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Day May 19, 2014

Categorizing technologies

In the graph below the grey circles represent the US penetration (percentage of households which own) MP3 players.

Screen Shot 2014-05-19 at 5-19-7.55.22 PM

Superimposed on this sparse sample graph is a line showing the sales of iPod touch. This second graph has a different scale, shown with a gridline at 10,000, representing millions of units shipped by Apple. To smooth out seasonality I show the trailing four quarter average with a thick line.

The correlation is fairly evident. As iPod sales grew, penetration grew and “peak MP3” was recorded in September 2010 while peak sales occurred at the end of that year.

It’s not a stretch to say that iPod touch sales are causal to MP3 penetration, especially since the iPod has remained the market share leader in the segment for a long time (at least 70% share) and that the iPod touch is consistently half or more of the iPod.

The absence of data for penetration beyond 2012 is therefore not a problem. We can assume that MP3 devices have a finite lifespan and, if not replaced, the penetration will decline.

I modeled both the increase and decline with a diffusion curve as follows:

Think local, act global

Three years ago Apple’s Greater China Q1 sales were $2.22 billion or 9% of total. This year they were $9.29 billion[1] or 20% of total. Over this time frame the growth in China was about 320%. The second fastest growing reporting segment was Japan with growth of 187%. Europe was third with 70% and Americas fourth with 53.5%. Rest of Asia/Pacific had the smallest increase of only 4.1%.

A graph showing both the absolute and relative sales levels for the reporting regions is shown below.

Screen Shot 2014-05-19 at 5-19-11.35.17 AM

As overall sales have increased significantly, the revenues from the Americas and Retail combined (as most stores are in the US)[2] went from 51% in Q1 2011 to  42% in Q1 2014. The 11 point increase in share for China can be thus seen as mostly at the expense of the US. As Americas did not decline more appropriate statement would be that China captured much of the growth of the last three years.

Note that I also included Google’s revenue split[3] in the graph above. This is partly to calibrate Apple’s mix and to understand if the expansion outside the US is mirrored by other companies.

Google, in particular, is largely absent from the Chinese market and the only regional detail we have for their revenues is the US, UK and Other. That leaves an analysis of the dependency of each company on the US market.

Google’s US revenue percentage did drop from 47% to 43% but it’s worth noting that not only is the drop slower than Apple’s, the overall dependency of Google on the US for revenues is higher than Apple’s.

A surprising observation as Apple’s concentration of users, measured as market share for various products, is likely to be higher in the US than Google’s distribution of users.

Put another way, Google is broadly popular world-wide (except for search in China, Korea and Russia) but its customers and hence profitability are highly concentrated.

  1. Including China retail, revenues reached “almost $10 billion” []
  2. 60% of all Apple stores are in the US []
  3. Excludes discontinued operations, namely Motorola []