iTunes/Software/Services revenues grew at 12%. This was the second fastest segment growth last quarter, with the Mac growing at a slightly faster 13% rate. Apple mentioned in the quarterly earnings conference call the for the first nine months of its fiscal year (i.e. since September) the line item iTunes/Software/Services has been the fastest growing part of the business. The following graph shows the growth scorecard for Apple’s line items and it shows how the iTunes store is the only line that has been consistently green (growing above 10% for at least seven years.

In addition to its revenues, iTunes can also be measured in terms of billings (or gross revenues). The billings growth rate is even higher at more than 25%. This is mostly to the more rapid growth of apps relative to a decline in music. As Apple only records the 30% it keeps as “revenue” for apps the overall growth in apps is less visible in its accounts.

The relative performance of billings vs. reported revenues is shown in the following graphs: Continue reading “How big is Apple’s Ecosystem?”

Seven years after the iPhone was launched, 70% of the US population is using smartphones. Smartphones existed before the iPhone so the category is older than seven years but as far as adoption goes this is nearly the fastest ever.

The CD Player reached 55% in seven years and the Boom Box about 62%. If measuring the period between 9% penetration and 90%1 the smartphone in the US will have a lifespan of about 9 years starting in 2008. Before this period, the product was largely experimental and participating vendors2 mostly failed. After this period most products will be “commoditized” with decreasing margins and increasing consolidation.

The rapidity of growth is all the more remarkable given the penetration is at the individual, not household level. The total user base is therefore over 270 million rather than the 115 million usually targeted by consumer technology, nearly 60% more purchases. This is also remarkable because the product has a shorter lifespan of use (two years) than is typical for other consumer technology products3

We are therefore now in the “Late Majority” phase of the US market. This is not a surprise. The inflection point in the market occurred in mid 2012 so we’ve been in this phase for two years already. It’s not therefore controversial to predict two years of continuing though decelerating growth.

As Geoffrey Moore explained, the marketing of technology products needs to be varied as we get into different phases of the market. Innovators (first 2.5%) need to be sold on the premise of novelty itself. Early adopters (next 13.5%) seek status and exclusivity. Early majority (34%) seek acceptance and Late Majority (34%) seek pragmatic productivity. Laggards (last 16%) seek safety.

One aspect of this adoption cycle that is misunderstood is the role of pricing. The assumption is that pricing matters more as adoption increases. This is misunderstood because pricing always matters and therefore it never matters. Pricing is one of many elements of marketing mix and at any time there are product choices across a wide spectrum of pricing. Pricing is also a signal which can be elaborately obfuscated through bundling and unbundling.

One way to illustrate this is to consider how Apple products behave in the late phases of markets. Apple products have notoriously firm pricing.

The revenue per unit of Macs, iPods, iPhones and iPads remains stubbornly consistent. This is not to say that each unit sold is the same price. The company tweaks “the mix” of mid, low and high products to keep the average selling price constant. But fundamentally the average remains constant which means that regardless of market phase, Apple retains its margins.

So as we look forward to the last two years of growth for smartphones, how will Apple fare? Continue reading “Late late majority”

1. which I consider the “economically attractive” period of growth [↩]
2. Palm, BlackBerry, Nokia [↩]
3. e.g. TVs, Refrigerators, Radios, etc. [↩]