In the wake of Apple’s final announcement event of the year, Horace and Moisés discuss the cost of free software, the unification of file formats, and the cost/benefit of interoperability.
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.
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.
Given the re-stated quarters it’s possible to compare one year’s historic performance at a segment level. For example,
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Apple’s latest product launch (new OSX, iPads, Macs and iWork/iLife) came with a change in pricing for software. OS X and iWork and iLife and updates are now made available free on new Macs and, in the case of the suites, on iOS devices as well.
Recall also that iOS updates are now free as well and that OS X had been reduced in price from about $129 to $29 with Snow Leopard in August 2009 and to $19 with Mountain Lion in July 2012. The iSuites have also dropped in price over time so the pattern of evaporating software prices is long-running.
But how fast and what is the impact? The historic performance Apple’s Software business is not easily determined since it was always blended with additional businesses. Until September of last year, Software was reported as part of “Software and Services” and since then as part of “iTunes, Software and Services.” Some assumptions allow the following picture to be drawn:
One additional wrinkle to the Apple software story is that OS X and iWork/iLife are not all the software titles available. Apple’s software includes Pro apps as well as the non-free OS X server. The non-free software US prices are:
Using logistic curves to measure diffusion of innovations is a powerful method of analysis. However there are limits to what can be learned. The methodology helps in understanding how quickly a pervasive technology is adopted. It assumes that the technology “fills all available space” within a market. It therefore also assumes that whatever problems the technology solves are universal problems.
Put another way, if a technology is not universally useful, it tends to peak before a market saturates. This “universality” condition is in evidence when observing that pervasive technologies are adopted not only by all members of one national market but also all nations and through all means of government and regulation. In other words that the jobs that the technologies are hired to do are so important that they bulldoze any and all obstacles placed in the path of adoption.
The only difference is one of timing. Some regions are quicker than others. Institutionalized obstacles essentially defer rather than deter adoption. They impede rather than block.
And I am pretty sure that smartphones solve universal needs and their adoption will be nearly 100%. They also have fairly low impedance given the speed of adoption (50% penetration in most large markets seems to come in less than 5 years.)
That’s the story for the technology, but how value is captured is another story.
Who captures and how it’s captured are questions of commerce not economics. They are informed by competitive advantage and business models. The puzzle seems to be that individual companies don’t capture value in the patterns of Logistic curves. Or at least I don’t think they do.
Consider the graph below.
Steve Crandall brings a new perspective as a guest. Steve’s analysis of complex systems has given him a huge pool of wisdom into which we dip our dainty spoons.
We survey the interlopers seeking to replace many jobs that cars have traditionally done, from horses to bicycles, planes, trains and buses.
We dive deeper into a few earlier Asymcar topics including energy, regulation, infrastructure, power train evolution, societal changes, distribution networks, urbanization and consider the promise of electric bicycles.
Several innovation timing lessons temper our expectations for immediate improvements.
Finally, we revisit the emerging transportation information layers and how such services may change public behavior and the auto-ecosystem.
(Honorable mention to anyone who can identify the vehicle shown above.)
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The analyses of adoption of smartphones in the US and EU5 are remarkably consistent with each other. They also turn out to be consistent with the valuation of Apple.
I show the stages of adoption overlaid with the derivative of the Logistic Function and Apple’s enterprise value. The derivative of the Logistic Function shows the speed of adoption, peaking at the inflection point when adoption ceases to accelerate and begins to decelerate.
Horace and Moisés look beyond Apple’s rumored “watch” project to contemplate the real reasoning behind recent executive acquisitions from the world of high fashion (and what it signals). Is Apple now driving “lifestyle” more forcefully than ever? We examine redefinition, from public face to product, and Mac Pro to (possibly) iPod nano.
Thanks to Symbian, the EU5 countries (France, Germany, Italy, Spain and the UK) had an earlier start in the conversion of phone usage from non-smart to smart devices. According to published comScore data, in July 2010 the EU5 were at 26.6% penetration of smartphones and the US was at 22.8%.
However, with the aid of mobile operator subsidies, by the beginning of this year, the US caught up. According to comScore EU5 reached 57% penetration in March 2013 while the equivalent figure for the US was 58%.
Using the logistic curve model introduced last week, it’s possible to get an approximate categorization of the adopters of the technology:
As with the previous analysis, the graph identifies the following dates:Notes:
- The population is defined as adults using phones for themselves. Meaning it excludes children and phones purchased by companies. [↩]