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iPhone, killer

Screen Shot 2015-05-13 at 5-13-8.20.01 AM

 

Searching for “iPhone killer” returns millions of hits. It’s hard to remember any phone/product/service/platform/initiative/merger/startup which was not at some point considered an iPhone killer. A sampling is offered here.

In reality, the killers seem to have all faded away while the iPhone continues. We could just shake our heads and move on, but a deeper analysis is possible. Take a look at the graph above. Note that iPhone’s (and hence Apple’s) ascent has not caused decline in its nominal competitors. When seen in the context of the graph above, the success of the iPhone has in fact been complementary to those companies who would be its killers.

Consider that the iPhone drives a large portion of Google’s revenues as it is the home to many Google services and engagement through the iPhone is higher than any other platform, including Google’s own. iPhone users tend to make better customers. In exchange Google pays a great deal for traffic acquisition on iOS devices. The placement of search on Safari is probably the biggest single cost item on Google’s income statement ((Estimates are a few billion dollars a year.))

The iPhone example drew Google to build Android as a facsimile and that, coupled with Brobdingnagian spending on marketing, led to Samsung’s Galaxy success. That success seems to have peaked and the brand is now a victim of low-end disruptors which copied it and the iPhone in turn. However, Samsung electronics benefits from the iPhone in terms of its semiconductor division. Apple is Samsung’s biggest customer and the semiconductor division is now the largest source of operating profits.

The explosion of Android has led to IP licensing revenues for Microsoft and now Microsoft is extending its software applications to iOS, hoping to participate in the iOS ecosystem rather than competing with it. The time may come when Microsoft shows growth from the iPhone.

Finally, although it may seem oblique, Amazon is benefiting from the iPhone. Instead of killing it with the Fire[1], the iPhone and iPad offered much more mobile shopping opportunities to the Amazon store. Data shows that iOS leads in shopping traffic and order size precisely at a time when Amazon obtains its largest volumes. Amazon’s AWS also handles a great deal of iOS-originated traffic.

This alternate reality shows that the benefits from the iPhone revolution are broad and deep. It’s not just the direct revenues[2] from app sales on the App Store but also the creation of entire new communications modalities (Instagram, Snapchat, WhatsApp) new services (Uber, Airbnb) and the multi-billion dollar accessories markets. These benefits are largely unmeasured and therefore not visible in accounting systems. They are perceivable however.

Users perceive the value, developers perceive the value and, in the end, the only account that matters, the brand, accrues these perceptions to grow in value.

As the brand flourishes, the perception of vulnerability dissipates and the narrative shifts from Apple getting killed to killing it.

It’s taken eight years and 500 million loyal users but, perhaps, just perhaps, this change in perception is entering the collective consciousness.

 

Notes:
  1. presumably as a low-end disruption []
  2. $25 billion paid so far []
  • LTMP

    I’d love to see your thoughts on the corollary, those businesses that were killed, or are being killed, by the iPhone. Not so much its direct competitors, but those businesses and industries that failed to make the transition to the ‘smart phone era’.

    Map books, taxis, watches and day planners are the obvious ones (as is anything printed and portable), but I’m sure there are others less obvious.

    • Tatil_S

      Isn’t it a bit of an overstatement to call “day planners” an industry? :-)

      GPS nav devices and point and shoot cameras are obvious losers. Even DSLRs must have lost sales, as people could step up to carrying a DSLR if they had to take a camera with them as they are leaving the house anyways. When you can make do with just the phone, the equation changes.

      • LTMP

        Day planners actually used to be a billion dollar business.

        Yes, GPS and cameras are other obvious losers, as are portable gaming devices, music players etc.

        I’m really interested in a breakdown to see if smart phones have actually destroyed more wealth than they have created.

        My suspicion is that, at this time, they have. But as more people begin using them the opposite will be true.

      • Sacto_Joe

        The major reason I think they haven’t “destroyed more wealth than they created” is that Apple has created whole new avenues for businesses. I mentioned video cameras above. Before the iPhone and iPad, there was a much more limited market for videos and all the ancillary businesses related to videos. One might even argue that YouTube became the business it is today because of Apple’s busting apart of the mobile device paradigm.

      • LTMP

        That’s a fair point. However, in the past, camera’s were a moderately high margin business. One camera equated to 10s or 100s of dollars in profit. Video is so very commoditized now that the overall profit created might be smaller than in the past.
        Keep in mind that I don’t think this is a bad thing. Whenever there is a major disruption, there are many losers before the world catches up and finds a new equilibrium.

        I’m just trying to understand how far along we’ve come in that process.

      • Sacto_Joe

        I’m personally not sure how “high margin” portable video cameras were, especially as competition increased. And note that, even then, the video cameras were composed of components from component manufacturers. Ergo, if they weren’t already lower margin, they were definitely headed that way. Apple vastly extended the market for video, and thus gave at the very least the component manufacturers a new lease on life.

      • Tatil_S

        The volume of GPS nav devices, full size portable music players, digital cameras and handheld gaming devices combined were never close to the current smartphone sales volumes. (You can take the booming semiconductor and LCD screen businesses as further proof.) Smartphone ASPs are higher than regular cell phones, so they most likely created more wealth, especially if you include income from software.

        That is all before accounting for people making more money than before by using smartphones.

      • Sacto_Joe

        Also video cameras. Although there it may be that Apple actually expanded the market.

    • BMc

      I wouldn’t put taxis in this category yet. The disruption there is really just beginning, and end game still be be seen.

      • LTMP

        That is very true, but I believe the disruption may already be irreversible.
        I have an acquaintance who owns a near monopoly in the taxi business in a medium sized Canadian city.
        Not only has she lost a substantial percentage of fares and drivers, but she has also seen her insurance costs double. She has been told (off the record) that the rate hike is largely due to various uncertainties surrounding the Uber business model.
        The value of her medallions has also decreased enormously.

      • Walt French

        That’s a useful point. Pretty obviously, Uber stole a jump on established taxi services, but there’s nothing about the MO that would be hard for the taxi companies to steal in the way of customer interface, and eventually regulatory arbitrage—the requirements that taxis have commercial licenses, commercial insurance, expensive medallions, etc—should go away, too.

        Taxi companies cannot emulate the part-time employment, nor the time-shared vehicle. These, however, seem very difficult advantages for Uber to sustain, because driver incomes and well-being are pretty squeezed.

    • Ray

      It’s a pity that a blog that used to have interesting analysis of the technology and mobile industry is becoming increasingly biased and dangerously close to cultofmac.com

      Why should Apple get all the “credit” of disrupting all these industries? Why starting with the iPhone? As someone mentioned, Apple is standing on the shoulders of giants. It did not invent the computer, or the cell phone, which are key inventions powering this revolution.

      There are many much more fundamental, inventive and disruptive breakthroughs not invented by Apple that are behind this revolution. How about:

      – Cellular phones

      – The Internet

      – The microprocessor

      – Semiconductors

      Intel, Ericsson, Cisco, Google. etc. should get as much credit or more for these disruptions.

      The microprocessor is in essence a much more disruptive product than the iPhone, since it essentially has transformed the world economy, going from an industrial age to the information age. The iPhone is just one successful step in as a consumer device.

      • BMc

        So you are essentially saying that the inventions in the 50s, 60s and 70s which are responsible for all changes since? Nothing since these “foundational technologies” should be credited with innovation, disruption, new business models, etc? But wait – you aren’t going far enough back in time! The transistor was actually invented at Bell Labs in the 1940’s. You should say that the rise in the smart phone is most directly then the result of Bell Labs (old AT&T). But wait again – if we really want to look at innovation, perhaps we should consider the modern digital computer, of which the earliest designs are attributed to Alan Turing, back in the 1930s.

        You might want to take a quick search and read a bit on what “innovation” encompasses. It is not simply related to fundamental physics.

        It is funny that you complain about Horace using Apple as his focus, when your anti-Apple bias is so obvious in every one of your posts. Perhaps you should go to a forum, or read articles, that are anti-apple, so you will feel at home.

      • Ray

        Anti-apple bias? I think Apple has done some great products, the iPhone being their best example, but that doesn’t mean that they should take the credit for internet services.
        Maybe you are too emotionally attached to a brand, to the point that you feel that people who don’t share that adoration and evaluate the brand objectively are biased?

      • Juil

        Ho but I think you do have an anti-Apple bias…

        “It’s a pity that a blog that used to have interesting analysis of the technology and mobile industry is becoming increasingly biased and dangerously close to cultofmac.com”

        “it’s a pity that a blog bla bla bla…”

        You know that Apple (and more specifically the iPhone and iOS) are absolutely killing it: http://en.wikipedia.org/wiki/List_of_largest_corporate_profits_and_losses

        One would need to have an anti-Apple bias in order to whine like you do and put into question Horace’s effort to analyze, mesure and understand Apple’s fortunes.

        I rest my case your honour.

        Save everybody’s time and stop. Just stop. Is this too much to ask?

      • Ray

        Why do you waste your time accusing other readers of “anti-Apple” bias an posting links to obvious data that everyone knows and provides no insight on the strategy and future outcomes of the mobile industry? Maybe you could be making wrong choices and wasting your own time?

      • Ray

        Asymco used to be an interesting place to learn about the mobile industry. There were post with analysis of different companies and strategies, not just Apple. In the last few months posts seem to be centered about how great Apple is, and how wrong its competitors and critics are. OK, I got it. Maybe there was some internal resentment because Apple was not doing as well in 2013 and now is time to spend months releasing it and rejoicing. Hopefully that exercise will be finished soon. How about we move on onto more interesting topics? Is Apple facing any challenges? Or is it the first company in history that doesn’t have any challenge? Is the watch the next big thing? If so, why? How about the challenges of the fashion industry? I can think of plenty of topics to analyze that are much more interesting and especially, informative. Just my opinion.

        Is it anti-Apple to say that? Good Lord.

      • Juil

        Apparently, it was too much to ask.

      • Ray

        It’s not anti-Apple to say that Apple did not invent the microprocessor, computers, the Internet, the web, or the cellular phone.
        Apple has done a great product, the iPhone, but crediting them with transformations that are part of the overall information revolution is an irrational stretch. Even staying at the client device level, there were smartphones before the iPhone that already were “hired” as day planners, email clients, etc. I had a couple of those (a Palm and an HTC) and they were definitely a replacement for my day planner, my watch, my alarm clock, and many other products.
        It seems around here anyone who does not sport a limitless positive opinion about Apple as the only and true tech innovator is treated the same way as heretics are treated in religious communities.

      • Troy

        “It did not invent the computer, or the cell phone, which are key inventions powering this revolution.”

        HP’s LaserJet came out in mid-1984, a year before the LaserWriter, but it was Apple’s invention that changed the world, not HP’s previous attempt.

        http://i.imgur.com/nLumAz7.png

        for a 1984 review, the gist of which was that the LaserJet was a glorified LPR or daisywheel printer.

        The LaserWriter had an on-board PS ripper, enough memory to actually image full-page graphics, ‘soft’ downloadable outline fonts (not $220 ROM cartridges like the HP), and built-in LAN support to more fully justify the IIRC $8000 list price. PageMaker was written for it, and the rest was history.

        We Mac-heads have been fighting this battle with you guys for decades now, trying to get you to understand that innovation is not invention.

        Invention is the technical improvements, innovation is where you can go with it.

        One thing in tech today that Apple didn’t have a hand in innovating is the modern optical mouse; that’s an HP invention that was first productized successfully by Microsoft. Most everything else, Apple took the arrows as a pioneer.

  • Frank Schirrmeister

    Great article. Not sure that a causality can be established between Android and iPhone as you state “The iPhone example drew Google to build Android as a facsimile”. There was certainly influence on direction. But with Android being acquired in August 2005, almost two years prior to the iPhone introduction, wasn’t Android always about “eyeballs” on Google advertising in mobile?

    • Charles Arthur

      It’s well-documented that Android was indeed intended to be a hedge against Microsoft dominating mobile (and so mobile search), but the Android prototype before the iPhone demonstration in January 2007 was keyboard-based. The Android team threw huge effort into creating something like the iPhone on seeing it demonstrated in January 2007, as Fred Vogelstein describes in his book “Dogfight” (highly recommended). Hence the choice of the word “facsimile” above.

      • Will

        Yes but in the end Google has always had a mobile plan with Android, before the iPhone.

      • Mark Jones

        Blackberry, Nokia, and Microsoft had a mobile plan before iPhone.

      • Will

        Yes. And Android. That’s my point.

      • jfutral

        Sure, and as with the other companies, the Google/Android plan was reshaped because of Apple/iPhone.

        Joe

      • Will

        So? Blackberry didn’t change and it died. It’s a good thing they’re responsive.

      • jfutral

        Right, and as such, “The iPhone example drew Google to build Android as a facsimile”

        Joe

      • Will

        That’s ridiculous. Going touchscreen doesn’t mean an exact copy. Just like going 5″ doesn’t make the iPhone an Android copy. It’s just how competition works, it’s called staying up to date with technology.

        And how is your reference to Galaxy’s marketing relevant in any way?

      • jfutral

        I’m just trying to keep the conversation relevant to the discussion. Google’s Android pre-iPhone looked nothing like iPhone and did not employ a capacitive touch screen, more like Blackberry. When iPhone became a known entity, Google switched to an iPhone facsimile from a Blackberry facsimile in order to, as you say, be responsive. The reference to Samsung is the complete thought of the author’s point. Did you read the article? Or are you just spitballin’ commenting?

        Joe

      • Will

        Google’s Android pre-iPhone looked nothing like iPhone and did not employ a capacitive touch screen, more like Blackberry

        That’s not the point. The point is Google knew before the iPhone that it had to go into mobile. Doing a good job and staying relevant, even dominating, into that space, means Google knew very early on what to do.

        Adapting to the market, such as increasing screen sizes, doesn’t invalidate the previous effort. We’re all standing on shoulders of giants, it’s not like Apple invented touch screens or multitouch.

        I still don’t see what Samsung has to do with this thread.

      • jfutral

        “The point is Google knew before the iPhone that it had to go into mobile”

        That’s your point, but it is not anyone else’s point. No one is questioning that Google had a (good or bad) mobile plan in place before iPhone. That their plan became a facsimile and along with Samsungs huge marketing budget contributed to Samsung’s success is the point. It is in the article. It is the context of Android becoming an iPhone facsimile. If you can’t read the article, you should avoid commenting. As you’ve done before, you are arguing against a point that no one has made.

        Joe

      • Space Gorilla

        As I said in another comment, I think maybe Will simply isn’t aware that you could browse the web on a mobile device before Google existed as a company. So yeah, as a search engine for the web, Google would have had plans re: mobile, or at least I hope so. But you could browse the web on an Apple Newton before Google even existed. Who remembers AltaVista? Lycos? Excite? Infoseek? Northern Light? WebCrawler? Man, talk about skeuomorphism.

      • http://www.janak.net Janak Parekh

        Don’t forget Danger, which Andy Rubin co-founded, whose Hiptop/Sidekick was one of the first great mobile devices at using the web and installing apps via an app store, well before the iPhone.

        I don’t think it changes your overall point, but Apple wasn’t first to either building a good mobile web browser nor the App Store. Neither was Google (although they bought the second company of the man whose first did do both).

        The difference, of course, is the touchscreen and desktop-caliber software. Danger had neither and it ultimately hobbled them when it was time to go to the next level. Apple’s work was certainly pioneering there (see all the articles about people prying open the iPhone to find Apple doing the impossible, etc.)

      • Space Gorilla

        I’d forgotten about Danger. I do remember those devices. Apparently the first mobile web browser was built for the Apple Newton, but I don’t think Apple built it. The second iteration of the Newton platform had third party apps, I believe the mobile browser was one of those.

      • http://www.janak.net Janak Parekh

        Right, but I don’t think the 3rd-party Newton browsers were used very much, given the hassle of tethering the Newton to an Internet connection. What Danger brought to the table was an integrated device and proxy servers to compensate for the slow 2G network at the time.

        (I had PalmPilot Pro, then a Palm III, and then a Qualcomm pdQ during that era — and browsers were available — but man, were they slow and terrible. Danger’s was considered considerably better and richer, but the lack of touch still made the web clunky.)

      • Space Gorilla

        Agreed. Mobile browsers, while they existed, did suck back then. Of course so did the early web. The touch UI is what really helped mobile devices go mainstream. I think back to 2006 when Blackberry was the leader, and let’s be honest, those devices were garbage. It was simply the least worst option at the time.

      • Will

        Yeah whatever “Joe”, I’m sure there’s a lot of people who think Android is a clone of iOS, while simultaneously thinking it’s worse. Doesn’t make it true.

      • Mark Jones

        You missed the point. Although Google, Blackberry, Nokia, and Microsoft all had mobile plans, the latter three were very slow to make “facsimiles” of iPhone, and got killed by iPhone and Android. So Horace’s statement is correct in that the “iPhone example drew Android.”

        (Note: If iPhone never existed, the old-style Android may still have killed the other three on its own. We’ll never know.)

      • Will

        But Google had very clearly intended to go into mobile, regardless of Android or iPhone or Blackberry.

      • pk_de_cville

        Agreed that Google’s mobile plan preceded iPhone, but I don’t think they would have introduced the App universe so quickly seeing as many previously executed Google searches are now moving to “There’s an app for that.”

      • Will

        That’s a different topic though.

      • pk_de_cville

        “…drew Google to build Android as a facsimile.”

        Android was relaunched on the fly and immediately when iPhone was revealed June 2007. We have public recountings June 2007 from Andy Rubin in a taxi to the effect of “Oh shite, let’s kill the current button design and full speed ahead to make Android touch as Jobs had demonstrated in the iPhone launch.

        It’s called a ‘facsimile’ because of facts and history.

      • Will

        It’s a different topic though!! The fact is Google knew it had to go into the mobile space way before the iPhone. It also knew it had to support iOS as well from the start. THAT is the point.

      • pk_de_cville

        Not getting you Will,

        Aren’t you discussing this? “The iPhone example drew Google to build Android as a facsimile”

        See the word facsimile? He’s talking about the version of Google that was initiated in a taxi on iPhone Launch Day. Who cares that G knew it had to go into the iPhone space. (Actually they knew they had to go into the mobile space, since iPhone wasn’t launched.) This is about the facsimile. Simple. Can’t change topics, can we?

        Android is a voluntarily confessed facsimile or copy of iOS. (Confessed by Mr Android, himself, Andy Rubin.)

      • Space Gorilla

        I don’t think Will is old enough to remember that you could browse the web on a mobile device before Google existed as a company. I think the Apple Newton was actually one of the first, certainly in the first wave of mobile devices anyway.

      • Will

        Andy said Android had to “start over”, not that he had to copy the iPhone. Android simply had to step up their game to stay relevant, which they did.

        But whatever, I guess some people remember history to confirm their biases.

      • pk_de_cville

        “Confirm their biases” – think about it.

      • Will

        Pot meet kettle

    • Luis Alejandro Masanti

      You are right, but the ‘pre-iPhone’ was a ‘BlackBerry-like’ phone.
      I think this is the ‘facsimile’ part of the quote. On the other hand, iPhone earnings come from sales; Google’s Android earnings comes from ads.

      • Will

        Blackberry – like phone is still a phone, Google still had a mobile plan.

        And Google Android has no earnings.

    • Space Gorilla

      Apple has had touchscreen and pen input tablets going back to the early 90s. The iPad prototypes were actually developed before the iPhone. Jobs was talking about mobile tablet computers back in the mid 80s.

      • Will

        So did Star Trek.

      • Sacto_Joe

        And that means – well, nothing, really.

      • Will

        So is Steve Jobs referencing tablets in the 80s.

      • Space Gorilla

        Buh buh buh, Apple copied! Not first! Sputter sputter, and so on. Man these trolls are tiresome. Cue the smartass troll remark to this comment in 3… 2…

      • Space Gorilla

        I read a lot of sci fi, shall I list for you all the references to tablets, slates, voice driven devices, AI, etc that came before Star Trek?

    • 程肯

      There’s a quote attributed to Andy Rubin, lead of the Android team, just after the iPhone launch event in January of 2007, where he reportedly states something to the effect of, I guess we’re not going to release that “android” phone now. Also, I believe back then they had chosen not to go with a touch interface, but after, it was a moot point to go with it.

    • Sacto_Joe

      No offense, but to say this is to show you don’t understand the nature of the paradigm shift that Apple initiated.

  • Luis Alejandro Masanti

    This is, in my opinion, the virtuous cycle of Steve’s idea for Apple: ‘Our goal is to make the best devices in the world.’

    Once Apple leave behind the ‘silo attitude’ (sure, something it need by the ’80s) it began to spread its welfare into the world.
    First, when the iMac included USB connectors —a dormant technology by the time—; then, when it introduced the Made for iPod/iPhone/iPad etc. and the AppStore.
    Now, I think that deep into the launch of the Watch it is inserted, in the form of straps or accessories.

    The ‘iPhone-killer’ attitude is, in my opinion, a desperate intent to rip off your (Apple’s) earnings, while Apple’s intent is to produce value and, when you have value, you can distribute it to others.

    • BMc

      Since 2011, when the first host of phones that attempted to take it on failed, “iPhone killer” has been predominantly a creation of the media. Perhaps for a short period there Samsung thought that the Galaxy line might be it, but hard to say. It is just the media/blogger industry which constantly is searching for the troubles that might befall Apple. I would hope that most companies in business for the last 3-4 years would have better realism than to market their product as an iPhone killer.

  • Sam Penrose

    Horace crafts a prose poem. Explicitly he contrasts being an “iPhone killer” with the “killing it (with iPhone)” that both Apple and the prospective killers have done. Reread the middle section carefully, where he shows but does not state that iPhone has not killed its erstwhile killers, but helped to grow their businesses. Another day, another fine piece of analysis from Mr. Dediu. No news in that. But why does he skip over the established language of business analysis, language he has long since mastered, in favor the tools of the litterateur when it comes time to build this post? What job is he hiring them to do, and what job does he think his readers are hiring it to do for them? If doubled meaning and silent invocation are Resources, what’s the Priority?

    • Sacto_Joe

      Your overly prosey comment notwithstanding, you did underscore one interesting point that Horace made; the iPhone actually benefitted its earstwhile killers. And it can be fairly said that its earstwhile killers have benefitted Apple as well, giving it the impetus to keep improving, almost certainly at a faster rate than it would otherwise have done.

      • Ray

        Successful companies with successful products and large budgets typically expand the market for everyone (including competitors), and of course they expand the market for its suppliers and ecosystem. This is quite an obvious concept.

  • Ray

    It is surprising how little understood is Samsung in the western media. There are other reasons for the success of Samsung Electronics besides just marketing spending that are much harder to copy and emulate (otherwise Sony, Microsoft/Nokia or Huawei could just tap their balance sheet and take over the lucrative smartphone market):

    1) Top-notch operations, manufacturing, supply chain, and retail channel management. Apple gets a lot of praise for this, but comparatively they have it easy. Apple has very few product models to manufacture and manage so their operations are much simpler. Just looking at smartphones, Samsung has 20+ models at any given time in the market. Adding other consumer electronics, there are hundreds of product lines (TVs, fridges, PCs, SSDs, medical equipment, etc.) and thousands of SKUs that are to be found in any country in the world. This ultimate presence in the retail channels all over the world is a massive complex operation and network that has taken decades for Samsung to develop. Highly defensible since it cannot be copied in a couple of years, other tech companies (Huawei, Xiaomi, Motorola, HP, etc.) just cannot compete with this presence yet. Even Apple struggled with his presence in the biggest market in the world (China) until recently.

    2) More importantly, Samsung actually owns the IP and production capabilities of many basic technologies a smartphone is made of. A smartphone today, in terms of bill of materials, is essentially:
    – a large expensive display
    – an application processor
    – memory (RAM and Flash storage)
    – a large battery
    Samsung is #1 or #2 globally in all of these markets with full control over each of these components from product design to manufacturing in high volumes. As a market leader, it is ahead of its competitors in each of these markets (simultaneously!).

    As an example, the Samsung Galaxy S6 has:
    – the world’s first 14nm smartphone processor (which means it is smaller and more powerful and energy efficient than any alternative processor which are built on 20nm process or older).
    http://www.cnet.com/news/samsung-in-a-race-to-build-your-next-smartphone-chip-may-just-win/
    – memory (RAM and Flash storage)
    – best smartphone display ever
    http://www.displaymate.com/Galaxy_S6_ShootOut_1.htm
    – first smartphone wrap-around display (with exclusive flexible displays that only Samsung is able to produce)
    – fastest DRAM memory in the world (DDR4)
    – fastest Flash storage in the world (UFS 2.0)
    http://www.gizmodo.com.au/2015/03/the-samsung-galaxy-s6s-memory-is-so-so-much-faster-than-other-phones/

    In summary, and with less tech jargon, it’s the smartphone with the best hardware in the world.

    From a consumer perspective, the success of the Galaxy line has been driven by:
    1) Consumers who want to have the best technology in the world (tech-savvy, makers, etc.)
    2) Consumers who want to have the best smartphone available without getting locked-in into the Apple ecosystem
    3) Consumers who like larger display smartphones (these now have an Apple option and some of them are buying the iPhone 6)

    Of course marketing has helped, as Apple also did when they made the strategic mistake to sue, raising Samsung profile among other competitors. But there are other fundamental reasons, that required decades of previous investment, and that are very defensible, behind the success of the Samsung Galaxy.

    What is amazing is that Samsung is very successfully competing simultaneously with Apple, Sony, Whirlpool, Intel, Micron and Qualcomm. Again, a poorly understood company out of Korea, that is still being dismissed in the west as just a low-cost manufacturer, or just another Blackberry. Just looking at their patent portfolio tells us a very different story.
    http://www.statista.com/statistics/278790/number-of-us-patents-held-by-tech-companies/

    • Sacto_Joe

      Nobody here compared the businesses of Apple and Samsung except you. But on the points where Apple and Samsung actively compete, Samsung started out with all the advantages save one, which is Apple’s ingenuity. They had a world wide distributorship for feature phones and the manufacturing base to support it when Apple had neither. And let’s not underestimate the impact of their closely copying the look, feel, etcetera of Apple to the point of literal thievery.

      Indeed, there’s a question of just how much in the way of questionable business practices was behind their ascendancy in the first place….

      • Ray

        “There are other reasons for the success of Samsung Electronics besides just marketing spending”
        That’s the point I was making, not comparing Apple and Samsung business.

        Regarding copying, it’s just a very tired discussion, all companies copy each other. Apple just launched a smart watch that displays email, call and SMS notifications, just like the Pebble smartwatch created a few years ago. Hmmm

      • Sacto_Joe

        I’m sure all you apologists for Samsung are “tired” of this discussion….

        As regards the “point” you were making, it’s an irrelevant “point” because Horace never said there WEREN’T “other reasons for the success of Samsung Electronics”.

      • Ray

        Everyone copies each other in any industry at any given time, including Apple. BMW copies Audi. Gucci copies Prada. Of course Samsung copied successful features from the iPhone. The companies that took too long to take note and satisfy what consumers want (larger touch displays), such as Blackberry and Nokia, are essentially dead. It is just sound business practice.

        Tim Cook, as a pragmatic CEO, also does the same. Apple just copied the form-factor of larger Samsung Galaxy phones.
        Not only that, but he also decided to copy the flagship smartphone portfolio strategy, releasing two models instead of one (one for regular users and one for power users, just like Samsung pioneered with the two flagship models: Galaxy S and Note).

        Apple does benchmark competitors and copies from them any feature that is successful. Here is an internal presentation from Apple admitting that they don’t have the phones that consumers want, and therefore should copy the strategy of Samsung and other smartphone OEMS to get back market share:

        http://www.businessinsider.com/internal-apple-presentation-
        on-iphone-business-2014-4

      • Bart

        Wow, you are actually quoting Bidness Insider, Ray? You know that publication is a joke, right? A click farm? Who are you going to quote next, Highlights?

      • Ray
      • mjtomlin

        That’s a fairly ridiculous analogy. Samsung COPIED the physical design of the iPhone and the look of the user interface. Apple didn’t copy Pebble by releasing a smart watch … they built a computer that fits on your wrist… building computers is what they’ve been doing since their inception. The notion of building a gadget with similar functionality as “copying” is completely misguided.

        If I paint a landscape that contains mountains and trees and a lake am I copying some other artist that did the same? There are many paintings of landscapes none of which are copied from another.

        You are in fact trying to justify Samsung’s deliberate aping of design by extending the definition of what “copying” actually is – that makes you an apologist.

      • Ray

        And what is a Pebble if not a computer on your wrist. You might argue that the Apple watch is better (color display, touch screen, etc.), but they are the same concept, with very similar design (many square smart watches with touch screen and exchangeable straps already in the market) and functions (notifications already done, fitness already done, heart rate already done, etc.).
        Essentially a shrinked computer attached to your wrist. Which also Motorola, Sony and Samsung had already done. Again, you are free to prefer the Apple watch (especially if you are locked-in in the Apple ecosystem, you have no choice, so you better like it), but the device is very similar and has similar limitations (short battery life, unclear value proposition and engagement as already reported by early adopters, not good as a watch because it has to turn off the screen to save energy, etc.). As a fan of technology I actually hope that some app developer finds a cool use case that solves the long-term engagement problem that all wearables have, but so far it’s just not there.

        Also, this time Google launched its Android Wear OS, SDK and app platform BEFORE Apple did. So yes, facts and dates prove that Apple did not invent the smart watch.

      • santoscork

        I will say this, Apple tries very hard to get it right before it’s released, bugs aside.

      • Ray

        Yes, agree that they usually do more testing and validation before launching than most other companies. It’s another advantage of doing very few products.

      • santoscork

        At the end of the day, all these phones mostly look alike. It’s in the details now.

    • simon

      You’re not describing Samsung, you’re describing the most extreme example of the Korean chaebol system, which is Samsung. Samsung does it better than anyone else but having many competencies not really unique to them. LG does it, Hyundai would’ve done it if they weren’t split into pieces when the chairman passed away, Daewoo tried to do it, and so on.

      Also I don’t think the technology advantage is a bit overrated in that buyers do not really care that much. During their best selling days of Galaxy S3 and S4, they were using a large percentage of Qualcomm processors and it didn’t influence sales. They could’ve easily used someone else’s DRAM and Flash memory on their phones and buyers wouldn’t have cared. The only true advantage I can see is the displays where having the priority to AMOLED but even then I don’t think it was all that significant. Apple has no problem selling LCD phones.

      • Ray

        “You’re not describing Samsung, you’re describing the most extreme example of the Korean chaebol system, which is Samsung”. This seems like a circular sentence, not sure what you were trying to say. That Samsung is the most successful chaebol? Sure.

        “Samsung does it better than anyone else but having many competencies not really unique to them”
        Samsung does it definitely much better, and regarding competencies, patents and other hard indicators seem to indicate that, besides distribution and operations, they have an awful lot of technical competencies (essentially scientific and engineering talent acquired and developed over decades) and they have made key long-term strategic choices (massive investment in talent acquisition, R&D and cutting-edge manufacturing) that separates them clearly from LG and Hyundai. I can’t even find LG on this list:
        http://www.statista.com/statistics/278790/number-of-us-patents-held-by-tech-companies/

        This is why no other company in the world has been able to produce a smartphone with a 14nm application processor. Not Apple, not LG, not Motorola, not HTC, not Huawei, not Xiaomi.
        And this is why Apple is coming back to Samsung for its next processor. They have no choice if they don’t want to fall even farther behind Samsung. You could thank Samsung for pushing the limits of technology, and for keeping Apple honest instead of coasting on their brand equity.

        Same can be said regarding displays. You don’t need to understand technical specifications. Go to your closer store, take an iPhone 6 and a Galaxy S6. The OLED display on the S6 is simply better, it looks amazing. Again pushing the limits and creating something that no other company in the world is capable of. I have seen the display prototypes they have in their labs and they are doing some uniquely amazing things (flexible, foldable, transparent displays, etc.). I hope they bring some of these innovations to market soon. So give credit when credit is due.

        Of course to the lazy observer Samsung is just “another Korean chaebol”, as if Samsung and LG are interchangeable, while all indicators show that they are quite different companies with very different levels of success. Just like for lazy casual Asian blogger Apple and General Motors might be just two large american companies.

      • simon

        That’s not any different from Hyundai for example, which has spent an massive investment into long term strategic investments. In fact they are one of very few car makers that had spent money to build its own engine and its own steel factory.

        That doesn’t entirely take away Samsung’s achievements. However it’s extremely misleading thing to say Apple, LG, Motorola, HTC cannot make chips while Samsung can. Samsung is a conglomerate, a chaebol that owns many different businesses. Apple and HTC are not, and LG lost its chip business because the government forced it to.

        Even chaebol isn’t unique in this regard. You can use the same criteria for Japanese conglomerate like Sony. They make camera sensors, Apple doesn’t. Sony makes a lot of movies and songs. That’s not indicative of Sony’s competency, that’s just their business model.

        Also I have never seen any lazy casual Asian blogger who thought Apple and GM are alike.

        As a side note, it should be noted Hyundai was split into smaller companies via various incidents and the Korean government took away LG’s semiconductor business whereas Samsung had to give up its money-losing car business. It’s not because LG wanted to give up on chips. I’m a bit surprised you do not know such well known fact about chaebols.

      • Ray

        Yes, I totally agree, Hyundai is doing well. The success of Samsung does not take away from the success of Hyundai. However, it is clear that Samsung doing better in its industry (electronics, where they are #1 or #2 in many product categories) than Hyundai in its industry (automotive). That might not always be the case.

        It is a huge competitive advantage that Samsung can do its own chips. Especially when they have the best technology in the world for power-efficient smartphone processors. Intel has the still the best (~6 months ahead of Samsung) but their processors are too power hungry and, more importantly, “profit hungry”. Intel wants to charge the ridiculous margins they used to in the 90s in the PC industry, but smartphone OEMs are saying no, thanks.

        If Sony still had cutting-edge semiconductor and display operations, maybe they could compete effectively with Samsung. But they decided in the past to focus mostly on the consumer side (following the common so-called wisdom that “that’s where the margins are”) and here they are, unable to drive the roadmap in the smartphone market (Google owns the OS, other suppliers own displays and chips). Sony can only integrate and spend on marketing, and this is one of the reasons why they are at a disadvantage compared to Samsung.

        Apple, LG, Motorola, HTC need to shop around for the 2nd best chips (Qualcomm+TSMC) and displays… or come to Samsung to buy the best components. Essentially Samsung Mobile has a built-in advantage over other OEMs. So the scope of the organization (vertical integration) is not just a difference of business model, it does carry an important competitive advantage in smartphones and other consumer electronics markets where Samsung plays. It has a cost too, fabs are very expensive. But Samsung made those investments 10-20 years ago and now they are reaping the rewards. Just like the fact that Apple owns their own OS (in which they have spent billions) gives them a competitive advantage over other OEMs, as they manage the roadmap, not a third party. The business model choice carries significant advantages or disadvantages.

        And yes, the Korean government has intervened to keep the power of the chaebols under control, and some chaebols have been luckier or smarter than others.

      • simon

        “But Samsung made those investments 10-20 years ago and now they are reaping the rewards. Just like the fact that Apple owns their own OS (in which they have spent billions) gives them a competitive advantage over other OEMs”

        No. That’s not how their businesses work. They are not “just like”. There’s your fundamental misunderstanding of chaebol and Apple’s business differences, to be fair many analysts make the mistake too.

        Other than the brief flings with clones, Apple makes investments so that they can sell their own products. Their OS is only for Apple products. Their chip design likewise is only for Apple products. That’s an investment and R&D only for their products and that’s it.

        Samsung on the other hand, sells the “rewards” of their investments to everyone. Just like how Sony sells their advanced camera sensors and music to everyone, not just Sony products. That’s just their business.

        “It is a huge competitive advantage that Samsung can do its own chips.””

        That’s nice except the fact says the best selling Samsung phones used Qualcomm chips. Did that hurt Samsung? Not one bit. Would any consumer care if Samsung phones use someone else’s RAM? No way.

        It’s nice to have options for multiple suppliers but the importance of manufacturing own components are vastly overrated, as you can see in Samsung’s very own example.

        LG makes their own phone cameras and displays, as well as Apple’s. Does that give LG a huge boost? Not really.

      • Ray

        Yes you’re right that it’s not exactly the same. I know how Chaebols work, know people working there. Yes, Samsung Electronics – semiconductor division is a merchant semiconductor provider. They sell to Samsung Mobile division and they sell to other companies like Apple, because the semiconductor fabs are very expensive so they need to make sure utilization is as close to 100% as possible to make money.

        But that still gives them an advantage because they control the roadmap and can decide when to launch new products and move to more advanced nodes. Do you think it was a coincidence that the first smartphone in the world with Samsung’s 14nm processor was the Galaxy S6?

        I shouldn’t have said chips but components in general. It’s not just chips, but displays, batteries and packaging technology as well. Samsung has the best displays in the world, and they sell their most advanced ones to Samsung Mobile. This is a very visible (by consumers) competitive advantage. Also, close coordination allows Samsung to come up with the “infinity pool” display of the S6 Edge in a very short period of time.

        I agree that most consumers don’t know about the processor, but a small segment does. Same with the memory, the S6 is the first one with DDR4 RAM, and some consumers do care (just go to Amazon and check out the user reviews). Another advantage of being an internal provider is roadmap and cost.

      • simon

        “But that still gives them an advantage because they control the roadmap and can decide when to launch new products and move to more advanced nodes. Do you think it was a coincidence that the first smartphone in the world with Samsung’s 14nm processor was the Galaxy S6?”

        Samsung gets to be the first one simply because 14nm happens to be ready when they are launching the new Galaxy S6, it’s matter of timing. It’s the advantage of having a large volume purchase, just like how Apple was able to get to mass production of 20nm earlier than most others despite not having any chip manufacturing facility because they convinced TSMC to produce 20nm chips first for them.

        “I agree that most consumers don’t know about the processor, but a small segment does. Same with the memory, the S6 is the first one with DDR4 RAM, and some consumers do care (just go to Amazon and check out the user reviews). Another advantage of being an internal provider is roadmap and cost.”

        A small segment doesn’t matter much when you’re at Samsung’s scale. There have been a few Chinese phones that used Samsung’s Exynos chips. Those haven’t been successful much.

        Again, I have to remind you. Samsung’s most successful phones used Qualcomm chips, not Samsung’s own chips. It’s an inconvininet factor for your theory.

      • Ray

        Yes, it just “happens to be ready”. Important product releases do not “just happen”. They cost a lot of money, and are the result of massive budgets prioritization choices. As if Samsung executives do not have control on how they use their budget (use their employees and capital to improve their yields on 14nm for Exynos faster versus working on other things). Just like bendable OLED displays just happened to be ready. That’s not how things work in corporate strategy in a successful company. Important and expensive product roadmap choices do not “just happen”.

        TSMC does not compete with Apple and therefore will give priority to ANY large customer, such as Apple, that is willing to pay for its leading-edge chips. Of course they provided their 20nm process to Apple, why wouldn’t they? That’s what their business is about. However, because Apple does not own TSMC, it cannot fully control their strategy and budget allocations. TSMC has not been able to keep up with Samsung and now Apple is in the uncomfortable situation of having to come back to Samsung and pay them billions of dollars a year. Estimates are in the order of ~$10B per year that Apple will have to pay Samsung for their next iPhone, which is a lot of money that Apple would rather send to a different company.

        Samsung, thanks to its vertical integration. has a very good hedging strategy to profit from the growth of the smartphone market. If Samsung phones are sold, Samsung makes money, and if Apple phones are sold, Samsung also makes money. Btw, LG is in the same situation regarding displays.

        “There have been a few Chinese phones that used Samsung’s Exynos chips. Those haven’t been successful much.”

        Which proves nothing. There are countless potential reasons why those Chinese phones were not successful (brand, marketing, distribution, display, etc.) other than their processor. The cause-effect attribution is not proven. Samsung will sell its chips to anyone because it is more profitable to do it than to keep its lines idle.

        I never said that Samsung is exclusively successful because of its capacity to manufacture leading-edge chips. It is just another factor that they use to their advantage. A 14nm processor is ~30% more power-efficient than a 20nm one, all other things being equal. And power consumption is one of the top concerns that consumers have with smartphones. So anything that gives you an edge in power consumption is a competitive advantage.

        Samsung is working in multiple fronts to satisfy a clear consumer demand (making its processors more efficient, developing faster-charging batteries, wireless charging, adding ultra power saving mode, etc.). Apple too, that’s one of the reasons they design their own cores, but because they lack core technology such as semiconductors fabs or batteries, there are things they just cannot do. Those things do not “just happen” to be ready, just like Apple success does not “just happen”.

      • simon

        “Yes, it just “happens to be ready”. Important product releases do not “just happen”. ”

        Yes it does and for a good reason. The roadmap for new process node doesn’t always match with phone cycles. Which is why Samsung’s Galaxy S5 didn’t have 20nm process AND it had more Qualcomm chips because Samsung had trouble with their own chips. That was just last year. Have we already forgotten about it?

        “TSMC does not compete with Apple and therefore will give priority to ANY large customer, such as Apple, that is willing to pay for its leading-edge chips. Of course they provided their 20nm process to Apple”

        That defeats your own argument. First you said the reason Samsung was able to move quicker to more advanced process is because they own the manufacturing but now you’re saying Apple can get a manufacturing priority without owning the factory. Second, Samsung is providing their 14nm process to Apple and Qualcomm has no problem whatsover selling chips to Samsung even though they all compete against each other.

        Again, Samsung’s most popular phones uses Qualcomm chips that were manufactured by TSMC, not by Samsung. I’m repeating this fact because I noticed that you ignore fact when they do not match your narrative.

        “Samsung, thanks to its vertical integration. has a very good hedging strategy to profit from the growth of the smartphone market. If Samsung phones are sold, Samsung makes money, and if Apple phones are sold, Samsung also makes money. Btw, LG is in the same situation regarding displays.”

        Which sounds good on paper except again the fact disagrees with that narrative. Samsung lost a big amount of their profit when the growth of their own phone business stopped, just like LG did. Semiconductors and displays do not have the same type of margin expensive phones do. Samsung would much rather sell their phones than their chips if possible.

        Also if you’re that familiar with chaebols, surely you know Samsung’s semiconductor division absolutely loves selling Apple their best chips because Apple is such a big customer. The compensation, i.e. wage, bonus of those who work at the semiconductor division, depend on how well the semiconductor division does, not how many phones Samsung sells. This has even been a point of contention between different divisions in Samsung. You surely know this already then but that fact goes against your narrative again.

      • Ray

        I’ll leave it here because it seems you’re debating with yourself, not with me. In every paragraph you take something I write, change it and then prove how the modified statement that you came up with is wrong.

        Case in point:
        – I say: “if Apple phones are sold, Samsung also makes money”
        – You say: “fact disagrees with that narrative… Semiconductors and displays do not have the same type of margin expensive phones do. Samsung would much rather sell their phones than their chips if possible.”

        You see? The two statements are DIFFERENT. I’ve never said that semiconductors have same type of margins than phones, I just said “Samsung also makes money” which is a true statement, facts don’t disagree with my statement. In fact Samsung makes billions per year when they sell a processor to Apple, I actually know the approximate number. You just turned my statement into another different statement that is wrong (like I suggested that Samsung makes THE SAME money, which I never did) and then prove how that new imaginary statement is wrong.

        “Samsung’s semiconductor division absolutely loves selling Apple their best chips because Apple is such a big customer” – Again, another statement that does not disprove anything that I said. In fact, in my previous post I actually wrote in different words what you are just saying ” Samsung will sell its chips to anyone because it is more profitable to do it than to keep its lines idle”.
        See, we actually said the same, so we agree.

        You have done the same with my other statements, so I won’t repeat the same process.

        I’ve worked in corporate strategy and those kind of extremely expensive developments (the launch of the world’s first 14nm smartphone processor) do “not just happen” at the right time, even if the Mobile and semiconductor divisions are independent, they both belong/report to the same Chairman & board. There are many board decisions that decide when a massive investment like a new 14nm is ready for production. Now that the 14nm has been used in a world’s first exclusive by Samsung Mobile, Samsung semiconductor will be very happy to get orders from Apple soon and make billions of dollars from Apple that will help recoup the investment in that line that Samsung did.

      • simon

        “I’ll leave it here because it seems you’re debating with yourself, not with me. In every paragraph you take something I write, change it and then prove how the modified statement that you came up with is wrong.”

        No Ray. It’s because you just keep coming up with new examples to support your main argument without actually answering my counter argument that refutes your point..

        Your argument was that Samsung was misunderstood by westerners and their true success is due to its IP and technical proficiency in components, then you tried to connect that to Samsung’s success with phones.

        Then I pointed out, repeatedly, that

        1) Samsung’s components are used by others

        2) Samsung used componenents made by others in the most successful Galaxy S6.

        It’s not that I’m not debating with you, it’s that you refuse to accept any of the counterpoints from real facts that I presented. You’ve already made your mind up that Samsung’s manufacturing prowess is what made them successful in mobile. Whatever evidence I gave you, you ignored them all.

        Again, people really loved Samsung chips specially developed for Samsung with exclusive Samsung technology that Samsung’s most successful phones contained Qualcomm/TSMC chips. That directly contradicts your point, does it not?

      • simon

        “2) Samsung used componenents made by others in the most successful Galaxy S6.”

        That should read “most successful Galaxy models”

      • Ray

        Again, you are writing things that I never wrote. I will take your latest statement and add words in bold that more closely resemble my point, so that you can see the difference:

        “Your argument was that Samsung was misunderstood by westerners and ONE OF THE REASONS of their true success is due to its IP and technical proficiency in components, then you tried to connect that to Samsung’s success with phones.
        Then I pointed out, repeatedly, that
        1) Samsung’s components are used by others – THIS IS NOT TRUE FOR SOME COMPONENTS LIKE AMOLED DISPLAYS
        2) Samsung used componenents made by others in the most successful Galaxy S6.” – TRUE, BUT THIS DOES NOT CONTRADICT THE MAIN THESIS ABOVE, BECAUSE SAMSUNG ALSO USED SOME EXCLUSIVE COMPONENTS.

        Fact is: ALL the successful Galaxy handsets have an AMOLED display exclusively owned and produced by Samsung, which among all experts is the best smartphone display in the world, with the best saturation, deepest blacks and more vibrant colors, no need for backlight, etc. And they have been improving this to make it even better.
        http://www.displaymate.com/Galaxy_S6_ShootOut_1.htm
        So yes, the success of the Galaxy is partially due to their exclusive technical IP.

        Same can be said with the other components, it puts the most premium components in the flagship Galaxy. These phones always have the world’s most advanced RAM and Flash, because Samsung is actually the leader in those two components too. They produce the world’s most advanced memory.

        With processors, they were actually a bit behind TSMC/Qualcomm, this is why they used sometimes Qualcomm processors. However, even in that case, due to vertical integration they were able to produce the world’s first ARM processors whenever ARM released a new core. Now, they have surpassed TSMC in production node capabilities, so even though they didn’t have an advantage in processors before, NOW THEY DO. Samsung phones now have a 14nm processor, which is smaller/more power efficient than a 20nm processor.

        http://www.cnet.com/news/samsung-in-a-race-to-build-your-next-smartphone-chip-may-just-win/

        Not only that, but rumors are that they are also working on custom cores (instead of standard ARM cores), so the advantage that Apple has by designing its customized cores, which was their hedge against the lack of control over semiconductor manufacturing, will only decrease also.

        Essentially, they are surpassing every competitor out there at the component level for pretty much every component that is relevant on a premium smartphone. They had advantage in SOME components for the first Galaxy phones, now they have an advantage in almost ALL components. Their advantage is not decreasing, but increasing in the premium smartphone segment. So don’t expect Samsung to go away from the race with Apple in the premium segment (even if Apple did great in the last couple of quarters), as Samsung success is not just due to marketing dollars (as Horace and others seem to believe), and their capability lead has only increased in the last year.

      • simon

        “it puts the most premium components in the flagship Galaxy. These phones always have the world’s most advanced RAM and Flash, because Samsung is actually the leader in those two components too. They produce the world’s most advanced memory.”

        Here is a very simple challenge for you. Find me some evidence that people bought those successful Galaxy phones to get faster RAM and especially Flash.

        No not some latest praises for the Galaxy S6 with its new UFS. Give me some evidence that people bought those successful Galaxy S, S2, S3, S4 because of the Flash performance.

        Also it makes me wonder about your knowledge on technical details. If you’ve actually used Galaxy S phones from the beginning, you should know that Samsung actually had a fairly contentious performance issues with early Galaxy S phones due to their choice of NAND memory, widely discussed in XDA and other technical forums.

        If people actually cared about NAND/Flash performance, the first Galaxy S phones would’ve failed but they didn’t. How do you explain this?

        “as Samsung success is not just due to marketing dollars (as Horace and others seem to believe), and their capability lead has only increased in the last year.”

        I have read a lot of words from you on how Samsung’s great manufacturing affects Samsung’s mobile phone sales but so far I haven’t seen any fact that supports your claim of causation. Just a long list of Samsung’s achievements in manufacturing, many of them errorneous.

        Do you actually have any evidence to support your theory? Again, a simple question. As their technical leads increased, why did their phone sales decrease?

      • Ray

        “Find me some evidence that people bought those successful Galaxy phones to get faster RAM and especially Flash.”

        This challenge is silly. Have you ever launched a product? There are hundreds of reasons why consumers choose a product. If marketers could find evidence of the specific degree of influence of each reason in their purchase decision, then product roadmaps would be created by algorithms, not humans.

        I wonder why you pick memory and not OLED Display for your challenge, any particular reason? Obviously, the display ranks MUCH higher than the memory for most consumers. If you read smartphone reviews in the media, all of them agree that the Galaxy S6 has the BEST DISPLAY EVER. Obviously, this has some influence on consumers. And even if some consumers might not read those reviews, when they go to a store and pick up an iPhone and a Galaxy, they can SEE the obvious difference. The display happens to be a component that is extremely and increasingly important in consumer electronics and computing devices. And yes, I have actually read consumer surveys on laptops and tablets in particular, that show that display quality is one of the TOP 3 REASONS for consumers to choose a device versus another. This is why Apple also comes up with marketing concepts such as Retina or 5K, because they know displays are extremely important and they need to somehow differentiate in this dimension. In fact they were always pushing the boundaries on this department, it just happened that now they have a formidable competitor that through years of investment, R&D and hard work has developed the best displays in the world.

        And I have personally been in their labs and seen amazing prototypes of curved, foldable, rollable and transparent displays, so expect great revolutionary things to come from Samsung in this area soon:

        https://www.samsungdisplay.com/eng/index/index.jsp

        This is not marketing spending. It is just that Samsung has developed a FUNDAMENTALLY BETTER PRODUCT in a dimension that most consumers care about when buying a smartphone, a tablet, a laptop, a smart watch and obviously a TV.

        Even in the memory case, the Flash memory is getting rave reviews in the tech media, which is read by a sub-segment of premium smartphone buyers that do care about these things. So it is quite logical to assume that these kind of reviews do have some influence over some consumers:
        http://www.gizmodo.com.au/2015/03/the-samsung-galaxy-s6s-memory-is-so-so-much-faster-than-other-phones/

        Personally, I know a few consumers who are actually excited about DDR4 and UFS, believe it or not. I know that doesn’t mean anything statistically, but it is safe to assume that they are not the only ones in the world.
        Can you quantify the influence? No one knows, otherwise product management would be run by algorithms. But it is proven that there is a geek segment that cares about this, otherwise websites like Gizmodo, Tom’s Hardware or Engadget would not have an audience.

        Besides, having your own components gives you a cost competitive advantage as well. Samsung can make bigger margins on the handset sale than similar competitors who have to shop around and pay for third party components.

        “As their technical leads increased, why did their phone sales decrease?”

        Of course components are not the only reason why consumers choose a phone. In fact, many choose a phone over another based on the platform ecosystem, which is managed by Google, not the product itself, even if they acknowledge that the product itself is better. This is why the success of Samsung depends not only on Samsung pushing the limits of physics, materials and design, but on Google growing the ecosystem.

        Here one of such users:
        http://www.tomsguide.com/us/case-against-galaxy-s6,news-20752.html

        ” I just finished a face-off between the Galaxy S6 and the iPhone 6, and Samsung’s flagship phone wiped the floor with Apple’s. The S6 has a better display, sharper camera and even a sexier design. ”

        “Based on its own merits, I’d rather use the Galaxy S6, but the reason I won’t make the switch comes down to Apple’s ecosystem.”

        So the success of Samsung depends only partially on their hardware superiority. The other part of the equation is how good Google will be at growing the Android ecosystem. Just like Apple has strategic risks going forward, Samsung does too. That does not mean that having superior components does not provide a competitive advantage, is just that there are other dimensions: such as product design (the Galaxy S5 was not pretty, the S6 is very pretty), ecosystem (iOS is still the platform that has more developer $, but the situation is reversing). So any of those other dimensions could explain why Samsung sales went down in the last few quarters. In fact the reasons for that are so well analyzed that is not even worth discussing (Apple releasing a larger iPhone, Apple entering China, Samsung having an ugly phone, Chinese OEMs improving their phones). None of these reasons contradict the fact that having better components provides a competitive advantage to Samsung.

        Is my point clear now?

        Do you understand that sales going down do not disprove that having its own top-notch components give a competitive advantage to Samsung? This seems like a typical GMAT question to test logical reasoning.

      • simon

        “I wonder why you pick memory and not OLED Display for your challenge, any particular reason? Obviously, the display ranks MUCH higher than the memory for most consumers. ”

        I agree AMOLED is more of a selling point. However on the other hand, there have been a number of non-Samsung phones selling with AMOLED that haven’t been particularly successful. Also the number of phone models using AMOLED has decreased over the years if anything.

        AMOLED has improved dramatically in its display quality in the last few years, but why have Samsung’s sales decreased last year when Galaxy S5’s AMOLED was the best ever?

        You’ll tell me better technology doesn’t necessarily mean better sales. OK. So much for “competitive advantage”

        “Even in the memory case, the Flash memory is getting rave reviews in the tech media, which is read by a sub-segment of premium smartphone buyers that do care about these things. So it is quite logical to assume that these kind of reviews do have some influence over some consumers: ”

        Like I’ve said, the first Galaxy S phones had known problems with its Flash memory performance but sold quite well. Shocking right?

        Again, so much for “competitive advantage”

        “Personally, I know a few consumers who are actually excited about DDR4 and UFS, believe it or not. I know that doesn’t mean anything statistically, but it is safe to assume that they are not the only ones in the world. ”

        So even if you’re not really sure they’ll help sales signifcantly. How the heck do you call those “competitive advantages”? What competition are we running?

        Right you have no evidence. But we have to take your words because you have seen Samsung’s own labs.

        “Is my point clear now?

        Do you understand that sales going down does not disprove that having its own top-notch components give a competitive advantage to Samsung? This seems like a typical GMAT question to test logical reasoning. ”

        Your point is clear. Even when things do not get translated into competitive advantage through better sales, it’s still competitive advantage because you said so and you saw Samsung from inside.

        At the end, “trust me, I know this and this is how it works” is all I see. When asked to provide some evidence, you proffer your expertise in Samsung’s innerworkings which, based on your comments on the chip manufacturing and roadmaps in the above comments, sounds very limited.

        To be fair that’s no different from most other analysts who are also clueless.You can ask your Samsung connection about how much infights have happened between DS and IM, how unhappy IM was about LSI and how DS employees weren’t happy about the differences in their PS, and ask about IM’s own chip projects and why that came up.

        On a more serious note, what business people should learn from Samsung is how nimble and ruthless a large company can be. That’s an altogehter a different discussion.

      • Ray

        “Your point is clear. Even when things do not get translated into competitive advantage through better sales, it’s still competitive advantage because you said so and you saw Samsung from inside.”

        No, it is a competitive advantage because 1) it provides an advantage to Samsung versus its competitors in terms of many important dimensions (pricing and margins, supply management, product differentiation, etc.) and 2) it is highly defensible (it takes years to develop so competitors cannot just copy it quickly). I worked in corporate strategy and got my MBA so I understand well what a competitive advantage is. Other competitive advantages could be IP, access to capital, brand, network effects, etc.

        For instance, Apple has a competitive advantage over Samsung in terms of brand. It means that people will pay more for a product (with the same specifications) with an Apple logo than a Samsung logo. This is one of the reasons why Samsung has to spend more money on marketing than Apple, because its brand has lower value so it needs to compensate for that. This has a real cost (in the order of ~$1B per year), if Samsung could spend less on marketing, they would. This is clearly an advantage, and it is highly defensible, because it took years for Apple to develop this competitive advantage and cannot be quickly copied. Get it?

        Vertical integration of Samsung (in this case owning the basic components IP and manufacturing) is a competitive advantage. Apple, HTC, Motorola, etc. need to engage in procurement processes and negotiations to be able to secure their supply. This means that they have to pay a premium (the margins of the supplier) and sometimes they don’t get access to the best technology (Super AMOLED displays or 14nm processors), or they don’t get enough quantity, or they don’t get it when they need it, etc. For instance, the Apple Watch deliveries are being delayed precisely because Apple depends on a supplier of parts that cannot deliver what they committed to. If Apple owned that supplier, they would know long ago and could have had prepared for that. So controlling your own supply of components is 1) very defensible (cannot be copied quickly) and 2) has many advantages (lower price, better tech, control over roadmap and deadlines, etc.).

        Apple’s vertical integration (in a different value chain area, owning the retail channel) is also a competitive advantage. The fact that their iPhones were not selling so well in 2013 does not mean that owning the retail channel is not a competitive advantage. Sales go up and down depending on many factors. Quarterly sales movements don’t tell you anything about a particular’s company competitive advantage.
        Having a competitive advantage is a driver, but there are many other internal or external drivers, both long-term and temporary.

        “why have Samsung’s sales decreased last year when Galaxy S5’s AMOLED was the best ever?”
        The answer is quite simple, and you know it: because of other factors, probably DESIGN being one of the most important ones. The S5 was a product with great hardware but a mediocre design. I don’t see from your comments that you understand what a competitive advantage is. Competitive advantages are LONG-TERM DEFENSIBLE advantages that a company has within its industry versus other competitors. Competitive advantages are not features that a product has or doesn’t have that drive sales.

        I know Samsung’s structure, have visited their offices many times, both DS and IM, the separation between DS and IM, the tension between them, how IM plays DS against Qualcomm, etc. It is also remarkable how they manage to pull-off something very difficult, which is to both supply to and compete with companies like Apple and other OEMs. This has advantages and disadvantages (it makes it harder for DS to sell its chips in the market) but they pull it off. Probably DS could be a more successful semiconductor company if it was complete independent, but on the other hand it provides a competitive advantage to Samsung IM, so on balance it’s beneficial. There is a separation between both but at the end of the day they are both part of the same company (Samsung Electronics) with the same owners, Chairman and board of directors.

      • simon

        > Vertical integration of Samsung (in this case owning the basic components IP and manufacturing) is a competitive advantage. Apple, HTC, Motorola, etc. need to engage in procurement processes and negotiations to be able to secure their supply.

        What makes you think Samsung doesn’t engage in procurement processes and negotiations within its own division and against external vendors? Samsung’s own division has to fight to secure their supply and they were even pushed behind Apple at times by DS, which you would know if you worked with Samsung’s management before, just as you’d expect from loosely verically integrated profit center chaebol business.

        That’s not vertical integration. That’s a good SCM and the advantage of having a massive sales channel. Apple does it just as well without owning all the different manufacturing.

        > sometimes they don’t get access to the best technology (Super AMOLED displays or 14nm processors)

        Except Apple could get 14nm processors or even AMOLED if they wanted to. Just like Samsung didn’t get 20nm with Galaxy S5 whereas Apple got it with the iPhone 6. It’s a matter of timing and contrary to your claim the process node changes do not always coincide with new phone models. Which you would know if you actually talked to Samsung employees.

        > I know Samsung’s structure, have visited their offices many times, both DS and IM, the separation between DS and IM, the tension between them

        Which means DS doesn’t work directly with IM on the chip development as closely as you had claimed, which is why IM sought into getting their own chip. Again, this is such basic chaebol stuff if you worked with them.

        >This is why I find ironic that Horace and others complain about analysts not understanding Apple, when by his remarks I can see that he doesn’t understand Samsung. …

        > So he seems to be guilty of the same sins he is pointing out in others. I guess it’s human nature.

        That’s the mantra you just keep repeating but that doesn’t necessarily make it so. But if you do not want to change your opinion, that’s your choice.

      • Ray

        I’d have no problem changing my opinion if it didn’t correspond with reality, but it does.

        I think you are confusing vertical integration with being a captive supplier. They are not the same. Some vertically integrated companies sell in the market their intermediate products, some don’t. It’s a choice that has pros and cons, but in both cases a company is referred as being vertically integrated. And if you don’t believe me, I’m a bit tired of explaining it so I’ll provide you some quotes and articles that might convince you:

        “”Vertical integration with strong component businesses such as semiconductors and display panels, has allowed efficient and timely development of advanced products, most notably the Galaxy smartphone series,” – Director at Fitch Ratings.

        http://michael-roberto.blogspot.kr/2009/11/vertical-integration-at-samsung.html
        “Samsung mitigates all three of these risks by forcing each of its businesses to clearly demonstrate that it can compete successfully in the external market. Internal and external competition seems to be key to Samsung’s culture and strategy”
        My take: you don’t get to become the world’s largest consumer electronics company just by inventing and developing great technology, you also have to innovate at the organizational level.

        http://www.aijcrnet.com/journals/Vol_2_No_9_September_2012/9.pdf

        http://growthchampions.org/growth-champions/samsung/
        This article not only talks about VI, but also how part of the success of Samsung has been its increasing focus on design over the last decade. Samsung has one of the largest design organizations in the world (1,000+ designers), good looking fridges or now the Galaxy S6 edge don’t “just happen”, but are the result of long-term and meticulous strategic and investment decisions:

        A longer one:
        http://www.fhinnovation.com/vertical-vs-horizontal-integration-strategies-samsung-case/

        Hope you’re starting to be convinced by now…

        I’ve never said that DS works directly with IM on the chip development.
        I’ve never said that the process nodes ALWAYS coincide with new phone models.
        Again, you’re writing things I’ve never said and then refuting them, not sure what’s the point of your exercise.

        The Board of Directors of all divisions of Samsung Electronics is the same, so the board of course discusses major investments like a 14nm line, which costs billions of dollars. For instance, the CEO of Samsung Electronics semiconductor division is actually also the Vice Chairman of ALL Samsung Electronics, and currently acts as the co-chairman together with Jay Y Lee because the Chairman has been in the hospital for a long time.

        Apple’s CEO is not a director of Samsung Electronics, and therefore he has no access to confidential information, and more importantly, has no vote or say on how much and when should be invested to bring a very expensive 14nm process ready for production. The DS division will make their assessment if they can make money by taking Apple’s purchase request, they will rationally accept. If they can’t make money, they won’t. Of course if DS has signed a contract with Apple to procure a certain amount of chips, DS has to honor the contract even if Mobile division wants that capacity. But this is not in contradiction with what I said.

        Regarding marketing expenses…

        …it’s like saying that Samsung succeeds by spending money on these kind of commercials, and not by actually creating and developing the highest quality displays in the world, managing to curve them in a high-volume manufacturing process, and then being able to produce tens of millions of units and distribute them efficiently around the world.

        Marketing is essentially just the tip of the iceberg. Easy to see, but doesn’t explain at all why that tip is floating on the ocean.

  • stefnagel

    “As the brand flourishes, the perception of vulnerability dissipates …” just when vulnerability is the question. Two questions: How will Apple itself kill the iPhone before someone else does? And does the Watch divert Apple’s attention from the critical task of killing the iPhone?

    If you meet the Buddha on the road…

    • Sacto_Joe

      Wearable tech may indeed be the ultimate “iPhone killer”, but (a) that’s a long, long way off and (b) Apple is clearly ready to once again self-cannibalize in that direction when required to.

    • BMc

      While the market may have recently peaked (in decline now, but might come back a bit, you never know), the PC is still with us almost 40 years later. The GUI computer era is just over 30 years old. The devices clearly improved exponentially in the tech-spec domains, but you could argue the tasks it performs now haven’t changed substantially in 20 years (it is just better at them)

      That is to say that the modern, personal, mobile (cellular) computer era ushered in with the iPhone in 2007 is still in the early days comparatively. The device itself is becoming more the centre of “personal computing”, with other devices (PCs, tablets, emerging wearables) around it & the cloud. I don’t see the iPhone, or other smart phones, going away in the next 10 years at least. Wearables lack the battery power, and screen size, to be usable in the same way as a smart phone. Wearable are brining something new to the table (interaction with our bodies and the IoT).

      So if you are looking at the Walkman, or the iPod (both fairly single purpose devices) for guidance, I think you are looking in the wrong area.

      Sure, everything eventually changes, but if you keep looking for that many years before it happens, you will be missing the picture.

      • stefnagel

        The Walkman reference is spun off from the ancient adage: “If you meet Buddha on the road, kill him.” I think that Apple is always working on the next best thingy. But success is deeply narcotizing; great success brings great sleep.

      • Sacto_Joe

        “But success is deeply narcotizing; great success brings great sleep.” I think there’s that tendency. I don’t see any evidence Apple is falling into that trap. I’d be interested in any examples you might come up with, though.

      • stefnagel

        We would know even less than Apple if it’s sleepwalking. And it’s possible that the iPhones are dinosaurs, critters than reigned supreme for hundred of millions of years. And only then croaked.

      • Sacto_Joe

        I read your response as verifying that you also see no evidence that Apple is becoming complacent.

      • Ray

        Of course there are signs that Apple is becoming complacent. Their reluctance to accept for several years that most consumers do prefer smartphones with larger displays is a clear example. It took many quarters and investor complaints to make Apple backtrack and offer a product satisfying a need that they previously dismissed. Now they are lagging in other areas, leaving segments of consumers unsatisfied, and competitors will find ways to satisfy, as it happens in all industries and markets.

      • Walt French

        A recent New Yorker mag article spells out the difference between a Joe Friday “Just the facts, ma’am” approach and the memes that run crazy around the internet these days (though the article focuses on the Pinto, well earlier than the internet).

        We pile onto a good story and it can take years before a cool-headed understanding appears—if ever. Today’s example is the Sy Hersch story about bin Laden: a couple of days ago, a brilliant piece of investigative journalism; today, a dubious set of unattributable claims, together with the requirement that a couple dozen Navy Seals are all in on a hoax.

        Horace is sometimes maddeningly circumspect in his claims—“has there ever been a cell phone company that’s come back from a collapsing share?”, rather than “Samsung is doomed based on the last 6 quarters’ trend.”

        Specifically to your comment, I don’t see how it’s possible to say either how “complacent” Apple is—it seems an ugliness-in-the-eye-of-the-beholder type claim, one that is neither measurable nor compared to previous complacency when it was leaping forward—nor do I see any citation of how much “complacency” (and not some rally-the-fans PR statements from the CEO or VP/Marketing) actually affects a company’s success, versus simply being caught without a good response to a competitor.

        So, I think it’ll be damn hard to look back in five years, and say that 2015 was when Apple became too complacent for its own good, versus how it previously had simply followed its own path to great success. Especially, if, as signs seem to show, it is putting the same processes and resources to the types of innovations which have earned its incredible success over the past decade.

      • Ray

        Sure, no one knows for sure if they are becoming complacent or not. But beware of straight line projections. Apple will not grow forever, it will peak at some point, we can agree on that. Whether that will be this year, in 3 years or in 10, who knows.

        1) The technology industry is very dynamic. And Apple’s strategy has strengths and weaknesses. Their focus on very

        few products, which allows them to spend more attention and resources on each one of them, is also their main

        weakness. The needs of 7 Billion consumers cannot be satisfied with 1 product. There are lots of compromises that

        Product Managers have to do at Apple, which leaves by definition a lot of white space for its competitors to

        position themselves (phones with better displays, with faster processors, with different form factors, ruggedized,

        with different colors, you name it). You can say that they focus on the most profitable part of the market, and

        that might be true, but in the long run that is a strategy that leaves naturally a lot of space for competitors to

        experiment and thrive.

        2) Their success actually relies on not a few products, but on one product: the iPhone. The contribution of other

        products (Mac, TV) is quite minimal. This is why Horace calls them the iPhone company. And this is by definition a

        volatile position to be in, especially when it’s a product that, unlike Google’s search engine or Facebook’s social

        network, requires every ~2 years of an expensive purchase decision. Analysts are nervous about Apple’s future, even

        if they’re doing well now their business model is by definition volatile.

        3) Apple’s executives and employees are human, and therefore prone to the complacency that comes after outstanding

        success. It happens to top performers in all disciplines. It’s harder to stay and the top than to reach the top,

        and the main issue is psychological: motivation. The temptation to coast on their brand equity and relax a bit, is,

        well, too easy.

        4) There are specific and quantifiable signs that show that Apple is lagging behind. Apple was leading the market

        with the first iPhone models, but over the last few years that is not the case and they seem to be more in a reactive mode, adding features that their competitors already had as they can, and having to explain why they don’t have other features their competitors do. The Display size issue is one: it took 1-2 years too long to correct, but they reacted. There are still other dimensions: quality of their front camera (1 Megapixel in the age of selfies is not acceptable for a premium smartphone), quality of their display (behind the top Android phones), small battery (prioritizing design over usability for many users).

        I understand that there is a strong pressure from a profit point of view to keep from evolving its hardware accordingly. For instance, keeping their image sensor at 1.2MP allows them to save let’s say $1 per smartphone (compared to Samsung that offers 5MP). If they sell 300Mu a year, that means an instant $300M savings. They know Apple has a great brand and many consumers will still buy an iPhone even if they are not happy with their frontal camera. So they can get away with it and maximize profitability. The temptation is too good.

        These are just minor examples to illustrate the high possibility of complacency and the internal pressures that a very successful company like Apple has to lag behind its competitors.

      • Kizedek

        By comparing things like megapixels, you display your ignorance of the value and innovation that Apple does bring. You complain about the depth of the analysis and the bias in the article, but pander to run of the mill “spec list” analysis ourself.

        For example, Apple thinks about the size of the individual pixel sensors on the array, and the space between them; this affects the noise of images; the more densely you pack the pixels on a small sensor, the more noise becomes an issue, so higher number of megapixels at some point becomes a marketing talking point.

        Apple also thinks about: lens elements (how many, the materials and their quality); the buffering; the software for image capture and analysis; the color temperature of the flash; etc.

        So, your “analysis” about saving a buck is rather pedestrian. Apple delivers far more value than a competitor who merely packs a few more pixels onto a chip. And going by the stats of images on popular photography sites and professional videos made using iPhones, you have a lot to prove that Samsung’s extra pixels make a positive difference for its phones or are in any way innovative.

      • Ray

        The comment was regarding the FRONT camera, I don’t think you understood that. Yes, there are diminishing returns to additional pixels (no need for 20MP+), but 1.2 Megapixels is far from that area of diminishing returns, especially in 2015 when consumers actually use this front camera a lot to take selfies during their vacations, etc. Of course 5MP is better than 1.2MP. You know that, and Apple knows that. This is one of the reasons why the back camera has 8MP, because actually that does make a difference especially if you want to enlarge those pictures as a desktop background or a printout poster.

        Consumers want to have high resolution pictures also from their front camera (I know a few). However some product manager in Cupertino decided that 1.2 Megapixel is acceptable in a premium smartphone, completely ignoring that actually the front camera is being used more and more as a regular camera to take pictures in front of landscapes and attractions during trips.

        And of course, Apple is right and consumers are wrong for wanting something different than what Apple considers “optimal”. Exactly what Apple and their hooligans were saying about having a screen larger than 4 inches (who would want to use their phone with two hands???). I guess those hundreds of millions of consumers that switched to Android were ignorant of the value that Apple was bringing them with their perfectly one-handed usable, tiny display.

      • santoscork

        Apple doesn’t care about selfies. Let’s face it. Apple choice for the camera in question and the resolution has more to do with FaceTime. Apple iterates slowly and within the boundaries of their Eco system, rarely do they do anything for charity as it were.

      • Ray

        Apple doesn’t, and some consumers do, especially in Asia where tourism selfies are very popular. Hence another unsatisfied consumer need.

      • Bart

        Wow, talk about reaching for a problem where none exists. Do you have any idea how sales are trending in Asia now? I think it shows how incredibly desperate you are to see Apple as anything other than what it is.

      • santoscork

        I agree but at this time, the front facing camera is ‘good enough’ (I hate that term) for selfies, it gets the job done. Yes it could be improved but I don’t here cries over the quality of the front facing camera. Granted I don’t seek out d-sat on this particular use but I am sure Apple will improve it for the purpose of selfies they just won’t market it as such. It will just end up on a spec sheet. I could be completely wrong of course but that’s my personal observation on the subject of the FF camera.

      • http://www.roundrects.com Alex Santos

        Overtime Apple will undoubtedly improve the front facing camera, it’s a given but yes, there are always people who want or even need progress arriving earlier than later.

      • Walt French

        BTW, the pixel spacing etc is relevant, but the real issue for noise is the size of the sensor and the f-stop of its lens.* After that, there are some better and worse designs, but it’s mostly boring engineering tradeoffs: more pixels for a given sized sensor means you can zoom in more on good shots. But also, more noise per pixel, although in an uncropped image, not necessarily any additional noise per picture. (Smaller pixels DOES mean a slightly higher loss due to photons hitting support circuitry vs sensing areas.)

        Cameras are an important aspect of phones, but not one where any one maker has a huge advantage versus another. Sammy might emphasize pixels, while Apple pushes quality but they’re choosing camera modules from third-party suppliers, then adding fairly non-magic, simple engineering firmware atop ’em, and only then applying a proprietary customer-facing level.

        A recent review of an LG phone made the point that many phones have approximately equivalent camera hardware, resulting in pictures that are a bit better or worse in one aspect or another. Again, software tradeoffs.

        * My DSLR collects about 22 times the number of photons for a f2.2 lens at any given exposure, say 1/100 sec. Simply because the sensor is 22X the size. A somewhat bigger sensor is the reason for the bulge to accommodate the camera on the iPhone 6; physics means you won’t see much bigger sensors on phones anytime soon and we’ll count on other technical advances such as sensors that convert a higher percentage of photons to electrons, and maybe smarter software.

      • Ray

        It’s not access to the technology in this case, it is a product management choice that Apple made (a 1.2MP front camera) that does not serve well a consumer segment. This is just another illustration of how having only one product in a category leaves many consumer segments unsatisfied, EVEN in the premium segment

      • santoscork

        Consumers typically don’t dive that high. For most consumers they want a brand they can trust, a product they can rely on. High end customers are more demanding but judging by the number of iPhones sold, I reckon we are witnessing the average consumer who can afford a high end phone – their choice being Apple or Samsung.

      • Space Gorilla

        “weakness. The needs of 7 Billion consumers cannot be satisfied with 1 product. There are lots of compromises that”

        This is actually a strength. Apple serves the premium consumer segment, the people who care about what Apple is offering, the people who want a curated, closed, vertical solution. I expect Apple to level out around one billion customers. Apple isn’t for everyone, and Apple knows this.

        “Their success actually relies on not a few products, but on one product: the iPhone.”

        You must have missed other posts on Asymco that discuss how successful Apple’s other lines would be as standalone businesses. It isn’t that Apple’s other businesses aren’t successful, it’s just that the iPhone is a kind of success we’ve never seen before, it is off the charts.

        I’m not going to pick apart any more of your comment, but I will say your analysis is flawed and facile.

      • Ray

        Yes, I agree that it is their strength. And also their long-term weakness. Let’s assume they end up stabilizing at 1 Billion customers as installed base (not sure how you came up with that number). That means a competing platform can get ~5 Billion customers: that is the weak point of their strategy. They take a strategic choice to ignore the mid and low-end segments, which increases their profits in the short term (premium is more profitable), but puts them at risk in the long-term (another platform such as Android can grow to serve the rest of the market, which is most of the market actually, with virtually no competition). Over the long run, economies of scale and network effects of a 5B people platform are too strong and create a formidable competitor.

        Regarding product lines, the iPhone represents 60+% of sales and close to 90% of Apple profits. The other businesses are very small, and Apple would be a very small tech player if it had to rely on those.

        I can’t think of any other large successful company in history doing consumer widgets that is so reliant on 1 product. This is why investors see a certain risk in Apple that they don’t see in other more diversified competitors, even if these have currently lower sales/profits.

      • Space Gorilla

        “Let’s assume they end up stabilizing at 1 Billion customers as installed base (not sure how you came up with that number). That means a competing platform can get ~5 Billion customers: that is the weak point of their strategy.”

        No, it’s a strength to focus on the premium consumer segment. By doing this Apple gets a majority of the best customers on the planet. This will always be a minority of the total market, but the Church of Market Share argument is meaningless.

        I’ve been talking about the one billion users number for years now, based on what share of the premium segment Apple can maintain. Keep in mind that I’m not just talking about rich people. The segment I’m talking about wants what Apple is offering, and there is actually no other company that matches Apple’s offering (vertical, closed, curated, design, craftsmanship, privacy, etc). In fact much of the tech industry views Apple’s entire approach to technology as wrong, and some still argue today that Apple’s approach can’t work.

      • Ray

        Focusing on the premium segment only has pros and cons. It means higher profits today, but letting your competitor leverage the larger scale and growth of the low and mid-end.

        Apple buyers in the 80s also valued Apple’s product craftsmanship… until slowly coming to terms that Windows PCs, not so polished physically, had a much more thriving software ecosystem.

        The tech industry might view Apple’s approach as wrong because it myopically focuses on the product, and forgets about the platform. This probably comes from Steve.

        It seems you don’t understand the importance of economies of scale and network effects in the long run. Inferior products with larger user bases win in the long run against superior products with small user bases because you can spread costs among a large number of users.

      • Space Gorilla

        “Apple buyers in the 80s also valued Apple’s product craftsmanship… until slowly coming to terms that Windows PCs, not so polished physically, had a much more thriving software ecosystem.”

        The Mac still has a very small share today, and has lots of great developers and lots of great software. One might even say it is thriving :) The Mac also has something like a 90 percent share of the premium consumer segment.

        “It seems you don’t understand the importance of economies of scale and network effects in the long run.”

        No, I understand this perfectly. I just think it’s a flawed analysis when applied to Apple. This is partly the Church of Market Share argument, which is seriously flawed. You don’t need a majority of customers, you simply need enough good customers. It also helps immensely if you also dominate the premium consumer segment, which has a much higher engagement and spend rate.

        This is especially true in consumer markets, and computing has finally become truly consumer-facing. So I would expect the example of the Mac to continue to hold true, but things should be even better for Apple going forward. Surely a billion users is enough. Heck, Apple’s current user base is almost certainly already self-sustaining. On the low end Apple already has half a billion users. It’s probably actually higher than that, and certainly will be much higher by the end of 2015.

        “Inferior products with larger user bases win in the long run against superior products with small user bases because you can spread costs among a large number of users.”

        I don’t think this holds true when the end user is also the buyer, as is the case in consumer markets. Ask Microsoft how things worked out for them. They’re currently down to a 14 percent share of all computing devices, might even be less today.

        Or ask BMW how their business is doing. Or Mercedes. Consumer markets change the basis of competition, your old notions can’t always be applied.

      • Ray

        Not sure what is your point regarding consumer markets. This has nothing to do with classical “widget market share”.

        A platform is a platform. It has several sides. And network effects between them. That hasn’t changed. You need to attract many elements in one side to generate (positive) network effects on the other side. iOS has been the preferred choice for developers because they were a larger platform on the consumer side (more consumer dollars on the consumer side). This is changing because the consumer side of the Android platform keeps getting more users, and already has more total dollars for developers than iOS platform. As Accel Partners’ Rich Wong puts it: “While Apple deserves enormous credit for some recent market share resurgence (in the U.S. in particular), the longer-term trend hasn’t changed. Developers ultimately have to go where the eyeballs are, and for global mobile eyeballs, Android is way out in front.”

        Platform market size matters A LOT. The market share on one side, is what attracts the other side. It is the decisive factor. Microsoft has a tiny platform market share (consumer side) in mobile (3% market share?), which illustrates precisely the principle that platform market share is key, not profits, or cash or other metrics. Microsoft is a very profitable company that is irrelevant in mobile because they do not own a large consumer platform, so they cannot attract many developers and therefore their mobile ecosystem sucks, which makes it hard to attract consumers. It’s a two-sided platform on a negative network effects’ vicious cycle. It doesn’t matter how profitable you were or are, if your platform is too small compared to the competitions’ and they have an easier time attracting developers.

        Obviously Apple is not at 3% market share, but at 17%, which is better, but decreasing (with the launch of the Galaxy S6 it’s estimated to be ~15% or below for Q2). Yes, it’s a 15% that spends more PER USER, but not overall. There is already more consumer money for developers on the 80%+ Android than on the 17% iOS.

        Not sure what BMW or Mercedes have to do, they are not two-sided platforms that depend on an ecosystem of developers.

        No one knows what will happen. Apple can change its strategy and start targeting the mid-end to increase the attractiveness of its platform. Google could slow down its Android roadmap. The platform war is still being fought. It could be that both coexist for a long time, but the long-term trend is in favor of Android.

      • Space Gorilla

        Your analysis is about two or three years behind. Everything you’re trotting out has been dealt with by good analysts. Read some Benedict Evans to start with. I have no interest in slogging through old arguments.

      • Ray

        I read Evan’s blog. And talk to many industry analysts both in the Valley and Wall Street. And the risks they see for Apple going forward are the ones I mentioned. If you disagree, that’s ok, we have different opinions.

      • Ray

        To be more precise, the danger for Apple is that the mobile platform war ends up like the PC platform war: a major platform dominating (Windows in PC, Android in Mobile) with Apple as a niche player for a small segment of Apple enthusiasts (5-10%), which is what happened in the PC era. This is why investors are wary of the long-term trend of Android gaining consumer-side share (total dollars share).

      • Space Gorilla

        The Mac is an order of magnitude (or more) smaller than iOS and is still thriving. The iOS ‘niche’ is so large in absolute numbers that you simply cannot apply the same scenario. As I already said, you’re at least a couple years behind in your thinking. Both Apple and Android have already won and their respective roles in the market are already settling down.

      • Ray

        Yes, it could be that the winner mobile platforms are already decided, or not, only time will tell.

        The largest scale of Android also gives an advantage to Google for key cloud services such as Google Maps or Google Now, because these services rely on a large scale crowd-sourced content from sensors/inputs deployed all over the world. The smaller scale of Apple puts it at a disadvantage in this space.

        My thesis is that the next platform war might not be the watch… but the cloud. Much lower latency in new wireless tech (5G) might mean that local computing matters less and less compared to cloud computing, and the vision of thin clients that Google is driving becomes a reality (it’s not there yet today). Every device becomes just a display with sensors, sending and getting data from the cloud, where massive data centers with AI software do most of the work.

        https://gigaom.com/2015/02/04/google-had-its-biggest-quarter-ever-for-data-center-spending-again/

        In that scenario, “apps” become mainly cloud apps (not local mobile/watch apps) and hence whoever controls the data center platform, controls the ecosystem. This might another long-term strategic reason why both Google and Amazon are spending billions every year in an arms race to dominate the cloud… whoever wins might control the dominating computing platform of the 2020s and beyond.

      • Space Gorilla

        “The smaller scale of Apple puts it at a disadvantage in this space.”

        This is the key to your mistake. Apple is already large enough that we simply cannot use terms like “smaller scale”. Heck, even the Mac didn’t die when it had only 25 to 30 million users. You can’t apply the same logic to Apple’s current user base of well over half a billion, could be close to three quarters of a billion very soon.

        This is especially true when we look at engagement on Android. The majority platform will necessarily be less engaged, that is the nature of the mid to low end segments, and the majority of Android sales are in these segments.

        “Every device becomes just a display with sensors, sending and getting data from the cloud, where massive data centers with AI software do most of the work.”

        Apple is already well on its way to building an Apple Network of Things and is arguably ahead of everyone else by a large margin. You have to keep in mind that Google is seriously hampered by its business model of advertising. Privacy and security are going to be incredibly important in a networked device future. Only Apple has the financial incentive necessary to do this properly. Add to that the fact that the premium consumer segment will pay for privacy and security.

        “whoever controls the data center platform, controls the ecosystem.”

        That’s great, but Apple controls Apple’s ecosystem. Other players like Microsoft, Google, Amazon already add value to Apple’s ecosystem, but always on Apple’s terms. Because I pay Apple good money for devices Apple has a strong financial incentive to protect and improve my user experience. I’m not sure that can be said of any other tech company.

        Man, I feel like I’m back in 2011 trying to explain to people why the iPhone/Apple wasn’t going to implode.

        I said years ago the basic summary of the anti-Apple position is “No matter how much Apple succeeds, Apple is not succeeding.”

        I didn’t realize back then how right I was, and it’s only getting worse.

      • Ray

        I’ve never said that Apple will implode or disappear. I personally don’t think it will. But they might become less dominant than they are now and more niche, at the end of the day because of their excessive narrow focus on the premium segment (conceding too much of the pie for Android), and slower response to changing consumer needs and Android OEMs.

        Smaller scale means that, small-er. It doesn’t matter how big Apple is, if it is much small-er than another competing platform, they will not have the dominant ecosystem, so even premium consumers will switch to get access to the more dominant and better ecosystem. By smaller platform, I mean less developer quantity & quality (not users). That is the side of the platform that matters. So it is key for Apple to grow its platform as fast as possible, and to do that they might have to go mid-market. There are many ways to do that. Maybe they should create another cheaper brand with a different name and not sold in their stores, compatible with iOS, so that developers can get access to more users.

        You might have read flawed articles like this one:
        http://appleinsider.com/articles/14/03/14/how-android-lost-global-open-market-share-to-apples-integrated-ios

        This article is full of flawed parallels and logical gaps, I guess that’s the reason why it’s published in Apple Insider and not in a serious media. For instance, it talks about Symbian and Java Mobile as it they were very successful platforms. They were not. No matter how many users had Symbian, it wasn’t a real two-sided platform. Symbian didn’t rule anything, the operators had the market power at that time. It was an OS with many “users”, but not a successful platform. One side of the platform (consumers) had many users, but they other side (developers), which is the one that adds functional value to the platform, didn’t.

        Android has both sides. Until now there was more users but less money on the user side, and this is why there was less interest on the developer side. But that is changing because of the sheer scale. When Android is starting to have more money on the user side (according to some reports is happening currently), it will attract more/better developers. It seems your underlying assumption is that Apple will always control the premium segment. but that might change when Android attracts more developer dollars and/or Android OEMs have a significant lead in hardware.

        At the software level, If Android starts to have more/better developers of apps, some premium users will start switching.

        At the hardware level, some OEMs like Samsung are starting to lead technologically. The iPhone is no longer the best premium hardware. Even Apple is acknowledging that in their internal slides. It’s very hard for Apple to compete at the hardware level with 100+ OEMs, with 5+ already targeting the premium segment.

        This dual improvement in software ecosystem and hardware makes it difficult for Apple to keep its market share in the long run, EVEN in the premium segment. Of course Google can make mistakes (slow the evolution of Android) and Apple can compete, they need to keep working hard on their handsets and react faster to changing consumer needs. The fact it took them 3 years to react regarding the display size is not an encouraging sign though.

        “Apple controls Apple’s ecosystem”. Not sure what you mean here. And Microsoft controls Microsoft ecosystem. So? If the devices become dumb, and the computing power moves to the cloud, the cloud becomes the platform, so whoever controls the cloud, controls the platform. It means that iOS and Android (local OSs) lose relevance, as apps are not installed in the device but in the cloud. And who will control that “app store”? Whoever controls the cloud. So any advantage that Apple may have in the local device disappears, just like any advantage that Microsoft had in PC disappeared with the shift to mobile. Essentially the platform changes. Right now Google seems better positioned to control the cloud, and I wouldn’t discount Amazon there. Of course it could be Apple too. The point is that there might be a platform change so any advantage that Microsoft (PC), Apple or Google (Mobile) had in previous platforms becomes irrelevant. The new platform (cloud) will be up for grabs.

      • Space Gorilla

        Apple has never, and never will have the dominant ecosystem by your measure. But Apple will continue to succeed *by* focusing on the premium consumer segment. If you’re right Apple’s share of the premium consumer segment should be shrinking, they should have lost share already, but that isn’t happening, in fact the opposite is happening. I wonder if you were one of the folks that said Apple couldn’t succeed in China?

        Computing devices have only recently become truly consumer-facing, and consumer markets behave differently. There’s probably even room for a third player, it wouldn’t surprise me to see Microsoft take some share over the next few years.

        But, as I said a lot in 2011, you’ll have to wait a few years and watch it happen right in front of you before you realize I was right.

      • Ray

        No, Apple’s share should have not been shrinking until now because until now Apple had more user dollars (less users but more $ per user anyway), on the user side of the platform, for the developers on the developer side of the platform. So developers were developing typically on iOS first.

        http://recode.net/2015/05/07/android-starting-to-pull-past-ios-in-generating-revenue-for-app-developers/
        According to two recent reports, it seems we are now at the inflection point, where Android is on parity of user $ with iOS, simply because Android has kept adding more users than iOS. Continuing this trend, we will have more $ for developers on Android, which means developers will start soon developing for Android first (it actually already happens in many countries around the world, but not in the US yet).

        I understand consumer markets are different, but computing platforms are still computing platforms. Consumers get most of their value on the smartphone from the apps (the developer-side of the platform). If iOS has less/older apps than Android, an iPhone will not win premium users over an Android phone as it has been the case until now.

        Point in case: games. Many consumers chose iPads and iPhones because the game selection seems to be better (I personally don’t know because I don’t play games anymore). If there are more dollars on Android for developers, Android will start having more/better games, so this will be reversed. Again, even if smartphones are a consumer product, they are still subject to the power of positive network effects between the two sides (user and developer) of computer platforms.

        “watch it happen right in front of you before you realize I was right.” You seem to be very sure of what will happen in the future. I don’t have a crystal ball so I don’t know for sure, but the attitude of Apple conceding the mid and low range to Android might come to bite them in a few years. We’ll see…

      • Space Gorilla

        I’ve been right about Apple since I bought my first Mac in 1984. It seemed obvious to me that making the whole widget was incredibly smart and the right way to do things. More recently, in 2007 when I saw the first iPhone I knew it was a Mac in your pocket. My family bought a bunch of Apple stock shortly after. Not only was I right, I bet money on it, and won.

        Going forward I have a sense that Apple’s kind of vertical integration, curated and closed user experience, is table stakes to serve the premium consumer segment. No other company even seems interested in doing this.

        Your arguments have no merit because of the absolute numbers of Apple’s user base, developers won’t ignore it, there’s too much opportunity. Add to that how much more fluid programming languages are today, it isn’t really that hard to develop for two platforms, especially when both afford you different opportunities that are worth pursuing. It is the third platform in that may have trouble. But even then consumers markets tend to shake out differently. Apple and Android will both be fine, they both have a place in the market, specific segments to serve.

        Something you can watch for, see how long it takes Android Wear to gain traction. Should be about two years by my estimate. I won’t get into the reasons, but I see it coming.

      • Ray

        Glad you made money by buying Apple stock at the right time. But that doesn’t prove anything relating to Apple strategic risks going forward.

        Actually, if you look at the original Mac, what almost kills Apple is exactly the disregard for the platform business (as opposed to the product business). They treated the Mac as some kind of closed product, just like a TV set, not realizing that because the PC is a programmable device, most the value from the personal computer would come from the software applications (ecosystem), not the product itself. They design a beautiful personal computer (I agree in that part), but missed the importance of the platform business. This is why Microsoft/Intel and a bunch of uglier PC clones actually surpassed them.

        No one is saying that developers will ignore Apple’s user base. But developers have constrained resources (any company has constrained resources) and therefore have to prioritize on what they spend money on and focus on first: iOS or Android. Until now, they have focused first on iOS, so Apple has enjoyed an advantage. But that is changing. So if this trend continues, Apple will have beautiful iPhones but the App store will lag behind Google Play store. And many premium consumers expect a premium offering. If the premium offering is on Android (newer cutting-edge apps), some of them will switch no matter how much effort Apple puts on the widget. At the enterprise level that happens even faster, because IT departments don’t care about the beauty of the computer set, they care about the functionality to run their business and the price (both dimensions play against Apple). To give you one example: if Android becomes the dominant platform, Microsoft will develop its next iteration of Office first for Android, not iOS. Same with game developers, which are one of the reasons consumers with kids pick one product or the other.

        “Going forward I have a sense that Apple’s kind of vertical integration, curated and closed user experience, is table stakes to serve the premium consumer segment. No other company even seems interested in doing this.”
        That was not the case with the Mac, most premium users (both consumers and enterprises) switched to the “uglier” open user experiences, because they could do more/better jobs there. Open platforms are messier initially, because of the disconnect between the product and the software/services, but they are more thriving and better consumer-need serving ecosystems in the long run. Apple prioritizes product over platform, and that has longterm risks.

        I’m not saying that Apple will disappear, but it risks becoming more niche. Premium customers are not loyal just to the product set, but to the massive offer of the platform. I’m sure Apple executives have learned from past mistakes and know this, the question is whether they are making the right choice by ignoring the low and mid-end, prioritizing profits today versus potential profits tomorrow. This is one of the reasons why Apple stock might be valued below what it seems it should be given current profitability.

        The power of the platform in the long run is superior to the power of the product, because of network effects and economies of scale. Universities in Korea get this very well and teach what is the power of platform businesses…

        https://ideas.repec.org/p/snv/dp2009/201297.html

        Regarding Android Wear, I think it’s a problem with the product category. It doesn’t get traction because consumers do not find a clear value proposition yet for that product category. It is very different than previous product categories, there was a clear value proposition for the iPod (carry your music collection on the go instead of CDs, MP3 players and Napster were already hits) or the iPhone (check email and browse the web on the go, smartphones with keyboards were already successful) from day one. People got it, it was quite intuitive. Look at people using the watch. It takes time for them to understand what it is for, how it works… in essence what kind of useful jobs it does for you.

        For now the smart watch is just a technology push of companies, in search for an application. Notifications are a very minor benefit to justify the expense and nuisance of another device to pay for, charge every day, carry with you, and renew every few years. In a year or so we will have a better view on whether consumers have found the “killer app” for this product category. I advice you to get the Apple Watch and try it for a few months to do the “drawer test”. Maybe you find that you don’t care much when you forget it in the drawer at home, which is the ultimate test.

      • Space Gorilla

        “That was not the case with the Mac, most premium users (both consumers and enterprises) switched to the “uglier” open user experiences, because they could do more/better jobs there.”

        This simply isn’t true. The Mac dominates the premium segment. If you believe Apple lost the PC wars, that says a lot about how flawed your analysis is.

        Look, you’re using old thinking and trying to apply it to Apple going forward. It just doesn’t work. As I said, keep an eye on the success of Apple Watch, this alone will tell you a lot about the difference between the premium segment and the kind of value that segment seeks, and the mid to low segments.

        By the way, enterprise customers are not premium customers.

      • Ray

        “The PC wars are over. Done. Microsoft won a long time ago.” — Steve Jobs, 1996

        Of course it depends on how do you define “PC Wars”, and how do you define “losing”. By most accounts (“old thinking” I guess), the original PC Wars are over and had a clear winner, which even Steven acknowledged. You can always change the definition of those words to fit whatever your biases make you believe in. We are now in the “mobile wars”. If you say they PC Wars are still going on, then, when do they end? Because if they have no end, then obviously there is no winner or loser.

        And, what is your specific definition of Premium customers?

      • Space Gorilla

        I suspected my PC wars comment would spur you to reveal your out of date thinking. You did not disappoint. As for premium customers, that you have to ask speaks volumes. I don’t have the patience to go round and round with you. Best of luck.

      • Ray

        Yes, you caught me. Good job! So you write not to learn or exchange ideas but to confirm your own biases.

        I guess you disagree with Steve. So who is the winner of the PC wars? Because if there is no end, by definition there cannot be a winner. Your thinking is not outdated, but illogical. You know, there are some Japanese who still think World War II is not over yet. You just want Apple so badly to win, I can see your biases from miles away. It must be a sad life to be so emotionally attached to a for-profit corporation…

        Regarding Premium customers, there is no STANDARD specific definition. Every market research and equity analysis firm has a different definition (based on different demographics, price points, etc.). It also depends on the market you are analyzing. So the fact that you think there is a universal specific definition of premium customers “speaks volumes” about your understanding of market analysis.

        No need to reply as there is no value in your comments, their mission is just to confirm your biases. Bye.

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

        I think Apple will be very happy with that. Minority share and majority profits. Not a bad ending of the Mac/PC “war” and given the continued growth of iOS in profits over all other handset vendors world wide (Samsung has been posting YoY declines for over a year I think), I think Apple is very happy with this outcome as well. Likewise, Apple gets an economy of scale with the iPhone no other vendor can come close to and this is very different than the Mac/PC days.

      • BMc

        It is funny that in some of the posts you are referring to yourself as an “investor”, but you do not seem to take an analytical approach. Everything is looked at through a lens of “why Apple will not so well”. Example above is talking about the 1B user base as being poor w.r.t 5B, simply on raw count, rather looking at the segments there in and how profitable they are.

        By targeting the top quintile of the use base, Apple is currently collecting about 80-90% of profits made by handset companies. Yet you continue to miss this, and somehow seem to believe that it is the companies which target the mid & lower tiers of the market that *will* make all of the money, although they are not doing so today.

        You will probably retort that it is a “risk” in the future. Sure, there are risks to every company. Isn’t the companies today that are not making much profit that might be more at risk, in terms of not having the capital to invest, or cash to operate in the markets for long periods of time?

        Note: I don’t expect any reasonable response to these questions, and it is abundantly clear from all of your posts that trying to discuss anything with you is pointless. Just occupying some time at lunch.

      • Ray

        The point is that what ultimately matters is the PLATFORM, not the PRODUCT:

        – The product battle is between Apple and Samsung, Motorola, HTC, etc.
        – The platform battle is between Apple and Google.

        Apple is focusing on the premium segment in the product battle, and hence capturing most profits from handset sales. However, they do this at the expense of losing market share in the platform battle (most new consumers buying smartphones are in low and mid end segments). Steve, as brilliant as he was on product design, didn’t get the importance of the platform in the 80s, and it seems he still didn’t get it in the 2000s (he didn’t want an iOS app store initially).

        It is common knowledge that Apple is a more profitable platform per user for mobile developers. However, because of the growth of Android around the world, the total revenue generated by developers on Android is starting to surpass iOS’s. Here is the data, again, two recent studies arriving at this conclusion:
        http://recode.net/2015/05/07/android-starting-to-pull-past-ios-in-generating-revenue-for-app-developers/

        This means that going forward app developers are increasingly going to focus on Android first. And the ecosystem advantage that Apple has today is going to slowly disappear (unless Apple changes its strategy). Since Apple does not have a hardware advantage (they buy components from Samsung, LG, etc.), the only competitive advantage they will have left is system integration and design, which won’t be enough to compensate a lagging ecosystem and hardware.

        In the PC industry, Apple had much higher margins in the PRODUCT than its competitors (Dell, Compaq, HP, Asus, etc.). They were catering to the more profitable premium segment. And that’s one of the reasons that killed them. Because Microsoft, due to lower prices of its PCs, ended up with a much larger user base, which in turn meant that it had a much more thriving developer ecosystem.

        Horace suggests that Apple stock is undervalued. And Icahn (who owns $3B of Apple stock) of course agrees publicly. He’d love the get uninformed consumers to buy more Apple stock and drive the price up. When a company is making lots of profits, they stock has to go up, right? Not so fast.

        The smart money knows that you need to look beyond current profits, which seems the metric Horace and most readers of this blog are focusing on. There are two potential reasons (and many more) why investors are valuing Apple below what would correspond to current profits:

        1) Apple is not diversified, it is too dependent on one product. As discussed, almost 90% of profits depend on the iPhone, one widget they have to upgrade every year. If one of their competitors releases a disruptive premium product (foldable smartphone, Samsung?), profits will plummet quickly.

        2) Apple is slowly losing the platform battle as explained above. This is the mistake they did in the PC era, and they might repeat it in the Mobile era at this rate.

        These two risks puts a discount on valuation. There are also other reasons.

        Current profits are not the only metric. Amazon is a company that has had virtually no profits and got a lot of love from investors, Why? Because investors knew that what Amazon had to do was focusing on growth and market share (to leverage winner-takes-all dynamics). Same with many VC-backed startups, they typically forego monetization for growth, as they are not in the vacuum and have competitors that are growing their platforms too.
        Once you are the dominant platform you can monetize.

        Your narrow focus on current profits is very shallow and does not reveal an understanding of the dynamics of platform business models, the importance of scale and network effects. If profits were the only metric, Amazon capitalization would be close to 0.

      • Kizedek

        There’s a lot wrong with the thinking in your post. A couple of things, though, regarding: “Apple doesn’t have a hardware advantage”. They most certainly do.

        They design most of their components, for their own exclusive use. So, whoever ends up making them, Samsung or whomever, those components can not be used by those companies in their devices. These include the A-series, GPUs, sensors, secure enclaves, power management, etc. Apple’s integration between their hardware and software is second to none, hence the performance and UX is better with less RAM and GHz, they have 64bit computing that actually works, etc.

        Apple leases or buys machines, assembly lines and means of production, without being liable for the depreciation and management of factories and workers. Apple has the best of both worlds.

        Where it does use off the shelf parts, Apple has the means to order production of almost whole worlds output in advance, such as RAM.

        Apple selectively and strategically buys small companies for their talent and technology, rather than sinking billions into a Motoroal or Nokia and not being able to capitalize on it. Apple bought 30 or so companies in last 18 months and we only know about a few.

        Manufacturing behemoths like Intel were so invested in the path they chose (desktop processors) that they are losing out in the mobile age. For others, like Samsung, you have got it precisely backwards: Apple is not dependent upon them, they are dependent upon Apple.

        Your analysis on this is so backwards. Apple is “using” Samsung for its 14Nm foundry simply because it is convenient when they need 300 million of something per year. Meanwhile, Apple is helping TMSC, etc., get up to speed and buying up their manufacturing capability. When Apple can set up and “give” a partner a whole facility, like a sapphire manufacturing plant, and then turnaround and make it a data center or something at its whim if it doesn’t pan out… Then it is not Apple that is stuck without options. Apple does not want factories; nevertheless, it is calling the shots.

        Your discussion of product versus platform when it comes to Apple is equally flawed.

      • Ray

        You are right that it is partially incorrect saying that Apple does not do hardware. They do some hardware. They design custom ARM cores for their processors and some other components. And they have done a good job so far, I’m a bit biased since I have a friend in that team :) In fact Apple created that team because they knew they had been in the past subject to Intel and Motorola’s product roadmap and they wanted to have more control. That was the right move. However, they are still missing manufacturing, packaging, control over the physical roadmap, etc. which is key to reduce size, power consumption, etc. Here, Samsung does have an advantage.

        Regarding other important components, they do have to shop around for whatever component providers can and want to sell them. Case in point: displays and batteries. iPhones have inferior displays (this is not my opinion but every experts’), and displays are arguably the most important components in a smartphones because: 1) they are what consumers see (all client devices are essentially becoming a display with some tiny chips behind – desktops, tablets, smartphones) and 2) they are the main cost driver of a smartphone.

        This is a thorny strategic issue for Apple. On one hand, they want to claim the iPhone has the best technology in the world, on the other hand the best technology in the world (Super Amoled) belongs to its main competitor, and, even worse, no other supplier can match it. For now, they decided to keep producing iPhones with inferior IPS technology, while still telling consumers that they have the best technology in the world. That’s what you can get away with when you have such great brand and marketing.

        Batteries are equally important and Samsung does have the technology as well (they actually provide batteries not only for consumer electronics but for BMW electric cars too), and is also investing in technological breakthroughs around the world in this area because they know it is one of the major consumer pain-points in most computing devices.

        Apple can only procure all the world’s RAM if Samsung agrees, as Samsung controls almost half of world’s production of RAM. In summary, Apple does have competitive advantages over Samsung as a company, but it also lags in some areas. In fact, as you say Samsung depends on Apple, but also Apple depends on Samsung. Very interesting dynamic.

        Regarding the fact that Apple does not own factories (chips, displays, packaging and device-level), it is definitely cheaper for them, but it also puts them at a disadvantage too, as they can’t react to the market as quickly as Samsung, since they need to find a supplier, pay in advance, convince them to retool their factories, reprogram their robots and processes and educate their workers, etc. Also, they get late access or no access to the best components as they are owned by Samsung (Amoled, 14nm chips). So it’s an advantage financially but it puts them at a disadvantage in terms of keeping up with market needs and procuring the best components.

        My thesis regarding Apple’s tendency to prioritize product over platform is based on observation of their strategy over their history and conversations with their ecosystem partners (software developers and accessory providers). Their philosophy is always keeping as much control as possible over the platform, and that in essence causes issues with the ecosystem, companies that make investments and see their efforts go bust because Apple makes sudden changes to the platform with no proper consideration for the effects on their businesses. Of course the ecosystem will just cope with it because the iPhone is the most lucrative platform today. Once it is not the case and the ecosystem has a more lucrative alternative, we will see how innovation tilts the scale. Of course the game is still being played, so Apple has many cards to play too, like improving their treatment of the ecosystem and being more open about their roadmap with them.

        I might not understand Apple, for sure I don’t understand it as well as Horace, but I can also say that you and Horace don’t understand Samsung.

        I get that some readers (and maybe even Horace?) only started getting interested in Samsung when they became the leading smartphone in the world, but they have a long history in the making. They’ve been entering many markets and becoming #1 in many of them before the iPhone even existed. Did you know that they created the world’s first camera phone?

        Technological prowess that comes from many years of R&D and hard work and cutting-edge operations is a much more plausible and fundamental reason for their success, instead of facile explanations such as copying or marketing spending. If it was so simple, why would Microsoft/Nokia or Google/Motorola not do it? What are they waiting for, they have plenty of cash. Just copy Apple, throw some billions on Marketing, and become the leading smartphone provider in the world.

        Not only that, but they’ve been defying widely established business strategy principles, such as that vertical integration is “bad” (which led tech companies such as Motorola, Siemens or Sony to get rid of their semiconductor operations… and look where they are now), or Porter’s principle that companies have to make a strategic choice between differentiation and low cost
        http://www.hbs.edu/faculty/Pages/item.aspx?num=32476

        Maybe those Samsung executives that have surpassed Sony, GE and TSMC and are giving a run to Apple and Intel simultaneously are not just copycats. Just maybe. Maybe they are leveraging that South Korea has become the most

        http://www.bloomberg.com/graphics/2015-innovative-countries/
        Having a wide product portfolio is not throwing everything at the wall, it’s recognizing that every consumer has different needs. You cluster them in groups and then you produce a product that satisfies their needs as close as possible. It’s marketing 101.

        1) At the consumer level, Samsung offers CHOICE:
        Some consumers like small smartphones. Samsung offers you one, Apple doesn’t. Some consumers like huge smartphones. Samsung offers you one, Apple doesn’t. Some consumers have other priorities in life (education, healthcare, family) and want cheaper smartphones with acceptable functionality. Samsung offers you one, Apple doesn’t. Some consumers are just very poor and can’t afford a premium smartphone. Samsung offers you one, Apple doesn’t. And the list goes on and on…

        2) At the component level, Samsung offers TECHNOLOGICAL INVENTIONS

        These eventually lead to the creation of the best displays and chips, and the best devices (smartphones, TVs, etc.). These are the kind of inventions that require smart PhDs and many years of material science and electrical engineering studies and research, many hours of hard work at the lab, and thousands of invention patents. I understand you might not appreciate this kind of inventions, they are not so sexy and “pop” as a colorful Apple announcement event with hundreds of fans cheering, but they are the reason why Apple could build its widgets on the first place.

        and especially that you do not give any credit to the innovations that Samsung has brought to you. Samsung is one of the reasons why you have a better smartphone. It has lots of innovations

        http://www.bloomberg.com/graphics/2015-innovative-countries/

        and one of the reasons why many poor people around the world have been able to have access to the Internet for their first time, which is a pretty transformative development.

      • Walt French

        To be fair, I can’t think of any consumer widget company regardless of the breadth of their product line that’s been so explosively successful.

        Or non-widget companies such as Coca Cola that are utterly reliant on a single product for their global success, that have gotten anywhere close to Apple’s success.

        Meanwhile, our host has repeatedly asked what companies employ a product selection/design/development/organization that is remotely like Apple’s, but nobody has stepped forward with an example of a company that wants to, or used to, be organized like Apple.

        Including yourself. You keep claiming that Apple’s unique results can’t continue but don’t discuss business processes that’ll supersede Apple’s. We fans of disruption would be thrilled to hear of them, but you offer up the thin soup of recalling utterly failed competitors such as Motorola, instead.

      • Ray

        It is precisely the reliance on one product that powers the “explosivity” of the success. When the product does well, the company rakes in tremendous profits (as Apple now with the push of the iPhone with China Mobile), when it does not, it takes the company down with it. That is the definition of volatility. Diversified companies, especially the ones that are not in rapidly changing industries like the technology industry, do not experience those swings, and hence why companies too reliant on one product for their profits like Apple have a risk factor that educated investors take into account.

        No matter how good is the team at Apple, executives and investors know that there are things under their control and things that are not. For instance, they cannot control what kind of inventions competitors all around the world will come up with, what kind of alliances will be formed, what kind of technological breakthroughs scientists will discover, or what kind of consumer shifts there will be. No one has a crystal ball. So even if we assume that Apple has the best product selection/design/development/organization, that doesn’t mean that they won’t be disrupted. One example is music streaming with services such as Spotify, which was not foreseen by iTunes executives, and is disrupting their business unit.

        Apple is a company playing in the technology industry, particularly the smartphone market, where rapid and unstoppable global technological progress in multiple dimensions (wireless standards, internet standards, display technology, semiconductors, software, data science, etc.) requires designing new products at least once a year to avoid becoming obsolete. This industry is very unstable by definition. Apple itself is an example, a company that went from almost bankruptcy to being the most profitable one leveraging a couple of technology disruptions.

        Coca Cola is a consumer goods company that sells the same product every year, with little or no modifications (just packaging and marketing), it does not need to keep up with technological progress. A Chinese beverage maker cannot just design a beverage that is “superior” to Coke and take over the market in a few years.

        I’ve never claimed or think that Apple’s unique results cannot continue. Of course they can. But is their a 100% probability that they will? Of course not. Investors who take into account the risk of lack of profit source diversification are not saying that Apple cannot continue being successful. They are just pricing in in their financial models the PROBABILITY, which obviously is below 100%.

        What I did say is that Apple probably needs to come up with a new product category (will it be the watch?), because it is difficult (but not impossible) to sustain an advantage over an army of 100+ OEMs that are hungrier, nimbler, might have some IP or other advantages that are key, are willing to experiment to uncover unmet consumer needs, or have a better pulse on the mid and low-end and emerging markets that are growing faster, conferring competing platforms with increasing cross-side positive network effects. This is not saying that Apple is successful because it was lucky, to the contrary. Credit when credit is due.

        It is ironic that Horace seems to be complaining that analysts don’t understand Apple and don’t give them enough credit, while he shows that he does not understand Samsung (and many other here just stay fixated on the juvenile copycat superficial argument). No company gets to take over the smartphone market and most consumer electronics and semiconductors markets worldwide because of marketing spending. Behind this there is a world-leading amount of R&D investment, generation of patents, and the patient building of a state-of-the-art manufacturing and distribution network system and organization. There are more interesting stories behind:
        http://qz.com/223543/korea-is-the-current-world-champion-of-rd-spending/
        http://www.sait.samsung.co.kr/saithome/Page.do?method=main&pagePath=01_about/&pageName=history2

        I appreciate your feedback because you’re respectful and try to add value to the conversation. Unfortunately that is not the case with many Apple hooligans that have taken over this blog turning it into some kind of cultofmac.com . Even the minor suggestion that Apple success might have some risks going forward, or that some of his competitors deserve some credit, instead of becoming an interesting data-based debate, it turns into anger and juvenile trolling.

        I’ve had too much free time in the last few days as I was recovering in the hospital, but soon hopefully I’ll be back to work so don’t worry :)

      • Space Gorilla

        I wonder if we need to look much closer at the premium consumer segment. In absolute numbers it would seem that Apple is much, much larger than Android within this segment, and that Android doesn’t have much chance of ever overtaking Apple.

        When I look at business markets I don’t see a significant premium segment. When IT is the buyer can there be a real premium segment? Maybe but it would be very, very small.

        Now that computing is truly consumer-facing, Apple is accessing and resonating with the premium consumer segment, and this segment (in my opinion) is looking for ‘whole’ solutions from a single vendor. This segment wants a curated, closed, regulated, abstracted, simplified solution. This seems true of this segment in other consumers goods and services.

        My current hypothesis is that the sort of vertically integrated experience and value that Apple delivers is table stakes to serve the premium consumer segment well. I see evidence of this in the immediate success of Apple Pay and Apple Watch, and the failure of other low to mid market modular solutions attempting similar services/products.

        As you touch on Walt, no other company seems interested in doing what Apple is doing. Hence, no other company can dominate the premium consumer segment re: computing devices.

        For developers and others that see an opportunity within this premium segment they must go through Apple.

        He who controls the spice controls the universe.

        In sum, I expect Apple to continue to dominate the premium segment, and to grow this dominance.

      • Walt French

        Horace recently rapped my knuckles on twitter, saying there were no markets, only jobs to be done.

        So to follow that logic into segments, how does the JTBD differ in the premium segment? How could/does a competitor surpass Apple (why can they not)?

      • Space Gorilla

        I don’t disagree with using the window of jobs-to-be-done to understand segments. What I often call the Best Customer Segment, or premium consumer segment, is actually a set of folks looking for a specific type of experience, a somewhat shared set of jobs-to-be-done. I’m hiring my Apple device for a number of reasons which I think aren’t unique to me, I think there’s a good number of people like me looking for the same things. Abstraction and simplification are part of it, certainly. Privacy, security, curation, I actually want a closed system.

        As a bit of a tangent, imagine Mercedes simply licensing a broad set of designs to other car makers, and you could then buy anything from a super cheap Mercedes to an expensive Mercedes, and everything in between, plus the various models would have their own interiors, different sets of controls, different seats, whatever the car marker wanted to put in. But all these cars are a Mercedes. Would Mercedes then resonate with the best customers in the auto industry? I doubt it.

        Apple’s vertical integration and craftsmanship, attention to details, design, all of this allows Apple to deliver a user experience that resonates with people who are good customers, people who are willing to pay for value. This line of thought is what I used to predict the success of the Apple Watch, and it’s why I think Android Wear will struggle for a while yet (two years perhaps, maybe more).

        It is difficult to articulate exactly, but I like the notion of jobs-to-be-done, or a collection of similar jobs-to-be-done, the “why” in why we hire an Apple device as opposed to cheaper or other devices that on the surface appear to offer the same job-to-be-done. But of course we know that the cheaper/other device doesn’t deliver the job-to-be-done in the same way, the total user experience is quite different, and unique to Apple.

      • DesDizzy

        You should look no further than the premium car market that Jobs referred to; BMW Jaguar, Mercedes, Audi etc

      • Walt French

        Ray, perhaps you think an article debunking the sorry track record of claims re iPhone killers, is the place to offer a reason why it might be possible to create one. So be it.

        But all your reasons that firms could fashion a package that was more attractive to many customers, are net-net rather banal in the context that it has yet to be done. Sure, Samsung sells a lot of very nice phones, and offerings from LG and others have their fans. However, the same logic applies to Microsoft, Sony, Motorola, BlackBerry and others. It’s not obvious that opportunity translates into success. I didn’t see any reason why only Samsung should be successful in this business, only reasons why anybody could be.

        Many would claim Samsung’s success is due to more effectively copying Apple, but while that could be a factor, I agree that other factors such as ability to coordinate various components into its designs is more important. But that explanation then rules out approximately everybody else on the planet from being able to compete with Apple. That makes your bigger point damn near worthless.

        None of this really gets to the point — perhaps, it is oblivious to the point and reinforces it — that a certain fraction of the chattering class is looking to unseat the king, without any apparent clue whatsoever of how it would actually happen. You do a great job of listing, at some length, important reasons that somehow are disconnected from a thesis.

        So let me lay out mine. Apple will continue to succeed as long as they create attractive products that many people like, to make people’s lives better. They have some very specific, apparently uncopyable resources and process that work well with their values, so there’s no reason to expect that if, say, Tim Cook drops dead, the whole enterprise falls apart. Other firms may make better products for some — e.g., lots of people like the functionality of Android Wear and find the hardware more than adequate — but that doesn’t in the slightest affect how successful Apple will be at its real goal of serving its customers’ needs.

      • Ray

        My thesis, in short, is that iPhone sales are up in 2015 because Apple is now serving market segments that they were not serving, but that once these markets are served the iPhone growth rate will slow down to 2013 levels. We will see in 2016 if my thesis was correct. Essentially the tide is up, we will see when the tide is down if they are swimming naked or not.

        In more detail, my thesis is that sales of iPhones are up, not because Apple has done a good job at keeping up with consumer needs, but because of pent-up demand from 1) consumers who like Apple products but had switched to other platforms because Apple was late to satisfy their needs (larger screens) and

        2) consumers in China thanks to a new deal with the largest operator in the world (hundreds of millions of subscribers are now suddenly accessible, that Apple didn’t have access to)

        Once this demand is satisfied in market segments that Apple was not tapping before, we will go back to the slow growth rate that Apple had previously.

        Or course I could be wrong, but I have discussed this with a few industry analysts who track the smartphone market and they share the same point of view.

        Why is this my thesis? Because I see signs that Apple does not keep up with consumer needs as well some of its competitors. I don’t know the root cause, whether it’s internal complacency, pride, centralized planning, stubbornness. The display is an obvious one, that they just corrected. I gave you another example with the front camera that supports this thesis, and I could bore you with a few more consumer pain-points that Apple is late to address (small battery, etc.).

        My thesis, in a more generic framework, is that in the long run it is very difficult for one company that focuses only on a specific segment of the market to keep a dominating position, when they are competing with an army of companies, some of which are being faster to keep up with the evolving consumer needs and new market segments (e.g. emerging world), and more agile and experimental. Economies of scale and network effects are too powerful.

        Apple executives know that, this is why they emphasize that their OS is so much more attractive for developers (less fragmentation, higher ARPU), because they know the developer ecosystem is their army, and they need to compete with two large armies (Android OEMs and Android developers).

        Of course Apple will not disappear. Microsoft is still here. IBM is still here. Intel is still here. No educated analyst is suggesting that Apple will fall apart completely, or that the iPhone will be killed as in “0 sales”. I see signs of the behavior that Microsoft had at their peak.

        Only time will tell :)

      • Space Gorilla

        “My thesis, in short, is that iPhone sales are up in 2015 because Apple is now serving market segments that they were not serving”

        Disagree. Apple serves the premium consumer segment. This segment is looking for the kind of value and user experience Apple delivers. Apple has been expanding its share of this premium segment, in most cases Apple has a 70 percent or higher share of this segment.

        How has Apple expanded its share of the premium segment? By improving its offerings, by continuing to deliver value that resonates with this segment.

      • BMc

        I don’t disagree that the large increase in iPhone growth due to the 6/6+ will abate once most have upgraded. 30-40% YoY growth is not likely to be maintained. However, having growth come down in the premium market (say its trend rate plotted over many years is 10-15%), that is still very good growth in the most valuable segment.

        What you don’t seem to see (purposely I believe) is the data which points to Apple having, by far, the highest customer satisfaction rates, stickiest ecosystem, and most monetized ecosystem (apps, content, services). For each 100 users to the iPhone base, about 90 of them will continue with Apple for years, buying upgrades, paying for content/services, and potentially expanding to new products. No other manufacturer has this base.

        This base is like an annuity, and it is still growing at a healthy clip (sometimes 10%, other times 30%). By and large, the market still does not value Apple in these terms, although it has improved from over the last two years.

      • DesDizzy

        Perhaps you could enlighten us with the name of this tech company which exhibits these qualities of lighted footed responsive sucess

      • Walt French

        According to Horace’s adoption curves, we’ve crossed 50% saturation and the total of all devices will be showing lower growth rates. Individual firms, especially newcomers, may steal share, and enjoy a high growth rate that nonetheless is relatively less significant than the bigger firms’ ongoing sales.

        Growth is important, especially when conquering a new territory. But in the long run, customer satisfaction, JTBD, however you label it, is about the total number of devices, the total amount of customers’ budgets that it makes sense for them to allocate, not just the change from the previous year.

        So growth as beloved by Wall Street will depend on finding new ways to satisfy customers’ wants. Like the nascent Watch market. Like bringing homes and cars into the 21st century. And whatever else technology has to address, with Apple obviously being one of the firms most focused and effective on real-world jobs that people will entrust to it.

      • stefnagel

        Apple faces no outside killer today; it is the killer. But tomorrows are only a day away in tech. And, as with Sony and Microsoft, Apple’s enemies are internal inertia and myopia.

      • Bart

        Too bad faster processors, in Android, amount to much slower phones!

      • stefnagel

        Too complacent? Or just complacent? With the Watch, Apple is continuing straight ahead with creating Macs, gizmos with screens, processors, and click interface. That strikes me as thinking within the box. It’s certainly not breaking the plane.

        I’ll be a lot happier with Apple when it drops the screen and commits to voice input, for instance. Once Siri gets serious, the world will open to wearables that will take full advantage of the next big form of digital media—us—our biometrics.

        Unless someone else does it.

      • Walt French

        Civilization advances by extending the number of important operations which we can perform without thinking of them.

        —Alfred North Whitehead

        Most of us here are fans of disruption, but let’s give at least a moment to celebrate the thousands of things we do every day—e.g., tying our shoes—while barely paying attention, saving our brain cells for other things (mostly, planning how we’re going to get laid next or similar basic needs).

        The rate of change on the Mac may be much slower than on Apple’s other lines, but aside from trying a hybrid format, it seems they’ve been pushing the ball forward about as aggressively as anybody. And while MY negative opinion on the hybrid format might not matter much, the fact that it hasn’t taken off suggests it isn’t so much an innovation as a novelty.

      • stefnagel

        Ah. I’m saying the Watch is simply a tiny Mac. Next Apple will have us swallowing them.

      • mhikl

        Maybe Apple knows its market well and chooses the best time to adjust. It perfected its iPhone well before it chose to step into the land of oversized phones. Its iPads seem to have hit a wall, or is it just that they are so well made they last a long time. And then Apple steps in with its large and very large iPhones. Is there a connexion?
        Was this planned long time ago; I would suspect so.
        My first smart phone will be the smaller of the large iPhones and will become my replacement iPad. I like to read, books, and search when away from home. The larger iPhone offers the sweet spot. But now that I am beginning to enjoy audio books, my iPod touch is being resuscitated.
        Is entry of the large iPhones sounding the death toll to the smart phones as we have come to know them? Does Apple have something else in its sites from Ive’s wonderland studio?
        At times it is difficult to figure out the reasoning behind Apple moves. But she surely does continue to make great coin. I would guess its map is very well plotted.
        Namaste and care,
        mhikl

      • Ray

        “Maybe Apple knows its market well and chooses the best time to adjust. Was this planned long time ago; I would suspect so.”
        So you’re suggesting that Apple decided not to satisfy consumer demand on purpose? Why would they?

        Data seems to suggest the opposite, Apple own internal documents talk about how the growth rate of the iPhone was dramatically slowing and how new growth was coming from larger smartphones. In their honest view: “we don’t have what consumers want”

        http://www.businessinsider.com/internal-apple-presentation-on-iphone-business-2014-4

        It seems they thought they knew what consumers wanted (small smartphones that you can use with 1 hand) until they competitors proved them wrong by discovering a previously unsatisfied consumer need.

      • mhikl

        It is frustrating that Apple chooses not to communicate its strategies as most other tech companies seem to do.
        I haven’t the answers but Apple is so profitable that it seems to have a good hold on the future of tech. It then can ignore some of the questions to its practices.
        Now it brings out the larger phones. But why now, and not a year ago?
        Could it have squashed or at least hampered Samsung by adding another line of larger iPhones a year, two years ago?
        Whatever the reason, again, Apple is the most profitable company in the field of tech and possibly of all companies. So it does seem to know what it is doing. It can choose to do what it does without crimping sales.
        I also do not think that Apple necessarily does what consumers want or expect. It has its eye on producing the best in show, and an eye on its bottom line. For example, the cheapest iPad mini has only 16GB ram, whist the next in line jumps to 64GB. Why does it not use 32GB ram instead? Seems a little mean (in both the meanings of the word) to me.

        I would also be curious to know the longevity of Samsung’s early to latest versions of its smart phones. How long do they last, continue to function? I have also read that they are plugged with ratty apps that take up ram and use up battery power yet cannot be removed or halted. Not good.
        The cost factor of Apple products must account for some of their markup as a cost of longevity. And the same might apply to Samsung’s costs, charges and the quality, good or not so good, to its products. This is one line of inquiry I have not seen discussed by any analysts I have followed; the life expectancy of both company’s phones.
        Namaste and care,
        mhikl

      • Ray

        I appreciate your reasoned feedback, unfortunately in this blog there are some fans waiting to label anyone that might slightly object to Apple’s strategy or product appeal, or even worse, give some credit to its suppliers and competitors (how dare!), as “anti-Apple”.

        Apple has done many things right, great product design and a few revolutionary products, and hence their current success. There is no denying that. Of course some Apple haters will deny that no matter what. Haters are haters on both sides.

        Regarding longevity of products, I don’t have any data either way. My personal anecdotal evidence is that both Apple and Samsung products are well-built and last more than 2-3 years which is the typical replacement cycle. I have a Galaxy S3 that I use when roaming that still works perfectly fine, even after upgrading Android. I also have an iPad 2 and still works fine as well. Both are a bit slower than when I bought them, but that’s logical because the new OS releases require more resources. I wonder if there is any resource out there comparing product reliability (just like there is for cars), it’d be interesting to have some data.

        The slides from Apple seem to be legit, 9to5mac is a site that has usually reliable leaks and also published it:
        http://9to5mac.com/2014/04/06/why-apple-has-to-make-bigger-screen-iphones-in-its-own-confidential-internal-slides/
        I don’t think those slides are embarrassing, to the contrary. It shows that, at least one strategy department within Apple is actually looking at market signs and changing needs from the market to provide relevant recommendations to its executives. It seems executives finally listened to these recommendations and released a larger iPhone, hence the success of Apple in the last two quarters. We can give a large part of the credit for the huge profits that Apple made in the last two quarters to those who wrote those slides and dared to tell Tim Cook and other Apple executives that “we don’t have what consumers want”. Kudos to them, good job.

        Personally I find the idea that Apple always knows what’s best for consumers (sported by some Apple fans) completely misguided. In fact, my thesis is that Apple is much better at creating disruptive innovative products (that require internal centralized out of the box thinking) than creating incrementally innovative products (that require listening to evolving needs of consumers all over the world). Also, Samsung does innovate and actually makes Apple products better (by keeping them honest and on their toes), but it gets no credit by Apple fans. Their innovations are typically not so much on the “last mile” (consumer product design) but on core technology, and people who are not technologists just don’t have the capacity or willingness to appreciate this. I’ve been at the internal Samsung labs in Korea several times and have seen prototypes of future smartphones and other products that are amazing (foldable smartphones, transparent displays, etc.), can’t wait for these innovations to be commercialized.

        My job is not to be a hater or a lover, it is to look at the facts, all the facts, not just that a company enjoys great profits. Apple strategic goal is to maximize profits today, and they have done great so far. Amazon strategic goal is to forgo profits today in order to improve chances of continued success tomorrow, and they have done great too so far. Both strategies have strengths and weaknesses. Smart investors look at those in details, and hence why they might be “valuing Apple below what is worth” which seems to be the thesis that Horace has. Stock valuation is a very complicated art that includes many variables beyond current profits, such as probabilities of future events and scenarios. Horace is just staying on the surface why looking at profits/user and such metrics. Apple strategy of focusing in very few products (essentially relying on one product for almost 90% of their profits) carries the potential volatility of any non-diversified strategy. Also they hoard cash, while other competitors might be using it to invest in activities that might have a higher ROI, such as building the largest data center infrastructure to dominate future cloud computing (Amazon and Google to a lesser extent), or building the most advanced fabs in the world to be a world leader in semiconductors (Samsung). Maybe, as Horace suggested, Apple should buy Intel or part of TSMC in order to ensure its competitiveness at the hardware level. That’d be the ultimate vertical integration, from fabs to retail.

        They also have made some mistakes, as the one regarding display size as you mention.

        Thank you and be well

      • Bart

        Interesting that you actually think Apple made a “mistake” on screen size. Seems to me they played that one extremely well, much to the chagrin of the copycats, primarily Samsung, who’s entire product line was devastated by the iPhone 6 and 6s.

      • Ray

        It seems you might be able to check lots of boxes here:
        http://en.wikipedia.org/wiki/List_of_cognitive_biases

      • Walt French

        You claim you like civil discourse, but you offer up a stream of insufferable disdain in your comments. See earlier, how you said perhaps you understand Apple better because you’ve invested in it, really quite silly to somebody who’s been an Apple customer/developer for three decades and has purchased several tens of millions of dollars of AAPL for clients.

        (Of course, many other commenters here ALSO invest into the stock, and—“a fool and his money…” notwithstanding—merely putting a lot of money into a stock per se confers exactly zero wisdom. The only unique opportunity to learning is watching how much the price jumped on one occasion in response to a single trade; everything else is otherwise available.)

      • Ray

        First of all, the comment above about biases is addressed to someone (Bart) who has trolled almost every dialogue I engaged with that had nothing to do with him. You might not have read all the threads but I got at least 5 different conversations with other people, most of them very civil, trolled by him, with disrespectful comments towards my person, any other company that is not Apple or anyone who does not love Apple. Hence my disdainful comment to someone who has nothing to add of value and whose only intention is to disrupt other peoples’ conversations with meaningless childish comments. This had nothing to do with you.

        I’ve never said I’ve invested in Apple (?), and that I understand Apple better because of that. I’ve actually never invested in Apple or Google or Samsung or Microsoft or any other company discussed here (except maybe indirectly via funds), I invest in startups. What I said is that because of my professional activities I have to look at the overall tech industry, and not just Apple. I have to look at Google and Microsoft and Amazon and Samsung and many others, to understand their moves, strategy and needs. Because of that, I’m sure I know less about Apple than Horace (and some other writers here), but probably know more about Samsung and other companies that seem to be irrationally hated by pretty much anyone writing here. And I don’t use the word irrationally lightly, because the fact that there is not a single post giving some credit or acknowledging anything positive that Samsung or Google might have done is quite remarkable. In a balanced blog or media, you will find comments one way or the other, but this one is just becoming an Apple fanclub. I don’t mean to be offensive by that, but it’s just an observation based on facts. And if you don’t think so, please explain (with facts) why is not the case.

        I keep getting put words into my mouth that I never said, or being asked to defend positions I’ve never sported. I don’t hate Apple, so I don’t know why should I become some kind of representative and have to defend that position. In short, I guess since I might be one of the few here who is not an unconditional Apple lover (nor a hater), that makes me an Apple hater in this binary mindset. Just like it seems for some reason impossible here to give credit both to Apple and Samsung, who are actually both at the end benefiting consumers by pushing the technology envelope.

      • Walt French

        Apologies, I recalled the emotion behind your comment, “[m]aybe I’ve heard of these because I’m an investor in the technology industry and therefore I track the overall industry and market developments.”

        Obviously, that was about Google Killers, not Apple. I took it as a justification that you’d heard of tech because you were an investor, which implicitly carried “…and many others, including you, Walt, are not” for me.

        So, the claim itself—that anybody ever claimed that e.g., DDG was a Google-killer—is laughable. It’s not any stronger because you’ve invested in tech companies. (Tech is maybe a fifth of the US market’s market cap; almost anybody more adventurous than a utility stock dividend-clipper has, too.) And it’s no more appealing that you don’t recognize your willingness to fall away from citing evidence and try to sneer at people you should probably contemplate, or worst case, ignore.

        PS: hope for a speedy recovery.

      • Ray

        Thanks Walt for the apology, it speaks tons about your class. Yeah, I live in the hyperbolic world of tech startups so there are killers of Google being born every month. Even if it’s laughable, I hear and read that quite often :)

        There are some people who are very disrespectful and deserve just to be ignored, but when they are constantly disrupting others’ dialogues, they are hard to ignore…Anyway, I had too much time to fill last week.

        Thanks for the wish.

      • Bart

        As always, you have nothing but the typical childish insults of Fandroids.

      • Bart

        They are not “competitors” so much as they are copyists. Still, I’m sure they subscribe to your view, as they desperately try to look “innovative” with completely vacuous features.

        They had little choice but to cram in a larger screen. That’s a no brainer, as their entire objective was to try to differentiate their obvious copies in any way. Larger screen must have taken then at least 10 seconds to come up with. Of course, it has to be enough like an iPhone that people actually want it–that’s the given for the copyists churning out Androids. Also, their chipsets were completely non-optimized–they needed much larger batteries. How better to hide them than with an overly large screen?

      • StevenDrost

        I would point out that what customers want is constantly changing. The original IPhone was huge…no seriously it was very big compared to flip phones of the day. They had the perfect sized phone until they didn’t.

      • Ray

        I agree that no one knows for sure whether Apple is too complacent or not. I do see signs though that they are more reactive in the smartphone market (which is their bread-and-butter nowadays) than they used to be.

        Regarding Google, besides Bing, there are other services that were touted as killers:
        – Wolfram Alpha: because it displays more complete contextual results
        – Duck duck go: because consumers care a lot about privacy
        – Facebook, Yelp, Foursquare, Twitter, etc.: because the future is social search, vertical search, etc.
        There were more 5-10 years ago, but irrelevant enough to have forgotten their names.

        Maybe I’ve heard of these because I’m an investor in the technology industry and therefore I track the overall industry and market developments (not just what Apple did or plans to do) to try to predict what will happen next.

        I used to rely on Asymco as an interesting source of data and insights about the technology industry, and particularly mobile, but lately this blog has become narrowly focused on Apple and on “revealing” how wrong anyone that criticizes Apple is. Hence my disappointment.

      • StevenDrost

        But Apple has made all the right moves and is the most profitable company in the world. So…That would man Horace was right.

      • Ray

        Apple is the most profitable company (fact) but that doesn’t necessarily mean they have made all the right moves (interpretation).

        For instance, here are two scenarios that could be better than the current situation:

        – It could have had higher profits and enjoy higher market share containing Android (for instance it left profits on the table and lost some consumers to Android by not launching a larger iPhone in 2012)

        – Or it could have sacrificed short-term profits by occupying other market segments (mid range for instance) to prevent Android from spreading around the world and benefiting from increasing scale and network effects.
        I read two reports recently that state that Android already generates more revenues globally for developers than iOS. This is a big deal, because developers are key to have a strong ecosystem and lock-in, and they choose their first platform based on the access to the market that it gives them. Until now Apple had an advantage, but it seems this is not the case anymore. Strategically, Google is playing a very long and global game (targeting emerging markets, schools, etc.) and Apple could find itself in a few years in the same position they were in the 90s in the PC market: a niche player with a lagging ecosystem.

        Don’t get me wrong, Apple is a very successful company and has done many things right. I’m not one of those who say they are lucky and they will crash anytime soon. I give them credit for many innovations and creating such a strong brand. However strategically the narrow focus on the premium segment has long-term risks in the IT industry.

      • StevenDrost

        I agree that their lack of a mid or low range product puts their market share at dangerously low levels for places like Africa and India. They very well might lose those markets. But making those low end devices would weaken the brand and jeopardize the sale of the high end devices. There is much more profit in the high end, so financially it’s an obvious choice. I’ve actually been an advocate of moving up market and the 6 plus is a good start. Most people i know carry their phone everywhere and buy the best (most expensive) phone available, there is plenty of room to continue moving up market.

        Also, I would point out that there is really no one thing which is Android. The money is in hardware sales, services and ecosystems, and Google is only a small piece of what we lump together as Android. The ecosystem battle is being fought on a country or regional basis and Google is doing very poorly in many countries where Android is dominating.

      • Ray

        Yes, Apple ignores poor countries because there are no profits to be made there. In that sense they have a very profiteering short term vision. If you don’t have a lot of money, you’re not my customer.
        Google is playing a long game and addressing those markets, helping add Internet connectivity, etc. Of course they have their agenda.

        I agree that there is place upmarket. I see some consumers willing to pay even more for a unique smartphone. Samsung is actually doing that already, their top of the line phone (Galaxy S6 Edge 128GB) is priced around $1,200! And first market feedback is that they can’t keep with demand.

        Good point regarding countries, Android and Google services are not both doing well in some regions.

      • mhikl

        Good points Ray. Interestingly, in countries that Apple has not done well due to its higher costs, it has made sudden inroads when incomes rise and expectations can finally be satisfied. China is a prime example. South Korea might be another example.
        My first, almost brand new car, dictated by my income, was an Hyundai Pony; and that puppy gave me pleasure for a decade. My next car was a Toyota. It’s all steps of different lengths when income dictates one’s needs.

        N/S
        mhikl

      • Bart

        Is android doing well anywhere? And, what is it doing? Seems to me they are only reiterating Apple’s products, and at a discount, to feed the Google advertising engine. Also, to provide a means for otherwise wholly incapable hardware companies to create their “own” illegitimate products.

      • mhikl

        Good points Steven, but Apple is a tricky company to pin down. Indeed, in Africa and India, as was the case in China, short while ago, the market for Apple seemed lost a ‘fact’ that was constantly raised by tech analysts. But look how well Apple is doing in China now. Apple is the brand the Chinese seem to hold in esteem. Could not the same happen in India (no idea about Africa) in the next five years?
        China has an ageing population, following in the footsteps of an ageing West. India has a most youthful population, and it is from the segment call ‘youth’ that markets doth swell and desire overrides common sense; at least what older people would call common sense. The coming third and fourth decades of this century will belong to India. I am not sure if Africa will be a player in that field and at that time, or not.
        Namaste and care,
        mhikl

      • StevenDrost

        I agree with you, India and the developing markets are far from lost. If you look at the low end use case, data plans etc, it’s almost a different product and certainly a seperate market from the one Apple sells to. I would however point out that the size of the middle class which Apple sells to is much smaller in India and Africa than China. No amount of marketing or building stores will crack these markets, they either need to make a lower priced products or wait for the middle class to grow. I vote for the latter.

      • Space Gorilla

        “revealing” how wrong anyone that criticizes Apple is. Hence my disappointment.”

        What you’re experiencing is called cognitive dissonance.

      • Ian Ollmann

        I feel like Horace has always been fairly Apple focussed. At one point it was all Apple / disruption theory all the time. At some point, I think he decided that he needed to understand the industry and started collecting data on the other players too, but from where I sit, it always seemed about Apple. The rest are just context to show where the Apple exceptionalism lies.

        …and yes, how consistently wrong “everyone” is about Apple is the most important story about Apple. It is even more important, I think, than the #1 market cap, or #1 profitability, or next product — though I certainly feel like product announcements are like Christmas. It is not however, an easy story to sell. It appears the masses don’t want to be told they are a bunch of perennial dummies, however nicely it is phrased. I suppose they must know already.

      • Ray

        I got interested on Asymco more as a way of understanding the mobile industry (the industry I used to be part of). Lately it feels like Fox News, you already know what you are going to watch before you turn it on.

        Claude Shannon defined Information as the resolution of uncertainty. In that sense I feel that Asymco has less and less informative value.

        The main reason Apple has a lot of naysayers is because they are very successful. It happens to any person or organization that is very successful. It happened to Microsoft in the 90s, when they were supposed to dominate the future of computing forever. It happened to Intel when they powered every high-end computing device. It happened to Google in the 2000s. Etc. Success attracts jealousy, and, as I said before, Goliath being Goliath doesn’t sell news, David beating Goliath does. Taking into account that, repeating over and over that the successful is being criticized does not make for a particularly interesting or informative story. Once is OK, multiple times it just gets repetitive. Except for Apple fans I guess.

        “the masses don’t want to be told they are a bunch of perennial dummies” – someone feeling superior?

      • BMc

        Indeed. There is all the evidence in the world that Apple is lagging in all areas. Not releasing new versions of products which are selling extremely well. Not releasing new categories of products. Not increasing their sales. Not maintaining the industry’s highest consumer satisfaction ratings.

        You are a complete troll, and you know it.

      • Ray

        I’ve never said that Apple is lagging in ALL areas, but it is lagging in SOME specific and quantifiable areas, as you can see in my post below.

        Their increased iPhone sales are mainly due to two key (good but late) business decisions, not to their product being superior particularly at the hardware level.

        1) Apple executives finally admitted that consumers DO want larger smartphones, overriding Job’s dogma than a smartphone should be used with one hand. Millions of consumers over the world had defected to other platforms because they provided a better device to browse the web, watch videos, pictures, write emails, do some light office work, etc. There was a significant pent-up demand for a larger iPhone, particularly in Asia, which takes me to the second point…

        2) Apple executives finally understood that they cannot be a leader in the smartphone market without focusing on Asia, and particularly China consumers. Hence the push to sign a contract with China Mobile, the largest mobile operator IN THE WORLD, with over 800M subscribers:
        http://www.forbes.com/sites/co
        http://www.forbes.com/sites/gr

        Both are decisions that some competitors of Apple had already taken previously, and were very successful because of that. Case in point: Samsung.

        These decisions are good, but Apple was reacting to market needs and changes later than some of its competitors, which is an indicator that Apple is starting to lag behind the competition. To be fair, Apple has so many competitors that it is only normal that in the long run it falls behind some of them as it is already doing. At the hardware level, it is clear (with hard data and expert opinions) that it is falling behind Samsung:

        – the display is behind (not my opinion only, but pretty much every smartphone reviewers’ and display expert’s)

        – the processor is behind (even Apple is admitting that implicitly by coming back to Samsung to get their processors upgraded with the energy-saving technology, 14 nm, that Samsung phones already have).

        – the cameras are behind, particularly the front camera. (the back camera is not the best but it is good). Consumer needs have changed, and because of the popularity of selfies, the quality of the front camera is much more important than it was. Apple is reacting late to this consumer needs’ change, as it did with the display size.

        Leading companies start lagging behind precisely because they are doing very well. The mix of pride and complacency of being at the top. I have seen myself many types executives dismissing consumer data that does not represent their world-view, because “sales are going well”. It happened to extremely dominant companies like Intel, Microsoft, Nokia or Motorola.

        If someone presenting a reasoned on-topic point of view with multiple data points is a troll, then you don’t know what a troll is. The world is not split in Apple lovers and Apple haters, which seems to be your world view. Most consumers are neither. I guess it might surprise you to know that I actually own some Apple products, but that doesn’t prevent me from looking at the market signs and data and applying critical thinking when analyzing the strategy and positioning of different companies. In fact, my own opinion as a consumer is irrelevant when analyzing strategic choices that companies make.

      • santoscork

        Excellent analysis. I’ve used Apple products since 87 and have never switched to another platform. For the most part Apple has good products, in fact great, but not everything appeals to me. The industrial and software UI on the watch is great but I don’t understand the need. If Apple is going into the fashion market with the watch so be it but I prefer a product with an intellectual experience. I am on the fence so I’ll be taking a queue from someone I trust. http://www.elliotjaystocks.com/blog/1-day-with-the-apple-watch/

      • StevenDrost

        2 things.
        It’s not a selling point to the average consumer that company X had it first. Remember how terrible the battery life was on the first LTE phones? It takes time for LTE chips to get power efficient, for software scaling OS features to be developed to make transitioning to big screens painless, etc. People just want the best product period, being first is meaningless.

        The other point is that Apple is selling an order of magnitude more phones than anyone else. This creates huge logistical challenges. Most of these phones are ordered by the carriers years in advance. They can’t just say, you know what…Lets manufacture 70 million 5.5 inch OLED screens and add the largest carrier in the world next quarter. When any organization gets that big it can not be as nimble as it’s desperate competitors. A Battleship can not turn as fast as a Frigate, that does not mean the Frigate would win the fight.

      • Ray

        I see your first point, but the reason why Apple doesn’t have these features is not because they are not technically “ready”, it’s because it can’t get them (at least the first two, as the technology belongs to Samsung). OLED The third one seems just a product management choice, there is no technical challenge on having a better front camera, a 1.2MP image sensors is pretty old technology.

        Apple is not selling an order of magnitude more than anyone else. In fact, Samsung still ships more smartphones than Apple (83M versus 61M last quarter):
        https://www.strategyanalytics.com/strategy-analytics/blogs/devices/smartphones/smart-phones/2015/05/05/samsung-reclaims-title-as-world's-largest-smartphone-vendor-in-q1-2015#.VVYCrvmqpBc

        Yes, I agree that Apple is big and cannot change course quickly. However, Apple is a battleship fighting other battleships, and many frigates too. It seems some of those other battleships are paying closer attention to how the currents are changing. Time will tell.

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

        You keep posting that link. Samsung down almost 6 million YoY and Apple up almost 20 million YoY. This does not support your view in any way shape or form.

      • Ray

        Not sure what you mean by “my view”. Can you specify?

      • Bart

        He’s probably referring to your asinine comments on this very page. (Just a guess.)

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

        Your tired meme of Apple in decline/complacent and nothing but a niche player with no economy of scale. If you don’t think that is your view, simply read all your posts with your name covered.

      • Ray

        Ok. I’ve never said Apple is in decline. I said it might be slower to react than its competitors to market needs’ changes, which are different things. The fact that it took them several years to react to the market demanding larger smartphones (and their own admission finally that “we don’t have what consumers want”), does support that point, but of course it doesn’t fully prove it.
        Of course Apple has economy of scale, and the most thriving ecosystem until now. The comment about that is about the future. No one knows yet, is just my opinion that there is a possibility that the lack of scale bites them. As I said, it might not be the case. I don’t understand why that should bother you.

        In any case, the fact that over the last year Samsung sales went up or down does not prove or disprove that Apple is slower to react than its competitors. In fact, it could support it since Apple sales are significantly up because of the release of a bigger iPhone, meaning that probably there was pent-up demand for a larger iPhone, meaning that Apple had missed that unmet market need until 2014. This is the opinion of many equity analysts, not just me. It seems quite reasonable.

      • Bart

        Glad you didn’t try to talk your way out of the troll accusation. Jobs had a point with the thumb control. And, he knew he had an iPad coming as well. No, he didn’t know everything, but remember the iPhone screen was not small to begin with.

        Putting a larger screen on the device doesn’t really count as innovation.

        Finally, Apple did eventually release a very large screen iPhone, but you are still complaining…

        See what it did to the copycat sales? They have nothing left at this point.

      • Ray

        Steve could have the point he wanted. He was wrong, many consumers prefer to sacrifice thumb control for a larger display. Just like many consumers don’t like the one-button mouse, or the lack of a back button in the iPhone. These are design choices that please some consumers and displease some others. Steve was sometimes right, sometimes wrong. Did you also know that he did not want an app store, one of the very reasons why the iPhone has been so successful?

        The fact is that consumers decide what they want, not Steve or some product manager in Cupertino. And they wanted bigger smartphones. It took a while for Apple to acknowledge that “consumers want what we don’t have”.

        The “copycats” that never ever invented anything and just copy features that Apple will have at some point in the future only have left 82% of smartphone sales.
        https://www.strategyanalytics.com/strategy-analytics/blogs/devices/smartphones/smart-phones/2015/05/05/samsung-reclaims-title-as-world's-largest-smartphone-vendor-in-q1-2015#.VVYYnvmqpBc

        The sales of Samsung, Motorola, Huawei and LG are the result of pure luck, and will eventually crash and get killed. They have nothing left. You just have to wait long enough…

        It seems you might just be the Apple hooligan version of those who unjustly dismiss Apple’s success as pure luck.

      • Bart

        That’s so DAFT. There has never been a ‘one button’ mouse. Look to the side of it, see that ‘keyboard’ thing? Apple hasn’t ever made a ‘two button’ mouse, nor do they need to. And all the pointing devices they have made for at least 10 years have ALL supported the idiot click (“right” click). You’d have to go back 20 years to find a Mac that couldn’t do it. But, the ‘Haters gonna hate’ regardless–no facts apply.

        I guess a two button mouse is nice if you only have one arm, or you are busy with the other one…

        82%? Do you get your ‘statistics’ from the same place as your opinions? (i.e. are you sitting on them both?)

        Please come up with something, anything to support your ridiculous assumptions. Or don’t, it’s pretty funny listening to your rants.

      • Ray

        Here is the source again, it seems you reply before reading:
        https://www.strategyanalytics.com/strategy-analytics/blogs/devices/smartphones/smart-phones/2015/05/05/samsung-reclaims-title-as-world's-largest-smartphone-vendor-in-q1-2015#.VVYmoPmqpBe

        You are the kind of fact-less hater that Horace is criticizing, and very disrespectful with whoever doesn’t fully agree with your irrational unlimited love for Apple, so this is the last time I reply to you.

      • Bart

        Your “source” is as meaningless as the metric, Ray. And, you seem obsessed with Jobs–do you know his target for your useless metric was 1%?

        Tell us all again how smartphone sales should include all manner of dumb phones (sure includes a lot more Androids that was–is this you motive for including noise?)

      • stefnagel

        Let’s understand that hoping Apple will benefit for a generation from iPhone sales is a baseless and ridiculous assumption.

  • Sacto_Joe

    Great article, Horace! Taken together with your previous article ( http://www.asymco.com/2015/05/11/winning-against-non-consumption/ ), which shows that Apple and its competitors still haven’t entered the arena where market share can only be gained by direct competition for a set number of customers, I see this article as demonstrating Apple’s ability over time to stay at the cutting edge of mobile tech, sometimes by adopting the best ideas of its competitors (but fairly), and most often by leveraging its new-found cash stash and its well-established ingenuity. In short, Apple is well-prepared for that future time when the ultimate battle for mindshare will be well and truly joined.

    • Ray

      “Ultimate battle for mindshare”. What is this supposed to mean?

      • Christian Peel

        Tech Armageddon! With Brobdingnagian competitors!

  • jinglesthula

    Nice use of Brobdingnagian :)

  • jfutral

    Cudos for using the word “Brobdingnagian”.

    Joe

  • Walt French

    “In reality, the killers seem to have all faded away while the iPhone continues. We could just shake our heads and move on, but a deeper analysis is possible.”

    I’d turn it a different direction.

    Something about human nature demands dramatic changes, and even the less click-baity sites are looking for something new and unexpected. So “iPhone killer” really means, “hey, a new angle on X, related to mobile computing.” We readers should be able to make that translation as easily as we read “discrete tap on the wrist” and substitute “discreet.”

    Yes, some people push the line pretty hard. They can be ignored as ones too caught up in apparent novelty to understand what roles a product fulfills, or maybe even being disdainful of our time, in an effort to take the stage.

    • Ray

      David versus Goliath sells. Goliath just being Goliath doesn’t sell.

      I agree, this has less to do with Apple and more to do with the nature of the media business. Apple is now Goliath, so them doing well doesn’t sell as much as the potential of them doing poorly because of a new extraordinary development. Ordinary doesn’t sell, extraordinary sells. The tech industry is full of “disruption” stories, nowadays one of the most abused words in the industry.

      The same stories can found about Google, every single information search solution and digital advertisement platform since 2000 has been at some point referred to as a Google killer, but 15 years later and after multiple “killer” attempts, Google continues to dominate search in most countries around the world (interestingly the US is one of the countries where is less dominant, in other countries it has 95%+ market share):
      http://electronics.howstuffworks.com/tech-myths/5-google-killers.htm#page=0

      By reading the press lately, an uneducated reader might think that Samsung is about to go bankrupt, while its revenues and profits are higher than at any point in its history before 2012. Some divisions such as semiconductors or displays are actually doing now better than last year, actually than ever, and the company is in full investment mode, acquiring companies, making investments in startups, and building new offices and plants around the world. They just started building the world’s largest semiconductor complex, which will open in a couple of years, a development that has been mainly ignored by the western media:
      http://www.businesskorea.co.kr/article/10449/15-trillion-won-samsung-makes-largest-single-investment-ever-pyeongtaek-factory

      There is a disconnect between reality and media. This is also the reason why TV news programs are dominated why extraordinary negative events (accidents, wars, corruption, murders, etc.). These are proven to get more eyeballs, the essence of the TV advertisement business model.

    • http://twitter.com/matthewwanderer Matthew

      “even the less click-baity sites are looking for something new and unexpected”

      Passive aggressive is the new “killer”?

      A recent Engadget Apple Watch headline might be an indication of where Apple-realated click bait is trending:

      “I regret buying an Apple Watch (and I knew I would)”

      http://www.engadget.com/2015/05/13/apple-watch-buyers-remorse

      • Ray

        Yeah, that will get some clicks. But regarding the content, do you think the Apple Watch will be a long-term hit? Pros and cons?

        As someone put it comically, why buy a watch to replace the phone that replaced your watch?

        I’ve been looking at the wearable category since 2013 and have been using some on and off. I’m not convinced they solve a real problem or do any important job any better. Essentially most functions can be done better in the smartphone. The few things that the watch could do, are too unimportant to justify carrying a new device and having to charge it every day. I was eagerly awaiting for Apple’s entry to see if they could solve these fundamental issues but so far I haven’t seen indications of that.

        When Apple moved into the category they knew they had to tackle the well-known issues of wearables:
        – Lack of value proposition/killer app (versus a regular fashionable watch, or no watch at all). Notifications are interesting initially but actually bothered me a bit. Also they break social norms (a bit like Google Glass), I have been in conversations with people who were constantly looking at their smartwatch notifications and found that more annoying that when they take a 1-minute pause to check (I can then too check my phone).
        Maybe it will be an app that doesn’t exist yet?

        – It’s not good as a time-telling watch: the screen switches off so it always takes a gesture to actually see the time.

        – Low battery life -> needs charging every night, way more inconvenient than a regular watch or small wearables such as Fitbit.

        – Fashion factor -> Apple did a very good job on the straps (some of them look really good) but the watch is still a bulky square. Also, the fashion/watch industry is extremely fragmented, because fashion is a way to express our individuality and personality (there are thousands of watch models that have a market), so it is not clear that many consumers will want to wear the same standard bulky square.

        – Too pricy: more expensive than an iPhone (not really for the cheap models, but many consumers don’t care/understand operator billing so they seem more expensive), but provides much less value.

        Thoughts?

      • http://twitter.com/matthewwanderer Matthew

        “Essentially most functions can be done better in the smartphone.”

        Hi Ray,

        True. True. However, like all major categories that came before it, we’re not all going to jump into the pool together…we never have. Early adopters of Wearables see past the “good-enough” alternatives and choose the new device, despite its shortcomings*.

        We also know that over time Apple Watch’s shortcomings will be mostly alleviated. And, as the category advances in this way, increasingly more consumers will see this evolving value proposition and choose to buy into the Wearable category.

        At the root of this category is something that can be said of every move computer-related tasks have made in the past. We’re simply seeing _some_ functionality find yet another suitable home

        Mainframes moved onto the desktop; desktop to laptop; laptop to smartphone; smartphone to wearable. Like all devices before it, the watch (smart, digital, analog, et al) is a meaningfully better platform for _some_ tasks, but not for _all_ tasks. And, initially, there will be certain shortcomings.

        You see where all this going, of course…we’ve never demanded that our devices to all things well. We just require that the devices we choose do enough things well to justify our commitment.

        That’s a long way around to my conclusion: yes, the Apple Watch will be a success.

        *I’ve been wearing the (ss) Watch for three weeks. I’ve found the popular criticisms – most of which you mention – to be vastly overblown. The only obstacle to the Apple Watch you mention that resonates with me is the value proposition. But, collectively, many of us made the very same calculations when we bought the original iPhone. That’s a choice I don’t regret making in the least.

      • Ray

        I see, good to hear you’re enjoying it.

        I remember when I bought the original iPhone. I immediately knew what was the value. In fact I was craving it, since I already had a keyboard-based smartphone with a small screen. I’d be able to check my email , browse the Internet and listen to music in a more convenient user interface than pre-existing smartphones. I had a Palm Treo before and it was great being able to check my email everywhere. Essentially the iPhone had a clear value proposition, I was able to do some things much better than with pre-existing smartphones.

        This is not the case with the watch. I feel it’s still a technology push in search of an application.

        The issue of lack of long-term engagement might still be there. Unless some app developer discovers a new value proposition….
        http://www.techrepublic.com/article/wearables-have-a-dirty-little-secret-most-people-lose-interest/

        Right now I don’t think that it’s going to be remotely as successful as the iPhone. However, sales this coming Christmas are probably going to be significant (watches are a typical Christmas gift, so the Apple watch seems an easy choice for a gift). But the real test is whether people who receive it as a present will keep wearing it after a few months.

        I have a smart watch and I find the most interesting functionality so far is… showing the time. I don’t feel notifications are the key value proposition. I played with the Apple watch at the store and it looks more polished than what I have, but after a while I’m not sure what additional functionality I’d find. So I’ll probably wait until at least December.

      • http://twitter.com/matthewwanderer Matthew

        “So I’ll probably wait until at least December.”

        OK, you lost me there.

        If you’re already a smart watch wearer now, and you’re not waiting for a G2 Apple Watch, order an Apple Watch today. The Apple Watch shipping now represents many of the tell-tale signs of the sea change the iPhone did.

      • Ray

        The thing is that my current smart watch spends more time in the drawer than on my wrist, so I don’t want to make the same mistake again. Notifications are not my killer app. Probably there are going to be apps released in the coming months that might provide a better value proposition for me and make me change my mind. I’ll stay tuned… I do hope you’re right and this is a paradigm change since I’m a geek at heart :)

      • http://twitter.com/matthewwanderer Matthew

        “The thing is that my current smart watch spends more time in the drawer than on my wrist, so I don’t want to make the same mistake again”

        Respectfully the only mistake to be made is confusing the Apple Watch for a smartwatch. (In fact, Apple doesn’t use “smartwatch” or “smart watch” anywhere on their site.)

        Try the AW for a month. If you don’t like it you can sell it for a profit. But I suspect you won’t want to part with it.

        The Apple Watch takeaway for me is how the value propositions can not be conveyed in conversation or marketing. Not even via a Try On appointment. The utility of the AW, and my affection for it, crept in through familiarity.

        Apple calls it the “most personal device” they’ve ever offered to the public, and they’re not kidding.

      • Ray

        Yes, I agree that the Apple Watch is better than other wrist-worn wearables already in the market. Not sure yet it solves any need I have yet. In general I don’t like wearing things on my wrist, but maybe I’ll changed my mind if the value proposition increases over time and becomes more apparent.

        For now, even if I wanted to I couldn’t because it won’t work with the Galaxy S6 Edge that I’m getting soon (I apologize in advance to some readers who might be offended by this).

      • Space Gorilla

        I’ll give you a job-to-be-done that perhaps you haven’t considered. I’m going to get my wife an Apple Watch, probably sometime in the next year. We have to upgrade her iPhone first, darn Apple devices last so damn long, she’s still on an iPhone 4S.

        So, what’s the job-to-be-done, the value proposition? Simple. Women often keep their phones in their purses, bags, totes. If I need to call my wife there’s a 50/50 chance she’ll actually hear her phone and pick up the call (depends where her purse is at the time and how much noise is around her). The Apple Watch solves this, easily worth the cost of the Watch to ensure I can get in touch with her when I need to.

      • Ray

        That seems like a good use case. A brand new iPhone 6 and Apple Watch, I’m sure she’ll be happy with the presents :)

        In my particular case, I keep my phone in my pocket with the buzzer, so I never miss calls. I’ve had a smart watch for about a year, and didn’t find the value of getting notifications on my wrist (versus in my pocket) was enough to justify of having a widget attached to my wrist that I have to recharge every day. In fact when I forgot it at home I barely missed it. Also, I found notifications on my wrist much more disrupting that on my pocket: short buzz – message that I can read later; long buzz – call that I should take now. On the wrist I just can’t avoid the temptation to read the messages, so it ends up being more disruptive to my current activities, rather than less.

      • Bart

        Sounds like you were the one who actually bought a Samsumg watch. Your buyers remorse explains so much of your other comments. Next time, I suggest waiting until some time after Apple ships a product. Not that you would have the common sense or wherewithal to purchase it, but at least the copy-cloners would have the usual template to follow. Like sheep…

      • Ray

        How old are you?

      • art hackett

        The “popular criticisms” inevitably seek to benefit competitors by attempting to slow adoption of Apple devices, generally seen in the (bulshit)Gate that accompanies every Apple release, or the “this isn’t anywhere near as good as the insane assumptions we made before its release” stories.

      • Ray

        Yes, it’s all a conspiracy

      • Bart

        Such a totally bogus, straw-man argument, that I’m surprised you attempted it. Apple watch is nothing like the ‘watch’ that the cell phone replaced. Duh.

      • Ray

        Really? I thought they were the same

    • StevenDrost

      Napoleon said “Never ascribe to malice that which is adequately explained by incompetence”. Well in this case it really was malice. These click-bait generating authors knew product X was not an IPhone killer and they wrote it anyways. They wrote it to get page views, or maybe some hedgefund paid them, but they knew what they were doing, which was deceiving retail investors so someone else could make money.

  • Skeptic9

    A rising iPhone tide lifts all boats :).

  • George Williams

    Do we really want to rush into “1984”? Increasingly smart smartphones know our physical and medical status, locations, behaviors, histories, preferences, and linked with Facebook and its ilk, are leading us into a dystopia run not by the gov’t but by corporations. (Personally I have no smartphone nor presence on social media.)

    People, stop giving yourselves away for free! Can we at least copyright our data so that we can control its distribution and receive some remuneration in the exchange?

    • http://batman-news.com Steven

      Well, George, I admire your personal convictions in this area, but that horse has already left the barn. As a society, we have, perhaps not always knowingly, but willingly traded our privacy for the convenience of free services and the utility of social media.

      • George Williams

        Yes, the horse has left the barn but individuals can still opt out. My fear is that in the future FB for example will become a “social utility” without which normal life will be difficult. This is analogous to the driver’s license without which it is possible to live but very inconvenient. Employers are already checking prospective hires’ social media accounts and probably wonder what they’re hiding if they don’t have one, like me, but fortunately I’m retired/self-employed.

      • aardman

        I would think that not having a social networking account is something that employers would see as a plus.

      • art hackett

        Unless they’re incompetent idiots, of which there seem to be almost limitless amounts. That would go along with the idiotic, apparently irrelevant questions they seem to ask prospective employees these days. Of course, one would choose not to work for that type of employer if possible, even if you can figure out the type of answer they’re looking for, but then I like to imagine that I’m not part of generation narcissist/sociopath.

    • StevenDrost

      The answer to your first question is clearly “Yes”. But I stop short of believing in a dystopian future. Nothing in the foundations and motivations of these companies and even the government is to be nefarious in fact the opposite is true. Incentives really do matter, Facebook or Google collecting your data is worrisome because their incentives are not aligned with yours. But these companies know this is dangerous ground, users can easily turn off those services. Personally I’m not concerned if Google knows what I had for breakfast and feel your concerns are overblown.

      • aardman

        “But these companies know this is dangerous ground.” I’m not sure of that one. It’s amazing how a $10 incentive can alter a person’s perspective and behavior. Make that billions, and people find ways to justify doing things that they would not otherwise do if billions were not at stake.

    • http://twitter.com/macartisan macartisan

      George, I’ve had several _social_ personas on the Internet before it became the Web. I’ve never felt the need to disclose my full identity, and precisely because of this, I’ve never felt a prohibition on disclosing my true ID when required for more serious endeavors.

      And then there’s you, with what appears to be your actual, natural-born identity hanging out in the breeze. Please put that back in your pants.

      As for the approaching dystopia run by corporations…did you miss the memo? I believe the first version was written by Mark Twain and Charles Dudley Warner.

  • http://sumocat.blogspot.com Sumocat

    A lot of people are mistelling your story as one of the Apple tide raising all boats, rather than some boats. Perhaps next time you could balance the narrative with exceptions, such as Nokia and Blackberry.

    • jfutral

      Apple’s tide did raise Blackberry, and Nokia, too IIRC, since iPhone’s availability was so restricted at the beginning. What ate away at Nokia and Blackberry was Android.

      Joe

      • http://sumocat.blogspot.com Sumocat

        A more complete view is that Apple made them vulnerable to Android. The desire for the iPhone model and Android’s ability to replicate it sank Nokia and BlackBerry. But ultimately, they were raised by a swell, crushed by the wave. Android simply expedited the matter. I would point out that Samsung’s peak success was also due to limited iPhone availability, not just marketing (a fact Samsung doesn’t want to admit), so their phone business isn’t necessarily clear of the wave either.

      • jfutral

        Possibly. I don’t think iPhone would have grown much more than it did which would still have left plenty of room for both Nokia and Blackberry. I think Android simply did what they couldn’t, not that they would have died at the hands of iPhone. I could be wrong, but I don’t think so.

        Joe

  • aardman

    I would not yet classify Uber, where contractor-drivers gladly contribute their vehicle’s depreciation to Mr. Kalanick et al’s net worth accumulation program, as a benefit to society.

    • demodave

      I would. It’s a much better means of transportation for me than an average yellow cab. The drivers just seem to care more and are more socially agreeable to me. And I appreciate the opportunity to not drive when I use hired transport.

  • Camden1

    Horace,

    Thanks for the use of “Brobdingnagian”. I sometimes find it bothersome when people use rather obscure “giant” words when a familiar smaller word would suffice, but this one got me to look it up… and then fondly remember the original source. Much appreciated. :-)

  • Walt French

    In a wide-ranging review of the US mobile market, Chetan Sharma notes that Apple’s “Post-PC revenue in Q1 was four times the Post-PC revenue of Google, Microsoft, Facebook, and Amazon combined.”— chetansharma.com/usmarketupdateq42014°htm

    (Disqus has disliked my posting links; please replace ‘°’ with the usual period.)

    For sure, Post-PC revenue at those firms was approximately zero before 2007, but in the Post-PC Land Rush (en°wikipedia°org/wiki/Land_run), Apple had the advantage of setting the date for the run, lining up all its wagons, fencing and minions and choice of the area. Yes, others moved in, too. But whether you measure by revenues (as above) or profits (see @BenBajarin’s recent tweet about Samsung’s device ASP being maybe one-third of Apple’s, and the related almost-nobody-else-in-the-premium-space data), Apple has mostly run the table. The territory was opened, but only Apple was able to muster its forces quickly and ably enough.

    A “killer” mentality is well & good for a defined market of X units per year; but as Horace reminded me, there are no markets, just JTBDs. Killing a device that’s doing a job requires creating new demand for new jobs (and therefore, invalidating the notion of a stable market), or offering the same quality/performance level for the existing JTBD at a much lower price.

    Soon, we may confront the “Apple Watch Killer” stories. (@BenThompson’s @Stratechery post today seems to anticipate that such devices will appear. But I think people generally ascribe too narrow a set of jobs to the Watch; at a 2011 post here (http://www.asymco°com/2011/11/03/revolutionary-user-interfaces/), I called for recognition of Siri as a friendly companion who made your day more enjoyable, not just more productive. A full-blown “Her” would be creepy, but a deft touch would go a long ways to letting the Apple Watch be both a tentpole for Apple and Yet Another Rising Tide for IoTs and a whole ecosystem of personal service.

    • Space Gorilla

      “see @BenBajarin’s recent tweet about Samsung’s device ASP being maybe one-third of Apple’s, and the related almost-nobody-else-in-the-premium-space data”

      I’ve thought for a while now that Apple’s approach re: vertical integration, curation, closed system, user experience, is now table stakes to serve the premium space well. But only Apple seems interested in or capable of delivering this kind of user experience.

  • Walt French

    There’s an interesting effect lurking behind these synergies.

    Dunno if it was Horace’s intent, but the last few days we’ve seen a deluge of stories about Google’s go-it-alone ways, and the rise of ad-blockers that set up antagonisms between Android and PC users, and the websites that are entirely dependent on ads for revenues. @CharlesArthur and others have recently reported a very high fraction of visitors to news sites blocking ads—maybe 40%. The carriers are trying to get into the act. Mobile ads were already very ineffective, and rampant ad-blocking growth will basically make good, but ad-supported, websites unprofitable.

    Site- or source-specific apps can get around this but there’s a limit to how many apps somebody will squeeze onto a phone. Accessing the web is going to be an important part of the JTBD for a while…maybe a very long while.

    I’m not terribly sure that sharing the wealth is the most relevant way to look at the mobile ecosystem—firms have to advance their self-interest smartly or short-term—but insofar as the meme points out hostilities between other elements, it’s a good reminder of shared benefits (positive externalities) and pollution of the market (negatives that lessen the total benefit).

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