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Reminder: Giving a talk at Harvard Business School this week

This is a reminder that I’ll be speaking at the Harvard Business School Technology and Operations Management Digital Seminar Series on ”The evolution of value chains in a computing markets measured in the billions of units per year.”

For the abstract see this post.

When: It’s taking place at 3:00 PM on Thursday March 7th.

Who can attend: The talk is open to the public, seating is limited.

Location: The Cotting House on the campus of the Harvard Business School (map linked), Boston. There is parking in the main lot with entrance across from the Harvard Stadium for $14/day.


Measuring the iBook market

In June of 2011 Apple announced that 130 million ebooks were sold through iTunes. In October of 2012 it announced that 400 million sold.

That means 270 million ebooks were sold in 16 months. Or about 17 million units per month, on average. It also suggests 2012 ebook sales of about 200 million units.[1] The following graph shows the download rate of books relative to apps and songs:

Screen Shot 2013-02-28 at 2-28-3.09.25 PM

The download rate looks paltry but we need to remember that Apps have a very low average selling price (about 23 cents including in-app purchases) and that Songs are probably priced around $1.1 on average. In contrast each ebook could be generating about $10 per download.

Bits v. Bytes: Follow the money

Google announced its first computing product: the Pixel. It’s not the first Chromebook but it is the first device which is uniquely branded as a Google product (Motorola notwithstanding.)

It’s a curious choice given that companies which have “crossed-over” from being service or software oriented to hardware have started with more “mobile” devices. Amazon launched the Kindle as a low-end product and gradually moved it up-market. Microsoft launched with the Surface tablet and then followed with the Pro version as a hybrid laptop/tablet.

It’s also curious since Google has spent years contributing to the development of mobile phones and tablets under the Nexus sub-brand. This was an approach consistent with earlier Chromebooks as well.

But the Pixel is a high-end product. It’s priced at the top of the range of what a laptop computer might cost (given the dimensions).  Perhaps it’s part of a pattern where Google will hone its hardware skills toward releasing a phone or tablet it can call its own. Starting with a more traditional computer is “easier” than trying to deliver on the more demanding smaller form factors.

And yet, the more obvious question is why would Google want to be in the hardware business? Isn’t being a web-focused company implicitly suggesting that hardware is a commodity to be farmed off to perpetually impoverished and violently abused OEMs?

The truth is quite different from this. Samsung currently makes far more operating profit from Android phones than Google does from all its operations. Screen Shot 2013-02-22 at 2-22-3.47.58 PM

When looking at the patterns of sales and profit capture for hardware vendors since 2007 the contrast is stark:

Right on Cue

On February 6th, 2013 Apple reported that a total of 25 billion songs had been downloaded from its iTunes music store. The previous definitive value was in October 2011 though there was mention of “more than 20 billion” in November. App download totals have recently been much more frequently updated as the following chart shows:

Screen Shot 2013-02-12 at 2-12-2.17.06 PM

[I estimated 21 billion for the November total.]

The latest two data points point to a surge in iTunes song download rates. Prior to last fall the download rate seemed to be hovering around 10 million songs per day.

The race to a billion—2012 Update

I last looked at the race to a billion in March 2011. Since then, I’ve been updating and adding data to the set giving a broader selection of platforms to compare.

Before we dive in, an explanation: the initial review excluded Windows (PC) and Facebook mainly because (a)  the ramp scale I’m using is about a decade in duration and (b) I was reluctant to compare platforms that require payment to join to those that don’t. The (DOS/Windows) PC ramped over several decades (starting in 1981) and Facebook is a service that costs nothing to join. There was much gnashing of teeth and shaking of fists as a result.

Therefore, in the interest of inclusion, I added both to the data set and let the chips fall where they may.

The data is shown below.

Screen Shot 2013-01-16 at 1-16-2.11.50 PM

I kept the scale to about a decade so that individual lines can be resolved. As a result, you’ll note that although Windows reached one billion first it did so slowly enough to be off the scale shown. Indeed, the “race to a billion” should be titled  “The race to one billion users in less than a decade”.

In such a competition, the winner would be Facebook which, in October 2012, 35 quarters after launch, reached the finish line. The second looks to be Android (probably this year) and the third iOS (sometime next year.)

That may sound like the end of it, but what the graph also shows are the more subtle trends:

The uncanny similarity between EU and US smartphone markets

comScore released one of its rare updates to the EU5 (Spain, UK, France, Italy and Germany) smartphone market. Note that the data is claiming to show installed base and not sales in any particular period. What interests me is a comparison or contrast between the European market and the US market.

First, total users.

Screen Shot 2012-12-19 at 12-19-7.30.57 PM

The EU has about 500 million inhabitants while Europe overall has 731 million. The EU 5 total about 314 million which is very nearly the same as the US (311.6 million). Therefore the EU5 is a good comparable to the US in terms of population. As the graph above shows it’s also remarkably similar in its adoption of smartphones. Note that the scale reflects users and since the populations are very similar then the penetration should also be similar.


The mystery of Samsung Electronics SG&A

Samsung Electronics’ SG&A expenses are curiously high. Consider the following graph:

It shows SG&A as reported by Samsung and Apple over the periods 2010, 2011 and the sum of the first three calendar quarters of 2012. Note that Samsung appears to be spending three times as much as Apple on sales and administration.

The company offers a break-down of these SG&A costs and they are also shown (Apple does not provide a break-down except for advertising in its yearly report). The suspicion that something is not right comes from looking not only at the overall picture but the notion that Transportation, Warranty and “Other” for Samsung are higher than overall SG&A for Apple.

On Capital Spending's Transformation of the Electronics Industry – YouTube

Asymco’s Horace Dediu on Capital Spending’s Transformation of the Electronics Industry – YouTube.


A video of Horace Dediu’s presentation at IBM’s Electronics Global Leadership Forum in Taipei on 23 October 2012. Horace discusses how Apple’s enormous capital spending is reshaping the global supply chain for the industry.

Apple's Growth Scorecard for third quarter 2012

In the parlance of developers Apple keeps “throwing exceptions.” This quarter the iPad surprised with a significant decline in sales growth. I placed a table showing the sales growth for this quarter as well as the previous 22 quarters at the bottom of this post.

Here is a quick review of each line:

  1. The iPhone returned to a more customary growth rate (which I rate as Very Good–above 50%). The quarter was bound to be quirky due to it being both a transition quarter and a launch quarter. The launch of the iPhone 5 came quite late but not too late to make a contribution. It was also widely rumored and anticipated so there was slowing of the previous generation product. I expect growth to accelerate further in the last quarter of the year.
  2. The Mac turned in a commendable 6% revenue growth (1% unit growth) on the back of the new 15″ Retina screen MacBook. The average sales price increased sequentially and the mix of portables to desktops reached a new high of above 80%. More about the Mac will be written in a future post.

A limited number of The Critical Path The First Year print editions are available for purchase

The Critical Path, The First Year is now available on the Asymco Store.

  • Including DRM-free PDF and ePub downloadable files.
  • The print copies are signed.
  • Supplies are limited.

You can order  here: Asymco Store — The Critical Path Book.