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Author: Horace Dediu

Asymcar 4: Death of a salesman

Asymcar 4: Death of a salesman | Asymcar.

Are cars sold or purchased? Horace Dediu and Jim Zellmer discuss automotive “ecosystems” vis-à-vis Apple and Tesla’s direct sales model. We further dive into the rigidity and risk of such value chains and divert a bit into automakers’ attempts at aviation. Finally, we consider the potential monetization of automotive metadata and what that might mean for new, perhaps “over the top” style entrants.

 

Also history lessons: Ford Trimotor, Ford production system, The Kaiser people’s car.

 

 

Think local, act global

One of the curiosities of the mobile phone market is how vast it is but also how heterogeneous it has always been. I wrote about this in 2010:  Smartphone parochialism: How operator policies prevent or promote platform adoption. This observation was influenced by my time at Nokia where I became amazed at how differently users behaved in different countries.

There were many causes. Some cultural, some historical, some economic and some policy-driven. The result was that it presented a challenge to any company with global ambitions and indeed it was rare to see the same company do well in every market. Japanese companies did well in Japan, European companies did well in Europe and US (and Korean) companies did well in the US. Nokia was most successful because it was able to apply an European model more broadly (but not in the US). Samsung succeeded by simply adapting to each and every market with hundreds of products. But it was a particularly “provincial” market.

My assumption was that when smartphones would become the majority of phones in use there would be a normalization of behavior and thus a homogeneity of preferences. This is, after all, what happened in other platform games. PC form factors are globally consistent, PC operating systems are equally preferred around the world, FaceBook, Google and Twitter are also, unless censored, uniformly popular. Apple’s iPod eventually also became a global phenomenon with no material difference in preference by market. Likewise for game consoles.1

However, a decade after the broad adoption of smartphones, the relative popularity of various platforms is still unevenly distributed. Prior to the iPhone, Symbian was strong everywhere but the US and BlackBerry was very strong in the US but weak elsewhere. Windows Mobile had footholds in some markets but little traction in others. Today the picture has changed but it’s still a patchwork of preferences. Consider the following graphs.

Screen Shot 2013-09-18 at 9-18-12.57.15 PM

Continue reading “Think local, act global”

  1. Although Japanese do seem to prefer Japanese platforms more. [↩]

An Interview by Eric Jackson: On Blogging, Apple And What's Next

My thanks to Eric Jackson for his thoughtful questions and post on Forbes.com. You can read full interview here but I repeat a few non-biographical questions and answers here for discussion:

An Interview With Horace Dediu: On Blogging, Apple And What’s Next

Q: Turning to Apple, where is it at right now as a company in this post-Steve Jobs period?

A: Still too early to tell. They seem to be cooking a lot of things and the great experiment of whether a company can be Jobsian without Jobs is still going on. I have been trying to put together a picture of how it operates. It’s hard because that’s their biggest secret. It’s also a picture that few people have ever seen, even those who worked there a long time. The glimpses so far are tantalizing but there is so much we don’t know and thus can’t assess how robust it is. One thing that is clear to me is that there is no absorption by mainstream observers of what makes Apple tick. It’s hiding in plain sight because what it is isn’t anything anyone can recognize. Case in point is the functional and integrated dimensions. It’s the largest functional organization outside the US Army and more integrated than Henry Ford’s production system. Just describing it sounds medieval and it’s so far outside convention that it’s not something reasonable people are willing to believe actually exists.

Q: Is Tim Cook the right CEO for the company at this time?

A: I hold the belief that he’s been CEO for much longer than it seems. Jobs was not a CEO in any traditional sense. He was head of product and culture and all-around micromanager. He left the operational side of the company to Cook who actually built it into a colossus. Think along the lines of the pairing of Howard Hughes and Frank William Gay. What people look for in Cook is the qualities that Jobs had but those qualities and duties are now dispersed among a large team. The question isn’t whether Cook can be the “Chief Magical Officer” but rather whether the functional team that’s around Cook can do the things Jobs used to do.

Look at it another way: I subscribe to the idea that any sufficiently large company is a system and needs to be analyzed using a lost art called “Systems Analysis”. This is a complete review of all parts and the way they inter-relate. However, since for most of its life Apple was personified as an individual, what came to pass for Apple analysis was actually the psychoanalysis of that individual. It makes for great journalism and best selling books. It’s also banal and almost certainly wrong. The proof is in the vastness of complexity and number of people involved. Engineers tend to think about constraints and the constraints on companies are innumerable.

Q: You’ve written extensively on the post-PC period, when will we come to the post-phone period – if ever?

Continue reading “An Interview by Eric Jackson: On Blogging, Apple And What's Next”

M is for Mystery

I recently tweeted that any discussion related to wearable technology needs to begin with a description of the job it would be hired to do. Without a reason for building a product, you are building it simply because you can.

The reason a product deserves to exist is that it can do a job that needs doing and that few, if any others can also do it. This happens when the job is unstated and difficult to perceive. Put another way, the difficulty behind jobs-to-be-done based design is that jobs are never plainly evident. In contradiction to invention, where the problem being solved must be as clearly stated as its solution, value-creating innovation meets new and unarticulated needs. Even when created, the value is more subtly perceived, often only after prolonged use.

Which brings me to the M7. Apple chose to highlight a component (curious in itself) which it bills as a “motion coprocessor”. It claims to be measuring motion data via accelerometer, compass and gyroscope and processing the information in some way. By bundling the sensors and their management into one integrated chip battery consumption is reduced and these motion monitoring functions are performed more efficiently.

But what for? The examples given during the presentation for an iPhone with M7 don’t add up to a lot of benefit. An iPhone could be used as a fitness companion but it would not a very good one. Compared with, for example, a Nike FuelBand, an iPhone could not track your activity well. It’s often not moving, sitting on a desk or in a purse or pocket while you are doing exercise. It’s too big to take into a basketball game. It can’t “observe” your activity because it’s not worn during many activities and if it is worn it is in a position which does not inform much about what you’re doing. Phones are too big to be used as physical activity monitors.

Hence the question of what is the M7’s job to be done. As part of an iPhone, it does not seem to have one. Saving a bit of battery life is not a job, and certainly not one that needs to have billing in a media special event. The answer must be that the M7 was developed for some other, as yet unstated reason.

When the A series chips were created Apple leveraged the in-house design and cost reduction to make a wide range of products with more than 700 million examples built. Designing a chip needs a broad application domain.

Perhaps this is why Apple chose to describe the iPhone 5s as “forward-thinking”. The M7 and the Touch ID are like research projects whose actual value will be realized at some future time, in probably different contexts. The M series of chips may become Apple’s “low end” microprocessor as the A series climbs the trajectory into core computing tasks (read: phone, tablets, TV, laptops).

M might be the chip for the wearable segment, woven into a whole new fabric of uses and jobs to be done.

A new platform classification

When looking at the Race to a Billion data I noticed that some platform adoption ramps look quite different from others. It’s not just a matter of “slope” or rate of growth but a distinctly different shape.

If you look at the graph below you might see the difference yourself.

Screen Shot 2013-09-12 at 9-12-4.41.13 PM

First, note that the graph is logarithmic. A straight line on a log chart implies exponential growth (the y values are a constant to the power of the x value). However, none of the graphs show straight lines. None of the platforms follow exponential growth1.

Second, we can eliminate linear or logarithmic functions. They simply do not fit.

That leaves: polynomial or power. It’s easy to test these alternatives for all the functions and it becomes clear that most of the platforms split into one of these two classes.

Continue reading “A new platform classification”

  1. Except perhaps in the very early periods [↩]

S is for Service

One of the enduring mysteries of the iPhone has been its lack of a portfolio. After six years it seems that Apple has finally acquiesced that there should be one, albeit currently limited to two items. The second enigma is related to the price, namely why does Apple ask so much for its phones? At an average sales price of $600 it’s a shocking premium to the average phone, and with a six year run, a shocking resistance to the corrosive effects of competition.

The obvious answer to why Apple asks so much is because it can. Anybody would if they could. That’s a poor question. So the right question should be: why does anybody pay this much? One could answer that few do and it’s not a mystery that some feel better paying more simply because they can. But those who pay Apple’s prices are, mainly, not consumers. They are operators. Exactly 270 of them.

So then let’s re-ask the question: Why do so many operators pay so much for Apple’s phones? We can’t answer that with the psychological slurs usually directed at the brand. Surely Operators aren’t competing in beauty contests or need to soothe their collective egos. The decisions operators make on whether to range a phone are driven by hard economic realities: ARPU, churn, network costs, depreciation, ROI, etc. Some clearly can’t make the iPhone fit their economic models and indeed about two thirds of them don’t. But the most prominent1 do. DoCoMo, the largest in Japan just did after holding out for five years. Verizon held out for years, as did T-Mobile. China Mobile’s acceptance also seems imminent.

But that still leaves the question of why are those operators who do carry the iPhone willing to pay so much for it? I only assume that their decision process is likely to be rational. Mainly because we have a large enough sample but also because there is a lot of money at stake requiring quite a bit of internal consensus and vetting before committment. We have to conclude that operators place the orders because they obtain value from the iPhone even when it’s priced at a premium to the average alternative.

The question which follows then is how do they obtain value? Continue reading “S is for Service”

  1. Arguably the most important [↩]

C is for Cognitive Illusion

My assumption going into this, sixth iteration, of the iPhone was that we would see the expansion of the iPhone into two distinctly positioned products: a low-end C and a high-end S. The assumption was based on what what we saw with the iPad: the regular iPad and the mini iPad.

By using the iPad as a template, my exercise in August was to forecast what the pricing1 might turn out to be for such a split-personality product.

I expected the 5C would replace the “low end” n-2 variant2 and the 5S would continue as the core product. This is reflected in the original graph as devised in mid-August:

Screen Shot 2013-08-12 at 8-12-11.44.05 AM

The surprise was that the 5C was not “low end” in any way other than having a plastic case. It has a minor spec increase over the 5 but is otherwise a 5 feature set in a plastic skin. It also is priced as if it was the continuation of the 5, with a modest reduction in ASP.

In addition, the continuation of the 4S and 4 (in China at least) means that the old strategy continues more-or-less unchanged.

Knowing the line-up and pricing all that remains to understand is the positioning, or how the products are defined relative to each other.

This is where there might be a shift happening. Under the old model the n-1 variant was meant to be a modest volume contributor to the portfolio, being essentially a cognitive illusion which encouraged buyers to stick with iPhone n at the expense of competitors. However, the new n-1 product (the 5C) has a distinct positioning that makes it seem fresh and not a lesser, stale version of the flagship. It is designed to appeal as a legitimate upgrade for iPhone 4/4S users.  It is, in other words, not meant as an illusion, and not focusing attention on the flagship3. Rather, it is meant to be a genuine, core product.

As a result, I expect the mix of iPhones to be more evenly split between the C and S variants. I expect the C to even become the most popular version in the mid-term. My expectations are shown in the following graphs. Continue reading “C is for Cognitive Illusion”

  1. Revenue/unit to be more precise [↩]
  2. Older by two generations as the iPad mini replaced the iPad 3 [↩]
  3. It might still be an illusion for many but I’m suggesting that it won’t be for most. [↩]

My interview with Chloe Cho on CNBC Asia's Cash Flow show

My thanks to Kirk Burgess for providing this transcript:

Horace Dediu interview on CNBC Asia Cash Flow show – 10th September 2013

Chloe Cho (CNBC): Take us through what Apple is exactly trying to do?

Horace Dediu: Well, this is the first time in the six years of this competition in the smartphone market that Apple has broadened its portfolio. We have seen only a single product launch every year–this is very unorthodox in the industry. Normally each competitor [ranges] dozens of devices. Apple’s entry has been asymmetric from the start, and now in its sixth year we are expecting to see, finally, a broadening perhaps into two separate products. The question will be whether [there will be] a significantly lower price point for the so-called 5C and whether that will change the average selling price overall for the portfolio. The average selling price has been remarkably steady, and remarkably high, typically around $600 for the duration of this products life. Something, again, unprecedented. My expectation is the new price point will be quite a bit lower than $600, starting with about $450, it might drop a bit further, [which] would cause the overall price range to come down as we have seen with the iPad; [where we] also had a price erosion happen as the smaller version came out.

Q: Horace, do you think they have got the timing right? Should they have done this a little bit earlier when the market wasn’t so saturated and filled with cutthroat competition? Continue reading “My interview with Chloe Cho on CNBC Asia's Cash Flow show”