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Retail in 2020

This year’s Thanksgiving and Black Friday data from IBM shows a continuing pattern of growth for mobile devices. As the graph below shows, in the five years since 2010 mobile devices grew from 5% of the online shopping traffic to 50%.  Traditional computing (desktop and laptop) made up the difference.

Screen Shot 2014-12-01 at 10.34.30 AM

The graph also shows that sales value via mobile devices crossed over 25% of online spending. The fact that mobile shopping is not equal to mobile spending is due to the convenience factor of mobile. It’s more likely that users will spend idle time scanning for bargains or tracking down ideas from friends but wait until they are at home to make the final purchase decisions in front of a computer.

The transition to spending directly from a device is a slower process, but that process was also one that online had to undertake as buyers became comfortable with online commerce. When it comes to payment, buyers are understandably more cautious.

This does not change the prediction made last year that “the transition to post-PC consumption will also be practically completed by 2020″. That leaves six years for mobile saturation and a total transition time of one decade.

At that point I expect 90% of browsing and perhaps 75% of spending to be happening on devices. Some of this will undoubtedly be enabled by biometric authentication as shown by Apple Pay. Trust and ease of use in this technology will undoubtedly accelerate the transition making mobile payments more comfortable and secure than on the legacy computer.

What is less predictable is how much those devices will also be used to transact payments for the physical retail stores. In some scenarios it’s possible that by 2020 a majority of all shopping will be enabled by devices.[1] That would subjugate the retail segment to the power politics of mobile platforms.

It is interesting therefore to note the mix between the platforms in the graphs above.

Notes:
  1. There is also the matter of in-store discovery and advertising via NFC and bluetooth i.e. iBeacon []

Yet another billion dollar business

I tried to assess the opportunity of Apple Pay but found it to be mostly dependent on how quickly card payments will overtake cash. It seems that as payments move to a digital format they will move to a mobile device. The hurdle isn’t going from a card to a phone but from cash to card.

Data published in The Growth and Diffusion of Credit Cards in Society  shows that between 1970 and 2001 households with at least one credit card in the US grew from 17% to 70%. More recent data shows 82% of US consumers have at least one credit card and 77% have a debit card.

The Total Addressable Market for Apple Pay then is dependent on how quickly this pattern repeats over the markets where iOS devices are in widespread use. Once cards are in use they are used with higher frequency and quickly overtake cash for the user.

The only assumption that needs to be made is that the device then replaces the plastic card. This seems a safe assumption as the benefits of the device as payment authenticator are high and the costs are negligible given a penetrated market.

The following graph shows an extrapolation of transaction volumes where Visa and MasterCard and Amex are showing moderating growth with UnionPay showing 20% constant growth through 2019.[1]

Screen Shot 2014-11-28 at 12.58.21 PM

Two more assumptions are needed: the share of transaction value captured by Apple Pay and the Apple Pay fee. I used 15 basis points ($15/$10000) as the assumed Apple fee and a share schedule as follows:

Notes:
  1. Supporting these assumptions is a forecast from Nilsen showing total number of cards in circulation by issuer and a forecast of total transactions Screen Shot 2014-11-28 at 1.40.01 PM []

The Critical Path #133: Transcendental Valuation

Having reached $700 billion we ask whether $1 trillion is an achievable valuation for Apple. We also discuss why this is not at all interesting. Also, the future of banking.

The Critical Path #133: Transcendental Valuation.

How The Magic Happens

Andre Briggs:

This is why is so hard to explain to outsiders what it is that I actually do sometimes. Sure, everyone on my team designs and develops but at the core we are constantly persuading with varying degrees of success.

via How The Magic Happens – FOR THE SAKE OF VANITY.

The Critical Path #132: The Worlds PIN Code

How does an organizations structure, resource allocation and measurement dictate its capabilities? Horace and Anders discuss Amazons AWS business in comparison to their traditional online retail business and the Apple and Google strategies.

via 5by5 | The Critical Path #132: The Worlds PIN Code.

The Critical Path #131: How Big is iCloud?

Apples Services business is growing by leaps and bounds. How much of that can be attributed to iCloud? Horace and Anders consider how big the iCloud business is for Apple, as well as Apples recent stock price rise in this “rolling show” on the way to the airport.

via 5by5 | The Critical Path #131: How Big is iCloud?.

How big is iCloud?

Apple has declared that what used to be “Other Music Related Products and Services”[1] plus “Software, Service and Other Sales”[2] which was formerly known as “iTunes/Software/Services”[3] is about to become “Services”.

“We’ll also have a category that we refer to as services and this will encompass everything we report under the heading of iTunes software and services today including content, apps, licensing and other services and beginning this month it will also include Apple Pay.”

“Services” will therefore encompass a massive amount of revenue. The reported revenues for the fiscal 2014 were $18 billion. Including all billings, the turnover in sales is over $28 billion. For next year, assuming that Apple Pay, which is just getting started, is unlikely to contribute greatly to revenues, Services turnover will top over $35 billion. That figure would make Apple Services alone one of the top 90 companies in the Fortune 500.

Screen Shot 2014-11-14 at 5.11.47 PM

Regardless, as a component of overall sales, the group formerly known as iTunes/Software/Services (shown in red above) was a modest 7% of total sales in the last quarter. Using all available information regarding downloads, payouts and reported financials, an estimate can be obtained on how this 7% is itself divisible into nine sub-segments:

Notes:
  1. Includes revenue from sales from the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories. []
  2. Includes revenue from sales of Apple-branded and third-party Mac software, and services. []
  3. Includes revenue from sales on the iTunes Store, the App Store, the Mac App Store, and the iBooks Store, and revenue from sales of AppleCare, licensing and other services []

Asymcar 19: About that Ferrari SUV…

What motivates a company to destroy its brand?

We start with Mini’s plans to sell 100,000 cars in the States by 2020, nearly double today’s pace and remember how Cadillac destroyed their brand and how Mercedes, Porsche, Ferrari et. al. can’t wait to do the same.

Also, might retail power in the form of strong dealer regulation limit brand’s ability to improve or address customer experiences? What motivated Warren Buffet to enter the American car dealer business? (With a long aside on what Buffett investment logic is all about and why it’s not contradictory to a growth investor).

 

via Asymcar 19: About that Ferrari SUV… | Asymcar.

The Critical Path #130: Determinism vs. Probabilism

Horace and Anders discuss Apple Watch pricing, Consumerism and Planned Obsolescence. In the closing segment Horace presents a new dichotomy of company values.

via 5by5 | The Critical Path #130: Determinism vs. Probabilism.