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Fine-Tune Your Outbound Sales Formula To Help Save Your Startup

November 4, 2012 |

SteliEfti

Editor’s note: Steli Efti is the Co-Founder/Chief Hustler of ElasticSales and an advisor to several startups and entrepreneurs. Follow Steli on Twitter.

One of the most common questions startups ask me is how to handle B2B outbound sales. They often ask this question in a state of desperation, hoping I respond with the magic formula. Quite frankly, there is no magic formula. An outbound sale is hard work, and it requires an extraordinary amount of effort to get it right.

But why would you even want to do outbound sales for your startup?

The stories all sound the same: When a startup begins selling their product, it’s all about the low-hanging fruit. Inbound, press coverage, the community, and the founder’s personal networks are the majority of a startup’s customer base. Things seem great, because the founders believe that they are on their way to finding a product-market fit and massive traction.

Barring the rare Cinderella story, this is never the case. What happens when the well dries up? What happens when they have to pitch their product to businesses that have never heard of them before? These questions are what cause a startup to cautiously turn to outbound sales.

Every product or service that can be successfully sold via outbound sales has a different scalable and profitable formula to it. The first goal of your outbound sales team is to find that formula. The first questions that need to be asked and tested are: “What mix of research, lead generation, cold emails and cold calls equal satisfying results?” and “Where and how will you get an ongoing stream of quality leads?” It’s impossible to answer these questions without actually trying and testing a lot of things.

Below are four things you need to keep in mind in order to develop a sustainable outbound sales campaign of your own.

1. Compiling Outbound Leads

Keep your lead lists manageable and targeted. Stay away from trying to compile a massive list. Sales reps will have less of an incentive to fully investigate every lead and will waste time trying to cherry pick. Focus on smaller lists with defined attributes, and try selling to them one at a time. This will make it easier for your sales team to learn more about the vertical and how the market reacts to your product. The results from the different lists will allow your team to analyze conversion rates and make decisions on which type of targets to go after more than others.

It’s not often that you will find quality corporate leads with a paid list or database; however, that does not mean they aren’t useful. Look at these lead sources as a starting point. Use a lead generation team if you can to call those leads and confirm what your sales team will be dealing with. Don’t sell them anything; just gather more information. Once you have your “cleaned” lead lists, have the sales team create a custom pitch for each vertical that has a higher probability of directly addressing the client your contacting.

2. The Cold Call

Cold calling is not always a sustainable action for outbound sales. Many times you want to reach out via email first before setting up sales calls. In rare cases, cold calling can be incredibly effective. It all depends on the market that your startup is selling to. Either way, cold calling can be a powerful tool for you to learn about what the marketplace really looks like.

One of the biggest mistakes sales reps make on cold calls is trying to mask the fact that they are cold calling. Think of it as knocking on the door to someone’s house. You don’t just barge through the door and start talking, you ask for permission to come in first. Do the same in cold calls. State your reason for the call and ask permission to continue the conversation. Using phrases like “Did I catch you at a bad time?” or “Do you have a few minutes to talk about this?” will grant you permission to speak and take the next step in the conversation without friction.

3. The Cold Email

The cold email is often times your best bet when it comes to selling a product or service to a startup or technology business. We recommend using the Predictable Revenue approach to cold emails, which is sending an email to a person senior to the actual target you want to sell to, and asking for a referral from this person.

The referral approach has a higher chance of engaging your prospect, because an insider with seniority will be introducing them to your product – not you.

Don’t spam people. Don’t send bulk emails to thousands of business leads. Think quality over quantity.

4. The Answer Is In The Data

The formula for a scalable and profitable outbound sales process can only come from data. Not hunches, assumptions, or guesses. Make sure all of your strategies are tracked and documented. Once you have a good sample of data to evaluate, your goal should be to build a set of expectations for results by the week or month.  You can use a “reverse funnel” approach to building a successful outbound formula by answering these questions in order:

  1. How many deals do you need to close each week/month to be profitable?
  2. To get that many closes, how many new opportunities in the pipeline do you need to generate per week/month?
  3. To get that many opportunities, how many conversations do you need to have per week/month?
  4. To have that many conversations, how many leads do you need to contact per week/month?
  5. To contact that amount of leads, how many leads do you need to generate per week/month?

If the answers to four and five are mind-boggling, your expectations for closed deals are too high (at least in the beginning). Adjust your expectations, and concentrate on improving the conversion rate at each point of the funnel.

It’s important to remember that an outbound sales process needs to be proven before you can even think of scaling (like any other thing in your startup). Throwing more resources at outbound sales won’t solve your problems. Start small, try everything, and then look at the data. Once you have the formula, you then have a set of expectations for your team to execute. If you can find the formula to outbound sales, the growth and scale of your startup can be massive.


TechCrunch

After Hurricane Sandy, NY Startups Have To Find A Place To Get Back To Work

November 3, 2012 |

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Recovering from Hurricane Sandy is no small feat as most of Lower Manhattan is still in the dark without power. I talked with a couple of people working in startups who had to find a place to get back work. But the most difficult part was probably to set aside the devastation and get the businesses back on track. Those companies are fragile and can’t risk a companywide blackout for a week.

At WeWork‘s coworking space right next to the Empire State Building, I met Ryan Charles, CEO and co-founder of mobile product review startup Consmr. His company is located in West SoHo at WeWork Labs. Other coworking spaces offer a desk to work and #SandyCoworking can help you find a company to take you in.

On Monday, the office lost power. The company had to figure out a way to continue working.

“It was important for us to get back next to each other, being able to communicate more freely, even just for sharing stories,” Charles said. “Startup is a type of company in which relationships are important — you don’t have a lot of employees,” he continued.

The first challenge was actually communicating with the team, as half of them lost power. Fortunately, everyone was OK. “We even had a new hire this week who we couldn’t train,” he said. Then, they decided what to do on a day-by-day basis. First, everyone crashed at Charles’ apartment because he didn’t experience any power outages. Two other friends working in other startups even joined them and stayed there overnight. The week wasn’t as productive as a normal week.

“Business isn’t a priority. On the phone with one of our partners, Pepsi who was equally displaced, you don’t want to talk about business. The most important concern is that everyone is safe and doing well,” Charles said.

Opening his home was important for him. “Every day seems to be getting worse as you get a better picture of what happened. How do I get my business back on track when people are suffering, even only several blocks from me?” he said.

Then I met Ben Kempe, VP of engineering at Sonar, a Disrupt runner-up. On Friday, they visited their new office on Madison for the first time. But the building was affected by the power outage. After having only spent two hours in the office, they couldn’t start working there.

“Everyone is well on the team but some don’t have power,” Kempe said. Sonar had a similar story and encountered the same difficulties as Consmr. On Tuesday, they didn’t get significant work done. “Tuesday was basically impossible. We weren’t even able to contact each other,” he said.

On Thursday, they chose to relocate here at WeWork, with people living in Staten Island and Brooklyn on Google Hangouts.

“Hopefully, we’ll get to go back to our office on Madison on Monday,” Kempe said. Dislocated companies spent some time today talking about their respective experiences over the past few days.

Two blocks away from WeWork, power is still down. With no traffic light, cell coverage and stores open, New York has yet to recover from Sandy, and everyone is still thinking about people affected by the hurricane. But there is light not far away.


TechCrunch

In A Bid To Enter The Japanese Market, Kids’ Tablet Maker Fuhu Raises $5M From Telecom KDDI

November 2, 2012 |

nabi tablet

Japanese telecom KDDI just announced the first US deal for its Open Innovation Fund — a $ 5 million investment in Fuhu.

The Los Angeles-headquartered startup offers a number of products and services (when Fuhu raised its Series B from Acer, we described it as an “avatar startup”), but the one that attracted KDDI’s interest is the nabi 2, an Android tablet built specifically for kids.

KDDI Chief Strategy Officer Kazuhiko Masuda told me that there’s a big opportunity in Japan to move kids’ content and educational content into the digital world, and his team decided that the nabi tablet was the best way to make that happen — he was particularly impressed by the kid-friendly interface and Fuhu’s good relationship with various content providers. Masuda said that KDDI’s reach (among other things, the company has 35 million wireless subscribers through its au brand, making it the second largest cellular provider in Japan) should give Fuhu a big push into Japanese market. However, the company isn’t ready to offer any details about the Japanese version of the product, or to provide a launch date.

Since launching the $ 60 million Open Innovation Fund earlier this year, KDDI has already invested in four Japanese startups — Tolot, Giftee, Social Lunch, and JMTY. Masuda said he’s definitely interested in making more US investments, especially since the tech industry is moving at “top speed” here: “The Japanese market is more conservative.”

To that end, KDDI also opened a small office in San Francisco last year to scout out possible partnerships and investments. Yesterday, for example, Twilio announced that KDDI would be its first big international licensing partner.


TechCrunch

Turntable.fm Founder’s New DJZ Dance Music Site And DJZtxt App Will Make Your Eyes And Ears Bleed

November 1, 2012 |

DJZ Site

Electronic dance music (EDM) is all the rage with kids born after 1990 (Generation Z), and Turntable.fm founder Seth Goldstein is brining the scene online. Today he launches DJZ, a news hub website, and DJZtxt, a messaging app that turns emojis into sounds. With $ 1 million in funding from Kleiner Perkins, music industry folk and more, DJZ could capture the youth’s eyes and dollars, or get skipped.

DJZ’s design captures the loud colors and sharp sounds of EDM and the costumed crowds who show up to its festivals. Bright pink, blue, yellow and jet black give DJZ a snazzy feel, though they might make long-term browsing a bit of a headache. You sure won’t forget it, though. That will be critical to DJZ’s success, considering it’s courting such an easily distracted audience.

As for features, DJZ’s home page offers a two-column feed of dance music news topped with quick links to stories about the genre’s biggest artists. The Artists A-Z tab has profiles for all the biggest EDM DJs, complete with biographies, music, tweets, Instagrams, news, and upcoming concerts. And if you want to know where to rave, the Events tab lays out future shows and festivals featuring the dance DJ elite.

The pop-up, Soundcloud-powered DJZ Playe in its Listen tab lets you bounce to mixes anchored around particular artists. Playlists such as “If You Like Skrillex” will give you a combination of favorites from the dubstep superstar and jams by similar artists you don’t know. DJZ could definitely benefit from some exclusive songs and videos to draw in fans. That’s not out of the question, considering along with KPCB, Google Ventures, Index, and True, DJZ’s investors include Lady Gaga’s manager Troy Carter plus MTV and BET owner Shari Redstone.

DJZtxt is just absurd. The iOS messaging app lets you choose from a set of emoji icons that each represent a drum, synthesizer, or other music loop. Choose a few and send them to a friend and they’ll hear the sounds combined into a little song.

I can’t imagine people spending serious time on it, but it’s surprisingly fun, at least from a novelty standpoint. I really dug the page of Internet meme samples that lets you throw Nyan Cat, “Double rainbow all the way”, and Peanut Butter Jelly Time sounds on top of a fat beat. Goldstein tells me premium packs of samples from big artists will go on sale regularly to try to keep the app fresh.

Goldstein’s new website has a lot of potential. It’s laser-focused on the core elements of EDM fandom, and a great way to keep up with your favorite artists while discovering new ones. Traction with teenagers is a fickle thing, though. Goldstein agrees, “you can’t lock them down”. DJZ has planned some clever ways to pull in visitors, though. Along with buying cheap search keywords to bring in what he expects to be high lifetime value users, Goldstein says DJZ is “partnering with festivals and handing out glow sticks in the audience.”

Still, DJZ may need exclusive content and promotion by the DJs themselves to pull in an audience. Goldstein explains, “The big difference between MTV 20 years ago and today is that artists themselves are distribution. If you put together the Facebook and Twitter streams of the the top 30 artists, that’s Comcast, that’s Time Warner Cable, that’s the direct distribution you need. When we get to the point where DJs are promoting their profile pages because what we’re doing with aggregating social feeds may be more compelling than what they’re doing themselves, then I think we have a much more sustainable model.”

It’s early days, but if artists adopt DJZ as their home, it could become as popular as the dance music kids love and people over 50 think is noise.


TechCrunch

Gallows Humor

October 31, 2012 |

Screen Shot 2012-10-30 at 6.52.48 PM

“Palmer was hanged outside Stafford Prison on 14th June 1856, watched by an enormous crowd of some 30,000 people. As he stepped onto the rather rickety gallows he turned to his gaoler and said “Are you sure it’s safe?” — via

Manhattan, a place I’ve always considered a spiritual home and sometimes an actual one, actually turned into a real life version of all those post-apocalyptic movies about Manhattan on Monday evening as Superstorm Sandy hit landfall. We all learned that what the disaster movies miss in their bathos is something elemental to human behavior in these sorts of situations: Gallows humor.

Those of us with access to the Internet watched enthralled as the center of world commerce, New York City, was swallowed by flooding that eventually left 43 people dead and millions of dollars of property damaged. Because of all of the aforementioned disaster movies, the scenes broadcast were eerily familiar. Fake photos of the carnage abounded, trumped only by the more horrific, and real photos of the carnage. And jokes, lots of jokes.

The evolution of the Instagram feed for #Sandy over the past couple of days has been fascinating: What started out on Sunday night as a steady stream of 10 jokey images per second referencing Spongebob Squarepants or Ice Age or Grease or people otherwise laughing in the face of the storm’s imminent danger, slowly turned into a steady stream of ten images per second referencing for real survival strategies (stockpiles of non-perishables and water) as the storm approached.

By the time Sandy hit Manhattan, the feed was ten images per second, late last night, of insane flooding and the facades falling of buildings and cars floating by in water. Interspersed by jokes.

And the same on Facebook and Twitter and Tumblr: The @ElBloombito Twitter account was on a roll this am, as the real El Bloombito gave parts of his recovery speech in Spanish. His sign language translator Lydia Callis became Internet famous, with people building numerous Tumblrs and fan pages in her honor.

Nowhere in “28 Days Later” do you see people Gangnam-styling in the background of news reports of oncoming floods, or a guy running around in a horse head mask defying Mother Nature, Instagraming his costume and alerting the Internet about his plan beforehand. (Horse Head Guy will you marry me?) But that’s what happened in the social media storm and resulting Internet campfire that surrounded Hurricane Sandy: Countless quips about Sandy-themed Halloween costumes and the #Frankenstorm interspersed with sincere entreaties to “Stay safe” or “disaster updates” from friends.

Sure gallows humor is nothing new: People have always made jokes like this when faced with their own mortality, from murderer William Palmer above to the literary playwright Oscar Wilde remarking “Either that wallpaper goes, or I do” on his deathbed. Humans like to feel in control of their fate, even in cases where they are not so at all, and making light of a bad situation or threat at least conceptually takes away some of its power.

Up until now though offline media has hard a hard time spotlighting this behavior because it’s not cheery and mainstream, and not easily advertised against. On the Internet, which revels in niches, gallows humor can take center stage. The Internet amplifies these jokes to the point where people, like this prankster college student or Horse Head Guy, actually try aim for meme status.

This morning, we woke up and the first thing many of us did was think “Is New York going to be okay?” And as we turned to Instagram (and Twitter and Facebook) to find out, the apocalyptic pics of last night turned into pics of rainbows over Redpoint, Brooklyn. Or Governor Christie joking about rescheduling Halloween. And we then knew it was over, at least the worst part.

Image vtjkru


TechCrunch

Reports Claim Forstall And Browett Were Asked To Leave Apple Following Crucial Missteps

October 30, 2012 |

iOS Scott Forstall

The Wall Street Journal has released a report with updated information about why Apple decided to part ways with two senior executives, including former iOS SVP Scott Forstall and former SVP of Retail John Browett. The WSJ says that both executives were in fact asked to leave by Apple, following “missteps and management tensions” in their roles at Apple.

Forstall, according to the report, refused to personally sign his name to a letter of apology for Apple’s Maps in iOS 6, which is likely the same letter the company issued from CEO Tim Cook. Forstall reportedly wanted to take a different approach, without an apology, in the same way that Apple tackled the issue a few years ago with the iPhone 4′s antenna.

As for Browett, the WSJ says that one of the crucial incidents around his departure was that he oversaw the staffing formula that earlier this year which led to early reports that Apple was firing a number of retail employees due to cut hours, action misinterpreted as a sign of retail weakness by some in the media.

Other sources cite similar causes for the departure of the two executives, including Fortune’s Adam Lashinsky, who added that Apple’s slow growth of retail operations in China, as well as issues with initial public reception of Siri and its “beta” label, likely caused a lot of tension. Lashinsky also claims to have heard that Forstall refused to sign the apology letter for maps, something the WSJ later reported as coming from “people familiar with the matter.”

Daring Fireball’s well-connected John Gruber also noted in his analysis of the change that “the whole iOS 6 Maps thing” was a “potential factor” working against Forstall, and added also that his taste in design (the famous skeuomorphic apps are reportedly Forstall’s doing), as well as his management style.

The WSJ report goes into more detail on that score, too, saying that Forstall recently sent iOS software team members an email suggesting the group wasn’t tackling big picture issues lately. He’s also said to have expressed negative sentiment about the change in leadership direction follow Cook’s ascension to the CEO role.

Clearly, both departures were caused by a number of factors, and not any single misstep, but these new late-breaking reports at least add some basis from which to understand one of the most significant shakeups in the history of Apple corporate management.


TechCrunch

Badabing! For iOS Helps You Find All Of Your Facebook Friends’ Bikini Pics

October 29, 2012 |

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Ok, so this app made me feel really dirty when I downloaded it. It’s called Badabing! and it basically goes through your friends’ photos on Facebook to pull out the ones of them at the pool or beach. In other words, we’re talking about scantily clad photos here.

I of course, for the sake of technology journalism, had to download the app and give it a whirl. It actually kind of works and it’s really creepy. To protect the not so innocent, I’m not going to post any actual screenshots of my Facebook friends. They’d kill me. And probably the folks who made this app.

The app is $ 1.99 and all you have to do is log in with your Facebook account and then choose a few friends to dig up some dirt on. The company has some sort of image recognition technology that looks for…skin?

After your search is complete you can bookmark your favorite photos. Now let’s get to the heart of the matter, is this wrong to do? I mean, technically, your friends have uploaded these photos and shared them with you anyway. All this app does is do a search, albeit a search with slightly icky intent.

Moral of the story, don’t upload photos to Facebook and share them with friends unless you want them looking at them. Especially if you’re in a bikini or tight swim trunks.

Creep you out? Cool use of tech? Tell us in the comments.


TechCrunch

Predicta’s Co-Founder On Bridging The Startup Scenes In Brazil And Silicon Valley [TCTV]

October 28, 2012 |

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Sao Paulo, Brazil and the San Francisco Bay Area are many miles apart, both literally in terms of distance, and figuratively in terms of culture. But one tech startup called Predicta is taking on the challenge of bridging the gap.

The Sao Paulo-based company, which makes a technology platform to help brands and small and medium businesses build optimized websites for different visitors, this week opened its first office in San Francisco as a hub to sell its SiteApps platform here in the United States. Predicta, which has 150 staffers in Brazil and expects to ramp up to some $ 60 million in revenue in the next few years (its 2011 sales were reportedly $ 12 million), is one of the buzzier companies in the Sao Paulo tech landscape.

Overall, it seems that we keep hearing more and more about the heating up of Brazil’s startup scene, from Silicon Valley venture capitalists focusing on the space and razor-sharp entrepreneurs emerging from the area. So we asked Predicta’s co-founder and chief innovation officer Philip Klien to stop by TechCrunch TV while he was in town this week to talk about all that’s going on.

Watch the video embedded above to hear about why a startup like Predicta would invest the time and money to planing a flag here in California, how the American entrepreneurial attitude differs from Brazil’s (failure is much more of an option here), what regulatory issues should be tackled to let Brazilian tech really flourish, and more.


TechCrunch

In-Text Commerce Startup Cemmerce Raises Another $500K

October 27, 2012 |

cemmerce logo

Cemmerce, an Israeli startup helping publishers monetize through affiliate linking, has raised $ 500,000 in new funding.

The round comes from digital holding company Navitrio. The firm, which also offers its portfolio companies office space and administrative services, previously invested $ 500,000 in Cemmerce last year. Navitrio co-founder Dror Liwer is also co-founder and CEO at Cemmerce.

Cemmerce pitches itself as a new way for publishers to monetize their content. You just add a few lines of code to your site, or install one of Cemmerce’s plug-ins for WordPress, Blogger, or Tumblr. Then the company will automatically scan the text for product names and add affiliate links allowing visitors to purchase the item on various e-commerce sites. Cemmerce makes an affiliate fee from the purchases, which it splits with the publisher.

There are other companies offering automatic affiliate linking, such as VigLink and Skimlinks. However, Cemmerce isn’t just creating standard affiliate links. Instead, users who mouse over a link open up a “Cemmerce bubble”, which displays the four best prices for the product.

Cemmerce also offers dynamic banner ads, and publishers can add “Buy Now” links to the end of articles, allowing users to purchase the products that they just read about.


TechCrunch

Cars That Fly *And* Float: Explaining Apple’s Q4 And Beyond

October 26, 2012 |

Screen Shot 2012-10-25 at 4.42.26 PM

Apple’s Q4 2012 results were mixed. As usual, reading Twitter, you’d think this was the end of the world. Nevermind that Amazon managed to post a loss on $ 13.8 billion in sales today — Apple only made $ 8.2 billion in profit. “Ahhhh!!!!! What is wrong with Apple?!!!” “This would have never have happened under Steve!”

That’s right, such a profit wouldn’t have happened under Steve. In fact, it never did. Jobs’ best quarter in terms of profit was just over $ 7 billion — and actually, that’s when Tim Cook was interim CEO last year.

But had you read TechCrunch in July, after Apple’s last “miss”, you would have been prepared. As we noted at the time:

Apple missed this past quarter, but the true shock could come if they miss next quarter as well. The guidance Apple gave indicates they’re thinking small (well, for them — it’s all relative, remember) as they prepare for a “fall transition”. Apple may well hit/beat their numbers next quarter, or they may not. Regardless, they’ll likely be fairly depressed again. But that’s only because everything is aligning for a mega Q1 holiday quarter. Again.

That’s exactly what we saw. Apple beat Wall Street revenue estimates, but missed in profit and earnings-per-share. Fairly depressed. Mixed. And yes, it’s largely because Apple has aligned their product might behind Q1. Think about this stat that Cook rattled off during the earnings call today: the products that Apple has released in the past six weeks are expected to make up 80 percent of sales in the coming quarter.

iPhone 5. 4th generation iPad. iPad mini. 13-inch retina MacBook Pro. New iMacs. New iPods. Etc.

The chamber will be out of bullets.

That’s why Apple is projecting revenue of $ 52 billion next quarter. It would be their biggest quarter ever — topping even last year’s monster Q1, which saw revenues hit $ 46 billion and blew Wall Street away. While Apple has missed Wall Street’s numbers here and there, they don’t miss their own. They’re clearly aiming for sales greater than $ 52 billion.

Still, some are disappointed that the next massive quarter will only be $ 6 billion higher than last year. And others can’t understand how Apple could miss on some of the numbers this past quarter. But it’s actually pretty easy to understand if you just stop. Think. And read between the lines.

The most important product in Apple’s arsenal is still by far the iPhone. Apple’s numbers basically live or die by these sales. Some people may have been disappointed that Apple’s numbers were up only slightly sequentially since the iPhone 5 came out last month, but it was actually only one sale for nine days in the quarter before it closed. Still, those nine days probably helped boost revenues just over last quarter. That in turn may have helped Apple get by revenue estimates. The iPhone 5 will fuel Apple’s next quarter past $ 50 billion.

The iPad situation was not nearly as good this past quarter. Apple actually sold fewer iPads sequentially. Cook noted that Apple expected this decline. But why? It is a pretty new product after all.

The first reason is K-12 sales. Those typically happen in the June quarter, not the September quarter. Clearly, they matter a lot to the iPad already. The second reason is that the June quarter was the first full quarter during with the new iPad (the third-generation) was on sale. That clearly boosted the numbers, and they fell back from there. And this may have also been related to the rumors of a new product — which of course ended up being the iPad mini.

Cook didn’t dwell on this factor nearly as much as his did last quarter for depressed iPhone sales (leading up to the iPhone 5), but he still mentioned that he believed it had an impact. Given that Apple just released not only the iPad mini, but the fourth-generation iPad as well, that will not be an issue next quarter, clearly.

Mac sales were good, but they simply don’t matter as much to Apple’s bottom line. It’s iPhone first, iPad second, Mac third.

Meanwhile, the iPod fell below a $ 1 billion business — both software and iTunes are now bigger when it comes to Apple’s revenues. In other words, Apple has lost one of the main “legs” of their table, as Jobs used to describe it.

So yes, Apple’s numbers were depressed this past quarter due to the biggest batch of product refreshes that Apple has ever done — the “fall transition, they’ve spoken about in the past — the seasonality of the iPad, and minimal impact of the iPhone 5.

More interesting is going forward. Again, people are upset about the $ 52 billion in revenue being put out there — which on one hand, is insane, but on the other, the EPS of $ 11.75 is far less than some were hoping for. Why is that?

Three things. Two major. One minor.

First, the minor. Last year, Apple’s Q1 was 14 weeks long. Usually, financial quarters are 13 weeks long, so this was an anomaly, which they noted at the time. This year, the same quarter will have the standard 13 weeks. Apple CFO Peter Oppenheimer made a point of saying this about a half dozen times on the call. Apple wants to make it clear that this extra week of sales do matter and analysts should set expectations (lower) accordingly.

One major reason for concern going forward is Apple’s margins. This past quarter, Apple was able to maintain a higher-than-expected 40 percent gross margin. Next quarter, they’re projecting 36 percent margins. That’s a significant decline.

So why will that drop take place? Two words.

iPad. Mini.

During the call, Oppenheimer noted that the iPad mini had a “gross margin is significantly below corporate average”. In other words, if the average is around 40 percent for Apple the past several quarters, iPad mini is in the 30s. (Or maybe lower though I’d guess not much lower.)

There has been a lot of questions the past few days as to why Apple would sell the iPad mini starting at $ 329 instead of say $ 299 or even $ 249, to get closer to the prices at which competitors are selling their smaller tablets. This is the reason. Apple is already dipping into uncomfortable margin territory for them.

And even at $ 329, Apple clearly expects to sell a lot of iPad minis this holiday season, thus lowering the overall margin.

The other major reason for Apple’s lower guidance is the iPhone 5 supply chain. Cook noted a few times that demand for the device remains huge and Apple cannot yet meet it. While he says conditions are improving, he would not commit to Apple being able to meet demand by the end of Q1. That means less iPhones sold than would otherwise be possible. That means less revenue.

The iPad mini will be the true wild card for Q1. If it does sell really well, Apple’s revenues could shoot through the roof again. But profit won’t raise as quickly due to the margin. This is important to remember.

It’s also interesting to note that the average selling price of the iPad fell significantly last quarter. Oppenheimer explained this is because the $ 399 iPad 2 continues to sell well. I’ve personally wondered why Apple is keeping the iPad 2 on the market with the fourth generation iPad and iPad mini now out there (and the third-generation iPad being removed). Apparently, this is why: it’s selling really well. That also suggests the $ 329 iPad mini is going to sell really well.

People want the iPad, but many seem to want it at the cheaper price points. It’s not like the iPhone which is subsidized down to $ 199 with the carriers paying Apple the full price directly.

Apple clearly also believes the iPad mini will cannibalize some of the larger iPad market. But Cook says they’re fine with that, as long as they’re the ones doing it. Still, the effect that will have on the margin is what will have Wall Street worried. The iPad is already a lower margin product than the iPhone. The iPad mini is lower still.

That’s why some people are disappointed with a $ 36 billion quarter that could lead to a $ 50 billion quarter next quarter. Apple has set a very high bar. And until they get a completely new product out there with a very high margin, they’ll continue to fly closer and closer to the sun. To a lesser extent, they will continue to reduce production costs, thus bolstering margins. But can they do it fast enough?

As for the just-unleashed Microsoft Surface tablet hurting iPad sales, Cook had this to say, “I suppose you could design a car that flies and floats. But I don’t think it would do all of those things very well.”

[image: flickr/creative location]


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