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Jean-Louis Gassée writes at Monday note that Apple’s most recent quarterly numbers broke a number of laws:
Law 1: Larger size makes growth increasingly difficult. The Law of Large Numbers predicts the eventual flattening of extraordinary growth. "And yet, last quarter, Apple revenue grew 30%, breaking the Law and any precedent," writes Gassée. "iPhone revenue, which grew 57%, exceeded $51B in one quarter — close to what Google achieved in its entire Fiscal 2014 year." Apple’s recent numbers show, the iPhone seems immune to modularity threats.
Law 2: Everything becomes a commodity. As products are standardized, margins suffer as competitors frantically cut prices in a race to the bottom with the PC clone market serving as a good example. "At the risk of belaboring the obvious, a rising Average Selling Price (ASP) means customers are freely deciding to give more money to Apple," says Gassée. "We’re told that this is just a form of Stockholm Syndrome, the powerless customer held prisoner inside Apple’s Walled Garden." Yet according to Tim Cook “…fewer than 15% of older iPhone owners upgraded to the iPhone 6 and 6 Plus. The majority of switchers to iPhone came from smartphones running Google Inc.’s Android operating system.” Apple’s recent numbers show, the iPhone seems immune to modularity threats.
Law 3: Market share always wins. With a bigger market share comes economies of scale and network effects leaving minority players condemned to irrelevance and starvation. Yet despite its small unit share (around 7% worldwide, higher in the US), Apple takes home about half of all PC industry profits, thanks to its significant ASP ($1,250 vs $417 industry-wide in 2014, trending down to $379 this year).
Law 4: Modularity Always Wins. In the end, modularity always defeats integration. Clayton Christensen points out that in the PC clone market, modularity allowed competitors to undercut one another by improving layer after layer, smarter graphic cards, better/faster/cheaper processing, storage, and peripheral modules. Yet, as Apple’s recent numbers show, the iPhone seems immune to modularity threats.
"I have no trouble with the Law of Large Numbers, it only underlines Apple’s truly stupendous growth and, in the end, it always wins. No business can grow by 20%, or even 10% for ever. But, for the other three, Market Share, Commoditization, and Modularity, how can we ignore the sea of contradicting facts?" concludes Gassée. "As Apple continues to “break the law”, perhaps we’ll see a new body of scholarship that provides alternatives to the discredited refrains. As Rob Majteles tweeted: “Apple: where many, all?, management theories go to die?"
(Score: 4, Interesting) by TheRaven on Tuesday February 10 2015, @10:51AM
Law 1: This is true within a market (as it reaches saturation, you run out of room to expand), but Apple has moved from computers to portable music players, to phones, to tablets and has sidelines in online music, video and software distribution. It's been a few years since they entered a completely new market (the iPad was the last time), so there may be some cause for investors to worry if they don't - the iWatch is their next attempt and we'll see how that goes.
Law 2: That's true, but it takes time. It's also not quite so clear cut. For example, the graphical UNIX workstation market that SGI owned basically died because its key selling point was speed and eventually commodity hardware caught up because companies like nVidia could outspend them on R&D with a much lower markup by having huge volumes. Cars haven't gone the same way, because there's some status attached to the higher-end models. The questions is whether the higher margins at the luxury end outweigh the lower volumes. For PCs, this didn't happen because PCs running Windows all have roughly the same user experience with the same set of core components - there isn't much incentive to pay the higher margins, unless you're differentiating the machines in some way like a different OS or a very different form factor.
For Law 3, basically the same applies. Market share doesn't always win, it only wins if it's in the right bit of the market. Being in the low-volume, high-margin end works well as long as the profit in the rest of the market doesn't let everyone else massively outspend you on R&D.
Law 4 is just stupid. The PC market is about the only place where this has happened, and even there it only extends to desktops. For laptops there's very little modularity. The modularity that actually matters is on the other end of the supply chain: can you swap out one supplier's part for another? This is where Dell does very well, but the economies are different when you want huge volumes of the same product.
sudo mod me up
(Score: 4, Interesting) by WizardFusion on Tuesday February 10 2015, @11:55AM
Horribly wrong, but they will sell a lot of them (or so they will say). The iWatch will only be bought by apple fanboys.
It's already way behind the curve in terms of design and function, and it hasn't even been released yet.
More and more companies are moving to round faces to match "normal" watches as an attempt to better blend in.
(Score: 4, Insightful) by quacking duck on Tuesday February 10 2015, @02:50PM
Smartwatches are not devices that only show hour/minute/second hands around a miniature circular clock. They show data, and whether that's text or visual, it works better for humans when it's square or rectangular.
Recall the monitors seen on the bridges of the first 3 or 4 (original) Star Trek movies; they are horrible [wordpress.com] at displaying information [blogspot.com], and were replaced with more sensible rectangular ones in Star Trek V and VI.
Now of course, you're not supposed to be doing anything complicated like reading console logs or Excel charts on something that small anyway, but even looking at the occasional photo on a round watch becomes pointless.
Showing stuff in circles is trendy, and in a bad way. Sadly this has infected even Apple, at the software level at least, where the latest OSX and iOS contacts app's pictures are shown inside a circle instead of rectangle, and number pad buttons are circles too.
And, you might not have noticed, but Apple's last 3 big things (iPod, iPhone, iPad) were all designed NOT to blend in, but to be noticed. iPods with their white earbuds when most were black, the iPhone with the large (at the time) screen and annoying fanboys showing you everything it could do, and iPads weren't exactly inconspicuous. The last thing Apple wants is to have their new watch be part of the background. So far that strategy has worked pretty well for them.
(Score: 0) by Anonymous Coward on Tuesday February 10 2015, @09:13PM
The problem with the iWatch is that it's too early. It still requires you to have the phone to do anything, which defeats the point of the watch aside from trendy factor. Heck a Dick Tracy watch had more functionality than the iWatch. Once the battery life and the requirement to have a phone directly next to it are gone, it may be useful, otherwise it's just going to be a trend, most people already are moving away from watches, simply because they already have a phone. It's an interesting experiment. I think full Android in cars will take off before the Apple iWatch, and I'm somewhat surprise Apple hasn't moved into this market more. I'd think it would be a great place to create more interest for their whole ecosystem, and something I think that they would do well in.
(Score: 2) by quacking duck on Wednesday February 11 2015, @04:28AM
Pairing isn't a problem with just the iWatch, it's a problem with *all* smartwatches. After a quick search, it seems the only smartwatch that doesn't depend on your phone being nearby is the Samsung Galaxy S, which has a SIM slot and 3G data connection. But from the review it seems there's a lot of compromises... and it still technically needs to be paired with your phone, just that it can do it over 3G as well as Bluetooth.
I never watched Dick Tracy, but the argument it could do more than the Apple Watch makes as much sense as those who said Apple copied the PADD from Star Trek: The Next Generation... or the Newspads from the movie "2001". No, they really didn't. The PADD and the Dick Tracy watch were *concepts* that were made possible only with special effects and post-production work, whereas Apple and others have made actual real-life working devices.
And Apple is already in the car console space with Carplay, both in new cars and aftermarket units. Too early to say how that market will trend.
(Score: 2, Informative) by gtomorrow on Tuesday February 10 2015, @07:37PM
The iWatch will only be bought by apple fanboys.
It's already way behind the curve in terms of design and function, and it hasn't even been released yet.
God, you could almost substitute "iPod" for "iWatch" in your assessment. And we all remember that fiasco...errr, wait.
Although I'd tend to agree with you in this case, my crystal ball is in the shop right now. Obviously yours is a better model. Possibly an iBall?
I kid, I kid! /triumph
(Score: 3, Interesting) by brocksampson on Tuesday February 10 2015, @12:38PM
Thank you for pointing that out. The authors state that the iPod "paved the way for the iPhone," but that does not mean that everyone with an iPhone used to own an iPod or that everyone with an iPod transitioned to an iPhone. Apple started with personal computers, moved to laptops, then to MP3 players, then to smartphones, then to tablets, and now to wearables. Each of these represented an entirely new market in the sense that selling someone an iPod in 2003 was not cannibalizing iMac sales. If you look at each segment, I bet you will find the "law of large numbers" being obeyed; what was their growth in MacBook sales in the same quarter? Aren't iPads losing money?
And Law 4 is probably still true, except for the part where it is inevitable. Those of us who used to build desktop machines were flummoxed by the lack of modularity in laptops and saddened that it is only getting worse with embedded devices. Go ahead and try to upgrade the RAM or flash memory on your smartphone. And the ever-changing landscape of sockets and chipsets basically makes modern desktops extensible kits. Cars have had that problem forever. Sourcing parts on an old car often means not just finding a carburator, but one from the same make, model, and year. The automobile industry gave rise to tool and die shops, machine shops, metal shops, etc., each cranking out specialized parts to specs. And despite that glaring inefficiency, cars never modularized because--much like the mobile phone chargers of yore--they could gouge consumers by creating artificial scarcity. Even car batteries are make-specific. The mobile device market looks a bit like that, no? Plus now you can get trapped in a company's silo and end up being forced to buy needless, incremental upgrades because they drop soft/firmware support for the old model.
(Score: 3, Insightful) by TheRaven on Tuesday February 10 2015, @12:53PM
Those of us who used to build desktop machines were flummoxed by the lack of modularity in laptops and saddened that it is only getting worse with embedded devices. Go ahead and try to upgrade the RAM or flash memory on your smartphone.
In particular, for anything portable you have a trade between being easy to modify and being compact. Every removable panel, ZIF socket, hinged door, and so on adds to the volume (and to the cost). In a market where the easiest upgrade is to buy a new device and in a market segment full of people with more spare money than spare time, which way would you expect it to trend?
There were two big advantages to modular desktops. The first was that you could build a machine that had the specs that you wanted, even if you were a niche market. The problem with this is that it means that anyone in that market is not going to be a big-voume customer (though there might be higher margins). The second was that it let you upgrade gradually and spread out the cost. With mobile phones, there are usually financing agreements that do this (and carriers that are happy to lock people in to a 1-2 year contract that comes with a 'free' phone that's really a phone financed by a 50% APR loan incorporated into the contract cost).
sudo mod me up
(Score: 2) by quacking duck on Tuesday February 10 2015, @03:04PM
I agree with most of your comment, except the suggestion that iPads are losing money. That might apply to Microsoft's Surface tablets (not 100% sure), but like the tablet market as a whole, iPads simply aren't selling as much as they did in the previous year. "Not making as much money" though isn't automatically "losing money".
(Score: 2) by meisterister on Wednesday February 11 2015, @01:25AM
Yes, what you say is true, but it doesn't really fit into the corporate mindset. I would expect that any decrease in sales could be called a "loss" only because it is a "loss" relative to where you were last year. The idea is to continuously grow rather than to shrink even slightly.
(May or may not have been) Posted from my K6-2, Athlon XP, or Pentium I/II/III.