This is a reminder that I will be speaking at the Apple Investor Summit on March 15th at the Los Angeles Convention Center. My topic will be Apple’s capital expenditure structure and how that foretells strategy. I will present previously unpublished data and review the likely scenarios for 2012 iOS device production. As I prepared it I realized that with only 45 minutes there is a limited amount of detail I can provide.
To remedy that and to offer an opportunity to have a detailed question and answer session on related topics, I decided to offer a workshop-like reception at the end of the day. The time would be around 6:30 PM on the 15th and last at most two hours. The location will be in the vicinity of the LA Convention Center.
If you are interested in participating, please let me know so I can decide the type of venue to rent. Please also note that there will be a cost involved and pricing will depend on the number of participants. My current estimate is that the price will be $150 per person.
The most challenging part is how you’re going to tell a story with just images and no words.
Words are very efficient but my belief is that to say the important things you don’t use words.
Knowing that when you do your visuals you have to be very careful with every thing that is in the frame.
Because every thing tells a story.
And sometimes you have just a small detail, but it looks too important. So you have to put it outside the frame because it tells another story.
With apologies to Michel Hazanavicius, director, The Artist
Occasionally I write articles titled “Why CEO X was fired.” You can read one here, and here and here.
These are allegorical stories. I don’t base the opinion on evidence but on perception of what’s wrong with a particular company’s strategy and then try to trace the point of strategic failure which should have triggered management change. Of course, the reasons are often something else, probably mundane or “political” in nature.
The objective therefore is to analyze strategy and more precisely strategy failure.
So, Yahoo! What went wrong?
Before we answer that, we should know what went right. Yahoo, like Google, depends on advertiser revenues. For that, it sells the behavior of its users. It processes over 25 billion events every day and builds a database (estimated to be in 10s of petabytes) to mine for information that is, hopefully, worth something to advertisers.
But in order to get user behavior it needs to provide compelling reasons for user participation. For that, Yahoo licenses content and offers communication services (among other things.)
This sounds like a reasonable business model. So what could go wrong?
Every few months rumors emerge of another technology company attempting to create a new product centered around the TV. Apple’s name comes up, of course, but so does Google. And Microsoft has been experimenting with no lesser degrees of vigor than the others. They all seem to be trying to make TV smarter, somehow.
But I would argue that these efforts are misguided. Television is more than the TV set or a set-top box, or any box. It’s more than channels or broadcasters or producers or aggregators or distributors. It’s all of these things; plus more. It’s a value network of great breadth and complexity. It’s a highly modularized industry with well-defined business model boundaries and inter-dependencies. I would argue that its very breadth is what has kept it rigid and immune from disruptive change.
If you look at each technological experiment to move to a new business model, they can all be reduced to the offer of an additional or substitutive module. There is no assumption made that the content being served will change. To put it in the context of mobile computing, it’s like trying to introduce a smartphone in a world without data networks–where the only service to be served is person-to-person calling. Unlike the Smartphone which could only have emerged to leverage the Internet, TV has no “smart content” to leverage. The “smartness” has to be not in the box but in the programming.
Of course, I don’t mean there’s a lack of good programming. What I mean is that there is no innovation in what a program is–the job it’s hired to do. The way it and its distribution fits into a person’s life. TV programs have not changed for half a century. They feature the same genres, the same duration, the same business model, the same series, format and scheduling and the same value chains as when “I Love Lucy” premiered in 1951. They assume people watch TV during the same time each day (while doing nothing else.) They also assume people are equally influenced by brand advertising and that audiences are largely homogeneous.
Contrast that with other media. The song, the book, the game, the newspaper even the movie have gone through consumption changes which have been supported by disruptive innovations. The portable music player, the ebook reader, the console and the mobile phone and the internet in general have all allowed consumption to conform to new usage patterns. The jobs that music is hired to do has changed dramatically. These re-definitions of what media is used for caused dramatic changes in both the production and distribution and hence the way value is captured in media.
TV, it seems, stands alone and immune.
Asymco has reached nearly 19,000 comments from nearly 5,200 contributors. I value every comment and read them all. The process of contribution leads to peer review and encourages differing points of view. It’s essential to finding errors, testing assumptions and, ultimately, learning.
Since starting this blog, I’ve thought about how to increase the participation of the audience and how to offer it as a platform for others. There is a fundamental limit to how much one person can contribute and “move the ball forward.” In that spirit, the method I’m initiating today is to allow comment writers to also write as contributor authors.
Dirk Schmidt is the first such author. Dirk is a resident of Finland but is a native of Germany. He worked in corporate finance for six years. Prior to that, Dirk was an intern at Nokia and practiced management consulting.
Dirk has an MSc from the Leipzig Graduate School of Management. He is on Twitter as @disc1979. Initially Dirk will write on topics related to financial markets and financial analysis.
As Asymco expands, it should be understood as a resource that has many individuals behind it. I look forward to welcoming many more contributors.
This graphic representation of the current and year-ago sources of income and sources of expense for the company shows how the business evolved in the last year.
The colored segments in the first column are Gross Margin contributions per product for Calendar Quarter 2, 2010. The white segments are cost of sales for those products. These costs are combined in the second column and the operating expenses are shown in the third column, taxes in the fourth and Net Income is shown in the fifth.
The same information is shown for Calendar Quarter 2, 2011. Click for larger view (1440 x 873 pixels)
The increase in the first columns is the “top line” growth and the increase in the last (fifth) columns is the “bottom line” growth
Similar charts for the last few quarters are shown here:
Combating superlatives fatigue | asymco
Summary view of Apple’s income statement [Updated] | asymco
Describing Apple’s growth, cost structure, product-level and overall profitability in a self-explanatory chart | asymco
Apple’s cash and marketable securities increased to $76,156,000,000. The increase was 15% sequentially or $10.4 billion in three months. That’s the equivalent of an increase of $11 per share (to a current $81.2/share.)
The composition and growth of liquid assets is shown in the following chart:
There is little I can think to say about this that hasn’t already been said (see last Critical Path show.)
Except maybe that the amount is now nearly 16% higher than three months ago. And that the amount added last quarter is higher than the amount on hand 4.5 years ago. And that the cash added is higher than Google’s overall revenues in the quarter.
In Q1 2009 the company’s share price briefly traded at $78. A buyer of shares at that price will have recovered their investment in retained earnings in nine quarters.
Here were my predictions for the third fiscal (second calendar) quarter from April 25th.
Estimates for Apple’s third fiscal quarter (ending June) | asymco
Later in the quarter I updated them for submission to Philip Elmer-Dewitt’s blog at Fortune. The original and updated figures are shown in the following table (with actuals).
The changes were not significant except in a reduction of iPads. Three items were better in the early call and three were better in the late with one item equal. Using a simple method for scoring the results I gave myself the following report card:
As the Revenue and EPS figures are dependent on the other line items, the most significant error is clearly the iPhone where the error was over 30% (and hence deserves an F). The other figures were not very close either so the overall grade point average is a very mediocre C (2.3).
So, as in previous quarters, nailing the iPhone number is everything. Having failed to guess correctly, the whole performance fell apart.
So how did I manage to get the iPhone number so wrong?
An interview with Horace Dediu.
Curiously, given the high specs, I find myself using only an iPad for a week (without access to AC current).
Windows Phone Marketplace has reached 25,000 apps. That’s an impressive figure given that so few devices have actually been sold. Compared with Android which is activating half a million devices per day, Windows Phone seems like a rounding error. According to Gartner, 3.6 million smartphones using a Microsoft mobile OS were sold in the first quarter of 2011, of which 1.6 million were Windows Phone 7. That implies a daily activation rate of 17,500 per day or one WP device for every 28 Android devices.
And yet the number of apps on Windows Phone is more than 10% of the number of Android apps and Android Apps are about half of iPhone apps. As far as Windows Phone is concerned, apps are being added faster than users. Why is this?
If we take the point of view that mobile platforms behave like the computing platforms of years gone by (i.e. Windows vs. Mac) then this is inexplicable. Developers should not be bothering with a distant third. This would be like betting on the Amiga in the era of Windows.
But we’re not in the PC era any more. That era had very high software development costs. It had very difficult software distribution channels (retail box sales typically) and very few categories of software with high price points. It was also dominated by institutional buyers which did not give quarter to small vendors. It was also a time when there were orders of magnitude fewer users and even fewer buyers.
The post-PC era is characterized by an explosion of ideas and application of new talent to software. It’s an era of immediate gratification and painless, one click distribution. App production is a cottage industry not something entrusted to only a few experts or those who can raise venture capital. It allows the small to distribute widely and get a shot at stardom. It has been (thankfully) avoided by enterprise buyers. The result is an explosion of apps: well over half a million new apps have been built in three years on three platforms that did not exist three years ago.
So the very reasons which are driving developers to spread their bets across all and any new platforms should indicate the potential for new platforms and the sustainability of small platforms. The thesis that one dominant platform wins the mobile “war” is naive. The post-PC era will be a multi-platform era. Developers already understand this. Platform vendors know this. It’s time to unlearn the lessons of the PC era.