The Network Garden - Mark Sigal's Blog

5 takeaways from Apple’s iPhone 4S event

“Today we’ll remind you of the uniqueness of this company as we announce innovations from our mobile OS, to applications, to services, to hardware, and more importantly the integration of all these into a powerful, simple, integrated experience.” – Apple CEO, Tim Cook

As there are a ton of good sites (HERE, HERE and HERE) that will exhaust the details of today’s iPhone 4S launch event, let me underline the five items that stood out most to me: 

1. Segmentation Logic: I blogged some time back about how Apple is better than almost any company out there in grokking the fundamental importance of segmenting the market based upon user outcomes, core jobs and underlying constraints.  In that light, you can look at iPhone segmentation as now covering the spectrum from network type (GSM, CDMA) and carrier (Sprint added to AT&T + Verizon in US) to functionality and price point. Here, I hearken back to Tim Cook’s comments at an Apple earnings call a few quarters back where the company announced that they would NOT leave pricing overhang (as they had in years past) for low-end competitors to outflank them. In that light, consider iPhone pricing that ranges from FREE (for iPhone 3GS) to $99 (for iPhone 4), $199 (for 8GB version of iPhone 4S), $299 (for 16GB version of iPhone 4S) and $399 (for 64GB version of iPhone 4S), respectively. Now, that's a frontal assault on the low-end Android phone, where arguably, their volume is greatest.
2. Apple didn’t call it iPhone 5 for a reason: You will hear many quibble that today’s event was disappointing or that Tim Cook is no Steve Jobs, and you can count on there being references to Apple's stock price dropping post announcement. But know this. Apple’s iPhone 4 form factor is HUGELY popular, and the overlay of iOS 5 and iCloud are major enhancements, so calling this device iPhone 4S is a measure of brand strength. Apple doesn't want users to turn the page to the NEXT phone when the current model is so powerful and popular. As to stock movement, that’s a simple case of buy on the rumor, sell on the news. If you track Apple stock immediately surrounding these events, that’s a simple correlate replicated over the years.
3. iPhone 4S camera is arguably the biggest deal: It’s almost pedestrian to point to a mobile camera as the biggest selling point of a mobile phone, but Apple’s camera in iPhone 4 was already starting to subsume the primacy of point-and-click cameras, something which Tim Cook pointed out when noting that iPhone 4 is the most popular camera for posting on Flickr. Hence, a materially better camera experience starts to lock down (for Apple) photography as a core job of these devices. Just look at the popularity of Instagram, with 10M users, and 25 photos + 90 likes processed every second, for proof of this point.
4. Do we Siri-ously want to talk to our phones? While the consensus was that the demo for Siri, Apple’s new voice-based intelligent assistant system, showcased Apple’s ability to take novel concepts and actually make them work, color me skeptical. This feels a bit like FaceTime. Cool in concept (like a dog walking on its hind legs), but debatable how central to the device's core utilization it will be in actual practice. That stated, I quipped on twitter that the porn and pop psychology app/service implications for Siri are staggering, so maybe there’s hope. (Siri listens to Mark ordering Chinese food, before chiming back in automated frustration with tonal snark, “Kung Pau Chicken, again?”
5. Building Bridges between the Virtual and the Real: Apple’s announcement of its new Cards service, whereby you can create, customize and mail beautiful printed cards right from your iPhone or iPod touch, may seem like one of those bullet points that is never to be heard from again. However, I suspect that in the same way iTunes trained users to 'suck at the teat' of micro-transactions (initially, songs), which fed nicely into all media and apps, Cards is the first attempt to train users to see iPhones and iPod touches as wallets and shopping carts for Real Goods (and services) that can be custom-ordered on the fly. That’s Apple. Start small and simple, get one complete logistical use case right, and then scale up and iterate.

A final side comment is that it’s funny how every time Apple has one of these events, all of the text-based services that cover the event always crash. YouTube can serve up 1B videos a day, Netflix can stream full movies, but a text-based event log can't stay up for the duration.

Yes, I know they are technically addressing different scaling issues, but it's funny nonetheless.

Related:

1. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom)
2. What does Apple's iPhone 5 launch event in October say about the iPod's future?
3. Apple just became IBM of the Post-PC Era: Thoughts on Apple’s 'Q3 Earnings Call

(CHART) Head-to-Head for Ten Years: Wal-Mart, Amazon, Google and Apple

This chart is illuminating, I think. Wal-Mart is so completely instutionalized that the present, past and future seem "priced in." It's obviously a great company, but how can you argue any differently?

Meanwhile, Google is making a ton of money, is completely dominant in search advertising, and has executed their moat strategy very effectively.

Yet, when positioned side-by-side against Amazon and Apple, it too, is far removed from tremendous "upside surprises."

Netting it out: Apple and Amazon still seem to know how to pull rabbits out of their hats, and their stocks reflect it.

It's something to think about in handicapping the next stage of the media tablet market, and the respective ecosystems that will emerge, sustain or get marginalized around same.

UPDATE:Steven Cains (@cains) notes via twitter that it's not really fair to compare $WMT due to dividends (Wal-Mart pays em; Apple, Amazon and Google don't). It's an obviously fair point, but if anything, it seems to affirm the macro narrative that Wal-Mart's got predictability (in all forms) priced in.

Microsoft, Metro and the Next Wave in Computing (4 thoughts on Windows 8)

There is a classic scene in Steve Martin's, 'The Man with Two Brains,' where Martin's character, Dr. Michael Hfuhruhurr is a bit "backed up," having not consummated his marriage with his new wife, played the then-sultry Kathleen Turner. In the scene, Turner's character, Dolores, is getting Martin all hot and bothered before spontaneously shutting him down by saying, "I can't wait until NEXT Thursday."

Ah, such mental masturbation is the paradox in processing Microsoft's forthcoming Windows 8, the demo videos and written analyses (XLNT by Andy Ihnatko) of which are just starting to proliferate the web.

On the one hand, give Microsoft props. It is an original vision in an industry where everything seems mind-numbingly derivative of the latest, greatest from Apple. The concept of tiles as a UI construct, and a service abstraction layer for creating richly federated composite applications and services is compelling, if not completely new (son of OLE? sib of ActiveX? kin of OpenDoc? cousin of CORBA? neighbor of JavaBeans?).

Plus, it's not like the ascent of the Post-PC Era actually means that people have stopped buying and using personal computers. In fact, Microsoft rightly takes great pride in the fact that their most recent OS, Windows 7, has sold over 400M licenses.

And lest we forget that every platform play is a play for the hearts and minds of developers, and once upon a time, there was no one better at courting developers and making them rich than Microsoft.

Last time I checked, the IPOs of companies built on top of the iOS and Android platforms are non-existent, suggesting that while those platforms are generating a lot of apps and hordes of developer interest, the dollars are still relatively thin, a dilemma and an opportunity that I previously blogged about (SEE: 'The iPhone, the Angry Bird and the Pink Elephant').

But, here's where we splash some cold water on the hopes, promises and dreams coming out of Redmond. Number one, while it was very common for companies a decade ago to start the advance promotional tour on new software and hardware initiatives 6-12 months in advance of actually shipping a solution, the days of "trust me" are (largely) no more.

Why? Remember Microsoft Courier, the prototype tablet that pre-dated the launch of iPad? Uh, it never launched? Oh, well remember how Flash on Android and RIM's PlayBooks was going to be the achilles heel for Apple, which blocked Flash on iOS? How about how Google Buzz was going to kill Twitter, or Facebook, or someone, anyone?  

The point is that concepts and prototypes, tightly managed demos and well-laminated videos are NOT products. Executing living, breathing products, given the myriad of technical, tools, distribution channel, legacy, installed base and corporate culture challenges is HARD. Really HARD.

It's why our bar of expectations is so low, despite the fact that the 'ingredients' of technology have gotten amazingly good.

It's why we celebrate the magistry of Instagram, when it's little more than today's version of Sugar Water.

It's why Apple is rightfully the most valuable technology company on the planet, and everyone else is playing horizontal checkers to their game of vertical chess. 

Repeat after me. Execution is hard, and Microsoft, culturally-speaking has far more instances of screwing the pooch on new product innovation than actually delivering on new product innovation.

That stated, Windows 8 is actually closer to their core competency, and their heart of hearts than just about anything they've done over the past decade, and as such, if they even just barely credibly execute, they will be relevant again.

The tech biz is relatively stagnant for lack of a serious yang to Apple's yin. Here's hoping that Microsoft can make the game interesting.

Four quick thoughts from reading the tea leaves...

1. It's IBM Redux...Sort of: I recently finshed reading 'The Design of Design' by Fred Brooks (author of 'The Mythical Man-Month'), where he chronicles the development of IBM's System/360, an effort that Brooks lead at IBM to create a scaleable architecture, OS and tools that would run on a wide-range of hardware platforms to service different verticals and price points. It was a landmark success for IBM, and is conceptually consistent with what Microsoft is trying to accomplish with WIndows 8; namely, one OS that can scale from mobile, tablets and notebooks, to desktops, servers and virtualized datacenters. The difference between then and now is that there are well-entrenched players in the segments that don't look like a PC, and Microsoft has failed constistently to find even a tiny wedge in those segments.
2. It's the Microsoft Way: The story of Microsoft prior to iPod, iPhone and iPad was of a company that anticipated and orchestrated their way through the "disruption landmine," specifically by offering customers a way to preserve their investment in time, money, programming and attention. The transitions from DOS to Windows, offline to the Internet, and Desktop to the Web were all instances where a less-strategically sound company could have lost their mojo, margins and sway of influence. That all of the struggles since then have come under Steve Ballmer suggests that a Microsoft without Bill Gates is not the same lethal killer. Nonetheless, it does make sense that Microsoft would pursue a vision that is all about making devices homogeneous so as to sustain the hegemony of Windows, whereas the Apple story is all about heterogeneity, invention and embracing disruption. Is Apple right? Is Microsoft right? If you are an enterprise, Microsoft's bread and butter, you probably are pretty excited about Windows 8, having seen how Windows 7 rescued you from Vista. More to the point, the duality of 400M Windows 7 licenses and over 200M iOS devices suggests that, despite our best efforts to reduce everything down to the "one right way," the real world is not so black and white.
3. Nothing's Free: Here, I hearken back to an axiom that a friend once told me about abstraction layers, where he noted that, "They can solve virtually all problems...except performance." His point, loosely speaking, is that every technical problem is solvable a myriad of ways, but the solution has a cost or trade-offs that can't be completely avoided. Nothing's free. As such, if Windows 8 is going to run on a myriad of devices, screen sizes, input methods and processing capabilities, the system is either going to need to be "fatter" to manage all of that complexity; OR developers are going to have to do a lot of tweaking to optimize from one device target to the next; OR, real world solutions will target a lowest common denominator to achieve the widest reach; OR developers will target a primary environment, and ignore the others. Depending on the answer, you have either a more expensive device, a tax on developers, an LCD-driven market or a bunch of fragmented niches. 
4. Developers are the Straw that Stirs the Drink: A core question remains what does the community of developers (iOS, Android, Windows, Web) do when Windows 8 finally materializes? Is it a non-event that drives developers to simply continue what they are already doing? Does it push a more rapid move to HTML 5 as the 'Switzerland' of all of these platforms? Is there an economic argument that makes one platform more compelling than another for developers? Mark my words. Developers make or break a platform play. Just ask RIM, Nokia and WebOS. Or, Apple and Google, for that matter.

Oh, and one more thing. It sucks to be Adobe Flash. First, kicked off iOS, then touted then irrelevant on Android and RIM, and now designed out of the new Windows 8 browser. "Brownie, you're doing a heck of a job," in the immortal words of George W. Bush.

Related:

1. The iPhone, the Angry Bird and the Pink Elephant
2. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom)
3. Comparing Microsoft to the Collapse of Communism
4. Apple just became IBM of the Post-PC Era: Thoughts on Apple’s 'Q3 Earnings Call

The Garage is Closed: Thoughts on HP's Divestiture of webOS and PC Business

Four quickie thoughts on today's news that HP is getting out of the PC business AND dumping webOS, which was a $1B+ acquisition just a year ago:

1. "I Support You 100%, UNTIL I Support You 0%": I will never forget these words, uttered by a VC friend of mine, whose point was that I could count on his full, unconditional support until the very moment when he decided to replace me, the decision of which would be both swift and absolute. Needless to say, this axiom comes to mind with today's announcement. How else to make sense of HP's stated strategy just a few months ago that they were committed to putting webOS Everywhere? Now, of course, it's webOS Nowhere. 
2. Platform Plays are Hard, Folks: Any way that you slice it, I feel really bad for the WebOS team. They built a credible platform, decent hardware, and if anything, are to be faulted for failing to execute on a cogent SDK and supporting Ecosystem. I've said it at least 100 times; namely, that third-party developers make or break a platform play, and clearly the webOS team couldn't thread the needle there (in the amount of time that they had). That stated, having watched RIM, Nokia and Microsoft repeatedly 'crap the bed' in mobile platform execution, we should tip our hats to what the Palm/webOS team built. The bottom line is that successfully executing a platform play is HARD (as I noted over two years ago), and lies in orchestrating lots of seemingly disaparate moving parts. That Apple has made it look so easy is an optical illusion, borne of true excellence. It is NOT easy.
3. Post-PC is NOW: While I am sure that there is some measure of schadenfreude for Walter Hewlett to see the last vestiges of the disastrous Compaq merger put out to pasture (the real moment was when Carly Fiorina got booted from HP), the bottom line truth is that the PC hardware business is now officially a legacy business that no company with R&D dollars has any right to be in. The last heartbeat on that front will be when Dell pulls out of the PC business (a schadenfreude moment for Steve Jobs when that happens). Tick-tock.
4. The Garage is Closed: The garage that HP founders, Bill Hewlett and Dave Packard, so famously launched the company in that it cast a metaphor for startups, which has lasted 75 years, must be considered closed. What other conclusion can one make when a company basically abandons a credible platform position in the single largest growth area of the next decade, especially knowing how hard such a position to establish is, and how few compelling alternatives there are? Perhaps there is a large, unnanounced check written by Microsoft driving this one. Maybe, it's as basic as people (read: HP CEO Leo Apotheker) will convince themselves of anything, no matter how stupid, when their job survival is on the line, and they need to feed some chum to the shark-infested waters known as the quarterly-focused stock market, to get safely to dry land. Or, perhaps it's as basic as HP sees a niche in emulating IBM, Apotheker is ex-SAP (an enterprise and services focused company), and to a hammer, everything looks like a nail. 

The bottom line truth is that at HP, the garage is closed, and sadly, has been for some time.

UPDATE 1: HP has apparently told the webOS team, "We are not walking away from webOS," while providing no details on what that means. Yeah, RUNNING seems more like a better metaphor than walking, anyway. 

UPDATE 2: Quirky logic by HP's CEO ("the tablet effect is real...consumers changing how they use PCs.") So tell me, why again, are they ABANDONING the Post-PC biz? 

Related Posts:

1. iPhones, App Stores and Ecosystems: Why Platform Plays are Hard
2. Is the Enterprise Dead as a Tablet Strategy (O'Reilly Radar)
3. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom)

On BATNAs and the Law of Unintended Consequences: Thoughts on Google’s Acquisition of Motorola Mobility

 

As I stated in my post last month on Google’s earnings call, I am a big-time fan Larry Page, and the way that he is running Google as CEO. The guy is simultaneously a chess player and a coherent communicator about WHAT Google is doing and WHY.

Towards that end, today’s move to acquire Motorola Mobility is fundamentally a recognition that if Google doesn’t establish a serious defensive position with respect to its patent portfolio 'surround' on Android, it risks the proverbial 'death by a thousand cuts.'

In other words, the writing is already on the wall (and in lots of court documents) that between Oracle, Microsoft and Apple, the 'fig leaf' of plausible hope that Android's handset OEMs can embrace the mobile/post-pc software ecosystem funded by Google, and freely reap the rewards, must now be seen as nakedly untrue.

Henry Blodget of Business Insider puts it best when he says about the deal that, “It seems safe to say that, six months ago, investors and partners did not realize that Google was going to have to shell out $13 billion to ‘defend’ Android, let alone start competing with its hardware partners.”

Simply put, the best lipstick that you can put on this pig of a deal (more on that in a bit), and the reason that HTC, Samsung, LG, et al are giving their boilerplate support is that it answers a core question of any ecosystem play; namely, how clean is the intellectual property provided by the ecosystem operator, and how committed is that operator to protecting its licensees.

Is HTC happy about today’s deal, knowing that Google now has 'first cousins' whose sole reason for being is to sell hardware devices that directly compete with them?

Hell no, but they are immediately less happy about having their nuts squeezed by Microsoft, the specter of Apple stepping on their wind pipes, and Oracle pouring hot oil on them.

Compromised survival is better than risk of death almost any day, and that risk was long past the point of being merely 'theoretical.'

The Best Alternative to No Agreement (BATNA)

Thus, Google’s acquisition of Motorola should be seen as the best alternative to no agreements (BATNA) being made by Google to strengthen its IP portfolio.

It should also being seen as a formal acknowledgement that the question of IP purity is no longer a mere border conflict in the pursuit of Android-everywhere, but rather, a prolonged war out in the open.

Plus, to be clear, in the chess scheme game of things, it’s not like HTC, Samsung or LG have anywhere else to go. They have played that card by addicting themselves to Android, and as such, are effectively part of Google’s concubine.

Moreover, let’s be brutally honest. If Google really wanted to get into the hardware business, does anyone consider Motorola state-of-the-art? On any level? No.

Sure, in the abstract, you can connect the dots to mobile phones, tablet devices and set-top boxes, and conclude that there are other synergies in this deal, but to get them, you need to assume a second-order of corporate integration that Google is wise (and likely) to avoid.

After all, merging Motorola’s 19K employees with Google’s 29K employees is a soupy broth that, for cultural reasons, I am highly doubtful that Google wants to make.

The Law of Unintended Consequences

Netting all of this out, I can take Google at their word that this acquisition was a defensive move – although a note aside, that obviously doesn’t say a whole heck of a lot about the tenure of Sanjay Jha (Google Mobility's CEO) in terms of creating great products and sustainable value at Motorola. Would-be hardware OEMS counting on Android to save your hide, you might take note of that fact.

Moreover, I can see why HTC, Samsung and LG will hold their noses and support this deal, as this is the price you pay when you give up software-differentiation. The 'high' is great, but the hangover kinda sucks.

Similarly, today’s deal signals yet another reality check in the sanctimonious positioning of Google as operating according to some higher moral code. They are as ruthless as any profit-bound company, and all such commentaries about open-ness should be seen as marketing spin going forward. 

I will grant you that Google is better than most, but never forget that Google only seeks to fully open what they desire to commoditize, NOT what they aspire to monetize. Pontifications on open-ness are like those on beauty. It is in the eye of the beholder.

Similarly, this is one of those moves that feels like a big-company action, which is as it should be. Google is a big company.

But then again, in positioning itself with the best and brightest as the place to work, this move again signals an end of innocence, something that both recruits AND growth investors will take note of moving forward.

Now, while you might counter that peers like Apple or Facebook are hardly innocents in terms of their own ethos, note that this has never the positioning of these companies.

You go to Apple to build the insanely great, not to be warm and fuzzy, and sanctimonious. You go to Facebook to build the ubiquitous social utility, and join an hyper-aggressive culture.

For Apple, this deal opens the door for them to further assert that they were 'right' about the endemic goodness of deeply integrating hardware, software, service, marketplace and tools into a complete solution, and that Google 'blinked.'

Don't get me wrong. I don't believe that Google blinked (except on patents), but truth is the first victim of wars, and this will offer yet another salvo in the mobile/post-pc wars.

Today also opens the door to Microsoft potentially coming up with a new calculus (economics, positioning) to establishing a foothold with Windows Mobile 7, not to mention HP with WebOS. Will they? I am dubious, but they should (try).

Finally, it’s easy to see how this deal distracts Google ever so slightly in finding some mojo and momentum on the tablet front.

In a segment where there is no obvious catalyst to buy an Android-based tablet (e.g., the carrier push factor in mobile), and where Apple is running away from the competition, the time that Andy Rubin and team will be spending assuaging partners in the coming months, is time lost co-creating with them.

Bottom Line: Google needed to do this deal, I guess, and good for them for being decisive about it, but this was no rope-a-dope, as Dan Lyons dorkily suggests. It was simply better than doing nothing, and waking up one morning to find Motorola’s patent portfolio in the hands of Microsoft.

UPDATE: John Gruber of Daring Fireball has a delicious rant that is one part call out on Dan Lyons, and one part compilation of the various write-ups from the course of the day. As always, a fun read. 

UPDATE 2: Well that didn't take long. Bloomberg is reporting that Google is replacing Motorola Mobility CEO, Sanjay Jha, with Dennis Woodside, who led Google’s ad sales in the Americas before overseeing the merger from the Google side. As noted in my original piece, Google's dismissal of the strategic value of Motorola's hardware business (at the time of the deal announcement) spoke volumes about Jha's tenure. At the same time, the move to replace him with a Google insider versus an MMI member suggests that the combined companies will hardly be arms-length from one another. More fodder for the wake-up call aspect of this for Google's third-party hardware OEMs, not to mention the increased probability of "unintended consequences" alluded to in the piece.

Related Posts:

1. Quick Take on Google Earnings Call: Put me in the bucket of being a Larry Page 'fan' 
2. Apple's segmentation strategy, and the folly of conventional wisdom
3. Apple just became IBM of the Post-PC Era: Thoughts on Apple’s 'Q3 Earnings Call
   
   

Apple just became IBM of the Post-PC Era: Thoughts on Apple’s 'Q3 Earnings Call

 

 

"What would I do? I'd shut it (Apple) down and give the money back to the shareholders." – Michael Dell

“Amateur hour is over.” – RIM

“No one ever got fired for buying IBM.” – IT Buyer

With Apple’s stock surging towards $400 in after-hours trading, let me just say that I guess all of those 'Apple can't win' naysayers should have a cold, hard one with Michael Dell about now.

"Not open enough." "Too vertical." "It’s Windows versus Mac all over again." "The iPad is just a really big iPod touch." As if that last one is even an insult.

If anything, we are seeing the last vestiges of Apple being undervalued and under-appreciated - both as a stock and as an entrepreneurial institution - and the realization/capitulation that the company is the second coming of IBM, as in "No one ever got fired for buying IBM."

The good news in that is that the company has earned it through laser-like focus, brutally precise execution and a coordinated balance between short-term goals and tactics, and long-term planning.

There just is no other comparable in terms of this level of innovation, diversification, market penetration, corporate culture and eye on the money-making machine.

As such, like IBM in the good old days, companies big and small will want to gain access to some of the Apple magic, investors will pad their portfolios, and who knows, the next great job creation stimulus might come out of the elixir that engaging with Apple brings forth.

All that said, I like my Apple with a bit of a chip on its shoulder, surrounded by legions of skeptics, confidently, but with a bit of a bruised ego, needing to show 'em what they can't see from the highest heights.

I need good, scary competitors keeping the company hungry and lean of mind, and fear that in absence of same, sloth, arrogance and the easy path might water down true greatness.

To be clear, though, I heard zero in today's earnings call that gives me cause for pause, as these blowout numbers and jaw-dropping highlights suggest:

1. The Law of Big Numbers? Yeah right: Apple posted $28.57B in revenues for the quarter, an 82% year-over-year bump. But the company has never been one to confuse market share or even raw sales with profits and cash, and this quarter was no different. In terms of profits, Apple netted $7.31B for the quarter. That means that profit growth (up 125%) outpaced revenue growth. Imagine a quarter that drops $10.4 billion in new cash reserves (up 131% year-over-year), and you have a picture of Apple, which now has a tidy hoard of $76.2 billion. Oh, and they actually grew gross margins in accomplishing this (41.7% vs. 39.1% a year ago), spotlighting the single-mindedness of their assault. Good thing the board didn’t listen to Dell when they had the chance. I jest.
2. Victory over the Tyranny of the "One Right Way": One knock on Apple is that they are trying to do too much, and be too integrated, which is a false dichotomy in the same way that Apple winning doesn’t mean that Google has to lose, or even that the King of Old PC, Microsoft, will die anytime soon. Strategy that is well-planned and even better orchestrated is simply magical, and validates itself through measurable, repeated results. Were Apple to do nothing more than sell 20.34M iPhones in the quarter (representing 142% year-over-year growth, double the 67% growth rate of IDCs smartphone segment) it would warrant Lion-izing Jobs & Co (pun intended - it ships tomorrow). But it’s beyond shocking to see that on top of that performance they took the iPad, a product that did not even exist five quarters ago, a tweener device, and one for which there remains no viable competing solution, and sold 9.25M units in the quarter - a whopping 183% increase year-over year. Apple management was magnanimous in stating plainly that they literally sold every single iPad that they had to sell. Put another way, the iPad is now selling almost 2.5X the number of Macs sold quarterly in just its fifth quarter of life. Imagine the kid in diapers down the block, storming onto the court, and whupping LeBron James without breaking a sweat. It's that astounding. I am sure some analyst will find a dark cloud in Apple's "disappointing" Mac and iPod numbers, since the former is only growing 14% year-over-year and the latter actually contracted 20% year-over-year, but this is akin to a parent with a family full of prodigies lamenting that one of her kids was merely top of class, and not top of the world. Mac, after all, still sold 3.95M units to outpace the growth of the larger PC business by 5X, the 21^st consecutive quarter its growth has outpaced the larger PC market. And the iPod, where Apple still commands a 70% market share, is somewhat of a hodge-podge. After all, almost half of the 7.5M devices sold were the non-iPod touch variety, and thus, a long-term dead end on the street of smart devices. Meanwhile, the other half - iPod touch - is subsuming the legacy iPods on one side, and being subsumed by the god-device iPhone and the big daddy iPad on the other. 
3. When You Look Like the Safe Choice, You’re IBM: One hard takeaway throughout the call is how the one-two punch of iPhone and iPad, when combined with everything else that Apple has done right (Apple Retail, iOS unity, the SDK play, iTunes) has made Apple look like the "safe choice" in Post-PC computing. Consider emerging markets, like Asia-Pac where the iPhone business quadrupled year-over-year. Even the Mac is up 57% year-over-year there. Similarly, China, Mexico, Brazil and the Middle East were cited by Apple management as the mega-drivers of iPhone growth in the quarter.  And if you think that China is a bellwether, consider this. It generated $3.8B for Apple in the quarter, constituting 13% of Apple’s revenue. Moreover, in the K-12 educational segment, typically a laggard in new technology adoption, Apple sold more iPads than Macs in the most recent quarter. You wrap hard numbers like this with 'soft data' of iPhone and iPad pilots in the enterprise (91% and 86% of the Fortune 500, respectively, about half that amount in Global 500 companies), and the picture is clear. Apple looks like the safe choice, which history suggests has a way of becoming a self-fulfilling prophecy, as both IBM and Microsoft proved before them.
4. Masters of their (Channel) Domain: Now what’s scary in all of this is that the company is hardly at their apex from a market penetration standpoint. First and foremost, the almighty Apple Retail halo-effect creation engine, which no other device vendor has, is a business that is humming along with 36% year-over-year revenue growth, but equally important, one where Apple is seeing 20% Y-O-Y growth at the individual store level (now at $10.8M per store). Moreover, I took note of the assertion by Apple COO Tim Cook that the company is ready to move from “pilot stage” to “adoption phase” in the enterprise, something they plan to do vis-à-vis the dual leverage of: A) Piggybacking off of carrier’s sales forces that target enterprises to sell them voice and data solutions (where RIM’s inattention to their core competency, and obsession with chasing consumers will be business school fodder for years to come); and B) Building overlay sales organizations that co-sell with other enterprise solution providers (although details were fuzzy at best, and no mention was made to their recent B2B licensing programs). When you surround this gauntlet with an additional existing 115K outlets for Apple products, another 228 carriers (in 105 countries), and of course, the 225M account strong iTunes ecosystem (all backed by credit cards), and you’ve got something that is, dare I say, borg-like.

A side observation in trying to digest all of these numbers is that for all of the puffery about Apple being a "closed" company, if you compare their metrics breakouts in earnings calls to a more "open" company like Google, it’s laughable. Google, like a lot of companies, gives the flyover view, whereas Apple allows the interested to get fairly surgical in their understanding of Apple’s business.

I could go on and one, but the key point is..."Holy Crap!" And you can quote me on that. :-)

Related Posts

1. Apple's Segmentation Strategy (and the Folly of Conventional Wisdom)
2. Five reasons iPhone vs Android isn't Mac vs Windows
3. Holy Sh-t! Apple's Halo Effect
4. Is the enterprise dead as a tablet strategy?
5. Apple announces 'Custom B2B Apps for Business' Program...but there's a catch

 

Google+ doesn't hit the bulls-eye, but Google's found a 'wedge'

Sure, we'd all love to be killer apps, to have hit the bulls-eye, to have delivered a solution so compelling that it forces the competition to change, and adapt.

And in tech especially, there is a tendency to create these false dichotomies - fueled by the echo chamber of the blogosphere - such that everything either "sucks" or is a "game-changer."

But sometimes, it's just as important to find a wedge, some wafer-thin morsel of utility or delight that gets you into the game.

For Google, I think that's the best way that I can describe Google+.

Is it going to kill Facebook? Probably not, but then again, it doesn't need to. It just needs to provide another reason for Google's base of users to use a Google product twice a day, "just like your toothbrush," as Google CEO Larry Page suggested in last week's earnings call.

So what is that reason? For now, it's status updating with decent visual display, and at a more basic level it's an opportunity for users to reboot their friending process.

In that regard, Circles is a **potential** middle-ground on the friending front between:

A) Being a prude with your social network, so as to maintain intimacy and trust; AND

B) Being promiscuous, so as to maximize reach and connectivity.

Personally, I think that as Fred Wilson noted, once you get beyond true "Friends" and "Family" buckets, the 'circle' distinctions get to be arbitrary and unwieldy except for the most die hard users.

As such, I believe that for the concept to scale, it will need to be more simple and algorithmic, probably some combination of tracking "like minds" and "like content," coupled with contextual, visual content "traversal" tags, along the lines of what Posterous facilitates on the user-generated side, and Quora enables on the auto-generated side.

Again, these are implementation details, but unlike my past knocks on Google for being unclear about what purpose a new product initiative serves, and what path Google will take that product, with Google+:

• Google is showing clear leadership at the CEO-level (Larry Page categorically frames three product buckets for Google)
• Google-folk appear to be eating their own dog food by using the product
• Google has defined Google+ in meta terms as a project that will permeate all their efforts, while at the same time showing continuous, daily iteration of their offering.  

On that last point, today brings a native iPhone app, and you can see the iteration on the web side daily.

Yes, I could quibble about the UI or the user experience that Google+ currently delivers, or I could lament the fact that Google+ is yet another social service to post to.

But, that would only affirm the point that in the same way that Twitter succeeded -- despite its unreliability -- specifically **because** it was useful, so too will Google+ succeed, despite these annoyances.

Simply put, it's useful and engaging enough, which constitutes a wedge.

Ironically, given how fully Twitter has changed the rules of the game on its developer base (perception is reality here), if Google gets any religion on making G+ into a developer platform, that could be a game-changer, but I'll keep my platitudes to a minimum in this post.

Related:

1. Google+ (Wake me up when I should care)
2. Google Buzz: Is it Project, Product or Platform?
3. Quick Take on Google Earnings Call: Put me in the bucket of being a Larry Page 'fan'

Apple announces 'Custom B2B Apps for Business' Program...but there's a catch

Finally! I have had two major gripes about Apple's iOS Developer model that are starting to be answered.

The first has been that Apple, in correctly recognizing that a surplus of app variety (i.e., "there's an app for that") would catalyze the success of iOS-powered devices, has fostered a race to the bottom in terms of app pricing.

Unfortunately, price commoditization creates an environment where developers can't possibly grow into large companies ($100M+ revenues), such that the icon for breakout success on iPhone and iPad is Angry Birds, perhaps a $20-30M business.

In truth, price commoditization creates a dynamic where very few developers can grow beyond lifestyle businesses, if that.

Sidebar: Read 'The iPhone, the Angry Bird and the Pink Elephant,' my analysis on how the Post-PC era is shaping up for software developers relative to past computing eras.

The second major gripe that I've had has been that the consumer-centricity of App Store, and the concept of App Store as the only viable way to distribute iOS software, is at odds with a primary means that businesses embrace to acquire software: System Integrators (SI) and Value Added Resellers (VAR).

For the uninitiated, SIs and VARs are best thought of as channels that:

• Build custom software for companies (as opposed to consumers); 
• Install, integrate, configure and support software within a company's IT infrastructure, typically on lots of devices.

In fact, Apple's fuzzy-to-non-existent position in this category, coupled with the woeful state of the enterprise as an IT innovator, lead me to question just two days ago whether the enterprise is simply 'dead' as a viable market penetration strategy for Post-PC device makers.

Apple announces Custom B2B Apps for Business

Well, ask and ye shall receive, for Apple just announced a program specifically geared towards what they call 'Custom B2B Apps for Business.'

It offers two primary things that as a developer, I am excited and hopeful about.

One is a mechanism enabling third-party developers to sell their custom business apps outside of the App Store, and take bulk orders via volume purchasing mechanisms provided by Apple.

On both the transaction and distribution side of the equation, this addresses the case of third-party developers creating and selling 'seats' of custom iOS software to specific corporate customers (as opposed to the general consumer universe).

Moreover, because it sidesteps the App Store, the program mitigates developers being forced to broadcast their customers to competitors, and the App Store being littered with apps that are custom-built for one customer.

Raising the Floor on App Pricing...but there's a catch

The other thing that this program does is it sets a floor on pricing of $9.99, which reboots app pricing logic from "everything should be 99 cents or free" to something more akin to historical packaged software and custom software pricing models.

There are some caveats, though. One is that to actually participate in the program, your customer needs to be big enough to have set up a Dun & Bradstreet (D-U-N-S) number for their company, and THEY need to have signed up to participate in the App Store Volume Purchase Program for Business.

Put another way, while I as a developer need a program so I can sell custom-built iOS offerings directly to businesses, what Apple is actually giving me is a program for enterprises to sign up for Volume Purchases of apps in the app store, and a subset of that program deals with the case where the enterprise wants to buy truly custom iOS software directly from a third-party developer, like me.

While that may sound like semantics, in truth, it raises the bar for developers wanting to pursue business customers as a core focus, since only a certain type of customer can buy from them, and that customer has to get set up in the Apple program, in addition to the developer's own commitment to Apple.

In the pattern recognition bucket, there's an axiom that if you raise the bar a half inch, you lose 90% of the audience, all of which casts some doubt on how successful this program, as configured, will be.

A Taxing Question: attached to Apple's teat in perpetuity?

Also, while in concept Apple is acknowledging that such custom apps will need to do a bunch of things that would be atypical of App Store apps, nonetheless such apps still have to go through the standard App Store approval process.

As such, it remains to be seen just how "custom" Apple will allow developers to get, and where they'll draw the line.

To be clear, this a non-trivial concern when you understand that selling into corporate environments often means integrating with a bunch of legacy crap, mapping to wacky UI conventions and supporting non-intuitive workflows.

By definition, taking care of the customer could create scenarios where the developer is in technical violation of Apple's rules.

What will Apple do in such cases, and what happens if they change their mind (as they are sometimes prone to do), and you have a written license with the enterprise that you can no longer perform on?

Finally, unclear in this case is whether Apple is taking their 30% cut for an app that doesn't even sell through the App Store, but that only leverages their tools and their transaction model?

In such cases, Apple's 30% cut starts to feel more like an onerous tax than a fair exchange of value.

That said, I am going to give Apple the benefit of the doubt that they'll get to the 'right answer' for the customer, developer and themselves alike.

So far, their batting average has been pretty good, iAds, MobileMe and Ping, notwithstanding.

Here's an excerpt from Apple's announcement of the new program (full link is HERE):

Custom B2B apps are designed to provide tailored solutions that extend the possibilities of iPhone and iPad in business. For example, a custom B2B app could offer:

• A customized user interface including company logo or branding
• Unique features or capabilities specific to a business process or workflow
• Extra privacy protection to handle sensitive data
• A specific configuration to meet the customer’s server/back-office environment or IT environment
• Features targeted to a limited audience, such as a business partner, dealer, or franchise

Businesses can buy custom B2B apps from developers in a private transaction through the Volume Purchasing Program. The minimum price for a custom B2B app is $9.99.

Related: 

1. Is the enterprise dead as a tablet strategy? (O'Reilly Radar)
2. The iPhone, the Angry Bird and the Pink Elephant (O'Reilly Radar)
3. The Scorpion, the Frog and the iPhone SDK

Five quickie thoughts on Amazon's tablet computer announcement

The Wall Street Journal is reporting today that Amazon will be releasing a tablet computing device by October.

Some quickie thoughts on this:

1. Amazon is the only company with the media relationships AND comparably-sized billing relationship with consumers to directly challenge Apple. No one else has either of these elements, let alone both of them. Not Google, not HP, RIM, Microsoft, Facebook etc.
2. In the consumer realm, Hollywood-style media (music, movies, TV shows, books) is such a core "job" of a tablet device, that NOT having an iTunes equivalent is analogous to a missing leg on a table. It's pretty integral, unless wobbly is okay with you.
3. Arguably, Amazon understands product discovery and recommendation even better than Apple does, and certainly groks the transaction and distribution logistics of that equation at least comparably well.
4. What's interesting about this one, is that while the spotlight is on Amazon and Apple as competitors, Amazon is also very well-positioned to outflank Google's play with Android. How? By better leveraging their installed base with Kindle; by building both tight integration with the Amazon Android App store and with Amazon Cloud Services; by better harnessing their recommendation services on both digital and physical goods (e.g., "Looking to buy a screwdriver? Constructor App will help you with construction project budgeting."); and of course, the aforementioned billing relationship, which facilitates one click purchases.
5. For developers, the market needs an integrated alternative to iOS, if for no other reason than to keep Apple honest, and also because not enough developers are making serious coin in either the iOS or Android model. Amazon, if they get their act together, can seriously court developers on the premise of their success with their Cloud Services offerings, not to mention the various hybrid programs they have proven out over the years for smaller retailers to plug into the Amazon Marketplace. Heck, there is even a place for an affiliate model in all of this to make app discovery more viral. Put another way, there are legions of Android developers who like the Android model, but don't like having to support the compatibility matrix from hell on the device front, not to mention the fact that the Google model is all about free, which is not exactly music to the ears of the typical developer. 

What gets me most excited about this is the fact that in Amazon and Bezos, you have a company that is clearly focused on execution.

Case in point, on both the product and M&A front, they have had very few crash and burn outcomes. This is a company that is disciplined and durable such that when they launch an effort they keep iterating until they get it right...and then they make it better.

Plus, as a developer, they are focused on making stuff that directly makes money when it sells. Not a trick subsidized offering to sell their real product, be it advertising, customer's data, etc.

Finally, it's hard not to root for a vendor whose approach inspires the kind of loyalty that one associates with...Apple (and Google).

RELATED:

1. The iPhone, the Angry Bird and the Pink Elephant (O'Reilly Radar)
2. Built-to-Thrive: The Standard Bearers: Apple, Google, Amazon
3. Google Android: on Inevitability, the Dawn of Mobile, and the Missing Leg (O'Reilly Radar)