Very soon, Apple will make its 100th M&A acquisition since it acquired NeXT Computer in 1996. This acquisition was done by then Apple CEO Gil Amelio, and just before he made that acquisition, he asked me about my thoughts about buying this company from Steve Jobs. At the time, because I was helping Mr. Amelio with Apple’s mobile strategy, he and I talked weekly about his goal of reviving Apple. Long time Apple watchers will remember that Gil Amelio was on Apple’s board when the company had lost its way and was over $1 billion in the red. When the board ousted Apple CEO Michael Spindler in 1995, Mr. Amelio was asked by the board to become CEO and try and turn the company back to profitability.
I’m not sure if there is a misunderstanding of the smart speaker category or if it is just because of how I have my news, analysis, and Twitter feed curated. Whichever the case, I’d like to elaborate on how I think about this space now that we have a few years of market intelligence and consumer behavior with these products in our database.
In retrospect, we should have seen this category coming from a mile away. To more greatly understand why this category took off so quickly all we need to do is look back at the iPod, perhaps even further to the Walkman. The value of a personal and mobile music collection was a driving force behind some of the most successful consumer electronics products up until the smartphone. To this day, listening to that music collection on smartphones remains one of the most common use cases. Bottom line, music matters a lot to consumers.
If you keep an eye on what the financial analysts are saying about Apple these days, you know that almost all have raised their stock price targets closer and closer to the $200 per share range. Almost all are bullish, and some believe Apple’s new fiscal year will break all records and that we could see Apple become the first company ever with a trillion dollar valuation sometime in 2018.
Apple Switchers and a secure ecosystem.
At Creative Strategies, we recently did a report that showed about 30% of Android users who do not have an iPhone are thinking of switching over to an iPhone.
Last week I participated in the UBS global technology conference where I talked broadly about Apple but also had some fascinating conversations with many of Apple’s key investors. In the course of these Apple focused conversations, many where I was sharing quite a bit of our recent research, a theme stood out to me that is worth exploring. This theme centers around Apple’s user base but focuses more on how subtle yet significant behavior changes happen within Apple’s customer base which we don’t see around other products.
On numerous occasions, Apple CEO Tim Cook has stated that he is extremely excited about AR and believes it will usher in a new era in mobile computing. I have done many interviews on Cook’s comments with media and industry folks about Apple’s overall optimism about AR and I tell them that I believe Apple is moving in a very calculated manner when it comes to how their AR strategy plays out.
I have been using the iPhone X since yesterday morning and have not had enough time to do a full review. So consider this a brief highlight of my thoughts so far. I posted some of this on Twitter, which you can read here even if you aren’t on Twitter. On Friday, I’ll have a more detailed piece as the main column after spending a week with the iPhone X.
Three very exciting new technologies on the horizon have much of the tech world buzzing about, and billions of dollars are being invested into this new area of tech.
The first technology that hit the scene about two years ago was VR or Virtual Reality when Oculus Rift introduced their VR Glasses at CES in 2015. This product was the big hit of that CES, and shortly after, Facebook bought Oculus For $2 Billion.
This past week saw the opening of Apple’s newest flagship retail store, this one on Chicago’s Michigan Avenue. The new store is enormous and strikingly designed, and is part of the company’s new model for roughly one-fifth of its nearly 500 stores. It also reflects the shift Apple is trying to make in how people perceive its stores, from which it’s now dropped the “Store” moniker and which it would like customers to think of as “town squares” or gathering places as much as retail experiences. Today, though, I’d like to take a step back from Apple’s reinvention of its stores and look instead at the growth of its store footprint over the last few years, and what it tells us about the role of retail and Apple’s regional focus.
Any day now, Apple should open its 500th store, a milestone it’s been approaching for some time now. The chart below shows how that number has grown over the past eight years, from 273 stores in September 2009 to 499 at the end of September 2017:
As you can see, the growth rate has sped up and slowed at various points during that period, and in the last year in particular seems to have slowed overall, as the company focused instead on what the new experience should look like and revamped a number of existing stores.
Regional Distribution Favors the US and Europe
Those stores, though, are far from evenly distributed across the globe, with the US still very over-represented and other regions under-represented. The pair of charts below shows the mismatch between the contribution of each region to Apple’s revenues and the mix of stores in those markets. The first chart shows the percentage share of revenues and stores, while the second shows the ratio between the two:
As you can see, the Americas as a region has a share of retail stores which vastly outweighs its share of revenues – 61% of stores, but only 42% of revenues. At the opposite end of the scale is Japan, whose 8 stores (2% of the total) belie its 8% contribution to revenues. Europe is very close to parity between the two measures, while Greater China still has a 2x mismatch between its revenue share and its share of stores, and store presence in the rest of Asia-Pacific outside of Greater China also lags its revenue share.
Growth Over the Last Three Years Favors China, the US, and AP
It’s interesting, then, to look at where Apple has opened new stores over the last few years, with the country breakdown shown in the chart below:
As you can see, a single country stands out starkly here: China. It has seen 31 new stores since May 2014, or over 40% of all the 75 new stores opened during that period. Together with the US, where 16 new stores were opened during that time, it accounts for 63% of total stores opened. Many countries saw either a single net new store or none at all during that period, including Canada. Of the other countries where more than one new store was opened, three are in Europe (France, Italy, and Germany) and two are in AP (Hong Kong and Australia), with one in the Middle East, also reported as part of Apple’s Europe region.
Many New Countries in the Last Few Years
Apple currently has retail stores in 23 countries, with ten of those added since 2011. Of those, three have been in Asia Pac, and all but three have been in regions where Apple has had little penetration previously, including Latin America and the Middle East.
So the story of expansion over the last few years has three parts:
- Continuing to expand in markets where Apple’s retail presence has been strong, notably the US and to a lesser extent Europe
- Expanding massively in China, a region that’s suddenly become very important to Apple, and which now has more Apple Stores than any country after the US, passing the UK in the past year
- Continuing to add a presence in new countries, by way of testing the water – Apple has ten countries with three or fewer stores, and five with just a single store.
Overall, that expansion has slowed a little over the past year as Apple has launched its new strategy and store concepts, but I would guess that as the company returns to growth and the strategy is implemented in a core set of stores, we’ll see it speed up that expansion and continue to focus on those three main sets of markets in much the same way.
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I’ve spent the last month with the Apple Watch Series 3 and during that time a few key observations have stood out. One of the big value propositions of the Series 3 is the cellular connectivity and that is the part I was most interested to try and see how not having to have Apple Watch tethered to my iPhone changed the overall experience.
Some fascinating news broke yesterday that Apple is returning to Google for certain aspects of search within iOS and other core software. Apple is returning to having Google as the default search within iOS and macOS as well as for web-based search within Siri. When the iPhone first launched, Google was an essential partner for Apple as the Google search and Google Maps were core features touted as capabilities of the original iPhone.
Alexa on your Face whispering in Your Ears
Earlier in the week, the FT published a story reporting that Amazon was allegedly working on a set of glasses using bone conducting technology to bring Alexa to your ears. Given Amazon’s hiring back in 2014 of Babak Parviz- founder of Google Glass – the Amazon’s eyewear should not come as a surprise. According to the FT, the glasses will have no screen, will work tethered to a smartphone and will look like a traditional set of glasses.
With Apple’s announcement last week of its new 4K Apple TV, it reinforced its positioning in the market, which remains remarkably distinct from the other three major players competing for US buyers. So far, that strategy has seen it take fourth place in market share, something that seems unlikely to change going forward. Why is that? And does it matter?
I’m not the only one, but there aren’t many folks out there who have been pounding the Apple Silicon strategy drum. There are many fascinating elements strategically to these efforts that many people, companies, Apple competitors, etc., take for granted. I’ve argued before that the Apple silicon efforts are one of the core legs of the stool that help them differentiate and separate their products from the herd. If any supplier component supplier in semiconductors or sensors can not meet their needs or deliver on their vision, they simply design it themselves. While I want to dig into the A11 Bionic processor itself and the key parts of the new architecture that are relevant, let’s look at the list of components Apple now designs themselves.
As you are reading this, I will be on my way to the Apple Fall event at Apple’s new campus, and more specifically the Steve Jobs theater. I was thinking about all the things Apple may announce at this event and all the ways I will slice and dice my analysis of the products. While much of my focus will be on the iPhone, Apple Watch, and anything else that may debut, the less talked about product that I plan on spending some time observing and thinking about is the Steve Jobs theatre itself.
Hopefully, most of you read Carolina’s deep dive on our iPhone 8 interest study. For the purpose of this post, I want to dive into some specific data around iPhone owners and their interest and intent to buy the iPhone 8. Carolina charted, or shared some of these stats but I want to recap a few specific and notable data points.
Next week Apple will release their 10th anniversary iPhone line, which is a huge milestone for this Silicon Valley giant.
To date, Apple has sold well over $1 billion iPhones since its launch in 2007.
Apple accelerated the growth of iPhones by close to 1/2 billion from 2014 to 2016 or in just two years and given what we know from the last three Apple earnings reports Apple’s sales of iPhones to date are around 1.3 billion to date.
One of the modern day debacles coming from any tech company was Google’s Glasses. I was quoted in the WSJ saying that buying Google Glasses for $1500 was one of the worst purchases I have ever made in my life. Although in my case it was for research purposes, I am sure that any prosumer or consumers who bought Google Glasses had the same feelings about spending any amount for these worthless prototypes. I also chided Google at the time for even offering prototypes to the broad market at any price as they were not even close to being ready for prime time.
Word came out last week that Apple had earmarked $1 billion towards creating or acquiring new media content shortly. Like other big companies such as Netflix, Amazon, and HBO, the race is on to either create original content or acquire content that would help them boost their offerings to their customers and in turn, increase their subscriptions and services revenue.
Reports from Bloomberg suggest Apple is working on designing a new piece of silicon specifically for AI or more likely Machine Learning. Anyone tracking semiconductor trends could predict this since nearly every company working on AI/ML is using or designing a companion chip like a dedicated ASIC or FPGA for their AI efforts. At a fundamental level, these dedicated companion processors that are programmed for specific tasks are better suited for a range of tasks and AI is one of them.
Apple’s Fiscal Q3 earnings were a bit more interesting than I thought. Much of this interest came from extensive commentary from Tim Cook on a range of things from iPad, to Apple Watch, to autonomous systems, and the iPhone in emerging markets like India. First, let’s start with the iPad.
Much has been said and speculated around the pricing for Apple’s iPhone 8. iPhone rumors is especially hot in the summer thanks to the slow news cycle and publications hunting down every story and angle which will generate interest and the iPhone 8 fits that need.
This is one of the most asked questions I get from clients, readers, and in particular the Wall St. community of investors. There is a range of concerns which I will cover and share my thoughts and perspective on, but I think it’s helpful to remember why–besides being a 10th anniversary year–this particular iPhone launch is of the utmost interest, and perhaps importance to Apple as a company.
Last month I wrote a piece in the Think.tank stating that I believed Apple was going to be doing major work in AR to advance the personal user interface by mixing virtual and real worlds into their mobile platforms. We are already seeing some fascinating AR examples coming out of early developers who have been using AR kit to create early AR applications for IOS 11. (Check out @madeforarkit on Twitter to see many of these early examples.) In this article, I also stated that while I believe the iPhone is the best vehicle for Apple to deliver AR at first, I also suggested, based on some patents that eventually Apple will add some form of eyewear tied to AR and MR to their portfolio. These new products will offer an even new way to interact with mixed reality in the real world.
As you all can imagine, augmented reality has been given a speed boost thanks to Apple. Apple’s release of ARkit has a number of their competitors scrambling to come up with a competitive strategy on a timeline that will keep them from falling too far behind. This is going to be a challenge, as Android is going to struggle as an AR development platform. Understanding this point is central to the argument I am going to make for Apple/iOS in China.