More reaction to the iTunes music store non-collapse
It's been an interesting day. I've heard everything from "right on" to "you're lying" responding to my counterpoint to the Register article titled "iTunes Sales Collapsing" and Forrester's original research. So perhaps I can make some additional comments that might clarify things (or not, you never know).
First, my understanding of the report that Josh did is that it is actually a pretty thoughtful piece of work. And even the Register article says,
But most importantly, I say "my understanding" above because I have not been able to read Josh's report, since I'm not a Forrester client. So I can't rebut any of his data point by point.
And to be clear, the data he cites is simply how many transactions his sample of consumers made, and what the average transaction was. And he has that data month-by-month, and we don't. So while we can look at the aggregate numbers (what my graph does), he can actually calculate some of Apple's month-by-month revenue (although not all, since he doesn't include gift cards nor non-US households; in fact, it's also not clear if debit cards are included). Hence the 65% drop in revenue observation: he's looking at January through August of 2006. We have no visibility into month by month trends there, he does.
In my graph, I'm looking at TOTAL iTunes sales since the beginning of time, while Josh is looking at incremental iTunes sales. Since incremental sales are the first derivative of the total sales number, it's going to vary more. And in fact one of his quotes was really about the growth or decline of those incremental sales, meaning he's looking at the second derivative, which is going to be all over the place statistically. Sales change month to month. We shouldn't be surprised by that in retail.
The bottom line: Yeah, it's annoying that Forrester is predicting the collapse of iTunes from a carefully selected 7-month period coming down from the Christmas peak of last year. Anyone in retail knows that January through August aren't like September through December (let's see, do we buy more music at Christmas or in the summer? Let me think about that). But let's recognize that a lot of the heat about this is just people reacting to short term trends like day-traders instead of looking at the long-term business, year over year. And Apple's long-term iTunes business is pulling in revenue of about a billion dollars a year and fueling a juggernaut of iPod sales where it's making multiple billions. I'll take that type of problem any day of the week.
And just to note that Josh is a bit more circumspect in his published material than the Register is, here's his summary from the actual report on Forrester's Web site:
Frankly, that doesn't sound anything like a collapse to me.
First, my understanding of the report that Josh did is that it is actually a pretty thoughtful piece of work. And even the Register article says,
Speaking to The Register, Forrester analyst Josh Bernoff warned against extrapolating too much from the figures. It may reflect a seasonal bounce that hasn't yet manifested itself. However, it might not.
But most importantly, I say "my understanding" above because I have not been able to read Josh's report, since I'm not a Forrester client. So I can't rebut any of his data point by point.
And to be clear, the data he cites is simply how many transactions his sample of consumers made, and what the average transaction was. And he has that data month-by-month, and we don't. So while we can look at the aggregate numbers (what my graph does), he can actually calculate some of Apple's month-by-month revenue (although not all, since he doesn't include gift cards nor non-US households; in fact, it's also not clear if debit cards are included). Hence the 65% drop in revenue observation: he's looking at January through August of 2006. We have no visibility into month by month trends there, he does.
In my graph, I'm looking at TOTAL iTunes sales since the beginning of time, while Josh is looking at incremental iTunes sales. Since incremental sales are the first derivative of the total sales number, it's going to vary more. And in fact one of his quotes was really about the growth or decline of those incremental sales, meaning he's looking at the second derivative, which is going to be all over the place statistically. Sales change month to month. We shouldn't be surprised by that in retail.
The bottom line: Yeah, it's annoying that Forrester is predicting the collapse of iTunes from a carefully selected 7-month period coming down from the Christmas peak of last year. Anyone in retail knows that January through August aren't like September through December (let's see, do we buy more music at Christmas or in the summer? Let me think about that). But let's recognize that a lot of the heat about this is just people reacting to short term trends like day-traders instead of looking at the long-term business, year over year. And Apple's long-term iTunes business is pulling in revenue of about a billion dollars a year and fueling a juggernaut of iPod sales where it's making multiple billions. I'll take that type of problem any day of the week.
And just to note that Josh is a bit more circumspect in his published material than the Register is, here's his summary from the actual report on Forrester's Web site:
EXECUTIVE SUMMARY
Forrester's recent analysis of more than 2,700 US iTunes debit and credit card transactions reveals that 3% of online households made an iTunes purchase in the past year. Apple's iTunes proves that $0.99 micropayments for digital music can lead to substantial revenue; buyers spent an average of $35 at iTunes over the past year. With half of all transactions costing $3 or less, though, transaction fees threaten to make iTunes unprofitable. Since the introduction of the iTunes Music Store, Apple has been steadily selling just 20 iTunes tracks for each iPod sold, suggesting that even at $0.99, most consumers still aren't sold on the value of digital music.
Frankly, that doesn't sound anything like a collapse to me.
Technorati Tags: Apple, Forrester, iTunes, Josh Bernoff, Marketing, Music
posted by Carl Howe at
9:10 AM
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