For more analysis of Apple & the industry, join us at ACTIVE 2025.

The Critical Path: The First Year » What I've learned so far on Kickstarter

One week into this project and the response has been phenomenal. We are at nearly 500% funded. There are 414 backers so far and the average pledge is nearly $34. This means that the vast majority of people (328 so far) opted for the $35 pledge. Many pledged even more than $35.

Perhaps it’s only symbolic but the interest in the hard copy version was something I did not expect. It’s gratifying that people would prefer to have a physical representation of the work. It also means that I have to think carefully about the production of a good quality paper book.

The abundance of support allows me to invest in design, editing and perhaps illustration as well as the text. I will also have to do a lot of signing.

Thanks again to all who have contributed. I’m completely humbled by the level of support and can only promise to keep doing that which has been so resolutely defended by you all.

via The Critical Path: The First Year by Horace Dediu » What I’ve learned so far — Kickstarter.

Android Revenues in Perspective

Data is useful only when put in perspective. Yesterday’s post on the Android Income Statement showed how sales and revenues are captured and how costs are paid for that revenue. The data was shown for the entire calendar year 2011 and the maximum value in the vertical axis was $1.5 billion.

Google has also reported that their revenue “run rate” is now in excess of $2.5 billion so there is significant growth, as would be expected from an exponentially increasing user base.

However, it’s important to place this growth in perspective, both in absolute and in relative terms.

Below is a diagram showing Apple’s revenues for the first calendar quarters of 2010, 2011 and 2012. Each product group (iPhone, Mac, iPad and iPod) is shown separately with estimated gross margins (GM). Operational costs, taxes and net income are also shown.

Consistent with previous versions of this data are the color schemes where white areas represent costs of goods sold.

I also placed a scaled version of the Android Income statement next to the first quarter 2011 revenue bar for Apple. The scale is maintained where $1 billion is represented by the double-ended arrow line.[1] Continue reading “Android Revenues in Perspective”

The Android Income Statement

This is a continuation of the “Android Economics” series of posts. It deals with how revenues and costs are categorized for Android.

The following diagram shows an approximate representation of what Android’s “Income Statement”[1] would look like.

 

I’ll discuss the assumptions that are built into the model as I go along. I’ll begin at the upper left and move toward the lower right in the discussion. Continue reading “The Android Income Statement”

Android economics: An introduction

Android has had unprecedented growth. Based on activation announcements, it’s possible to estimate that thus far, about 370 million Android devices have been activated. The total number of devices in use is a lower figure which depends on replacement rate and retirement rate. This total number of devices in use at year end is estimated in the following chart.

I added the blue line which represents what Google had as an internal estimate in mid-2010.[1] The difference between the two lines shows that Android’s growth is far higher than what the company expected.  If the company itself did not expect this growth, it’s unlikely anybody else did either.

Unexpected, exponential user growth is usually accompanied by a dramatic positive improvement in the finances of a company and a higher return to shareholders. The curious aspect of Android’s success is that it has not had an impact on either. The market has not “discounted” the half-billion anticipated Android users into a price for Google shares that reflects this growth. It can only imply that those users are not very valuable.

But why would there be such a disconnect between the number of users and their value? Continue reading “Android economics: An introduction”

The Critical Path: The First Year by Horace Dediu — Kickstarter

The Critical Path has been an exceptionally well received podcast. It has an audience of hundreds of thousands of thoughtful listeners. Many of the concepts covered can and should be reviewed in a medium that can be referenced and annotated and shared. For this reason I would like to publish edited transcripts of the podcasts as an eBook. This will be an edited and tagged transcript of the first year of The Critical Path.

via The Critical Path: The First Year by Horace Dediu — Kickstarter.

Back to the balance sheet

I first noted a correlation between Apple’s share price and its balance sheet a year ago. In February, when I last checked, Apple’s share price was priced nearly at 4.6 times its cash value. The stock has had a brief rally but has returned to the trend line it’s had since late 2008.

I should emphasize that this correlation between cash and price is abnormal. It should not be happening. Share prices for growing companies should be tracking its future potential, not its assets. I’m only presenting this data to highlight this abnormality. There is no fundamental basis for this happening. In fact, there is a basis for this not happening.

The relationship above is a symptom of another pattern called multiple compression that can be seen in the following charts:  Continue reading “Back to the balance sheet”

What retail is hired to do: Apple vs. IKEA

“Within five years after discount retailing pioneer Korvette’s opened its first store in 1957, over a dozen copycat discounters had emerged. In contrast, the giant discount furniture retailer IKEA has never been copied. The company has been slowly rolling its stores out across the world for [close to 50] years; and yet nobody has copied IKEA.

Why would this be? It’s not trade secrets or patents. Any competitor can walk through its stores, reverse engineer its products and copy its catalog. It can’t be that there is no money to be made: its owner Ingvar Kamprad is the third richest person in the world. And yet nobody has copied IKEA.

Our sense is that the other furniture retailers have followed the positioning paradigm and defined their business in terms of product and customer categories, which are readily copied. Levitz Furniture, for example, sells low-cost furniture to low income people. Ethan Allen sells colonial furniture to wealthy people.

IKEA, in contrast, has organized its business around a job to be done: “I need to furnish my apartment (or this room) today.”  When this realization occurs to people anywhere in the developed world, the word IKEA pops into their minds. IKEA is organized and integrated in a completely different way than any other furniture retailer in order to do this job as well as possible.”

Integrating Around the Job to Be Done (Clayton Christensen, Harvard Business School; Scott Anthony, Innosight LLC, Scott Cook, Intuit; Taddy Hall, Advertising Research Council).

IKEA is the world’s leading furnishing retailer and an amazing success story. As Christensen points out the success is all the more perplexing because it seems perfectly defensible. Nobody has tried to duplicate or undermine IKEA.

Positioned around a clear job-to-be-done it integrated design, manufacturing and distribution (including warehousing) as well as “big box” retailing as an experience.

This may sound familiar.

Apple’s entry into retail depended on a clear job-to-be-done, design, carefully selected merchandise and retailing as an experience. Similar to IKEA, Apple also became a dominant player in its segment and even achieved seventeen times better performance than the average US retailer in terms of sales per square foot.

At first glance they seem to be similar businesses in terms of strategy or “architecture” but how do the actual businesses stack up? Can we find data to support any claim of similarity. Continue reading “What retail is hired to do: Apple vs. IKEA”

The phone market in 2012: a tale of two disruptions

During the first quarter this year HTC, RIM and Nokia all surprised investors with bad news. The effect is evident in the share price of these companies which, in the case of RIM and Nokia is around book value, and in the case of HTC, neared 12 month lows and a 70% drop from peak.

These “misses” in earnings and expectations are on top of the already woeful news from Sony Ericsson and Motorola, which have not had profits for years and LG, which has been borderline since late 2009.

In combination, this seems to imply a dearth of profits in an industry that is, by all measures, booming. Units are up 7% with smartphones up 47%. Revenues are up 20% and overall profits are up 52%. This are exceptionally strong numbers. Few industries can measure growth in double digits.

So if the industry is booming but the majority of participants in the industry are loss making (and surprisingly so) then what is going on? There are two answers: new market disruption and low end disruption.

The new market disruption is the migration of a large number of demanding customers away from phones-as-voice-products to phones-as-computing-products. The low-end disruption is the migration of a large number of less demanding customers from branded phones to unbranded, commodity phones.

The New Market Disruption

The new market disruption is evidenced by the shift of fortunes to Apple and Samsung and away from every other device maker. Here is the profit picture:

Of the vendors tracked (public companies who report mobile phone divisional performance), Apple obtained 73% of operating profits, Samsung 26% and HTC 1% [1][2]. Continue reading “The phone market in 2012: a tale of two disruptions”

Asymco

Asymmetric Competition

Skip to content ↓