Media, Business & Politics

Next month, Comcast will be announcing three exciting new services to join StreamPix: StreamJamz, StreamGamz and StreamPeeps. Like StreamPix, content downloaded or streamed from any of these new services will be exempt from the company’s monthly data caps.

StreamJamz is an unlimited streaming music service, similar to offerings from Spotify, Grooveshark and Sony.

StreamGamz is an unlimited video game download and multiplayer gaming platform, similar to offerings from Steam and EA’s Origin.

StreamPeeps is a VoIP 1080p HD video conferencing service, similar to offerings from Skype and Apple.

All 4 services are included with XFINITY HD Triple Play packages for no additional charge. You can add any of the streaming services to other packages for only $4.99 a month per service.

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**********[ 3 months later ]***********
Comcast has announced the addition of an ‘Internet-Lite’ option for all of their XFINITY High Speed Internet plans. Any current plan can be converted to a ‘Lite’ plan, which will include a $20 discount off regular rates, and lower the monthly data cap to 10GB. This should come as great news for XFINITY Triple Play customers who already have unlimited access to XFINITY’s great SteamPix, StreamJamz, StreamGamz and StreamPeeps services for all of their streaming video, music, gaming and video-conferencing needs. One stop shop entertainment, no need to subscribe to multiple services.

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***********[ 2 years later ]************
Comcast has announced that it will be raising rates on all of their XFINITY High Speed Internet plans by $25. This includes their 10GB capped ‘Lite’ plans, as well as their regular 250GB plans. At a recent stockholder meeting, a top Comcast executive was heard saying, “We believe the added value of our unlimited SteamPix, StreamJamz, StreamGamz and StreamPeeps services warrant the price increase, as they provide our customers with all of their streaming video, music, gaming and video-conferencing needs, without having to worry about silly data caps.

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And just like that, Comcast has managed to lower the data cap on their broadband plans to a measly 10GB, while actually raising the price, and putting Netflix, Hulu, Spotify, Grooveshark, Steam, Origin, Skype, Apple, all in a greatly disadvantaged competitive position. By not blocking any particular competing service, Comcast will have managed to sidestep Net-Neutrality restrictions, while severely limiting how much their customers can use any competing services. Yes, I made all of this up, but there’s nothing stopping Comcast from following this plan to the letter (including the stupid service plan names), if their new StreamPix service is allowed to proceed unchallenged by the FTC.

With nothing stopping them, Time Warner, Verizon, AT&T et al will surely follow suit. How long will Netflix, Hulu, Spotify, Grooveshark, Skype and the rest of the free-market competition last? How many new services, like the one Sony was considering, will never have been started? And most US customers don’t have many, if any options when choosing their ISP, so they can’t just go somewhere else if they don’t like Comcast’s (or whoever)’s offerings. The FTC needs to step in now, to stop ISP’s from dictating what their networks can be used for, and putting countless competitors out of business.

More at
ars technica, Engadget, Gizmodo

Apple posted another blowout quarter, with record profits and astonishing numbers on iPhone and iPad sales, well above even the loftiest of estimates. To visualize the numbers, I’ve plotted all of Apple’s product segments by revenue for each quarter since 1Q 2004, when iPod sales were just starting to rev up.

Honing in on just the most recent 4 years, the right half of the chart stretches out horizontally to look like this:

And honing in on the first 4 years being analyzed, the left half of the chart stretches vertically to look like this:

See any similarities? Here’s what they look like side-by-side; This is actually a continuous chart, with the exact same data as the first chart. The difference is, the left half is blown up 5x larger to show detail, and to compare *relative* growth from 2004-2008 with the same from 2008-2012

So while the numbers Apple posted are incredible, looking at their history shows us it’s not far from what they were doing exactly 4 years ago on the back of the iPod. But in 2008, revenue was approaching $10 billion a quarter; in 2012, it’s approaching 50! That’s an increase in revenue of 400% in 4 years, which most analyists will tell you is going to be impossible to sustain. But I say, not so fast!

How could Apple possibly sustain these kinds of numbers going forward?

The Proof is in the iPod

After 8 years, the iPod is now seeing decreasing revenue year-over-year, but that can fairly safely be attributed to cannibalization by iPhone sales. If it weren’t for the iPhone replacing iPods, we’d likely still be seeing increased revenue from the iPod as well. Without a similar product to cannibalize the iPhone, it’s not out of the question to think Apple could continue the trend the iPod was on before the iPhone was released, but the iPhone. In addition, iPods didn’t have the same kind of upgrade cycle that iPhones do. With users tied to 2-year contracts, many opt to upgrade to the latest phone every 2 years. The same can’t be said for iPods, where there wasn’t a definite upgrade cycle for most people.

iPhone 5, iPad 3

When the iPhone 4S was released, everyone in the media seemed to think it was a dud. Apparently, consumers weren’t listening. If Apple can post these kinds of record numbers with a moderately-upgraded iPhone, who knows what will happen when they unleash a full-on redesigned iPhone 5, which is almost guaranteed to have 4G, an even better camera than the 4S’s already impressive lens, and.. well, who knows what the next surprise will be. Nobody saw Siri coming until days before the 4S was released. There may be similar updates waiting for us in the 5. Also, iPad 3.

New Markets

Apple has only just begun to penetrate many foreign markets, where 3G coverage lags behind the United States. In China, the iPhone is only available on one carrier: China Unicom, with 192 million subscribers. That leaves China Mobile (638m subscribers) and China Telecom (120m) for Apple to expand to. (Indeed, according to Bloomberg, Apple recently received approval of specifications for a device that would run on China Telecom’s network). Of China’s 950 million subscribers, only 11.5% are on 3G networks. On the only carrier where the iPhone is available, China Unicom, there were only 33 million 3G subscribers; yet Apple sold 5.6 million iPhones during the first 9 months of 2011 – all before the 4S was available. Now consider Apple’s reach in the US, via Verizon, AT&T and Sprint, is to 238m subscribers (pdf), leaving about 60m on carriers that don’t offer the iPhone. Compare that to China, where there are 758 million subscribers on carriers where the iPhone isn’t offered. Even if you consider many of those people can’t afford the high-cost of the iPhone, you have to admit that’s a huge potential market; especially if Apple releases a cheaper iPhone in the future to address that market directly.

One More Thing?

With Steve Jobs gone, we may never hear “Oh, and there’s one more thing…” again, sadly; But that doesn’t mean Apple doesn’t have more tricks up their sleeve. There’s wild speculation the Apple TV box will soon be migrated into a full-featured flat-panel Apple TV set. Steve himself even let the cat out of the bag that they have *something* in the works for changing the way we watch TV. If Apple can shake up the broadcast/TV industry the way they’ve shaken up Music, mp3 players, Cell Phones, and now Tablets (well, to be fair, there wasn’t much to shake before the iPad), they could have an additional revenue stream to add to their quarterly reports to bost profits even more.

I’m not saying I think Apple will continue to post the kind of year-over-year increases in revenue that they posted yesterday every quarter; but I do think all those analysts who have said time & time again that Apple’s time has come and gone, you may be in for a few more surprises over the next few years – at least. While most of this is speculation, one thing is for certain: Apple’s going to be around for a while.

iPod profits may have dropped 20% from the same quarter last year, but if you look back a few more years, you’ll see Apple is still making more on the iPod than it was just 6 years ago, a time when the iPod was considered a runaway success for the company. What’s astonishing is that in 2005, the iPod accounted for a little over 30% of Apple’s profits; and now, while still bringing in about the same amount of revenue (slightly more), it only accounts for 5% of Apple’s total revenue. This, of course, is due mostly to the iPhone, with a little help from the iPad and the halo effect around them.

So just to put this into perspective, imagine this:
It’s 2005. The iPod is on fire, bringing in more revenue than any of Apple’s other segments (desktops, laptops, music, or ‘other’). Apple stock has been on an absolute rampage, up over 400% over the past 2 years to a whopping $55/share. Someone who looks like an older version of yourself but with shaggier hair, jeans that are too tight, and neon 80s shoes, walks up and tells you to withdraw your life savings and put it all into Apple stock immediately. Of course that’s crazy, and you tell him not even the iPod can keep selling like this forever. But he says no, it’s not because of the iPod, although in 6 years, it will still be bringing in more revenue than it is in 2005; but by 2011 it will only account for 5% of Apple’s total revenue. It doesn’t even even make sense. The iPod is Apple’s saving grace, and everybody knows it. There’s no way they can top that; And it’s not like everybody’s going to go out and switch to Macs just because the iPod was a hit. Then he explains that it’s all because Apple releases a phone; and shortly after that, a giant version of that phone, called an iPad. Do you think you’d follow his advice? If you did, it would be worth a 600% increase over 6 years.

The numbers really are something. But I’m not writing Apple off yet. In another 6 years, maybe I’ll be writing the same thing about how the iPhone was dwarfed by… the iPad? Or even something else. Only time will tell. If only I had a time machine.

Disclosure: I own Apple (AAPL) shares and I do not plan on initiating any new positions within the next 72 hours.