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Apple versus the Collective Enterprise a.k.a The Open Source

Posted in Mobile Devices and Company Updates by Manas Ganguly on October 23, 2010

In the early 1980s, the Macintosh faced an onslaught of competition from an army of PC makers whose products ran Microsoft software. The fight did not end well for Apple. In a few years, Microsoft all but sidelined Apple, and the company almost went out of business. Can Apple, which insists on tight control of its devices, win in an intensely competitive market against rivals that are openly licensing their software to scores of companies? It faces that challenge not only in phones, but also in the market for tablet computers, where the iPad is about to take on a similar set of rivals.

For Apple which has lived the part of the bitter PC history, the stakes are huge, as the mobile computing market could prove to be larger than the PC market ever was. Having a tightly controlled ecosystem, which is what Apple has, is a large short-term advantage and a large long-term disadvantage. The competition this time is more formidable: Android, Windows Mobile, Blackberry and (even) Nokia. For now, the smart phone market is growing so rapidly that the rise of Android has not necessarily been at the expense of the iPhone. That will change as the market matures.

Apple’s stock has soared nearly 50 percent this year, and touched all-time high of $314.74. But the rise of Android has been both sudden and unexpected, and its ascent highlights some of the advantages of an open approach. There is much more rapid innovation taking place in an open environment. For every new version of the iPhone, Android has 20 odd smartphones ready to challenge Apple’s leadership mantle. That leaves little room for error at Apple. The company must continue to create hit products, as a single misstep could give Android and other rivals an opportunity to make inroads and steal market share.

Also, as the number of people with Android phones grows, Android will grow more attractive for app developers. For now, Apple’s App Store, with more than 250,000 applications, enjoys a large advantage over the Android Market, which has about 80,000. And those numbers don’t tell the whole story. Apps made for the iPhone tend to be of better quality, are more frequently downloaded and on average are more profitable for developers. But that edge may not last, especially as many developers fret about Apple’s tight control over the App Store.

While the naysayers stack up, the view isn’t as dooming as it seems for Apple. For starters, Apple is the richest company in the technology industry. With $45.8 billion in cash, it can afford to invest heavily in research and development. Apple’s large early lead in devices and developers puts it in a much stronger position than it ever had in the PC market. And because it is one of the largest purchasers of Flash memory, which is one of the most expensive components of a smart phone, it has enormous economies of scale,

What’s more, the iPhone isn’t really fighting alone. The two other devices that run Apple’s iOS mobile software, the iPad and the iPod Touch, further strengthen the iPhone, because consumers like being able to access the content and applications they bought on iTunes and the App Store on multiple devices. Apple has sold more than 120 million iOS devices.

And while Apple’s personal computers were by and large technically superior to Microsoft-based PCs, they were also far more expensive. In the smart phone market, carriers, who play a vital role in distribution, have been willing to subsidize the iPhone so that its cost to consumers is roughly the same as that of comparable Android phones.

Bottomline: Apple may lose its overall leadership, but maintain a share of the market that could easily be in the 25 percent to 30 percent range at a very profitable level. Even that is enough to sustain a very large and very profitable business.

Apple and the Superman act!

Posted in Mobile Devices and Company Updates by Manas Ganguly on October 21, 2010

Apple reported a profit jump of 70% from last year, driven by strong sales of Macintosh computers, iPhones and iPad multimedia devices. This has taken the analysts by surprise who had underpitched on the numbers. The reported net income for the fourth quarter of $4.31 billion or $4.64 per share, compared to $2.53 billion or $2.77 per share for the year-ago quarter. Gross margin for the fourth quarter fell to 36.9% from 41.8% in the prior year quarter, while operating margin for the quarter decreased to 26.8% from 30.1% a year earlier.Net sales for the quarter rose 67% to a record $20.34 billion from $12.21 billion in the same quarter last year. International sales accounted for 57% of the quarter’s revenue. iPhone sales of 14.1 million were up 91 percent year-over-year, handily beating the 12.1 million phones RIM sold in their most recent quarter. Apple sold 3.89 million Macintosh computers during the fourth quarter, up 27% from the year-ago quarter. Apple sold 4.19 million iPads during the fourth quarter, which however, trailed estimates of some analysts who were expecting the company to sell about 4.8 million iPads during the quarter.

The striking thing about Apple’s numbers are that they are consistent northbound. This is perhaps also mirrored by the share prices. Analysts feel that Apple is not out of steam yet and the rise will continue through a good part of 2011. The factors that would aid the growth of Apple in the future 1 year horizon are the following:

1. Apple is looking to increase its distribution and tieing up with operators such as Verizon will only increase momentum of its iPhone sales. Already the iPhone is eating into a disproportionate share of the global smartphone profits.
2. Apple is building huge economies of scale across its iPhone, iPad and iPod and this helps keeping its costs low.
3. Apple is also able to drive consumer usage across various products. However they have kept the platform constant and its 120 million iOS users are a definite lot who keep coming back for more.
4. iPhone drives data traffic and that is sweet music to carriers who are willing to subsidize Apple products so that the user cost is roughly comparable to Android devices.
5. While Apple TV is taking its first steps, the Apple TV along with the iPhone (for smart computing), iPad (The cross between Laptops and Smartphones),iTunes, Music Streaming, Application Store, iOS, iPods (Multimedia devices), Mac Computers are beginning to forge a media network eco-system which fortifies the Apple Media, Web and Mobile proposition in a unique manner. Come to think of it no other competitor comes close to matching Apple’s scale across these range of devices and solutions.

However the question that nags is while the “Walled garden” approach has yielded great results for Apple, will it be enough to fight the “Open Source” juggernaut. Will Individual brilliance continue to overshine the Collective Enterprise-Open Source (Read Google). Sooner or later Apple will be at crossroads to question its Strategic imperatives and Organization philosophy.

Who’s afraid of iPad?

Posted in Mobile Computing by Manas Ganguly on September 12, 2010

Apple iPad truly opened up the field for Tablets making it one of the fastest growing devices globally. We have seen others such as Samsung follow suit and there is a buzz about the Android tablets growing steadily. The Android Honeycomb is some distance off but the Androids are turning on the heat. A few others like Blackberry are also in the fray.

In an earlier post, i had mentioned that the Apple iPad had taken a bit of insurmountable lead on others. Heres a different view about the iPad which debates that the Tablet domain is wide wide open beyond Apple iPad.The Apple iPad may have set the standard, but the competition is stepping up. The presentation below debates that there would be other and many wild cards in this domain which would influence the evolution and growth of the Tablet space beyond just the iPad.

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The Tablet Roadmap

Posted in Industry updates by Manas Ganguly on September 3, 2010

The iPad has more tablets for company.Every device manufacturer worth his salt is betting big on Tablets. Samsung has already launched its first Android tablet against the iPad a few days back. This is the Samsung Galaxy Tab which sports a 7″ screen and runs on Android 2.2. While the Froyo is not the best suited for Tablets, it gives Android a start into this promising device space. A start that Gingerbread, Android 3.0 will consolidate in its time.

Here are the specs of the Samsung Galaxy Tablet

A video on the the Galaxy Tablet by Samsung:

A pictorial of the 2010-2012 roadmap of tablets that have been announced by different ODMs under the different platforms. From the information available, The Android is seen here with 16 tablets, the Windows has 13 and Linux has 3. Blackberry and others have 1 each. from the looks of its Android is maturing fast as a platform for tablets and thats where the challenge to iPad’s reign begins.

Apple: Pink of Health (Part II)

Posted in Mobile Devices and Company Updates by Manas Ganguly on September 1, 2010

Continued from an earlier post, which tries to explain why Apple is Apple, a cult brand, a maverick, one of the highest market cap compnaies in the world and a huge money minting machine. It may have detractors against its “closed”/”walled garden approach” but the bottomline is that with 3% of market share by volume, Apple contributes 48% of the smartphone profits.

3.Economies of Scale

The lean portfolio with only a handful of products, each selling in great quantity allows Apple to buy components in massive quantities.Except for iPhone 4, all iPhones and iPod touch use the same display for 3 years now. They have 5 notebooks and 3 of them all use the same 13-inch display. Something like 75% of the CPU’s they have used in the past 5 years are Intel Core 2 Duo, and the rest were Xeon, with the exception of the recently added i series. Similarly, they use the same OS X core operating system on all of their devices. The kernel in iPhone 4 on an A4 chip is the same kernel as Mac Pro on 12 core Xeon. When they added Exchange to iOS, it showed up in Mac OS in the next release because they had actually added it to OS X, which is under both iOS and Mac OS. That builds huge economies of scale for Apple reducing the cost overheads of spares and components.

Apple had only used one iPhone display for 3 release of its iPhones, and they used it again in iPod touch. They probably bought 100 million of that exact same display, and they are still buying and using them right now in the low-end iPhone and the iPod touch. They paid much less per phone for the display than what the display cost on any other phone, which typically sell less than a million devices each. The 90 Android phones are each a custom job, much more expensive, much less profitable.

4.Defining Consumers

Henry Ford was once quoted that if he had heard his consumers, he would possibly never have made a car. He would have built faster horses instead.

Apple doesnot possibly look at the MBA-style consumer approach methodologies in terms of determining its products. Apple’s understanding of the “need” bolstered with great judgement of world class design, starts with no consumer particularly.Add to that,state of the art software, OS and iTunes make it an undefeatable combination when it comes to PROFITS.It moves through the cycle of enthusiast, tech geek, prosumer, maven route before massifying itself into mass consumer usage.

Apple’s impressive run at the bourses has multiplied its market cap 3X over the last 2 years

5.Absorbing Profits from multi consumer segments

Apple has two other iOS devices, the iPod Touch (due for a refresh this September) and the iPad, that are absorbing profits from other segments of consumer electronics; music, casual gaming, and soon, photography, video, and in the not too distant future, near field wireless. all making platforms for advertisers or hardware makers or wireless carriers instead of making the best consumer product. Apple thus is leveraging the same platforms for accessing different consumer segments and usages. What makes this special is the Apple “way and design” which helps redefine the markets, consumers and product segments.

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Apple Apps Store: 250K Apps, Break Even, 70% paid downloads and 5 billion downloads

Posted in Applications and User Interfaces, Value added services and applications by Manas Ganguly on August 29, 2010

Two years and 49 days after its launch, the Apple Apps store passed the quarter million applications milestone just in time for the September Apple event. There were 251,007 applications from 50,304 publishers available for download for the iPhone, iPad or iPod touch. estimates the total at 253,777 apps, including 24,334 for the iPad. This one is “One Up” for Apple: 70% of app download on Apple are paid apps which pales Google’s 36% paid apps.

New stats from 148Apps state that books (with 17%) have now overtaken games (14%) and entertainment (11%) in the Apps stores.The Apps store has downloaded 5 billion Apps downloads.The Apps store has generated a revenue of $249 million for Apple since its launch 2 years back and is on the verge of breaking even on its costs.

Another report by Piper Jaffray’s Gene Munster lays down the following key findings:

• $1 billion generated for developers since the store launched on 7/10/08 suggests gross app store revenue of $1.4 billion, $429 million of which Apple keeps after paying the developers’ 70% cut.
• App pricing data suggest that 81% of apps are free and 19% are paid, with an ASP (average selling price) of $1.49.
• Apple’s gross margin on the App Store is about 44%, according to Munster, assuming 70% goes to the developer, $0.20 plus 2% of the ASP to the credit card company, and 1% for storage and delivery.
• Apple has generated a total of $33.7 billion in gross profit since the App Store launched, to which the App Store has contributed $189 million, or 1%.
• Over the same time period (Q4 2008 to Q2 2010), the entire iTunes store has generated $3.6 billion in revenue, to which the App Store has contributed $429 million, or 12%.
Munster’s numbers suggest that iPhone, iPad, and iPod touch users download more than 16.6 million apps per day, nearly double the 8.9 million daily rate of iTunes tracks downloaded.

A few numbers on the Apple Apps stores:
Total Active Apps (currently available for download): 252,894
Total Inactive Apps (no longer available for download): 49,769
Total Apps Seen in US App Store: 302,663
Number of Active Publishers in the US App Store: 50,606

A graphic on the numbers in the store: Applications and Games

Apple: Pink of Health (Part I)

Posted in Mobile Devices and Company Updates by Manas Ganguly on August 23, 2010

In an earlier post,i had posted about how the wealth distribution in the smartphone markets is increasingly getting skewed towards Apple with its iPhone.Apple Takes 48% of the Earnings from Smartphone sales globally with only a 3% market share of the smartphones. That compares starkly against Nokia which has 40%+ smartphone share and only 22% of its earnings share.

This post examines the reason why Apple is able to command that kind of margin from the carriers and mass emotional appeal from its consumers, which thus make it one of the most profitable companies.

1. Connecting with the consumer in terms of Tangible emotional experience (Thru Hardware)

An Apple iPhone has a BoM (Bill of Materials cost, production cost) of less than $200. However, it sells at $645 to customers (Carriers) who subsidize it. Very clearly, Apple is able to dip into the service revenues generated by the carriers from higher data usage. By front ending the realization upfront with a $645 price tag (which is 3X the production cost), Apple is able to cover its costs and future risks.

To make this happen, Apple surely has the best hardware which compels people to move to a higher ARPU and do so enthusiastically. (Call that Branding at an emotional level, something Apple does best). There are very few and far between instances when the proposition has been strong enough for consumers to move to higher price points.There are several devices which have data capabilities and yet they are not competing with iPhone on the subliminal emotional levels. That possibly is Apple’s biggest connect with the consumer “want”.

2. Apple earns both ways

Why is Apple more profitable than Microsoft or HP? Why does Apple command one of the highest Market Caps globally?2. The main reason Apple is more profitable than their competitors is Apple makes highly-profitable software and services, not just low-profit hardware. Apple is more profitable than HP and Microsoft because … Apple takes both the HP part of the profit on a PC/Device/Hardware and the Microsoft part of the profit on a PC on the software/OS/Browser, and in some cases, the retail part of the profit. The iOS, iTunes and the Safari browser make up for great experience on the device through stunning software. The mastery over Software precedes Apple’s competence with great devices. Remember it was Apple who made the first Mac OS before Microsoft took it mass.Apple is close on the 250,000 milestone in terms of numbers of apps in its Apps store.

The user walks in with a problem, and Apple provides a solution made up of a combination of hardware, software, online services, support services, training, accessories, and even culture. Apple users pay for that entire package. Apple has its own SOC (system on a chip), battery technology, unibody construction, etc. which give it an edge in portability, battery life and speed.


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Debating the Microsoft Tablet (Part I):Is there a strategy in the first place?

The Apple iPad has sold of 3.3 million units and the party for Apple has just begun. ABI research forecasts Apple to sell as many as 11 million iPads this year.

The iPad has opened a huge new market and the Tablets are billed to be one of the fastest growing segments of this decade, beside smartphones. Apple has taken a pole position which would be difficult to better, but competition from other OEMs and Android 3.0 Gingerbread will only kick in late this year or early next year Apple a huge first mover advantage.

While one Steve (Jobs) delivers products extraordinaire and is taking his company (Apple Inc.) to hitherto unknown levels, the other Steve (Ballmer) frets, stabs, promises, commits, flounders and makes a mockery of his company (Microsoft).

Steve Ballmer admits that a Tablet is “job one” at Microsoft. Steve Ballmer is confident about Microsoft’s future in the tablet market, and goes as far as to take a stab at the iPad by pointing out that the Microsoft tablet will be able to print documents. Even as Microsoft can’t give an estimate as to when we can expect to see a tablet from their company, Ballmer has stated that the tablet will be ready “as soon as they’re ready”, and “it ain’t a long time from now.” Ballmer claims that Microsoft must take its time to get the product just right which is a subtle indication that Microsoft is nowhere close to producing a tablet. Even the new Intel processor, “Oak Trail” that is supposed to power the Windows tablet, isn’t expected to hit the production line until next year.

Given Mr. Ballmer own outline strategy for the tablet, it’s apparent that Microsoft has no set strategy. As it is, Microsoft will face numerous issues adapting Windows 7 for tablets. Apple’s iOS was designed from the ground up with touch screen devices in mind, while Windows 7 was conceived as an OS for a keyboard-and-mouse equipped PC. Even while Windows 7 is a vast improvement over the disaster that was Vista, but given Microsoft’s recent track record (think…Kin) it is difficult to imagine an outstanding Windows 7 tablet debuting in the near future. Microsoft may take a leaf or two from its Microsoft Surface project and NUI thoughts. But presently it is extremely unclear how mature are these two platforms to support a product of the scope and scale of an iPad.

Tablets: The Google perspective (Advantage Apple iPad)

Posted in Industry updates, Mobile Computing, Mobile Devices and Company Updates by Manas Ganguly on July 1, 2010

Google will be late to the Tablet space, much to the joy of Apple, who will possibly have built an unassailable lead by then.

Like the Smart-phone race where the Android armies are contesting the market space with Apple most competitively, the Tablet space also awaits the advent of Android. That’s when the innovation game starts rocking (as is the case with smartphones).

Apple’s head start has insured that elements such as design, components, browsing and applications will now become an Apple led benchmark where others will be compared against the iPad. More or less, these elements will become the “hygiene factors” notable only in absence. The Android platform has proven to be the 2nd best user experience platform on smartphones and Android has been a fast learner (unlike the Symbian’s of this world). Although Android offers an increasingly assured experience, it will find it hard to rival Apple’s service and transaction led model. The introduction of iAd has further extended Apple’s lead in this space by broadening the appeal of its platform to more content developers and publishers. Not only does the iPad open up different avenues to online advertisements, it also affords a far richer experience for readers, with interactive features and advertisements. In the medium term, Apple would be able to integrate iAd and iTunes to enable one-touch purchasing directly from an Advertisement. An example is a reader could view a film trailer and go straight to relevant local listings and buy a ticket through the iTunes store.

The view from Android perspective is that Google has the level of integration within its own services which has allowed a quick succession of Android releases. However it appears that Android as a platform is not yet fully optimized as a tablet platform. One reason of the lack of optimization may be product development for display sizes of seven inches or more. It is assumed that the next release of Android Gingerbread will be fully optimized for tablets and will support large screen sizes. While market forces are driving Android to display sizes of 5” to 7” or more, Google still is in the transitional period. Gingerbread is slated for commercial release only in early 2011.This supports the view that there is little competitive play against Apple in 2010.

Apart from Google there are sparse reports of the Windows 7, Meego, Blackberry, WebOS and Windows embedded preparing their own platforms to mount the attack on the Tablet space. However these others, must take their nascent efforts underlying service and content models and combine them appealingly with slick hardware to close the yawning chasm that Apple has established with its iPad.

Tablets: Crystal Gazing into the near term future

Posted in Industry updates, Mobile Computing, Mobile Devices and Company Updates by Manas Ganguly on June 30, 2010

A Tablet is defined as devices with or without cellular connectivity and with a 5” or larger screen.

The tablet market is polarized between Apple’s iPad with its 9.7” screen and Dell’s streak, a mini tablet that features a 5” display. Huawei’s S7 Android Tablet is the first amongst many others that sit between the two, at 7” screen. It is aimed at those looking for mobility and a screen size that offers a superior experience to that of a mobile phone.

Gazing into the crystal ball

A few key points on the future of tablet markets in the immediate future (2010-11):

• The OEMs apart from Apple would engage into fierce price competition to establish the Apple apeing “me too” category of tablets.
• Operators in the US and Europe will look to subsidise some devices to test consumer demand and maintain growth in data plans.
• Carriers in the US perceive the tablet as a far bigger opportunity than that of netbooks and are planning subsidies allocation and data plans.
• The sale of tablets would begin to hit notebooks rather than smartphones. The Tablets will complement the Smartphone as a companion device.
• Subsidy will be a major factor in the next phase of the tablet category’s growth.

How Apple would still rule after the crowd gets in

While price cuts and subsidy would be an integral to OEMs to compete with Apple, Apple seems to have taken the pole position and the head start in this Tablet Market. iPad currently had little incentive to encourage iPad subsidy because of a continued robust demand and a leaner supply. Apple is using its head start very fruitfully to gain a clear understanding in consumers’ mind that the iPad is a premium device, unlike other high tier devices which are typically sold at a nominal or zero cost through subsidized mobile channels.

Timing is a critical for Apple iPad and the 4Q, 2010 could be the time when the iPad appears in subsidized channels ahead of the Christmass holiday season. By this time, Apple is likely to have overcome its initial demand spike and will want to broaden adoption and ensure too big a gap doesnot open up between the iPad and rival products. The iPad pricing could prove to be constraint to market opportunity and entry for other players.

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