Superhuman, Startups and Privacy, Ethical Product Design

Last week a company called Superhuman made some news when they publicly corrected course on some features of their email solution that raised public concern over privacy.

If you missed the story last week, I would not be surprised. Nor would I be surprised if many of you had not heard of Superhuman before. The company built an email solution, which is only available via invitation currently, that claims to give you email superpowers. A brief blurb on its website highlights the following features:

Superhuman is gorgeous. Blazingly fast. And comes with advanced features that make you feel superhuman. A.I. Triage. Undo Send. Insights from social networks. Follow-up Reminders, Scheduled Messages, and Read Statuses. To name but a few.

When early users on Twitter started talking about Superhuman and their fondness of the product, there were criticisms of the high price for an email being given they charge $30 a month for the service. But, those early customers defended the price given how much they appreciated the time saving and efficiency Superhuman provided them. Most of these early users were Superhuman investors and friends of the investor community. There are two features, in particular, that got the most attention: location tracking and read receipts.

Location tracking gave users of Superhuman the ability to see where the recipients of their email location are at the time of opening the email. In their blog post, they said they addressed the location tracking and immediately disabled it. They said they did not consider how this could be used by bad actors. Which is a point I want to address shortly?

The second was read-receipts, which gave the sender the ability to see not just that you have opened their email but also how many times. Here again, the superhuman has addressed this feature making read-receipts off by default but still allowing a user to turn this feature on if they want. The key point here is the recipient has no way of knowing they are being tracked, or that their read statuses are being sent and no way for them to opt-out of this feature.

There are a number of interesting points to be made here. The primary one, in my mind, is how the product design led to these features that focused much more on the potential customer than the person at the other end of that customer’s experience. Note this statement from Superhuman’s CEO Rahul Vora.

We take the second criticism to heart too. It made sense for read statuses to be on by default when our user base was early adopters. They knew exactly what they were buying and were excited to buy it.

On this point, I thought this tweet from Josh Constantine was apt.

In the blog post highlighting the criticisms and the changes they were making to Superhuman, Rahul defends the read receipts feature by giving examples of several other power user email programs which also enable this feature and have cited use cases like sales follow-ups and customer support. The bigger question here is the moral imperative of the feature, not the other examples which enable it as justification for the feature.

The biggest point here is that the end-user can not opt-out of being tracked and, furthermore, has no idea they are being tracked. While customer service or sales follow up sounds like a valid reason for this feature, I certainly don’t want to get an email from marketers or salespeople saying they know I’ve looked at their email 5 times and are wondering why I haven’t responded.

Ethical Product Design
Given the bright light Apple has shined on privacy, I think it is safe to assume that product design going forward is likely going to have to be thought through form a more ethical standpoint. I make this point in particular for the startup community, as exampled by Superhuman, that the entire end to end experience of consumer privacy needs to be thought through.

This is a new wrinkle and one that I’m not seeing be addressed in many of the consumer startup pitch decks I get to see from my work with angel investors and the broader VC community. The idea of ethical product design may take some time to take root fully, but I have no doubt we are on the cusp of a change in thinking when it comes to overall product design and consumer privacy. Perhaps this is something that needs to start being included in business school and the broader educational system. It is also something that I think many VCs need to grasp when it comes to their investments in both the consumer and the enterprise.

The Power of the Consumer Voice
The last point I want to make is around the power of the consumer’s voice. Interestingly, the social pressure Superhuman felt did not come from mass media coverage criticizing their features but from an outpouring on Twitter of people highlighting how these features are an invasion of their privacy. The power of Twitter to enable the voice of the consumer and pressure a company to make a change was on high-display last week with this situation with Superhuman, how is a little known startup.

If the social outcry on Twitter, for a little known startup, was able to hold them accountable and drive change than just imagine when something like this happens to bigger more well-known companies. Essentially, Twitter has proven to be a powerful enabler of the consumer’s voice and a tool for holding institutions accountable. Despite one’s opinion of Twitter, the ability for a collective outcry to be amplified in one place is a benefit, particularly in a situation like the one with Superhuman and driving positive change.

The Virtual Reality Inflection Point

As the decade comes to an end, we have seen the worlds biggest consumer technology product, the smartphone, pass its peak and face a worldwide decline. It is going to be a long time before we see another market as big as the smartphone market and as we wait a number of interesting technologies are being packaged together to solve current problems that will make future electronics possible. Virtual reality was once seen as a potential short term market opportunity, but after a slow start, we have still yet to see a true market for VR emerge. While there are a few variables required, I do think we could be on the cusp of VRs inflection point.

The market size for VR headsets is still up for debate. However, if we believe, as I do for now, that VR headsets are optimally positioned as a gaming platform primarily, then we can use some basic numbers for console sales of hardware that costs north of $200. Approximately 42 million video game consoles are sold each year and have an installed base north of 300m. Quality VR headsets will cost $199-$399 (like the Oculus Quest) which leads me to believe we are looking at similar market size in annual sales. If the VR headset market is, at a minimum, as large as the console market, then that is a sizable enough market to garner investment and innovation from many technology companies. It’s enough to keep the market interesting let’s put it that way.

But, like many hardware platforms, content is king, and this market will go nowhere if there is not a robust and innovate collection of entertainment experiences available and primarily video game content. With that caveat established, I’ve had several experiences with the Oculus Quest that have led me to more of a believer in VR than I was prior to using the Quest.

First off, with the hardware, the Oculus Quest confirms my conviction that VR headsets needed to be cordless standalone platforms in order to gain any meaningful market traction. This seems obvious, but it becomes even more obvious once you have tried a corded and then a cordless VR solution. The second is the price. We have been waiting for a stand-alone cordless VR headset to hit the market, and the Quest has nailed the price at $399. Lastly, the experience is nearly as good as any high-end VR experience I’ve had with expensive headsets tied to powerful GPUs. Which is impressive given it is running a several-year-old Qualcomm Snapdragon 835. The visuals are rich, with low-latency, and the display is much higher resolution than I expected. I can only imagine how much better this platform will be when it runs a more recent Qualcomm part like the Snapdragon 855.

While there is not as much of a robust library of games, there were two in particular that sold me on where VR can go.

Entirely New Gaming Experiences
At a high level, what I’ve always been watching for was for a developer to take advantage of the unique experience VR can enable and do something truly innovative, and unlike anything, we have experienced before. For me that was a game called Super Hot VR. This game can only exist on a VR platform, and that is what makes it so interesting. The concept is like a first person shooter/action game, but your physical movements dictate your strategy to move through each room. It is essentially a puzzle that involves fighting these red glass figures, and how fast or slow you move your body parts dictates the pace of the action. It is a remarkable experience. This game is a prime example of something you can only experience in VR and was one of the coolest games I’ve played in a long time.

The second is Vader Immortal. This game is the first of a series of episodic content where you are playing a role in the Star Wars universe. While there is not nearly enough lightsaber action, in my opinion, there is a mini-game component called Light Saber Dojo where you get to engage in as much lightsaber action as you like. The first time I picked up the lightsaber and ignited the blade, along with that awesome sound of a lightsaber turning on, I was giggling like a little boy.

This game led me to believe a few other things related to VR adoption. The first is Disney has the potential to blow this platform wide open. Nearly all of their Marvel franchises would make incredible VR games. On top of that, Star Wars experiences alone could drive VR into the mainstream. We are one Jedi game away from VR going mainstream.

If you think that sounds crazy, look at the exposure, as well as strong sales of Lenovo’s Jedi Challenges AR headset. This, mostly toy, was launched at a price of $199 and during the holiday season was nearly impossible to find. Even now, Tiger has a Star Wars Light Saber game that connects to a TV that sells for $129. A fully immersive, interactive, and well-produced Jedi game alone would cause an Oculus Quest at $399 to go gangbusters.

The big takeaway for me was how different quality game experiences on VR were compared to their PC or console counterparts. This the opportunity waiting to be unlocked by game publishers and if they create entirely new game experiences for VR platforms, then we will see this market develop and develop quickly.

Apple’s Intersection of Design and Operations

Over the weekend a hard-hitting piece on Apple and some of the frustrations from Jony Ive was published in the Wall St. Journal. I’m sure many of you have read it by now, but in case you haven’t, I encourage you to read it. This article contains a great deal of ammo for Apple’s favorite critics. From the comments from the peanut gallery, mostly on Twitter, you would be led to believe that Apple won’t design another great product ever again. Everyone seems to be honing in on the most popular criticism about Apple’s management to date, which is that they are increasingly focusing more on operations than product design.

This criticism, while somewhat accurate since Apple has needed world-class operational focus in order to scale to meet the demand for their products, misses the point when distilled to a statement that their only focus is operations.

Design Friction
Talk to anyone who has ever designed a piece of hardware, and you will hear them lament about the trade-offs they had to make so that their wonderful creation could exist. Within hardware design, there are two truths, the hardware is hard, and designing something that can be mass manufactured with traditional tools is even harder. I’ve worked with plenty of hardware startups who bring brilliant creatives into the design process only to have those some creatives frustrated because their design vision could not be manufactured at scale.

Through Apple’s manufacturing history, I had heard stories of Apple’s execs, and even Jony, going to China and collaborating with companies like Foxconn in order to help them troubleshoot some manufacturing processes they were having trouble mass producing related to design textures, or other facets of making Apple products. I’ve similarly heard from manufacturing companies that no other company than Apple brings them more complex design challenges they have to solve to mass produce things Apple creates. There is a fine balance between design and scaling manufacturing, and I can imagine, at times, that process can be frustrating for creative visionaries like Jony Ive.

Fusing Design and Operations
Ive has had to operate in this world for a long time and was fully aware of the challenge. In fact, I’m certain he himself considered this a challenge. It’s hard to argue that when it comes to overall aesthetics, material design, colors, textures, etc., that Apple sets the bar but what gets underappreciated is how unprecedented their scale is with such complex designs. Jony Ive conquered the realm of creating incredible designs that can be mass manufactured, but he again would fully understand the tradeoffs. Having conquered this challenge, I am not surprised he is interested in a new challenge.

The Apple which has emerged, is one that is now blending design and operations in a way no other company is. It’s easy to look from the outside and say they are purely operations, but that does not give enough credit to the process that even Apple’s top management is not also deeply interested in the product parts of the business as well.

Many of Apple’s critics are purely nostalgic. Wanting Apple to go back to the days when some of the designs were more bold, iconic, possibly polarizing, but in that time Apple was selling tens of millions of products not hundreds of millions of products. This is a crucially important point that many in the public sphere miss.

For Apple to continue on their path as one of the biggest companies in the world, and one of the biggest hardware-centric companies in the world, they will need to keep blazing trails down this fusion of operations and design. As I wrote in my article on Friday, some of Apple’s most interesting designs are still ahead of them as the bar to compete with technology we wear will be on a vastly different plane than that of things that sit on our desks or in our pockets and bags. That challenge is now mostly in the hands of the team Jony built and groomed for such a task.

Apple Post Jony Ive

I’m sure by now you have heard or seen the news that Jony Ive is officially leaving Apple. It was the biggest story in tech yesterday and would have been hard to miss. Analysis of this news has been all over the place. To the predictable Apple is doomed, and its design culture is gone, to Jony wasn’t perfect, and it’s time for others to shine. Without analyzing every nuance, there are a few points I wanted to make regarding this news.

Leaving on His Terms. As someone who watches Apple very closely and has for over two decades, it seems to me, this transition was a long time coming. In 2015, Ive had already given more of the day to day design work to other members of his team, and I think the most important point here is that Jony Ive built a team he trusted with carrying the design of Apple’s products. Ive likely had a range of oversight but he has not been driving Apple’s design ambitions for some time now.

Reporters I spoke to yesterday after the news broke asked if I felt much would change and my answer was no. Jony Ive would not have left Apple if there was not a team in place he trusted to carry the essence of Apple design forward. Obviously, as a part of this transition, Ive will still be around and, according to Apple’s statement, Apple will be a primary client of his new design firm.

At a minimum, things will stay the same. However, the upside potential may be even greater with Jony not at the helm.

A Fresh Start
I know this is hard for many to comprehend at the moment but if Apple is to go on for another 100 years or more, their key execs who helped make Apple what is today will not be around forever. I’ve always tried to explain how Apple has a culture, and an ethos, that has to be preserved. If Apple the company was Steve Jobs most important product as many argue, then it is essential that product stays true to itself even in the years when senior leadership transitions the company to new leaders. Ultimately, this is true for Apple, and it was unfortunately prematurely tested with Steve Jobs passing. Jony’s departure and the transition will be the second test for Apple.

My colleague Carolina Milanesi tweeted a point I thought was compelling.

It is interesting to take the view that now is the time for the team Jony built to shine and to do so without having to be in his shadow and can now chart their own path forward.

Jeff Williams is More of a Product Guy Than We Knew
One of the more interesting bits of information that came out in reports following the news of Ive leaving Apple was that Jeff Williams, Apple’s COO, is actually much more involved in product design than we initially knew. We knew the Apple Watch was his baby, but the extent he was “hands on” with the design process of that product was unclear.

This new information is actually quite positive. Many’s worries with Apple was that it was becoming more of an operations company and that its design culture was being lost. If Jeff is truly more of a product guy, but also an exceptional operations guy than this is quite positive in my view as he is best of both worlds.

The promotion of Sabih Khan to Senior Vice President of Operations is also being positioned as a way to let Jeff Williams also focus more on design related to Apple products as well. This part will be one of the more interesting to watch and see how much of a mark Jeff can make as he influences design, perhaps, even more, going forward.

Apple’s Most Challenging Product Designs are Still Ahead
Many of Apple’s products under Jony Ive were icons in their own right. Things that stood out and gave their owners a sense of pride to own and look at. Going forward, as we enter the realm of wearable computers, the design will be even more at the center of the challenge if we want humans to embrace them. And this goes beyond just how things like AirPods, and future ear worn computers, or smart glasses look but also how they feel. The latter being something new to the equation but one Apple has succeeded with when it comes to Watch and AirPods.

Glasses may end up being the real design challenge, and while Jony will still around and having some oversight, new wearable products will be led by the new design organization and will be judged accordingly.

I’m optimistic a new era of design at Apple is possible, and hopefully chart an even more fruitful path forward.

Consumer Influence on Enterprise Software

There is a convergence of consumer-driven user experiences happening within the world of enterprise software. This trend should not be shocking; what should be surprising is how long it took. There are examples all over the place but with Slack having a direct listing IPO last week, and Zoom’s earlier in the year, both these companies are the poster child for this shift in how enterprise software companies must embrace.

The dawn of the consumer era of computing rose with the dawn of the smartphone era. The consumer-centric software and services experiences smartphones drove are the culprit for this influence on enterprise software. Humans expectations changed as the bar was set higher with rapid innovation in software on mobile devices. Thanks to shiny, engaging, and user-friendly smartphone apps, consumers would never look at software the same again. That bar entered the tools they used at work. And their enlightened view on better software experiences helped them see a better way around better user experiences and led to them to be critical and frustrated with the complex tools most enterprises shove down their worker’s throats.

This movement is at the heart of the term many use called digital and workplace transformation. Core among this trend is consumer friendly user experiences for all things humans in the enterprise touch, but chief among them are the software and services they use as a part of their primary job function. I’ve seen multiple investment firm research studies suggesting that user experience focused enterprise software could lead to an incremental $8-15 billion dollars a year in software sales. Whether enterprise IT managers like it or not, user experience sits at the center of all human software interactions and with that comes great benefit to the enterprise.

On this topic, I found a few data points relevant from a recent study from Sales Force.

– 67% of customers say their standard for good experiences are higher than ever
– 51% of customers say most companies fall short of their expectations for great experiences
– 72% of customers say they share good experiences with others

This data validates the high bar that humans now have when it comes to software and services. With 72% saying they share good experiences with others, it makes sense how things like Slack or Zoom were able to grow within an enterprise even without IT approval. Now IT managers, as a part of workplace transformation, are offering teams a menu of software and services options to use when it comes to productivity and collaboration software and CRM software.

The main thing you will hear from IT managers about this trend is they are doing it mostly for retention. The reality is many job markets are hot and a lot of attractive talent, especially younger talent, will simply not tolerate old world workflows and painfully designed enterprise software. It has to be easy to use, and more importantly, it has to fit the workflows of the digital and connected generation. But, if this is done right, it leads to not just higher retention but also a more engaged and more productive workforce.

Box CEO Aaron Levie has been quite active on Twitter in the days post-Slack’s listing. This recent tweet caught my eye, and I thought was worth sharing.

This is an interesting claim but has a great deal of magnitude if true, and I think it is true. His statement highlights how the influence of user experience design and understanding is influencing enterprise software. If the hunger for this was not immediately apparent, look back to the original launch of Apple’s iWork. That moment, for me, was when all of this became clear. Apple is, by nature, one that designs software with user experience at the center of their ambition. And this culture, which is the intersection of liberal arts and technology is how Apple makes great software experiences. At the launch of iWork, we witnessed Apple demonstrate what enterprise software, specifically productivity software, should look and feel like. Apple showed us how easy creating spreadsheets, presentations, and documents should be. I remember seeing that and thinking, this is exactly what Microsoft should have done with Office.

Sadly, iWork never caught the workplace by storm, and now–finally–Microsoft has made great strides in making their software more consumer friendly and easier to use. Microsoft is also at the center of taking this trend even farther by integrating AI into Office and bringing new intelligent helpfulness to aid customers in getting more done in a shorter amount of time, without hassle or complexity.

With iWork, Apple gave a glimpse of a better way forward for enterprise software design and everyone who saw that viewed it as refreshing compared to the tools they used in their day to day workflows at the time. The industry still has a long way to go, but moving forward on this trend line is clearly the direction enterprise software is headed.

Government’s Regulatory and Antitrust Hypocrisy

I’m not sure if I fall into the minority on this viewpoint, but the more I talk to folks around the tech industry about the regulatory concerns the more I’m convinced government regulation, or a break up of big tech, is not the answer. In my mind, there are two things that are low hanging fruit to discuss regarding a modern antitrust environment.

Should the Definition and Circumstances Change?
I think it is clear from recent news, and communications from the DOJ and the FTC that they are attempting to modernize what is understood as antitrust or anticompetitive behavior and no longer is market share a defining element. For those interested I highly recommend reading this article in full which is the speech of Assistant Attorney General Makan Delrahim at the Antitrust New Frontiers Conference.

When listening questions fielded to CEO’s or executives lately on whether they feel they are a monopoly, they have often used their market share as a defense. Small market share is simply no longer a defense in this new era, and instead, the conversation will shift to two areas, competition, and consumer harm.

This is essentially how Makan Delrahim states the purpose of antitrust and the core question in this line of his speech “Therefore, the right question is whether a defined market is competitive. That is the province of the antitrust laws.” Essentially all discussion going forward should be centered around this topic if a market is competitive and if any incumbents are abusing their leverage to keep stifle competition or innovation in some cases.

On this topic of both a re-orienting our understanding of antitrust in the digital era, and competitive market dynamics, I found these following points from Makan’s speech quite interesting:

Finally, the Antitrust Division does not take a myopic view of competition. Many recent calls for antitrust reform, or more radical change, are premised on the incorrect notion that antitrust policy is only concerned with keeping prices low. It is well-settled, however, that competition has price and non-price dimensions.

Price effects alone do not provide a complete picture of market dynamics, especially in digital markets in which the profit-maximizing price is zero. As the journalist, Franklin Foer recently said, “Who can complain about the price that Google is charging you? Or who can complain about Amazon’s prices; they are simply lower than the competition’s.” Harm to innovation is also an important dimension of competition that can have far-reaching effects. Consider, for example, a product that never reaches the market or is withdrawn from the market due to an unlawful acquisition. The antitrust laws should protect the competition that would be lost in that scenario as well.

If you follow executive commentary, you note that price has also been something mentioned as monopoly defense. Apple was quick to point out that 80% of apps on the App Store are free, or Amazon points out that they are generally the most competitive on prices and are working tirelessly to keep prices low. It is abundantly clear price is also no longer a defense against monopoly. This speech makes it clear the issue at hand is not Apple’s pricing per se but that there are only two app stores. While competition is alive and well, arguably, on the App Store, App Store competition itself is not alive and well.

The digital era is one of the conglomerates. There is no way around that truth, and in this era, it seems, antitrust initiatives will focus more on how said tech conglomerates use their leverage to stifle competition. This opens the door, in my opinion, to a more crucial and better competitive analysis to emerge. In particular, for many companies themselves, who I have felt for some time, have worked closely with their legal teams to get as close to the edge of antitrust behavior without crossing it. Many companies may need to rethink some of their long-term strategies in light of a much larger magnifying glass being placed on them going forward.

Correlation, Causation, and Hypocrisy
A few other observations on this matter. In this speech, one of the more interesting viewpoints used was one looking historically at antitrust pursuits and remedies as a matter of causation. For example, Makan says about Microsoft “Although Microsoft was not broken up into smaller companies, the government’s successful monopolization case against Microsoft may very well have paved the way for companies like Google, Yahoo, and Apple to enter with their own desktop and mobile products.”

Note the language “may very well have.” Most of in the industry who have studied it for a long time can say with a high degree of certainty the antitrust suit against Microsoft was absolutely not the reason Google or Apple saw success in their mobile operating systems. The danger of the governments view here is to read too much into past successful antitrust legislation and view it as an anecdote for other successes today. That discounts a vast number of other dynamics that led to other companies successes.

As we build out thinking around how companies have been operating, and more specifically using their leverage, I do think areas of collusion and exclusivity are worthwhile areas for antitrust regulators to take a deeper look at some companies. That being said, I did find it ironic that when it came to collusion, the following example was used:

The Antitrust Division may look askance at coordinated conduct that creates or enhances market power. Consider, for example, the Antitrust Division’s investigation of Yahoo! and Google’s advertising agreement in 2008. The companies entered into an agreement that would have enabled Yahoo! to replace a significant portion of its own internet search advertisements with advertisements sold by Google. The Antitrust Division’s investigation determined that the agreement, if implemented, would have harmed the markets for internet search advertising and internet search syndication where the companies accounted for over 90 percent of each market, respectively. The agreement was abandoned after the Antitrust Division informed the companies that it intended to file a lawsuit to block the implementation of the agreement.

Here again, something that seemed well intentioned may be a factor in hurting Yahoo more than helping since Yahoo has since faded into irrelevance and leaving us in the west with really only one search engine. Yahoo working with Google may have helped them prolong their life long enough to come up with something new or innovate. We will never know. The point remains regulation runs the risk of having the exact opposite of its intentions, and sadly, most of these regulators are not informed enough to play out all scenarios as a part of their decision-making process.

Furthermore, it seems odd the level of hypocrisy antitrust regulators have shown up to this point. Think about things like cable monopolies who had zero innovation, high prices, very little competition in specific regions. Banking is another area, that while it seems like customers have a choice, there has been very little innovation, terrible customer experience, high fees, and a range of things that government regulations have enabled which makes the barrier of entry often too high for many startups.

As I said at the beginning, sometimes regulation is helpful, but more often than not, especially in the digital era, I think it can be argued it has done more harm than good.

That being said, I’m glad the government will start taking a look at certain issues, however, I worry they are ill-equipped to do so in many areas, and my fear is too much overstepping in a way that ends up hurting competition, consumers, and innovation in unintended ways.

The Video Surveillance Debate

It seems an interesting conversation is going to have to start taking place in many democracies. Machine learning has reached a place where it is ready to be deployed for facial recognition, threat assessment, and machine intelligence based surveillance. Some of our readers who live, or travel to China frequently, know this technology is already mass deployed in nearly all major cities where video cameras are prevalent. For those of you who are not terribly familiar with some of the implementations of how China is using this, a quick story.

A friend of mine travels to China often to recruit students for the academy where he is the head of school. On a recent trip, he and his local associates went to buy train tickets the day before he had to travel inland. When he returned the next day to board the train, he was denied entrance because his ticket was for the day prior (the day he purchased them) not for the day he intended to travel. Trying to sort out the mistake, he went to the ticketing camera and explained the ticket he purchased was supposed to be for today and not yesterday as the operator claimed. The sales associate behind the counter asked him to wait a moment and went into a back room. He came out moments later and showed my friend video of him and his translator purchasing the tickets, with caption translation, and confirmed the error in the translator who did, in fact, say to buy the tickets for the prior day travel, not the day he intended. He was telling me this story and was astonished at the speed in which the sales associate found the video of him purchasing the tickets and brought back just that snippet of video to confirm the error was not the sales associates fault.

There is no doubt the sales associate was able to use the current video of my friend to search for the video the day before to get the recorded account of his transaction in order to sort out what actually happened. As you can imagine, this sort of thing will make a lot of Westerners very uneasy. But we should have a more open conversation about the benefits of having more intelligent surveillance and what sort of regulation needs to be implemented in order for the West to use this technology safely and to the benefit of its citizens.

Progress is Always a Trade-Off
Transitions from the old to the new are never terribly easy at a societal level. There is always a demographic who prefers the old way to the new ways, and either does not see the trade-offs or, most likely, doesn’t feel the trade-offs are worth it. This is all ok and normal, and we have a great deal of human history to rely on to understand these lessons.

What makes the video surveillance and machine intelligence layer interesting is at a fundamental level, when we go into public spaces, we are already being surveilled and have been for some time. Nearly all major public spaces have had surveillance cameras for years as a matter of store safety, insurance in case of robbery or theft, theft prevention, and a range of other reasons. What’s new in this equation are systems that can identify individual people and track them accordingly. This is likely where most of the debate and regulation is likely to focus.

If you were to ask any normal citizen, they would probably be OK with surveillance intelligence that was able to do threat detection, threat prevention, and a host of other things that apply to public safety. Where people will likely get more uneasy is when they can be individually identified. Here again, there are trade-offs and benefits, and this is likely where some regulation will have to set in.

At CodeCon Amazon’s AWS CEO Andy Jassy made mention of Amazon’s sale of their facial recognition technology solutions (Recognition) to the US Government and defended their position. However, he also went on to explain why regulation is needed, and he is in support of said regulation around facial recognition technology for video surveillance. Jassy’s position is one of understanding why there are concerns but does not feel there are not benefits to such technology, and he does not feel we should immediately ban or condemn new technology.

I tend to agree with Andy in that there are great benefits, especially around public safety and accountability, that will be found valuable to countries citizens. That being said, one could argue that while government regulation is needed or necessary, that any technology in this category should be run by a private company instead of any government or state. I say this primarily on the point I made about accountability and how this technology can and would hold not just public citizens accountable but also government and state agencies. My hunch is that a private organization that is protected from government or state influence is the better organization to manage and ensure the protection of citizens when it comes to this kind of technology.

Another idea is to develop a consortium of private companies that could include companies like Amazon, Apple, and Microsoft, (maybe Google but I know how people feel about them) and this consortium would be responsible for responsibly deploying this technology and protect the interest of the public.

I bring this up because it is now we have to start having these conversations and start developing a plan before it gets out of hand or too hard to reign back in control from the wrong hands.

Amazon’s Inspiration

For the past few days, I’ve been attending a conference called ReMars. One can say it is organized by Amazon, but what makes this conference different from the many I attend every year is that it is not all about Amazon. Jeff Bezos and his team have been organizing a conference called MARS for years now. It’s helpful to know what MARS stands for, which is Machine Learning, Automation, Robotics, and Space. These are essentially the core categories you can expect to learn something about by attending MARS. MARS has been for Amazon a source of inspiration and a hope to inspire others by having guests, who are generally acclaimed as the top scientists, academics, or entrepreneurs in their fields, to share ideas and some of the ground breaking work they are doing. MARS has always been only open to a very select group of people, but this year, Amazon did a very Amazony thing and scaled the conference.

While it was still invite only, the group expanded to several hundred but still had a goal of being intimate, communal, and bringing the best and brightest minds together to share ideas, challenges, and inspire one another. As I said, what made this event so different is how it was organized by Amazon but not about Amazon. The themes were still focused on Machine Learning, Automation, Robotics, and Space, and the best analogy I can make is ReMars is somewhat like TED but focused just on the MARS themes.

Even though this conference is not about Amazon, the same way that other company events I attend are all about their products and their announcements, Amazon did fit in their own learnings about Machine Learning, Automation, and Robotics and gave key executives some air time to share what they learned and what excites them about the problems they are setting out to solve. And yes a few announcements snuck in like Alexa getting a much more conversational interface and the official reveal of the Prime Air Drone and a go to market for Prime Air delivery to customers. in a few months. The rest of the talks taught us about how machine learning is being used in biochemistry to help solve health problems in bioscience. We learned about how far robotics has come and what major breakthroughs have led Boston Robotics to have drones that can walk and jump and run and scale objects very much like a human. We also learned the behavioral science around humans interacting with robots and the ways humans treat robots tell us very much about our humanity at its core.

I’ve appreciated the thought provoking sessions and wanted to share a few highlight takeaways.

  • Humans and Robots living and working together. Until you experience how many robots Amazon has built and has running in their warehouses, you can’t appreciate what Amazon executives call a symphony of humans and robots working together. On the show floor, and at the conference, Amazon displayed the many robots they have designed and built to help them automate their warehouse work as much as possible. We heard a story about a factory in Japan where human workers show up to work and do some stretching and body warm up exercises and the robots they work with are programmed to do the same exercises. This has a single goal in mind, which is to help the workers feel more at peace and connected to their robot working companions. Since much of this particular collaboration between humans and robots is in warehouses and not in public, we don’t see this dynamic, but we are rapidly approaching this idea of humans and robots in an active community. So the question came up as to how we humans should think about these robots? Are they peers and colleagues, or essentially on the same level of humans or something else? MIT Researcher Kate Darling offered a profound observation and way we could think about robots. Through the years, she explained, humans have lived communally with animals in a working relationship as well as a companion relationship. So perhaps it is best if we perceive robots in a similar way we perceive animals. Fascinating, and worth a good think.
  • AI May Really Help Solve Some of the World’s Greatest Problems. Yes, we hear this line, and it feels cliche at this point, but many of the worlds top minds in the field of AI truly believe this. We heard examples of how machines trained on computer vision to detect tumors were doing better jobs of predicting anomalies and specific treatments than expert physicians. Or how these machines could predict with greater accuracy the severity of an injury. We learned how the cost of manufacturing a new drug for an illness has gone from $100m to over $2.5 due to many more failures in the trial and error process to end up with a winning compound. AI seems well positioned to run simulations of these compounds and help bioscientists narrow the field of potential compounds and then test to see their effect. I’ve believed AI will be one of the, if not the most, transformational technology many of us will ever witness in our lifetime, and I believe it even more now.
  • One Observation about Amazon. Yes, this was not a conference about Amazon, but there is an interesting Amazon observation to be made. In the keynotes, Amazon employees gave us we heard about Amazon’s robotics strategy and what they learned, solving challenges in automation with robotics. We learned about how Amazon’s AI models are helping to make shopping on Amazon, or using Amazon services more relevant and personal and provide a better customer experience. We learned about how Amazon created their Just Walk Out retail technology showcased at Amazon Go stores and more. And what hit me, was that while Amazon wasn’t here to pitch AWS to the world, Amazon, as a company is the first best customer of AWS. With this viewpoint, Amazon has then built AWS on the back of the learnings of a company as good as scaling technology as anyone and across many industry disciplines. These learnings, and the solutions their learnings led to invent, put them in a position to then offer these solutions to hard problems as a part of AWS to other customers. AWS was built out of Amazon needing a solution to solve their problems and then became a platform to help other people solve theirs. Now those tools included in AWS include deep expertise in machine learning, computer vision, automation, and more. I’ve long felt competing with Amazon in key areas like retail and commerce will be very difficult, and I believe that even more now.

At ReMARS, Amazon hopes that invitees are inspired by the work being done by the speakers at the sessions but also that it inspires them as well to keep charging forward and inventing the future.

Apple WWDC: The Privacy Foundation, and Moving Software Platforms Forward

As I attended Apple’s is main developer event yesterday, a picked up on something related to privacy I had not thought about before. Yes, there were great announcements like Sign on With Apple, or hidden email proxies, or the ability to limit further app background location tracking as examples. More interestingly, Apple is building a privacy firewall not just around its devices but truly building firewalls around their customers.

But what struck me that I had not thought of before was how the last few years of Apple making privacy a central theme has been about building their credibility as a whole by laying a foundation of privacy-centric technologies. Each year, more and more solutions from Apple with a focus on privacy emerged, and I firmly believe the goal was credibility.

Now, you may say, Apple’s customers already trust and believe Apple is credible. It is true that a segment of their customer base would already feel Apple credible and trust them with their privacy, but then there are many more consumers who may be more indifferent, or just didn’t think about their privacy that much. For those humans, Apple wants to make sure they are seen and known as a trusted entity on privacy-focused platforms, software, and services. You may not think Apple was in a position to still have to earn the trust of their customers, but there is likely a larger group than one thinks of people for whom earning that trust is still necessary.

The last few years Apple spent a lot of time and energy doing things to earn the trust of their customers and be seen as a company who is on a mission to protect their privacy not just from Apple but from others as well. Where things get interesting is what, then, Apple can do once that foundation is laid, and people know they can trust Apple with their privacy. Enter the new Find My App.

It went largely under the radar, but Apple’s Find My app is fascinating in execution. If you are not family, Find My is a service that goes one step further than Find my iPhone. Apple went out to solve the problem of locating your Apple device when it is turned off. What they came up with is Find My, and when you understand how it works, you then understand it could have only been made by a company with a credibility foundation of trust around privacy.

When you need to find an offline device, you can use the Find My app, and it will have the offline device act as a Bluetooth beacon, and any other Apple device in the area will return back the location of your offline product. So, basically, you left your Mac or iPad at the office, and it is offline, for whatever reason, it will send out a secure Bluetooth signal and any other Apple devices in the area (even if they belong to someone else) will send a signal back to you with the location of your device. The surrounding iOS devices, and their owners, never know they are assisting you in finding your device.

What’s crazy about this is that some random strangers Apple device is going to help you find your device if need be. If this wasn’t coming from Apple, it would seem awfully creepy. In fact, had Apple not built a foundation of privacy credibility, I don’t think they could have released this feature. It’s only because Apple’s customers now believe Apple is not going to track or steal their location and use it for malicious reasons in this solution that people will be Ok with letting the service use their nearby Apple product to help you find yours. This is the crux of the matter. Only because Apple has credibility in the area of privacy can a feature like Find My become possible.

Looking forward, the question then becomes, now that Apple has this foundation of credibility around privacy what other new features or services can they release that would otherwise be creepy or intrusive if they were coming from any other company? I expect Apple has many more clever solutions up their sleeve that had we not believed them credible as protectors of our privacy would not have been possible.

Moving the Software Platforms Forward
Tim Cook at a quote as he was closing the keynote where we said we have moved each of our software platforms forward. At a thousand foot view, I think this is the takeaway that matters.

People will be tempted to look at all of Apple’s software announcements and feel they are simply iterative. But iteration is progress, and iteration moves things forward. Many years of iteration can look like brand new things over time. Apple released a wide range of features that, if I can add a word to Tim Cook’s statement, meaningfully move their software platforms forward.

While iOS and macOS had what I would consider many meaningful new features, I think iPad got the most meaningful update of them all and its worth a few minutes to point out why.

Year after year, Apple has been addressing the main issues with iPad that stood in the way of many iPad owners to comfortably move more of their workflows from their Mac to iPad. I am one of those people who would love to use the iPad for as many as my workflows as possible but could not go to the iPad full time. With the newest features coming to iPad, and now its true platform name in iPadOS, Apple has eliminated many more of the reasons people cite for not being able to move from their Mac or PC to iPad.

One of the main ones being desktop-class browsing. Especially in many corporate workflows, web-based software is extremely common. A great many web-based services used by corporations, or small business, etc., don’t use apps but instead use browser-based software solutions. Even though iPad could request a desktop website, it still was not the same Safari browser as on the Mac and many web-apps either did not work or just did not work properly.

In my own workflows, both WordPress itself (which I prefer the browser to the app because it is more functional), and the web-based solution I use to send out the subscriber email, does not run well on iPad Safari. We at Creative Strategies, use a service called Infogram as our data visualization solution. Infogram does not function on iPad Safari. I have a number of examples, and I’m sure others have many more, but the bottom line was iPad Safari was not a desktop-class browser. With iPadOS, iPad gets a true desktop-class browser and its one of those things that seem small but is a big deal.

Multitasking took a huge step forward as well. Running the same two apps side by side is something I know iPad Pro users have been requesting forever, especially being able to run two-word docs or two excel files side by side. The increased touch-based text editing is something I’m excited to try as well. My hope is that Apple keeps investing in making touch mightier than the mouse. Meaning, make a natural interface like touch and our finger a more efficient way to manage and edit text than a mouse ever was. I think Apple is getting close, but I’d like to decide for myself by trying it out.

While there is still more to analyze with regard to WWDC, I believe this event was one of the most meaningful in totality for all of Apple’s platforms.

Reading the WWDC Tea Leaves

With Apple’s main developer event coming Monday, I wanted to share some thoughts on why I think this year will be significant for Apple and developers.

There is a point about Apple’s hardware and software platforms that I think gets overlooked. There is no single company with as significant market share in many personal computing categories as Apple. You will not find a single company who has meaningful market share in PCs, smartphones, tablets, and wearables other than Apple. Other companies have meaningful market share in or two, but none have as much device reach as Apple across different categories.

This is relevant because developers play a key role in the secret sauce of Apple’s success. Apps make platforms more compelling, and app innovation is important to keep platforms from going stale. This is where my point of Apple’s hardware reach across categories becomes relevant. Apple has always talked about their different platforms. Mac is its own platform, Watch is its own platform, iPad is its own platform, and iPhone is its own platform. What has intrigued me about Marzipan, and the development tools that will accompany it is how it has the potential for Apple to create THE platform.

Marzipan’s progress will be the thing I’m watching most to see how far it has come and what apps Apple uses as examples along with what tools are highlighted for developers. The current apps Apple has on macOS like Stocks and News have become some of my most used daily apps on macOS. This gives me hope that as developers can move their iOS apps to Mac that it will ignite a new fire of software development for the Mac platform.

The reality, however, is that other than the iPhone, unique app development at scale has not happened for Apple’s platforms. You can argue there is a critical mass of iPad apps that are designed for iPad, and that is true to a degree, but nothing is like the scale of iOS. Similarly, there is very little third-party app push or innovation on Apple Watch. Despite a rather sizable installed base for Watch. Every time we survey and talk to Watch owners, it becomes clear there is not a lot of interest in third-party apps yet, and most people only use Apple’s first-party apps. I still believe Apple Watch remains an exciting platform for developers, but we have not even scratched the surface there.

Marzipan, and the tools Apple gives to developers to unify the platform have the potential to bring more developers (easily) to some of these underserved other Apple hardware like macOS and Watch but it will also help iPad and possibly even AppleTV. While it is important to note macOS has not been totally void of software development the reality is macOS development is still a niche for third parties, and if Apple can get thousands of new developers and apps to macOS it will be a significant boon for the platform.

Marzipan and the unification of the platform has the potential, for the first time, for us to see a company truly create one unified platform across hardware categories. Given the reach of Apple’s hardware I mentioned, this is one of those only Apple situations Tim Cook likes to mention. I’m optimistic.

Can Siri Move Forward?
While Marzipan and its progress seem a given, the area that is a big question for me is Siri and at large Apple’s broader machine learning efforts across their categories of hardware and software. With Apple’s hire of Google’s AI chief John Giannandrea, I hope we see some progress and improvement as it relates to Siri as a platform and how Apple’s devices and the platform is getting smarter and more personal overall for customers.

I’ve long said Apple has architected machine learning into its core iOS so that iOS adapts to its owner and becomes even more personal as an experience over time. Google does this as well, and as far as both platforms are concerned, the device starting to become more helpful and more personal is the battle we are watching play out. Google is marketing its Pixel phones as a more helpful smartphone, and Apple has an opportunity to make progress in this area and create an even deeper value for its customers.

Here again, I think Apple device reach across categories is relevant. Google cannot claim significant market share in PCs (yet), tablets, or wearables but only in smartphones. Which means Google can market a more helpful smartphone but not necessarily a more helpful platform. This is where I think Apple has the most potential to be unique and create more compelling experiences for their users.

While Siri may never be better than Google Assistant, Google Assistant may never have the reach of Siri or Apple’s platforms across devices. So while Google can market the more helpful phone, Apple has the potential to market the more helpful platform.

Again, for Apple, the inflection point from the past 10 years to the next 10 years could be the unification of the platform. If they can execute on this, they remain well positioned for the future.

The Coming Era of Technology Foreign Policy

I find it interesting that two of the biggest themes happening in the tech world in 2019, which will carry well beyond 2019, have to do with government involvement and politics. The themes I’m referencing are trade and regulation. I’ve talked about regulation and will continue to cover that through the year, but I want to go deeper on the trade issue and how I see a broader technology schism emerging.

In my article on the China-US 5G space race, I alluded to the potential of two very different Internet ecosystems in the West and East. Having spoken with more technology executives and investors since that article, I think what is happening is more a broad technology schism that goes beyond the Internet.

The US and China trade war is accelerating China’s efforts for complete verticalization and thus control of their technology future. This, however, at least for the moment, is a strategy that largely works in China. There has been some interesting debate around the potential for a third operating system, and one Huawei will need to make, that is a fork of Android, that could succeed in many parts of the developing world as a billion or more humans still get their first computer (a.k.a smartphone).

China First
China has always been a unique technology ecosystem with the exception of Apple. Most US companies, especially software companies, don’t have much a chance to compete in China, and that trend seems likely to continue. An underlying trend to watch is the degree that China doubles down on all things China made and uses that as a new base to grow their expertise and then expand globally. I found this chart in a financial report I read, which highlights a few core buckets China is focusing on homegrown technology.

As China’s economic stimulus extends deeper into all areas of technology, with a focus on verticalization, it seems likely it will become even more difficult for foreign companies to compete in China. This potential for China to essentially pull off complete vertical technological implementation would be the first time we see this business strategy applied to a nation and its proprietary tech at scale. China can use 5G, its network infrastructure, its proprietary software, and custom China built silicon, to truly wall off the rest of the world.

Beyond China
Carrying this scenario out logically, China will then want to continue taking this technology to other parts of the world. This is where the effort of Huawei to take an Android fork globally will be interesting to watch. There are markets where this product will be dead on arrival, and most of Europe and India are key ones. But the African continent is a wide open field, and one Huawei has had its eye on both from network infrastructure and smartphones.

Developing countries in Africa, and perhaps some of the surrounding countries in East Asia, are the only ones I can see an Android fork potentially working. What I think is interesting is the potential is for an integrated solution of aa China created 5G network technology, China Android Fork, and China smartphone hardware as a strategy for global expansion. This brings up some interesting questions globally when we consider technology creating becoming more easily accessible and countries national security.

The Technological Game of RISK
The last point I want to make here and consider this more food for thought, is what happens if more countries catch onto China’s trend of full stack technological verticalization. For example, India is among one of the fastest growing technology markets. Will India want a full stack Chinese solution to start to take a share of their local market? Or will India want to start to verticalize on their own? There is a global game of RISK happening around technology, and some forward-thinking politicians and policymakers need to understand how the decisions being made today will impact their future.

The bigger question countries have to start considering seriously is their technology policy as it relates to national security. At the moment, we have no real evidence, only insinuation, that Huawei is a national security risk. However, whether they are or not, does not discount the concern they could, at some point, become more a risk. Does India want China solutions so profoundly integrated into their countries technological ecosystem that at some point, it’s too late from a national security standpoint?

While I’m just brainstorming out loud, you have to wonder the implications of countries starting to invest more in their own vertical solutions and how that creates more walls and not less from a technology standpoint. Foreign countries cannot just build military bases at will in other countries backyards, and as technology can be seen as potential for cyberwar, you have to wonder if more governments will form stronger foreign policy when it comes to IP and core technology entering their country.

Again, I’m just talking out loud, but I think the tech industry needs to start thinking long and hard about all the potential scenarios, both good and bad, that may come from the US-China trade war.

Judge Koh Rules Against Qualcomm, Huawei Loses Arm License

Yesterday, Judge Koh ruled in favor of the FTC in their anti-trust lawsuit against Qualcomm. I’m sure many people saw the news, but didn’t unpack it to a large degree and consider the implications. While I will not consider this an in-depth legal analysis, I think a few important observations are worth making.

Before diving in, it’s important to remember that the goal of the court system is to not work on bias, or even factor in outside information. Any case, and its result, comes directly from testimony presented and facts exposed in the court room. Thus, it is important to remember that Judge Koh is making a ruling on what she observed and learned from what happened in the court room alone. I say this because we as outsiders will leverage our bias in forming an opinion which is something we have the luxury to do. That being said, if we look beyond bias and look more at some of the worrying precedents that are now set via this official ruling it opens up the door to some interesting discussions and implications.

Dangerous Precedents
I’ve spoken with a number of readers on this matter who disagree, so may it be known I’m comfortable with disagreement :), but I still believe this whole case was based around several dangerous arguments. The first was the narrow definition and limited time frame which was the focus of the argument for Qualcomm acting anti-competitively. The FTC disregarded a basic understanding of monopoly power via market share and instead narrowed the focus of their argument to only the premium modem segment. To reiterate this point, the entire case against Qualcomm behaving in a monopoly manner was that their monopoly behavior happened only in an area that is less than 20% of the global smartphone market. The FTC did not state Qualcomm behaved anti-competitively in the entire smartphone modem market, only the less than 20%. Now, we can’t discount how valuable that market is, however, the FTC used Apple as the star example as a victim and Apple has ~80% of that premium smartphone segment, along with the highest ASPs of any competitor. So you do have to appreciate the irony.

If anti-trust behavior can now be argued by a narrow definition of a segment of the market, then it opens the door for lawsuits to every part of the technology industry. A company with less than 20% market share, who acts uncompetitively can now be sued or indicated as a monopolist. I understand there are additional circumstances to consider, but I remain convicted that a dangerous precedent is set now that a narrow definition of monopoly has been established. Apple should be the most worried, since by this new definition they have a monopoly on the premium smartphone market.

The other precedent that was set in this case, which again should worry Apple, was the FTC did not at any time present any actual economic evidence of harm to competition or to consumers. I found this fascinating. The burden of proof was on the FTC to prove harm to competition and consumers and they never once provided such evidence. Instead, they used the argument presented by their star expert witness Carl Shapiro, whose economic theory of anti-trust posits that anti-competitive behavior can be established on the POSSIBILITY of harm. Thus not needed any actual evidence of harm and one only needs to present a compelling case the possibility of harm exists. There are wide ranging implications to this, that are worth a healthy debate, but I have a hunch if this sticks it is going to create significant headaches for tech companies in the future.

I’m still going through the more than 200 pages of Judge Koh’s decision and reasonings and will present more analysis on this matter once I’ve reviewed everything. Lastly on this topic, it does not appear Judge Koh’s decision will impact the settlement and agreement between Qualcomm and Apple since both companies entered into that agreement knowing the FTC case was still outstanding and took risks accordingly in negotiations.

Huawei Loses Arm License
I don’t want to go too deep in the weeds here but there are a few interesting things that came out of this recent blow to Huawei where Arm is complying with there US order to not provide technology to Huawei. I first incorrectly tweeted that Arm was acting on their own initiative in stating they will no longer provide IP to Huawei. My reasoning was that Arm is not a US a company and therefore was under no obligation to comply with the US order. However, it was clarified to me by Arm that because Arm IP is developed here in the US, they were then subject to the US order. What makes this even more interesting is there are a lot of international companies who do create IP in the US and thus opens up a much wider net of companies who are not going to be able to provide IP to Huawei, or even greater China in this ban.

Overall between Google, Intel, Microsoft, and now Arm, it looks really bad for Huawei amidst this trade dispute. But on the Arm front it is important to understand Arm licensees have access to IP 2-3 years in advance of any official Arm launch. Meaning Huawei still has access to the latest Arm IP and a host of IP Arm hasn’t even announced yet. What they will be cut off from is any new IP from Arm from this point in time. This is relevant because it likely won’t impact Huawei/HiSilicon’s roadmap for the next year or so but if this trade dispute does not get resolved soon it will impact their longer-term roadmap.

Something to consider, and I’ll likely dive into deeper at some point, is what is happening now is a broader technology ban on China from the West, since it seems like European and even Japanese companies may be taking similar stances against Huawei. This is absolutely a war and instead of cutting off food via sanctions we are cutting off technology. The implications here are significant. Briefly, China may have underestimated how much they, and their technological ecosystem rely on Western technologies. Surely, they have considered this as they have been working to create their own homegrown ecosystem of technology but they have made little progress on that especially when it comes to scaling their proprietary solutions like silicon specifically. This trade war will likely accelerate these efforts but this is a clear inflection point for China and a moment of truth if they can overcome the many challenges they have had with homegrown proprietary core components and software.

Second, and this one could be a big one, China controls the worlds majority of rare earth material used in many technology products and smartphones specifically. How much? Note this statistic according to the US Geological Survey: China is by far the largest producer of these elements globally, accounting for 71% of global production and 37% of global reserves. While it would be quite difficult to just limit and cut off the US from this supply without hurting Chinese companies and other global non-US customers, it is important to note that if they resort to desperate measures they can significantly hurt the rest of the world due to their control of rare earth materials.

What a time to be alive!

The Evolution of the PC

The PC form factor is not dead. It has proven quite resilient. Research study, after research study we have done at Creative Strategies has continually demonstrated the PC is the device the majority of the market comes back to for many of their primary workflows. This is not to say work can’t be done on a smartphone or a tablet, but that the PC is still the central hub of work for the masses. This resiliency of the PC form factor is leading to a number of new innovations and evolutions as consumers look for new hardware that fits their central workflows.

There have not been many considerable leaps in PC innovation in the past ten years. The PC industry has tried to make the PC more tablet-like, but the next frontier will be making the PC more like the smartphone. Interestingly, from some recent research we did, we asked consumers which smartphone features they would like on their PC/Mac.

I highlighted things like instant-on, all-day battery life, face authentication, and connectivity for a few specific reasons. Not only where these answer choices, the top ones consumers would like to see on their PC and Mac, but they speak to different needs and wants of the consumer. Face authentication, for example, speaks to the increased security desires consumers want to see on their PC that is now becoming common on all modern smartphones. Instant-on has been a function of our smartphones for years while most consumers still need to wait seconds, sometimes minutes, for their PC to boot up and be ready to use. A smartphone, generally, gets all-day battery life while most consumers experience less than 10-12 hours of battery life on their PCs.

Connectivity was the feature I was a bit surprised ranked as high as it did in our research. While I have personally been quite bullish on having a continuous connection to the Internet in the PC form factor, there has felt like moderate demand so far. Talk to anyone with an always connected iPad, and they will sing the praises of the convenience of never having to worry about an Internet connection. Having used a connected iPad for as long as they have existed, I continually found how my workflows would change when I’m mobile, and I’d choose to do a work task on iPad instead of my phone simply because I knew I had a connection. This was something we were curious to test in our study, so we asked consumers if they had a choice between their PC/Mac and smartphone to do certain tasks which one they would choose.

In an era where we debate how many jobs the smartphone takes from the PC, the reality is the PC is still better at many core work-related tasks. You see this show up in our research where, when given a choice, things like email, working on documents, and even watching videos are all everyday tasks consumers prefer to do on PCs. Again, all of these are possible on smartphones, but the PC is the right tool for the job.

PC Evolution
The evolution of the PC is happening because it is the right tool for many jobs. This is why one of the most interesting parts of the PC industry happening is the rich segmentation we see developing. There is no one size fits all PC form factor design but rather a wide range of notebook and desktop designs to fit the needs of changing market demands. This is a reason I’m glad Intel is seeing competition from Qualcomm and the Arm architecture is finally becoming relevant to PC designs that focus on highly mobile consumers.

We have written and analyzed Qualcomm’s Always-On, Always connected PCs quite a bit here on Tech.pinions, but with two years of product designs under their belts, each generation has seen improvements. Continual evolution in the PC sector demands competition with the underlying PC architectures that power them. Intel’s X86 architecture has dominated the PC industry, but Intel has always struggled at bringing extremely low-power products to market. Low-power, better battery life, instant-on, etc., are the staple features of smartphones powered by Arm and the Arm architecture is well positioned to bring these features to new notebook designs over the coming years.

Many of our writers here at Tech.pinions have had a chance to work with products from Lenovo and HP running Arm/Qualcomm solutions, and we have all been impressed with the incredible battery life they offer. This gives me hope, and consumers will see more of the value of devices that have true all-day battery life, are always connected, and have zero wait time to start being productive.

With Computex around the corner, expect to see many new designs of PCs that challenge the conventional wisdom of how a PC looks and functions. PC hardware makers are working to bring new innovations to market to fit the need of a dynamic and quickly changing PC category. The big trend you will see is how many of these new PC designs are starting to include many features that have been the standard in smartphones.

Evolution and Innovation in the PC category requires a new architectural approach with regard to processors. Intel knows this, and Arm and their partners like Qualcomm know this and healthy competition beyond X86 is good for the industry and consumers.

If you would like to see the full report/white paper we co-published with Arm, here is the direct link to the data and my commentary on the results of the research.

Trends from Display Week: The Future of Rollable, Foldable, and Flexible Displays

Last week I went to one of the bigger display conferences which were held in San Jose. The last few years myself, or people from our team, have attended Display Week, and quite often we see all the relevant display trends well ahead of their time before entering the market. We have been seeing the evolution of foldable and flexible displays for many years now, but this year flexible, foldable, and rollable display technology had more booth and overall floor space than any year prior. Our future of rollable, foldable, and flexible displays is finally getting very close.

The Challenges Which Still Remain
While many challenges still exist to bring quality and reliable foldable screen to market the display ecosystem is moving very quickly. It was best articulated with an executive I met at one of the larger Chinese display companies who said there are 3-4 big challenges for foldables and we are only part way through solving the first problem. Since I’m sure many of you do not have to dig through the weeds on this as I do, I’ll briefly summarize the key challenges that lie ahead.

Note, I’m specifically talking about foldable displays that we will see in smartphones, tablets, and PCs. Just putting a flexible display in a car, or retail or any object where durability is not as much of a concern is already much closer to reality than something that folds, and we put in our pocket or case.

Challenge #1 is display thinness. The thinner the display, the easier it can fold in any direction. This appears to be one of the foremost challenges display companies are working on as a part of their manufacturing process. The thinness of the display is the most important variable for flexibility but not one most manufacturing processes have been focused on.

Below was one of the thinner AMOLED flexible displays I saw at the show from BOE. It was 5mm thick and could fold in and out.

Challenge #2 is Durability. Durability is the challenge that most often gets referenced. How to protect the screen of a device that goes in pockets, bags, and can get roughed up is a significant challenge. One only has to look so far at people’s smartphones and see how many consumers live with a cracked smartphone screen to know how big of an issue this is.

While a durable plastic screen cover has been talked about and implemented to date, most experts I talked to believe we need a glass solution. We know Corning is working on flexible glass called Willow, but they did not have any on display at their booth. I did meet with Schott, another company working to solve this problem, which showed a .75mm flexible cover glass.

Glass and plastic will both get stronger as they are bonded to the screen but having the absolute smallest flexible protective shield with a bend radius that can stand hundreds of thousands of bends is still the goal. Similarly, mass manufacturing such glass is not yet feasible, but it is an increased focus.

Challenge #3 relates to the hinge. If the other two problems were not extremely tricky for engineers, introducing a hinge to a display adds many new concerns. Movement introduces variables that relate to not just durability but also allow for dirt, dust, and all sorts of objects from our environment to cause problems to the hinge and display. The hinge is a point of vulnerability for the display and creates areas where dirt or dust can enter the screen and ruin the display.

It was interesting to see how many companies showed up at Display Week to show off their hinge design solutions, testing equipment, and other technologies that are focused on solving the problem of just the hinge for foldable devices. While I still feel this is one challenge that is still years away from being solved, it was good to see the manufacturing ecosystem investing in solving this problem. The sheer number of companies working on this solution alone was one of the bigger differences in the show this year compared to others.

Key Timing Takeaways. While the above challenges are not the only challenges they are a few of the biggest ones the display ecosystem is working on. The big question is when can we realistically expect a solution to come to market that is durable, mass manufacturable, and affordable. From what I’ve seen, we are still at least 2-3 years away from a viable product that can survive in the hands of consumers and likely 4-5 years away from that being affordable.

There will be attempts to accelerate this timeline, but I’m not confident, as of now, that these solutions will stand the market’s abuse and thus run the risk of hurting future adoption. This is a technology where it is going to be better to come to market with a design that we can be confident in rather than just be first. That being said, there is nothing wrong with showing off these innovations and showing the vision and progress of foldable designs. It is the matter of when the product is ready to put in the hands of a mass of consumers that will be the ultimate timing question.

Overall I’m optimistic the mass consumer market will find value in a foldable device. There is work to be done on the software and apps, but we know many consumers will gravitate the largest screen they can possibly fit in their pocket, purse, or bag. This is an evolution of the smartphone design cycle that could potentially ignite life back into smartphones at some point in time. The other thing to think about is how some early augmented reality glasses solutions may align with the timing of foldables smartphones. The more I think about this, the more I think an interesting computing solution could be a foldable paired with an augmented reality headset.

I make that last point bearing in mind the consumer market can only handle so much change at any given time. But if these products were sold as a complete solution, I think we could see some simultaneous adoption.

The US-China Trade War Hits Huawei

I got a number of emails asking my take on this over the weekend from readers so I thought it would be good to share a few specific thoughts on the news that broke about Google revoking Huawei’s Android license. If you missed the news, the fallout is due to Huawei being blacklisted by the current Trump administration, and as a part of that blacklist, all US-based technology providers are pulling back from offing components or technology to Huawei.

While the ban on Huawei was much more focused about their infrastructure business, meaning the business that sells networking gear to telecom, and was less about their smartphones but this move will impact their smartphone business unless a resolution is brought in the next few months. Beyond Google, now Intel, Broadcom, Xilinx, Qualcomm, basically all US-based component companies, are cutting off supply to Huawei.

The political game being played makes sense when you also understand Huawei as a source of Chinese national pride. Chinese tech companies have tried and failed for years to have a local company grow, and be seen as an innovator outside of China. Huawei is the first one who has truly grown a global footprint and be seen as innovative and competitive from a global standpoint. The US ban on Huawei and the implications for US companies to stop providing technology to Huawei is certainly designed to cripple China’s tech jewel.

What’s the Immediate Impact to Huawei?
Google clarified that current Huawei devices in the hands of consumers will still be supported with Android. Google revoking Huawei’s Android license applies to future smartphones. That being said, the sheer news that Google is not providing Huawei the official Android platform and Google services will immediately impact sales of current devices (outside of China) as it will create some uncertainty in the mind of consumers. The typical Huawei customer in parts of Europe where their share is strong is a much more value conscious customer and the uncertainty around Android support could make buying a Huawei device a bit risky to an average consumer. Especially when there is ample competition in the value segment in all global markets.

Huawei will not be impacted in China because Google’s official version of Android does not exist in China as the OEMs there use their own custom Android implementations. Huawei has the know how to take the version of the open source of Android and customize it to their needs as their own OS, but that is only a viable option in China. To compete in markets outside of China, Huawei absolutely needs Google’s official Android version, the Play Store, and Google’s services. Not having this is a huge hit to their global competitiveness, and I have no doubt this will impact Huawei’s smartphone sales in all markets other than China until this is resolved.

Impact to US Companies
In some areas of Huawei’s businesses, they were fairly large purchasers of US-based components. While they make a number of their own silicon for smartphones and their networking business, the still purchase components from Intel and Qualcomm in some cases. While these are not huge volumes, they will still impact these companies to a degree. Should this move by the US impact their networking business in other parts of the world, then companies like Broadcom and others who supply components for Huawei’s networking business could get hit harder than US companies who provide components to them for smartphones and PCs.

It’s worth emphasizing, here again, the political chess match that is at play here, as well as the real concern with Huawei being the telecom infrastructure business, not the smartphone or PC business. This is important to understand because the US is not imposing such sanctions on other Chinese companies who compete here. While OnePlus is not viewed as Chinese, they are owned by BBK who also ones Vivo and Oppo and is a Chinese based company. TCL is growing thanks to their TV business success and HiSense, another TV company, is no getting picked up by US retailers. The US move is not yet, a sanction on all Chinese companies competing in the US but is targeting Huawei specifically because they are China’s crown jewel.

That being said, if things escalate with China a worry is that the US adds all Chinese tech companies to the ban list and that would dramatically hurt a number of US companies just due to the sheer volume that China hardware is for many US-based component companies. While this still feels like a stretch, it is a worry if we make no strides negotiating with China and this trade war continues to escalate.

The other question is, what is the risk to Apple. Many have speculated it is just a matter of time before China’s retaliation hits Apple. While Apple is the only target for China if they wanted to really hit a US company hard, I continually struggle with China actually coming down hard on Apple because of how much revenue to China Apple brings. China’s communist party only has the economy in their favor. Maintaining a healthy economy is essential for the communist party and given in some of the key cities in China, Apple manufacturing is a big chunk of that regions GDP, China would not just be hurting Apple but also their own economy if they came down hard on Apple.

But, it is worth keeping in the back of our mind that Apple is the only target option China has if they wanted to inflict pain on a US tech company. Let’s hope it does not come to this, or for the US to place a ban on all companies from China who compete in the US. I worry this is a more delicate situation than many realize, and based on what we can tell from the Trump administration, they are not going to back down.

Until this is resolved, expect this to be a regular area of our analysis given how much we chat with the Chinese and Taiwanese supply chain as well as the US tech giants who are worrying about the different scenarios that can play out.

The China vs. US 5G Space Race

5G is rolling out. Early tests from Qualcomm and Samsung, and even some demo’s I saw at Google I/O suggest greater than 1gb per second speeds are likely. I understand the naysayers will point out those are controlled tests and on-base stations that are not clogged like the ones we have today. I also know the naysayers look at the promise of LTE and see how network congestion impacted the promise of LTE. Basically, I understand there is skepticism, and that skepticism is warranted. I do, however, thing 5G is fundamentally different from a technology standpoint, and because of that, it is interesting to watch the geopolitical battle happening between China and the US around 5G.

The 5G Space Race
Again, understanding the skepticism, the reality is 5G is a different promise. Nearly everyone I respect with technical chops that go way beyond my own is extremely bullish on 5G, and the consensus is this new network infrastructure will create a new Internet. What that means is with higher speeds, nearly sub 10ms latency, and vastly superior capacity and load tolerance, software developers will not be burdened by the network constraints of the past and thus will be able to develop experiences not possible in the LTE/4G era.

What stands out to me looking at what is going on in China with apps and the Internet is how different it is than what is happening in the US. The Chinese Internet already feels more advanced than the US internet in many ways. And yes, I’m intentionally looking at them as two different Internets. There was a time when the thesis was that US consumers, particularly younger ones, would start to desire solutions that are similar to China. We don’t have to look far to see some of that theory still be attempted at TikTok is focused on the US but is a solution with many Chinese counterparts.

I’ve long argued the opposite of this thesis is likely, and now it is becoming clear we are likely to have two very different Internets. The Chinese internet and the western Internet.

It seems like China understands this, and the potential for 5G as well. Chinese consumers already have standardized on mobile commerce, mobile payments, consume 4x more mobile video than western consumers, play massively multiplayer games wirelessly, create 3x more digital media posted to social media and blogs, and a host of other things western consumers still don’t do. And this is all on LTE. 5G feels like something that can enable China a whole new platform for their Internet. Ask any Westerner who travels there often, and they will all tell you how much more advanced the Internet is in China than the US. The Chinese government views 5G as an opportunity to pull further ahead of the US when it comes to Internet technology.

5G is the hope for the west to catch up, but I worry governments will get in the way instead of being a supported catalyst. Luckily, companies like Qualcomm, Google, and Apple, and Samsung to a degree, have a stake in seeing the US be competitive against China here and bring technologies, devices, and software platforms that will serve as a catalyst. But with the broad theme of regulation and the government’s slow-moving nature with regards to spectrum, I worry the US 5G ecosystem will move quite a bit slower than China’s.

The Aligning of Hardware Trends for 5G Innovation
One thing to contemplate as well as how the hardware trends may align with 5G innovation to enable new software and services experiences. For example, a foldable device seems like a technology that will greatly benefit from the potential of 5G. All data we have and have seen confirm that the bigger the screen, the more consumers create and consume rich media. Which makes for an interesting hardware discussion since you can make the case that the country with the largest installed base of large screen connected devices is the one where more software/services innovation will happen more quickly. For the record, I include the category of the connected car in this as well.

Next week, I will write up and share my takeaways from the Display Week, where I saw a clear path to larger displays in smartphones, notebooks/tablets, the home, and the connected car.

The 5G space race starts with infrastructure, that is where are right now, is then followed by the business model, and then followed by devices. The next 18 months we will see infrastructure get built out and hopefully carriers will reasonably price 5g experiences, so consumers are not priced out of the 5G world. As that happens, we will see more 5G devices as a large percentage of devices sold in 2021 and 2022. Along that time frame, we should see foldable smartphones and PC tablets start to come to market as they will have likely solved some of the major technical challenges that exist with them right now.

While I agree this is a marathon of a race, not a sprint, it is one that neither country can afford to fall too far behind on and the biggest companies in tech will rely on 5G as a catalyst for growth.

Apple’s App Store Antitrust Challenge

Yesterday the Supreme Court ruled that iPhone owners can pursue lawsuits with Apple over antitrust behavior regarding the App Store. This case will be closely watched but ultimately may force Apple to make some changes to the App Store developers have been hoping for.

Before digging deeper into this specific issue, I had written last month about concerns I had that US companies were in danger of FTC lawsuits, or other in the case, around antitrust. We live in an era of tech conglomerates, and that is not going to change anytime soon. While it is true, the biggest companies today have most of the power, that does not always mean they are monopolies employing anti-competitive behavior. That being said, one of the biggest themes in tech over the next few years will be regulation of the tech conglomerates, and we can imagine they will take many shots from agencies and governments.

The App Store Value
As I wrote earlier in the year, Apple charging a fee for helping developers build apps, find customers, and make money is not an idea anyone would disagree with. The question is how much is the marketplace worth. Apple is making the case that 30% is fair, with subscriptions going to 15% after the first year. Apple offers a lot in this scenario from security, privacy, management, payment and refund processing, marketing, and many other benefits. Deep within this debate is the question I have asked before, what is the value of a marketplace?

Some developers in my Twitter stream were commenting that sideloading apps may be a workaround for Apple. I strongly doubt this is a reasonable solution and I think this brief Twitter thread from Benedict Evans is apt.

The points Benedict make seem to be echoed in some of Apple’s formal response to the Supreme Court decision:

“Today’s decision means plaintiffs can proceed with their case in District Court. We’re confident we will prevail when the facts are presented and that the App Store is not a monopoly by any metric.

We’re proud to have created the safest, most secure and trusted platform for customers and a great business opportunity for all developers around the world. Developers set the price they want to charge for their app and Apple has no role in that.  The vast majority of apps on the App Store are free, and Apple gets nothing from them. The only instance where Apple shares in revenue is if the developer chooses to sell digital services through the App Store.   

Developers have a number of platforms to choose from to deliver their software — from other apps stores to Smart TVs to gaming consoles —   and we work hard every day to make our store the best, safest and most competitive in the world.”

Note the keywords as value statements from Apple. I added bold to safest, most secure, and trusted platform to emphasize what is very difficult to do in what is often a Wild Wild West of app stores, or the idea of sideloading apps. There is superior user experience, and guarantees of safety when this marketplace is controlled and curated. It is the reason the App Store is so successful in the first place.

If sideloading apps isn’t the answer, and it isn’t, what other possible alternatives could exist if things should not go Apple’s way with the lawsuit. Noted Apple blogger and app developer Marco Arment had a quick take worth considering.

The idea that sticks out to me is alternative payments that don’t go through Apple’s system. There are positives to this argument, but it is worth exploring why a move like this would not make sense for many independent developers.

This argument is not that different from the one Amazon has made, or Netflix as they take their transactions outside of the Apple ecosystem. Some companies are big enough, and already have the infrastructure to handle commerce on their own. For those companies, the idea of a 30% fee is a hard pill to swallow. Especially, when they are already big to establish brands. Other developers of different sizes have tried similar approaches where you download their app but to purchase their service you go to the developer’s website, make the payment, then enter a code on the app to unlock the services.

What is interesting in this scenario is a statement that goes back to one Apple made regarding trust. In the above scenario when I mentioned how Amazon and Netflix handle these transactions outside the App Store, it is easier for consumers to go this route with these brands. Generally, these companies are already known and trusted entities. Consumers are likely to have that built-in trust. But for other smaller companies or developers, how can consumers trust is the weather app they are interested in wants them to go make a transaction at the developer’s website that the developer isn’t going to sell their information? It’s a risk that Apple is mitigating by maintaining a trusted transaction between the consumer and the app developer.

In a response to Marco Arment, a good question was raised about how can Apple compete against a developer offering a lower price option inside the App Store. His point was Apple would have to compete on the merit of services added value to keep the transaction on their system.

His point, to a degree, may still only limit Apple’s value to transaction and merchant but perhaps Apple can do more still to make their additional value more clear to developers. I do think developers often take the App Store for granted, but they are the reason Apple is uniquely positioned in the market and for future platforms, so I believe it is important for them to keep developers happy and more importantly motivated to keep innovating on Apple’s platforms.

We will have to see how this plays out, but even if Apple wins this legal battle, I think it is worth an honest strategic review of what they are offering as an added value to developers and looking for ways they may need to be more strict as well as more flexible.

Google I/O – Google and Helpfulness, A Privacy Stance, and Low Cost Pixels

Before diving in, I think it is important to echo something I wrote about last year after Microsoft Build, Google IO, and Apple WWDC. The theme of this years developer events remains unchanged from last year. Everything is about incremental improvements, and there is nothing wrong with good technology getting better. One thing I highlighted last year again remains critically true. Consumers will value these improvements more than they will value brand new innovations. Nothing made that more clear than when one of the most applauded and tweeted about features announced at Google IO was that you could simply turn off Google’s assistant’s alarm just by saying stop. It sounds simple, but people prize efficiency and enjoy technology becoming more frictionless through incremental progress.

A More Helpful Google
There were a few “drink” phrases at Google IO yesterday. One was on device machine learning, which we will talk about shortly, but the other was helpful. I haven’t gone back through and counted but the word help, or helpful, was used many times during the keynote deliberately. It was embedded into a key positioning statement about Google itself from CEO Sundar Pichai when he stated: “Google is evolving from a company helping you find things to a company that helps you get things done.” Which is interesting in the light of platform battles because this also seems to be the focus of Apple and Microsoft as they continue to eliminate friction in the “getting things done” department for consumers. This overall theme and shift in focus for Google echo again a statement I made earlier that consumers prize efficiency. They want technology to get out of the way and make it easier for them to get the task at hand done quicker and easier so they can get back to more interesting things in their life.

Sundar Pichai went on to showcase a number of technologies that he put under the blanket of this phrase “we are focused on building a more helpful Google for everyone.” Going beyond just the software and services being helpful, Google’s hardware announcements were also positioned under the blanket of helpfulness.

Senior Vice President of Google’s hardware division Rick Osterloh talked about Google’s Nest hardware and smart assistant going beyond the smart home and focusing on making a more helpful home. He didn’t go so far as to say that our current smartphones are not helpful, but he insinuated smartphone based on Google technology are more helpful than others thanks to Google Assistant.

The broad theme here is how Google is tying search, Google lens, and a host of other backend services together into Google Assistant to make their assistant the best and more useful solution out there. And from the demo, Google Assistant seems to be the clear leader well ahead of Amazon Alexa and Apple’s Siri.

The most impressive part of Google’s new Assistant demo was how much of the experience they were able to move on device which brings speed and efficiency, and privacy which we will get to in a moment, and makes the Assistant experience that much better. Google’s ability to shrink all this technology from 100gb demands to .5gb of data so it can be enabled not just on premium devices but on lower-cost smartphones as well. Hopefully, you have seen the demo by now, but the speed and accuracy and reliability of Google Assistant is far ahead of all other assistants. Their learnings and efforts with cloud machine learning is what enabled the breakthroughs that allowed them to shrink the device demands and bring a fully on-device Assistant experience.

Google is laser-focused, with helpfulness as a central driving mission and it seems that underlying theme is coming out nicely with Google Assistant as a front-end.

Google’s Privacy Stance
If it wasn’t blatantly clear, the word of the year is privacy. Microsoft waved the privacy banner at BUILD, Facebook awkwardly attempted it at their F8 conference, Google is weaving the privacy narrative into their posture, and obviously, Apple will hit it hard at WWDC. The privacy posture being taken is important but should also be understood in context. Each company is taking an approach that still suits their needs or business model. In the case of Apple and Microsoft, they are more protective of your data than anyone, and in the case of Google they will go as far as needed, but they still need more data to keep the machine learning engine fed. Facebook’s approach is just laughable, and I remain a full skeptic of Facebook at large.

There are a few takeaways from Google’s privacy posture and the solutions they are implementing worth understanding. The first is why are they doing it. This goes beyond a response to Apple’s very public posture on privacy. There may be some of that at play, and there may also be some reasoning because it is the right thing to do. But ultimately, these changes are about putting policies in place that protect them from any government regulation. If you look at what is being implemented, it is not that different than what the European GDPR demands which is to put the user in control of how much data they give or do not give to any company.

Google is essentially pre-empting any regulation efforts by building GDPR like solutions into their services. Hence their clear explanation of how easy they are making it manage your privacy. Go anonymous or incognito with certain apps or services, automatically delete data, and more. These are all great and important features, but in reality, most consumers will not go down this hole to make themselves invisible to Google. But, the fact that they have the ability is all Google needs for indemnification.

Another takeaway I had, was Google’s attempt to reframe the privacy debate. Where Apple is saying we don’t know who you are and collect the minimum amount of data anonymously to make our products and services better, Google is saying we collect data, but we keep that data secure and private, so no third parties ever see it. The result is a slew of services from translation, to maps, to search, etc., that consumers clearly value. While there may not be an either/or the reality is for Google, I’m convinced their services are valuable enough to consumers they are willing to make the tradeoff of the information exchange as long as Google never breaks their trust with a data breach to third parties.

Low Cost Pixels
Lastly, I want to briefly touch on the Pixel 3A and Google’s aggressive pricing with Pixel phones now in the $399-499 range. This move brings up all sorts of questions about the mid-range priced smartphone market. Years back I built a smartphone model and predicted the shrinking of the mid-range price segment and that prediction proved true. We have low-cost and premium smartphones in the US, and there is not much action in the mid-range. That being said, I’ve had many conversations with carriers who continue to express interest in this category. I’m sure some of that feedback went to Google which helped influence this decision to go after the mid-range smartphone price band.

The strategy they are enabling, which is to bring premium features at mid-range prices is one that works well for many brands in many parts of the world. It just has not worked in the US. The US market seems to gravitate upward to price bands above $700 for a growing portion of the market. The rest of the market buys phones less than $300. The real question is whether or not there is much growth room for the mid-range priced Pixel 3A for consumers who buy lower cost phones to spend up, or for premium customers spending $700 or more to move down.

I strongly doubt many premium smartphone buyers will go downward, especially given the Pixel 3A does lack some specs that may not be worth the trade-off. But I do think there is an opportunity to move consumers who typically bought the lower price bands up to the price bands the Pixel 3A now competes.

The picture may be different in other parts of the world where $399-499 priced smartphones are a larger portion of the sales share. We know Pixel has not sold well globally, and I do think the 3A will help with Google’s global volumes. Interestingly, this is still a highly fluid strategy from Google. However, I do think their brand, and many specific Pixel features will become attractive to current Android owners who often flip from brand to brand which is a behavior common in the Pixel 3A price range.

Microsoft Doubles Down on the Open Future

I’ve been hinting at a broader theme I’ve noticed surrounding Microsoft. Of all the platform companies, Amazon, Google, Apple, Microsoft is the one who is going all in with cross-platform solutions and taking a break down the walled garden approach. Fascinatingly, this may be the very thing that positions them best for the future vs. all other platform competitors.

It’s important to understand that Microsoft is also building not just platforms like Windows and Azure, but also the picks and axes (tools and technologies) to enable the future. But, it is important to know Microsoft is focused on the platform of the future. During the opening moments of the BUILD 2019 keynote, Microsoft CEO Satya Nadella said something incredibly important that gives us the key context to Microsoft’s platform vision. Nadella said, “we are building Azure to be the world’s computer.” Note the language, not Microsoft’s computer, or their customer’s computer but the world’s computer.

Engrained in that language is the idea that Azure is a platform for people to build the next generation Internet upon. This extends beyond but does include apps, into things like mixed/augmented reality, machine learning, AI, robotics, computer interfaces (gestures and speech) and much more. In a world that seems to be diverting to closed ecosystems, Microsoft is all in on being more open than ever, and that may make competing with them more difficult.

I first started to hint at this openness when I wrote about HoloLens 2. The most impressive part of the demonstration I received was not just the HoloLens 2 experience, but that right next to me were people with an iPhone and Android phone using their phones to see the same thing I was in augmented reality. It was then it hit me that Microsoft is not out to create walls but to make sure anyone using their services to build and consume will not run up against any walls ever again.

Microsoft understands their competition wants to keep some, or all, of their ecosystem, closed. However, their platform competition doesn’t exclude Microsoft from embracing competing platforms also, and the HoloLens 2 example makes this clear. A developer can use the Azure holographic development framework and write one augmented reality and create one augmented reality experience that can run on any platform. This was a clear sign to me Microsoft will embrace and extend competing ecosystems as much as they can, and that will end up being a very attractive value proposition for developers.

At BUILD yesterday, Microsoft continued to show their willingness to embrace competing platforms for their own advantage. Whether it was fully embracing Linux, or the new Windows Explorer running on Google’s Chromium framework, Microsoft is using its competition to its advantage for tools, apps, and services and working to make Azure the background for future app development for any platform.

Lessons Learned from Missing Mobile
There are many reasons Microsoft missed the smartphone platform. One of them was their abuse of a dominant position with their partners and an overly too controlling posture with their platform. It seems that was a lesson learned as Microsoft is actually taking a much more open approach today with regard to Azure and the Azure development tools and Microsoft services which run on Azure. All of which are far more open by definition than Windows ever was.

In missing the smartphone platform battle, Microsoft eventually realized the best strategy was to embrace Android and iOS with their apps, services, and developer frameworks, and as a result, it set them up for the cloud platform future. Missing mobile may have been the best thing for Microsoft when it comes to their future and be better positioned to catch the next wave of computing.

The good news is, this new and invigorated Microsoft seems to now understand the playbook and the company has fully bought into the strategy.

The Intelligent Cloud vs. the Intelligent Device
As we think about Microsoft, Google, Amazon, and Apple, I think it is worth pointing out again the age-old debate of intelligent clouds vs. intelligent devices. Microsoft, Google, and Amazon are focusing more on the intelligent cloud and less on the intelligent device. Where Apple is entirely focused on the intelligent device. It’s tough to say which one is good or bad, but that it is notable the differences in approach from companies building intelligent cloud platforms and Apple building an intelligent device platform.

Remembering that developers control the fate of all these companies, the idea that Microsoft, Google, and Amazon are enabling developers to create software for the intelligent cloud, that is also free of walled gardens, is interesting to keep in the back of our mind. Developers will look for scale, and these platforms that truly provide a write once run everywhere solution may end up being the most economically sensible thing for them to do. With Apple developers write software for Apple. With Microsoft developers can write software for every platform. This seems significant.

There is nothing wrong with Apple’s intelligent device strategy. The only concern I have is Apple’s developer platform limits developers to iOS and the future of Apple’s software platforms. The world seems to be moving more to cloud-centric platforms that enable the software to run on every platform, and if developers start to commit more effort to that strategy, then Apple is just another platform for their apps not THE platform for their apps. There is a significant difference between the two. Apple has benefited from being blessed by their developers, and there is a concern a more open world gives developers more opportunity to distribute their software and services.

The battle to watch is for the next development platform. I still tend to believe the cloud platforms will be the ones the future of software and services are developed upon and how Amazon, Google, and Microsoft battle this out is fascinating. As of now, I still feel Microsoft is taking the most open approach of the three and something in me senses that will yield the most fruit.

Serving the Underserved and Growth M&A

I’m using the Chewy.com filing for IPO news to make a broader point about e-commerce and the niche opportunity in general. Specifically, how it is interesting to think about the success of more niche market e-commerce sites and why those sites may likely be a better commerce experience than Amazon.

There is an interesting observation I’ve been fond of that is specific to when a market gets mature that is worth repeating. When markets mature, it opens the door for niche experiences. Even though e-commerce is still less than 12% of US retail, the majority of US consumers have had an online purchase experience. E-commerce is a mature market and Amazon is one of the sole reasons it has matured. We can understand Amazon as the standard of e-commerce platforms in the US.

Standard platforms help drive markets to maturity. But once it happens once a market matures is where things get interesting. Mature markets, or one common standard platform, set the stage for a diversity of solutions to thrive. This is why after a market matures, we start to see more niche solutions show up in the market.

The behavioral science behind this is driven by the standard platform growing into something that is general purpose in its solution that it does a lot of things but none of them very well. As consumer behavior matures, in this case around online shopping, there needs, wants, and desires become more refined, and as a process, they look for more niche solution.

Chewy.com is an example of this, in that their selection, curation, services, and product portfolio are much more aligned with the interests of pet owners. This isn’t to say people can’t buy the same products on Amazon.com but that if Chewy.com has better reviews, services, product bundles, etc., that are more helpful and relevant as well as similarly priced as Amazon, then it makes it easy for consumers to purchase with Chewy and not with Amazon.

In my own personal life, I have an even better example with a site/app called Reverb. Many of you don’t know this but I’m a hobby guitar player, and I buy quite a bit of musical gear every year. One of my secret addictions is boutique electric guitar pedals to which there is both enormous creativity, diversity, and selection.

Reverb is fascinating to me because they are truly a musical instrument marketplace, in that they hold no inventory and just link you up with sellers, but with a valuable service layer on top. For example, Reverb has brilliantly used YouTube to create content channels to review gear, offer tutorials, cover industry news, and more, in order to spur interest to the items their sellers are offering on their marketplace.

One of my favorite channels is the Reverb Tone Report where new guitar pedals are regularly reviewed. What makes this interesting, is the boutique guitar pedal landscape sees many new product releases making it very hard to follow and discovery tricky. The Reverb Tone Report solves this and frequently causes me to buy a new pedal for my collection.

Video reviews for this landscape are incredibly valuable. Just like they are with beauty and fashion, high-tech, pets, toys, and more. These niche e-commerce sites do a vastly better and more relevant job providing trusted video reviews of the products they carry which makes the decision-making process much more helpful. By offering more relevant services for these niche markets and capturing the customers’ attention via relevant content, it eases the friction for point of sale to happen with them instead of heading to Amazon.

Interestingly, in many cases with my experience with Chewy.com and Reverb, a video review compelled me to buy a product, and when I price compared with Amazon, the product was not even available on Amazon.com. What this example caused me to think about is the way niche market players, in this case, related e-commerce will better serve a target audience than a general purpose player like Amazon. This goes back to an analysis I did on the idea of smaller companies focusing on profitable niches as a sustainable business.

Growth Challenges and Niche Segmentation
In Ben Thompson’s Stratechery daily update last week, he brought out a point that I think is one of the most important observations to understand as it relates to the biggest tech companies in the world. From his daily update:

There is a theme emerging here: there is reasonable doubt about just how much low-hanging fruit is left for the largest tech companies. Apple has sold the world iPhones, Google has stuffed mobile search, and now Amazon has seized the obvious parts of e-commerce; what comes next is much more difficult and expensive.

His point echoes a theme I’ve tackled many times over the years that the easy growth for many of these companies is over. By easy I mean, when a market is growing, and new customers are up for grabs. It seems that Apple, Google, Microsoft, and Amazon have largely reached the point where adding new individual customers is harder, slower, and a bit more difficult and as a result, their growth strategies turn to make the most money off existing customers. Note, this is an end-consumer point I’m making since three of the mentioned companies (Amazon, Microsoft, and Google) still have new customer businesses on the cloud platform side of their business.

With that backdrop of slowing end-user/consumer growth, the idea of niche players stealing a share of wallet from these platforms becomes interesting when you think about acquisition strategies. For example, you could argue Amazon should buy Reverb.com if they felt the music instrument industry was big enough dollar wise to add to their bottom line meaningfully.

This niche player theory is also a key part of the evolved thesis of many venture capitalists I work with. Their eyes are looking to those new investments that don’t necessarily plan to be a new Amazon, Microsoft, Google, or Apple, but to opportunities that look to better serve the customer of those platforms in a way that is intentionally underserved because it isn’t that interesting to the bigger players as of yet.

This is the new playbook to watch in a decade or longer which will be dominated by the big tech companies. By nature of their size and shifted focus, they will leave parts of the market open for niche players to serve. Then, inevitably, as their growth further becomes challenged, their eyes will turn to these niche players as acquisition targets in order to boost their bottom line. This has happened so many times before that it isn’t surprising to anyone who studied business history, but it is the cycle we found ourselves in an opportunity for those with a keen eye.

Apple Q2 Earnings Insights

There were a few key insights that came from Apple’s Q2 earnings. One thing I’ve noticed through the years, and a reason I spend more time writing about Apple’s earnings than any other company, is that in many aspects trends within Apple’s ecosystem and their users, give us insight into other companies challenges and opportunities. In some regards, Apple is a bellwether for consumer market behavior.

iPhone Sales Stabilizing
In general, the smartphone market seems to be stabilizing. There are likely going to be times where Apple’s sales outgrow the smartphone industry, but in general, it seems the worldwide market is stabilizing, and we are getting a handle on what to expect in terms of annual volumes.

I wrote about this extensively after the holiday quarter where it was clear iPhone sales had peaked. It was inevitable and many lessons we learned tracking the PC category once it peaked applied to both Apple and the smartphone market. The biggest question on hardware makers minds when the PC peaked and began to decline was how low the bottom would be in annual sales. That was the question as companies planned roadmaps for hardware, and retailers made plans to carry inventory. For several years the market faced decline then stabilized. The smartphone market appears to be stabilizing a bit more quickly, and that is likely to the shorter life cycle (3-4 years) for smartphones vs. PCs (5-6 years).

In some brief conversations, I had with investors last night the question of whether the worst is behind us for iPhone sales. While it does seem from an iPhone business revenue perspective the worst is behind us, thanks to higher ASP and stable margins (for now), there is still likely to be some unpredictable fluctuation in unit sales as certain markets still stabilize their refresh cycles.

One key strategy for Apple in stabilizing iPhone sales is their trade-in program. This has always been a win-win strategy for carriers and their customers, and it makes a lot of sense for Apple to invest heavily in this program. It was interesting to hear Tim Cook talk about the success of this program. This was the key part of his commentary that stood out to me:

Our retail and online stores continue to be a key point of innovation. As we mentioned in January, we’ve been working on an initiative to make it simple to trade in a phone in our store, finance the purchase over time, and get help transferring data from the old phone to the new phone. As part of this initiative, we rolled out new trade-in and financing programs in the U.S., China, the UK, Spain, Italy, and Australia. The results have been striking. Across our stores, we had an all-time record response to our trade-in programs, and with more than four times the trade-in volume of our March quarter a year ago.

It seems from this quote, Tim Cook is signaling the more regions, and stores, that support these trade-in programs the bigger upside potential to keep predictable patterns of iPhone sales. For Apple, this is crucial and brilliant strategically in helping them assess demand and handle build-inventory. It also puts them one step closer to their consumer controlling more of the phone purchasing experience than when a consumer buys the device through the carriers (which is still a terrible experience).

Apple’s retail remains one of the most under-appreciated assets Apple has at its disposal to better manage the relationship with their customers in a very Apple (good user experience) way.

The other part of these trade-in programs worth mentioning is Apple then has a resale market for trade-in phones. Most people don’t know these programs are a carriers best friend because it allows them to sell a phone twice and the second time often being to enterprises buying in volume. Tim Cook also mentioned on the call the high penetration of iOS in the enterprise and the strong demand of enterprises to buy iPhones. Many businesses purchase refurbished iPhones for their mobile fleets, and it is healthy revenue; Apple can get a slice of when it comes to their trade-in programs.

A Few Points on China
It is worth highlighting a few things related to the China market. Apple’s management indicated the initial concerns they had over China after the December quarter might not be as worrisome as previously thought. There are things like government stimulus plans, pricing changes from Apple, and the success of their trade-in plans which has helped create a more positive outlook from China. A point about the trade-in plans in particular, which was one thing Tim Cook said was doing specifically well in China. Chinese consumers have long sold their devices to the grey market in China and used that money to buy a new smartphone. This is already a normal behavior in China; it is just that most outsiders never saw it because of how hard it is to track the grey market. In fact, it was this grey market that led to a massive installed base of iPhones (>100 million) in China before Apple was ever officially partnered with a carrier there. The point I’m making is China was a market always poised for success for an Apple trade-in program, and I expect that to be overwhelmingly successful in China.

Were Chinese consumers leaving Apple? This is a question I often received as there was a common reception that because of WeChat being a dominant platform, consumers would jump back and forth. This never really happened in mass, however, as most consumers stuck with their platform of choice. That being said, it is noteworthy that both Android (not a single OEM) and Apple have very high loyalty rates in China. It does not appear there is, or ever has been, as many platforms switching in China than we have seen in other markets historically. Looking back, it is clear the economic issues in China paired with rising iPhone costs was the biggest reason for the drastic slowdown.

All of that should be encouraging for Apple since they are manageable problems and they are not losing customers. This also paves the way for more services innovation locally from Apple in China as they start to invest in a more services specific (gaming, video, etc.) strategy for China.

Lastly, Services is Still a Story
I think I’ve written more about Apple’s services as a theme than any other Apple topic this calendar year. But it is for a good reason. Just look at how investors respond to Apple’s services growth. Apple sees declines in iPhone sales and revenue yet continued growth in services and the stock is responding positively largely thanks to the services upside potential.

I jokingly tweeted yesterday that it would be ironic if Apple finally gets the PE they deserve because of their services business. But it would be ironic, yet in a way predictable. Investors seemed to largely subscribe to the idea Apple would always face competitive threats from low-end priced devices. Even when the iPhone continued to prove that theory wrong, it never seemed to change investors views. But, investors love predictable revenue businesses which is exactly what services are. This is why the continued success of Apple’s services revenue, now the second largest business from a revenue contribution standpoint, will continue to drive Apple’s stock up.

But this services strategy has another dynamic I think is interesting. If Apple can get the majority of their customers as a services subscriber in some capacity, it practically guarantees that customer is never leaving the Apple ecosystem. Which, if we carry that logic out, means Apple can almost guarantee hardware sales of not just iPhones, but also whatever comes after iPhones (like AR glasses maybe), and a range of other hardware and accessories. The deeper Apple goes with services and getting their base of customers to buy into their services the near impossibility it will be for competitors to steal their customers with future hardware. Services will be the ultimate lock-in for Apple.

This is why it is imperative Apple succeed with services. If they don’t, it makes them a bit more vulnerable in whatever the next technological phase develops into.

I Facetimed the Game Warden

Many of my long-time readers know I have somewhat of a double life. I have a high-tech life and my low-tech life. My high-tech life involves lots of the latest, often unreleased gadgets, where I try and live in the future and make sense of what all that means. My low-tech life involves a lot of gardening, farming, and animal husbandry. I often merge these lives, like in this story of how my iPhone and YouTube were a real-time midwife as I assisted my first goat birth. Or when I tested my drone to see if I could use it to herd my goats. But recently, I had another merger of tech and the farm life when I had a chance to FaceTime, the game warden.

We recently started raising a flock of sheep. We invested in four females, and a male and our desire is to build a flock and keep them pro-creating. Early this spring we successfully started having lambs born from all our female ewes. It’s always a great time on the farm when babies are born, and our kids love going out and playing and holding the newborns.

But, we live in the country, very close to the mountains, and because of that, we have frequent unwanted predators in our area. We have had several close run-ins with Mountain Lions with people in our neighborhood but not yet in our yard. We have had issues with Bobcat’s killing our chickens and Coyote’s as well, but I’ve never lost a larger animal in our livestock to a predator. Until recently.

We first lost three of our babies to a Coyote, I think. Then a few weeks later we lost an adult ewe, and that is when I got more worried. Especially, since I see regular Mountain Lion sighting posts on Nextdoor. So I wanted to make sure a Mountain Lion did not kill our ewe, so I called the game warden. The country posted a request to report any Mountain Lion sightings as they are trying to track it and trap it.

Considering I had not lost a larger animal to a predator I couldn’t tell if what killed our ewe was a Coyote or a Mountain Lion, so I reached out to the county. I had heard if there was suspicion of a Mountain Lion they would come out and do an inspection. Eventually, I got a call back from the Game Warden.

I didn’t have all day, and I couldn’t leave the sheep in my yard for days so I was hoping the Game Warden could come out sooner than later. But then he made a request I did not expect. He has currently in the Santa Cruz mountains dealing with another issue but asked if I could FaceTime and then show him the kill and he could asses it virtually. I thought this was interesting because he had no idea if I had an iPhone, but given more than half the adults in the US have an iPhone it wasn’t a bad bet. I figure if I didn’t have an iPhone I probably could have sent him pictures, but since we both could FaceTime, it made it possible to do an assessment in real-time.

So we started a FaceTime video call, and I followed his directions and showed him every angle and detail he asked for during our brief 10 min chat. Ultimately he concluded it was a Coyote and then offered some suggestions as to how to keep Coyote’s at bay, most of which I already knew.

What’s the point of my story you ask? Well, this event struck me that video conferencing, or FaceTime, in particular, has truly and very quietly gone mainstream.

When Apple first released FaceTime, it was one of those technologies we all assumed would go mainstream but it diffused quite slowly. A number of reports had come out early on talking about the number of users regularly using FaceTime. There were even some reports about how this would impact carrier networks, data plans, and broadband in general. But then it all went quiet, and people stopped talking about video calls altogether. It was hyped as the next great communication medium and then total silence.

This is not just in consumer behavior but also in the enterprise. The number of regular video conferences as an everyday behavior for work and collaboration is all but normal for many enterprise workers. A fundamental way we talk and collaborate is now mainstream and became so rather quietly. This observation is what interests me the most.

I have written before about how I see my teenage daughters using FaceTime for homework, and now Group FaceTime for remote hangouts. But among Gen Z it seems their primary communication is either by text or by video call. They literally never just “talk” on the phone. I have several close friends in construction and they FaceTime almost daily with their foreman’s to talk over plans or inspect work. What is interesting about this is that it allows the company to take on more business when a foreman can be remote and still visually inspect areas of a job. In this case, it isn’t always a total replacement for physically being there, but not every inspection completely requires an in-person appearance. It used to, in the days before video calls, but now they can be even more productive by being “transported” to different job sites via FaceTime.

I mentioned the workplace, and as remote working becomes more the normal, the ease of video conferencing is not a regular activity. Part of what makes this possible is not just that broadband is so good now the quality of the video conference is amazing, but that we also have remote collaboration tools from screen share, to whiteboard, and the broadband is good enough that every collaboration experience is fluid with no delays or jitters. I just recently did a video conference with a client in Taiwan, and even they admitted this was better than flying 15 people over to meet with us and equally as productive.

Video calling, video conference, remote collaboration using video in real-time, and more is a sleeper trend I’m fascinated that doesn’t get enough attention. It seems like a fairly transformative behavior that is a big deal that slowly crept into our regular behavior without anyone really blinking an eye. Perhaps there is something to be said about this type of technological adoption and how some of the most life-changing technologies may be the ones that are most quietly diffused.

The Autonomous Driving Future and a Generation of No Drivers

Yesterday, Tesla had what they called an Autonomy Day at their headquarters in Silicon Valley. The focus was on autopilot features, and they highlighted their custom silicon development for the first time since announcing they were moving away from NVIDIA’s solution.

One specific quote from Elon struck me and stood out as a statement about how far Tesla is in front of their competition in autonomy. Elon stated that all current Tesla’s being built already contain the technology (hardware) for fully autonomous driving. He said all Tesla has to do is continue to evolve the software. Basically, if you buy a Tesla today, you will have a fully autonomous car in the future via software updates. There is no other car company competing today who can make such a claim. And I’m not sure any car company competing with Tesla will be able to make that claim in the near future.

I have driven several friend’s Teslas and used the auto-steer future. And while we can’t consider that fully autonomous today, it is one of those things that when you try it for the first time, it feels transformative. Like you are living the future. Tesla is the automotive example of the famous William Gibson quote that “the future is here; it’s just not evenly distributed.” Over the next 20 years, or so, as we work out the technology to provide fully autonomous solutions, I’m confident autonomy will be a staple feature of every automobile.

I have been sitting on some research, working out what exactly to do with it, for a while now. My friend Aaron Suplizio of Experian and I ran a comprehensive research study on Tesla owners. We wanted to know what Tesla owners thought of their Tesla’s and what specific features they loved, didn’t like, and overall how they used all the features on their car. Our study is way too long to share all of it here, but I did pull out some specific data points around the autonomy features Tesla’s have packed into them.

Firstly, we ran a lot of questions about customer satisfaction. We tested satisfaction overall and on nearly every feature of a Tesla. For the chart below, I pulled out the specific autonomy features related to the overall Autopilot feature to show how satisfied consumers were with each one.

Rarely when looking at someones, customer satisfaction number do they break out the percentage for each answer. Almost always when someone mentions customer satisfaction, they give you an overall satisfaction number that includes the Very Satisfied and Satisfied. I always break this out in our data to show how many people say very satisfied vs. just say satisfied. I’m of the opinion that a product has truly nailed a high customer satisfaction number when the majority of answers are in the very satisfied category. Here, that shows that Autosteer is a killer feature and one that is very well liked by Tesla owners.

The second chart I created is the frequency of use of the same specific autonomy features.

I found it particularly interesting that 55% of Tesla owners are using auto-steer at least once per day. Considering auto steer only works in certain conditions, like a freeway, this suggests many of these owners are frequent commuters but that when Tesla’s are truly fully autonomous in all situations, this frequency number will go up. I can imagine a future survey we do when fully autonomous cars are possible, where we find it rare for people to be manually driving their cars at all on a daily basis.

When you look at the frequency of use for summon, for example, that is another feature that is limited to only certain conditions. I think this number would go up quite a bit as well once it works all the time in every situation.

Generation I Don’t Want to Drive
I greatly appreciated this article in the Wall St. Journal called Driving? The Kids are So Over It. I appreciate it because it’s timely and relevant for me. My oldest daughter just turned 16, and we are currently helping her work toward her license. What she fails to understand is that we don’t want to drive her everywhere she wants to go. Yet, she refuses and shows nearly no interest in driving. Which I can relate mostly related to in that I am not a fan of driving either, but at the end of the day, driving is often a means to an end. For kids today there has to be an end, and as this WSJ article points out, they have a harder time seeing that end, and driving as a means, than many generations prior.

I remember when I got my license, and I couldn’t wait because there were so many places and things I wanted to do that my parents did not want to have to drive me around to do. What I did not realize at the time was that getting my license was not just freedom for me but freedom for my parents also. I literally can’t wait until I don’t have to play chauffeur to my daughters and their liberation is mine as well.

But where we struggle is in their desire to drive, but right now we are sort of forcing them to drive. My hope is when my daughter starts working at a local theme park this summer that she will understand the means to the end driving is. I don’t expect her to want to drive there and, like me, I’d take getting driven where I need to go over driving every day of the week.

It isn’t surprising to me we hear of 16 yr olds not wanting to get their license right away because they don’t see the need. But this particular behavior pattern becomes an interesting question when not only self-driving cars become a reality but also in an era where car ownership is being questioned due to the broader ride-sharing economy.

At Tesla’s Autonomy day CEO Elon Musk announced an interesting new robotaxi service that would allow Tesla owners to let their cars become RoboTaxi’s and perform a ride-sharing service while they are at work or at home. This is a fascinating idea, in an era of Uber and Lyft, where you can earn money with a ride-sharing side hustle from the comfort of your office desk or couch.

However, this also leads me to believe Tesla itself will build and offer a ride-sharing fleet as a way to bring in extra revenue for the company. If Elon Musk is right that Tesla is far ahead of the competition, including Waymo, then a Tesla fleet focused on ride-sharing could make quite a disruptive idea and a revenue boom for Tesla.

Autonomy is automotive is going to be one of the most interring storylines to watch. Tesla will pressure nearly all the other car companies and how they respond is crucial. Most importantly, car companies will need to get out of their own way and let the technology companies like NVIDIA, Waymo, etc., provide them with complete solutions if they have any chance of competing with Tesla. I’m not sure many current automotive brands will survive the next 20 years without serious adaptations to their way of thinking about the future of automotive.

Additional Notes on Qualcomm and Apple Settlement

Yesterday’s note got quite long, so I saved some talking points for a follow-up today. I’ve also had several discussions with investors focused on Apple and Qualcomm which helped me flesh out a few more thoughts as well.

The FTC Case Still Lingers
There is an ongoing ITC case as well, but I’m going to focus on the FTC case for now.

I wrote up my thoughts overall on the FTC case, which was heavily lobbied by Apple. It was fascinating actually to see Apple’s opening statements in the short-lived trial in San Diego earlier this week. Their entire argument and main points were nearly identical to the FTC’s when trying to paint a monopolistic picture of Qualcomm.

At this point, while a settlement is a possible outcome of the FTC and Qualcomm, I think it would be tough for the FTC to rule against Qualcomm. Their entire argument did center around Apple as the prime example. As a part of this settlement, Apple has just signed a license and essentially agreed to the very thing they thought was abusive and illegal.

Hopefully, you can see where the issue may lie bot in public perception but also in the total case the FTC tried to make when your prime example settled and signed a license and agreed to drop all litigation. If Qualcomm’s business model was as illegal as the FTC purports then why would the biggest, strongest, and most innovative company in the world agree to sign up to their business model? I understand it isn’t quite that simple, but in the court of public opinion, it is that simple.

Is Qualcomm’s Licensing Business Model Finally Justified?
Qualcomm undoubtedly felt their business model was under direct attack. And ultimately, the idea of patent holders being able to get fair value for their inventions was similarly under attack. There was significant investor concern that should some of the litigation and regulation go unfavorably for Qualcomm their entire business model could be in question.

However, with this settlement, and the fact that Apple was the largest and strongest force against Qualcomm’s business model, I lean toward the opinion that Qualcomm is now justified as a part of this settlement. Meaning, the fear of further litigation or direct attacks on their licensing business model should be gone.

Which is probably why I heard from friends who work at Qualcomm that mood at the company was buzzing and as optimistic as ever. It even inspired a tweet from Qualcomm President Cristiano Amon.

Not only is Qualcomm’s business model now justified but so is also their position as an innovator.

Apple’s Influence
Interestingly, and this directly speaks to the massive influence Apple has on the supply chain and the market, but this settlement and Apple now a direct licensee of Qualcomm will make it harder for all other licensee’s to complain or file suits against Qualcomm. I had heard from many of my sources in the supply chain that this effort by Apple had given them hopes they would all be able to acquire more favorable license terms in the future and thus acquire a better financial position.

Now with Apple settling and essentially establishing a baseline of a licensing deal, it may actually reverse that leverage and give more back to Qualcomm as they go forward with their partners and licensees. What I mean is, say a licensee comes to them when their contract is up and says we want a better deal. Qualcomm will have the license deal with Apple as a way to counter in those negotiations. This is why, as a part of the settlement, I think Qualcomm fought for a higher license fee and then gave Apple more favorable terms for the cost of components, lump sum payment, and possibly royalty rate.

I’ve seen four different buy-side financial models that estimate the licensee deal to be in $8-9 which is right in line with Qualcomm’s range and much much higher than Apple originally wanted. This potential impact on the competition is one of the more interesting parts in my mind.

As I stated before, Apple would be vulnerable competitively if these efforts were a success and their legal pursuits ended up giving their competition a window to negotiate better rates on license and Qualcomm IP. Imagine OnePlus or Xiaomi, already gaining significant share in markets Apple wants like India (which are insanely price sensitive), the ability to offer even lower prices on their devices using the latest innovations from Qualcomm. Apple would have enabled this if they were successful in damaging Qualcomm’s business. If you follow my logic, then realistically, the best thing Apple could do competitively is to agree to a higher license fee and then work a better deal in other areas. Doing this would guarantee their competitors could not get a better licensee fee and thus use that savings to lower prices. Similarly, Apple would be granted a discount in other areas where their competition cannot use leverage, like scale, to negotiate a better price deal. All in all, what just transpired makes it much harder for Apple’s competition to go downstream with their prices and still make some money than if Qualcomm’s business model was hurt.

Many of Apple’s competitors at the lower price tiers live on very slim margins. To those competitors, every penny counts. Penny’s countless to Apple, to a degree, but their deal with Qualcomm makes it even harder for Apple’s competitors to pinch those pennies.

80,000 Patents
Lastly, I want to make the last point on Qualcomm’s patent portfolio. Whether Apple uses any of Qualcomm’s patents, which come as a result of its license, isn’t necessary. However, having access to this portfolio enables a few interesting things competitively. Firstly, Apple would have access to any innovations Qualcomm creates in the same way their competition will. We all know Apple is great at innovating but what if Qualcomm created something that enabled Apple’s competition (nearly all who have a Qualcomm license) to have some technology that further differentiates them. A Qualcomm license evens the playing field with all of Apple’s competition in the case Qualcomm had some real breakthroughs in the works.

Second, whether or not Apple uses any of Qualcomm’s latest innovations, the reality is most of Apple’s competition relies heavily on Qualcomm’s innovations to compete (Google, Samsung, OnePlus, Xiaomi, etc.). At the very least Apple now has a clear eye on all the things their competition has at their disposal.

Lastly, while Apple is a first class innovator, Qualcomm is no slouch either. Qualcomm likes to say of themselves; they are the R&D resource for the industry, and this is mostly true. In a phase, where Apple may be looking to be cautious in their R&D spending to save costs during a period of slowing growth, leveraging Qualcomm as an R&D resource via access to their patents is not a bad strategy. And there are several things Qualcomm does better than Apple and may have some useful technology as Apple seeks further to enter new categories like AR head mounted displays and beyond.

Qualcomm and Apple is No Longer Qualcomm vs. Apple

What a day yesterday! The biggest news of the day, probably even the month, is that Apple and Qualcomm have settled their dispute over royalties and licensing and dropped all litigation. There is so much to unpack about this and the broad implications for the industry. But the day was not over! Hours after the news broke that Qualcomm and Apple settled, which ultimately led to a deal for Qualcomm to supply chips to Apple and Apple acquiring a license to Qualcomm’s patent portfolio, Intel announced they were excited the 5g smartphone modem business! The day felt like weeks when all was done, but each event was entirely linked. Understanding how we got here is the crucial first insight.

The Long Road Back to Qualcomm
Bear in mind, and I’m trying to connect the dots. But, I know quite a bit about what chatter goes through the supply chain, so I feel like my hunch is correct with my interpretation of this timeline. Ultimately, I think Apple’s end goal had always been to acquire a Qualcomm license on their terms, not Qualcomm’s. My reasoning? Apple was single-handedly keeping Intel’s smartphone modem business afloat, and doing most the heavy engineering for Apple, simply so they could have some leverage on Qualcomm. This was one step in a longer plan. Apple then organized some tactical lawsuits, including heavily lobbying the FTC and ITC regulatory bodies to file suits against Qualcomm on the basis of antitrust. Apple was spreading a wide net, hoping to have a few favorable rulings which would force Qualcomm to make some changes to their licensing model, or at the very least, give Apple even more leverage to negotiate an extremely favorable license deal.

Some people have theorized that Apple wanted to dismantle Qualcomm’s licensing business model completely. This theory has never set well with me, because if you play that out to its logical conclusion, you realize that if Qualcomm’s business model was significantly impacted to the point that they can’t charge what is fair for their patents and have to charge much less, then that is actually very good for Apple’s competition. So if this was Apple’s goal, they would actually be enabling their competition to access a rich technology portfolio at a much cheaper price and as a result, be even more aggressive with their smartphone prices against Apple’s. In fact, one could argue that disrupting Qualcomm’s licensing business model would be disruptive to Apple because it would enable a significant amount of innovation by hardware companies who can offer much lower prices than they do today.

Apple’s goal in these tactics was simply to gain more leverage on Qualcomm than they felt Qualcomm had on them. Part of this leverage would come if they won a few favorable lawsuits that devalued Qualcomm’s patent portfolio. Unfortunately, a few of those did not go their way. One, in particular, I found interesting, was a suit that Qualcomm brought on Apple around patent infringement for which a jury awarded a modest $31 million dollars to Qualcomm. But the most interesting part of that case was the jury valued just three Qualcomm patents at $1.41.

Qualcomm has over 80,000 patents, and while it would be impossible to set a price on each one, a price of $1.41 for only three could lead to an unwanted precedent by Apple.

Qualcomm’s defense in all of this was to defend its business model by bringing suits against Apple in patent infringement. Apple’s offense was to prove Qualcomm behaved in a monopolistic way. Qualcomm had won several other suits in Germany and in China were courts agreed Apple infringed on their patents. Quite simply, Qualcomm was successful in proving there was more value in their patent portfolio than Apple wanted to admit. Given Apple was seeking, and ultimately acquired via the settlement, a direct license to Qualcomm IP they needed to be able to justify the license + royalty + chip costs could not be justified, and they hoped the courts would help with that justification.

Intel’s Leverage
Bringing Intel into the fold as a dual source was another attempt at Apple to gain leverage over Qualcomm. During the days I attended the FTC trial against Qualcomm, it was interesting to hear Tony Blevins, Apple’s VP of Procurement talk about why they choose Intel and the bind they were in with Qualcomm feeling like Qualcomm could dictate terms to them, and they could do nothing. He also made the point to talk about how Apple always prefers to have multiple component sources because it allows them to negotiate better. So it’s clear Intel was there to add a second source and thus provide some leverage.

The only issue was Intel was not as nearly fully committed to smartphone modems as Apple wanted. From many of my sources, I heard multiple times that not only was Apple contributing vast resources to doing most of the engineering work on Intel’s modem but Apple also was the one who put forth the effort of getting Intel’s modem globally certified. Furthermore, Intel was taking a financial bath on the modem business and given the amount of work Apple was doing for Intel on the modem engineering, and I wouldn’t be surprised if Apple was paying next to nothing for the modem part.

Newly appointed CEO Bob Swan had also been confirming what I had known for years, that Intel was not interested in being in the modem business in the long-term. One of my game theories was always that Intel would ultimately exit the modem business and Apple would buy the IP to use in their own internal modem efforts.

When it comes to understanding the timeline that got us to this settlement, I believe Intel’s decision to leave modems was the first ball to drop. Apple’s ultimate decision was also likely swayed, if this rumor was true, that Intel was going to be late to 5G with a globally certified part. However, that was a symptom of the underlying problem of Intel not committed to the modem business and not investing in it as they should if they were serious.

Given how much work I know Apple was doing for Intel on modems, I think Apple knew for a while Intel was not a long term solution for them and I think that has been clear for 5G for over a year now. I am convinced Apple has known for a while they needed to go back to Qualcomm around the timing for 5G.

The Deal
One thing I did not know that came out at the FTC trial was that Apple was never a direct licensee of Qualcomm. This is part of the reason they went on an offensive strike. Apple did not like the idea of having to sign a license to Qualcomm IP, pay for that license, then still pay for the chipset. They call this the no license no chips policy and their whole argument in court was this was illegal double dipping because Qualcomm was one business with two divisions QTL and QTC. One sells chips, and the other sells licenses, and they are deeply intertwined. Apple was skirting around this by using the Qualcomm license of its contract manufacturers like Foxconn, but they had several agreements they entered into with Qualcomm which included things like a rebate payment from Qualcomm to Apple, exclusivity of Apple to use Qualcomm chips, and some agreed upon payments and rates. But Apple did not have a direct license deal with Qualcomm.

As a part of this settlement, Apple has now entered into a direct license with Qualcomm that’s the part that interests me the most. The deal, as we understand it, is a six-year license to Qualcomm’s full patent portfolio and a multi-year chipset deal with some options going forward.

We do not know how much Apple has agreed to pay for a license, royalties, or for the chipsets but we do know, from the court trial information that came out that Apple has never paid more than $20 to Qualcomm and after the rebate payment deal their costs were $7.50. So while it is totally I guess I’d wager the total deal came out to somewhere between $5-7 per device.

The straight forward part of this deal is simply Apple will get 5g modems from Qualcomm and can use any patents they want and not have to worry about patent infringement litigation going forward. But the big question in my mind is how does this impact Apple’s own internal modem efforts. Here is where I have some theories to propose.

The first is the obvious one, and Apple can buy Intel’s smartphone modem IP and use that as a part of their own internal efforts. This would not conflict with the current Qualcomm deal since Apple’s own modem is not likely a feasible option until 2022 or later and would give 5g more time to mature as a technology and Apple the time to get the 5g part ready for the global landscape. The second theory is a bit more interesting but also feels less likely. Perhaps, and I emphasize perhaps, as a part of this direct license Apple has with Qualcomm, the two companies can work together on a solution that integrates Qualcomm’s modem onto Apple’s A series SoC. This is the ultimate goal to embed the modem onto the SoC as it brings in benefits of power and performance vs. using the modem as a separate part on the board. Also, as Apple gets into more small form factor wearable solutions, it is essential the modem be integrated into their SoC. That is why the end goal is for Apple to design the modem onto their chipset designs.

This seems less likely, but would be super interesting, because it has never been done before. The other factor is if that were to happen then Apple would be even more deeply tied to Qualcomm since it would take quite a joint effort to accomplish an Apple design SoC with a Qualcomm modem integrated on it. But, given how hard the modem business is, and how Qualcomm does have the best wireless technology, I do not think this scenario is out of the realm of possibility.

This has been a fascinating story to watch and follow, and there are still some important parts to address in more analysis of this relationship as we see how it plays out.