Categories

Category Industry

Measuring Not Getting the Cloud

This is what “Not getting the Cloud” looks like:

Screen Shot 2014-05-09 at 5-9-3.30.03 PM

Screen Shot 2014-05-09 at 5-9-4.04.33 PM

 

“Not getting the cloud” means that in the last 12 months Apple obtained:

  • 800 million iTunes users and
  • an estimated 450 million iCloud users spending
  • $3 billion/yr for end-user services plus
  • $4.7 billion/yr for licensing and other income which includes
  • more than $1 billion/yr paid by Google for traffic through Apple devices and
  • $13 billion/yr in app transactions of which
  • $9 billion/yr was paid to developers and
  • $3.9 billion/yr was retained as operating budget and profit for the App Store. In addition,
  • $2.7 billion/yr in music download sales and
  • more than $1 billion/yr in Apple TV (aka Apple’s Kindle) and video sales and
  • $1 billion/yr in eBooks sold

In summary, iTunes, Software and Services has been growing between 30% and 40% for four years and is on its way to $30 billion/yr in transactions and sales for 2014.

This is what can be deduced from a reading of Apple’s financial statements of operations. If there are comparable details for companies which do get the cloud, I’ll be happy to tally the comparison so we can calibrate this failure.

How close to saturation is the smartphone?

The US is not the market where penetration is highest. However, it is the largest market where we have reliable penetration data (from at least two sources) and the one where penetration is near the top of the range.

The graph showing the US ranked against others as of a year ago is here. The US was cited at 56.4% at the time. I keep track of comScore’s data and it showed 58.2% at the end of March and 55.3% at the end of January, making the figure very believable.

The most recent data from comScore shows penetration at 68.8%. In order to understand what the limits of that growth could be it’s important to see the longer-term pattern. It would show whether there is a clear point of inflection and thus a predictable “saturation” around an asymptotic value.

The following graph shows the percentage of smartphone users/non-users since late 2009.

Screen Shot 2014-05-08 at 5-8-6.13.29 PM

The following graph shows the rate at which users are being added to the smartphone ranks (measured as new users per month.)

Screen Shot 2014-05-08 at 5-8-6.14.01 PM

 

To summarize, the conversion of users from non-smart to smartphone usage is fairly constant. The March ’14 period saw 2.8 million new-to-smartphone users. the March ’13 period saw 3.0 million, the March ’12 period saw 2.0 million and March ’11 saw 3.0 million. There is no discernible slowing of adoption.

Note that I added a trailing three period average in new users which fluctuates somewhat predictably due to seasonality. Finally, note that the figure of 50% penetration was reached almost two years ago and no noticeable change of adoption has happened since. Cellular phone ownership in the US is still rising (though very slowly) and it now about 90%.

The only conclusion is that even at the current 68.8% penetration, we are not anywhere near “saturation” of smartphone users in the US, and the US is a leader among “developed markets” so there is little to suggest that saturation has happened anywhere with significant populations.

The iPad discontinuity

iPad sales were unexpectedly slow in Q1. Tim Cook explained it as follows:

iPad sales came in at the high end of our expectations, but we realized they were below analysts’ estimates and I would like to proactively address why we think there was a difference. We believe almost all of the difference can be explained by two factors.

First, in the March quarter last year we significantly increased iPad channel inventory, while this year we significantly reduced it.

Second, we ended the December quarter last year with a substantial backlog of iPad mini that was subsequently shipped in the March quarter whereas we ended the December quarter this year near supply demand balance.

We continue to believe that the tablet market will surpass the PC market in size within the next few years, and we believe that Apple will be a major beneficiary of this trend.

Tim Cook went on to say “over two-thirds of people registering an iPad in the last six months were new to iPad”

In a later discussion, Luca Maestri said:

As Tim explained earlier, our iPad results and the comparison to the March quarter last year were heavily influenced by channel inventory changes. Specifically, this year we sold 16.4 million iPad into our channel and sold through almost 17.5 million, reducing our channel inventory by 1.1 million units.

Last year, we sold over 19.4 million iPads into our channels and sold through 18 million, and therefore increased channel inventory by 1.4 million units. As a result, the year-over-year sell through decline was only 3% compared to the sell-in decline of 16%.

We exit the March quarter with 5.1 million of iPad channel inventory which left us within our target range of four to six weeks. iPad continues to lead all other tablet by far in terms of user engagement, size of ecosystem, customer satisfaction and e-commerce.

In a later Q&A:

Monthly Apple Users

In the postmodern computing world that we live in, the measure of success isn’t revenue or profit or units sold but the number of users that an ecosystem can attract. Therefore the monthly active user (MAU) unit of performance seems to be in vogue right now. E.g.:

  • Facebook claims Messenger has more than 200 million MAUs
  • WhatsApp has 500 million MAUs, 48 million of whom are in India
  • Line last month announced that it had 400 million users (active or not)
  • WeChat claimed 355 million MAUs
  • Viber claims 105 million MAUs

Startups are aggregating these millions of MAUs in order to obtain valuations for raising capital[1] and the faster the growth in MAUs the more “successful” the company is considered.

When companies are acquired it’s common to take the transaction value and divide it by MAUs to get an idea of “what an user is worth”. This is because there are no revenues to measure and MAUs are taken as a proxy. However, the process by which a MAU becomes a dollar of profit is, to put it kindly, circuitous.

For most (all?) it’s not yet clear how it happens especially since not all MAUs are created equal and MAU loyalties can change rapidly and if we added all the projected revenues each MAU will contribute to each app on her device we might reach some absurdity. In actuality, today, for the companies listed above, there are no revenues at all directly from their services.

In violation of this convention, there are some companies which manage to obtain revenues from their users. Two such are Apple and Amazon.  In the last quarter Apple reported having 800 million iTunes accounts.[2]  These aren’t MAUs since the activity level is not noted, but we do know how much is spent on iTunes and services. In addition, Amazon cites 244 million active customer accounts  representing accounts which generated purchases within the last 12 months.

This allows us to compare Apple and Amazon in terms of accounts, revenue per account, and, via some analysis, even profitability per account.

The following graphs tell this story. First, the total number of accounts:

Screen Shot 2014-04-29 at 4-29-11.25.29 AM

Note that I added trend lines to both graphs and their formulas.

The following are the revenue per account for iTunes (further broken into estimated iTunes segment revenues per account.) and for Amazon. Note that the vertical scales are different.

Notes:
  1. It’s been said that it’s difficult to get funded with only 10 million MAUs []
  2. adding, for some unknown reason, that most of them have credit cards. []

Inventive Teens

Philip Elmer-DeWitt cited Piper Jaffray’s latest Teen Survey on Device Ownership where ~7,500 teens in the US are asked about their device ownership. This type of data is similar to the method comScore uses to measure penetration smartphones in the US making the two data sets comparable.

The combined data is shown the following graphs.

Screen Shot 2014-04-10 at 4-10-3.07.04 PM

One graph is the penetration data and the other is the ratio of penetration to unpenetrated on a log scale. The PJC Teen Survey data is shown as dots on both graphs. In the spring of 2012 the difference between teen iPhone ownership and overall population iPhone ownership was 20 percentage points. In the fall 2012 it was 22 points. In spring 2013 it was 25 points. The spread increased to 30 points in the fall of 2013.

Postmodern computing

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

Screen Shot 2014-04-07 at 7.21.46 AM

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

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

Screen Shot 2014-04-07 at 7.55.13 AM

 

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

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

Notes:
  1. GSMA []
  2. There are also about 2 billion 3G/4G connections world-wide []

Invaluable

The smartphone market continues to grow. 2013 saw total shipment of around one billion units (up from 683 million in 2012). In contrast, non-smartphone shipments continue to decline, with shipments around 800 million (down from 987 million in 2012).

This pattern is shown below:

Screen Shot 2014-03-18 at 3-18-12.45.12 PM

Note that prior to 2012 the non-smart market seemed to be holding steady in spite of the growth in smartphones. The notion that smartphones would become universal was widely dismissed. I certainly heard many objections to my 2010 hypothesis that not only would smartphones become ubiquitous but that it would become increasingly difficult to find anything else to buy. (This in spite of the clearly evident demand for “low-end” non-smart devices.)[1]

I also suggested that the notion of distinguishing phones with the”smart” tag would become irrelevant and that we would just call these devices “phones”.

Notes:
  1. The analogy I used was that of the black-and-white TV market as color TV became increasingly popular. There probably was a market for monochrome screens for a long time after they were discontinued but that is beside the point: the old technology becomes increasingly scarce because of economies of scale []

On Google’s Future. Part 1

From 2005 through 2012 Google site revenues[1] have risen at a rate consistent  with the growth in global Internet population excluding China[2]. The Internet population and Google.com revenues for the period 2005-2012 are shown in the following graph.

Screen Shot 2014-03-13 at 3-13-3.17.02 PM

The correlation is shown in the following graph:

Screen Shot 2014-03-13 at 3-13-3.17.21 PM

Taking into account costs and expenses, on a per-user basis profitability per user (assuming all non-Chinese internet users are Google users) is shown below:

Screen Shot 2014-03-13 at 3-13-3.17.14 PM

The simple conclusion is that Google earns approximately $1.2 per user per quarter (net income is the blue area above). This figure is relatively constant with a slight increase (~20%) over 3 years.

If the company does not alter its business model then the future potential of the business could be measured as a function of Internet (ex. China) population growth.

How hard can that be?

The next post will answer this question.

Notes:
  1. Google revenues are reported as “Google.com”, “Network”, “Motorola” and “Other”. For this analysis I am including only the Google.com revenues []
  2. Internet population is calculated as a combination of penetration as reported by the ITU and population data from the World Bank []

Horace Dediu drops in to chat on MWC 2014

It’s a good thing Horace Dediu got ready to start our Mobile World Congress #MWC14 tweetchat #IBMMWCChat on 2/24 a few minutes early – because as usual, the dialogue took off fast and went full steam ahead for an hour. Here is our basic topic list (ordering is mine, chat was slightly different)

  • Android Commoditization
  • Nokia,
  • Microsoft and Google
  • The OS, The Platform and the Ecosystem
  • Tizen
  • Wearables
  • Monetize This
  • The Operator Challenge
  • Nest again
  • The odds and endings

Read Tweet transcript here: Horace Dediu @Asymco drops in to chat on #MWC14 | Electronics industry.

Nokia welcomes Android developers

Barcelona, Spain – Today at Mobile World Congress, Nokia unveiled five new affordable handsets including a new family of smartphones debuting on the Nokia X software platform. Based on the Android Open Source Project AOSP, and backed by Nokias deep ties with operators, the Nokia X platform gives AndroidTM developers the chance to tap into, and profit from, a rapidly expanding part of the market.

via Nokia welcomes Android developers; expands global developer footprint with momentum across Lumia and Asha » Nokia – Press.

It’s worth remembering the distinction between operating systems, platforms and ecosystems.

Today’s announcement is consistent with the declaration of Nokia is engaged in a “war of ecosystems.” Note that this is in contrast to “a war of platforms” or a “battle of operating systems” or a “competition of devices.”

Devices are commoditizing, operating systems are commodities and the Android platform is a commodity. Value will not be captured in any of these technology modules. Ecosystems are another matter. It’s where Facebook (and its acquisitions) reside. It’s where Google lives and it’s where iTunes has been for a decade.

Nokia’s adoption of AOSP as an operating system is consistent with the ecosystem strategy set forth three years ago, and is also consistent with Microsoft’s competitive strategy.

Which is why I believe Microsoft is not only comfortable with this development but had agreed to it over a year ago when work on this initiative was already well under way.