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Tim Cook’s outburst [Updated]

When trying to assess the success of an ecosystem, the primary measure is the size of the user base or the “audience” for the product. Companies like FaceBook and WhatsApp and Twitter are measured first and foremost on this metric. Companies like Google, Amazon, Apple and Microsoft are less so. When revenues are firmly attached to products the focus shifts to “follow-the-money” rather than “follow-the-users” metrics.

That’s as it should be, but for the sake of understanding the competition between ecosystems, they should be compared on some similar basis. If the basis of competition in this day and age is ecosystems[1] how does one evaluate Facebook’s vs. Microsoft’s? Or, more poignantly, how does one compare WhatsApp’s valuation with that of iMessage?

It’s common to value a company which aggregates audiences at a multiple of that audience size. The implication being that each member of the audience returns a certain cash flow to the aggregator and the discounting of those flows is the net present value. Which is why, for example, a newspaper is valued in terms of its subscribers. As is a TV network and as might be a social network. Using this metric, a WhatsApp (i.e. free messaging) user is worth $40 and the average social media user may be worth around $100.[2]

The implication is that users/subscribers/audience members are loyal and will stay with the programming for some time. There is also a second implication that businesses which are not measured by audience size don’t have this loyal and recurring revenue base. The absence of an “audience” implies transience and impermanence and results in deep discounting of long-term viability.

Which is why ecosystems are the desired business construct for technology companies. They allow a more consistent and repeatable transaction model and offer predictability which is sorely lacking in the rapidly changing technology industries. It allows a company to define itself on its customers rather than on its products.

However, old habits die hard. Regardless of the exhortations of product companies, the notion of being valued on audiences is reserved for the service-oriented. Hence the outburst from Tim Cook at the latest shareholder’s meeting. Reports have him saying that:

Apple now has 800 million iOS users and has handled over 16 trillion push notifications, with 40 billion new ones occurring every day. Apple also delivers several billion iMessages and FaceTime requests every day. Cook added that iPad now accounts for 78 percent of all tablets used throughout the enterprise.

Trillions of push notifications aside, the claim that Apple has 800 million iOS users seemed way out of line. This is because the number of iOS devices (excluding Apple TVs) shipped through to the end 2013 was exactly 774,336,000. One could easily imagine another 25 million or so since, giving us about 800 million sold, but I cannot see the number in use being the same, and even if they were, the number of users being the same.

The following graph shows the claim in context of shipments.

Screen Shot 2014-03-05 at 9.54.13 AM

Note that last September Cook made the claim that 700 million iOS devices “by October”, which did indeed happen. The 800 million claim in February is certainly believable in that context.

Determining the total number in use is a very speculative exercise. Assuming useful life of 9 quarters for iPhone and iPod and negligible iPad retirements yields about 560 million iOS devices in use. Obviously this can be very inaccurate as also there can be multiple users per device but the claim of 800 million users seems very hard to reconcile.

Perhaps he was mis-quoted or he mis-spoke but the real question isn’t the exact number but rather the implication that Apple should be seen for its users rather than its quarterly shipments.

Them’s fighting words, Mr. Cook.

[Update: Thanks for Philip Elmer-DeWitt's investigation, Apple clarified that Tim Cook referred to 800 million as the number of iOS devices sold not users of iOS. He was mis-quoted.]

Notes:
  1. As Microsoft, Apple and Google seem to agree it is. []
  2. The degree to which a user is actually worth the sum of all the subscriptions she may have made is a good topic for discussion. []
  • triangle

    Paragraph 5, sentence 2 reads “They allow a more consistent and repeatable transaction model and offer a predictability which is sorely lacking in the rapidly when technology changes rapidly.” which is redundant towards the end at the end of the sentence.

  • r.d

    May be next time Tim can give the number in terms of activations.
    That would rile up the markets.

    • Below$600AShareIsPathetic!}:-(

      Android must be up to about three million activations a day by now. Wait until Nest thermostats get counted in daily activations. That will really impress Wall Street.

  • Accent_Sweden

    Well Apple transitioned from a computer company to a consumer electronics company. Perhaps its ambition now is to also be seen as a service company, at least in terms of valuation. The question maybe whether value is in the eye of the beholder or beholdee?

  • Space Gorilla

    I wonder if he meant Apple as a whole or perhaps iTunes, which I seem to remember was at or over 700 million users a while back. Even if it is units sold, that’s still very impressive and points to a steady march forward, it would seem 800 million active users is inevitable, and most likely higher than that. Now, cue the anti-Apple crowd hysterically denying that these kinds of numbers are even possible.

    • MarkS2002

      Wait, wait! What about Windows? My Mexican Nokia 500 peso phone? ANDROID?

      These numbers are impossible! /s

  • Tytus Suski

    Some people have more than 1 iCloud id. Useful for US TV content.

    • Kizedek

      True, but that is probably more than canceled out by those who share an iCloud account that is also an iTunes account. While the old Apple IDs spawned new iCloud accounts, and old iTunes accounts spawned new iCloud accounts, it doesn’t follow that all iCloud accounts, even new ones, are used as iTunes accounts. An attached Credit Card is the key. You don’t have to have one on file to use iCloud for Mail and synching.

      For example, my family of five has an iCloud account each (for personal data synching purposes), but only two shared iTunes accounts between us with credit cards attached (one for each of two different countries which we have lived in and spend time in, and both of which we actively use to the tune of much more than the average $49 per year because we use them for everything — books, iOS and Mac apps, films, music, gifting). And these iCloud accounts aren’t two of the five, they are in addition to the five personal iCloud accounts.

      Therefore, whatever term is being bandied about, misunderstood, misconstrued or misquoted at various times — “iOS users”, “iCloud accounts”, “iTunes accounts”, “Mac users”, whatever — the key is the number of Credit Card accounts that Apple has on file.

      I think Tim has referred to that number at various times. Whatever that number is, I think that is conservative compared to the actual number of users of Apple’s products and ecosystem…. but, at the very least, the number of Credit Cards *should* provide a real metric, and a base, when speaking about the value of Apple’s ecosystem.

    • JohnDoey

      If you want to sell both books and apps in Apple’s online stores, you have to have 2 ID’s. Apple actually tells you to go and create a second one.

  • Txapel

    Very ineresting,
    But, I have just bought an iphone 3gs for my wife and I use another one. There are a lot of people in Europe buying old iphones (you can check that on Ebay). I think that the useful life is more than 9 quarters.

    • Accent_Sweden

      Agreed. I sold two iPhone 4s in the last few months (200 dollars each) and I know several people who still have 3Ss or who have upgraded and sold their 3Ss recently. As long as they work, they are used and valued.

      • Andrew F

        Wow. But you know, the trouble with anecdotal evidence is that they often don’t convey reality, especially when we’re talking about hundreds of millions of users. And they’re useless for analysts, despite the number of “analysts” that get interviewed on Bloomberg West who say they don’t know anybody who owns an iPhone 5c lol…

      • Kizedek

        Original poster said, “look on ebay”. Doesn’t sound too anecdotal to me. It is a fact that iPhones/iPods have retained value and get used far longer than longer than they get credit for, and for far longer than other brands.

        Nine quarters would be a minimum — if an iPod or iPhone is in use only nine quarters than something unusual is wrong with it, and Apple may well do something about it.

        You can certainly trade in old devices for brand new equivalents. Here’s an anecdote:

        I dropped and cracked the screen on my three year-old iPad 1 on a large rock. I could have put money toward a brand new, 479 Euro entry-level iPad Air. But because the old one was “fully loaded” (64Gb and data/GPS), and because there is a newer iPad in the family and we are getting an Air imminently, I opted to go for the replacement at 239 Euro. The Apple store happened to have one or two of the 64GB-data Gen 1 models, in black, in stock.

        So, I walked out with brand new, boxed hardware (not refurbished), no dents, no dings, new battery… It doesn’t run the newest iOS and Apps, but we use it for the family on the road and camping, for navigation and entertainment. Now it is good for another 3 years!

      • Andrew F

        You’re right, but I’m not sure any of that would still be useful to an analyst. But you’re definitely right. I still have an iPhone 4 running iOS 7.1. The software looks crummy running on it but it’s more than good enough for my mobile computing needs when coupled with my iPad Air.

      • Space Gorilla

        True, but we don’t need to get into the weeds too much. The larger point here (I think) is Apple’s ecosystem is enormous, and growing, *and* skimming the best customers from every market they compete in. It hurts my brain to think about what can happen when Apple has a billion of the best customers on the planet, that’s a market unto itself.

        Google “How to recognize a super-company when you see one”, very interesting article by Chris Marriott.

      • JohnDoey

        I agree with you about anecdotal evidence, but that doesn’t mean he isn’t right in this case.

        There is a really thriving used iPhone market, and there is a thriving iPhone repair market. There are many people who must make calls and texts and are really happy to upgrade their flip phone to an iPhone 3G for no cost or almost no cost. You can even get the battery or other parts replaced cheap at many independent repair shops that also do watch batteries and so on. There is a former video store near my house that repairs and sells used iPhones. They have a desk in the back with all the tools and a collection of spare parts like headphone jacks and front glass.

        The repair and refurbishing of old iPhones is unique because there have only been a few models. So parts are readily available and it doesn’t take much training for a repair person to learn the ins and outs of iPhone 3G/3GS, 4/4S, 5/5S. And there is always demand for iPhones, no matter how old, as long as the price is right.

    • Space Gorilla

      I would also agree, my wife is now into the 14th quarter using her iPhone and we’re just now considering an upgrade (and that iPhone will be passed on to someone else for use until it dies). I still use an iPod Touch which I think is coming up on its 24th quarter of use.

  • Andrew F

    Why is there no transcript for the meeting? I’ve read a few articles and a number of them have conflicting quotes.

    I don’t think Tim Cook wants to get into a numbers battle with Android, unless it’s dollar figures. What tells you he was implying Apple should be seen for its customer statistics?

    • Space Gorilla

      I doubt Tim Cook cares about the very poor analysis which is rooted in the market share/raw numbers/winning! game. Apple normally goes over numbers like this at various events, it shows the strength and size of the ecosystem, which is getting to be a bit mind boggling these days, and still growing!

    • JohnDoey

      iBeacons are not being deployed in secret. Major League Baseball is bragging about deploying them in most of their ball parks this year and the rest next year.

      Also, Apple TV, iPad, iPhone, and iPod touch are all iBeacons. Their deployment is also no secret.

      • Andrew F

        I mean Apple is being secret. There’s also an NDA on most devs.

  • http://www.isophist.com/ Emilio Orione

    If Mr. Cook mean was 800 million ecosystem users, adding Mac store and perhaps even Windows iTunes users perhaps the number is indicative of the ecosystem size.
    Also computer users buy apps, books, movies, songs. Apple TV too.
    Why limit ecosystem users to iOS users?
    For microsoft ecosystem pc users should count.

    • Space Gorilla

      That’s a good point. Apple is the ecosystem, not just iOS.

    • JohnDoey

      There are about 800 million iTunes for Windows users alone. It’s the most popular 3rd party Windows app.

  • Bart

    “Trillions of push notifications aside, the claim that Apple has 800 million iOS users seemed way out of line. This is because the number of iOS devices (excluding Apple TVs) shipped through to the end 2013 was exactly 774,336,000.”

    Way out of line???? It’s a THREE PERCENT difference. Almost ROUNDING ERROR.

    • KirkBurgess

      I think you missed the point that total iOS devices sold does not equal total number of iOS users. For instance I myself own 3 iOS devices, name my wife does also – that’s 6 devices but only 2 users.

      • Bart

        OF course! Thanks.

      • N

        Also, not many people still use the iPhone, iPhone 3G, iPhone 3Gs, and iPad. However, these models sold in very small numbers compared to later models. Again, I don’t think Cook misspoke.

      • handleym

        What do you think happened to these old devices? Obviously some of them broke in various ways, or fell into swimming pools, or were lost in the wilderness. But the bulk of them are probably still working.

        So. Do we believe that most such devices are tossed in a drawer and never touched? Or do we believe they are given to kids/sold on eBay/repurposed for some specialty usage?

        I honestly don’t know, but I would guess the latter.
        I, for example, use my iPhone 1st gen as a transistor radio. I play podcasts on it as I walk around the house, using its built-in speaker rather headphones. I use an old iPod nano 2nd gen connected to some external speakers to play audio in the bathroom. I use an old iPod nano 1st gen in the car hooked up to head unit. And so on.

        In principle, yes, I could do all these tasks using just my iPhone 5. But it’s actually a whole lot simpler to use a dedicated device for each task. Set it up, change the audio (using iTunes) maybe once every three months, and the rest of the time just leave everything in place and working.

        This doesn’t exactly address the issue of “number of users”; but it does say something about the richness of the ecosystem and the value of sticking within it because you can create a rich “hand me down” personal ecosystem.

  • Jonorom

    From the chart it appears that over 500M iOS devices are less than 9 quarters old. Virtually all of those are in use. If we also assume that 50% of older devices are still in use (almost all of which are iPhone 4 and 4S – perfectly good phones) users rise to 650M. And if we assume that every one of ~200M iPads has a average of two users (and this is certainly true in all families who own iPads and have kids or grandkids) then our number rises to 750M. If any of my assumptions are too conservative, then – boom – we are at 800M.

    Note he did not claim registered users, just users.

    Horace, I think Tim did not misspeak. He has the numbers.

    Jon

    • Andrew F

      If the numbers are anywhere near true then that’s astounding. I’d love to know the absolute number of people who actually use Android devices vs iOS. Not that it’s very important, it would just be interesting for its own sake.

    • Jonorom

      And how many “users” does the average Apple TV have?

      Tim may have been pointing us to a unique feature of the iOS ecosystem – with the exception of Windows on the desktop, IOS is the only ecosystem with hundreds of millions of devices in the wild, like iPads and Apple TVs, that are routinely used by more than one person.

      Apple may be very interested in that way of looking at their ecosystem, as every “user” who is not yet a registered owner of an iOS device is highly likely to become a registered user and device owner in the future. What is one of these users worth? I suggest it is far more than $100.

    • N

      The recent WSJ book excerpt described him as having a photographic memory for statistics. I don’t think he misspoke. Jonorom’s back of the envelope math is pretty good. I suspect Apple paid for a random sample survey, which cost perhaps $100,000. Or maybe Apple can somehow tell from its own usage data.

      In my home, iOS devices outnumber users but I suspect the opposite is true in most homes.

    • http://sharonsharalike.com/ Sharon Sharalike

      Even if he has the numbers that doesn’t mean that’s what he said. Apparently he said devices, not users. (On the other hand, I’ve purchased 11 IOS devices starting with the original iPad, and I know that ten of them are still actively used. The 11th (a 5S) is waiting to get repaired).

  • gprovida

    I think users is much broader than number of devices sold and reflects the unique identity and engagement of multiple people on and with iOS devices. It would be great to get more insight into what Tim means by a user in the iOS ecosystem. Between iCloud, iMessage, email, Twitter, Facebook, my guess is Tim has a very rich data base to draw upon and I would be careful on assuming he overstates things. Finally, the useful life of Apple products far exceeds the refresh rate as evidenced in their high retained values. Apple has this data as well, so I suspect the continuing use of iOS has a much longer life than posited. It would surprise me to know 90% of all iOS devices are operational and only damage, loss, or otherwise missing would account for the remainder. The surprising thing is Apple can sell refresh with such strong retained value.

    • http://hasten.co/ CitizenX

      Well said.

    • gprovida

      Cook apparently said total devices sold although I think very high percent are operational.

      But the error has raised a really interesting point, how many “users” that is engaged individuals does Apple iOS and it’s associated ecosystem really involve for all the reason’ Horace raises.

      I suspect Apple knows or can find out after deciding what an engaged user means and this may provide deeper insight into Apple’s current dominance in internet and sales usage, but more interestingly provide comparisons across the industry and maybe insights into long term Apple strategy.

  • http://www.stock-soup.com/blog.html Stock Soup

    You can’t apply the same multiple to each companies “audience size.” Some audiences yield more (or less) then others. The free cash flow per customer is what counts.

    • where

      Where does it say you can do that?

  • johnny range

    Facebook has “users” microsoft has “customers” apple has both in the 10’s – 100’s of millions. What business is most valuable?

  • obarthelemy

    I think the lock-in effect of ecosystems is wildly overblown. Plenty of ecosystems have gone from leading to mostly disappearing over just a very few years: RIM, Palm, WinPhone pre 8.x… even Apple in many markets has gone from 50-ish percent to the low tens, and Windows’ ecosystem doesn’t seem to be helping at all in phones, and not much in tablets. Ecosystems are .. resilient.. (?) only if they provide strong lock-in. Windows did that by its utter dominance: the best hardware ran Windows, the best (arguably) software ran on Windows, and a lot of content was locked to Windows (Office files…). Also, importantly, user skills were tied to the Windows UI.

    None of these really apply for Mobile in general and Apple in particular: in terms of features, hardware is pretty much the same for all vendors, ditto for software, and ditto for media (which is not only available on all platforms, but even transferable, if people are smart enough to not buy from their OEM). User skills are irrelevant with Mobile being so easy.

    For non-hardware “ecosystems”, one word: MySpace.

    • Kizedek

      For a long time, one of your main contentions with Apple seemed to be that there was too much “lock-in”. Since that argument didn’t work around here, you now appear to be trying to argue that loyalty to the Apple ecosystem is an illusion.

      “Ecosystems are .. resilient .. (?) only if they provide clear lock-in.”

      Which, is now a good thing, apparently… And something that Apple clearly doesn’t have, right? …because, despite Apple being the only differentiated player all hardware, software and media is pretty much the same nowaccording to you?

      “And *even Apple* has gone from 50ish percent to low tens in many markets.” You have read the articles here… The “50ish percent” and the “low tens” are measuring two different things. Of course marketshare drops in half when that “market” doubles. That’s basic math. “Smartphone” is growing into the whole mobile market of wich it is a subset. The real measure is the marketshare of all mobile phones… A share of which, Apple has never had 50ish percent, but in which it has only grown. You need to get your head around this, or stop being disingenuous about it.

      • obarthelemy

        “strong” and “good” are 2 different concepts.

      • Kizedek

        Yes, they are. And “good” itself has different overtones, especially when used in the moral sense, and not used to merely mean “positive”.

        On this site, the discussion is mostly economic. In that sense, “good” and “strong” are practically synonyms. We were talking economics, and you implied Apple was not strong/resilient (hence my characterization of the opposite as “fragile”); and your apparent evidence is a large slip in marketshare in “many markets”. I pointed out that that measure is false. And where ever you stand on “lock-in” — good, bad or indifferent — I also stated that “loyalty” to Apple wasn’t illusory.

        Now, “Good” becomes fuzzy and personally subjective when moral elements are thrown in. Despite your thinking that many of us here can “see no wrong” in Apple, no matter what, the “rightness” about Apple is mostly focused on Apple’s statement that they “want to produce the best products they can” — a statement that seems to hold up under scrutiny, despite your cynicism.

        OTOH you seem to betray a lot of rosy-eyed-ness for Google and Samsung. And Google begs scrutiny in the moral area because its tagline is “do no evil” and it professes to be “open”. Yet, despite our cynicism, it really does fail to convince us under scrutiny that it has the best interests of its users at heart, doing what it does with our personal data, etc. Samsung seems to be a bit of cad (if not a mobster) that will just do whatever it takes.

      • obarthelemy

        Again, “best” makes no sense, because it means different things to/for different people. Best for middle-age me means largest-but-still-pocketable screen, for my child-education-financing sister it means “best for around $150″, for my elderly parents it means “easier to use”, for my teenage niece it means “peer-validated”, for my pre-teen nephew it means “with that game”. Also, I’ve never heard of any company saying “we’re not making the best products we can”, or “we’re making the worst product we can”. That’s my fluff/bullshit filter: would saying the contrary make any sense ? If not, then it is fluff.

        I’m not especially rosy-eyed towards Google, but I think democratizing IT by widening the ad-supported model from radio, TV and print to ecosystems is the single most significant IT innovation of the last decade. Google are obviously doing that for their own good, but users are mightily benefiting in the process. As for Samsung, They’re still doing good stuff but their prices are out there, I’m buying Huawei, Asus and Lenovo these days. And as happy as I was with Samsung for a third less. I keep trying 3rd or 4th tier Chinese stuff at half price or less, but keep being disappointed by details, though the stuff basically works. I keep hoping Sony will manage to carve a space alongside Apple in the Luxury segment… not there yet.

      • irrational

        Users are only benefitting if you believe the internet ad market is completely irrational.

      • obarthelemy

        Mmm… Like Tv viewers, radio listeners, and press readers aren’t benefiting either ?

      • irrational

        Yes, exactly like that. Unless, again, you believe the ad market is irrational.

      • obarthelemy

        You think content creation is a zero-sum game, with ads actually diminishing quantity and quality (however one defines that) of available content ?

      • irrational

        No, I think more direct ways of paying for things would be cheaper, and advertising is only to fool people into thinking they’re getting something for free by making the cost indirect and impossible to reason about.

      • obarthelemy

        So you agree ads augment the quality and quantity of available content ?

      • irrational

        Compared to what, precisely?

      • obarthelemy

        Mmmm, to no ads ?

      • irrational

        That’s not an alternative, as it doesn’t specify the alternate payment method.

      • obarthelemy

        Yes, not having ads is an alternative to having ads. Alternative payment method of yoru choice.

    • obviously

      “even Apple in many markets has gone from 50-ish percent to the low tens”

      Kind of a weak effort on your part. If you’re arguing against the lock-in effect you have to show that they’re losing customers in the absolute sense, obviously.

      • obarthelemy

        Lacking data, but it’s pretty evident: 10-ish% wwide volume growth, new markets and strong dominated markets… other markets have to be down in units.

      • obviously

        It’s far from evident, and very “lacking data” indeed. Very weak position.

    • Davel

      @obarthelemy

      This is not true.RIM, Palm, etc did not have ecosystems. Applications and services on those devices sucked. The only ecosystem is bbm, which still exists and is one of the pillars the new CEO is building on.

      The Windows ecosystem is real. However the web killed Windows. Users care about data and services. The web allowed those two things to move to the cloud. So Windows lost its effectiveness. Office is still powerful because of its usefulness, but the format can be used and created by others. I don’t happen to use Office for my personal data and so have no loyalty to Windows.

      • obarthelemy

        That’s looking back. At the time, the devices and apps were… magical… And they didn’t suck: I’d still today be happy with Palm’s calendar, contacts, even QuickOffice (I think) and the synching app (LapSynch ?). there were also perfectly OK little games, ebooks readers, even a video player towards the end.

        You’re saying, in essence, anything that failed was not an ecosystem, everythinq that succeeds is one. That’s not the definition of ecosystem. BBM is not an ecosystem.

  • Space Gorilla

    As evidenced by obarthelemy’s comments here re: ecosystems, I think we have now officially entered the Era of Hysterics on the topic of Apple. Apple’s success is now so obvious and enormous that the anti-Apple crowd is now hysterical. Watch for two things: One, even more hysterical and ridiculous comments on articles that report basic facts about Apple’s enormous success. Two, fewer comments from the anti-Apple crowd, they are running out of arguments that prove Apple is doomed. So while we’ll have a smaller number of wackadoodle comments to deal with, they will be ever more entertaining.

    • obarthelemy

      Ad hominems. Always a win ^^

  • hgolden

    I think the issue of “users vs customers” may not be the right perspective.
    Facebook, and Whatsapp are “networks” or “networking platforms” and as such their value increases with its size. Other ecosysytems do not have the networking attribute and therefore its size has less relative value.
    Apple being an ecosystem is linking developers and users over a business model based on premium margin hardware and low cost / high volume apps. But that kind of linkage is of lightly coupled nature, while the social / communications networking is of highly coupled nature.

    On a different subject, whatsapp -with the additional voice capabilities- over facebook may become a powerful global cloud based communications network. And facebook could function as a global name server for telephone numbers (by linking address books). This is would be a great threat to communication network providers as not only their major sources of revenue would evaporate but they would also loose their customers identity (i.e. the telephone number) and relationship.

    • obarthelemy

      I’m not sure FaceBook is the true platform: the Internet is. I assume we’re talking about blog posts and messaging. Those can be done over pretty much any site, and we can be alerted to new activity via any number of standard-based (email, RSS…) or proprietary (bespoke app, messaging platform) channels. Some of my contacts are on FB, others on Posterous, others on Tumblr… I seem to get a weekly recap to keep me in the “active” users. The network effect is at the Internet level, not at the platform level, I think.

      As for a new-age phone directory, it will probably be regulated and standards-based, hopefully decentralized and/or replicated too.

      I keep wondering if, in then end, governments will not step in and provide basic messaging services (mail, IM, VOIP), or at least regulate those like they do mail and telephone.