May 2012
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Month May 2012

An interview with Chris Brennan for MacUser magazine UK

Chris Brennan asked a few important questions regarding potential saturation of the iPhone market.

Is the iPhone anywhere near saturation? Can Apple continue to shift iPhones in ever increasing numbers or is a sales plateau realistically on the horizon?

The market for mobile phones is approximately 5.5 billion connections, perhaps 5 billion users. The iPhone has approximately 300 million installed base. I consider a base of 1 billion users to be a minimum for continuing participation in this market long term. Licensed platforms will reach this in no more than two years. I don’t know what Apple’s ambitions are but if they don’t triple their base I don’t see a strong future for the company in mobile phones. In order to triple the base the company will need to sell substantially more than an additional 700 million iPhones. The retirement rate can be as high as 50% of installed base. Apple will need to sell at least 1 billion iPhones in the next few years. Seen another way, Apple has a market share of about 9% on a quarterly basis. This needs a lot of improvement. Chinese vendors are not standing still.

Can the Mac also continue to outperform the rest of the PC market for long?

An interview with Kenney Ho of The Chosun Daily of Korea

Kenney Ho, a staff reporter from Korean newspaper The Chosunilbo (The Chosun Daily) sent me a set of delightful questions.

According to Kenney, The Chosunilbo “has a history of 90 years, has been the most dominant, and influential paper of all time in Korea. It is the No.1 newspaper company in Korea with more than 1.8 million circulation, firmly holding the largest market possession. The paper is recognized Asianwide, where there are many readers in Japan and China.”

-You said “All mobile device vendors experiencing losses are not likely to really recover”. Even though, it wouldn’t mean that the employees, executives of Nokia has completely nothing in hands for recovery. If you are the CEO of Nokia right now, What are your steps to make Nokia recover its deficits?

My statement was based on the historic data which shows that 14 phone vendors have either exited the business or lost their independence during the last decade. No vendor that has reached a period of prolonged loss making has recovered. These are just observations and it’s possible that Nokia may be the first to recover. However, going by the patterns of the past, it would be very unlikely. When I thought about the reasons why companies have not been able to recover I came to the second observation about the way phones are sold. Once a brand reaches a point where it’s considered “risky” for distributors and operators to range they tend to defer purchases which leads to a spiral of continuing losses and more damage to the brand. The market amplifies “distress” and recovery becomes impossible.

If I were the CEO of Nokia I would set course for turning the company into a new business. I would approach the market asymmetrically and not try to compete directly with the other vendors. I would look toward services, platforms and software solutions and de-emphasize hardware.

-Many experts say that because Nokia dominated phone making industry in the 2000s, they maintained a corporate culture of complacency, which led them to decline. Do you agree with this? If you agree, Can you point out the examples of Nokia’s complacency?

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Calculating Google's contribution to iPhone profitability

In the iPhone cost structure analysis I showed how revenues and costs for iPhone are probably allocated. The revenue per iPhone was shown to include $29 for revenue items “above” the price of the phone to the channel. This total includes Apple’s own iPhone accessory sales plus revenue from licensing the “Made for iPhone” trademark to third party accessory makers. Apple also receives some revenues from cloud services. But, pertinent to our recent discussions on the Android business model, Apple also receives revenues from Google.

Wouldn’t it be nice to know how much? Here’s a way we can estimate it.

5by5 | The Critical Path #38: Seeking Enlightenment

Horace and Dan wade into Android Economics expanding on the series of posts on Asymco. We also give an update on The Critical Path Kickstarter project.

via 5by5 | The Critical Path #38: Seeking Enlightenment.


Android’s contribution to Google

Yesterday I presented the estimated Android income statement vis-à-vis Apple’s income statement. In this post I’ll compare Android as a part of Google’s overall business.

Recall that Google has already been compared in terms of overall revenue, growth and profitability to Apple and Microsoft here.  The argument can be made that mobility has not yet had a measurable impact on Google (certainly not noteworthy enough to be reported by management).

The impact on Google of Android can be shown in the following diagram:

I used color coding to identify non-Android (Green) and Android (Brown) segments of the business. Overall, Android could amount to about 3.5% of total Google revenues and about 5% of operating earnings.

The Critical Path: The First Year » What I've learned so far on Kickstarter

One week into this project and the response has been phenomenal. We are at nearly 500% funded. There are 414 backers so far and the average pledge is nearly $34. This means that the vast majority of people (328 so far) opted for the $35 pledge. Many pledged even more than $35.

Perhaps it’s only symbolic but the interest in the hard copy version was something I did not expect. It’s gratifying that people would prefer to have a physical representation of the work. It also means that I have to think carefully about the production of a good quality paper book.

The abundance of support allows me to invest in design, editing and perhaps illustration as well as the text. I will also have to do a lot of signing.

Thanks again to all who have contributed. I’m completely humbled by the level of support and can only promise to keep doing that which has been so resolutely defended by you all.

via The Critical Path: The First Year by Horace Dediu » What I’ve learned so far — Kickstarter.

Android Revenues in Perspective

Data is useful only when put in perspective. Yesterday’s post on the Android Income Statement showed how sales and revenues are captured and how costs are paid for that revenue. The data was shown for the entire calendar year 2011 and the maximum value in the vertical axis was $1.5 billion.

Google has also reported that their revenue “run rate” is now in excess of $2.5 billion so there is significant growth, as would be expected from an exponentially increasing user base.

However, it’s important to place this growth in perspective, both in absolute and in relative terms.

Below is a diagram showing Apple’s revenues for the first calendar quarters of 2010, 2011 and 2012. Each product group (iPhone, Mac, iPad and iPod) is shown separately with estimated gross margins (GM). Operational costs, taxes and net income are also shown.

Consistent with previous versions of this data are the color schemes where white areas represent costs of goods sold.

I also placed a scaled version of the Android Income statement next to the first quarter 2011 revenue bar for Apple. The scale is maintained where $1 billion is represented by the double-ended arrow line.[1]

The Android Income Statement

This is a continuation of the “Android Economics” series of posts. It deals with how revenues and costs are categorized for Android.

The following diagram shows an approximate representation of what Android’s “Income Statement”[1] would look like.


I’ll discuss the assumptions that are built into the model as I go along. I’ll begin at the upper left and move toward the lower right in the discussion.

Android economics: An introduction

Android has had unprecedented growth. Based on activation announcements, it’s possible to estimate that thus far, about 370 million Android devices have been activated. The total number of devices in use is a lower figure which depends on replacement rate and retirement rate. This total number of devices in use at year end is estimated in the following chart.

I added the blue line which represents what Google had as an internal estimate in mid-2010.[1] The difference between the two lines shows that Android’s growth is far higher than what the company expected.  If the company itself did not expect this growth, it’s unlikely anybody else did either.

Unexpected, exponential user growth is usually accompanied by a dramatic positive improvement in the finances of a company and a higher return to shareholders. The curious aspect of Android’s success is that it has not had an impact on either. The market has not “discounted” the half-billion anticipated Android users into a price for Google shares that reflects this growth. It can only imply that those users are not very valuable.

But why would there be such a disconnect between the number of users and their value?