Tag Archives: iPod

Apple’s quest for massive market share

John Gruber has an excellent post up on Apple’s apparent-restriction of cross-platform development tools on the iPhone. I largely agree with him – from Apple’s perspective this makes perfect sense, although it puts a massive spanner in the works for magazine publisers, who love Flash like a brother.

But there’s one point that I disagree with John on, and it’s this:

“I don’t think Apple even dreams of a Windows-like share of the mobile market. Microsoft’s mantra was and remains ‘Windows everywhere’. Apple doesn’t want everywhere, they just want everywhere good.”

I think this is wrong: I’m certain that Apple would love, and intends to get, a massive market share for the iPhone.

Why? Because it has already tasted the fruits of massive, dominant market share with the iPod – and it’s seen exactly how much that can do for a company’s fortunes.

Why wouldn’t it want to repeat the trick with the iPhone? The phone, after all, is as ubiquitous as personal music players. And the margins, at least at the moment, are better. If you think Apple is profitable now, imagine how profitable it would be if it sold 60% of every phone in the world.

The benefit of hindsight

I’ve been reading Steven Levy’s excellent The Perfect Thing recently. If you haven’t looked at it, and you’re interested in Apple, it’s well-worth a read – it’s the story of the iPod, and the thoughts that went into it. It also includes that rarest of things, some real substantive interview time with Jobs.

The story of how one Slashdot editor refered to the iPod as “lame” on its release is well known, but that’s often forgotten is that he wasn’t the only one – not by a long, long way. Even hardcore Mac fans were, to put it mildly, sceptical. Take a look through MacRumors threads at the time, and you come up with some gems:

“Any way you spin this it is:
1. Not revolutionary. Big capacity mp3 players already exist. With Creative Labs’ entrance into the firewire arena, future nomads will have similar specs and better prices.
2. A bad fit. This product is outside Apple’s core competancy – computing devices. When many are calling for a pda, they release an MP3 player.
3. Without a future. This Christmas you will see mp3 players be commoditized. Meaning that the players from Korea will be way less expensive tha iPod. The real money is in DRM and distribution (ala Real Musicnet). If Apple were smart they would be focusing on high gross revenue from services rather than a playback device.”

Everything in this post – literally, ever substantive point – proved to be absolutely, totally wrong. The iPod did start a revolution; Apple is arguably more famous now for its music players than computers; and oh boy, did iPod have a future. Real Musicnet? Oh dear.

And it’s not the only one. The majority of comments are pretty similar.

I was lucky: as a Mac journalist, I got to hold one in my hands when it was launched (there was, as I remember, only actually one in the country at the time – I didn’t get to take it away). I ordered my own the same day, because as soon as you held one in your hands, you knew you had to have it, that it really was something incredibly beautiful, incredibly cool.

I wonder how hindsight will look upon the iPad.

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Apple levitates: Financial quarter, by the numbers

Joe Wilcox goes through Apple’s numbers for the quarter thoroughly (and dispassionately – something that I appreciate when it comes to numbers).

What sticks out for me is that Apple has managed a pretty astounding feat: preserving unit sales (or expanding them in many product lines) while pushing margins even higher, something that should barely be possible when the world is in the grips of the worst recession since the 1930′s. There’s been a lot of focus on the bottom-line revenue numbers, but the truth is that given the changes in the way Apple accounts (driven by a revision to the rules by the Financial Standards Accounting Board) it’s hard to really see clearly how well Apple did on that score. The best estimate is “very well, but not as well as the figures look at a glance”.

That’s why my focus in looking at these figures would be on unit sales and margins, and in both cases Apple did well – outstandingly so, in the case of its margins.

Put together unit sales on iPod and iPhone – something that’s a valid idea, I think – and they moved from 27.1 million in the equivalent quarter last year to 29.7 million units this quarter. The mix of products is high-margin items (iPhones) up, lower margin items (iPods) down. More product, at higher margin, is pretty-much all you could ask from any company at the moment. I am absolutely certain that many tech companies that are being driven to slice margins more thinly in the recession will look at Apple’s figures with a massive sense of jealousy.

As for unit sales in Macs, they seem to be broadly in line with IDC numbers, certainly for the US. In the US, IDC had estimated unit sales increase of 31%, and Apple hit 30%. Those are very good figures, but it’s worth remembering that IDC also estimated that Toshiba had upped its sales by 78% and HP by 45% in the same period. And neither Toshiba nor HP concentrate on the “cheap junk” end of the market: while their margins won’t match Apple’s, this isn’t a case of people flocking to netbooks rather than expensive PCs.

(UPDATE: But see an excellent point below by Piot on worldwide market share.)

Given these figures, don’t be surprised if Apple actually loses market share in the US this quarter. How much value you apply to market share figures is up to you – personally, I think that as long as Apple is selling enough Macs to sustain itself and keep the third-parties interested, it doesn’t really matter. The days when its market share was sinking at a worrying rate are clearly over and I doubt they are coming back.

It’s worth remembering there were many predictions that Apple’s unit sales in Macs would actually slide during a recession, as customers looked to significantly cheaper PCs or (if they were dyed in the wool Mac users) deferred purchases. That simply hasn’t happened. Without detailed, qualitative data on customers’ purchasing choices (why they’re buying what they bought) it’s hard to say for sure, but my best guess is that while Windows 7 has slowed Apple’s growth compared to the rest of the PC market, it hasn’t drawn back any of those customers who switched from Windows to Mac over the past few years.

In other words, once you’re Mac you don’t go back. The net migration from Mac to Windows which characterised the 1990′s is over. Instead, the chief characteristic is now net migration from Windows to Mac – something that Windows 7 has slowed, but not halted.

(Image by Photo by Checiàp – http://flic.kr/p/5n9bi)

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Scoble is right about iPhone users. But the game isn’t over yet

Robert Scoble has a post up about why Apple’s key advantage is the breadth of the app store. And he’s right – but the game isn’t over yet.

85,000 is the headline figure, and what it allows Apple to leverage is a classic “long tail of usefulness”. For me, 99.99% of those applications are (to me) useless crap that would have no bearing on whether I stick with iPhone. Unfortunately for everyone else, that still leaves 8 or 9 apps that act like heavy anchors, dragging me back to Apple’s platform.

But suppose Nokia, Android, or whoever got the developers of those apps to port them to their platform? Great! They’ve won me as a customer. But the problem is that this is a long tail: maybe four or five of those would be common ones, but three or four would be ones which only me and a relatively few other people wanted. So the actual base of applications that are “must haves” would be much wider, in the low thousands at a guess. That’s a long way from Robert’s claim that you need all 85,000, but it’s still a pretty daunting number.

And the experience of Apple in the 90′s, when the Mac was on the back foot, proves that it’s no good having “equivalent” applications – once people get used to having app X, they want app X, not app Y which does pretty much the same thing.

However, there’s a catch: it’s worth remembering that most people haven’t bought smart phones yet. Smartphone penetration remains comparatively tiny, and in the biggest growth markets for phones (Africa, BRIC) it’s still dirt-cheap simple phones which are driving the growth.

And people are used to buying phones on hardware features: the best camera, for example, is a big influence. That’s why Apple has been advertising with “there’s an app for that” – raising a flag for the one big advantage they have. But until you actually use a phone which is infinitely malleable via applications, it’s hard to appreciate why it’s so cool. So it’s not a totally easy sell.

(As an aside, this is the reason why the iPod Touch is so important: it’s a “gateway drug” for the app store. You might not buy an Apple phone, but you might replace your old iPod with the touch… and then find that you love the apps. At which point, you’ll buy an iPhone next time.)

So the game isn’t over yet, and there’s plenty still to play for. But Apple has a head-start, and if I was a betting man, I’d place my money on the iPhone. Essentially, it’s Apple’s lead to throw away – but, as others will no doubt point out, Apple has thrown away leads before.

(Update: John Gruber’s written an interesting response to this, and I’ve written a further response posing what I think is an interesting question: What happens when there aren’t 100,000 apps on the store, but one million?)

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Is Apple recession proof? The answer is “no”, but…

Jason O'Grady has a good post summing up the theory (first espoused by American Technology Research analyst Shaw Wu) that Apple is "recession proof". In fact, I think there's good reason to think that the opposite it true, but also that the bright points for Apple outweigh the bad ones.

Where the iPhone sits

The first thing to think about is to break down Apple's product lines, because the economy will affect each in different ways. Perhaps surprisingly, I think iPhone is probably the least vulnerable of the product lines. The upfront cost of the iPhone is heavily subsidised by phone companies, and that will make it a tempting upgrade when someone's phone contract runs out. In tough times, a luxury product with a low upfront cost is likely to be quite attractive.

How will the iPod perform?

For iPod, there are good and bad points. People who already own one will probably put off buying a new version, and as the market for music players reaches saturation point the upgrade market will be the most important one. However, the speed of development of technology means that someone replacing what was a top of the range iPod from two years ago can get a much lower cost replacement – and low-cost luxuries do well in downturns. So, while iPod sales will head down, they won't get hammered too hard.

Mac: from market share hero to market share loser?

The big question mark is over the Mac. Over the past couple of years, Mac sales have been nothing less than stellar, with an overall market share increase compared to the rest of the computer industry. The reasons for this have been partly due to an exceptionally well though-out product line, the failure of Windows Vista to impress virtually anyone, and improved mind-share for Apple in general thanks to the iPod and, more recently, iPhone.

But Apple's pricing remains on the high side. That's not to say that they aren't close to the prices of equivalent Windows-running hardware (sometimes they are, sometimes they aren't). If you want to spend £1000 on a laptop, Apple offers good options – and even better ones if you want to spend £1700.

In tough times, though, the number of people prepared to pay that much shrinks, and the number of people prepared only to stretch to, say, £500 increases. Even people who have money are more inclined to be careful with it. And for those people, Apple presently is not an option. Some customers might defer buying anything until they can afford a Mac, but if you have a four year old PC which barely runs Windows, or a child heading off to university, you're going to be buying something very soon.

So the question isn't "will Apple sales be hit by the recession?" – they clearly will – but whether Apple will be hit harder than the rest of the PC industry. The bare-bones analysis of pricing suggests it will, but you also have to take into account the momentum that its increasing market and mind-shares have given it. I'd expect Apple's Mac share growth to continue over the next couple of quarters, but decline after that if the recession continues. At some point, if the recession continues long enough, they will start to decline if Apple doesn't change its product line mix – but that decline could be a year away, and depends on a whole host of macroeconomic factors.

The management factor

The other factor which needs to be taken into account is the incredibly well-managed nature of today's Apple. The company, probably more than any other in Silicon Valley, has exceptional aggressive control over costs – it doesn't waste money. This, plus its supply-line management, will help it ride out the worst of the recession. When the recession is all over, the shareholders should give Tim Cook a big bonus, because as COO he's turned Apple from a management joke into one of the best-run businesses in the world.

The product mix: time for a "value" segment?

Given that the biggest potential weakness seems to be the lack of lower-cost products, should Apple introduce a new "value" section into its product matrix? Some would argue that this would be counterproductive: that part of the allure of the Mac is that it's firmly in the high price/high value segment. There's something to be said for this, and whether sticking with the strategy makes sense depends almost entirely on how long you think the recession will last. Apple could easily ride out six months to a year of slowing sales in the high-price segment, thanks to its vast cash reserves and excellent cost management.

The danger would be that if Apple starts to under-perform the rest of the market, it could lose a lot of the impetus it has gained over the past year or two. There's also the possibility that, if the recession last long enough, consumer confidence will erode to the point where its Mac sales will fall off the metaphorical cliff.

These risks are, undoubtedly, the ones which Jobs and his team have been weighing up for a while. Given the company's cash and income situation, I don't expect any rush to introduce "recession-buster" low cost products. But I'd be very surprised if Apple wasn't working on them, as a hedge against the downturn lasting.

Could Apple create low-cost products? Of course: in fact, it already has done. Both the Mac mini and the iPod demonstrate that, if it wants to, it can produce exceptional, high-value low-cost products. The mini is a bit of an unsung hero in Apple's current product line, and its easy to imagine that it could produce a laptop which fulfill the same purpose in the portable range.

So overall, it's fair to say that Apple isn't recession proof. No company is. But it's not in a disastrous position, and it's incredibly well-managed. This buys it the time to either ride out a shorter recession or readjust its product strategy if the downturn is likely to be a long-term thing. It's revenues and market share aren't going to fall off a cliff any time soon.