Unicorns typically are valued on the basis of number of users. While they are not yet monetizing those users, their growth and engagement metrics are expected to be off the charts. As there are no revenues (or profits) the $billion valuation hinges on a nominal value of $/user. That figure is based on comparable companies (e.g. Facebook) which do monetize their users.
Since the unicorn’s capitalization/user defines its valuation which company should be considered comparable? Unfortunately there are many alternatives. The graph below shows a few Market Cap/Mobile User rates ranging from $45 for Yelp to $747 for Alibaba.
Note that I’ve also added companies which may not be considered as unicorn comparables because they are not usually valued on a per-user basis. Apple, Microsoft, Google and Amazon are priced by product sales, typically. However, most of them operate and self-define as service organizations. Microsoft has been “monetizing users” for decades using a recurring revenue model. It has a “SaaS” business logic for most of its revenues. Google likewise. Amazon reports its active users every quarter and obviously is measuring itself by that metric.
Apple is the least likely to be seen as a company whose value is a function of user base. Nonetheless it behaves entirely on that basis. The company’s entire strategy depends on satisfying its customers and building its brand which can only have one outcome: loyalty and repeat purchases. The services and software they offer can be seen as supporting that brand loyalty which is converted to profit through an above-average selling price.
Being mature of business model therefore does not exclude a company from being valued like all the kids are these days.
So, if we do look at the value/user metric we might as well look at the revenues, operating profit and growth data.
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.
In the fourth quarter of 2013, mobile phone sales in mature regions fell due to weaker demand.”Mature markets face limited growth potentialis the markets are saturated with smartphone sales, leaving little room for growth with declining feature phone market and a longer replacement cycle,” said Anshul Gupta, principal research analyst at Gartner. “Lack of compelling hardware innovation has further exacerbated replacement cycles for high-end smartphones in 2013 because consumers don’t find enough reasons to upgrade.” – Gartner
Anshul Gupta’s assertion of market saturation was not the first. IDC also cited “a number of mature markets nearing smartphone saturation” in late 2013.
Shortchanging the smartphone market is nothing new. It was happening very early in the market’s formation when initial growth was not as rapid as expected. I recall Nokia managers disappointed with sales growth losing faith in smartphones in 2004. Eleven years later, the market is still growing.
comScore reported that during the first quarter of 2015 the US market was adding over two million new smartphone users every month. These are not two million units sold every month but two million new users who began using smartphones for the first time ever, every month.
Since the end of 2013 when both IDC and Gartner declared the onset of saturation in “mature regions” 31.5 million new-to-smartphones Americans adopted the product. That’s an addition of 11% of the sampled market.
And the sampled market is just a subset of the addressable market. comScore only counts ‘primary phones’ in use and excludes company-purchased devices and any users below age 13.
So according to comScore’s data, the US market is at 77% smartphone usage. My assumption is that saturation would come at the earliest at 90% and could be 100%. The fact that conversion to smartphones is still proceeding at roughly the same rate it has been for five years, makes this assumption pretty safe.
The pattern of growth fits a diffusion S curve (Logistic curve) as closely as ever:
The history of the Personal Computer market (since 1981) is shown below:
Note that I added a forecast for 2015. Data from Gartner shows Windows PCs declining at a 6% rate in Q1 with a full-year forecast of -2.4% (including OS X). Assuming 20.7 million Macs, the Windows PC market will decline to 285.6 million units (from 295 million in 2014). My estimate is that iOS and OS X combined shipments will total about 302 million.
If this rather conservative forecast is correct then in 2015 Apple will ship more iOS and OS X computers than all Windows PCs combined .
Paying for TV has been a curious consumer phenomenon. There was a time when TV was free to consumers. It was delivered as a broadcast over-the-air and paid for either by commercials (US mostly) or by taxes on viewers (Europe mostly). The consumers were delighted with the idea as it was far better than radio and radio was delightful because it was far better than no radio.
The process of convincing consumers to pay for something that used to be free was quite interesting. The first benefit to be articulated was that the quality of the picture would be much better. It would, in essence, be noise-free.
The second benefit was an increase in the number of channels. VHF and UHF television would cover about three and 5 channels respectively while cable could offer dozens, many specializing on specific types of content like the Home Box Office (HBO) offering movies and ESPN offering sports only and MTV music videos and CNN news only.
The third benefit was fewer (or no) commercials for some of the channels. This was especially valued by fans of movies whose interruption by commercials was often detracting from the immersive value and continuity of the cinematic experience.
These benefits were very attractive during the 1980s, to the extent that about 60% of US households adopted cable. An additional group later adopted satellite-based pay-TV as the technology became reasonably cheap.
These benefits were priced modestly but as the quality and breadth of programming increased, prices rose. An average cable bill of $40/month in 1995 is $130 today. Some of that revenue went into upgrading the capital equipment in use (the plant) and some into paying for the higher production values. Yet more went to the sports leagues and their players whose business models increasingly depended on broadcast rights.
Like a siren, it calls.
The Auto Industry is significant. With gross revenues of over $2 trillion, production of over 66 million vehicles and growing it seems to be a big, juicy target. It employs 9 million people directly and 50 million indirectly and politically it must rank among the top three industries worthy of government subsidy (or interference). Indeed, in many countries–the US included–government interference makes it practically impossible for a producer to go out of business, no matter how poorly it’s managed or how untenable the market conditions.
But this might be the tell-tale sign that danger lurks. Theory suggests that incumbents going out of business is an essential indicator of industry health. Without their exit, entrants are never allowed to bring disruptive ideas to bear and innovation simply stops. Is this interference with mortality the only indication of entrant obstacles? Are things about to change? Is there pressure for innovation? Can we spot other indications of a crisis in this industry?
Taking the US as a proxy, here is a graph of the number of new car firm entries (and exits):
The total number of firms that entered the US market is 1,556. The blue line graph shows the entries and the orange line shows the exits. This sounds impressive, but note that the year when the peak of entries took place was 1914, exactly 100 years ago.
Horace presents the next class in The Critical MBA. Having too much of a fundamental footing could be a disadvantage when evaluating what theory might apply to a given situation. Could this be why so many fail to understand Apple? In the second half of the show, Horace and Anders discuss Amazon as retail goes online.
via 5by5 | The Critical Path #141: Old Dogs.
Apple paid $10 billion to developers in calendar 2014. Additional statistics for the App store are:
- $500 million spent on iOS apps in first week of January 2015
- Billings for apps increased 50% in 2014
- Cumulative developer revenues were $25 billion (making 2014 revenues 40% of all app sales since store opened in 2008)
- 627,000 jobs created in the US
- 1.4 million iOS apps catalog is sold in 155 countries
Putting these data points together with others from previous releases results in a fairly clear picture of the iTunes/Software/Services
The App ecosystem billings (what consumers actually pay) is shown in the red area above. 70% of those payments are transferred directly to developers and Apple reports the 30% remaining as part of its revenues. This view of the iTunes ecosystem shows the impact of Apps relative to the other media types. When we measure the payments to the content owners we can see that Apps also dominate:
1. Cyanogen. This company should develop a credible path for AOSP (non-Google Android) especially in India. I expect a lot of traction as OEMs who embrace Android reject Google.
2. iPad. Not as a consumer product but for the Enterprise. The iPad grows up into a solid product for business while being replaced by phones in consumer “jobs to be done”.
A few more ideas are listed here: The 2015 “Sleeper Ideas” List: Trends, Stocks, And Private Companies To Watch – Forbes.
As corporate romances go, IBM and Apple’s must rank among the most unexpected. As I wrote on the date they changed their Facebook status, the two companies were antagonists for the better part of twenty years and their rapprochement was met with a shrug mostly because yet more decades passed since.
Nostalgia aside, this new union is profoundly important. It indicates and evidences change on a vast scale. The companies’ antagonism was due to being once aimed at the same business: computing. Since the early 1980s, “computing” came to be modularized into hundreds, perhaps thousands of business models. It is no longer as simple as selling beige boxes. IBM was forced out of building computers and into services and consulting while Apple moved to make devices and the software and services which make its hardware valuable.
The convergence of interests which was consummated into a deal this year stems from the migration of computing around what has come to be called “mobile”. Apple intends to accelerate the adoption of its mobile platforms among the remaining non-adopters: enterprises–a group which, by now, qualifies as laggards. Simultaneously IBM intends to connect data warehouses at those same enterprises to their employed users.