Nostalgia

In 2013 there were 18.8 times more Windows PCs sold than Macs. This is a reduction in the Windows advantage from about 19.8x in 2012. This decline is mostly due to the more rapid decline in Windows PC shipments relative to the more modest decline in Mac unit shipments. Gartner estimates that about 309 million Windows PCs were shipped, ((This figure is not published publicly but can be derived from subtracting Mac shipments from the total PC shipments which are published)) down from 337 million in 2012 (which was down from 344 million in 2011, the year PCs peaked.) I estimate about 16.4 million Macs were shipped in 2013 down from 17 million in 2012.

The history of PC shipments relative to Mac shipments is shown in the following graph:

I chose to graph the Mac data as an area with additional areas for iOS devices layered on top.

When comparing these platforms, the contribution of the Apple mobile platform becomes striking.

Nevertheless, it's still important to understand the role of the Mac. In years gone, the advantage of Windows was measured in multiples of Mac sales. That peak occurred in 2004 when there were 56 times more PCs sold than Macs. At that moment, when the Windows advantage peaked, the Mac sold 3.2 million units  into a market where 182 million PCs shipped. This means the Mac had 1.7% market share.

And yet, remarkably, even with 1.7% share, the Mac did not disappear. The figure of 3.2 million units was not great and below the peak to date ((which was 4.5 million in 1996)) but it was enough to sustain Apple while it developed its next products. At the time the iPod was starting to grow rapidly and development on iPhone/iPad was already underway. The point being that there were new products. 3.2 million was a sufficient volume to preserve the company until such time when they would be ready.

Today the situation is quite different. The total number of platform products Apple sold in 2013 was about 260 million ((This includes my estimates for Q4. We'll have the exact figure in a few days.)) The total number of users Apple has is above 550 million. ((Possibly 600 million.))

Note the effect in the graph above. Even if we only consider the Mac, the Windows advantage has decreased considerably, and the platform was certainly not extinguished. The new form factor Mac Pro and the continuing improvements in the thinnest of laptops shows how Mac has not just survived but prospered as the underdog which easily captures the bulk of profits.

But the bigger story is how Apple's mobile platform has nearly reached the sales volume of Windows. In 2013 there were only 1.18 more Windows PCs than Apple devices sold. Odds are that in 2014 they will be at parity. ((The prediction I made in 2012 was that "it’s safe to expect a “parity” of iOS+OS X vs. Windows within one or two years". The data so far does not change this expectation.))

But will it last?

It's important to understand just how the quantities involved here have a quality of their own. The quantities themselves speak of a change. It's not convincing to suggest that what comes around goes around and a reversal of fortune can be reversed yet again when there are several zeros added to the end of the figures involved.

We have to understand that the Windows advantage itself came from the way computing was purchased in the period of its ascent. In the 1980s and 1990s computing platform decisions were made first by companies then by developers and later by individuals who took their cues from what standards were already established. As these decisions created network effects, the cycle repeated and the majority platform strengthened.

But it was the large companies who made the core decisions. In the 1980s if the Fortune 500 companies all standardized on Windows then their suppliers and customers would also standardize on it. Add governments and other institutions and 80% of the market is probably decided. There was concentration in decision making. In other words, in the 80s a platform could win by convincing 500 individuals who had the authority (as CIOs) to impose through fiat a standard on the centers of gravity of purchasing power.

Today, with mobile products there are billions of decision makers. 500 decisions mean nothing. In fact, Apple with at least 500 million loyal and wealthy users is considered to be in a precarious situation. That's partly due to the way other platforms like BlackBerry and Symbian found themselves in crisis with tens of millions of users. ((and hundreds, perhaps thousands, of corporate buyers deciding to support its platform exclusively. What IT does matters for little.))

The decision making process for buying computers, which began with large companies IT departments making decisions with multi-year horizons, has changed to billions of individuals making decisions with no horizons. Companies have become the laggards and individuals the early adopters of technology.

The fundamental shift is therefore in the quantity of decision makers and the quality of those decisions. Those who buy are also those who use and their decisions will be perhaps whimsical, maybe impulsive and not calculated, but fundamentally, in the aggregate, wise.

Ultimately, it was the removal of the intermediary between buyer and beneficiary which dissolved Microsoft's power over the purchase decision. It's not just unlikely that this situation will be reversed, it's impossible. Computing decision making has moved to the furthest edge where use has been for decades. The computer has become personal not just in the sense of how it's used but in the sense of how it's owned.

As automobiles become smartphone accessories, they become an interesting industry to study. Here is a recent (since 1961) history of the US market.

Benedict Evans explains well the problem with measuring Android tablets. There are no reliable data collected because many of the devices are invisible through the regular, measurable channels:

• There are no firms which report their shipments
• They are not sold through retail chains which normally are sampled in the US and Europe (NPD and GfK respectively.)
• They don't show up in browsing or ad transaction data
• Google Play statistics are missing most of the activations since they are not sold as bona fide Google-sanctioned Android.

The only measured statistic happens to be component shipments. Items such as screens, CPUs or perhaps memory might be visible to market analysts. It's therefore tempting to add up tires manufactured to determine what's getting sold in auto dealerships.

But it's also hugely problematic.

Before we go into that rat's hole, I want to re-visit my original criticism for market analysis based on device attributes. When the iPad was new it was famously labeled a "media tablet" by Gartner and excluded from being counted (and hence compared) with PCs. This created an implicit signal to the analyst's clients to ignore the entrant as irrelevant.

That actually accelerated their demise (and the revenue prospects for the analyst).

In contrast to that exclusion--of a clear and present danger based on an arbitrary definition of form factor--the analyst who defines categories of products purely on the definition of their components is guilty of the same sin.

Snowing the audience with irrelevant comparisons is just as bad as withholding relevant comparisons. This is explicitly asked of witnesses: to tell the truth, the whole truth and nothing but the truth. The "nothing but the truth" means the exclusion of irrelevance.

The correct approach is to identify which devices are comparable (and thus in the same category) based on the jobs they're hired to do. If a tablet overlaps considerably in the work it does with a PC (e.g. browsing, email, media play, and other applications) then they should be considered comparable. If a tablet does nothing that a PC does or nothing that an iPad does (e.g. no browsing, email, apps or ecosystem activity other than piracy) then they should not be considered comparable.

Which brings me back to the question of what these dark matter "Android tablets" actually do.

To answer I want to recall another "dark matter" technology that seems to have gone largely unnoticed but was exceptionally popular. This was the VCD or Video CD. It was an alternative to the DVD without the licensing and DRM overhead it entailed. It was extremely popular in Asia as a way of not only buying but also sharing video content. The cost of content was a fraction of sanctioned versions, essentially taking the role that mass-copied VHS had in previous years.

The "job to be done" was to enjoy video content cheaply and conveniently for the equivalent of pennies a day. A job very similar to what we think of as cable TV today.

These devices and discs were largely invisible mainly because they did not exist in economies which adopted protected DVDs and because the content consumed did not hit against any databases that tracked consumption. Nevertheless there might have been hundreds of millions of these devices sold and billions of discs viewed.

Now we are in a situation where devices whose primary purpose is to watch video content (cheaply and conveniently) are being counted. By their counting, their implicit competitiveness is asserted. But it means nothing if they are not hired for the same jobs. In fact it misdirects attention.

Sometimes these "low end" devices do grow up to swamp the higher-powered alternatives with good enough functionality. That is the innovator's dilemma for low end disruption. But in some cases they don't because other factors are at work. Because ecosystems have complex multi-sided markets and because regulations and channels and consumer behavior conflict with the technical specification.

For this reason the VCD did not "disrupt" DVD or grow up into a Blu-Ray equivalent that caused Hollywood to crumble. It faded away as an anomaly.

Whether the dark matter Video-only Android device will come to swamp the iPad will depend not on just volume shipments in select geographies. It will depend largely on the ecosystems built around it. The ecosystems of VCD were largely unsustainable because there was no value placed on the content itself. The value chain did not strive to sustain the technology. When something better came along, it got dropped.

In contrast, content-based value chains sustain technologies which keep the revenues coming. And we can measure this revenue.

You don't need to look too hard for that in tablets. Apple states it quite frequently: total payments to developers.

During the first quarter of fiscal year 2014, we changed our organizational structure as part of our transformation to a devices and services company. As a result of these changes, information that our chief operating decision maker regularly reviews for purposes of allocating resources and assessing performance changed. Therefore, beginning in fiscal year 2014, we are reporting our financial performance based on our new segments; Devices and Consumer (“D&C”) Licensing, D&C Hardware, D&C Other, Commercial Licensing, and Commercial Other.

The previous reporting segments were:

• Windows & Windows Live
• Server and Tools
• Online Services
• Microsoft Business
• Entertainment and Devices
• Unallocated and other

The new are:

• D&C Licensing: Windows OEM licensing, Consumer Windows, Consumer Office, Windows Phone (including related patent licensing)
• D&C Hardware:  Xbox 360, second-party and third-party video games, and Xbox LIVE subscriptions; Surface; PC accessories
• D&C Other: Resale, including Windows Store, Xbox LIVE transactions, Windows Phone Marketplace; search advertising; display advertising; Subscriptions including Office 365 Home Premium; Studios including first-party video games; retail stores.
• Commercial Licensing: Windows Server, Microsoft SQL Server, Visual Studio, System Center; Windows Embedded; volume licensing of Windows; Microsoft Office for business (Office, Exchange, SharePoint, and Lync); Client Access Licenses;  Dynamics, Skype.
• Commercial Other: Enterprise Services, including Premier product support services and Microsoft Consulting Services; Cloud Services, comprising O365, other Microsoft Office online offerings, Dynamics CRM Online, and Windows Azure.

From Microsoft's FY14 Q1 10Q via Microsoft Investor Relations - Press Releases

The mapping between the old and new is not straight forward. There is overlap between D&C Licensing and the old Windows and perhaps between Entertainment and Devices and D&C Hardware but there are many gaps. There is also some overlap between the old "Business"/"Server" segments and the new "Commercial" but, again, they cannot be matched.

I show the difference between the two structures in the way revenues are allocated below, using color to try to show similarities.

Given the re-stated quarters it's possible to compare one year's historic performance at a segment level. For example, the company states that "Devices and Consumer revenue grew 4% to $7.46 billion" while "Commercial revenue grew 10% to $11.20 billion".

Since we don't have data older than one year, our ability to assess the company over longer time periods will be drastically reduced and a new picture will take a long time to emerge.

There is however one aspect of the new structure that needs to be appreciated right away: the allocation of costs has changed fundamentally. The company explains:

Cost of revenue is directly charged to the D&C Hardware segment. For the remaining segments, cost of revenue is directly charged in most cases and allocated in certain cases, generally using a relative revenue methodology.

We do not allocate operating expenses to our segments. Rather, we allocate them to our two segment groups, Devices and Consumer and Commercial. Due to the integrated structure of our business, allocations of expenses are made in certain cases to incent[sic] cross-collaboration among our segment groups so that a segment group is not solely burdened by the cost of a mutually beneficial activity as we seek to deliver seamless experiences across devices, whether on premise or in the cloud.

[my emphasis]

In that brief paragraph Microsoft has formally and in a financially binding way declared itself to being a functional organization. ((Welcome to the club.))

The mechanism seems banal: operating costs are no longer assigned to product divisions but to two large buckets. In practice this means that profitability (P/L) cannot be assessed or assigned to individual managers. The lack of P/L responsibility means that incentives from top to bottom have to be re-engineered. If this goes wrong, the Assets ((read: people)) of the company could evaporate.

If the assets go, then processes and priorities are for naught.

In other words, what the company is undertaking is a priority shift (to a  functional structure to create integrated experiences) which requires a process change (whereby employees work according to new incentives) while preserving the fragile assets the company depends on (a motivated and skilled base of employees.)

This makeover is as ambitious as a re-org gets and the context, scope and target are as difficult as they can be. This is, after all, the largest software company operating the the most dynamic industry whose multi-sided markets are notoriously volatile due to disruptive forces.

The challenge also suggests why Ballmer left and who should replace him. A priority transplant operation requires a different set of skills than those held by the manager who created the processes for the previous set of priorities. That's the manager's dilemma: even if you foresee the changes needed and push for them to be enacted, your reward might be to be replaced by someone who can make the changes happen.

Those who envision and persuade for change are rarely allowed to enact it.

I've never worked at Apple and know very few people who did. Nevertheless, I read Adam Lashinsky's book and enough Folklore.org that I think I can get away with replying to the Meaning of Googliness with the following:

Googliness means	Appleiness means
Doing the right thing	Doing the best thing
Striving for excellence	Striving for greatness
Keeping an eye on the goals	Keeping both eyes on your task
Being proactive	Being obsessive
Going the extra mile	Going to the moon
Doing something nice for others, with no strings attached	Doing everything for the user
Being friendly and approachable	Keeping your mouth shut
Valuing users and colleagues	Valuing functions other than your own
Rewarding great performance	Punishing failure
Being humble, and letting go of the ego	Keeping your mouth shut
Being transparent, honest, and fair	Keeping your mouth shut
Having a sense of humor	Never writing a post on what Appleiness means

Today is the iPad's third birthday.  It's also the mobile (cellular) phone's 40th birthday.

Whereas the launch of the mobile phone was probably an obscure event, the launch of the iPad was greeted with derision.

It is perhaps with irony that we should greet this auspicious confluence of anniversaries.

During the last 12 months 31 million American phone users abandoned the use of feature phones. During the last 24 months over 60 million switched. Over 550k users are switching every week and this rate of switching has not changed much since late 2009.

Some of this switching has to do with demand for smartphone services but some of it is also due to a decreasing supply of non-smart phones. The shelf space being allocated to smartphones is nearing 100%. My single sampling of a Wal-Mart store shows the following data:

Looking at individual carriers, AT&T ranged one feature phone and 7 smart SKUs. Verizon's ratio was 2:8 and T-Mobile's was 4:5.

T-Mobile has been lagging in smartphone adoption and as they transition in 2013 it's possible that the AT&T ratio of 12% shelf space dedicated to feature phones will become the norm for the US. And as the US goes, the world will follow.

With shrinking shelf space comes an accelerated decline in the product category. It may not come in 2013, and perhaps not by 2014 but it's quite possible that by 2015 the last feature phone will make its appearance in the US.

Apple's renaissance began with the iPod. This was not evident right away however. The product was unveiled on October 23, 2001 at a time when Apple's share price had just fallen 70% from year-earlier levels. It was perhaps a good point from which one could expect a recovery to begin.

It was not to be. One year after the iPod's launch the stock price had fallen another 20%. Indeed during 2001 the company was in the throes of a "bear market" in its shares. If we measure a time of persistent share price reduction as a bear market, then the one in 2001 was significant. For 154 days, between April 27 and September 28, 2001 the shares fell 38%. This represents the first bar in the following graph showing all the Apple bear markets since then.

I also illustrated these bear markets in terms of their duration and the average %drop/day.

Chronicling these periods:

• From May 24th 2002 and September 27th, 2002 the stock fell 41%.
• 2003 was less harsh but on the second anniversary of the iPod, for two months between October 17th 2003 and December 19, 2003 the stock fell another 17%.
• By 2004 the iPod looked like a hit. The stock rose consistently during the year. Then, in early in 2005, from February 25th to May 13, the stock fell 20%.
• In early 2006, January 20th to March 10th, the stock dropped 26%. The iPod was reaching incredible levels of popularity and the Mac was looking to be returning to prominence with the switch to Intel.
• 2007 was the year the iPhone launched. Right after the launch for two weeks between August 3rd and August 17th, the stock fell 15%. That's the equivalent of 1% per day for two weeks.
• As the iPhone was shown to be a hit (and before the credit crunch), for four weeks during January 2008 the stock fell 37%. Again, equivalent to 1% a day for 35 days.
• Then after the iPhone 3G was launched and growth reached triple digits, Apple's shares fell for 50 days. From August 22 to October 10th they fell a total of 45%. Again, the equivalent rate was 1% every day for a month and a half.
• In 2009 the stock recovered steadily but in 2010, again around iPhone launch season the stock fell 12% over a two month period.
• Then in 2011 October, 9% was wiped out.
• Then for two weeks in April 2012 10% disappeared.
• Which brings us to September 21 to November 9th, 2012. This latest "bear market" has run up a loss of 21.7%, running for 49 days.

Sounds dramatic. The even more dramatic twist is that in this same time frame the share price increased by 576 points or the equivalent of 6,294%. Nevertheless, there were 13 episodes when the shares dropped violently and sometimes persistently for long periods.

Why does this happen?

It's important to recall that at no point during Apple's ascent was there "consensus"  that Apple was being successful and certainly not sustainably so. Analysts gave it at best a growth prospect of 20%, and the risks were always obvious and prominent.  The company was always on the edge and everybody from the layperson to the experts could see that everything was wrong with Apple. Apple went from being irrelevant to being too big without passing through being boring.

So there is a simple explanation for occasional panic: Apple is not predictable.

But it also seems too consistent. Is the pattern of share price collapse actually rooted in some fundamentals, transient or otherwise? There is a clear failure in understanding the long term but were these downdrafts justified as the market "foresaw" or "discounted" the near future? Were these more than just crises of confidence? Was there wisdom in the drops because they were followed by earnings drops or slowing growth? In other words, if there was smoke, was there fire? Was the market being efficient?

No.

The graph below shows the share price change in the more recent episodes above and the earnings growth during the current and following quarters.

At least since the iPhone launched, every dramatic drop in share price was followed by a surge in earnings growth. One could even say the worse the bear, the better the growth.

Sounds completely counter-intuitive, but there is some perverse logic in this as well. The market reflects crises (as well as over-abundance) of confidence. Unforeseen growth is what creates wealth and the crisis in confidence is a reflection of the improbability of continuing out-performance. When Apple's performance is foreseeable the stock moves slowly upward. When its performance is unforeseeable the stock moves dramatically downward.

A pithy way of putting it is: No news is good news. Good news is bad news.

When a product is understood the stock is mildly desirable. When a new product appears the future is hazy and the stock is undesirable. But that haziness hides potential but up and down. New products is what innovators produce. Bizarre new products is what disruptors produce.

In other words, the paradoxical observation in the chart above of "the more drama in the market, the more success in the marketplace" makes sense when inverted.

For disruptive companies, it should be "the more success in the marketplace, the more drama in the market."

In that sense the current downdraft may be quite auspicious.
---
Notes:

1. Another set of similar observations were made by Eric Jackson in early October in Forbes.

Days after Nokia announced the end of life for the Symbian platform I wrote a post titled Who will buy the next 150 million Symbian smartphones? The reference was to claim by management that before there would be a complete transition to Windows Phone, 150 million legacy Symbian phones would be sold, keeping the company financially stable before the new ecosystem took root.

I reproduce the original forecast I made below with the addition of what actually happened.

[Note that the Actual stack area chart is independent of the forecast area chart as indicated by shading.]

My forecast in early 2011 was based on the 150 million Symbian phones being sold over a two year transition period. The implication with the forecast for Windows Phone was that this would still lead to a difficult contraction of volumes.

As it turns out, only 96 million Symbian devices have been sold in the 7 quarters since the platform was deprecated. It's unlikely that there will be ever by 150 million units sold as last quarter only 3.4 million shipped. In any case, management has already retracted that claim.

What about the Windows Phone forecast? It turns out that by this point in time (Q3 2012) I had expected Lumia shipments to total 9 million. Actual shipments reached about 9.5 million, so not bad. However, the market grew faster than I had expected and overall Nokia smartphone market share turned out to be slightly lower (6.3% in Q2 vs. 10% estimated.)

The just ended quarter shares are not yet available but it's quite possible that overall Nokia smartphones could be well below 5%, and may slip to 3% during the transition period.

My warning in February 2012 was that 150 million Symbian units would not ship since I expected there would be a stigma associated with the products among distributors, even if consumers were fine with them (which they weren't).

The public execution of Symbian (and any other alternative being developed inside Nokia) will probably be a classic case study in disruption management. To wit: even if a platform needs to be led out to pasture, there are ways of managing decline other than suicide. Nokia's failure is not so much having chosen the wrong alternative to Symbian, but having chosen exclusively.

However, there's a twist. The company did not accept exclusivity of one supplier without a concession: In exchange for exclusivity, Nokia negotiated $250 million every quarter in the form of "platform support payments" from Microsoft. Nokia has to date received over $1 billion in such payments. (For the last quarter that amounts to $86 for each Lumia phone shipped.)

The tragedy comes from this $1 billion/yr not being enough. The foregone revenues from Symbian (assuming they had been able to maintain the decline to the level of 150 million units that they had originally forecast) would be about $9 billion. This means that had Nokia not knifed Symbian and had sold the shortfall units at an average price of $200 they would have received an additional $9 billion in sales. Furthermore, assuming a margin of 33% for those units, Nokia received from Microsoft one third from of what she gave up for exclusivity.

In other words, the net cost of the Microsoft exclusive relationship is at least $2 billion in operating profit.

This turns out to be the difference between being profitable and being distressed.

We will never know if this scenario would have ever happened, but the forecast management made 21 months ago suggests that at least they thought this was what they were going to get out of the bargain.

This reminds me of another article posted around the same time.

Marc Andreessen famously coined the phrase "software is eating the world." It's an apt observation. If you look back on the history of computing you're likely to measure computers sold or devices sold or users harvested or productivity gained. These things are measured because they can be measured. But the greatest cause of value created and captured has been the development of software. An ephemeral product whose value is often ignored in analytical discourse.

Software is not easily measured and it's not easily valued due to its intractable nature. Firstly, because businesses that make software tend to have weird cost structures--absurdly high fixed costs and operating margins: They operate without income for years and then suddenly are massively profitable with a minimal set of resources. They have a non-linear, "big bang" trajectory.

Secondly, software companies tend to capture revenues from something other than the direct sale of the good. Software is rarely sold. Services sometimes are sold on the basis of software but more likely audiences for services are sold to a set of bidders, or revenue is obtained in even more circuitous ways.

Thirdly, because there are curious multi-sided markets for software platforms. Charlie Kindel hints strongly at how difficult it is to understand the dynamics of software platforms. There is the prospect of lock-in of users and data. There are relationships to nurture with developers and there's the principle of an ecosystem that creates network effects. The virtuous/vicious cycles are non-linear and unpredictable even for the experts who have been at it for decades (e.g. Microsoft).

Given these difficulties, software is seldom seen as the core value proposition for a particular business. But make no mistake about it, Apple, Google, Microsoft, Facebook and Amazon are all software companies. They "monetize" or integrate software differently but software is causal to their profits. Their use of software has also made them all disruptive. Software enabled the disruption of consumer electronics, retail, computers, advertising and broadcast media.

But we have not seen anything yet. There is another class of software that is poised to lay waste to a new set of industries. The lowly app coupled with cloud-based services[1] is the termite that is set to eat the foundations of the largest of the industries still standing.

Consider the following:

• Games. A software industry in itself, the app versions are attracting non-consumers and eventually will get good enough to absorb all  usage and profits. Games merged with "entertainment" concepts will lead to new models of user recreation leading to new global brands that could challenge even Disney.
• TV. As apps come to the big screen TV will never be the same. Not only will show creators build directly for an audience but advertisers that currently sponsor shows will produce them instead and package the result as an app.
• Shopping/dining/entertainment/hospitality are changing with location services and with novel "bits to bricks" purchase options (e.g. PassBook). Increasingly services will exploit handheld devices to enable product discovery--the main job retailers are tasked with.
• Communications. The observation that "phone" is just an app and that messaging can be done in dozens of ways depending on message, relationship, context or even custom is possible because apps conform to the user's needs rather than the user conforming to the tools they get from the network service provider.

Although these are enormous opportunities in themselves, this is in addition to several industries that are already crumbling (photography, book publishing, to name two).

I don't need to rely on prose alone to make the point. A graph can also lend a hand.

Consider that Apple's App Store and Google Play together have had over 50 billion installs in less than four years and that the number of users of apps is at least 750 million. Furthermore, consider that apps have moved from a smartphone phenomenon to tablets and even PCs using OS X or Windows. Within one year these software capsules are going to be in use by one fourth of the global population.

Nothing has this kind of reach or engagement, not even browsers. What makes the app disruptive, even ahead of a browser-based service, is that it includes incentives for developers (or, more precisely, app producers) to get paid and to have a relationship with the buyer. These two value propositions, in isolation or in combination, are available to millions and consumable by billions. The most democratized market that can be imagined. An unbounded set of producers and an unbounded set of consumers and a persistent connection after the purchase with nothing in between them except a payment mechanism

The world has never seen such an opportunity.

The consequences are unforeseeable. Apps are a form of software that goes beyond its ancestral "application" as a product and as a business model. It's the software that will take in and assimilate everything in sight.

---

Notes:

1. I have a simple rule to distinguish between an app and a service. If you have to supply a username and password to an app, it's a service.

It looks like the next iPhone will be called the iPhone 5. What's in a name? As it turns out, quite a lot.

Every hardware product that Apple has released has had a brand and a sub-brand. Macs for example use the Mac brand and a sub-brand as follows:

• iMac
• Mac Pro
• Mac mini
• MacBook

Thus each sub-brand imparts certain meaning to the buyer. i, Pro, mini, book are all evocative. MacBook even has its own sub-brands:

• MacBook Pro
• MacBook Air

These Mac sub-sub-brands of Pro and Air are specifically designed to also distinguish and convey meaning.

iPods as well use the iPod brand followed by a sub-brand.

• iPod Classic
• iPod touch
• iPod mini
• iPod shuffle
• iPod nano

Note how the mini  sub-brand was retired from the iPod line to be used exclusively in the Mac product line. That may not be specifically necessary or desirable but it is an interesting coincidence. (The Pro sub-brand is shared between different Mac lines)

However, when we look at the iPhone and the iPad, the nomenclature has been distinctly different. Both products have been using generational naming conventions. This implies no sub-branding as the iPhone and iPad are the only identifiers of brand and hence the only meaning being imparted to the buyer. You either get an iPhone or and old iPhone.

That changed with the iPad however. The third generation iPad became just iPad. This was deliberate (why would they want to confuse buyers?) I think there is some logic to this.

Note the parallel to the convention of the original iPod. When the iPod launched it was just the iPod. Subsequent versions were identified by a generation, but not a specific sub-brand. After the third generation iPod (still called iPod), the mini version was launched, creating the sub-brand convention that remains in use to this day. The iPod therefore was born generational but switched to sub-branding in adolescence.

The possibility exists, therefore, that there will be a sub-brand for the iPad. Perhaps "mini" is being reserved for a new iPad, to distinguish it from the regular iPad (no sub-brand) that is likely to remain in production. The logic is to make room for sub-brands when the core brand begins to cover a wider array of form factors, themselves proxies for separate use cases or jobs to be done.

So what about the iPhone?

The iPhone has remained, stubbornly, after five years, stuck with a generational naming convention vis-à-vis the sub-brand convention used in every other mature product line from Apple. (Note that software from Apple adheres strictly to a generational naming convention because there is no "room" for a sub-brand under a software brand. There can be no "iWork Pro" or "Final Cut EZ". [Update: there once was Final Cut Express])

Prior to today I entertained the possibility that the new iPhone will follow the iPad in dropping generational naming in favor of sub-branding thus implying that the brand would develop into a portfolio of sub-brands (like the iPad seems about to.)

Alas, that possibility now seems moot. The launch announcement seems to clearly point to "5" being the name of the new iPhone. The brand remains iPhone and there will be no sub-branding.

This can only mean that Apple intends to preserve a single product strategy for the brand. There will be no "special" iPhone for different (e.g. low-end) markets. There will be no different form factor to accommodate different use cases. There will be no new jobs to be done for the iPhone.

What a bummer.

However, there may be something more curious happening. Note all the service brands being launched on the iOS platform. There's Siri, (as yet unnamed) Maps, GameCenter and PassBook. These are not Apps. These are services designed to be unique to iOS, perhaps even unique to the iPhone. The difference with the iPhone brand may not be that it spans a multitude of sub-brands in hardware but that it covers a multitude of new service brands. As brands imply meaning, the iPhone brand may imply that it's a platform in and of itself.

Now that's an interesting development.