Category Archives: Apple

Apple, Earnings, iPhone, iPhone 6, Q1 2016

The iPhone 6 Blip

April 25, 2016 Jan Dawson 2 Comments

On Tuesday, Apple is due to report its results for the March 2016 quarter (Q1 2016 according to the consistent calendar labeling I use for these things on this blog). A major focal point in the earnings report will be iPhone sales, which Apple has already guided will be down year on year. I’ve been contacted by quite a few reporters to ask – in various ways – whether this is bad news for Apple. The thought I’ve tried to articulate in response is that the current quarter is best seen in the context of what you might call the iPhone 6 blip.

What I mean by this is that, if you look at iPhone sales growth over the several years before the introduction of the iPhone 6, there was a fairly clear pattern emerging – one of slowing year on year growth. Growth declined from an average of around 100% in 2011 to around 50% in 2012 to just 15% in 2013, and over the three quarters before the iPhone 6 was introduced, growth rates slowed by roughly 1 to 1.5% quarter on quarter, for an average of 15%. All of this was a sign of the increasing maturity of both the overall smartphone market and the iPhone in particular. Following a rapid expansion into new markets over the years from 2007-2011, Apple was approaching saturation of the available distribution channels, and many of those already in the smartphone market who could afford to buy an iPhone had one or one of its high-end Android competitors. Absent significant switching from Android to iPhone driven by a major change in the addressable market, that’s how things would have likely progressed.

Of course, what happened in late 2014 was that Apple introduced the iPhone 6 and 6 Plus, which did dramatically increase the addressable market for iPhones and drive significant Android switching. The result? A massive increase in the iPhone growth rate, to 46% in Q4 2014, 40% in Q1 2015, and 35% in Q2 2015. For some, this was the new normal for Apple, driving sky-high growth rates in a product that had appeared headed for only modest growth in a saturating smartphone market. Now that the iPhone 6 year is past, however, we’ve seen the first flat year-on-year quarter for the iPhone, and are about to witness the first year on year decline. Hence all the calls from reporters about whether we’re witnessing some sort of crisis.

The reality is that the iPhone 6 line really just caused a blip in the long-term trajectory of the iPhone. It’s impossible to know what iPhone sales would have done absent the introduction of the iPhone 6, but we can at least have a go at projecting sales on the basis of the prior trajectory. Given that growth rates were slowing by roughly 1-1.5% per quarter before the iPhone 6 launch, that provides a good starting point for such an exercise. The chart below shows the actual year on year growth rate (using 51m as a consensus from the professional Apple analysts) and the two projected rates based on 1% and 1.5% quarter on quarter slowing in growth. You can see the blip extremely clearly here:Now, if you apply those growth rates to iPhone sales to project what would have happened if Apple had continued as before without the massive bump from the larger iPhone 6 phones, you get this second chart. It shows actual sales (in blue), as well as projected sales using those slowing growth rates in gray and yellow:It’s a bit hard to tell exactly what’s going on in a chart with so much history, but I’ll zoom in a little bit in the next version, so you can see the last few quarters better:In this chart, you can hopefully see that that consensus point of 51 million falls right between the two projected data points for Q1 2016. In other words, it’s very much in keeping with the long-term trajectory in iPhone sales. The iPhone 6 blip is over, but if iPhone sales land roughly where the analysts expect them to, they’ll be right back on track with where they were headed before the iPhone 6 launched. That’s a big “if” – sales could come in above or below that number, which would suggest either that underlying growth had slowed more dramatically in the past, or that Apple has successfully pushed to a slightly higher long-term growth rate off the back of the iPhone 6 and 6S.

The other big question is what happens in the next few quarters, and whether Apple is able to stay on or above that long-term trend line. Remember that the trend line calls for a 1-1.5% reduction in year on year growth per quarter – on that basis, growth would slow to 6%, 5%, and 4% over the remaining quarters of 2016 with 1% shrinkage, or drop as low as a 1% decline by the end of the year. This is obviously far too precise for a real-world projection, but it gives you some sense of that trajectory if it does continue. It’ll be very interesting to see Apple’s guidance for the June quarter – on the basis of the trajectory, Apple would sell between 39 and 41 million iPhones next quarter. But of course, it’s just launched the iPhone SE, which could change things. Anything below 40 million iPhones (or $40 billion in revenue guidance) is a sign that Apple is dropping below its long-term trajectory, and would be bad news. Anything above that is cause for optimism, at least in the short term.

This, then, is the real answer to the question those reporters have been asking, in the form of another question: Does iPhone growth revert to its long-term trajectory, dip below it, or bounce back above it, in the reported numbers for Q1 and guidance for Q2? The answer to that question tells you what you need to know – at least in the short term – about how you should feel about iPhone sales.

Apple, iPad, iPad Pro, Reviews

Two Weeks with the iPad Pro

April 20, 2016 Jan Dawson 5 Comments

When the new 9.7″ iPad Pro was released a few weeks ago, Apple was kind enough to send me a review unit, which I’ve been testing since. I thought I’d share some of my thoughts on using this device for the past couple of weeks.

Update: I added a little something on the Apple Pencil – I initially left it out because I simply haven’t used it much, but it’s worth noting that fact in and of itself. The addition is near the end of the review.

Initial impressions

My first experiment was to try a day of working solely with the 9.7″ iPad Pro, and I got through a whole day of fairly varied work without needing to use any other computing device. That surprised me to some extent – other than on the occasional business trip, I hadn’t really ever tried to use an iPad as my sole computer, and I really wasn’t sure how well it would go. That first day turned into several days and eventually two weeks, but even after that first day I immediately knew I also wanted to test the larger iPad Pro, and so I purchased one from the local Apple Store (I’ve since returned it), along with a Surface Pro 4 I acquired for testing too. During that period, I used one or other of the iPads virtually exclusively, with a couple of brief exceptions, and found this barely limited my ability to get done what I wanted to.

The first thing I noticed was that the device felt more intimate and personal – instead of staring at a screen sitting a couple of feet away and using peripheral keyboard and mouse that felt very disconnected from the computer, I was engaging entirely with this screen that was immediately in front of me, including touching it occasionally. That felt very different from my usual computing experience in subtle ways. Obviously you get some of the same feeling from using a laptop, but with the iPad it felt subtly different, and I think part of that is because I’m used to thinking of iPads as devices that you hold. Although a lot of my work was done with the iPad resting on the keyboard case, throughout the day I also picked it up from time to time without the case and used it for catching up on Twitter or reading things, and in the evenings it had the flexibility to be used that way too.

For this reason, I love the new modular approach to cases and covers Apple now has – it used to be that you either had a case that included a cover, just a cover, or some sort of keyboard case. But the new modular cases from Apple allow you to have a case permanently attached to protect the body, and then to swap out the plain cover and the Smart Keyboard case at will. This feels a lot more flexible and means you just always use whatever you need at any particular point in time, whether that’s just the case when you’re reading something, the case and standard cover when moving around, or the Smart Keyboard cover and case when you know you’ll need to type. This flexibility is one of the biggest things that sets the iPad Pro apart from the Surface Pro too – the Surface always feels more like a computer than a more personal device like a tablet, whereas the iPad Pro makes that transition seamlessly without feeling either awkward or as though it’s missing an important appendage.

The other big difference I noticed in switching between the iPad and Surface was that the default state on the Surface is an empty screen – the desktop. You have to actively go looking for something to do in the Start Menu, where there’s little consistency in how items are presented with all the different sizes of live tiles. Apps you install don’t even show up there by default and it takes hunting around and then replacing default apps with the ones you choose to get them accessible. By contrast, on the iPad (as on any iOS device) you’re always presented with a screen full of possibilities in the form of a set of app icons. You can, of course, rearrange these icons and swipe through several pages of them to find the one you want, but ultimately the default state is being presented with lots of things you could do next. This, too, makes the iPad feel like a more personal device than the Surface.

Keyboards

I found the keyboards on both sizes of iPad very usable. I’m typing this review on the smaller of the two keyboards, and I’m able to type more or less as fast as on my Mac or MacBook Air keyboards. I don’t find the lack of key travel a problem at all, and I like the fabric on the surface of the keyboard. The smaller of the two is definitely more space constrained, but I find that I can adjust very quickly when switching between devices, and the fact that the keys are raised and nicely separated is very helpful. My one niggle with the keyboards is that the globe icon key for switching between virtual keyboards (e.g. invoking the emoji keyboard) is at the bottom left corner and as such the other keys are shifted over to the right a little from other Apple keyboards. That has meant I’m often either hitting that key by mistake or hitting the control key when I mean to hit the option key, for example. I’m a big user of keyboard shortcuts on the Mac and I found most of them translated easily to the Smart Keyboard, but this one change has caused more errors than anything else in the keyboard. My other frustration with keyboard shortcuts has been that option-deleting hasn’t worked the same was as in OS X, in that instead of deleting whole words at a time, it only deletes single letters as if the option key weren’t depressed. That’s one of those muscle memory things that’s been hard to adjust to on the iPad, and should be easily fixable through a software update.

Performance

For the tasks I undertook on the iPad Pros, there was never a performance issue that felt related to hardware. The devices are snappy for all sorts of activities, app switching happens quickly and without glitches, and on the few occasions where you do encounter bugs they feel like they’ll be resolved soon. I loved being able to use the familiar command-tab shortcut for app switching, and it even implements in a clever way when you’re in split-screen multitasking mode. My one big frustration about multitasking and split screen use is the way you have to scroll through an endless list of apps to find the one you want to have show up on the right side. Some sort of search function here is critical for anyone with a large number of supported apps installed. The work that MacStories has published this week on iOS 10 includes a much better interface for this scenario, and Apple would do well to implement something like it.

I found that many of the apps I use on a regular basis already support split-screen multitasking, and that interface works particularly well on the larger iPad Pro, where the apps get to run more or less full size from a 9.7″ iPad perspective side by side. I did find that some interfaces looked squashed on the 9.7″ iPad Pro, especially web interfaces that are designed to run full screen on such a device, but many others worked very well, and it made comparisons and copying and pasting between apps very easy. I had to find a workaround for working with two web pages at once, which involved installing the Chrome browser for the second screen – as others have pointed out, it would be nice to have the ability to put two Safari tabs side by side in the split screen view.

Limits to productivity

I mentioned earlier that I was able to accomplish more than I expected on the iPad Pro. But there were a few tasks that I found either too cumbersome, too risky, or simply impossible on the iPad, and for which I switched back to a Mac. I also found that a key element of my workflow was impossible to replicate on the iPad, and this was ultimately the biggest issue for me:

Recording and editing podcasts – this is something I do at least twice a week in the case of recording and once a week in the case of editing, and it’s essential that it work well. There are ways now to hook up even powered microphones to the iPad Pro, but you can’t feed two apps at once with that microphone, so it doesn’t work for talking on Skype and recording podcast audio at the same time, as others have mentioned. When it came to editing, the iOS version of GarageBand simply doesn’t supporting importing multiple audio tracks and editing them together, even though I use GarageBand on the Mac usually. For all these reasons, I recorded and edited all podcasts on the Mac during my two-week experiment. I mentioned some of this on Twitter, and was pointed to Ferrite as a possible solution for editing podcasts on the iPad Pro, so there may be workarounds for all this, but it was too much work and too risky to test for a critical podcast recording.
Document editing workflow – as I’ve written about elsewhere, my workflow involves using the iWork suite to create and edit files, whether spreadsheets, presentations, or documents. But I use Dropbox for storing and syncing those files across computers and making them available on mobile devices. This works fine on the Mac, which has full support for Dropbox at a system level, but it breaks down on iOS. The problem is that Dropbox isn’t available as a source of files to open within the iWork apps on iOS. You can open files from within the Dropbox app, but this process creates a copy, so you’re not modifying the original in real time, and have to export it back to Dropbox when you’re done editing if you want to update the original. There are several possible solutions to this – use Office instead of iWork because Office has proper Dropbox integration, or use iCloud instead of Dropbox because it’s supported natively in the iWork apps. But I prefer iWork for its ease of use and look and feel, and don’t yet fully trust iCloud for syncing really important documents. So I’m sort of stuck when it comes to my current workflow. If I knew I’d be committing fully to an iPad as my only device, I might feel differently, but for now it means it’s tough to carry over my workflow from other devices, which is something many iPad Pro users are likely to need to do. In addition, there are still detailed functions within iWork which simply aren’t available in the iOS versions, even though feature parity is pretty extensive. I found that a little frustrating too.
Working with Apple News – I’ve recently started publishing this blog and our podcast to Apple News, something which comes with its fair share of pros and cons no matter which device you’re using (something we talked about on the podcast recently). But on iOS, the Apple News Publisher online interface at iCloud.com doesn’t work. If you visit iCloud.com on any iOS device (even the larger iPad Pro) you get redirected to the mobile site, which is mostly a holding page, but if you request the desktop site through Safari, you get the full site. However, even then, the Apple News Publisher site clearly isn’t meant to work on iOS, and frequently crashes and has other issues. This means if you want to use Apple News Publisher, you have to find some other way to do it than through the WYSIWYG editor online. It’s a new platform, and so maybe better support for iOS devices will come soon.

The iWork feature parity issue and this Apple News problem are indicative of one of the biggest issues I encountered productivity on the iPad Pro – for all that Apple wants to sell these devices as fully-fledged productivity machines, it’s Apple’s own services and apps that continue to hold it back. It’s frustrating that there are a number of Apple’s own apps which don’t support split-screen multitasking yet either. Ironically, you’d be better off in some ways using the Office suite than iWork on these iPads, and that raises an interesting possibility – that the future of mobile productivity marries Apple devices with Microsoft (or other third party) software.

Quick thoughts on the Apple Pencil

My review unit came with an Apple Pencil, and I was particularly keen to try it out. The reality is, however, that there’s very little that I have ever used a stylus for in the past, and that has less to do with the quality of the styli available and more to do with the way I work. I type much more quickly (and legibly and searchably) than I write by hand, and so I always type when I possibly can. I did take notes for a few hours using the Pencil and iPad in place of a pen and notebook, and found it a really solid experience. I was using Microsoft’s OneNote app, which was mostly fine but frustratingly doesn’t explicitly support the Pencil or the associated palm rejection. I tried using the Surface with its pen later for the same task, and found the tactile feel and the resulting handwriting significantly inferior to the Pencil. That’s a bit surprising given how much longer Microsoft has been doing Surface pens, but the difference was undeniable to my mind.

However, I’m not an artist either, and other than for the novelty value, and the occasional bit of doodling in Pigment just for fun, I find myself using the Pencil very little. I think it makes perfect sense that it’s an optional accessory rather than a bundled feature of the iPad Pro – many users aren’t going to need it. I used it enough to be convinced that it would work well should I need it, but I’m fairly certain that I’ll continue to use it only infrequently. My one frustration was charging – it’s not really practical either to charge the Pencil in the standard way (i.e. plugging it into the iPad) while using the iPad or while charging the iPad. Several times, I wanted to charge both devices at night but couldn’t without using the specialized adapter for the Pencil with its own charging cable. That feels like a mistake (and I’m convinced I’d lose the adapter and/or the Pencil’s cap pretty quickly if I were using it more regularly).

Conclusions

After using the iPad Pro(s) more or less exclusively for two weeks, I can say that (with very few exceptions) I’d be happy to do so again in future. I do like the flexibility of my usual Mac Pro setup, but I got a great deal out of using an iPad instead for a while, not least a greater sense of focus on the task at hand and that sense of intimacy I mentioned earlier. Were I to find myself in a situation where I had to commit to one of these devices full-time, I’d definitely pick the larger iPad Pro – the increased screen real estate allows multitasking and other features to really thrive, and its similarity to the size of a standard laptop helps too.

The reality is, though, that these devices don’t have to fill that role for me. I have other computers available to me, and for a variety of reasons they’ll continue to be my main ones. As such, the smaller iPad Pro feels like a great fit as more of an occasional device – one to use in the evenings, or when I need to go out for a while but stay productive, or when I’m traveling. I’d almost always resisted only taking an iPad with me on business trips in the past, but could see myself relying solely on an iPad Pro for at least short business trips in future.

Apple, iPhone, iPhone 6S, Tesla

Tesla’s Dodgy Claim

April 8, 2016 Jan Dawson

Tesla is now claiming that its Model 3 preorder process is breaking records – here’s the text from the claim Tesla is making:

“In the first 24 hours Model 3 received over 180,000 reservations, setting the record for the highest single-day sales of any product of any kind ever in world history.”

That is, of course, pure hyperbole, and there are two specific reasons why. The first is that the preorder process doesn’t represent sales at all. On Tesla’s own site, the process is referred to as reservations and not sales, and that’s all the $1,000 deposit represents – a place in a long line to have the right to buy a car 18 months or longer from now. Those who made a reservation in this way have no specific timeframe for delivery of their purchase, haven’t committed to any specific purchase, and have the right to a refund of their money at any time between now and whenever their car might finally be available. There is no sense in which this is a sale in any sort of traditional sense.

But even if you concede that the $1,000 represents a sale of some kind, the total revenue implied by that still falls far short of single-day sales for the most recent iPhone, for example, which likely does hold the record for largest single-day sales of any product. At just $180 million, Tesla’s Model 3 revenue is around 6% of single-day iPhone 6s sales. The only way the claim makes any sense at all is if you do what Elon Musk did in a tweet at the end of the first day of preorders, and apply some sort of anticipated average selling price to the 180,000 preorders. That’s even more disingenuous than the claim that these are sales at all, but it does lead to a far higher number. The comparison between these two different Tesla Model 3 numbers and assumed single-day sales for iPhone 6s is shown in the chart below:

Again,though, no-one has committed to actually buy a car from Tesla at this point, the process is entirely refundable, and Tesla won’t see even the majority of that revenue for a couple of years at least. This isn’t, in reality, any kind of sales record at all.

The stupid thing here is that the Model 3 preorder process is still a phenomenally impressive achievement. That so many of those placing reservations had never even seen the car is a testament to the power of Tesla’s brand and what it has achieved, and this likely is a record in the auto industry. But the hyperbole attached to the claim on Tesla’s site just detracts from all of that without having any real basis in fact. Tesla already has the world’s admiration and respect – engaging in this kind of behavior detracts from rather than adds to that mystique.

Apple, Earnings, iPhone, Q4 2015

The iPhone Paradox

January 26, 2016 Jan Dawson 1 Comment

For reference, this page lists all prior Apple posts, with a little context. Subscribers to the Jackdaw Research Quarterly Decks Service will be getting a preliminary Apple deck tomorrow, with a final deck to follow once Apple files its 10-Q.

This is a post I’ve been meaning to write for a while now, but it seems particularly apt given Apple’s results announced today. My key point is this: even as Apple continues to diversify its revenue streams beyond the iPhone, the size of the installed base of iPhones becomes ever more important to its revenue growth.

The context here is that I’ve been talking to lots of reporters over recent weeks in the run-up to Apple’s earnings, and I’ve heard this question (or variations on the theme) a lot: “is Apple’s increasing dependence on the iPhone a problem?” The reason for the question is twofold: on the one hand, Apple’s revenues and margins have been increasingly dominated by the iPhone, and on the other it’s become increasingly clear that iPhone growth would slow following its stellar year off the back of the iPhone 6.

My answer usually goes something like this, and this gets to the heart of the paradox here. On the one hand, yes, Apple has been increasingly dependent on the iPhone for revenue and margin growth, but it’s been working hard to introduce new products and services to the market which can help to contribute meaningfully to growth and profitability. The Apple Watch, Apple TV, Apple Music, and iPad Pro were all introduced in 2015, and could over time provide significant additional revenue and margin. So Apple has the potential to lessen its dependence on the iPhone over time in this way.

However, the other side of the paradox is that almost all of these new products and services are tied to the iPhone in some way, and benefit greatly from the installed base of a half billion iPhone users. The iPad Pro has the weakest tie here, but obviously benefits from its use of iOS and the App Store, and with features like Handoff and iCloud works better with the iPhone than it does independently. The rest have much closer ties to the iPhone: the Apple Watch is (for today at least) strictly an iPhone accessory, the new Apple TV runs apps, most of which were originally developed for the iPhone, Apple Music will be used on iPhones far more than on any other devices, and so on. Even if iPhone growth slows or goes negative (as it will now certainly do in the March quarter), that massive base of iPhone users will keep many other contributors to Apple’s financial success ticking over nicely.

Interestingly, Apple seems to have latched on to this idea as a key talking point for its earnings today, with an emphasis on Services revenue tied to the overall installed base of devices, which it pegs at 1 billion users. (My estimate for the end of December for iOS devices plus Macs was 996 million, so adding in Apple Watch and Apple TV should certainly push it over that billion user threshold). This base of devices, and the rather smaller number of unique users it represents, is Apple’s single greatest asset, and one it will increasingly leverage both as it continues to grow the product and service lines it announced in 2015 and as it adds to them going forward. As such, even as the iPhone itself as a product contributes less to Apple’s overall performance, it’s going to become ever more central to Apple’s future growth.

App stores, Apple, iOS

Digesting Apple’s new App Store numbers

January 6, 2016 Jan Dawson 2 Comments

Note: Following something of a hiatus in late 2015 after the birth of our fourth child, I’m hoping to get back to a more regular publishing schedule here as we kick off 2016. Here’s my first post for the new year, which will hopefully be the first of many. You can see all previous posts on Apple from this site listed here.

Apple today released its customary end of year / holiday period App Store numbers in a press release. By themselves, these numbers are impressive, but it’s important to put them in context to really understand their significance. Today, I’ll share a few charts and other related numbers to evaluate the new numbers and their real meaning.

A quick word on sources

It’s important to note briefly before we start that App Store numbers are one of many data points Apple reports selectively and indirectly. We get these occasional milestone announcements at year end and in keynotes, but between those we’re left to extrapolate and interpolate based on other sources, including Apple’s financial reporting, which has historically provided some direct and indirect guidance on App Store sales. So please bear in mind that while some of the numbers below are based on announcements like today’s, many of them are based on these estimates, extrapolations, and interpolations. I believe they’re accurate, but I want readers to understand they’re not direct from the source.

Today’s numbers

Today’s numbers, in brief, were as follows:

“In the two weeks ending January 3, customers spent over $1.1 billion on apps and in-app purchases”
“January 1, 2016 marked the biggest day in App Store history with customers spending over $144 million. It broke the previous single-day record set just a week earlier on Christmas Day.”
Customers spent “over $20 billion” on the App Store in 2015
The App Store has now paid out “nearly $40 billion” to developers since it launched in 2008, and over a third of that was paid out in the past year.

There were also some numbers about jobs and job creation, but those won’t be the focus of this post.

Putting the numbers in context

So let’s put those in context. Focusing just on the numbers Apple has reported directly, here’s the picture on the cumulative payments to developers, ending with today’s “nearly $40 billion” (which I’ve pegged at $39 billion):Using my estimates for the periods not directly reported, we get this smoother and less patchy version, which also goes back to the inception of the App Store in 2008:As you can see, it’s a lovely curve, with what appears to be accelerating growth. In fact, we can look at that growth more easily by charting trailing four-quarter payments instead, as follows:What you see here is that the growth has been fairly steady for the last few years, since about 2013, with the occasional bump here and there. Apple’s annual run-rate for payments to developers is now around $14 billion, which translates into the “over $20 billion” customer spend number in today’s press release. That’s an enormous revenue number for something which is effectively a feature in Apple’s platform.

Longer-term patterns

If you look again at that last chart, though, you’ll see that the early history is less consistent. There are some ups and downs in the early years, though they’re a little hard to make out in that chart because of the sheer scale of payments in the later years. One way to dive deeper into this and to look at the longer-term trends is to use another set of numbers – the base of iOS devices in use – to put these figures in context. Here, again, we have to make certain assumptions about the size of that base, but we have enough data points to be reasonably confident there too.

The chart below shows the average annual revenue per iOS device in use since the inception of the App Store:What you see in the chart is a series of different eras in the history of the App Store in which the trends were quite distinctive. In the early going, spend quickly leveled off at around $15 per year per iOS device, and it then began to falter a little. Apple introduced in-app purchases as a new feature in late 2009, and that seems to have sparked a slight renaissance in 2010, along with the launch of the iPad and some higher-priced apps which launched for that platform. However, by 2012, this number was back in decline, likely as the base of iOS devices diversified beyond early adopters and into new markets with lower spending power. In fact, that is the trend you’d expect to see over time, as existing users make do largely with apps they already own, and as new users in new geographies join the base.

However, what you actually see is that, starting around late 2012, the number starts rising significantly, eventually leveling off again at around $25, significantly higher than in the early years of the App Store. What drove this growth? I mentioned already that in-app purchases launched in late 2009, but it wasn’t until late 2012 that Candy Crush Saga launched. Of course, one app didn’t change the trajectory of the whole App Store, but this app exemplifies a new business model that’s become increasing prevalent – even dominant – in the App Store, and in App Store revenues. Many others have followed a similar path to monetization since then, and I suspect it’s the rise of in-app purchases in games that’s driven that growth since late 2012. I’ve written about the rise of these games, and some of the unpleasant economics associated with them, elsewhere, but there’s no doubt they’ve had a significant impact on the App Store and its revenue composition.

There’s no doubt that games in general, and those featuring in-app purchases in particular, are a major driver for the App Store growth Apple trumpets on a regular basis. The two big questions that arise out of all of this are whether Apple wants to continue to rely so heavily on a model that has unsavory characteristics, and whether in focusing on this dominant category it’s neglecting other business models in the App Store. That latter topic is something we’ve discussed a couple of times recently on the Beyond Devices podcast, most notably in Episode 24.

Apple, Apple Music, Music, Surveys

Apple Music survey results

October 16, 2015 Jan Dawson 1 Comment

The three-month anniversary of the launch of Apple Music passed at the end of September, which means many of the early trial users have been faced with the decision of whether to become paying customers or to cancel the service. As such, I though it was a good time to run some surveys to ascertain who’s using Apple Music, why, and how. The full results of the two surveys I ran in early October, along with detailed methodologies, can be found in a new Jackdaw Research report, which you can download for free here.

In this post, I’m going to focus on just one of the two surveys (which was run through the MicroHero survey app), and specifically address several theories I had put forward in an April Techpinions column. Those theories were:

Apple’s service, like all other paid music, would be most popular among older demographic segments
Discovery would be an important element of the service, and as such those who thought discovery was important would likely gravitate toward the service in higher numbers than those who didn’t
The integration of users’ owned music libraries was likely to be a key feature too, and as such Apple Music would do well among people who valued this feature.

The MicroHero survey had 500 respondents, which is good for a margin of error of about 4 percentage points, but I’m not claiming that the specific percentages I’ll share below are necessarily representative of the general population. As such, you should focus on the trends and patterns shown below rather than the specific percentages.

Age patterns

With regard to the age breakdown, there were two interesting findings: younger users were more likely to have tried Apple Music than older users, but older users were more likely to have become paying customers when their trials ended. The charts below illustrate these two findings:First off, as you can see, the older users were, the less likely they were to have tried Apple Music – rates were about twice as high for the youngest age group as for the oldest, with some ups and downs in-between. This shouldn’t be surprising, as younger users are typically more tech-savvy, more aware of new trends, are bigger users of music streaming services in general, and so on.

However, when looking at those who did trial Apple Music, older users were far more likely than younger users to have converted their trials to paid subscriptions:As you can see, the percentages here are virtually reversed, with the under 35 age group canceling at roughly the same rate as the 35+ age group became paying subscribers. Again, this shouldn’t be too surprising, even though it’s a reversal of the age pattern for trials. Older listeners have always spent more on music than younger listeners, who tend to have less disposable income and more time on their hands, often giving them a higher tolerance for the disadvantages associated with free music (whether bootleg concert tapes, recording songs off the radio, or listening to music with frequent ad interruptions, depending on the era).

The importance of discovery

One of the early questions in both surveys asked respondents to rank various features of music streaming services in order of importance. Discovering new music wasn’t the top-rated feature, but for those respondents that did rank discovery as highly important, the rate of conversion to paid Apple Music subscriptions was higher than the average. The chart below shows how this group compared to the overall base of respondents on their conversion to paid subscriptions:As you can see, the rate of conversion for those who prioritized discovery was similar to the rate of conversion for the 35+ age group we saw above, and significantly higher than the average. This is a great validation of Apple’s strategy to promote discovery as an important feature of Apple Music, which seems to have paid off well.

Owned music integration less important than expected

Conversely, users who said the integration of their own music into a music service was very important didn’t appear to favor paid subscriptions at a different rate from the rest of the respondents, contrary to my theory from April. However, when I asked respondents who had decided to become paid subscribers why they did so, integration of their own music was something over 50% of them said was a significant factor. Below are the results for this question from the second survey, which was run through Qualtrics:As you can see, two other features actually ranked higher than the integration of owned music – the integration of Apple Music within iOS (through features such as Siri), and discovering new music. As such, my hunch that owned music integration would be important was borne out somewhat, but not as strongly as my theories about age and discovery.

These and quite a few other findings are outlined in more detail in the report, which features 23 charts in total, relating not just to Apple Music in particular but music consumption habits in general. Again, you can download the report for free here.

Adoption, Android, Apple, Google, iOS, iOS 8, iOS 9, Microsoft, Mixpanel, Operating Systems, Windows

Operating system user bases

October 7, 2015 Jan Dawson 4 Comments

Related: two previous posts on the patterns in Android adoption rates (December 2013, March 2014), a post contrasting iOS and Android adoption patterns, and a post from last month on iOS 9 adoption.

Both Apple and Google have just updated their mobile OS user stats, while Microsoft shared a new number for Windows 10 adoption at its event this week, giving us a rare opportunity to make some comparisons between these major operating systems at a single point in time. We now have the following stats straight from the sources:

The stats provided by both Apple and Google on their developer sites with regard to the user distribution across their mobile operating systems (Android and iOS)
The 110 million Windows 10 number provided by Microsoft this week
The 1.4 billion total active Android user base number provided by Google at its event last week
Total Windows users of around 1.5 billion, as reported by Microsoft several times at recent events.

In addition, there are various third party sources for additional data, including NetMarketShare and its estimate of the usage of other versions of Windows. Lastly, I have estimated that there are roughly 500 million iPhones in use now, and around 775 million iOS devices in use in total (including iPads and iPod Touches).

If we take all these data sets together, it’s possible to arrive at a reasonably good estimate for the actual global user bases of major operating system versions at the present time. The chart below shows the result of this analysis:There are several things worth noting here:

Each company has one entry in the top three, with Microsoft first, Google second, and Apple third.
However, only one of these entrants is the latest version of that company’s operating system (iOS 9), while the other two are the third most recent versions (Windows 7 and Android KitKat).
Google has three of the top six operating systems, none of which is its latest operating system (Marshmallow, released this past week). Even its second most recent version (Lollipop), now available for a year, is only the third most adopted version after KitKat and Jelly Bean.
Both iOS 9 and iOS 8 and the three most used versions of Android beat out every version of Windows but Windows 7.
The most recent versions of the three companies’ major operating systems are used by a little over 400 million (iOS 9), 110 million (Windows 10), and a negligible number (Android Marshmallow) respectively.
The second most recent versions are used by around 330 million (Android Lollipop), around 250 million (iOS 8), and around 200 million (Windows 8) respectively.

There are lots more data points to tease out here, but to my mind it’s a striking illustration of the differences in the size and adoption rates of these three major operating systems.

Two additional thoughts

Just for interest, I’m including a couple of additional thoughts below.

First off, here’s the same chart, but with iOS reduced to just the iPhone base. The order changes a fair amount, but iOS 8 and iOS 9 still make a good showing:

Lastly, I wanted to revisit my post from a couple of weeks ago about the initial adoption of iOS 9, especially as it relates to Mixpanel’s data. In that post, I showed how Mixpanel’s iOS adoption data tends to be pretty close to Apple’s own data except for the month or so after a new version of iOS ships, when it tends to skew way lower than Apple’s own data. Now that we’re a few weeks on from the initial launch, and Apple has released the second set of iOS adoption data since the launch, I wanted to revisit that pattern. Interestingly, the very same pattern is playing out again – despite the initial significant discrepancy, Mixpanel’s data is now once again very close to Apple’s own:

Apple, Apple Music

How I’m using Apple Music

September 30, 2015 Jan Dawson

Related: Apple topic page, all Apple Music posts.

On the day Apple Music launched, I wrote a first-day “review” of sorts, based on my first few hours with the service. Now that several months have passed (and I’m about to cross over from the three-month free trial to being a paying customer), I thought I’d revisit my thoughts on the service, and talk through how I’m actually using it today.

I’m not listening to Beats 1

As I mentioned in the first day review, I didn’t feel like Beats 1 was for me, and nothing has really changed in that respect. The reality is that I haven’t regularly listened to normal linear radio since I was a teenager, when I used to listen to it as I got ready for my day in the morning. Over the last 15 years or so, I’ve essentially listened just to the music I want to, rather than allowing my listening to be driven by others. I’ve dabbled with Pandora from time to time, but with that and other services I’ve generally found that they take too much training to be useful, or simply don’t have a high enough percentage of music I like to be worth the time. Beats 1 falls into the latter category – my tastes in music continue to be too narrow/specific for what Beats 1 offers. Apparently, many others love it, but not me.

“For You” has become much more useful

The “For You” tab is the place where you’re supposed to find things that are relevant to you and your tastes. When I first started using Apple Music, I found this tab to be somewhat lacking – the playlists and albums recommended either felt random or too literally connected to albums I already owned or tastes I’d explicitly specified. The recommendations were either things I already knew I liked, or they were too out there. But since that time, the recommendations seem to have got better, as I’ve tried quite a few of the playlists out, and I’m liking more of what’s recommended.

“Add to my music” is the key

To my mind, the most important feature of Apple Music is the “Add to my music” button (often just a little plus sign, and where that isn’t present, as a menu item behind the three little dots). As someone who still listens to a lot of the music I own, I like the idea of adding to that library far better than having to recreate my library from scratch, or simply search every time I want to listen to something. As such, the Add to my music option in Apple Music is a perfect fit.

However, I’m not just using it as a “permanently add this to my collection of music” button, but rather as a way to quickly bookmark something for later listening. For example, when I browse through that For You tab, and a playlist or album looks interesting and worth checking out, I add it to my music, even though I haven’t listened to it yet and might not get to it for a while. But everything I add in this way shows up in the Recently Added section on all my various devices, and as such the next time I’m listening to music it’ll be right there. If I like it, then it stays in my library, but if I don’t, it’s simple to remove it again. My music library has grown quite a bit this way over the past few months, and especially as the For You recommendations have been getting better.

Playlists are useful in several ways

I find playlists very useful, and they’re a key part of how I’m using Apple Music. But I’m using them in a few different ways. First off, Apple Music suggests various playlists in For You, some of which look interesting enough to add. In some cases, the playlist itself is good enough that I just keep that in my library as something to listen to again. But in other cases, I only like one or a handful of songs in the playlist, and in that case I typically click through on the song or artist and start playing more of their songs and albums, often adding those to my library while deleting the original playlist. I might also check what other playlists those songs or those artists are part of, and add those to my library. This is often a good way to find similar music and/or artists, as is the Related Artists section.

The other thing I’m really enjoying is the “Intro to…” playlists Apple Music has for many artists. These are almost like a new take on the Greatest Hits albums many artists throw out after they’ve produced enough albums, but they’re not quite that straightforward – they often combine well-known songs with other more obscure ones. And then there’s often the option of a second, “Deep Cuts” playlist for the artist if you want to go deeper. Using these playlists, I’ve rediscovered (rather than discovered for the first time) artists from my past and especially my childhood, and in the process introduced a number of them to my kids too.

Things I wish were better

Although I’m using Apple Music a lot, there are still things I wish were better. For one, I wish the Music app on my iPhone would give me more information about artists and albums than it does, more in line with the desktop version of iTunes. I typically use the desktop version to discover new music and add it to my collection, but I do a lot of my listening on my phone. Sometimes I want to learn more about an album or an artist, and it’s either unintuitive how to get that information to display in the app, or impossible to get it to display at all. I quite like the artist descriptions and album reviews Apple has always provided in iTunes and now in Apple Music, but these can be hard to get to or missing entirely in the mobile app. (Artist descriptions are available if you click on artist names enough times, even though there’s no visual indicator that this will happen, while album descriptions are totally missing as far as I can tell.)

My other main complaint is that Apple Music doesn’t seem to deal with caching and streaming all that well, especially on weaker cellular connections. Sometimes, when I’m in the car, if I skip too quickly through songs in a playlist or album that I haven’t downloaded to my phone, things just seem to get stuck – the song is ostensibly playing, with the progress indicator and time still moving, but no audio is heard. I imagine this is just a bug, but for a service which now majors on streaming, it needs to be fixed.

Apple Music probably isn’t for everyone

As I mentioned in that first-day review, Apple Music is a great fit for me – the combination of my own library and new music I discover through the service is just what I’ve always wanted from a subscription music service. But the more I talk to people in real life and online through Twitter and Facebook and so on, the more I realize it’s not a great fit for everyone. Obviously, there’s a substantial number of people who simply don’t listen to that much music, who aren’t a good fit for any music service. But I’m talking about people who do care about music. Unless you care a great deal about mixing your library and new music, there’s not a huge amount in Apple Music to convince you to switch from another service. In fact, if you’ve made a heavy investment of time in another service, switching can seem daunting – Apple Music doesn’t offer a way to import playlists from Spotify, for example, which could dramatically smooth the way for switchers. But there also aren’t that many unique features that would draw you over from another service. And unless you’re buying one or more albums a month at the moment, there may not be that strong a reason to start paying for a subscription music service either. Beats 1 – one of the most unique aspects of Apple Music – is free to anyone, and many of the other features are relatively undifferentiated from other services.

Apple at this point has two fundamental problems with Apple Music – relatively few people have even tried the service (something I wrote about here for Techpinions Insiders), and of those who have, there’s anecdotal and survey evidence that many are turning off the auto-renewal and allowing their subscriptions to lapse before they become paying customers. So far, I’m not seeing a great deal of action from Apple that would meaningfully change either of these things, for all the value I’m getting out of the service personally.

Adoption, Apple, iOS, iOS 9, Mixpanel, Operating Systems

iOS 9 adoption and Mixpanel

September 21, 2015 Jan Dawson

Related: Apple Topic Page, and a previous post on iOS and Android adoption patterns, as well as two earlier posts (1, 2) on Android versions in use.

Last week, following the release of iOS 9 by Apple, Mixpanel (along with other analytics firms) began releasing data relating to the pace of adoption of iOS 9. That data suggested that iOS 9 was being adopted more rapidly than iOS 8, and also that it had reached around 30% by the end of the day on Saturday. Then, this morning, Apple issued a press release about the new iPhones, but in passing noted that iOS 9 was now on more than 50% of devices, based on data from Saturday, September 19th. That’s a fairly sizable discrepancy, and it made me want to dig into the numbers to understand what was going on.

Note: I’ve reached out to both Mixpanel and Apple about this, and I will update this post as warranted once I hear back from them. As of right now, the analysis below doesn’t include any additional information from them beyond what they’ve put out publicly.

A word on methodologies

It’s worth starting with a quick statement of methodologies. Apple’s goal is to give developers a sense of the operating system versions their target audience is using, and so is based on devices hitting the iOS App Store (Google, incidentally, does the same thing). It generally seems to pick a specific single day, usually a Monday, and measures which versions of iOS those devices hitting the App Store are using.

Mixpanel, on the other hand, provides analytics to app developers to help them understand engagement around their apps, but in the process also collects lots of data on which operating systems the users of those apps are running. As with any analytics software of this kind, the picture will always be incomplete, but the bigger the base of devices, the more likely it is to be representative, and Mixpanel’s is fairly big at this point.

Mixpanel is generally very close from October to August

With that note on methodologies as context, the first thing to note is that Mixpanel is generally very good at approximating Apple’s own numbers for iOS adoption, even though their methodologies are different. For the period from October 2014 to August 2015, Mixpanel’s numbers generally tracked within about 4% of Apple’s own numbers for iOS 7 and iOS 8 adoption. Interestingly, Mixpanel tends to estimate higher usage for the latest version and lower usage for previous versions than Apple.

September seems to be more of a problem

However, even though Mixpanel’s data tracks closely to Apple’s for most of the year, it tends to be quite a bit off the mark in September, immediately after the release of new iOS versions, at least for the last two years. The chart below shows the difference between Apple and Mixpanel’s adoption rates for iOS 7, 8, and 9. Negative numbers mean that Mixpanel’s rate is lower than Apple’s, while positive percentages mean Mixpanel’s numbers are higher.The chart shows several things that are worth noting:

As I mentioned, the margin of “error” (I’ll explain the quote marks later) is generally under 5%, though as you can see it grows steadily from late October 2014 to September 2015
However, the discrepancy between the two figures is much more significant for two dates – September 21, 2014, and September 19, 2015 – which happen to be the dates immediately after the launches of the new versions for the last two years. In both cases, Mixpanel’s adoption rate for the new version of iOS was far lower than Apple’s, in contrast to the usual pattern during the year.
The discrepancy quickly shrank last year – by early October the two numbers were very close again. We don’t know yet what will happen this year, of course.

What explains the September discrepancy?

I’ve carefully avoided describing Mixpanel’s data as faulty above – I did use the term margin of error once, but carefully put “error” in quotation marks. And that’s because even Apple’s own numbers aren’t necessarily accurate in reflecting the devices actually in use. For the sake of developers, knowing what mix of devices hit the App Store is of course actually more important and relevant than knowing the total mix of devices out there. But it’s not necessarily an accurate picture of what people are using across the broad base of devices. Mixpanel’s data may actually be more representative of the actual base of devices in use, but there’s no way to know for sure; ultimately, it is also measuring something other than true adoption rates across the base.

So, having framed this as a discrepancy or difference rather than an error, what explains why the numbers are so close from October to August, and yet so far apart immediately after a new iOS version launches? Here are a few possibilities:

Apple’s numbers, which reflect App Store visits, are unduly skewed early on by the influx of recent updaters looking for apps that take advantage of new features – e.g. content blockers, multitasking, and in-app search in iOS 9. Once the initial rush has subsided, App Store visitors return to looking more like the overall base. Since we don’t have detailed day-by-day data from Apple, it’s hard to tell how quickly this effect wears off, but I suspect it may be a big part of the answer.
It’s possible that Apple’s numbers, which are global in nature, are more representative of true trends than Mixpanel’s, which may skew towards (or away from) particular countries. As a result, if users in China or other major markets which Mixpanel may not track as closely update iOS more quickly, Apple’s numbers might capture that whereas Mixpanel’s wouldn’t. As download rates catch up in other regions, the discrepancy would work its way through over time. I don’t know enough about Mixpanel’s data to know how much of an issue this is, but it might be a secondary factor.
Apple’s regular iOS adoption data is usually captured on a Monday, whereas its post-launch data for the last two years was captured at the weekend (a Sunday last year, and a Saturday this year). It’s possible that the mix of devices in use – and especially those hitting the App Store – on the weekend is different from those in use on a Monday, but this is unlikely to account for much of the discrepancy, especially since the Mixpanel data was collected on the same day.

Another thing that’s worth noting is that other sources of iOS adoption data tend to agree more with Mixpanel at this point than with Apple’s numbers – both Fiksu and David Smith’s Audiobook app data tend to suggest adoption closer to Mixpanel’s than Apple’s, for example. So, either all these methods suffer from the same “problem” or Apple’s data is actually unrepresentative of the true base of devices out there, especially in these first few weeks. Until I hear more from either company, it’s going to be hard to know which is the case. But it’s certainly worth viewing Mixpanel’s data (and any other third-party data) in this context in the future, especially when it comes to the period immediately after a new version of iOS comes out.

Apple, Installment plans, iPhone, Subsidies

Further thoughts on Apple’s iPhone Upgrade Program

September 10, 2015 Jan Dawson 3 Comments

Related: Apple topic page

I wrote a piece Thursday on Techpinions about Apple’s iPhone Upgrade Program which proved quite popular, hitting Techmeme and being retweeted by some of the bigger names on Twitter, and so I thought I’d do a quick follow-up post with some additional thoughts on the subject, in part based on my additional research and in part based on things that were too detailed to go in that original post.

The impact on carrier revenues

One thing I didn’t really go into in my Techpinions piece was the impact all this could have on carrier revenues. The context here is a bit complex, but I’ll try to keep things simple: in the old days, the carrier charged you the same for service whether or not it was subsidizing a device for you (and no matter how big the subsidy was). Under the new equipment installment and leasing plans, the service fees are substantially lower than they were, but the carrier makes up the difference from your monthly device payment. For example, under the old model for a two year iPhone contract, the carrier charged you around $200 up front and $70 per month in service fees, but under a two-year equipment installment plan it now charges you nothing up front, $50 per month in service fees, and $27 a month in device payments. Its total revenue over the two year period is pretty similar, but of course only if you’re still getting your device through them. The other thing is that certain spending has now moved from the service revenue bucket to the equipment revenue bucket, and as such a long-standing carrier metric – ARPU (average revenue per user) – has become less relevant, because it’s based only on service revenue and doesn’t include those installment payments. As a result, carriers have begun reporting another metric, ABPU (average billings per user), which does capture these device payments. You can see an illustrative example of what’s been happening to these two payments for AT&T over the past few quarters below: AT&T ARPU What you see with AT&T is that ARPU has fallen pretty steeply over the past couple of years as the shift to installment billing has kicked in, but ABPU is now back where it was two years ago, and rising nicely. The same pattern applies for the other carriers, which are all at slightly different stages in this transition. However, for customers who buy their phones through Apple rather than the carrier, ABPU drops right back down to being the same as ARPU, because there are no device payments. If this happens in large numbers, it will have a significant impact on carrier revenues. The good news is that this will be profit neutral, since the revenue is basically just pass-through revenue anyway and all goes on equipment costs, and as such should actually boost reported margins, but revenues will be hit hard. Interestingly, T-Mobile’s “adjusted EBITDA” metric is already based just on service revenues, so it would be unaffected by this shift.

Competition shifts to iPhone pricing

One of the interesting things we’ve already seen over the last couple of months is a new dimension to the competition between US wireless carriers, especially the two smallest among the big four, Sprint and T-Mobile. Whereas the wireless carriers have in the past only competed on wireless service pricing, and charged virtually identical prices for devices, they’re now falling over themselves to offer the best deal on devices. More precisely, on iPhones specifically. With Apple’s entry to the iPhone financing business, we’re likely to see this competition increase – indeed, T-Mobile announced after Apple’s announcement a more aggressive plan of its own.

What’s fascinating about this is that it comes such a short time after the carriers finally began to abandon the “subsidy” model for phones. In reality, of course, this wasn’t a true subsidy, but merely an obfuscation of the true cost of the device, and a recouping of that true cost through inflated service fees. However, now that they’ve finally abandoned those “subsidies”, the irony is that they’re about to embark on truly subsidizing these devices – the new leasing plans some of the carriers are beginning to offer are going to make it extremely tough to break even on the hardware purchase itself.

Changes in the secondary market

We all know that the secondary market in smartphones (and, once again, in iPhones specifically) has been booming in recent years. Gazelle and others have been buying these devices to sell on in various ways for some time now, but the carriers got in on the act a while back, and Apple has been increasingly getting involved itself. All these players have incentives to recapture devices which can be sold at significantly lower prices even than the older devices Apple keeps in market as new phones, because this expands the addressable market for iPhones without risking general price deflation. The prepaid market in the US is one obvious destination, since the absence of both subsidies and installment plans there means customers pay full price for devices. But there’s always been the risk that the secondary market eventually saturates. There’s an inevitable ceiling in the secondary market – I don’t know how far away it is, but I’m sure all the carriers and Apple are already thinking about this.

However, with increasing numbers of spectrum bands in US devices, these iPhones are potentially sold in other markets too. AT&T is specifically looking at its Mexican wireless operations as a possible destination (something reported in the press and repeated to me by AT&T Mobility CEO Glenn Lurie on Thursday). But Apple, too, could readily repurpose many of the devices it gets back secondhand in the US for other markets, allowing it to address price points it hasn’t been able to so far.

Apple is serious about this business

Lest anyone think Apple is merely dabbling or testing the waters here, it’s clear that it’s actually quite serious about it. It’s bought the top spot in Google’s ad rankings for searches including the obvious one – iPhone Upgrade Program – but also “iPhone upgrade” and “iPhone installment plan”. There may well be others, too – I haven’t had time to check. Apple isn’t just going to wait for people to discover its new plan accidentally – it’s actively out there promoting it in the very places where customers would normally only have found carriers’ service plans or generic Apple pages about the iPhone. The carriers are shrugging all this off – I asked Glenn Lurie about it in a meeting on Thursday and he was blasé about it, while John Legere also nominally welcomed it while somehow seeking to suggest it was simultaneously a real risk for AT&T. But I continue to believe that this may be a far greater risk for the carriers, for all the reasons I outline in this piece and the reasons I gave in my original piece. And I haven’t even begun to talk about where Apple might go next with all this.