Apple CEO Tim Cook had an esoteric explanation for why Apple bought Beats, the headphones and music-streaming company. “These guys are really unique,” Cook told the New York Times. “It’s like finding the precise grain of sand on the beach. They’re rare and very hard to find.”
But here’s the grim financial logic that shows why Cook felt he had to pay $3 billion for the company. Revenue from iTunes is in decline, according to this analysis from Morgan Stanley’s Katy Huberty.
Huberty notes that iTunes revenue is falling as users turn to streaming services such as Pandora and Spotify to meet their music needs. This decline “raises concerns about Apple’s ability to monetize the new base of emerging market customers,” writes Huberty. According to Huberty’s calculations, each iTunes account spent an average of $3.29 in the first quarter of this year, down 24% year-over-year.
This chart shows iTunes revenue falling as a percentage of Apple’s online services unit:
And this one shows iTunes’ revenue per user falling:
Given those headwinds, it appears that music was actually a battle Apple was losing to challengers like Pandora and Spotify. Beats, presumably, is intended to give Apple a new beachhead in subscription music services that run alongside iTunes Radio’s legacy free streaming service. And ! — another factor for Apple — the headphones themselves give Apple a device platform with its own existing distribution network that it can also improve and build out.
Overall usage on social media platforms is exploding. Millions and millions of consumers are expressing likes on Facebook, tweeting about products on Twitter, and pinning on Pinterest every single day.
Retailers and brands are increasingly focusing their attention on social commerce.
But many struggle with the question: how do you convert a “like,” a “tweet,” or “pin” into a sale? Is social media really going to be a source of dollars and foot traffic?
In a recent report from BI Intelligence, we look at successful examples of businesses and business models for generating commerce via social media-based strategies, analyze Pinterest’s success as a social commerce platform, look at Facebook’s potential as a social commerce contender, and we examine the numbers behind the social commerce conversion and order value gap. The report is supplemented by rich datasets on social commerce, and subscribers will also receive full access to BI Intelligence’s full library of hundreds of in-depth reports, charts and datasets — including up to date coverage on social commerce.
Here’s an overview of the converging trends that promise to transform social media into a viable commerce platform:
- The rise of mobile: The rise of mobile, which means shoppers can price-compare and solicit advice from friends wherever they are. Overall, mobile accounts for just under 40% of time spent on social media. Facebook has passed the 50% mobile usage mark and Pinterest is at 48%. Together, they combine for over 56% of social generated e-commerce at the moment, according to social commerce platform, Addshoppers. Given the continued growth of mobile devices, it will only rise. Brands’ desire for guaranteed attention in the medium, coupled with this explosion, helps to explain social media’s move away from traditional display ads – like Facebook’s right-rail ads – and into the realm of social commerce.
- The rise of the visual Web: Sites like Tumblr, Pinterest, Instagram, and Wanelo are becoming repositories for shopping ideas, fashion tips, and wish lists — in essence user-generated catalogs. For example, in a recent survey by Zmags (a mobile catalog company), 63% of online shoppers said they plan to use online catalogs. And 35% said they plan to use Pinterest to make purchases.
- Demographics: Today’s mobile-savvy consumers in their teens and early twenties are accustomed to shopping online and tend to see their smartphones and tablets asan important shopping tool. Pinterest’s average user is between the ages of 30 and 49, which is an age bracket with considerable disposable income. Pinterest users tend to be women (anywhere from 80 to 85% of its user base is female). Marketers know that it is women who usually control the purse strings for household purchases for clothes, home decoration, and gifts — three strong areas for Pinterest. There is increasing evidence that Pinterest is driving shoppers into bricks-and-mortar stores.
- Significant challenges remain: Social commerce — whatever the model — needs to better reflect the fundamental rule of e-commerce, which Amazon has always championed: Consumers will click to buy when it’s relatively effortless. That’s even more true of a casual shopper who ends up on a retailer’s site because of a social recommendation. That intent to buy is fragile and can quickly evaporate. Currently, social commerce strategies involve too many intermediate steps before a user ends up in front of the crucial “buy” button.
The internet has caused massive disruption across the media landscape, causing a surge in job insecurity at traditional establishments.
But now we have a good look at the numbers.
The Bureau of Labor Statistics has put together a presentation on the recent history and direction of media jobs. It’s not pretty.
Across several different industries (radio, TV, newspapers, film, etc.) there’s been a steady downward march in employment.
Total media jobs peaked at the beginning of the decade.
Employment in the book/periodical/music industry has been on a steady downward trend, and in 2011 the bottom completely fell out of the industry.
Sound recording? Same deal.
Facebook had a great Q1 2012, with a 41 percent increase in ad rates (the cost-per thousand impressions that advertisers pay), according to TBG Digital, a major seller and manager of Facebook advertising campaigns.
This bodes well for Facebook’s Q1 earnings, which the soon-to-go-public social network has yet to report.
The only bad news: performance softened somewhat in the U.S., where Facebook’s growth overall is slowing.
TBG’s conclusion was based on a sample of 327 billion ad impressions from 235 Facebook advertising clients. What follows are TBG’s estimates of Facebook’s Q1 ad performance, accompanied by commentary from TBG CEO Simon Mansell and his team.
(If you want the Q4 2011 Facebook numbers for comparison, click here.)
CPM rates are up 41%
“Facebook is earning more from Marketplace ads which could have a positive impact on their imminent IPO. We have seen an increase of 41% in Cost per Thousand impressions (CPM) since Q1 2011, which indicates how much Facebook earns per ad served. Average CPM has increased by 15% from Q4 2011 to Q1 2012 with the US seeing an increase of 11% and the UK seeing an increase of 13% during the same period.”
Cost of advertising up by almost 23%
“Cost per Click (CPC) prices have increased by almost 25% since last quarter with the biggest increase in France (35%) followed by the US (20%). There has been a 34% increase in US CPC costs in the past year. Unbalanced supply and demand could be the reason behind these rises. Growth in new users may be slowing but the social network is becoming more attractive to advertisers.”
Ad engagement decreases in the US
“The US experienced a reduction in average Click Through Rate (CTR) of 8% in this quarter with the top five territories seeing an average decrease of 6%. France saw a drop of 13%. CTR is generally a measure of how engaging users find the ad, affected by the quality of the creative and how appropriate the ad’s targeting. However, this drop comes after Facebook has increased the number of ads on a page, sometimes showing up to seven at a time, which could also be a contributing factor to this change.”
The short answer? Everyone wants in Google’s experimental 1Gbps fiber optic network(s). The company received “1,100 community responses and more than 194,000 responses from individuals” after announcing their plans. And these requests span the entire US.
(Each small dot you see on this map represents the response from local government. Each big dot represents communities with over 1,000 respondents.)
Some may see this map as people hungry for fiber; I just see it as people hungry for Google. How many communities would beg big businesses like Walmart to set up shop, not just in some lot, but in their very infrastructure—especially knowing that whatever service there is will be in beta? [Google]
Here are the US mobile web traffic figures for iPhone OS and Android, getting ready to collide: Android, on its way up; iPhone, on its way down. So when will Android overtake the iPhone? Try next month.
AdMob’s Mobile Metrics Report sees a predictable continuation of what we’d seen before from the ad tracking firm—specifically, that Android is on a serious tear, thanks in no small part to the massive success of the Droid. But before, the iPhone seemed unassailable. Now, it’s about to get trumped by Google’s OS, on terms it defined. In the US, that is. The rest of the world’s still warming to Android.
Modern smartphones are as much browsing devices as they are phones, so while mobile traffic isn’t the best way to measure total sales for a device, it’s a solid way to measure a device’s success, both in terms of how many people are using it, and how it’s getting used. The iPhone is a browsing device. So is the Pre. So are all the Android phones. But Windows Phones? BlackBerrys? Symbian devices? As popular as some of these are, they’re obviously not being used as smartphones.
The other key piece here, and one that’s not obvious from looking at the chart, is total browsing: It’s up. Way up. 193% up, in just one year. So when I talk about the iPhone falling to second place, I’m not declaring a loser—just a platform that’s winning more slowly. (Note: AdMob was recently, and generously, acquired by Google, though their advertising solutions are still cross-platform.) [Ars Technica]
Dr. Augustine Fou is Digital Consigliere to marketing executives, advising them on digital strategy and Unified Marketing(tm). Dr Fou has over 17 years of in-the-trenches, hands-on experience, which enables him to provide objective, in-depth assessments of their current marketing programs and recommendations for improving business impact and ROI using digital insights.
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