Research

How much does it cost to have the world's best maps?

The answer may seem simple: $8.1 billion.

That was the cost to Nokia in cash for buying Navteq in October 2007. It would seem that buying that asset (or another one like it) is a cut-and-dried solution to anyone needing a mapping "solution". But it's not an answer that is either complete or explanatory of how mapping solutions are valued.

Navteq was not priced as a database for an app. It was a business which was expected to create licensing revenues and profits[1]. The actual price for this business net of cash was $7.7 billion but the following graph shows the net sales and operating profits since Nokia began reporting its performance:

The blue area represents the difference between sales and costs and hence the operating expenses--the payments needed to "keep the lights on".

These total expenses over the 4.25 year time frame totals €6.5 billion. The total operating losses equal €2.6 billion. Therefore, as far as Nokia's shareholders are concerned, they paid $11 billion for Nokia maps, to date.

What do they have to show for it?

Nothing. The entire company is now worth only about $15 billion. It's hard to imagine maps being worth 73% of Nokia. What Nokia hoped to get for the product was some value in its devices. As other issues intruded, that value has not been realized. Nor has any external licensing revenue been realized. Net external licensing revenues are actually decreasing.

The situation looks even even uglier when the maps asset can be seen as costing €1.5 billion every year. Why would anyone want to be in this business?

I bring this up because, apparently, everyone wants to be in this business.

Via Twitter I received a suggestion (rumor?) that Google spends about $1 billion every year for maintaining their maps. (Using a conversion from Euros to Dollars yields a Nokia maps burn rate of nearly $2 billion/yr.) Furthermore, there seems to be a burning desire for Apple to also burn this money.

If so, then Apple might have to start spending $1 to $2 billion/yr to merely maintain a data set. That would be a minimum of an additional 7% in operating expenses.

Why would they do that?

If Apple cannot buy or license quality data, there may be no choice. Maps have become a hygiene factor for a platform. Not having them makes a platform repulsive but having them offers no attraction.

Another way of looking at the maps asset is like a component in a phone. A vendor needs a certain class of processor, memory or screen or battery. Not having a minimum level of functionality makes the product uncompetitive but having it does not guarantee success.

What's worse, the market may have been cornered—there may be no suppliers. Unlike hardware components, the maps component is not a commodity with a market of suppliers. The work needed to maintain the maps is a commodity but the aggregation and consolidation of the data is valuable and those who have gained control over the data and they are not likely to license it to any competitors for strategic (i.e. political) reasons.

So we have a perverse situation of a very costly, unprofitable asset requiring duplication of maintenance effort by politically motivated actors imprisoned by their own strategic interests.

If so then it fits perfectly with the mobile telecom industry. Like mobile networks, maps are very expensive and worth very little.

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Notes:

1. The revenues that Navteq was obtaining during the 2008/2009 time frame included that from customers such as Verizon, Garmin, Advertising, Traffic services, Microsoft Windows Live services. For the six months ended on December 31, 2008, Europe accounted for 44% of NAVTEQ’s net sales, North America 43%, Middle East & Africa 8 %, Asia-Pacific 2 %, Latin America 2% and Greater China 1%.

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If you want to learn more about how to analyze technology industries and the evolution of value chains, consider participating in Asymconf.

When the iPhone 5 launched Apple promised availability in 100 countries before the end of year. This was a very aggressive plan given the gradual release of previous products. Last year the iPhone 4S only arrived in China (along with 21 additional countries) on January 13th. This year it was almost a month earlier.

Apple also announced for the first time this year first weekend sales for China: 2 million. This is, as far as I know, the first weekend sales data for a single market outside of the US. The time span was three days and therefore the daily sales rate was 2/3 million per day.

The following chart compares the launch performance for the launches which Apple reported:

If we normalize by population, the launch performance shows about 1.5 iPhones sold per 1000 inhabitants.

It's a lot less than what we saw with the iPhone in the US and the first tranche of launch countries. But it's not far from the 2.6 achieved by the iPhone 4. The pricing and 3G penetration in China are far less favorable making this even more impressive.

According to ISI's Brian Marshall, the iPhone achieved 1.5% penetration of the 3G subscriber base or 15 iPhones per 1000 3G subscribers. If we assumed the same basis (3G subs) that would make the iPhone 5 twice as popular on launch in China than in the US.

Early data shows that the PC market has not experienced a "pop" from Windows 8. Market watchers have been anticipating this pop since every previous version of Windows has led to a surge in shipments. PC vendors have also been hoping for this to lift their volumes. Volumes have been stagnant for a while, as the following chart shows:

If we combine the traditional PC and tablet markets—what I refer to as "large and medium screen PCs"— there has been growth. However the growth is all due to the tablets. When seen in a share split (blue tablets vs. brown Windows PC's) the shift toward tablet computing is clear.

The question is whether Microsoft will be successful in shifting to this new computing model? Microsoft's problem is not that it has difficulty offering an operating system for tablets. The problem is that the economics of both systems and application software on tablets is destructive to its margins.

A PC has for several decades been "taxed"[1] with a Windows and Office license. The exact figure is imprecise because of subscription accounting used by Microsoft, but we can take Microsoft revenues for Windows and Office and divide by PC shipments to get an average.

This view shows how Windows revenues per PC have held steady for the last three years and Office have moved up slightly. In the latest quarter Windows "captured" $52 per PC shipment and Office "captured" $67.

The problem for Microsoft is that pricing systems software at $50 and a suite of apps at $67 for a tablet that costs $200 to the end-user is prohibitive.

Firstly because an OEM could not justify paying $50 to Microsoft while competing with another vendor whose (Android) software license costs nothing. It implies an increase in his bill of materials without the ability to charge more for the product and hence a reduction or elimination of margin.

Secondly because consumers (or IT buyers) would have a hard time justifying $67 for an Office license for every tablet when most apps are either free or under $10. (Apple charges $9.99 each for iOS versions of Pages, Numbers and Keynote which can be installed on several devices.)

The economics of tablets imply a "commoditization" of system and application software. So what's Microsoft to do?

The answer is Surface where the software margin is captured in hardware. This explains the pricing of Surface. The price isn't significantly below what Apple charges because Microsoft wants to capture a comparable (30%+) margin. On a $500 product that amounts to $150. After subtracting hardware operating and distribution costs we can get pretty close to the $120 it currently obtains from a PC.

This also explains the lack of appetite for "partnerships". OEMs which would normally compete on hardware would have to deal with zero margins (or less) after license fees and would be encouraged to cut corners and shave costs, compromising the experience and causing the platform to suffer.

Microsoft does not like the phrase "post-PC" because it implies the end of its hegemony. They like to think of the PC becoming a new form factor in which they have the same role they've always had. However, looking beyond the form factor we see that mobility itself is disruptive in the implied modularity of the PC.

Device economics offer the explanation for an otherwise perplexing Surface strategy. The question remains how many Surface units could Microsoft possibly sell to maintain its revenues.

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1. A "tax" is implied only when purchases are mandatory.

In the post reviewing Samsung's Capital Structure I noted that its component divisions have historically taken 90% of capital investments and that the overall capital intensity for Samsung Electronics has increased in proportion to its component revenues.

In another post regarding the capital structures of other technology companies with different business models I noted that Apple has changed its capital structure to a significant degree over the previous three years.

In the following graph I combined these observations to show how capital expenditure patterns may be used to discern the underlying business model.

I would group "cloud" or "platform" based companies like Google, Amazon and Microsoft as a cohort which, although spending significant amounts on capital equipment, do so mainly to support services. Their primary employment of capital is to sustain the infrastructure of data centers necessary to deliver the services underpinning their business models.

I would group Intel and Samsung as "component" based companies which use capital to build production capacity that delivers, hopefully, a control point in the value chains they participate in. Note that I am assuming that Samsung Electronics' CapEx primarily targets semiconductors and displays as it did during the 2006 and 2007 period when data was available.

Therefore, given the patterns over the last six years, it might be possible to classify a company's core business by just looking at its CapEx: The services group showing growth but relatively stable patterns and the components group showing more volatility, macroeconomic sensitivity and an overall higher level of spending, especially as a percent of sales.

The question that pops up then is in what category does Apple fall?

My observations for over a year have been that Apple is increasing its capital spending to such a degree that it is neither fish nor fowl. It operates data centers but presumably does not operate fabrication plants. And yet it spends more than Intel and Google combined.

Contrasting Apple and Samsung Electronics tells an even more interesting story. In the following graph I've added two additional items of information: First, although CapEx spending is recorded in the cash flow statement, Apple reported in its yearly (10K) report that it spent an additional $2 billion for equipment which did not pass through cash flow.

If we were to add $1 billion to each of the previous two quarters, the graph would look like this:

The second piece of information is that Apple projected its spending for the following fiscal year. I've added that spending in a pattern matching the last fiscal year.

Apple is still spending less than Samsung. In its fiscal year 2012 Apple spent about $10 billion while during the same time frame Samsung spent nearly $22 billion. However, Apple has begun to bump against Samsung's spending level on a quarterly basis.

I consider this extraordinary evidence of an extraordinary shift in strategy.

For a year we've been debating here to what degree Apple has a "capital intensive" business and what exactly could it be spending capital on. One early hypothesis has been that it's on data centers or on real estate for spaceship campuses. These can be easily dismissed on the knowledge that they can't cost that much (and that the spending happens gradually). Another hypothesis is that the tooling for milled aluminum cases and other mechanical components is expensive and Apple has to buy a lot of it. But, again, the level of expenditure is in the league of Intel and Samsung which make vast quantities of semiconductors in very expensive plants. It's hard to imagine milling machines being cost equivalent to chip foundries.

The comparison with Samsung, whose vast capital commitments are legendary and are its primary strategic asset puts Apple in a new light. Perhaps we can't yet call Apple a semiconductor company or even a fabricator but they are putting their "money where their mouth isn't". We can infer that it's not going where the company currently operates. The capital is being deployed almost silently and, though vast in scale, barely gets a mention from analysts. Not even a single question has been raised at any earnings call about this spending.

So what tale does this capital tell?

One interpretation is to apply the value chain disruption theory and ask whether Apple is acting to counter a potential disruption. In other words, that this is a specific threat response from an incumbent. There is some logic to this because  the antagonism between Samsung and Apple is so strong that it might justify a reaction of this kind.

However, I believe that there is a more measured process at work over a long period of time. The one distinguishing advantage and attribute that Apple has  is its preference for integration. This preference is not a secret and Tim Cook repeats it often. The integration is evident with their move into retail and component design, in other words in both directions along a value chain. So my hypothesis is that this is part and parcel of an ongoing re-alignment of their role in the value chain.

This second explanation suggests that Apple simply wants to control all the areas which affect the value they produce. First because they feel that there are areas that are not good enough and the product/experience cannot be good enough if its constituent parts are not good enough. Second because without control there are constraints to what it can do strategically.

Whatever the reason, I read the evidence of increasing commitment and engagement in parts of the value chain as part of a continuous evolution of Apple's role. Furthermore, it's something that should be seen as a signal of a new era in how technology companies operate. We see hints of "vertical integration" with Microsoft building hardware, and Google buying Motorola and Amazon selling devices. Apple did all these things and now it casts an eye over the next frontier: components.

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If you want to learn more about the future of the technology industries and the evolution of value chains, consider participating in Asymconf.

Having described the Revenue, Operating Margin and cost structure for Samsung Electronics it's time to review their investment strategy.

The Economist summarized it well:

[Samsung's] businesses look remarkably disparate, but they share a need for big capital investments and the capacity to scale manufacture up very quickly, talents the company has exploited methodically in the past.

Samsung's successes come from spotting areas that are small but growing fast. Ideally the area should also be capital-intensive, making it harder for rivals to keep up. Samsung tiptoes into the technology to get familiar with it, then waits for its moment. It was when liquid-crystal displays grew to 40 inches in 2001 that Samsung took the dive and turned them into televisions. In flash memory, Samsung piled in when new technology made it possible to put a whole gigabyte on a chip.

When it pounces, the company floods the sector with cash. Moving into very high volume production as fast as possible not only gives it a price advantage over established firms, but also makes it a key customer for equipment makers. Those relationships help it stay on the leading edge from then on.

The strategy is shrewd. By buying technology rather than building it, Samsung assumes execution risk not innovation risk. It wins as a “fast follower”, slipstreaming in the wake of pioneers at a much larger scale of production. The heavy investment has in the past played to its ability to tap cheap financing from a banking sector that is friendly to big companies, thanks to implicit government guarantees much complained about by rivals elsewhere.

Can we find evidence of this capital intensity?

To answer, I reviewed Samsung Electronics CapEx as reported in their quarterly cash flow statements. The following graph illustrates the data:

Note that during 2006 and 2007 the company specified expenditures on an operating divisional level. Since 2008 it has reported only a total. For the years where divisional detail is available, the percent split looks as follows.

If we combine the Semiconductor division (Memory and System LSI) with the LCD group and classify this as "components" the split looks as follows:

Therefore, for the two years when information was available, the component divisions consumed 91% of expenditures and Consumer Electronics (Digital Media) together with the Telecom (mobile phones, mainly) were a combined 9%. The least capital intensive division was Telecom, the mobile phone group, with only a 2% allocation of capital.

The other observation is that, after a contraction in the recession years of 2008 and 2009, CapEx expanded greatly in 2010 and 2011. [1]

Coincident with the growth in CapEx, the company's revenues grew dramatically as well. However, as the graphs below show, the growth has come predominantly from the Telecom division.[2]

I calculated the correlations between each division's revenues and the growth in CapEx (total) for the time periods 2006 to present and 2008 to present and obtained the same results: The division with closest correlation to CapEx remains the Semiconductor group.

This stands to reason. Capital expenditures are mainly in the service of semiconductor manufacturing. Semiconductors, or components in general, require more capital than assembly of devices or consumer electronics.

However, the revenues and operating income for devices have grown far faster. Samsung's investment in capacity would have been largely profit-free had they not also been assembling the devices which capture the margins.

One might conclude that Samsung would be better off abandoning its capital-intensive components business and focusing on the devices. However, as James Allworth points out if you only do the devices, you may find yourself vulnerable to value chain disruption. Whoever is involved "upstream" in the value chain will inevitably learn the device business from a base of "commodity" manufacturing and pose a threat.

Now the question poses itself: Which of the usual suspects understands this?

Stay tuned for evidence of an incumbent response.

 

If you want to learn more about the future of the technology industries and the evolution of value chains, consider participating in Asymconf.

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Notes:

1. Some of this growth is due to a new (K-IFRS) accounting standard in use after 2010, but the expansion was significant regardless.
2. The revenues data is was reported using three different accounting methods and each is shown with a different line color: Blue is "Parent basis", Green is "Consolidated basis" and Yellow is "K-IFRS".

Two years ago, almost to the day, I wrote a post titled It’s time for Apple to look at owning factories again.

What I argued then was that of the problems that Apple had the means to fix, production was what most needed fixing.

Since then we've seen evidence of significant investment in manufacturing tooling, where Apple is effectively purchasing the means of production rather than just renting or contracting it out. This capital equipment investment is the equivalent of owning one of the three asset classes that make up a manufacturing operation:

1. Tooling or capital equipment. The "Capital" at the root of the concept of "Capitalism".
2. Skills, talent and knowledge. This is the softer kind of asset that turns out to be harder to replace or buy.
3. Labor pool. Although considered a commodity even unskilled labor is difficult to obtain if flexible employment is needed in a regulated environment.

It did not stop there. It has also used capital to ensure capacity through pre-orders thereby allowing the skills and labor to be more predictably applied by its suppliers (and preventing competitors from having sufficient supplies). Apple has also taken control of chip design for the vast majority of its CPUs thus building a more bespoke supplier chain.

However these are not enough steps to make production "good enough" to meet the demands of a billion customers buying a new product every other year.

An insidious problem emerges when outsourcing:  suppliers tend to become competitors. It happened in the PC industry with Acer vs. Dell. But it's also happening to Apple. Consider how Samsung's foreknowledge of Apple's orders allowed them to anticipate the demand for large screen smartphones. Receiving orders years in advance for memory, screens and CPUs in the hundreds of millions would be a clear indication of demand. Receiving funds with which to build capacity is an enormous help when turning on production for your own versions of the product.

With that knowledge and the capacity built to serve Apple, Samsung was able to go from near zero market share in smartphones to being the largest vendor in two years a feat that Apple itself could not accomplish.

The supplier-turned-competitor is one of the risks of outsourcing production and is at the root of disruption from value chain evolution.

Hence it's gratifying to see that Apple has committed to "in-sourcing" assembly of at least one product. Tim Cook in an interview with Rock Center:

And next year we are going to bring some production to the U.S. on the Mac. We’ve been working on this for a long time, and we were getting closer to it. It will happen in 2013. We’re really proud of it. We could have quickly maybe done just assembly, but it’s broader because we wanted to do something more substantial. So we’ll literally invest over $100 million. This doesn’t mean that Apple will do it ourselves, but we’ll be working with people, and we’ll be investing our money.

For the first time since the 90s, Apple is taking steps to control the last pieces of the value chain it participates in.

It's a baby step and perhaps it's going to remain symbolic, but one can imagine a trajectory for this effort which will pay off as well as retail has paid off ten years after the first Apple store opened.

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Looking for more information on the renaissance of production and its effect on the technology industries? Then come to Asymconf and take part in the debate.

Samsung Electronics' SG&A expenses are curiously high. Consider the following graph:

It shows SG&A as reported by Samsung and Apple over the periods 2010, 2011 and the sum of the first three calendar quarters of 2012. Note that Samsung appears to be spending three times as much as Apple on sales and administration.

The company offers a break-down of these SG&A costs and they are also shown (Apple does not provide a break-down except for advertising in its yearly report). The suspicion that something is not right comes from looking not only at the overall picture but the notion that Transportation, Warranty and "Other" for Samsung are higher than overall SG&A for Apple.

Note that Apple's SG&A includes the cost to operate its retail stores. This includes the salaries and operating costs of over 300 stores.

Considering that many of these costs are borne in the sale of products for consumers (and not borne in the sale of components such as semiconductors,)  the percent of sales of some of these expenses are:

• Advertising: 3% of consumer sales
• Sales promotion: 5%
• Transportation: 4%
• Warranties: 3%
• Public relations: 0.5%

Excluding wages and commissions shows a total of 15.5% of consumer sales paid in SG&A expenses. Apple's total cost for SG&A was only 6.5% overall. Advertising was 0.78%.

I also added to the graph data for 2012 (through first three quarters.) It looks like Samsung SG&A will easily reach $30 billion this year, staying at three times Apple for another year.

I don't have any explanation for this disparity.

9:00 to 10:15 Being Back. How California came to disrupt

The disruptive history of California is remarkable. Whereas few nations can claim credit to one, California is home to at least four major disruptions: Semiconductors, recorded entertainment, venture capital and personal computing. And it did all this in less than one century. If any one place can vie for the title of "serial disruptor" it's California. One success can be seen as luck, but many successes imply a system is at work. In this case session we discuss California's disruptive history and put forward hypotheses on the what causal mechanisms are at work. We ask further whether California can still be the home of future disruptions or whether the system has broken down.

• The effect of "frontier mentality" on unforeseen growth
• The effect of migration and diaspora on innovation and counter-effect of the absence of either.
• Applying these causal themes to the management of innovation in institutions

10:15 to 10:30 Break

10:30 to 12:00 Designed in California, Assembled in China

Geographically and culturally, California is closer to Asia than any other western market. It has always faced west more than it has faced east. Is there a symbiosis between California and Asia? Are its institutions adapting to a new center of economic mass? Is California leading in thinking or culture or is it being disrupted by a new frontier as growth moves east?

• The growth in Asia and China in particular is in many ways a reflection of rapid industrialization. But it can also be seen as a low-end disruption.
• What can be learned about business model innovation in the contrast between Californian and Asian approaches to business?
• Does culture play a part in an innovation mentality?

12:00 to 1:00 Lunch

1:00 to 2:15 Guest presentations and Panel session

Guests are invited to debate or discuss points raised during the morning sessions. A chance for panelists to challenge or refute points made as well as for the provision of anecdotal evidence.

Potential panelists:

• Ben Bajarin
• Michael Lopp (aka @Rands)
• Jean-Louis Gassée
• Om Malik
• Charlie Kindel
• Dan Benjamin
• Philip Elmer-DeWitt
• Tim Bradshaw

2:15 to 2:30 Break

2:30 to 4:00 North vs. South

Does the tension between industries of Northern California and Southern California reflect an opportunity or a crisis? We will re-visit the narrative of what Entertainment is hired to do. We will review the differences and similarities of the technological creative process vs. the artistic creative process. We will see whether industrialized, commercialized art is subject to disruptive forces or whether there is persistent exceptionalism at work.

• Is the intersection of "liberal arts" and "engineering" more than a metaphor?
• What can be learned by cross-pollination of the creative processes of engineers and artists.
• What's the future of technology-based entertainment? Are North and South closer and have more in common than the war talk lets on?

4:00 to 6:00 Reception

Please register here.

As first introduced last week, Samsung's revenues have grown primarily due to the expanding volumes of smartphones. In today's post I convert the revenues and operating incomes to US Dollars and compare them to a set of companies.

First, I should note that Samsung has changed both the designation of its divisions and the way it reports revenue. Broadly speaking, Samsung Electronics has four major divisions:

1. Semiconductors. This includes memory products as well as systems such as CPUs.
2. Display products. This used to be called "LCD" but has been re-named Display Products.
3. Telecom. This is mainly mobile phones but includes additional products and services for telecom operators and PCs. The division has recently been re-named IM (IT and Mobile communications).
4. Consumer Electronics. This group has changed names from Digital Media and Appliances to CE. The majority of sales value comes from televisions but also includes consumer electronics and appliances.

The company further combines Semiconductors and Display Products into a group called DS (Device Solutions) and Consumer Electronics and IM into DMC (Digital Media & Communications).

I tried to reconcile these various nomenclatures with color coding in the following graph. Semiconductors are blue, Display components are red, Consumer Electronics are Yellow and Mobile are grey.

Each gridline represents $10 billion.

One more point to note about revenue recognition: Relatively recently the company has switched from reporting consolidated revenues to gross revenues. This means that current sales include inter-segment sales. So, as much as it is possible, the data above shows sales from division to division as well to external customers.

When it comes to reporting operating income, the company offers four segment values: Consumer Electronics (Appliances, TV, "Digital Media"), IT and Mobile (including mobile phones), Display Panel (formerly LCD), and Semiconductor.

I used the same color coding to show the income values in the same scale as the graph showing income:

It's now possible to compare Samsung Electronics with Google, Microsoft and Apple in terms of divisional (as a proxy for product-line) revenue and profitability over a five year period.

At this time, a portion (majority?) of Samsung's grey area in the operating income graph represents the vast majority of profits obtained from Android across the entire ecosystem.

In the post "Google vs. Samsung" I compared the profits of Google and Samsung Electronics' mobile (aka Telecoms) division. It showed how Samsung has grown its mobile business to such a degree that, if sustained, could conceivably influence the way Android is controlled.

However, we should not analyze Samsung's mobile group in isolation of the entire company. Samsung relies on internal transfer of technology and capacities of production which are quite unique for device vendors today. In other words, Samsung is a relatively integrated enterprise. Understanding the whole is necessary before understanding the part.

The following graph shows the sales and operating profit for  Samsung Electronics as a composite of its divisions since early 2008.

As one would expect, the mobile group (Telecom) is the source of both top and bottom line growth. The group has also been leading in terms of margins and increasing those margins steadily. 

The margins averaged 11% during 2007 and 17% during the trailing four quarters. This 54% increase in margin has been matched by a 55% increase in average selling price (from $151 in 2007 to $234 in the latest quarter).

One could argue however that a 17% operating margin from a group that is now leading in volume and price is still a bit weak. At its peak Nokia enjoyed a 25% operating margin, RIM 30% and HTC 27%. Apple's iPhone operating margin is around 45%.

I think a large part of the margin story is a relatively high level of spending on SG&A (Sales, General and Administrative) which includes advertising, sales promotion and commissions. In the case of Samsung Electronics, as sales has grown these expenses have grown in proportion. As a percent of sales SG&A have held relatively steady at around 17%.

Note that as Apple's sales have grown its SG&A has grown less rapidly resulting in a smaller percent over time. We might see Apple's SG&A drop to 5% during the present quarter, an all-time low.

So one of the more remarkable aspects of Samsung's success has been their willingness to increase promotional spending. Considering that their other divisions don't require as much "marketing expense" (semiconductors, LCD certainly, and TVs and Appliances to a lesser degree due to a smaller sales growth) we can imagine that the vast majority of this promotional spending has been in support of their mobile brands, Galaxy in particular.

In fact, we can obtain advertising spend data from annual reports.

The chart above shows comparable ad spending from a cohort of technology companies as well as Coca Cola and Samsung Electronics.

It might be surprising to note that Samsung spends considerably more than Apple and Microsoft. But it also spends more than Coca Cola, a company whose primary cost of sales is advertising.

However, advertising is not the only form of promotional spending. Samsung also pays commissions and "sales promotion". The following chart shows the value of these sales promotions relative to the ad spending budgets above.

 

We don't have data on the current year since that is released after year's end, but it's interesting to note that promotions cost more than ads, which themselves are substantial relative to other companies.

The company also reports "Marketing Expenses" every quarter[1]. These figures appear to be the sum of Ad spending, Sales Promotions, Public Relations and a portion of "other" expenses as a part of SG&A.

When considering all marketing expenses, Samsung Electronics' sales efforts begin to look quite astonishing.

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Notes:

1. The data used in the latter three charts are available as a Google spreadsheet here.

Asymconf is developing well. Workshops are at 75% 90% capacity. I'm also delighted to also announce some of our distinguished guests:

• Ben Bajarin
• Michael Lopp (aka @Rands)
• Jean-Louis Gassée
• Om Malik
• Charlie Kindel
• Dan Benjamin
• Philip Elmer-DeWitt
• Tim Bradshaw

More to come.