I’m trying explain the complete lack of interest in Nokia among the US blogging/early adopter audience. If you are an enthusiast, why do you not care about the market leader. The automotive analogy is not quite perfect, but there are brands that are just invisible to the community even though they are quite popular and significant.
The French have a pretty crap reputation and it’s not entirely undeserved, however what’s worse than being talked about badly is not being talked about.
Apple’s Q4 2009 conference call revealed that iPod touch sales were up 100% year over year. For the full fiscal year, iPhone grew 78%.
When asked more pointedly, “So when you go from exclusive to multiple, you don’t change the charge to the carrier?” Cook answered, “Correct.”
Apple has more pricing power than the Don.
Peter Oppenheimer, Apple’s Chief Financial Officer, said that the Average Selling Price of iPhones in the quarter “was just over $600. This reflects both high mix of 3GS sellthrough and benefits of rebalancing the ending channel inventory toward the 3GS.”
An astonishing admission from Apple who has never revealed their iPhone ASP. Previous analyst estimates had the iPhone ASP at $550. If this is true, then Apple has violated one of the cardinal mobile industry rules: “Thy ASP shall always erode”. Given what is known about the components, iPhone gross margin is likely to be above 50%. The gross margin, or what you are able to capture in value above the bill of materials, isthe primary indicator of value creation in the device business. Apple’s number is astronomical vis-a-vis the competition. Stay tuned as this gets scrutiny.
On Tuesday Apple will cross over 100,000 apps on the App Store for an installed base of ~50 million devices.
On Thursday Microsoft will launch Windows 7 with 8500 apps “certified” for an installed base of 1 billion PCs.
iPhone: not your father’s ecosystem.
When thinking about the number of devices shipping out of Apple, and the relative value of those units compared to the competition you have to always think of the platform.
The market leader Nokia claimed to have sold 16+ million smartphones in the quarter. When comparing platforms, to whatever Apple ships in iPhones you have to add the iPod touch units. I see that number being about half of the iPhone numbers or about 4 million. Let’s say 10 to 12 million as a range for the platform. Already this is within striking range of Nokia.
It may sound that Apple has some catching up to do, however the important thing is that most of the Nokia devices are not uniformly addressable by developers because they are different platforms and the Symbian platform itself will be broken next year as it has been broken many times before. This is also true for Blackberry and Windows Mobile and will become true for Android as vendors fork and splinter the code to differentiate.
This already puts Apple in the pole position today in terms of contiguous addressable units volumes.
I cannot over-emphasize the importance of this platform effect. It’s what made Windows dominant and it should be the most important issue in the planning of new mobile products, but it clearly isn’t for Apple’s competitors. Either product planners are ignorant of history or completely hamstrung by other constraints on their businesses (I expect the latter).
As a result it’s inevitable that Apple will have a dominant platform. The numbers in apps and consumption of apps already are telling this story, and devs are voting with their code in a landslide. But going into 2010, this will become evident in the units and Apple share numbers will accelerate toward lead position.
The bogie therefore is to look for contiguously addressable installed base. On this basis of competition, I expect at least 100 million for Apple at the end of next year and less than 10 million for any competitor. At that point the game will be officially over.
The implications of the new app transaction model are profound. To begin with, consider the following:
- 10 MB limit – Devs can now get their apps under 10MB much more easily. This allows them to take advantage of users downloading over the carrier networks and not wi-fi. They can offer more content via in app purchase and make up the difference.
- Rankings – It will be curious to see how Apple changes the rankings over time. “Top Paid” and “Top Free” just don’t really don’t make sense anymore with this model. Will they make “Top Freemium” or something equivalent?
- Infrastructure – Developers have to deal with content delivery and updates to that content. Apple handles the transaction in the normal fashion and takes their 30% but then they leave it up to the developers to actually get the content to the iPhone. What if there is a bug in the content? The developer has to deal with making sure the user is notified of the update and then initiate the update.
- Piracy – There has been a lot of talk about how this may help fight piracy but I think the numbers will tell a different story.
- Apps as content – The deeper story relates to the transformation of the app store into a content store. I made that prediction a year ago but had no idea how it would happen. In the long term I expect Apple to merge the iTunes music/video content management system with the app store content management. This way you could buy music/video/books/games from within an app and have it available through your iTunes UI.
- Addiction – “Apping” as the activity of using iPhone apps has come to be known, is already something that did not exist a year ago but has proven to be wildly useful/common/profitable. Only a year has passed and we are already in the realm of uncharted waters.
I can’t believe this.
For kicks, I looked up what I wrote about Comes With Music (CWM) a year ago:
Trouble Comes With Music By Horace Dediu on October 3, 2008 12:18 PM
The troubles that CWM will face:
The model is complex and the value prop is convoluted with users discouraged from making informed purchase decisions.
CWM is firmly embedded in a value network that is in the final stages of disruption. Profits have evaporated and participants are in a state of defensive rigidity that prevents investment in innovative business models.
To some buyers (esp. parents who will pay), the concept may sound more like “music sold as hardware” than “hardware loaded with music”. Music sold as hardware is what the CD is/was but this new hardware is bound to wither away and become disposable in a year, PC copies notwithstanding (as transfers between PCs are limited). Therefore, the limitations of perishable music persist and comparisons to durable media are unfavorable.
Competitiveness with pirated music is often cited as the goal. The means to that goal is the advantage of having “unlimited” content available vs. “60,000 songs on your hard drive”. The unstated assumption is that new music is always more desirable over a rich, but dated back catalog. Long tail theory says that’s not true for an increasingly larger group of consumers.
Finally, the bet is that users will upgrade devices as if they were a subscription. This becomes “music sold as hardware subscriptions”. As “music as a subscription” has not taken off, it does not bode well. One reason is that subscribed music is hired for a different job than owned music–one of discovery and casual listening–a job we used to hire Radio for. A job that is now obsolete in the era of social networking.
Nokia’s official comments one year hence:
the official blog on which Nokia is celebrating CWM’s first birthday acknowledges: “Sure, it didn’t start out that rosy, with lots of folk not really certain about what Comes With Music offered … we never shied away from the important education process that is needed in order to fathom that you can download and forever-keep as many tracks as you like – but the past 365 days have seen a much greater understanding and appreciation for the service emerge.”
- UK – 32,728 (launch date: Oct 08)
- Singapore – 19,318 (Feb 09)
- Australia – 23,003 (Mar 09)
- Brazil – 10,809 (Apr 09)
- Sweden – 1,101 (Apr 09)
- Italy – 691 (Apr 09)
- Mexico – 16,344 (May 09)
- Germany – 2,673 (May 09)
- Switzerland – 560 (Jun 09)
For comparison: Spotify has 6 million users and iTunes has 120 million registrations.
More companies have promotional apps on the iPhone than permit their employees to use one. About 30% of the Fortune 200 already have iPhone apps.
The decision process regarding mobility at Microsoft from 2005 has been a classic example of paralysis by analysis. Trapped by their processes and resources into doing horizontal solutions for a world that buys vertical integration, Microsoft was bound to fall into a trap. Like a wounded beast, it is not dying predictably but with spasms. Rather than concluding that Pink and Zune are part of a fucked up process or evolution, they should be seen as terminal convulsions of WinMo.
Credit to Dilger for going further than anyone in tying Pink, WinMo and Zune.
If I may summarize, the problems Microsoft faces are:
- A reliance on a horizontal business model at a time when modular product “turns” are not fast enough vs. integrated/vertical models. Just look at Dilger’s mobile OS history graph and measure the “cycle time” of each product rev for the competitors.
- An economic model that implies there is value in a mobile OS (something PalmSource and Symbian figured out to be dead ends long ago, not to mention OpenWave, SavaJe and a few others long forgotten.) Microsoft, a company that grew by disruption at the low end (vis. Lotus, Novell, IBM, etc.,) is unable or uncaring enough to sense when it’s being disrupted the same way.
- Competitors that combine into a pincer movement from above (Apple) and below (Google) with a fortified alternative incumbent (Nokia, Microsoft’s original target) still standing. Unlike previous single competitors in each category Microsoft conquered, the mobile world presented a more diverse (and perhaps wiser) front.
I won’t get into Microsoft’s dysfunctional culture as that’s been covered brilliantly by others.