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In Business

Horace Dediu on how the iPhone is solving the innovator dilemma

Horace Dediu is quite bullish on the iPhone 13 family. He believes that the camera innovations continue to prevent the low-end disruption by cheaper devices. He wrote (a):

The new cameras are for the new generation of YouTube, Instagram and TikTok influencers. Ordinary people with extraordinary tools can do extraordinary work.

The latest iPhone 13 is, in my opinion, the most important iPhone ever. It creates the perception of what a phone should be and it sets up the trajectory for demand that did not yet exist. It’s facile to think that the utility of an OK, older phone is good enough. That assumes that we are satisfied with OK messaging and OK apps. With OK photos and OK video. With no wide angles, no nightmode and no macro photos. What the iPhone has shown however is that the demand for performance can be nudged up.

We did not ask for rack focus, post-production focus (!), night mode, macro photography and portrait bokeh. But once we have these features we begin, ever so slowly, to use them and then we start demanding them. Conversely it seems that what people mostly ask for — that is what the critics ask for — are extrapolations of existing features. The “faster horse” dilemma.

What makes the iPhone and perhaps Apple special is that it seems to deliver things that nobody asks for but then everybody wants while eschewing overshooting a performance dimension that a few demand but most won’t use.

The tragedy of overservice and disruption is that if you don’t shift the definition of performance eventually you run out of demand at the top of the performance curve. That opens you up to “good enough” competition from below. Instead you need to re-define the notion of performance: compete on a new basis, reset expectations. That the iPhone can find new dimensions of performance and hence demand is effectively a solution to the innovator’s dilemma.

In Business
Tagged with Apple · Horace Dediu · Disruption Theory
via The Most Important iPhone Ever 🌐

Warren Buffett and Charlie Munger on how long it takes to dig an economic moat

From the 2002 Berkshire Hathaway’s Annual Meeting (YT):

Question: You’ve said that great companies are those that have an economic moat, and I understand that phrase to mean a sustainable competitive advantage. Do businesses begin their lives with sustainable competitive advantages, or must that be developed over a very long time? And then, what are the fundamental bases upon which you’ve seen companies successfully develop sustainable competitive advantages? Of those, which do you think is the most enduring and which is the least?

Buffett: Well, sometimes they can develop it very quickly. I would say that Microsoft, in terms of the operating system, that was a relatively quick development. But that was an industry that was exploding, and things were changing very fast.

On the other hand, if you go back to See’s Candies, which started in 1921, there was no way you could build a sustainable competitive advantage, at least that would be recognizable, in times measured shorter than decades. I mean, you opened up one shop at a time, and nobody’d heard of you originally, and then a few people did. And boxed chocolates were something that people may have bought once or twice a year for a holiday occasion or whatever. So, you weren’t going to embed yourself in the minds of Californians in one or two or five years just because you were turning out outstanding box of chocolates.

So it depends on the way the industry itself is developing.

Walmart has done an incredible job in quite a short period of time. But even they [took some time] — they took it in the small towns, and they progressed along, and refined their techniques as they went.

But I would say that there could be things in new industries.

I would say with NetJets, we have a sustainable competitive advantage. And that’s an industry that was only originated in 1986 when Rich Santulli got the idea, and it was in its total infancy for a good many years after that. But what he has built, and is building and fortifying, is that sustainable competitive advantage. But it depends very much on the industry you’re in.

And I mean, Coca-Cola. 1886, Jacobs Pharmacy, Atlanta, Georgia, you know. John Pemberton came up with a product. And did he have a sustainable competitive advantage that day? If he did, he blew it because he sold the place for 2,000 bucks to Asa Candler.

It took decades, thousands of competitors over that time. They were painting one barn at a time, and designing one Saturday Evening Post ad at a time, and all of that, and pebbles — you know. Around the world in World War II, General Eisenhower went to Mr. Woodruff and he said, “I want a Coke within the arm’s length of every American serviceman.” He said, “I want something to remind them of home.” And so he built a lot of bottling plants for Coke around the world. And that was a huge impetus.

But that was, what? 60 years or so after the product was invented.

So it takes a long time in certain kinds of products, but I could see certain areas of the world where a huge competitive advantage is built in a very short period of time.

I would say that probably, in terms of animated feature-length films, for example, Walt Disney did that. And after Snow White and a few more, it took him a while until he could cash in on it, but it became Disney and nobody else in that field for quite a while, and fairly quickly.


Munger: Yeah, there are a lot of different models that create a sustainable competitive advantage.

And there are also some models where you can lose it very fast. Just ask Arthur Andersen. That was a very good name in America not very long ago.

And I think it would be harder to lose the good name of Wrigley’s gum than the good name of Arthur Andersen.

I think there’s some perfectly remarkable competitive advantages that people have gotten over time. And the great trouble with the investment process is that they’re so damned obvious that the stocks sell at very high prices.

Buffett: Snickers has been the number one candy bar for probably 30 or 40 years now. How do you really knock it off?

I mean, we make candy, we would love to displace Snickers, but it’s hard to think of ways to knock them from the number one spot.

My guess is that they’ll be number one in 10 years from now in candy bars, and the list doesn’t change much in that field because —

If you think about the nature of how you make that choice as to what candy bar [you are going to buy and eat] —

If you were chewing Spearmint chewing gum five years ago, and you buy a pack of some chewing gum today, it’s likely to be Spearmint. I mean, there’s just things that you experiment a lot with, and there’re things that you don’t fool around with once you’re happy. You can understand that if you observe your own habits and people’s habits around you.

[And then] there’s other [aspect to it] — usually if something can gain competitive advantage very quickly, you have to worry about them losing it quickly, too. I mean, when an industry is in flux, there are a lot of people that think they’re the survivors, or the ones that are going to prosper, where it turns out otherwise.

In summary:

In Business
Tagged with Warren Buffett · Charlie Munger · Sustainable Competitive Advantages
via Warren Buffett: Coca-Cola Took 60 Years After Invention To Form Its Moat 🎥

Patrick McKenzie on narratives and great marketing

Patrick McKenzie on twitter:

I think people in the tech community tend to undervalue large portions of the marketing skillset, and e.g. building a narrative for a decisionmaker persona then solving backwards to the artifacts that would create it is useful.

But in many phases of the business, this works:

To quote Tiago Forte:

The secret to marketing, and I’m 100% serious, is to not do it very well. That way you are charmingly, endearingly incompetent and constantly build up reserves of trust and goodwill from all the value you’re leaving on the table

Patrick then continues:

A good portion of some advice in the community, like “write for yourself”, is a shortcut on having to do the whole decisionmaker thing, because you’re overwhelmingly likely to yourself have problems that at least some other people do and to speak in a way some of them will like.

A semi-considered guiding light I had when writing for many years is “Just write about things you would have found surprising 5~10 years ago in a way that you of 5~10 years ago would have found maximally compelling.”

I do tend to believe that if you can figure out a way to create compounding value over time then things will often work out swimmingly, though you do have to continue putting work into the other things.

(A tragedy, and I mean that phrasing, is when someone who has figured the value creation thing out then ends up in starving-artist land and has to curtain their output and get a job doing something much less important simply because the job is competent at turning work into $.)

@michaelcoyote then adds:

I think the ideal marketing is when you are able to build narratives for key decisionmakers but no-one can see you actually doing it. It’s hard as hell but if your team can pull it off, it’s the best of both worlds.

In Business
Tagged with Marketing · Storytelling · Patrick McKenzie
via @patio11 🐦

The back story of PUBG and Fornite

PUBG, the main predecessor to Fortnite, was originally a mod of ARMA 2 created by Brendan Greene:

Brendan Greene had a singular vision to bring battle royale to the video game market. He started as a modder, and he was a fan of movies like Battle Royale and The Hunger Games. He started working on a mod that could do this kind of a first-person shooter game mode where the territory for fighting kept shrinking until there was just one player left standing.

And the rest was history. Greene hooked up with Daybreak Games on H1Z1 and then went to Bluehole, which set up a subsidiary, PUBG Corp., to make a battle royale game. There, in South Korea, Greene helped create PlayerUnknown’s Battlegrounds. It became a huge hit when it debuted in March 2017, and it saw a meteoric rise on PC, consoles, and mobile.

Greene recently spoke about this experience with Rami Ismail, cofounder of Vlambeer, at the Gamelab event in Barcelona. He talked about his life as a modder and being thrust into game development with almost no experience beyond what he taught himself. For nine months, he toiled with the development team and eventually put their creation out in to the wild. Then he got a rush out of the huge popularity of PUBG. The mobile game alone has topped more than 400 million downloads, and the team has grown from 30 people to more than 400.

But why Fortnite (not PUBG) ended up “winning” the West?

My guess: Fornite was the first to be available everywhere for free — and Epic Games delivered a smoother experience (via the Unreal Engine) as well (1, 2).

In Business
Tagged with PUBG · Fortnite · Hits
via How Brendan Greene created the PUBG phenomenon and then moved on to something new 📰

Charlie Munger explaining what made the success of Coca-Cola possible

A master class by Charlie Munger — a step-by-step deconstruction of the lollapalooza that made Coca-Cola possible. How Coke exploits the human biochemistry and psychology, and have successfully blocked competitors from doing the same:

We can see from the introductory course in psychology that, in essence, we are going into the business of creating and maintaining conditioned reflexes (a.k.a. habits). The “Coca-Cola” trade name and trade dress will act as the stimuli, and the purchase and ingestion of our beverage will be the desired responses.

And how does one create and maintain conditioned reflexes? Well, the psychology text gives two answers: by operant conditioning, and by classical conditioning (often called Pavlovian conditioning to honor the great Russian scientist, Ivan Pavlov). And, since we want a lollapalooza result, we must use both conditioning techniques — and all we can invent to enhance effects from each technique.

The operant-conditioning part of our problem is easy to solve. We need only (1) maximize rewards of our beverage’s ingestion, and (2) minimize possibilities that desired reflexes, once created by us, will be extinguished through operant conditioning by proprietors of competing products.

For operant conditioning rewards, there are only a few categories we will find practical:

  1. Food value in calories or other inputs
  2. Flavor, texture, and aroma acting as stimuli to consumption under neural preprogramming of a man through Darwinian natural selection
  3. Stimulus, as by sugar or caffeine
  4. Cooling effect when man is too hot or warming effect when man is too cool

Wanting a lollapalooza result, we will naturally include rewards in all the categories.

To start out, it is easy to decide to design our beverage for consumption cold. There is much less opportunity, without ingesting beverage, to counteract excessive heat, compared with excessive cold. Moreover, with excessive heat, much liquid must be consumed, and the reverse is not true. It is also easy to decide to include both sugar and caffeine. After all, tea, coffee, and lemonade are already widely consumed. And it is also clear that we must be fanatic about determining, through trial and error, flavor and other characteristics that will maximize human pleasure while taking in the sugared water and caffeine we will provide.

We must avoid the protective, cloying, stop-consumption effects of aftertaste that are a standard part of physiology, developed through Darwinian evolution to enhance the replication of man’s genes by forcing a generally helpful moderation on the gene carrier. To serve our ends, on hot days a consumer must be able to drink container after container of our product with almost no impediment from aftertaste. We will find a wonderful no-aftertaste flavor by trial and error and will thereby solve this problem.

And, to counteract possibilities that desired operant-conditioned reflexes, once created by us will be extinguished by operant conditioning employing competing products, there is also an obvious answer: we will make it a permanent obsession in our company that our beverage, as fast as practicable, will at all times be available everywhere throughout the world. After all, a competing product, if it is never tried, can’t act as a reward creating a conflicting habit. Every spouse knows that.

We must next consider the Pavlovian conditioning we must also use. In Pavlovian conditioning powerful effects come from mere association. The neural system of Pavlov’s dog causes it to salivate at the bell it can’t eat. And the brain of man yearns for the type of beverage held by the pretty woman he can’t have. And so, Glotz, we must use every sort of decent, honorable Pavlovian conditioning we can think of. For as long as we are in business, our beverage and its promotion must be associated in consumer minds with all other thing consumers like or admire.

Such extensive Pavlovian conditioning will cost a lot of money, particularly for advertising. We will spend big money as far ahead as we can imagine. But the money will be effectively spent. As we expand fast in our new-beverage market, our competitors will face gross disadvantages of scale in buying advertising to create the Pavlovian conditioning they need. And this outcome, along with other volume-creates-power effects, should help us gain and hold at least 50 percent of the new market everywhere. Indeed, provided buyers are scattered, our higher volumes will give us very extreme cost advantages in distribution.

Moreover, Pavlovian effects from mere association will help us choose the flavor, texture, and color of our new beverage. Considering Pavlovian effects, we will have wisely chosen the exotic and expensive-sounding name “Coca-Cola,” instead of a pedestrian name like “Glotz’s sugared, caffeinated water.” For similar Pavlovian reasons, it will be wise to have our beverage look pretty much like wine, instead of sugared water. And so we will artificially color our beverage if it comes out clear. And we will carbonate our water, making our product seem like champagne, or some other expensive beverage, while also making its flavor better and imitation harder to arrange for competing products. And, because we are going to attach so many expensive psychological effects to our flavor, that flavor should be different from any other standard flavor so that we maximize difficulties for competitors and give no accidental same-flavor benefit to any existing product.

What else, from the psychology textbook, can help our new business? Well, there is that powerful “monkey-see, monkey-do” aspect of human nature that psychologists often call “social proof.” Social proof, imitative consumption triggered by mere sight of consumption, will not only help induce trial of our beverage. It will also bolster perceived rewards from consumption. We will always take this powerful social-proof factor into account as we design advertising and sales promotion and as we forego present profit to enhance present and future consumption. More than with most other products, increased selling power will come from each increase in sales.

We can now see, Glotz, that by combining (1) much Pavlovian conditioning, (2) powerful social-proof effects, and (3) wonderful-tasting, energy-giving, stimulating and desirably-cold beverage that causes much operant conditioning, we are going to get sales that speed up for a long time by reason of the huge mixture of factors we have chosen. Therefore, we are going to start something like an autocatalytic reaction in chemistry, precisely the sort of multi-factor-triggered lollapalooza effect we need.

The logistics and the distribution strategy of our business will be simple. There are only two practical ways to sell our beverage: (1) as a syrup to fountains and restaurants, and (2) as a complete carbonated-water product in containers. Wanting lollapalooza results, we will naturally do it both ways. And, wanting huge Pavlovian and social-proof effects we will always spend on advertising and sales promotion, per serving, over 40 percent of the fountain price for syrup needed to make the serving.

A few syrup-making plants can serve the world. However, to avoid needless shipping of mere space and water, we will need many bottling plants scattered over the world. We will maximize profits if (like early General Electric with light bulbs) we always set the first-sale price, either (1) for fountain syrup, or (2) for any container of our complete product. The best way to arrange this desirable profit-maximizing control is to make any independent bottler we need a subcontractor, not a vendee of syrup, and certainly not a vendee of syrup under a perpetual franchise specifying a syrup price frozen forever at its starting level.

Being unable to get a patent or copyright on our super important flavor, we will work obsessively to keep our formula secret. We will make a big hoopla over our secrecy, which will enhance Pavlovian effects. Eventually food-chemical engineering will advance so that our flavor can be copied with near exactitude. But, by that time, we will be so far ahead, with such strong trademarks and complete, “always available” worldwide distribution, that good flavor copying won’t bar us from our objective. Moreover, the advances in food chemistry that help competitors will almost surely be accompanied by technological advances that will help us, including refrigeration, better transportation, and, for dieters, ability to insert a sugar taste without inserting sugar’s calories. Also, there will be related beverage opportunities we will seize.

In Business
Tagged with Charlie Munger · Coca-Cola · Human Universals · Sustainable Competitive Advantages
via Charlie Munger: Turning $2 Million Into $2 Trillion 📚

John Collison on the history of successful B2B companies

Here is what John Collison recommends for anyone looking to study the history of successful B2B companies in tech:

Question: If someone wanted to understand kind of how we got to where we are today in 2020, what technology companies would you encourage them to study and why?

John Collison: Stripe sells to businesses, and so I am probably indexed more on boring B2B behind the scenes, content then maybe someone who is starting a consumer company. I think the history of Salesforce is quite interesting to look at, similarly the history of Oracle is interesting to look at.

There’s a good book on Oracle called Softwar: An Intimate Portrait of Larry Ellison and Oracle.

I would say there’s obviously tons of content on Google, Facebook, all the super prominent mainstream companies. I think the interesting things to think about are, one, there’s a lot of content out there that’s essentially propaganda by these companies or “the blessed accounts”. And so it’s not like there aren’t interesting facts there, but they’re probably not as interesting as the thing is the company really wished you didn’t read because they go a little bit off script as the official accounts. And those can be a little bit harder to find.

In Business
Tagged with Books · John Collison
via John Collison – Growing the Internet Economy – [Invest Like the Best, EP.178] 🎙

John Collison on John Malone’s Liberty Media

John Collison on how history rhymes:

I was pretty interested in the cable companies that emerged in the late 1980s, early 1990s. This is like a particularly American phenomenon. It was a new technology platform, new technology paradigm, laying coax cable to all these towns across America. And you had way more television bandwidth, number of channels possible, than previously was the case. When you read it, it actually rhymes a lot with some of the technology shifts that we see.

Firstly, [there is] John Malone, who’s one of the most successful serial acquirers of all time with Liberty Media, where they basically continue to roll up small cable companies and build a very large company out of acquiring kind of small little local cable companies.

The second thing that was of course, interesting is it was one of the original kind of new technology company from out of town versus local municipalities. And it was funny as I was reading Cable Cowboy: John Malone and the Rise of the Modern Cable Business, they describe how one of the cable companies, I can’t remember who, getting into spat with a local Colorado town and changing the programming to just be “Call your mayor and tell him you want cable in your town.” And you know, exactly like the tactics Uber might’ve used, during that period when they were getting into fights with local cities.

Again, there’s a lot of history repeating itself.

In Business
Tagged with History · Books · John Collison · John Malone
via John Collison – Growing the Internet Economy – [Invest Like the Best, EP.178] 🎙

Horace Dediu speculating about the Apple Glasses

Horace Dediu speculating about how the Apple Glasses might come to be:

If you were to look at glasses: What if Apple glasses look like a regular pair of glasses? What if it have absolutely no technological appearance?

The question on the glasses or anything worn on the faces, as I said before, it’s a very delicate thing. The watch when it was introduced it didn’t look that different from any watch. And so what the logic I think for wearables for Apple has been is, “Let‘s not ask people to accept a behavior or appearance or a burden in terms of the weight or anything else that they”re not already accepting”.

And we go back to this, if you want to know where wearables are going, look at where jewelry has gone. That’s been my thesis about wearables.

We find it acceptable to hang in our bodies a lot of metal, a lot of rocks &mdash which could be substituted with silicon and plastic, and maybe some other metals.

The area around the ears, the neck, the eyes and potentially the top of the head &mdash where a hat would reside &mdash these have been conquered. [We have] over-the-ear and in-ear headphones but [nothing] yet on the face.

And this is one of the things that with Apple Silicon they might actually be able to deliver on such a small headset that it actually would be indistinguishable from a normal pair of sunglasses.

Actually, what I think they would go for in a glasses model would be the degree of customization. Everybody has a different style of glasses. I’ve gone into these places in the past and gone through everything available. And I was like, I didn’t like any of them. You know, they did not fit me. How do you make a pair of glasses or how do you make a lenses-based system which have to conform to so many face shapes and styles?

I would think it would be along the lines of a custom order based on a 3D face scan. The idea is that they use your phone to scan your face, that gets you a 3D map of the head. You use that scan to have effectively a 3D render of your head and the glasses. Then you say, OK, I accept and I buy. And then they send it to you in the mail, and you get perfectly fitting glasses. This would take into account obviously the face shape, but also your nose and your ears and all the other touch points.

The logic then would be that the customization is key to a face device, not only in terms of size, but in terms of style. If that’s the case, then how do you create compute and sensor hardware as the embedded piece into this otherwise physical object that has so many shapes that it can be? That would be the breakthrough that I think they would seek in a wearable for the face.

  1. First of all, do not force people to adopt new behaviors
  2. Secondly, do not force people to adopt new aesthetics
  3. A third would be that it would be completely shaped by the user, as opposed to here‘s the choices you have
  4. And then make a useful product. Make it so that it does make a quantum leap in usability

The advantage of making a proper set of glasses (not sunglasses) is that the general population that does have corrective lenses (whether these contacts or not) is higher than 50%. If that’s the case, then the market is huge. Possibly even bigger than the watch market, and yet it’s more difficult. Because everyone is very particular about what they choose to wear on their face, as they would be for anything they wear on their bodies as clothing. Not so much wrist-worn or even ear-worn, but face is a very special place.

We started this discussion about silicon. The fact is that it might be that the key to embedding that technology into a very customizable outer appearance is possible through only this particular breakthrough in their ability to integrate. In which case, that becomes the next category. If they‘re able to crack that nut, it becomes the next category. Implications thereafter are profound, because again you are dealing with a new user experience.

The watch was a potential new category for computing as well. It turns out that its glanceable nature, despite the fact that you might glance at it 100-200 times a day, is not a sufficiently immersive experience. It is secondary. It is still a wonderful place to put technology. It does seem to affect your behavior quite a bit as a passive sensor. But the leap we might need to get people to be interacting with computers more might still require a position around the ears and the eyes.

In Business
Tagged with Apple · AR/VR · Wearables · Horace Dediu
via The Critical Path #247: Usually, You Say CPUs @ 59:00 🎙

Horace Dediu on how Apple is usually not a first mover

Horace Dediu on how Apple is usually not a first mover into new product categories:

Apple doesn’t jump on a bandwagon. It doesn‘t develop a product strategy and doesn‘t actually firmly launch something until 2% (or more) of the market has been already explored through products sold. Meaning, until the adoption of that technology goes beyond 2% of the population that ultimately adopts it.

If you think about the mobile phone, when the iPhone launched in 2007, it had been already about seven or eight years of smartphones in the market. For Americans, it was mostly the BlackBerry, maybe a bit of Windows Mobile. But for Europeans, it would have been Symbian or Nokia-based smartphones that ran some crude operating system. But it was an operating system with apps. There were app stores. There were apps, there was media, there was imaging, there was a messaging with imaging, and so on. All these prototypical services we have today.

Effectively, by the time the iPhone shipped, tens of millions of smartphones had already shipped and arguably, about 2% of the market had been developed. And that‘s when Apple reset the expectations with the iPhone.

If you go back to MP3 players, same thing. The iPod, when it launched, was said that it was not competitive with the Nomad, which was one of the brands of the time. The iPod was lame because it didn’t have as much capacity as an existing MP3 player. By 2001, when the iPod did ship it already was 2-3 years of MP3 players in the market. Everyone at the time was like, why is Apple so late? Why is their product so limited?

The fact is that super early adopters are frustrated. They’re banging on about something. This is true for micromobility, it might be true for AR/AV too, where would you have already tons of VR headsets that kind of came and went. The Google Glass that came and went. The HoloLens from Microsoft.

We also had, by the way, tablet computing starting in the late 90s. That’s a good decade before the iPad shipped.

The pioneering happens early, and failures happen early. And Apple kind of comes in just when… I believe it is not because Apple thinks it can get a better advantage later, but because I think they toy with it. They put things together and say, “Now, it‘s good enough”. It‘s good enough for the Apple brand. And, as a result, it‘s good enough for the average user.

In the adoption curve, they come in after the so-called innovator phase, in the middle of the early adopter phase. The early adopter phase is between 2 and 13%. Above 13% is the early majority up to about 50%. Then after 50% until about 85% is the late majority. And then the last 15% are called laggards. Roughly, that’s how the famous adoption curve has been segmented.

In Business
Tagged with Apple · Adoption · Timing · Horace Dediu
via The Critical Path #247: Usually, You Say CPUs @ 29:00 🎙

Horace Dediu on how Apple does beta testing

Horace Dediu on how Apple seems to beta test new technologies:

One of the curiosities that I noticed was the inclusion of a 3D LiDAR.

What is it doing in an iPad?

Well, short-distance LiDAR might become one of the core technologies in AR. So they‘re putting it into an iPad almost as a beta test. Let‘s see how it works in real world. Let‘s use some of the data from it to calibrate our own other systems.

Again, the M Series, the chips that detect motion, were first shipped on an iPhone. Using an iPhone you could detect steps, but nobody‘s thinking of that anymore. We‘re using the watch for that. But I think that the development of the core silicon for the Apple Watch was started with the iPhone.

The M Series was sort of planted in there for getting some early data and then using it to deploy future technologies. Because the roadmap is so far ahead, I think there’s a lot of foreshadowing going on there.

That’s what I would be looking at is if there are acquisitions in enterprise or acquisitions in AR or acquisitions in AI that are leading us to kind of put together this elephant by touching a piece of it.

And sometimes it goes nowhere. There’s possibly dead-ends all around. That’s the game.

In Business
Tagged with Apple · Horace Dediu
via The Critical Path #247: Usually, You Say CPUs @ 26:30 🎙

Horace Dediu on Apple Silicon as a source of competitive advantages

Horace Dediu on how Apple Silicon might be the source of a competitive advantage in wearables and AR for Apple:

If Apple is no longer constrained by what foundries and what architectures are going on in other companies, we might be looking at a new era of compute.

Again, what if you go from old metaphors/UXes and repackaging them, but rather (potentially) coming up with something new? That‘s always the question out there. Does this silicon enable more rapid prototyping of user interactions and user interfaces, along the lines of AR?

In which case, by the way, from a competitive point of view: How hard it would be for Microsoft or Google or Huawei to, without custom silicon, being able to implement some of these newer ideas about interaction modes?

Especially in the wearables segment, where you’re pushing on miniature, on power, on sensing.

In Business
Tagged with Apple · Horace Dediu
via The Critical Path #247: Usually, You Say CPUs @ 57:00 🎙

Steve Jobs pitching the App Store

Steve Jobs was interviewed by Nick Wingfield in early August 2008 about the iOS App Store. At the time the marketplace for iPhone apps was just one month old.

It is obvious in 2018 — ten years later —, how big of a winner the App Store is. It is more interesting though to realize that Steve was already very aware of the hit he had in his hands. I believe he was able to grasp it at such early stage because of a product-market fit sense he had developed.

For anyone intending to build successful consumer products, it seems wise to hone in our abilities and pay close attention to his train of thought.

He starts the interview by explaining how the App Store was built on top of iTunes:

Jobs: The way we think about this is that the App Store is to iPhone like iTunes is to iPod. Just like with the iPod, where we enhanced it with an internet service to bring content to it, we’re doing the same thing with the iPhone. We’re enhancing it with an internet service to deliver content right to the phone.

It’s built on the same iTunes infrastructure, including all the storage and all the billing and getting email receipts and all of that kind of stuff. The downloads are fast and reliable because it’s the same system as iTunes. Customer reviews, buying with one tap, just like one click on music and stuff. No one’s ever duplicated iTunes in over five years. This’ll be even harder because it’s built on top of it.

He then talks about the early numbers of the App Store:

Jobs: We have over 1,500 applications on the App Store today. We thought that the input would start to slow down from developers, but it’s accelerating.

My gut is that we’re seeing around 50 new apps a day coming in. As I mentioned, over 1,500 apps, 27% of them are free, leaving 73% paid. Of the paid apps, over 90% are under $10.

What you really want to know is how many apps have been downloaded. I’m going to put everything in terms of next Monday because we can project very accurately, over 60 million apps. Users have downloaded over 60 million apps from the App Store in the first 30 days.

Wingfield: What’s the installed base of iPhones? The last publicly released figure was six million.

Jobs: I can’t give you a number because we’re in the middle of the quarter.

I’ll tell you. The total revenue has been $30 million in the first 30 days. Developers get 70% of that. Developers get $21 million. Nine of that $21 million is going to the top 10 developers. A lot of small developers are making a lot of money. This is just in the first month.

We actually were putting the number of downloads on every app initially, if you went and look but we were asked to take that down [by the developers].

He talks next about how app downloads were growing much faster than music downloads (recall that the iTunes Store was a big success in the 2000s):

Jobs: I can tell you an interesting fact in just a second. That is 30% as big as iTunes for music downloads. Let me say that again. App downloads equal 30% of all iTunes song downloads during the last 30 days.

Wingfield: What does that number say to you?

Jobs: It says the App Store is much larger than we ever imagined, iTunes has been out for over five years. In 30 days, users downloaded 30% as many apps as everybody in the world downloaded songs from iTunes. We didn’t expect it to be this big. The mobile industry’s never seen anything like this. To be honest, neither has the computer industry. [laughs] 60 million downloaded applications in the first 30 days. 30% as big as iTunes song downloads during the last 30 days, this is off the charts.

He then foresees the huge growth that would come from the expansion of the iPhone user base. He also mentions that small developers were already seizing the opportunity:

Wingfield: Is it concentrated to a percentage of your user base, would you say, or…

Jobs: It appears to be very wide, yeah. I have met a few people who had bought 30 apps. Everybody I know that has an iPhone has bought a handful and enjoys it.

Music is a $2.5 billion dollar business a year for us. I think we’re not quite in the same league as music, but I think this is really significant. Who knows, in the fullness of time? I don’t know.

Remember, we’re on a ramp. There’s going to be even a lot more iPhones out there in the future and a lot more iPod touches. We’re already at a $360 million a year run rate. This thing is going to crest to half a billion soon. Who knows? Maybe it’ll be a billion dollar marketplace at some point in time. This doesn’t happen very often. A whole new billion dollar market opens up. 360 million in the first 30 days, I’ve never seen anything like this in my career for software.

Let me characterize what I’ve seen with my own eyes that’s happened in the last 90 days. I’ve seen one- or two-person teams develop amazing applications and they’re ready to go in less than 90 days, and that are up on the App Store—we’re running an average of 48 hours after submission and they’re up in the store. 48 hours after they submit, they are in front of millions and millions of customers.

Being at the epicenter of the mobile explosion, Jobs was even able to foresee the potential of mobile games:

Jobs: There’s only one other thing that’s interesting to me, the largest category of apps, by no means the majority, but the largest category of apps is games. You’ve got everything from games to medical software to business analytics software to all sorts of stuff on it, but games is the single biggest category.

I did dig up some information on the mobile gaming market for myself. I’ll share it with you. 20 million handheld gaming players are expected to be sold this holiday season, for about $3 billion in revenues.

This is the No. 1 and 2 are the Nintendo DS and the Sony PSP. We’ve got two contenders for that. We’ve got the iPhone, which costs zero if you have it as a phone, zero incremental to have it as a game player. Then we’ve got the iPod touch, which currently sells for $299, but who knows what could happen over time there.

On the Nintendo and Sony, the average game title, at the street level, costs $30. Our average game title’s less than 10, some are free. It’s delivered instantly right on your device, which of course is not the case with these other guys.

I actually think the iPhone and the iPod touch may emerge as really viable devices in this mobile gaming market this holiday season.

Wingfield: Do you think we should look for advertising that stresses this message?

Jobs: I don’t know. I just find it very interesting.

Wingfield: Is gaming something that Apple has a lot of experience with, do you think?

Jobs: No, I don’t, except that we sure delivered a lot of games in the last 30 days.

No, we thought games would be a part of it, but I’ve always been excited about Epocrates and some of the medical apps. There are people that are excited about this category, that category.

He also pointed out that mobile was a serious contender to desktop — which was the major software platform at the time:

Wingfield: Facebook is doing an app for BlackBerry.

Jobs: Yeah, but if you go talk to them, the best one by far is on the iPhone, so I’ll take that.

Wingfield: How much of the traffic to a site like Facebook might come from iPhone? [Ask] any of these guys… because I know Google I think has talked about iPhone being the No. 1, by far, mobile search product.

Jobs: By far. And bought mobile maps and everything, Facebook would tell you. I believe if you talked to Facebook they would also tell you some statistics that are similar to that on the iPhone Facebook app.

Wingfield: If you looked at overall traffic…

Jobs: How serious will mobile be relative to desktop is your question. I think there are a lot of people and I’m one of them who believe that mobile’s going to get quite serious because there are things you can do… Obviously, mobile’s with you all the time, but there are services you can provide with mobile that obviously are not relevant on a desktop, such as location-based services integrated into your application.

They can be mighty useful and we’re just at the tip of that. That’s going to be huge, I think.

Finally, it is kind of comforting to see that he did get some things wrong. Predicting the future is very hard, after all:

Wingfield: I think you guys have said that you see the iPod that’s sort of stand-alone MP3 player evolving into a wireless-enabled device.

Jobs: I think there’s going to be two kinds of devices in the music space. One is going to be just the pure evolved music device. People want it for music, maybe music videos, maybe an occasional movie, but they really want it for music.

That would be a device that just keeps evolving, getting better.

As we all know today, there is no such a thing as a “pure evolved music device”, the iPhone has eaten them all.

In Business
Tagged with Steve Jobs · Product-Market Fit · Apple
via ‘The Mobile Industry’s Never Seen Anything Like This’: An Interview With Steve Jobs at the App Store’s Launch 📰