Author: Ben Bajarin

We have known for a while Disney planned on launching a new digital subscription plan around Disney’s strongest brands. Already have a digital subscription offering for ESPN (ESPN+), and owning a majority stake in Hulu, Disney+ will round out Disney’s subscription offering and give them an extremely strong position as the way we pay for entertainment content changes. Before looking at what strategic advantages Disney has in this race, and the impact on the competitive market, it’s important to know that cord cutting (in the US) is accelerating at rates faster than previously assumed.

Consumers Want TV in New Ways
There are undoubtedly many factors to why cord cutting is accelerating. Luckily, I have multiple independent studies that all confirm the same accelerating trend of US consumers moving quickly to new services like Hulu and YouTubeTV, both making up the most popular new TV services on the market.

From a recent study on services we ran at Creative Strategies, 24% of respondents indicated they already canceled their cable subscription and are using streaming-only services for their TV/entertainment content. According to another research study run by UBS Bank, 33% of respondents in their study indicated their interest and consideration to cut the cord and go all in with streaming services. Notably, that 33% number is up from a similar study they ran in May of last year where it was 18%. Similarly, in our research study, 17% are actively researching switching from cable to streaming only. Interestingly, only 19% of consumers in our study said they are happy with their current cable bundle. Many of them indicated the only reason they are not changing at the moment is because of a bundle deal with the Internet.

One juicy nugget of insight I found in the UBS research study, was in the past few years consumers were doubling up on their cable subscription and a subscription to streaming TV service. Their most recent study found that number dramatically declined and those consumers were mostly streaming only now. What that tells is was people were not sure they could get all the channels and content they wanted in a streaming service, so they kept their cable as a backup plan just in case. The newest data suggesting they dumped cable and went streaming only is a big indication those services like Hulu and YouTubeTV do indeed deliver the same experience as cable and satisfy the needs of most of the market. This should be the most worrying stat for cable companies.

Traditional cable TV subscriptions have already been trending downward, and most forecasts for 2019 have traditional cable subscriptions declining 5-8% during the year. Consumers are waking up to the idea that streaming services actually give them more value for the money than their traditional cable providers and by the end of 2019 we are very likely to see north of 30% of the US market moved to a streaming TV package.

One last point here. Almost universally, in our study and others, younger demographics have no intention of signing up for traditional cable packages and are starting their adult lives all in with streaming. Which tells you the cable monopolies only have the older demographics as customers, and that won’t last forever.

Disney’s Global Brand
There is an equation which did not get enough attention when talking about Disney’s upside and that is their brand. Of all the streaming/online entertainment options on the market or coming, only Disney and Apple have a truly global brand. While you can assume many global markets know of Amazon or Netflix, the reality is they are not nearly as globally strong as Disney or Apple. Both companies abilities to attract a global audience and bring their services/content to more markets than the competition should be something to keep in mind.

Another factor that did not get enough attention is the retail footprint to Disney. Disney parks see over 150 million people every year, and their parks are going to be a big part of the strategy to market Disney+. Similarly, Apple has over 500 million retail visitors each year, and Apple is already aggressively pushing Apple News+ at their retail stores, and when Arcade and AppleTV+ come out, you can be certain they will promote those heavily in store.

Disney+ Impact on the Market
Competitively, I’m not sure people are correctly interpreting Disney’s subscription packages impact on the market. Disney+, in particular, feels like it will make it challenging for everyone outside of Netflix, Amazon, and Apple. The main reasoning for this is Disney+ price. For example, CBS all access is $5.99 a month and feels quite limited now next to Disney+ at $6.99. Disney’s price may hurt the competition the most making it very hard for them to price near Disney and thus will only see uptake at a price much lower than they want to charge in order to make a profit.

Rumors from within Hollywood circles is most networks, and even some studies, want in on the streaming services, but I think Disney will make it very hard for many of them to succeed.

It is also interesting to think about what Disney can do with Hulu. Conceivably, Disney is in the strongest position now to offer a holistic service offering including premium content, live and network TV access. I would fully expect Disney to offer a bundle with Hulu and Disney+, and possibly even some excessive experiences from ESPN+ and create quite a compelling service.

From the recent research reports I mentioned, Hulu remains the most dominant current streaming TV service by market share AND has the most mindshare in terms of intent to subscribe from those looking to cut the cord. Aligning the trends I outlined here, Disney’s presence behind these offering will only accelerate cord cutting, and likely drive Hulu to a commanding position in the market from a content distribution standpoint.

I have had a range of conversations with colleagues in the tech industry, and it has been interesting to hear the same observation brought up. There seems to be a broad sense the narrative around Apple is particularly negative at the moment.

Now, longtime Apple watchers will know this is nothing new. The past decade, in particular, has led to a flurry of narrative swings around Apple from overly bullish to dramatically negative. We are indeed in a negative cycle right now and understand why it is helpful. Beyond the why, I do think there are some questions around services we don’t have enough information on that until answered, are likely to continue to drive a negative cycle.

What’s Driving Negative Sentiment
The easiest part to understand is why sentiment is negative at the moment. It rests squarely on the bias that Apple is a hardware company and not much else. The slowing of iPhone sales and the clear impact that is having to Apple’s bottom line only fuels this view, and we already see the doomsayers emerge from the shadows to point out how they have been right all along.

It’s been no secret that the vast majority of Apple’s revenues come from hardware. However, I’ve long argued that viewing Apple as hardware the only lens is the incorrect way to understand the company. Apple makes great hardware, yes, but if Apple ran the same operating system as the competition (Android) the iPhone business would not be the size, it is today. Meaning, iOS is a lot more valuable than most people realize to the whole Apple picture.

When people ask me what kind of a company Apple is I explain they aren’t really a tech company, nor are they hardware or a software company. At its core, Apple is a customer experience company. Apple’s focus is the customer and providing the best experience possible no matter the category of product. This point cannot be missed because it has been true with how they approach hardware and software. But, for me, there are still questions about Apple’s execution on being a customer experience focused company when it comes to services.

On stage at Apple’s March 25th media event, CEO Tim Cook made an effort to point out that Apple makes world-class hardware, world-class software (both true) and a growing collection of world-class services. It is the point about world-class services that I think is the big question mark.

The Services Risk
While it is true many of Apple’s exclusive apps, like iMessage, have a foundation of a service attached to it, most people don’t recognize or perceive it as a service. Apple’s App Store, iTunes Store, etc., are services but whether or not anyone attaches their broader understanding of a service is a question.

The risk, in my opinion, of Apple’s evolving emphasis as a company on services, is the potential to not live up to the bar the company has when it comes to hardware, and software. From many research studies, we have done around services it is clear to me there are different expectations in the mind of a consumer when they pay a monthly or annual fee for a service than the expectations they have when they buy hardware or software.

In Apple’s case, and around their hardware, in particular, customers can easily justify the cost in their case and feel it is ‘worth it.’ The big question I have is whether or not Apple can convince customers their services are ‘worth it’ in light of a much more competitive services environment Apple will face than the competition they face in hardware.

Consumers are used to a certain bar of quality with Apple hardware, and I do wonder what will happen if that bar is not met in services. Highlighting the disparity between hardware and services takes shape when we look at the research we did on HomePod owners. Note the visual below on overall customer satisfaction of HomePod (largely hardware related) vs. Siri satisfaction which is services related.

Apple’s unique approach to hardware engineering means they will likely always score high customer satisfaction on hardware, but I want to see satisfaction with their services go up. One of the main things that get critiqued about Apple’s services at large is consistency. This is true of Siri, even iMessages, etc., that the service consistently does what you expect it to do. With Siri, HomePod owners, ranked inconsistency of Siri to accurately fulfill a request as the biggest frustration they have with Siri on HomePod. My iMessage point is made clear by anyone, and there are many, who have consistent issues keeping iMessages in sync between their devices. I have a Mac, iPhone, and iPad and not a week goes by that I don’t have some issue with iMessage keeping messages in sync across devices. I know I’m not alone based on this exact complaint by many on Twitter I see in my timeline.

Even as Apple News+ rolls out, I find myself having consistency problems. Magazines I’ve downloaded are not synced across different devices meaning I have to go re-download them on a new device. Inconsistencies and inconsistent experiences with core services will not be things consumers tolerate when they shell out money on a monthly or annual device. Apple’s strength has never been in more cloud-based service-based solutions, and it is the area I see them most at risk when it comes to integrating a core services business as the third leg of Apple’s total solution.

I’ve mentioned this before, but sometimes I wonder how much more vertical they will have to go in the cloud in order to control more of their services destiny. As Bob O’Donnell and I mentioned on the Tech.pinions podcast last week, Apple’s services run entirely on someone else’s cloud platform, which is a bit of an oddity for how Apple usually does things. Perhaps a more vertical approach to cloud is in Apple’s future.

The other could be a few acquisitions of solid backbone cloud companies. I’ve seen investors mention Box or DropBox as options and bringing on the team from those companies who tend to be very good at a cloud services/synchronization approach. Ultimately, this is an important area to watch for Apple because the next innovation cycle, be it AR glasses, or something else is going to be hardware and services driven much more so than smartphones ever were.

The services narrative is a hot one right now for a variety of reasons. But one thing worth pointing out, that piggybacks on my analysis from yesterday is how innovations in the data center and the underlying technologies powering them, are making a cloud-first world much more of a reality than ever before. These innovations make it possible for software’s evolution to services.

All Software Evolves to a Service?
Will all software evolve to a service? In many conversations I’ve been having around the industry, the idea that services will eat the world has been a major theme. This point is designed to take Marc Andreessen’s famous software is eating the world article and point out that software is becoming a service. Whether all software becomes, a service is an interesting debate. I think you can argue most software will become a service, but the business model behind that service may vary.

One interesting observation we have seen through the years is how trends seem to take shape in the enterprise first, then find their way to consumer markets. Sometimes it is the other way around, but generally, the enterprise is where certain trends work their kinks out then find their way into consumers hands. This evolution of software into a services model is one area where I see this happening.

SaaS, or software as a service, has been a defining trend in enterprises for years now. Not only is it a huge market, but more and more enterprises are being run on software which is actually a service. The high demands of the business world, and the speed at which business happens demands more agile software platforms. This makes cloud-based software/services a more attractive proposition when it comes to workflows but is also more easily manageable by the corporations IT department. This model is win-win for all involved.

While the type of services that are delivered to an enterprise will differ from those consumers adopt, I’ve always liked the line of thinking that families are not that different from enterprises. Things like financial management, collaboration, communication, organization, schedule management, etc., are all commonalities families have with enterprises. Yet the way enterprises do things, is largely much more efficient than a family which begs the question about how more of these services can find their way into consumers lives.

One could argue this is an opportunity for platform providers like Apple, Google, and Microsoft but even in that scenario, the solution would still be a services-focused approach delivered through software.

Native vs. Cloud
So here we are again in a native app vs. cloud software discussion. From where the conversation started many years ago, I think we have a lot more clarity on how this will play out. The ideal solution is a hybrid where what runs natively is the shell software and UI, but much of the backend part of the service is run in the cloud. Think Netflix, or Amazon, where the native software is just the interface, and that interface is dynamic and therefore can be changed, customized, personalized, etc., because of all the work happening on the backend.

This is becoming more common in the enterprise and seems like the way forward for consumer software/services as well. Where this debate starts to get interesting now is the role of hardware in a services-driven world.

It’s worth asking the question if companies will prioritize certain hardware platforms going forward. Historically, there has been more of this hardware prioritization, but in the future, I’m not so sure how common it will be. Much of this depends on the platforms, but I have a feeling only Apple will prioritize certain hardware over others with their services approach. For the rest, including Google, and Microsoft, they will leverage more of their cloud platform backend for computing and thus can minimize the need to optimize their services for the variety of hardware in the market.

While it has historically not been uncommon for Apple to be unique in their approach from others with their strategy, it seems even more clear now that Apple’s services are designed to deepen loyalty and lock-in of the Apple experience around Apple’s hardware where other companies are going to focus more on deepening lock-in around the services themselves which can run on any hardware.

Different approaches will yield different results. However, in an extremely competitive services environment, Apple’s services strategy which in part is to preserve future hardware loyalty is going to have been genuinely competitive, or Apple may see competition chip away at the dependencies around their ecosystem they have built up over time. A cloud first/services first world does not necessarily fit in Apple’s sweet spot, but if they can deliver with their services, then they remain well positioned for the long-term.

Ultimately, the pace in which the world is becoming cloud first, even though consumers don’t think about it this way, is fascinating and is already changing the nature of competition in consumer markets.

I know the data center is not the sexiest of topics. But what I’m finding most interesting about the state the industry is in at the moment, which specifically is a lull of innovation in consumer hardware, is the rapid pace of innovation happening in the data center.

One of the tricks of being an analyst is to cast a wide net and look for patterns. As many of our readers know, some of the patterns I like to focus on are ones I see happening in semiconductors. My saying goes “it is much easier to predict the future when you understand the semiconductor industry roadmap.” Right now, nearly every semiconductor company has shifted resources and focus to the data center.

I appreciated this analysis by my friend and fellow industry analyst Kevin Krewell, who dug into NVIDIA’s announcements from their recent event and outlined how NVIDIA is now a data center company. While this does not mean NVIDIA is not going to keep competing in consumer graphics, the reality is the upside for NVIDIA, as well as a significant focus of their research and development dollars, is going toward technology designed for the data center. What’s more, is to look at NVIDIA’s stock price as they transitioned from consumer graphics to a data center standard.

NVIDIA reached all-time highs, and will likely get back there once investors mentally grasp what is happening in crypto, and with so much innovation still ahead in the data center, you can bet there is still upside growth.

Another storyline is AMD. In fact, perhaps the single biggest point to showcase how bullish investors and the broader market are on data center technologies is to look at AMD’s stock. In case you have never seen it’s a long-term arc, here it is.

For most of its life, AMD traded below $5 a share. But as the upside in cloud technology and the huge need for more data center technology expanded, AMD benefitted. Even though they still have a small share of the data center market and only a small double-digit share of the PC market, AMD’s PE ratio roughly six times Intel’s. Cloud platform providers like Amazon, Microsoft, and Google like having supplier diversity and are even segregating product offerings, or instances, based on specific beneficial technologies provided by these silicon companies. The data center TAM is a big one from a dollar standpoint looking to grow beyond 300 billion dollars sooner than most forecasts. AMD still likely has some data center specific announcements to come this year, but yesterday was Intel’s time in the spotlight.

Competing with Intel’s Monolithic Integration
At Intel’s analyst day last December, I recall then interim CEO, now permanent CEO, Bob Swan use state Intel’s doubling down on monolithic integration as a core company strategy to succeed. Yesterday’s data center product lunch of the Cascade Lake architecture was monolithic integration on full display. Intel showcased an architecture that includes CPU, Accelerators/FPGA, Memory, Ethernet/networking silicon and the software stack to tie it all together. The only thing missing was a GPU, and we all know that is coming.

Adding the GPU will be filling the most significant gap for Intel once they do it. Some are skeptical, but if any team can do it, the team they have built is the one. However, it was interesting during Intel’s keynote that 50% of machine learning inferencing will take place at the edge. If this holds, then it is good for Intel and forecasts for inference alone is a 10 billion dollar TAM in 2021. Intel’s integrating of the hardware and software stack to take on the inference market will alleviate concerns of their lack of GPU for now.

When it comes to Intel’s integration, monolithic at that, which is the bread and butter of the company, I do wonder what pressure that will put on a competition to follow a similar path. NVIDIA buying Mellanox is perhaps a step in the direction as NVIDIA adds a networking dimension to their portfolio. NVIDIA also has architectural benefits to their GPU solution and software stack which can absorb more tasks from the CPU should the market want that. I strongly doubt NVIDIA will make a move to CPUs, but nothing is impossible.

At a high level, the fascinating part of how the data center is evolving is true whether heterogeneous solutions are what cloud platforms want, or if we can imagine Amazon, Google, and Microsoft simply offering products and instances based solely on Intel, NVIDIA, and AMD solutions separately.

Going back to the pattern that I think is most interesting here, and that is the clarity that almost all the major investment and innovation from silicon companies is moving to the data center assures us that much of the world is now finally moving to cloud first. Even roping Apple into this conversations, their major push with services is a cloud-first strategy and has implications on how the company thinks about their own vertical strategy when it comes to their data center and their services.

We have long talked about what the world would look like when most the computing is down in the cloud, and it seems we are now able to see a timeframe where that future becomes a reality.

As I mentioned Tuesday, there is still a lot to say, but I wanted to write one more piece that adds some context before digging into the services products themselves.

I’ve always been fond of using the “only Apple” philosophy in much of my analysis of the company. Even Apple’s management likes to throw this phrase out from time to time to highlight things that are in Apple’s sweet spot and something only Apple can do. Apple is the single most integrated consumer tech company in the world, and that integration allows them to do things others can not. That integration starts with the hardware and extends to software and now services.

The “only Apple” philosophy must now be applied to services, and this adds an interesting new factor into the analysis. As of now, what is clear is that only Apple can deeply integrate these media-rich services like games, news, TV, and music, into Apple hardware. This is, and will always be Apple’s advantage over its competitors. In the same way that all of Apple’s products are designed to work together and get better the more devices you have, we should expect Apple’s services to work best on Apple hardware and work better the more services you consume.

That being said, integration alone is not necessarily a slam dunk for Apple when it comes to the success of their services. Firstly, Apple will have to avoid antitrust situations and likely can’t pre-install apps with services onto iOS but must let users download them of their own choosing. But, once downloaded, Apple can bake in integrated experiences to the overall device and OS that surface more value for their services vs. competition. From this perspective, I want to make a few points that will be an interesting watch and learn from, with Apple and services.

Competition and Cross Platform
From a business perspective, Apple has brought many new observations to the industry and business knowledge. In some cases, they have broken the templates used by business schools and challenged conventional wisdom. But, as often is the case, their integrated strategy provides more lessons to the industry and anything else. This entrance of their integrated services strategy will yield many lessons. Most of them being from a services competition viewpoint.

Apple having to straddle a blurry line of anti-trust with their services will be good overall for everyone. First, because they can’t pre-install things like Apple Music, or Apple News, or Apple TV without getting into anti-trust issues, they will have to genuinely compete with the likes of Spotify, HBO or Showtime, and other news services if they want consumers to download their apps and use these services. Apple has no inherent competitive advantage for premium/paid services in the way they do with hardware and software. While integration is the advantage of an Apple service after you choose it, it is not there by default and consumers will likely weigh all their options including competition.

This is why growth in the user base of Apple’s paid services will impressive because they aren’t starting with an integrated advantage like they are used to. But this also raises a question of cross-platform that I’ve been wrestling with for some time now.

Nearly all services are cross-platform. When it comes to web/digital services, being cross-platform seems like a checkmark to compete but companies developing these services usually only have a subscription revenue model, so they have to achieve scale. This is the fork in the road Apple will come to very soon. Is their services strategy about selling more hardware, or about growing the services business? That is the question.

While I could be wrong, given we don’t have much historical precedent to go off here, I’d argue that if growing the services business is the sole goal then Apple needs to bring certain services cross-platform. Apple News+ and AppleTV+ specifically. Services business require scale and while Apple has that in roughly a billion customers, they are up against the competition in services that are first and foremost cross-platform. Here is why I think that matters.

I’ve mentioned before that our research has shown us that when consumers are presented with a mostly subscription, they heavily weigh the benefits and more deeply scrutinize the investment. Services are not commodities or quick decision purchases. This is why free trials are almost entirely necessary for services. It is very hard to extract monthly money for a service unless the consumer has vetted it is worth it to them. When it comes to my cross-platform point, most consumers do not own 100% Apple hardware. Most of Apple’s user base has an iPhone and a Windows PC and a smart TV brand like Samsung, LG, or Vizio. That combination is the most common combination of the three main screens of the vast majority of Apple’s customer base.

Competitively speaking, I believe having access to content you subscribe to on all the devices you want to access them is important for a subscription service. So for example, Apple News+ becomes more interesting to an iPhone owner with a Windows PC when they can access that content on both. The evidence for this lies in Apple cutting deals to bring the TV app to third-party smart TVs. This strategy is solely for the purpose of consuming the AppleTV+ content one subscribes to on the TV of your choice. I’m convinced Apple needs to treat all their services this way, much like Apple Music on Android, if they want their services business to scale.

Another strong point here is the family plan. Most services don’t have family plans, at least not good or personalized ones for different family members. Which means Apple’s family plan concept is a point of differentiation. However, while it is unlikely to assume an Apple customer has 100% Apple hardware, it is even less likely an entire household has all Apple hardware. So for a family plan to hold its value and differentiation, a potential subscriber would want to know their family has access to the content they pay for on the hardware or platform of their choice.

If Apple does not check these boxes, then it seems likely they are up against tougher competition who is not going to create walls around their services. One quick point, is that certain services make sense to remain exclusive. Apple Arcade for example has no need to go cross platform and adds much depth to Apple’s customer value.

I’m fascinated by all this because we are in the somewhat new ground from a business standpoint, but Apple is also in new territory. Many important business lessons will emerge, and that is one part of many that make all this exciting.

Before digging into the actual products, or product news themselves, I think it is important to take a step back and look at the forest within the trees from Apple’s Showtime Event yesterday. I think a theme was clear, and how that theme ties into Apple’s broader media services.

Golden Age of Stories
In a theme report released by the MPAA (Motion Picture Association of America), the opening letter from their CEO contained this interesting first paragraph.

We live in a golden age of stories. In communities of all sizes, in all sports of the world, stories bring us together, challenge our assumptions, and inspire us in so many ways. — MPAA CEO and Chairman, Charles H. Rivken.

This is the thing that drives a service like HBO, Showtime, and even Netflix. This is the idea behind motion pictures, good journalism, much literature, and even video games. Those who tell the best stories tend to have the most successful hits in media. This is why I personally think Netflix is extremely interesting and why I have positioned them as a company creating stories as a service. Out of all the content destinations I watch, which is most of them, I feel Netflix consistently puts out the best stories. It is part of their content strategy which focuses on a narrative with a whole season or show having to be followed from the start. Most cable TV network shows have a little narrative but are largely produced so you can miss an episode or several and not miss much. Nearly every series on Netflix, and Amazon to a degree are more like a 10 episode movie.

This is why I think Charles H. Rivken is correct when he says we are in the golden age of storytelling. The Internet and the billions of screens in people’s pockets make it possible for great stories to see the light of day. So how does Apple fit into this?

The Story Telling Platform
While Apple is embarking on its own journey of proprietary storytelling with AppleTV+, the broader perhaps more interesting theme is Apple trying to create a platform for storytelling. If you look at the focus of the games, they are bringing to Apple Arcade, and they are mostly indie game developers who create immersive and cinematic gameplay that also tell a story. Perhaps not all the games included in Apple Arcade will be this way, but Apple went out to their way to showcase developers who do and highlight the storytelling potential of many iOS games.

Second, we have magazines. While I’m not a huge magazine fan, I do recognize they often tell stories in a much different way than news publications for example. Magazines often have more depth in their articles, more production, and a more narrative style of writing. Perhaps that is because their articles can be longer than most news articles, but overall, it is a different type of storytelling but storytelling none-the-less.

Lastly, we have AppleTV+. This was perhaps the most obvious push toward stories of all the announcements. Mostly because many writers, producers, and actors/actresses, were there to promote the stories they wanted to tell. Apple happens to be the platform they choose, mostly because Apple gave them the most money, but I think part of Apple’s pitch was the overall engagement and type of customer that Apple acquires. While Apple can and will keep paying for this content, I do think part of them hopes that the impact or the results of these stories being told on Apple’s platform has great impact and perhaps brings more storytellers to their doorstep.

Why Now?
If we look at all of this news in context, I think the why now to announce this becomes a bit more clear. Many were disappointed the details of availability and pricing were not immediately made clear and question why to have this event now. The reason is more platform-centric in my opinion and not that different than what gets announced at WWDC from a strategic viewpoint. Apple wants storytellers to know what they are doing and to hopefully buy into their vision and sign on to have content ready by launch. Apple wants to go out with a bang, and they have to really, and in order to do that they need to start seeding their vision sooner than later.

That’s essentially what yesterday was about. Seeding the vision to content producers about the storytelling platform and storytelling services they want to emphasize. With the added benefit of Oprah’s highlight quote as to why she has committed “because they are in a billion pockets y’all.”

Apple customer base is unique, and its platform is unique. This uniqueness has worked for third-party developers, and Apple wants it to work for third party storytellers in gaming, journalism, and movies/tv.

There are still a lot of questions, and details yet to emerge. We can and will form an opinion on the services themselves as they come out, but I think it’s important to understand the platform play Apple is pushing because in the end that is more in their wheelhouse.

This has been a fascinating week for Apple, and one that may signal a bit of a change in how Apple releases products and holds media events. What we saw transpire this week for Apple is noteworthy, and I think very smartly, should this be the new normal. In case you missed it, Apple made headlines almost every day this week. During the past week, Apple made meaningful updates to the iMac line, iPad line, and AirPods. In years past, Apple would have held a media event just to make these announcements. Instead, they were updated via press releases and some clever Twitter posts from Apple CEO Tim Cook.

When Apple announced its March 25th media event a few weeks ago, I made the point that this would be the first event where the focus would not be on hardware. I acknowledged there would likely be some hardware announcements but they would not where the event’s emphasis would be. Little did I know how right I was! With Apple making their hardware announcements, before the media event, the entirety of Monday’s show looks to be on Apple’s newest services initiatives. The only holdout that could show up now is AirPower and perhaps an Apple TV, but I wouldn’t be surprised if it is still released at a later date.

If this does represent a new shift in strategy for Apple product announcements, then I think it is worth looking at the upside of this new strategy.

Apple Controls a Longer News Cycle
It has long been true of Apple that they drive headlines. Whenever Apple makes news, it generally controls the news cycle. No company dares try to make news anywhere near an Apple event or anticipated event or news cycle. This is also why Apple does some clever news bits around big conference shows, sometime CES, sometimes MWC, even around other competitors product launch events. Because they know their news will get some attention and take some attention away from others. I’ve been in this industry for more than 20 years now, 18 as an analyst, and as an outside observer, I’ve never seen any other company be able to control a news cycle like Apple.

With that context, now imagine if the norm for Apple is a product release storm like we saw this week. Contrast that with just one media event to launch these products and Apple gets a day, maybe two, of controlling the news cycle. By rolling out almost a weeks worth of announcements spread out over the whole week, Apple is in a position to control the news cycle for weeks now instead of days. I find this fascinating from a marketing and PR strategy. We have never seen Apple do anything like this before, and now looking back at the week it is easy to see how Apple controlled the broader media narrative and was a constant part of the media conversation all week.

Which, if more and more product updates from Apple are iterative in nature, they can get a lot of life from a weeks burst of announcements than they could from an event where nothing eye-popping is announced. Which leads to my next observation about a more iterative Apple going forward.

Apple and Iteration
It’s first worth mentioning that iteration can be innovative. I think too many people, including many execs and VCs I spend time with, confuse innovation with invention. Something doesn’t have to be a brand new creation to be innovative. Products get new features, functions and in general, become better and more usable. It’s the entire experience that sums up innovation not one whiz-bang feature.

In thinking about Apple’s hardware iterations, I’m reminded of a tweet from my friend Benedict Evans who is a partner at Andreessen Horowitz. He made this point last week well before Apple’s hardware announcements, and while the point is about software, I feel it also applies to hardware.

For lot of Apple software, they don’t touch it for years, then do a big update, then ignore it for years. It seems frustrating for a power user (and very alien to the web) but I wonder if this is actually better for the non-technical billions than continuous small improvements.

— Benedict Evans (@benedictevans) March 13, 2019

Just swap, the word hardware for software and the point remains, and I think is critically important. Consider this, ~85% of Apple’s customer base is not the hard-core elite techie who lives and breaths tech. They are school teachers, construction workers, stay at home mom’s or dad’s, grandmas and grandpas, students, farmers, chefs, police, firemen or women, doctors, pilots, you see my point. These are people whose lives do not revolve around the latest and greatest tech gadgets but who simply want technology that works and gets out of the way. For this, the mainstream consumer, iteration is what the Dr. ordered. Sure they like new functionality but only when it makes their lives less complicated not more complicated. Generally, iteration is exactly the continued journey toward eliminating complexity.

So while a more iterative Apple, which is exactly what we should expect for the next few years at least, is not the sexiest or interesting to the 10%. It is much more interesting and more useful to the 85-90% of Apple’s customer base who will appreciate and value consistent iterative improvements over the invention of the next big thing.

This is Apple in postmaturity, and this is what post mature hardware cycles look like. Services fit into this model nicely, and we will tackle how next week after we see what Apple has up its sleeve on Monday.

The gaming market is one of, if not the market segment that is seeing some of the biggest overall changes. From a segment viewpoint, gaming is one of the hottest categories around in both software and hardware. It is easily the biggest bright spot from a hardware standpoint with gaming hardware and accessory companies seeing continued strong growth and retailers continuing to be happy with the gaming segment performance compared to all other categories. Interestingly, we are still only in the early stages of major changes to the category as the market is continuing to grow and bring in new consumers, innovative new software, and business model changes.

Shift to the Clouds
The idea of streaming a video game has been an industry promise for many years. Some early pioneers, like OnLive, came and went but showcased the promise of cloud gaming, or Gaming as a Service (Gaas), but also highlighted the limits of the technology at the time. The single biggest challenge with streaming visually intense games from the cloud is latency. Which is not a significant issue for a casual, single-player focused game, but it is a problem with multiplayer games. Any latency whatsoever can be the difference between life and death in a competitive multiplayer game.

That was then, and the backend datacenter hardware, as well as household broadband speeds and wireless network speeds, have all increased. Cloud gaming is now more feasible than ever, and many companies are jumping on the opportunity. Just looking at the western markets the short list of cloud gaming offerings is as follows: NVIDIA, Sony, Microsoft, EA, Valve, and now Google. The list in China is even longer. Prices of these services range from $4.99 a month to $19.99 a month, but the value of having access to a large catalog of games to play without the need of dedicated gaming hardware has significant value.

The biggest challenge facing Gaming as a Service is publisher support with the newest and most critical game titles. As of now, many publishers are “windowing” availability of their biggest titles and either not bringing them to a streaming service or doing so more than a year later. Currently, PlayStation Now has the largest category of games at 500 total but also has the highest price of $19.99 a month.

A key thing enabled by cloud gaming is the elimination of dedicated gaming hardware and in particular an embrace of cross-platform. Many gaming services like PlayStation Now, NVIDIA’s GeForce Now, let consumers play games on PC and Mac and sometimes iOS and Android as well. This, to me, is perhaps one of the most significant signals of what is to come in the future.

Play Anywhere, Any Time, With Anyone
I’ve written about how the shift to the cloud will break down walls which have formerly existed in the gaming industry. To be clear, the walls are starting to crack, but there is still a lot of work to do to break them down completely. For example, Google’s latest cloud offering released this week, only works on their Chrome browser. I’m less optimistic about gaming as service solutions that have walls than ones like Sony’s and NVIDIA’s offerings which understand the cross-platform reality that exist for most consumers. I’m hoping Microsoft’s upcoming solution also embraces cross-platform and a world without walls because it’s better for consumers and the gaming industry.

I keep using Fortnite as the example because the behaviors we have seen in the market make it clear Fortnite’s model is the future. The biggest change that Fortnite brought was the ability to play with anyone regardless of what hardware or platform they were playing on. For the first time, a global audience could play on any hardware and play together. This is the future, and there is no going back. Cloud plays a role in this because Fortnite is truly a cloud platform, but it leverages the local hardware resources and provides better gameplay when on better hardware. The choice is up to the player. If they want to be hyper-competitive, then they can invest in better hardware. If they just want to play casually and have fun, then a browser or mobile device is sufficient.

There is significant value for consumers but also to publishers to every go back from this model. With the Game Developer Conference this week I had a chance to talk with some of my contacts at big game publishers of AAA titles, and they all agree this is where things are heading. They also acknowledge it will take time. The key here is publishers can now truly look at the entire connected world as their addressable market with a much easier engineering process. To date, publishers go through a lot of work to develop titles that work only on specific platforms. They have to pour engineering into making a game for XBOX, Playstation, Nintendo, PC, etc. Each has unique benefits and costs massive resources to try and cover the whole market. As gaming moves to the cloud, we get closer to a write-once work anywhere solution for publishers. Economically, there is more upside with the benefit of being better for consumers as well.

As I said, we are early days but I’m convinced a combination of Gaming as a Service solution, with true cross-platform multi-player will open up the floodgates for the gaming market and expand the category to new heights.

There are some semiconductor companies that I feel are more susceptible to disruption. NVIDIA isn’t one of them. There are numerous reasons why I say this, but the main one is focus and R&D. NVIDIA has been the use case I use when talking with the industry when I give a counterexample to first party semiconductor initiatives of companies like Google and Amazon. While I fully believe it makes sense for some companies to make some of their semiconductor/data center hardware there are many cases where this isn’t a good idea.

NVIDIA and specifically their efforts and investment focus have generally been my counterpoint to the trend to verticalize. The reality is, Google and Amazon, as examples, will never beat NVIDIA in specific semiconductor applications and supporting software. NVIDIA invests massive amounts R&D on hardware and software innovation focused on AI. Companies looking to build some of their own data center hardware focused on AI/deep learning are only investing a fraction of the R&D NVIDIA is which begs the question of whether those companies can do as good of a job in these core applications. More specifically, is it worth the many millions of dollars in investment–which may or may not pay off–when it may be easier and wiser to buy the superior tech from NVIDIA and call it a day.

This is going to be an interesting story to watch when it comes to the data center specifically. Both Intel and NVIDIA are market share leaders in the data center but the biggest cloud platform providers like Amazon, Microsoft, and Google, want to create some of their own silicon to differentiate their platforms and create some lock-in for customers. But, I maintain, NVIDIA may still out-innovate them in core applications, and if those big firms who want to verticalize to a degree can’t offer competing solutions with a competitor who is all in with NVIDIA, then they risk losing sales. It is a fascinating dynamic and one that will be interesting to watch.

AI and Autonomy
Besides the companies I mentioned above, the other example I think is interesting is Tesla. Perhaps using Tesla as an example here will bring the points above I made into more clarity. Tesla was using NVIDIA technology in their vehicles for a variety of things including many of the autonomous features. Tesla has since decided they want to start making their own silicon for autonomous solutions. While I remain extremely skeptical about Tesla’s solution is better than NVIDIA’s, from an end-to-end standpoint, the risk for Tesla is if they can’t compete with other car companies who do go all in with NVIDIA.

Case in point, at their annual GTC conference, NVIDIA announced a partnership with Toyota Research to accelerate the use of self-driving cars. As NVIDIA gets closer with automotive companies, it becomes more likely those companies will use core NVIDIA IP. Moreover, I still have not seen a more complete self-driving solution than the NVIDIA Drive AGX. NVIDIA’s continued investments in total end-to-end self-driving systems continue to put them ahead of others and make me think NVIDIA is well positioned to capture share in the ~1,000 dollars of estimated semiconductor content in each autonomous vehicle. Another way to look at the economic upside of autonomy are the forecasts which estimate the semiconductor opportunity for autonomous vehicles to be ~$60 billion in 2025.

From talks I have had with both automotive industry insiders and component providers, it seems all the major automotive companies are making decisions on where to place some bets and what to own vs. what to buy. Their concern is as the car becomes a computer they risk losing the control of the customer experience they feel they need. This is the one area where I feel their approach the future like old companies not like new ones and a primary reason Tesla could be so disruptive.

When it comes to autonomous solutions, my hope is the car companies make wise decisions and partner with the tech companies who are making massive investments to turn cars into computing platforms. I have little doubt these companies can do it themselves, and the safety concerns alone, which NVIDIA is also addressing, are areas where a wrong decision or the wrong bet on technology can mean life or death for a car company.

There is more to say on this, and I have a number of private research reports on the future of autonomous cars that I’ll summarize in a sector report for subscribers in the coming months.

At Mobile World Congress 2019, Microsoft released the next version of their HoloLens augmented/mixed reality headset. I had a chance to get a deeper dive from Microsoft on HoloLens 2 as well as try the new headset out. There are several things that stood out to me that I felt were foreshadowing of what’s to come from Augmented Reality headsets in the future.

Retina Secure Log-In and Eye Tracking
The first big feature has to do with our eyes. HoloLens 2 has a retina scan log-in, so anyone who puts on the headset can be logged into their account. The result is personalization since the device calibrates to each individual’s unique facial features. Beyond that, when it identifies the user, you can then go to your personal software experience or dashboard. In its first instance, you can imagine this being useful for enterprises so each employee doesn’t need their own dedicated HoloLens but can pick one up off the charger and then use it as if it was their own.

The second major feature, which demos much better than one would expect, is eye-tracking. This has been something many AR/VR headsets have tried to implement but having a true eye-tracking experience is hard to find. In the eye-tracking demo, a blue hummingbird hologram shows up on your screen and flies around. Around the bird are orbs and to interact with the orb, you simply had to look at it. Then, with a series of voice commands you could interact with the orb you were looking at all without using your hands and only using your eyes and voice.

Again for an enterprise example, imagine you are an airplane mechanic and laying under an airplane engine with your hands tied up working. You can use the HoloLens to be looking at repair manuals or getting information on the Internet, and just by using your eyes and voice be able to interact with the relevant content.

I’ve had a few eye-tracking demos with AR/VR headsets before, but none of them worked as promised. HoloLens 2 worked as advertised and having a quality user experience using just my eyes and voice as the IO was a pretty profound experience.

Microsoft also greatly increased the field-of-view and made the display area in which to see holograms much larger. This was a huge step up from the small square display area of HoloLens 1, but for this technology to go mainstream the field-of-view still needs to get much larger.

Cloud and Cross Platform
As compelling as the hardware demos were, two things stood out to me on the software front. While we have known for some time the future of AR will largely be based on cloud computing, meaning most the core processing will happen in the cloud, it was interesting to see this vision finally realized. Microsoft has been building their Azure cloud platform to bring AR/holographic computing to market. While HoloLens 2 has a powerful Qualcomm Snapdragon processor, there is still a lot of computing being done in the cloud to bring high quality and visually rich holograms to life. HoloLens was a true example of how more computing power will move to the cloud, with some computing done on the edge device.

The power of the cloud as a computing platform will not be able to ignore with wearables, and AR headsets specifically. This is why Microsoft and Google seem to be more in control of the AR world than say Apple at this point. For everyone analyzing and thinking about Apple and the future, addressing how Apple will approach a cloud computing platform is a fascinating thought exercise. Apple is not vertical in its usual sense when it comes to the cloud in that, at the moment, Apple runs all its cloud technology on someone else platform. You can argue Apple should go vertical when it comes to cloud as well in the future and if they don’t, they may not be as in control of their AR future as someone like Microsoft, Google, or Amazon are given the cloud platforms each own.

Going further down this rabbit hole, the last big thing that stood out to me with HoloLens 2, has really more to do with Azure than HoloLens. In one of the demos I had from Microsoft, they showed how their Azure platform could enable and AR experience on any hardware. To do this they had the same spatially locked Hologram, a mock-up of a construction project which was a new Microsoft Campus, and while I was using the HoloLens to walk around and view what the new structure would look like, others were doing the same thing using their iPhone or Android phone. This experience solidified to me how the shift to cloud computing-based software and platforms will likely lead to a much more cross-platform experience going forward.

I loosely call this my end of walled gardens theory, and if the shift from local computing resources to cloud computing resources does take place, it has many implications for companies who are used to controlling most of their experience on local hardware. My sense is that as consumers get a taste of walls coming down, there will be no going back.

Overall, HoloLens 2 is impressive from a technical front and a cloud platform front. It is the first HoloLens that is coming to market as a complete product and not an engineering sample like HoloLens 1 was. After using it, it is clear that Microsoft is setting the pace with AR and leading by example. While that does not mean they win the race, I’m significantly more confident Microsoft can compete in the shift to AR platforms much more so than they could with the shift to smartphones.

Unlike in mobile, Microsoft is already in a leadership position when it comes to cloud computing platforms. This position puts them in a great position to lead in this next phase of computing around AR. The cloud platform is the underlying framework that sets Microsoft up nicely. Like Windows, Azure can be hardware agnostic, and Microsoft is more concerned about bringing holographic computing to any hardware via the Azure platform than they are about making hardware. If I’m right about walled gardens coming down this strengthens Microsoft’s position even more.
It seems odd to say this, given history, but the next battle may be between Apple and Microsoft.

With yesterday’s announcement that Apple is having a media event on March 25th, and the likely hood the event is largely focused on services, I thought it would be good to make some broader points about Apple’s services for us to chew on leading up to March 25th’s reveal.

I have attended nearly every Apple media event since 2001. What intrigues me the most about this one, is it will likely be the first where the entire focus and emphasis is on something other than shiny new hardware. Yes WWDC is a software event, but that is also a developer event, not a media event. Media events are traditionally where Apple releases new hardware products and the software, or services, and story is the supporting cast. This event is likely to be quite different. The event invite is about as clear as it gets saying “It’s Showtime.”

As I had to clarify for one reporter, no Apple is not buying Showtime. However, as I’ve explained before, I do feel what Apple is looking to do with their original content strategy is likely to be closer to Showtime and HBO than Netflix or Amazon Prime. But, as I noted above, the focus of this event being on a service or services, and the hardware now becoming the companion story is a fascinating shift.

I’m not saying Apple won’t release any hardware as there have been rumors of iPad Mini refresh and AirPods 2, but that for this event hardware isn’t the focus, and that is a new thing for Apple.

Benchmarking Services
Truly understanding Apple’s intent and strategy with services is the root context we should focus on. I continually try to add to the public debate on Twitter and even with Wall St. that Apple is not becoming a services company, but that services is now becoming a solid third leg of Apple’s hardware, software, and services stool.

Something I’ve been thinking about recently is how to measure the success of Apple’s services, individually, and the challenge it poses for many who are used to measuring the quality of Apple’s hardware and not much else (perhaps beyond some OS features). Customer satisfaction is a little tricky when it comes to software, but that has been a bar Apple has used to publicly demonstrate their laser focus on the customer is paying off.

Similarly, we have to believe Apple’s customer-centered focus will apply to services, but we are yet to have a reasonable bar in which we can hold Apple accountable when it comes to services. I make this point because I worry that Apple may take a good enough approach with first-party services in the same way they take a good enough approach to first-party apps. Let me clarify this point as not to ruffle too many feathers.

When I think of Apple first-party apps, I think of Mail, calendar, Notes, etc. I could throw iMessage in there, but we should debate whether iMessage is categorized as a services or app first. More on that later. My point about most Apple first party is apps is they are good enough but not best in breed. To a degree this is intentional. Apple likes to let its developer ecosystem flourish, and they applaud developers who create better apps than their first party ones because it means success for their ecosystem. But Apple also know, most customers will use the default first party apps they provide and while those apps are usually more than sufficient, they can get away with being good enough because that is all most of their customer need. And there is always the opportunity to get something better if you so choose.

However, I”m not sure this same approach can and will work with services. Hopefully, Apple agrees, but in order for us to truly benchmark this and benchmark Apple’s services against others, we may need to think through how to do so in a deeper fashion.

The Case Against Good Enough
There are a few important points on the theme of good enough I want to emphasize. The first has to do with Apple settling for good enough services, puts their privacy stance at risk. What I mean by that is, if their services are not the gold standard, and the bar in which to be measured (like their hardware) then Apple runs the risk of losing customers to companies who may not have the privacy of their customers in their best interest. Here is one brief anecdote just to make my point.

I’ve already noticed a significant number of friends and family moving to Google Photos and away from Apple Photos. While the reasons vary greatly, I was shocked at how many people I talked to that are very deep in the Apple ecosystem but who vetted Google Photos and concluded it was better than Apple Photos. Now we all know Apple pits Google as one who is in the wrong side of the privacy camp, yet Apple Photos not being the gold standard has risked Apple customers gravitating to a service which they feel is better from someone Apple feels is a bad actor. Whether Google is or not is still an important debate but given they monetize via ads, and harvesting consumer data is part of that, the point remains.

Perhaps another point to consider is voice assistants, and search to a degree. The latter being the most interesting because Apple has no play in search, and a business deal with Google for default search on iPhone, so by default, Apple is already tolerating (is that the right word?) giving their customers to Google in one of the most significant internet behaviors which is search. I don’t see any real way around that because most consumers find a lot of value in Google search, despite what is happening with their data. I acknowledge Apple has done some things by default in Safari around Google search like turning off location tracking by default, etc., and those are good tradeoffs, but the overall point remains.

Siri vs. Google Assistant is another interesting one. It is no secret that Siri lacks Google Assistant in a few key areas, but that Apple is able to out-integrate Google when it comes to iOS and therefore Siri is still the more convenient even if it isn’t the best. But I’m not sure this can continue. If Siri is simply the best integrated with iOS but not the best overall, I’m not sure that alone can keep more customers to moving to Google Assistant as the voice interface era keeps progressing. And this then leads me to my last point.

Apple’s advantage will always be integration. With any service they release a key part of its value will be its tight integration with Apple hardware and software. This will always be Apple’s advantage when it comes to their ecosystem. But, I also think Apple has gotten away with good enough apps/services because the convenience of integration often presents the appearance of better service than may actually be the case. Perhaps I’m selfish, but I want my cake and to eat it too. I want Apple to have the best of any service they release, better than any competing service, AND I want the benefit of that service deeply integrated into the Apple ecosystem. That is the bar I hope they strive to hit and one I hope we can objectively measure so we help keep Apple at their best.

As I mentioned in my note about Apple’s automotive ambitions last week, central to our thinking about any potential shift in automotive is developing a philosophy of transportation going forward. While that is incredibly tricky, there are a few data points I’ve acquired recently from several reports on the ride-sharing economy which may prove helpful. But first a personal anecdote.

My family recently crossed another one of those child growing up landmarks. My soon to be 16yr old daughter got her permit and began driving as a part of her behind the wheel training. Now, while I appreciate that a rare few humans genuinely enjoy driving, I am not one of them. There are simply more interesting things to do than drive. Driving is a necessity to an end goal, and I’ve long theorized humans would much rather do something else than drive. I wrote about this some time ago (can’t remember the article) when I was pontificating on young people’s thoughts on driving. If you observe kids today, when they are driven around they are often on a smartphone or iPad watching videos or playing games. This, I theorized, is a much more entertaining way to travel and for those who grow up spending their commuting time being entertained, why would they drive if they had the choice?

After a few days of driving, I asked my daughter if she liked it. She said “it’s ok,” but when I pressed her, she would much rather be the passenger so she can do social media or something on her device to pass the time. While this is notably a survey of one, I feel her opinions on the matter are pretty representative of a much larger group of humans and even including adults. If a viable option to driving, perhaps a ride-share or autonomous car, presents itself it seems likely humans will adopt it quickly because driving may actually be a pain point for many people.

Ride Sharing Isn’t Impacting Car Ownership
One report, which contained a broad consumer survey, reported that even among those heaviest using ride-sharing services their intent to still own a car did not decrease. In fact, the survey showed that those heaviest ride sharing consumers were even more likely to still buy a car in the future than those not using ride-sharing services.

When it came to sentiment about ride sharing, 70% of those surveyed agreed with the statement “ride sharing will never replace car ownership.” The broader global trends and data tell an interesting story when it looks at how ridesharing competes with public transport. It seemed almost universally when given a choice, and public transportation seemed more popular than a ride-sharing service when it came to the regular commute. In cities where public transportation is efficient, ride sharing was a second option for when it was more convenient than public transportation.

The Unit Economics Challenge
Perhaps the biggest thing standing in the way of ride sharing is the unit economics challenge. While not cars, some fascinating data emerged about unit economics in one US market for scooters. Nathan Stevens shared some of this data on Twitter and it presents a fairly bleak picture of the shared scooter business. The key points were scooters life span in this city was less than 30 days, and the companies were not seeing enough rides per day to make money per scooter with such a short life span. From the public data, Nathan was able to estimate scooter companies were losing $200-250 dollars per scooter. Pretty shocking, but not terribly surprising.

Regardless of the platform, scooters or cars, the longevity of the product in the market is essential to recoup costs. But the key point that has to be understood is how venture capitalists have funded these companies to the degree that they are subsidizing these losses in the hope to gain users and market share. This is similarly the case with Lyft and Uber, where rides are being priced in a way that is cheaper than a taxi in most cases, but also at an overall loss in a hope to gain users. If the unit economics in both scooters and ride sharing was priced in a way to make an immediate profit, the pricing would not be competitive, and the user base would shrink dramatically.

While I don’t see how the scooter companies get around this, ride-sharing companies have to rely on two things in order to keep their ride costs down. The first is autonomous cars. Eliminating the human driver is step one. The second is advertising. Advertising is common on and in taxis as a way to keep costs competitive. You can imagine riding in an Uber or Lyft we will be inundated with ads on screens, on the windows then they inevitably become a display, etc. It will be a downright terrible user experience, but it will be cost competitive.

The two biggest factors the study highlighted for consumers choosing ride sharing was price first and convenience second. This demonstrates the importance of these companies keeping costs down. Every data point I’ve seen around shared transportation tells me the market views it as a commodity. Because of that, price will always be king, and that poses some significant challenges some many companies.

The Big Question
Unfortunately, no data points, nor common human behaviors we are observing on this matter are providing much help in developing a new philosophy of transportation for the next few decades. It doesn’t appear there is an impact on car ownership in the short-term. And the idea of fully autonomous cars is still many years away. Perhaps the next area of development we need to happen is Robo-Taxis. Perhaps when we have fully autonomous taxi solutions in the market, we can study those consumers and see what the experience of relying on an autonomous car for transportation provide.

We are likely not going to see the first broad robo-taxi deployment until 2021 or 2022 at the earliest. So it will be interesting to see if any behavioral patterns change or emerge. What is challenging the ride-sharing market right now is it is not growing quickly. There are huge lingering questions about the total addressable market for ridesharing solutions, and from the early investor decks I’ve seen from Uber and Lyft, it seems the market size may very well have been exaggerated. The underlying research and core behavioral patterns are not indicated a large enough TAM for the market to sustain that many competitors or to even recoup their costs with favorable unit economics.

All fascinating challenges to watch as Uber and Lyft inevitably go public in the next few years.

Continuing in my series of publishing some chunks of data from our recent study on smart speakers and voice assistants, I wanted to share what I think are the two most interesting takeaways.

Cloud Based Hardware
Generally speaking, the last few decades of computing have largely been focused on heavy lifting computer hardware where the platform is run heavily on the hardware. Chromebooks are the best first example of a shift away from localized heavy lifting, and more core computing platform is moving to the cloud.

The theory behind a vision for a more thin-client computing world was it would make the cost of the hardware less and thus bring powerful capabilities to more people. Any single piece of hardware will always only have a limited amount of computing resources. The cloud, however, has infinite resources and this is one of the reasons cloud computing platforms are taken so seriously when forming a vision for the next few decades.

If lower price hardware is an indicator of the shift from a hardware-based world to a cloud computing-based world, then smart speakers (HomePod the exception) are right in line. 65% of Echo owners paid less than $50 for all of the Echos in their house. Similarly, with Google Home, 68% of respondents who owned a Google Home paid less than $50 for their hardware. Now, where this gets interesting to me is historically we see pretty terrible customer satisfaction with cheap hardware. But that is not the case with both Echo and Google Home. This is a scenario where, if music and the sound quality was the sole factor in customer satisfaction both these devices would fail miserably. Rather, going beyond music and more of the benefits of the cloud platform is on display. Because of this, we saw decent customer satisfaction from Echo and Google Home which both scored 74%. However, significantly more people selected very satisfied on Google Home, where the majority selected somewhat satisfied for the Echo. That was actually quite telling on whose cloud platform is actually more evolved.

When I look at the customer satisfaction numbers of Google Home and Amazon Echo, considering these are purely voice-based interfaces, it gives us a sense of the value and experience of both Amazon’s and Google’s cloud platform. In other words, those customer satisfaction numbers are less about the hardware and more about the voice assistant and overall cloud computing platform.

Smart Speaker Differentiation

The single biggest new insight from this survey was a behavioral difference between HomePod and Google Home. When looking at the core behaviors, both these products seemed to have a usage pattern that stood out and was more in line with both Apple’s and Google’s strengths. HomePod users were more heavily weighted to music and communication (calling, texting, etc.) than Echo or Google Home. Google Home was more heavily weighted toward searching and general information tasks that each of the other smart speakers. This makes some sense in hindsight. Apple focused on being the best at music, and tightly integrated communication features with iOS and Google is the best at general information searches. Both these products were being used for both their positioning and the dominant strengths of each company. This is where I found Echo the odd man out.

While users of HomePod and Google Home were gravitating toward use cases, both companies are strong at, Echo owners were not exhibiting any overall dominant behaviors. Echo owners were doing most the same things as other smart speakers, but no single behavior outweighed the others in the same way they did HomePod and Google Home. Which causes me to observe while HomePod and Google Home have features they are the best at, the Echo isn’t better than HomePod or Google Home at anything. That could be a cause for concern for Amazon.

More to the point, no single strength of Amazon’s ecosystem was even remotely close to a top behavior. With HomePod and Google Home, the companies strengths were on display, and I can not say the same about Amazon. Things, like purchasing a product, researching a product, or playing an audiobook, were all things less than 20% of Echo owners regularly do. These are things Amazon is best at yet those strengths are not translating to differentiation in smart speaker usage. This should be a concern for Amazon from a long-term strategic perspective. If Amazon’s ecosystem and core strengths offer do not value to this platform, then I think it becomes harder for them to compete against Google and Apple.

Voice Automation
This is our fourth study on smart speakers and voice assistants, and honestly not much has changed. We ask consumers what the most common and frequent tasks are with their voice assistants and I keep hoping we will see some new behaviors emerge. This is still not the case.

The voice as a platform interface is still, simply put, a shortcut. Voice is not offering up any new behaviors or usage models but is rather being used as a convenient way to shortcut a task which would take a few clicks on the smartphone or a task around the house from a smart home standpoint. We can argue that smart speakers have brought more convenience into rooms in the house where the smartphone is not as often used, but the core behaviors remain the same.

People are doing many of the same things they do on their smartphone, and they are simply using voice to eliminate friction and add convenience. To put it another way, smart speakers aren’t necessarily bringing new capabilities, but they are extending the capabilities of the smartphone into new places of the home.

In the end, my biggest takeaway is how poorly positioned I think Amazon is at the moment. With no clear differentiator and no deep tie to the Amazon ecosystem as a differentiator, I think the reason to buy an Echo over something else is greatly diminishing. This is probably why Google appears to be taking share from Amazon from a quarterly sales perspective.

This is not to say Amazon has lost, but rather they need to figure out a way to have their strengths shine on the platform and leverage their ecosystem in a way that gives consumers a clear reason why an Amazon customer should pick an Echo over a Google Home or a HomePod (assuming one comes in at a more affordable price for the masses).

Some interesting news hit yesterday about the FTC putting together a task force to more deeply look at issues of anti-trust in America. Part of the focus will be on past mergers which were approved and whether or not regulations should come down on companies where these mergers should not have been approved.

This is a tricky issue. On the one hand, we certainly need consumer protections to keep a company from gaining a true monopoly and in the course hurting competition and consumer choice. On the other hand, governments have abused this power and frequently brought unnecessary regulations or fines to make some money for their branch. Given settlements are so frequent, and it seems like easy money without having to go through the entire trial process at times.

Weighing the pros and cons is tricky, but we are in an interesting era where companies have grown to acquire significant market power, and there is no doubt a significant portion of market power is in the hands of the few, not the many. But, there are two angles worth looking at to add to the context of this conversation.

Focusing on Being the Best
What I’ve found interesting from observing the industry over the past 20 years is how some companies have grown to dominance in their market not by being shady, or with a monopolistic goal in mind but by superior focus and execution. Amazon, for example, a company mentioned in the WSJ article as a concern from this FTC task force, was laser-focused on E-commerce and everything pertaining to excellence in E-commerce. Amazon, for the moment, has a monopoly by definition (north of 50% market share), but they rose to this position because they were/are the best at what they do. If your competition is incompetent, or in most cases, simply focused on other priorities, it’s hard to see why a company like Amazon (when it comes to E-commerce) should be penalized for a superior focus and execution. I loosely call this an accidental monopoly.

There is a range of examples where simply being the best, and a focused team out executing their competition leads to an accidental monopoly. Intel is another example, as they have north of 90% market share in servers and north of 80% share of PCs. Companies should not be penalized by being the best, and even the FTC acknowledges this fact. Here is a quote from their page on Monopolization Defined “Obtaining a monopoly by superior products, innovation, or business acumen is legal; however, the same result achieved by exclusionary or predatory acts may raise antitrust concerns.”

It is understood that market share alone is not the basis to raise monopoly concerns. Perhaps the most crucial point is also found in this point from the FTC’s Monopolization definition. “Courts do not require a literal monopoly before applying rules for single-firm conduct; that term is used as shorthand for a firm with significant and durable market power — that is, the long term ability to raise price or exclude competitors.”

Again, it all comes down to definition and interpretation. Companies like Amazon, even Google, and Facebook which has all been mentioned as a part of this new task force, haven’t necessarily acted in a way or abused their market dominance in a way that cleanly fits a definition of abuse or excluding competition. But my worry if this task force gets aggressive is that no company is safe–Even Apple.

Monopolies Murky Waters
I wrote last month about my time in the courtroom observing the FTC trial vs. Qualcomm. Honestly, from what I saw from the FTC’s strategy, I was worried then about a lot of tech companies.

The FTC brought the case against Qualcomm by only focusing on an extremely narrow definition of a segment of the smartphone modem market. As well as only focusing on a specific time frame where they felt Qualcomm abused their market dominance. Whether I’m right or wrong to worry about this tactic, it seemed odd to limit the scope of the case so heavily to a segment of the market and only a specific timeframe. But, the courts allowed the FTC to proceed, feeling they had a compelling enough case to proceed.

Having seen this take place, and following the FTC’s tactics throughout the trial, the point was solidified in my mind that no one is safe. Let’s look at Apple for a moment.

Firstly, the FTC can define market power by the long term ability to raise prices. Has Apple raised the price of its iPhones regularly? Yes. What’s a bit more concerning was if the FTC could bring a case against Qualcomm and focus ONLY on a segment of the market, the market for premium phones, then the FTC could similarly come at Apple. Apple owns roughly 80% of the global market for premium smartphones (defined as devices costing more than $500). So from both a market share of a segment and the ability to increase price argument, the FTC could investigate Apple using both of the same tactics they brought against Qualcomm.

Similarly, the FTC argued that Qualcomm’s dominance granted them leverage which they used against customers, partners, and component suppliers. Honestly, the same argument can be made against Apple as the leverage they have because of their dominance in the premium smartphone market in their negotiations with component suppliers.

I don’t mention these things to say the FTC will come after Apple, only that as I studied this trial with the FTC and Qualcomm, I saw many similar tactics used by the FTC could be used against Apple and many other companies.

Certainly, the hardest part of any antitrust trial is to prove harm to competition. Everyone can argue they have competitors, and this is generally always going to be true. But if the FTC succeeds in using a much more narrow definition of a monopoly and can use a monopolistic argument against a segment of an entire market, then I think a lot of companies need to worry.

As companies like Samsung and Huawei announce foldable smartphones, the tone of the critics has been interesting to observe. A lot of commentaries, particularly on Twitter, has been quite critical of both devices with pundits being quick to point out their flaws. I feel the quick critique, and overall negativity by many pundits misses an important perspective.

The positioning of Samsung and Huawei of their foldable devices into the ultra high-end and genuinely out of the price range of 99% of consumers is both tactical and telling. None of these devices are mainstream products and both Samsung and Huawei know this and have been intentional in making sure it isn’t a mainstream product.

The question that has been asked is whether or not these foldable phones should even have been announced or even come to market. It is a valid question since these devices will not sell in any volume and are just the beginning of a new innovation cycle of foldable smartphones. The broader point that I think needs to sink in is that being first with a foldable product will bring about benefits to both Samsung, Huawei, and others who release this year from a marketing and branding standpoint.

The Case for Being First
There is a lot to unpack when it comes to the idea of first moving innovation. Being first does not always guarantee success as we have dozens of examples of products that were innovative that were simply too early and being too early is often as bad as being too late. But when on the cusp of a new product cycle or trend being first can have its benefits and rewards.

In some ways, there are parallels to the big screen TV race with HDTV and new technology like OLED and Plasma. For years some of the hardest problems for TV/display companies was to increase the size of TV displays with new technology like OLED and Plasma. For years, I remember industry debates asking questions about whether or not things like OLED could even get to 50-inches. But each year, TV companies brought out the biggest, highest resolution, and technology loaded TVs they could. These were nearly always simply a technology demonstration. Yes they had a price, and it was astronomical, but these companies needed to challenge their engineers and prove they could overcome hard challenges as they push the envelope with display technology.

What flew under the radar was how these technology showcases served as good marketing for TV companies. Consumers would never for a second believe they would buy a 100-inch OLED TV from LG for north of 10,000 dollars but the sheer existence, and heavily talked about product by news/media/etc., would help lend credibility to LG as a technology leader in TVs. The hope from LG in doing a technology showcase like this is not that consumers would buy the $10,000 TV but that their demonstrated leadership would help sway consumers to consider any LG TV.

Samsung and Huawei’s foldable strategy is very similar to the example above. They are priced out of the mass market on purpose, and they are priced to sell thousands not millions. The goal is not to sell this product in masse but to hope that being first with something consumers pay attention to and take note of, benefits their brand and other products as they demonstrate technology leadership.

Something that has been bouncing around my mind is the overall impact, if any, to Apple’s perception as an innovator. Most people know Apple is rarely, generally never, first to anything. Apple’s motto is not first but best, and they have executed this well. But what is interesting is your average consumer doesn’t know this. Your average consumer often thinks Apple is first, or at least not late, to anything. I’d bet if you ask most consumers they would think Apple was first with MP3 players, and I wouldn’t be shocked if many thought Apple was first with smartphones. We know this isn’t true, but because Apple does the best job making new technologies mainstream, most consumers associate Apple as a leader in this regard.

Interestingly, with foldables, Apple is very clearly not first in perhaps a new way. When Apple inevitably releases a foldable iPhone, consumers will undeniably know Apple was not first with this technology and followed instead of led. This likely won’t hurt sales of any Apple product but what bounces around in my mind is what impact, if any, this has to the brand perception Apple has as an innovator.

To be clear, I’m not advocating Apple should have released a foldable well before it is ready, only that I’ve personally been surprised how many average consumers in my friends and family circle have seen the foldable from Samsung and Huawei in the news and thought it was very cool.

Within this framework, I maintain these devices are working from a marketing standpoint. Yes they serve as strategic ambitions for many companies who need to learn hard lessons and overcome hard challenges by working to bring a foldable to market, but the bigger picture viewpoint that intrigues me is how this particular trend can help these brands from a marketing standpoint, not just in the short term but in the long-term as well.

My firm did several research studies early on in the mobile payments era. Interestingly, the concept of digital/mobile payments is a much more widespread phenomenon when you look at it globally. M-Pesa in many countries in Africa is becoming the default way to send payments since carrying cash in many regions there is dangerous. In India, Paytm has grown incredibly as an alternate form of payments, and certainly in China cash is almost entirely gone thanks to digital wallets and payments mechanisms like AliPay and WeChat pay.

What all those systems have in common is they are not credit cards or debt machines. They are more like PayPal in the US or Venmo which you load with cash to fill your wallet and then pay from your account base. They are often linked with banks or credit cards but are more a form of digital cash. The distinction is important as we think about the future of Fintech as well as digital payments going forward.

In all the countries I mentioned, an accelerated move a digital currency, or digital cash, fueled the growth of e-commerce in ways very few saw coming, particularly in China. China has the highest rate of e-commerce as a percent of total consumer sales, just over 50% and no other country is relatively close. India has moved up the ranks and digital currencies, among other reasons, are key factors.

I feel this is important to observe because it would suggest that as major markets like Europe, and the US, increase in penetration of digital cash or digital wallet based solutions that it will contribute to the rapid rise in e-commerce we are all waiting for. The US is still hovering around the 10% mark for e-commerce as a part of retail transactions, and the UK is now closer to 20%. Both these markets have the potential to change the fortunes of certain companies, as well as empower an entirely new growth stage around Fintech solutions, once e-commerce starts to snowball. How much longer we have to wait is the key question.

It was fascinating when we studied both the US and UK adoption of mobile payment solutions, including Apple Pay, how the big psychological barrier was to add your credit card to your smartphone. Even for a mass of respondents who indicated they trusted Apple, they were still uncomfortable adding their credit card to their smartphone. This has likely eased, to a degree, in today’s market, but it still feels like a big leap for the mass market and still a barrier to the ultimate uptick of mobile payments.

I have no doubt that as adoption of mobile payments/digital wallet solutions become widely adopted in US/UK that it will continue to spur new forms of commerce and enable new opportunities.

As interesting as the offering of a new credit card from Goldman Sachs and Apple is, I’m not sure what consumers want is another credit card. I think what consumers want is their current banks/credit cards to support and embrace digital solutions more robustly. And, consumers want to know that mobile payments like Apple Pay are supported everywhere. In the US this has always been a chicken and egg solution where broad support is needed, and it has moved much slower than many anticipated. We are getting close, as most major retailers support mobile payments but, in the US, the percentage of consumers still using them regularly is low ~15-20%. Again, as this grows the opportunity for e-commerce gets extremely interesting in the US.

Blending of Advertising and E-Commerce
One of the more interesting themes I read about in future of advertising reports is the blending of advertising and e-commerce. Amazon may be a good case study in this as their advertising, or sponsored products, efforts seem to be exactly what this blend is suggesting. Other examples are things like buying products through Facebook or Instagram as friction disappears and consumers can easily purchase products directly through social media.

A key point about the potential to blend advertising and e-commerce is how targeted and relevant the ads will need to become. Today it feels quasi-targeted around interests, which is still why purchasing products discovered on social media is still low. Even in the case of Amazon, the sponsored product posts are often only generally related to the product search but not highly targeted to the specific features a consumer may be looking for. This is where the opportunity upside comes into play, and machine learning and AI are fundamental for companies to successfully execute in blending advertising and e-commerce.

But even with these efforts in motion, I still come back to something I wrote a few weeks ago which questions the nature of trust in this new world. Consumers will get wise to sponsored reviews, or sponsored posts/products, and begin to question whether they can trust the things they used to use to aid in their product decision making. Knowing that a trusted friend, or family member, is by far the biggest influencer in aiding in purchase decisions for new products you have to wonder how that can translate to the digital realm. That used to be reviews, but if reviews come under scrutiny it just complicated matters.

This is a tricky balance. There is a lot of upside but also a lot of challenges associated. If you want to see some broader context here that could inform the future of advertising, we published our full report on advertising and brand/product discovery on the Creative Strategies website here.

We recently ran a study, across a range of demographics and smartphone platform owners in the US, to get a read on current behaviors and frustrations with the smart assistants we use on our smart speakers and our smartphones. For this analysis, I want to focus on the assistants on our smartphones and some insights our research revealed.

Slightly Differing Behavior by Platform
If we consider smart assistants a foundation for a computing platform, then it makes sense that the core behaviors with different platforms differ based on the assistant being used. We note a difference in behavior between iOS and Android users, so it is reasonable we would see some variation in behavior between Siri and Google Assistant. That being said, the core behaviors also seem to align with some of the strengths of each assistant as it stands today. Below is a chart which shows the usage differences between Siri and Google Assistant.

The notable differences that stand out to me is how searching general information or doing a voice search query for something on the web is the primary task of Google Assistant. I’d say from Google’s viewpoint this is exactly what they want since this is their strength. For Siri, it is interesting to see communication tasks so high in regular behavior. Music is also interesting as a core voice assistant behavior, but again it speaks to Apple’s strength and is also positive for a future of voice + Apple services integration. Beyond those few points, nearly all other tasks remain relatively similar.

Another similarity we found was in the number of consumers using their voice assistants daily. Approximately 50% of Siri users and Google Assistant users are using these assistants on a daily basis. Given some of the more public commentary from influential media and pundits one may have expected the number of daily Siri users to be low, but the reality is consumers have figured out what they can rely on Siri for and have narrowed their usage to the things it does well vs. the things it does not.

Another observation I feel is noteworthy, is how all the regular tasks of Siri and Google Assistant are simply automated functions of things you can do on your smartphone via a touch interface. Consumers are using voice to accomplish a task faster than it would take to unlock the phone, select the app, enter text, etc. Basically using voice is faster and more convenient for a set of tasks and consumers are looking for convenience more around automation than they are a predictive smart assistant, at least for now.

What Do Consumer Want Going Forward?
The last data point I want to touch on is what consumers are hoping, in terms of improvement or new features, from their smart assistants. Below is that chart.

A couple points on this chart stand out. Firstly, it appears Siri users want it to get better at understanding their request and accurately fulling their command. This speaks to a known frustration that is brought out regularly about Siri that the technology is not as reliable as people want. This does not mean Siri does not always fulfill a request but that it is often inconsistent in doing so. Meaning sometimes it hears you and does what you want the first time, sometimes it takes multiple tries. Siri users simply want it to do to what they want/request the first time they request it.

The second point to observe is how Siri users want Siri’s knowledge base to increase. While this is a critique of the limited knowledge, Siri has currently, I view this as a positive because it speaks to Siri users hopes that Apple can increase the world of knowledge Siri has and not necessarily abandon Siri to choose Google Assistant instead for this task. We know from the data set that Google’s assistant is much better at general information search, but if Siri can increase in these capabilities, it will keep Apple customers on Siri and not moving to Google Assistant.

One that I found interesting was the answer “anticipate my needs better.” Personally, I felt this was going to be higher because it seems this predictive intelligence is one of the more talked about the value of personal assistants. Perhaps this is a case of consumers not knowing what they want until they see it. Although, I think it is more the state of the technology today and consumers not necessarily being ready for an advanced intelligence that starts to know them more personally and intimately.

When I look at the full data set, including things I did not cover in this article, it is clear that consumers mostly want their assistants to do a better job at the things they rely on today and not necessarily a ton of new features. This also speaks to the immaturity of this technology. I’m also not sure the data we have truly backs up the idea that Siri is drastically behind Google Assistant. There are things Siri can be relied upon, and there are things Google Assistant can be relied upon, but the core differences in usage are insightful in understanding the strengths and weaknesses of each voice platform.

Overall, I’m more convinced than ever we still have a long way to go with voice assistants, and there is no clear leader, and there may not be either.

It seems there is quite a lot of smoke around a hard date for Apple’s launch of at least it’s subscription news and magazine service. Whether or not the rumored video service is released at the same time is an open question, but with several different reports being published it seems something is near.

One report mentioned that Apple was negotiating in the 50% split range with publishers. That seems high, even in an area where Apple must rely on services growth to satisfy investors in the short term. I do wonder if this is more the publishers leaking information to attempt to get even more favorable rates from Apple in these negotiations. One other worry is that if the revenue split is quite high, the publishers could raise the price they want which then increases the overall price of the subscription service. What is a major question still is whether or not the price for such a service is set or not.

On the question of price, I still struggle with a one price subscription for all content. Essentially a Netflix for News and magazines if you will. Given the high cost of a subscription to something like the NYTimes or Wall Street Journal it seems unlikely we would see a price bundle for all major newspapers that is $20 or even $30 a month. Magazines seem to have standardized around $9.99 a month for a vast catalog of magazines, but I don’t think newspapers subscriptions will follow the same model. Perhaps the price of an Apple subscription will offer different tiers starting with just magazines at $9.99 and scaling up from there as you add other news publishers to your subscription. Apple may even be able to offer discount pricing if you lump together several publishers. But, my overall concern is the price of this bundle in total can be quite high which could be a turn off for new customers.

The Subscription Secret
The point publishers need to wrestle with is anything they do with Apple will be an attempt to acquire new customers. This is unlikely to be a solution for existing customers who are already comfortable using their subscription digitally either right at the publisher’s website, app or through Apple News as an aggregate. This move with Apple is all about getting to new customers they have struggled to acquire thus far.

With that in mind, going through Apple News is the most likely way for them to get new customers. Perhaps in this model, they only offer lighter versions or just access to specific content as a part of a basic subscription. The challenge will be to keep this pricing and packages simple as my fear is it becomes too complicated and hard for consumers to decide what to subscribe to.

This is the secret of subscriptions which our research has revealed after doing many studies on the subscription business model. When consumers are faced with a monthly subscription, the level of scrutiny in the decision-making process goes up. They enter into a new mental model where the process whether it is worth it or not with a finer tooth comb. There is both a positive and negative to this reality.

The negative is, it becomes a larger hurdle to get over for the consumer as they investigate the subscriptions true worth more deeply. The positive is, that once they choose to subscribe, they become a much more engaged customer. Meaning they spend more time on the service, sometimes invest even more money if they find additional value, etc. Basically they become an even more valuable customer.

Perhaps it is this more engaged and valuable customer where Apple can provide some deeper incentives for news publishers. I have no idea what that could be, but it seems there is room to add more value where the publishers get more out of deeper engagement, and Apple gets more out of the initial sign-up revenue. It will be fun to analyze this once the details are clear.

While I understand the publisher’s hesitancy, and again I’m focusing on news, not magazine publishers, they hopefully realize Apple is their best hope to streamline a service and bring them new business. The point I made about consumer putting subscriptions through a more scrutinizing mental model is eased somewhat when it comes from a brand they trust. Meaning Apple as the aggregator of these outlets subscriptions makes it easier for Apple customers to process and trust. Interestingly, this could also help smaller, less known publishers, emerge and start to compete with the bigger publishers. This point about trust is likely less an issue with something like the New York Times or Wall Street Journal since those are well-known brands, but smaller less known publishers will have a better chance signing up a subscriber through Apple than by themselves.

As I pointed out yesterday, there is still a great deal of room for innovation in the publishing industry. I do hope that a subscription model grows in success because I worry greatly about the ad-based business of news and information. An Apple service could open up competition in new ways that could spur this innovation and enter in another golden era of publishing. And while Apple may be first out of the gate with this type of service, I would fully expect Google and Amazon to follow suit and again create more interesting competition in the marketplace.

It’s no secret the Internet has brought disruption to the news media and publishing industry. Unfortunately, I think a lot more disruption is still to come.

If you pay much attention to what is happening you are aware of some of the challenges many publishers are facing. I am not going to hit them all, but I want to highlight BuzzFeed. First is BuzzFeed having its first round of layoffs. These were targeted cuts, the largest being its national new room. Shortly after the layoff news, a blog post emerged from Matthew Perpetua who was also laid off and was the director of Quizzes. Quizzes were an interesting and much talked about BuzzFeed feature and one that Matthew went onto explain drove a significant amount of traffic to BuzzFeed. One of the intriguing parts of BuzzFeed’s quiz strategy was the community element where a broad community of fans contributed quizzes. This essentially created a community platform for quiz making but the downside was the community was so successful, and good, at making quizzes that Matthew was no longer needed. One of the stories about this community focused on a teenager from Michigan who, as a side hobby, created dozens of quizzes every week. The disruptive nature of the Internet strikes again.

Back in 2010, I helped some friends who ran one of the top five tech blogs, in terms of monthly traffic, work to grow their business. I did an exhaustive analysis of the publishing industry at that time, and one of my conclusions was relying solely on ads was not going to be a sustainable model forever. My conclusion from my analysis of the industry was how little original or quality writing existed on many websites. We jokingly call this the news echo chamber where sites simply regurgitate the same news stories with little to no original content that is compelling or even interesting to read. My conclusion was news a commodity and ads around that commodity are not sustainable.

This conclusion was the sole factor in my desire to start Tech.pinions and offer a subscription model. If you pay close attention, every article we publish on Tech.pinions is unique and while a news item may be covered we wrap unique and original analysis around the topic. Our focus is on why the topic matters and what readers can take away or learn and not just the news itself. This model has worked great for us since 2012, and while we had periods of growth spikes and lulls, it has been an interesting learning experience.

In light of that learning, I came across this fascinating article in Wired. The title sets the stage–Journalism isn’t Dying It’s Returning To Its Roots. The author is ANTONIO GARCÍA MARTÍNEZ who is an interesting, and somewhat controversial, follow on Twitter. His article is thought-provoking, and something I had heard before from professors of journalism I’ve interacted with before.

The article points out, how historically, and even more common in parts of Europe, objectivity or neutral ground wasn’t a journalistic focus. In fact, it was the bias (often a strong and snarky bias) which drove the success of journalists and articles. There was much more alignment with a particular narrative bias, and people gravitated toward reading things that didn’t just support their bias but often made a poignant mockery of the alternate viewpoints. Perhaps this is why things like Fox News, or Rush Limbaugh, and even the Donald Trump phenomena make sense. All things which focus only on a demographic base and have little to no care of being neutral.

Interestingly, we have had some of our own experiences with this reality with Tech.pinions. One of our most popular writers, who was unparalleled with wit, quotes, or snark (in my opinion). John Kirk was one of our favorite contributors, and I still get emails asking when he may come back and for good reason. He was not shy in his mocking of Android and to a big percentage of our readers who are more aligned with Apple than Google, this was fuel for the fire. John regularly had some of the most read article on our site, most linked to, and after myself, most Fireballed by John Gruber. His most popular post, Android’s Market Share is Literally a Joke, is the best example of his style and evidence to why he was well liked by the Apple fans. John was critical of Google, Microsoft, Amazon, and even Apple at times but his style pulled no punches, and his content did extremely well. In case you never read much of John’s stuff, here is a link to all his articles.

John’s style is probably one of the more stated examples of what Antonio talks about with regards to journalism’s roots. And when we take a step back and look at some of the articles that get record traffic and those that don’t, it would be obvious those niche articles that worry less about bias and more about catering to the bias of a base group of readers, even if controversial, will get more reads.

Yellow or sensational journalism is sometimes the name such articles are called. Click-bait is also a common term, but in an age where publishers will keep trying to monetize via ads, this type of content seems inevitable to be the norm. Outlets who try to hold the common line or be less bias will likely struggle deeply, or have to shift to a different model, more like subscriptions to succeed.

Lastly, I want to mention subscriptions. We loosely talk about how subscriptions are the better business model, but what we don’t mention is the difficulty associated with growing and maintaining a subscription business. The core of success for subscriptions will be the talent or the authors. Any outlet that can secure the best writers has the best chance of success. The only problem is Twitter.

Once any author acquires a large enough audience, they will be less incentivized to stay at their publisher and more incentivized to start their own thing. In the age of Twitter, which gives anyone a voice, a publishing platform, and an audience, the need for a big publisher or publishing brand lessons as the brand is really the author. This is why many individuals currently run successful, individual, publishing blogs/newsletters that are subscription based. Again, something the Internet makes possible, but really without Twitter, many would not be able to run their own publishing business at all. Twitter has essentially given the edge to the individual and not the publisher/publishing brand.

All of this at a time when the NY Times has a goal of 10 million subscribers. To accomplish this, they will need to invest heavily and be creative and innovative in the total experience they bring to customers. It will be a challenge, but if I had to bet on any publishing brand, it would be the NY Times.

Apple may also have a role in shifting media. With their rumored news subscription service seemingly almost complete, it will be interesting to see how Apple, like Twitter, can help shift the news/media landscape in a more sustainable and creative direction. There is more disruption to come, for sure, but also innovative times ahead for publishing.

I’ve been writing about the rise of gaming as a global trend for a few years now. A whirlwind of things came together at the same time which helped lay the groundwork to fuel a rapid rise in gaming globally. What started with dedicated video game consoles and PC hardware, moved into the mobile and cloud landscape and, in some way or form, billions of people play video games on a regular basis.

Expanding Gaming’s TAM
Central to understanding, and appreciating, gamings rise and what it means for the future is grasping how smartphones and other new technology are playing a role in bringing rich and immersive gaming experiences to more people. The increasing graphical capabilities of smartphones and tablets to a degree have been central in bringing rich gaming hardware to billions of people who never would have purchased a gaming PC or console. Even if a small market comparatively, Microsoft’s efforts (as shown in their super bowl ad) to make XBOX and PC/Windows gaming more accessible to those who can’t use traditional hardware are all important steps forward. I particularly thought this statement in the conclusion of their ad was particularly powerful.

While the ad had a deeper meaning for Microsoft and the philosophical values that underline their approach to innovation, it made me think more deeply about why gaming is, to a certain degree, empowering in more ways than one. Specifically, this point also speaks to why something like E-Sports has the potential to be so much bigger than any professional sport in the future when this Gen-Z digital native demographic (and their descendants) becomes the biggest population segment in the world. The meta-point is gaming levels the playing field. In a digital environment, everyone has a fair shot at being the best. This is the exact opposite of the physical world where only a small percentage of humans who won the DNA lottery have a shot at being the best at a sport or game.

This, to me, is the fundamental thing that makes gaming empowering, which is an element driving its global success. The potential for, as Microsoft’s slogans says, everyone to play is quite compelling. Given the high-status given to elite professional athletes, it is no wonder that such a thing as E-sports and gaming’s leveling of playing field becomes compelling. With e-sports and gaming, everyone has an equal chance at being the best.

Walls Come Down
Another element of gaming that is new is evidenced by Fortnite. A trend I think is so unstoppable that it changes expectations of digital interactions going forward. Fortnite is the first truly global gaming phenomenon that is cross-platform and still multiplayer. A frustration for decades of gamers has been the walled garden that is online multiplayer. XBOX gamers can’t play or compete with Playstation Gamers, or Nintendo Gamers, or PC gamers. Fortnite changed that, and I believe the tolerance for such walls will be no longer.

Kids and even many adults will no longer gravitate in mass to games that have walls not allowing everyone to play together. This is significant because it creates a new normal and within that new normal an enormous opportunity. In the gaming walled garden world, the addressable market for a software platform, and even a gaming subscription service was limited to the hardware installed base of the gaming platform. If a game was XBOX only, then the only software opportunity was the size of the XBOX installed base. Similarly, if a game was PC just, the market was only PC gamers. Fortnite changed that and all a sudden the total addressable market for a game was everyone. From a developer standpoint, this is a much more attractive opportunity for monetization.

While it may take some time, I think the end of walled gardens is coming in the gaming arena. It is simply a better proposition for both consumer and game developers. What is interesting, is how the end of walled gardens in gaming may signal the end of walled gardens in personal computing but I’ll leave that topic for a future article.

Economically, things are not great in China. We can now safely assume that companies that were heavily weighted in the China market as a source of revenue are going to have a series of off quarters due to the economic challenges of the market in China. The spotlight will be on Apple, but it is not only Apple who will be by the China market decline.

NVIDIA released their own earnings revision citing China as a big reason for lowering guidance. I’ve also seen some notes from large banks issuing warnings on companies who are overly reliant on China from a market perspective. Given what is going on there, and it isn’t just the trade war, it does seem wise to be cautious on some companies revenue prospects.

While no market can be hot or hyper-growth forever, it is interesting in retrospect to look at a market like China which was a significant reason for the strength of many tech companies annual revenue performance. Concerning Apple specifically, few companies benefitted as much during a hyper-growth stage as the iPhone had from the China market. What was once an outspoken sign for optimism and growth is now a cause for concern.

I recently read several reports from different local Chinese economists, and there are few fundamental things happening in the market there worth understanding.

• Property Sentiment has shifted. A significant chunk of Chinese consumers have cited issues around concern for the economy, too expensive mortgage rates, or mortgage acquisition difficulty as main reasons for not pursuing purchasing housing. Property trends are often indicators of overall economic health and weaker trends and sentiment around property is a telling signal.
• Consumer debt has also been slowly rising. The concern around rising consumer debt is related to a bigger concern in an economic downturn where default rates could be higher. Local economists have not a rather sharp rise in consumer debt in China but do not consider it to be alarming quite yet.
• Retail sales have been all over the place. The months leading up to December were very concerning for economists, but then a slight bounce back in December eased some of the concern. There is a big question related to Chinese New Year spending, but most economists believe since singles day 11/11 broke records that it showed Chinese consumers are still spending around these peak spending seasons. However, the research reports point out that in many categories gross merchandise value dropped slightly suggesting Chinese consumers were not purchasing as many high price items but rather buying many moderately priced items instead. They are essentially using their budget for many things instead of one big purchase. This would explain the hit to iPhone sales.

These three fundamental things are the basis for some short term worry. The Chinese market grew fast, but it can also fall fast, and all eyes seem to be watching what happens there and if it gets much worse. These worries make for an interesting conversation about how influential the Chinese market has become global technology companies. A market that was still viewed as “developing” is now developed and a big enough market to massively impact tech giants.

Trade War Impact
Again, not all of the issues are related to the trade war but, without doubt, some sectors are being hit harder than others. On the positive side, from these local Chinese economists views, China has made progress in their efforts to depend less on exports. The China market is so large that many local companies can have thriving businesses solely operating in China.

However, it is hard not to see this hit the manufacturing market in China. Tim Bajarin explained in an article a few weeks ago about many key technology manufacturers already moving parts of their business outside of China. From a local survey of Chinese companies just over 50% of manufacturers–who export to the US–responding saying they have already moved some production overseas. 49% of those businesses cited the US trade war as the dominant or sole decision to move their manufacturing out of China.

While most the manufacturing is still done in China, then the minimum assembled elsewhere to be considered not a China export, what happens when this trade war works itself out? Will these businesses move that manufacturing back to China or will they find greener pastures in working with other countries who will embrace them with open arms and give them business and tax incentives? I’ve seen it argued some of those processes make never go back to China and that should worry Chinese officials.

A line of thinking that intrigues me is how this trade war can ultimately help a range of other countries and perhaps help develop some less developed ones quicker but also return some stagnant economies to growth. For example, Japan is a top country listed as a location where Chinese manufacturing is looking to be moved into. Taiwan, Korea, India, Vietnam, and Thailand are also among the top countries where manufacturing will be moving. These countries are wise to embrace this move with open arms and further incentivize these companies to put up shop in their country and ultimately help grow their economy.

What is currently, a concern for China could turn out to be an inflection point for global growth in countries who would not have had this golden opportunity if it wasn’t for this trade war.