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iPad Optics

The iPad has an installed base of over 300 million. This is a far larger audience than that of the Mac (which has somewhere between 100 million and 150 million). And whereas the iPad acquired this audience in about 7 years, the Mac took 33 years.

Curiously however, it is the iPad that is seen as the more fragile product. The iPad is considered to be failing, with a presumption of an end of life in the near future. The evidence of this failure the year-on-year decline in units sold. This is illustrated by the following graph. Screen Shot 2017-03-23 at 10.05.21 PM

Note that the iPad decline is paired with a steady increase in the Mac. The iPad exhibits a four year decrease in overall volumes. This has, as they say, bad optics.

But what is seen isn’t all that might be,

If we look further we see that the iPad is still a much loved and much used product. Data from the Pew Internet Survey shows that tablet ownership among US adults increased from 45% in April 2015 to 48% in April 2016 and 51% in November 2016. The rise has been steady. Although this counts tablets, the iPad had 85% share of the U.S. market for tablets priced above $200 so it’s a fair assumption that the iPad audience is growing. Similar data exists for the UK.

Screen Shot 2017-03-23 at 10.11.50 PM

In addition, user satisfaction with the product continues to be very high. Apple cited that in November, 451 Research measured a 94% consumer satisfaction rate for iPad Mini, a 97% rate for iPad Air, and 96% for iPad Pro. Finally, browsing, shopping and app usage data also show continuing high utilization for iPads.

Furthermore, iPads are still growing in “non-consuming” markets. iPad posted double-digit growth in both Mainland China and India, it continues to attract a very high percentage of first-time tablet buyers.

Finally, within corporate buyers there is a 96% satisfaction rate with 66% purchase intent. Apps and solutions are continually being developed for the platform.

Taking into account that the iPad has a large, stable, engaged and loyal user base that continues to expand and find new uses the optically bad sales data needs an explanation. The simplest explanation is probably the best: iPads remain in use far longer than phones, and perhaps even longer than some computers.

Anecdotally we can see evidence for this. Few iPads are replaced every two years the way phones are. They are not tied to service contracts or subsidized. They are also less likely to be damaged during usage as phones are dropped and banged-up. iPads are more stationary or carried in protected containers. Phones are in pockets, iPads are in bags.

So iPads are longer-lived products and it’s perfectly reasonable that people who have them keep using them and more people are joining them but slowly. Note also that the decline in sales seems to be flattening out and perhaps might show stabilization.

Further countering of the iPad in decline idea is the continual improvement in the product. The latest is a refresh of the iPad with more battery life, a better screen and support for Pencil.

Perhaps the iPad will not return to rapid growth, or perhaps it will. But the more likely possibility is that the iPad will level out maintaining steady levels and, perhaps, grow slightly. This flat rather than up/down trajectory is unusual in devices but it isn’t when you look at the Mac. And isn’t the goal of the iPad to become a computer?  If so then perhaps Mission Accomplished.

 

The Genealogy of the MacBook Pro

I was an early user of the first MacBook Air. When that product was launched I saw in it something different: a dedication to a new measure of performance: thinness and conformability. The key image used to launch the Air was the laptop sliding neatly into an inter-office envelope. The implication was that the laptop does not need to have its own special “laptop bag”. It could fit into any bag. Users would be able to slip it into all manner of new contexts. It sought to compete with computing non-consumption.

The Air was launched by Steve Jobs in 2008 and was almost universally panned. It was considered underpowered and the dedication to thinness was seen as irrelevant to what consumers wanted. The stock price fell.

The product went on to become Apple’s most popular laptop. It still is. It grew the base of Mac users to over 100 million today.

For the same reason, I was an early adopter of the newest MacBook Retina. The even thinner new MacBook was spectacularly thin. It was smaller than an iPad. It had no ports except one USB-C and a headphone jack. It required dongles for physical connections. It had a new keyboard that barely registered movement and it had a new trackpad that did not move at all but played mind tricks to make you think it did.

As I used it over the last year, I became used to it. It was not my only laptop. I had an older 15 inch Pro, but over time I came to use the MacBook Retina exclusively. I thought I could not do “real work” with it but I managed. I got used to the keyboard. I got used to the trackpad. I got used to the need for a dongle to connect a display. But these challenges were more than offset by delightful improvements. I was delighted by the small power brick and the ability to use any USB power to charge it. I was delighted at the all-day battery life which meant I would charge it the way I charged my Phone: at night.  I was delighted that I could use it in places where I could not use a laptop: on any airplane tray, stowing it in the seat back pocket. And I no longer cared what bag I had for my computer. It did not make me productive by completing tasks more quickly. It made me more productive by letting me be do things when and where I otherwise couldn’t. I love my MacBook.

Now Apple launched a new Pro Mac laptop.The new Pro laptop has the same (slightly improved) keyboard as my MacBook. It has the same (larger) trackpad as my MacBook. It has the same (but more of) USB-C port.  It has something new called a Touch Bar which puts function keys into a touch screen but mainly it feels like a grown-up version of my MacBook Retina. It’s faster too.

Overall, the new MacBook Pro feels to me like an evolution of the MacBook of 2015. I remember at the time thinking that this baby MacBook is probably the wave of the future: the new keyboard, new trackpad, new thinness, new USB-C, deprecation of other ports. These required enormous engineering efforts and it would be silly to leave them on only one model. In any case, from where I was standing all these were “better”. Not along the previous definition of goodness but along a new definition: making the computer more conformable and easier to put into use in more places. The very ideas that drove the development of the Air of 2008. Indeed the very idea that drove the development of laptops since the 1990s.

What’s fascinating to me from a product management point of view is that the groundbreaking new features which re-define the product’s direction are not designed to trickle-down from the top-of-the-line to the bottom, but rather that they trickle-up. The low-end product gets the updates first and the the Pro products adopt them later.

And we can even trace this genealogy of features through to an even “lower-end” product: the iPhone. The iPhone “ethos” of usability and conformability has permeated through to the Macs, starting from the lowly and advancing to the top of the range. The question of where Apple’s design direction comes from can be answered: the bottom.

All this is consistent with a strategy of “low-end evolution”. A way to defend the low-end rather than abandon it in pursuit of what the most demanding customers are asking for. Rather, Apple seeks to incubate a new performance measure. Re-defining goodness.

So is this new MacBook Pro a worthy successor to the MacBook Retina? My attention is riveted by the Touch Bar. It seems a completely new way of interacting but requires discovery and practice. What Apple has to achieve is allow the product to work well without it but also to allow users to evolve their experience with it. Over time we got used to trackpads instead of mice (many resisted the change). We got used to a different, small travel keyboard. We got used to new ports (HDMI vs. VGA) and we got used to wireless everything (it may seem easier, but remember having to always enter credentials vs. plugging in a cable).

The touch bar is a new UI metaphor. It will take time but it is looking at me right now, winking.

Wherefore art thou Macintosh?

Managing the Mac product line must be one of the most challenging problems at Apple. That may not be obvious given the product’s success. Consider what it has achieved:

  • The product is in its 32nd year of market presence. A longevity that in unmatched by any other PC maker.
  • Apple reached a top five position in the ranking of PC vendors. This was achieved for the first time only this year, far along in the evolution of the market.
  • With about $23 billion in revenues per year, Apple places among the top four PC vendors in terms of revenue.
  • With an estimated $5.5 billion in operating margin Apple is the most profitable PC vendor, capturing over 60% of the available PC hardware profits.
  • The product has retained an average selling price of over $1200 for at least a decade. At the same time the average pricing of Personal Computers has more than halved.
  • Although volumes have fallen for three quarters, the product grew volumes and sales for 22 out of 29 quarters. As a result, volumes almost doubled in eight years.[1]

The contribution of the Mac to Apple’s revenues is shown in the following graph.

screen-shot-2016-11-02-at-2-22-23-pm

It’s attractive and convenient to contrast the Mac with the rest of the PC industry. A David vs. Goliath tale of redemption. The classic comeback story. But the split between the two old rivals (Windows/MacOS) focuses the mind into a limited view of the computing market. The big change in computing has not been a growing Mac vs. declining PC. It has been a huge surge in mobile device use vs. a decline in PC use overall.

This data is visible in many ways. Browsing data shows mobile overtook PC use this year. Shopping data around Black Friday points in the same direction. Data on user interaction captured by comScore is shown below[2]

screen-shot-2016-11-02-at-3-45-49-pm

PC use went from half to a third of time while mobile went the other way: from a third to half of time within only four years. All the data is consistent: mobile use has swept PC use aside.

Notes:
  1. The unit volumes in third quarter 2008 were 2.6 million. Eight years later they are 4.9 million and could easily be over 5 million in the holiday quarter. []
  2. Although US only, the global picture is likely to be even more skewed toward mobile as PC didn’t saturated global markets before the smartphone swept to power. []

Post-keynote Apple event San Francisco – September 8

 

I will be presenting my latest analysis of Apple at the Sustain event in San Francisco on Thursday Sept 8th, the day after Apple’s keynote, along with Ben Bajarin, Carolina Milanesi who will alsob equipped with their latest market insights.

sustain-title-white

There is a time to disrupt and there is a time to sustain.

Sustain event is about understanding Apple’s levers of control to sustain the iPhone as it moves into direct competition with Android. We will also examine positions of top five technology brands: Apple, Amazon, Facebook, Google, and Microsoft.

Learn more about the event at Airshow.io. Given he short notice, we are keeping this event on the small side so reserve your seat soon.

The most popular product of all time

The following is a list of the best-selling products across several categories:

Car model: VW Beetle 21.5 million
Car brand: Toyota Corolla 43 million
Music Album: Thriller 70 million
Vehicle: Honda Super Cub 87 million
Book Title: Lord of the Rings 150 million
Toy: Rubik’s Cube 350 million
Game console: Playstation 382 million
Book series: Harry Potter Series 450 million
Mobile Phone: iPhone 1 billion

The iPhone is not only the best selling mobile phone but also the best selling music player, the best selling camera, the best selling video screen and the best selling computer of all time.

It is, quite simply, the best selling product of all time.

It is that because it is so much more than a product. It is an enabler for change. It unleashed forces which we are barely able to perceive, let alone control. It changed the world because it changed us.

And it did all that in less than nine years. One has to wonder what it will enable in the next nine.

Missing the boat in music

When Spotify and Pandora were starting their streaming services many were quick to point out that Apple was about to be disrupted. The future, they said, was streaming because (young) people could not be bothered with ownership of music and the limitations of a personal collection. Who would want to pay for a few hundred songs when they could listen to millions for free?

This perception continued and became more vocal over the years. Seven years in fact. Spotify collected 20 million paying subscribers while Apple did nothing. Pandora grabbed 80 million active listeners and possibly 4 million paying subscribers while Apple did nothing. The boat had sailed and Apple was not only not on it but oblivious that there was a boat in the first place.

At first Apple launched a half-hearted streaming service and then a paid service finally showed up with Apple Music in mid 2015. Since then the company managed to add 15 million subscribers. A tiny number compared to the 900 million iTunes accounts it had reported a year earlier. Pathetic. The number of music subscriptions relative to iCloud accounts, iTunes accounts and active devices is shown the the graph below.

Screen Shot 2016-06-20 at 3.30.38 PM

It may be paltry compared to the count of users Apple may have in total, but how does a 15 million user base in 1 year compare with the growth rate for the incumbents Spotify and Pandora?

The following graph shows the ramps for Spotify, Pandora and Apple Music since their moments of market entry. The accumulation of users by Apple looks to be the fastest yet.

Screen Shot 2016-06-20 at 3.31.02 PM

This is, of course, due to a maturing use case. Apple did not have to educate people to the notion of music as a subscription. It could just announce it and users would discover it and just sign up, especially if they were already iCloud subscribers and had a credit card attached to their iTunes account.

But that’s the whole point. Apple did not have to move first in music subscriptions. It did not even have to move second or third. When it did move it could just skim the market and add to its already healthy Services revenue (orange line in the first graph above.) Missing the boat in music in this case meant capturing all the value quickly and with minimal expense.

Fundamentally, Apple’s entry into music subscriptions was a sustaining effort. Streaming sustained Apple rather than disrupting it. The difference may seem merely one of semantics, but it is also the difference between life and death for a challenger. Meaning matters.

This is a cautionary tale for those who would pronounce every new idea as “disruptive” to Apple or anyone else on the basis of novelty alone. The tests for disruptiveness are easy enough and it behooves the analyst to apply them before dropping the d-bomb.

State of the Ecosystem

At WWDC 2016 Apple offered a set of new data points to illustrate its ecosystem’s robustness.

First, the number of registered developers increased by 2 million in the last year to a total of 13 million. That is a growth rate of 18%. To compare this total consider that Oracle claimed in 2014 9 million Java developers and IDC claimed in 2014 there were 18.5 million software developers in the world, of which 11 million were professional software developers and 7.5 million were hobbyist developers. It’s therefore possible that Apple’s “market share” among developers is close to 70%.

Second, App installs have now reached 130 billion. The cumulative growth is shown in the graph below:

Screen Shot 2016-06-16 at 12.25.11 PM

The rate of growth is also shown in the following graph:

Screen Shot 2016-06-16 at 12.33.35 PM

Note that the rate of growth continues to increase and is now above 30 billion/yr. It turns out that apps continue to be a popular download item. The size of the audience continues to grow (see graph below) and it’s therefore understandable that activity in the store continues to grow.

The Next 40

In Apple’s first 40 years it shipped 1,591,092,250 computers[1].

This shipment total is higher than any other computer company in its first 40 years. Actually there are no other PC makers that are 40 years old. One computer maker (IBM) is older but they only sold PCs for 24 years and what they still sell they don’t sell in high numbers.

That does not make it the top seller in a given year. Looking at only the Mac, Apple’s traditional form factor personal computer, Apple has only returned to the top 5 last year. Only if including the iPad it was the top computer vendor in 2011 and including iPhone, it was first in 2009.

Screen Shot 2016-03-28 at 11.36.56 AM

After having a 40 year run and after selling more computers than all American and Japanese computer companies put together, how should we think about the next 40 years?

First, clearly Apple shifted from being a “computer company”. It has already changed its name to exclude the word “Computer” but that has been interpreted as saying that it sells devices (which happen to also be computers.) The word “computer” is already archaic. We stopped using computers to compute in the 40s. We used them to make decisions, keep track of things, speed things up and then to communicate and then to entertain.

Devices, it seems, are what customers mainly use to do, well, everything. Computing has grown to encompass most activities we engage in. So is Apple then a device maker?

Notes:
  1. including Apple II, Mac, iPhone, iPad and iPod touch; excluding Apple Watch, Apple TV and other iPods. Includes Q1 shipments estimated at 63,597,000 Macs, iPhones and iPads []

Significant Contribution

In my quoting of the “Cook Doctrine” I cited the primary criteria for Apple to enter a new market:

We believe that we need to own and control the primary technologies behind the products we make, and participate only in markets where we can make a significant contribution.

These criteria, often repeated, were certainly in force when Apple chose to enter the watch market. Apple has sought and achieved a significant market share and did so while owning and controlling the primary technologies behind the product.

I now turn to the significant contribution criterion to study the possibility of Apple’s entry into the car industry.[1]

The significance test shifts the speculation from whether Apple would build a car, to how many cars is could build. Making a few cars is easy (see first commandment of The Entrant’s Guide to the Automotive Industry). Making lots of cars is hard and hence significance in the automotive market (as in watches and phones) means achieving some degree of adoption, a higher degree of usage and a very high degree of profitability.

So what does being significant in the car business mean? Does it mean becoming the next Tesla? The next BYD or the next VW? How quickly?

Fortunately, we have something to compare an Apple entry to. Apple has made a “significant” market entry in phones and others have made entries in cars. If we contrast the rate of growth of Tesla, EVs, and Hybrids[2] to the rate of growth of iPhones in their respective US markets, we obtain a test of significance:

Screen Shot 2016-01-04 at 12.38.39 PM

The graph shows the percent of sales for the alternative car technologies (and Tesla) vs. the percent of US phone users using iPhones (comScore). Here are the conclusions:

Notes:
  1. Control of the primary technologies behind the product is a topic for another post. []
  2. Of which Toyota has 70% to 80% share []

Apple Watch Keeps Top Gift Spot Ahead Of Black Friday

The Apple Watch continues to hold the top spot among products that will be hot this holiday season, as predicted by the IBM Trend app.

Source: Apple Watch Keeps Top Gift Spot Ahead Of Black Friday

The Apple Watch scored 100 out of 100 on the “IBM Watson Trend Scale”. According to various surveys, about 100 million people will shop this Thanksgiving weekend in the US. One wonders how many purchases by 100 million shoppers merit a score of 100/100.

My estimate for units shipped has been 20 million in the first calendar year. About 7 million have been sold in the first two quarters. That leaves 13 for the holiday and Q1 (which includes Chinese New Year.) I still like these odds.

To learn more about the reasoning around this estimate and hear additional supporting data, join us at Glance conference.