Personal Computer

The history of the Personal Computer market (since 1981) is shown below:

Screen Shot 2015-04-14 at 4-14-10.55.36 AM

Note that I added a forecast for 2015.  Data from Gartner shows Windows PCs declining at a 6% rate in Q1 with a full-year forecast of -2.4% (including OS X). Assuming 20.7 million Macs, the Windows PC market will decline to 285.6 million units (from 295 million in 2014). My estimate is that iOS and OS X combined shipments will total about 302 million.

If this rather conservative forecast is correct then in 2015 Apple will ship more iOS and OS X computers than all Windows PCs combined1 .

 

 

  1. This excludes iPod touch, Apple TV and Apple Watch. PC data is from public Gartner press releases. []

How will we measure Apple’s Watch success?

It won’t be easy. The company will not be reporting the Watch segment revenues or (presumably) unit sales and therefore we won’t have an accurate unadulterated view of the business. In addition, the large number of products in the mix and wide price variance means that it will be difficult for analysts to determine demand and price.

There is a hidden benefit to not having this data. All data is a creation and it tends to lead thinking in directions led by whatever is being measured (and whoever chose those measures and their motives). And yet without data there is no evidence and no credibility. In other words: You can’t manage without measurement but you can’t be sure what to measure.

The analyst is then faced with a requirement to have good taste or at least judgement about what to measure. This judgement is based on experience and good theory. Given that, what could we measure to determine whether the Apple Watch will be a success?

Here are some suggestions:

  1. Language. Measure whether “Watch” will come to mean “Apple Watch”. “Phone” has come to mean not only “smartphone” but also all mobile/cellular phones and not just things used for calling but things used for all manner of information. This is a great test because the theft of semantics can only be accomplished through a degree of ubiquity of influential mindshare. Incidentally, the brand may well have been designed to do just that.1
  2. A measurable and significant reduction in the use of the iPhone. The Watch peels off uses from the iPhone and therefore the more it peels off, the less remains. However, that which remains will be more uniquely valuable to the incumbent. This is the process of carving and erosion that the PC experienced vs. mobile devices in general.
  3. An increase in the mix of large-screen iPhones. As iPhones are removed from pockets more rarely, the larger version might be more comfortable to carry and more useful to use for the immersive tasks that are outside the scope of Watch.
  4. An overall increase in iPhone sales beyond the foreseeable trajectory. This would suggest switchers from Android would be drawn to the platform purely for the value of the “accessory”. Note that this is not inconsistent with the lower usage and higher spec mix measurements.
  5. Apps uniquely targeting the Watch. It’s hard to imagine how this will develop as it involves millions of creative minds, but as smartphones created new economic value through the solving of new jobs to be done, the Watch should do the same. As a side-effect it should lead to new empires (or at least Unicorns) being formed around Watch use.
  6. Iteration. How quickly and deeply will the product be improved? Basic accessories like headphones and Apple TV have a leisurely update cycle. Smarter devices are faster. The cycle time of iteration should indicate how seriously Apple takes the platform and that itself should be fueled by positive consumer sentiment for the product.

These indicators are vague and the data will be weakly signaled but in many ways it will be more meaningful than any financial performance figures.

  1. It leaves open the question as to what watches as currently defined will come to be known as. []

Luxurious

Apple’s new watches are priced in a pattern unlike any of the previous pricing models for Apple products.

Previous pricing models for iPhone, iPad, Mac and iPod were typically structured around storage differences. The higher the storage, the higher the price. The Mac had a slight variation where processor and graphics offered some additional configuration options. To illustrate, the graph below shows typical price bands for the iPhone (2011 and 2012)

Screen Shot 2015-03-30 at 11.51.16 AMIn contrast, the watches are differentiated by size, materials and bands. There are also a total of 38 watch configurations available at launch (SKUs) and another 38 bands that can be purchased separately.

The bands come in four price points and the watches in 15. Of these 15 watch prices, four are dramatically different. The pricing of the watches is shown in the two graphs below (with and without the Edition).

Screen Shot 2015-03-30 at 12.03.19 PM

Continue reading “Luxurious”

Asymcar 22: The Goddess

The incomparable Citroen DS (French homophone: déesse), 60 years old this year.  Hydropneumatic, self-levelling suspension aerodynamic and interior design efficiency, swiveling headlights, novel construction methods. Ahead of its time even in 1985. Why did this iconic design not endure?

We use this parable to analyze Apple Car rumors.

via Asymcar 22: The Goddess | Asymcar.

Peak Cable

Paying for TV has been a curious consumer phenomenon. There was a time when TV was free to consumers. It was delivered as a broadcast over-the-air and paid for either by commercials (US mostly) or by taxes on viewers (Europe mostly). The consumers were delighted with the idea as it was far better than radio and radio was delightful because it was far better than no radio.

The process of convincing consumers to pay for something that used to be free was quite interesting. The first benefit to be articulated was that the quality of the picture would be much better. It would, in essence, be noise-free.1

The second benefit was an increase in the number of channels. VHF and UHF television would cover about three and 5 channels respectively while cable could offer dozens, many specializing on specific types of content like the Home Box Office (HBO) offering movies and ESPN offering sports only and MTV music videos and CNN news only.

The third benefit was fewer (or no) commercials for some of the channels. This was especially valued by fans of movies whose interruption by commercials was often detracting from the immersive value and continuity of the cinematic experience.

These benefits were very attractive during the 1980s, to the extent that about 60% of US households adopted cable. An additional group later adopted satellite-based pay-TV as the technology became reasonably cheap.

Screen Shot 2015-03-19 at 2.29.06 PMThese benefits were priced modestly but as the quality and breadth of programming increased, prices rose. An average cable bill of $40/month in 1995 is $130 today2. Some of that revenue went into upgrading the capital equipment in use (the plant) and some into paying for the higher production values. Yet more went to the sports leagues and their players whose business models increasingly depended on broadcast rights.

Continue reading “Peak Cable”

  1. This was in fact the birth of cable TV: a shared antenna for a community in an  electromagnetic shadow []
  2. a 6.1% compounded rate of price growth vs. a 2.4% rate of inflation []

Conversations with Apple’s brand

According to Folkore, in 1981 Apple took out a two page ad in Scientific American which explained that whereas humans cannot run as fast as other animals, a human on a bicycle is the fastest species on earth.

Jobs had made the observation that a computer was “a bicycle for the mind” earlier, in 1980, at a time when the decision to purchase a computer was driven by an intellectual curiosity and justified as an improvement or assistant to the intellect. It was to make the lighten the labors of our intellect.

Apple brand at the time as an appeal to the intellect via a humanistic argument. A more emotive positioning of a tool, but a tool nonetheless. This positioning evolved throughout the 80s and 90s into an “intersection of technology and the liberal arts.”

We can see how the conversation with the potential buyer was along the lines of appealing to the intellect while offering a humanist sweetener. Humanizing the product allowed it to be accepted into a world that feared the complexity and awkwardness of such a machine.

During the 2000s, with the ascent of iPod, the conversation shifted to prioritizing  the emotions more than the intellect. The products had to appeal to those who wished to express and enjoy products of emotional value. Products like music and videos and the output of the arts rather than the sciences. The brand became emotional rather than intellectual. It created an aesthetic, and become culturally iconic.

During the 2010s, with the ascent of iPhone and the emergence of the Watch, the brand speaks a language of instinct, leaving intellect and emotion as secondary or tertiary voices. Instinct is visceral, lust-inducing. It seems to short-circuit any of the rational. Non-rationalism does not mean irrational. It just skips right over the head and heart and hits the gut.

One could argue that during these three decades, the organs the brand was engaging in conversation shifted from the mind to the heart and then to the glands. Those glands which release hormones and are directed by non-rational neurons. The evidence of the conversation would be in resulting products causing pupils to dilate, breaths to be quickly drawn and skin temperatures to rise.

The brand therefore has managed to move from a rational, to a neurological, to an endocrine response.

The curious thing is that during these shifts, Apple’s entry into new biological spheres of influence has been largely unchallenged. I suspect this is because emotional or instinctive products are appealing due to their lack of rationalized value. In other words, what makes a product hormonally appealing is a lack of intellectual appeal1. Apple can enter into the world of lustful appeal while lustful brands can’t enter into functional appeal.

This is a classic asymmetry which perhaps no other brand can pull off.2

  1. and vice-versa in many cases []
  2. The reason is complicated but stems from the firm having been built to execute nothing but home runs. By shunning portfolio theory, Apple can wander into new categories far from its biological home grounds. []

Asymco

Asymmetric Competition

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