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Month June 2011

How much is an iOS user worth to Apple? About $150. Every year.

During the last WWDC Apple revealed that there were 54 million active Mac users. If we look at the history of the product we can see that it took about 5.5 years to sell 54 million Macs. If we assume therefore that the average lifetime of a Mac is 5.5 years and knowing that Mac sales generated revenues of about $73.8 billion then we can estimate the average revenues/year/mac user: $250.

Repeating the exercise with 180 million current iOS users who purchased about 200 million iOS devices and assuming a life span of 3.5 years gives the average revenue/year/iOS user of about $150.

These are recurring figures. If we assume these users are loyal then they will likely spend this amount indefinitely and each additional user will be worth a similar amount.

So, for example, if we assume that the number of Mac users reaches 100 million then we can also assume that they will generate about $25 billion/yr in recurring revenues.

Likewise, if we extrapolate growth of iOS to 500 million users then we can assume they will generate $74 billion/yr in recurring revenues.

Adding these together gives a potential recurring income level of $95 billion/yr for installed base alone (excluding iPods, Peripherals, iTunes apps/songs, and Software sales.) Today that figure is about $40 billion/yr. [1]

Interesting valuation exercises can follow. [2] It would also be interesting to perform a similar analysis for other vendors/platforms.


  1. Note that actual sales are considerably higher than this figure as new customers are added. These figures should be considered “baseline” sales.
  2. Thanks to a kind reader for suggesting this line of analysis.

Nokia a trop écouté les réseaux télécoms

My thanks to Robert van Apeldoorn, journalist for Trends Tendances Magazine, for asking good questions. My responses are reproduced below. The article (in French) is titled “Nokia a trop écouté les réseaux télécoms” and can be found in the June 23rd edition of the magazine along with more details in the article “Comment Nokia peut-il renaître?”.

-About your post “Does the phone market forgive failure”, that puts forward the idea that all mobile device vendors experiencing losses never really recover… It seems that this possible “rule” is more severe than in the computer industry. If Digital Equipement, Compaq, WordPerfect did fail, IBM and, yes, Apple, did survive failure and rebound strongly. Do you think that there is a difference between the industries? What makes the failures more lethal in the mobile device market ?

The observation is unique to the mobile phone market and even there it’s only an observation not a rule. It could be that Nokia will be the first mobile phone company that will recover from severe crisis, but history shows it to be very unlikely. I try to shed some light on the reasons why it’s unlikely and what makes the mobile phone market so unforgiving. I think much of the problem rests with the fact that mobile phones are sold indirectly, through intermediaries who are amplifying both success and failure. A company like Apple was able to recover in the computer industry because it launched new products like iPod which could be sold directly to consumers. It had to convince the consumer and only the consumer. Having to convince a distributor, retailer, value added reseller, operator and consumer would be much more difficult. These intermediaries are “institutional” buyers who are risk averse and have low tolerance for untested ideas. Institutional buyers need to think about dealing with other people’s money not just their own so they are doing the right thing from their point of view.

Nokia needs to persuade first operators, then distributors and then consumers that its new products are great (even though maybe the old ones were not so great.) That’s tough. Apple works in the other direction. It creates consumer demand then “sells” that demand to the intermediaries as needed.

These intermediaries (which Steve Jobs famously called “orifices” to the market)

The iPhone at four; growing up or just growing?

Ever since the iPhone launched four years ago (to the day), the question on everyone’s mind has been: When will Apple expand the portfolio to reach into all market segments? I remember thinking in 2007 whether it would be in six months or a year that they would create a “mini”, “nano” and “classic” line-up which served them so well with the iPod.

Apple however took a different approach. To their credit, they focused on the platform and built a consistent experience around a fixed screen size to nurture an ecosystem. They also improved the power of the device so that experience would improve to be better and more robust. In other words, they treated every iPhone as not being good enough, needful of every megahertz of power, every pixel of screen and every minute of battery life. They polished the OS constantly and added APIs by the thousands.

In other words, they acted like a computer software company, not like a “device vendor” or like a handset manufacturer which was everyone’s (including mine) frame of reference.

Capital.bg | Nobody wants to buy RIM

Технологии и наука | Хорацио Дедиу: Никой не иска да купи Research In Motion RIM – Капитал.

My thanks again to Andrian Georgiev for interview questions [Bulgarian] related to RIM. My answers to his questions (in English) are below:

Q: What should RIM do to reinvent itself? Should it stray from its business-oriented image?

RIM had begun to move away from a business image already in 2005 or so when it started its “Pearl” brand and a consumer-oriented strategy. The company probably foresaw that business customers would not be enough to maintain the growth they had become accustomed to. The strategy has led to a growing popularity in Latin America and other regions like the Middle East where the product is used as a low-cost alternative to SMS for avid texters. Even in the US, many teenagers use Blackberries instead of iPhones because they can use it for the BBM service (at a lower cost). I believe that it is not coincidence that iMessage was launched.

The company’s salvation is not in branching into new markets but in establishing a credible platform. When Nokia announced that they would be the “third option” after the iPhone and Android ecosystems, they did not even mention the Blackberry. The fact that Blackberry is not seen as an ecosystem is the root of the problem.

Q: How should RIM accelerate the introduction of QNX?

MacDirectory: Exclusive | Horace Dediu: Apple expert

“This is my site. It’s an evolving experiment in collaborative and peer reviewed analysis.”

via MacDirectory: Exclusive | Horace Dediu: Apple expert.

Thinking over Apple's value

In intra-day trading Apple’s stock price traded at a P/E ratio below 15. That threshold is now at a price of about $315/share. Excluding cash the P/E is under 12. On a forward basis, there is widespread agreement that Apple has the reward (yield) profile of a bond without the risk of inflation.

The history of the P/E ratio and the share price is shown in the following chart:

As the chart shows, Apple traded in a range of P/E between 35 and 45 until late 2008 and has been trading between a range of 15 and 25 since about spring 2009. It might seem that the price is rewarding growth, but it’s not.

When adjusting for the growth the company has maintained,

The Critical Path #2: Synchronized failure – 5by5

The Critical Path #2: Synchronized failure – 5by5.

Horace Dediu and Dan Benjamin discuss how smartphone pioneers Nokia and RIM falter while the market is booming.

Apple could buy the mobile phone industry

The second quarter ends in less than two weeks. When it does, I expect Apple will have over $70 billion in Cash, Cash Equivalents, Short-term marketable securities and long-term Marketable Securities. That figure has been growing predictably.

Also predictable has been the decline in value of Apple’s mobile phone competitors. Most spectacularly Nokia and RIM. The enterprise values of the public companies selling 75% of all phones sold world-wide are as follows:

  • Nokia $22.6b
  • RIM $13.8b
  • HTC $25.4b
  • Motorola Mobility $4.2b

The values of the profitable phone-making subsidiaries are a bit more difficult to estimate but we can use multiples of trailing operating profits. I generously use the multiple applied to HTC (14).

  • Sony Ericsson $0.21b x 14 = $3.0b
  • Samsung $3.76b x 14 = $53b

That leaves valuing LG’s phone business which has not been profitable in the last four quarters. I assume a nominal value of $10b. These data points are shown in the following chart:

The app industry vs. the music industry

By my estimate, Apple has paid out $16.6 billion to content owners. $2.5 billion to app developers and about $14 billion to music companies. The developer payments are published by Apple, the music payments are estimated based on total downloads and guesses about the split and pricing of that content (90% for the content and $1 to $1.2 average pricing over time.) There might be reason to move the music figure up or down but the difference will still be nearly a factor of 5.

The cumulative payments are shown in the following chart:

[Sponsor] Going beyond theory: Strategies for capturing new markets

Much of what I write is based on the theories put forward by Clayton Christensen. I was fortunate to study under him fifteen years ago and since then his work has led to a fundamental review of what passes for business or management theory based on placement of innovation at the core of analysis.

Standing, as it were, on the shoulders of a giant, many scholars have taken the theories and adapted them to building new workman-like tools for taking the theories to practice. One such scholar, and friend, is Stephen Wunker, a classmate of mine and alumnus of both Harvard Business School and Innosight, Christensen’s consulting practice with experience as an executive at Psion, the original parent of Symbian.

Stephen has just written a new book that drills down on the questions related specifically to new market disruptions which are notoriously difficult to implement.

Consider how he frames Apple’s success:

The rise of Apple to become one of the world‘s most valuable firms is credited to the elegant simplicity of the products envisioned by its co-Founder and CEO, Steve Jobs. But the roots of Apple‘s accomplishments lie deeper –like the pathfinders of the Industrial Revolution, Apple visualizes how technology can lead to new markets. Rather than slog it out by battling low-cost computer makers cloning IBM‘s PC, it created a new market segment with the Macintosh that it has dominated for over 15 years. As growth in the computer industry began to slow, Apple re-defined the music industry with its iPod. More recently, it has generated explosive growth in smartphones and mobile applications with the iPhone, and initiated a totally new product category with its iPad. Apple has not beaten its competitors at the industry game–it has consistently changed the game to one where competitors seemed irrelevant.

I strongly recommend this book to anyone who wants to go beyond the theory of Christensen and delve deeper into practical tools that can enable a company to be disruptive.

You can purchase the book “Capturing New Markets” (McGraw Hill) here (Amzaon.com) for less than $20.