What Is Wrong With Apple’s iPad Business?
While most people like to focus on the iPhone when it comes to Apple, it’s the iPad that’s perhaps the more intriguing story.
Philip Elmer DeWitt has gathered analysts’ predictions for the iPad for the March quarter, and the consensus sees Apple selling 19.33 million iPads. If accurate, that’s a 0.7 percent drop on a year-over-year basis.
The iPad was supposed to be the second strong leg of Apple’s business. It’s definitely a solid business that nearly any company would want, but it has seen a startling decline in its growth rate at an earlier-than-expected stage in its life cycle.
Why has the iPad hit a wall? We’re not sure. Hopefully, an analyst asks Tim Cook about it on the earnings call and he gives a good, insightful answer. Last quarter he was asked about it, but brushed off the question.
If we had to guess, we’d say it’s a mix of things.
Pricing: When the iPad was released, it cost $500, and Apple’s rivals couldn’t compete with that number. Then, very quickly, they figured out how to lower their prices. Amazon was the first to really get aggressive on price. It sold a 7-inch Kindle Fire for $199 in 2011. That Fire is now $119. (It also offers an 8.9-inch Kindle Fire for $339.)
Usage: The iPad is the best tablet for surfing the Web, using apps, and getting stuff done. But the other, cheaper tablets are good enough for all that stuff. For what a tablet does, the low-cost tablets are fine.
Life cycle: Unlike the iPhone, the iPad doesn’t seem to be upgraded every two years. As a result, sales growth is going to be weaker.
Too much, too soon: The iPad sold in giant volumes early in its life. That’s created tough sales comparisons, and too much hype for the future of the product.
See also: Apple’s Future Is in These Six Areas
Kids Under 12 Now Party at NYC’s Hottest Nightclubs
New York has a new club for underage partiers, but you have to be younger than 12 to get in.
Held once a month for children ages 6-12 and their parents, the three-hour dance parties typically cost $20 for a parent and child to get in, and $60 for a family of four. A 9-year-old child DJs the events (it’s not clear whether he or she was trained at Brooklyn’s baby DJ school), and professional dancers help keep kids entertained. The kids get down with glow sticks and guzzle juice boxes—seriously.
A CNN Money reporter recently attended one such party at the West Village’s Pink Elephant on a Sunday afternoon, where just 12 hours earlier, the crowd was a lot less wholesome.
The scene she described sounds plain awful:
Inside, parents lined up the full cash bar as their kids leaped around the dance floor shouting out the words to “What Does the Fox Say.”
The tables usually reserved for VIPs ordering pricey bottle service were littered with champagne glasses and juice boxes. The bartender, who’s used to serving a liquored-up, over-21 crowd on Saturday nights, was surprised by how much the parents were imbibing. The most popular drink that afternoon was vodka.
Here’s a video of the party, if you’re having a hard time picturing it:
Fuzipop says on its website that its goal is to “inspire the next generation of DJs, music producers, artists, dancers and music business moguls. Growing up in New York City is a unique one-of-a-kind experience and city kids deserve an event of the same stature.”
The idea behind the events may be to get children into music, but we have a feeling these parties are more for their parents. One mother at the April Fuzipop event told CNN Money that Fuzipop lets parents “live vicariously through our kids, and we can all blow off steam together.”
That seems more like it.
See also: How to Raise Happy Kids
Is Google Weak in Search?
Yahoo wants to replace Google as Apple’s default search engine.
At first glance, this sounds crazy—Yahoo doesn’t even have its own search product. It uses Microsoft’s Bing.
So why does Yahoo CEO Marissa Mayer think there is even the slightest possibility this might happen?
One possible answer—and the big, big caveat here is that this is purely speculative—is that Google is not as strong in search as its history suggests.
Search, as a business, is becoming a lot more complicated, with a lot more players, and a lot more stuff to be searched. It used to be that the business was simple, in principle: You went to Google’s search box, typed in what you were looking for, and clicked on a link.
But with Facebook, Amazon, and Twitter running their own search operations, and vast new forms of media—music and apps, most obviously—being largely impenetrable to regular search, we may be entering an era in which keyword-matching and link-ranking aren’t good enough anymore.
In that scenario, Google is the bloated incumbent, ripe for disruption by new, leaner, quicker startups that realize search isn’t about your mom sitting with her laptop typing “new shoes” into a text box. It’s about her daughter, who wants her phone to automatically surface relevant new material even before she asks for it.
In this scenario, Google is weak in search.
Sequential Growth Is Getting Worse
Here’s the economic evidence for the early signs of that weakness (below). Note the green sequential growth line is getting worse, not better:
Again, before we go any further, let’s underline the obvious: Google is now so massive—$15 billion in revenues per quarter—that its sequential growth is declining simply because it is so big. This isn’t a sign of weakness; it is a sign of massiveness. (This chart excludes the Motorola numbers.)
But ... it’s tough to ignore that in this quarter growth was negative. That never used to happen. (It happened once, in Q1 2009, but that was clearly the recession, not Google, thus we shall ignore it.)
The company has an official name for its brief recessionary periods: “deceleration.”
The stock sank 5 percent after hours Wednesday night, when Google revealed its Q1 numbers. It was down another 4 percent Thursday morning. Investors, clearly, are sensing something they don't like.
Again, here’s the question: Why would a company that has a natural, legal monopoly over search see even temporary declines in its business?
Google Is Weaker in Mobile Than People Think
The short-term answer is that Google’s search business is transitioning to mobile and that the disconnect in supply and demand for mobile search ad clicks is giving Google’s advertisers a temporary bonanza—the price of search is falling, and Google’s revenues are soft because of that. Google is still getting most of the clicks, but it is unable to charge as much as it used to for them.
Wall Street analysts hinted yesterday that they think Google’s mobile search business is weak because it doesn't have the pricing power it had on desktop. (Average cost-per-click for advertisers declined 9 percent in Q1, and aggregate paid clicks grew by 26 percent—a much lower rate than the 30 percent–plus growth rate Google has historically seen.)
Chief business officer Nikesh Arora was asked about that on the call. He said:
I’ve had firm belief and I continue to hold on to it that I believe in the medium to long term: Mobile pricing has to be better than desktop pricing. And I think the reason—the way to think about it is that in mobile you have location and you have context of individuals which you don't have on the desktop.
... So part of our challenge has been that if you guys just [had] huge massive advertise[rs] in the desktop which over the last decade have become better at advertising, Understanding, optimization, understanding conversion, understanding [transactions].
That journey is just beginning for advertisers in the mobile site. They’re just beginning to understand what it takes for the end user to come transact on their website [in mobile].
So like right now we can lead the horse to the water, we can’t make it drink.
Arora usually speaks in the vaguest generalities possible. But there he is saying that Google can’t seem to persuade advertises to get with the mobile program: “We can lead the horse to the water, we can't make it drink.”
Facebook, Apple, and Amazon Are Carving Off Google’s Business
Google’s problem with mobile is that huge chunks of the phone landscape are being carved off by new, upstart search organizations. Amazon, for instance, has a huge mobile shopping search business through its app—and Google has none of that business.
Facebook has its own search engine and will soon add Post Search, the ability search through the trillion or so status updates on Facebook. That search will eventually be backed by Facebook’s artificial intelligence unit.
Search inside Apple’s App Store is one of the most valuable search types there is. It’s already the core of a $16 billion business at Apple. Yet Google search has no view into the App Store.
And Apple is working with Shazam to create a way of recognizing songs and searching for them, presumably in iTunes.
And there are a ton of other smaller, specialized search databases doing all sorts of useful things that don’t want or need Google to be inside them.
From this perspective, Google isn’t strong. It’s weak.
Why Monopolies Go Into Decline
Of course, Google isn’t sitting still for this. Google’s acquisition of DeepMind for between $400 to $500 million is an example: Search backed by true artificial intelligence could put Google ahead of its rivals instantly, if it’s genuinely superior.
But the very fact that it wants to be the search engine for everyone, everywhere, is the source of its weakness: A small company like Shazam that is an expert at recognizing music can devote 100 percent of its attention to that, and become better than Google will ever be at doing the same thing. At Google, music recognition would be one of only a hundred action items on CEO Larry Page’s desk.
In the meantime, Shazam has its little core of advertising clients that are advertising on Shazam’s mobile apps, sucking dollars that might otherwise have gone on mobile search ads in Google.
Which is why it’s so worrying that Google’s Arora is still arguing, two years after the issue first surfaced, that one day, eventually, in the “medium to long term,” its mobile search business will improve.
See also: How Google Botched the Release of Glass
Amazon’s Culture of Frugality
Last month, when three major cloud-computing vendors all cut their prices—Google, Microsoft, and Amazon—the news was great for their customers but hardly news at all. That’s because this was the 42nd time that Amazon has cut prices for its cloud-computing service since 2008.
Microsoft has vowed that it would never let Amazon be less expensive and would match every price cut with one of its own. Google, with its own massively huge data centers, is also willing and able to play the price-cutting game.
But no one does price cutting like Amazon. Its ethic of being frugal is literally one of the company’s 14 “Leadership Principles,” which it explains like this:
Frugality: We try not to spend money on things that don’t matter to customers. Frugality breeds resourcefulness, self-sufficiency, and invention. There are no extra points for headcount, budget size, or fixed expense.
For instance, being frugal means that Amazon will only pay for economy air travel, even for senior execs, Amazon Web Services Senior VP Andy Jassy told CRN Australia. If an employee wants an upgrade to business or first class, they have to pay for that out of their own pockets.
“If you’re flying everyone Business and First Class to meet customers, it’s a pretty substantial expense, and none of that benefits customers,” Jassy said to CRN Australia.
When it comes to the cloud, Amazon has gotten creative in order to be frugal. For instance, computer storage disks have notoriously high failure rates, so vendors have to cover refunds on faulty disks. But Amazon has reportedly gotten cheaper prices on disks by promising never to return one, CRN reports.
The company also saves on hardware by designing and building things like computer servers and network routers itself. That way, it never pays for product features it doesn’t need.
For instance, instead of buying networking equipment from a company like Cisco, “We also built our own networking hardware, and have our own protocol stack, and the price point has changed phenomenally,” James Hamilton, senior VP and distinguished engineer said at a recent AWS event.
It all adds up to being focused on low margins at high volumes.
“You think about your prices, your cost models, your priorities differently. We have that DNA and operating skills,” Jassy told CRN.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
See also: This Is Amazon’s 3-D Smartphone
Why One Man Traveled Almost 3,000 Miles to Take on the Federal Government at a Nevada Ranch
In early March, the Bureau of Land Management sent a letter to cattle rancher Cliven Bundy informing him they intended to impound his “trespass cattle,” contending he owes more than $1.2 million in fees. On April 5, they started rounding up the cattle on his property. Since then, his story has become a cause for conservative activists frustrated with the federal government. The plight has attracted numerous activists to his property, and the conflict between Bundy’s supporters and federal officials exploded onto the national scene last weekend.
Days after agents with the Bureau of Land Management ended their effort to round up Cliven Bundy’s cattle to ease mounting tensions, the showdown between the rancher and the federal government is still attracting armed conservative activists from around the country to a dusty stretch of land about 80 miles east of the Vegas Strip.
Last Tuesday, as he started to read more and more about the situation on the Drudge Report, Jerry DeLemus decided to give Bundy a call.
They spent more than an hour on the phone. “What do you need?” said DeLemus, who was calling from some 2,700 miles away in Dover, N.H.
“I need help,” Bundy told him. “I need bodies.”
“I’m coming,” DeLemus said.
It was as simple as that, DeLemus told Business Insider on Tuesday. Soon, he began the long drive in his truck. His son; his friend, Jack; and Jack’s son accompanied him on the cross-country trip. All in all, it took 41 hours across a three-day span. They began driving at 5:30 a.m. Thursday and made it there by Saturday afternoon. They barely took any breaks.
This Wednesday, DeLemus remains in Nevada. He is now running the makeshift “militia” of conservatives protecting the ranch, some of whom are armed with handguns and rifles. DeLemus said about 100 conservative activists are still there, three days after federal agents returned hundreds of cattle they had taken from the ranch.
To DeLemus and these other activists, the Bundy ranch standoff is one of their most important fights yet over what they consider to be an oppressive federal government.
“We are willing to give our lives,” he said in a phone interview.
Bundy’s fight with the federal Bureau of Land Management dates back to 1993, when the BLM eliminated livestock grazing in the area, citing protection of an endangered tortoise species.
That was when Bundy decided to stop paying grazing fees. And now, the agency says he owes more than $1.2 million in fees. A federal judge first ruled in 1998 that Bundy was trespassing on federal land. Last year, a federal judge ruled the agency could remove the cattle. The BLM, among others, says Bundy is breaking the law.
But activists view the situation in terms of a dispute over states’ rights and an oppressive federal government. It was a major topic of conversation among conservative activists last weekend in New Hampshire, where the groups Americans for Prosperity Foundation and Citizens United hosted the Freedom Summit. It was there that Business Insider met DeLemus’ wife, Susan, who said he had been inspired by “freedom.”
“Lawlessness,” DeLemus said of the situation. “You look that up in the dictionary, and you’ll see the definition of our government right beside it. They all are. Congress, both houses, and the White House.”
Despite the retreat of the BLM, which cited “escalating tensions” when it returned the cattle to Bundy, DeLemus and many others there have no plan to leave anytime soon.
“You s----in’ me?” he said, when asked if he was planning to head back to New Hampshire.
They, and the Bundy family, do not believe their fight with the federal government has ended. Senate Majority Leader Harry Reid, the senior senator from Nevada, said Monday the situation was “not over,” citing Bundy’s apparent violation of federal law. BLM spokesman Craig Leff told CBS News the agency would now seek to resolve the situation “administratively and judicially,” but was unclear on the specific next steps.
Bundy, DeLemus, and the other activists, however, might face another, more unexpected hurdle. They have failed to see much support from some prominent conservatives, who are far from unified in their opinions on the situation.
Daily Caller editor Tucker Carlson said on Fox News on Monday that, while Bundy was mistreated by the federal government, the land doesn’t belong to him. Conservative host Glenn Beck warned conservatives against glorifying “the right’s version of Occupy Wall Street.”
DeLemus is an avid follower of Beck, having started up a local version of Beck’s “9-12 project,” comprised of nine principles and 12 values Beck says represent those of the Founding Fathers.
Though he said he actually agreed with some of the points made by Occupy Wall Street, DeLemus thinks there’s a key difference here: The Bundy supporters are not being reactionary and “causing destruction.” They are fighting for constitutional rights, he said.
His message to Beck and other skeptical conservatives: Come to Nevada and see the situation firsthand.
“Glenn doesn’t know the whole story,” DeLemus said. “He needs to come out here.”
Apple Reportedly Wants to Raise the Price of the iPhone by $100
Even in the post–Steve Jobs era, Apple is thinking different.
But this time it might not be for the best.
Jefferies analyst Peter Misek says, “Our checks indicate Apple has started negotiating with carriers on a $100 iPhone 6 price increase. The initial response has been no, but there seems to be an admission that there is no other game-changing device this year.”
Because the iPhone is the only phone that matters this year, carriers may cave and give Apple the price bump it wants.
Why does Apple need to negotiate with carriers on an iPhone price raise? Misek doesn’t really explain it, but we’re guessing it has to do with long-term contracts Apple has with carriers around subsidies.
This seems like a strange move for Apple. At a time when its rivals are going down in price, Apple wants to go up.
The market for high-end phones such as the iPhone is saturated. The growth for smartphones is in the low end of the market. That’s why the iPhone business is up in only single digits.
But Apple is reportedly going to release two new phones, one with a 4.7-inch screen and one with a 5.5-inch screen. The 5.5-inch phone would be Apple’s first entry into the market of “phablets,” which sell at a high price. Samsung’s phablet, the 6-inch Galaxy Note 3 sells for $100 more than its 5-inch Galaxy S5.
There are two ways to look at this if you’re Apple.
On the one hand, an internal presentation from Apple last year showed that people around the world want cheaper phones with bigger screens. This suggests it needs to cut the price and bump screen size.
However, Apple believes it’s not really susceptible to the pricing pressure of Android phone-makers. The iPad, for example, was originally going to sell for $400, but Apple figured people would pay $100 more, and it was right.
Apple might think that $100 isn’t going to make or break the success of a bigger phone, and that the extra money would offset the increase in costs.
But really, for a company with $150 billion in cash, adding $100 to the price of its phone seems like a move that’s too focused on profits.
Bloomberg Says Tinder’s Worth $5 Billion; IAC Says Not So Much
Tinder, the mobile dating app that’s exploded to 10 million users and millions of matches made in just over a year, is now valued at $5 billion according to Bloomberg’s Serena Saitto.
InterActiveCorp, or IAC, which owns a majority stake in the company it helped incubate, recently purchased 10 percent more of Tinder from early Facebook employee and investor Chamath Palihapitiya for $500 million, according to Saitto.
However, IAC says the Bloomberg report is inaccuate. Sam Yagan, CEO of IAC’s Match Group, says, "I can confirm on the record that we did a transaction with Chamath, but this valuation is nowhere near the truth."
The Match Group is responsible for dating apps at IAC, including Tinder. IAC also owns popular dating services Match and OkCupid.
No idea what Tinder is? We wrote one of the first articles about it in January 2013 when it was flooding college campuses. Here’s a walk-through.
Here’s the bit from Bloomberg Terminal:
IAC recently bought another 10 percent of Tinder from venture capitalist Chamath Palihapitiya for $500 million, according to people with knowledge of the deal. That values the 20-month-old company with 10 million daily users at $5 billion, compared with IAC’s $5.57 billion market capitalization.
Update, April 11, 2014: This post has been updated and edited to reflect IAC's comments about Tinder and its valuation.
The Most Underrated College in Each State
Earlier this week, Business Insider published a list of 50 underrated colleges around the country—one from each state.
We partnered with Niche to bring you the top schools in the country with great academics and high acceptance rates. To compile this list, Niche used its data for highest academics rankings, acceptance rates, and in-state population.
While some people may think these schools are “safety schools” because of their high admissions rate, their strong academics prove they’re much more. You can click here for a statistical breakdown of the schools.
Here’s a great infographic map of the schools, created by BI’s Mike Nudelman:
What It’s Like to Live in Your Car in New York City
In certain places around the U.S., it’s illegal to live in your car. Those who do face fines as well as jail time.
But Reddit user BlueMcCrew has had no issues since he started living in his tiny Honda Fit on the streets of New York City—where the practice is legal—in November 2013.
In a recent post on /r/Frugal, the 25-year-old designer described how he’s been living in his car to avoid outrageous rent costs and save enough money to pay back his student loans.
Now, he saves $600 every month out of his $3,500 paycheck (after taxes), and is honest with his co-workers and parents about his living situation. So far, BlueMcCrew says living in his small Honda Fit—outfitted with a memory foam mattress—has been working extremely well.
He answered fellow Reddit users’ questions about his lifestyle. We’ve compiled some here, edited for clarity and grammar.
Amazon Pays Employees Up to $5,000 to Quit
Here’s our favorite part of Amazon CEO Jeff Bezos’ annual letter to shareholders. He describes how the company will pay Amazon’s warehouse workers up to $5,000 to quit their jobs.
The intent of the program is to ensure that Amazon only retains people who really, really want to work at Amazon:
The second program is called Pay to Quit. It was invented by the clever people at Zappos, and the Amazon fulfillment centers have been iterating on it. Pay to Quit is pretty simple. Once a year, we offer to pay our associates to quit. The first year the offer is made, it’s for $2,000. Then it goes up one thousand dollars a year until it reaches $5,000. The headline on the offer is “Please Don’t Take This Offer.” We hope they don’t take the offer; we want them to stay. Why do we make this offer? The goal is to encourage folks to take a moment and think about what they really want. In the long-run, an employee staying somewhere they don’t want to be isn’t healthy for the employee or the company.
You can read the entire letter here.
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.