Looking at AAPL, FB, and AMZN Going Forward

As I think about the future, I think Apple, Facebook, and Amazon are going to be categorical leaders in their respective fields. While some put the big four (non-Chinese) tech companies as Google, Facebook, Apple, and Amazon, I’m leaving Google out. This is not because I think Google is not doing interesting things and is not influential going forward. But, in some ways, I think Google will be an ingredient in the worlds of the categorical leaders like Apple, Facebook, and Amazon. I also think Google missed both social and messaging in a way that is likely going to hurt them going forward.

Looking at Apple

iOS and Android are now clearly on separate paths. While Android will have the largest user base, Apple will have the best and most profitable one. In nearly every market study we conduct, when we filter what we are seeing from the study by those who own an iPhone and those who own an Android phone, we see distinctly different patterns of behaviors. This is simply the reality of the market. You can clearly segment iOS users from Android users and see very different patterns. These patterns are already influencing what software and services providers offer to customers on each platform and even the business model approach of many companies for each platform. This is no longer a thesis or a hunch or an anecdote. It is the hard market reality and understanding customers segments as those with an iPhone and those with an Android phone, and understanding how different they are, is now essential if you are to understand the consumer market.

Per many of the things I have been writing lately, we are moving out of a hardware cycle. Which is why for some time I have been looking at Apple with less hardware specific eyes in our analysis. We have known the dirty little secret about high ASP hardware for some time. Devices that have an average ASP of over $500 do not sell more than 300 million or so units a year. This was always true of PCs (300m per year), it is true of TVs (300-350m per year), tablets (200-300m per year), and smartphones over $500 (300-350 million per year–mostly Apple and Samsung). The iPhone has not changed this dynamic, selling well in line with other high ASP devices at max annual sales. Even with the iPhone SE pricing, we don’t see a world, given Apple’s current strategy, where they change this high ASP hardware sales dynamic. Furthermore, there is no hardware category, in the short or long term horizon, which will even come close to smartphones in annual sales. Hardware pricing tiers have always dictated their max volumes and this has remained steady and true for quite some time.

This is not to say Apple does not still have new customers ahead for them. I’m simply stating they will not come in droves anymore like they have past years. I do believe there are pockets of the global consumer market which will come to Apple as their needs, wants, interests, etc., mature. I call these “Apple customers in waiting”. They are future Apple customers; they just don’t know it yet. However, adding big chunks of tens of millions of new users per year has likely come to an end. If Apple’s unique customer base is in the 600 million range today, there is still some room to grow, just not as much as when their unique user base was 300 million.

So we turn our eyes to services. Again, this industry has been remarkably predictable as it follows a value path which starts in hardware, moves to software, then moves to services. We are seeing some unique dynamics of this today with a new and large global consumer market but the fundamentals of why this value evolution occurs remain the same. After hardware innovation slows, the focus of the industry moves to software and then services. With Apple, they have a chance to be the first to truly have all three legs as a contribution to their business at a global scale. Services are the key. Apple is in a position to benefit the most from the unique behaviors of their customer base. This translates into their services strategy and it won’t happen overnight. But, as we look at the next decade plus, we have to recognize all three pillars (hardware, software, and services) of the Apple business as integrated parts of the whole long-term strategy for growth.

Looking at Facebook

At the moment it is genuinely difficult to be anything but bullish on Facebook. They are benefiting from the onboarding of the global consumer base right now as much as Google did during the first birth phase of the internet. Facebook, and the Facebook family of apps, is well positioned to achieve user scale like no company before it and provide quantified ROI to their advertising customers in a way Google never could.

This chart from Jan Dawson shows it all. It is the one I look at every quarter and the growth curves keep continuing.

Screen Shot 2016-08-03 at 1.51.58 PM

Their strong growth in developing and emerging markets remains remarkable. It seems they are doing well to monetize every region and they are on their way to reaching two billion users as this trend line continues. The key for Facebook is to continue to get ad spend. Google, Snapchat, and even Twitter are going after this but the analog advertising age has not yet fully shifted to online. As it does, the debate as to who gets the bulk of it remains. Consensus is it is either Facebook or Google. But watching a company like Snapchat to see if they have an impact on Facebook is key for 2016 and 2017. Note my chart from our panel of consumers who say they have used Snapchat in the last month:

Screen Shot 2016-08-03 at 12.40.42 PM

2016 is the year Snapchat is going mainstream and we will see how their growth impacts the potential ad dollars both Facebook and Google can get. Currently, many who analyze Facebook view this last quarter as one that shows they do not need to worry about Snapchat as much as previously thought. Even in a quarter when Snapchat grew significantly, Facebook user engagement was up QoQ and YoY. That being said, Snapchat is really just getting started. I think we need a full year of Snapchat’s presence in the mainstream to see what the impact is on Facebook from both a user engagement perspective and an advertising spend perspective.

Looking at Amazon

Amazon fits into a broader trend for me to analyze. The shift in retail dollars from offline to online is real, it’s happening, and we are getting very close to what I feel is a tipping point for e-commerce to begin to grow quickly and robustly. Even though analyzing Amazon means looking beyond just commerce and into digital media as well as AWS, there is going to come a time where the commerce business hits a hyper growth cycle. AWS remains a big money maker for Amazon and, as they ramp up investments in digital media, they are well positioned there as well for the shift from standard TV packages to digital ones during the TV paradigm shift we will encounter soon. By and large, Amazon still has some spending left and it seems the second half of this year is when they will increase R&D and turn profits they have been taking the last few quarters into investments in growth areas. India and further spending to secure digital media assets are primary areas they will focus on.

Amazon feels it is being calculating in its market timing. We have not seen the tipping point in e-commerce or in digital media away from traditional media consumption channels yet. Now is the time for them to continue to invest and prepare to reap the rewards as these shifts happen.

From a commerce perspective, retailers are in a fight with Amazon and soon will be adding new technological tools to their arsenal to compete. This will be an interesting battle. Even today, it seems a rumor/scoop broke that Walmart.com is looking at acquiring Jet.com. Walmart, and many other retailers, are scared for good reason and I expect acquisitions and a range of other moves/partnerships to happen in order to compete. This shift in spending from offline to online is going to be a fascinating transition and mobile/mobile wallets will help make this happen quickly at some point. This is another one of those areas where there are sparks which will soon turn into an all out fire. Out of all the global players, it seems Amazon will be the one to watch to really see when this fire starts and then they are likely to see hyper growth as well.

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

Leave a Reply

Your email address will not be published. Required fields are marked *