Introducing New and Improved Above Avalon Reports
In 2018, I unveiled Above Avalon Reports as a way to go deeper into Apple topics for Above Avalon members. Reports were designed to have a long shelf life and be used as reference material that members can periodically turn to. Five reports were published to date, and each received very positive member feedback. The top request has been more reports.
I’m excited to unveil Above Avalon Reports 2.0, which both addresses some improvements to the reports format and introduces a few new concepts. The updates include:
A leveraging of the daily updates back catalog. Since 2015, more than 1,200 daily updates have been published. That amounts to approximately 35 books worth of analysis and perspective. It’s an incredible back catalog that has proven to have a long shelf life. However, the back catalog can be overwhelming to navigate. Reports are going to tackle this problem by purposely covering core topics that we have talked about in prior updates over the course of months and maybe even years. A few sample topics that fall under this bucket will include AAPL valuation trends, Apple’s TV strategy, gauging Apple Watch competition, Project Titan 101, and Mixed Reality 101.
More approachable (i.e. shorter) and frequent reports. With the initial round of reports, word count and publication date became arbitrary targets. Going forward, reports will be as long as they need to be in order to properly cover a topic. This will result in more frequent reports as well.
The tackling of new topics. In addition to covering topics that we have previously discussed in the updates, reports will also include topics that wouldn’t make as much sense for the daily updates format. These reports will likely be narrower in focus and shorter in length.
Easier-to-find reports. Daily updates have their own dedicated Slack channel. Reports will now get the same. Reports will also be featured more prominently on AboveAvalon.com. This will make it easier for members to access reports while potential members are made aware of what members have access to.
Accessible to All Members
It was important to me to keep Above Avalon Reports accessible to all members. Accordingly, reports will remain free for Above Avalon members.
The daily updates are a great way to discuss current news and developments impacting Apple, its competitors, and the industries Apple plays in (or will play in). Reports will be a great way to showcase my analysis and research on all things Apple that may not necessarily have a connection to the current news cycle. While I think the daily updates will remain the cornerstone of Above Avalon membership, my expectation is that some members will look at Reports as the gem found with an Above Avalon membership.
Become a member by using the following signup forms ($20 per month or $200 per year).
Payment is hosted and secured by MoonClerk and Stripe. Apple Pay is accepted. You will receive a confirmation email that includes a link allowing you to update your payment information and membership status at any time.
New Private Podcast for Reports
Something new that I am introducing is the option to receive Above Avalon Reports in audio form via a new private podcast. Once a written report has been sent out to all members via email, I will also be releasing an audio version of the report. This audio version will involve me reading through the report as well as explaining and talking through charts, exhibits, and tables. Each report will represent an episode of a new podcast that I am appropriately calling “Above Avalon Reports”. My expectation is that I will also record behind-the-scenes episodes that go over my research and perspective that didn’t make the final cut for publication.
This new private podcast will be made available to Above Avalon members who have attached the podcast add-on to their membership. This means the podcast add-on will now provide members access to two private podcasts:
Above Avalon Reports (for the reports)
The podcast add-on (just $10 per month or $100 per year) offers approachability and accessibility for members looking to customize their membership to their liking. Listen to daily updates and reports around the house, on a walk, or in the car. Receive more than 40 hours of audio per year while gaining access to a back catalog of 60 additional hours of analysis.
Transistor is handling the behind-the-scenes mechanics for distributing the private podcasts so that they can be listened to in various podcast players including Apple Podcasts and Overcast. The set-up process is very simple:
Upon purchasing the podcast add-on, you will receive an email (from “Neil Cybart via Transistor”) that directs you to a signup page listing various podcast players that can be used to listen to the podcast. Open the page on an iPhone, and you will see various iOS podcast players. Open the page on a Mac, and you will see options for listening to the podcast on a Mac.
After you select your preferred podcast player, new Above Avalon Reports episodes will automatically appear in your podcast feed as they are published.
That’s it. There is no need to create a separate login, password, or Transistor profile. In the vast majority of cases, there is no need to even copy or paste a link or RSS feed.
To become a member and have the podcast add-on attached to your membership, use the following signup forms:
Payment is hosted and secured by MoonClerk and Stripe. Apple Pay is accepted. You will receive a confirmation email that includes a link allowing you to update your payment information and membership status at any time.
If you are already an Above Avalon member, fill out this form to get the podcast add-on.
Big Picture
A growing number of sites that rely on paid subscription or membership business models are making their best material free and then treating membership features like exclusive posts and newsletters as “extras.” I’ve been building Above Avalon to be something different. Over the past few years, nearly all of my time and effort has been dedicated to exclusive analysis for members. In the coming weeks, I make a more deliberate effort to show non-members the value and content found with Above Avalon membership. A surprising number of people who read and listen to Above Avalon are still not aware I publish daily updates.
A big thank you to those of you who have supported Above Avalon membership and recommended it to others. Word of mouth has remained a vital growth driver for membership over the years. Above Avalon membership was launched seven years ago last month - May 13th, 2015!
- Neil
The Above Avalon 2Q21 Recap
In addition to publishing periodic essays and podcast episodes, which are accessible to everyone, I publish exclusive daily updates all about Apple. These emails contain my perspective and analysis on Apple business, product, and financial strategy, in addition to industry developments. The updates have become widely read and influential in the world of Apple.
During the second quarter of 2021 (April to June), 47 Above Avalon daily updates were published, chronicling the major industry and Apple-specific news stories. Major themes included Apple hosting a virtual WWDC, major developments in the paid video streaming space, bluetooth trackers being put front and center as Apple unveiled AirTags at a spring product event, and tech antitrust legislation / regulation developments.
The Above Avalon 2Q21 Recap begins by going over these major themes and the corresponding daily updates that went over the themes. The focus then shifts to the Above Avalon daily update of the quarter - a daily update that stood out for its Apple analysis.
Major Themes
WWDC 2021
Last month, Apple held its largest event of the year - WWDC. Similar to last year, WWDC 2021 was an impressive one. When considering the breadth of new features announced, no company is in a position to match Apple. By leveraging its ecosystem of products and services to sell premium experiences to a billion people, Apple continues to pull away from the competition.
Video Streaming Industry News
Last year was a big year for paid video streaming as Netflix began to face genuine competition with other paid video bundles. Based on the busy news flow so far in 2021, there continues to be much interest and intrigue found with paid video streaming. The two big industry events that occurred in 2Q21 were AT&T announcing its intention to spin off WarnerMedia with Discovery and Amazon offering $8.5B for MGM. The former is all about AT&T trying to get back to the basics while the latter is about Amazon reducing churn and keeping Prime users as video viewers.
Netflix Earnings, Netflix Is in Denial About Competition, Netflix Announces Share Buyback (May 5)
AT&T to Spin Off WarnerMedia, HBO Max’s Future, Apple Implications (May 17)
Comcast’s Video Streaming Strategy, Ad-Based Streaming Momentum, Revisiting M&A in Video Land (Jun 30)
AirTag / Find My Network / Location Layers
After more than a year of rumor head fakes, Apple finally unveiled its answer for bluetooth trackers at a virtual product event in April. AirTag and the broader idea of finding / locating devices in the physical world is a precursor to Apple building location layers, which will be crucial for the company’s move into AR.
Apple Expands Find My Network, Apple Is Building Location Layers for AR, What About AirTags? (Apr 8)
The Story Behind Apple and VanMoof, Find My Network vs. Tag My Network, Thursday Q&A (Apr 15)
Apple’s Impressive Event (Apr 21)
Amazon Partners With Tile, The Tile Dilemma, Apple Hires New PR Chief (May 10)
Antitrust Legislation / Regulation
Last month, focus was placed on Washington as six anti-tech bills moved from the antitrust subcommittee to the broader judiciary committee. Apple not only held behind closed door discussions with some lawmakers, but also unveiled its public response to the bills by publishing a white paper on iOS side loading and funding more analysis into the App Store ecosystem. As the bills progressed, it became easier to see where opposition to the bills will materialize.
Previewing Apple’s WWDC 2021, A $650B App Store Ecosystem, The App Store Breeds IPOs and M&A (Jun 3)
There were 30 additional updates which covered various Apple topics, tech industry developments, and ideas that were of interest to me. The following updates in particular stood out:
An Above Avalon membership is required to read the preceding updates. To become a member, sign up in seconds using one of the following signup forms:
After becoming a member, you will receive instructions on accessing the daily updates archive. Once you are set up, click on any of the updates above to be bought directly to that update.
More information on membership is available here. This includes customization options such as receiving the updates in podcast form and bundling an Inside Orchard subscription (my new site with tech-related analysis) at a special discounted rate.
Daily Update of the Quarter
In June, Apple unveiled Beats Studio Buds for $150. The move led me to investigate Apple’s broader headphones strategy. For non-members, the following update provides a great feel for the length, detail, and analysis that is found in every daily update.
The following was sent out to members on June 17th.
Hello everyone. Given how Beats Studio Buds continue to be on my mind, today’s update is going to be a bit different as we take a deeper dive into Apple’s headphones strategy. We will examine Apple's headphones line, discuss the strategy found with both AirPods and Beats headphones, and conclude with a look at Apple headphones financials.
Dissecting Apple’s Headphones Line
Apple sells three AirPods-branded products:
AirPods (includes H1 chip) for $159. Notes: The model with wireless charging case is $199.
AirPods Pro (H1 chip) for $249. Notes: Has a shorter stem than AirPods and includes active noise cancellation, transparency mode, spatial audio (with head tracking), and multiple size tips.
AirPods Max (includes two H1 chips) for $549. Notes: Comes in five colors and includes active noise cancellation, transparency mode, and spatial audio (with head tracking)
Looking at just those three headphones, AirPods Pro is likely the most popular and best-selling. Apple is now able to use AirPods Max as a price anchor, which makes the $249 for AirPods Pro look even more reasonable than before. The jump from AirPods to AirPods Pro is substantial not only because there is a visible difference between the two, which should not be underestimated as driving purchasing behavior, but also due to a notable expansion in features.
In addition to AirPods, Apple sells a number of Beats-branded headphones (all of which are available in multiple colors).
Beats Flex (includes W1 chip) for $50
Beats EP for $130. Notes: A wired pair of headphones.
Beats Studio Buds for $150. Notes: Truly wireless headphones that include active noise cancellation, transparency mode, spatial audio.
Powerbeats (H1 chip) for $150
Powerbeats Pro (H1 chip) for $170 promotional rate / $250 regular . Notes: Truly wireless headphones.
Beats Solo3 Wireless (W1 chip) for $200
Solo Pro (H1 chip)for $300. Notes: Includes active noise cancellation, transparency mode.
Beats Studio3 Wireless (W1 chip) for $350. Notes: Includes active noise cancellation.
Apple’s H1 chip is the successor to the W1 chip offering better power management, more talk time, faster connection times when switching between Apple devices, and Hey Siri integration.
The first thing that jumps out to me when comparing AirPods to Beats is how much broader the Beats portfolio is compared to the AirPods line (eight Beats models versus just three AirPods models). The other item that is noteworthy is the degree to which Beats headphones include either a W1 or H1 chip. After years of updates, just two Beats headphones, one of which was just announced, lack Apple silicon. This explains why pretty much all of Apple’s Beats revenue has been included within my “Apple wearables” unit sales and revenue estimates.
The fact that pretty much every Beats headphones model contains Apple silicon also shows why Beats Studio Buds present a challenge for me in terms of whether or not to change my “must include Apple silicon” requirement for a product to be included next to AirPods and Apple Watch as an Apple wearable.
One thing that is worth clarifying from yesterday’s update: Despite not including the H1 chip, Beats Studio Buds include Hey Siri integration. This is one of the main reasons for referring to Beats Studio Buds, along with every W1/H1 pair of Beats headphones, as an Apple wearable.
Apple’s Headphones Strategy
Controlling sound is one way of delivering impactful and memorable user experiences. This is a strategy that Apple has been developing for decades .The iPod changed the way we consumed music on the go, offering a much better experience than existing mobile listening options at the time. Then, the iPhone redefined what it meant to bring sound on the go to the mass market. Now, AirPods have been born out of the belief that there isn't a place for wires in a wearables world.
With each product category, the guiding principles are to deliver superior experiences. Along those lines, consider the following features that Apple has rolled out for AirPods over the past four years since launch:
Active noise cancellation
Transparency mode
Spatial audio (with head tracking)
Conversation boost (announced at WWDC 2021)
These features, some may also call them technologies, end up being experiences for sound on the go. This is a key reason why all Apple headphones with either a W1 or H1chip can be thought of as a platform. We are seeing Apple continue to announce new features for its audio platform.
Going forward, health tracking and monitoring capabilities are certainly worth investigating with wireless headphones in mind. In addition, third-party developer support for AirPods seems inevitable as we move into the AR and mixed reality era.
Beats headphones are also part of Apple’s sound-on-the-go strategy. However, Beats serves a different target market than AirPods, which ends up positioning Beats as a compliment to AirPods.
While there is likely some overlap between Beats and AirPods addressable markets, Apple is using the Beats brand to tap into markets that may want a bit more customization than what is found with AirPods. Even if Beats eats into AirPods sales, Apple is not going to be worried or upset as they would much rather be the one eating into AirPods sales than having competitors grab traction.
Turning to Apple’s headphones pricing strategy, if we take the granular information about Apple’s different headphone models from above and look at the line just in terms of prices, we arrive at the following:
$50
$150
$150
$159
$170
$200
$249
$300
$350
$549
The following graph makes it easier to analyze Apple’s headphone pricing spectrum:
Note: The $159 AirPods is included under $150 while the $170 Powerbeats Pro is marked under $175.
Two big observations from the preceding exhibit:
The sweet spot for Apple wireless headphones is in the $150 to $200 range. If you are competing against Apple (AirPods or Beats), it will be tough to price your product above this range. As for AirPods and Beats forming some kind of price umbrella for competitors to undercut Apple, AirPods are routinely available for less than $150 at third-party retailers. Best Buy currently has AirPods at $130 and AirPods Pro for $200. Weaker headphone brands have offerings in the $25 to $50 range but these products are not serious contenders to AirPods. One reason many people buy AirPods is to be seen wearing AirPods. It’s also not easy for companies selling $25 to $50 pairs of wireless headphones to make much money while also trying to match the overall user experience found with $130 to $160 AirPods.
The $549 AirPods Max sure do seem like an outlier going by price. Much of that dynamic likely reflects Apple running with unit sales assumptions for the number of people interested in over-ear headphones and pricing AirPods Max accordingly with the goal of maximizing overall gross margin dollars.
Sizing Up Apple’s Headphones Business
Here are my estimates for Apple headphones revenue (includes both AirPods and Beats headphones)
2017: $2.1B
2018: $3.8B
2019: $7.3B
2020: $12.0B
2021E: $14.5B
Note: The FY2021 total does not include Beats Studio Buds.
On a year-over-year basis, Apple headphones revenue is growing by 15% to 20%. This growth rate is lower than the ~30% seen last year. AirPods sales have slowed a bit due to a combination of factors including the pandemic impacting commuting and replacement sales, lack of updates, and a slowdown in upgrading.
In order to put the $14.5B of revenue in context, the total represents just 4% of Apple’s overall revenue in FY2021E. Compared to iPad or Mac, Apple headphones revenue is trending at about 40% of the revenue seen with those product categories. As for the Apple Watch versus AirPods revenue race, it looks like Apple Watch revenue still exceeds headphones revenue by about $1B per year.
Of the $14.5B headphones revenue total for FY2021E, $2.4B or 16% is from Beats headphones with a W1 or H1 chip. That may come as a surprise to some people who haven’t paid much attention to Beats. However, the Beats brand has been strong for many years, especially in certain verticals like sports. Customer awareness of the brand is up there, which is one reason why Beats headphones include the Beats logo. Since Apple has an even stronger brand relative to Beats, Apple device industrial design is increasingly becoming a type of logo (24-inch iMac, iPhone notch, Apple Watch, AirPods).
One quick note regarding how my Apple headphones revenue estimates are derived. For the past few quarters, Apple has compared the size of its wearables business to that of Fortune 500 firms. In the past, Apple even provided some clues regarding the year-over-year change in wearables revenue. These clues are very helpful in estimating Apple Watch revenue and unit sales and then backing into estimates for both AirPods and Beats. This is one reason why estimating Apple wearables financials is like putting together a giant puzzle.
Turning to unit sales, here are my estimates for the number of headphones Apple sold:
2017: 12M
2018: 24M
2019: 42M
2020: 60M
2021E: 70M
Note: The FY2021 total does not include Beats Studio Buds.
My ASP (average selling price) assumptions for AirPods has increased from about $150 out of the gate to more than $200 today. My Beats ASP assumption is a little over $200.
Seventy million headphones sold per year represents about 15% of the devices that Apple ships annually.
My estimate is that Apple headphones sales to new users is less than the ~75% seen with Apple Watch. This reflects a decent amount of AirPods owners either upgrading to AirPods Pro or simply getting a second (or third) pair. The heavier reliance on sales to upgraders exposes AirPods to more revenue and unit sales volatility than is seen with Apple Watch.
Above Avalon Year in Review (2020)
Heading into 2020, the big question facing Apple was found with growth. Apple had reached a billion users. Would Apple be able to reach two billion users in the 2020s by continuing to do what it had been doing or would more in the way of strategy shifts be needed?
As it did with every company, the pandemic turned 2020 into a steady stream of unexpected challenges for Apple. The company needed to figure out a way to continue product development on a global scale with little to no employee travel. Apple retail needed to be completely rethought as social distancing initiatives ruled out the usual crowded Apple stores. Apple events (both WWDC and product unveilings) needed to go virtual.
According to my estimate, Apple saw approximately $20 billion of delayed demand in FY2020 as a result of the pandemic. Approximately 15 million iPhone upgrades were delayed while wearables sales faced pressure due to retail stores being closed. Partially offsetting those headwinds, iPad and Mac results have been stellar as consumers upgrade older machines and look for larger displays to support working at home and distance learning.
Articles
In 2020, I published 15 Above Avalon articles. In looking through the articles, which are accessible to all, there was one overarching theme: Apple’s improving competitiveness in comparison to that of its peers and the steps the company is taking to position itself for continued ecosystem growth in the 2020s.
Here are some of my favorite articles published in 2020 (in no particular order):
Apple Is Pulling Away from the Competition. Relying on an obsession with the user experience, Apple is removing oxygen from every market that it plays in. At the same time, the tech landscape is riddled with increasingly bad bets, indifference, and a lack of vision. Apple is pulling away from the competition to a degree that we haven’t ever seen before.
The Secret to Apple's Ecosystem. Apple’s ecosystem remains misunderstood. There is still much unknown as to what makes the ecosystem tick. From what does Apple’s ecosystem derive its power? Why do loyalty and satisfaction rates increase as customers move deeper into the ecosystem? Apple’s ecosystem ends up being about more than just a collection of devices or services. Apple has been quietly building something much larger, and it’s still flying under the radar.
A Billion iPhone Users. A billion people now have iPhones. According to my estimate, Apple surpassed the billion iPhone users milestone last month. Apple’s top priorities for the iPhone include finding ways to keep the device at the center of people’s lives while at the same time recognizing the paradigm shift ushered in by wearables.
Apple’s $460 Billion Stock Buyback. Share buybacks came under fire earlier this year. Some companies that were recent buyers of their shares found themselves in financial distress and seeking bailouts due to economic fallout from the pandemic. A very good argument can be made that Apple has become the poster child of responsible share repurchases. The company has relied on its stellar free cash flow to fund share repurchases over the years.
Apple Watch and a Paradigm Shift in Computing. Despite being only four years old, the Apple Watch has fundamentally changed the way we use technology. Many tech analysts and pundits continue to look at the Apple Watch as nothing more than an iPhone accessory - an extension of the smartphone that will never have the means or capability of being revolutionary. Such a view is misplaced as it ignores how the Apple Watch has already ushered in a paradigm shift in computing.
The five most popular Above Avalon articles in 2020, as measured by page views, were identical to my favorites list.
Podcast Episodes
There were 16 episodes of the Above Avalon podcast recorded and published in 2020, totaling seven hours. The podcast episodes that correspond to my favorite articles are found below:
Charts
The following charts found in Above Avalon articles were among my favorite published in 2020.
Number of Users
While Apple new user growth rates have slowed, the company is still bringing tens of millions of users into the fold. Due to Apple’s views regarding innovation and its focus on the user experience, once someone enters the Apple ecosystem, odds are good that customer will remain in the ecosystem.
Apple Installed Base (Number of Users)
Apple Non-iPhone Revenue Growth
Apple finds itself in an ecosystem expansion phase. Hundreds of millions of people with only one Apple device, an iPhone, are embarking on a search for more Apple experiences. We see this with non-iPhone revenue growing by double digits in the back half of 2020 on a TTM basis, which is higher than growth rates seen in the mid-2010s.
Apple Non-iPhone Revenue Growth Projection
The Apple Innovation Feedback Loop
With Apple Silicon, Apple took lessons learned from personal devices such as Apple Watches, iPhones, and iPads to help push less personal devices, like the Mac, forward.
Daily Updates
In 2020, I published 196 Above Avalon Daily Updates that were available exclusively to Above Avalon members. With each update coming in at approximately 2,000 words, 196 updates are equivalent to seven books. This continues to be an industry-leading number when it comes to the amount of Apple business and strategy analysis published.
When looking over the topics discussed in this year’s daily updates, a few sub themes become apparent:
Apple and the Pandemic
When the pandemic began during the first half of the year, there was much unknown as to how a company like Apple would be impacted. It eventually became clear that Apple and its peers were positioned to do OK during the pandemic although new ways of thinking would be needed to navigate working from home and travel restrictions.
Big Tech Gaining Power in the Pandemic, Apple's Source of Power, Former Apple Industrial Designer Starts Speaker Company (May 28, 2020)
New iPhone Production Starting Soon, iPhone Production Estimates, Apple’s HW Solution for Pandemic Travel Restrictions (Sep 8, 2020)
Apple’s Place in a Stay-at-Home Economy, E-Commerce Acceleration, Some iPad and Mac Production Moving to Vietnam (Nov 30, 2020)
The Paid Video Streaming Battle
With Disney+ and Apple TV+ launching in late 2019 and HBO Max and Peacock launching this past May and July, respectively, 2020 turned out to be the legitimate start of the paid video streaming battle. As the true new kid on the block, Apple learned quite a bit about being more than just a distributor of other people’s content.
Apple Wins Ireland Tax Battle, Apple Hints at Apple TV+ Subscriber Total, Apple’s In-House Content Studio (Jul 15, 2020)
Thoughts on Early iPhone Sales, Disney Reorganizes, Disney Is Streaming’s New Poster Child (Oct 19, 2020)
A Video Content Distribution War, Roku and Amazon vs. Peacock and HBO Max, Microsoft Attacks the App Store (Jul 21, 2020)
Apple Sales Mix by Display Size, WarnerMedia’s Huge Movie Announcement, Apple and Movies (Dec 7, 2020)
Pushback Against the App Store
Apple is pulling away from the competition, and the App Store is considered the best (and last) chance for competitors to reshape the mobile industry to their liking. A series of legal and PR battles were waged against the App Store by a handful of smaller app developers and larger Apple competitors.
Tech CEOs Testify in Front of Congress, Congress’s Concern Regarding Apple, Apple’s Trouble Area (Jul 30, 2020)
Epic Games Breaks App Store Guidelines, Epic Games’ Epic Hypocrisy, The App Store’s Future (Aug 17, 2020)
The Coalition for App Fairness, A New Guerrilla Warfare Tactic, The Coalition’s Questionable Website (Sep 29, 2020)
The House Antitrust Report on Big Tech, Massive Holes in the Antitrust Report, Apple’s Response (Oct 8, 2020)
When looking at my daily updates published in 2020, selecting a handful of favorites out of 196 updates was not an easy task. The following updates stood out to me (in no particular order):
Apple’s Organizational Structure, Apple’s Leadership Structure, An Autonomous Apple. We first go over my thoughts on Apple’s functional organizational structure and the difference between a functional and multidivisional structure. The discussion then turns to Apple leadership and the ideas of “discretionary leadership” and “experts leading experts.” The update concludes with a revisiting of my Above Avalon article, “Jony Ive, Jeff Williams, and a Larger Apple” and a discussion of how Apple has been able to become a larger design company. (Oct 26, 2020)
Nike Earnings, The Similarity Between Nike and Apple, A Stronger Apple and Nike Partnership. We kick off this update with my thoughts on Nike’s earnings. After going over three structural tailwinds facing Nike, we discuss why I think Nike is pulling away from the competition. The discussion then turns to how Nike is the company most like Apple. The update concludes with a look at how Apple and Nike are both interested in health. We go over the competitive dynamic between the two companies and why it’s premature to conclude that Apple and Nike will become fierce competitors in the future. (Sept 24, 2020)
iPhone Momentum Building in Europe, Apple's Good Timing with iPhone SE, Selling Utility on the Wrist. We begin this update with my thoughts on the iPhone gaining momentum in Europe. The discussion includes new iPhone sales share data and what looks to be some kind of inflection point in the region. We also discuss the possible factors behind the inflection point. The update then turns to how Apple ended up launching the updated iPhone SE at just the right time. We then take a closer look at wearables competition on the wrist. In particular, we go over Fitbit’s latest earnings and compare fitness tracker and smartwatch demand. The discussion concludes with why Amazon Halo faces an uphill battle for wrist real estate. (Sep 3, 2020)
Valuing Big Tech on Free Cash Flow, AAPL vs. Free Cash Flow, AAPL vs. Low Interest Rates. This update begins with my thoughts on the idea that Wall Street has changed the way it is valuing Apple - one away from focusing on P/E ratios (price-to-earnings) and more towards free cash flow valuation. After going over the free cash flow yields for the tech giants, we look specifically at Apple’s declining free cash flow yield and what it tells us about how the market is approaching the company. The update concludes with a discussion of interest rates, inflation, and the U.S. Fed looking to embrace elevated inflation before seeing the need for higher rates. There are various AAPL-related implications associated with that development. (Aug 25, 2020)
Apple Acquires NextVR, Apple Glasses in 2022?, A Wearables Platform for the Face. We begin this update with my thoughts on Apple acquiring NextVR. The discussion includes the reasons why I think Apple acquired NextVR and how the company can play a role in Apple’s product strategy. The update then turns to new rumors about Apple Glasses launch dates. Simply put, the Apple AR / VR rumor mill is getting out of hand. We go over two factors that I think are driving the varied rumors regarding Apple Glasses. The discussion concludes with a different way of thinking about AR / VR and Apple. (May 18, 2020)
Warren Buffett’s Annual Letter, The Power of Apple Retained Earnings, Imploding Demand for Fitbit. We kick off this update by examining Warren Buffett’s annual letter to Berkshire Hathaway shareholders. Berkshire Hathaway is Apple’s largest individual shareholder. Accordingly, there is value in keeping on top of Berkshire and Warren Buffett (Berkshire’s CEO and Chairman of the Board). The discussion then turns to retained earnings and why Apple’s retained earnings are such a powerful tool. We conclude with a look at Fitbit’s awful 4Q19 earnings and why the company represents such a problem for Google. (Feb 24, 2020)
Here are the five most popular daily updates published in 2020 based on page views:
iPhone Sales Share Rises During Pandemic, It’s All About Smartphone Upgrading, A $5,000 Swiss Smartwatch (Jun 3, 2020)
Google Pixel Shakeup, Consumer Spending During the Pandemic, Surface Sales vs. iPad and Mac Sales (May 14, 2020)
Apple vs. Hey (Jun 17, 2020)
The App Store’s Impact on Apple Financials, Facebook Launches Paid Online Events, 4Q20 Microsoft Surface Results (Aug 18, 2020)
Just 11% of the daily updates published in 2020 are highlighted above. The full archive consisting of all 196 daily updates is available here. Membership is required to access the updates.
Daily Podcast (Launched in 2020)
In 2020, Above Avalon Daily Updates became available in audio for the first time via a private podcast called Above Avalon Daily. Reception to the daily podcast continues to exceed my expectations with very positive listener feedback. The podcast has allowed members to consume the daily updates in new and different ways while around the house, on a walk, or in the car. More information on the daily podcast, including a few sample episodes, is found here. Above Avalon Daily was launched in August, and 66 episodes were published in 2020, totaling nearly 17 hours of audio. Once a member signs up for the daily podcast, all prior episodes become available for listening in podcast players that support private podcasts.
Here’s to 2021
Without question, 2020 ended up being the busiest year for Apple since Above Avalon was launched in 2014. There was no shortage of newsworthy stories, and all indicators point to the fast pace continuing into 2021. A big thank you goes out to Above Avalon readers, listeners, and members for making 2020 another successful year for Above Avalon.
Introducing the Above Avalon Daily Podcast
Over the past five years, 2,000-word written daily updates have served as the cornerstone of Above Avalon membership. With more than 1,000 updates published to date (the archive is found here), the emails have become widely read and influential in the world of Apple.
In an effort to make it easier to consume the daily updates in new and different ways, I am excited to announce a new daily podcast called Above Avalon Daily.
Designed as an add-on feature that can be attached to an existing membership, Above Avalon Daily allows written daily updates to be accessible beyond screens. Members now have the ability to consume the daily updates around the house, on a walk, or in the car.
Podcasting
I am a big believer in podcasts as demonstrated with 172 episodes and counting of the Above Avalon podcast produced over the past six years. Not only does the podcast medium offer a different consumption experience compared to written content, but the two supplement each other. Based on feedback over the years, many AboveAvalon.com readers also listen to the Above Avalon podcast and vice versa. My expectation is that this dynamic will now be found with written and audio versions of the Above Avalon daily updates.
Some may want to listen to Above Avalon Daily first and then read the episode’s “transcript” via the corresponding written daily update. This is especially true for various financial topics covered in the updates. Others will want to read the updates first and then listen to the updates at a later time while driving, at the gym, or doing anything that may limit screen access.
Episode Details
Above Avalon Daily episodes closely follow that day’s written update. Episodes revolve around the following topics:
Apple business and strategy analysis.
My perspective and observations on current news and Apple competitors.
My Apple financial estimates.
Full coverage of Apple earnings, product events, and keynotes.
It became clear early on when creating Above Avalon Daily that one cannot simply take the written daily updates and recite or dictate them word for word. There are too many quoted passages, numbers, exhibits, charts, and data points. Accordingly, each episode includes some curation, new transitions, and commentary that help convert written daily updates into an enjoyable audio format.
Two sample episodes are found below:
Each episode is approximately 15 minutes. Earnings and event episodes will run longer. As with the written daily update schedule, there are four new podcast episodes a week, which works out to a little under 200 episodes a year.
New episodes are released after that day’s daily update is published. Since I am based in the Eastern time zone, new episodes are published in the evening time frame. This makes it possible for new episodes to be listened to first thing the following morning in most regions. New episodes will come out in the AM in Asia and Australia as well. Of course, you can listen to new episodes as soon as they are published.
How to Listen
Transistor is handling the behind-the-scenes mechanics of Above Avalon Daily, a private podcast that can be listened to with various podcast players including Apple Podcasts and Overcast (both of which work great with Above Avalon Daily).
Above Avalon Daily relies on private RSS feeds. This makes it possible for new Above Avalon Daily episodes to show up only for members who have purchased the podcast add-on.
The set-up process for listening to Above Avalon Daily is very simple:
Upon purchasing the podcast add-on, you will receive an email (from “Neil Cybart via Transistor”) that directs you to a sign-up page listing various podcast players that can be used to listen to the podcast. Open the page on an iPhone, and you will see various iOS podcast players. Open the page on a Mac, and you will see options for listening to the podcast on a Mac. A screenshot of that page is found below.
After you select your preferred podcast player, previously-published Above Avalon Daily episodes will automatically appear in your podcast feed. There are already three hours worth of daily updates available. New episodes will appear as they are published.
That’s it. There is no need to create a separate login, password, or Transistor profile. In the vast majority of cases, there is no need to even copy or paste a link or RSS feed.
Pricing and Signing Up
The Above Avalon Daily podcast is available as an add-on ($10 per month or $100 per year) that is attached to an Above Avalon membership.
If you are currently an Above Avalon member, fill out this form to get the podcast add-on. To become an Above Avalon member and purchase the podcast add-on at signup, use the following forms:
Payment is hosted and secured by MoonClerk and Stripe. Apple Pay is accepted. You will receive a confirmation email that includes a link allowing you to update your payment information and membership status at any time.
In addition to being the first podcast exclusive for members, Above Avalon Daily marks the start of members being able to customize their membership to better suit their lifestyle and background. To those members who have already become listeners, thank you for your support. To those of you considering Above Avalon Daily, I am confident you will find the podcast a valuable addition to your daily routine.
Above Avalon Podcast Episode 168: The Paid Membership Model
This past week marked the fifth anniversary of Neil launching Above Avalon membership. Above Avalon continues to thrive with a sustainable business model based solely on paid memberships. In episode 168, Neil gives a behind-the-scenes look at Above Avalon’s business model. Additional topics include: Above Avalon’s history, Neil’s “secrets” to success, and his largest challenges found with a paid membership model.
To listen to episode 168, go here.
The complete Above Avalon podcast episode archive is available here.
Above Avalon Membership Turns Five Years Old
Above Avalon membership was launched five years ago this week. I am happy to report Above Avalon continues to thrive with a sustainable business model based solely on paid memberships.
Those who became Above Avalon members on May 13th, 2015 will enter their sixth year of membership tomorrow. A big thank you goes out to these early adopters who have played a pivotal role in financially-supporting Above Avalon from the literal beginning.
Reflection
Above Avalon membership’s fifth anniversary is a good time to reflect on milestones, challenges, and successes.
While membership-supported websites have grown in popularity over the past five years, Above Avalon remains on the forefront of testing just how niche a site can be and still thrive. By focusing on Apple and its ecosystem, Above Avalon is an example of how sustainability can be reached by dedicating all resources to covering one topic (company).
Since Apple doesn’t operate in a vacuum, an “Apple focus” includes analysis of other companies including, but not limited to Alphabet, Facebook, Amazon, Microsoft, Spotify, Netflix, Disney, Fitbit, and Sonos. In addition, industries that Apple competes in receive my attention. This ends up being my secret sauce for covering Apple - start with a company focus and then move outward to cover an entire industry while keeping Apple at the central point. This is the opposite of what is typically done as many start with an industry focus and then analyze specific companies.
It’s never been easier to get a paid membership site off the ground, which means it’s never been harder to find success. Start-ups focused on handling much of the back end needed for paid membership sites have reduced the barriers that traditionally prevented writers, journalists, analysts, podcasters, and videographers from monetizing audiences. This has increased competition as everyone is ultimately fighting for people’s attention. However, outsourcing the back end ends up being the simple part. Based on my experience over the past five years, the technical details of starting a membership site (creating a website / finding a payment and membership system / managing a mass email - all of which I built piece by piece myself instead of relying on a one-stop shop) pales in comparison to the time and effort spent on offering analysis and perspective on a daily basis. Your perspective is ultimately what people will be paying for, and there isn’t any outsourcing of that critical ingredient.
Successes and Challenges
The “secrets” to success with paid membership sites are multifaceted. What has or hasn’t worked for me may or may not apply to others. With that said, here are my keys to success.
Keys to Success
Focus. As most entrepreneurs who have started businesses can attest to, a constant stream of opportunities arise along the way. These opportunities take the form of ideas such as “maybe should I do this" or “that would be an interesting feature." However, saying “yes” too much will result in dilution of both one’s time and effort. Said another way, being able to retain focus by saying “no” more often than “yes” has been one of my primary keys to success. The cornerstone of Above Avalon membership hasn’t changed in five years: four daily updates per week (each having about 2,000 words and covering three stories). To date, approximately 1,000 daily updates have been published.
Sustainability. It’s an interesting phenomenon but success brings on more success in this industry, and it all has to do with consistency. Above Avalon members have come to expect an exclusive daily email in their inboxes, and that is exactly what they get on a daily basis week after week, month after month, and year after year. Of those members who have chosen to step away from membership at some point over the past five years, a good percentage have returned to find that my daily discussion with members via the updates hasn’t missed a beat. Such consistency wouldn’t be possible if I spent years throwing things against the wall and constantly reinventing membership in attempt to find financial sustainability.
Membership quality. Every paid membership site must weigh the relationship between pricing and membership growth. Many news sites that have recently entered the realm of paid subscriptions are pivoting to chasing subscriber growth with drastic promotional offers and unsustainably low monthly pricing. Such a strategy doesn’t have many paths for success. With Above Avalon, I made the decision to focus on long-term, high-quality membership relationships. This has resulted not only in reduced churn (a good thing), but also continued subscriber growth as my priorities have allowed me to remain focused on adding value to membership (versus trying to boost subscriber numbers). The end result is membership that offers more value than its cost with these two variables not being anywhere close to each other.
Strive to be the best. One of the loudest criticisms surrounding paid subscription sites is that people are experiencing subscription fatigue. There is truth found with the statement. However, there ends up being much more going on behind the scenes that is rarely mentioned. There is no such thing as an “average” subscriber or subscription load. The top three subscription sites for one person will likely be different from the top three sites for someone else. To succeed, a paid membership site doesn’t have to earn a spot on everyone’s top three list. Instead, the site has to resonate with only a “few” people. This involves embracing a “be the best” mantra that entails making sure you are at the top of your game in your respective beat. After five years, I am confident in saying that this thinking has played a role in Above Avalon membership success.
There are variety of challenges found with paid membership business models, especially for one-person shops. Here have been my largest challenges:
Challenges
Exposure. While those who work at massive media outlets with teams numbering in the hundreds or even thousands have built-in amplification apparatuses for sites like Twitter (where everyone retweets each other’s articles), Above Avalon has to fight for exposure. At times this can be challenging, especially given my niche focus. I depend primarily on word of mouth for new Above Avalon weekly article readers and podcast listeners. Those two products remain my primary funnels for member acquisition. This is why having Above Avalon readers, listeners, and members (and there may be overlap among those three groups) share articles, podcasts, and daily update links is highly appreciated.
Workload. Simply put, I work a lot, to the point of being embarrassed some days by how long a daily update took to write (up to 12 hours). However, I’m happy to say that every update that I’ve published to date has met my publication standards. A consequence of this reality has been scaling back on the number of articles and podcast episodes that are published as there is only so much time in a day. Instead of rushing ideas out via shorter pieces or rushed podcast episodes, I decided to simply publish and record less often and instead dedicate the vast majority of time to Above Avalon members. My estimate is that 90% of my time in any given month is dedicated to membership with the remaining 10% going to weekly articles and podcasts (which are accessible to everyone).
Hesitation. As many artists can attest to, there is a difference between creating something with the expectation that people may or may not ever see it and creating something knowing that it will be seen. As Above Avalon readership has grown over the years, I’ve struggled at times with hesitation when hashing out certain ideas or theories. A daily update format ends up alleviating some of this hesitation as I end up talking with people who are likely to be more aware of my theories and perspective.
Other Items:
Reading habits. One debate that continues to be waged online is over people’s changing reading habits and the trend of people writing shorter pieces. For example, it has been said that blog posts are replacing books while tweets are replacing blog posts. My honest opinion of this is that it’s hogwash. Having tried my hand at tweet storms for a period, there is no question that shorter snippets of text composed in a style meant to grab one’s attention can lead to more Twitter followers, retweets, and likes. Why else would people publish tweet storms? However, the tweets comprising such storms are forgotten within a few hours and to be frank, lack depth. Meanwhile, I can easily recall certain blog posts and books that I read years ago. That isn’t a coincidence or just a result of blog posts and books being longer. Instead, writing is a powerful art that shouldn’t be manipulated just to chase social media engagement. The trend of shortening blog posts into what is just a series tweets is ultimately a growth hack.
Viability. Is it possible for other “Above Avalons” to exist (one or two-person shops focused on companies other than Apple)? Sure. The more important question comes down to how long it will take someone to find an audience. For example, if someone wants to dedicate his or her career to covering Coca-Cola, there is no question 1,000 to 10,000 people in the world would be interested in paying for top-notch analysis and perspective on the company. However, can someone find those 1,000+ people within a reasonable time period before the groceries and other household bills take over? That’s much less clear. As for covering other popular companies like Amazon and Tesla, my theory is that a company needs to have a defined and storied culture in order for an outside observer to properly analyze the company. Covering Tesla in the Above Avalon style ultimately comes down to analyzing Elon Musk, and that is an entirely different job. Meanwhile, covering Amazon presents its own challenges as the company is all about throwing things against the wall and seeing what sticks. With Apple, there is a decades-long track record of a corporate culture and mission that ultimately makes it possible to analyze the company’s strategy, actions, and future.
Gratitude
In the blog post announcing Above Avalon membership back in 2015, I began with the following:
“Above Avalon will be 100 percent supported by its readers, and I'm very excited about that model. I am confident this will assure that Above Avalon will continue to serve as a vibrant, independent source of unique perspective on Apple for a very long time.”
While I had a good hunch that the model was going to work, I ultimately had no way of knowing for sure. Over the subsequent days, weeks, months, and then years, I passed certain thresholds like the point of first reaching financial sustainability or the time that the first annual memberships came up for renew. Those milestones ended up being validation markers more than anything else - signs that I was on to something.
This fifth-year anniversary feels different in comparison to those previous milestones. Instead of seeking validation, it’s a time for being grateful by taking a moment to think about and recognize those who have helped Above Avalon get to this point.
At the end of every Above Avalon podcast episode, I usually say a variation of “I am proud to say that Above Avalon is fully sustained by its members.” That pride is born out of a gratefulness that there are people out there who allow me to share my perspective on the world.
To all Above Avalon members: Thank you.
Here’s to a great first five years and to many more.
Listen to the corresponding Above Avalon podcast episode for this article here.