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The omnivorous app

Marc Andreessen famously coined the phrase “software is eating the world.” It’s an apt observation. If you look back on the history of computing you’re likely to measure computers sold or devices sold or users harvested or productivity gained. These things are measured because they can be measured. But the greatest cause of value created and captured has been the development of software. An ephemeral product whose value is often ignored in analytical discourse.

Software is not easily measured and it’s not easily valued due to its intractable nature. Firstly, because businesses that make software tend to have weird cost structures–absurdly high fixed costs and operating margins: They operate without income for years and then suddenly are massively profitable with a minimal set of resources. They have a non-linear, “big bang” trajectory.

Secondly, software companies tend to capture revenues from something other than the direct sale of the good. Software is rarely sold. Services sometimes are sold on the basis of software but more likely audiences for services are sold to a set of bidders, or revenue is obtained in even more circuitous ways.

Thirdly, because there are curious multi-sided markets for software platforms. Charlie Kindel hints strongly at how difficult it is to understand the dynamics of software platforms. There is the prospect of lock-in of users and data. There are relationships to nurture with developers and there’s the principle of an ecosystem that creates network effects. The virtuous/vicious cycles are non-linear and unpredictable even for the experts who have been at it for decades (e.g. Microsoft).

Given these difficulties, software is seldom seen as the core value proposition for a particular business. But make no mistake about it, Apple, Google, Microsoft, Facebook and Amazon are all software companies. They “monetize” or integrate software differently but software is causal to their profits. Their use of software has also made them all disruptive. Software enabled the disruption of consumer electronics, retail, computers, advertising and broadcast media.

But we have not seen anything yet. There is another class of software that is poised to lay waste to a new set of industries. The lowly app coupled with cloud-based services[1] is the termite that is set to eat the foundations of the largest of the industries still standing.

Consider the following:

  • Games. A software industry in itself, the app versions are attracting non-consumers and eventually will get good enough to absorb all  usage and profits. Games merged with “entertainment” concepts will lead to new models of user recreation leading to new global brands that could challenge even Disney.
  • TV. As apps come to the big screen TV will never be the same. Not only will show creators build directly for an audience but advertisers that currently sponsor shows will produce them instead and package the result as an app.
  • Shopping/dining/entertainment/hospitality are changing with location services and with novel “bits to bricks” purchase options (e.g. PassBook). Increasingly services will exploit handheld devices to enable product discovery–the main job retailers are tasked with.
  • Communications. The observation that “phone” is just an app and that messaging can be done in dozens of ways depending on message, relationship, context or even custom is possible because apps conform to the user’s needs rather than the user conforming to the tools they get from the network service provider.

Although these are enormous opportunities in themselves, this is in addition to several industries that are already crumbling (photography, book publishing, to name two).

I don’t need to rely on prose alone to make the point. A graph can also lend a hand.

Consider that Apple’s App Store and Google Play together have had over 50 billion installs in less than four years and that the number of users of apps is at least 750 million. Furthermore, consider that apps have moved from a smartphone phenomenon to tablets and even PCs using OS X or Windows. Within one year these software capsules are going to be in use by one fourth of the global population.

Nothing has this kind of reach or engagement, not even browsers. What makes the app disruptive, even ahead of a browser-based service, is that it includes incentives for developers (or, more precisely, app producers) to get paid and to have a relationship with the buyer. These two value propositions, in isolation or in combination, are available to millions and consumable by billions. The most democratized market that can be imagined. An unbounded set of producers and an unbounded set of consumers and a persistent connection after the purchase with nothing in between them except a payment mechanism

The world has never seen such an opportunity.

The consequences are unforeseeable. Apps are a form of software that goes beyond its ancestral “application” as a product and as a business model. It’s the software that will take in and assimilate everything in sight.

Notes:

  1. I have a simple rule to distinguish between an app and a service. If you have to supply a username and password to an app, it’s a service.
  • kiran bhanushali

    Good analysis as usual Horace. A couple of things to point out – Browsers themselves are apps but they are in a way themselves app containers since users could go to specific websites (essentially web apps) and perform 80% of the tasks that an app allows them to perform on the phone; I’m not sure the idea of apps reaching a fourth of the earth’s population is a very representative blanket number since it’s not 1 specific app which has that kind of reach, except maybe facebook which reaches 500 million people. Thoughts?

    • http://twitter.com/bamurphymac Benjamin Alexander’s

      Re: Apps building their own ecosystems…I think it’s interesting that despite the

    • http://www.asymco.com Horace Dediu

      I distinguish the omnivorous app as a standalone product that can be sold and downloaded individually and thus forms a buyer/seller relationship. This can include web apps or the browser itself. My point was only that browsers that come with systems may be overtaken in usage by apps which are added by the user. Every download is a bond between a buyer and a seller and it makes for interesting new opportunities. The coverage of app stores will expand to be broader than any previous marketplace.

      • aaarrrgggh

        …but doesn’t it also pose a nuisance for the user? Many apps just provide the same content as would be available on the web, but in a (arguably) prettier package. It now places the content delivery not in the hands of a search engine optimized to find content, but in an “app” search engine (such as they may be). At this point, the “app developer” must take on responsibility for marketing his content, or the user will never be able to discover it.

        Switching applications requires a change in focus. That is where tabs came about in the browser. The app world makes it more difficult to seek out cross references of information, and becomes its own walled garden.

      • http://www.facebook.com/george.mezori.3 George Mezori

        I just wanna know one thing… how does all of this translate into an investment opportunity? Other than what I already know… buy Apple, buy Google. Those stocks are too expensive for your average guy. What else??

      • http://twitter.com/WalterMilliken Walter Milliken

        One strategy I’ve used in the past for Apple when I didn’t want to buy the actual stock is to buy Apple LEAP call options as far out as I can. (I think that would be January 2014 or 2015 at the moment.) Trading in options is considered much riskier than trading in underlying stocks, so understand what you’re doing and how much risk you can tolerate. Personally, I’ve never done any options trading except buying calls, which is usually considered the least-risky option strategy.

        Options are generally much cheaper than the stock itself, depending on what future price and maturity date you pick. The risk with buying call options is limited to the amount you pay for them, unlike some of the other option strategies. However, if the stock goes down, or you pick a too-aggressive future price, you *can* lose everything you put into them. You also can’t trade options in smaller lots than 100 shares, as far as I know, one option is generally for 100 shares of the underlying stock. So while the options are normally much cheaper than the stock, on a per-share basis, your minimum investment in buying a call option is probably going to be more than if you bought a single share of the actual stock.
        I personally don’t trade in regular options, and especially wouldn’t do so in a stock as volatile as Apple’s — I prefer to have a long period of time where it’s likely that Apple’s long-term upward trend will give me a good chance to make a profit by selling at some point during the option’s lifetime. LEAP options can also be held long enough to qualify for the favorable long-term capital-gains tax rate, which you can’t do with regular options, as far as I know.
        That said, I’m not a financial advisor, etc., etc. I’m just describing how I’ve benefited on occasion from Apple’s stock gains in past years without buying the rather expensive stock itself.

      • aaarrrgggh

        Regarding LEAPs… emphasis should be on buying deep-in-the-money calls– ideally 50% of the strike price of the stock, but 75% is reasonably ok in terms of the premium you pay. Unfortunately, you are then saddled with the requirement to buy 100 share contracts, so there is no net savings in terms of available cash– you couldn’t really pull it off with less than $30k. It is much more prudent to buy 5 shares at a time to build a position.

      • Sacto_Joe

        George, AAPL is not expensive. It is in fact really, really cheap. If Apple split the stock 10 to 1, and the stock were $65 instesd of 650, literally nothing about the stock would have changed other than tearing it into ten pieces. Heck, if you tore it into 100 pieces, and the stock was worth $6.50 a share, it would still be worth exactly the same. Each dollar of revenue or dollar of earnings or dollar of excess cash would likewise be ripped into a hundred pieces. The Price/Earnings ratio wouldn’t budge an inch. Now, if you only have $6.50 to spend on AAPL, then you won’t be able to afford even a single share unless they split it 100:1. But frankly, a person who can’t afford at least $650 shouldn’t even be buying stock in the first place.

        Fundamentals matter, and on fundamentals, AAPL is a once in a life time raving buy, even at its present price.

      • Paul

        Why do you say they are too expensive? If you have less than $1000 or so to invest then you might want to start building a safety net savings account before you start making investments. I bet you are one of those people that would like AAPL to split 10-1. Anyone with sense knows AAPL is cheap right now.

      • http://twitter.com/WalterMilliken Walter Milliken

        I think there’s a couple of good points here. One is the general marketing problem of getting your product discovered in a crowded market — an issue similar to that faced by any non-chain restaurant or store these days. The second point, that apps become stovepipes between the information provider and the user, is likely to become a serious ecosystem fragmentation issue, I think.

        Stovepiping is a common software feature, for both development efficiency and for market lock-in. Unfortunately, the way Apple is sandboxing apps in both iOS and Mac OS only encourages it.

        Breaking the stovepipes requires a common data format (at least for applications that use similar data), and a way of exchanging that data between apps. The infrastructure for this partly exists (for example the ease of handling data in compressed XML in Apple’s core libraries), but a lot of it is still missing. And apps that use similar data still may not structure it similarly, even if they encode it in XML, leading to translation issues. None of these problems are new, but the app model seems to exacerbate them.

        While a lot of the content may be similar to what’s on the web, packaging it in a app gives a lot more control to the information provider, and makes it easier to monetize content in ways beyond ads, I think. And it’s easier to control the user experience, rather than being at the vagaries of the efficiency of the browser’s Javascript engine and of performance of cell-based network connections.

        So I think there’s a lot of motivation to use apps versus just advanced web technology, and there are significant benefits to both app provider and user. But there may be micro- versus macro-level issues like the long-term effects of stovepiping that need serious thought as well.

      • jawbroken

        Do you do a web search for every single website you ever visit? Personally I do a fairly even mix of searching and visiting sites directly, via the URL or bookmarks. I don’t see why replacing the latter with a better designed and more usable app is a nuisance at all, except in the case you mention where the site is mostly outbound links/cross references. This issue is mitigated in a lot of apps by building in a browser, something that’s done universally in mobile twitter apps and which I even prefer to desktop clients switching me over to a browser for something I’m mostly just going to look at and then close and return to twitter.

      • http://twitter.com/jefsmk Jeff Smeker

        “in the hands of a search engine optimized to find content”. Who is this search engine? You mean Google? Last I checked they are a ‘search engine optimized to find profit’. Searching the web is almost a joke anymore — nothing but link farms and ads. I’m exaggerating a bit, obviously.

        But, in a lot of ways, I’d rather have an app store filter, categorize, and ensure quality for me. The app store has an incentive to provide quality apps to help improve the platform. Search has an incentive to make money from advertising.

      • aaarrrgggh

        …but doesn’t it also pose a nuisance for the user? Many apps just provide the same content as would be available on the web, but in a (arguably) prettier package. It now places the content delivery not in the hands of a search engine optimized to find content, but in an “app” search engine (such as they may be). At this point, the “app developer” must take on responsibility for marketing his content, or the user will never be able to discover it.

        Switching applications requires a change in focus. That is where tabs came about in the browser. The app world makes it more difficult to seek out cross references of information, and becomes its own walled garden.

  • http://twitter.com/bamurphymac Benjamin Alexander’s

    The current aTV is a monster, and the one Apple device absolutely worth jail breaking just to see its true potential. There are already many serious 3rd party apps running on this hardware, and more ‘legit’ experiments like iTunes Festival are showing the way forward.

    The level of coherence & seamless living, working, and educating that this little device provides, even now in its ‘hobby’ form is shocking. It’s a massively disruptive ‘hobby’, although I’m not surprised this fact is being ignored in the press.

  • Chris

    For the app developer the distribution channel happens to be the hundreds of millions of mobile devices rather than the hundred/thousands of brick and mortar stores. This removes a logistical challenges that exist for physical products, such as mfg and transport. The greatest obstacle for the app developer, however, is how they get known to the hundreds of millions of devices owners.

  • http://ceklog.kindel.com/ Charlie Kindel

    Horace,

    Your rule for distinguishing between an app and a service works only in the simplest cases. It ignores things like Facebook Connect or “Connect with Twitter”. It also ignores pure-advertising based experiences such as American Idol. The American Idol app on iOS does not require you to enter a pw/username.

    Also, both app and service tend to imply one-to-one relationships.

    In reality the ‘new world’ is composed of ‘apps’ that are client front-ends to back-end services that are actually composed of multiple services from 3rd parties that pull content from multiple sources and are made available via multiple channels and represent and re-enforce one or more brands.

    These are some of the reasons why I decided to use a different term than either app or service: Experience.

    An end-to-end user experience is a cohesive combination of devices,people, brands, channels, services, and content that improves over time.

    Or, more succinctly, Experience equals stuff over time (exp = stuff/time).

    Oh, how I love this line: “The lowly app coupled with cloud-based services[1] is the termite that is set to eat the foundations of the largest of the industries still standing.”

    The computing industry has been defined as a series of stair steps, each comprising a radical disruption, with consummate growth in the size of the industry, the profits, and advancement of technology. Mainframes → Minis → PCs → GUI → Web → Mobile.

    What’s next? I assert it is Experiences.

    More here:

    http://ceklog.kindel.com/2012/04/02/experience-stuff-time/

  • http://ceklog.kindel.com/ Charlie Kindel

    Horace,

    Your rule for distinguishing between an app and a service works only in the simplest cases. It ignores things like Facebook Connect or “Connect with Twitter”. It also ignores pure-advertising based experiences such as American Idol. The American Idol app on iOS does not require you to enter a pw/username.

    Also, both app and service tend to imply one-to-one relationships.

    In reality the ‘new world’ is composed of ‘apps’ that are client front-ends to back-end services that are actually composed of multiple services from 3rd parties that pull content from multiple sources and are made available via multiple channels and represent and re-enforce one or more brands.

    These are some of the reasons why I decided to use a different term than either app or service: Experience.

    An end-to-end user experience is a cohesive combination of devices,people, brands, channels, services, and content that improves over time.

    Or, more succinctly, Experience equals stuff over time (exp = stuff/time).

    Oh, how I love this line: “The lowly app coupled with cloud-based services[1] is the termite that is set to eat the foundations of the largest of the industries still standing.”

    The computing industry has been defined as a series of stair steps, each comprising a radical disruption, with consummate growth in the size of the industry, the profits, and advancement of technology. Mainframes → Minis → PCs → GUI → Web → Mobile.

    What’s next? I assert it is Experiences.

    More here:

    http://ceklog.kindel.com/2012/04/02/experience-stuff-time/

    • http://twitter.com/mpt Matthew Paul Thomas

      If “[end-to-end user] experience equals stuff over time”, it can’t possibly be “what’s next” as you assert. It is orthogonal. A good business would influence as much of that “experience” as possible, regardless of the technological epoch: just ask any maître d’ or hotel manager in the 1980s, 1970s, 1960s, or even 1860s. Each technological step makes that easier, but why should “mobile” be the last of those?

      Perhaps it will help to understand the technological steps if you think of what they have, mostly, saved you from doing.
      – With PCs you no longer needed to travel to the office.
      – With the GUI you no longer needed to remember text commands.
      – With the Web you no longer need to travel to the library, theater, or music store.
      – With notebooks you no longer need to go to “the computer room”.
      – With mobile devices you no longer need to sit down/up.
      – With cloud services you no longer need to sync devices.

      This suggests some hardware steps at least, that will follow after “mobile”:
      – With X you will no longer need to hold a device.
      – With Y you will no longer need to charge a device with power.
      – With Z you will no longer need to put on or take off a device.

      Software steps are harder to imagine in advance, but there are probably more of them.

      • Jimmy

        Wow, Great comment. Thanks

      • Benjamin Alexander

        Preach it, brother!

      • oases

        With the third generation iPad you no longer need a pizza cutter.

  • http://twitter.com/jonathanstark Jonathan Stark

    Good stuff as always but I’m not sure about your comment about nothing but a payment mechanism being between producers and consumers. Apple and other store vendors own the customer relationship, no? This is a big drawback IMHO.

  • http://twitter.com/jonathanstark Jonathan Stark

    Good stuff as always but I’m not sure about your comment about nothing but a payment mechanism being between producers and consumers. Apple and other store vendors own the customer relationship, no? This is a big drawback IMHO.

  • http://twitter.com/katebevan Kate Bevan

    Apple is certainly not a software company. Look at the numbers: it’s a hardware company. In its latest results, its revenues were $35bn, of which software contributed just $891m. The software exists to drive the hardware sales – that’s why the iPad 1, despite being two years old, has been rendered obsolete by iOS updates. That’s why Apple solders RAM to the motherboard. It wants you to buy new hardware, and often. That’s why it pretty much gives away OSX updates – because software isn’t anywhere close to being an important revenue earner.

    • http://ceklog.kindel.com/ Charlie Kindel

      No, Apple is an experiences company. Their hardware earns 40%+ margins because of the rich software experience that is only available on that hardware.

      • http://twitter.com/katebevan Kate Bevan

        Only someone who has drunk deeply of the Cupertino Kool-Aid could post a remark like that without a ;) to signify irony

      • Steve Haney

        The old “Apple Kool-Aid” canard is a bit tiresome at this point and really should be put to bed. Nobody (including a successful Microsoft veteran like Kindel) is under any illusions regarding what Apple is or not.

        Jobs said many times what Apple was, but nobody seems to listen. And you can find him saying it at various keynotes and press interviews: He said Apple is a software company, they just happen to wrap their software in hardware before they ship it out the door. Those are pretty much his exact words; go look it up.

        What people don’t understand is that Apple’s hardware is just an extension of it’s packaging. Apple wants their software and services to shine in the best way possible, so they design the hardware “packaging” and don’t hand that over to an OEM, the way Microsoft and Android have done.

        This became even more clear to me when I was chatting with a former art director in Apple’s packaging group a few days ago. He revealed to me that Jony Ive co-managed all the product packaging at Apple and was deeply involved in the whole process. Ive’s design influence of the software “wrapper” doesn’t stop at the hardware; it extends all the way to the box you see on the retail shelf.

        Is it becoming clear now? All the physical aspects of what Apple offers (hardware, packaging, the stores) are simply beautiful wrappers to deliver up a great software & services experience. This is why, as Kindel points out above, their margins are software-like. It is because they are, at their core, a software company.

      • http://twitter.com/katebevan Kate Bevan

        I hope the patronising tone you seem to be adopting isn’t intentional, because it is grating a bit.

        I don’t care what Steve Jobs said. The numbers tell me that Apple is a hardware company whose software exists to drive its hardware sales.

        As an experienced user of many operating systems over the years, I don’t think Apple software is a great experience. It looks tired: skeuomorphism is untidy and unhelpful, yet it’s used extensively across native OSX and iOS apps. The splattering of ugly app icons across the iOS home screen is hard on the eyes. The attempt to move iOS metaphors – reverse scrolling, the dashboard – to the desktop seems to have been for the sake of it rather than to improve the user experience. The inability to resize windows except from one corner is exasperating. The lack of integration between Mail, Calendar and Contacts is frustrating. From an enterprise point of view, that it’s difficult to integrate iOS/OSX devices into an enterprise environment, to enforce policy etc, is obtuse. The failure of Apple to address serious security vulnerabilities for months is a worry.

        Sure, it often looks pretty. I guess if software looking pretty and coming in a vastly overpriced hardware wrapper is important, then great. But that doesn’t change the fact that the numbers tell the story: it’s about hardware. Pure and simple. Jobs went with the app store eventually despite resisting third-party apps on the iPad because he realised that it would hugely increase the attractiveness of the device to punters, and help further to lock them in to the Apple system.

      • jawbroken

        I’ll skip over the few factual errors and misleading statements to address the heart of your comment.

        If your assertion is that Apple hardware is overpriced compared to its competitors, is your conclusion that people who buy it are just irrational, stupid, brainwashed by branding, etc?

        Thinking of their products as roughly being a combination of hardware, software and online services, it seems to me that the simplest explanation would be largely that people are willing to pay a premium on hardware for access to software and services exclusive to the platform. Do you have an alternative explanation that I can understand and believe?

      • commoncents

        Good points.

        Although I believe Apple is about far more than elegant hardware, nevertheless if one does not have an appreciation for the masterful design and peerless construction of Apple’s products…basically their wonderful form-factor, then it is unlikely that one can truly appreciate their products. Then you end up with all the comments like “the Galaxy S3 is better” or “you can get a lot more processing power for the same money with a Dell desktop”. For those people, that is true. But that does not lessen the rationale for those who like the whole-package that Apple offers,

      • http://twitter.com/__MarkW__ Mark Wilcox

        @Kate Bevan: Wow! That’s the worst reason for misunderstanding Apple I’ve ever seen. They account for their combination of hardware plus software sold to the consumer as “hardware sales” in the accounts, therefore they are a hardware company??! What about looking at other numbers, like how many of their engineering staff are working on software vs hardware, or what fraction of the R&D budget is developing software? Indeed even a significant fraction of the hardware engineers are actually doing “software”, it’s just the kind that gets baked into silicon and can’t be updated without buying a new product (the software language in question there is usually VHDL). If they were a “hardware company” it would surely be insane for them to completely outsource the production of the hardware?

        Apple’s product creation business is actually an integrated combination of industrial design company, fabless semi-conductor company (this bit is relatively recent), system integrator and software and services company. By far the largest part of that is the software and services. I’d guesstimate for most modern smartphones that the software is >90% of the complexity of the product.

        FWIW, I’m also fairly certain that Apple always intended to have a native SDK for the iPhone (note the iPad had 3rd party apps from day 1) if it sold well – those things take a lot of effort to create. Saying that whatever the product has at the time (web apps) is all anyone needs and the supposed missing thing (native SDK) is not important was just the standard Steve marketing pattern or reality distortion field. The assertion is completely ignored or even reversed as soon as the missing item is added to the offering.

        Samsung is great at hardware, theirs is usually slightly ahead of Apple’s – unfortunately they suck at software (aside from integration, where they’re moderately competent) so they’re stuck with a fast follower business model and using other people’s platforms. They desperately want to escape this limitation but have so far failed to create decent software of their own. Bada was a disaster, Tizen is using lots of open source (i.e. other people’s software) but is still unlikely to be any good. Thus Samsung (mostly a hardware company) is not really direct competition for Apple but rather Google and maybe Microsoft (if they’re not too late to the party and too far off the popular taste with Metro).

      • Take The High Road

        LOL. You talk about someone being patronizing and grating, and follow that up with “I don’t care what Steve Jobs said”, followed by characterizing iOS as “tired”, “ugly”, and “exasperating”.

        This blog has been the only one I’ve ever come across that has such uniformly high-quality comments. Let’s not let this degenerate into the typical garbage seen in comments sections. There are so many intelligent people visiting this site. Let’s all work to take the higher road in debating the issues and not ruin this wonderful site.

      • Dave

        “The numbers tell me that Apple is a hardware company whose software exists to drive its hardware sales.”

        As “grating” as it might be to consider, you might be surprised to learn that Apple’s financial types might actually have models that apportion its profit on hardware sales to the underlying software components that make up the product. You seem to think that the costs and revenues of the software included with your computer can’t be quantified if they don’t appear on your receipt.

        Sorry if you find it inconvenient to have to think beyond the first level.

        (Your writing makes me wonder if other aspects of your life are also lived in cliché.)

      • Eric D.

        Kate, you’ll be happy to learn windows in OSX can be resized from any edge or corner. Just move you cursor over the spot you want to grab.

      • steven75

        Several of your OS X complaints are about 2 years out of date but where you really come off hard to take seriously is this line:

        “The splattering of ugly app icons across the iOS home screen is hard on the eyes.”

        Please name a mobile OS that has better app icons than iOS. From what I’ve seen Apple’s app icons are embarrassingly better than everything else in the industry.

      • Tom L

        Let me start by saying, this is the ONLY blog whose comments are worth reading, precisely because we don’t get the usual fare of arguments such as “the icons are ugly” to explain anything of value to make a point.

        That said, in the absence of rebuttal by you, I assume that the points made by others (who are much more qualified than I) are to your satisfaction, or you figured out that you are in way over your head here.

        Since you rely mostly on anecdotal evidence to make your point; here is one. Upon the release of the iPhone 5, I found myself in a dilemma. My eyes preferred the bigger Galaxy SIII screen, albeit in a cheaper plastic casing, but I could not live without the app ecosystem and services (iCloud, PhotoStream, AirPlay, iBooks syncing, Find My iPhone, etc) and its integration with all of my other Apple devices. Which phone do you think I went with?

        Another – my wife has a Kindle with hundreds of books. She PREFERS the Kindle’s weight and portability over the iPad. She also owns an iPhone. Let’s assume the iPad Mini is introduced on Tuesday with — gasp — the same exact form factor, materials, weight and feel of the Kindle — an exact clone. My wife will pay an additional $50 to own that device. Why? Because it will come with iOS and all of the software, apps and services she has grown to love.

      • http://www.facebook.com/profile.php?id=628137466 Wayne Larson

        Sorry, Kate, I’ve got to go with Charlie on this one. Whether I’m at home on my iMac or MacBook, or out at the dog park exercising my pup and using an iPad or iPhone – the experiences are seamlessly transferable. I care less which particular Apple hardware I’m using. I get to accomplish whatever I want – whenever and wherever I want.

      • http://ceklog.kindel.com/ Charlie Kindel
      • Tatil_S

        We are all waiting to hear your non Kool-aided explanation for why Apple manages to attract many customers willing to shell out for higher end products and affording it higher margins on these high cost items in PCs, music players, smartphones and tablets.

      • chano

        And this is the key point. If Apple were just a hardware company with a shallow meh (me-too) software experience, then their profits would be as ‘high’ as those of their competitors. It is the joy and delight factor (to umm :) coin a phrase ) of the software experience that makes the hardware appear to be magical or at least wonder-full for so very many average (as in non-geek) consumers. And when you can deliver joy and delight, both in the product itself and in the openly evident after-care …. the studied follow-through on service, free updates, retail points of reference for info or help and much more – well you can charge pretty much what you want. Without the software experience, Apple would have little cash at the bank and be as hugely profitable as Dell. Imagine that! Many others can and do make attractive, well-built phones, but no company creates an irresistible user experience and that elusive and compelling feature is built entirely in software.
        The hardware is merely the vehicle.
        The software is the soul of every Apple machine.

      • Walt French

        Heh, you sure make snap “judgements” on the shallowest of evidence. How’s that working out for you in other areas? Used to seeing 0-11 type votes?

      • http://twitter.com/asymco Horace Dediu

        You might want to look up Charlie Kindel’s background.

    • http://ceklog.kindel.com/ Charlie Kindel

      No, Apple is an experiences company. Their hardware earns 40%+ margins because of the rich software experience that is only available on that hardware.

    • commoncents

      I think it is somewhat missing the point to say that Apple is or is not a software company. The fact is they are an integrated computing device company. It is this integration which sets Apple apart. As Einstein said, we should make things as simple as possible, but not simpler.

      As to your trying to split the revenue into hardware vs. software, that makes no sense. When they sell the hardware, it’s combined with software. There is no basis on which to try to assign some portion to one or the other.

      • http://www.asymco.com Horace Dediu

        The notion of a company being defined only by the precise means they capture revenues is very naïve. By that measure Google is an advertising agency (or an auction house perhaps). Buyers seldom pay for what is being sold.

    • http://www.noisetech-software.com/Home.html Steven Noyes

      From an engineering standpoint, Apple is neither a software nor a hardware company. They are a systems company. The difference is a systems based company has to designs multiple aspects of a tightly integrated systems. The iPhone integrates with iTunes, AppleTV, Macs and so forth. Apple designs hardware. Apple writes software. Apple develops custom protocols (AirPlay for example) and interconnects (Lightning). Apple then integrates all of these components so they “just work” with minimal configuration.

      If you take a single one of these discipline away, the entire thing falls apart.

      The issue is, as a consumer, you don’t really pay for “protocol” development; you don’t pay for software (like iOS). You don’t pay for interconnect R&D. You pay for hardware making many people see Apple as a “hardware company”.

      • chano

        So if the distinction is as unimportant as you imply, what exactly is the distinctive difference about Apple’s products and specifically the iPhone series, that has created such a runaway success ….. and why?
        The hardware components that all the players use are much of a muchness after all.
        Microsoft, Nokia, Google, Samsung, Sony, Motorola, LG, HTC, Dell, HP and many others are waiting, breathlessly, for you to explain the difference that makes such a difference.

      • DesDizzy

        It’s a shame that the site seems to have attracted some Droids and lowered the tone of the discussion.

        The problem is, if you don’t get it you don’t get it. You can appreciate a Ferrari or Jaguar, or you can think that a VW or Ford is as good as it gets.

        As Steve founded Apple (with Woz), any rational person would accept that he should know what type of company it is. To not accept this is just stupid/childish for an adult.

        From a logical perspective, if Apple’s business strategy is so bad, why are GOOK and MSF trying to imitate it?

        The App discussion, where it all started, is interesting. Unfortunately, I don’t think that MSF realise that you can’t get into the iSpace with MSF prices. If MSF want into the phone/tab ecosystem the will have to obliterate Windows pricing. This they are unwilling to do.

    • http://www.asymco.com Horace Dediu

      Don’t mistake revenue model for business model.

  • http://twitter.com/katebevan Kate Bevan

    Apple is certainly not a software company. Look at the numbers: it’s a hardware company. In its latest results, its revenues were $35bn, of which software contributed just $891m. The software exists to drive the hardware sales – that’s why the iPad 1, despite being two years old, has been rendered obsolete by iOS updates. That’s why Apple solders RAM to the motherboard. It wants you to buy new hardware, and often. That’s why it pretty much gives away OSX updates – because software isn’t anywhere close to being an important revenue earner.

  • http://www.facebook.com/AmiBenAaron Ami J Kopstein

    The wonder is the human capacity to innovate and build on new technology and exploit it to the ultimate faster and faster. In the past 120 years innumerable industries, professions, practices, even the way we conduct wars, cultures and social norms changed, adapted, evolved and disappeared and we believe that we are all the better of because of that.

    Of course there are big islands of humanity that will forever have to catch up and some may have to journey hundred of years so we can always compare the quality of life between the front of progress and the trailing edge.

    So as humanity sails through the 21st century it is not an APPLE OR GOOGLE or any other such establishment that propels us but our nature and new venues, industries and roles will arise to replace what has outlived its usefulness, just be aware and prepare for when your cheese gets moved!

  • http://www.facebook.com/profile.php?id=100004145672673 Aug Hki

    its not what it is called that matters, it is what it changes.

  • fmjt

    The thing that comes to my mind when reading this post is that web browser, which many of us use to access to web, is rendered to only an app. An anecdotal example of this is with my 4-year-old relative where the web browser on the iPad has no value to him.

    The notion of launching a web browser and going to search engine to look for things is becoming traditional.

    To look at it another way, the URL is the MS-DOS command of this era.

    • Andrew

      That is brilliant !!!

    • rj

      It is remarkable to see kids of that age and even younger with an iPad. Of course, they can’t read or write, so its not surprising that they find the web uninteresting. Like most people, I can read, and I find it is faster and easier to tap on the Safari icon (always at the bottom), type “Esp” (or even “Es”), and select “Espn” from the list of suggestions than it is to a.) figure out which page of springboard I’m on, b.) swipe left or right c.) scan for an icon that doesn’t particularly stand out among its neighbours; and d.) tap on an icon and wait for an app to load

      The “pages of icons” model doesn’t scale past 2 or 3 pages very well. I don’t want to download yet another app every time I want to read a piece of content or perform a simple task. You can’t link from one App to another (at least not in a way that is nearly as useful as the web). There’s no way of “Googling” the content of all Apps. There are some things that apps do very well, but the Web has some advantages too. I don’t think its going anywhere.

      • Walt French

        Two alternatives on the iPhone: ask Siri to launch your app, or type the name of it into search (one home-button press from the home screen). Should be fine for the non visual-grid types.

      • BoydWaters

        good point: iOS Apps are self-contained, information “silos”, no interaction between the apps. Apple felt that the simplicity and security of this limited approach would help drive adoption of apps, and it certainly seems to have worked.

        Android and Windows Phone have different approaches, that can lead to interesting multi-app workflows. (My experience with these platforms is almost nil.)

        Microsoft’s “Metro Tiles” and “Charms” are quite interesting, but I wonder if they will gain any more mainstream adoption than Apple’s all-but-forgotten OS X “Services”.

        Without some mainstream (sigh) “killer app”, will “apps” remain isolated experiences?

        Seems like the trend is for the hardware platform to provide a variety of sensor-based alerts, such as geo-fence events, NFC, wireless messaging, GPS… And for “apps” to provide behaviours in response to these events.

        We’re just getting started.

      • steven75

        I find it interesting you used ESPN as an example as I think you’ll find a dedicated sports app (even the ESPN app, as terrible as it is in comparison to the others) to be a FAR better experience on an iPad vs epsn.com in Safari.

        Try it and I think you’ll agree.

  • Sander van d Wal

    The smartphone apps business is booming, but how much money is there actually being made? While apps are eating the world, are the app creators eating dry bread or caviar? PC software made some people very rich indeed, but who’s the first apps billionaire?

    This is after all a business.

    • Walt French

      Best to think of it as an industry, which it is.

      The airline industry has cumulatively been in the red since inception. Although providing a marvelous service, competition drives margins razor-thin, while frequent shocks to costs occasionally punch out huge losses.

      Apps are more of a cottage industry. Very little capital cost and few barriers to entry; it’s unlikely you’ll see a billionaire emerge. Scale can be an advantage to a category like gaming, where the software has major building blocks such as a “game engine.” But many apps are just ideas that easily jell into shapes that can easily be modified, re-written. Often, they can be explained in 30 seconds, bought on a $2 whim. You don’t need Nike-class branding, and trying to coordinate a large number of engineers is downright harmful to productivity.

      Horace says, “termites” and I’d say “ants.” Either way, they can make their way into a place that thought it was secure from assault because their size and agility allows app developers to work through the cracks in the defenses of established firms. The real question is how the fuller ecosystem of content, distribution, etc builds up; the App Store seems to have been both critical and accidental.

      • Sander van der Wal

        If here is better money elsewhere, there will be plenty of apps, but not of the best quality. The best developers will be bought out or leave for greener pastures. Look what has happened to the PC shareware scene. The good ones became proper businesses and everybody else was blown away by open source.

  • http://twitter.com/AngelLamuno Ángel Lamuño

    BTW, ‘Maps’ is not merely an app among others, it’s a key element in any app platform and ecosystem.

    • Sacto_Joe

      I disagree.

  • http://twitter.com/tjwittry Tony Wittry

    Horace,
    you 4 examples of industries being disrupted by apps.
    The one that sticks out IMHO is TV. Apps on TVs have been around for a while now.. do you consider that market to be be already disrupted?

    I’m skeptical. The termites don’t seem to be eating very fast. :)

    • http://www.asymco.com Horace Dediu

      Apps were around on mobile phones for about 7 years and on PDAs for 11 years before the App Store. The TV termites are still embryonic.

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  • Julio

    Since when Apple is a software company? Apple is and always has been a hardware company, that makes software for its devices.

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  • http://heddaestes.wordpress.com/ WinifredMullins

    Nutrients as always but I’m not sure about your thoughts about nothing but a transaction procedure being between manufacturers and customers. The apple company and other shop providers own the client connection, no? This is a big disadvantage IMHO.

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