Unicornia

Unicorns typically are valued on the basis of number of users. While they are not yet monetizing those users, their growth and engagement metrics are expected to be off the charts. As there are no revenues (or profits) the $billion valuation hinges on a nominal value of $/user. That figure is based on comparable companies (e.g. Facebook) which do monetize their users.

Since the unicorn’s capitalization/user defines its valuation, which company should be considered comparable? Unfortunately they range widely. There are many alternatives. The graph below shows a few Market Cap/Mobile User rates ranging from $45 for Yelp to $747 for Alibaba.

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Note that I’ve also added companies which may not be considered as unicorn comparables because they are not usually valued on a per-user basis. Apple, Microsoft, Google and Amazon are priced by product sales, typically. However, most of them operate and self-define as service organizations. Microsoft has been “monetizing users” for decades using a recurring revenue model. It has a “SaaS” business logic for most of its revenues. Google1 likewise. Amazon reports its active users every quarter and obviously is measuring itself by that metric.

Apple2 is the least likely to be seen as a company whose value is a function of user base. Nonetheless it behaves entirely on that basis. The company’s entire strategy depends on satisfying its customers and building its brand which can only have one outcome: loyalty and repeat purchases. The services and software they offer can be seen as supporting that brand loyalty which is converted to profit through an above-average selling price.

Being mature of business model therefore does not exclude a company from being valued like all the kids are these days.

So, if we do look at the value/user metric we might as well look at the revenues, operating profit and growth data. Continue reading “Unicornia”

  1. Google users are estimated at 2 billion active Android/GMS devices [↩]
  2. The assumption here is that Apple has 520 million active users which is based on iOS devices in use estimates [↩]

iPhone, killer

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Searching for “iPhone killer” returns millions of hits. It’s hard to remember any phone/product/service/platform/initiative/merger/startup which was not at some point considered an iPhone killer. A sampling is offered here.

In reality, the killers seem to have all faded away while the iPhone continues. We could just shake our heads and move on, but a deeper analysis is possible. Take a look at the graph above. Note that iPhone’s (and hence Apple’s) ascent has not caused decline in its nominal competitors. When seen in the context of the graph above, the success of the iPhone has in fact been complementary to those companies who would be its killers.

Consider that the iPhone drives a large portion of Google’s revenues as it is the home to many Google services and engagement through the iPhone is higher than any other platform, including Google’s own. iPhone users tend to make better customers. In exchange Google pays a great deal for traffic acquisition on iOS devices. The placement of search on Safari is probably the biggest single cost item on Google’s income statement ((Estimates are a few billion dollars a year.))

The iPhone example drew Google to build Android as a facsimile and that, coupled with Brobdingnagian spending on marketing, led to Samsung’s Galaxy success. That success seems to have peaked and the brand is now a victim of low-end disruptors which copied it and the iPhone in turn. However, Samsung electronics benefits from the iPhone in terms of its semiconductor division. Apple is Samsung’s biggest customer and the semiconductor division is now the largest source of operating profits.

Continue reading “iPhone, killer”

Winning Against Non-consumption

In the fourth quarter of 2013, mobile phone sales in mature regions fell due to weaker demand.”Mature markets face limited growth potentialis the markets are saturated with smartphone sales, leaving little room for growth with declining feature phone market and a longer replacement cycle,” said Anshul Gupta, principal research analyst at Gartner. “Lack of compelling hardware innovation has further exacerbated replacement cycles for high-end smartphones in 2013 because consumers don’t find enough reasons to upgrade.” – Gartner

Anshul Gupta’s assertion of market saturation was not the first. IDC also cited “a number of mature markets nearing smartphone saturation” in late 2013.

Shortchanging the smartphone market is nothing new. It was happening very early in the market’s formation when initial growth was not as rapid as expected. I recall Nokia managers disappointed with sales growth losing faith in smartphones in 2004.  Eleven years later, the market is still growing.

comScore reported that during the first quarter of 2015 the US market was adding over two million new smartphone users every month. These are not two million units sold every month but two million new users who began using smartphones for the first time ever, every month.

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Since the end of 2013 when both IDC and Gartner declared the onset of saturation in “mature regions”1 31.5 million new-to-smartphones Americans adopted the product. That’s an addition of 11% of the sampled market.

And the sampled market is just a subset of the addressable market. comScore only counts ‘primary phones’ in use and excludes company-purchased devices and any users below age 13.

So according to comScore’s data, the US market is at 77% smartphone usage. My assumption is that saturation would come at the earliest at 90% and could be 100%.2 The fact that conversion to smartphones is still proceeding at roughly the same rate it has been for five years, makes this assumption pretty safe.

The pattern of growth fits a diffusion S curve (Logistic curve) as closely as ever:  Continue reading “Winning Against Non-consumption”

  1. The US is the most mature by penetration data [↩]
  2. Of the market comScore measures [↩]

The Instrument Makers | The Christensen Institute

When we think about how great theories are built, one pattern seems to pop up repeatedly: breakthroughs are preceded by the insight into one (n=1) insight. The key observation of an anomaly that disabused us of a false assumption leads us to a far deeper causal understanding.

I’ll illustrate with a simple history of astronomy. For millennia, the theory of astronomy was informed by data provided by our eyes. The human eye could observe celestial objects with great acuity, and with great patience and record keeping the recognition of patterns in movements allowed the building of a vast database of predictions about the universe. We see this in many societies around the world: from Nordic seafaring navigators to Mayan calendars to Greek scholars. They all built predictive models and associated mythologies around the observable night sky.

These models included a construct called the calendar, the horoscope, navigation charts and even rare event predictors such as eclipses. Computing devices were even built to allow the calculation of these events by laypersons rather than a priestly class.

Our eyes remained the observational instruments underpinning all these theories. The world (and otherworld) view was informed and repeatably tested through eyesight. It wasn’t until the technology of lenses was developed (initially for a completely different purpose) that new instruments could be used to augment the eye.

These telescopes (and their brethren, the microscopes) changed many theories profoundly. The information that optical telescopes could convey allowed the observation of anomalies (e.g. planets) which changed the earth-centric view of the universe which, in turn, challenged much of the balance of power in society.

Read more and comment: The Instrument Makers | Christensen Institute

How many iOS devices will Apple Ship in the next six months?

Of the $42.5 billion Apple spend buying capital assets1 more than half was acquired in the last three years. Net of depreciation these assets are currently worth $20.1 billion and the spending rate is about $12 billion per year.

This strategy of spending on capital assets is primarily in support of its particularly integrated approach to its product strategy. The purchasing of tooling for product manufacturing gives many benefits, including ability to deliver uniquely differentiated hardware, a predictable ramp and availability of parts throughout the product lifecycle.

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One additional benefit (for us) is that we get to inspect the allocation of resources prior to production and therefore we can more easily forecast the product’s supply. Spending on tooling happens in advance of production and the company also provides full year predictions of its spending.

The fiscal year forecasts relative to actual spending is shown below. Note the correlation with iOS units shipped one quarter after the spending was booked.

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After reporting its second quarterly earnings, we received an update on what amount to half of the full year’s spending giving us only two more quarters of variability. The current projections for the next two quarters imply about $2.8 billion per quarter spending.

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The pattern from previous years is shown below for comparison. Note the Even/Odd year patterns.

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The company also offered revenue guidance for FQ3 and therefore we can even make an educated guess on the next data point (57 million iOS devices) on the following graph:

 

 

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The result is likely to be 120 million shipped between April and September.

It’s remarkably predictable.

 

  1. Includes land and buildings $5.6b, Machinery, equipment and internal-use software $32.1b and Leasehold Improvements $4.7b [↩]

Debug 64: Horace Dediu of Asymco (live from Ull) | iMore

Debug is a casual, conversational interview show featuring the best developers in the business about the amazing apps they make and why and how they make them. On this episode — Live from the Ull conference in Ireland Guy and Rene talk to Horace Dediu of Asymco fame about his background as a developer, his time at Nokia, and his current job-to-be-done: analyzing Apple.

via Debug 64: Horace Dediu of Asymco (live from Ull) | iMore.

The Battle for The Wrist

The Apple Watch offers a hierarchy of surfaces onto which software can compete for attention:

  1. The Complication Layer
  2. The Notification Layer
  3. The Glances Layer
  4. The App Screen

These surfaces are arranged in a hierarchy where the highest is the most accessible and the lowest is the least accessible. In a similar fashion we can consider the hierarchy of screens a person could reasonably be considered to be exposed to:

  1. The Watch
  2. The Phone
  3. The Tablet
  4. The TV
  5. The Personal Computer
  6. The Public/Work Computer

Note that this hierarchy is correlated to the size and hence the portability and persistence of proximity to the user. Each of the screens has its own “surfaces” which expose software to the user with various degrees of ease. For instance the iPhone has Notifications, Control Center, Home Screen, etc. The OS X personal computer has the Desktop, Notifications, the Dashboard, the Browser etc.

It follows then that software which is located at the top of each hierarchy on each device will have the greatest exposure to user interaction and that the device which has the nearest proximity to the user will provide the greatest value to software developers.

This implies further that the most valuable “real estate” for software will be the Complication layer on the Watch.

The software which receives either default placement there or which convinces the highest number of users to opt for placement there will have the greatest potential value. As suggested in my post on how the Watch will be valued, how software will be valued will be by the probability of its Settings being enabled for display on the Watch and its presence within Glances.

The jostling for position within the constrained real estate on the wrist will be analogous to the competition for positioning on the phone. You’ll note that the winners on the phone were different than the winners on the PC. My bet is that the winners on the Watch will be different than the winners on the Phone.

And that’s not a bad thing.

The Watch

Watch Screens

Before its launch, I said that the Apple Watch would be as much a watch as the iPhone is a phone. Recall that when the iPhone was launched it was anchored on three tentpoles, one of which was being a phone and that when the Apple Watch was launched it was also anchored on three tentpoles, one of which was being a watch.

Realizing that on the iPhone the “phone” is but an app — one which I find populated with FaceTime calls rather than cellular calls and whose messaging history is filled with iMessage threads rather than SMS — I consider it safe to say what the iPhone is today not as much a phone as a very personal computer. And so the question is whether the Watch will quickly leave behind its timekeeping anchor and move into being something completely different.

I had the chance to use the Watch for a few days and can say that timekeeping is probably as insignificant to its essence as it’s possible to be. It feels like a watch in the physical sense, looking good in the process (as the iPhone physically felt like a phone, also without being hard on the eyes)

However it does not feel like a watch conceptually. I find myself drawn into a conversation by its vocabulary of vibrations. I find myself talking to it. I find myself listening to it. I find myself glancing at information about faraway places. I find myself paying for things with it. I find myself checking into flights with it. I order transportation, listen to news, check live data streams and get myself nagged to exercise. It tells me where I am. It tells me where to go. It tells me when to leave.

Nothing ever worn on a wrist, or anywhere else for that matter, has done any of these things before. Not only are these things mesmerizing but they are done in a productive way on a wristwatch. In other words they are done in a mindful way.

Cynics may say it does too little. Philistines may say it does too much. But for me it does just what I want it to do when I want it done. The things which are not done stay out of the way. This discretion is just as important as the effectiveness of action.

Even more remarkably, this tasteful minder is offered not to a fortunate few but to millions of people of average means. In the true sense of technological democratization, Apple Watch is a phenomenon for mass consumption.

Its launch needs to be understood as a watershed event. It could be compared to the launch of the Mac or the iPhone but it is different as much as it is the same.

The product has a completely different character. It tries not to do more but to do less. But that which it does is more meaningful, more thoughtful. We talk of computing speeds and network feeds but we spend much more time and money to visit people who have little to say and say it slowly. We value charm and wit more than bandwidth and throughput. We are drawn to beauty more than to speed. This is what this computer captures.

A maxim of the computing of the 21st century is that the closer the machine is to us the more we value it. It does not get rewarded for being fast but for being a companion. It does not get valued for features but for beauty. It does not get hired for power but for control. It does not get worn because it’s smart but because it’s clever.

People understand these tradeoffs instinctively. They are not concepts that need selling. The product speaks plainly of itself and its success is therefore guaranteed.

Asymco

Asymmetric Competition

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