Categories

Category Nostalgia

Tentpoles

When the iPhone launched, Steve Jobs introduced it as being three products in one:

  • A wide-screen iPod
  • A phone
  • A breakthrough internet communicator

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When the Apple Watch launched, Tim Cook introduced it as being three things:

  • A precise timepiece
  • A new, intimate way to communicate
  • A comprehensive health and fitness device.

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Revolutionary User Interfaces, Part 2

In 2011 I wrote:

My hypothesis is that The Primary Cause for the shift of profits from Incumbents to Entrants has been the disruptive impact of a new input method.

It was a description of what I considered to be the “disruptive technology” which caused incumbents which had a “front-row seat” to the future of their industry to be completely displaced and marginalized by an entrant[1] with no discernible right to do what they did.

I illustrated what underpinned the sea change in the phone business via the slide that Steve Jobs used in the iPhone launch event:

Screen-Shot-2011-11-03-at-11-3-10.45.20-AM

 

I added the years when each input method was introduced and the  platform/ecosystems created as a result. These new ecosystems were the primary cause for dramatic industry-sized shifts in profits.

Not coincidentally, during the 2014 Apple Watch launch, the presentation began[2] with a re-telling of the “mouse, click wheel and Multi-Touch” story.

Screen Shot 2014-09-10 at 10.07.55 AM

Seven years later, the difference is that there is a new object added to the story. It answers the question that has been on my mind since that first post on revolutionary user interfaces was written: what will come next.

Now that we have an answer, the next step is to understand the new platform, its ecosystem; which industry will be affected and which incumbents will be displaced and to what degree will value be created beyond that which will be displaced.

Piece of cake.

Notes:
  1. later more than one []
  2. Begins one hour into the 2 hour downloadable video []

Is the PC back?

Gartner’s own press release has an interesting spin:

“After Two Years of Decline, Worldwide PC Shipments Experienced Flat Growth in Second Quarter of 2014, According to Gartner”

Gartner’s actual figure is 0.1% growth. Gartner and IDC measure slightly different quantities as “PC” but they don’t disagree much. IDC still shows declining PC sales at about -1.7%. However both also include the Mac in their accounting of PC. If we were to remove the Mac and measure “Windows PC”[1] Gartner’s figures would show -0.8% drop in PC ex-Mac shipments.

The difference in growth between the Mac and non-Mac PCs is shown in the following graph.

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As Apple puts it, the Mac grew faster (and hence gained share) for 31 out of the last 32 quarters.  It missed on this perfect record during the fourth quarter of 2012 when the then fresh new iMac was impossible to buy due to production issues.

So as far as the Mac is concerned the slowing of the decline in PC unit shipments isn’t at its expense.

Notes:
  1. In quotes because this total includes Linux and Chromebook []

IBM and Apple: Catharsis

IBM did not invent personal computing but their “PC” became synonymous with the category. Having entered the market in 1981, the IBM PC quickly became the top selling brand. From 1984 to 1993 IBM sold more PCs than any other vendor, conceding the spot to Compaq which remained on top only until 2000. No PC vendor remained at the top of the sales leagues longer than IBM. HP had the second longest run but that run was broken last year as Lenovo (who acquired IBM’s PC business) surged.

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As the graph above shows, the period of time when IBM was dominant was characterized by far lower volumes. In 2004, the year IBM exited, they sold about 10 million units. ((as the graph shows, if we consider Lenovo as taking over from there, they did a very good job extending the legacy.)) It was a decent performance but one that did not keep up with the Dell and HP/Compaq race to the bottom in pricing and subsequent rise in volumes.

However, throughout its position of strength, IBM was a reluctant PC maker.

Measuring Not Getting the Cloud

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

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“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.

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.

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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.

When Apple reached parity with Windows

In 2013 there were 18.8 times more Windows PCs sold than Macs. This is a reduction in the Windows advantage from about 19.8x in 2012. This decline is mostly due to the more rapid decline in Windows PC shipments relative to the more modest decline in Mac unit shipments. Gartner estimates that about 309 million Windows PCs were shipped,[1] down from 337 million in 2012 (which was down from 344 million in 2011, the year PCs peaked.) I estimate about 16.4 million Macs were shipped in 2013 down from 17 million in 2012.

The history of PC shipments relative to Mac shipments is shown in the following graph:

Screen Shot 2014-01-13 at 1-13-3.09.21 PM

I chose to graph the Mac data as an area with additional areas for iOS devices layered on top.

Notes:
  1. This figure is not published publicly but can be derived from subtracting Mac shipments from the total PC shipments which are published []

The US Auto Industry Summarized

As automobiles become smartphone accessories, they become an interesting industry to study. Here is a recent (since 1961) history of the US market.

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Dark Matter

Benedict Evans explains well the problem with measuring Android tablets. There are no reliable data collected because many of the devices are invisible through the regular, measurable channels:

  • There are no firms which report their shipments
  • They are not sold through retail chains which normally are sampled in the US and Europe (NPD and GfK respectively.)
  • They don’t show up in browsing or ad transaction data
  • Google Play statistics are missing most of the activations since they are not sold as bona fide Google-sanctioned Android.

The only measured statistic happens to be component shipments. Items such as screens, CPUs or perhaps memory might be visible to market analysts. It’s therefore tempting to add up tires manufactured to determine what’s getting sold in auto dealerships.

But it’s also hugely problematic.

The newly integrated company

During the first quarter of fiscal year 2014, we changed our organizational structure as part of our transformation to a devices and services company. As a result of these changes, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. Therefore, beginning in fiscal year 2014, we are reporting our financial performance based on our new segments; Devices and Consumer (“D&C”) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other.

The previous reporting segments were:

  • Windows & Windows Live
  • Server and Tools
  • Online Services
  • Microsoft Business
  • Entertainment and Devices
  • Unallocated and other

The new are:

  • D&C Licensing: Windows OEM licensing, Consumer Windows, Consumer Office, Windows Phone (including related patent licensing)
  • D&C Hardware:  Xbox 360, second-party and third-party video games, and Xbox LIVE subscriptions; Surface; PC accessories
  • D&C Other: Resale, including Windows Store, Xbox LIVE transactions, Windows Phone Marketplace; search advertising; display advertising; Subscriptions including Office 365 Home Premium; Studios including first-party video games; retail stores.
  • Commercial Licensing: Windows Server, Microsoft SQL Server, Visual Studio, System Center; Windows Embedded; volume licensing of Windows; Microsoft Office for business (Office, Exchange, SharePoint, and Lync); Client Access Licenses;  Dynamics, Skype.
  • Commercial Other: Enterprise Services, including Premier product support services and Microsoft Consulting Services; Cloud Services, comprising O365, other Microsoft Office online offerings, Dynamics CRM Online, and Windows Azure.

From Microsoft’s FY14 Q1 10Q via Microsoft Investor Relations – Press Releases

The mapping between the old and new is not straight forward. There is overlap between D&C Licensing and the old Windows and perhaps between Entertainment and Devices and D&C Hardware but there are many gaps. There is also some overlap between the old “Business”/”Server” segments and the new “Commercial” but, again, they cannot be matched.

I show the difference between the two structures in the way revenues are allocated below, using color to try to show similarities.

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Given the re-stated quarters it’s possible to compare one year’s historic performance at a segment level. For example,