On continental trips, diesel engines and autobahn speeds, pilgrimages to Porsche and BMW’s brand meccas.
How to understand the world through toy cars, from Matchbox to Hot Wheels, Siku, Majorette to Tomica.
On the business of car distribution, “channel stuffing” and the origins of state franchise regulation.
Reflections on Apple’s routing around now-defunct computer retail channels via its highly successful stores.
The Apple stores are now 13 years old.1 In the first full year of operation (2002) the stores generated revenue of $282 million. In the last full year (2013) the revenues were $20.228 billion. Quarterly sales during the last seven years are shown below:
Additional details regarding average visitors per employee per quarter, average visitors per store per quarter, average retail profit/employee and visitor, average revenue per store, employment and visits correlation, employment per store and in total, stores open over time, visitors over time, average revenue per visitor, capital asset purchases and estimated cost structure per visit are shown below:
The Apple store concept has reached teenage years and it seems a good time to renew their character.
In the graph below the grey circles represent the US penetration (percentage of households which own) MP3 players.
Superimposed on this sparse sample graph is a line showing the sales of iPod touch. This second graph has a different scale, shown with a gridline at 10,000, representing millions of units shipped by Apple. To smooth out seasonality I show the trailing four quarter average with a thick line.
The correlation is fairly evident. As iPod sales grew, penetration grew and “peak MP3” was recorded in September 2010 while peak sales occurred at the end of that year.
It’s not a stretch to say that iPod touch sales are causal to MP3 penetration, especially since the iPod has remained the market share leader in the segment for a long time (at least 70% share) and that the iPod touch is consistently half or more of the iPod.
The absence of data for penetration beyond 2012 is therefore not a problem. We can assume that MP3 devices have a finite lifespan and, if not replaced, the penetration will decline.
I modeled both the increase and decline with a diffusion curve as follows: Continue reading “Categorizing technologies”
Three years ago Apple’s Greater China Q1 sales were $2.22 billion or 9% of total. This year they were $9.29 billion1 or 20% of total. Over this time frame the growth in China was about 320%. The second fastest growing reporting segment was Japan with growth of 187%. Europe was third with 70% and Americas fourth with 53.5%. Rest of Asia/Pacific had the smallest increase of only 4.1%.
A graph showing both the absolute and relative sales levels for the reporting regions is shown below.
As overall sales have increased significantly, the revenues from the Americas and Retail combined (as most stores are in the US)2 went from 51% in Q1 2011 to 42% in Q1 2014. The 11 point increase in share for China can be thus seen as mostly at the expense of the US. As Americas did not decline more appropriate statement would be that China captured much of the growth of the last three years.
Note that I also included Google’s revenue split3 in the graph above. This is partly to calibrate Apple’s mix and to understand if the expansion outside the US is mirrored by other companies.
Google, in particular, is largely absent from the Chinese market and the only regional detail we have for their revenues is the US, UK and Other. That leaves an analysis of the dependency of each company on the US market.
Google’s US revenue percentage did drop from 47% to 43% but it’s worth noting that not only is the drop slower than Apple’s, the overall dependency of Google on the US for revenues is higher than Apple’s.
A surprising observation as Apple’s concentration of users, measured as market share for various products, is likely to be higher in the US than Google’s distribution of users.
Put another way, Google is broadly popular world-wide (except for search in China, Korea and Russia) but its customers and hence profitability are highly concentrated.
Steve Jobs famously said that Apple stands at the intersection of of Technology and the Liberal Arts. He said it more than once because he thought it was an important distinction of the company.
In an intuitive way, the message may have gotten through to the average person, but I don’t think professional observers and managers of technology have quite grasped what he meant.
It’s not a glib throw-away marketing phrase. I can imagine many other, more evocative ways of saying that Apple blends the hard and the soft; the heart and mind, if you will.
His choice of words makes me believe that he meant it as a fundamental blending of two disparate and considered-opposite concepts, rather like yin-yang: things which do not naturally mix but which are complementary, interconnected, interdependent, and give rise to each other.
This interaction however is not well understood and even more rarely exploited. The reason they don’t mix well in business in particular is that individuals are typically not trained in both. Our education systems (from where these phrases originate) are unwilling or incapable of providing us with a grounding in both, so individuals tend to absorb only one or the other.
But it turns out that the interaction between these nominal opposites have determined our world to date and will continue to determine our fate. A cursory review of history shows that the “soft”, perceptive and feeling-based disciplines always combined with the analytical and judgmental to create a future which neither could create alone.
I note how Apple uses this combination to an advantage and have also used this methodology myself to understand and sense the future. Taking this method further, I would like to share it with others. I would like to recognize some faint but powerful patterns and bare some of the more audacious conclusions of my analysis.
The method chosen is a forum we are convening called The Post Modern Computing Summit.
It’s a small gathering where we are inviting the most enlightened thinkers of the future of computing to lead us into its next age, and perhaps, tentatively, the next era of civilization.1
Horace and Moisés catch up on a few weeks of topics, from Apple earnings to iPad discontinuity to ecosystem disparity to followup on ComiXology. Why would you ask a freshwater fish what it’s like to live in the open sea?
This is what “Not getting the Cloud” looks like:
“Not getting the cloud” means that in the last 12 months Apple obtained:
In summary, iTunes, Software and Services has been growing between 30% and 40% for four years and is on its way to $30 billion/yr in transactions and sales for 2014.
This is what can be deduced from a reading of Apple’s financial statements of operations. If there are comparable details for companies which do get the cloud, I’ll be happy to tally the comparison so we can calibrate this failure.
In How close to saturation is the smartphone I highlighted that the US is not nearly saturated at 68.8% penetration at the end of March. Since the US is not the highest penetrated, one may wonder whether other “developed” countries are far further along.
There is no data on all the countries in the world on the same resolution as that in the US, but thanks to Charles Arthur, Kantar shared data on the UK and we can have a clear trajectory for that country.
The most recent data for UK was as of February 2014 when penetration was 70%.
In February the US figure was 68.2%, so the US is 1.8% behind in penetration. The equivalent picture of the US is below: Continue reading “How close is the UK to smartphone saturation?”
The US is not the market where penetration is highest. However, it is the largest market where we have reliable penetration data (from at least two sources) and the one where penetration is near the top of the range.
The graph showing the US ranked against others as of a year ago is here. The US was cited at 56.4% at the time. I keep track of comScore’s data and it showed 58.2% at the end of March and 55.3% at the end of January, making the figure very believable.
The most recent data from comScore shows penetration at 68.8%. In order to understand what the limits of that growth could be it’s important to see the longer-term pattern. It would show whether there is a clear point of inflection and thus a predictable “saturation” around an asymptotic value.
The following graph shows the percentage of smartphone users/non-users since late 2009.
The following graph shows the rate at which users are being added to the smartphone ranks (measured as new users per month.)
To summarize, the conversion of users from non-smart to smartphone usage is fairly constant. The March ’14 period saw 2.8 million new-to-smartphone users. the March ’13 period saw 3.0 million, the March ’12 period saw 2.0 million and March ’11 saw 3.0 million. There is no discernible slowing of adoption.
Note that I added a trailing three period average in new users which fluctuates somewhat predictably due to seasonality. Finally, note that the figure of 50% penetration was reached almost two years ago and no noticeable change of adoption has happened since. Cellular phone ownership in the US is still rising (though very slowly) and it now about 90%.
The only conclusion is that even at the current 68.8% penetration, we are not anywhere near “saturation” of smartphone users in the US, and the US is a leader among “developed markets” so there is little to suggest that saturation has happened anywhere with significant populations.
iPad sales were unexpectedly slow in Q1. Tim Cook explained it as follows:
iPad sales came in at the high end of our expectations, but we realized they were below analysts’ estimates and I would like to proactively address why we think there was a difference. We believe almost all of the difference can be explained by two factors.
First, in the March quarter last year we significantly increased iPad channel inventory, while this year we significantly reduced it.
Second, we ended the December quarter last year with a substantial backlog of iPad mini that was subsequently shipped in the March quarter whereas we ended the December quarter this year near supply demand balance.
We continue to believe that the tablet market will surpass the PC market in size within the next few years, and we believe that Apple will be a major beneficiary of this trend.
Tim Cook went on to say “over two-thirds of people registering an iPad in the last six months were new to iPad”
In a later discussion, Luca Maestri said:
As Tim explained earlier, our iPad results and the comparison to the March quarter last year were heavily influenced by channel inventory changes. Specifically, this year we sold 16.4 million iPad into our channel and sold through almost 17.5 million, reducing our channel inventory by 1.1 million units.
Last year, we sold over 19.4 million iPads into our channels and sold through 18 million, and therefore increased channel inventory by 1.4 million units. As a result, the year-over-year sell through decline was only 3% compared to the sell-in decline of 16%.
We exit the March quarter with 5.1 million of iPad channel inventory which left us within our target range of four to six weeks. iPad continues to lead all other tablet by far in terms of user engagement, size of ecosystem, customer satisfaction and e-commerce.
In a later Q&A: Continue reading “The iPad discontinuity”
Asymmetric Competition