historically done very well in China and even in high parts of this year the sales of gold jewelry have jumped anywhere from 17%-35% year-over-year in certain regions. Gold in china symbolizes wealth and also happiness. One can also argue that gold is similar to yellow and thus could also symbolize the Earth element which is the storage money element (wealth) in Four Pillars of Destiny. However, that may be reading too much into the symbolism.

Now, another bit of interesting data is that it is clear that luxury brands in China are targeting millennials. Estimates are that the luxury goods sector in China is poised to grow 40% over the next 10 years, driven largely by China’s millennial generation. It is estimated that China has about 270 million people aged 18 to 30, according to the National Bureau of Statistics. Of those 270 million millennials 92% own smartphones.

When we take a step back and look at a global picture, we can see a stronger case for a gold iPhone. It could get even more interesting if this product was exclusive to China, but that is pure speculation as is most of this discussion at this point. This could get even more interesting if a gold iPhone is unique to China AND only available on China Mobile, who is yet to carry the iPhone and has over 700 million wireless customers.

Apple is and has always positioned itself as a lifestyle brand and many would even argue a lifestyle brand. I pointed out with the release of the iPhone 5 that this was the first time I thought a smartphone was as elegantly designed as a luxury watch. If this design trend continues, Apple may easily be able to position the iPhone in China as a luxury item even more than it is today.

Some other key stats relevant to China:

– Chinese represent 25% of the global luxury market. However, only 13% is consumed in Greater China (China, Hong Kong, Macao and Taiwan). The remaining 12% is purchased in Europe (representing at least half of average tourist spending), North America and the Middle East. The main driver of nondomestic consumption remains the price difference: Import tax and luxury tax inflate Chinese prices by about 30%.

Marissa Mayer Neuters The Cowboy Coder

“All the speed he took, all the turns he’d taken and the corners he’d cut in Night City, and still he’d see the matrix in his sleep, bright lattices of logic unfolding across that colorless void…” 
Neuromancer (William Gibson)

I suspect we are on the cusp of a transformation in how engineers and computer programmers are hired, valued, rewarded, promoted. The line was drawn when Yahoo CEO Marissa Mayer effectively killed off telecommuting. With this, she also dispatched the last of the cowboy coders from the Valley.

The cowboy coder has long been the stuff of pop culture mythos: vain, skilled, belligerent, cool. The dark character-artifice presented in film, books and television. Machines rule our lives, everyone’s lives, excepting, we were told, these Silicon Valley cyber-riders who expertly manipulate the algorithmic levers of the world’s digitized power centers.

Supremely valuable to the company he deigned to work for, far superior than the prototypical office “drones” who showed up dutifully for work every morning, the cowboy coder lived by his own rules, his own creed, his exceptional talents.

Thanks to Mayer, he is no more.

Cowboy Coders Dethroned

Without making headlines, coding prowess – long the princely, priestly lifeblood of Silicon Valley – was dethroned.

Here’s Mayer in February:

To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. (emphasis mine)

Translation: Meatspace trumps cyberspace.

Here’s Mayer in April:

People are more productive when they’re alone, but they’re more collaborative and innovative when they’re together. Some of the best ideas come from pulling two different ideas together.” (emphasis mine)

Translation: Conversation trumps coding.

Connections Equal Profits

Power and value now flow not from coding but from creating and enabling connections. Connections equal profits. To create deeper, lasting, more profitable connections with customers requires deeper, more meaningful connections amongst the workers.

Cowboys are loners – and they do not play well with others.

Make no mistake, this phenomenon is not restricted to Yahoo, nor to female CEOs. Recall that the big Facebook-Waze merger was scuttled because Facebook wanted Waze’s people – it’s coding talent – to relocate to Facebook headquarters. Translation: The Valley’s most valued social media company understands that far-flung coding greatness cannot equal the value that arises via physical proximity.

Earlier this month, Steve Ballmer made it similarly clear in his Microsoft re-org that collaboration trumps all:

Collaborative doesn’t just mean “easy to get along with.” Collaboration means the ability to coordinate effectively, within and among teams, to get results, build better products faster, and drive customer and shareholder value.

669px-The.Matrix.glmatrix.2

In-person, cross-company interactions that arise from an army of lesser skilled but far more sociable programmers trumps world-class coding.

Which begs the question: how should coders be valued? Who is “best”? Who achieves “most”? What skills are critical? Who gets promoted? It’s still too early to know. I suggest, however, that we look to the iPhone for guidance.

iPhone Changes Everything

The iPhone changed mobile and mobile changes everything.

Consider that last quarter Apple sold 50 million personal computers. Only 4 million were Macs. The remaining 46 million were iPhones and iPads – mobile computers.

Mobile now rules the computing landscape, and unlike their desktop predecessors, mobile “PC” applications are not optimized for intensive processing, use or focus. Rather, they are constructed, rail by rail, across very distinct tracks – all of which are required for success:

  1. Mobile
  2. Location-aware
  3. Social-collaborative
  4. Touch-based
  5. Cloud-connected
  6. Rapid (“bursty”) use
  7. Native code
  8. Highly visual presentation
  9. Entertaining
  10. Personalized

In this new age of computing, an application can only succeed by effectively traversing multiple domains, multiple stakeholders, disparate content sources, and numerous touchpoints. Think: Yahoo’s mobile applications team working with Apple, licensing content from Weather.com, integrating Yahoo’s user database information with Facebook and Twitter APIs, and coordinating this with Flickr, all just to create the new, free Yahoo weather app for iPhone.

Those who expertly develop, sustain and integrate relationships across the pillars will be well rewarded. Horizontal trumps vertical.

The cowboy coder, working alone, magically conjuring his binary alchemy, a master of a single application or system, is now more of a cost center, inhibiting the development of the far more valuable horizontal connections that determine success.

Coding Is Relationships

It’s time to consign the detritus of the cowboy coder to the dustbin of history. Moving forward, personal (mobile) computing must deliver social, visual, delightful, real-time, collaborative experiences.

For good or bad, coding has gone uptown. Everything is digitized and everyone has a computer. The new “best” coders now arrive for work each morning from inside comfy, anointed busses. From their gleaming office they eat the finest foods, they wear a badge and their cube has a number, well-earned. The products and services they build are for everyone to use.

Laudable – but boring.

The cowboy coder is dead. It’s time for a new programming hero to step forward.

Images courtesy of Wikimedia

We Took Grandpa’s Keys Away. Now We Have To Take His iPhone.

Is there any more magical device than the iPhone? With this amazingly light, utterly beautiful device, we can call and text, email, video chat, play games, watch television, read the great books of history.

We tweet and Facebook. We buy and sell stocks. We set our home alarm, monitor our blood pressure, pay our bills – all with a few swipes of our fingers.

Perhaps this is simply too much power to possess by someone on the verge of senility.

Some of us have already had the discussion over taking away a parent’s car keys. Soon, we may all need to decide if we should take away their iPhones, iPads, Kindles and Androids.

The very technology that connects them with the world, with their grandchildren, that entertains and enlightens them, may – regrettably – become more than they can properly control.

Forget Nigerian email scams, what of FaceTime video scams? Will your aging mom or dad accept calls from anyone? Might they give away – to that friendly man on the screen – their banking information? Their Social Security number?

Will your father or grandmother, say, in their current mental state, tweet pictures of themselves – to Facebook or Twitter – that are entirely inappropriate?

Who will they text? Will your daughter in high school be troubled by the increasingly irrational emails her grandmother is sending her?

Will grandpa leave the device open, allowing hackers complete, unfettered access?

That Zynga game that your dad spends so much time with – will he spend hundreds or thousands of dollars on in-app upgrades?

Your mother has repeatedly posted embarrassing information about her adult children on Facebook. How do we make her stop?

How will we take away our dad’s iPhone, or our mother’s iPad?

How do we initiate this conversation?

How do we cut off our loved ones from connectivity and all the joy it offers? These are difficult questions but we may have to face them.

Tech companies are designing smartphones and tablets to make it increasingly easier to connect with search, the web, friends and family. Should we demand tech companies also build devices that are harder to use – at least for some?

Is it right – or necessary – to require Apple, for example, to build in a set of “anti-accessible” controls such that we can limit the functionality, use and time our parents and grandparents spend on their devices? Will Silicon Valley create a start-up that uses biometrics, for examples, or other identity tools to ensure a device is “locked down” when we are not around, or that only the “good” gets through, and no bad can get out?

It seems that tech companies, from Samsung and Apple, Google, Amazon and Facebook, ought to bear some responsibility to ensure that the powerless elderly aren’t handed a truly powerful device without any consideration as to the potential harm it may cause.

With smartphone or tablet in hand, everyone and everything becomes instantly accessible, all over the world. The frightening corollary: Everyone and everything now has instant access to your parent’s (virtual) front door. At some point, you may be forced to take away the keys – for their own good.

You should not have to undertake this rather depressing familial obligation all on your own.

Image courtesy of ThinkProgress

A Requiem for ‘Classic’ iOS

On the iOS 7 Design page, Apple says:

The interface is purposely unobtrusive. Conspicuous ornamentation has been stripped away. Unnecessary bars and buttons have been removed. And in taking away design elements that don’t add value, suddenly there’s greater focus on what matters most: your content.

In the weeks following the WWDC keynote, much has been written about iOS 7's redesigned user interface. The word that keeps coming up to describe the changes is polarizing. Some people like it, whereas others hate it; there seems to be no middle ground. However, I think it's fair to say that everyone can agree that iOS was long overdue for a facelift.

While I'm in full agreement that iOS needed its user interface refreshed, a part of me is genuinely sad to be losing the "classic", Forstall-era iOS. For all Apple's boasting about doing away with "conspicuous ornamentation". I very much enjoy several of the skeuomorphic elements of iOS, such as the faux wooden shelving in iBooks and Newsstand. Other graphical favorites of mine include the paper-shredding animation in Passbook, as well as Cover Flow in Music. These bits of eye candy give iOS personality and an air of playfulness, and I'm going to miss them. Conversely, there are elements I won’t miss, like the Corinthian leather in Find My Friends and the yellow legal pad in Notes.

The arrival of iOS 7 this fall will truly mark the end of an era. That iOS's user interface has undergone such a dramatic overhaul is great in the sense that it's more modern and fresh-looking, but it's also a clear sign that Apple has driven a stake through the heart of the canonical design. That's sad for me, because not only am I losing beloved graphical elements like Cover Flow, it feels like the iconic design is gone forever. In other words, the iOS that made the iPhone and iPad what they are today will soon be a relic, ancient history. ((To be clear, iOS 7, conceptually, remains true to the iterations before it. What I'm addressing here is purely the Jobs and Forstall-influenced aesthetic.))

Of course, the impetus for giving iOS a complete makeover is precisely because it was looking like an ancient relic. My feelings are conflicted, though: on one hand, I feel wistful towards the "classic" design, yet on the other I use my iPhone 4S running iOS 6, and it looks and feels old. It reminds me that iOS needed a change, and makes me even more excited for iOS 7.

I'm sure that once I've used iOS 7 for awhile that I'll love it, and complain that some of my "legacy" apps look dated within the context of the new design. My sentiments aside, I know updating iOS's design was the right thing to do, long-term. I understand that iOS 7 is about putting content first. I look forward to seeing how Jony Ive and his team evolve the operating system from here on out. It's an exciting time — iOS 7 lays the foundation for the next phase of the OS's life.

I think the iOS as we know it today will always have a place in my heart. I'm going to miss the page-turning animation in iBooks and the reflections of the icons in the Dock. I'll even miss the linen and the ON/OFF toggle switches. But I am undoubtedly excited for iOS 7 and beyond, and I realize change is good and inevitable. The good part is I still have my original iPad running iOS 5. If I ever find myself getting sentimental over the old design, I can always fire up the old iPad. That'll be a nice stroll down memory lane.

Well, until I see Game Center's green felt.

The iOS 7 Game Changers

iOS 7 is a big deal, really big – the biggest change to iOS since the original iPhone. Indeed, it’s hard to prepare long-time users for how significantly different iOS 7 is compared to its predecessors.

Though still in beta, there are three new features that I think will be “game changers” – each will have a significant and lasting impact on users, developers, competitors and Apple’s bottom-line.

iTunes Radio

shared_controlcenter_lastframe_2xRadio is built right in to the Music app which is built right in to the OS. This is a key benefit of controlling your ecosystem, and here it pays off handsomely for users. “Radio” is simple to use, works well, is free, setting up new channels is a snap, and the selection is nearly endless. Not coincidentally for Apple, Radio’s clever design beckons users to spend even more money in iTunes.

Analysts have noted that while iTunes revenues continue to grow in the aggregate, per-user spend has dropped rather significantly. This at a time when Apple makes its hardware products almost fully dependent on iTunes. I can’t say this new service will help stem that tide. I do know, however, that iTunes Radio will be a smash hit.

For those hundreds of millions who have not yet settled on a streaming music service, iTunes Radio is the obvious choice. For those that have, the ease of use and superior integration of Radio may lead them away from their current provider. If you have an iPhone or iPod Touch, for example, it will be hard to justify getting your (free) music anywhere else.

Biggest Impact: The music industry. Think of iTunes Radio less as a Pandora killer and more as a FM-radio killer.

Auto-updates

Never again visit the App Store to update your apps. It seems like such a small thing, I know, but auto-updates makes life with an iPhone much nicer, and more delightful. Updates and bug fixes occur behind the scenes now, and there’s no annoying red badge demanding your attention.

While better for the users, and likely to make fragmentation even less of an issue for Apple, there is a obvious downside: auto-updates alter how developers market their commitment to their app.

Though there are some minor visual cues in iOS 7 that alert users when an app has been updated, I suspect most users will no longer be consciously aware of the many new features and fixes in their (updated) app. If I am correct, allowing users to bypass the App Store “update” screen means app developers will lose a critical opportunity to highlight their work and deny them a rare chance to get directly in front of the user.

Biggest Impact: App developers.

But, wait. There’s more. Consider the possible implications of this seemingly minor new feature:

Apple, long just a hardware company, may soon become the only company on the planet, across any industry, able to reliably push to a billion (iOS) users the exact content of their choice. That’s unprecedented market power.

Biggest Impact: Cable television industry and content providers, to start.

AirDrop

index_airdrop_posterframe_2xAccessed from the control center, AirDrop allows users to quickly send files to other (nearby) iPhone user(s). It’s hard to overstate the potential of AirDrop. Truthfully, I’m not entirely sure how this feature will be used out in the world, or if carriers may attempt to impede it’s usefulness, or what the full security ramifications are. I just know it’s huge.

In fact, I predict AirDrop will have a paradigm-shifting impact on content sharing – which means it should have a paradigm-shifting impact on social sharing sites, particularly Instagram, Facebook, YouTube and LinkedIn. Again: unprecedented market power.

It might be great fun to share a Vine with your followers, for example, but it may be far more impactful to instantly share a video with a small group of friends who are physically nearby.

To “airdrop” a video from my iPhone to yours, for example, or enable real-time multi-player gaming, which this does, or transfer information one-to-many (iPhone-to-iPhone-to-iPhone) could make AirDrop the single most important iOS 7 feature of all. As Apple notes, “anything from any app with a Share button” can be shared over AirDrop.

Biggest Impact: Social Media platforms. (Hint: Plus, the advertising industry.)

Bonus: Take heed, Silicon Valley, of that Apple phrase: “a Share button.” To not have your service listed as a Share button inside iPhone may permanently marginalize your platform.

The World Is Not Enough

iOS 7 contains many new features, new gestures and a rather jarring new visual language – with fully re-designed colors, iconography, and fonts. There is the very clever (and long overdue) Control Center panel and more robust notification options. Peer deeper, however, and you discover far more has changed than the visual presentation layer.

Focus instead on how all the files, photos, videos, URLs, contacts, music and everything else remain inside the tightly controlled Apple ecosystem. Map out the linkages between your iOS device, your content, and all the world wide web has to offer, and you see this clearly: more data than ever before flows through and within your iPhone.

Whether iPhone-to-iPhone(s), iPhone-to-iCloud, iPhone-to-iTunes, or iPhone to sanctioned services, such as Facebook and Vimeo, Apple manages the channel – and its a channel miles deep and miles wide, and nearing a billion users.

As the Apple user base expands outward with each new sale, Apple’s designers have pulled each user even deeper insider the Apple ecosystem.

Apple’s WWDC: Instant Analyses

Introduction

Through the graciousness of Techpinions and Apple Inc., I was able to attend the Apple World Wide Developer Conference (WWDC), held this past Monday, June 10, 2013. I have a couple of in-depth articles that I’m working on, but since we, here at Techpinions, are far more about perspective and far less about the latest news coverage, I’m going to give those articles a little time to “breathe” so that I can develop them further. I’m very excited about these upcoming articles and I’m looking forward to sharing them with you in the very near future.

In the meantime, since the WWDC was so broad and so far-reaching, I thought that I would go through the conference video, step-by-step and provide some “snap” analyses of some of the less well known – or perhaps less well appreciated – aspects of the keynote speech. If you have additional insights, please let us know in the comments, below.

Overall Impression: Apple events are incredibly well-organized. The presentation was two hours long and it was packed full. The pace of the presentation was fast and furious as Apple tried to deliver as much information in those two hours as they possibly could.

Apple’s Philosophy

“Only Apple could do this…” – Tim Cook

00:10: If you want to know how Apple sees itself or, at the very least, how Apple wants the world to see them, watch the video that opens the conference. There’s a lot of depth to this short video. Expect to read much more about it, here, in a future Techpinions’ article.

Developers, Developers, Developers, Developers

03:20: 6 million registered developers. 1.5 million new developers in the past year alone. Sold out the developer’s conference in 71 seconds.

07:40: 50 billion Apps.

That’s a lot of zeroes (50,000,000,000).

375,000 apps designed specifically for the iPad. Competitors? In the hundreds. One of Apple’s key differentiators.

575,000 million accounts, most with credit cards attached. Don’t underestimate the value of this. It’s HUGE. Think iTunes. Think iTunes Radio. Think payments. Think BIG.

“More accounts with credit cards than any store on the internet that we’re aware of” ~ Tim Cook

08:48: Apple paid developers 10 billion dollars.

5 billion of that paid just in the last year … three times more than all other platforms combined.” ~ Tim Cook

If there is one thing that the analysts are overlooking, it is this. If you want to truly measure which operating system is doing better, don’t look at the number of sales, look at the number of developers and the number of dollars being paid to those developers. By that measure, Apple is running away from the pack.

OS X: Mavericks

With Apple, it’s not about gathering the latest features together, it’s about having features that work the greatest together. Apple doesn’t strive to be the first, they strive to be the best.

iCloud Keychain

36:15: Apple will suggest, retain and maintain your passwords and credit card numbers. I’ll have to see how this works in practice before I make a final judgment, but this was the first of many times when I thought, “Aha!”:

– My mom could do this, moment #1

Apple’s Technology Philosophy

An aside about Apple’s technology adoption and legacy philosophy. Apple is quick to discard the old, slow to adopt the new. It’s a weird mix that confuses many observers. Google aggressively moves forward. Microsoft aggressively retains backwards compatibility. Apple moves forward conservatively and discards the old aggressively.

Weird, right? Get used to it. It ain’t going to change anytime soon.

MacBook Air

In the age of the iPad, what is the future of the notebook?

48:00: (Hint from Apple: “It’s the MacBook Air”.)

The new MacBook Air is almost identical to the old MacBook Air except that it contains Intel’s newest Haswell processor. The key difference is battery life:

— 9 hours for the 11 inch MacBook Air
— 12 hours for the 13 inch MacBook Air

TWELVE HOURS! Yikes.

Of course, no retina display. As Renee Ritchie of iMore is fond of saying, smaller, better battery life or retina display…pick two.

There was no mention of the MacBook Pro at the event, but rumor has it that it too will appear with a Haswell chip AND a retina display in the next 3 to 4 months.

By the way, is Apple seriously going after the PC market too? Stay tuned. More on that from Techpinions, yet to come.

Mac Pro

“Can’t innovate anymore, my ass.” – Phil Schiller

52:15: Some say that Phil Schiller’s comment, above, was defensive. Hmm. I would say that words like “defiant”, “decisive” or “determined” would be much more aptly employed to describe the true tenor of his remark.

The Mac Pro has incredible design, power and speed, all housed in a teeny-tiny casing. The numbers being thrown around to describe the device were pure tech porn to the nerds attending the convention ((Nerds like me)).

However, while the Mac Pro will undoubtably be great…will it be great for anybody? Sure it will be perfect for someone like Pixar. But how many Pixar’s are out there? Will it truly be practical for many others? Not so sure. We’ll just have to wait and see.

Designed in California, Assembled in USA

01:39: This is Apple’s new tagline. Apple is now making the Mac Pro in the United States and they’re naming their OS X software after locations in California (starting with “Mavericks”). This is about as politically correct as it gets.

Expect to see this new tagline…like…ya’ know, – A LOT.

The Mac Is Back

60:00: One. Full. Hour.

Spent on the Mac.

If you thought that the Mac was dead, you were dead wrong. And it you thought the Mac was going to become the iPad, then get used to disappointment.

iWork In The iCloud

Create on your Mac, edit on your PC, present on your iPhone.

62:00: Sort of Apple’s take on Google Docs. I’ll have to wait until I get my hands on it but, without a doubt, a fascinating new direction for Apple.

Is iOS Both The Best AND The Most Popular OS?

69:30: Tim Cook seems to think so.

You can bet your life that I’ll be “liberating” large parts of this portion of the keynote for use in constructing an Insider’s article on this topic in the very near future.

If you can’t wait and want to have it served to you straight from the Cook’s kitchen, go have a look at the video starting at the 69:30, mark.

Apple’s Design Philosophy

“True simplicity is derived from so much more than just the absence of clutter and ornamentation. It’s about bringing order to complexity.” ~ Jony Ive

75:10: If you want to understand what Apple’s design philosophy is, go watch this video…

…then watch it again.

And again.

Tim Cook And Company Relish The Challenge

79:45: If you want to see a happy Tim Cook – a genuinely happy Tim Cook – just watch the video, starting at the 79:45 mark.

Apple may be under pressure from Wall Street but, if they are, Tim Cook and company seem to relish the challenge. I’ve never seen Steve Job’s captains look more upbeat, more excited, more confident or more determined than they did in this presentation. A lot of humor. A lot of enthusiasm. A lot of energy. A lot of optimism. Lot’s and lot’s of of optimism.

iOS 7’s Icons

81:15: Saying that iOS 7 is doomed to fail just because of the look of the icons introduced at the World Wide Developer Conference, is like saying that a bride is doomed to ugliness just because of how she looks, sans makeup, when she’s having her wedding dress fitted.

Let’s all take a deep breath, step back and give this thing a chance to unfold, shall we?

I’m not saying that there has been a rush to judgment…

…I’m saying that there has been a “gush” of judgment – most of which will, hopefully, be flushed away by the tides of time.

My take: They say there is nothing new in iOS 7. But there’s also nothing new in a cake or souffle. It’s not new ingredients that count, it’s how the ingredients are put together that makes a meal a masterpiece. ((Tip o’ the hat to Jean-Louise Gasse, for the analogy.)) Let’s give this cake a little time to bake and see if it rises, okay?

Gestures For Moving In And Out…

85:10: Universal gesture from left edge of display for moving in and out of apps…

– My mom could do this, moment #2

Control Center

87:20: A universal gesture, available from anywhere, even on your lock screen.

– My mom could do this, moment #3

Multi-Tasking

88:00: Simple. Powerful. Simply powerful.

And as Ben Bajarin reminded me, this may be an even MORE powerful feature on the iPad.

– My mom could do this, moment #4

Siri

101:45: New interface; new voices; new commands; answers more questions; hooks to wikipedia, twitter and Bing….

Hmm. Definitely a wait and see kind of deal.

iOS In The Car

103:25 Very quiet introduction. May be a much bigger thing than people realize. Need to wrap my brain around it. Go see Horace Dediu’s initial thoughts on it, here.

Automatic System And App Updates

105:35: – My mom will love this, moment #5

Music Match And iTunes Radio Integration

106:00: Hmm. Not hearing much buzz surrounding this. Yet I think it could be huge.

Music Match iCloud integration makes it easy to recover your music from the cloud. iTunes Radio makes it easy to discover your music from the cloud. Music Match costs $24.99 per year. iTunes Radio is free with ads…or free without ads if you are a Music Match subscriber.

Hmm. Music discoverability…built right into your existing music app…integrated with iTunes…easy, one-button purchases…that play on your iPod, iPhone, iPad, Mac or Apple TV. That’s not a big deal?

Now the discoverability portion of the product is a complete unknown. That will make or break this service. Will iTunes Radio be another Ping…or will it be the next big thing?

– My mom could do this, moment #6

Activation Lock

112:05: If an unauthorized person tries to turn off “Find My iPhone” or wipe my device, they won’t be able to reactivate it. A powerful theft deterrent.

– My mom could understand the importance of this, moment #7

1,500 New APIs

112:55: ‘Nuff said. ((One possible caveat: An API to integrate with 3rd party game controllers? Hmm. Start packing your bags, game console makers.))

“Biggest Change To iOS Since The Introduction Of The iPhone”

115:05: By my count, Tim Cook and company said words to this effect on three – perhaps four – occasions.

iOS is not just a coat of paint. It is designed to be a “comprehensive end-to-end redesign of the user experience.”

Apple’s goal with iOS can be summed up this way:

It’s like getting an entirely new phone, but one that you already know how to use.

That is one truly ambitious goal. Only time – and the market – (and definitely NOT the critics) – will tell if Apple was able to pull it off.

Apple’s Signature

116:45 Final video and Apple’s future Ad campaign. A branding campaign, not a product campaign. And what does Apple want their brand to stand for?

— This is what matters.
— The experience of a product.
— How it makes someone feel – delight, surprise, love, connection.
— Does it deserve to exist?

This is our signature…and it means everything.

(M)ore than just words…values we live by… ~ Tim Cook

If you don’t get Apple after watching this video…you just don’t get it.

4 Mobile Business Models, 4 Ways To Keep Score

The hundred meter dash, archery, weightlifting and the long jump are four very different Olympic sports with four very different methods of keeping score. The hundred meter dash is scored on speed. Archery is scored on accuracy. Weightlifting is scored on strength. The long jump is scored on distance. You don’t judge the participants in the hundred yard dash by how much weight they can lift. That would be the wrong way to measure them.

“…looking at ‘smartphone share’ or ‘profit share’ or ‘platform share’ all tell you something about the industry, but all three metrics mislead you if you try to treat them as a way to see who’s ‘winning’, because ‘winning’ means different things for Apple, Samsung or Google. After all, Google may well still make more money from searches on iOS than it does from searches on Android.” ~ Ben Evans, On market share

Hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms are four very different business models and they have four very different methods of keeping score too.

You don’t take the metrics used to measure one business model and apply them to another business model. That would be the wrong way to measure them.

Each business model demands its own specific forms of scoring. The goal should be to devise, discover, or discern a form of measurement that properly and accurately reflects how a business is performing in the business model in which it is participating.

Biathlons, Triathlons and Decathlons are all unusual Olympic events in that they group together several disparate sports and then determine an overall winner. Think of Apple, Google, Samsung, and Amazon as Olympic teams that compete with one another in the four interrelated mobile business models – hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms – a sort of Quadrathlon. Each team has its strengths and its weaknesses, each team wants to win the events that they’re best at and maximize their score in the other events in order to win the overall Quadrathlon.

Let the games begin!

Hardware Manufacturing

Last week I tried to explain how using only market share to analyze mobile hardware manufacturing was not only the wrong way to keep score of that business model but that it was actually obscuring the real score.

“The truth is that focusing on market share as the primary metric is the only way to paint the iPhone as anything other than a roaring success.” ~ John Gruber

I suggested an alternative measurement known as the “Fair share profit analysis,” in order to generate some perspective but, truth be told, the only real way to accurately “score” who’s winning in hardware manufacturing is with net hardware profits. When it comes to selling mobile hardware, do Apple, Samsung, HTC, Motorola, etc. really care what their market share is? No they do not. That’s the top line, a means to an end. The only thing that matters when they are selling mobile hardware is profit. That’s the bottom line, the end for which the means were made. Market share is all well and good but only if it brings home the profits. Keep your eyes on the prize – and profits are the prize.

So who’s winning the medals in the olympic sport of mobile hardware manufacturing?
genuity
Source: “Who’s Winning, iOS or Android? All the Numbers, All in One Place

Awards Ceremony: Apple walks away with the Gold (both figuratively and almost literally), Samsung takes the Silver and no one else even medals. The Bronze podium stands empty.

Advertising

The only proper way to score advertising is net advertising profits retained. Market share and platform may be used to garner advertising revenue but they are only the means and they should never be confused with profit, which is the end.

Today, there are three great truths in mobile advertising:

1) Google is killing it in mobile advertising.
2) Google is killing it in mobile advertising…but mobile advertising is still relatively small; and
3) The vast majority of Google’s mobile advertising revenue is generated on the iOS platform, not the Android platform.

1) Google is killing it in mobile advertising.

Google dominates the mobile search market with 93% of US mobile search advertising dollars, according to eMarketer. Facebook is at No. 2.

2) Mobile advertising is still relatively small.

The mobile ad market alone stood at roughly $4.1 billion at the end of last year, up from $1.5 billion at the end of 2011. Google, currently has more than half the mobile ads market with annual revenues of around $2.2 billion.

Just to keep things in perspective, mobile ad revenue only accounted for 9% of all online ad revenue last year, although the percentage of mobile ads vis-a-vis other online ads is rapidly growing. And mobile ad revenues paled in comparison with mobile hardware sales. While it took an entire year for ALL mobile ad revenue to reach $4.1 billion, Apple alone, and in 90 days, and in what many considered a down quarter, brought in revenues of approximately $31.4 billion just from iPhone and iPad sales.

3) Google is making its advertising money on iOS, not Android

“(I)t’s Android’s large market share that is the winner for Google. The more Android devices being used, the more Google services with Google ads are being used.” – Virtual Pants

Actually, not so very much. Most of Google’s advertising dollars are generated by iOS’s relatively smaller market share, not by Android’s massive market share.

MoPub-Ad-Spend-Share-Jan-Feb-March

Source: MoPub

Take a good hard look at the chart, above. The iPhone ad spend doubles the ad spend share of ALL of Android. The iPad almost matches ALL of Android BY ITSELF. And even the lowly iPod has one-quarter of the ad spend that ALL of Android does. Market share is all that matters? I don’t think so. That’s like arguing that acreage is all that matters in real estate. The size of the lot does matter in real estate but location, location, location matters more, more, more. And market share does matter in mobile advertising but it is the location of the market share that matters even more.

Apple’s iOS Mobile Ad Metrics Dominates Android

Why 75 cents of every dollar spent on mobile advertising is spent on iPhone and iPad

iOS leads Android in mobile ad revenue

Apple’s iPad dominates online shopping traffic & revenue generation

iOS Still Top Platform For Monetising Mobile Ads, Opera’s Q1 Study Finds, iPhone Also Beating Android For Generating Ad Traffic

iPad Still Dominates Tablet Ads With iPad Mini Gaining, Velti Finds

“My belief, though, is that what Google is winning with Android is a booby prize — overwhelming majority share of the unprofitable segment of the market.” – John Gruber

When it comes to ad revenues and profits, we shouldn’t be counting Android as a single entity anyway. Ad revenues don’t help Android, the platform. They help specific digital stores. Ads going to Amazon, Google, and the various stores in China and elsewhere need to be broken out separately, not lumped together.

Awards Ceremony: Google wins the Gold and they win it going away. But they receive their Gold medal standing on the Apple iOS platform, not the Android platform.

Silver and Bronze? I’ll let you decide if it’s Facebook, Yahoo, Microsoft’s Bing or someone else. They’re all so far back that it doesn’t much matter now anyway. That may change over time but we’ll have to wait and see how this market develops.

“Razors-And-Blades” Content Sales

“(T)he razor and blades business model, is a business model wherein one item is sold at a low price (or given away for free) in order to increase sales of a complementary good, such as supplies…” ~ Wikipedia

The “razors-and-blades” business model is tricky to score.

— Hardware revenues and profits mean NOTHING in the “razors-and-blades” model. In fact, it’s not unusual to LOSE money from hardware (razor) sales.

— Market share means both nothing and everything in the “razors-and-blades” model. It means nothing because it doesn’t actually generate any profits but it means everything because it is a prerequisite to generating profits. In fact, the only reason you’re giving away your hardware in the first place is to acquire massive market share which, in turn, will hopefully lead to massive profits.

— Ultimately, the only way to measure the success of the “razors-and-blades” model is on the net profits generated by the sale of the complementary goods (razors). In mobile, the complementary goods are content such as music, video, books, etc. and apps. Amazon also has the added advantage of being able to sell everything from their sprawling retail catalog.

As I tried to explain in my tersely titled article: “Selling The Amazon Kindle Fire and Google Nexus 7 Is As Silly As Selling Razor Blades To Men Who Love Beards“, the “razors-and-blades” model makes no sense in this market space. At least it makes no sense to me. In the “razors-and-blades” model, the complementary sales – whether it be blades for razors, or ink for inkjet printers or games for gaming consoles – must be proprietary and must command a premium price. That’s the whole point. Give away the razor, make it back – and more – by selling the blades at a premium.

If you’re selling content, you want to be platform agnostic so that you can sell as much content as possible. This, in my opinion, should be Amazon’s strategy.

If you’re giving away hardware in order to sell content, then you want that content to be tied to your hardware product so that you can monopolize the sale of the complementary product and command a premium price.

In the mobile space, the complementary sales ARE NOT proprietary, they ARE subject to competition and they DO NOT command a premium price. Amazon and Google don’t sell content that is any different or superior to that being sold by Apple and other content providers and their content isn’t being sold at a premium. In fact, Amazon often sells their merchandise at a DISCOUNT which – in the “razors-and-blades” business model – is completely bat-manure crazy. ((Then again, we all know that Jeff Bezos is crazy like a fox.))

So who’s winning in the “razors-and-blades” business model? Why, surprisingly, it’s Apple and it’s Apple in a runaway.

Google Play now at 90% of iOS app store downloads; iOS still holds a 2.6X revenue lead

Despite growing competition from other tablets, Apple’s iPad still accounts for a whopping 89.28 percent of e-commerce website traffic, and also rakes in more money on a per-user basis than any other platform. ~ Monetate

Distimo reports that iOS App Store revenues were 430% larger than Android during 2012. ~ Apple F2Q13 Earnings Call

“…iTunes inclusive of Apple’s own Software generates as much as 15% operating margin on gross revenues. That’s over $2 billion a year.” ~ Asymco, So long, break-even

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Source: Canalys

Apple sells their content, not in order to make money but, in order to make their hardware more attractive so that they can sell ever more hardware and make ever more profits. With regard to tablets, Apple is playing the OPPOSITE game that the Amazon Fire and the Google Nexus are playing. While Amazon and Google subsidize their tablets (razors) in order to make money on the sale of their content (blades), Apple should be subsidizing the sale of their content (blades) in order to make money on the sale of their hardware (razors). But that’s not how Apple rolls. Instead, Apple sells their hardware at a premium AND they sell their content at a premium. That’s not supposed to happen but that’s just how good the Apple ecosystem is.

It’s like a walk-on winning the Olympic marathon while everyone else is stuck in the starting blocks.

You can say that it’s elitist or arrogant to argue that iOS users are better customers than Android users. But you can also say that it’s the truth. ~ John Gruber, Church of market share

One last thing. If Amazon and Google have an incentive to sell discounted hardware and premium content and Apple has an incentive to sell premium hardware and discounted content, one of those business models is going to fail and it’s going to fail hard. Since Apple is, so far, successfully selling premium hardware AND premium content, I’ll let you be the judge of how this is going to play out.

Awards Ceremony: I’m tempted to award all three medals to Apple just for having the sheer audacity to win a game that they didn’t even enter. But I guess Apple will have to console themselves with just winning the Gold.

And the Amazon Fire and the Google Nexus tablets? Disqualified for not understanding the rules of the game that they were playing.

Remember, Amazon and Google sell their hardware at cost. They don’t make a penny off those sales and they might even be taking a loss.

Market share? Yes, they have taken some minor market share…in a market where they are GIVING AWAY THEIR MERCHANDISE. And market share is not how you score in the “razors-and-blades” game. While the press and the pundits fawn over the market share of the Amazon Fire and the Google Nexus, what they’re entirely missing is that in the “razors-and-blades” business model, market share should be a GIVEN. I mean, honestly, if you can’t obtain overwhelming market share when you’re giving away your product at cost, then you should be ashamed, embarrassed, abashed, chagrined, humiliated and mortified ’cause you’re doing something terribly, terribly wrong.

You win the “razors-and-blades” game by scoring the most content profits. All those Amazon Fire and Google Nexus market share numbers that the analysts are always going gaga over? Meaningless. They should be removed from the count. They’re probably not hurting the sales of the other available tablets and they’re not helping the bottom lines of their makers either. There is zero proof that Amazon and Google’s hardware giveaways have led to increased retail sales which, after all, in the “razors-and-blades” model, IS the point.

And if you’re going to prophesy that market share alone gives Google data that will someday, somehow, be worth something to someone, then you need to go back and re-read how the “razor-and-blades” business model is scored.

What we desperately need in analyzing mobile computing is far more attention paid to profits and far less attention paid to prophets.

Next Time

Next time I will finish with the “mother” of all business models – platforms – and do the medal count.

Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

Read Part One of John’s column entitled: Android’s Market Share Is Literally A Joke

Read Part Three of John’s column entitled: Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

The author would like to gratefully acknowledge the contributions of Ben Bajarin and Steve Wildstrom. All the great ideas, that you agree with, were theirs. All the bad ideas, that you disagree with, were mine.

Android’s Market Share Is Literally A Joke

This is the first of three articles looking at how we measure – and mis-measure – who is “winning” in the mobile sector. Article one focuses on market share and was inspired by an article written by Bill Shamblin, entitled: “Chasing Smartphone Market Share Is A Chump’s Game.” Article two will focus on the proper way to measure or “score” mobile hardware manufacturing, mobile advertising and the “razors-and-blades” content models. Article three will focus on the role that market share plays in the network effect and will examine the proper way to measure or “score” how well a platform is doing.

The Joke

Have you heard this one?

Two farmers bought a truckload of watermelons, paying five dollars apiece for them. Then they drove to the market and sold all their watermelons for four dollars each. After counting their money at the end of the day, they realized that they’d ended up with less money than they’d started with.

“See!” said the one farmer to the other. “I told you we shoulda got a bigger truck.”

Or how about this one?

Android is winning because they got a bigger truck.

The Joke Is On Us

Both “jokes” are based upon the old saw that one can lose money on every sale but make it up in volume. Unfortunately, the joke is on us because this is exactly the kind of nonsensical analysis that is being doled out by tech pundits and lapped up by the press and investors. You think I’m exaggerating? Take a gander at some of these recent tech headlines:

Android is crushing Apple and Microsoft in the mobile device market
Android looks like it’s winning
CHART OF THE DAY: The iPhone’s Market Share Is Dead In The Water
Despite its upmarket history, Apple needs to compete on price
Gartner: Apple falls below 20% in smartphone market share
Harvard Liquidates Apple Stake After IPhone Sales Lose Steam
How Apple Is Losing Mobile
IDC: Apple’s share of worldwide tablet market drops under 40%
iPhone growth stalls as Android continues to nip away at Apple’s market share
iPhone Market Share Stuck At 18%
Nearly 75% Of All Smartphones Sold In Q1 Were Android
Sharp to seek Samsung edge for survival as Apple sales lose steam
Why Android Is Winning The Tablet Wars

I could link to a dozen more headlines just like them. These headlines – or their underlying articles – all have two things in common:

1) They contend that Android is winning and Apple’s iPhone is in deep, deep trouble; and
2) They point to market share as the sole or primary basis for their conclusion.

TechCrunch sums up the thoughts of many this way:

“The latest numbers are in: Android is on top, followed by iOS in a distant second. There is no denying Android’s dominance anymore. There is no way even the most rabid Apple fanboy can deny that iOS is in second place now. Android is winning.”

ReadWrite takes it one, final step further, stating:

“The Mobile Battle Is Over – And Google Won.”

In other words, pundits think that Android has won because they “have a bigger truck” (i.e. more market share) – regardless of how much – or how little – profit Android manufacturers make. Android, the pundits opine without a hint of irony, is not making much, if any, money but that’s okay because they’re making it up in volume.

But is that really how market share works? Can you tell how well a company or an operating system is doing solely by measuring its market share?

No, of course not.

Quiz #1: Market Share Alone

Question: Company A has 25% market share. Company Z has 75% market share. Which company is doing better?

Answer: With market share alone, there’s simply no way to know or tell. Company A might be bringing in all the profits and company Z might be going bankrupt.

The Wrong Way To Calculate Who’s Winning

(T)he primary problem with using market share as a measure of business health is it provides no insight into the profitability of the product being sold. ~ Bill Shamblin

Scoring by market share alone and ignoring profit is like saying that a baseball team won because it had more hits when the other team scored more runs. Scoring by market share alone and ignoring profit is like saying that a football team won because it gained more yards when the other team scored more points. Scoring by market share alone and ignoring profit is like saying that a hockey team won because it had more shots on goal when the other team had more goals.

Market share without context is not only useless, it is worse than useless because it is likely to be misinterpreted.

First, market share without context assumes that each percentage of market share is equal to another – that every Android activation is equal to an iOS sale. Nothing could be further from the truth. You can’t simply total up market share and determine a winner any more than you could count up coins or poker chips without knowing the underlying value of those coins or chips. A penny does not have the same value as a quarter and only a small child would rather have more coins than fewer coins but more money.

Second, market share without context implies that market share is a zero sum game – that market share gains for one always result in a loss to another. But in a rapidly growing market, a company can actually LOSE market share yet have both positive unit sales and profit growth. Not growing as fast as another company is not nearly the same as “losing”, especially if the growth is coming in a more desirable portion of the market.

For example, despite a decline in Q1 market share, iPhone sales actually increased based on year over year comparisons. (iPhone sales were not declining,they were growing slower than the overall market.)

The same was true of tablet sales. Last quarter, Apple LOST tablet market share, but because the entire market was rapidly growing, they GREW unit sales by 65%.

tablets-q1-2013

Source: Apple 2.0, “Pie charts of the day: Tablet sales grew 140% year over year”

The “Fair-Share” Way To Calculate Who’s “Winning”

What matters is not only market share and not only profit share but the ratio between them. This is called Fair share profit analysis. Fair Share Profit Analysis contends that 1 point of market share should deliver 1 or more points of profit share.

Less than a 1-to-1 ratio of profit share to market share demonstrates that a company is buying market share; that the company has not been able to differentiate its product in the market and is likely competing primarily on price.

More than a 1-to-1 ratio of profit share to market share demonstrates a company’s ability to differentiate its products, provide more value than its competitors, command higher prices, charge a premium and enjoy pricing power.

Quiz #2: Market Share or Profit Share

Question: Company A has 25% market share and 75% profit share. Company Z has 75% market share and 25% profit share. Which company is doing better?

Answer: If you said anything other than company A, then you are dumber than a doorknob. Any intelligent person would take company A’s profit share over that of company Z’s market share.

No one would be confused if Apple had 50 percent market share and 50 percent of the profits. But apparently it’s very confusing to some that Apple has only 5 percent of the market share and well over 50 percent of the profits. ~ John Gruber, The church of market share

Imagine, for example, that Apple were a hamburger chain who made more money than McDonalds, Burger King, and Wendys combined, but only sold 5% of the total hamburgers. Would anyone seriously contend that Apple was “losing” the hamburger wars?

Apparently so. For example, take this analysis from Matt Asay of ReadWrite (please!):

For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market.

It turns out it’s a really big deal to maintain market share, and not simply profits. Profit share follows market share.

Profit share follows market share? Are you kidding me? Show me a business sector where profits have a 1-to-1 correlation with market share and I’ll show you the exception that proves the rule. The reason market share doesn’t necessarily correlate to profit share is because profits are made up of both market share and margins. And market share alone tells us nothing about margins, therefore market share and profit share are almost always going to be unbalanced.

screen-shot-2013-04-16-at-4-16-4.16.46-pm

Source: Asymco, Escaping PCs

Take, for example, the Apple Mac. As the pie chart above demonstrates, the Mac has 45% profit share with only 8% of the market share. That means that Apple pulls in an awesome 5.63% of the sector’s profits for each and every 1% of its market share.

Profit share always follows market share? Not hardly.

The truth is, anyone can get market share if they want it badly enough. All they need to do is sell their product at cost, give it away for free or, better yet, subsidize (pay their customers) to take the product off their hands. This is called “buying” market share, but it always comes at the cost of profits.

Pricing to gain market share simply for the sake of market share is a chump’s game. ~ Bill Shamblin

The problem is, you can “cheat” and buy market share, but you can’t do the reverse and “cheat” to buy profits. You have to EARN profits. Buying market share is a downhill race to the bottom but gaining profits is an tortuous uphill climb and it can only be made if the manufacturer is able to produce highly valued and differentiated products. The company that buys market share must inevitably go out of business or reverse its course and fight its way back up to profitability. The company with the value and the profits, on the other hand, has the advantage of holding the high ground and can choose to take market share at will.

Quiz #3: Less Market Share Can Be Better Than More

Question: Company A has 25% market share and 50% profit share. Company Z has 75% market share and 50% profit share. Which company is doing better?

Answer: Anyone with any business sense would say company A.

Company A is commanding 3 times the price of Company Z. The formula is 50% profit share divided by 25% market share (50/25 = 2). This means that for every one percent of market share, company A has two percent of the profit share. Company Z’s position is reversed. For every one percent of market share, they command only 0.5% profit share (50/75 = 0.66). Company Z would have to work three times as hard and sell 3 times as much product just to match the profits of a single sale by company A.

Grading The Contestants

Android accounts for approximately 70% of global smartphone shipments and 29% of global profits. This means that the average Android manufacturer creates just .41% of profit for each point of market share (0.29/0.70 = .414). In other words, the average Android manufacturer needs to capture 2.4 points of market share just to increase their market profit by 1%.

Such a low fair share profit index may indicate that Android manufacturers are:

— Having difficulty differentiating their product;
— Sacrificing profits in order to buy market share (the “race to the bottom”);
— Unable to reach economies of scale in the manufacturing process.

(Profit data, source: Canaccord, Market share, source: IDC)

Samsung is doing far, far better than the average Android manufacturer. Samsung’s 2013 Q1 market share was 33% and its profit share was 43%. This means that Samsung reels in 1.3% of the profits for every 1% of the market share it owns (0.43/0.33 = 1.30). Samsung, unlike all other Android manufacturers, is earning, rather than “buying”, market share.

(Profit data, source: Canaccord, Market share, source: IDC)

Apple’s iPhone 2013 Q1 market share was 18% with 57% profit share. This means that Apple’s iPhone took in a lavish 3.12% ((0.57/0.18) of all profits for each 1% percent of market share it controls.

If Android manufacturers needed to sell 2.4 phones just to gain 1% profit share, they would need to sell a staggering 7.5 units just to match the profits that Apple garnered from the sale of a single iPhone.

As Daniel Eran Dilger puts it:

“… Apple could simply have blown through much of its $13.1 billion quarterly profit to “beat” Samsung in market share, rather than allowing Samsung to do that while earning $4.8 billion less than Apple.”

Further, in 2012 Q1, Apple held 23% market share and 74% profit share. This means that each 1% of market share was equal to 3.22% (0.74/0.23) of the sector’s profit share. Apple’s market share to profit share ratio remains almost identical, which means that Apple has maintained its pricing power. Not only that, by focusing on just a few smartphone models, Apple has become the low-cost manufacturer in smartphones as well.

slide-11-638-1

Source: Ben Evans, Mobile is eating the world

Take a good hard look at the chart, above, then go back and re-read the headlines I listed at the start of this article. What each and every one of those headlines is contending is that Android is winning and Apple is losing because Apple doesn’t control the green portion of the chart, above.

I mean, honest to goodness, take a look at the total units sold compared to the paltry profits obtained from those green sales. Who in their right mind would even WANT that market share?

Price Elasticity

What we’re really talking about here is the economic concept of price elasticity. “Price elasticity” seems to be way beyond the pay grade of most pundits and analysts who follow the mobile sector, but what it essentially means is that when the price of something goes down, sales almost always go up, but the rate of that sales increase depends upon the price elasticity of the product. In other words, dropping prices may increase sales but the increased sales may result in disproportionately larger or smaller profits.

Unless we truly understand the price elasticity of the iPhone, we really shouldn’t be calling for Apple to drop its iPhone prices.

Summation

It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so. – Will Rogers

Not only do the high priests of market share have it wrong, they have it exactly backwards. The company with the lower market share and the higher profits has all of the leverage. The goal is to INCREASE, not decrease, the ratio of profits to market share. Increasing market share at the cost of profits is a recipe for disaster, not a formula for success.

Apple may or may not do well in the future but right now, and contrary to popular belief, they are winning the smartphone wars and winning them handily.

RATIO OF PROFITS TO MARKET SHARE
3.12% Apple
1.30% Samsung
0.41% All Android

Not only is market share not the best way to evaluate the relative positions of competitors but, without context, it is one of the worst. Assuming that market share will always bring you success is like assuming that a bigger truck will always bring you bigger profits. It’s literally a joke.

Next

Next, I’ll talk about how market share affects hardware manufacturing, advertising and the “razors-and-blades” content models. The series will conclude with a discussion of platforms and the network effect.

Read Part Two of John’s column entitled: 4 Mobile Business Models, 4 Ways to Keep Score.

Read Part Three of John’s column entitled: Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

The iPhone and the Death of the Mid-Tier Smartphone

I’ve been a consumer device analyst for long enough that I’m usually pretty comfortable calling things as I see them, but sometimes there is simply no substitute for hard data. Current Analysis tracks U.S. device pricing for phones and tablets, and if you slice and trend the data, you see some really interesting patterns. It is no secret that smartphones are selling extraordinary well, but in subsidized markets, the gains are highly concentrated by OS platform with sales are split between high-end flagship phones and entry-level models. The data tells the story why this is so.

Apple’s iPhone sets the pricing floor ($0 for the model from two years ago), middle ($99 for last year’s model), and ceiling ($199 for this year’s model). Just two phone families – Apple’s iPhone and Samsung’s Galaxy S – make up the majority of U.S. smartphone sales overall. AT&T is particularly iPhone-centric; 80% of smartphones it sells are iPhones, so even though the carrier prides itself in offering the widest variety of phones, vendors, and operating systems, practically speaking, there is little room for rivals to sell into. This is a residual effect of AT&T’s long exclusivity with the iPhone and its smart policy of locking consumers into family and business contracts. But carrier exclusives overall have been declining on a percentage basis, even as the total number of smartphones on offer has grown:

Screen Shot 2013-05-19 at 9.15.06 PM

Not only are carrier exclusives declining on a percentage basis, but the best phones are increasingly the ones available across carriers – the iPhone, HTC One, Samsung Galaxy S. (At a recent presentation for the Competitive Carrier Association, I pointed out that this means the playing field is now basically level in terms of devices. Smaller operators may need to agree to fairly high minimum orders, but they can get access to the devices that are in the highest demand.)

As exclusives have waned, pricing at the high end has dropped. Samsung’s Galaxy Note straddles the line between a smartphone and a tablet, and it has launched at premium pricing even for a flagship. However, the Note seems to be an exception – LG’s Optimus G Pro, which also sports a 5.5” display with higher resolution and more storage than the Note 2, launched at just $199. (However, the Optimus G Pro is an exception to the previous dataset – it is an AT&T exclusive.) Apple and Motorola have offered versions of their phones with additional memory above $199 for a while, and Samsung and HTC have finally picked up on that strategy, but on average, flagship smartphone pricing has declined over the past three years:

Screen Shot 2013-05-19 at 9.15.52 PM

Here’s where it gets interesting. Not all flagships are created equally, and when a vendor’s high-end phone does not sell well, it drops in price:

Screen Shot 2013-05-19 at 9.16.28 PM

As expected, Apple and Samsung phones have strong price stability, but Apple’s ability to maintain a premium price level for a full year in a hyper-competitive market is simply mindboggling. While it is true that iPhones sell best the first quarter they are available, iPhones continue to outsell rivals in non-launch quarters as well. HTC has enjoyed strong carrier launches which has kept prices stable even as its sales have declined overall. Smartphones from Sony and LG have not fared well, and within 3 – 4 months of launch, they drop into mid-tier pricing territory. Unsurprisingly, this has impacted the number of mid-tier smartphone launches:

Screen Shot 2013-05-19 at 9.16.53 PM

It is awfully hard to sell a phone designed to sell for $99 with subsidy when consumers continue to snap up last year’s iPhone model for the same money a full 18 – 24 months after Apple introduced it, and three-month old flagship Android phones are pushed down to $99 as well.

The trends are quite clear, but there is one wildcard going forward: T-Mobile USA’s installment purchase plans. T-Mobile is asking consumers to buy their phones upfront, but it will split the cost of the phone into monthly installments alongside a no-contract voice plan. If consumers treat this as a direct replacement for subsidized plans – or if T-Mobile is simply too small to impact Verizon and AT&T at this point – then I expect the trends to continue. However, if enough consumers see the real cost of their flagship phones and opt to buy less expensive models, then we may see the return of the mid-tier phone in the U.S. after all. We don’t have data on that – yet.

While analysis can sometimes be a solitary pursuit, I owe a huge debt to my team for tracking, trending, and charting the data presented here. In particular, Peter Han was instrumental in pulling this together, and he co-authored the report that this column is based on.

The Definitive Answer Guide to Which Smartphone You Should Buy

Forget all the rumors of an Apple iWatch. Ignore the surprisingly good reviews of Google Glass. Neither of these will come close to replacing your smartphone. Not for many, many years; probably never. The question is not whether  you will buy a smartphone – you will. The question is: which smartphone should you buy?

I am here to help. Don’t worry, I promise this will be painless.

I’ve traversed two decades in the telecommunications industry and have spent ridiculous amounts of time over the years testing and sampling various smartphones across just about every single platform, price point and form factor. If it means anything to you, I even own a MeeGo. Looks great, but unfortunately it works about as well as your four-year-old netbook.

Let’s begin.

Dear Brian…

Which smartphone should I buy?

The iPhone 4S.

Perfectly designed, flawless to operate, affordable. Apple offers the best, most robust, most pleasing ecosystem of apps, games, content, payments, customer support, product integration and accessories. I cannot say exactly how many billions Microsoft, Google and others have spent over the years attempting to equal the iPhone’s operating system – iOS – but I can say that none have yet met the challenge.

Apple’s iPhone repeatedly tops the competition in customer satisfaction ratings. iPhone users are much more likely to stick with iPhone compared to Android users. That should tell you all you need to know.

Done! That was easy.

What? You have more questions? My singular advice simply not enough? Fine. What else?

Why not iPhone 5?

There is a reason why the iPhone 4S continues to sell so well around the globe: on form and function, ecosystem and compatibility, the 4S offers the best bang for the buck of any smartphone on the market, bar none.

Yes, the iPhone 5 is a great device. It has superior hardware specs to the 4S. In my opinion, however, it feels too delicate. It’s design is not perfect. iPhone 5 is too long and narrow. For many people, particularly women, they can’t control the entire screen with a single swipe of the thumb.

iPhone 5

I hate Apple!

No, you do not. Besides, Apple, just like Nokia, Google, Samsung et al is a giant, for-profit corporation unaware of your existence. This is not about them, this is about you – and the best smartphone for you. Get the iPhone 4S.

Don’t care. I refuse to buy an iPhone!

Fine. Buy an HTC One, it’s a good phone.

You’re saying the HTC One is better than the Samsung Galaxy S4?

No. I think the S4 is slightly better. But if you buy the S4 all your friends will think you did so only because of all those Samsung commercials.

Not a Droid or LG?

No.

Shouldn’t I just wait for the latest model?

I cannot recommend that which does not exist.

I read that Android has surpassed iPhone. True?

After years of slavishly copying iPhone, the Android UI inexplicably remains almost willfully confusing. This is compounded by the greed and short-sightedness of carriers and handset makers. However, Google nearly makes up for this with great search, maps, Google Now notifications and other services optimized for Android. Plus, many handset makers like Samsung put amazing hardware into their devices. If you simply cannot bring yourself to get iPhone, an Android is a suitable alternative.

What about all the “phablets” I keep hearing about? Should I get one of those?

No.

But…

Do not be swayed by that big screen – even if you can hold the device in one hand comfortably.  Smartphones are not televisions. You take your smartphone with you everywhere. You use it constantly. A phablet is almost certainly not right for you. Form is a primal factor in choosing the right smartphone and the phablet form is an evolutionary dead-end. The one thing it does well – offer a very large display – simply cannot overcome all that it does bad. Phablets are too big, too wide, too heavy and not optimized for the role they attempt to fill: a multi-purpose, always-on, fully mobile personal computer.

I’m going to buy a phablet anyway. I like the big screen.

If you insist, then I recommend you get the new Samsung Galaxy Note II. You will regret this.

You obviously hate Windows Phone.

How Nokia could have blown through two plus years of development and delivered only the Lumia 920 and the 928 (soon), is beyond my comprehension. Windows Phone deserves a far better flagship device.

But I do not hate Windows Phone – the operating system. It’s a beautiful, reasonably intuitive, highly customizable UI that delivers real-time updates probably better than any other platform. The problem, though, is that Microsoft simply made the wrong UI choice. I suspect they will never recover from it. Singular, static apps really do work better for smartphones – as iPhone has proven repeatedly – than the “live tiles” format that Windows Phone adopted.

My daughter loves Facebook. Should I get her one of those HTC Facebook Phones?

No.

But she really loves Facebook.

Get her any other (non-Windows Phone) phone listed here. I promise you, she will be fine.

I think you’re wrong about the iPhone 5.

The iPhone 5 was a very clever attempt by Apple to build a device with a larger display – as the market demanded – while maintaining all the benefits of their app ecosystem. Apple can and will do better.

I cannot afford any of these devices.

Whatever smartphone you choose, assume you will have it for between 1-3 years. The cost of the device itself will almost certainly be less than the cost for voice, data and texting services. Plus, you will buy apps, music and other content, and accessories – such as a car charger, stereo speaker and case – for your smartphone. Factor all of these costs into your decision.

If you still decide to go with a low-priced device, get last year’s top-of-the-line Samsung: the Galaxy S III. If you can get a refurbished model, this is a truly great buy. If you cannot afford this, I would encourage you to not buy a smartphone at all. Get a quality feature phone with a physical QWERTY keyboard. There are many options available.

My company doesn’t allow me to use iPhone or Android.

Delta doesn’t allow me to have my smartphone running during take-off. That’s never stopped me.

I can’t possibly type on that touchscreen. I need a real keyboard.

You will learn.

I refuse.

Then, wait. Very soon you can have a BlackBerry Q10. I think you will be impressed. (Note: do not get the BlackBerry Z10)

Blackberry_Q10

Which carrier should I go with?

That I cannot help you with. They all have their own unique set of faults.

Apple Is Playing Chicken With The Mobile Carriers

“The game of chicken, also known as the hawk-dove game or snow-drift game, is an influential model of conflict for two players in game theory. The principle of the game is that while each player prefers not to yield to the other, the worst possible outcome occurs when both players do not yield.” ~ Wikipedia

800 Android Carriers vs. 240 iPhone Carriers

“The narrative has been focused on the consumer demand, and the narrative needs to shift to the operator…” ~ Horace Dediu, former in-house analyst for Nokia

Android sells devices through almost all of the world’s 800 carriers while Apple sells the iPhone through only about 240. (Only about 500 of the world’s global operators have the network capabilities needed to handle the iPhone, but that number is quickly increasing.)

The reason for the discrepancy between the number of carriers supplying Android and the iPhone is that Apple prices their phones above $600 and places sales quotas and other requirements on the carriers before they are permitted to sell the iPhone. Potential partners must determine whether taking on these obligations is worth the benefit of offering the device.

Examples of holdouts are China Mobile Ltd., the world’s biggest phone company, and NTT DoCoMo Inc., Japan’s largest mobile carrier. On the other hand, other companies are succumbing to Apple’s demands. T-Mobile added the iPhone to its lineup in April and they announced that they have sold 500,000 iPhones in just under a month. And U.S. Cellular (USM), had long contended that the iPhone cost too much, yet last week they announced that they had agreed to sell $1.2 billion worth of handsets over three years, after conceding that their failure to carry the iPhone was costing them customers.

Are The Carriers In Control…

Adam Satariano of Bloomburg reviewed the current carrier impasse and concluded:

“Apple Inc. (AAPL) is missing out on a chance to court as many as 2.8 billion new smartphone customers, many of them in Asia, as wireless-service providers balk at conditions imposed by the iPhone maker and drag their heels in signing on as partners.”

“Carriers are starting to question Apple’s pricing strategy and are supporting multiple other platforms,” said Shah at Strategy Analytics. “They no longer need Apple.”

…Or Is Apple In Control?

The unasked question here is: If Apple is losing the opportunity to sell more iPhones because of their onerous conditions, then why does Apple continue to impose those conditions? The unstated answer should be – but apparently isn’t – obvious.

Clearly Apple – unlike the vast majority of tech pundits and Wall Street Analysts – does not see a pressing need to acquire additional operators at any cost. Of course Apple wants more customers, and that’s only going to happen if Apple expands its carrier base. However, unlike most of the rest of the world, Apple feels that they can patiently wait until the carriers come to them and meet their terms. Does that make Apple arrogant and out-of-touch with reality or does that make them master negotiators?

Four Realities That Favor Apple: Capacity, Real Growth, Retention and Profits

First, Apple was at their iPhone manufacturing capacity for much of the holiday quarter. It doesn’t make much sense for Apple to increase the number of addressable customers until and unless they have the capacity to provide those new customers with product.

2013-04-2413-33-31-v1-620x630

Second, as you can see from the trajectory of the chart of the iPhone’s cumulative sales, above, Apple is still enjoying significant real growth in the sales of their phones. This truth is often obscured and overshadowed by market share numbers.

Third, as markets approach saturation in the U.S. and Europe, retention and churn become far bigger issues and when it comes to customer satisfaction and retention, Apple has it all over their competitors.

Notice how Apple started with only AT&T in the U.S., and then slowly and methodically ground down the opposition of the other carriers until Verizon, then Sprint, then T-Mobile, then U.S. Cellular and many other small carriers caved in as the churn caused by the iPhone crushed their sales and then caved in their profits.

Fourth, Apple takes in 57% of the profits in the mobile industry with only 8% of the sector’s market share. That is some serious leverage.

Apple is Enigmatic But Still Susceptible To Analysis

I contacted Apple to see what their actual negotiation strategy was but, oddly, they were not very forthcoming. Go figure. Tim Cook has failed to return my several calls (or even had the courtesy to lift the current restraining order against me) and my $605,000 attempt to have coffee with him failed when it was discovered that I had used a stolen credit card. C’est la vie.

So we’re going to have to use analysis (i.e., guesswork) instead. My best guess is that Apple’s strategy is to go after the whales and ignore the minnows. (The minnows will fall all over themselves to jump on board once the whales are lined up, anyway.) Apple only has so much capacity to manufacture phones as it is and they’d prefer to expand first in those markets that count and count the most.

Further, Apple is a damn patient negotiator. While the rest of the world is screaming at the top of their lungs that Apple has to “DO SOMETHING”, Apple is patiently waiting for the carriers to realize that they can’t compete without the iPhone in their mobile portfolio. And based upon the capitulation of Sprint, T-Mobile and U.S. Cellular, Apple may just be right.

So who will win this game of Chicken? Right now, Wall Street and a whole lot of investors are betting against Apple. But if you look at the history of Apple’s negotiations with the music labels, with AT&T and with all of Apple’s recent carrier acquisitions, you can see that Apple has played – and won – this game before.

Only time will tell us which side will blink first. But me – I’m not betting against Apple.

iPhone 5 Versus Galaxy S4 A War Of Less Versus More

Last week, within the span of 24 hours, the two dominant players in the global smartphone wars released…not new smartphones, but new commercials. Both were very well done. They are also very different. Both ads reveal the core differences between Samsung and Apple, and possibly between Android and iPhone users.

First up, Samsung.

Now, the latest iPhone commercial from Apple.

Corporate Values Revealed

Apple’s latest iPhone ad is sixty seconds of creamy, delicious awesomeness. The commercial spurns crass marketing appeals. Rather, it uplifts us, revealing that life is spread over an infinite number of sparkling moments which may occur at any time, at any place, and all ready to be captured forever, thanks to Apple.

The images are so powerful, so palpably iconic – and so emotionally directed – that words only get in the way. Indeed, there are almost no words spoken or presented until the very end: “Every day, more photos are taken with the iPhone than any other camera.”

Contrast Apple’s focused, less is more approach with Samsung’s newest commercial. It starts loud and bold, the music of Vivaldi framed with brash, confident slogans.  The Samsung ad shows off the device’s camera, the screen, the speakers, bludgeoning the viewer with an audio and visual assault clearly meant to match the power and functionality of the device itself.

The Galaxy S4, the ad suggests, is all about…more. More display. More sound. More features. More of everything.

For Apple, less is more. Emotion trumps function. Not so with Samsung – and by default, Android. More is more, and function – not emotion – matter most. More is better. More is bigger, bolder, louder, crisper, more functional. More is more.

Less Versus More

Which ad is best? Standing on their own, that’s easy: Apple’s ad is great while Samsung’s is only good. Yet on the more important question – how will each new ad help its respective company win the smartphone wars – well, that’s harder to answer. After all, design, innovation, product focus, global supply chain, carrier relationships, retail footprint, content, apps and services are all extremely vital to the two combatants, no matter how good or bad the advertising.

However, on the values level – emotion versus function, less versus more – I suspect this is a war without end.

For Apple, there must always be that deep emotional connection between the user and the product. The product should uplift, possibly ennoble the user. Apple products, as their commercials reveal, strip everything away until the end result is (near) perfection. Less is more.

Score one for Apple.

But this value, while it resonates with many, will not convince everyone. The global smartphone market is big. Really big. It’s already over 1 billion strong and growing. Smartphones are now outselling feature phones. It’s wise to assume that before this decade is out at least 2 billion and potentially 5 billion people will possess a smartphone. That is a staggering number, nearly unparalleled in product history.

Do five billion people on this planet consume wheat? Corn? Meat? The scope of the smartphone market is nearly incalculable.

These devices, then, like cars, like the PC that sat on our desk for years, like food, must serve a purpose – many purposes, in fact. I already use my smartphone to write blog posts, monitor my finances, track my fitness, edit presentations and outline my next book. Soon, I will use it as my car key, house key, credit card, debit card, glucose monitor. What next? I can’t say but I know my next device must offer more.

Score one for Samsung.

The Smartphone Wars Continues

It seems unlikely that any rival or any new technology, Google Glass, for example, is going to unseat Samsung or Apple anytime soon. Expect these two companies to remain the dominant “personal computing” companies through at least this decade. They will battle it out in the marketplace and in the courts. They will fight over suppliers and content licensing. They will seek to win on pixel counts, integration, UI, features, price and innovation.

But I suspect the biggest difference between the two will remain just as it has been revealed in their latest commercials: Apple will remain focused emotional appeal, a less is more approach, and on what the product means to you. Samsung will stay focused on adding new features, increasing old specs, and promoting what their product can do for you.

These are core values, deeply held, and unlikely to change. Which side you choose likely reveals far more about you than simply which platform you prefer, iOS or Android.

Can Carriers Handle a Low-End iPhone?

There is a good discussion happening online at the comment that I want to comment on. Horace Dediu has written several good pieces on the job the iPhone is hired to do. In his latest installment he looks at the average revenue per user in numerous countries and distills that data to browser share on iOS and Android.

Screen-Shot-2013-04-23-at-4-23-11.21.37-AM

What the data highlights is the fact that right now the iPhone is the most valuable device for the networks that carry it. Carriers have been in a transition the last few years to move their value from voice to data. The key for carrier services going forward is to capitalize on the consumer consumption of their data services not their voice services. Therefore device which are excellent at consuming data services are highly valued. This, as Horace points out, is the reason the carriers are willing to pay the high price of the iPhone and subsidize it to their customers.

The key question remains to the other devices, like Android, which certainly don't generate the same ARPU as the iPhone (or specifically iOS). We know that Android devices are heavily skewed to the lower end of the market. This market certainly behaves differently and although they browse the web and consume data, the evidence shows the engagement is less than with iOS.

Android devices do not maintain the same ASP line as the iPhone and often drop in price and add promotions quickly, often within 3-6 months. The iPhone stands strong in its price and its value to the operators.

A key question here is that if the low-end of the market does indeed behave differently, and this part of the market is not as valuable to operators, then why should Apple cater to it? Either we believe that this market will always behave this way, or it is the device itself (meaning a lower-end, less capable device) that is causing them to behave this way. I've always found a fascinating question to be whether the low-end market behavior with engagement and data consumption would change if they used iOS.

Read:
The Job the iPhone is Hired to Do Part 1
The Job the iPhone is Hired to Do Part 2

Along these lines, Ben Thompson (@monkbent), on his site Stratechery, offered up more useful points to this discussion topic.

Ben brings out a point regarding the iPhone's role as a premium network device that I think is interesting.

"Take three quick examples: Verizon, NTT DoCoMo, and China Mobile. If the iPhone as “Premium Network Services Salesman” is the only explanatory factor,1 then all three should have been clamoring for the iPhone from Day One. Yet Verizon resisted for years, and NTT DoCoMo and China Mobile have yet to give in. In fact, the iPhone has generally launched on the 2nd or 3rd-place carrier in any given geography."

Read:
Why Do Carriers Subsidize the iPhone

This is true and a valid question. If the iPhone is a premium device driving ARPU and operator value/CapEx recoupment, then why are certain carriers holding out?

The answer, I believe, lies in the iPhones success being both a blessing and a curse. The device in its early days nearly took down AT&T regularly due to the network demands. Many of us remember how awful AT&T was here in the Silicon Valley for many years as a result of the network demands from the iPhone. Many networks, Verizon included, have quality of service demands in which I'm sure their concerns over their own network capacity are or were an issue. Verizon adopted the iPhone when they were ready and prepared (also after the AT&T exclusive was up obviously). I'm sure others will as well when they feel they are prepared.

There is no question that the iPhone drives value so I do not believe the lack of universal carrier support is completely or even largely a business model question. It is, in my opinion, an infrastructure question. The question is can the operator networks handle the iPhone?

In this theory and to my earlier question about the low-end. If Apple went low-cost and grew their market share substantially by catering to the low-end, bringing hundreds of millions of new iOS users onto the networks, I have a strong feeling it would put monumental stress on all current network infrastructure. Bottom line is, I’m not sure the carriers can handle a low-end iPhone.

Holding Apple to a Higher Standard – Solving Texting While Driving

I love my iPhone. I use it all the time. I take it with me everywhere. Yes, everywhere. I have tried and tested numerous smartphones over the years. I can confidently state that you can do no better than the iPhone. However, iPhone – Apple – can do better by us. Too many of us are texting while driving, and dying. More than nine people everyday, in fact. This has to stop.

Yes, it’s easy to claim that people’s foolish behavior is in no way Apple’s fault. Probably, you are right. I don’t care. I hold Apple to a higher standard. I don’t pay a “premium” to purchase Apple products. There is no “Apple tax.” I pay Apple’s higher prices because their products are the best: the best value, the easiest to use, the most intuitive, the most functional.

Apple even promotes this idea. Witness their latest marketing campaign for iPhone. No pretty women in leather jumpsuits, no ninjas, no lasers – no need. Instead, the powerful truth: iPhone is an amazing device, simple to use, and offers a nearly un-ending amount of fun and function for everyone – from anywhere, as their iPhone “Discovery” ad makes plain.

iPhone ad anywhere

iPhone doesn’t merely dominate the U.S. smartphone market, they dominate pretty much every relevant metric for smartphone use and engagement. Tragically, we remain engaged with our iPhones even while driving.

According to a recent AT&T study, nearly half of adult drivers in the U.S. admit to texting while driving. Over 40% of teens admit to texting while driving. Worse, the numbers are rising.

It’s not ignorance causing this. The texters-and-drivers are fully aware of the potentially deadly and devastating consequences of their actions. Doesn’t matter.They text anyway. No doubt they also tweet, check Facebook, choose a playlist and more, all while behind the wheel.

What’s Apple going to do about this?

Yes, I want Apple to do something. Because possibly only Apple can do something to fix this. Apple gave us the smartphone revolution. The iPhone changed everything. We now use the iPhone – and all the copycat smartphones – everywhere we go, no matter the setting, no matter who we are with. This recent IDC study, for example, noted that well over half of all Americans have a smartphone and a vast majority of us reach for our smartphones the moment we wake up and then never put it away. We use them in the movie theater, at the gym, while we are talking to other people in real life. Don’t believe that getting behind the wheel of a car suddenly changes everything, whether it should or not.

No, I do not care if it’s unfair to place any blame for our behavior on Apple. The fact is, we text while driving. We aren’t going to stop. Apple needs to accept some responsibility for what they have wrought. As much as I want a beautiful Apple Television, as much as you may want an iWatch, and as cool as this patented wraparound display iPhone is, none of that should be a priority for Apple until the company makes using the iPhone while driving a car much, much safer proposition. Or impossible. Either way, the problem needs to be fixed, soon.

Possible solutions? Honestly, I don’t know. Perhaps the iPhone will recognize when we are driving and simply stop working. Maybe Apple can require apps to mess up when we are in a moving vehicle – not autocorrect our texts, for example. Maybe Apple engineers can get Siri to work great, all the time, whether for texting, tweeting, checking our calendar, selecting a playlist. I don’t have the answers. That I leave to Apple. And we need the best they can give us.

Slogans, such as from AT&T’s  “It Can Wait” campaign are unlikely to work, I suspect.

it can wait texting

It Can Wait videos admittedly offer some truly heartbreaking stories of people whose lives have been irreparably and profoundly damaged because someone was texting while driving.

Tragic, sad – but how will this help? As AT&T’s own study says, 98% of those who text while driving already know it’s bad.

It was sobering to realize that texting while driving by adults is not only high, it’s really gone up in the last three years.

That quote is from Charlene Lake, AT&T’s senior vice president for public affairs. You think more marketing is the answer? No. Showing tragic stories may shock a few into proper behavior, I don’t doubt. Realistically, however, this is that rare case where we need a technical solution for a cultural problem.

According to TechCrunch:

The Center for Disease Control says that there are an average of nine people killed in texting-related accidents each day, with 1,060 injured in texting-related crashes.

Since texting occupies your eyes, hands, and mind, it’s considered one of the most dangerous distractions on the road, and elevates the risk of a crash to 23 times worse than driving while not distracted.

Nine people killed every single day. Read that again. Nine people die every single day from texting-related accidents. Going to stop what you’re doing now that you know?

I don’t believe you.

Apple gave us the iPhone. It was like nothing ever before. But Apple’s job is not complete. The iPhone is magical and revolutionary. We mortals have not yet learned to fully control its power. We need Apple’s help.

Images taken from Apple’s iPhone “Discover” commercial and AT&T’s “It Can Wait” campaign against texting and driving.

Android’s Penetration Vs. Apple’s Skimming Marketing Strategies

images-45Technology pundits and press, alike, seem obsessed with market share. But obtaining large market share is just one of many successful business strategies. Android follows a penetration pricing strategy. Apple uses a skimming strategy. Neither is inherently superior to the other. Like any strategy, each has advantages and disadvantages and their ultimate success often depends upon both circumstances and execution.

Penetration Pricing

Penetration pricing occurs when a company launches a low-priced product with the goal of securing market share. For example, a sponge manufacturer might use a penetration pricing strategy to lure customers from current competitors and to discourage new competitors from entering the industry. If the sponge’s price is low enough, consumers will flock to the new product. Competitors who can’t produce and promote sponges for such a small profit will avoid the market, freeing the sponge company to maximize brand recognition and goodwill. ~ Stan Mack, Demand Media

Price Skimming

A price skimming strategy focuses on maximizing profits by charging a high price for early adopters of a new product, then gradually lowering the price to attract thriftier consumers. For example, a cell phone company might launch a new product with an initial high price, capitalizing on some people’s willingness to pay a premium for cutting-edge technology. When sales to that group slow or competitors emerge, the company progressively lowers its price, skimming each layer of the market until the low price wins over even frugal buyers. ~ Stan Mack, Demand Media

Apple has added a twist to the skimming strategy. Rather than introducing their products at a high price and then lowering their prices later, Apple stakes out a price and then maintains and defends that price by significantly increasing the value of their products in future iterations.

For example, over the past six years, the average sales price of the iPhone has remained remarkably stable with the subsidized price remaining at ~$200 and the unsubsidized price hovering around $650.

Advantages and Disadvantages Of Price Skimming

Price skimming offers four major advantages…. It can offer insight into what consumers are willing to pay. It can create an aura of prestige around your product. If the initial price is too high, you can lower it easily. Finally, late adopters might be pleased to get your prestigious product at a bargain price, which creates goodwill for your company. A major disadvantage, however, is that large profits attract competitors, so this price strategy only works well for businesses that have a significant competitive advantage, such as proprietary technology.

The argument against Apple’s price skimming strategy is that the competition has caught up with the iPhone and Apple is no longer able to compete unless they lower their prices. But do the facts support this argument?

First, the iPhone has received 8 (EDIT: make that 9, as of March 21, 2013) straight J.D. Power and Associates awards for customer satisfaction and Apple reported that four times as many iPhone users switched from an Android phone than to an Android phone in the fourth quarter of 2012. Clearly Apple’s cachet is not on the wane, at least not in the minds of phone buying consumers.

Second, in 2012, Apple garnered 69% of all mobile phone profits. Further, they did it with only 8% of the total market share. That means that the remaining 92% of the market provided only 31% of the sector’s total profits. That’s price skimming at its finest.

Conclusion

The current meme is that Apple MUST abandon their skimming strategy and pursue a price penetration strategy instead. However, the facts simply do not support this contention. Apple could, of course, “buy” more market share simply by lowering their prices, but this has two major disadvantages. First, the market share that they would be buying is worth far less than the market share that they already own. Second, a lower price would lead to lower profits as well. It is obvious – or rather it SHOULD be obvious – that this could be counter-productive.

There’s nothing wrong with market share and I’m quite certain that Apple would be more than happy to expand their market share – but not at any price. For example, Apple has some 70% market share in iPods and around 50% market share in iPads. Yet they are doing this while still maintaining their price skimming strategy.

Price skimming is neither the only strategy nor is it the only superior strategy. It is just one of many marketing strategies. However, Apple is executing the strategy of price skimming brilliantly…even if Wall Street and the pundits stubbornly refuse to acknowledge it.

Did Steve Jobs Actually Intend For Apple to Live Forever?

Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple.
– Apple Inc statement upon news of the death of Steve Jobs

What if more than Steve Jobs’ spirit lives forever? What if Apple lives forever? Is this even possible?

I say yes.

As the blogosphere pronounces ‘Apple is Doomed’ at every turn, I can’t help but thinking that we have it wrong. Apple will have its ups and downs, no doubt. It’s just that the more I follow Apple, the more I study Steve Jobs, the more I suspect that while he could not live forever Jobs absolutely believed his creation, Apple, could. Literally.

These are my clues:

Apple University

As the LA Times noted shortly after his death, “Apple University” was a serious focus of the seriously focused Jobs. Think what you will of him personally, but Jobs believed in the rightness of his vision. Apple University was created to inculcate his innumerable qualities in those who would come to run Apple years and decades into the future.

To survive its late founder, Apple and Steve Jobs planned a training program in which company executives will be taught to think like him, in ‘a forum to impart that DNA to future generations.’ Key to this effort is Joel Podolny, former Yale Business School dean.

According to a former Apple executive, speaking anonymously: “No other company has a university charged with probing so deeply into the roots of what makes the company so successful.” Training at Apple University reportedly focuses on what enables a company to create sustained innovation.

If there is one key to serious longevity, it is that: sustained innovation.

Apple Endowment

Jobs was audacious. To enable Apple to live forever, he needed money. Lots of money. Apple has that. Forget about stock buybacks, or Wall Street howls for dividends. Ignore the idea that Jobs and Apple are hoarding cash for acquisitions – keeping their “powder dry” as it were. The nearly hundred fifty billion Apple has amassed has a higher purpose: an Apple endowment.

I believe that Jobs, had he lived longer, would have worked diligently with two groups he no doubt found tiring, Wall Street and Washington, to change the laws so that a substantial portion of Apple’s already substantial cash reserves could be used for an endowment.

Growing up in the area, Jobs no doubt knew of the founding of nearby Stanford University. Via Wikipedia:

With his wife Jane, Stanford founded Leland Stanford Junior University as a memorial for their only child, Leland Stanford, Jr., who died as a teenager of typhoid fever. The Stanfords donated approximately US$40 million (over US$1 billion in 2010 dollars) to develop the university, which held its opening exercises October 1, 1891.

One billion is nice. One hundred billion is better. Harvard’s endowment, for example, the richest of all, is approximately $30 billion. What if Jobs – and he would have made Tim Cook aware of this, I suspect – wanted to have, say, $60 billion of Apple’s money set aside as an endowment?

At $60 billion, if the investment manager of the “Apple Endowment” earned 6.5% a year returns on average, that would deliver approximately $4 billion every year, forever. Apple currently spends about $4 billion a year on R&D. Imagine: Apple research and development funded in perpetuity. Think what the company could achieve ten years from now, a hundred, a thousand. If the future Apple made only enough to pay for its operating expenses, it could still churn out amazing products for your great great great grandchildren.

Business Model Purity

Beyond the money, of course, the more I study Apple the more I admire Jobs’ vision to ensure the durability – the permanence – of Apple. There is a purity to Apple’s business model that is, ironically, so rare in Silicon Valley. Google and Facebook encourage our use of their services, for free, then sell our data to others. Who is the customer? HP, for example, lives off exorbitant printer ink costs. Believe it or not, that is not a sustainable business.

Apple, by contrast, builds great products and prices them accordingly. No tricks, no inducements. Buy them or not. You always know what you are buying, and for how much, and what you are getting for the money. A hundred years from now, for example, I suspect there will be a littany of new business models, some great, some doomed to fail, some beyond our comprehension. Apple’s, however, I am sure will still thrive long after we are all gone.

Saying No

What does HP do anymore? Who are they? What about Cisco? Are they out of the consumer market or back in? Why is there a Google+ and a Google X Phone and a Google Car? There is creation, and then there is creation that moves you forward, sustains you. Jobs was famous for keeping Apple not focused on building great products, but on great products that mattered.

Yes, some of the stuff we never see would no doubt be cool. Yes, some of the top talent — the A players — are more likely to stay at Apple if they have a skunkworks to play in, like Google’s X Labs. Ultimately, however, such activities diminish focus, which alters who you are. No point in living forever if it’s not really you.

Jobs’ words on focus from 1997 still ring true today – and probably will for decades, at least:

People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.

Control

If you follow Apple and/or Steve Jobs, you doubtless know the importance of control: control of core technologies, control of your product development, control of your distribution, control of your brand. So much of Jobs’ control efforts flew directly in the face of accepted wisdom and practice in Silicon Valley: open, sharing, licensing. Jobs would have none of it. He wanted Apple fully in control of its technologies – and its future.

Retail

Apple is (now) lauded for Apple Stores. You may already know they bring in more money per square foot than any other retail chain on the planet. They also ensure that Apple can offer its products directly to customers. Apple, rare in its industry, is not dependent on others for marketing and sales. But I wonder now if there’s an ever greater, longer-lasting benefit to its stores.

Retail is changing, profoundly. Online, mobile, the sharing economy, 3D printing, same-day shipping. With its many stores, Apple are learning, in real-time, not only what their millions of customers think about their latest products, but by being on the front-lines of buying and selling, Apple is learning the future of retail: the integration of real-time, social, online, digital and physical. Not even Amazon possesses this alchemy. Apple Stores should enable Apple to meet the demands of a changing world long into the future.

Here’s To The Crazy Ones

I think of this story from Business Week shortly after Jobs’ passing:

On the day Jobs died, employees numbly walked outside to watch an American flag lowered to half-mast—and then returned to work. Partners who were in town to meet with the company were astonished to learn that appointments would take place as scheduled. “That’s what Steve would have wanted,” an Apple manager explained.

Yes, that’s the way Jobs would have wanted it. He also would want Apple to continue building amazing, magical, revolutionary products in the year 2525. It could happen. It’s crazy, I know, but it’s those crazy ideas that change the world.

Does The Rise Of Android’s Market Share Mean The End of Apple’s Profits?

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It’s an article of faith in the Church of Market Share that Android is nearing a tipping point where its market share lead will inevitably turn into a developer share lead, too. ~ John Gruber

Matt Asay, writing for Readwrite Mobile, puts this argument into words in his article entitled: “As iPad’s Market Share Falls, Must Profits Follow?

For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market. Profit share follows market share…

Only, here’s the thing. I HAVE been paying attention to the smartphone market. Perhaps more importantly, Horace Dediu has been too. And as his chart, above, demonstrates, the facts belie the argument that profit share follows market share. Even as Android’s market share has grown by leaps and bounds, Apple’s iPhone profit share has grown too. How can this be?

What’s Really Happening

Here’s what the facts are telling us. First, Android’s growth has not hurt Apple’s profit share. Instead, Android gobbled up all of the profits from the other smart phone manufacturers. Second, Samsung subsequently gobbled up all of the profits from the other Android manufacturers. Samsung now makes as much profit share as the entire mobile industry did five years ago. Third, the iPhone has not only survived the growth of Android’s market share, it has thrived, growing its profit share from 21% in 2008, to 50% in 2010, to 57% at the start of 2011, 73% at the start of 2012, and 72% at the end of 2012. And since the pool of profits has grown dramatically over the past five years, Apple’s profits have too.

What will it take to get Apple’s critics to acknowledge that Apple’s iPhone strategy is actually a raging success rather than the raging failure they constantly portray it to be? Does Apple need to take in 100% of the profits in perpetuity for them to be convinced?

Faulty Analysis

The problem with our obsession with market share is that it rests on two faulty foundations. First, it assumes that every product sold within a category is always just as valuable as another. Second, it assumes that every customer who buys a product is of equal value. These two premises are laughably wrong.

It’s A Mistake To “Pool” all sales together

Are all smartphones or all tablets of equal quality or used in the same way? Hardly. No knowledgable person would argue that they were. Yet when we use market share as our metric, we assume exactly that.

Kiddie pools and above-ground pools and in-ground pools are all considered to be “pools”. But does the sale of one necessarily impact on the sale of another? Sandals and dress shoes and winter boots are all considered to be “shoes”. But does the sale of one necessarily impact the sale of another? Similarly, when we lump all types and makes of phones or tablets together, we create a false basis of comparison. Is the iPhone or the iPad really competing with the gray market phones and tablets being sold in China anymore than in-ground pools are competing with kiddie pools or dress shoes are competing with sandals? Just because two products fall within the same category, does not necessarily mean that they are in competition with one another.

Not All Customers Are Equal

“(T)he fundamental flaw in the Church of Market Share doctrine is the assumption that users are users. That one platform with, say, 40 percent market share, must be in a stronger position than another platform with, say, 20 percent market share, simply because a larger number of users is better, period. What Apple has shown with the Mac, and now with the iPhone and iPad, is that all users are not equivalent. Counting only the Mac, Apple is not the biggest PC maker by unit share. But it is by far the most profitable, quarter after quarter, year after year. What’s more important than a company’s share of the overall market is the company’s share of the profitable side of the overall market.” ~ John Gruber

The fact that customers are not of equal value is so fundamental that I shouldn’t even have to say it. There are whole industries and entire fields of learning devoted to the art of finding the right customer for the right company or product. Not only do companies target preferred customers, but they actively shun customers who are counter-productive too. Yet when we use market share as our metric, we assume that a customer is a customer is a customer. Nothing could be further from the truth.

For example, I might be an ideal customer for Krispy Kreme Donuts. But I might be a lousy customer for Victoria’s Secret. (This is because I stopped wearing frilly lady’s underwear years and years ago. You can confirm this with my parole officer who will totally back me up on this.)

Being a bad customer is not the same thing as being a bad person. Good people can be bad customers. But being a customer is not the same thing as being a good customer either.

Does Market Share Matter To Apple?

Absolutely. Take a gander at this critique of Apple from Steve Jobs:

“At the critical juncture […], when (Apple) should have gone for market share, they went for profits.” ~ Steve Jobs

Steve Jobs wanted, and Apple wants, market share. But they want the RIGHT market share. Apple wants customers who are willing to pay for their products. And Apple wants customers who are good for their platform. In other words, Apple wants market share in their target demographic. Based on the fact that Apple is taking in 72% of the mobile phone profits with only 8% or 9% of the market share, it sure sounds like they’ve aquired the right market share to me.

Does the rise of Android’s market share mean the end of Apple’s profits? Hardly. You can argue as loudly as you like that developers and profit share must necessarily follow market share. But the facts will shout you down.

Apple’s Penchant for Sophisticated Simplicity

SimplicityI mentioned in an earlier column that I had finally figured out why iOS is the mobile operating system of choice for me. I take the time to objectively look at all the flagship devices on the market. I don’t just use these products for a day or two and then form an opinion but rather I use them as my primary phones, tablets, PCs, etc., for at least a few weeks and sometimes more. However, for me, all roads lead back to iOS. I always go back to my iPhone or iPad. None of the flagship devices I use can keep me from going back to the iPhone or iPad. I think I finally understand why.
 

Simplicity

Sophisticated simplicity is the term I think of when I think of iOS. This is true also of OS X in my opinion but for today I am focusing on iOS. This is perhaps why so many non-tech savvy consumers appreciate and choose the iPhone. Believe it or not there are billions of people on the planet who are not in search of the next big thing in technology. Rarely are the masses looking for the pinnacle of innovation in a product; more often they want things that just work and make their lives easier. To put it succinctly the mass market favors convenience over cool. If that product happens to be incredibly innovative then so be it. But it is not the fact of innovation by itself for which they buy it but rather the problem it solves for them. The mass market hires technology products for reasons that are largely based on convenience not specs. They will favor the technology that helps them get their tasks done in the most convenient, efficient, and simple way possible. Sometimes that task is entertainment, sometimes it is productivity, sometimes it is communication, but the point remains that for many, convenience is what is valuable.

The simplicity of iOS translates into convenience for me and my many mission critical tasks. Yet its simplicity provides a feeling of sophistication that allows me to get very complex things done in an efficient manner. Simple solutions require sophisticated technology. In my opinion, iOS is both.

Sophistication

I spend as much time away from a desk as I do at a desk. For me, it is critical that I stay as productive and efficient as possible while I am mobile. No platform that I have used in recent years has come close to iOS in this regard. It is important to point out that this was not always the case for iOS. In the early days of using the iPhone, I still carried a Windows Mobile device for my more work/productive tasks. Apple caught on and evolved iOS in a way that it is now invading the workforce at unprecedented rates. iOS is not just simple to use it is also extremely sophisticated.

Some thoughts from Steve Jobs at the launch of the iPhone bring clarity to the sophistication of iOS. When Steve Jobs announced the first iPhone, he explained how iOS was based on OS X and because of that it ran desktop class applications. This would explain why time and time again we hear from developers that they are overwhelmingly happy with the quality of applications they can write for iOS. More importantly these applications are extremely sophisticated. They are not simply dumbed down mobile versions of desktop software, but an entirely new class of software all together.

Because I am rarely at my desk doing real “work” it is essential for me that I am able to fulfill my job role any place, any time, and with any device I have with me. The bottom line is I don’t always have my notebook, and I don’t always have my iPad with me. However, I always have my smartphone with me. With every single device and mobile OS I have evaluated, I have never felt as productive or efficient on the go with regards to my specific job functions as I do with iOS. As much as I enjoy and appreciate evaluating other other platforms and as much as other platforms have some things that I truly like, at the end of they day I will choose the device that makes my life and my job easier. For the kind of work I do and the manner in which I get things done, other platforms I’ve tried require more work and more time than it takes to do the same thing on iOS. That alone makes the choice easy for me. I don’t want to work for my smart devices, I want them to work for me.

For Me and Maybe Not You

Now I’m sure at this point many passionate fans of other platforms want to point out all the reasons why their platform of choice is better than mine—but let’s remember one thing. Just because your favorite color is green doesn’t mean mine has to be also. Just because you like BMWs doesn’t mean I have to as well. Insert any analogy you like here. The best device is the one you chose for specific reasons unique to your wants. The best device for me is the one that meets my individual needs, wants, and desires. Yours may be different and that is ok. We don’t live in a black and white world and I hope we never do. I fully acknowledge and appreciate the benefits of other products. I also know no device is perfect. But for me, time after time, device after device in which I put through the the paces of my personal life and workflow, all roads lead back to iOS.

Should Apple Make A Larger iPhone?

iphone_bigThere has been chatter of late around Apple’s plans for the iPhone. Some suggest they need to make a more affordable version of the iPhone. Notice I didn’t say cheap. The logic for a more affordable iPhone is that it will open the door to new customers, especially in emerging markets, who can’t afford the high price of an unsubsidized iPhone. There is a lot of merit to this argument and if done right it can be a healthy addition to the iPhone product line.

The other speculation as of late is that Apple could make an even larger iPhone than the current 4” iPhone 5. This would fall into the larger phone category (some call it Phablets) and would give Apple a competitive iPhone for those who desire larger screens in the 4.7-5.5” range. Apple making a larger iPhone is a newer element to the discussion but one that is worth some thought for those of us who analyze competitive trends.

No matter how you slice it, I believe the time has come for Apple to expand the current iPhone line. This would mean releasing two or three current generation devices in the same year each targeted at different audiences. Apple does this now with the Mac line where they have 11”, 13”, and 15” products in their lineup. Arguably they also do this with the iPad line offering both the 4th generation larger screen iPad and the iPad Mini. I believe it is time this same thinking comes to the iPhone.

Although I think the idea of a more affordable iPhone is compelling, if I had to choose the strategy for either the more affordable iPhone or a larger screen size version for the first product to expand the lineup, I would choose the larger iPhone.

My reason for this logic is the ecosystem. As we have learned from Android phones, focusing on the low-end lowers engagement and ecosystem investment. Those who have cost constraints simply don’t spend as much in an ecosystem. A large question looms as to whether iOS would lead those in the cost conscious category to higher engagement or ecosystem investment. But the evidence we have so far is that the lower end of the market uses these devices very different than the tiers above them. And not in ways that lead to loyalty or deeper ecosystem investment.

Ecosystem investment is important to Apple. Horace Deidu and analyst at Asymco tweeted out the following data yesterday:

Also in a tweet earlier than that one Horace estimated that gross margin for iTunes is now 15%-17%. This is why for the current growth trend and competitive strategy for Apple, focusing the iPhone lines on segments who can and will invest in the ecosystem is important.

An expanded current generation iPhone line not only gives more customers a path to Apple’s door, it gives more customers an opportunity to invest in Apple’s ecosystem.

Now turning our attention to the topic of Apple making a larger iPhone. I wrote on Friday about my experience thus far with the Galaxy Note II. I made many conclusions in that article and the primary being that larger phones, those above 5” are actually more tablet like than phone like. Yet the value of a pocketable phone/tablet is apparent. The question that needs answering is whether or not the market for larger phones (Phablets) is big enough for a company looking for mass market products—like Apple— to care about. I believe the answer to that question is yes.

Is The Market Large Enough for Large Phones?

The Galaxy Note I sold about 10 million devices world wide in 2012. They will most likely sell at least 20 million this year and most well reasoned analysis I have seen project a steady growth trend for these larger size smart phones. The reasons are simple.

For many markets people can’t afford a smart phone and a tablet. For many markets, especially emerging ones, a product that can merge the benefits of a phone and a tablet is a compelling value proposition. We all know that the phone capabilities of any device is simply just an app, but the portability or pocket-ability is important for a device that is with us 24/7. This is what makes the larger phones a legitimate category. Just how big a percentage of the overall smartphone market large phones are, is a project I am still undergoing. I believe it is larger than 10% but how much larger I am not yet sure. Even if it is only 10% of the overall growing smartphone base of the next few years, it would be in the hundreds of millions.

For more analysis on the value this form factor brings to market read my column on the Galaxy Note II.

Room to Innovate For Larger Devices

Using the Note II, and for that matter the iPad Mini, has led me to think about those form factors as unique sizes to solve challenges for one-handed operation. 5-7” devices, whether phone or tablet, are still manageable to hold and do some operation with one hand. Samsung included some software around the keyboard and keypad to make one-handed operation easy but the device is still to large for full ease of one-handed operation. I genuinely believe this form factor presents some unique opportunities for innovation.

One way could be by using voice, and in Apple’s case Siri. Our research has continually returned many of the primary use cases for Siri not just being search but also automation. Set reminder, add a calendar event, post to Facebook, send a tweet, set an alarm, etc., are all examples of common automation tasks from heavy Siri users. One simple way to address some of the issues with one-handed operation on larger screen devices will be around voice.

Another is sensors. As sensor technology evolves we will be able to embed these sensors into the bezel of the larger devices. The Galaxy Note II was almost impossible for me to reach the back button with just one hand. The back button is a key function of Android and is needed throughout much of its UI. A sensor solution could allow me to have a back button function by simply taping the side of the device. Scrolling was feasible but not ideal on the Note II. This is also a use case I found was capable with the iPad Mini but not as much with the iPad. Sensors could be embed into the sides of the device and allow a slide of the finger down the side to act as the scroll function. There are many more opportunities for sensor control than I can get into here, but I believe this is an area for innovation and improvement. By Apple innovating to solve some one-handed operation problems for a larger iPhone, they can leverage those innovations for iPad as well.

In a market the size of smartphones, staying competitive will mean offering a range of devices. The smartphone market is mature enough that it has begun to segment. An iPhone designed to serve the market that wants a larger screen, which can add to more productive and more media rich experiences in a pocketable form factor, is a good move in my opinion. One that Apple could do right and again put them years ahead of the competition.

The Mobile Train Has Left The Windows 8 Platform Behind

images-42Yesterday, Canaccord Genuity, came out with a report on the profits taken in by the mobile phone sector and Canalys came out with a report on the market share in the tabet, notebook and desktop sectors – and all anyone could talk about was whether Apple and Samsung could take in more than 100% of a sectors’ profits or whether the tablet was truly a PC or not.

Please. These are accounting and verbal semantics that are as meaningless as asking how many angels can stand on the head of a pin. Let’s focus on the implications of these reports and ignore the bickering over irrelevant rhetorical flourishes.

Handset Profits

According to Canaccord Genuity, Apple took in 69% of the handset (all mobile phones, not just smartphones) profits in 2012. Samsung took in 34%, HTC accounted for 1%, BlackBerry and LG broke even, Motorola and Sony Ericsson both acounted for minus 1 percent and Nokia brought up the rear with a negative 2 percent of the industry profits.

No one not named Apple or Samsung is making any meaningful profits from the handset sector. Considering that both Microsoft and Google’s Android are based on a licensing model, this is more than a little shocking. Licensing is supposed to encourage variety among hardware manufacturers. Clearly, that is not happening.

Many industry observers have the handset market all wrong. They opinie that Andoid is destroying iOS. What is actually happening is:

1) With 69% of the profits, iOS is doing just fine. More than fine, actually.
2) Android destroyed every phone manufacturer not named Apple (BlackBerry, Nokia, Palm, etc.).
3) Samsung destroyed every Android phone manufacturer not named Samsung (HTC, Motorola, Sony Erricson, etc.).

Pundits like to predict the imminent demise of iOS, but those profit numbers say just the opposite. And even as Android’s market share has increased, iOS’s profit share has increased too. Market share is no guarantor of profits. This should be self-evident. But apparently, it’s not.

The big losers here are Palm, Nokia, BlackBerry and Microsoft. Palm is gone and Nokia and Blackberry’s market shares and profits have fallen off a cliff. And Microsoft? After three years of flailing, Microsoft’s Windows 7 is dead and Windows 8 phone manufacturers are all in the red.

Tablet, Notebook and Desktop Market Share

Worldwide PC shipments increased 12% year-on-year in Q4 2012 to reach 134.0 million units, with pads accounting for over a third. ~ Canalys

There are two things that we can take from this statement. First, personal computing sales are growing at a respectable rate, however all of that growth is coming from tablets, not from notebooks and desktops.

Second, tablets now make up one-third of the mix of tablets, notebooks and desktops. In fact, several groups are now predicting that tablets will outsell notebooks and desktops by the end of 2013. This is a monumental shift in form factors and not everyone is making the changes necessary to stay abreast.

Companies like HP, Lenovo and Dell missed the shift to smartphones and now they’re missing out on tablets too. But of all the companies being hurt by the rise of smartphones and tablets, I think that Microsoft has been hurt the most:

…only 3% of pads shipped in Q4 2012 used a Microsoft operating system. The software giant’s entry into the PC hardware market was something of a non-event. High pricing, poor channel strategy and a lack of clarity regarding its RT operating system led to shipments of just over 720,000 units. ‘The outlook for Windows RT appears bleak. ~ Canalys

Who Is Selling All Of The Tablets?

According to Canalys, Apple – despite being supply constrained – sold 22.9 million tablets for 49% share, Samsung shipped 7.6 million tablets, Amazon shipped 4.6 million tablets for 18% share, and Google’s Nexus 7 and 10, combined, shipped 2.6 million tablets.

Again, companies like HP, Lenovo and Dell are almost non-existant in the 10 inch tablet space and Windows 8 tablets aren’t even competing in the rapidly growing 7 inch tablet space.

As an aside, Canalys seemed impressed with the Google Nexus numbers but I’m not. If you’re selling your hardware at cost and making it up in content and advertising sales, then your sales numbers should be much, much higher. And it has to be an embarrassment to Google that the Amazon tablets – which have the same business model as Google – are far outselling Google’s tablets.

Who Will Be Selling The Tablets Of Tomorrow?

‘Those who control ecosystems, such as Amazon and Google, can obtain revenue from content sales, but pure hardware OEMs must accept decreasing margins or exit.’

Samsung made impressive growth in tablets this year, but their tablet future seems uncertain. With Amazon, Google and Apple all able to supplement their tablet incomes with App and content sales, Samsung is left out in the cold.

It’s still early days for Windows 8 tablets, but it’s not looking good. I expected there to be an explosion of Windows 8 tablet sales last quarter due to pent up demand and holiday buying. The question in my mind was whether Microsoft would be able to sustain its large initial sales momentum.

That initial sales explosion didn’t happen. Windows 8 tablet sales were more than disappointing. An ill omen if ever there was one. And as I’ve stated before, regardless of how well the Surface Pro sells, it is a notebook, not a tablet, competitor. In a world where tablets are clearly the next big thing, Microsoft is still insisting that what people really want are hybrids, not pure tablets.

Conclusion

Smartphones and tablets are growing and notebooks and desktops are stagnant or declining. Only Samsung and Apple are competing in phones. Only Amazon, Google, Samsung and Apple are effectively competing in tablets. The mobile “train” has left the station and companies like HP, Lenovo, Dell and Microsoft are standing on the Windows 8 platform, watching it pull away.

Cheering for BlackBerry

BlackBerry invitation header

On Wednesday, Research In Motion will launch its bid to save itself with the redesigned from the ground up BlackBerry. I’ll be at the launch event and I will judge the new hardware and software on their merits, still I have to admit that I am cheering for a BlackBerry comeback.

Apple reinvented the smartphone in 2007, but before that, the most important smartphone innovations came from Palm and RIM. Palm’s Treo (actually, the original version came from Handspring, a company started by Palm’s founders and later merged back into Palm) invented the concept of integrating a mobile phone and a PDA, along with third-party apps. The original BlackBerry, which was not a phone, created true mobile email and calendar. Eventually, this all came together to create the modern smartphone, which Apple took to the next level with the iPhone.

The iPhone did in Palm and nearly killed RIM. The decline of Palm was inevitable. The company was always cursed  by under-financing and a lack of stable, competent management. When Apple turned up the heat, Palm lacked the wherewithal to respond successfully with its reinvention after its purchase by Elevation Partners was too little, too late. Its demise after a horribly bungled acquisition by Hewlett-Packard was a somehow fitting  ending to a very sad tale.

RIM is a very different story. Palm knew what was happening to it but couldn’t do much about it. RIM, riding high as BlackBerry sales continued to soar well into the iPhone era, but lacked the paranoia than Intel’s Andy Grove long ago pointed out was a key to survival in a highly competitive industry. RIM co-CEOs Michael Lazaridis and Jim Balsillie were convinced of the superiority of their product and their business model and failed to respond to the market’s shift toward demanding highly capable handheld computers, not glorified messaging devices.

Fortunately, RIM, unlike Palm, had deep financial resources and significant annuity revenue streams that bought it another chance. It has two reservoirs of strength, the popularity of its low-end devices in emerging markets (where volume sales can be had, but profits are scarce) and enterprises, especially governments and others with the greatest concern about security. Success in neither is a given, but the opportunities exist. And I’ll admit to a long-standing fondness for RIM, particularly Mike Lazaridis’ uncontained enthusiasm when he talked about his newest BlackBerry or showed off a lab at RIM’s Waterloo, Ont., headquarters.

I think that both Android and Apple would benefit from some additional competition. Microsoft, despite heroic efforts, has so far failed to win much traction in the mobile market. Had Windows Phone and Windows RT taken off, there wouldn’t be much room for a RIM comeback. But they haven’t, so there is. It’s going to take a spectacularly good product to succeed in this tough neighborhood. I’m hoping that RIM still has it in them.

Miscellaneous Musings On Apple’s Earnings And The Future Of Personal Computing

images-39Yesterday Apple released their earnings for the fourth quarter of 2012. It is important to note that Apple had 14 weeks, as compared to the normal 13 weeks, in their year ago fourth quarter. In order to equalize results, all comparisons will be done on a week to week, rather than on a quarter to quarter basis.

(All quotes are from the Apple earnings call.)

(Chart via Ars Technica)

Apple-1Q13-results-unit-sales-history

Mac

Apple sold 4.1 million Macs compared to 5.2 million in the year ago quarter. That’s a decline of 16% on a week to week basis. My initial reaction to this news was that Macs were suffering from the same malaise that is plaguing all notebook and desktop computers. I’m sure that this is somewhat true, but Apple laid the blame squarely on supply constraints. In other words, they couldn’t make their Macs fast enough to meet demand.

…we were significantly constrained with respect to the new iMacs and we’re only able to ship them for the final month of the December quarter. We believe our Mac sales would have been much higher absent those constraints. ~ Peter Oppenheimer

Further, it does not appear that Apple is confident that they will be able to make enough Macs for the upcoming quarter either.

On iMac we’re confident that we’re going to significantly increase the supply, but the demand tier is very strong and we’re not certain that we will achieve a supply/demand balance during the quarter. Peter Oppenheimer

iPad

Apple sold 22.9 iPads compared to 15.4 million in the year ago quarter. That is an increase of 60% on a week to week basis.

Clearly the iPad Mini was a big seller, although Apple didn’t break out the specific numbers. Again, Apple couldn’t make enough iPad Mini’s to satisfy demand and they’re still struggling to make enough, even now.

…the iPad mini was very constrained.

We believe that we can achieve supply-demand balance on iPad mini later this quarter.

One interesting note is that the popularity of the lower priced iPad Mini brought the average sales price (ASP) of all iPads down by $101 on a year-over-year basis.

iPhone

Apple sold 47.8 million iPhones compared to 37 million in the year ago quarter. That’s an increase of 39% on a week to week basis.

Again, for much of the quarter, Apple simply couldn’t make enough iPhone 5’s to satisfy demand. More surprisingly, Apple was unable to make enough iPhone 4’s to satisfy demand and they are still struggling to do so.

If you look at the iPhone sales across the quarter, we were very constrained for much of the quarter on iPhone 5.

iPhone 4 was actually in constraint for the entire quarter…

…supply of iPhone 5 was short to demand until late in the quarter and iPhone 4 was short for the entire quarter.

We believe that we can achieve supply/demand balance … on iPhone 4 during this quarter.

This information, along with reports from Verizon, would seem to suggest iPhone 4 sales were growing in caparison with the iPhone 5. However, we have two statements in the earnings call that seem to counter this conclusion.

…the ASP for iPhone was essentially the same year-over-year in the quarter that we just finished.

If the mix of iPhones was drifting towards the older models, one would expect the average sales price to go down, not remain the same.

…if you looked at the mix of iPhone 5 to total iPhone and then in the previous year you look at 4S to total iPhones towards the top iPhone those mixes are similar.

That’s about as plain as it gets (although I still wish it were plainer).

iOS

All told, Apple sold over 75 million new iOS devices this quarter bringing their total to over half a billion. Kantar estimates that Apple gained 6.3% market share in the U.S. and maintained market share in Europe with growth of only 0.2%

Revenue, Income & Cash

Apple’s revenue for the quarter was 54.5 billion compared to 46.3 billion in the year ago quarter. That’s an increase on a week to week basis of 27%. To put that into perspective:

— Apple generated more revenue in one quarter than Google did in all of 2012.
— Apple is getting close to generating as much revenue in one quarter as Microsoft does in one year.

Apple’s net income (profit) was 13.1 billion. That’s an increase on a week to week basis of 8%. To put that into perspective:

— Apple made over a billion dollars in profit a week.
— Apple made more in profit (13.1 billion) than Google made in revenue (11.34 billion). Further, Apple generated as much profit in three weeks as Google did in three months ($2.89 billion).
— Apple’s 13.1 billion in earnings this quarter was the fourth largest of all time.

Apple’s cash totaled $137 billion compared to $121 billion at the end of the September quarter. That’s a sequential increase of almost $16 billion.

The Future Of Computing In Two Parts

I have a pet theory that mobile computing is breaking into a premium iOS operating system and a commodity Android operating system. Please pardon the following very long quotes from Apple’s earning call, but it appears that Apple is thinking along the same lines:

While other mobile devices and operating systems faced increasing security risks and fragmented inconsistent user experiences iPhone and iOS continue to deliver an exceptional experience that people love. They also provide a secure and trusted ecosystem that IT departments require. iPhone continues to be embraced by government agencies and businesses across the globe.

Many U.S. government agencies are issuing iPhones by the thousands as part of their new mobile strategies. Some examples include NASA and National Oceanic Atmospheric Association, Immigration and Customs Enforcement, and the Transportation Security Administration.

We’re also seeing continued growth iPhone growth in business across the board from companies replacing existing smartphone deployments to businesses adding first-time smartphone users. Companies around the world like Neiman Marcus, Skanska and Volvo are issuing iPhone to their employees to improve interactions with customers and give workers access to essential corporate data.

In addition to the tremendous response from consumers, iPad continues to be the tablet of choice for businesses and government agencies, transforming the way their employees work. Financial institutions like Barclays, Nomura Securities, and Bank of Beijing are deploying iPad to enable employees to better service customers and work securely with financial portfolios and products. In particular, Barclays’ rollout of over 8,000 iPads has generated tremendous employee engagement and feedback, making it the most successful IT deployment in Barclays’ history.

State and local governments in the United States are also rapidly adopting iPad. Court systems, accounting inspectors, and law enforcement agencies use iPad to streamline processes and replace huge amounts of paper. And state legislatures in Virginia, Texas, and West Virginia are all using the iPad to give lawmakers instant access to government documents and information.

Outside the U.S., 10,000 iPads are being deployed as part of broad adoption of the local government workflow solution in Sweden and over 5,000 iPads have been purchased by the government in the Netherlands for the Dutch tax authority and the Dutch court system.

Note the adoption of iOS devices in business, government and education. These were areas where Microsoft ruled supreme but now their dominance seems to be waning. And these are areas where Android is struggling despite its massive mobile market share.

Conclusion

Apple is engaged in a battle for control over the future of personal computing. Microsoft and Intel won the last battle but, in terms of unit sales and potential profits, that battle seems almost trivial. While Microsoft and Intel controlled the desktop and notebook markets, it appears that the combination of the smartphones and tablets is going to eclipse the PC’s numbers and profits by far.

There are many companies vying to become the king of personal computing. Each company has its strengths and each has its weaknesses. Apple has the hardware and software in place, but the future of computing is the cloud acting as the digital hub for all of that hardware and software and Apple has not yet proven its competency in that realm. Google has the most popular mobile operating system in the world but they haven’t figured out how to monetize it…yet. Microsoft is the king of the notebook and the desktop but that market is diminishing and Microsoft can’t seem to get any traction in mobile (smartphones and tablets). Samsung is making money – though not as much money as Apple – but they are not in control of their operating system or their ecosystem. Amazon? Geez, how does one evaluate Amazon? The less profit they make the more successful people think they become.

Tech is involved in its own personal game of thrones. And there are many new contestants waiting for their chance to steal the crown. It’s difficult to predict the future of personal computing but it’s easy to see that it’s going to be fascinating to watch.

Game on!

4 Technology Trends, 5 Technology Predictions

Prediction is very difficult, especially about the future. ~ Niels Bohr, Danish physicist (1885 – 1962)

Trend #1: Two Seperate And Incompatible Types Of User Interfaces

Personal computing will be divided into two types of user interfaces:

1) Touch; and
2) Pixel-specific (surface-required)

Touch will require the use of only a finger for user input and will work best on the go. Pixel-specific will require the use of a mouse or trackpad which, in turn, will require the use of a flat surface. These two user inputs are inherently incompatible with one another – and that has consequences.

Prediction #1: There Is Little Room For A Category Between The Tablet And The Notebook

I do not think that there is room between the touch-only tablet and the mouse/trackpad-only notebook for the new category of computer that Microsoft is trying to create with Windows 8 tablets. Tablets are becoming more capable. Notebooks are becoming ever thinner and lighter. There is little room for the hybrid. Hybrids will survive as a niche – but they will not thrive as a category.

Many disagree with this opinion, including some who write for Tech.Pinions and everyone who works for Microsoft. That’s the beauty of free speech and free markets. Time – and sales numbers – will tell the tale.

Prediction #2: Tablets Are Going To Be Even Bigger Than We Thought

Tablets are the future and in a much bigger way than even I had imagined.

They are not just becoming an equal to the pixel-input, surface-only devices, they will soon be the default, go-to device of choice. We’ll use our tablets whenever we can, our phones whenever we’re traveling and our surface bound devices only when we absolutely have to.

Pixel input personal computing devices will become like land line phones. They will persevere but with an ever shrinking base and and ever decreasing significance to our lives.

Prediction #3: Apple Will Create A New iPad Mini In The Spring

This is really a sub-set of prediction number two, above.

I believe that tablets are going to be huge in education. Last year, many school districts tested the waters with tablets. This year, many are going to move from trial programs to initiating programs designed to eventually put a tablet in the hands of every single student. This is a profound computing shift which will have a profound effect on education. By 2014 and beyond, the flood gates will have opened and tablets in schools and colleges will be accepted as the new norm.

Apple knows that they currently have an in with the education market. Educational institutions make most of their buying decisions in the Spring. In my opinion, Apple is not going to let the Spring go by without refreshing the iPad Mini.

Trend #2: Two Phone Operating Systems

In the Ninties, there were only two personal computer operating systems that mattered – Windows and whatever Apple was running on the Mac. Windows dominated, but the Mac survived and, in terms of profits, thrived.

Simiarly, there are going to be two operating systems that matter to smartphones. But this will be a duopoly with a difference. Google is not a strong and domineering operating system shepard the way Microsoft was. iOS has 500 million users and is self-sustaining. This time, iOS will be the premium operating system while Android will be the majority operating system.

Prediction #4: iOS will become the premium model, Android will take the rest

iOS will appeal most to businesses, government and education. (The irony of predicting Apple as the preferred operating system for business is not lost on me.) Android will take the rest.

Both operating systems will unhappily co-exist with developers flocking to iOS and cost-concious buyers flocking to Android. The dollars will continue to flow to Apple and the market share will continute to flow to Android and both sides will continue to insist that the other side doomed.

In the meantime, RIM and Nokia will continue to fade and Microsoft’s Windows Phone 8 will stubbornly cling to third place. But a licensed operating system does not fare well as a minority player.

Trend #3: Freemium v. Premium

The chief divide between tablets will not be their size, but their business models. Amazon and Google follow the freemium model. Samsung and Apple follow the premium model. The Freemium’s give away their hardware at or near cost and seek to make money on the sale of content and services. Apple’s premium model seeks to sell their hardware at a profit and encourage those sales through the use of both content and services.

Prediction #5: Samsung Will Be Forced To Create Their Own Ecosystem

In a world where your operating system provider (Google) is undercutting you by selling hardware at cost and taking in all the content and service dollars, there is simply no other choice — Samsung needs to create their own content and services ecosystem. Samsung has been preparing for this moment for quite some time. And we’ll see the fruits of their labor in 2013.

Trend #4: Multiple Screens

I think the biggest trend that is receiving the least attention is that of multiple screens. In 2001, we had one computer screen and it sat on our desktop. In 2006, we had, at best, two computer screens – our desktop and our notebook. In 2013, we have 4 computer screens – our phones, tablets, notebooks/desktops and TVs. And the when and why we use those screens is going to help to shape the future of computing.

I’m going to cop out here and not make any predictions other than to predict that this trend is going to change everything. People are already using two screens – a television and a phone or tablet – to watch TV. And the way we rapidly switch from phone to tablet to notebook and back again is already baffling that way pundits think about categorizing and pigeonholing our computing buying and using habits. Multiple screens deserve not just a simple prediction on our part but ongoing examination and analysis. It is not an emerging trend but an existing trend. It is the consequences that we haven’t yet fully fathomed. Expect to see us talk a lot more about the effects of multiple screen computing in 2013 and beyond.

A Deep Dive Into The Morgan Stanley Holiday Quarter Survey

On December 16, 2012, Morgan Stanley issued the results of a consumer survey.

We surveyed 1,010 US adults between November 26 and December 3 2012. The sample is representative of US individuals (18+) by gender, age, income and geographic regions. Conclusions based on total sample have a maximum margin of error of +/- 2.5% at 90% confidence level.

(NOTE: All quotations are sourced from the Morgan Stanley report.)

1) TABLETS

The first and most obvious result of the survey was that tablets, as a whole, were going to be clear winners of the 2012 holiday quarter.

One-third of respondents own tablets today, compared to only 8% a year ago.

While this can come as no a surprise to anyone following the tech industry, it is important to note that, in terms of gift giving for this holiday quarter, the growth of the tablet has come at the expense of notebooks, desktops and especially e-readers.

2) E-READERS

Among consumer electronic gifts, tablets are the most popular, followed by smartphones, while e-readers experienced the largest decline.

— Tablets (50% in 2012 vs. 31% in 2011)
— Smartphones (26% in 2012 vs. 17%)
— E-readers (9% in 2012 vs. 31%)”

Tablets are the number one gift idea in consumer electronics this year, while it was a tie between tablets and e-readers last year.

iSuppli seems to concur with this sentiment, indicating that general purpose tablets are harming e-reader sales.

It appears that they e-readers may well be relegated to niche status as general purpose tablets – which also serve as e-readers – become lighter, smaller and lower-priced.

3) AMAZON KINDLE FIRE

While the Kindle Fire is not strictly an e-reader, it too seems to be suffering this holiday season.

Kindle Fire appeal seems to be waning as 16% of potential tablet buyers would pick the device vs. 21% in last year’s survey

Lower end tablets may be suffering from the effects of increased competition. While the Amazon Kindle Fire was the a hot holiday gift in the fourth quarter of 2011, it now has to compete with the Nexus 7, Windows 8 tablets and the iPad Mini. As a result, Kindle retention numbers dropped from an already low 40% to and even lower 36%.

If these numbers bear out, this has to be terribly dissapointing for Amazon. Last year, there was a burst of enthusiasm for the Kindle Fire line during the holiday quarter but that enthusiasm seemed to all but evaporate as soon as the quarter ended. This year, Amazon introduced several new lines of tablets and vastly improved the quality of their hardware offerings. Surely they anticipated increased, rather than decreased, enthusiasm for their products.

It is too early to tell for sure, but it is possible that we’re seeing a trend away from single purpose tablets and a trend towards higher quality, general purpose tablets instead.

4) SAMSUNG

Samsung phones made an impressive leap in rate of retention from 37% to 63%. (Note, however, that this still does not match the iPhone’s stellar 83% rate of retention.)

While Apple’s retention rate is by far the highest, iPhone users who plan to buy a Samsung device increased slightly from 3% to 8%, though this share came entirely from other Android vendors who saw less interest from current Apple users compared to a year ago. This reflects Samsung’s dominating position in the Android ecosystem and success in marketing itself as an iPhone alternative.

You simply have to be amazed at what Samsung has accomplished and in such a short time. But ironically, Samsung’s growth is not only coming at the expense of competitor’s like RIM and Nokia, but it is also coming at the expense of other Android manufacturer’s as well.

One of the strengths of a licensed operating system like Android is supposed to be diversity of hardware manufacturers. That simply hasn’t happened. While Microsoft distributed its software licences to thousands of hardware manufacturers, Samsung has become the one and only hardware manufacturer that matters to Android. We’ll have to save the discussion of the consequences of this unexpected development for another day.

5) MICROSOFT

The survey contains two interesting points regarding Microsoft’s recent tablet efforts.

First, Microsoft Surface is preferred by 12% of those planning to buy a tablet.

Second, while 81% of iPad users plan to stay with Apple, 8% plan to purchase Microsoft’s surface.

Additionally, a different survey indicates that Windows 8 is a very distant third, to iOS and Android, when it comes to developer’s platform preferences.

I think these results have to be terribly dissapointing to Microsoft. Some pundits were expecting a flood of defections from the iPad once Microsoft debuted its tablet offerings. That clearly is not happening.

Further, I had anticipated an initial burst of enthusiasm for Windows 8 tablets. The real question, in my mind, was whether Microsoft would maintain that initial enthusiasm. Instead, sales of Windows 8 tablets has been tepid, at best. Having 12% of consumers intending to buy your products is far better than having 0% able to buy your products, but I believe that it is far, far less than Microsoft was hoping for or expecting.

6) APPLE

It seems as though the bad press for Apple has been endless of late, but that negative view is not supported by the Morgan Stanley survey. They point to at least four reasons why Apple can be optimistic about sales this holiday quarter.

First, more survey respondents want to buy the iPhone 5 today than the iPhone 4S a year ago.

34% of consumers plan to buy an iPhone in the next 6 months, compared to 30% in last year’s survey

If I recollect, the iPhone 4S was pretty popular last year. And one would assume that even more enthusiasm for the iPhone 5 should lead to even more sales this holiday quarter.

Second, analysts keep opining that Apple needs to sell a cheaper phone but customers keep disagreeing.

More respondents plan to buy the newest iPhone model today than a year ago (86% vs, 82%), likely due to key hardware improvements in the iPhone 5: LTE, brighter screen, and lighter and thinner phone.

Third, the iPad Mini does not appear to be cannibalizing the larger iPad but it does appear to be bringing new customers into the Apple ecosystem.

We believe iPad Mini’s cannibalization risk to iPad 9.7” is manageable. 47% of iPad mini purchasers are new to Apple, according to our survey. This is only slightly lower than 56% for the larger iPad 9.7”, suggesting the smaller iPad is attracting new users to the platform in addition to some incremental or replacement purchases from the existing 9.7” iPads.

Fourth, Apple actually INCREASED its already industry leading retention rate.

Apple’s iPhone retention rate improved 10 points over the last year, and 83% of iPhone users today plan to buy another iPhone.

I find it hard to believe that Apple’s sales are going to suffer this quarter when both purchasing enthusiasm and retention rates are going up.

7) CONCLUSION

There is definitely going to be a shake-out in the mobile sector. There are just too many entrants with too little differentiation.

In phones, not only are Samsung and Apple rapidly increasing their sales numbers but their RETENTION numbers are also rapidly rising. This bodes ill for the likes of RIM and Windows 8 contenders like Nokia and HTC.

In tablets, Apple seems to be maintaining its grip on half the market while Amazon, Google, Microsoft and Samsung battle it out for the other half. Again, in the long run, retention numbers may be what matters most but it is too soon to measure retention for newly minted products like the Google Nexus 7 and the Microsoft Surface.

We’ll know far more in January when (some of) the numbers come out. But until then, the Morgan Stanley survey may give us a peek at what we should expect.

It’s Going To Be A Very Apple-y Holiday Quarter

Tightwads, Value Buyers and Spendthrifts

Oscar Wilde once said that cynics know the price of everything and the value of nothing. Similarly, tech pundits are often obsessed with price to the detriment of value. Despite all evidence to the contrary, pundits think that price is the number one consideration of consumers. In fact, some pundits seem to think that price is the ONLY consideration of consumers. But for most consumers, value is what matters most and price is only one component of that value.

There are three types of consumers: Tightwads, Value Buyers and Spendthrifts. There are two things you should know about these three types of consumers.

First, there are far more value buyers than there are of any other type.

Second, you not only want to ignore the tightwad customers, you want to actively avoid them. They’re a plague on your house.

Pundits seem to think that all consumers are tightwads and all of their analysis reflects that conviction. Smart companies know better.

Reality matters

Remember, reality matters. It doesn’t matter what the pundits think. It doesn’t matter what I think. It doesn’t matter what you think. What matters is what the market thinks. If our thoughts don’t reflect market realities, then we, not the market, are in the wrong.

Naysayers v. Reality

For the past month I’ve read and listened to every imaginable reason why Apple is going to fail. Well, Apple may fail eventually, but not this holiday quarter they won’t. Not by a long shot.

Here are a couple of miscellaneous reasons why I think Apple is just going to crush it this upcoming quarter

1) Mac Sales Continue to Grow

Sales of Mac hardware to U.S. businesses grew by 49.4 percent year over year in the September quarter, posting continued growth while PC sales shrank.

Charlie Wolf of Needham & Company highlighted Apple’s success in the enterprise as the “big story” regarding Mac sales in the September quarter. With PC sales to U.S. businesses declining 13.3 percent year over year, Apple had a 62.7 percentage point difference.

Yeah, yeah, yeah, I know. No one thinks that Macs are important because they’re still such a minority player. But they’re not so niche as you think.

Overall, the Mac’s unit share of the U.S. business market was 9.3 percent in the September quarter. That was up from 5.9 percent of total sales in June, and 5.4 percent in September of 2011.

Apple had an even bigger share of revenue of PC sales to U.S. businesses, accounting for 17.4 percent. That was also up from an 11.5 percent share in June, and 10.7 percent share a year prior. ~ AppleInsider

Overall Mac sales may even shrink this quarter, but their overall importance in the Enterprise will grow. Remember, phones are already outselling Windows machines and tablets are rapidly headed that way too. (EDIT: NPD: Tablets to Outsell Laptops in Q4, Beyond.) Windows is not nearly as monolithic as people think. And Macs are not so nearly as unimportant or niche as people think either.

2) China

Apple’s iPad shipments for China nearly doubled in the third quarter after Apple settled a lengthy dispute over the iPad trademark name.

People forget that over 60% of Apple’s sales come from overseas and that Apple’s overseas sales numbers are rapidly growing. Yes, it will be a big holiday quarter for Apple in the Western world. But it will be a big quarter for Apple in the rest of the world too.

3) Nielson’s Most Wanted Gift Survey

Have you seen the Nielson most-wanted gifts survey? I mean seriously, it is out of sight. What do American kids aged 6 to 12 want this holiday season? Four out of the top five items on the list are made by Apple.

Let’s take a quick look at the top six items on the list:

48% want iPads
39% want Nintendo Wii U’s
36% want iPod Touches
36% want iPad Minis
33% want iPhones
31% want computers

Now there’s a couple of observations that I take from that list.

First, Apple continues to maintain high consumer mindshare. People think Apple first.

Second, Apple’s popularity is growing. Despite a plethora of competing tablet, smartphone and gaming devices, kid’s attraction to the Apple brand in general and iOS in particular has grown steadily over the past three years.

Third, the iPad Mini is fourth on the list. Yet I strongly suspect that an awful lot of parents are going to walk into an Apple store looking for iPads and iPod Touches and they’re going to end up walking out of that store with an iPad Mini.

Fourth, as an aside, that list ain’t good for Microsoft. Microsoft has lost an entire generation of users – kids who will be growing up using Apple products, not Microsoft products.

It’s Going To Be A Long Harsh Winter For Some Of Apple’s Competitors

Why PC manufacturers Should Fear Apple

The tipping point for tablets has come and gone.

It seems like just yesterday that I was writing articles arguing that tablets were the next big thing. It seems like just yesterday because it WAS just yesterday.

But suddenly, it feels like that battle is over and and done with. If you look through the Nielson survey for whatever age, you see that tablets dominate. Not only are Apple tablets popular, non-Apple devices are on the rise too. Yesterday I was arguing with people who insisted that the tablet was a toy or a fad. As is usual with new ideas, we’ve suddenly moved from the “that will never happen” phase to the “of course that happened and I knew it would all along” phase. True, not everyone is convinced but for the most part the naysayers have learned to remain silent lest they be thought of as quaint, at best, or out-of-touch with reality, at worst.

The age of the tablets is upon us – (just as we all knew it would be, all along.)

Why Microsoft Should Fear Apple

Yesterday, Ben Bajarin wrote an excellent article entitled: “Why Competitors Should Fear the iPad Mini“. A couple of his key takeaways were that families expected to own more than one iPad Mini, that with an iPad Mini consumers feel they pay more but they get more and that “the tablet is taking the place in the hearts of many consumers as the new personal computer.” He couldn’t be more right.

The final word on Microsoft’s tablet efforts has not yet been written, but the preliminary reports do not look good. Not only has Microsoft missed a generation of phone users but now they are missing a generation of tablet users too.

PC sales continue to decline and there are reports that a staggering 42% of Windows users say that they plan to buy an Apple product – either a Mac or an iPad – rather than a Window’s 8 device. I take such claims with a huge grain of salt, but as I said in my article: “Windows 8′s Greatest Sin“, consumer’s now have choices that they didn’t have before. Microsoft is making their long-standing customers choose between Windows 8 and other options. And many are choosing to opt out.

Why Google and Amazon Should Fear Apple

Apple may dominate tablet sales, but there are going to be a ton of Google Nexus 7’s, Amazon Kindle Fire’s and even Barnes & Noble Nook tablets sold this holiday quarter. But the people buying those tablets are buying media tablets that run stretched phone apps. The people who are buying the iPad and the iPad Mini are buying a tablet that runs tablet apps and that can also act as a Media tablet. That’s my opinion. But I think that’s also the opinion of the market and I think we’re going to see that opinion expressed in hard sales numbers come this January.

Remember, there are three types of consumers: tightwads, value buyers and spendthrifts. Tightwads are going to be drawn to the Amazon Kindle and the Nexus 7 because of their subsidized prices. The Nook, at least, is trying to make money on the sale of its hardware. Kindle Fire’s and Nexus 7’s sales are empty sales. Neither Amazon nor Google makes a penny of profit until they sell additional goods, services or advertising. And their chances of doing that when selling to tightwads is not good. Not good at all.

You Can Hang Your Hat On It

I actually think Apple’s margins may be lower this quarter. They’ve introduced, re-newed or refreshed almost their entire line and some of their products – the iPad Mini in particular – will make them less than normal margins. But Apple’s margins are absurdly high to begin with. And since many of Apple’s products are supply constrained, the high margins truly reflect the high value that consumer’s place in Apple’s products.

The last time I paid attention to such things, Apple – a hardware seller – had higher margins than Microsoft – a software seller. That just shouldn’t happen. And in any case, I can guarantee you that Apple’s less than usual hardware margins are going to be far, far, greater than the virtually non-existant hardware margins of either Google or Amazon.

The future is uncertain and predictions are always perilous. But if Apple doesn’t have a banner quarter, I’ll eat my hat. Then I’ll go out, buy another hat, and eat that one too.

It’s going to be a very Apple-y holiday quarter. You can hang your hat on it.