65 Million Reasons to be bullish on Apple

There are many that will quibble that today’s “Let’s Rock” event, where Apple introduced the next generation of iPods (read: classic, nano and touch) and released iTunes 8, was somewhat of a yawner. 

After all, there was no breakthrough, singular game-changing product announced, and Apple has set a very high bar in this regard, so anything short of a “holy shit” crap your pants type of moment feels like a disappointment.

But, I see it differently.  Apple is a company with mammoth ambitions, who stands alone in their ability to deliver an unparalleled user experience by seamlessly integrating device, software and service/ cloud layers into various form factors (Mac, iPhone, iPods, Apple TV).

The risk, and fear, as evidenced by hiccups on MobileMe and niggling performance issues on iPhone 3G, is that in the almighty pursuit of delivering the next BIG thing, that the company is losing sight of executing on the niggling details that have made their user base so dedicated, translating into enviable operating margins and a growing halo effect that I have previously blogged about (see below).

So what does today’s announcement tell me?  Well for one thing, the company’s head is screwed on straight with respect to the importance of tactical execution.  Today’s presentation was, in many respects, a clinical delineation to current and would-be customers, as well as media and technology partners, that there is Apple, and there is everyone else.

Consider the fact that Apple has now sold a jaw-dropping 160M cumulative iPod units, in the process securing a commanding 73.4% of the market, with the number two market share holder being “Other” at 15.4% (actually, the real number two is Sandisk with 8.6% of the market; Microsoft has a measly 2.6%).

No less impressive, in just sixty days since Apple launched the App Store on iPhone and iPod touch, 100 million application downloads have been made, and over 3,000 applications have been released by third-party developers. This complements a rich media content library that now includes over 8.5 million songs, 125,000 podcasts, 30,000 television episodes, and 2,600 movies.

So while today was about music, and the noteworthy fact that Apple is now the #1 music distributor in any environment (not Wal-Mart, not Best Buy, not Amazon), the related takeaway is that the company has a rapidly evolving online presence to move digital products of all kinds.

The numbers don’t lie: 65M credit cards on account with iTunes account holders; a rapidly growing subset of these users can be reached anytime, anywhere via the iTunes wireless store (read: the 10M+ iPhone and iPod touch owners expected by year’s end) and a continuously evolving marketplace function that enables content and software creators of all sizes to plug in, and sell their wares, with Apple taking a slice for being the facilitator.

And legions of consumers have been taught that this stuff just works, like magic.  Today, that magic was augmented with Genius, a recommendation service that mines your existing library to build dynamic playlists around favorite songs, and no less important, to recommend songs that you don’t own that you might like to buy.

“The Genius function of iTunes 8.0 released today works by uploading -- anonymously and voluntarily -- a user's iTunes data to the iTunes 'cloud,' where it is then combined with knowledge of millions of other users' iTunes libraries. The more people that use Genius, the smarter it will get,” said Apple chief executive Steve Jobs.

Today, the fulcrum is music, but realistically the model can support any media, and over time can logically be extended to products of all types, not just digital ones.  Amazon, are you listening?  So, too should be the bricks and mortar retailers, as oh by the way, the Apple retail store is just around the corner.

Oh, and as to those rumors about Steve Jobs’ health, he flashed a message on the big screen that said, “The reports of my death are greatly exaggerated,” and in a later interview with CNBC noted that ‘I am healthy.”  He certainly looked and acted healthy too, in contrast to his physical appearance earlier this year.

By contrast, the competition should be feeling a bit sick shortly, if they aren't already.

Related Links:

1. Holy Shit! Apple's Halo Effect: how Apple has turned gravity into its friend.
2. The Chess Masters - Google versus Apple: why partners Apple and Google are without peers, and (seemingly) destined to become frien-emies.
3. iPhone 2.0 - What it Means to be Mobile: a detailed summary of my experience to date with the iPhone 2.0 platform.
4. iPhone SDK - Mobile Reasons for Optimism: why the iPhone Universe is a big deal.
5. iPhone 2.0 - Swinging for the Fences: an analysis of the WWDC Keynote by Steve Jobs.
6. iPod touch: the first mainstream Wi-Fi mobile platform?

Comments

[mark]

Mark, I agree with you on the big picture stuff (tactical execution, major online digital retailer, Jobs health) except for one thing.

Recommendations from the community is not new; Amazon made it "mainstream." Instead, I think Genius is Apple's attempt to demonstrate to the music labels that it is working to help them sell more music (and as well, the studios with regard to movies and shows).

[mark]

One more comment: Apple used the event to position iPod touch also as a video game player heading into the Christmas season. The on-stage demos and TV ad emphasize that.

[Mark Sigal]

Hey Mark,

Good comments on both fronts. Part of the reason I think that this was a big deal was the combination of focus on a beachhead that Apple is runaway leader within and moving into a space that previously you thought first and only Amazon about (although plenty of others doing variants of recommendation services, Pandora being my fave in music arena).

I had not specifically focused on the game player aspect since it has been a rallying call from the get go, but you are no doubt right on that front.

The angle of showing media companies that they will sell more of their wares in the iTunes universe is certainly a big reason that NBC came back into the service.

Mark

[josephf]

i agreed with all your comments, particularly the need to show SJ
alive and well. the problem is that when it comes to apple, the bar is so high that expectation is always out of proportion to delivery. if their huge bucks are coming from laptops, and conversions thereto, i would have like to see a showing of the upgrades. hopefully they might do this in november.

[Mark Sigal]

Hi Joseph,

Believe me, as a shareholder in Apple, I am pre-wired to hope for stuff that juices the stock or AHA moments that get me even more pumped on the company, as I truly consider them without peer.

That said, I have been either a partner, customer or stakeholder in Apple's success dating back to 1993 so the one piece that I have been watching most is their ability to combine vision with execution.

Back in the days of yore, they would get distracted by new shiny objects and abandon the old ones, much to the dismay of customers and partners, which is part of the reason Microsoft was able to outflank them.

An event like this was more surgical than sexual, which given how much heavy breathing they have delivered in the past 18 months or so feels like an appropriate decision, as their opportunity is about more than marketing optics or playing to stock analysts, and I very much want them to realize their potential, as their rising tide will lift a lot of self-interested boats...mine included!

Cheers,

Mark

[Steven]

Well, I see I was not the only one who was taken aback by that number. The ones who thought this event was a yawner obviously don't realize what a huge deal it is for a business to suddenly have over 65 million consumer credit card numbers on file. A business with creativity (and integrity) can transform that info into a marketing coup of epic proportions. In fact, that was the "holy shit" moment for me.

[Mark Sigal]

Great comments, Steven. Obviously, the devil is in the details in terms of how Apple grows the engagement, dollars and lifecycle of spend with their constituency base, but so far, so good, right?

Mark

[engrish]

Hi, I'm just discovering your blog, via the comment you posted at gigaom.com.

What's really astounding about this 65M number is that, just three years ago, iTunes had about 10 million account holders. At the time, Jobs was quoted to say that « iTunes may be the second largest Internet store behind Amazon.com. »

http://www.theregister.co.uk/2005/09/08/apple_reveals_itunes_stats/

[Mark Sigal]

Hi engrish,

Thanks for the note and the link. I am sure that part of what is driving amazon's assault on digital music, books and video is a recognition that at some point this becomes a zero-sum battle for consumer engagement and margins, not just ecommerce dollars.

That said, huge respect for Amazon who is probably the closest co-equal to Apple and Google in my 'chess masters' circle.

Plus, unlike Google, both Apple and Amazon have stared down 'sustainable mediocrity' scenarios and found a way to emerge as stronger and more dynamic companies.

Cheers,

Mark