Monday Note

Walt French

Thanks especially for the link to Ms. Meeker’s piece.
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One of its very interesting points, slide 21, shows App+Ad revenue growing 153% CAGR. But it’s not the ads that are growing at that rate; it’s the apps.
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The two are very different markets, of course. I think what it illustrates is that within apps, the money is in paid (or from other data, “freemium”) apps. I’ve also separately seen the claim that app revenue is more accurately characterized as game revenues with some non-games added on.
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The pure ad-based apps would seem to be growing at a similar or even slower rate than the user base. Toss in Siri and other proprietary recommendation engines, and it may not be too early to look for “Peak Ad” on the internet, an astonishing shift if true.

Jean-Louis Gassée

@ James Katt: Lets’s see how Google react other than Andy Rubin’s churlish statement contending people want to talk to someone else at the other end of the line, not to an assistant.

Jean-Louis Gassée

@ JF Susbielle: Agreed, Amazon is a great provider of Cloud services with AWS.
As for Apple, it was criticized for having only one product, the Mac, that was going to be inevitably commoditized. In fact, it’s been gaining market share vs. commodity Wintel clones (and lots of margin $$) for 22 quarters, with no end in sight.
Then the iPod happened, adding a revenue stream. Soon to be commoditized, said the experts. In reality, it’s been keeping about 70% market share for the past 10 years. Now, revenue is declining, the iPod is becoming a feature of iOS devices.
Speaking of which, anothe revenue stream comes on in 2007, the iPhone. Again, the experts said it was doomed, commodity products would kill it. So farm while Android kills everything else and succeeds mightily, the iPhone keeps growing, analysts think up to 40 million units this _quarter_. And huge margins, in excess of 60%. And a product line that spans price points from free to more than $250. If the Mac didn’t get commoditized by a powerful adversary such as Intel, I don’t see why/how commoditization would happen to the iPhone.
I’ll spare you the iPad example, similar story. So far, the fastest adoption for a consumer product, faster than the iPhone. And look at the ComScore numbers: http://bit.ly/tZVTTW
“In August 2011, iPads delivered 97.2 percent of all tablet traffic in the U.S. iPads have also begun to account for a higher share of Internet traffic than iPhones (46.8 percent vs. 42.6 percent of all iOS device traffic).”
All these proprietary Apple products are just one step away from disaster…

JF Susbielle

@Jean Louis : Sure. In 2000, with the MP3 format, 20$ Players made in Shenzhen and the Internet exchange, the online music scene seemed dead. No one thought it would be possible to extract value from it. And then came the iPod. Stunning.
By 2007, the whole IT+CE industry was trying to imagine what the phone of the future would look like. It took over a year for the market, the players, the competitors to realise that iPhone was not a gadget but that it was IT.
That is the amazing thing. Because normally, it takes years of trial and error before the standard prototype settles down. The prototype of the car we drive today may have been frozen sometime in the 30′s. The PC we are all using is the 1984 MacIntosh. And now out of the box, iPhone is THE Internet Phone.
But that is very difficult to patent and protect. Because user experience is natural, it belongs to the people.
“It changes everything” No. Not again. At least not every time. 4S improved camera doesn’t change anything. Galaxy Note and Nexus are more innovative and better products. It took 11 years for Win95 to catch up with 1984 Mac. But it took only 3 years for Android Galaxy S to match iPhone.
Hence Steve’s anger at Google. iPhone mania obviously rests on a fashion bubble that can blow anytime. And iPhone could join the Mac and become what it is: a sleak Zen looking niche object for aficionados.
The iPad inaugurated the third screen and couch-browsing. But it is basically a blown-up iPhone, and there’s a lot more magics out there that has yet to be introduced. No doubt that iPad3 will be challenged by the 7 Android sisters and will have a tougher time.
Therefore: Apple products will be either commoditized (by the like of Kindle Fire) or pushed back to the usual Apple niche market after CE and IT brands finally wake up. Apple customer loyalty rests on volatile brand mania and not on social networks usage like Facebook. It is very vulnerable. Gap stores are closing. So might one day Apple stores.
Apple should use its 40B$ not to kill Android, but to give itself a more sustainable long term base by emulating Amazon or Facebook.

JF Susbielle

@Jean-Louis: By commodity I mean: Amazon distributes tablets in order to sell contents. Apple distributes contents in order to sell devices. Definitely two different models. I believe the first model will force a form of commoditization.
Apple is a very strong brand. But Apple is what Sony should have become. And Sony, Sharp, Panasonic and the rest have been humiliated, ridiculed by this single man. They now know what the product looks like and they are after it. I mention the Japanese because they have to wake up. But of course the fiercest competition comes from the Koreans. This week’s Galaxy Note and Galaxy Nexus are superior products. Samsung can churn out new products ever other month. Quite the opposite of Apple’s yearly announcements.
So do you seriously think that one single company with single products, with a single design can remain ahead of the combined forces of the world CE and IT?
Apple will always be a strong brand. Sure. But with 15% – 20% market share on the top tier products. That’s a lot already.
TWO: iTunes/AppStore is patterned after DoCoMo’s iMode in Japan, and before that Microsoft’s 1994 MSN (which they had to shelf because of the Internet), or even the French Minitel;
All this means that all the terminals have to be compatible, so that the ecosystem does not develop multiple versions of the same App. In Japan, all manufacturers had to comply with DoCoMo’s R&D specs. Their brand names were even removed from the phones. Steve’s dream was to make Apple (a device manufacturer) the sole supplier of not just the system (like MS-DOS, Win, Android) but also the hardware. It will fail on both items just like it failed 30 years ago. And for the same reason. Android = MS-DOS ? No patent case can stop the law of gravity towards a common standard. And if it is not Android, it will be something else. Or regional architectures (like an Asian OS).
I think we have passed the tipping point with iPhone. If you want a date, it is the day the Galaxy S II came out. iPhone has lost ground to Android and the CE / IT industry. It cannot catch up. It is too late, a huge momentum is there. And if iPhone looses ground, iPad will follow a year later.
To conclude: I believe the whole Apple story of the last decade to be a Reality Distortion Field all together. You need a Mandrake the Magician to create the illusion. It can only shrink to its natural size once the bubble bursts.
No doubt Steve is the only true genius of the scene. He will have been the creative defining force behind 3 out of 4 screens (left TV).
Of course you understand that I have and will never be an Apple customer. I can’t be imposed a set design, buttons, procedures, or denied FM Radio, Flash and so on. Apple is to me totalitarian. Like the Village of the Prisoner. “I’m a free man”. Remember the 1984 ad? Funny how corporations will one day claim to “think differently” and the next will trap you in a one-fit-for-all closed environment.

Azelex

I really like the way you raised this topic and took out time for it.Although i was expecting more information , i really like the way you present it.