Blackfriars' Marketing

Monday, April 30, 2007

A true open-architecture Apple digital hub -- except it's not made by Apple



CE Pro has a fascinating article on Rosie, a new open-architecture home control and audio system designed by Savant Systems, but being developed in open collaboration with home integrators. It includes iTunes media server arrays, plasma displays, unique system controllers, and Savant-crafted configuration software that claims to significantly reduce the design and implementation of these whole-house audio/video systems. Icing on the cake for integrators includes Savant providing a recurring-revenue stream to integrators based upon media delivered such as iTunes music, movie rentals, and video-on-demand.

Savant says they plan to launch the system in the fall, and will be sold directly to qualified whole-home dealers. We have no idea how it will do, but it certainly does look cool.

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Blackfriars almost gets free advertising on US passports



Imagine our surprise when we saw this article in the New York Times on Sunday featuring the new design of US passports. What's that at the bottom of the cover? It looks like.... a Blackfriars logo! Compare the picture above with the picture of our Apple report for example.





Fuzzy picture encoding aside, that logo on the new US passports is supposed to indicate that the passport has an RFID chip in it and is suitable for electronic scanning. And the actual logo shown here has just one line through it, while the Blackfriars logo has two, representing the District and Circle lines in London. But hey, next time we renew our passports, maybe we'll just draw in another line with a colored marker and claim its an advertising expense.




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Apple's revenue deferment program will lower 2008 earnings



Blackfriars has updated its forecast of Apple's business performance to account for its announcement last week that it would defer revenue from Apple TV and iPhone sales over 24 months from when they were sold. Sounds like just a little accounting tweak, right? Well, yeah, if you call reducing earnings per share for Apple's fiscal 2008 by about a dollar a share a little tweak.

Now, as Peter Oppenheimer noted in his announcement, this won't affect Apple's cash flow; Apple gets all the money up front, but it only recognizes it as revenue over two years. So where will that money go? It will show up on Apple's balance sheet as unearned revenue. So if you think Apple has a pretty good cash horde now with $12 billion in the bank, just wait about 18 months. We estimate Apple will add about $7 billion in fiscal 2008 to its balance sheet just due to this change.

This is pretty common accounting in the software world. It's very uncommon accounting in the consumer electronics world. Microsoft doesn't defer revenue on XBox 360 sales, even though it provides software updates over time. Nor does Nokia or Motorola on cell phone sales. This is a very conservative accounting model that Apple is applying to these hardware sales. And what it says to me is that Apple is going to invest a lot of effort and money in improving these products over their two-year lifetimes. Shawn Wu over at American Technology Research may have it right: we may have to start looking beyond earnings to properly value Apple's business.

And speaking of improving products over time, anyone who bought our new Analyzing Apple report should have received an updated report, spreadsheet, and presentation package over the weekend. If anyone didn't get the update, simply respond to your order email, and we'll make sure you get a copy. Our next scheduled update to this report series, barring any special announcements in May, will be the week of June 18.


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Friday, April 27, 2007

Why you don't want to be in Motorola's shoes today: the long version

I said yesterday that you really don't want to be Motorola nowadays with the Apple reinventing the cell phone market out from under you. Today's Wall Street Journal article reports the set of missteps that got Motorola to the underdog position it is in today.

A note to everyone who believes that $499 is too much to pay for Apple's iPhone: The Motorola RAZR was originally introduced at that price. It went on to become the best selling phone in the world before RAZR marketer Geoffrey Frost died and Motorola went on its "We will not be undersold" price-cutting binge.

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Microsoft's slacker in its earnings report: XBox 360 consoles



I was going through the Microsoft numbers after the close, and saw the blog entry at Business 2.0 Beta noting that Microsoft sold 500,000 XBox 360s in their fiscal Q3/calendar Q1 of 2007, compared with projections they would sell at least a million or more. Ouch. Worse, the Entertainment and Devices Division (EDD) lost $330 million [Ed. note: that's a correction from my previous version of this posting when I said $1.5 billion -- I read the Reconciling Amounts line on the SEC filing as the EDD loss] on revenue of $947 million. Double Ouch. Unlike most of the other numbers Microsoft is putting up (which by any measure are quite impressive -- it's planning to grow $5.5 billion next year in revenue), losing more than a billion a year is not a good situation to be in.

Now remember that Microsoft lowered expectations for its console targets from 13-15 million to 12 million up through June 30 last quarter. Now it appears it won't even make that lowered target, short of stuffing its channel again, which will just make the calendar Q3 numbers worse. To put that in perspective, Playstation 2 -- a platform that is now seven years old, doesn't do high definition, and can't play any of the latest games -- shipments are still beating XBox 360 shipments month after month.

XBox 360 is a console that should be hitting its stride now nearly 18 months after introduction -- instead, its sales are declining and not hitting their goals. Eighteen months into Apple's iPod rollout -- a product which sold at the time for more than the XBox 360 -- it had sold nearly 30 million units. Microsoft is struggling to achieve less than half that.

The fact that Microsoft is subsidizing this business may not be an issue for Microsoft directly, since they have plenty of cash. But having too much money to work with may be hurting EDD rather than helping; it allows the division to ignore problems rather than solve them. For example, why haven't they fixed the obscene power brick on the XBox 360? Even the new Elite version has the same old ugly power brick. And EDD is the home of other profit-challenged and market-challenged products such as the Zune and the Windows Mobile operating system. Ironically, the one Mac product that is part of EDD -- Macintosh Office -- actually makes money, but not enough to offset the other money-losers.

Just as kids often become more interested in developing themselves when they have to go out and earn a living, so it is with products and businesses. As long as Microsoft can avoid having to make the hard decisions necessary to make profits from each of its lines of business, it won't succeed against other more hungry and survival-focused competitors, be it in gaming against Nintendo and Sony, in music players against Apple, or in search against Google. Samuel Johnson observed, "Nothing so concentrates the mind like the prospect of a hanging." Spinning off money-losing businesses would show that Microsoft does have business discipline -- and might help those products and businesses succeed faster in the long run.

Full disclosure: the author has a long position in Apple, but no positions in the other companies mentioned in this article.


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Thursday, April 26, 2007

Apple reinvents consumer electronics -- and announces it in an earnings call!



I'm still reeling from yesterday's conference call with Peter Oppenheimer, CFO of Apple. Yes, we're going to have to redo our financial projections for Apple, but that's not the thing that's got my mind spinning. It's the fact that with very little fanfare, Apple has just blown past where everyone else was and reinvented the business model for its consumer electronics business.

We just published our Analyzing Apple report yesterday, but we're going to publish a revision free of charge today to all the people who bought it. This announcement completely changes the Apple forecast for the foreseeable future.

It was just last week that people were raving that Apple was going to introduce music subscriptions for iTunes. DRM companies like INTENT Mediaworks were claiming that it was almost a done deal because of the record labels' lust for recurring revenue.

They were so wrong.

Yes, Apple is introducing subscriptions. But they are for iPhones and Apple TV, not for music. And it's not like a subscription to the Boston Globe where you pay every month; it's like a subscription to the Wall Street Journal where you pay the full price up front, and the company gets to sit on your money. Nice work (and cash flow) if you can get it.

You can listen to Peter Oppenheimer yourself on the Apple earnings conference call or read it over at SeekingAlpha.com [full disclosure: this blog is syndicated on SeekingAlpha]. He dropped the bombshell in his opening remarks:

Before I talk about the outlook for the June quarter, I'd like to provide a little more information about our strategy for the iPhone and Apple TV and how we plan to account for them. We believe the iPhone is a revolutionary device that is years ahead of the competition. At Macworld, we demonstrated a number of the iPhone's breakthrough features, including its pioneering multi-touch display and user interface, visual voicemail, desktop class e-mail and web browsing, and of course, the best iPod ever.

We plan to build on this incredible foundation by continuing to develop new software features as well as entirely new applications and incorporate them into the iPhone. Since iPhone customers will likely be our best advocates for the product, we want to get them many of these new features and applications at no additional charge as they become available. Since we will be periodically providing new software features to iPhone customers free of charge, we will use subscription accounting and recognize the revenue and product cost of goods sold associated with iPhone handset sales on a straight line basis over 24 months. So while the cash from iPhone sales will be collected at the time of sale, we will be recording deferred revenue and costs of goods sold on our balance sheet, and amortizing both of them into our earnings on a straight line basis over 24 months. We will continue to expense our iPhone engineering, sales and marketing costs as we incur them. This accounting policy will have no impact on cash flow or the economics of our business.

Apple's proven capability to create innovative software gives us a tremendous competitive advantage in the consumer electronics industry. We are taking this bold step to leverage what we do best. We hope the result will be to surprise and delight our iPhone customers, which should result in happier customers and more customers as we enter this billion unit per year mobile phone market. We also plan to recognize payments from AT&T Cingular as revenue over time, as earned. We will report iPhone results each quarter that will include unit sales, and recognize revenue for iPhones, iPhone accessories and payments from AT&T Cingular.

Similar to iPhone, we plan to periodically provide new software features and enhancements at no charge to our Apple TV customers. We will also recognize the revenue and product cost of goods sold associated with Apple TV on a straight line basis over 24 months. This will be included in the other music-related products and services in the data summary we provide you each quarter. Additionally, we will provide you with a schedule each quarter in our earnings release that indicates the total deferred revenue, including the combined amounts related to the iPhone and Apple TV.


So instead of recording revenue from the sale of a $499 iPhone and the $100 Bluetooth headset and $79 iPhone Applecare on the day of a sale, Apple will instead record revenue of about $25 a month for that device for 24 months. The money that the consumer actually pays will go in an account called "deferred revenue."

Think of it as a prepaid 24-month subscription to the device, and you've got the picture.

Now this may appear to be just a detail for the accounting geeks among us. But it's not. Apple just added a whole lot of value to those required two-year Cingular contracts. What Apple just said is that unlike most phone handset makers, this isn't going to be device you re-buy every nine months or so to get the latest model. Based on the information yesterday's earnings call, we predict the iPhone will be a device that gets better every six to twelve months you own it. The same goes for Apple TV too. Others may talk about reinventing consumer electronics; Apple just did it.

Now, lots of people, including the Wall Street Journal, were wondering if Cingular were crazy to sign up for an Apple phone sight-unseen and guarantee the company a cut in phone revenues, something no handset maker has ever been able to achieve. Now Cingular is looking crazy like a fox. Do you think you're going to get your iPhone updates if you pop out your Cingular subscriber card and move over to T-Mobile? I don't think so. Cingular is going to have iPhone customers locked in like there is no tomorrow, just for the visual voice mail and iPhone update features. And this is for a handset for which there is no subsidy and which won't be discounted until 2010 -- if then.

Oh my. You so don't want to be Motorola this morning. The KRZR just became KRZR.toast.

I'll save all this means for a separate iPhone post. But where earnings calls with most CFOs are dull as dirt, this one reinvented the business models for the mobile phone and TV industries. We'd love to be the company responsible for managing Apple's soon-to-be-collosal cash hoard. Apple's going to give Microsoft a run for "most money in the bank" around 2010.

All we can say is, if this is such unimportant news that it gets announced in an earnings call, I can't wait to hear Apple's big announcements this year.


UPDATE: MarketCircle CEO Alykhan Jetha had a similar reaction to mine [this link should be fixed now. -C]. AppleInsider also noted the announcement as significant.
Full disclosure: the author owns Apple stock at the time of writing (and very happy about that today too)






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Wednesday, April 25, 2007

Blackfriars' notes from today's Apple conference call with Peter Oppenheimer

The quick version: Apple blew past second quarter estimates, reporting earnings of $0.87 per diluted share, $0.89 per basic share. The official press release is here. But Peter Oppenheimer, CFO of Apple, provided some interesting details that aren't in the release.

Macs were 56% of the quarterly revenue. MacBooks and MacBook Pros led the way. Music products and services were 44% of total revenue. 10.55 iPods. iPod shuffle was especially popular. They are carrying 4-6 weeks of inventory.

Apple retail sales were $844 million. They opened 7 more stores during the quarter, making 177 total stores. Average revenue per store was $5 million. They now have 21 stores outside the US. Sydney and Glasgow are coming later. They'll also have a third store in Manhattan in the Meat Packing district. Stores see on average more than 10,000 customers per store per week.

So here was the surprising news: Apple will continually develop new software features for the iPhone and Apple TV series, and Apple will upgrade the features free of charge. As a result, they'll recognize deferred revenue for iPhone sales, accessories, and subscription revenue over 24 months. This accounting policy will have no impact on cash flow, but it will smooth out their lumpy results over two years.

Even more surprisingly, Apple TV features will also be updated over time free of charge, and therefore Apple will amortize that revenue over 24 months as well.

Our analysis: Apple sees the boom in its revenue that we forecast in our report, Analyzing Apple: Beyond the Computer, and doesn't want its earnings to as lumpy as we forecast. So they're going to be smoothing that revenue over a two-year period. What that means though is that Apple will also have the ability to control its earnings more.

I'll note that our forecast for both Mac and iPod shipments were quite close to what Apple actually reported; our difference in earnings predicted was entirely due to Apple controlling its costs better and getting lower component costs.



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Prediction for Apple's earnings today



Business 2.0 has a nice roundup of the various opinions on Apple's earnings results due at 5 pm Eastern Standard Time today. Our prediction is in our new Analyzing Apple report, but suffice it to say that for one of the first times in a while, we're in the middle of the consensus estimate. We do differ a bit in detail on the product mix; we think that the Mac business and iPod businesses are doing better than most think, but that higher development and marketing expenses for new products are keeping net profits down.

If we had two words to provide people thinking about Apple stock going forward, they would be "lumpy earnings." But hey, if that weren't the case and Apple were always going to beat consensus estimates by a penny per share, there wouldn't be any challenge in analyzing the company, would there?

A new line of financial and strategy research: Analyzing Apple



Microsoft has Directions on Microsoft. Now Blackfriars is proud to announce that Apple has Analyzing Apple, a new line of strategy analysis and financial projections focused entirely on Apple Inc. You can read the description and purchase our first report Beyond the Computer here, or you can always get to our products through the Blackfriars product store.

Think of Analyzing Apple as a cross between a financial newsletter and industry analyst research. The pieces are short (8-pages), but include detailed financial projections and graphics. Six times a year (four times the week prior to earnings reports plus two special reports around WWDC and a predicted September special event), we'll publish an analysis package that includes the report, a spreadsheet with all the projection figures, and Keynote and PowerPoint slide presentations of the same data.

The target audience for this is investors who want to better understand the company and where it is going, traders who want another opinion before earnings come out, and anyone who doesn't want to spend the time and effort figuring out what's going on in one of the most close-mouthed companies in high-tech.

We heard from our survey that our readers don't want to see this as a premium priced product. So our introductory price for this product is $35 -- about the same price as a book. Now, I know that's more than the average of $15 that most readers wanted to pay, but we're adding what we think is a creative wrinkle to the business model: the text and Web graphics from the report will be published online paginated with ads two to three weeks after the report is released. Online readers will not receive the report PDF, the spreadsheet, or the presentation materials; those are only available with the purchased product. But they will get the full analysis and graphics to view at their leisure, supported by advertising. Our bet is that this unique dual offer will allow readers to trade-off time versus money according to their individual interests, needs, and budgets.

As an aside, these reports will also be available through our six international distributors, so if your company already has a relationship with ResearchandMarkets.com, MarketResearch.com, Source Media, or other consolidators, feel free to work through them.

To give you a sample of what I think is the high quality of the product I'm including some screen shots of both some of the report layout and the Keynote presentation. We're both excited and proud of this new extension to our business, but we'd love your feedback as well. So if you have thoughts or comments, please send them to us, and we'll do our best to address them.

One final point: for those of you who purchase the product, be aware that we don't have an automated sales process for these reports yet, so it can be several hours before you receive your package by email after your order. We'll do our best to get them to you as quickly as possible, but we hope you'll understand that we do have to eat and sleep on occasion.



[Some images of our first report, Analyzing Apple: Beyond The Computer]



[Thumbnails of the Keynote presentation slides included in the package]







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Tuesday, April 24, 2007

Check back tomorrow for our new product!

My apologies for no posting today. Getting a product actually completed, published, collateralized, distributed, and promoted is always a bigger job than I remember. All that said, I'm really proud of the product that we're going to announce and start shipping tomorrow. We hope it will be as exciting to you, our readers, as it is to us.

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Monday, April 23, 2007

Monday morning musings: Google rocks on



I'm winding up Blackfriars' promised report, Analyzing Apple, today, but I had to take a second to comment on Google's stellar earnings report last week. Not only did the company boast its revenue nearly a billion dollars year-over-year, but according to Andrew Melcher at Seeking Alpha, it grew most of that revenue itself rather than stealing share from other advertising networks. Said another way, they aren't monopolizing an existing market; they're building their own market, which, not surprisingly, they are ideally positioned to satisfy. And I agree with Andrew -- they're not going to slow down any time soon.

That said, there are limits to growth for Google. Its revenue of $10.6 billion in 2006 was more than a quarter of the $38 billion US businesses planned to spend on all online advertising that year according to Blackfriars' estimate published in Sizing US Marketing 2006. While that number could probably grow another factor of 10 or so over the next few years by gobbling up all international online advertising as well, that would probably be close to the limit of Google's growth through advertising. At some point, the company is going to have to diversify into other revenue sources to continue its torrid growth.

Now remember, that television was entirely advertising-supported for the first 50 years of its life. But then something interesting happened: a company called HBO saw an opportunity to build something called a pay-TV network. While it took years to catch on, HBO grew to become one of the best sources of quality content, simply because customers paid for the programming.

So I'll leave today's post with a question: today, most customers use Google because they know and trust the brand to deliver good search results. If Google started charging, say, $0.01 a search for a pay search with even more relevant, advertising-free search results, how many customers do you think it might sign up? We don't know the answer to that question until Google tries it -- but just as pay TV channels grew out of ad-supported television, we could see pay search offers in the future as Google tries to find new ways to monetize its world-wide infrastructure.


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Thursday, April 19, 2007

Why no third-party iPhone apps at launch? Two words: battery life



I had an epiphany last night about why Apple is restricting third-party software applications for its soon-to-launch iPhone:

It's about power.

No, this isn't about some conspiracy within Apple to control all development for the iPhone. It's about power as in, "How do we get decent battery life out of a complex smart phone that's also a music/video player and a Wifi-enabled Internet communicator?" Consumers haven't exactly been forgiving when Apple's batteries don't live up to their expectations. And the iPhone poses a big challenge in this regard.

The problem is that the iPhone is a blend of a phone and a full-fledged Mac OS X computer. Most developers don't give a whit about how much power their software consumes. After all, the processor is running anyway; why not use it? The result: most developers are happy to burn processor cycles to get their jobs done, since they view them as having no cost. You can see that in Dashboard widgets available for the Mac today that poll endlessly for everything from the weather to updates of YouTube and Facebook pages. Yes, they are useful, but they both burn processor cycles and require an open Internet connection to work.

But unlike full-fledged Macs, phones don't really have a sleep mode. As long as they are on, they need to be able to do routine housekeeping matters like beaconing, cell handoffs, and listening for incoming calls. So any software that runs on the iPhone has to do what it needs to as quickly as possible, and then retreat into a low-power-consumption mode. Think of it like the type of cooperative multi-tasking that was done in the Mac OS before version X, and you have the idea. This is made even more important by the inclusion of power-hungry WiFi networking in the iPhone. No matter how clever you are, keeping up a 100 Mbit/sec WiFi link is going to drain a phone battery in hours, not days, unless there's careful management of its use.

Now Apple can enforce this type of behavior easily in its own user-driven programs like Safari and Mail. Cooperative, well-power-managed software should yield an iPhone battery life similar to other smart phones on the market. But without control over what the software does and how it does it, all bets on battery life would be off. With arbitrary software, the iPhone could easily get a reputation as a power-hungry beast that just doesn't have enough battery power to succeed. After all, John Dvorak has already claimed as much in a podcast earlier this month; Apple has too much invested in the iPhone and its success to allow such unintended consequences to spoil the launch of this flagship product.

Do I think this is a permanent state of affairs? No. I bet that we'll see an Apple World-Wide Developer conference track in 2008 that addresses how to develop software for the iPhone to meet its power profile requirements. But the iPhone has to be a consumer success first for developers to succeed in this market. And that means creating a great consumer experience in every dimension including battery life -- even if it means keeping outside developers waiting for their shot at the market Apple is creating.


UPDATE: MacScoop has a story today citing someone who has worked with the iPhone saying that the iPhone battery life may be better than advertised, although they don't have any particular reason. I have a theory though: my belief is that Leopard power management improvements and better power management tweaks in the bundled applications are now making their way into the iPhone builds, thereby improving the battery life results.

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Wednesday, April 18, 2007

What VC would invest $21 billion in a business that loses $1.2 billion a year?

Roger Ehrenberg is claiming that Microsoft's XBox 360 is a financial failure. Why? Because according to his analysis, Microsoft has invested $21 billion in its Home and Entertainment division, enough to finance a significant enterprise by any standard. And the results of that investment? It has a division that loses $1.2 billion a year five years after its founding. Now the way that Microsoft reports its results muddies these results significantly (perhaps by design), but Roger's analysis parallels numbers I've arrived at as well. I suspect any VC worth its salt would have pulled the plug on a portfolio company with those numbers long ago.

Paul Hawken wrote in his 1988 business classic, Growing a Business (a book I highly recommend, by the way), that too much money is probably one of the worst problems an entrepreneurial business can have, because it tempts executives to buy rather than innovate their way out of problems. If I were Microsoft, I'd be putting a competitive analysis SWAT team to work studying Nintendo, whose Wii is outselling XBox 360 long after the holiday season and is making per-unit profits at a lower price point. Or, perhaps, some of the Microsoft geniuses need to relearn that old business school formula, revenue - cost = profit.



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Tuesday, April 17, 2007

Apple report survey results: go for it, but don't neglect regular readers either

I promised I'd report the results of the survey we conducted last week, so here they are, in rough order of questions asked:

  • More than half -- 54% -- of Blackfriars Marketing readers read the blog more than once a week. Another 18% read it more than once a day -- that surprised me.

  • About half -- 52% -- also believe our Apple coverage is about right, but 47% want more. Less than 1% want less.

  • Apple financial analysis interest is huge. 82% of respondents said they wanted all the Apple research they could get, while only 17% said that they were interested in product projections, but didn't really care about the business numbers.

  • More than a third of readers -- 38% -- want an Apple financial analysis publication six times a year. The second largest population were the 28% who want me to surprise them whenever I have something to say. Another 23% would like to see a monthly publication.

  • 53% said they would pay for a Blackfriars Financial Analysis Publication, but 47% said they wouldn't. That's roughly 50%, which is more than I had expected.

  • Readers said that they would pay $95 a year on average. There was a lot of variation in these numbers, ranging from a lot of zeros up to hundreds of dollars. I threw out the high responses (those of you who want to pay $15,000 should contact Blackfriars directly and we'll work something out. For that price, I'd be happy to do a couple of strategy days with you in person.), and the average of all the rest came in at $95.

  • 61% of respondents said they would pay the price they said was a fair price. This was an interesting result -- we got nearly 8% more respondents saying they'd buy our analysis at the price they suggested. I have to think about that one more.

So those are the numbers, but what I really found interesting were the open ended comments. I can't summarize all of them, but here's the gist of what I gleaned from reading through these responses from about a quarter of readers.

Point one was that most readers really liked our existing Apple coverage. Thank you to all of you who said that -- it really helps when I'm sitting here in the office trying to make sense out of three contradicting articles about iPods, music, and the future of everything.

Point two was a bit more complicated; but my distillation is, "We understand you need to make a living, but we also need to 1) get a clear sample of what we'd be buying before we buy it, and 2) don't all want to be left out of your analysis if we don't buy it." That made me do some serious thinking about what type of model would please the most people.

What I'm leaning toward is this. First, I'll put together the Q1 analysis and post it for free prior to earnings next week on April 25. That should help everyone get an idea of the type of product we're trying to create.

Secondly, I'm thinking of having two-tiered pricing for these reports. Price one is for getting the report in advance of earnings announcements. This should satisfy those who really want the information and opinion as a guide to trading Apple stock in advance of news. I don't yet know what the price will be for the report, but my guess is that it will be somewhere between $25 and $50. Price two will be that once earnings announcements go by, the report will become free to any reader who wants it. That way the data I've spent weeks compiling still gets out to everyone who wants to see it.

With all that said, I'm now going to turn my attention to report #1, since I only have about a week to pull all my spreadsheets, graphics, and words together into a coherent and publishable product. Please leave a comment if you have more thoughts about the survey and report strategy. I'd like to please as many people as possible, so don't be shy.

Thanks for taking the time to fill out the survey, and above all, thanks to everyone for reading the blog. It's a delight to work with so many sharp, creative, and thoughtful people, and I'm looking forward to doing more with the ever-larger community of Apple users, creators, and investors.

Best,
Carl


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The new rules of presentations




I searched most of the day for this article on Presentation Zen yesterday about comedians taking aim at the traditional corporate presentation, including PowerPoint. I've only attached the first of several presentations in that article above; it's by Don McMillan, a Stanford EE grad billed as the only comedian working in PowerPoint, but it perhaps does the most to convince those who use PowerPoint as a crutch to change their ways.

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Why neither social networking nor SearchMarketingGurus.com are a substitute for news

Over at SearchMarketingGurus.com, Li Evans wrote an article titled
Newsvine Beats Digg To Punch, stating that:

Looks like Newsvine's users beat Digg's users in promoting the tragic mass shooting at Virginia Tech to the front page. It was just about 1 p.m., and I was just finishing up lunch when I decided to take a gander at how the social news sites were handling this story. I decided this was probably pretty popular since MSNBC's servers were taxed and when you could get through they reported no press were allowed into the campus.

To my surprise it was Newsvine that had the story already as the most active out on their front page. Digg, for all its fame around "fast" news, didn't have it on the first two pages. Netscape & Reddit were both minus the story as well at the time of this posting either. Below is [sic] some screen captures.

What the gurus failed to fact-check is that one of NewsVine's differentiators is that it carries a full Associated Press news feed to stimulate social discussion on its site. The front page story is tagged "associated-press" and the graphic is similarly attributed. So what SearchMarketingGurus.com is noting is that the Associated Press, not NewsVine, beat social networking to the news. So recapping the story, the actual score was

Mainstream Media: 1
Social networking sites including Digg.com: 0
SeachMarketingGurus: need to do a little more research.

What I'm most amazed at is that this story is on the front page of Techmeme.com this morning.


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Monday, April 16, 2007

CNN quote on Apple subscriptions was from a company with a DRM agenda

I wrote a piece last week about why I thought Apple offering subscription music was not going to happen. That all got started by an article on CNN Money that quoted the CEO of a company I'd never heard of, INTENT Mediaworks, as saying that he thought Apple Computer would sell subscriptions within six months. So imagine my surprise today when I saw this Business Wire article noting that INTENT MediaWorks just raised $10 million in Series B funding. What's their product? Digital Rights Management (DRM) software that can be attached to files that then can be distributed via peer-to-peer (P2P) networks.

Now Series B funding is typically money to sell and market a product and to begin ramping sales. Isn't it curious that the CEO's comment seems to claim that the largest seller of digital music might need a new and different type of DRM software for a future product?

Let's think this through, though. If Apple were actually a likely prospect for INTENT's product, how do you think Steve Jobs would have reacted to INTENT's CEO giving a quote like that to CNN? Knowing Steve's penchant for secrecy and the attention given that CNN quote, if INTENT was ever on any list to be a supplier to Apple, it just lost its spot.

Now, we're all in favor of P2P distribution, and it's possible that this quote was just a small company CEO looking for some free publicity through his connections with a local Atlanta news outlet. But there's also no question INTENT stood to benefit from adding Apple's imprimatur to its business plan, even if Apple had no involvement with the company. I'd take their claims that Apple is going to offer subscriptions with a large grain of salt -- one that appears to have been paid for handsomely by the venture capital community.


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Talks from the TED conference now more organized online

Ted.com front page

Bob Tedeschi at the New York Times wrote an interesting article about the TED conference and its business model of giving away videos of its sold-out annual conference to drive interest and demand. If you get a chance, be sure to take an hour to download the high-definition version of President Clinton's talk on improving health care in Rwanda. TED stepped up the production values for this year's conference, making them match the power of the presenters. They are truly inspiring in both content and detail.

TED.com has just done a redesign of those videos and allowed visitors to browse them in more user-centric ways, such as by topic, most talks, most emailed, and the like. The site was good before; now it has social networking aspects as well. Now if they'd only fix their amnesiac online registration system, it would be truly great.



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Sticker ads: print's pop-up nuisance

Boston Globe with sticker

Pop up ads touting everything from Classmates.com to subscriptions to Time magazine continue to torment Web users everywhere. And while pop-up ad blockers are now a feature in nearly every browser, they remain an ongoing source of annoyance. Which is why, of course, they have now spread to newspapers in the form of sticker ads.

Last week, the Boston Globe arrived with a yellow sticky on it touting it as the new way to reach consumers. This morning, it arrived with an honest to goodness car dealer ad on it. And, unlike 3M's wonderfully forgiving Post-It notes, these stickies have serious adhesive on them. That means that when you try to remove the sticker so you can actually read the article beneath, it, part of the article comes away with it. Nice. And so consumer friendly too.

Look, we all know newspapers are in trouble, but annoying your subscribers is not the way out of that trouble. Today's Globe already had three letters to the editor protesting the practice, and I would bet you'll see more in the days and weeks ahead. To paraphrase one of those letters, the message behind these ads is clear: subscribers should view the paper online if they want to actually read the articles.

Don't be surprised if one of those articles reports that the Boston Globe is struggling financially. Any business that is willing to degrade its product for its customers to sell another ad isn't likely to win new subscribers -- and in the process will put itself out of business.

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Friday, April 13, 2007

You can dress it up like an iPod, but it's still a pink Zune

Pink Zune

OK, it's a Friday before a long tax weekend (especially so here in Massachusetts where Evacuation Day postpones tax due dates until April 17), so I have exactly four words for you: Pink Zune in stock, available now from Amazon.com. We don't recommend you buy one, but the link is live if Apple's iPod colors leave you pink-deprived. Just remember, you could get two Pink Nintendo DS Lites for just $10 more.

From a marketing point of view, you'd think Microsoft could come up with its own photo treatments instead of ripping off the reflecting motif Apple has been using for the last year or two. But if Microsoft wants to subtly promote Apple's trade dress, more power to them; I doubt Apple will sue for infringement when it has 75% of the music player market. On the other hand, Apple's lawyers have been pretty free with Cease and Desist letters lately, so they might send one of those to Redmond for practice as they're warming up for the summer of iPhone.


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Yankee Group calls for an end to DRM

Yankee Group's Anywhere big idea
[The three components of Yankee Group's Anywhere theme]

Andrew Jaquith at Yankee Group was nice enough to send me one of their recent research pieces, titled Kill DRM, Vol. I: EMI's Move Underscores the Power of the Anywhere Consumer. As you might guess from the title, it nicely dovetails with our two recent articles, one on why we believe Apple will reject subscription music and the other on Apple's deal with EMI for DRM-free music, but takes the ideas even further. Yankee argues that content owners must stop fighting and embrace DRM-free distribution by:
  1. tracking instead of restricting content,

  2. pretending file sharing services are legitimate and competing on quality instead,

  3. embracing DRM-free music and driving volume,

  4. thinking virally and channeling the passion of movie and music lovers, and

  5. uniting with consumer electronics manufacturers to drive consumption.

It's a great piece and well worth the time to read it. I'm particularly taken with Yankee's concept of the Anywhere Consumer and its rising power vis a vis the content providers. It's a powerful idea and one that I think we'll be hearing about for years to come.

I must say that I've become very impressed with the work of Yankee Group since Emily Green took over the company. I used to think of Yankee as an old-school telecom research company, but under Emily's leadership, Yankee seems to have taken on new life and punch, particularly in consumer research. I'm particularly impressed with the alignment of many lines of research under one huge "Anywhere" theme. It's the type of coherent, big picture approach to research Forrester used to have, but which seemingly died after Forrester acquired Giga and the explosion of topics that Forrester decided to cover.

It's nice to see good, focused research lives on. In today's environment of the tyranny of too much, we all can use such distilled insight.




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Why Imus is history: the market for insults dried up

I woke to NPR news this morning leading again a story about Don Imus, this time noting that CBS has finally fired Don Imus. After an entire week of all Imus scandal all the time, I thought I might add my ten kilobits or so to why it all happened. After all, Imus had been insulting various enthnic groups for decades. so what changed? Why did CBS fire him now over what was Imus' shock stock in trade?

It's simple: the market changed and Imus didn't.

When Don Imus started in radio, he said things that others would not. He was a fast-quipping DJ with a nasty streak that countered an establishment that insisted on political correctness. That differentiation found an audience, ranging from California to New York, and Imus' parlayed that audience into a national forum. In the process, his show insulted US presidents, political candidates, Jews, blacks, women, Palestinians, breast cancer victims, and a host of others. His rise to national TV simulcasting on MSNBC in 1996 coincided with the rise of a Republican majority in Congress that rebelled against political correctness, and thereby accepted, if not endorsed, Imus' style of insult-based comedy. And with staid corporations ranging from American Express to Staples paying to advertise on Imus In The Morning, that money also spoke volumes about corporate acceptance of shock radio programming.

Too bad Imus didn't pay attention in the results of how candidates marketed themselves in the 2006 elections.

2006 was the first year in a decade when negative campaign tactics in the US elections didn't work like they used to. Democrats swept contested races in both the House and the Senate, not just because voters liked their candidates and positions on the war better, but because negative campaigning, a staple of the last ten years, lost its effectiveness among voters. In short, people got tired of insults.

Ask any marketer if insulting another product works well as a marketing campaign. Most marketers won't touch a negative campaign with a ten-foot pole. Why? Because it takes potential customers who may be buyers for what you want to sell and alienates them. Differentiation is a fine way to build brand value; insults just polarize audiences. That polarization has been what Imus has been selling -- and it went out of style a year ago.

So what does it all mean? Imus' firing isn't the end of this change in the market. In fact, this is a shot across the bow of all insult-media hosts from Glenn Beck and Rush Limbaugh to Bill O'Reilly and Michael Savage.. As the New York Times noted this morning in David Carr's article, Flying Solo Past the Point of No Return, "...radio is now visible — Mr. Imus’s show was simulcast on MSNBC, and more to the point, it is downloadable. By Friday, reporters and advocates could click up the remark on the Media Matters for America Web site, and later YouTube, and see a vicious racial insult that delighted him visibly as it rolled off his tongue. The ether now has a memory." And consumers are pretty good at tapping that memory -- and then casting offenders off their media islands with their wallets and votes.

Donnie Deutsch, the host of CNBC’s "The Big Idea," said it well on the Today show this week.

"This to me is a seminal moment," he told [Today show host, Matt] Lauer. "This was not even about race or sexism. It’s about hate. I’m going to make a prediction now that nice is going to be the new black. I don’t mean in terms of race, I mean in terms of style."

I hope Deutsch is right. We're all minorities in some part of our lives, be it religion, race, belief, sex, political leaning, education, or income class. After ten years of insults to our minority status, whatever they may be, nice would be a welcome change -- and much better marketing.


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Thursday, April 12, 2007

Apple delays Leopard to create the Summer of the iPhone



According to Reuters, Apple has delayed the release of Mac OS X 10.5 "Leopard" until October. Why? Apple said the delay was because it needed software and resources for the iPhone launch, which it confirmed had passed a set of required certification tests and was on schedule for its June release.

Now that's a tough decision to make, but frankly, I think it was a good one. The iPhone is a brand new product in a new industry for Apple. Trying to release two major products in June would have 1) required two simultaneous marketing and PR campaigns and 2) set the two products up to compete with one another. And while Leopard is important, many industry watchers have predicted Apple will fail in the cell phone market, so Apple needs to execute well to keep the good will in its brand. So better to delay one than to release them both at the same time. But which one?

I believe Apple did the math this way: Of the two products, which one is more important to Apple's bottom line this year? Let's see -- the entire software business at Apple is about $1 billion, and Leopard is a fraction of that, maybe $500 million. On the other hand, iPhone should sell somewhere around 2 to 4 million units this year, at an average price of $550, making its revenue potential about $1 to $2 billion alone, not counting any accessory sell-throughs or revenue sharing with Cingular. Sounds like the right decision to me.

This means that the third and fourth calendar quarters are going to be huge for Apple this year. Assuming the company stays true to form, we should see new iPods in September, and a wealth of new products, including Leopard, iWork, professional apps, and new pro laptops by October. What about the summer? That's easy; summer of 2007 is going to be the Summer of the iPhone.


UPDATE: Apple has released an official statement here, and the Wall Street Journal has a subscription-only article with better formatting and newsier writing here.

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The unmasked demon of MacBook Pro hell: a true story

I was commiserating with JK over at  jkOnTheRun about the necessity of returning his MacBook Pro. I left a story there about a close friend of mine, but the story was (I thought) interesting enough that I thought I'd post and edited version here with a small epilogue.
A friend of mine had a brand new 17" Macbook Pro that he had to repeatedly send back to Apple due to bizarre and fatal hard disk problems. He spent much time at the Apple Store at the Genius Bar and no one could diagnose these problems. Apple replaced both the disks and motherboards, but within a few days of getting the new components, the system would start acting up, the hard drive would die, and he'd be dead in the water. Needless to say, he was not a happy MacBook Pro camper.

And then, one day, as he was struggling with his latest MacBook Pro on his lap, he removed something in his pocket that the MacBook was pressing into his leg. He pulled the offending money clip out of his pocket, set it on the table, and suddenly had an epiphany. His money clip had a magnet on it. Hard disk drives use magnetism to store bits. Magnets and disks don't mix. Cue the scream, "Nooooooooooooo!!!!!!!!!".
If only we'd had Rod Serling to step into the foreground and say, "We all have problems, but when things go wrong, our computers open the gates of hell for us. We descend, step by step, into the depths, seeking the perpetrator of our torment. Yet sometimes, we know that perpetrator all too well. The demons of technology are no match for the torment we inflict upon ourselves in .... the Twilight Zone."

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Three reasons Apple will frustrate music subscription moguls



CNN Money has a fairly thin story about how the CEO of INTENT MediaWorks believes Apple is preparing to offer a subscription music service within the next six months. In his own words:

I think Apple is seriously considering a subscription offering right now even though they will probably tell you otherwise,” he said.

But I think the real motivation behind the subscription idea isn't Apple, but the record companies, as analyst Phil Leigh of Inside Digital Media notes:

"Record labels would like a subscription service. They, like anyone else, like recurring revenue. Ringing the cash register every month is a beautiful way to run a business," Leigh said.

Just as the RIAA starts another round of lawsuits against its customers under the battlecry "Piracy!" every few months, the concept of subscriptions on iTunes appears about as perennially as weeds. But while some consumers may find the concept attractive in theory, for Apple, this strategy just doesn't work for three reasons:
  1. Subscriptions require Digital Rights Management (DRM) that turns off consumers. How many times do people have to hear Steve Jobs oppose DRM before they believe him? A subscription music service doesn't work without DRM enforcement of the subscription terms. Jobs is on record as saying he'd like to get rid of the cost and complexity of rights-managed music, yet subscriptions would take the company back into that business model that he (and others including me) considers fundamentally flawed. And how would he explain Apple re-embracing DRM for subscriptions to EMI, who just signed up to provide music without DRM?

  2. Labels would have little incentive to create good products. Once record labels start getting paid on the basis of subscribers to their entire catalog instead of purchases of songs, you can expect the quality of commercial music to drop from its already-low level. After all, why should they waste a million dollars signing a new artist when it won't directly affect their subscription revenue stream?

  3. iTunes' existing subscriptions create more satisfaction. Contrary to popular belief, Apple already offers subscription services, both in the podcast area and in TV shows. And it has the capability to charge for these subscriptions, even though that ability hasn't been used yet for podcasts. But unlike the models put forth by Real Networks and Yahoo!, Apple's subscription policy is more like a magazine's or newspaper's: you pay to own the content, not to rent it. For consumers, that analogy to real-world products they know and understand creates significantly more satisfaction than one where your entire library disappears the moment you stop paying your subscription. And consumer satisfaction is one of the keys to Apple's overwhelming success.


I think this last point about consumer satisfaction is key. Subscription services where you sign up for an entire catalog of music sound attractive in theory, but place consumers squarely in the conundrum of the tyranny of too much choice. Suddenly playing music isn't about listening to things you like -- it becomes a chore of selecting, classifying, and often rejecting music on an ongoing basis. Consumers don't like chores and like paying for them even less. In my opinion, the day iTunes offers an all-you-can-eat music rental (as opposed to purchase) service is the day I'll be claiming that iTunes has peaked. Offering iTunes subscriptions would make iTunes a "me-too" music subscription site like Napster, Real Networks and Yahoo! Music -- and would throw away its unique differentiation in the market. Frankly, Steve Jobs is too smart to do that.

It's certainly possible for some startup to offer music subscriptions services and prove Apple's strategy wrong. That's what markets are for; consumers are pretty good about voting with their wallets. In addition to the three reasons I listed above, Apple's iTunes has about two billion revenue reasons this year to pursue its own course in music subscriptions and to reject "me too" rental services. Perhaps that's reason enough.


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Wednesday, April 11, 2007

A survey: Would you be interested in Blackfriars' projections and analysis of Apple's business?

UPDATE: This survey is now closed.

As regular readers may have noticed, we've been writing more about Apple lately and less about marketing in general. Why? Because our readership statistics say that's what Blackfriars' readers like to read about, by a factor of about a gazillion.

So in the interest of satisfying the most valuable people on the planet -- you, our readers -- we're conducting a survey to decide if we should create a new product: Blackfriars financial analysis and business projections for Apple computer. This would be a professionally published product, just as our marketing reports are. This product would not eliminate our regular blogging about Apple computer, its products, and its marketing. The newsletter content would be the numeric analysis, presentation graphics, and color commentary that we use to ground and inform our regular commentary.

Want to know how many iPods Apple is going to sell this year? We actually have a model that predicts that and we'd publish our projections in this newsletter. Wondering if Apple will make the whisper number for it's earnings announcement? Those numbers would also go in the newsletter. Our thinking is that this is overall pretty geeky financial analysis stuff which isn't of interest to all readers, but there is an audience of other analysts, traders, and investors who really would lap it up. But hey, we could be wrong, so we're doing a survey to find out.

This survey is very short -- it's a whopping 8 questions, 7 of which are multiple-choice or yes/no. It will take less than five minutes for you to complete. If you're up for it, click here to take survey. We'll thank you for it, no matter what.

The survey will run through April 15, 2007. We'll announce the results next week.


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Tuesday, April 10, 2007

Behind the scenes: why Apple's customer base is so loyal and enthusiastic

Pundits often refer to them as "zealots" or "fanboys." The more polite references include "Mac loyalists." I am, of course, talking about Apple's more vocal customers, those who will defend the company and its products in any debate going on around them. What is it that drives their passion for most things Apple? Is it a deluded mind, warped by the Reality Distortion Field that Steve Jobs so successfully wraps every new product in? In short, the answer is no.

The truth behind the scenes is not that Apple has a large group of customers that are too dedicated and passionate about their products, or the company as a whole. The reality is far more simple and obvious: Apple simply has a large group of very satisfied customers — and that's the secret ingredient left out of nearly every analysis or op-ed piece that mentions these "zealots."

The obvious side to Apple's customer satisfaction lies in their attention to detail in every facet of product development. All their products are designed, at every stage, with the customer clearly in mind and each product is tailored to make it as easy to use as possible for the customer, regardless of how technically savvy or not they may be.

The less obvious side involves two keywords: freedom and choice.

In The Tyranny of Too Much, we explain how too much choice is a problem, a significant problem even. Recapitulating, too many options to choose from will increase our expectations and decrease our satisfaction with the choice we've made. Barry Schwartz's book, The Paradox of Choice, explains it in great detail and is well worth a read.

This presents a problem for businesses, because it means that to satisfy customers they ought to give them less to choose from; however, our western society is so focused on offering choice that this almost certainly seems like a poor business decision. After all, choice is — for better or worse — transparently linked to freedom, and freedom is what today's society is all about. But the fact of the matter is that less choice, and consequently less freedom, is what actually liberates us as customers because it gives us greater satisfaction.

Apple is one of the very few companies that get this — and yet, they get chided for it much more so than praised.

When the iPod first came out, it was written off as a failure-to-be because it didn't offer various features. It was a choice-limited product and therefore it couldn't possibly succeed in a market that was all about choice. Rob Glaser, CEO of RealNetworks, even used its choice-limited characteristics as an argument to predict its downfall "five years" later. Funny, that: it's five years later, and iPods have just passed 100 million sales.

The biggest mistake many technology companies make, whether they're hardware– or software-oriented, is thinking that consumers want choice, because choice equals freedom. However, what consumers want is satisfaction, and as explained above, too much choice leads to less satisfaction.

If you compare Apple's iPod offerings to those of, say, SanDisk or Creative, the one thing that really stands out is that Apple essentially offers only three music players: the iPod shuffle, the iPod nano, and the regular iPod. What do their competitors offer? Ten and sixteen players, respectively. That's a lot of choice — too much choice.

When a consumer has to choose between the Zen Vision W, Zen Vision, Zen Vision:M, Zen Neeon, Zen Neeon 2, Zen V, Zen V Plus, Zen Nano Plus and so forth, what are the chances they'll actually figure out which one is right for them? Their names are as differentiating as their feature sets are, with sometimes only miniscule differences between the various players.

This leads to less customer satisfaction, because if you buy the Zen Neeon, it's not hard to imagine that the Zen Neeon 2 might have been a better player for you. This is not the case with Apple's iPod offerings. Its three iPod types are clearly distinguished from each other, making it less likely that you'll think a different model was more suitable than the one you bought.

Apple's limited choice creates more satisfaction. Less time is spent trying to find the right player, less time (if any at all) is spent wondering if the chosen player was actually the right one, and as a result, more time is spent simply enjoying the purchase.

This is exactly why, when Apple releases a new type of iPod now, it replaces an existing line, so as to keep the number of choices to a bare minimum. The iPod nano easily could have lived next to the iPod mini, one being flash-based while the other still uses hard drives. Instead, the mini was replaced because both products fit the same rough customer desire: an extra small music player that still had a decent amount of storage space (and a screen).

The same scenario plays out with the Macs on offer. Go to Dell or HP and you can find an absurdly large number of computers to choose from, most all of which differ from one another in only the slightest details. With a Mac, these small differences in CPU speeds or screen size are "hidden" from the consumer by being placed after the choice stage, not in the middle of it. When you get to choose between a 17", a 20" and a 24" iMac, you've actually already made the choice that really matters: you've chosen an iMac. That screen size is only an afterthought in the process, a personal customization step that seemingly has nothing to do with your choice of machine.

All this leads to the obvious but often overlooked fact that it makes the customer happy when they've finally purchased their product. Product quality, while important, is only a part of what makes a customer satisfied; the other part lies in knowing that you made the right purchase to begin with.

Apple's "loyalists" are no more than very happy, deeply satisfied customers, and their competitors should learn from that.

Technorati tags: Apple, iPod, consumers, loyalists, Macs

Monday, April 09, 2007

Advice for entrepreneurs: "I Will Fix My Pitch"

Guy Kawasaki often gives great advice on how to stand out in front of venture capitalists. Well, here's one recommendation one of his partners made around the turn of the year that is truly timeless, titled The Entrepreneur's New Year's Resolution: "I Will Fix My Pitch". If you don't want to pay Blackfriars to help you or your company, at least read the article. Companies that do what he says have a chance, those that don't, don't.

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News under false present tenses

This is a pendantic copywriting and grammatical rant. People wanting considered analysis or deep thinking should move on. You have been warned.

I just read this Reuters article titled, Microsoft launches messenger on Xbox 360. It sounds cool -- XBox 360 users will be able to use Microsoft Messenger. I wonder if I should tell both people I know that own XBox 360s; maybe they can talk to each other.

But when I read the actual article, I find the the small print that belies the title I read.

Beginning the week of May 7, the Xbox 360 spring update will provide Xbox 360 owners worldwide with access to Windows Live Messenger features, broadening the communication options on the Xbox LIVE social network.


What Microsoft has announced is an intent to launch a service in a month. So why does the title use present tense when the event it describes won't happen for a month?

I wouldn't mind this phenomenon if it were a one-time oversight. But this is a recurring theme for reporters who want to appear they have gotten a scoop on Microsoft, and Microsoft encourages them to do it. For example, according to press releases provided by Microsoft, Microsoft "launched" its Zune music player on September 14, 2006. When could you actually buy one? November 14, two months later.

I will note, in the interest of accurate reporting, other companies do this too. Just a week ago, EMI's press release read, "EMI Music launches DRM-free superior sound quality downloads". Ummm. No they didn't; those downloads won't be available until May.

But while Microsoft has earned my undying enmity for honing this practice to a fine and repeatable art, I direct my ire to otherwise professional reporters for falling for the tactic and reprinting press release titles in the false tense as news. I'd have no problem with the story if the title read, "Microsoft To Launch Messenger on XBox 360" because we'd know when the event was going to happen. But writing the title in the present tense and revealing in the story that it actually was meant to be future tense is just a waste of my time. If I were a tyrant king, I'd wave my foppish hand, and palace guards would lop off the heads of title tense offenders. As it is, I'm just annoyed and can only condemn the perpetrators to an eternity of listening to Grammar Girl's Quick and Dirty Tips To Clean Up Your Writing until they get it right. And they deserve both a curse and a pox on their houses too.

See, I warned you it was a rant.



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100 million iPods and the accelerating growth of iTunes



Today's New York times ran the Apple ad shown above celebrating 100 million iPods sold. With that milestone achieved, I thought it might be interesting to analyze the last five years of iPod and iTunes growth.

In case anyone believes that selling 100 million iPods in five years is no big deal, here's a bit of history. In 1945, there were 7,000 televisions in the US. By 1949, that number had grown to 1 million, and it hit 10 million just two years later in 1952. But it took more than 30 years for the number of televisions sold to exceed 100 million. Apple achieved that same 100 million mark with iPods in just five years.

Now those 100 million iPods are a big deal for Apple's bottom line, but iTunes music has actually outstripped iPod growth. Blackfriars got involved in a little disagreement last year with an old Forrester colleague about iTunes sales. Based upon some of the data he had, he claimed that it appeared iTunes sales were slowing. I used the data I had to prove that he'd picked a particularly unfortunate sample to examine, namely the period between January and September, when fewer songs are purchased than in the big holiday season. But still, there was a lot of Web ink spilled discussing the point.

I think we can now lay that argument to rest once and for all. The folks over at Macsimum News picked up a little-noted quote from Steve Jobs saying that iTunes just passed the 2.5 billion song mark. Now for those of you keeping score at home, that means that iTunes is now selling a billion songs about every six months. But wait, there's more! According to our figures, iPod sales passed the 100 million iPod mark in March, and TV shows passed the 50 million shows sold mark as well. Add onto that the 1.3 million feature length movies that have been sold to date, and well, I'd say you have quite a fast-growing business. But why talk about it when you can look at a picture. Here's the linear graph of iTunes performance over the last five years.



Now, it's awfully hard to see what's going on down in the trivial business of selling tens of millions of things rather than billions, so let's look at this on a logarithmic scale. Remember your high-school math -- straight lines on a logarithmic scale show exponential growth.



Now if you ask me, the really interesting part about this graph is the fact that iPod sales appear to be continuing their exponential climb into the stratosphere. That's important because it drives Apple's earnings report, which we'll hear more about later this month. But don't ignore those TV shows or movies at the bottom. They're on a very steep growth curve themselves -- and there are a lot of new Apple TVs that are going to need feeding with content this year.

So what does the future hold for iPods and iTunes? While music is what made the iPod and will continue to be the major driving force behind Apple's iPod thrust, Apple is trailblazing growth in digital movies and TV shows in a way similar to what it did in music in 2002. Remember Apple's announcement that in the first week or so of movie sales, it sold 125,000 movies? Well, today's Boston Globe reported the first month's sales from Wal-mart's online movie store were a whopping 3,000 movies. If we were to graph that on the log scale graph above, we'd need to add another decade of graph below where Apple numbers are just to see the Wal-mart sales. By all public measures available so far, iTunes is well on the way to repeating its domination of digital music in digital TV and movies. After all, once you've bested the largest American retailer, the sky is the limit.

UPDATE: Apple.com now has the ad on its front page and the associated press release up on its web site


Full disclosure: the author is long Apple shares at the time of writing.

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Thursday, April 05, 2007

New Blackfriars report shows weak 2007 marketing outlook


[Click the graphic for a larger version]


We've finally posted all the collateral information for our first 2007 marketing report, so now I can talk about it. Those who would prefer a more traditional press release style announcement can see that here.

The short version: Marketing budgets for 2007 have fallen off a cliff. For the first time since we started tracking marketing budgets, attitudes and spending in 2004, the average budget for the first quarter is below what it was in 2003. Not only is it below, but it is more than 40% below. Ouch.

Of particular note in the data is the fact that businesses appear to be in a flight to the relative safety of offline marketing techniques like TV advertising, direct mail, and corporate and industry events. This is in marked contrast to the way that 2006 started out, which was with a rush to online marketing of all types. Here's what the marketing allocation for Q4 2006 looked like:


[Click the graphic for a larger version]


The report has lots more detail included overall allocations for 2007, marketing as a percentage of revenue, breakdowns by B2B, B2C, and nonprofit organizations. Given the slowing economy, we think this data is essential for anyone who is making marketing decisions today; after all, the best way to win in marketing is to know what your competitors are doing, and this report at least gives you benchmarks to compare your company's spending against. We hope lots of you will go buy a copy, if not from us, then from our distributors Marketresearch.com, ResearchandMarkets.com, Marketsensus.com, Sourcemedia.com, and others.

One final pitch: if you're a previous Blackfriars customer or on our mailing list, keep an eye out for an email today detailing how you can get your Blackfriars customer discount on our latest report.


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Wednesday, April 04, 2007

How to keep a headless Mac mini happy

Our mac mini
[The Blackfriars Communication data center server room, er, shelf]

We here at Blackfriars, in rebellion against our email-restricting Web hosting overlords, started running our own mail server this year on a Mac mini supported by an external Firewire RAID array. We love this server setup, but one of the challenges is running the Mac mini without a display connected to it. The system boots OK, but when I try to connect to the console with our favorite remote windowing client, Chicken of the VNC, we see a host of wavy lines, as if the display adapter has selected the wrong display size and frequency (which it probably has).

The root of this problem is that the Mac mini was never really designed to run "headless." It expects a display to be connected to it, and when it doesn't see one, it selects the most recent display resolution, which typically is not the one Chicken of the VNC expects. The result: funny lines.

I tried just plugging in a DVI-VGA display adapter, but that didn't convince the mini that there was a display there. So I trotted down to Radio Shack and bought 5 100 ohm resistors for $0.99, and used one of them to pull the Green Analog display line on the DVI connector (that's pin C2 for those of you playing along at home -- you can look at the pinouts here at interfacebus.com.) to the Analog return (that's pin C5). The result looks like this:

Resistor between pins C2 and C5

Now, we can remotely control our Mac mini from anywhere without annoying display sync problems. Further, our teeth are whiter and we've eliminated the embarrassment of static cling. Those last bits may not be true, but this little hack does work nicely.

One final note: in the process of shooting the photos for this entry, I cleverly managed to take one of our Firewire RAID disks offline. Boy was that a mistake. The RAID array got out of sync, so I'm now in the process of rebuilding the disk that I accidentally powered off. In the process, I discovered this handy Apple support document titled, "Mac OS X: How to rebuild a software RAID mirror" which handily tells you how to rebuild your RAID array disks from the command line when Disk Utility won't do it for you. It's another nice to know detail when things start going awry.

This geeky Apple moment was brought to you by Blackfriars. We now return you to our regular marketing prattle.


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