In this Opinion Cast we discuss a number of important topics related to the industry. Although the year is wrapping up, there is still a lot to discuss and opine about. Here is the topical overview from this weeks Opinion Cast.
–The continuing mystery of Android market share vs. usage share.
–Microsoft’s Windows 8 woes
–Carriers and product differentiation
You can also subscribe to our opinion cast in iTunes here. 
I can’t help but have the feeling as of late that a close friend and I are growing more distant. These feelings are encapsulated with gratitude, sorrow, and also an understanding that it is for the better. That close friend is my notebook. Up until the last year or so my notebook as been my trusted partner in this industry and the computing device I depended on more than any other.
My relationship with my notebook peaked in 2011 with the 13” Macbook Air refresh which I dubbed at the time the perfect notebook for me. However, over the past few years, we have been growing apart and the iPad is the culprit.
I have written extensively about the profound industry impact I believe tablets will have, however there is a quote from Steve Jobs when he first launched the iPad that I believe captures every bit of why my notebook and I are growing apart.
“The iPad is more intimate than a notebook, and more capable than a smartphone” – Steve Jobs
Nail.On.The.Head. Smartphones are personal, but tablets are intimate. In light of that profound quote and perspective, we may be better off thinking about tablets as intimate computers instead of personal computers—even though they are both.
In a column a few months ago, I advanced a similar theory to that of Steve Jobs where I connected this intimate relationship I have with my iPad by making the observation that things we hold we love. This is why I believe a handheld computing device like our phones and tablets will garner a deeper connection than the desktop or notebook ever could with consumers. Desktops and notebooks are designed to be used at arms length and roughly around 24-36 inches away from our bodies. Yet tablets and smartphones are specifically designed to be used 8-12 inches from our bodies. Tablets and smartphones–by nature–are more intimate and thus will yield fundamentally different emotional connections with those who use them.
This observation, of not only the intimate nature of these products but also the proximity in which we hold and use them to our bodies, is in my opinion, the root of why my notebook and I have grown apart. When you use a device like an iPad or iPad Mini and are used to holding it closer to your body, and your eyes in particular, you simply get used to consuming information on a screen much closer to your face and eyes.
This observation was cemented in my mind most recently when I and my family were traveling to New York for both fun and some business. During this trip we spent a lot of time out and about in the city and I took my iPad Mini with LTE modem everywhere we went. I spent quite a bit of time using that device to take photos, search for points of interest, browse the web, etc, and didn’t end up touching my notebook for three days. When I did finally get my notebook out and open it up, it felt distant, it felt like I was too far from the screen and I needed to hunch over and get close to it. Now this is not because I have bad eyes, I have perfect vision, it was simply because I was used to computing in this intimate fashion and using my iPad at a distance less than 12 inches from my eyes. Simply put, because the notebook screen is used at a farther distance, it seems smaller and seems harder to see after you have been using a screen much closer to your person. Use an iPad only for three days then go back to a notebook where the screen is 24-36 inches away and you will know exactly what I mean. The fact is the more I use the iPad the farther away my notebook feels every time I use it—and I mean that in a number of ways.
Now, it is not that my notebook is going away, however, because of this change in dimension of computing, I have found that my ideal use case for my notebook is when it is docked with my larger screen. The iPad and using it in such close proximity to my face makes it feel like its a larger screen than it actually is thus conditioning me to prefer this kind of feeling. I find myself more and more leaving my notebook stationary and connected to my bigger screen. That way when I need to use it, it doesn’t feel so far away or that the screen is harder to see. In this scenario a desktop would suffice but I am using my notebook as a desktop in this case.
Now I know this experience may not be the same for everyone since what I am sharing is my personal experience and preference. I do, however, think the intimate element of computing that tablets subconsciously garner with consumers may have a more profound impact on the market than we assumed before.
One last thing needs to be shared. My experience with the iPad Mini being used as my exclusive iPad over the past few weeks has drove my notebook and me further from each other and quicker than my iPad ever did. There is something about the pure ultra-portability and ultra-intimate experience with the iPad Mini that I will be the cause of many consumers re-evaluating their relationship with their notebook.
Everyone concedes that Apple’s iOS is currently winning the mobile profit battles. However, many pundits still contend that Apple is losing the mobile wars because Apple does not have the most market share. How can this be? In almost every industry in the world it is profits – not market share – that matters and profits – not market share – that matters most.
Tiffany’s does not care how much costume jewelry their competitor’s sell. Nor do we judge the sales of cars, blue jeans, steaks or any other good or service soley by its market share. Companies like Best Buy, Radio Shack and K-Mart stand as stark testaments to the fact that the one with the most stores or the one that sells the most low cost items is seldom the one with the best prospects.
Ah, but apparently in a platform war it is platform – not profits – that matters most because it is platform – not profits – that inevitably leads to profits. And it is market share – not profits – that matters most because it is market share – not profits – that inevitably leads to platform victory.
John Koestier of Venturebeat puts it this way:
“As Android hits 75% market share, can anyone tell me why this is not Mac vs PC all over again?”
Dan Lyons, writing for ReadWrite, goes even further:
If this sounds familiar, it’s because we’ve seen this movie before, only in the original version Apple was losing out to Microsoft in personal computers. Now Google is using the same game plan in smartphones: Come in late with an alternative product and gobble up market share by licensing the OS to loads of hardware makers instead of trying to do everything yourself.
Look, when three out of four phones sold worldwide run your operating system, I think it’s safe to declare victory.
And Henry Blodget attempts to spell it all out:
The reason market share is important is that mobile is a “platform market.” In platform markets, third-party companies build products and services on top of other companies’ platforms. As they do, the underlying platforms become more valuable and have greater customer lock-in.
Building products and services for multiple platforms is expensive, so platform markets tend to standardize around a single leading platform. As they do so, the power and value of the leading platform increases, and the value of the smaller platforms collapses.
Only there’s one little problem with the theory that market share matters most in a platform war. By every imaginable measure and in every way that conceivably matters, it is iOS – not Android – that is winning the platform wars. And it isn’t even close.
A computing platform is made up of any number of attributes. Some examples of those attributes are:
adoption of operating system updates; accessories; advertising revenue; app primacy, quantity, quality and profitability; business adoption, BYOD, commerce; consumer assurance, entrustment and confidence; content revenue; control of the platform; credit card numbers; culture; demographics; developers; ease of use; eCommerce; ecosystem; education adoption; engagement; enterprise adoption; government adoption; in-app commerce; integration; lock-in; loyalty; monetization; profits to developers, content providers and publishers; popularity with teens; re-sale value; reliability; repeat customers, retention; safety; satisfaction; security; shopping; stability; stickiness; store quality; switching costs; trust; usage; video views; web traffic.
In every platform attribute listed, it is iOS – not Android – that is leading and in many cases it is iOS that is dominating.
The pundits got it halfway right. Platform matters. But market share does not equal platform. Not by a long shot.
How can this be? The equation of “market share equals platform” is the foundation of the Network Effect – the idea that the value of a product or service is dependent on the number of others using it. Only here’s the thing. In computing platforms, it’s developers and dollars – not units and users – that count towards market share.
This just isn’t that hard. The two basic realities that matter most to a platform are that developers get paid to develop more and better apps and that consumers get incentivized to buy more apps and pay more for those self-same apps.
When the facts do not fit the theory, you either question the facts or you question the theory. The theory that “market share is all that matters” is flawed because the opposing facts are incontrovertible:
1) Developers are deveoping for iOS first;
2) Developers are making more money via iOS;
3) Consumers are downloading more content and apps, engaging in more eCommerce and consuming more advertising via iOS; and
4) Consumers are spending more on the content, apps and items they buy and the advertising they consume on iOS.
The Network Effect that John Koestier, Dan Lyons and Henry Blodget are banking on is alive and well. But it is iOS – not Android – that is reaping all of its benefits and rewards.
Again, from Henry Blodget:
The biggest and most important difference between the PC market of the 1990s and the mobile market today is that many of the most common smartphone “apps” are available on all phones, regardless of platform. These include:
Phone
Web
Texting
Popular games and appsWhat this means is that you’re going to get most of your smartphone functionality regardless of which platform you use.
Ironically, spot on.
The pundits – including Henry Blodget – have it exactly backwards. You don’t HAVE to have a great platform to be successful in mobile. Android is living proof of that. Remember, when Android first emerged, it was iOS that had a 200,000 app head start. If platform was all that mattered – if we were re-living the PC v. Mac wars – then Android would have played the role of the Mac – or worse, the Amiga – and never have emerged from its nascency.
The bottom line is that there are really two smartphone markets. Android is an excellent smartphone. iOS is an excellent platform. Both can, and do, co-exist. And therein lies the answer to the seeming paradox.
Let’s re-review Henry Blodget’s argument:
The reason market share is important is that mobile is a “platform market.” In platform markets, third-party companies build products and services on top of other companies’ platforms. As they do, the underlying platforms become more valuable and have greater customer lock-in.
Building products and services for multiple platforms is expensive, so platform markets tend to standardize around a single leading platform. As they do so, the power and value of the leading platform increases, and the value of the smaller platforms collapses.
Henry Blodgett’s diagnosis – that platform matters – is entirely right. His prescription – that market share cures all ills – is entirely wrong. Android can continue its unit and user market share dominance without impinging on iOS’ platform dominance because it is developers and dollars that are the only market shares that really matter.
— It is iOS – not Android – that is attracting the third party companies to build products and services on top of their platform.
— It is iOS – not Android – that is becoming more valuable with greater customer lock-in.
— It is iOS – not Android – that developers, content providers, advertisers and eCommerce sites are standardizing around.
— And it is Android – not iOS – that is in danger of having the value of their smaller platform collapse.
Don’t get me wrong, Apple has plenty of things to worry about. But a flawed theory regarding platform and the Network Effect isn’t one of them.
Let’s stop focusing on market share without context and let’s start focusing on what matters. Market share does not necessarily equal profits. Market share does not necessarily equal platform. And in the long run (and in the short run too), market share that doesn’t ultimately lead to profits is meaningless.
Anyone can get market share. All you have to do is give away your product at cost or, better yet, for free. But you can’t beat Apple’s iOS just by losing money. Somewhere, somehow, sometime you’ve got to make a profit. Let’s stop pretending that market share is the bottom line or the only thing that matters. Profit and platform matter. Let’s focus on them, instead.
Since the beginning of the personal computing era. there has been a struggle for dominance between open and closed systems. The early open CP/M computers gave way to the relatively closed Apple ][. The closed Mac was beaten by the open Microsoft/Intel PC. A few years ago, with the rise of mobile platforms, it looked like the closed model was achieving dominance. The closed BlackBerry and the rising iPhone were demolishing the open Windows Mobile. In traditional computers, the Mac was at long last gaining ground on Windows.
Today, things are a muddle and it is far from clear which model will dominate the next phase. Note that my usage of open and closed has nothing to do with open or closed source; an open system, in this classification means one where a software vendor offers code to a variety of hardware makers while closed system companies allow their software only on their own hardware.
I have long thought that the closed approach was best for mobile devices, especially phones. Small devices benefit greatly from having software that is highly optimized for the specific hardware it runs on. This produces systems with superior size/battery life/performance tradeoffs and, often, a better user experience. This was true for BlackBerry in its heyday and it is true for Apple’s iOS today. Windows Mobile, by contrast, suffered horribly from its attempts to accomodate a wide variety of devices–with or without touch screens, with or without physical keyboards and D-pads, and displays in a variety of sizes and aspect ratios.
(Of course, closed was no guarantee of success. Palm prospered for a while as a closed system, but faltered when it couldn’t compete with financially stronger rivals. Symbian, nominally open but, in its later years, effectively proprietary Nokia software, was also swamped by the iPhone tide.)
The success of Android, which is the clear global leader as a smartphone platform, may be changing the equation. It’s not clear whether the considerable variation in Android hardware design has been a blessing or a curse, but recent iterations of the operating system, especially the current Jelly Bean, have made it easier for developers to optimize software for a variety of device types and sizes. It still falls short of Apple’s seamless integration and probably always will, but it has definitely improved.
Microsoft seems to be charting a third course. Windows 8, Windows RT, and Windows Phone 8 are all nominally open. But Microsoft is keeping a close rein on its Windows Phone OEMs, setting tight parameters for most key specifications. For example, at least for the time being, Windows Phone is supported only on Qualcomm applications processors. The approach leads to a more consistent user experience, though it also causes a certain sameness in the devices. (Windows 8 and RT are covered by the more traditional Windows hardware requirements.Microsoft is keeping a close rein on its Windows Phone OEMs, setting tight parameters for most key specifications.
It’s far too early to say how successful Windows Phone 8 will be. Microsoft is rich and patient and seems inclined to give the much praised but apparently so far little purchased platform time to find its footing. Meanwhile, Google may be moving toward greater control of the Android platform, at least the licensed part of it, both by its sponsorship of Nexus designs and its control of Motorola Mobility. Microsoft, of course, has also plunged into manufacturing with the release of the Surface tablet, though it has shown no indication that it will also do its own phone.
Regardless of the success of Windows Phone, I think the Microsoft approach may be the right model. Because Android is open source in addition to being an open platform, there’s really nothing Google can do about a proliferation of phones, especially in emerging markets, that ignore its guidelines. But I expect it to enforce greater control over “official” Android products as it integrates Motorola and seeks to improve the Android user experience across the board.
On Tuesday, Amazon issued a press release entitled: “Worldwide Kindle Device Sales More Than Double Last Year’s Record Over Holiday Shopping Weekend.”
Here’s the thing, Amazon. You never told us last year’s sales numbers. In fact, you never told us ANY sales numbers. Double no information is still…no information.
Dear Amazon: Until you tell us WHAT you’re doubling, you don’t get to pretend that your use of the word “double” has any meaning or significance.
With the advent of Microsoft’s Windows 8, computer makers developed different form factors to take advantage of the new operating 
system. Most of these new Windows 8 form factors were shown for the first time at Computex in Taipei and then at the official Windows 8 launch event in New York. The new PC form factors extend the functionality by taking advantage of touch screen and the Windows 8 Metro interface. Consumers and businesses can now choose from a myriad of innovative form factors: hybrids where the tablet disconnects from the keyboard, convertible flippers, convertibles that flip 360 degrees and large, portable displays that are carried from room to room.
One of the best of these new devices is Dell’s XPS 12 Convertible Touch Ultrabook. I have been using it for nearly a month as my primary notebook and wanted to share my experiences.
Margaret Hartmann at New York Magazine postulates that Black Friday is morphing into Black Weekend:
According to the research firm ShopperTrak, sales on Friday were down 1.8 percent from last year, which is the first dip since the recession hit in 2008. However, that still amounts to a staggering $11.2 billion in sales, and the drop wasn’t caused by Americans reeling in their spending. With retailers starting sales on Thanksgiving this year and extending deals through so-called Cyber Monday, the busiest shopping day of the year has been split into many pieces, and like a consumerism-crazed starfish, it’s now poised to respawn into a multi-day event.
I agree with her observation with one slight caveat. Black Friday is not only extending from Friday through Cyber Monday, but it is also spilling forward onto Thanksgiving Thursday and into the preceding Wednesday too. In other words, the shopping spree is going to start at around 5 pm the Wednesday before Thanksgiving and continue right on through Cyber Monday.
That’s an awfully long time to have a “1-day” sale. And since a LOT of tech gear is sold during that period of time and since a lot of the buying is now being done online, this developing phenomenon is well worth watching.
There’s been plenty of debate in these pages and their comments about who is winning and who is losing in the battles between Apple’s iOS and Google’s Android. Asymco’s Harace Dediu takes a close look at Thanksgiving weekend data from the IBM Digital Analytics Benchmark and reaches a surprising conclusion: Despite the sharp growth in Android market share, the iPhone and, especially, iPad share of online shopping activity is actually growing.
Dediu’s full analysis is well worth reading. But in the end, he is as mystified as everyone else by the phenomenon he calls the “Android engagement paradox”:
I’m not satisfied with the explanation that Android users are demographically different because the Android user pool is now so vast and because the most popular devices are not exactly cheap. There is something else at play. It might be explained by design considerations or by user experience flaws or integration but something is different.
My first portable cellphone was the size of a brick and weighed almost 2 pounds. And it was dumb. All it did was make calls. By the mid 1990’s Verizon started creating what we now call a feature phone and created its own mini OS, which allowed Verizon to create dedicated apps of their own as well as give third party software developers the tools to also create apps for these phones. This was important since it gave Verizon a controlled eco-system of hardware and software that allowed it to significantly differentiate their cell phones over the competitors.
Of course, the apps they had back then were primitive compared to today’s smart phone applications but they did offer their customer’s games, better contact information and simple calendars, etc. But this was a pioneering move in cell phones and helped Verizon grow this business exponentially. However, in this mode, Verizon had complete control of their eco-system destiny and that made it difficult for third party software vendors to break into Verizon’s apps world in any meaningful way.
The new era of smartphones wrestled control of Verizon’s closed ecosystem away from them and other competitors doing similar things since these phones had an open OS and more importantly, an open approach to creating and selling apps directly to the customer. Some think that Apple’s ecosystem is closed but it really is a pretty open program in that third party software developers can and do create a plethora of iOS apps and Apple freely pays them directly for these apps when consumers buy them. Yes, Apple does veto some apps mostly for inappropriate content, but theirs is a very open approach compared to what Verizon had back in the heyday of feature phones.
One of the big problems with an open approach, whether it is with the Android OS or the Windows OS, is that both of these operating systems go to the vendors with identical user interfaces, thus creating what we like to call a sea of sameness. That means that an Android phone or a Windows Mobile OS phone all look the same since they use the same user interface. At the hardware level the handset vendor can try to innovate, but in most cases the OS GUI is untouched. This is especially true with Windows Mobile phones, although companies like HTC, Amazon and a few others have added their own UI layer on top of Android’s GUI to try and distinguish themselves from the competition.
Not to be undone by this turn of events, Verizon is working hard with some of their handset partners to make their phones more unique and add more value to the users. A good example is the way they have worked with Nokia on the new Lumia 822. Verizon went to Nokia and asked them specifically to do a special version of the Lumia that could be sold for $149 and had features only available on this phone.
Nokia worked hard with Verizon to accommodate this request and has added three key features that help this low cost smartphone stand out. The first is something called Nokia Drive. This is a turn-by-turn voice navigation service that uses their stellar Navteq maps to deliver a rich navigation solution to Lumia 822 owners. It will work in 89 countries and while in beta now, it will be released officially soon. This service also has something called My Commute that, over time, learns the directions to your office or workplace or any other heavily trafficked route and automatically gives directions to these places with its voice navigation feature as needed.
The second special thing Nokia brings to Verizon with this phone that is not available to others is something they call City Lens. This is an augmented reality application that works with the mapping program that overlays specific information about a place, restaurant or landmark to give users a richer mapping experience. Verizon sources say that this is first step in their augmented reality software and will make it even better over time to give users all types of data or information about locations they are visiting.
And the third thing that is specifically for the Lumia 822 is a new Nokia streaming music service called Nokia Music. It is subscription free and has 16 million tracks or 10 times more tracks then Pandora. Also no account is needed and works right out of the box. You can listen up to 12 hours of music free. You can also just tap and scroll in something called the gig finder, which seeks out the gigs or details of a your favorite band’s concerts schedule and locations.
I have been testing the Nokia Lumia 822 for a while now and am pretty impressed how much is packed into a $149.00 smart phone. The core of the OS is Windows Phone 8 with all of its new features such as live tiles and the special protected area for family’s and kids. But these new special features from Nokia add a richer dimension that gives customers a great experience that comes close to equaling what is available on more expensive smartphones.
What Verizon is doing with Nokia is significant. In a world of smartphones where the OS and UI are identical, doing things that help differentiate the phones and services over the networks will be an important key for success.
Barclays Bank has ordered 8,500 iPads in what is believed to be one of the largest corporate deployments of the device in the UK. ~ via TUAW
This kind of thing has got to be terrifying to Microsoft. Microsoft is losing the battle for tablet’s in the Enterprise and they know it.
And if that wasn’t bad enough, the following has to make their blood run cold:
Barclays told The Channel that they went with the iPad because of staff demand.
However, Microsoft is in it for the long run and Windows 8 tablets have barely even come to bat yet. But if this was a baseball game, It would be like Microsoft coming to bat for the very first time in the bottom of the eighth inning already down 8-0.
Oscar Wilde once said that cynics know the price of everything and the value of nothing. Similarly, tech pundits are often obsessed with price to the detriment of value. Despite all evidence to the contrary, pundits think that price is the number one consideration of consumers. In fact, some pundits seem to think that price is the ONLY consideration of consumers. But for most consumers, value is what matters most and price is only one component of that value.
There are three types of consumers: Tightwads, Value Buyers and Spendthrifts. There are two things you should know about these three types of consumers.
First, there are far more value buyers than there are of any other type.
Second, you not only want to ignore the tightwad customers, you want to actively avoid them. They’re a plague on your house.
Pundits seem to think that all consumers are tightwads and all of their analysis reflects that conviction. Smart companies know better.
Remember, reality matters. It doesn’t matter what the pundits think. It doesn’t matter what I think. It doesn’t matter what you think. What matters is what the market thinks. If our thoughts don’t reflect market realities, then we, not the market, are in the wrong.
For the past month I’ve read and listened to every imaginable reason why Apple is going to fail. Well, Apple may fail eventually, but not this holiday quarter they won’t. Not by a long shot.
Here are a couple of miscellaneous reasons why I think Apple is just going to crush it this upcoming quarter
1) Mac Sales Continue to Grow
Sales of Mac hardware to U.S. businesses grew by 49.4 percent year over year in the September quarter, posting continued growth while PC sales shrank.
Charlie Wolf of Needham & Company highlighted Apple’s success in the enterprise as the “big story” regarding Mac sales in the September quarter. With PC sales to U.S. businesses declining 13.3 percent year over year, Apple had a 62.7 percentage point difference.
Yeah, yeah, yeah, I know. No one thinks that Macs are important because they’re still such a minority player. But they’re not so niche as you think.
Overall, the Mac’s unit share of the U.S. business market was 9.3 percent in the September quarter. That was up from 5.9 percent of total sales in June, and 5.4 percent in September of 2011.
Apple had an even bigger share of revenue of PC sales to U.S. businesses, accounting for 17.4 percent. That was also up from an 11.5 percent share in June, and 10.7 percent share a year prior. ~ AppleInsider
Overall Mac sales may even shrink this quarter, but their overall importance in the Enterprise will grow. Remember, phones are already outselling Windows machines and tablets are rapidly headed that way too. (EDIT: NPD: Tablets to Outsell Laptops in Q4, Beyond.) Windows is not nearly as monolithic as people think. And Macs are not so nearly as unimportant or niche as people think either.
2) China
Apple’s iPad shipments for China nearly doubled in the third quarter after Apple settled a lengthy dispute over the iPad trademark name.
People forget that over 60% of Apple’s sales come from overseas and that Apple’s overseas sales numbers are rapidly growing. Yes, it will be a big holiday quarter for Apple in the Western world. But it will be a big quarter for Apple in the rest of the world too.
3) Nielson’s Most Wanted Gift Survey
Have you seen the Nielson most-wanted gifts survey? I mean seriously, it is out of sight. What do American kids aged 6 to 12 want this holiday season? Four out of the top five items on the list are made by Apple.
Let’s take a quick look at the top six items on the list:
48% want iPads
39% want Nintendo Wii U’s
36% want iPod Touches
36% want iPad Minis
33% want iPhones
31% want computers
Now there’s a couple of observations that I take from that list.
First, Apple continues to maintain high consumer mindshare. People think Apple first.
Second, Apple’s popularity is growing. Despite a plethora of competing tablet, smartphone and gaming devices, kid’s attraction to the Apple brand in general and iOS in particular has grown steadily over the past three years.
Third, the iPad Mini is fourth on the list. Yet I strongly suspect that an awful lot of parents are going to walk into an Apple store looking for iPads and iPod Touches and they’re going to end up walking out of that store with an iPad Mini.
Fourth, as an aside, that list ain’t good for Microsoft. Microsoft has lost an entire generation of users – kids who will be growing up using Apple products, not Microsoft products.
Why PC manufacturers Should Fear Apple
The tipping point for tablets has come and gone.
It seems like just yesterday that I was writing articles arguing that tablets were the next big thing. It seems like just yesterday because it WAS just yesterday.
But suddenly, it feels like that battle is over and and done with. If you look through the Nielson survey for whatever age, you see that tablets dominate. Not only are Apple tablets popular, non-Apple devices are on the rise too. Yesterday I was arguing with people who insisted that the tablet was a toy or a fad. As is usual with new ideas, we’ve suddenly moved from the “that will never happen” phase to the “of course that happened and I knew it would all along” phase. True, not everyone is convinced but for the most part the naysayers have learned to remain silent lest they be thought of as quaint, at best, or out-of-touch with reality, at worst.
The age of the tablets is upon us – (just as we all knew it would be, all along.)
Why Microsoft Should Fear Apple
Yesterday, Ben Bajarin wrote an excellent article entitled: “Why Competitors Should Fear the iPad Mini“. A couple of his key takeaways were that families expected to own more than one iPad Mini, that with an iPad Mini consumers feel they pay more but they get more and that “the tablet is taking the place in the hearts of many consumers as the new personal computer.” He couldn’t be more right.
The final word on Microsoft’s tablet efforts has not yet been written, but the preliminary reports do not look good. Not only has Microsoft missed a generation of phone users but now they are missing a generation of tablet users too.
PC sales continue to decline and there are reports that a staggering 42% of Windows users say that they plan to buy an Apple product – either a Mac or an iPad – rather than a Window’s 8 device. I take such claims with a huge grain of salt, but as I said in my article: “Windows 8′s Greatest Sin“, consumer’s now have choices that they didn’t have before. Microsoft is making their long-standing customers choose between Windows 8 and other options. And many are choosing to opt out.
Why Google and Amazon Should Fear Apple
Apple may dominate tablet sales, but there are going to be a ton of Google Nexus 7’s, Amazon Kindle Fire’s and even Barnes & Noble Nook tablets sold this holiday quarter. But the people buying those tablets are buying media tablets that run stretched phone apps. The people who are buying the iPad and the iPad Mini are buying a tablet that runs tablet apps and that can also act as a Media tablet. That’s my opinion. But I think that’s also the opinion of the market and I think we’re going to see that opinion expressed in hard sales numbers come this January.
Remember, there are three types of consumers: tightwads, value buyers and spendthrifts. Tightwads are going to be drawn to the Amazon Kindle and the Nexus 7 because of their subsidized prices. The Nook, at least, is trying to make money on the sale of its hardware. Kindle Fire’s and Nexus 7’s sales are empty sales. Neither Amazon nor Google makes a penny of profit until they sell additional goods, services or advertising. And their chances of doing that when selling to tightwads is not good. Not good at all.
I actually think Apple’s margins may be lower this quarter. They’ve introduced, re-newed or refreshed almost their entire line and some of their products – the iPad Mini in particular – will make them less than normal margins. But Apple’s margins are absurdly high to begin with. And since many of Apple’s products are supply constrained, the high margins truly reflect the high value that consumer’s place in Apple’s products.
The last time I paid attention to such things, Apple – a hardware seller – had higher margins than Microsoft – a software seller. That just shouldn’t happen. And in any case, I can guarantee you that Apple’s less than usual hardware margins are going to be far, far, greater than the virtually non-existant hardware margins of either Google or Amazon.
The future is uncertain and predictions are always perilous. But if Apple doesn’t have a banner quarter, I’ll eat my hat. Then I’ll go out, buy another hat, and eat that one too.
It’s going to be a very Apple-y holiday quarter. You can hang your hat on it.
We have been conducting tiers of research trying to gauge consumer sentiment around tablets and in particular of late, the iPad Mini. Part of my interest with this research is designed to get deeper insight into the 7″ form factor in terms of perceived value and core uses cases for consumers versus the larger tablet form factors.
Bear in mind, when we do research it is rooted in ethnography and observational methods not surveys. We interview consumers and strive to understand things from their perspective. I like to explain it by saying we strive let consumers perspectives help shape our own rather than the other way around. That’s how Creative Strategies has done it for over 30 years and its never let us down.
Another thing worth mentioning for those not familiar with our work is that we target consumers in our interviews on specific parts of the adoption curve. Most of our focus is on the mass market consumer and late adopters not the tech elite and early adopters.
Our research on this matter will get packaged in a more formal way in the future but I wanted to share a few highlights.
One thing I found interesting was that nearly everyone we spoke to who expressed interest in the iPad Mini, simply assumed the next version would include a Retina display. More interestingly this did not seem to be a deterrent to their intended purchase this holiday season. When I dug into why there was no interest to wait, the overwhelming consensus was that over time their intention was not just to own one but to own many. Ideally one for every person in the house. So the logic goes, when the new one comes out the older gets handed down. This used to be the logic for notebooks.
Price was certainly a driving factor for the interest of the iPad Mini over the iPad. But to many the price premium did not seem to be a deterrent. One of my key takeaways is that the perception with the iPad and the iPad Mini, relative to tablets, is that even though you pay more, you get more. This in terms of hardware and software quality as well as ecosystem and perhaps more importantly the experience.
The vast majority we interviewed had not owned a tablet yet and were on all parts of the economic scale. Those in the lower income brackets were also intending to research a few other tablets in the 7″ form factor. The leading three were the Nexus 7, Kindle Fire HD and Nook HD. Even with that bit of feedback over 60% said they were still leaning toward the Mini.
When we discussed the intended use cases for the iPad Mini, every single person with kids mentioned it as a part of their child’s educational process as a key use case. This did not surprise me. What did surprise me was that over half of those who brought up using it as a part of their kids educational process made the point that they believed the iPad would be used in schools in the future and making sure their kids were proficient with it was important and that they wanted their kids to use the same technology at home they will be using in schools.
This bit of feedback is very interesting. Here again we have a thought process that was used for notebooks and PC literacy skills being used for tablets. I truly believe we are moving into a touch literate world.
Some concluding thoughts. I firmly believe, now more than ever, that the tablet is taking the place in the hearts of many consumers as the new personal computer. This again cements in my mind the fact that this market will be much larger than the notebook and desktop market ever was and I believe even closer in size to the smartphone market than people realize.
Our research is continually bringing to light that consumers are thinking about tablets the way they used to think about notebooks. Validating again our conviction of a PC Cliff.
Continually we hear that although price is a consideration they don’t simply want cheap. Consumers are smart and they will pay for value. I believe way to many believe that price is the ultimate decision factor and our research continually validates that is not true. If the mindset around tablets continues to have emotional and personal appeal then there will always be a market for more premium experiences.
What I would be worried about if I am an Apple competitor is that the iPad, and perhaps specifically the iPad Mini, becomes the tablet that large portions of the market cut their teeth on thus becoming the standard. The iPad family, in my opinion, is the only no compromise general purpose tablet on the market. The bottom line is price not as big of a deal as we believe and consumers will pit the iPad against the competition (all which I have had extensive time with). That comparison, with the reality that price is not the ultimate driver, is what competitors should be most concerned about.
“Notice of Intent to Sole Source iPhone Devices.” That dry headline, from a National Transportation Safety Board post on the Federal Business Opportunities web site, is news about as grim as it can get for Research in Motion. Though the launch of the new BlackBerry 10 smartphones the company is counting on for salvation is just over two months away, it may well be too late. Enterprise customers, long the backbone of RIM’s business, are abandoning the platform and without them, RIM has little hope of survival.
The NTSB. like many U.S. government agencies, has long depended on BlackBerrys for secure mobile communications. But they are beginning to fall away. Among others, the National Oceanic & Atmospheric Administration and two Homeland Security agencies, Customs & Immigration Enforcement and the Bureau of Alcohol, Tobacco, Firearms & Explosives have announced plans to move to the iPhone.
BlackBerry’s advantages have long been security and reliability and, indeed, RIM recently announced that it had won FIPS 140-2 security certification for the BlackBerry 10 platform. But other devices, notably the iPhone, now also offer government-ready security solutions. As for reliability, NTSB says in its document justifying a sole source Verizon Wireless/Apple deal:
This requirement is for the acquisition of Apple iPhone 5 devices. These Apple devices will replace the NTSB’s existing blackberry devices, which have been failing both at inopportune times and at an unacceptable rate. The NTSB requires effective, reliable and stable communication capabilities to carry-out its primary investigative mission and to ensure employee safety in remote locations.
If that’s the way its staunchest customers feel, RIM’s BlackBerry 10, no matter how fabulous, is doomed.
Kind of sad, isn’t it? This sorry attempt at a festive display of new PCs at a Micro Center store in Rockville, MD, says a lot about the thud with which Windows 8 seems to have landed.
Windows guru Paul Thurrott recently reported that Win 8 sales are running below Microsoft’s expectations. Microsoft executives, Thurrott says, put much of the blame on OEM partners for being late to market with exciting hardware. But much of the problem may be closer to home. Neither Microsoft nor its retail partners seem to be making all that great an effort to sell new systems, especially compared to past efforts.
This week, I stopped by several big box retailers, the sort that generate most of the sales of Windows PCs, and what I saw was dispiriting. Instead of the end caps, banners, ceiling-high stacks of boxed software, and the occasional brass band that accompanied past Windows launches, I saw a distinctly low key effort. Windows 8 has only a modest presence on TV–most of Microsoft’s ad buy is dedicated to Surface, which is sold only online and in Microsoft’s own sparse retail outlets–and I saw no sign of any Microsoft promotional effort at my local Best Buy, Staples, Microcenter, or H.H. Gregg. In fact, the display below, at Staples, was about as flashy as it got:
Now it is a fact of life in retailing that vendors literally get what they pay for in terms of shelf position, end-cap displays, store advertising, and other promotion. It appears Microsoft isn’t paying much this time around. It doesn’t help that Microsoft is not, at least at this point, selling Windows 8 as physical media, so there are no in-store displays of the software itself. Still, it’s telling that Windows is missing from this row of promotional posters at the Micro Center entrance:
On the shelves, things are just as bad. The main selling point for Windows 8 is touch, but most of the new touch models have yet to come to market. Laptops are generally grouped by price, sometimes by size. In no case did I see touch models grouped together or in any way featured. Best Buy at least had little tags on some non-touch models proclaiming their lack of touch screens, but otherwise, you had to figure it out for yourself, either by reading the detailed product descriptions or by touching the screen and seeing whether anything happened. (A clue: If it costs less than $1,000, it probably doesn’t has a touch screen.) In most stores, there are some Windows 7 machines mixed in among the newer models, and I wouldn’t be surprised if few shoppers managed to figure out just what was supposed to be superior about Windows 8.
Unless Microsoft is going to open a whole lot more of its own stores (there is only one full-fledged Microsoft Store in the Washington area–in Arlington, Va.,–and just two pop-up stores, really glorified mall kiosks, in the entire state of Maryland), it should work with OEMs and retailers to do something to improve a horrible shopping experience. Most of the machines I saw on shelves made it impossible to get any sort of meaningful Windows 8 experience. Many of the machines were dead, or were locked into demo screen shows. Of those that were running Windows 8, almost none were both connected to the internet and linked to a Microsoft account, two features necessary to understanding what the new OS is all about. And while I understand the need of retailers to keep stock from walking off, their approach to theft prevention is lethal to sales. For example, it’s impossible to get a real sense of the sleekness of this Hewlett-Packard Spectre XT Ultrabrook at Staples with that horrible anti-theft clamp and cable device on its side:
Even worse was a similar clamp (at Best Buy) that prevented a Lenovo Yoga convertible notebook/tablet from going through its agile tricks.
I only ran into one true Windows tablet in my shopping tour, a $600 Asus Vivo Tab RT. To my complete lack of surprise, the display was free of any information on the differences between its Windows RT software and the full Windows 8 on the systems surrounding it, another bit of consumer education that Microsoft is sorely ignoring.
Over the course of the Windows 8/RT industry discussions, ARM-based tablets have received the lion’s share of the discussion. This has been particularly true with Microsoft’s announcement of Surface RT. Does this mean
Intel cannot deliver a competitive tablet solution? Hardly. Intel’s CloverTrail platform is shockingly competitive and I wanted to share some early experiences with the Samsung’s ATIV SmartPC 500T. In particular, I wanted to share one of the differences between it and Surface RT.
First, just in case you were living under a rock for the past two years, two Windows operating systems exist, Windows RT and Windows 8. Both run the newer Metro tile-based apps. Windows 8 devices will run those apps and all previous Windows 7 desktop applications and Windows RT devices come pre-loaded with Microsoft Office.
Offline Syncing
One of the major weaknesses of Windows RT devices is that they currently have no way to sync files so they are accessible offline. With the Samsung 500T, I can install Sugarsync, Box, Dropbox or SkyDrive and have a folder of files that is accessible and synced, online and off. This isn’t some corner case usage model for me as I have working like this for years and for me is a requirement for a “PC”. I can even sync files with my iPad, so it’s not like this is foreign to tablets or even phones. I do expect Microsoft to eventually add this capability but it’s just not here now which was very dissapointing. They will need to write an ARM-based, desktop compatible connector to achieve this.
Outlook
Windows RT devices come standard with key Office apps like Word, PowerPoint, Excel and OneNote, but it doesn’t come with Outlook. With my Surface, I bounce back and forth between Metro-based Mail and Desktop Office, which is a bit of a shocker when in work-mode. On the Samsung 500T, I can take advantage of Office’s features I us a lot like rich email salutations, filters, social media connectors, Word-like formatting, mail-merge, and reply with meeting. I have to admit, I was surprised how responsive Outlook was with CloverTrail. Intel really did their homework on the Atom Z2760 and Outlook. I must point out that Outlook is an adder, a $199 adder, so this isn’t free, but a requirement for me when doing heavy duty work. The Metro email app is good, but not good enough to run my business from.
Games
The Windows App Store does not currently have many games, but I am optimistic given the amount of Windows game developers out there. One of the advantages of the Samsung 500T is that it can run legacy apps and games. It’s not like you would want to run the latest Call of Duty game, but certainly you can run some of the lighter weight desktop games. For instance, my son, as I have written many times before, plays a game called Wizard101 from KingsIsle Entertainment. He literally plays this every day, and because Intel’s CloverTrail will run Windows desktop apps, he can play his favorite game.
Printer-Scanner-Fax
It’s hard to buy a printer without an integrated scanner, fax and copy machine built in. I had no problem network printing from Surface, but I couldn’t install any of the advanced features that made the scanner work. The Samsung 500T loaded the entire driver and app set and I could use all of the features. The one I appreciate most is where I scan a document and it automatically shows up in the “My Documents” folder of the 500T.
Evernote
Because the 500T can run Windows 7 desktop apps, it runs full Evernote. My entire life is on Evernote and I have been paperless for years because of it. Quite frankly, Evernote for Metro is unusable. It doesn’t sync in the background, crashes a lot, doesn’t handle viewing or adding attachments properly, cannot format, does not support audio notes, and does not support “Places”. Other than that it’s great. The Evernote folks have been busy working on their iOS and OSX upgrades but I sure hope they get to Windows 8.
Chrome Browser
Chrome is my favorite browser. I have all my favorites, folders, and even some passwords already setup. I can use the full-strength browser. Internet Explorer is nice, but unfortunately in Metro-mode it does not support favorites in folders. Internet Explorer just lists a 1,000 of bookmarks without folders which is just untenable.
Camera
I will never understand why some tablets have such crummy cameras. This includes the iPad and Surface, too. It literally costs a few dollars to improve it. I get the segmentation reasons and that every penny counts, but we are talking $500-700 devices. I was quite pleased with the 500T’s camera as it captured stills at 8MP and vide at 1080P. This is comparison to Surface’s 1MP still and 800P video capabilities. Why would anyone want to take pictures or videos with a tablet given it looks so geeky? In meetings I take pictures of white boards and even slides being presented. Also, because cameras drain so much smartphone battery life, many times I will use a tablet because it will last so much longer. So yes, I am the geek taking photos and videos of their kid’s volleyball game with the tablet.
Battery Life
Most people expected some monumental difference in battery life between Intel and ARM-based tablets. I did a year ago, too. I have not experienced any discernible difference between the 500T and Surface but some reviewers have noticed differences. Given no one even thought Intel could even show up to this tablet battery life battle, Intel has proven a lot.
Startup Time
From cold start, the Samsung 500T started up extremely quick in around 13 seconds. This is in sharp contrast to Surface which took around 29 seconds to start. I think the last major update slowed the cold boot start for Surface, which is odd. Users won’t need to do this often unless they run out of battery life because both devices support connected standby. The Samsung 500T and Surface, once on started immediately came to life and had updated content.
PC Oddities
The Samsung 500T is a full PC, meaning you get the advantages and disadvantages of a PC. It is very easy to load an app that can bring it to its knees, like a video encoding app or game like Call of Duty. If you want to run a program like that, you’d be better off getting an Ultrabook or ultrathin, but be prepared to pay a lot more. So I did need to be aware of what was running in desktop if I noticed something was slow in Metro.
It’s also real easy to run out of storage. I loved the synced files, but it does require that you have enough to store the data. This may sound trite, but for many basic users, this is difficult. Finally, I did notice that when I did restart or turn the 500T off, some app or process would keep it from shutting down. Just like a full Windows PC.
Where to From Here?
This blog is about sharing my initial experiences with the Samsung 500T and not meant to be a sweeping analyst opinion piece on Intel versus ARM. I will follow up with that as soon as I have used more Windows RT and Windows 8 systems. That’s only fair. What I can say is that Intel has delivered every bit as good of a tablet experience as anything ARM-based companies have delivered so far, if you know how to navigate a Windows PC. The Samsung 500T is responsive, thin, light and has good battery life. In addition, it runs Windows 7 desktop apps, too, unlike Windows RT devices like Surface. That cuts both ways in that an unsophisticated user could easily make a mistake and flood it with too much processing and/or storage from a Windows 7 desktop app. But if you know what you are doing, you won’t do that.
What I can definitively say right now is that it is “game-on” between Intel, NVIDIA and Qualcomm in the Windows mobile space.
Léo Apotheker’s brief, unhappy tenure at Hewlett-Packard is the gift that keeps taking.
The highlights of his 10-month reign, which ended in September, 2011, included a loss of $30 billion in market capitalization, the shuttering of webOS operations, and turmoil caused by public musing about a possible sale of spin-out of the Personal Systems Group. His big move to redirect HP: The $12.5 billion purchase of business analytics software company Autonomy.
Oops.
HP announced today, as part of its dismal fourth fiscal quarter financial report that it was writing off $8.8 billion of Autonomy’s grossly inflated value. From the HP release:
HP recorded a non-cash charge for the impairment of goodwill and intangible assets within its Software segment of approximately $8.8 billion in the fourth quarter of its 2012 fiscal year. The majority of this impairment charge is linked to serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy Corporation plc that occurred prior to HP’s acquisition of Autonomy and the associated impact of those improprieties, failures and misrepresentations on the expected future financial performance of the Autonomy business over the long-term. The balance of the impairment charge is linked to the recent trading value of HP stock. There will be no cash impact associated with the impairment charge.
Looks like one of the many things Apotheker wasn’t very good at was due diligence. In an uncommonly blunt statement HP accused Autonomy of mischaracterizing “negative margin” sales (i.e., stuff sold at a loss) that made up 10% to 15% of Autonomy’s revenue and inappropriately using licensing transactions with resellers “to inappropriately accelerate revenue recognition, or worse, create revenue where no end-user customer existed at the time of sale. ” With language like “disclosure failures and outright misrepresentations,” I suspect former autonomy executives and investment bankers will be hearing from HP’s lawyers before long. Autonomy founder Mike Lynch joined HP after the acquisition, but left the company in May.
[dc]A[/dc]s technology invades our lives and covers every facet of working, playing, learning and more, we as a culture will need to adjust and find balance so as to not get so lost in the digital world that we lose ourselves. We hear frequently about parents desiring to get their kids to shut off the video-game systems and go outside and play. Go out in public to restaurants, coffee shops and malls, and you see people fixated on their screens.
There is nothing wrong with embracing technological advances, however, I think we need to be aware of something important as a digital society. I fear that we may slowly lose the ability to be fully present in a moment or situation.
I noticed this about myself a few years ago while I was on my computer checking e-mail and responding to “important” work stuff. As I was sitting there fully immersed in my screen, one of my daughters was trying to get my attention. I’m not sure how long it took, but I think she had to say, “Daddy! Daddy! Daddy!” about four or five times. I recognized that it should not take me that long to respond, and, more importantly, my eyes were open to the reality that often I was not fully present in many important situations. We are allowing digital distractions to interfere with important moments.
Since then, I have worked to retrain myself to be more fully present when engaging in conversations with my family, friends and colleagues. And I’m resisting the urge to constantly look at my phone to see if I have new e-mail, check Twitter or Facebook or do something that would send a signal to the person across from me that they don’t matter as much as something on my digital device.
Perhaps this is not a problem everyone struggles with, but I am noticing it more and more with young people. I grew up with technology and have little or no recollection of life without a game system or personal computer. I am in my mid-30s and the digital devices I grew up with are light-years different from the ones my kids are growing up with, but the point remains that growing up digital leads to some of the tendencies I am noticing. There’s a lack of ability to be fully present.
I especially notice this problem being rampant where I live and work in Silicon Valley. Just the other day I was observing at a restaurant in Palo Alto, Calif., that’s popular for many business-lunch meetings that most, if not all, of those engaging with other humans were also equally engaged in their digital devices. I watched three different tables and in a time period of 15 minutes, every person at every one of those tables averaged checking their smart phones and responding to something at least three times.
This is clearly just becoming something that is socially acceptable. In a meeting or conversation, it’s now O.K. to turn our attention and be as equally engaged with a smart phone as we are with the person across from us. In fact it is not just O.K. it is normal and in some places expected. We are, after all, a multitasking generation.
In fact, an interesting thread comes up in some of our firm’s consumer interviews that are focused around computing. Very often, the desire to multitask and be engaged with multiple things at one time is a common one when it comes to computing products.
We are becoming not just comfortable with multitasking but we are also becoming experts at it. Multitasking extends from multiple tasks on a single screen to multiple tasks divided to multiple screens. More common in many households in developed countries is the use of a second screen while watching TV. Whether it is a tablet, smart phone or notebook, we are now engaging with multiple tasks on multiple screens, often at the same time. It is not possible for our attention to be divided across multiple tasks and multiple screens–at the same time. I’m guessing that the prior generation may have considered this too much to handle. We are becoming experts in multitasking, but I think it’s time we learn again how to single-task in certain situations and contexts, namely during engagements with human beings.
I am working to do this and I hope to bring my kids up with a heightened awareness of how and when it is important to exercise single-tasking — the importance of being present and engaged in a moment. Relationally, this is a key skill I’d love to see reacquired by the digital generation.
It will not be easy. Screen media competes for our attention and will continue to do so many times during our days. I’d love to see companies like Apple, Microsoft and Google even try to help turn this trend around — perhaps by offering technology like Apple’s Do Not Disturb feature to automatically kick in when I am in a meeting or when I get home.
There is a time and place for technology, but there is also a time and place to be present in the real world. If we can’t recapture the ability to be present, we may find that digital distractions cause life to pass us by.
Sorry for the long delay in our opinion cast. We are implementing a new model that we believe will make it even better. We have sought professional help and brought on a moderator / host Shawn King to produce and moderate our podcast efforts.
In this Opinion Cast we discuss the iPad Mini and the potential impact it could have on the PC industry. Windows 8 is upon us and we discuss Microsoft’s Surface and share some insights on how to think about it and products like it. Lastly, we take a deeper look at John Kirk’s series on Android winning the battles but losing the war.
You can also subscribe to our opinion cast in iTunes here.
A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia
“If we are victorious in one more (such) battle…we shall be utterly ruined.” ~ Pyrrhus
Google, inarguably, won the war for the desktop. Their search strategy was brilliant, brilliantly executed and brilliantly successful. But they knew that mobile was the future and they knew that they needed to find a way to extend their business model to embrace mobile or they would eventually be isolated on the desktop with ever decreasing customers and ever decreasing revenues.
Android was Google’s answer to how to monetize mobile. It would serve two purposes. It would transfer Google’s successful desktop search paradigm to mobile devices and it would disrupt the incumbent mobile operators.
DISRUPTION
In the latter, Android was entirely successful. The one-two punch of Apple’s iOS and Google’s Android demolished the then crown princes of mobile computing. Palm is gone. RIM is on its last legs. Nokia is no more than a vassal of Microsoft. Windows Mobile was utterly destroyed, its replacement, Windows Phone 7, has come and gone, and Microsoft is now rebooting the franchise for a third time with Windows Phone 8. Seldom, if ever, has an industry been turned on its head quite so thoroughly and quite so fast.
PROFITS
However, with regard to transferring Google’s desktop search model to mobile, Android has utterly failed. Google search on the desktop is one of the most profitable businesses in the world. Android on mobile is not only virtually profitless but, if your subtract the extraordinary expenditures involved in creating and supporting it, it is almost certainly a net loss for Google.
SEARCH, APPS AND PLATFORM
There are at least three reasons why Android is failing to serve Google’s purposes: search, apps, and platform.
When Google created Android, they didn’t know, and probably couldn’t have known, how ineffective search would be on mobile devices. For a variety of reasons – but mostly due to the small screen size – search simply does not work on mobile devices the way it does on desktop devices.
The popularity – and the peril – of apps was probably another unforeseeable development. In 2006, and long afterwards one could have, and many did, make the argument that web apps were the future. It just didn’t work out that way. Apps have proven to be far more successful than anyone could have predicted. And apps are a direct threat to Google’s search model since they can’t be “crawled” by Google’s search engines and since they entirely bypass Google’s advertising business model.
Yes, search and apps were threats that Google may not have been able to previse, but their real failure was a failure to understand what platform was all about. To be fair, most industry analysts and pundits still, to this day, seem blinded as to what truly makes a platform successful.
When it comes to platform everyone is focused on units and users. What they should be focused on is dollars and developers.
A consumer who is willing to spend $100 is 100 times more important to developers, retailers, content providers and advertisers than is a consumer who is only willing to spend $1. More importantly, a consumer who is willing to spend $1 is infinitely more valuable than the consumer who spends nothing. Unit sales and users are important to hardware manufacturers like Samsung and Apple because hardware manufacturers get paid up front when the purchase of the hardware is made. But so far as a platform goes, the consumer who consumes nothing is a non-entity – they might as well not exist.
All that market share that Android has? Toss it out. Start counting again and this time, instead of counting units and users, count the dollars that those users spend. If you do that, suddenly all of Android’s seeming paradoxes quickly dissipate.
— Users who don’t spend money don’t attract developers, retailers, content providers or advertisers.
— Users who don’t buy into the platform have no loyalty to the platform. They’re not customers for life. They’re customers until they get their next mobile device.
— Users who don’t spend money have no network effect. Non-using users are not a boon to a network, they’re the bane of a network.
This all begs the question: “Why don’t Android users spend more money?” I know this is going to be dismaying to read, but I simply don’t know.
I find all the current theories unsatisfying. Many of them are undoubtedly true. And some of them explain some of why Android owners spend less. But none of them – even in concert – fully explain to my satisfaction why Android users spend so very much less.
I think that I could make a pretty good case that Google’s inattentiveness to their platform is the biggest culprit. And even Google seems to be waking up to this fact. Last month they initiated new guidelines for creating tablet optimized apps. Yesterday they modified their legal agreement with developers working on Android apps to specifically prohibit them from any action that could contribute to further fragmentation of the mobile platform.
Will this be enough to increase user spending and purchasing? Who knows. For now we simply have to live with the fact that Android owners do not spend money and the consequences of that fact. The rationale for why it is so will have to wait upon further analysis.
As I discussed, above, Android was terribly disrupting to the mobile device industry. Industry stalwarts such as Palm, RIM, Nokia and Microsoft Windows are either gone or are on the ropes. But Android may have been disruptive to at least one other company too – Google.
There’s no evidence that Android is contributing to Google’s success. On the contrary, Android appears to be cannibalizing Google’s profitable businesses without generating any profits of its own. Android thoroughly destroyed the business models of the previous mobile moguls but it did not stop there. Android has now turned on its creator and it is destroying the value in Google’s advertising business, virtually eating the company up from the inside out.
The story of Android is still being written but the story being told by most pundits and industry observers is very different from the one that is actually occurring. Android has won the battle for market share but it is a Pyrrhic victory because it is coming at the expense of Google’s current profits and future prospects.
Like Pyrrhus of old, Google, needs to learn that winning isn’t everything. Picking your battles is as important as winning them because each battle has a cost and some victories come at too high a price. In spite of its perceived success, Android is not serving Google’s interests. Its march needs to be altered else its victories will ultimately prove ruinous to the victor.
One of the most exciting things happening in the industry right now is the diverse innovation coming from Windows PC OEMs, who are making every type of form factor imaginable. Looking specifically at the traditional PC industry and traditional PC OEMs, I have never seen such a wide array of innovative products flood the market place and more are coming.
All of this is being driven by Windows 8 and Microsoft’s bold approach to build an OS that can support such a diverse range of hardware. I have been using many of these devices and I have some observations.
The first thing that strikes me is how different of an experience one can have with the same Windows 8 OS but with different hardware. Back in the old days, you could select a Windows laptop and expect basically the same experience across the board. Those days are gone, for now at least.
Some form factors perform better as a traditional notebook. Others perform better as a tablet. The touch and trackpad experience varies from device to device. The performance of certain devices is drastically different. Some have drastically better battery life than others. The key point I am making, and the observation that really struck me, is that the device landscape for Windows 8 has become one of trade-offs. To maintain the level of form factor innovation we are seeing around Windows 8, OEM and ODMs will be making key decisions of which trade-offs to make in order to bring certain devices to market with certain features at certain price points.
There has never been an environment like this before and my fear is that it is extremely confusing for interested buyers. Just as the OEMs and ODMs will need to make specific trade-offs, so will certain consumers need to be aware and comfortable with those trade-offs. Although trade-offs and compromises have always been apart of the PC shopping experience, it is severely exasperated to an entirely new level.
Consumers shopping for PCs will be forced to examine the features and functions they value (and at what price) more than ever before. I am intrigued by the kind of impact this internal reflection could cause in the marketplace. The reality is that there are a massive amount of PCs in the market that are 4 years old or older. I’ve come across a range of data on this and from all what I have seen, it appears a conservative number is in the 100 to 120 million range. If we are starting with that number as a base then we would initially think that many consumers are in the market for an upgrade, and in fact they are. However, the hardware diversity and bold transition of Windows 8 may have adverse effects as consumers truly begin shopping with a more refined set of needs, wants, and desires, than ever before.
Interestingly, I came across a story at USA Today which highlighted a survey from a Windows security software company called Avast. In this survey Avast gauged the awareness and likelihood of those in the market to upgrade to Windows 8. Of the 135,329 Windows users who responded to the survey, 33% indicated that they were probably not going to upgrade to Windows 8 in the immediate future and 41% said they were definitely not going to upgrade to Windows 8 in the immediate future. Now the nugget of data that came out of this quantitative survey that got a lot of press yesterday was this: Of those 135,329 Windows users who indicated they were in the market for a new PC, 42% said they were going to switch to an Apple product.
Now many may say, that is one survey and often we have to take data like this with a grain of salt as Ed Bott did in his breakdown of that poll. But I have seen data from a number of other research companies and vendors that all back up this concern and relative uncertainty. However, a key point remains. A large section of the market is hesitant, and a large section of the market is looking at all their options, even if it means switching platforms. Doesn’t necessarily mean they will switch, but they are considering all their options–that is a key point.
The personal computing landscape has changed drastically in the last 3-4 years in that those who bought PCs in that time frame, who are now in the market for a new one, have a much more complex landscape than ever before. The competition for those in the market for upgrades will be fierce and more importantly consumers will be more savvy to their own personal preferences with these devices.
There are a number of scenarios I can see playing out from optimistic to catastrophic for the PC industry and I will look at each briefly.
If you read my column where I shared some high level thoughts on the Surface then you understand my view that the product is not the best tablet nor is it the best notebook. Because I feel the pure tablet form factor perfectly serves the mass market needs, my gut is that consumers will shop for a no compromise tablet. However, we know that the traditional PC still plays a role. So I can see a scenario where consumers buy the best tablet and the best notebook, thus truly giving them the best of both worlds. This doesn’t necessarily mean they buy them in the same year but the point remains that I see a scenario where it could play out this way.
If this happens, and consumers take this road in large numbers, it is very good for many players in the PC ecosystem. An interesting thought on this scenario, is that generally speaking a well made premium PC will have a longer life cycle, thus extending the refresh rate perhaps even longer than it is today for traditional PCs.
The other scenario I can see happening and one that may be a bit more troubling for certain companies, is one where consumers buy a no compromise tablet and a very low cost PC. If you buy my logic that the traditional PC form factor over serves the needs for a large section of the mass market, then a key question remains. If consumers, as they reflect and become in line with their true PC usage, realize that the tablet can do upwards of 80% of what they primarily do on a daily basis, then why would they spend lots of money on a product that will not get used every day, week, etc. If the tablet becomes the personal computer and the traditional PC just sits in the other room and is only used for some tasks, then in my opinion the traditional PC loses its perceived value in the eyes of consumers.
In either scenario, the life cycle of the PC is extended and the refresh rate the industry used to enjoy with PCs will most likely shift to tablets. Lower cost PCs may need to be refreshed more often but in this scenario the profit opportunities are not in PCs they are in tablets.
This scenario is one that not every OEM today is poised to compete in and could be challenging for some. The reality is the industry has changed dramatically. Consumers have become way more in tune with what they want and why they want it. That shift will have profound impacts on the types of products we see and who the winners and losers in the market may be in the future.
The PCs gone wild trend of form factor innovation is not just necessary it is a necessity if companies are going to stay in the game, compete, and have sustainable business going forward. I’m excited about the innovation in PC hardware we are seeing today and I am even more excited for what is around the corner.
This began life as a reply to a comment on Part 4 of John Kirk’s “Why Android Is Winning the Battles, But Google Is Losing the War,” but quickly got out of hand.
John’s post sparked a discussion of Apple’s and Google’s different approaches to developing apps for tablets vs. handsets. Commenter rj said that Apple’s approach is to favor development of “Universal” apps that will run on either the iPad or iPhone. This is correct, but it rather misunderstands what a Universal app is. If implemented following Apple’s user interface guidance, a Universal app will effectively create two different versions in a single package.
The Android guidelines focus heavily on scaling and are marked by a belief that, at worst, developers need make only modest adjustments to phone apps to make them suitable for tablets:
Provide different layouts for different screen sizes
By default, Android resizes your application layout to fit the current device screen. In most cases, this works fine. In other cases, your UI might not look as good and might need adjustments for different screen sizes. For example, on a larger screen, you might want to adjust the position and size of some elements to take advantage of the additional screen space, or on a smaller screen, you might need to adjust sizes so that everything can fit on the screen.
Apple is much more concerned with the need to redesign apps for different display types:
Ensure that Universal Apps Run Well on Both iPhone and iPad
If you’re planning to develop an app that runs on iPhone and iPad, you need to adapt your design to each device. Here is some guidance to help you do this:Mold the UI of each app version to the device it runs on. Most individual UI elements are available on both devices, but overall the layout differs dramatically.Adapt art to the screen size. Users tend to expect more high-fidelity artwork in iPad apps than they do in iPhone apps. Merely scaling up an iPhone app to fill the iPad screen is not recommended.
Preserve the primary functionality of your app, regardless of the device it runs on. Even though one version might offer a more in-depth or interactive presentation of the task than the other, it’s important to avoid making users feel that they’re choosing between two entirely different apps.
Go beyond the default. Unmodified iPhone apps run in a compatibility mode on iPad by default. Although this mode allows people to use an iPhone app on iPad, it does not give them the device-specific experience they want.
A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia
If Android’s battle for phones is a Pyrrhic victory, Android’s battle for tablets is a flat-out ignominious defeat.
The tablet’s larger screen size demands that developers create apps optimized just for its form factor. This makes tablets a seperate platform all its own. Google’s big mistake in tablets was that they either didn’t recognize or refused to acknowledge that fact.
Google just saw tablets as big phones and acted accordingly. Rather than focusing on the creation of tablet optimized apps, Google encouraged their developers to create one-size-fits-all apps. Developers were encouraged to focus on scalability rather than optimization.
Google made their mind set clear by refusing to even establish a separate tablet-optimized classification for their store. While their nearest competitor highlighted the fact that they had 250,000 tablet optimized apps, Google categorically denied that there was any difference at all between phone and tablet apps. The result has mostly been a lot of Android phone apps awkwardly stretched to fit the larger tablet screen. Even big name apps like Twitter and Rdio looked unwieldy on Android tablets.
As recently as June 2012, when the Nexus 7 was introduced, Google Senior Vice President Andy Rubin reaffirmed that Google was sticking with its strategy of encouraging developers to write a single app for both phones and tablets.
“I don’t think there should be apps specific to a tablet…if someone makes an ICS app it’s going to run on phones and it’s going to run on tablets.” ~ Andy Rubin
Google’s policy was focused on the developer, not the consumer. It allowed developers to create apps that worked on more devices, but it did so at the expense of the user experience.
Andy Rubin went on to admit that he was upset that Android tablets weren’t selling. After looking into the reasons, Rubin declared that Google had discovered the reason for the lack of sales. While hardware really mattered on phones, consumers bought into content ecosystems with tablets. Rubin said that Google had lacked some of the ecosystem pieces that were necessary – such as TV shows, movies, magazines, etc. – to make people want to consume on a tablet.
“I think that was the missing piece,” Rubin said.
Do you hear what Rubin was saying? In his mind – and presumably in the mind of all of Google – the reason that Android tablets weren’t selling was because of a lack of compelling CONTENT. Tablet optimized apps never entered into the proposed “solution” to Android’s tablet woes. The Nexus 7 was all about content delivery since – in their minds – it was content, not apps, that was the missing piece.
Finally Google reversed course. On October 18, 2012, Google published a “tablet app quality checklist” on its Android Developer website and began to seriously urge developers to build tablet-optimized apps.Two and a half-years late and 250,000 iOS tablet optimized apps later, Google finally gets it – tablet optimized apps DO matter.
Or do they get it? Google STILL isn’t asking developers to make separate phone and tablet versios of their apps. And they STILL don’t separate phone apps from tablet apps in their store. And when asked why there still aren’t many tablet-sized apps for Android, Director for Android Partnerships, John Lagerling, said:
But before, I’ll be honest and say, yes, there was a lack of tablet apps that supported bigger screen real estate. But I’ll add that, I know we talked about the Cupertino guys, but obviously people who have smartphones are a huge target for us. If you look globally that’s something we worry more about, not so much about competing with other smartphones, but more about, how can we get more people onto the Internet on mobile phones? And that’s a big deal. That’s why low cost is so important.
Translation: Smartphones are more important to us than tablets and market share is more important to us than anything.
No wonder Android’s tablet efforts continue to languish.
So how is that one-size-fits-all, let’s-not-optimize-apps-to-the-tablet strategy working out for Android? The results speak for themselves.
At last report, tablets were just 5.38% of Android’s daily activations. And Nexus 7 sales – although constantly referred to as a “success” in the tech media – have been humble, to say the least.
Mark Mahaney, who follows Google for Citi Research … thinks Google sold about a million units of their tablet (that is made by Asus) and that accounts for about $200 million in revenue.
Ben Schachter of McQuarie Securities agrees and estimates that Nexus 7 sales accounted for probably $150 million to $200 million…in… revenue.
Piper Jaffray’s Gene Muster estimates that Google sold between 800,000 to a million units, while Doug Anmuth of JP Morgan says Google sold about 700,000 units of Nexus 7 tablets.
Asustek CFO David Chang told the WSJ that the company was selling—not just shipping—500,000 units a month initially, when the Nexus 7 launched in July. Figures bumped up to 600,000-700,000 in the following months, and in “this latest month,” Google and Asus have sold close to one million units, said Chang.
Let me put those numbers in perspective.
The Nexus 7 may have made as little as 200 million – in revenue, not profit – in an entire quarter. That’s pathetic.
And we know that Google didn’t make any profits from the sales of the Nexus 7 because they told us so.
“When it gets sold through the Play store, there’s no margin,” Rubin said. “It just basically gets (sold) through.”
But revenue and profits really don’t matter in a subsidized model. The concept is to get as many units on the market as possible in order to enhance the opportunities to sell content and advertising. So let’s look at the Nexus 7’s sales numbers.
The Nexus 7’s sales are either as high as 1 million units a month or as low as 1 million, 800,000 or 700,000 units a quarter. And the reason we’re relying on estimates is because Google refuses to release actual sales numbers – which is telling all in itself.
By way of contrast, Apple sold a total of 3 million iPad Minis and iPad 4’s in their first three days of availaility. At its current pace, the Nexus 7 would take between 3 months to 3 quarters to even match, let alone exceed, the number of tablets sold by Apple’s first 3 days of sales.
Those sales numbers are bad enough, but for a subsidized product, they’re gawdawful. Remember, the Nexus 7 is being given away at cost. Can you imgagine how many more cars or televisions would be sold if they were being sold at cost? The Nexus 7’s should be selling like crazy, not badly trailing competitive offerings that cost $300 more.
This is a give-away-the-razor, sell-the-blade business model. (See my article entitled: “Selling The Amazon Kindle Fire and Google Nexus 7 Is As Silly As Selling Razor Blades To Men Who Love Beards“). Giving away the razor does not guarantee the sale of the blade but NOT giving away the razor DOES guarantee that the blades won’t be sold. Simiarly, volume sales of Nexus tablets do not guarantee that Google will profit from the sale of content and ads but low volume sales DO guarantee that they will not.
Pundits are opining that the Nexus 7’s lower price will make it a hot selling item for the holiday quarter. And I have no doubt that sales will increase. But if Google was having trouble selling the Nexus 7 when its only competition was the 7 inch Kindle Fire and the 10 inch Apple iPad, then why does anyone seriously think it will do significantly better now that it also has to compete with the Apple iPad Mini and the Microsoft Surface?
The irony in all of this is that tablets are where the ad revenue is. Android has fought and won the battle for phones but phones don’t produce much ad revenue. Meanwhile, Android has ignored tablets and tablets hold the prize that they were so desperately seeking all along. Like a General who is a great tactician but a poor strategist, Android has won all of the battles that they’ve fought, but they’ve fought all of their battles in the wrong places.
Studies have shown that tablet users are the more valuable consumers for advertisers to reach compared with PC and phone users. Tablet users spend 30 percent more time on sites and have 20 percent higher engagement.
“We found it interesting that tablets also had a smaller percentage of users who adopted ‘do not track’ settings compared to PC users,” Mr. Barnette said. “Mobile had the highest percentage of users who adopt do not track at 60 percent.”
And while tablets are dominating mobile revenues, Apple is dominating tablets.
The iPad accounts for between 91% and 98% of web traffic for all tablets. That only leaves 2% to 9% total web traffic for every other type of tablet combined.
And Apple dominates tablet downloads too.
“We estimate in the first half of this year the iPad saw over five times more app downloads than all Android tablets combined.”
And in the absolute kicker, it is anticipated that tablet ad spending will outweigh smartphone ad spending this holiday season.
Think for a moment just how crazy that is. The ads for all the Android, iOS, Windows Phone 7 and every other smartphone combined will be outsold by the ads sold on tablets this holiday season. Wow.
Google has won the battle for the desktop. Android has won the battle for the phone. But Google’s prospects are possibly worse today than they were when they embarked on their Android strategy. Tomorrow we sum it all up and look to the future in the final article of the series entitled:
“Picking Your Battles Is As Important as Winning Them”
A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia
THE PLAN
Google’s plan was to transport their highly successful desktop search strategy to the phone. This only made sense. Search worked on the desktop. Mobile was the future. Therefore, Google’s future would be search on mobile.
MARKET SHARE
Google’s problem is not a lack of market share. eMarketer notes that Google’s share of mobile ad revenue is 55% and it controls 95% of mobile search ads. No, Google’s problem is that search doesn’t work the same on mobile as it does on the PC. In fact, it barely works at all. On the PC, search rules. On the phone, apps rule and search is the court jester.
SIZE MATTERS
When it comes to ads, size really do matter. One of Google’s strenghts when advertising on the desktop was that they would unobtrusively place relevant ads next to and above their search results. On a phone, this was not possible. There simply wasn’t enough screen real estate to display both search results and advertisments.
“Size absolutely does matter,” says Christine Chen, director of communication strategy at Goodby Silverstein & Partners, an ad agency in San Francisco. “If you look at the real estate available on a smartphone, it’s really sad compared to not just banner ads on the Web, but also to TV, print and outdoor advertising.”
“The evidence is telling: advertisers are willing to pay much more to reach a thousand pairs of eyes gazing upon a computer or tablet than a thousand pairs looking at a smartphone screen.
INVISIBLE OR IGNORED OR INVASIVE
Mobile ads are relegated to a tiny portion of the screen and are often invisible or ignored by consumers.
It’s a double-edged sword that cuts against advertisers both ways. It the ads aren’t big, they’re invisible. If they’re bigger, they’re seen as intrusive.
Phones are seen as very personal. Users to not want to be tracked. Interestingly, while 60 percent smartphone users do not allow themselves to be tracked only 7 percent of tablet users and 18 percent of PC users reject tracking on their devices.
NO OPTIMIZATION
For both technical and privacy reasons, advertisers lost the ability to know who they were advertising to. On the desktop, cookies were the standard. On the phone, such technology was either unavailable or seen and intrusive or even offensive.
“What makes Web ads so attractive to advertisers is the ability to track actions and optimize accordingly,” . Because a smartphone cannot use the same technology “your ability to track and optimize is much more blunt, or in some cases nonexistent.”
This makes phone advertisments much less valuable that desktop advertisments. A banner ad on a Web page that costs $3 to $5 for every thousand impressions may cost only 75 cents or $1 for a thousand impressions on a smartphone.
CONTEXT
Context is important too. People surf the web for long periods of time on their tablets and on the desktop. They use their phones in bursts. Trying to promote ads when the user is attempting to grab a quick bite of information is annoying and counter-productive.
ENGAGEMENT
Finally, the engagement levels for smartphone users are lower, reflecting the slower speeds and smaller screens on smartphones.
How much of a problem is all this for Google? Huge. Android is so bad at monetizing ads that a study done on Opera placed Android in third plce behind BlackBerry on value for the money.
Let me say that again. Android’s ads were in third place. Behind Blackberry.
Google didn’t know that search on the phone wasn’t going to work the same as search on the desktop. Another thing they didn’t know was how important a role apps would play in both search and advertising.
Smartphones were made for apps. People love to use apps on their smartphones. If they want the time for the next train, they use an app to tell them rather than doing a search. If they want to find a restaurant, they might do a search but they’re even more likely to use an app.
Google’s problem is that apps are not searchable by web crawlers. If Google can’t search it, they can’t sell ads against it. For Google, apps are like a large and ever expanding black hole in their advertising universe. And as that hole gets bigger and bigger Android’s advertising opportunities get smaller and smaller.
But Android has apps. 700,000 of them. As many or more than any other operating system. So why isn’t Google making money from the sale of apps and app advertising?
Take the University Co-op Society, which sells University of Texas merchandise via stores, the web, an m-commerce site, an iPhone app and an Android app. When it comes to m-commerce, Apple rules.
“IPhone app sales are about 25% of our total mobile business and Android app sales are less than 10%,” says Brian Jewell, vice president of marketing. “That leaves a big chunk of sales that come directly from the mobile site. People entering our address directly or coming to us via a search engine or also possibly clicking through from an e-mail blast.”
And on the mobile site, Apple dominates. Today, 50% of mobile traffic to the University Co-op Society’s web site stems from iPhones, 25% from iPads, 20% from Android devices and 5% from devices running other mobile operating systems.
Retailers of all stripes tell similar stories, which is why retailers building mobile apps invariably have started with an iPhone app. Android is an afterthought.
“Android users do not buy. IPhone users buy,” says David Sasson, president and founder of overstockArt.com.
Android advocates bristle when confronted with the suggestion that Android owners do not buy content or consume advertising on their mobile phones. They say it is insulting.
First, I’m not insulting anyone. If anyone is insulting Android owners, it is the facts, not I.
Second, Android owners are not required to buy aps and content or consume advertising. It doesn’t make them bad people. It just makes them bad customers.
We can argue all day as to exactly why Android owners aren’t buying. There’s lots of theories. The one thing we can’t argue with is the facts. Android owners aren’t buying. And that single fact turns all the market share numbers and the arguments for Android’s dominance on its head.
‘Cause you see – and this is the key point missed by most pundits – developers, advertisers, retailers and others don’t follow unit sales – and they don’t follow customers – they follow the money. And until Android owners are induced to part with more of their money, their overwhelming market share numbers mean little.
The future of mobile advertising doesn’t look any brighter for Google either. Voice search poses a huge threat as voice activated searches, like Siri, simply bypass Google search altogether.
And then there’s always the ultimate threat that Apple will simply purge Google from its system by making Bing or some other brand the default search engine. It is reported that Google pays Apple $1 billion to be its default search, and earns about $1.3B from searches on Apple mobile devices. In the near-term, it seems unlikely that Apple will remove Google search. But there’s no love lost between the two companies and the long-term remains uncertain. Apple made the difficult and painful decision to remove Google from their Map application. Changing the default search carrier sometime in the future seems like a very real possibility.
All of Android’s mobile activations don’t add up to a hill of beans if they can’t be monetized. And Android simply isn’t doing the job it was born to do.
It’s a classic tech trap. Google provides a rapidly growing service that is popular with non-paying users while it constantly becoming less and less valuable to Google’s paying customers – the advertisers.
The result is pernicious. More and more time, money, energy, attention and resources are devoted to Android while the return – a 15% decline in the price advertisers paid per click on a Google ad – continually becomes less and less.
Android is struggling to monetize phones, but there is more to mobile than phones.
Tomorrow: “The Battle for Tablets”
The departure of Windows chief Steven Sinofsky, hard on the heels of the release of Windows 8, came as a shock, but not a surprise. But the important question is less what led to the departure of the talented but abrasive Sinofsky than how Microsoft uses its latest executive shuffle to move forward in a tech world it no longer dominates.
Microsoft is, in many ways, the anti-Apple. Unlike Apple’s tightly centralized, unified structure, Microsoft has long been a collection of fiefdoms. Although promoting Windows was the goal of just about every Microsoft product and effort, operating groups were often silos and turf was fiercely defended. Sinofsky, who had run the Office group, took over Windows after the Vista fiasco and proved his chops with the successful delivery of Windows 7 and Windows 8. (While it is far too early to judge the commercial success of Windows 8, it was an exemplary development process, especially in contrast to the chaos that gave us Vista.) Along the way, Sinofsky built the power of the Windows group by gaining control of mobile device efforts. (Windows Phone operations are part of the Entertainment & Devices group, but have increasingly come under the sway of Windows.)
It’s hard to overestimate Microsoft’s dependence on Windows. The chart shows the company’s operating profits by division:
Windows and Microsoft Business are responsible for nearly all of the company’s profits, and the business division, consisting primarily of Office and Office-related back-end services such as Exchange and SharePoint, is very heavily Windows-dependent. Only the tiny Entertainment & Devices unit (primarily Xbox) and the money-losing Online Services (mostly Bing) and meaningfully independent of the Windows empire.
The problem Microsoft faces today is that it has to move beyond Windows, but its recent instinct seems to have been to extend the franchise. The Surface tablet is an interesting product, considerably more PC like than the iPad and Android tablets. It’s a good match for a space Microsoft is trying to create between traditional PCs and the new tablets, heavily dependent on a keyboard and with an operating system that is a stripped-down version of the full Windows 8 experience and access to Microsoft Office applications–but only at the price of running in traditional desktop mode.
I don’t think Microsoft can afford to leave the more tablet-y market to the competition, because while the Windows and Office lines of business will remain profitable for years to come, they provide very little opportunity for growth. Sinofsky was widely blamed, or credited, with derailing the imaginative Courier tablet that came out Entertainment & Devices group. I don’t know that Courier was the right device for Microsoft to make or even if it was a viable product, but it was very un-Windows-like in a way that probably sealed its fate.
For many years now, Microsoft has been built on the proposition that its products exist to promote the greater glory of Windows. This kind of thinking has been most destructive in the mobile business, where efforts to force a Windows-like user interface onto Windows Mobile devices produced some of the world’s clunkiest smartphones. The unification of the Metro design language, originally developed for Windows Phone 7, across desktops, phones, and tablets is a step in the right direction. But when you scratch the surface on the Windows 8 desktop or go beneath the Surface, you find the same old Windows. And it is increasingly a bad fit for the way people want to use devices today.
Julie Larson-Green and Tami Reller, who are taking over Windows engineering and business operations, respectively, are able executives with solid track records. But they won’t have Sinofsky’s power within the organization. If that means they will be less able to protect the windows-centric thinking that has long been at the heart of Microsoft, it will probably be a good thing for all concerned.
Last week, I covered areas and usage models where I preferred to use Microsoft Surface over my Apple iPad(s). I was actually surprised I would like Surface in so many areas given it is such a new device and ecosystem. This week, I will reverse gears and discuss areas where I still prefer my iPad.
Games
I prefer genres of games like action, shooter, and racing. With the iPad, I get choices like Infinity Blade, Real Racing, Metal Storm, Modern Combat, Zombie Gunship, and Need for Speed. The Windows Store is starting to have some decent titles like Hydro Thunder Hurricane that show the potential, but for right now that’s what it is, potential. With the performance NVIDIA Tegra 3, I hope that the store starts to get filled with good games.
Podcasts
Since Apple added its own podcast app, they have been so simple and reliable. On the iPad, I can simply subscribe and auto sync with the bare minimum toggles to manage everything. Slapdash is a decent start for Surface, but it doesn’t auto sync and gets some nasty errors or crashes if I wasn’t connected.
Heavy Social Media
The iPad literally has a social media app for everything and more times than not, they offer the first native apps for a new service. Also, the best apps like Tweetbot are on the iPad, too.
On Surface, the apps are OK for some casual social media, but not heavy duty. They are a bit sluggish and lack key features. One, for instance, is a very simple one, where you can pin a Twitter list to your start screen. I can do this on multiple Android and iOS apps but not a single Windows RT app.
Viewing Photos
I still prefer viewing and editing photos on the iPad. It’s fast to open the app, open pictures, view and edit. The editing tools are more sophisticated, too, with auto enhance and redeye. While the Surface display is nice, I do notice a big improvement on the Retina display on the iPad 3. One other pet-peeve I had with the Surface was when I wanted to sync photos. It never asked me if I wanted to delete the photos on the iPhone. Therefore, to delete the photos off the iPhone, I needed to add one more step.
Taking Notes
I take a ton of notes with my iPads using Evernote, unless it becomes unreliable and crashy where I then switch to the Notes app. The Evernote on Windows RT is the biggest disappointment of any app I have used so far. I consider it Alpha as it either won’t sync, is slow to sync, or cannot view attachments without being connected. Even though the app has access to the file system, you cannot add attachments other than photos. Emailing notes works have the time and the other time crashes or displays the following error: “We’re having problems connecting to verify your info. Try signing in again.” I tried OneNote for the tenth time. Incredibly confusing. OneNote then notes are displayed as “Personal (Web)>Quick Notes”. I’m sure if I used OneNote for years I would know what all that meant but I don’t.
Business Collaboration
While the iPad is primarily a consumer device, it has support for tools like Webex and GoToMeeting. As an industry analyst, I get briefed a lot and these tools are invaluable for doing these. Unfortunately, Surface does not currently have support for these and does not support them via the web browser, either.
Wireless Video Mirroring
This may sound uber-geeky, but I routinely mirror my iPad to my Apple TV to my HDTV. I do this for many reasons, including to show off a web site, play a game, show off a new or funny app. While the PlayTo functionality for non-DRMd video and audio is appreciated over the Xbox, it does not currently mirror the entire device.
Managing Contacts
I can very quickly and accurately view, open and edit contacts with my iPad. I really do appreciate the linking of contacts on the Surface, but unfortunately, it is excruciatingly slow. If I need to edit over 5 contacts, I usually just give up and go use Outlook instead.
Cloud Storage
iCloud storage for Pages, Numbers, and Keynote for the iPad is nothing short of awesome. Now, if the apps were more compatible with Office, I’d switch over right now. Surface does not make it easy to automatically store and update Office documents. You see, there is no SkyDrive for Windows Desktop, only for Metro. There is an Office Upload utility in Desktop, but it only works if you pulled the document from SkyDrive or created a document or saved once to SkyDrive. Therefore, if you created a document offline, there is no way to have it autosave once you are connected again. Neither Box nor SugarSync have Windows RT desktop handlers, either, which is very disappointing.
Where does this Leave Us?
Surface and the iPad are very good tablets. What is most surprising is that Surface is brand new and it can do many things better than the iPad, now on its fourth generation. I was surprised just how well Surface did “tablet-only” usages like video playback and even surfing the web.There is room for both these devices as they take two very different tacks. Surface is a PC that’s also wanting to be a tablet. The iPad is trying to be a tablet, not a PC (or Mac). Surface will be good for those consumers like me who want it all and are willing to deal with the idiosyncrasies of the PC or have another tablet for 100% content consumption. This battle is just getting started at a time when many pundits thought it was a closed and shut case for Apple.
