Subba’s Serendipitous moments

October 21, 2009

The Apple juggernaut rolls on

Filed under: Business,Competition,Leadership,Strategy — Subbaraman Iyer @ 1:23 pm
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Apple’s juggernaut continues unabated going by the latest results. Thanks to the iPhone’s game changing play that’s elaborated here. A blow out quarter.

Record shipments:Apple sold 7.4 million iPhones this quarter (ending Sept 2009)which is a 7% growth from last year. It sold 3.05 million Macs in this quarter up 17% a year ago. Both of these are milestones in Apple’s history. Sales of iPod touch were up 100% year over year. iTunes store is now in 23 countries and has become the world’s largest retailer.

Cash: Apple has $34 billion in cash this quarter compared to $31 billion last quarter. There’s a hint that there could be a share buyback soon. No debt. And to put this in context, this cash hoard is greater than that of Microsoft and more than the market cap of Dell.

Profit: A quarterly profit of $1.67 billion on revenues of $9.87 billion. It is the most profitable quarter ever in Apple’s history.

Future outlook: The future outlook seems still better with iPhone making an entry in on of the largest markets in the world — China, followed by Korea and a few other additional countries.

New accounting rules: Apple can recognize revenues from its subscription devices immediately rather than spreading it over a 2 year period.

Competition: Apple’s competition is actually languishing. Nokia the largest mobile device vendor reported a $834 million loss — the first in a decade due to falling mobile sales. Its smart phone sales saw a huge decline in market share as well. Sony Ericsson also suffered losses.

I am wondering whether Nokia or Sony Ericsson will make a bid to acquire Palm.

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September 30, 2009

Vodafone takes the battle to the mobile phone vendors

A few months back one of analyst friends asked me whether it is possible for the mobile service provider to create their own App Stores and be successful. My opinion to him was they can do it or rather they should do it, else they have not even joined the battle for customer loyalty. The talk turned to Singtel which is one of the largest operator based out of Singapore and it has a global presence due to its joint ventures and acquisitions in many countries. I remember telling him that it should be one of the large operators who will have the reason to do it.

Now Vodafone has done it. Vodafone 360 is a mobile web service that provides music downloads, integration with Facebook and Twitter, and supports several handsets. In a way it is competing with Apple’s App Store, Nokia’s Ovi and other App Stores created by the mobile phone vendors.

Now Vodafone’s Telco 2.0 model (called efficient pipes) is nothing new. A lot of mobile service providers thought about that but shied away from taking the plunge. Now Vodaphone which has over 300 million consumers in over 30 countries has taken the challenge.

As Apple and Nokia increase their emphasis on the App Store and have made a success of it (Apple’s App Store’s success is chronicled here), the mobile service providers can’t afford to be silent spectators.

But whether the service providers with their current competencies would have the ability to build an App store and an application eco-system is a big question.

Nokia’s decline — indicative of a bigger upheaval?

Just as Apple announced stellar results, Nokia the leading player is showing signs of decline. It has the company of another marquee player in Sony Ericcson. I already described the impact that Apple and RIM are having on other players here. The latest market data just reinforces the view.

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The Western Europe market in Nokia’s backyard and hence the trends here are important. The reason for the significant drop is Nokia doesn’t have the zing of the iPhone or the Blackberry and doesn’t have a great smartphone yet.

Now while the overall market has declined by 6% the smartphone sales were up 25% and about 1.7 millions were shipped. Of the 1.7 million, Apple sold 1.4 million and RIM sold 1.3. phones.

Now to add to Nokia’s troubles, it doesn’t have a significant presence in the U.S. though it has a strong presence in Asia , especially in the large markets like China and India. But with iPhone’s imminent launch in China and RIM’s increased efforts, Nokia has some tough challenges ahead.

The mobile device market is clearly headed for a major upheaval. With Andriod based phones to hit the market (18 models) and several service providers launching their own App Store, we will see interesting things happen.

Disclosure: I am a Nokia user and have admired their management style. One of my early blog posts was about Nokia’s amazing success in India here.

September 3, 2009

Broadband stagnates, mobile surges in India

Filed under: Business,India — Subbaraman Iyer @ 10:02 pm
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Based on recently released data, India’s broadband penetration and growth rates are really pathetic. As per the TRAI website, the subscriber base as of July 2009 is only 6.8 million. Incidentally any connectivity of speeds at 256kbs and higher is considered broadband in India.

Now India has 5 large telecom players — Bharti, Reliance, Tata Communications, BSNL and MTNL. Yet somehow broadband doesn’t seem to figure prominently in their plans.

The mobile penetration continues to surge. India now has about 400 million subscribers though the ARPU levels are at about U.S.$ 5 or so. The mobile voice calls are the cheapest in the planet and the data market is poised to grow healthily at about 30% per annum.

Despite the low penetration of broadband activity in India, the internet activity seems vibrant as can be seen here.

July 25, 2009

The iPhone’s game changer — Analysis and questions!

Enough has been written about the success of the iPhone. It’s been truly a game changer. Some recent statistics will help us keep the success in perspective.

In the first weekend after launching the 3G iPhone Apple sold 1 million phones. Compare this when Apple sold 6.4 million units of its first generation phones in one full year after launch. Based on some preliminary analysis, the gross margins for the 3G phones are above 60%. Currently the iPhone 3GS (16GB) is priced at $199 and the 32GB model at $299. Well, one can expect some price discounting, but even then the margins are pretty healthy.

If the device has been a runaway success, the App Store with over 65,000 applications and about 1.5 billion downloads has been another game changer, much in the same way the ITunes store bolstered the sale of iPod devices.

Apple has only a 3% market share of the global cellphone sales, yet it actually actually accounts for 35% of the entire industry’s operating profits. A Deutsche Bank’s report actually states that before the end of the year Apple and RIM may have a combined market share of 5%, yet account for 65% of the industry’s profit.

In contrast, Nokia the market share leader has been struggling. In the most recent quarter it reported a 25% drop in sales and a 66% drop in earnings. The company has lost over half its value in the last 12 months. Clearly the company has failed to respond adequately to the threats of Apple, RIM and Google’s Android.

There’s nothing noteworthy about Sony-Ericsson, Samsung or LG. Motorola has clearly lost the game. HTC and Palm are new players in the game and their future will be determined in 2 years time.

What’s equally amazing to me is how numerous Japanese companies like NEC, Sharp, Panasonic who make excellent cellphones have largely confined themselves to Japan and never seized the opportunity to go global. An excellent analysis of this phenomenon is covered here. The analysis is interesting (recommended reading) and highlights the fact that as the underlying ground shifts from hardware to software, the Japanese companies may be found increasingly wanting compared to the iPhone and Android.

In hindsight, everyone knows that Apple created a game changer. But hindsight is 20/20. And everyone who’s studied Apple over the years would say that this was a replication of the iPod/iTunes phenomenon.

The key thing is not just a great technology wrapped in a cool design as most people believe it to be. I believe that they took a great technology and wrapped it in a great business model. It was truly a business model innovation redistributing the billions of dollars of value.

But here are some of the questions for which I am keen to hear views:

  • Did Apple see the weaknesses of the incumbents and then develop the complete business model? Were they prescient about the future course of events?

  • Were the incumbents (Nokia, Motorola, Samsung, Sony) too lazy or unimaginative with their competitive responses even when news got around that Apple could announce a iPhone?

  • Did Apple’s innovation with the business model, technology, and its eventual success laid bare the inefficiencies of other players?

  • Is a consolidation in the mobile phone industry imminent in the next couple of years? What are the likely scenarios?

June 25, 2008

Nokia’s aggressive play against Google

Filed under: Business,Competition,Strategy — Subbaraman Iyer @ 11:29 pm
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Today Nokia announced that it is investing $410 million to acquire full control of Symbian. It further announced that it will give the software away royalty free. In short, open source it.

Given that there are 5 players in the mobile operating system world (RIM, Apple, Palm, Microsoft and Symbian) and one emerging player (Google with Android), it seems that Nokia’s current move is aimed more at Google than anyone else. And for good reason.

With this move not only is Nokia attempting to move the elements of competition from software to handset design, it is also a means of attracting third party application developers in a way other players like Apple and Google have managed to do do.

The coming years will mean one thing — it is no longer a competing world where just the hand set manufacturers are competing with one another. It would mean a network based eco-system oriented competition. It would also be interesting to see if there would be a true open mobile platform and also see how the licensing issues change if proprietary hardware and software can be put into an Android or a Symbian phone.

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April 18, 2008

The cell phone breaks the myth of mass customization

Filed under: Business,Innovation,Perspective — Subbaraman Iyer @ 5:33 pm
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In the nineties, the prevailing wisdom was that there were several products that lends itself to mass customization with its attendant benefits. Key benefits included accelerated learning curves, cost advantage and time to market.

However, with some of the MNCs, more specifically companies like Nokia are finding out that if they have to crack open the huge markets in the developing world, they would have to do the opposite. The article describes the travels and discoveries of Nokia’s “human behavior researcher” and makes interesting reading about how the cell phone has just not revolutionized micro eceonomies and markets, but also how people’s expectations about product attributes are changing.

One cultural anthropologist mentioned to me that even in developing economies and even if the market segment is the typical BOP (Bottom of the pyramid) there are different and distinct cluster benefits that users are looking for. For instance, in India there are clearly 14 different product attributes that users are looking for, including some who want the cell phone to function as an emergency light source. In China, it is about 11 and in Philippines it is about 8. In Philippines, airtime is also used as a currency. This article alludes to that particular application and hence the cell phone has become a banking terminal.

Nokia India has been very successful especially in India because it pays a lot of attention to these kind of trends and their success has been documented here.

I guess this just proves that mass customization was yet another passing fad.

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