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Postmodern computing

There are 7.1 billion people on Earth. Coincidentally there are also 7 billion mobile connections.  Those connections are held by 3.45 billion unique mobile subscribers.[1] Unsurprisingly, the largest national mobile markets (by number of subscriptions) correspond closely to the most populous nations.

Screen Shot 2014-04-07 at 7.21.46 AM

Considering smartphones, last year 1 billion smartphones were sold and the number of smartphones in use is about 2 billion[2]

Given the rapid adoption of smartphones, it’s also safe to assume that smartphone penetration will follow population distribution. In the US, where comScore data is published monthly, penetration is following a predictable logistic curve.

Screen Shot 2014-04-07 at 7.55.13 AM

 

Assuming similar patterns world-wide we can forecast regional smartphone penetration. Screen Shot 2014-04-07 at 7.56.49 AM

This yields the following forecast for smartphone usage world-wide.

Three years ago the notion of smartphones becoming as ubiquitous as toothbrushes seemed far fetched but it’s now gradually being accepted. The smartphone is well on its way to becoming the most successful technology in history.

So what?

What will the smartphone do for us? Does smartphone ubiquity change anything? Besides increasing ARPU slightly in a $1.2 trillion industry? Besides doubling the size of the device business?[3]

Besides creating a $20 billion app industry? How do we assess the impact of having a connected computer in one’s pocket? In everyone’s pockets? With us all day. Every day.

Before we answer, we have to realize that the smartphone has been disruptive. Which means it has that special quality of not affecting the world in a predictable way. Its growth has been largely unforeseen and has affected the fortunes of the incumbents. As big and ubiquitous as it has become, the companies which were most intimately aware of it, its very own creators, were cursed by it.

The evidence is in this graph:

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As the market exploded, the incumbent platforms all but disappeared. The innovators fell into the trap of treating the complex new product as a niche whose appeal was for selected “segments” described by the coarse data they were able to gather. Ubiquity itself was asymmetric to the basis of competition they established.

Today we can note how even the usurpers iOS and GMS Android are being swamped by the more modular alternative AOSP. Indeed, if we squint a bit we might notice that the OS/platform churn we see is part of a trend where the value is migrating up the stack from Components and Networks, through Devices and Operating Systems and on to Services and Experiences.

I call these the three mobile eras: (Firm names used are representative of a cohort and are not a complete list of participants.)

Screen Shot 2014-04-07 at 8.51.45 AM

The thesis is based on Value Chain Evolution Theory which states that disruptions cause profits to evaporate from commoditized segments and condense in adjacent spaces, usually toward more modular, more convenient or lower cost innovations.

Note that the eras have specific time spans. If the pattern holds then we can overlay the time frame of smartphone penetration on these eras and even plot ecosystem entrants.

Screen Shot 2014-04-07 at 9.06.55 AM

 

Disruption suggests that we are likely to see yet more shifting of fortunes. It means enabling new ecosystems to take advantage of the modularization of platforms. But how can it happen given the entrenched nature of the incumbent duopolists?

The clue lies in the first graph in this post: It suggests a geographic segmentation. The largest markets are large enough to sustain independent ecosystems. Note that China and Russia have already established alternative local service ecosystems. We may dismiss the possibility of localized Google and Facebooks in emerging markets but China and India are universes in and of themselves. But there are another 10 markets of more than 100 million users. That’s another billion users among them.

Screen Shot 2014-04-07 at 9.31.22 AM

But it’s not just the availability of a vast pool of new users. The rapidity of growth of services like WhatsApp and SnapChat and Tencent shows that barriers to entry are low. We see increasing indigenous innovation in payments, logistics and business models in the newest markets. We see no shortage of talent and capital to start these businesses. We see increasing language and culture clustering in social media. We see political resistance to hegemony.

Focusing on the established, highly penetrated markets as an indicator of opportunity would be a mistake. Those markets foretell the rate of adoption but not the evolution of the value chain. Apple and Google will continue to anchor in those markets but there is no reason for the remaining two thirds of the world to follow. Indeed, there are incentives not to.

Incentives exist to localize services. Indeed, service businesses have always been local businesses. There are few global service brands. This has been true in retail, transportation, banking, hospitality, media and communications. Why should we believe that ecosystems can overcome the advantages of localization? Services are local because they are delivered by individuals and have high “touch” with the user.

Fundamentally, ecosystems are social systems and social systems have cultural and political dependencies.[4] Technology does not homogenize unless it is centrally controlled. The control of mobile computing has already been abdicated by its creators.

Notes:
  1. GSMA []
  2. There are also about 2 billion 3G/4G connections world-wide []
  3. Screen Shot 2014-04-07 at 8.17.26 AM []

  4. Post-modernism is a typological world view which  sees truth as socially constructed and a rejection of ‘totality’ []
  • HRPuffnStuff

    I think it’s interesting that your 5th chart shows ios canabalizing all legacy platforms.

    At least, visually, it appears that Apple is literally eating them to gain market share.

    • Will

      I think you should look at the chart again

  • Sander van der Wal

    2 billion smartphones and a 20 billion dollar app industry. That is 10 doller per smartphone. That’s pathetic.

    The PC software industry is how big in terms of devices? And and in terms of apps?

    • Kizedek

      It does seem a little pathetic; But it’s more like 20 dollars per iPhone, and maybe 5 shared among the rest. (perhaps 500 million iPhones at 10+/20 Billion revenue, 2013 iOS App Store figure).

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

      Does your pathos extend to the tens of billions of dollars of value placed on companies who give away their software (Instagram, SnapChat, Supercell, Whatsapp et. al.)?
      The market capitalization of the app economy is surely a high price to sales ratio. That ratio is also surely higher relative to the (declining) PC software industry.

      • Kizedek

        And I guess another way to look at is that the PC industry itself is also declining (units and ASP’s etc.) as more and more jobs can be and are done on mobile devices, and as more and more time is spent on mobile devices. Perhaps Apple, for one, made this state of affairs fairly “normal”.

        And, any revenue that Apple, for example, is not making through App sales (ie., the former 9,99 for iWork apps) is instead “included” in the sale of an iPhone (whose ASP is greater than most PCs, and whose practical utility for most people most of the time impacts the PC)?
        Therefore, Apple, for one, is nevertheless adding value to the app economy in a couple of ways.

        Horace, by mentioning those who give away their software, are you saying that (your’s/anyone’s) figures for the app economy (20B or whatever) might not include revenues (such as premium services) not directly received through one app store or another? So would the true value of the app economy be even higher? (For example, I think I went Premium with Evernote through their website, and not as an in-app purchase).

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

        What I’m saying is that an economy can be measured by revenue (turnover) or by value created (profits or their net present value as valuation). Valuation is used to judge future potential. Certainly it seems that given the growth in usage, future potential is being regarded very highly. In contrast perhaps to how traditional software is viewed.

      • charly

        In traditional software any app is killed within three years by freeware copycats. I assume you mean that view?

      • Kizedek

        Yeah, it gets complicated doesn’t it? Apple is viewed in the “traditional” way, despite its proven model, despite its solid user base bringing credit cards to the table, despite its opening of new technologies, new models (the whole app economy) and new markets. Nevertheless, Apple is valued low, because the likes of Samsung is seem to imitate Apple poorly.

        Yet, others are valued extremely highly, for quite the opposite reason — “future potential”, whatever that may mean. It sure sounds good. Facebook buys What’sApp for 12B, etc. No proven model or plan for monetization, only a hedge to stay in the “game” (whatever Apple decides the game will be ;) )

        …Similar could be said for Google: they are hedging their bets by making a play on anything that might keep them relevant in the future. (Benedict Evans and Ben Bajarin discuss Google as “GE” in a Cubed Podcast). Google’s (and Amazon’s, etc.) valuation has always been about “future potential”, and it just keeps getting pushed into the future.

      • charly

        Apple is a hardware maker with some software but they don’t sell apps (smallish software programs)

      • Kizedek

        True (though last time I checked they produced about the same number of apps as Google, Facebook, Amazon and MS). I might be wrong, but I don’t think Horace was excluding Apple from the App Economy completely.

        I think the context was that even if ARPU among the billions of mobile users appears low, nevertheless, great value is placed on such things as “usage” and “future potential” — no matter what current profits and business model are like?

        But in any case, Apple still has users, and a lot of them, and users whose future potential as a group appears more sound than the uses of a specific app like WhatsApp.

      • art hackett

        Future potential eh? Wait till someone discovers how to market past potential. There will be a be a buzzword for it though. Funny how potential is in the future, unless you’re referring to voltage. So many things that have little current value seem to have incredible future potential. Snake oil anyone?

      • Sander van der Wal

        If people are happy to pay just 10 dollar on average for apps, why would they pay so much more to validate those high valuations?

        The market for lets say freemium photo sharing apps is worth 1 billion, just to put a number on it. What you are going to see is that every company that is in that market is going to be valued at 1 billion.

    • Bananaj

      $10 is quite a a percentage of income in emerging economies?

    • obarthelemy

      I’m having trouble even finding figures for app purchases from stores vs in-app purchases vs ad revenues from mobile.
      I don’t know if that $10 is even the bigger slice of the pie.

      • charly

        Most developers are not paid by app purchases, in-app purchases or ad revenue. Same is true in the PC software industry

  • Walt French

    Horace, welcome back from your blogging hiatus! If the time off ONLY offered you the chance to think about how we’re moving into the next wave of mobile computing (and yes, I saw the tweets otherwise), it was time well spent.

    Having known of “post-modernism” primarily in art & architecture, I had to look it up to get what it might mean in this context. (Yes, I’m just that kind of guy.) My dictionary coughed up, “a late-20th-century style and concept in the arts, architecture, and criticism that represents a departure from modernism and has at its heart a general distrust of grand theories and ideologies as well as a problematical relationship with any notion of ‘art.’”

    I guess the meaning here is that much as values of independence and individual autonomy have re-defined the current order, the American/Western influence is giving away to localized communities. But I wonder: even if local governments can control local fora, doesn’t the democratization of voice become MORE important? Sina Weibo may be effectively under the party’s thumb, but more people in China have studied English than there are Americans… won’t the future communities continue to break down the old geographic barriers, as they obviously have for you personally?

    Part of China’s campaigns against Google and Facebook were intended to control expression, but part of the reason was old-fashioned protectionism, barriers to protect local industry. Once Chinese businesses want to list their shares in the US, support cross-border relationships (business & personal), want to sell products in developed nations, the artificial boundaries become increasingly untenable.

    I personally think this next phase isn’t likely to last much longer than the last, and that the winners of the services competitions are increasingly going to find themselves unable to monopolize even local markets — after all, what is more individualized than “service?”

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

      My observation of a localized future is not based on protectionist forces alone but on the evidence of local customization and unique tailoring of services. Consider that payment and logistics pose different opportunities in China or other markets. This means that a payment infrastructure would be different or unique and that a global Twitter could not implement local service extensions for each market. We are seeing localized messaging differing by region and no value for a global brand in the sector. Fundamentally, in my opinion, in the service stack, economies of scale are not evident beyond 100 million users.

      • stefnagel

        High tech; high touch.

      • SubstrateUndertow

        Yet ?

    • charly

      My native language is one of the closest if not the closest (semi) mainstream language to English and i prefer it to English because it makes me understand things easier. What do you think Chinese people prefer?

      Another part was that the US spies on you. I personally believe that that was a very important reason though protecting the local business was naturally the real reason but that is always true

      Service industries don’t have to be monopolized to be profitable.

      • Walt French

        I wasn’t trying to say that Chinese users would prefer English, merely that they are prepared to be much more internationally-connected than Americans are.

        My wife’s father was the only one of his generation who left China; we have many relatives there. A few are quite fluent in English; many are pretty savvy about technology around the world. Their day-to-day lives are of course mostly about events near them, but they are increasingly part of a much broader, “modern” community—thanks in part to mobile tech.

        I was thinking specifically about WhatsApp when I wrote about service industries. Our daughter, who’s been living/working in SE Asia, has gone through a couple of local message services; others in our circle of friends have watched the rapid migration from one OTT message service (BBM) to another (KakaoTalk). Low-margin businesses that need huge scale are most at risk from changing network effects.

      • art hackett

        Spying possibly slightly more efficiently than some others, but it’s corporations doing the economic spying. Google anyone? Never mind the others. Wait till big pharma and insurance fine tune (not pronounced toon) their spying techniques. Good luck getting insurance then. Maybe that’s one of the reasons Obama has been pushing to get Americans covered ASAP, before the corporations manage to lock out the poor. Hurry and die oxygen sucking peasants. We have robots now.

    • SubstrateUndertow

      I agree, fundamental technological disruptions tend, sooner or later, to universally colonize across all cultural boundaries. That is what defines them as fundamental technological disruptions.

      Maybe regional language/cultural embellishments are more superficially transient in the long run ?

      • charly

        The tech is disruptive but it is rare that its is done by one company throughout the world

  • Andrew F

    Great piece. Seems Apple predicted this value shift up the stack some years ago when they bypassed NFC and waited for BLE to emerge. I really think there is a massive opportunity in hardware-as-a-service. I think beacons will enable all kinds of new unforeseen services and experiences the way the App Store has, and I believe Apple is planning some major new hardware to enable, take advantage of, and extend these new experiences.

    • charly

      Apple has the problem that outside of a few markets its market share is to low for payment services to work.

      • Andrew F

        Apple has an enormous share of money-spending users around the world. They also have by far the largest database of accounts with credit cards on the internet.

        I think there’s a huge financial opportunity for Apple in commerce, including local commerce, especially in America, Japan, and segments of Europe. Maybe China.

        Apple won’t be the only company turning a profit thru beacon-based services. I think these services will also accelerate growth in the App Store.

      • charly

        Apple has a Louis Vuitton clientèle in the rest of the World which makes buying a pack of gum at a 7-Eleven an impossibility in the rest of the world with an Iphone

      • Andrew F

        Whys that? I have a 7 eleven app on my iPhone

      • charly

        I’m not talking about 7-Eleven specific as it is mainly based in the US and Japan but more about stores who deal with small bills.

      • Andrew F

        I don’t understand your point. Theoretically, as long as the store is equipped with a beacon, Apple can take care of the rest. A proverbial store doesn’t even necessarily need an app if it’s simply a deli or bodega or something.
        Beacons will cost less than 10 bucks in the not too distant future.

      • Space Gorilla

        charly is one of a few resident trolls around here, everything leads to Apple’s doooooooom as far as he/she is concerned.

      • charly

        Stores wont get beacons when only 5% of their clients have iphones and not even all of those will pay with beacons.

        ps Hardware may be $10 but servicing/installing is a lot more

      • Andrew F

        Beacons don’t need to be OS specific, just needs BLE compatibility. Lots of small stores can just use their own smartphones as beacons. To make this work, Apple is gonna want to create an overnight network effect. All the dirty work will be handled by them, so that it “just works” for customers. A lot of what kept them out of this for years is a fear that customers would blame them for a bad experience, in addition to no BLE ubiquity.

        Servicing and installing are negligible costs if they were to go with beacon hardware. Stick ‘em anywhere, they can use a watch battery for a year, and can get OTA updates.

      • charly

        This are great solutions for small bills. Problem with small bills is that they are mostly payment interactions between consumers and big companies and in cases that they are between consumers and small business is also the cases were tips are important.

        For a big business servicing and installing is my guesstimate a grand a year. Not exactly peanuts.

      • pk_de_cville

        “Stores won’t get beacons when only 5% of their clients have iphones and not even all of those will pay with beacons.”

        Ask Howard Schultz about that. He’s the CEO of Starbucks.

      • Kizedek

        A lot of assumptions there. Since we are talking about what stores will and won’t do for a hypothetical portion of their customers they are keen to attract, then let’s make some more:

        Apple will make any device and system they produce at least a little more simple and intuitive than whatever you are imagining (thus, far less dependent on a costly cadre of IT or Services teams). Apple will somehow make the proposition attractive with recognizable value. Once embarked upon, the benefits will far outweigh the negatives for 75+% of cases.

      • Mark Jones

        There’s a beacon inside the iPad. If they use an iPad and app as the “cash register”, they’re all set.

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

        I think Apple can live with markets like The UK, The USA, France, Japan, Austrailai …. While not getting markets like Tanzania, Turkey, Greece…

      • charly

        We are talking about a payment service. I don’t think Apple has the market share to be viable in France

      • Walt French

        Not only does Apple not have the market share in France, it doesn’t have the market share in the US, where it is the biggest smartphone manufacturer and the one with the highest value clients.

        In other words, it may do a payment service in the future, but for it do work any more successfully than Google Wallet has (i.e., to be more than an unused sign at a couple of coffee shops), it’ll have to work with a much larger share of customers, and work much more cost-effectively and securely.

        Likely, that means not trying to take on the entire banking system of the country. They’re even bigger than Apple, Google and Samsung put together. Right now, they have no great technique to reduce merchants’ or cutomers’ costs and (e.g., frequent-flier miles) benefits, nor any assurance that they could eliminate the fraud that cards have.

        (Interestingly, fraud may be a feature of card systems: tolerating a low level of it makes transactions go quicker, and reminds merchants the importance of not trying to manage their own systems outside of the big bank networks. Feature for the banks, that is.)

      • charly

        This kind of service starts of with public transport, parking and maybe a few coffee shops and vending machines.Those are the places transaction speed and price matters

      • Andrew F

        Why would a payment service need so much share of a market to succeed? I don’t think Apple intends to bypass the banks

      • charly

        Because it needs to be a useful service for business. Being used by less than 1 in a 100 of your clients is not likely to be useful.

      • Andrew F

        I think you guys are thinking about this in the wrong way

      • charly

        Then how should we look at it then?

      • Tatil_S

        Amex or Discover cards are used by a minority of customers, but that is good enough for many merchants. I’d say the problem is on the consumer side. If a smartphone payment system cannot replace some of the cards in my wallet, I will not go through the trouble of setting one up. If I still need to carry the same cards, what is the point for me? If the metro accepts it, but the bus system requires me to carry the same old card, the utility of the new system becomes fairly marginal.

      • Kizedek

        Exactly. There could be a couple of scenarios that could be a win-win for everyone: customer, vendor, banks/credit companies and Apple.

        For example, just speculating, there could be a variation on the kind of vouchers now in use already.

        For example, in my limited experience, a department store cafe in NL already scans bar codes in coupons it sends out by email. I hold the screen of my iPhone up and they scan it with their normal cash register scanner.

        This is based on credit the store has already applied to that barcode. Why couldn’t the credit be applied through my iTunes account?

        I pay for the credit on my iTunes account through my bank or credit card, so they are happy.

        All it needs is for there to be a “system” that identifies which iTunes account

      • art hackett

        Interesting about the screen scanning for payment. Quite similar to the online movie ticket purchasing. Can you imagine actually printing out tickets if you don’t absolutely have to, like for the dinosaur airlines or actual music or theatre venues?
        Wonder if screen quality plays any part in reliable barcode scanning.

      • Kizedek

        Yes, I can certainly imagine. I hate printing out a whole page per ticket when my family uses the train or goes to the zoo. I want to wave the email/pdf on my device and say, “you print it out, I’m saving trees.” Tickets are about the only thing I use my printer for these days. And they already have barcodes or QR codes on them containing the important information. In fact, I’m pretty sure the train conductors just look at them/scan them and don’t collect a whole ream of A4 pages to carry around.

        Certainly, barcodes are generated for all sorts of credit — for example, our supermarkets have a bottle return machine that scans every bottle and tallies up all the deposit fees due. When you are done feeding your bottles into it, it spits out a little slip (just like the cash register’s receipt printer) with your total deposit credit; you take that to the cash register and get that amount deducted from your bill.

        I don’t think screen quality is a big issue, because these little slips always look faded and crinkled, and the ink/thermal dye is cracked and not uniform. And you can stick the slip in your pocket and use it the following week. Likewise, scanner apps for the iPhone camera can make sense of all kinds of barcodes and QR codes.

        I see no reason they couldn’t also scan my iTunes account ID off my iPhone screen and use that info to request payment… no costly equipment, NFC, BlueTooth, etc. required. Heck, we can already use an app to generate a QR code for ourselves that contains any content — so it can’t be difficult.

      • charly

        Problem with itunes is that it has a very high profit margin baked in as seen in the buy €50 in itunes credit for €40 supermarkets sometime advertise with so itunes can’t be used for anything where the costs of money transaction should be low.

      • Kizedek

        Another assumption, that it “can’t be”.

        Who knows? By all accounts iTunes is not at a huge profit. Now, the 30% commission that Apple asks for apps and other digital goods or services sold its own store (if that is what you mean by “very high profit margin baked in”) is one thing…. Physical goods in someone’s else’s store is quite another thing.

        There is no reason whatsoever that transactions can’t be treated differently than commissions.

      • Walt French

        Pre-paid cards are quite the nuisance today. I have a couple in my wallet now but I only visit Starbucks infrequently, or even at the coffee co I frequent almost daily, I forget to dig around for it.

        More would be worse, and having a raft of apps isn’t a solution, either.

        Maybe auto-fill cards reduce costs a bit, but the real reason retailers favor house brand payments is (a) a large fraction of the value is never redeemed, and (b) my style notwithstanding, it brings customers back into a habit of buying from the store. A generic payment mechanism doesn’t accomplish either of those, nor does it seem like it addresses customers’ interest in anything more than “doing things the modern way.”

        Payment systems are a solution in search of a problem until they somehow can be used for almost all transactions — about everywhere that you’d use plastic — and they present lower costs. Vis-a-vis the latter, many of us are quite happy to get “mileage points” or other kickbacks on our cards, so we’re talking something obvious like cash discounts or something even MORE attractive than the notion that every trip to the store gets you a bit closer to that week in Hawaii.

        Tough problem. Huge financial liabiities and huge entrenched interests. This isn’t going to be something you just start as a hobby and grow over the years.

      • Kizedek

        Good points. However, I wasn’t really addressing the need for it (the question of what problem it is looking to solve), so much as the fact that it “could be done” with little to no investment in equipment or even infrastructure.

        That Apple didn’t jump on NFC or something certainly attests to the fact that it is cautious about what problem it is looking to solve. I was just agreeing with other posters that it wouldn’t necessarily require huge adoption at the outset, nor a large investment by small shop keepers, whether in money, time or equipment. I think existing technologies could be used… if Apple supplied the “special sauce” and “cracked it”, giving us all (customers and vendors) a compelling reason to use it.

      • Walt French

        I like to think I’m reasonably imaginative, but I haven’t conjured up some way that Apple could actually *disrupt* the existing payment mechanisms.

        Apple is a computer company, not a financial services company. If they are going to become the latter, against some expert incumbents and MONSTROUS lobbying to make sure the rules aren’t too unfavorable to those interests, they’re going to have to come with something pretty big.

        Hence, my skepticism. I’d love to hear what Apple could do that would “crack” the problem of cost, fraud or inconvenience. (Note that in the US, we use less secure cards than are near-mandatory in Europe, because the extra few pennies cost would cut into banks’ profits more than they would reduce losses by banks.) I’m just not seeing it.

      • Kizedek

        It’s true that prepaid cars are a nuisance. I wasn’t thinking about that aspect so much (I think charly mentioned the €50 cards for €40). Rather, my iTunes account just gets paid through my bank account as I make purchases.

        I have a wallet full of credit/debit cards and store loyalty cards. If passbook could keep track of all promotions AND make payments so I didn’t have to carry ANY cards, that might be preferable to some people. But you’re right, it could be less attractive to stores than the physical reminder of a card; and if it didn’t work for everything, it would probably defeat the purpose.

      • g3

        a little knowledge is a dangerous thing.

      • Walt French

        While empty homilies merely suggest a failure to have a point that’s worth paying attention to.

        Go ahead and come up with some good counter-arguments; this whole site is about a dialectical process—many sites where there are actual discussions (as opposed to flamewars between opposing camps of fanboys) encourage positions supported by observation, evidence and especially data. One-word insults are its antithesis and help none of us.

        Got what it takes to play?

      • g3

        nonsense.

      • obarthelemy

        France ? IIRC, they have 3% by volume…

      • pk_de_cville

        “Apple has the problem that outside of a few markets its market share is to low for payment services to work.”

        When you’re looking at marketshare, you need to include Android medium and premium grade phones as they will join the party as soon as Apple sends the invites. (iBeacons, NFC, and Apple’s new payments structure will be standardized for all smartphones (Windows included)).

  • Ian Ollmann

    Horace, there seems to be a chart missing, or at least some labels. I’m having trouble telling who the curves correspond to in the second “Distrubution of Profits by Era” chart, services category

    • 程肯

      Look at the middle chart of Distribution of Profit by Era. It closely resembles the prior chart, Market shares of smartphone ecosystems.

      The red would be Symbian, Blue=WinMo, Green=BB, DarkGreen=iOS, Tan=Android, Grey=AOSP, and the shades above the grey are service disrupters.

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

      The omission is intentional. I don’t want to name any specific service and assume there will be several.

  • charly

    According to your graph Apple will have 75% of the market in 2018. That is only slightly more believable than me winning the miss world contest in 2018.

    You claim that ARPU will increase because of smartphones. Didn’t the reverse happen in Europe because of the death of SMS and more competition.

    • usmarket

      No, that chart is of the US market.

      • charly

        That will change it to me winning the miss USA contest. Only slightly more realistic.

    • Kizedek

      “You claim that ARPU will increase because of smartphones. Didn’t the reverse happen in Europe because of the death of SMS and more competition.”

      Isn’t that phone ARPU for “traditional phone services”, garnered by carriers that has decreased “because of smartphones” and OTT services that have bypassed direct control of the carriers?

      Apple has pretty successfully made itself independent of carriers with its ARPU, so that ARPU can potentially increase regardless of what happens to SMS, etc. Virtually, the sky’s the limit because who knows what sorts of services and products can be added to pocket computers. Apple pretty much ushered in the modern App Economy (and Accessories industries).

      • art hackett

        Apple pretty much ushered in the modern App Economy (and Accessories industries).

        You could probably have left out the “pretty much”, even if it was almost by accident. That they recognized and nurtured its potential is also encouraging for further opportunities. Remember “apps” before the iPhone? Talk about bag of hurt. Probably the only system for mobile that didn’t make your head explode before iPhone that comes to mind was the Newton (and Palm I suppose).

    • JohnDoey

      Every phase of Apple’s mobile growth sounds ridiculous if you describe it to a person who is 4 years in the past.

      It was ridiculous at one point to say Apple would kill Palm. Then Apple killed them. Then Apple killed the new Palm.

      • charly

        Is Apple’s growth so much better than that of Palm or Blackberry during their peak?

        ps. Apple killing Palm? Apple was still in their ipod phase when Palm became serious ill.

  • stefnagel

    Localized services make sense. But what about a Coca Cola event? Can a tech brand command global interest, given products/services supports local services? or even encourage and enhance them?

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

      Coca Cola prospers globally because they are a franchise model. The bulk of value is captured locally. Same with all franchise models (e.g. McDonalds). If there is any licensing of technology it’s through the components. Components are still a global business with a concentration of suppliers. ARM is perhaps the Coca Cola of mobile, in this context.

      • jim_zellmer

        The “bulk” of sugar water value is generally in the concentrate, sold to the bottler network. Pepsi & Coke have bought and sold their bottling networks over the years via various financialization strategies.

        Concentrate facilities have historically been placed in tax friendly locales, from Ireland, Cyprus to Puerto Rico and others. Political and market access requirements may drive concentrate facility decisions as well.

        Finally, the sugar water tax strategies are not dissimilar to those employed by the large technology and pharmaceutical businesses. All “high gross margin” games.

      • Walt French

        A good reminder that corporate structure can be, and is, tuned to tax and other environmental considerations.

        But ARM seems to be incorporated where its actual economic activity is. So you’re not suggesting that the company would relocate to China, Korea or India if those nations’ IP and tax regimes were properly reformed?

        So far, ARM seems to be doing a good job of pricing a good position on the leading edge, capturing fees for both high- and low-value processor designs. Apple would seem to have the potential to unilaterally bolt (but seems unlikely to) while all the others seem reliant Google’s baseline interpreter, which is tuned for ARM. Even if Google were to promote another architecture, many “legacy” Android apps — especially the highest-performance games etc — use the native code option, which would make a switch off ARM problematic.

        So ARM indeed has a franchise even if the business structure isn’t exactly that.

  • poke

    I don’t see a trend toward localisation at all. Major internet companies are serving the whole world with the only major exception of China, which is isolated by politics. I think the fact that China is the major exception is telling: only government intervention can make localisation effective. (Companies like Amazon that deliver physical goods are obviously a different matter.)

    Computerisation leads to services being replaced by self-service. Economies of scale favour self-service. Mobile accelerates self-service because you can bring the UI right to the end-user; that’s essentially what mobile is. Users are motivated to learn because economies of scale mean lower prices if they’re willing to do a bit more of the legwork. The whole thing can be made relatively painless. Users, businesses and content producers that aren’t willing to operate this way are being left behind.

    I suspect the current proliferation of messaging services is an aberration due to Google and Apple completely dropping the ball on the platformization of messaging.

    • JohnDoey

      iMessage is as big as WhatsApp, and WhatsApp is an iPhone app. So how did Apple drop the ball?

      • charly

        You can use WhatsApp on a non-ios device. That is how Apple dropped the ball. With communication apps more is always better.

      • poke

        I was thinking of the proliferation of messaging services in Asia that are building platforms on top of messaging. WhatsApp appears to be just a regular messaging app with the addition that it works on cheaper phones that other people don’t support. Apple and Google could have probably countered the former by allowing people to build on top of their messaging services rather than having to replicate them, either by adding greater flexibility to what can be sent and received or by turning messaging into an API that other apps can build on top of. I think, more generally, messaging should be seen as something very basic to mobile platforms and shouldn’t be trapped in a simple messaging app.

  • obarthelemy

    Thought-provoking article, thank you.

    I’m having trouble with a few things:

    1- At some point in the article, you segue from “computing” to “smartphones” (I guess, or maybe sphones+tablets). Aren’t old-style computers and their attendant software and services still a big business ?

    2- In the “eras” breakdown, are software and services included anywhere ? Were would Oracle, EDS and SAP be ? and EA ? I get that the point is to show that value-add is moving up from hardware to services, but I’m wondering is the effect is not wildly exaggerated by filtering out pro SW and SVC and games, but including online services that arguably are the consumer equivalent of those.

    3- I’m wondering if a “specialist – professional – personal” classification would not be as valid.

    4- Regarding local ecosystems, I’m not sure the divide needs to be that stark. Ecosystems could work the way TV does: some local content, some localized foreign content (there’s a French “The Voice”, with Mikah too ^^), and some straight-up foreign content, simply translated (we’re getting Game of Thrones S04E01 this Sunday).
    Putting that in an Android context (that’s the one I understand), Looking at it from both the supply and demand sides:
    a) we can (and do) have stores separate from Google Play running alongside Google Play. That meshes with localization, legal environment (media rights, gov. oversight…), local tastes…
    c) a global store can offer localized versions, country-specific software, or just see one app disproportionately successful somewhere

    • obarthelemy

      I deleted that post for 50% off-topic, 50% half baked, and it was too late to fix it… as it is too late now to reframe it. I’ll try to come back and deal with it at a less ungodly hour.

    • JohnDoey

      Only Apple is still making money off Intel PC’s, and Apple makes much more from phones. You almost have to pay a user to take a Windows PC off your hands.

      The Mac is essentially a producer/developer platform for phones, tablets, and TV’s. That is not really true of any other PC. The other PC’s are easily replaced with mobile hardware in most cases, while the Mac is not, because the things the Mac does all feed the mobile hunger for music, movies, books, websites, and apps. So the Mac is needed by Apple even if it makes no money. The rest of the Intel PC’s are going away fast. They are just big, heavy, obsolete iPads in most cases.

      • charly

        Google chromebooks are sold with profit, XBone and PS4 are pc’s. Higher end pc’s make money but the problem is the low end were there is no money but who are simply good enough for almost everything (except gaming, and that isn’t even true anymore)

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

    If you are right and value chain will move toward services and experiences, the next Apple product able to disrupt current Apple’s products (an Apple tradition to disrupt itself to continue innovating) could be extending iOS apps and services to AOSP.
    It will make Apple a service provider for mobile devices, also offering top of the line devices, opened to different ecosystems. iTunes will be accessed from everywhere, iWork will be ubiquitous. Also iOS App would have to be able to compile for AOSP using an Apple compatibility library. iPhone price will be able to lower, services built upon iOS will be universal, the war with google will enter a new level.
    A rethinking of Apple social strategy might be needed.

    Apple should definitively expand and improve iCloud, maps and other back end services to be prepared for the transition.

    • http://www.collideconsult.com/ Ed Dietrich

      Would be hard to think about AAPL doing this. They have never opened up the Mac OS to running on other hardware and it’s hard to see them doing it with iOS. Their ecosystem is fully integrated.

      • obarthelemy

        I’ve been wondering about that.Apple really only ever do premium stuff, and their ecosystem is only available on their own devices….that has to cripple their ability to do anything outside of selling devices, from negotiating content deals to setting up payment systems to serve 10-15% of the addressable market for those things ? Unless indeed we go local, Apple have critical mass in US and JP, and maybe a handful other countries.

      • Kizedek

        Your view does indeed seem to reflect most thought on the matter… However, perhaps it is slightly backwards:

        Perhaps it is the selling of devices that has enabled Apple to do the other things outside of selling devices? Such as develop their ecosystem and processes. Others have to give away devices in order to “sell” their less focused, more confusing and complex service offerings where the focus is on the appearance of choice.

        As far as negotiating content deals, etc. Apple don’t seem to be particularly hurting on that front — perhaps only dedicated content providers and stores like Netflix and Amazon are really in the running with iTunes. And both of those are readily available on iOS devices. Again, 500M iTunes accounts and growing appears to be a far clearer and better market than 2B “Android” users of whatever stripe.

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

        If iTunes is a zero sum service sustaining devices sell than it make sense to keep it in the ecosystem, if Horace is right and iTunes will shift to being the primary money maker than it will make sense to sustain iTunes and expand its reach to other platforms.
        Furthermore Apple’s focus is on developer that sustain the ecosystem, for now they are happy with the current rain, when they will have other needs Apple will supply the tools or will loose them.

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

        If and only if Horace is right and device will loose profit sticking on current business model won’t be right.
        I wasn’t speaking about licensing iOS, but about porting iOS Apps that make iOS services to Android to enlarge service user base, like Microsoft is doing with office, and perhaps creating a porting library to allow xcode apps to be compiled for Android too if possible, allowing minimal code rewrite.
        I don’t thing that this porting will influence much Apple ability to sell devices, like google services being in iOS does not influence Samsung to sell android devices. For sure it will influence Apple ability to monetize its services.

      • http://www.collideconsult.com/ Ed Dietrich

        Apple is already making iWork freely available to anyone with an iCloud account through iWork web apps, and certainly their iTunes strategy with Windows opened up the WinOS world to their ecosystem, priming them for the iPhone and iPad. Many of the elements of an “ecosystem” are available on multiple platforms (google, windows, amazon) so I think the future will be in UX, and how well any ecosystem can bring all of these elements together, make them work coherently and easily for the user. There has to be a strategy for monetizing all of this, otherwise why do it. I would think that if Apple did make more of its ecosystem available via AOSP, it would be for the same reason they made iTunes available via Windows, i.e. give users a taste of a better ecosystem, but only give them the full experience on an Apple device.

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

        The shift of value from devices to services requires a change of strategy.
        If iTunes become the cash cow your strategy will have to focus on improving service use and penetration.
        Horace says localization will be the new disruption force for services. Well if it is true Apple will not stand still. The company is modeled as a disruption engine, there are no division nor barrier to disrupt an existing product line in Apple. They have done so in the past and will do so in the future.
        While Apple could try to compete in localization of service, an increase of reach for the service, porting to ASOP, will certainly contribute to the service appeal.
        It is not that apple has to do it right now or in the near future, but if I was Tim Cook I would start a small porting project to be able to do it if needed.
        They did it for intel macs, microsoft did it for office, starting the port to ipad four years ago. If Horace is right and four years from now services will have the value the project could come at hand.
        Perhaps Apple should buy a small company with strong skills in android and iOS development…

        For iWorks, I know it can be used by browser but in mobile devices apps are what users want, see usage data.
        A focus on services will require more than a browser reach, that was aimed at windows, it will require apps for mobile and browser only for desktops.

      • charly

        Apple makes $300 per 5s. That is an lot of money to get with services.

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

        Yes it is but why should Apple loose it?
        If, in four years, services will be what is valued by users, not devices like it is now, that is what Horace is saying more or less, devices sale will follow services not vice versa.
        So not having the service will mean loosing a sale and loosing $300.
        The assumption of service disruption of the value chain is that services will spread and proliferate and most localized services will be targeted at china or india or other not well served markets from Apple.

        If Apple has the service the quality of its devices will always be a selling point for Apple’s customers.
        Having the same service on cheaper and less quality AOSP devices will increase the reach of the service and therefor its value, its ability to monetize.

      • http://www.collideconsult.com/ Ed Dietrich

        Agreed!

      • obarthelemy

        iTunes exists on Windows.

      • http://www.collideconsult.com/ Ed Dietrich

        See comments below

    • SubstrateUndertow

      The other question is :

      Will there be truly disruptive health/finance/governance services that will by necessity pivot around very tight device/eco-system integration?

  • Walt French

    A lot of the “service” model seems to be OTT voice/text, and Apple has been very circumspect about its offerings in the area. Surely, avoiding “complexity” has been one reason, but ever since Apple doggedly refused to include tethering on the iPhone in the face of Verizon allowing Android phones to have it, I’ve concluded that it was just Apple playing nice with AT&T, even if they didn’t have an explicit contract requiring it.

    Sooner or later, the gentlemen’s agreements will crumble. iMessage already interoperates nicely with SMS as a fallback for non-Apple destinations; FaceTime would too, I suspect but for a nasty patent situation that requires Apple to pay up or invent a different technology. So Apple, like Skype, have quite a bit of experience in doing these services and would seem to be able to put them into the OS level where a WhatsApp or whatever would be a likely interface on the user side.