Infographic: The Most Valuable Digital Consumers

Infographic: The Most Valuable Digital Consumers:

These days, Social/Local/Mobile seems to be driving much of the conversation about online opportunities. But at the end of the day, there is only one constant common denominator across the Web: the consumer. An understanding of this consumer and how they are influenced by social, mobile and local experiences online is vital to big brands looking to reach them on the Web. Nielsen and NM Incite, a Nielsen/McKinsey company, illustrate some findings that highlight digital consumer behaviors and consumption patterns that can help brand advertisers understand their most valuable customers and how they’re engaging across social, local and mobile.

View full graphic with footnotes.

Social network popularity around the world in 2011

Social network popularity around the world in 2011:

Online social networks are everywhere these days, a truly global phenomenon. But where are the different social networks having the most success in terms of popularity? That is what we’ll try to answer in this post.

We have included 11 social networks in this survey: Facebook, Twitter, LinkedIn, Google+, Orkut, Tumblr, FourSquare, MySpace, LiveJournal, Hi5 and Bebo.

Please note that this isn’t meant to be an exhaustive list covering all social networks out there. There are literally hundreds of them.

To map popularity, we’ve used Google search statistics (their Insights for Search tool). This will give us a good indication of the interest – or popularity, if you will – of a social network in a given region. We’re basing this survey on search results from the past 90 days, so it’s a reasonably large, up-to-date sample. After all, we want to know the situation right now.

A few initial observations

We’ve gone through and summarized some of the information for you, but please feel free to scroll down and check out the individual social networks you’re interested in.

Top countries for each social network (in terms of interest)

• Facebook is most popular in Turkey and Venezuela.


• Twitter is most popular in Venezuela and Brazil.


• LinkedIn is most popular in the Netherlands and India.


• Google+ is most popular in Taiwan and Hong Kong.


• Tumblr is most popular in the Philippines and Brazil.


• FourSquare is most popular in Indonesia and Malaysia.


• MySpace is most popular in Puerto Rico and Myanmar (Burma).


• LiveJournal is most popular in Singapore and Russia.


• Hi5 is most popular in Thailand and Romania.


• Bebo is most popular in Ireland and New Zealand.


• Orkut is most popular in Brazil and Paraguay. The interest shown for Orkut in Brazil far outstrips that of any other country.

It’s worth pointing out that this doesn’t necessarily mean that the majority of users come from these countries. We’re talking about sheer interest in a service. The size of the local user base will depend on the size of the Internet population in that country.

Also note that we haven’t compared the social networks against each other. This is a survey that examines where each social network has managed to garner the most interest in its service.

Some standout countries in this survey

• Brazil is in the top five for Twitter, Orkut, Tumblr and Bebo.


• Singapore is in the top five for LinkedIn, Tumblr, FourSquare and LiveJournal.


• The United States is in the top five for LinkedIn, Tumblr and MySpace.


• The Philippines is in the top five for Tumblr, FourSquare and LiveJournal.


• India is in the top five for LinkedIn and Orkut.


• The United Kingdom is in the top five for LinkedIn and Bebo.


• Indonesia is in the top five for Twitter and FourSquare.


• Venezuela and Turkey are in the top five for Facebook and Twitter.

That was just a brief summary. Why don’t you go ahead and have a look for yourself? We’ve listed the results for all the included social networks here below. We’ve also included direct links to Google Insights for Search if you want to dig even deeper into the results and play around a little.

Facebook

Countries with the highest interest in Facebook:

1. Turkey


2. Venezuela


3. Tunisia


4. Colombia


5. Dominican Republic

You can dig deeper into Google’s search stats for Facebook here.

Twitter

Countries with the highest interest in Twitter:

1. Venezuela


2. Brazil


3. Indonesia


4. Turkey


5. El Salvador

You can dig deeper into Google’s search stats for Twitter here.

LinkedIn

Countries with the highest interest in LinkedIn:

1. Netherlands


2. India


3. United Kingdom


4. Singapore


5. United States

You can dig deeper into Google’s search stats for LinkedIn here.

Google+

Countries with the highest interest in Google+:

1. Taiwan


2. Hong Kong


3. Nepal


4. Finland


5. Honduras

(Ok, Hong Kong isn’t a country per se, but Google Insights for Search lists “regions”, which don’t always correspond to countries.)

You can dig deeper into Google’s search stats for Google+ here.

Orkut

Countries with the highest interest in Orkut:

1. Brazil


2. Paraguay


3. India


4. Haiti


5. Oman

You can dig deeper into Google’s search stats for Orkut here.

Tumblr

Countries with the highest interest in Tumblr:

1. Philippines


2. Brazil


3. Australia


4. United States


5. Singapore

You can dig deeper into Google’s search stats for Tumblr here.

FourSquare

Countries with the highest interest in FourSquare:

1. Indonesia


2. Malaysia


3. Singapore


4. Thailand


5. Philippines

You can dig deeper into Google’s search stats for FourSquare here.

MySpace

Countries with the highest interest in MySpace:

1. Puerto Rico


2. Myanmar (Burma)


3. United States


4. Jamaica


5. Trinidad and Tobago

You can dig deeper into Google’s search stats for MySpace here.

LiveJournal

Countries with the highest interest in LiveJournal:

1. Singapore


2. Russia


3. Belarus


4. Ukraine


5. Philippines

You can dig deeper into Google’s search stats for LiveJournal here.

Hi5

Countries with the highest interest in Hi5:

1. Thailand


2. Romania


3. Peru


4. Laos


5. Portugal

You can dig deeper into Google’s search stats for Hi5 here.

Bebo

Countries with the highest interest in Bebo:

1. Ireland


2. New Zealand


3. United Kingdom


4. Brazil


5. Australia

You can dig deeper into Google’s search stats for Bebo here.

Final notes

As you noticed, we only included a limited list of social networks in this survey. For example, we didn’t include social networks that are regional by nature, i.e. don’t have a global focus. There are plenty of country- or language-specific social networks that are successful in individual countries, for example VKontakte in Russia and the Russian-speaking countries of the former Soviet Union, Mixi in Japan, RenRen and Qzone in China, Hyves in the Netherlands, etc.

If you’re curious, you can check out a similar survey we did three years ago, in August of 2008. We thought an update was long overdue, since things change so rapidly in social media.

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Are Apple’s investments in PP&E extraordinary?

Are Apple’s investments in PP&E extraordinary?:

In his recent posts Horace took a look at Apple’s fixed assets and their development over the recent years. He also tested the hypotheses that Apple is making investments into machinery & equipment on which iOS devices are produced by overlaying iOS volumes with preceding changes in property, plant and equipment (PP&E).

The question that has arisen is: Are Apple’s investments in PP&E extraordinary?

To answer, I have compiled the capital expenditures (CapEx) for our previously established peer group [1].

But first we need to clarify what CapEx include and not include. CapEx includes investment into property, plants, equipment, office furniture, larger IT hardware and in some cases patents; CapEx do not include investment into long-term marketable securities or other long-term financial instruments, acquisitions or capitalized R&D. Furthermore, CapEx are gross values and are not net of any sold equipment [2]. CapEx are largely depending on a company’s business model and strategy. For example if you are a manufacturer you need equipment to operate, if you are a software company or a retailer, your business will not be capital intensive.

As the second calendar quarter of 2011 is the latest quarter for which all companies have reported figures, we will take a look at last twelve months’ (LTM) figures from Q2/2011 backwards. The following stacked bar chart shows the combined CapEx of our peer group:

The combined capital expenditures of our peer group for the LTM CQ2/2011 have outpaced even pre-crisis levels of investments and, combined, account for $34.7 billion. Samsung, a diversified manufacturer of IT hardware and other equipment, has invested more than $11.6bn with Google ($5.1bn), HP ($4.4bn) and Apple with $3.4bn following in line. While Google’s CapEx mostly account for its infrastructure of server farms and other IT hardware, HP’s CapEx mostly account for IT hardware it leases to its customers [3]. In absolute terms, Apple takes fourth place in CapEx spending for the last twelve months ending in CQ2.

Since the business model and sales magnitude varies largely in our peer group, we can also take a look at a common measure to compare CapEx intensity by dividing CapEx by sales achieved in the same period. For the last twelve months we can depict the following chart:

The average of the peer group accounts for 4.4% of CapEx over sales. Samsung’s and Google’s business model are clearly more capital intensive, while Apple’s CapEx ratio of 3.4% is below the peer group average but above some of its peers like Nokia, Dell, LG, HTC or Motorola Mobility. Interestingly, capital intensity of HP, Apple, Sony, Microsoft and Amazon is at a comparable level of around 3.4%.

As noted before, business models and strategies are significantly different among companies in our peer group. However, while Apple’s CapEx intensity is not extraordinary, Apple’s CapEx in absolute terms are among the largest in it this peer group and have grown constantly throughout a five year period.

Is this a good thing and why does it matter?

CapEx by itself does not tell us much. We still do not know in what companies specifically invest as financial regulations do not require detailed CapEx accounts. We know that even if a company is not growing assets they need to be maintained, upgraded and replaced – this spending is also called “Maintenance CapEx”. Everything else can be called “Expansion CapEx” associated with new product launches, entry to new business area or geographies or expansion of (manufacturing) capacity.

Therefore, Expansion CapEx is closely linked to expected organic sales growth in the future. So let’s go ahead and link CapEx ratio of the previous years with the sales growth of the following year. The following chart shows the cumulative average growth rate (CAGR) over the last four years versus the average of CapEx/sales ratio of the four last preceding years:

We can see that high CapEx efficiency has been achieved by Amazon, Apple and HTC with sales growth rates of 33-47%. RIM reached similar revenue growth but with higher CapEx intensity. Google and Samsung with high CapEx intensity have only reached modest growth rates. Dell, HP, Microsoft and Sony have not grown significantly but have close to average CapEx intensity.

We cannot state that CapEx in absolute terms have been extraordinary for Apple, but we can witness that with below average CapEx/sales ratio Apple outgrew in absolute terms Dell, LG, Microsoft, Nokia and Sony and has grown close to the revenue size of Samsung and HP in the last four years.

—

Notes:

1. Excluding Lenovo (not reported) and Acer (extra-ordinary low numbers reported, to be investigated), Motorola Mobility figures only available for the last six quarters


2. Minor differences may occur due to local Generally Accepted Accounting Principles (GAAP)


3. HP assumes ownership of these assets and rents them to the customers who in turn have a smaller balance sheet and can run IT hardware CapEx through the income statement as lease expenses

Windows 7 just became the most widely used desktop OS in the world

Windows 7 just became the most widely used desktop OS in the world:

In October, Windows 7 usage has for the first time surpassed Windows XP usage globally according to statistics from StatCounter. In other words, Windows 7 just became the most widely used desktop OS in the world.

This has been a long time coming. Windows XP has been at the top for eons (it launched 10 years ago, and once established, didn’t let go). Windows Vista never managed to threaten XP, so it wasn’t until Windows 7 came around that a shift really started to happen.

And that shift has happened fast. Windows 7 launched in October of 2009, then…

• Within three months, it overtook Mac OS X.


• Within 10 months, it overtook Windows Vista.


• Now, two years after its launch, it’s finally overtaken Windows XP.

This is probably some kind of record.

The chart above covers the entire life span of Windows 7 so far, counted from its official release date. According to Microsoft, they have already sold over 450 million Windows 7 licenses.

Windows XP is still a strong presence, but at least things are very much pointing in the right direction for Microsoft. They must be relieved. Microsoft surely didn’t expect XP to remain so dominant for so long. As for Windows Vista, it looks like it will die out before XP does in spite of being the newer OS.

You’ll see a close correlation between the combined decline of Vista and XP and the rise of Windows 7, which is to be expected. We’ve shown before that Windows 7 users upgrade from Windows XP and Vista, not from other operating systems. Windows eats Windows, OS cannibalism, so to speak. It’s mostly a natural consequence of Windows having such a dominant market presence.

Since the trend chart above isn’t ideal for showing the current situation in detail, here is a snapshot of the desktop operating system market share division as of October 2011, based on the first 10 days of the month:

It should be noted that these numbers are based on web usage (visitor stats to 3+ million sites), so it they won’t map exactly to the physical installed base. But these days, how common is it for PCs not to use the Web and the Internet? It’s also worth pointing out that it’s really the only “in use” metric to be had.

A funny little side note to end with: Over a year ago, we actually predicted that Windows 7 would overtake XP in November 2011. Ok, we were off by a month. So sue us…

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The smartphone patent wars

The smartphone patent wars: Patent wars are raging in the smartphone industry as companies enter litigation in courts across the globe in pursuit of sales bans and royalties.

Facebook now as big as the entire Internet was in 2004

Facebook now as big as the entire Internet was in 2004:

At the recent F8 conference Facebook revealed that they now have 800 million active users. Europe, with Russia included, has a population of 727 million. We now have a social network that is so large that it could fill up a major world region with people and still have some to spare (this “spare” being twice the size of Canada’s entire population).

Another cool comparison is that Facebook now has as many users as the entire Internet did back in 2004, the year Facebook was founded.

For fun, here are some other size comparisons you can make.

The size of Facebook’s active user base is…

• 38% of the entire current Internet population


• 87% of the Internet population of Asia


• 168% of the Internet population of Europe


• 294% of the Internet population of North America


• 370% of the Internet population of Latin America


• 674% of the Internet population of Africa


• 1,167% of the Internet population of the Middle East


• 3,757% of the Internet population of Oceania / Australia

And comparing it with the entire population of a few selected countries, we get this:

As a companion to the visual above, here you have the actual size relationships:

Facebook’s active user base is…

• 2.5x the population of the United States


• 3.9x the population of Brazil


• 5.8x the population of Russia


• 6.3x the population of Japan


• 9.7x the population of Germany


• 12.4x the population of France


• 13x the population of the United Kingdom


• 13.8x the population of Italy


• 19.7x the population of Spain


• 23.5x the population of Canada


• 36.6x the population of Australia


• 76.7x the population of Belgium


• 88x the population of Sweden


• 144.6x the population of Denmark


• 185.7x the population of Ireland


• Only India and China have populations larger than Facebook.

Note that the second chart compares entire populations, not just Internet populations (Internet users).

These numbers are pretty mind-boggling. Where will it all end? There’s still plenty of room left for Facebook to grow, but how massive can it get before it grinds to a halt?

Data sources: Population data from GeoHive. Internet user numbers from Internet World Stats.

But wait, there’s more! If you liked this post, check out this chart showing Facebook’s growth through the years, put into perspective by country populations, Internet stats, etc.: Facebook’s ginormous size put into context

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Can the Blackberry recover?

Can the Blackberry recover?:

The August comScore mobile survey (MobiLens) is out. It measures the penetration or consumption of various mobile products and services in the US over a three month period.

I track the change in this data over time. Here are some highlights:

In August about 520,000 users switched to using smartphones (from non-smart phones) as their primary phone. This is a bit down sequentially from July but about average for the period starting January 2010.

Penetration increased by about 1 % to 36%.

Extrapolating this growth implies 50% penetration by September 2012. However growth is accelerating slightly so that tipping point may come sooner. Separately, T-Mobile reported that 75% of its device sales during this year have been smartphones, so if this is indicative of overall US market, then by next year it may in fact be quite difficult to find any non-smart phones to buy.

Among the smartphones, the different OSs have the following installed bases:

The growth in both Android and iOS has been fairly constant for the last 18 months.

Microsoft seems to be stabilizing at around 6%

But RIM shows an alarming deterioration. The company has lost 4.3 million users in the last year and is now at about the same number of users it had in late 2009. This is in a market that has more than doubled.

With only about 16.5 million US users and an average loss of half a million users per month, unless something drastic happens, RIM could lose its entire US user base by the end of next year.

During the last month alone RIM lost 1.2 million users. Management insists that new devices will boost sales but here we’re measuring the erosion in core users, not upgrades. It’s much more likely that those 4.3 million who left Blackberry went to other smartphones. To move from a Blackberry to a feature phone seems very improbable to me.

That means that Blackberry’s pain is probably iPhone or Android’s gain. This sort of switch is often painful and I can only imagine that it’s done with some reluctance. All the more remarkable then that RIM could not offer incentives to stay. The Blackberry brand is fading rapidly and brand value is very hard to re-build.

There’s one more thing.

We can see platform rivalry in the installed base chart but the bigger battle is the competition with non-consumption. The following chart shows how overall platforms are faring as they carve up the feature phone market.

There are still 150 million Americans whose primary phone is not a smartphone. The conversion of those users is happening at a consistent pace but there are many years of growth remaining. I’ve often wondered if and when this pace would moderate. I suggested perhaps at 50% there would be an inflection point as the “easy money” would already have been made.

Much of that will depend on how the product (device + service) will be priced. It’s hard to get data on overall pricing. We can get some subsidized phone prices (for example now ranging from $0 to $400 for iPhone and probably similar for Android). What we don’t have is an average device+service price point for the industry. That’s what I would like to keep an eye on.

Operating System Market Share: September, 2011 Update

Operating System Market Share: September, 2011 Update:

Web Browser Market Share: September, 2011 Update

Web Browser Market Share: September, 2011 Update:

Mobile Device Manufacturer Market: September, 2011 Update

Mobile Device Manufacturer Market: September, 2011 Update:

Growth and punishment: The vector space model

Growth and punishment: The vector space model:

After processing more than 1500 data points on the performance of thirteen technology companies, patterns are beginning to emerge. The steps so far:

• Visualizing P/E and Growth as time series centered on a point of crisis.


• Plotting P/E vs. Growth with an eye toward any clustering/correlations for the cohort.


• Detecting and measuring any change in the relationship between P/E and Growth before and after the point of crisis.

The final step is to plot the changes in the relationship between pre- and post-crisis for the set of companies normalized to the same starting point and then classifying them:

The chart shows how the “average P/Es” changed after 9/30/2008 vs. how the companies performed during those periods. An evocative categorization is suggested for the four quadrants.

One way to read the data would be as a degree of effect of the crisis. For example, in the case of HP, its P/E dropped by about 6.5 while its average growth decreased by 41 basis points giving an average of 0.16 drop in P/E for every basis point reduction in growth. That would be a fairly modest impact. In the case of HTC, the impact would be even less. The effect on P/E was zero even though growth dropped by about 78 basis points. At the same time the impact on Microsoft was severe with the P/E dropping as much as for HP even though its growth only moderated by 5 basis points.

Therefore the “slope” (or angle in vector parlance) of each of the lines in the chart above may be interpreted as the severity of discount in value that the crisis invoked. Those values are shown the following chart:

A strong bar on the right half of the chart implies severe impact, a bar around the middle implies minimal impact and a bar in the left represents an inverse relationship where the market priced in opposition to performance[1]. What should be considered along with this chart is the quality of earnings and consistency of performance (which are shown in the posts linked above.)

Discussion

As noted in a previous article, there are really only six companies which had strong separation between pre- and post-crisis valuations: Apple, HP, RIM, HTC, Microsoft and Google. They are also the companies which had strong P/E drops (except for HTC). As a group they are also the companies with the best growth stories historically. This is perhaps the reason for the drop. Basically, because these were strong companies they “had the most to lose”. The market “punished” them more severely than the weaker companies because the weak had already been discounted.

The other observation is that Apple and RIM are not treated particularly differently. The drops in P/E are at about 1 for every basis point drop in growth. This means that the the degree of value lost is about the same as a function of growth loss. Microsoft seems to have been the most affected. We can argue that it is perhaps weaker than the others strategically so this is reflected here, but I doubt it’s weaker than RIM. Microsoft is also in contrast with Google which seems to have been given a lot of benefit of the doubt.

Nonetheless, this framework offers some hints on how technology companies have been treated after the crisis. There is no rightness or wrongness about this treatment but it may indicate potential for significant reaction in the opposite direction if and when macroeconomic conditions improve. These vectors are, in a way, proxies for volatility or “beta” in terms of correlation to the overall market. The greater the beta, the more amplification to market movement; the greater the slope value

As always, Apple is the canary in the coal mine as far as sentiment is concerned. What should be watched is the pricing reaction as Apple moves from a net reduction in growth to a net increase in growth. How will P/E react? The argument on this site so far has been that growth is exceptionally strong for Apple and it’s not being reflected in the price. However, in this analysis we’ve stretched the time frame and did a longer retrospective. On this new time scale growth is not yet at the levels Apple enjoyed in the heady days of 2005/6. Perhaps this growth will return and when it does we’ll get to see which way Apple’s vector moves.

—-

Notes:

1. An inverse relationship with value can happen for various logical reasons, for example that a company has volatile performance which is depending on anomalous events.

Biggest mobile loser? The non-smart phone

Biggest mobile loser? The non-smart phone:

Yesterday comScore published survey results for EU5 (France, Germany, Italy, Spain, UK) on smartphone use and installed base. The headline is very similar to what would be written about the US: Android had phenomenal growth over the last twelve months. I also noted that the apparent growth of Google (16.2% share change) seemed to be matched by an apparent decline of Symbian (-16.1% share change.) However the reading of the data is not so simple.

In order to understand what has happened to usage, it’s much more valuable to look at consumption and the actual number of users rather than change in share of a subset of the market. Consider the following charts:

The bar chart shows that three platforms gained users in the last year (ending July) and that there were negligible losses in users by others. Negligible except for non-smart phones. A remarkable 29 million users moved from non-smart phones to smartphones. Those switchers switched into Android (16 million), iPhones (6.3 million) and RIM (3.4 million). Symbian even gained about 330k users. Microsoft lost about 1 million but its platform has not been actively promoted in that time.

When seen as a pie chart, you can see how the usage shifted from non-smart to smart even more clearly. It does not appear that Android took share from Symbian at all. Android took share from non-smartphones. The table in the link from comScore leads one to conclude otherwise.

I took the same approach to look at the US data (also from comScore). It shows a similar pattern.

In the US, RIM was a net usage loser but its losses also paled to the losses of non-smart devices. In comparing with EU5 the pattern is very similar.

I then combined the EU5 and US data and provided a view into the combined markets (note scale change from previous two charts.)

This shows the change in platform phones more or less being from non-smart to Android and iPhones. The total population is 470 million people–not insignificant. The total number of non-smart devices abandoned is nearly 60 million in one year, which equals the total number of new smartphone users. That’s 12% of most of the developed world switching in one year. If this keeps up, the “tipping point” when smartphones will outnumber non-smart phones in use in these large markets will be in another year.

In terms of sales rate, the tipping point has already happened. Sales of smartphones crossed over in the US and Europe several quarters ago (November 2010 in EU5) and the trend is accelerating. Furthermore, if patterns of mobile technology adoption repeat as they have for the last two decades, emerging markets will follow in two to three years.

This tipping point observation has been repeated on this site a number of times when reflecting on the data in the US. Now it’s becoming clear that the same pattern has been underway in Europe as well.

The big picture from the survey data is just how vast the demand for smartphones is. Some platforms are benefiting more than others in terms of share of growth, but the biggest mobile loser is clearly the non-smart phone. Not only is it an unprofitable product for almost every vendor, it is also being increasingly shunned by buyers.

At the same time, at 450 million users we’re still only looking at less than 10% of the market. As this pattern spreads globally the platform install bases will be measured in the billions of users.

Mobile Impossible

Mobile Impossible:

In yesterday’s post about the “biggest mobile loser” I covered the exodus of users from non-smart devices in the US and EU5. I also said that what happens in those regions tends to happen in other regions with a time shift. In some regions it happens quicker but in most it happens more slowly.

But can we be sure that there isn’t vast non-smartphone growth in other regions? Well, no, we can’t be sure. At least not without access to reliable data.

But what we can track is the overall non-smart phone market and compare it to the smartphone market. Here are the growth rates of the two sub-markets:

The difference is plain to see. We can also note that the non-smart market may be heading into a contraction–something noted by some analysts close to the market–but no real sign of that happening in smartphones.

Beside growth, we can also see actuals and the split of various vendors’ volumes in the market.

It’s also clear that the top line has not moved much in the last few years. Next, the shares of the vendors.

Finally, the before-and-after share pies.

We can see that the growth story, if there is one, is coming from low-end entrants. In late 2008 the main brands had 90% share. They now have about 60% (in a flat market.) The growth is all from “Other”.

What seems to be happening is that buyers in mature markets are swapping (or upgrading) from non-smart to smart and adopting new smartphone brands. At the same time, new users in emerging markets are increasingly adopting new non-smartphone brands.

So the question for the incumbent vendors is extremely important: Facing them are low-end and smartphone entrants engaged in a pincer movement, with obvious success; can the old brands survive?

The answer, as always, depends on whether the competition is symmetric or not. Low end competitors are usually structured around low cost structures. High-end competitors are exploiting new markets and new business models. For an incumbent to survive and fight on both fronts they’d have to adopt both of these models for themselves, simultaneously and quickly.

We can see that Sony-Ericsson and Motorola (Google) have thrown in the towel on the low end. The question of dual-front strategy is mainly relevant only for Nokia, Samsung and LG. LG is on the ropes and may actually be ready to exit the market so that really means Nokia and Samsung. Nokia has signaled continuing interest in the non-smart market (citing “the next billion users”). Samsung also seems to be hanging in there. Can they do it?

I cannot stress how difficult this is or how rarely it has been achieved. The two approaches are if not opposites then at least orthogonal. It’s like Mission Impossible. You can’t be a low cost global vendor while investing in R&D for differentiated platform-based devices. These are shaping up to be businesses requiring completely different skill sets. Few have the ability to host these skills inside one company. I can think only of one example.

RIM and the lamentation of the analyst

RIM and the lamentation of the analyst:

RIM shipped 10.6 million Blackberries and 200,000 PlayBooks in the last quarter. Management noted that their sell-through was significantly higher for Blackberry (13.7 million) but seems to be very weak for PlayBook as the prior quarter saw 500k units shipped. Additional PlayBook units this quarter probably mostly went into new channels in Asia and there were no additional sales into North America or Europe.

The figures for units are very poor. How poor depends on the frame of reference. Consider the shipment chart below:

In terms of the competition, 10.6 million units is less than half what Apple or Samsung sold in its prior quarter. It’s also less than what HTC sold. RIM’s volume rank will likely go to fifth place as a smartphone vendor.

In terms of its performance relative to its own history, the Blackberry volume dropped by 11% year-on-year and 18% sequentially. This is the second quarter that shipments shrank.

In terms of market share, we’ll have to wait for the competitor data over the next six weeks but the market has been growing at an average of 77% for four quarters so any continuation of this trend would imply RIM’s share dropping to single digits.

Finally, the biggest shock has been the decline in profitability. It seems that operating margin dropped from 21% to 13%. The company did incur some one-time charges for recent layoffs, but even without that charge, the margins would be around 16%. This is most alarming. The reason for such drops is that as volumes decrease fixed costs don’t decrease as rapidly or at all. The company still needs to keep sales, administration and engineering staff around and they become a larger part of the operating expenses (vs. the component costs which vary with volume of goods sold).

This effect is well understood by financial analysts and the stock price shows it with a huge drop.

But stepping back to look at the picture above, there is a clear turning point in the company. You can see the elbow in the curve for volumes whose effect is felt so deeply. What’s curious is why the pivot occurred when it did. We can point the finger to competition as the cause. But why was there no effect in the company’s fortunes when the competition actually emerged. It’s been years since the iPhone and even Android entered the market. Yet we see an impact on Nokia and RIM individually at apparently arbitrary points of time.

This is the lament of the analyst: you can clearly and accurately state what will happen but when remains a mystery. It’s the elasticity between obvious causes and their effects that makes this an inexact science or not a science at all. In retrospect, you can say that Nokia’s pivot was triggered by its public execution of Symbian, but that assumes that it was preventable–which we know is not the case. But what caused RIM’s change of growth, exactly? Why did it happen this past spring? Why didn’t the company volumes begin to decline as iPhone and Android boomed in 2009 or 2010? For quite some time RIM seemed immune to competitive pressure. We all were made fools as we called its imminent demise. Then, as Steve Jobs would say, boom!

—

Footnote:

Piecing together RIM’s performance is becoming more difficult each quarter. The data being presented is increasingly obfuscated by irrelevant detail while major information is omitted. This last management presentation was full of holes, namely:

• We have no idea of device pricing. Valiant efforts have to be made to piece together that aspect of the business. Matt Richman does a good job but it still requires some guesswork regarding PlayBook pricing to back out Blackberry pricing.


• Management detailed where Blackberries were selling-out but only detailed sell-in for the PlayBook. Obvious spin.


• They are cherry picking the data they present and each quarter it’s a different story making pattern recognition impossible.

This leads to an erosion of trust. Observers are faced with the problem of increasingly guessing what is happening each quarter. For instance, regarding pricing I prefer to include service revenues in the analysis of device sales because device+service is what is being bought by the user and vendors which can offer services as part of the device get a justifiably higher value for the product–value that I think needs to be considered as advantageous. Nokia and Apple also account for services (though not apps) as part of device sales and it makes it more convenient to compare these businesses.

Given RIM’s smokescreen, this quarter I decided to stop trying to guess Blackberry pricing and used Operating Income/Units sold as the average selling price.

The tell-tale signs suggesting a platform’s demise

The tell-tale signs suggesting a platform’s demise:

In the post on OS turning circles, I used the concept of a radius of turning as an analogy for agility. One problem with the analogy is that turning in circles implies a return to a starting point or at least a closing of the loop. The idea is that there is lifecycle repetition. However, in reality, this does not apply to the world of operating systems.

An OS, as a platform, usually has a finite life. It is born, grows and usually reaches a point where it is no longer supported. Sometimes, a new platform is born to take its place from the original owner but more often a replacement comes from a new challenger company.

So rather than circles, the analogy of OS lifetimes may be more accurate.

If we do think of platforms as finite, then the natural question is what causes an end? We need to look for patterns which may indicate when a platform is reaching end of life.

The difference in this analysis is that the measure of “age” of a platform I use is not time per se but versioning. The logic is that each major version is a meaningful and significant improvement in a platform which needs to be delineated, marketed and celebrated. It embodies the business logic as well as the engineering logic of the platform custodian.

Taking the data from the last post I added a few more platforms: Symbian[1], PalmOS and Blackberry OS[2] to seek out patterns. I also separated the desktop/portable OS’s from Mobile OS’s and plotted these version-demarcated lifespans.

One thing to observe is that the scales of the two charts are comparable. There are examples of short- and long-term version updates and the number of iterations (lifespan) can be similar. I noted also that there were several platforms which have reached end-of-life[3][4]. Those platforms have a big black dot at the end of the line.

That leads to another observation. The end of a platform seems to be indicated not by simple age (the shortest lived was six years and the longest lived was 16) nor by the number of versions (PalmOS lived for five while MacOS lived for nine). Instead the end of life is most clearly visible as a lengthening of the development cycle.

Note that each platform that ended was preceded by a spike into the vertical–a significant delay in the release of a version. The data is one thing, but it’s anecdotally supported by observation. Industry observers note that delays in improving the product are symptoms of some fundamental architectural or marketing roadblock. In the case of Mac OS, Apple struggled to bring modernity to its “Classic” OS. It need memory management, more reliability and a better file system to support the move to networking and media hub use that defined the consumer expectations of a PC.

There was a change in the basis of competition, away from pure productivity and more toward entertainment that turned out to be more demanding in new ways. Apple had to move away from Mac OS and lost time with its internal Copland effort before punting with NextSTEP. Similar transitions are visible with Palm (from PalmOS to WebOS), Microsoft (from Windows Mobile to Windows Phone) and Nokia (from Symbian to MeeGo) and RIM (from Blackberry OS to QNX). In fact, survival of a transition is relatively rare and never without significant pain and loss of value or share.

This is also understandable through the lens of disruption theory. As a product reached the point of being good enough, “breakthroughs” are harder to come by. Engineers and marketers struggle to push the product into increasingly rarefied strata of performance. The old architecture does not fit the new demands but it’s crammed into them anyway. This last big push is then followed by a stall and ultimate demise. Meanwhile, an entrant gains lift in the rich atmosphere of new bases of competition with an architecture that’s built specifically for it. The process then repeats.

And so the charts relate the same story of sustaining improvements followed by inevitable last gasps that Clayton Christensen first illustrated[5] in The Innovator’s Dilemma. A book that came out just as the first mobile platforms cataloged in these charts began their ascent.

—

Notes:

1. Versions of Symbian do not match easily to integer values. I used the versions as recorded by pdadb.net. The sequence is as follows: EPOC Release 3: “1″, Release 4: “2″, Release 5: “3″, Symbian OS 6.0: “4″, OS 7.0: “5″, OS 8.0: “6″, OS 9.1: “7″ (9.0 was deproductized), Symbian ^3: “8″. Symbian ^4 has been cancelled. These original version numbers are noted on the chart.


2. The times recorded are for “general availability of product” which in the case of mobile OS’s means the time when a device using that OS was released.
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   

   Symbian	PalmOS	Blackberry
   Jun-97	Jun-96	Jan-99
   Oct-99	Mar-97	Apr-00
   Mar-00	Mar-98	Mar-02
   Jun-01	Mar-01	Oct-03
   Oct-03	Oct-02	Nov-09
   Nov-04		Sep-10
   Feb-06		May-11
   Sep-10

   
   


3. End of life is defined as the last version generally available. In some cases (e.g. PalmOS 6) newer versions are built but they may not be released into a working complete product.


4. Windows Mobile is treated differently here than in the previous post. I chose to declare it EOL after version 6 and consider Windows Phone as a separate OS. This is because the name change is indicative of a break with the past. As before, I defer decisions about continuity to the developers and/or marketers who choose the naming conventions.


5. See slides 3 and 5 here