Apple’s One More Thing Turned Out to Be Three

Apple announced its transition to Apple Silicon back in June. Since then, industry watchers have been formulating a hypothesis on which Mac will be the first model to sport Apple’s new silicon design. Over the past few events, leakers had left only a few surprises for the official event, but for the “one more thing” event, Apple delivered at least a couple from a device launch perspective as well as its strategy.

A More Aggressive Transition

The MacBook Air was the best bet when guessing where Apple would debut its own silicon. A very popular model in the portfolio, the MacBook Air, would appeal to users who care about mobility, battery life, and a slim design but don’t usually run very intensive workflows. Expectations were met as Apple introduced the MacBook Air as the first home for the new M1 chip.

But Apple did not stop there!

After the MacBook Air, Apple added the M1 chip to a new Mac mini, a model that Apple updated back in 2018. The Mac mini is Apple’s most affordable Mac, and the newly launched model starts at $100 less than its predecessor. This is the only price concession Apple made contrary to what some industry watchers were expecting. Some analysts argued that the in-house design would allow Apple to lower prices without necessarily impacting margins. I was somewhat skeptical of such a move for two reasons. First, Apple is not under any time pressure to get market share. Over the past couple of quarters, sales have been growing due to higher demand driven by Covid-19 and supply issues on the Windows camp. Second, aggressive pricing might have sent the wrong signal on how competitive the new silicon was compared to Intel’s designs. Given the times we are in when people are re-evaluating the tools they are using while working from home, the Mac Mini certainly offers Apple an interesting opportunity.

The big surprise of the event, however, was that the M1 chip made its way into the 13″ MacBook Pro. Most people expected that support for what is considered the most popular Mac model and the model that appeals to more pro users might come in a second wave in 2021 once Apple has some time to put the M1 to a real-world test.

Such a broad portfolio right out of the gate shows the confidence Apple has in its solution overall. The combination of silicon, OS, and apps optimization that Apple claims will deliver unprecedented performance.

The other surprise and sign of confidence on Apple’s part was timing. While we knew a launch would happen before the end of 2020, Tim Cook even confirmed that during the latest earnings call, most expected the first product to ship in 2021.

Macs Get iOS Apps but No Touch

It was fascinating to notice that, at least on Twitter, not many people commented on the lack of touch. It seems as though most have given up even on the idea that Apple might change its mind about adding touch to the Mac.

The M1 ability to support iOS apps without developers having to optimize them would have been the perfect reason to add touch to the Mac. Although they might still not believe in vertical touch, Apple could have explained that they thought users might want that option.

An alternative that could have met users halfway was to add the same cursor solution Apple put on the iPad Pro’s Magic Keyboard, something I hypothesized since the product was released.

Instead, we have neither.

Maybe this is so that developers actually choose to optimize their apps for the Mac so users can have a better experience. It will certainly be interesting to see if Apple can replicate the developer engagement they had on the iPad. You might remember that when the first iPad came to market, Apple had the 2X option that made iPhone apps run on the larger iPad screen out of the box without developers having to do anything. That played a significant role in helping people see the iPad’s potential, but the actual value came when apps were purposely designed for it. With the Mac, Apple was never able to replicate the success of the iOS app ecosystem. The numbers just did not make it worthwhile for mass-market app developers to invest in the Mac. The hope now is that, as volumes grow from the appeal of the consistency between iPhone and Mac experience, developers might feel different about their investment. If this plays out, Apple would be able to achieve even more differentiation against Windows-based PCs, which should be the ultimate game.

The M1 performance and OS optimization might be enough to get Mac users to upgrade, but Apple cannot stop there. We know switching OS is a much bigger decision for people to make, especially in an enterprise environment. iOS apps’ support can really facilitate that move. It would be much easier for an enterprise that is already supporting iOS devices to justify expanding to the Mac than it ever was to think they needed to add Mac support to their Windows support.

No New Designs

Another expectation people had was that together with the new silicon, there would be a new Mac design for whatever product Apple decided to ship first. This did not turn out to be true. Another clue on how Apple is thinking about the transition to its own silicon design.

The shift is not about differentiating within their portfolio, which would have been easier with a new hardware design. The M1 is about perfecting the Mac formula. Changing the design would have distracted from the true value of these new products. It would have diluted the impact of what Apple is building. Some of the benefits the M1 brings could have enabled a change in design, shaving a couple of millimeters here and there or maybe using a different screen technology. Had Apple done that, like for like comparisons with current products might have been harder to make.

At the “one more thing” event, Apple sold one thing only: the power of vertical integration, what they learned, and made them so successful with the iPhone. If you buy into it, Apple will have a much stickier proposition than any hardware design change they would offer.

The Apple Mac Takes Its Place In The Post-PC World

PC Resurgent

The PC market turnaround is real. ~ Bob O’Donnell (@bobodtech) 10/15/14

Q: IS THE PC MARKET TURNAROUND REAL?

A: No.

Macs are resurgent. Google Chrome is slowly gaining ground. However, sales of traditional personal notebook and desktop computers that run the Windows Operating System and are known as “PCs”, continue to falter.

3RDQMAC

In the second quarter of 2014, Apple’s Mac sales grew by 18% while overall PC sales declined by 1%.

In the third quarter of 2014, Apple’s Mac sales grew by 21% while overall PC sales declined by 1.7%.

MacvPCgrowth

On the other hand according to NPD, PCs went from 75% share to 68% in two years.

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Source: “PC market still shrinking, with smaller firms squeezed out“, Charles Arthur

Conflating Apple’s Mac, Google’s Chrome, and Windows powered PCs conceals, rather than reveals, what is happening in the personal computing category. PCs were expected to get a big bump in sales from the end of life of Windows XP. A bump occurred, but it hasn’t signified a recovery, it has only slowed the PC’s decline.

PC Dead

So you believe the Windows PC is dead? ~ Oren Kaufman (@HorhayAtAMD) 10/20/14

PCs dead? I think not…when are people going to finally wake up? ~ Bob O’Donnell (@bobodtech)

Q: IS THE PC DEAD?

No.

No reasonable, rational observer of the tech marketplace is claiming the PC is dead. That’s a straw man — an exaggerated depiction of an opposing argument easily disproven. However, there is nothing unreasonable or irrational in asserting the PC will never again regain its once preeminent position in computing. In 2006, the PC dominated computing with around 95% market share. Today, the PC is but one of three branches of computing and, in terms of market share, it is rapidly becoming the lessor of the three.

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Macs Resurgent

(T)his is claim chowder for those claiming death of PC form factor. ~ Oren Kaufman (@HorhayAtAMD) 10/20/14

Q: DO INCREASED MAC SALES REFUTE CLAIMS THE PC HAS LOST PREEMINENCE?

A: No.

Mac sales are up, but they are not increasing overall desktop and notebook sales. Instead, Mac sales seem to be displacing PC sales. Despite the increased Mac sales, notebooks and desktops as a whole continue to decline.

PCwoMac

iPads

Windows 8 launched during a time when lots of people said that tablets would kill the PC. Does anyone still think that? ~ Harry McCracken (@harrymccracken) 9/30/14

Looks like AAPL made more money on PCs than tablets. What was that about the PC being dead again? ~ Bob O’Donnell (@bobodtech)

Q: DO INCREASED MAC SALES REFUTE CLAIMS IPADS/TABLETS HAVE SIGNIFICANTLY IMPACTED PC SALES?

No.

We have to keep things in perspective. PC sales are mildly declining. Smartphone sales are rapidly growing. Tablet sales are flat, but they still easily outsell PCs.

There are now close to twice as many iPads as Macs in use. ~ Benedict Evans (@BenedictEvans) 9/22/14

Just think about that for a second. Macs have been around for 30 years. iPads have been around for 4 years. Yet already, there are twice as many iPads in use as there are Macs.

Despite the Mac’s recent surge and the iPad’s stalled growth, iPads easily outsell Macs and the iPad’s base is therefore growing much faster. Just look at the sales numbers. In the third quarter of 2014, Apple sold 39.3 million iPhones. They sold 12.3 million iPads. And, in a record breaking quarter, Apple sold 5.5 million Macs. That means the much criticized iPad is outselling Macs by more than 2-to-1 and iPhones are outselling Macs by more than 5-to-1. The surging Mac is not catching up. It’s falling further and further behind.

iPadoutsellMac

As the chart above shows, even though iPad sales are flat and Mac sales are surging, iPad sales are still, far, far greater than those of the Mac. The Mac is not going to help the notebook and desktop form factors reclaim their once dominant position in computing. Rather, with every passing day, the notebook and the desktop’s total share of the computing pie becomes ever smaller.

Next quarter, Apple will sell its billionth iOS device (around 950m so far) ~ Jan Dawson (@jandawson) 10/20/14

Apple will probably sell more iPhones & iPads this quarter than there are Macs in use (~80m). ~ Benedict Evans (@BenedictEvans) 10/20/14

IDC said worldwide PC shipments for the third quarter of 2014 were 78.5 million, down -1.7% year-over-year. ((IDC had an odd way of reporting this news. They said, “Global PC Shipments Exceed Forecast with Mild Improvement in Consumer Demand”. Translation? The decline wasn’t as bad as they expected it to be. But it was still a decline of 1.7%.))

Would not be surprised if 90 million iOS devices will ship next quarter. ~ Horace Dediu (@asymco) 10/20/14

Let’s try to put the above information in perspective. Last quarter, the desktop and notebook form factor sold 78.5 million units. Next quarter it is likely iOS alone — the minority platform — will outsell the entire PC industry. Add in Android and “other” and it’s no contest.

Apple will pass 1bn cumulative iOS device sold this year. Android will pass 3bn. ~ Benedict Evans (@BenedictEvans) 9/18/14

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Macs But Not PCs

IMO Mac sales are increasing because Apple is great at leveraging their monopolies. iOS only works with OSX so Mac sales up. ~ Oren Kaufman (@HorhayAtAMD) 10/20/14

Q: WHY ARE MAC SALES RISING WHILE PC SALES ARE FALLING?

I’m certain the “Halo Effect” is a contributing factor to the Mac’s increased sales. The more iOS owners there are, the more likely it is some of them will choose a Mac as their next notebook or desktop computer.

I’m even more certain Apple’s “continuity” feature is going to make Macs ever more attractive to iOS users. The close integration between the iPhone, the iPad and the Mac, makes the Mac a natural choice for many iOS owners.

Having used Continuity, Handoff across MacBook, iPad and iPhone, I can say it’s awesome. I would have expected Microsoft to get there first. ~ Patrick Moorhead (@PatrickMoorhead) 10/23/14

But here is my pet theory as to why the Mac is growing while the PC continues to decline.

In 2006, almost anyone who owned a computer owned a PC. Today, we can choose between a PC and a variety of non-PC computing alternatives, including phones, tablets, Macs, etc. Many people feel little need to upgrade their existing PCs. Others feel no need to own a PC at all.

I still believe the traditional notebook and desktop form factor is overkill for most mainstream consumers. ~ Ben Bajarin

However, many people absolutely and positively need the power and flexibility provided by a notebook or desktop computer. These potential PC buyers differ from those in 2006. In 2006, the PC was (almost) the only game in town, so everybody got a PC. Power users got powerful PCs and people who needed minimal computing power purchased the cheapest PC they could find. Today, people who barely need a PC are opting for phones and tablets instead. That leaves only power PC users as a potential PC buyers.

The power user never has, and never will, buy a cheap PC. They know their computing needs will only be met by powerful computing machines. Here’s the important bit. Many power users are realizing if they’re going to be spending a thousand dollars and more for a computing device, the best PC…is a Mac.

In other words, for the budget conscious, the Mac compares poorly to the budget PC. But to the power conscious, the Mac compares very favorably to the top-of-the-line PC. Macs are a premium product and more and more, the only people buying notebooks and desktops are power users who are shopping for premium computing devices.

[pullquote]Increased Mac sales are not proof the PC form factor is becoming more popular. Rather, it is proof notebooks and desktops are becoming a premium niche[/pullquote]

In my opinion, Mac sales prove the exact opposite of what the “PC-IS-RESURGENT” crowd is contending. Increased Mac sales are not proof the PC form factor is becoming more popular. On the contrary, increased Mac sales are proof the PC form factor is becoming a premium niche.

Post-PC

Maybe we aren’t in a post-PC world. Maybe it’s an also-PC world. ~ Farhad Manjoo (@fmanjoo) 10/20/14

Q: ARE WE IN SOMETHING OTHER THAN A POST-PC WORLD?

No.

If a person as informed and as intelligent as Farhad Manjoo doesn’t know what “Post-PC” means, then I’m guessing most of us don’t understand what the term means either.

The Stone Age did not end because we stopped using stones. The PC era isn’tending because we stopped using PCs. ~ Horace Dediu (@asymco) 10/24/14

Post-PC does not mean the PC goes away. It does not mean we only use phones and tablets to do our computing. It simply means the PC is no longer the center of our computing universe.

“PCs are going to be like trucks,” Jobs said. “They are still going to be around.” However, he said, only “one out of x people will need them.” ~ AllThingsD, 2010

Emphasis added.

Apple has always emphasized the importance of the Mac in the post-PC world. Shortly after taking the reins at Apple, Tim Cook had this to say about the Mac:

[pullquote]As people walk away from the PC, it becomes clear that the Mac is what you want if you want a PC.[/pullquote]

And we haven’t given up on the Mac. A lot of people are throwing in the towel right now on the PC. We’re still spending an enormous amount on really great talent and people on the Macs of the future. And we have some really cool things coming out there. Because we believe as people walk away from the PC, it becomes clear that the Mac is what you want if you want a PC.

Two years later, that statement is looking mighty prescient.

Apple’s position is, whether it be a Mac or an iPad or an iPhone, people should use the right tool for the task at hand. In 2006, we owned one computing device. In 2015, we will own multiple computing devices. Truth be told, we already live in that reality today. Multiple computing devices are the norm not the exception.

Globally, the average connected devices per person is 2. In USA it is 2.8 ~ Ben Bajarin (@BenBajarin) 8/21/14

90% of students in the UK own both a laptop and a smartphone. A further 40% have a tablet computer ~ BBC News

Ironically, it was Bill Gates, in 2007, who predicted the multi-device computing world that we live in today:

Mossberg: What’s your device in five years that you’ll rely on the most?

Gates: I don’t think you’ll have one device.

I think you’ll have a full-screen device that you can carry around and you’ll do dramatically more reading off of that – yeah, I believe in the Tablet form factor…

…and then you’ll have the device that fits in your pocket…

…and then we’ll have the evolution of the portable machine. And the evolution of the phone will both be extremely high volume, complementary–that is, if you own one, you’re more likely to own the other.

~ AllThingsD

Now tell me, does that sound like the vision embodied by Microsoft’s 2-in-1 Surface ((If you think the Surface is doing well, you need to read this article by Mark Rogowsky and look at this chart by Jan Dawson.

Surface-financials

Source: THOUGHTS ON MICROSOFT’S Q3 2014 EARNINGS)) computer or does that sound more like the vision embodied by Apple’s iPhone, iPad, and Mac portfolio of computing devices? (And don’t forget the upcoming Apple Watch, either.)

To be honest, I don’t much care what your opinion is. The market is the only opinion that matters and the market has emphatically expressed its opinion by overwhelmingly voting for multiple devices. If you don’t think multi-device is the direction computing should be taking, argue with the market, not me.

Conclusion

I believe as we move further and further into the post-PC (or multi-computing device) era, two things are going to happen.

First, the base number of notebook and desktop computers will remain at, or near, current levels. However, the form factor’s overall share of the total number of personal computing devices will continue to shrink as phones and tablets rapidly spread across the globe.

Second, those who need less computing power will eschew the notebook and desktop form factor. Those who need the form factor, but eschew the power and complexity, will gravitate toward devices like the Chromebook. And those who need both the form factor and the power it embodies, will move towards Macs.

What was unthinkable only ten years ago is happening. The traditional Windows PC is being squeezed by Chromebooks from below and by Macs from above and is rapidly moving from monopoly to minority status. The Mac on the other hand is emerging from the shadow of the Windows PC and, among power users, is taking its place as the majority player. ((26.8% of the notebooks and desktops sold in the U.S. between July 4th and September 1st were Macs.))

Mac vs. PC All Over Again

The latest round of company quarterly financial results illuminate three trends in the device market:

  1. Apple continues to generate record profits largely due to growing iPhone sales (iPad sales are slowly declining, Macs are growing, iPod sales are mostly gone, and Apple’s services revenues are growing)
  2. Samsung’s profits are steadily declining (though from such a high level they remain quite high)
  3. Nobody else is making money at all ((Not consistently, or in the case of some Chinese companies who don’t break out device profitability, not verifiably))

Jan Dawson from JackDaw Research has a terrific chart illustrating the difference in margins that has made its way around Twitter (and here on Tech.pinions) a few times. To my eye, this looks like the PC market, all over again.

Screenshot 2014-08-07 09.46.57

I’m certainly not the first to point out the mobile market looks a lot like the PC market of 30 years ago; some financial analysts have been using this as part of an argument predicting Apple’s imminent collapse. Just as Apple lost the PC wars to a horizontal solution, Apple will lose the smartphone wars the same way. Apple apologists have responded the phone market is different: there are carrier subsidies, lock-in effects, or what have you.

Financial analysts aren’t dumb. The parallels are real. The phone market is turning into the PC market, only with Google taking Microsoft’s place as the OS provider. The similarities are striking. Apple redefined the market with a proprietary OS, innovative UI, and vertically integrated hardware. While it took a few years to catch up, the competition responded with a similar UI on an OS widely licensed to OEMs. In both PCs and phones, Apple targeted a narrow high end customer and lost the market share battle, while the competition aims wider and controls significantly higher market share. Apple monetizes its software by selling high margin hardware; OEM competitors fight each other to provide low margin commodities.

Screen Shot 2014-08-26 at 6.40.39 PM

There are also two interesting differences in the PC and smartphone eras: due to the way the smartphone market evolved, Google chose not to monetize the OS the way Microsoft did, instead monetizing services through advertising. The phone market is also different in size – it’s a lot larger than the PC market ever was.

The problem with analysts using these comparisons to predict Apple’s decline is they ignore the fact Apple won the PC wars. During the 1980s, Apple grew both revenues and profits. After a near death experience in the 1990s – more on this later – Apple reemerged as the most profitable PC vendor. If you count iPads along with Macs, it is now the largest PC vendor by unit sales, too. That is not to say there were no other winners in the PC market. Steve Jobs was correct when he said, “For Apple to win, Microsoft does not have to lose”. Microsoft also won the PC wars. As did Intel. At various points, IBM, Compaq, Dell, HP, and Lenovo have won battles, too (though some of them clearly lost the war).

What We Can Learn From History

The most crucial lessons from the parallels between the PC and smartphone markets are how 1) Apple should behave to successfully compete with Google, 2) the lessons Apple needs to learn from its near death experience during the PC era, and 3) the lessons today’s hardware OEMs – including Samsung – should take from PC OEMs.

1. Apple vs. Google
This one is really simple:

  1. Google does not have to lose for Apple to win. Steve Jobs’ anger towards Google was counterproductive. For that matter, Samsung does not have to lose for Apple to win. ((I think we’re seeing the application of this principle in Tim Cook’s détente with Samsung. Ironically, Jobs was able to get past his feud with Microsoft, but Samsung’s IP infringement was personal. For its part, Samsung is finally willing to compromise because it is realizing it cannot maintain its margins, and an expensive legal fight it can’t win is not worth pursuing.))

2. Lessons for Apple from the 1990’s
Apple lost its way in the 1990s when Microsoft caught up in user interface and Apple stopped innovating in both software and design. That impacted the Mac’s software ecosystem, ruined its premium value proposition, and forced Apple down market (which it tried to attack with a licensing strategy). Once Apple invested in a narrow range of high-design, premium products with regular software updates, sales and profits returned.

To win the smartphone market, Apple must continually refresh its software so its overall value proposition remains differentiated at the high end. However, software for smartphones goes well beyond the device capabilities and UI. It encompasses services and apps.

    1. Google excels in services; if Apple is to succeed long term, it will need to continually meet the “good enough” threshold on services. Given that requirement, the half-baked launch of Maps was a potentially franchise-destroying disaster. Apple has recovered from the worst of the Maps debacle, but it still has work to do on the services front. Apple next big challenge is creating a response to Google Now.
    1. Apple does not need to beat Google on services as long as Google extends most of its services to iOS. Google monetizes users, not Android. As long as Apple maintains a significant share of premium customers its advertisers want to reach, Google has to work with Apple.
    1. Apple excels in the app ecosystem, but Google is catching up. It is too early to predict whether this will keep Apple ahead, but the need to maintain an edge in the app ecosystem explains why Apple is opening up iOS 8 and giving developers more flexibility. It is also why Apple is investing in a new development language.
  1. Apple must continue to set the standard for design so consumers are willing to pay a premium for its hardware. Larger screen sizes and bezel-free designs are the only real holes in Apple’s approach; otherwise it’s doing a pretty good job.

Even if Apple pulls off this balancing act, it does not guarantee explosive growth, which is what Wall Street is looking for. However, if Apple does follow this path, it will maintain a stable, growing base of customers, apps, and assets it can use to attack new areas. The iPod and iTunes led to the iPhone which led to the iPad.

Lessons for OEMs competing with Apple and each other

There should be a market for premium Android phones, but with lots of OEMs targeting it, even vendors who can differentiate on design and hardware components will have lower margins than Apple. Margins don’t have to decline to zero, provided there is still enough value in differentiated component technologies or design. This is why Samsung’s insistence on sticking with durable, easy to manufacture, cheap plastic construction is so maddening. As the unique value of Samsung’s components has declined over time, Samsung should have been putting more emphasis on premium design and construction.

It may be possible to differentiate on software above Android, but few provide enough positive differentiation that consumers recognize and are willing to pay a premium for. Motorola, Meizu, and Xiaomi are the only ones who come close; LG is adding value by stripping out much of the excess it once had. It is worth noting carrier meddling can mess up even the best laid software plans; it requires a direct-to-consumer channel or extremely strong brand clout to build a singular software experience and get it on carrier shelves.

Below the premium tier, margins trend towards zero. Lenovo makes money in PCs in this environment by managing the supply chain and manufacturing. PC vendors were making money by preloading crapware; some smartphone vendors (and some carriers) are following suit. Another approach is to sell hardware at cost, and make money on ancillary products or services. Digital stickers work for messaging vendors, advertising supports television, and in-app purchases drive mobile game developers. Watch for variants on these approaches from hardware manufacturers. Amazon is trying to do this with its tablets, but not its phones where it tries to have its profits and sell you some cake, too. Xiaomi’s business model seems to be predicated on giving you a phone at cost, then selling you a stuffed animal.

Up-Selling The Mac

Yesterday, in “Whither Apple Or Wither Apple?” I wrote about Apple’s efforts to steal market share from Android. Today I focus on Apple’s efforts to up-sell their iPhone and iPad customers to the Mac.

Continuity

At WWDC 2014, Apple introduced the concept of continuity — a slew of new features for OS X that are designed to make using your iPhone, iPad and Mac one truly seamless experience. The message was clear — if you want to get the most out of your iPhone or iPad — buy a Mac. Here’s just a few of the continuity features that Apple introduced:

— Unified look and feel
— SMS messages on the Mac
— Phone calls on the Mac
— AirDrop will work between iOS and OS X devices
— Mail drop will work between iOS and OS X devices
— Family: you can now share purchased music, movies and apps with up to 6 people — so long as there’s one credit card linking the iTunes accounts
— Handoff

Handoff is my favorite of all the continuity features and it exemplifies what Apple is trying to accomplish. With handoff, you have the ability to pick up your work right where you left off — whether that be on an iPhone, an iPad or a Mac. For example, you can start an email on your phone, realize that it’s going to be complex, and seamlessly move to your Mac and pick up your writing right where you left. Or, conversely, you can start an email on your Mac, suddenly be called out of your home or office, and pick it up and finish it on your iPhone or iPad.

One Step Back, Two Steps Forward

Three years ago, Apple held a back-to-the-Mac event. In it, they introduced a slew of iOS features for the Mac. Some of these features worked well, but others missed their mark. What Apple was going for was comfort — they wanted their iPhone customers to feel at home when using the Mac. However, some of iOS-type features — like launchpad and single-window mode — just felt awkward and out of place on the Mac.

With “continuity”, I think Apple has hit the sweet spot of iOS and OS X integration. It has little to do with making the iPhone work like the Mac or the Mac work like the iPhone. Instead, it has to do making the work you’re doing on the iPhone transition seamlessly to and from the Mac.

Upsell People Walking Into Store Customer Conversions

Enterprise

Apple constantly touts the fact that 98% of Fortune 500 companies use iOS. But Apple wants more — much, much more. In order to make that happen, Apple introduced new features at WWDC 2014 that were developed specifically for Enterprise, including “new security features, enhanced Mail and Calendar, and better device management. Equally meaningful are app extensions, which will not only make power users happy, but also better enable corporations to create and meaningfully use proprietary line-of-business applications.” ((Ben Thompson)) Further, there’s integration with Box and OneDrive as storage options. Even Mark Up can be used as a way of adding on-line signatures to Enterprise documents.

Why Bother?

All this begs the question: Why bother? Isn’t the PC a shrinking market and isn’t the Mac a tiny niche within that shrinking market? Why throw all these resources at a 30 year old device – virtually a tech dinosaur — that’s headed for extinction anyway?

needham-140210-1

Another thing Steve taught us all was not to focus on the past. Be future focused. If you’ve done something great or terrible in the past, forget it and go on and create the next thing. ~ Tim Cook

Isn’t Apple violating its own principles? Shouldn’t they be burying the Mac instead of praising it? Shouldn’t they cut loose the anchor that is the Mac and sail unhindered into their mobile future?

The Mac is dead. Long live the iPhone! Long live the iPad!

Whoa! Hold your horses there, Bucko. Not only isn’t the Mac dead, it’s about to make a big time comeback.

The Mac is still alive and well. ~ Ben Bajarin (@BenBajarin)

Resurgence

MacSales

It is rather incredible to think about a 30-year-old product being a growth story, but it absolutely is the case. ~ Ben Thompson

Even before WWDC 2014, the Mac was going strong and growing stronger:

  1. Mac sales have exceeded PC growth and gained overall marketshare in 30 of the last 31 quarters.
  2. The 4.1 million Macs sold last quarter were a March quarter record for the company. If Gartner and IDC were accurate in their estimates of personal computers shipped worldwide, Macs accounted for between 5.3% and 5.6% of the total.
  3. Apple’s average Mac selling price was steady at $1300.
  4. The ASP, or average selling price, of the Mac line actually increased 2% quarter-over-quarter, climbing from $1,322 to $1,344.

Mac average selling price

In other words, PCs are getting cheaper and consumers are buying less of them and Macs are getting more expensive and consumers are buying more of them. In what world does that make sense?

The Mac Is The Grand Piano Of PCs

Smartphones and tablets have replaced PCs as the primary computer for most normals. But that doesn’t mean there isn’t a role for the PC. As the PC (and the Mac) becomes a specialized tool used mostly by specialists, those self-same specialists will want to use the very best tools available.

black grand piano isolated on white backgroundTo steal an analogy from Ben Thompson, there was a time when the grand piano was the only piano available. Then the upright piano — which wasn’t nearly as good, but which was cheaper, smaller and easier to move — took its place. However, there were still those – mostly concert pianists – who needed a grand piano. Were they going to go cheap when they purchased said grand piano? Hell no! This is their livelihood you’re talking about. They’re going to get the best piano they can afford.

The same rule holds true for computing. For example, at WWDC — and at the Microsoft Surface event that preceded the WWDC — almost all the reporters had notebooks, not tablets, and almost all of the notebooks were high-end MacBooks, not cheap PC knockoffs. Concert pianists need concert pianos because their livelihood depends upon the quality of their tool. Reporters need high-end computers because their livelihoods depends upon the quality of their tool. Are reporters going to go cheap when they purchase their computer? Hell no! This is their livelihood you’re talking about. They’re going to get the best computer they can afford.

Anytime anyone NEEDS a grand piano, they’re going to want to spend enough money to get the best. And anytime anyone NEEDS a PC, they’re going to want to spend enough money to get the best. The Mac is the grand piano of PCs. And any specialist who needs a PC is going to want to buy a Mac.

Post-WWDC

Only about 20% of the worldwide market for computers is premium. This is bad news for the iPhone which is rapidly approaching saturation. But this is incredibly GOOD news for the Mac, which is nowhere near saturation.

And the Mac’s share of the Enterprise? Fuggedaboudit. The upside is virtually unlimited.

iPhones and iPads already dominate upscale and Enterprise usage. Apple’s new continuity tools send those users a clear message:

If you already own an iPhone or an iPad and you need to own a PC, then the Mac is the only PC for you.

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Market Share Metaphysics

Twice before I have used Aristotle’s concept of “Essentialism” to explain why tablets are “real” computers and why OS X will not be merging with iOS. Today, I go to the well one last time ((…unless I need to go there again in my desire to quench my thirst for knowledge (or drown my stubborn opponents therein).)) in an attempt to definitively and finally put an end to the messianic myth that market share equals platform. Hopefully, we shall never speak of this again. ((Fat chance.))

Essentialism

What attributes make things what they are? Or, what attributes make things not what they aren’t? (Confused yet?)

Aristotle drew a distinction between “essential” and “nonessential” properties. ((Actually, Aristotle called “nonessential” properties “accidental” properties. That’s totally confusing so I “accidentally” changed Aristotle’s wording from “accidental” to “nonessential”. It’s my article, I can do what I want.))

Essential properties are those without which a thing wouldn’t be what it is. Nonessential properties are those that determine how a thing is, but not what it is. For example, Aristotle thought rationality was essential to being a human being and, since Socrates was a human being, Socrates’s rationality was essential to his being Socrates. Without the property of rationality, Socrates simply wouldn’t be Socrates. He wouldn’t even be a human being, so how could he be Socrates?

On the other hand, Aristotle thought Socrates’s property of being snubnosed was merely nonessential; snub-nosed was part of how Socrates was, but it wasn’t essential to what or who he was. To put it another way, take away Socrates’s rationality, and he’s no longer Socrates, but give him plastic surgery, and he’s Socrates with a nose job.

The Elephant In The Room

Baby elephantOne could describe an elephant as being big, gray and wrinkled. But are those essential or nonessential attributes?

  1. Are there elephants who aren’t big? Sure. Baby elephants are small. So were prehistoric dwarf elephants.
  2. Are there elephants who aren’t gray? Sure. There are brownish elephants. There may even be albino elephants.
  3. Are there elephants who aren’t wrinkled? Sure. Maybe. Or maybe not. Who knows.

In other words, bigness, grayness, and wrinkledness all fail Aristotle’s test of defining what an elephant essentially is. Instead, they describe how elephants are, generally and nonessentially.

The Church of Market Share

The Church of Market Share says majority market share is essential for a computing platform to thrive. But is this even close to being true?

  1. Are there successful platforms that aren’t big? Sure.
  2. Are there successful platforms that don’t have majority market share? Sure.
  3. Are there successful platforms that aren’t wrinkled? Uh, maybe. Or maybe not.

In other words, massive market share fails Aristotle’s test of defining what a successful platform is. Arguing market share size makes a platform successful is like arguing being “big” makes an animal an elephant. That’s simply a “whale” of a lie.

What Is Essential

Greek astronomerWhat is “essential” to a computing platform is an operating system which forms the foundation upon which third party developers can develop; developers who create desirable products; and consumers who desire and acquire those products. Bigness may be nice, but it ain’t “essential.”

In other words, bigness, grayness, and wrinkledness all fail Aristotle’s test of defining what an elephant essentially is. Instead they describe how elephants are, generally and non-essentially.

Likewise, bigness, majority market share and wrinkledness all fail Aristotle’s test of defining what a successful platform is. Instead, they describe how platforms are, generally and non-essentially.

This is true only up to a point. Something as small, white, and round as an aspirin cannot be an elephant, and confronted with such an object, we would not be tempted to ask, “Is that an aspirin you’re taking or an atypical elephant?”

Market share as small as Microsoft’s Windows 8 and Blackberry’s cannot be dominant platforms. Confronted with such a platform, we would not be tempted to ask, “Is that an insubstantial, unfounded stereotype you’re swallowing whole and without critical analysis…or an atypical platform?”

The point is that bigness, grayness, and wrinkledness are not precise enough terms to be the essential qualities of an elephant. Likewise, bigness, majority market share and wrinkledness are not precise enough terms to be the essential qualities of a platform.

It’s a certain size range and a certain color range that, among other qualities, determine whether or not something is an elephant. It’s a certain size range and a certain market share that, among other qualities, determine whether or not something is a successful computing platform.

Wrinkledness, on the other hand, may be a red herring, or perhaps a “whistling herring”.

The Wrong Question Will Get You The Wrong Answer

    Abe: I got a riddle for you, Sol. What’s green, hangs on the wall, and whistles?
    Sol: I give up.
    Abe: A herring.
    Sol: But a herring isn’t green.
    Abe: So you can paint it green.
    Sol: But a herring doesn’t hang on the wall.
    Abe: Put a nail through it, it hangs on the wall.
    Sol: But a herring doesn’t whistle!
    Abe: So? It doesn’t whistle.

Microsoft’s Windows platform was big, a monopoly and it whistled (or it didn’t whistle). But that doesn’t mean that it was or is the one and only way to create a successful platform. And anyone who says it is, is telling you a fish story.

Post-Moretm

Feel free to steal this argument and use it since I essentially (not accidentally) stole it, er, borrowed it from Thomas Cathcart: “Plato and a Platypus Walk Into a Bar.”

Of course, a link to this article would be nice…

…just not “essential”.

Apple’s Grand Strategy

Grand Strategy

Grand Strategy is not about winning the war, its about winning the peace. It’s not about destroying your competitor, its about preserving who you are. It’s not about moving toward a destination, it’s about knowing what your destination is.

Too many countries and too many companies lose sight of their Grand Strategy in their desire to win the war. They forget why and what they’re fighting for.

The fact that Apple started Tuesday’s event with a repeat of the video shown during their WWDC event clearly demonstrates that they have a Grand Strategy and that they are determined to be guided by that strategy first, and foremost.

Some pundits seemed to miss, dismiss or ignore the importance of that video. In doing so, they’re missed, dismissed and forfeited their chance to understand Apple.

Strategies

— Microsoft makes its money by licensing software to hardware manufacturers.
— Apple makes its money by selling hardware to end users.
— Google makes its money by attracting your attention with free services and then selling your attention to advertisers.

If you were Apple, what could you do to enhance your strengths while weakening or negating your competitor’s strengths?

Strategy #1: Focus on the user experience.

It’s perfectly fine not to care about quality. What’s not perfectly fine is criticize those who do care about quality for seeking it out and enjoying it.

Strategy #2: Give away your software in order to make your hardware more valuable and your competitor’s software less valuable.

AAPL’s business model is hardware. Giving away a free OS is a natural step. Puts even more pressure on MSFT though. ~ Sameer Singh (@sameer_singh17)

Strategy #3: Make your platform so valuable that your competitors will feel compelled to put their services on your platform.

I destroy my enemy when I make him my friend. ~ Abraham Lincoln

Campaign

Apple is very consistent. Worth remembering that in ’01 they bought SoundJam (which was $50), renamed it iTunes and gave it away for *free*. ~ Carl Schlachte, Sr. (@carlsuqupro)

Make Software Free
— Make all Operating System software free.
— Make all Consumer software made by Apple free. (iWork — Pages, Numbers, Keynote — iLife — iPhoto, iMovie, GarageBand — iTunes Movie Trailers, iBooks, Maps, Find my iPhone, Podcasts, Keynote Remote — 20 apps in all.)

I estimate the drop in OSX and iLife/iWork prices means about $450 million foregone software revenues for Q4. ~ Horace Dediu (@asymco)

Folding reporting Software into iTunes now makes sense: Software revenues were going to go to zero. ~ Horace Dediu (@asymco)

Make The Look And The Feel Of The Software The Same
— Update (almost) all Apple consumer software;
— Make (almost) all Apple consumer software available across all screens (iPod Touch, iPhone, iPad, Macs and Apple TV).

Make Online Software Cross-Platform
— Create on-line versions of on-device software;
— Make on-line versions free;
— Make on-line versions of the software look and feel like the on-device software.
— Make on-line software collaborative.

No iCloud account required to open Pages files? Nice! Collaboration? Very nice! ~ Joseph Thornton (@jtjdt)

iWork collaboration means … I’ll never have to open Google Docs again! ~ Rene Ritchie (@reneritchie)

Unify Hardware
Almost all new iPads & Macs are:

— Retina Screen
— 64 bit

“The iPad is 64 bit. Windows is, by and large, still 32 bit. Enough said.” ~ Ben Bajarin (@BenBajarin)

— A7

Apple’s messaging of the A7 in iPad: desktop-class architecture. No desktop needed. ~ Ben Bajarin (@BenBajarin)

— M7
— Lightening Cables (except iPad 2)
— Touch ID

Lack of fingerprint scanner in iPads points against it being an ecosystem play. Convenient in phones, not needed in tablets. ~ Benedict Evans (@BenedictEvans)

I respectfully disagree. There is not a doubt in my mind that the next generation of Apple tablets AND notebooks AND desktops will have Touch ID. Why? Many reasons, but one is that Touch ID is a habit. Once people get used to it, they’ll want it everywhere.

Unify Software

By making the operating systems free, and by extending updates as far back as practicable, Apple is doing its very best to remove fragmentation and consolidate their devices on the latest operating system versions.

Apple’s free software is the ultimate fragmentation fighter. ~ Harry McCracken (@harrymccracken)

Target Usage & Engagement

“Usage share is what’s important to us.” ~ Tim Cook

Apple is not after total share, they’re after meaningful share. If a tablet owner isn’t using their tablet, they’re of no use to the platform. And if they using they’re tablet but not engaged in activities that strengthen the platform, they’re of no use to the platform.

“Tim Cook says Apple has sold 170m iPads and iPad usage is 81%.” ~ Ed Baig (@edbaig)

Eighty-one percent of the usage share. Now THAT’s meaningful share.

Themes

1) Apple showed an incredibly strong commitment to the Mac. While others are looking for a PC exit strategy, Apple is making it clear that they’re all in.

Apple didn’t get the memo that Apple killed the PC market. ~ Jay Yarow (@jyarow)

If you still had doubts that Apple thinks notebooks still have a role to play just look at the line up & the price points they now have. ~ carolina milanesi (@caro_milanesi)

2) Apple made it clear that they are committed to the tablet as a category. They literally mocked those who make tablets that are PCs and PCs that are tablets. Anyone who thinks that the iPad lines and the Mac lines are ever going to unify really need to give the matter another think.

3) Apple made two pricing moves that show that they feel they are totally alone in the premium tablet space.

First, they dropped the iPad Mini by $30 (to $299), rather than the traditional $100 dollars, then they INCREASED the price of the Retina iPad Mini by $70 (to $399).

Second, instead of dropping the price of the iPad 4 to $399, they retained the iPad 2 and at $399.

Apple has a total lock on 10″ tablets. Question is the smaller cheaper space. ~ Benedict Evans (@BenedictEvans)

Those two moves make it abundantly clear that Apple thinks it is dominating that sector and that they don’t need to make price concessions.

Wondering if Apple was thinking about the weakness of the Android tablet offer when it priced the mini. Limited competitive pressure. ~ Benedict Evans (@BenedictEvans)

Further, by offering the iPad 2, instead of the iPad 4, as the low cost large screen iPad, Apple is pushing buyers up market to their higher quality and higher priced iPad Air.

Apple may not have a lock on the 7-8 inch tablet space, but their pricing indicates that they have a lock on the PREMIUM 7-8 inch space and – so far as platforms and profits go – that’t the only space that matters.

Apparently Apple is not worried about the competition. Instead, they think that the competition should be worried about Apple.

Apple Could Challenge Microsoft for Desktop Dominance. But It Won’t

Apple’s opportunity to dominate desktop computing probably disappeared the day in 1981 that IBM shipped the Personal Computer. Apple’s first attempt at a “business” computer, the Apple ///, was a technical and commercial flop. The anti-corporate “computer for the rest of us” marketing pitch that accompanied the introduction of the Macintosh in 1984 went over badly with business at a time when businesses were buying most of the computers.

The argument, occasionally still heard, that the better system lost is arguable at best. The Mac was a huge usability breakthrough, but in the early years, the graphical user interface demanded more than the hardware could deliver. Microsoft made a major leap with Windows 3.0 in 1990 and by the mid-1990s, when consumer sales became really important, Windows 95 and Windows NT were moving ahead of the aging Mac OS. Mac continued to slip as Windows forged ahead and it wasn’t until Apple’s big switch to Intel processors in 2005, along with increasingly powerful and stable versions of OS X, that Apple had a real claim to equality, let alone superiority.

But the divergent directions indicated by Windows 8 and OS X Mavericks change everything. Although it was Steve Jobs who began talk of the post-PC world when he introduced the iPad in 2010, it seems like it is Microsoft that has bought into the idea. The attempt with Windows 8 to design an operating system that spans traditional PCs, hybrids, and tablets has resulted in a sub-optimal experience on both. With Windows 8.1, Microsoft seems on its way to fixing some of the worst problems of Windows 8 (and its ill-begotten sibling, Windows RT) on tablets by eliminating some, perhaps most, of the need to drop back into Desktop mode to accomplish key tasks. But only relatively minor changes are planned for Windows 8 on a traditional PC, an experience that leaves many users longing for Windows 7.

Mavericks, by contrast, marks Apple’s renewed commitment to the traditional PC, a commitment that had been at least a little in doubt with the surge of iOS features into Lion and Mountain Lion. Except for improved notifications, an idea that borrows from and builds on iOS, the big changes in Mavericks are Serious PC Stuff: A new tabbed interface for the Finder, tagging for better file location and classification, major under-the-hood changes to cut power consumption, and greatly improved support for multi-display setups. Along with a badly overdue, but radical and exciting overhaul of the Mac Pro, Apple is telling Mac users, “We’ve got your back.” [pullquote]Mavericks, by contrast, marks Apple’s renewed commitment to the traditional PC, a commitment that had been at least a little in doubt with the surge of iOS features into Lion and Mountain Lion.[/pullquote]

Apple is now in a position to claim clear superiority in traditional PCs. The new MacBook Airs (pictured) are the first computers to ship with Intel’s next-generation Haswell processors and through a combination of close work with Intel and a lot of software fine tuning, Apple is able to beat the industry by a wide margin on battery life–something made possible by complete control of hardware and software. I expect Apple will do equally well with its MacBook Pros and iMacs this fall when Intel ships the rest of its Haswell line.

Macs could rule the world. Apple’s market share has been rising as Windows PC sales have fallen sharply while Mac sales have been mostly flat. I expect this trend to continue and for Apple’s share to rise. But–in partial answer to the question raised by John Kirk earlier this week–I don’t expect Apple to go after the mass market still dominated by Windows.

The reason is simple. According to NPD, the average selling price of a windows PC at the end of last year was $420. ((NPD data probably understate the average somewhat because the firm measures retail sales, missing the often more expensive units sold directly to enterprise buyers.)) The cheapest Mac is a $599 mini, and the cheapest laptop is a $999. Apple will cheerfully sell you an iPad for as little as $329 and provide a first-rate tablet experience, but there is no way it can provide what it regards as a satisfactory Mac experience at the price most windows machines sell for. ((I don’t mean to perpetuate the myth of an Apple premium. On an equal feature basis, Macs are no more expensive than Windows systems. It’s just that Apple only sells top-of-the-line products.))

The great bulk of buyers is unable or unwilling to spend what Apple commands, and Apple is unwilling to cheapen its products, slash its margins, or both, to meet the market. As a result, Apple will settle for modest gains in share .

This does not mean, however, that Microsoft is home free to at least hold on to its share of a shrinking market. The real threat could come from the bottom, from Google’s Chromebook. Chrome OS, whose only application is the Chrome browser and which depends on web apps (key ones modified to work offline) to do anything, performs well on hardware far more modest than required for Windows or Mac OS. For users with relatively modest needs and good internet connectivity, a Chromebook is a low-cost viable alternative to both a tablet and a Windows laptop. And it will only get better as Google converges Chrome OS and Android, potentially bringing a richer store of apps to Chrome.

These days, the fact that Apple is not coming after them as hard as it might is cold comfort to Microsoft.

 

 

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

oimg

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.

Windows vs. Mac In Schools: All the Wrong Reasons

The Maine Department of Education announced earlier this week that it was switching from Apple Macintoshes to Hewlett-Packard Windows PCs as the technology behind the Maine Learning Technology Initiative. Macs had been used exclusively since the program was started by then-Governor and now Senator Angus King in 2002.

I don’t think it makes a lot of difference whether Maine uses Macs or PCs in its schools. My guess is the state will pay a little less up-front and spending a bit more over the life of the machines because Windows software tends to be somewhat more expensive to maintain. But Maine made its decision for the worst possible reason, one that leads me to wonder if they have any idea of why information technology should be in schools in the first place.

Said Gov. Paul LePage (R):

It is important that our students are using technology that they will see and use in the workplace. The laptops use an operating system that is commonly used in the workplace in Maine. These laptops will provide students with the opportunity to enhance their learning and give them experience on the same technology and software they will see in their future careers.*

As the physicist Wolfgang Pauli said, that’s not even wrong. This argument didn’t make sense 15 years ago, when the differences between Windows and   Mac OS was much greater than it is today and Macs’ market share was much lower. It makes even less at a time a user proficient in one OS can master the the with maybe an hour of training.

But it is much worse if Maine thinks the reason to have computers in schools (and, yes, they really should be thinking about tablets, too) is to teach students how to use specific pieces of hardware and software. Students’ computers should be windows into a boundless sea of information. They should be tools in science class. And students should be learning the principles of programming, not so they can all grow up to be software developers but so that they learn something of what makes today;s most important technology tick–and perhaps learn a bit about the importance of the precise, logical thinking that programming demands.

Gov. LePage seem to see PCs as little more than the modern equivalent of the rows of typewriters in classrooms for vocational typing and the purpose of computers in schools as training students to get jobs typing in word or scheduling appointments in Outlook. The four-year contract is a nice win for HP, but it may be a tragedy for Maine students.

*–The HP Probook 4400s will ship with Windows 8, making LePage’s argument even more lame ,since the new OS has been largely shunned (so far) by business and is far more different from the Windows XP and Windows 7 versions used in business than is Mac OS X. But an HP spokesman notes that Maine schools have the option of downgrading to Windows 7.

Why I Love My Mac

iMac photo (Apple)My aging 27″ iMac, the system I use most for work, had been acting cranky lately but I was busy and ignored the symptoms–until I couldn’t anymore. On Wednesday evening, I tried to reboot it and it just sat there, twiddling endlessly. With enough patience, I finally got it to boot.  I ran Disk First Aid verify, and when that failed, repair. Still no happiness. But, as you can guess from the headline, this story has a happy ending.

So first thing yesterday, I decided to make a clean backup before heading off for the Mac emergency room, a/k/a the Bethesda Row Apple Store. I had to postpone   my Genius Bar appointment a couple of times because the backup took longer than I expected. When I finally got it in, the young woman at the Genius Bar ran diagnostics and told me that while the drive passed hardware tests and would probably be fixed by reformatting, it was covered by a free replacement policy Apple had put in place for a batch of flaky 1 TB Seagate drives that turned up in iMacs.

The Mac was ready to come home a few hours later, with a new hard drive loaded with OS X Mountain Lion. I went through the preliminary setup, plugged in my Time Machine drive and let the restore run overnight. I had to jump through a few additional hoops, such as reactivating Microsoft Office 2011*, but this morning, it was back to its old happy self.

This experience is the major reason why I continue to use Macs and to recommend them to others. Over the past 20-something years, I have suffered through the failure of many Windows systems and in  every case, getting them fixed and rebuilt was a monumental time-suck of a do-it-yourself job. Even if you back up conscientiously, restoring from a Windows backup is a complicated job that requires both time and skill. At best, you might have a fairly recent system image that will allow restoration of the disk with applications and a more recent incremental backup to restore data.

And, of course, there is nothing like the Apple Store for Windows. Even if I had a convenient Microsoft Store–there’s no full-service store in the state of Maryland–they do not offer the range of services that Apple does. I probably would have spent a day and a half fixing the machine myself had it been a Windows box.

The Apple Store is a huge part of the reason that Macs (and iPhones and iPads) provide a vastly superior customer experience. If you doubt that, head for the Samsung Store or the Google Store the next time you have a problem with your Galaxy S or Nexus 7.

——

*–Reactivating Office could have been a real pain, because it required a product key, something that is becoming an increasingly serious issue as software is downloaded rather than purchased in a box that makes retaining the key easier. Fortunately (and unlike just about any consumer) I was able to retrieve a key from my Microsoft Technet account. Of course, this problem is caused by Microsoft, not Apple. I was pleasantly surprised to discover that  my Adobe Creative Cloud CS 6 applications fired up without licensing glitches.

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!

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.

Mac Attack

At the Apple Special Event held on Wednesday, September 12, 2012, Tim Cook announced these facts regarding Apple’s Mac Computers:

1) Mac notebooks rank #1 in market share in the U.S. for the last 3 months.
2) Mac notebooks had 27% market share in July.
3) The Mac has outgrown the PC for 6 straight years.
4) The difference in the rate of growth between the Mac and the PC for the last quarter was significant – 15% to 2%

Four observations:

First, I think we can somewhat discount points 3 and 4, above. The Mac is growing from a smaller base, so it’s mathematically easier for its percentage growth to be greater than that of the PC.

Second, Apple is cherry picking their most favorable numbers here since this is only in the U.S. and it’s only notebooks. Still 27% notebook market share in the U.S. is significant. Notebooks are where the action is in PCs today and the U.S. is an important market. With 27% sales, the Mac should no longer be deemed a “niche” product.

Third, there isn’t a Mac sold for less than $999. Apple’s critics are always harping on the fact that Macs are too expensive but consumers obviously don’t think that is much of an issue.

Fourth and finally, if Mac notebook market share is #1 in the U.S. for the past 3 months, where does that leave, Dell, HP, Asus, Toshiba, Sony, Lenovo, Acer, etc? As noted before, the Mac is sold for $999 and up. It’s always maintained high margins while most other computer manufacturers have been involved in a profit destroying “race to the bottom”. If the Mac, which dominates in margins, is starting to take market share too, there will simply be no profits left for the other PC manufacturers. They’re surviving on crumbs already.

The PC industry is losing unit sales to the iPad from below and having their profits skimmed by the Mac from above. Based on the facts that we currently have, that trend is only going to accelerate. What are the PC manufacturers to do?

Ultrabooks have not been the answer…yet. So I can only assume that PC manufacturers are putting most of their faith in the various Windows 8 tablet form factors. That’s an awful lot of “eggs” in just one basket. Will customers “shell” out the big bucks for the new PC form factors? Or will the the “yolk” be on the PC manufacturers?

The New Mac Ads: If Tech Companies Were Cruise Lines

There has been a real kerfuffle caused by the new Mac Ads.

Some people dislike them. Others hate, hate, hate them.

On the other hand, some people like them…or, at least, they tolerate them.

MAC OWNERS AND MAC HATERS ARE NOT THE TARGET AUDIENCE

I agree with those, those and those who point out that these ads are not addressed to current Mac owners. They’re addressed to POTENTIAL Mac owners.

And the message being sent is so simple that it’s simply being misunderstood.

THE RETAIL STORE’S REASON FOR BEING

Here is Ron Johnson, former head of Apple’s Retail Stores, On Lessons Learned From Apple About Gaining An Edge As A Retail Brand:

“For example,” Johnson explained, “Apple has always offered the most easy out-of-the-box user experience, but we noticed there was a gap between buying and using. People were intimidated by even the easiest product set-up. So we said, if we can set up a product for them in the ten minutes before they left the store and they started using it and falling in love with it, it would be transformational. It was an insight that made the Apple store relevant.”

“(T)here was a gap between buying and using. People were intimidated…if we can set up a product for them…it would be transformational.”

Words for every business to live by. Words that Apple DOES live by.

IF TECH COMPANIES WERE CRUISE LINES

If tech companies ran Cruise Lines, most would invite you to ride on their world class cruise liners, help you pack your bags, give you a free limo ride to the docks, provide you with a lovely and delightful cruise…

…and then make you row ashore when you arrived at your destination.

Apple seems to get it. Instead of giving you a dinghy, a paddle and a hale and hearty farewell, they build a bridge between their products and their customer’s destinations. And as you’re crossing that bridge, Apple has their “geniuses” at the ready – there to encourage you, lend a helping hand, and cheer you on.

And that’s a good thing. A very good thing indeed.

OS X Mountain Lion: My Favorite New Features

Tim wrote earlier this week about his conviction that when it comes to post PC platforms Apple will keep OS X and iOS separate rather than merge the two as many expect. What Apple has done with OS X Mountain Lion proves that a desktop class OS can live in harmony with a pure mobile OS and provide a seamless experience across them all.

After using OS X Mountain Lion for a little while now, I have to say that the full experience of seamless integration between all my Macs and iOS devices is quite profound. The funny thing is upon hearing of OS X Mountain Lion’s new features I fully expected it would be, however, it was even more pleasant when I finally got to integrate it into my personal computing ecosystem.

Apple took advantage of their iCloud infrastructure, and tightly integrated it into this new OS release. Apple has continually emphasized a works better together philosophy with their products and iCloud has been a key puzzle piece in this philosophy. Apple executives have referred to iCloud as a strategy for the next decade, but it is most likely the strategy for much longer. iCloud is the glue that ties all of your Apple products together and never is that more clear than with OS X Mountain Lion.

In this analysts opinion, OS X Mountain Lion brings Apple customers one step closer to a seamless and more importantly continuous personal computing experience. Apple has been heading in this direction for a while with things like Photo Stream, iBooks, and others that let you instantly keep experiences in sync. But OS X Mountain Lion takes us even further with things like documents in the cloud, iCloud Tabs, Game Center, and more.

Continuous computing will be a key driver for Apple’s ecosystem going forward. As consumers realize that not only does all you key data, documents, personal settings and more stay synced in real time across all your Apple products but that you can switch from one device to another and feel like you can always pick up where you left off.

Let me know share my experience with a few features that I found particularly useful.

Safari and iCloud Tabs

The updated Safari for OS X Mountain Lion is easily one of my favorites. Primarily because I use Safari as a large part of my daily computing time. The new sharing feature is particularly handy and I used this quite a bit more than I thought. I like to share quite a bit of what I find on the Internet to Facebook and Twitter and being able to share right from Safari without having to jump to a different application or website was extremely useful.

But the biggest new feature that I truly appreciate is iCloud Tabs. I have a Mac and an iPad and I use them both in different ways. Within my personal work style I use them both in conjunction together as a solution rather than as separate products. Because of that I can’t tell you how many times a day I come across a website on the Mac and then want to read that website on my iPad or vice versa. A common use case where this happens is when I am using my Mac and looking up recipes. Once I find the recipe I want I used to have to email it to myself so I can then pick it up on my iPad, which is the tool I use in the kitchen quite often. Now with iCloud Tabs any open tabs in Safari, whether that is on the iPad, iPhone, or Mac is accessible to me. It seems small, but for me it is extremely useful and appreciated.

Notifications

To be honest I have wanted notifications on my Mac for quite a while longer than I wanted notifications for iOS. What is really nice is that you can customize which applications notify you and which ones don’t. For me the most important notifications are email and this one feature has served me greatly.

In my day to day I get well over 100 emails and somedays twice that much. I could literally sit all day and just answer email and it would keep me busy. Obviously because of that I have to prioritize. Pre Notifications in iOS, when I heard an email come in I would click on mail and see who its from then determine if I needed to respond immediately or later. This routine can be quite disrupting to ones work flow. Enter Notifications for email and now as I am working I quickly see who an email is from and without ever having to change applications and quickly read said e-mail, I can choose to respond or keep doing what I was doing.

Since I also text message with work colleagues, friends, and family, quite often having iMessage notify me of a new message was equally pleasant. This kept me from having to disrupt my work flow to check iMessage or my iPhone to see who it was from. Notifications is just one more way that Apple is extending features we know and love on iOS and bringing them to the desktop in a relevant way.

Air Play Mirroring

Air Play support on iOS and even in iTunes on the Mac has been one of those features that I use way more than I expected to. So it was no surprise to me that when Apple brought it to the OS X Mountain Lion that it was on the features I found most valuable. This is key for reasons in my professional life and my personal life.

In my professional life I give a lot of presentations and work collaboratively with teams of executives and product groups. More often than not in these meetings most of the content we are working off resides on my Mac. With Air Play Mirroring we don’t need to huddle around my computer or fiddle with chords and cables and projector issues with inputs or resolution scaling. Now we can simply broadcast the whole of OS X and all the content on it to the large screen or projector. Because of this one features I expect many more Apple TVs in conference rooms.

In my personal life, this is the feature I have been waiting for. Primarily because I watch a lot of video on my Mac. This happens to be because currently many sites I frequent still use Adobe’s flash player– especially the network TV sites. I stream a lot of TV shows from network sites or the web directly and many of them are still on Flash. Unfortunately many of these sites still hold prime TV content from their apps or Hulu + so it is hard to get access to all their content from the apps they release on iOS. Often times I would literally connect my Mac to my TV just so I could watch some shows on my TV. That is why this was one area where Air Play mirroring in OS X Mountain Lion came in for me big time.

I can honestly say that thanks to Apple TV and Air Play Mirroring my living room will never be the same.

Lastly I want to touch briefly on Game Center. This is a feature that I believe may be incredibly disruptive. Now that Game Center games and experiences are unified across all of Apple’s products, the Apple ecosystem has become a fully cross platform gaming environment. I was able to play games with my kids from my Mac while they were on their iPod touches or other iOS devices. Apple is a sleeper in the gaming category and I believe they will soon be a major player from a gaming platform standpoint. And add what I pointed out about Air Play and all of a sudden Apple has a game platform for the big screen as well.

The overall key takeaway for me is what I said a while back in a column about Apple’s promise to their customers. Which is that when you invest in the Apple ecosystem, Apple promises to keep making your experiences better.

And they did just that with their latest release of OS X Mountain Lion.

The Apple Ecosystem Just Got Stronger

Apple today at their World Wide Developers Conference released a number of things that have made their ecosystem even stronger. I am of the opinion that one of the best ways to analyze computing platforms is to look at them as ecosystems. When consumers purchase a personal computer like a desktop, notebook, tablet or smartphone, whether they know it or not they are investing into an ecosystem.

Related Column: It’s All About Ecosystems

Not too long ago computing platforms were islands unto themselves. Each product stood on its own and wasn’t connected to other devices in a meaningful way. But now that consumers are purchasing more and more computing products they began to demand that their devices begin to work seamlessly together for a more fulfilling experience. This demand has led to the birth of more holistic computing ecosystems. And interestingly software companies who offer platform software for desktops / notebooks, tablets, and smartphones are the companies building the most robust ecosystems on the market and right now only Apple and Microsoft fit that bill. Today Apple with the release of new and updated Mac hardware and software and the release of their newest mobile operating system iOS 6 just strengthened their ecosystem all together.

It all revolves around iCloud

Tim Cook said something that made perfect sense to an Apple observer like me. He said that iCloud isn’t just a product, it’s a strategy for the next decade. With that fundamental point in mind it becomes easy to see why Apple is integrating so iCloud into the core of their OSX and iOS software. iCloud is the glue that holds all of Apple’s hardware and software together. Take for example some simple features they have added with the newest Safari.

It may seem small but this little thing is just the tip of the iceberg when it comes to the value of Apple’s ecosystem. Imagine you use a notebook, tablet, and smartphone regularly. In the usage of all three of those products it would seem logical that you would browse the web frequently on each of them. Now what if you where on the couch looking for a recipe and you wanted to view that very same recipe on your tablet or smartphone. Most people would either have to re-search for that recipe on the other device or you could email yourself the link. With the latest version of Safari for OSX Mountain Lion every single web page you have open as a tab is available to you on any of your OSX or iOS devices. So if I want to look at a web page I have open on my Mac from my iPad, I simply click the new iCloud tabs button on the top of Safari and all the same tabs open on my Mac are available for me on my iPad or iPhone.

This seems like something small but it is extremely useful and demonstrates the value of iCloud integration across hardware and software to create a consistent and useful experience. This is just one of many new features and advancements Apple is making through software to better delight their customers by solving current and future problems.

The Vertical Advantage

The tight integration of software innovations with specific hardware innovations all around a service like iCloud is easier when you control all the moving parts. I have emphasized this time and time again but it is this fundamental point that gives Apple such an advantage. The Apple ecosystem has no external variables. Apple doesn’t need the support of hardware or software partners in order to advance their ecosystem. This point can not be stressed enough.

It is because of this vertical advantage that Apple can annually release a unified launch of new hardware and new software all designed to work better together. And it is this better together that creates the fundamentals of the Apple ecosystem, which just got stronger.

Making The Devices We Know and Love Better

The last key point about the strength of the Apple ecosystem is that with this latest software for Mac, iPhone, and iPad, Apple has made the experience even better. I would contend that many of the devices we know and love have become even more useful. Now many may argue that some of the new features released are available on other devices or platforms. That is all fine and good for customers of other platforms but the bottom line is I and hundreds of millions of other people have invested in Apple’s ecosystem when it comes to my personal computing needs. So for me the fact that Apple has developed new features to make my experience with their hardware even better is most welcomed.

At the end of the day it is those features that add to our experience, make these products easier to use, and more importantly make using these products in our daily lives that much better. It is the small things like being able to ignore an incoming call with a text message or reminder to call the person back is extremely useful. The improved maps and elegant navigation is also a welcomed additional improvement. Perhaps the biggest improvement of all is the major upgrade to Siri.

All of these things and more are focused on one singular thing, making the devices we know and love better and more useful. Apple is continuing to make their hardware more functional every year. I am not sure it is possible to say that any other company is delivering their customer base new and improved features and functionality to all their hardware on an annual basis.

This is just one more thing adding to the already strong Apple ecosystem and it will be very interesting to see how the competition responds.

The Apple Brand Is a Powerful Selling Point

At the Intel Developer Forum this week I saw a number of interesting products and product concepts from a wide range of manufacturers.

As I looked over many of these products, some from known brands and some from more obscure brands, which are known as white labeled laptops, I started thinking about how important the role of the brand is as it relates to consumer purchasing decisions.


Currently my consumer research focus is North America, so I can’t speak for the other regions, but in the west consumers resonate with brands.

I saw many very thin and very light notebooks called UltraBooks from Acer, Asus, Toshiba and a slew of others.

Many of the UltraBook designs that I saw were poorly attempting to look like the MacBook AIR. One from Asus came incredibly close. However it was that product that got me thinking about the role of brand.

My thesis, which is and has been evolving, is that Apple’s brand is a major factor in the overall appeal of their products. This is something that can not be created or duplicated overnight by competitors.

Of course Apple makes great products but these products fall under a very distinguishable and relatable brand.

I see a lot of interesting UltraBook designs coming from manufacturers. Intel wants to get these prices down so the lure of one of these products over the MacBook Air would be price.

But here is the problem. A growing number of American purchasers don’t want cheap. Our research is showing that the value and premium segment of the market is growing at an alarming rate. And, with that segment, brand matters.

In the US and perhaps even in growing segments all over the globe, the strength of the Apple brand is unparalleled in computing currently. That causes real problems for companies like Acer, Asus, Lenovo, Toshiba etc who don’t have nearly the brand strength as Apple.

I view what is happening in personal electronics similar to what has been happening with fashion. People make brand or style centric decisions based on what they feel reflect them as a person. Again in this reality brand is very important.

Never before did this hit me with such truth than when I was doing consumer market research for a PC OEM who was struggling in the consumer segment.

My goal of the research was to explore the role of design with the younger more influential early adopter audience. The issue of design as a personal statement hit home when I showed the current non-Apple notebook design to a college student and asked for his thoughts. Calmly and quickly he said to me “I wouldn’t be seen in public with that notebook.”

Consumers in the west are now making conscious decisions about the tech products they buy and how carrying that brand around is a part of their self-image. Because of that, brand matters.

The Apple brand is just one part of a fast and deep collection of competitive advantages.

We will be doing more research on this subject soon, but I have a hunch that if you stuck any of the current UltraBooks next to the MacBook Air and asked which product would these customers would buy, a very large group of them would choose the Air and the Apple brand would play a role in that decision.

Many could argue that price matters. To this I would agree however I don’t believe that in the US, where PC’s are a mature market, that price is the only factor in that decision. Even if UltraBooks come in at $200 or more less than the MacBook Air, I don’t believe in any way that threatens Apple’s growth going forward.