Author: Ben Bajarin

A few years ago, I wrote an article called “when the easy growth is over.” I slightly regret the title because no growth is easy and we should applaud companies who do tap into the current and scale their businesses because it is not easy. However, my article was more to the point about the industry S-curve growth cycles, and while we are in an S-curve of growth, it is the time companies can scale quickly and are faced with fewer obstacles once they tap into the growth current that happens during an S-curve.

Few companies reaped the benefits more of the Internet’s growth curve than Facebook and Google. Both companies bottom lines were tied directly to the rapid growth of new internet users, and new devices are leveraging the Internet on an annual basis.

In a somewhat related category, few companies benefited more than Samsung and Apple when it came to the S-curve of the smartphone market. These two companies combine to ship more than half a billion smartphones every year.

But the current gloom and doom being talked about in investor circles ties into a broad tech industry theme that is settling in–slowing growth.

It seems that after the last few weeks of earnings, the common theme is how most hyper-scale companies growth is over. Modest growth is the new normal, and certain companies are better positioned than others to deal with the realities of living in a post-S-curve growth cycle.

In my article, I dug into the things a company can do once growth slows. The biggest being raising their average revenue per user. ARPU can generally be raised with new products and services and mergers and acquisitions. In a recent analysis, I did on a few of the big ecosystems of tech companies; it seemed that the stronger the ecosystem of a company the easier it was for them to deal with growth slowing and raise ARPU within their customer base.

While I do think ad-funded businesses models may be hit harder during slowing growth as well as companies who don’t have diversified businesses and multiple revenue streams. But even those businesses are not isolated.

Samsung is the latest company to have slowing growth in a sector hit their earnings. Samsung’s earnings miss as largely driven by their mobile unit as the overall smartphone market has slowed, premium priced devices specifically, and Samsung’s ASP declined as the bulk of their smartphone sales was even more skewed to the low-end than usual. Samsung is a good example of a resilient business with multiple revenue streams, their components business in particular which had a strong quarter and guided strongly for the end of the year with memory and displays looking to do particularly well.

While Facebook, Twitter, and Snap, go through their challenges with slowing growth, it has been interesting to watch Google diversify and start to see things like YouTube and Google Cloud Platform begin to help diversify their revenue, so they don’t have to lean on search and ad-word adverting as much.

It is interesting to discuss these companies which are US based companies, and operate globally in most cases except China, but we do have to make a few points about China when we talk about global tech industry growth.

China is a market I watch closely, and there are some parallels between western business growth cases that apply to China and others where there are no comparable business learnings. In many ways, China is a microcosm of itself and evolved as a technological society quite differently than many other countries. Because of that evolution, that is unique to China; it is hard to use some of the massive business success happening there for ideas and solutions that will work in other parts of the world. But from a business perspective, China is still on a growth run and likely will be for at least a few years more.

So while the rest of the world, and many of the businesses that compete globally, are feeling the effects of slowing growth, China does not yet see the same challenges.

That said, many of these rapidly growing Chinese companies taking large amounts of investment capital will inevitably face saturation of their market and slowing growth. When that happens, it will be interesting to see how they respond and what strategic decisions they make.

Which leads me to my last on this the of slowing growth and business strategy. On top of creating new products and services, or M&A, companies can look to new regions of the world for growth. This is what I expect Chinese companies to do, for example, and several are already competing in India and looking for growth there as mobile computing, and the tech industry begins it’s S-curve growth cycle in India. The African continent will be another area many companies look for growth as many countries in Africa continue to develop and many consumers beging getting smartphones and begin their personal computing journey.

Obviously, the economics of the later developing countries will be quite different than the affluent companies but this is also where patience will pay off. Nearly every economic study concludes that the Internet is a direct contributor to a countries GDP and when new regions get computers and the Internet there is a direct correlation to economic upside.

Thinking about India, Africa, and other parts of the world that will enter their S-curve of growth, it will be interesting to see what local companies started by local entrepreneurs flourish and which global companies succeed in localizing their products and services for new markets.

The tech industry, is slowly becoming not an isolated sector but the underlying architecture that will touch every industry. That is a global movement, but also one that requires tremendous innovation that still lies ahead. While I talk about slowing growth it is easy to think that means tech’s golden era is over but I don’t believe that is the case and the reality is more likely that tech’s golden age is still just beginning.

As I’m fond of saying, up until very recently there was no single more guaranteed growth story on Wall St. than Facebook. Those who put up bear cases were laughed at and dismissed as loonies. But the reality was Facebook was going to hit a growth wall in new users at some point, but I don’t think anyone thought it would happen so soon. Couple that with the sentiment change in North American and Canadian consumers, Facebook’s most profitable regions, and we arrive in new territory for Facebook. I want to talk about how Facebook now must change their narrative. But before I do that, I want to share a few thoughts on their overall earnings.

• I mentioned Facebook would hit a new user growth wall. Taking the 1000 foot view briefly, Facebook’s potential TAM is around 3-3.5 billion humans. That is approximately the number of humans with a smartphone currently. It is reasonable to assume that not every human will have a Facebook account but it is reasonable that Facebook’s ecosystem, can touch every person on the planet. More on that shortly
• User Growth in North America and Canada was flat. Last quarter, they saw no new user growth, which is slightly better than the decline they saw in Q1 2018. But when you look at the numbers going back to the middle of 2017 North America and Canada user numbers has settled around 185 million people. They have completely saturated North America and Canada, and I would not expect this to change.
• Despite not meeting Wall St. expectations, which is always a silly barometer in which to measure success, Facebook still saw strong YoY growth in all the metrics that matter. ARPU was up, advertising revenue per user was up, total revenue was up. Compared to Q2 2017, Q2 2018 was a solid quarter.

Facebook Will Now Tell a New Story
Despite the YoY growth, Facebook’s stock took a tumble yesterday. Facebook’s stock dropped as much as 25% in after-hours trading and largely driven by Facebook’s weak guidance. Many investors took the profits they had made the past few years and knew the short sellers would move the stock downward. My guess is many of those investors are buying Facebook stock back after the dip since that would be a wise decision.

But the interesting shift of the narrative is what I think stood out most to me on Facebook’s earnings call yesterday. It is 100% clear Facebook’s management wants to take the focus off of Facebook itself and start to tell growth stories around its other assets which include Facebook Messenger, Instagram, and WhatsApp. Instead of using a pure Facebook only user number, they went to great lengths to explain that 2.5 billion people use a Facebook product daily. Zuckerberg acknowledged that as products like Instagram grow, it will take time away from Facebook and therefore he wants investors to look at the bigger picture. Most companies have a product which is a major source of revenue, and inevitably the growth story for that product or service will slow which is when the narrative must shift to other things. Apple, for example, is still in the process of shifting the focus from iPhone in investors minds to the broader Apple ecosystem. Google is similarly trying to shift investors thinking just from Google search and about the bigger story which includes cloud, YouTube, and their growing presence in business. What Facebook is going through is a part of the playbook for when your biggest source of revenue slows. Facebook, however, has been planning for this moment which is where Instagram and WhatsApp and Messenger come into play.

Instagram is Facebook’s Future
While Facebook itself and things like groups, marketplace, and other growing features will help keep Facebook proper stable, the real growth story is Instagram. Instagram will likely be the thing that disrupts Facebook, and Zuckerberg and crew should be happy they likely own the only thing that can disrupt their current cash cow.

While many new users are onboarding to Facebook and Instagram around the world, it is the younger generation that is bypassing Facebook entirely and investing fully in Instagram. It was clear from Zuckerberg’s comments that he believes Instagram can play a role as a part, if not the future of television for this younger demographic. This is ultimate, the key narrative you have to believe in for most social media networks to buy into their upside. Instagram, YouTube, and Snapchat are essentially trying to be the dominant video platforms of the future. Which if they pull off, leaves many reasons to be optimistic about their growth potential.

For Facebook, Instagram is their future and the thing we can expect Facebook to focus their narrative around.

The Reason to Still be Bullish
I fully recognize the challenges Facebook faces around privacy issues, regulation, public sentiment, and more, however, the one thing that stands out to me is how we continually hear from advertisers that their Facebook ad spends outperform most, and in some cases all, other areas they advertise. This point was emphasized by Sheryl Sandberg on the earnings call yesterday as a point for investors to remember. Facebook’s ad units outperform the industry average by 2x in most cases which is substantial. Which means Facebook is in no danger of losing ad dollars and still likely the biggest benefactor of the shift from offline to online advertising across their assets. This single point is the reason Facebook will be fine and continue in their quest to increase average revenue per user and average advertising revenue per user.

This does not mean Facebook does not still have a lot of work to do. They surely can’t just coast, or rest and vest and the valley likes to say. But it appears Zuckerberg and the rest of Facebook’s executive community understands the big challenges they face and are willing to work to solve these problems. Execution is everything, and we will have to see how management executes, but understanding the problem is step one, and it seems Facebook does grasp the scale of their challenges, what they are, and has some general ideas on how to fix them.

When you look at one of the major earnings themes over the past 12-18 months for Microsoft, Google, and Amazon specifically you observe the incredible growth in revenue from their cloud services businesses. I had remarked on Twitter, that Microsoft will be a case study in missing a major platform and still executing a turnaround. One of the major things driving Microsoft forward is their cloud platform, and it is one of the biggest parts of the bull case for Microsoft.

Similarly, for Google which still oddly reports Google Cloud Platform in their “other revenues” category, GCP (Google Cloud Platform) is a significant driver of their earnings, and while this “other category” includes hardware and app sales, the category grew a solid 37% driven largely by GCP.

AWS remains a significant growth category for Amazon. While they are yet to report Q2 2018 earnings, their Q1 2018 AWS revenue was up 49%. I expect more of the same when they report their Q2 earnings on July 26th.

This incredible growth in cloud revenue by these three companies is significant for a few reasons.

Cloud Services Will Drive Margins
Some quarters will yield more pure profit for these companies, but in the big picture, the margins on the cloud will be significant. Certain quarters where operating profits in their cloud businesses are down will be because of higher CapEx spends for these to compete. But overall, this category for Microsoft, Amazon, and Google will yield significant enough profits that it will allow them to take losses, or even wisely invest those profits in other areas of their businesses.

While we will talk about Alexa for Amazon, or Android (perhaps Fuschia next) or self-driving cars for Google, or Office and Augmented Reality for Microsoft, the reality is the cloud platform is the next major platform battle happening and these three companies are the leaders. This is where the foresight in these companies to build a cloud platform is admirable. And with Microsoft’s case, Azure will be viewed as the thing that saved them from falling into irrelevance after missing the mobile platform. Both Google and Amazon added these businesses during their growth curves, where Microsoft was the dominant platform in the PC era and completely missed mobile. For this reason, I consider Microsoft being right there competing with Amazon and Google for the next major platform as the most impressive business move of the three.

Cloud as the Next Platform
While there is a lot of game theory to flesh out on this point, I am beginning to believe the next major platform is not some operating system around augmented reality, etc., but truly the cloud platform backend. Everyone, including Apple at this point, will depend on either Microsoft, Amazon, or Google’s cloud platform for their backend business solutions. And most importantly, as machine learning and AI become the fundamental architecture that touches every single piece of hardware and software, these three platforms, and the proprietary AI/ML technologies they offer will become the invisible backbone of the vast majority of companies solutions.

Even as we think of things like self-driving/automated systems, even AR/VR, will all depend on one of those three cloud platforms to operate. Even as these solutions manifest themselves behind the scenes they will power all the interesting an unique solutions branded by businesses and companies dependencies on these third-party cloud platforms is no less significant.

As we look at these new cloud platform wars, the other important observation for this new era is that it is not a winner take all market. The PC Era was winner take all with Microsoft winning. The Smartphone era allowed for two winners in both Microsoft and Apple. The cloud era will offer at least three winners. There is a pattern here that is quite interesting that as the tech industry evolves, matures, and becomes more global touching 5 billion or more humans, the landscape allows for many winners, not just one.

As Google’s Cloud platform conference happens today, I’ll likely have some follow up thoughts to share on the competitive landscape and how the different competitive drivers for each platform impact their position in the market.

It came as no surprise to me that the EU ruled, and fined Google for monopolistic practices. Antitrust situations are always tricky, especially when the two biggest in the tech industry have involved relatively open operating systems in Windows and Android. The nature of the open model is good for consumers by keeping costs of hardware low and allowing for a vast diversity in hardware choice. In both cases, the crux of the argument for antitrust behavior is around default apps and default services. And when you dig into the root of the issue, while it is true the open-ness of Windows and Android allows for diversity and choice for consumers, it hinders choice for a key player in the ecosystem–the hardware companies.

The Choice Paradox
The more I’ve analyzed open platform models, the more it seems clear there is a choice paradox. Consumers generally win because hardware companies can choose to compete on a range of different vectors, mostly around hardware decisions, and thus create a wide-range of hardware options in design, specs, prices, and more. This is the crux and strongest part of Google’s counter-argument to the EU ruling. While a portion of the post deals with the ability to not choose Google services and use competing apps and services, the intro paragraph sets the tone, which is mostly a point about hardware.

If you buy an Android phone, you’re choosing one of the world’s two most popular mobile platforms—one that has expanded the choice of phones available around the world.

It is very easy to make the consumer choice argument from a hardware perspective. It is not as clean of an argument to do so software and even more so with services.

It also seems a strong point of the argument for antitrust is around search. As I was thinking about this case about the Windows case, you could make a point that search is the new browser of the Internet. Where Microsoft got hit was because of the prominence of Internet Explorer and not allowing other browsers to be pre-installed onto Windows. Google similarly, features Google’s search prominently and in some cases made it difficult to impossible to change the default search choice in Chrome. Note this series of tweets from DuckDuckGo, a competing search engine to Google.

If we buy the argument that search is the modern day browser, and we should since search is a predominant daily use case for many consumers, then looking at a platforms willingness to encourage competition within search services would be an important part of the analysis. Certainly, consumers were not locked out completely of using DuckDuckGo, only that it became more of a challenge to do so with the way Google’s search was implemented from a default perspective into Android.

Two other great points, both I found on Twitter to add to this discussion.

Just for fun, let’s take this argument written by Pichai, and modify it in light of the EU’s case. Below is my attempt to contextualize Pichai’s argument from 2009 to make the same point against Google today.

“The EU believes that the search market is still largely uncompetitive, which holds back innovation for users. This is because Google’s Search is tied to Google’s dominant smartphone operating system, giving it an unfair advantage over other search engines.”

Holds up pretty well if you ask me.

Consumer Choice vs. Hardware OEM Choice
Looking at this argument of choice, not from the consumer perspective which we already know is a strong argument, but from the point of view of the OEM is relevant as well. Open systems like Android and Windows, open the floodgates of hardware innovation but are both a blessing and a curse for hardware companies. The biggest challenge facing hardware manufacturers who ship someone else’s open operating system is that all their competitors get to ship the same operating system. Meaning hardware differentiation is the only strategy they have to employ. It is for this reason, costs are generally driven down in open platform ecosystems and thus the line I coined many years ago becomes the true strategic challenge for hardware OEMs participating in said ecosystems, which is you are only as good as your lowest priced competitor.

In open systems, price rules the day. And the smartphone market has become a margin bloodbath in hardware. Which forced many OEMs to look to software or services to try and make a few extra bucks. This is where Google’s licensing practices limited what hardware OEMs could embed, change, or customize, to bring in their own services revenue. Say an OEM like HTC, wants to do a deal with DuckDuckGo or Microsoft with Bing, and set it as the default search within the Android devices they ship, Google’s licensing agreements made this very difficult to impossible. While it’s true, they could pre-install said featured Apps or services, setting them as the default was the more tricky proposition.

Another fascinating factor of Google’s licenses was the limitation of Android licensees to ship Android forks. It is a little-known fact that Amazon tried to sell a few hardware OEMs on FireOS and was willing to make revenue share deals for OEMs when it came to commerce on Amazon. The way the licenses for Android were at the time, was very restricting on an OEMs ability to own an Android license and ship a competing Android fork. Meaning said OEM would violate their Android certification if the same OEM wanted to also sell a competing Android OS like FireOS. Here again, the OEMs choices to do deals and customize Android in a way that would benefit them financially, and not necessarily Google as much, were extremely limited.

So yes, Android allowed for a great deal of consumers choice, but not nearly as much choice for OEMs when it came to ways that benefited their software and services business model over Google’s.

Google Would Have Won Anyway
I know this is impossible to prove, but if this was debate class and I was assigned the defend Google argument, I’m certain I can make a strong case that had Google allowed more true “openness” from the start their platform and their services would have won and become the dominant ones anyway. Google had a dominant position before they were truly dominant.

I have zero doubt in my mind that Android would have become the dominant mobile OS, and thus Google services willingly chosen by most consumers regardless of any level playing field from an alternative OS like Windows Mobile or any Android fork. As mobile was starting to scale, every OEM we worked with at the time (and it was all of them) desperately wanted an alternative platform to Microsoft. They were burnt out by Microsoft from the PC era and wanted an alternative. Google sensed this and was willing to bend over backward for their hardware partners and concede everything they wanted in all the ways Microsoft would not. I hear over and over again in the 2009-2010 timeframe that Google was a much better partner than Microsoft. It became clear every OEM would go all in with Android on mobile for the sole reason of being a Microsoft alternative. Couple that with the fact that Google search was already the dominant search platform willingly chosen by most consumers and you lay the foundation for dominance by default, not because of lack of competitive environment. OEMs choose Google/Android, and consumers choose Google’s services willingly.

One could certainly argue, the competitive environment did not get better because Google didn’t allow it, but I don’t think their lack of letting OEMs bundle services that made them money instead of Google. However, that is the same dynamic that led to bloatware, security breaches, hampered performance, inconsistent user experience, and more on Windows PCs. So one could technically argue the bloatware world, consumers don’t win, but instead, they lose all so OEMs can make a few extra bucks beyond hardware. Given that, I can find it easy to defend Google because, in the interest of consumer experience, I would make all the same decisions they did. But, in retrospect, I do think some of their licensing restrictions could have been made more friendly to the OEM in ways that allow them to embed some default services more easily into the core Android experience.

In the grand scheme of things, nothing is going to change. ~5 billion Euro’s is a years worth of revenue from Android to Google, and Google has already vastly benefited from Android beyond a monetary perspective for the whole of their business and machine learning/world organizing of data mission. So while it sounds like a big win, nothing will change, and Android will be fine.

What I do think is a fascinating observation is that the two largest antitrust cases slapped against technology companies have the same theme. They were both horizontal/open platforms. I love the open vs. closed debate, but this observation is a stark criticism of what feels like the inevitable conclusion of any company who licenses their platform to hardware companies but has a business model tied to the mass proliferation of the scale which follows.

This raises all sorts of interesting questions about future computing platforms like ones coming around voice, or augmented reality, and whether we see anything like Windows or Android again in the future. I also firmly believe this observation challenges many of the previous assumptions about open vs. closed platforms, particularly in consumer markets. Both things worth digging into in future analysis.

It was interesting to see some of the Netflix bears come out yesterday and add comments via Twitter and other platforms. I find it more difficult to buy any of the extreme bear cases for Netflix, but it is important to recognize and understand some of their broader challenges.

Churn and Customer Acquisition Costs
Naturally, this is where most people dig into the broad analysis of Netflix. While Netflix does not release its churn number, I imagine it is lower than many think. Some reports/studies peg it lower than 10%, and others have had it at 20%. I think we can safely assume it is lower than 20% and I wouldn’t be surprised if it is quite a bit lower than that. People cite Netflix’s ease to cancel as a reason it has a higher churn. While this is true, most consumers are lazy, and I’d argue still find value in the back catalog of content, and therefore, while easy to cancel I strongly doubt many people cancel and re-subscribe only when there is an original show they want to watch.

That being said, as more of the value from Netflix shifts to original content their full season release and customer binge-watching habits certainly bring up a concern that consumers will just watch the new series in a matter of days then simply cancel their account. While possible, this was a key part of the essay I wrote called Netflix and The Future of Entertainment. What I outlined was how Netflix’s upside in original content hinged on their ability to keep creating quality stories and in essence delivering stories as a service. Netflix needs to always have something interesting and new for consumers to watch. If they can’t do this, they run the risk of a continued churn of customers who watch what they want, then cancel and re-subscribe when something new comes out that interests them.

This is a central reason why looking at the customer acquisition costs of Netflix and compare them to a cable company is not quite accurate. Cable companies spend roughly $400 to acquire a new customer. This is a mix of costs of the hardware they provide/lease to customers and marketing, but cable companies have the luxury of locking customers into long-term contracts and charging on average $80 or more. Cable companies can roughly guarantee they will make up their customer acquisition costs in less than a year and then profit for the next year of the average length of two-year contracts most customers agree to. Netflix has no luxury of a guaranteed length of subscription, and while I’m sure they analyze their churn greatly today, that number is fluid and can change quickly without warning to Netflix.

Another factor in Netflix’s customer acquisition costs to consider is the cost of original content. No one is spending more on original content than Netflix right now, and while it is difficult to estimate the combined costs of original content into customer acquisition costs, it is no doubt an analysis Netflix must do. We know from nearly every bit of research we have seen that original content is the primary factor driving new Netflix subscriptions. The bottom line with my point is there is no way Netflix is recouping their estimated $8 billion spent on original content in 2018 in new subscribers, or even with existing subscribers for that matter. Netflix’s content spend is necessary to customer retention and to drive new subscribers but results in a loss overall for the company.

Content Competition
While investors are allowing Netflix to spend $8 billion in content today, that number is not sustainable for much longer. Netflix’s initial hope, I assume, was that by spending so much on content, it would put them in a position competitively to negotiate better on original content deals much like the major TV networks who don’t spend anything close to Netflix on content. However, Netflix’s assumptions of their ability to do this likely did not account for the competition in Amazon and Apple who are also helping drive the cost of original content up due to their willingness to spend premiums and both companies having a larger cash war chest than Netflix thanks to a vast array of revenue streams to Netflix’s singular revenue stream.

For this reason, my thesis is Netflix will have to vary their business model and offer a lower-priced tier, or even a free tier and subsidize with ads. Another option for Netflix is to syndicate their original shows when they are eligible. I believe the current eligibility number is around 80 episodes when an original content holder can sell earlier seasons to other networks for syndication. While it seems unlikely Netflix wants to do this, it may be hard to pass up the money at some point in the future. Besides another obvious rate hike, Netflix may also be forced to cut-down on the number of users they allow to share a singular account. While neither a rate hike or tougher restrictions on sharing will go over well with customers, Netflix has to do something to offset slowing new subscriber growth.

Going forward, Netflix likely needs to adjust for forecast estimates as I have a hunch their overall new customer growth is likely going to slow. The real question is how long investors will be willing to be patient with Netflix’s losses in original content spending, especially in light of the growing competitive environment. For investor patience to remain entrenched, like it is with Amazon, it helps when investors believe the company has little to no real competition. Perhaps that was a belief of Netflix a few years ago, but I don’t think that is a safe assumption any longer.

I don’t expect Netflix to make an overall strategy change in 2018, but I do think something will have to give in 2019 and it will be interesting to see how Netflix responds to the changing competitive environment.

The battle over audio in the home may be a more fundamental one than many realize. The iPod kicked off the battle for personal audio. As music transitions to streaming services like Spotify and Apple Music, this battle continues. But as an extension of personal audio, the battle for the home may be as strategically important.

In my initial analysis of the smart speaker market, what I concluded was most consumers were gravitating to these relatively low-cost speakers simply to extend audio into places of their home it did not previously exist. This conclusion was born out of the insights we gleaned studying the mini-market boost of portable Bluetooth speakers from companies like Bose and Jawbone. These devices, while offering some value of portability, were largely being used as room speakers the majority of the time. It turns out, consumers simply wanted to play music from their phones on a speaker out loud in a room in their house where no speaker existed. This observation holds up when we look at the core value of smart speakers, which is still largely bringing a speaker for music into a room of the house no speaker existed.

What these observations reveal, is the unmet need and fundamental desire for consumers to have music playing throughout their house. And the realization that most consumers music/entertainment experiences are limited to their TVs speakers or their personal headphones. Clearly, the audio opportunity is a much bigger one than TV speakers and headphones.

In this light, I find the Sonos Beam Soundbar quite interesting. It turns out, ~80% of US consumers use only their TVs internal speakers to experience TV and movies. I knew most consumers did not have elaborate home theater audio setups but I didn’t think the number would be as high as 80% as was discovered in a research note from Parks an Associates. A data point which adds more context to my point about the opportunity for home audio.

Years ago, one of the fastest growing categories of consumer electronics was the home theater in a box solution. Consumers wanted an easy to setup, fully integrated, surround sound experience. That trend died, perhaps with the TV replacement cycle, and it seemed consumers were content with just their TVs speakers. What has changed, is the voice/smart speaker integration which has added layers of functionality to speakers being purchased now but until the soundbar integration, the TV/Home theatre experience was left out.

The way I look at these smart speaker solutions is from a platform perspective. Specifically, a platform to deliver rich services not an app platform. But also, they serve as the base of the entire home platform holistically, which includes smart home. Having a number of smart speakers all over my house, and watching how my family uses and interacts with them, I have no doubt the full power of this platform will be unlocked when consumers have many of these devices around their house and not just the one or two which exist in smart speaker households today.

As an early adopter, I tend to live ahead of the curve than most consumers and at the moment I have six smart speakers which are a part of a solution in rooms in my house. I have more than six smart speaker products but the six I mention support the same ecosystem. What’s interesting, is this number grew rapidly overnight as Sonos released the AirPlay 2 update which now allows all my Sonos speakers to work with my Apple HomePod’s. I have the Sonos Beam sound bar set up with two Sonos Play 1’s in surround sound mode, one Sonos Play 1 in my outside patio area, and a HomePod in my kitchen and bedroom. All of these devices working together to play Apple music in sync mean my whole house has audio simultaneously playing. An experience, which is transformative, to say the least.

Sonos is a solution which plays well with Amazon, Google Assistant, and Siri now even though Siri is not as integrated as the other two. But with AirPlay 2 support, I personally feel Sonos is playing better with Apple’s ecosystem than the other two simply because it feels more integrated with the iPhone where Amazon Alexa and Google Assistant feel like more stand-alone experiences.

So where does the battle lie then? Well, it lies in getting the most speakers into as many rooms as consumers houses, integrated into their core audio and entertainment experiences as possible. This is why Amazon and Apple are smart to start to think about their streaming TV boxes as a part of this strategy, and Sonos selling the more robust full entertainment experience to date.

When we look at sales, the vast majority of smart speakers sold are under $100. Most of these we will simply consider entry level smart speaker products. Consumers will most likely upgrade those products and start to look more to integrated multi-device solutions and I do think they will move toward more products which have better audio quality.

With the Sonos IPO now moving forward, it will be interesting to see what this holiday looks like with smart speaker sales. Again emphasizing my conviction this category is one where more is better and consumers will quickly want whole home solutions, not just single room solutions. My prediction is every company selling smart speakers will move to sell bundles relatively quickly. Consider the evolution of the home theater in a box trend, evolved into smart speaker solutions where consumers want a bundle of products. Sonos and the Beam soundbar seems like it may have the edge because of how well it integrates with the TV and a reason why I think Apple and Amazon need to make sound bars and would have great success if they did. But the point remains, this home audio battle is one where solutions/bundles will be the thing that consumers gravitate toward and this holiday will likely see the first push.

A few months ago, I wrote about Apple’s slight pivoting with iPad. We at Creative Strategies have had the opportunity to study tablets since their early inception when Microsoft introduced the tablet PC in 2001. The categories evolution went mainstream with Apple released the iPad and during that time we studied the rapid adoption of tablets as well as the quick decline and now normalization of tablet market sales.

An observation I find particularly interesting is how the tablet market’s growth trajectory corresponded to the PC industries growth slow down. This is visualized below in our sales model.

There has been a debate within our analyst community about whether these two things are correlated or not. I tend to think they are, but the PC markets decline also correlated with the smartphone’s growth trajectory and I have no doubt the smartphone’s centrality as the main computer for most people had the greatest impact on both categories.

That being said, it was fascinating in our continual tablet research how many consumers consciously recognized their PC overserved their needs and they started looking to tablets, mainly the iPad, to do just the right amount of large screen computing tasks and replace their PC. Unfortunately, most consumers still ended up concluding they needed a Windows or Mac, even if it was for a small amount of tasks. The reality was, the iPad did not absorb every single task they used a Windows or Mac for.

It is within that context that Apple created iPad Pro, an attempt to bring the iPad closer to primary PC/Mac tasks, and that Microsoft abandoned the tablet positioning with Surface and just started positioning Surface as a PC, not a tablet. For a while, the belief was the tablet would represent the culmination of the best of both the PC/Mac world and the tablet world into one device. That was at least the main push behind the 2-in-1 Windows devices which were widely criticized as a compromise of both worlds rather than the best of both worlds.

For Windows hardware partners, they are simply marketing these touch-based computers, that can be a tablet at times but are mostly notebooks, and don’t need to pick one or the other. Apple, on the other hand, has two distinct products they are marketing quite similarly. With the Mac, Apple is running ads called “Behind the Mac.” The message is clear, create something wonderful behind a Mac. Similarly, Apple is showcasing different tasks but a similar theme of creating with a series of new iPad ads.

Both campaigns focus on the idea of creating something but highlight different ways of doing so since both iPad and Mac are distinctly different devices. My concern is how Apple’s approach creates a bit of a conflict in the mind of the consumer. Having a Choice is good, and Apple is basically saying to pick the device that works best for you and your personal workflow. This is, of course, the correct way to frame the choice for consumers, but my worry is they still don’t know the answer to the question of which form factor is best for them. This point is the one where Apple’s approach differs from the Windows ecosystem. Right or wrong, the Windows ecosystem does not make the consumer pick between either computing mode, where Apple’s ecosystem is forcing a decision of one primary mode either mouse and keyboard or touch/keyboard/pen. To be clear, my conviction is I’m not certain consumers are adequately prepared or educated enough to make this choice. I honestly believe, consumers would like a device from Apple that has all the above but I also recognize how difficult that may be for the Apple ecosystem and may not deliver on the rich experience Apple desires for each mode. Apple likely believes both devices are better when they deliver the best experience of both modes and that may not be possible in a combination form factor.

Realizing where Apple may currently be leaning philosophically, I do hope they continue to wrestle with the concept of a best in both worlds, best of iPad and best of Mac, and whether or not such a thing is possible. If such a product could truly deliver the best of both worlds, I think it would sell like hotcakes but only Apple can answer whether or not they build such a product.

A clear shift is happening. A few years ago, this shift was viewed as impossible. The growth stage of the Internet, while it was still a bit immature from a global viewpoint, was driven by free services subsidized by ads. Pundits and experts believed that not only was this the best business and the only one which could achieve scale but that it was the one consumers preferred. The common sentiment was that consumers did not mind ads, or in some cases even liked ads but certainly, the very least tolerated them. For this reason, it was firmly believed the only way to grow a consumer business was with advertising. It seems that entire theory is now being challenged data point, after data point, emerge to show the mature stage of the Internet leading back to business models where the customer pays for something they value rather than get it for free and tolerate ads.

Looking at a recent ad-blocking research report I received, 40% of the global Internet population now use ad-blockers to block ads. And this trend is not standing still but growing quickly each year. There is a popular phrase that states ads are a tax on the poor. Meaning lower-incomes can’t afford these premium paid services, therefore, they are stuck with ads. Interestingly, the report’s research indicates the amount of people blocking ads that fall into the bottom 25% of income is only one percentage point off from the number of people blocking ads who fall into the top 25% of income. The data is clear, the desire to purge ads from your life is consistent across all incomes. The report’s data also highlights how the under 35 age group is by far the largest cohort who is actively blocking ads in as many areas as they can.

Kleiner Perkins General Partner Eric Feng wrote an excellent essay talking about the flaws in ad-based business models and how the best business model is a transactional one. I strongly encourage anyone interested to read the full essay but this part stood out to me:

What if instead, you had a business model that could maximize revenue from your best customers, and then share that value across all your customers, while not annoying users in the process? Sounds good right? Not only does such a model exist, but it’s being used by many companies to great success. I’ll call this strategy shared-value transactions.

To understand shared-value transactions, let’s use free mobile games as an example. Free mobile games dominate the most downloaded app rankings each week, as well as the top grossing app rankings each week. In other words, free games are both incredibly popular (makes sense — they’re free) and incredibly profitable (how?). Because of in-app purchases. Users can optionally pay inside the game to enhance their gameplay. Less than 2% of free mobile game players end up making in-app purchases. And of these users who pay, the top 10% of them drive an astonishing 50% of all revenue for games. So an entire industry is mostly built off of a tiny fraction of a percent of its users. How? Because their very best users are delivering 1,000 times more value to their business than their average user.

His point is well made, and a fascinating way to think about this business model dynamic. Even those playing the free game benefit from the small percentage of users who are willing to pay and thus the developer is maximizing value from the best customers to benefit the entire product. In a slightly similar way, let’s look at Apple in this lens. You can use this thinking to point to Apple’s maximizing of its most valuable customers with the top of the line iPhone models to fund the development of premium innovations that eventually trickle down the lineup so even those customers who can’t afford a $1000 smartphone will benefit from innovation as it eventually makes its way into products that cost $500-$700. While the iPhone is not free, the point remains in Apple’s case that maximizing their value with the best Apple customers benefits the entire ecosystem. If all Apple was selling was selling was $300-$400 iPhones, which would get much higher overall volume, and would come with a significant margin hit, they would not be able to invest in leading-edge innovations and thus the entire ecosystem would suffer.

In the many years, I’ve been writing about the business side of this industry, I’ve often talked about how maturity in a product or industry cycle causes the behavior to change. The core behaviors which drive a product, or category to maturity change once that product or category reaches maturity. We have seen this happen in PCs, smartphones, tablet, consumer electronics, consumer packaged goods, automobiles, and we are now seeing it in the broad sense of the Internet business. As consumers mindset matures with something they know what they value and they know why they value it. When this mindset emerges it generally leads to more premium, often niche, experiences. This is the fundamental reason why categorical maturity leads away from general purpose or one-size fits all strategies which are common while the category is immature. Essentially, the market in question moves from a standardized model to a more segmented one. There will still be free services, subsidized by ads, but those experiences will become less valuable and a core conclusion I’ve drawn is products or services that are subsidized by ads will be things that are a commodity. Commodity businesses, which I’m arguing Google’s services and Facebook’s services are, will not be as valuable to the end user because they are commoditized. Things consumers find valuable enough to pay for will have a much more deep, lasting, and significant overall value to the consumer. Companies who figure this out will be much more insulated from disruption, as I’d argue disruption will more easily target commodity experiences than premium ones.

The arc of my point here is the paradigm shift happening with regards to the business model. Both will exist, but in all the areas that matter, one will be more valuable than the other.

In Apple’s March quarter earnings, they boasted that their platforms had driven 270 million subscriptions, mostly to third-party apps. Subscription business models seem to be in vogue as Apple and others continue to share the clear growth in subscriptions. Despite this growth, many have voiced their concerns over the subscription business model and how consumers may have a hard time tolerating dozens of subscriptions and could get burnt out by this business model.

Last week, we launched a study that was focused on apps and dug into how consumers make decisions on which apps to download, and which ones to pay for and why. I’ll be sharing some highlights of this survey publicly, but for subscribers, I plan on digging into a few of the important nuggets of insights the survey uncovered. One of them was some broader public opinion of the subscription business model.

Subscriptions are a Two-Sided Investment
In a series of questions, we asked consumers about what compels them to buy or subscribe to an app. We also looked at different options within subscriptions and if consumers wanted a one-time upfront pricing option instead of monthly. But where the real insights started to come out was in a comment box where I asked respondents to share any additional feedback with developers.

What came out loud and clear from respondents was their love/hate relationship with subscriptions. Countless respondents preferred to pay upfront for an app rather than subscribe to it. Most importantly, the comments emphasized that if they had to pay a subscription, they wanted to feel like they were getting their money’s worth and that the app would be updated and have new compelling features added regularly. This theme drew me to the conclusion that for a developer to charge a subscription, they must be deeply invested in its continual innovation. If they can achieve this, then the consumer also considers the subscription to this app an investment and one they feel is worth the continued price they pay.

Another point that stood out was the categories of apps consumers seemed to have a higher tolerance for when it came to paying or subscribing. Respondents seemed to think that paying a subscription for a weather app, or to-do list was not worth it. My interpretation of this is because there are so many choices for these type of apps and consumers can likely find what they need for free.

Apps like news, media, and entertainment (Netflix was happily called out as a subscription people were happy to pay), and things that were utility focused like Tweetbot, or 1Password, or productivity apps like wordprocessors, seemed to be things people were happy to pay for. For many of these apps, the perceived value was high to the individual, but the features or content provided were also not commodity features or things consumers felt they could easily get elsewhere for free.

There was a clear sentiment that many apps try to charge a subscription simply because it is the trend. Consumers seemed to be savvy about the type of app or service that is worth a subscription and those that aren’t. There was quite a bit of feedback from respondents encouraging developers to not just charge a subscription for the sake of it but to make sure the app features and functions fit a subscription model. Interestingly, there was quite a bit of hesitancy to subscribe to apps if they felt the developers would stop supporting the app or go out of business. This is why I intentionally refer to this as the investment mindset when it comes to trying to get a consumer to subscribe to an app or service. It will only work if they truly believe it is an investment.

Overwhelmingly, consumers want choices when it comes to paying for things. The free-app experience is the way to get consumers to try your app or service. Price was the number one thing, by far, consumers said they considered when determining to download an app. If the app sells them on the value and experience, they will be more open to a range of offerings around ad-removal, in-app-purchase, onetime fee or a subscription. Respondents also asked that what they get if they pay or subscribe be crystal clear in the explanation of you get when you pay. It seems there was quite a bit of frustration around this point where developers were vague in what the paid or subscription offerings entailed.

As I just dug into the subscription business model part of this study, what was clear is subscriptions are not for everyone, nor are they for every type of app. Developers need to align their business model with the core experience and features of the app. In many cases, a free with ads experience will work. Other times in-app-purchases are the right model. For subscriptions to work, it has to line up with the app experience and justify a recurring fee. The subscription business model will be the harder one to convert. Consumers will more heavily scrutinize the product and offering if a subscription is their only choice and therefore it must be worth their investment. The investment mindset is most heavily present when consumers are faced with a choice of subscription, and that will be the broad challenge standing before developers who want to go down the subscription hole.

Last week I talked about the coming of the super bundles. The overall arc of that piece was more about what super bundles are and why consumers will be drawn to them over traditional cable packages. Throughout the article, I mentioned some companies were positioned better than others, namely Amazon and Apple. In the recent days, Apple’s strategy here is becoming more clear. And, this recent piece in The Information seems to confirm my prediction that Apple would indeed launch a super bundle.

My conviction has always been the bundle would not go away but would evolve and more specifically who you pay for content bundles would change. Apple and Amazon already have billing relationships with ~100 million US consumers, more when we look worldwide, which makes it very easy for them to convert customers to their bundled media and entertainment offering. Both companies are also in a very privileged position to also be able to market their bundle, as well as all their exclusive content, in better more effective ways than TV networks ever could.

This point is highlighted by a Hollywood executive in this great article from The Wrap. This part specifically:

“One of the terrifying things is how easy it will be for Apple to promote their own stuff. They already have a pretty remarkable infrastructure,” said one film studio executive, pointing out that devices like the Apple TV exist solely to organize and streamline content from third parties.

The ability to have success economically, either in driving subscriptions or in Apple and Amazon’s case, help the entirety of their ecosystem, is a huge part of being able to justify the steep costs for original content. Both Apple and Amazon have many other revenue streams which make it easy to fund any losses in media until they reach scale. They have the scale built in since their customer base is so large, all they really need is a steady stream of quality original content.

One other part of the article stood out to me:

But the manager said Hollywood talent loves Apple for paying their asking prices and being eager to compete.

“They’re paying real quotes and not trying to squeeze us for less and less the way the studios are on the network side. They’re formidable buyers,” the manager said.

This is a slight departure from how Apple handled music deals. I have many friends deep in the music industry, and the love-hate of labels about Apple was tense for a while. Apple negotiated heavily and was in an advantaged position to do so. Those tactics won’t work in movies and TV and it seems their coming from a position of willingness to pay vs. the incumbents who are acting like the Apple of old with their negotiating tactics is sending talent to Apple’s doorstep in herds to pitch their content ideas. A positive place to be if building a robust offering of exclusive content is your ambition.

While Apple’s 1 billion dollar budget for content is quite a bit smaller than Amazon’s budget and Netflix’s, my conviction is they are in the market for one big hit and then scale from there. The wildcard for me, with both Apple and Amazon, is still streaming TV. I still find it interesting that Google has a streaming TV service in YouTubeTV and neither Amazon or Apple has one. There is no technical challenge here it is simply money. If Apple paid networks for the rights, they too could have a streaming TV package.

A theory could be both Apple and Amazon view the traditional TV networks as competition and therefore aren’t interesting in paying or syndicating their competitions content. Another theory could simply be they feel the current streaming TV packages from Hulu, YouTubeTV, etc., do a sufficient job. Or perhaps, they believe what I hypothesized in last week’s article, that the traditional TV network bundles will become commoditized and therefore not where they feel the best return on their investment will come from. Following that logic, if true, then all their investments will be on exclusive content which is basically the same way a network operates philosophically.

I alluded to this point in my Super Bundle analysis, but even in an era of super bundles we still will have a lot of subscription options which, some fear, could lead to subscription burn out. I don’t doubt this dynamic, but the reality is today’s consumers balance a range of subscriptions already. These super bundles will consolidate some of those subscriptions which I think will help the possible “death by subscription” dynamic.

Competetively, this is all extremely positive for consumers. Not only because bundles are great, and the more competition there the better, but when I take a step back and look at the vast amount of quality content out there it seems that since Netflix and Amazon started making great original content that the overall quality of entertainment has gotten even better. And we humans love to entertained and it seems as tech companies get into media we may see another golden era of media and entertainment.

News broke this morning that Intel’s CEO Brian Krzanich was forced out after the board discovered that he violated the company’s non-fraternization policy with another employee. While this seems like an odd way for him to go, it is a welcomed move by many employees, investors, and Intel watchers. Over the past year, I’ve turned extremely bearish on Intel.

In the midst of the cornerstone struggles Intel has had through the years, the largest being competitors catching up with them on process technology quality, I outlined my best cast scenario thesis for Intel in this post called “Intel and the Last Foundry Standing Theory.” The arc of that thesis was that Intel would maintain a significant lead in process technology and manufacturing on leading-edge nodes and the competition would struggle to get to 7nm and beyond. In this scenario, the challenges for Intel’s competition would be too great, and so all road would lead back to Intel’s process technology and manufacturing. However, I ended that article with this important challenge to my thesis.

There is, of course, the scenario where Intel is wrong, and others do keep pace with them on process technology. Part of their manufacturing business plan to compete in manufacturing ARM chips for others is a segment of this backup plan I think. While we can argue they should have done this sooner, if we look back in 10 years and others have kept pace or beat them, then it could be said their lack of willingness to compete for ARM manufacturing earlier and more vigorously was financially irresponsible for shareholders.

I wrote this post in 2016, and here we are in 2018 and not only did my best case scenario for Intel not play out, but the statement I made above is what has played out exactly. Not only has the competition caught Intel they have surpassed them. TSMC is now sampling on 7nm and AMD will ship their architecture on 7nm technology in both servers and client PCs ahead of Intel. For those who know their history, this is the first time AMD has ever beat Intel to a process node. Not only that, but AMD will likely have at least an 18 month lead on Intel with 7nm, and I view that as conservative.

Now, an Intel defender could argue that Intel’s 10nm process technology is as good and similar to TSMC’s 7nm when it comes to density. I don’t want to dive in here to why density matters or doesn’t matter, but let’s just say that argument is sort of like saying my horse can run 5 miles an hour faster than your horse in an era where all horses run fast enough. Debating density aside, TSMCs 7nm solutions will yield similar, if not exact, performance specs in both power and performance as Intel’s 10nm. And that assumes Intel fixes the enormous problems they are having with 10nm at the moment.

As of late, I had become convinced Intel needed new management desperately and the board pushing Krzanich out is the first step on the road to recovery for Intel. Intel is facing a moment of truth and the decisions made around the next CEO over the next few months are critical to Intel’s future if they are to become a leader again in the industry and save their company from absolute disruption.

Intel’s management, board, and many employees firmly believed Intel could keep the lead over their competition. Once that became clear, about a year ago, things started to change. And right now, Intel finds themselves fighting tooth and nail for every sales account. A position they have never been in before. Consider this point as an umbrella insight about Intel competitively.

AMD has won the largest amount of design wins in the companies history. This includes client and server PCs. It is extremely likely that AMD could gain 15-20% sharer in BOTH PCs and server. Something Intel insiders thought could never happen. But this one observation hits me as the most damning. Intel recently cut their marketing program where if an OEM like Dell, HP, or Lenovo chose an Intel CPU, Intel would fund the marketing of those products and feature those OEM PCs in commercials and print ads. PC OEMs are already running on razer thin margins, and even if they felt AMD had a better product, those Intel market dollars were a key part of group managers at Dell, HP, Lenovo, etc., hitting their sales numbers. Now that Intel has cut that marketing program, AMD is gaining design wins at those same PC OEMs at a record pace. Which means the ONLY reason those OEMs choose Intel was for their marketing help not because they felt Intel had a superior product to AMD. And I could argue that with Ryzen, AMD actually does have a better product than Intel and it costs less.

So to recap. Intel’s competition has caught them. The countless number of manufacturing fabs they have are sitting at less than 70% (some much less) of their capacity which means they are losing money on these manufacturing warehouses. They are losing share in their cash cow in the server market and PC business. They are struggling mightily to ship new products on time and most depressingly, have lost a position of technology leadership and now feels more like a follower than a leader of a technology company.

So Intel faces a moment of truth. Picking the right CEO is the most important first step. My vote goes to Pat Gelsinger the current CEO of VMWare. Anyone who knows their Intel history knows that when Craig Barrett (AKA the Silicon Cowboy) retired, the choice was between Paul Otellini (then COO) and Pat Gelsinger (then CTO). The board chose Paul, and it was not universally loved by many inside Intel who would have preferred a technical CEO in Pat to operations driven CEO in Paul. I tended to agree and thought Pat was the right choice to keep Intel as an industry leader. The board should go hard after Pat Gelsinger as the new CEO, but Pat may not want it. The only other thing I think would be great for Intel is to merge with Nvidia and let Jensen Huang run both companies. That’s a wildcard statement if I’ve ever made one!

I’ve written extensively about the growing trend of unbundling happening to the cable TV bundle. Voices in tech keep highlighting the cyclical nature of this trend where everything that was once bundled becomes unbundled only to be bundled again. The important observation we cannot escape is the inherent value in bundles. Bundles work for a variety of reasons but mostly because once a company has a billing relationship with a customer, it is effortless for them to layer value. So while we are currently in a partial phase of unbundling TV content, the reality is it will all become bundled again quite quickly. But the interesting new wrinkle I see coming is the rise of what I call the super bundle.

The Future is Super Bundles
In part, this observation comes on the heels of the broader observation I wrote about last week where big companies keep getting bigger and stronger because of mega-mergers. As these companies get stronger, they become dominant players sitting at the center of the consumer relationship. As the dominance and influence of these companies grow and their control of the consumer relationship grows, they will inevitably become players in the super bundle arena.

So what is a super bundle? When you look back at how things have been bundled before they tend to be limited to specific things. You bundle insurance, healthcare, entertainment services, information services, communication services, etc. A super bundle emerges when a company is in a position to provide a bundle that includes a range of all these services. It may not include all these services, but it is a greatly expanded bundle then what we have been used to historically.

Consider Amazon as an example. A Prime membership offers benefits and discounts on commerce, media and entertainment, information and even local commerce as Prime members now get discounts at Whole Foods. Amazon is an example of a power player in consumer relationship and can sit at the center as a super bundle. Amazon started simply with Prime offering discounts and free two-day shipping and over time expanded that offering to layer more and more value built into their bundle. I expect this to continue, along with increasing the cost of Prime or different Prime tiers, as Amazon will layer even more value into a Prime subscription. Perhaps next will be a bigger streaming TV bundle or broader bundle to subscription news where subscriptions to big news publishers are included in the costs.

Apple is another company I believe is poised to offer a super bundle. Apple’s position of dominance when it comes to the customer relationship is a reason they are well positioned to provide a broad bundle of content and services. Apple already has one of the largest, if not the largest, collection of credit cards on file from their customer base. This direct billing relationship, at a global scale, is a primary reason every company with a transaction-based business model is flocking to Apple’s platform. Both Apple and Amazon have built a platform that consists of enormous portions of the worlds most valuable customers, and this is a primary reason they are well positioned to offer these super bundles.

Apple’s bundle may have some overlap with Amazon’s in areas like information/news content, entertainment, but can differ as areas like health, financial services, and even hardware (bundling iPhones, Apple Watch, iPad, Mac, Apple TV, etc.) as a subscription as well. The range of things a company like Amazon or Apple can offer in their super bundle is practically endless.

Certain companies are better positioned to offer super bundles than others. The commonality of companies I think can succeed are those “platforms” where consumers are used to paying for things. For that reason, I do not think Google or Facebook are examples of platforms who are well positioned to succeed in offering a super bundle.

A big question is what happens to the standalone media and entertainment firms like Netflix in this future. Part of me believes Netflix will have to either become a super bundler themselves or they will need to be integrated with a super bundle offering in order to sustain long-term growth. This trend could grow faster than Netflix anticipates and leave them no choice but to be a part of a larger bundle.

Legacy Bundlers Will Fight To the Bitter End
Those in control of certain bundles today, and I’m mostly thinking about companies like Comcast, AT&T, etc., who bundled things like cable, Internet, and telecoms will fight this to the bitter end. They may hike up costs when you cancel one part like they do today where they boost the cost of the Internet if you cancel cable TV, but these efforts will be short lived. While we can argue the company who provides you Internet is in a position of dominance. But, there is an interesting scenario on the horizon where a company like Amazon, or Apple could even be in a position to offer Internet services as well but I’ll leave that for a later analysis.

Another hypothetical is how these backbone/infrastructure providers engage in the merger mania I wrote about last week and thus try to buy/control the entertainment landscape. If telecoms or cable companies capitalize in the consolidation of the media and entertainment space, which is happening as we speak, as they seek to fight this trend and sit in the driver’s seat controlling the Internet backbone and premium media/entertainment.

There is tremendous value in the super bundle because of the value of one single bill. Every bit of consumer data I’ve ever seen on this matter continually confirms that consumers prefer one bill to many and the super bundle will take this to an entirely new level. There is a lot of game theory to my thesis but I’m certain these super bundles are coming. The only question is who and what exactly we will be paying in the future.

There is a bigger picture observation to be made in the wake of the AT&T and Time Warner merger/acquisition. It is an observation a long time coming as we have observed a number of larger merger/acquisitions already go down in the semiconductor industry with even more coming. I have continually been predicting the consolidation of the semiconductor industry and others have been making similar predictions about the media industry. It is worth looking at why this is happening and will continue to happen and what that may mean going forward for startups.

The Big Get Bigger
In an article I wrote in 2015, called When the Easy Growth is Over, I detailed how when a growth cycle ends it makes the environment for M&A ripe for the picking. Here was how I articulated it:

The other telltale sign of a growth cycle slowing is the increase of mergers and acquisitions. Something we have clearly seen accelerate over the past few years. Smart companies acquire to get ahead of the slowing momentum, while others may just be waking up to the fact their growth wave is subsiding and are now looking for complementary assets to add to their revenue lines. Some companies may wait too long and end up as the ones who get acquired.

Given a number of market fundamentals which are becoming quite clear around this first initial internet growth cycle, I believe we will see an even more dramatic increase in mergers and acquisitions over the next 3-5 years. We can speculate all day on who needs to acquire who, but the general philosophy I like to use is to think through which companies will be stronger together than apart. The other is to look at who has the most cash, or valued/growth stock, to use.

This dynamic has been true of all the big growth periods since the industrial revolution. You can look at shipping, trains, automotive, and even consumer packaged goods and see how the initial growth curve lead to many companies competing against each other on different vectors. Then as the growth curve slowed, the industry consolidated to a few dominant companies. We are seeing this exact dynamic play out now and we will inevitably be left with very big and very powerful companies in each industry.

The semiconductor industry will continue to consolidate to just a few dominant companies, media and entertainment similarly will consolidate. Telecoms also looks to be heading in this direction and we may start to see more global consolidation as well in the years to come.

The big question in my mind is how far can this consolidation go and how much can it cross industries. For example, do the big platform providers like Apple, Microsoft, Google, or Amazon start acquiring media and entertainment companies? Or would they acquire telecom companies? In the age of conglomerates, the only question is how big can they get, and similarly, how big will governments let them get.

The bottom line is conglomerates are here to stay and they are likely to only get bigger and stronger.

Can Startups Survive When Tech Conglomerates Dominate?
The above observation is something I talk regularly about with all the VC firms in the valley. Most of them have raised a substantial amount of money and a number of different funds, betting on their companies competing and growing against the incumbents. The problem is the incumbents have only gotten bigger and stronger and through M&A are becoming harder to compete with due to the leverage they have with their legacy businesses paired with the complementary solutions they have acquired.

You may recall the brief trend of startups calling themselves “full stack.” This was an attempt of startups to provide as much as a full solution as possible, which included components of competing offerings to what incumbents were offering and new solutions that incumbents weren’t. The problem was, the incumbents had entrenched businesses they used to leverage and bought companies to fill the gaps to compete with these full-stack startups. Essentially, the incumbents became full stack providers.

Now, in some cases, the companies the incumbents purchased were startups which was a win for the investment community. But what is becoming clear to me, and now to some investors is the valuations companies are raising money at today are predicated on scale and business size growth that is likely extremely difficult and rare in an era where conglomerates rule and they keep getting bigger and stronger.

The challenge for most investors today is the size of funds they raised and the amount of capital they need to deploy is not in line with this trend. They need high valuations and big exits and that is going to be extremely difficult in the conglomerate phase we are entering into. Yes some of those startups will get bought by said conglomerates but my hunch is not for the amounts needed to return many multiples in value back to later stage investors.

Interestingly, startups that are extremely capital efficient, and lean, and can focus on highly profitable niches who don’t need to raise as much money are much better positioned for this conglomerate era. They will have extremely profitable businesses and can focus on the niche and high-value parts of the market the conglomerates may not waste their time with. But these companies are rare and most investors are looking for home runs rather than more wisely looking for these companies that are more doubles and base hits to use a baseball analogy. But the larger problem looms for silicon valley VC who did not raise their massive funds in the last few years to be able to look for base hits and doubles, rather they raised their funds needing home runs and that is going to be very hard in the conglomerate era.

There are a number of interesting trends emerging around video games worth observing. On the heels of the gaming industries biggest show of the year, E3, I thought it would be a good time to outline the broader trends I see happening worth watching.

Gen Z PC Gaming Growth
This is one of the bigger sleeper trends I’m watching. While I’m not ready to completely and boldly state that Gen Z is dumping consoles for PC gaming, it is certainly trending that way. I caught wind of this trend a few summers ago, when all of a sudden, more than a dozen friends or family from around the country asked me my opinion on an affordable notebook gaming PC for their high school boy who wanted to get a notebook for high school but also to play PC games. This peaked my interest, and upon further questioning, I found the gaming desire was driving by many of said teens friends starting to play more PC games and they wanted to start playing PC games online with their friends.

I chatted with over a dozen parents and it was the same story every time. Kid wanted notebook for school, kids friends were all starting to play more PC games online, so they wanted a gaming notebook for school and to play online with friends. I went on to ask all the parents I talked to about the gaming console. Nearly everyone had an XBOX or Playstation in the home and everyone said their kid, and their friends were playing it less and less and instead playing PC gamines online. In fact, in several instances, the parent (who is around my age 40, and was a big console gamer like I am/was) chuckled when they told me this anecdote “my son and his friends think console gaming is for old people.”

It is relevant to trend to understand a game called PUBG (Players Uknown Battle Grounds). This game was single-handedly the reason teen males were flocking to PC games and leaving their consoles. Yes PUBG came to XBOX but that was not the case at the time. This game enlightened Gen Z about the faster pace of innovation in the PC gaming sector in both hardware and software. Every year your games can get richer and more immersive if you are willing to spend money on a new GPU, but similarly, new games are released and updated with new features faster than on consoles. All of this together makes for a compelling experience for this particular generation.

What I was seeing, with a single game, and social dynamic driving adoption of a gaming platform, was like watching a movie I’d seen before with the original XBOX. I had the privilege of doing some work with the original XBOX group, and the Halo phenomenon was remarkable at the time. For my demographic, Halo and playing online with friends in large battlegrounds able to battle each other as well as others, was a brand new experience and one that was responsible for the first XBOX’s rise to fame.

It is eerie the similarities I’m seeing for the motivation driving Gen Z to PC gaming to the rise of the original XBOX and console gaming with Gen Y/X.

Massive Multiplayer Games Going Mainstream
Another interesting trend is how a game like Fortnite may be leading the charge in bringing massive multiplayer online gaming to the masses. Fortnite is a more consumer-friendly version of PUBG and quickly rose to an amazing 2 million concurrent players and boasts around 3.5 million players monthly. While PUBG has similar numbers, Fortnite started on mobile and much of its growth has been people playing it on their smartphones and tablets.

I have a hunch the success of Fortnite, which proves consumers are comfortable playing large multi-player games on their smartphones, may open the floodgate for this type of gaming specifically in western markets. What many may not realize is this is common behavior in China with hundreds of millions of people playing online games on their smartphones and often in large groups. The genre varies that drives this behavior but I think we may have reached a tipping point where mobile gaming starts to become a driver of global MMO gaming.

This is exciting because we could see new innovation in games and gameplay. PUBG was a new innovation in game style, called Battle Royale, but added a twist which starts you off in a massive world but then forces the play area to shrink in order to bring players closer together leading to inevitable battles. It was a fascinating new dynamic that is now bein adopted by other games and game types. Fortnite may have opened Pandora’s Box to the mobile gaming opportunity globally and could lead a wave of new mobile game innovation in both genre and game dynamics.

I know I just covered two completely different ends of the gaming spectrum with both hardcore PC gaming and more approachable mobile gaming, but in some ways, they are related given the genre of Battle Royale is at the center of driving both trends. Ultimately, we may be seeing a new movement to truly massive global multiplayer games that are playable on all platforms. Imagine a game that every person in the world can play together in massive worlds no matter what device they have? High-end gaming PC, smartphone, tablet, basic notebook, console, streaming TV box, etc., all enabling a truly global gaming environment. This would be truly remarkable, but entirely possible, and whoever can crack this first would be sitting on a gold mine.

I recently had an experience that led me to a few important observations. My family and I went to Disneyland and had our first opportunity to use the parks newest app. What struck me about Disneyland’s app, and the work they put into making an incredible app that greatly increases the customer experience at Disneyland, was how the entire app is a map first UI. Here is a screenshot to take a look at, and then I’ll break it down.

What you notice, is how the map itself is visually appealing. It is also designed to look like Disneyland. The entire interactive experience is based around the map UI. The main screen starts with what is easily the most used feature, checking ride times. If you buy a Max Pass, you can even get Fastpasses (things that make you wait in less of a line) right from the app. Besides checking ride wait times, you can see where and when your favorite characters will be in the park, see what restaurants are near you, or where they are in general and check their menu and even make a reservation if needed. Again, the entire experience is all based on the Map UI. The map first UI is not just helpful, it is arguably necessary for a hyper-local experience like Disneyland. Location, and relevant information with context to your location is relevant as you make activity decisions.

You can download the Disneyland app and simply check it out, and I encourage you to do so to see a fantastic implementation of the map first UI if interested.

This whole experience got me thinking more about how maps, and location, can evolve into a platform and marketplace. We talk a lot about the mobile 2.0 era, and I firmly believe location and proximity information and services around our location will be a significant part of the mobile 2.0 era.

To that effect, I had the opportunity to moderate a panel on the topic of the map first UI at Mapboxe’s two-day event called Locate. It was a great panel that consisted of representatives from Uber, Woov, Weedmaps, Open Listings, and Lonely Planet. Each of these companies uses the map UI as a large part of their app experience.

Per my Disneyland example, many of you can probably relate to the map first UI from using apps like Uber or Lyft. The primary interface is a map, and the layered value of Uber and Lyft’s services are layered on top of the map UI. What was unique about many of the companies on my panel was how they all had highly customized their maps design as a part of their UI. Most companies, especially if they integrate Apple Maps or Google Maps, just show us the same boring brown map. I firmly believe rich visuals in the map first UI are what make the experience that much better.

One of the interesting insights that came from our panel discussion was how each company had quantified that the map first UI, and a focus to display information visually my layering it on top of a map vs. just showing a bunch of text or menu’s to the user, led to a dramatic decrease of friction. Consumers can get what they need or want quickly without any fuss. Each panelist was adamant the map UI was a central part of removing friction for the user.

The other discussion point was how interesting it will be as we develop marketplaces on top of the map UI. Meaning letting merchants and users interact with each other in new ways. The concept of a marketplace somewhat exists in the Disneyland app, just in a way exclusive to Disneyland. Companies on the panel like Open Listings (an app for buying or selling a home), Lonely Planet (a travel experience app), and Weed Maps (an app connecting cannabis buyers and sellers), all engage in this marketplace for commerce around the map first UI. The predominantly map-based view is the primary driver of the marketplace’s value and engagement. I’d argue that for location-based services, the map first UI is a definitively better way to display information and help consumers efficiently and effectively make decisions.

This is where the idea of a mapping platform comes into play. Neither Google or Apple are treating maps as a developer platform, and I firmly believe that is a missed opportunity. Luckily, Mapbox is and companies like the ones I mentioned, including other big names like Tinder, Snapchat, are using Mapbox to create experiences around location and beginning to think about the platform that can be the map UI.

I’m hoping more companies, especially those that want to focus on location-based experiences start thinking more deeply about the map first UI and how to push this idea of the map based marketplace forward. Cities, retailers and malls, conferences and events, hotels and travel companies, etc., all can go further using this concept. It remains a relatively new concept from an app and UI standpoint, but as I said earlier, not only is it a superior way to visually display information but will be an important part of the next wave of apps.

I was going to title this post the Tablet’s fate, but we all know there isn’t a tablet market but an iPad market. So while this article will share some general points about the use of tablets as a whole, the broader focus and larger category questions are about the iPad.

When looking at the overall tablet market data, it is important to note how tablet owners, and iPad owners, in particular, love the product and find it an invaluable part of their life. The issue I think the tablet is up against is how for many, it is more a luxury than a necessity.

Overcoming being merely a luxury has always been the tablets, and the iPad in particular, challenge. It is notable there is a minority group for whom the iPad is a necessity. However, it is a tiny minority.

For several years, our primary research around the tablet category has looked for signs sentiment is changing around the tablet. We explore whether consumers are shifting more usage, specifically from their PC or Mac, to their iPad. During this research, we did often find small pockets of consumers who were moving more productivity workflows to their iPads it remained a small percentage of the market. Our conclusion after a few years of focused research on the category is consumers still primarily use the iPad as an entertainment device, and it remains mostly isolated to that use case by the majority of the market.

The Tablet (iPad’s) Crossroads
I’m beginning to wonder if iPad is up against a crossroads. While Apple’s initiatives are worthwhile to keep promoting iPad into new use cases, if market sentiment does not change it is a worthy question to ask how much more Apple should invest in advancing iPad to a full production product vs. the Mac.

Of course, we can take a position of choice in answer to this question. Yes, consumers should be able to choose the best product or tool for their life, but as of now, the primary devices consumers use and consider essential for most workflows are the smartphone and PC/Mac. If sentiment does not change around iPad, then I think it may be worth Apple shifting strategy back toward the Mac as the mass market large screen computing device.

Develop Once Publish Anywhere
Heading into next weeks Apple WWDC, there will be a lot of talk and speculation about ways Apple may be unifying macOS and iOS (iPad OS). While I don’t think we will see some hybrid operating system, I do believe we may see more of a unification of development tools making it easier for developers to write iPad and macOS apps at the same time.

This subtle shift in strategy may be precisely what both the Mac and iPad platform need. The one thing missing from the Mac ecosystem, that iPad has, is a robust app ecosystem. While it is true the Mac has a solid base of apps; the iPad app ecosystem is vastly more abundant and more robust.

Hopefully, if Apple does indeed go this route, the Mac ecosystem of apps could grow significantly and add new levels of depth that can only be found on iOS at the moment. As a Mac user, the one thing that kept luring me to iPad as a productivity machine was the number of apps on iOS and in many cases the ability to use the same apps I use on my iPhone day in and day out on iPad as well.

While I indeed remain hopeful the broader consumer market will understand the iPad’s full potential, the reality is people are still flocking to PCs/Macs as their primary work/productivity devices and those who have iPad still mostly use them or content consumption and entertainment.

In the midst of overall stagnant sales of iPads, and declining of tablets as a whole, the market may simply have made up its mind about the role of these devices in their lives and it may be best for brands to accept what the market has decided.

I’ve often referred to Apple’s iOS as a learning operating system. When you look beneath the surface, you see Apple’s iOS starting to adapt to your habits and is constantly learning about your behavior. A simple example of this is if you go to a specific location every day at the same time, the iPhone will give you a notification saying how long it will take you to get there. For people who go to an office every day, you don’t need to tell it where your office is as the device simply recognizes your patterns. The Siri suggested apps similarly look for patterns of location or time of day where you use certain apps and give you quick access to apps you use regularly. These are two simple examples of how the iPhone, and underlying iOS, is learning about the habits and behaviors of its owner.

The idea of an operating system that is constantly learning, adapting, and become more tuned to its owner’s behavior is a relatively new idea. I believe Apple has been heading in this direction for a while which is the software, hardware, and even custom silicon chipsets are all uniquely part of the equation. And when you dig into it, you realize Apple is only scratching the surface of what is possible with an operating system that as you use it, you train it to serve you better.

Training my iPhone
I’m probably in the minority, but I am highly aware my iPhone is learning about me and even giving me opportunities to train it. For example, I am intentionally letting the Apple News app know when I like a particular article. My goal in doing this is to train the underlying algorithms behind Apple News so that the service can better serve me with relevant news articles. I view this as an important part of training my iPhone, and in this case Apple News, so it can better help me discover content I will like and want to read.

Similarly, I am intentional at letting Apple Music know when I like a song or artist. In doing this, I’m trying to train Apple Music to know what I like and what I don’t like so it will only surface songs I like and help me discover new artists. Apple News and Apple Music are just two examples of how you can train your iPhone, so it is more customized and tailored to your unique needs.

In some ways, each iPhone owners iPhone will become like a fingerprint. No two iPhones will be the same because each one is becoming tailor-made for its owner. Right now News, Apple Music, Siri app suggestions, and even personalized Maps experiences are all unique to each iPhone owner. I’m not sure how often normal consumers do this, and it certainly isn’t necessary to manually train the iPhone as iOS itself is built in a way to learn and adapt. But, for now, being intentional with liking and not liking music or news makes this process quicker.

The iOS Digital Nervous System
In many ways, iOS is the central nervous system of the iPhone. The unique customization and personalization that takes place in the underlying iOS architecture will lead to a depth of experience that will be hard to find on other products. I view this as one of the more sticky innovations of iOS and one that will lead to even deeper loyalty once it reaches its full potential.

What will be interesting to watch is how Apple weaves all of this into more core experiences with their software. I’m also curious to see what additional control or assisted training Apple can weave into their apps and services. For example, what if (someday) when you like a song Siri asks why or what you like about the song. You can then give Siri some context which deepens the learning and could lead to better assistance, recommendations, and discovery.

Using Siri as the conversational interface to better train Apple’s core software and services seems like a natural fit. Granted, I’m not sure consumers will be immediately comfortable with this. However, I think the convenience benefits of letting your iPhone get to know you will be worth it in the end.

Another point that stands out to me is the smartphone is the only device where I think this experience can start from. The smartphone is the most personal computer any human will use and own which makes it the perfect device to train and personalize things that are unique to its owner. But, that does not mean things your iPhone learns about you can’t expand into other products. For example, perhaps macOS can benefit from what my iPhone has learned about me and begin to be customized as well. Similarly my Apple TV, Apple Watch, and any other device that is part of the Apple ecosystem. What that will lead to is an ecosystem of devices uniquely customized and tailored to you.

Apple’s Lead
With everything I’ve outlined above, which blends a number of themes around devices, custom chipsets, integrated software, AI/ML, and security and privacy, Apple is the clear leader. Other companies will try to do the things I mentioned but can only do so on one device. Apple has the ability to leverage their ecosystem and depth of products to all work together. This creates a more compelling story for an Apple customer buy more Apple products. Buying more Apple products increases Apple’s ARPU, leads to more stickiness, and creates more opportunity for services revenue over time.

The machine learning/AI era will not be limited to one device but will have to span all the things a customer uses. As these devices become more aware of the unique interests and behaviors of its owner, those benefits will translate to all the devices in their ecosystem. The implication being, the point I made about your iPhone becoming uniquely tuned to its owner but every device Apple makes thanks to the training that takes place on the iPhone.

Lastly, this central nervous system can become a distributed learning engine where data from all Apple hardware feeds the central brain and trains it. Therefore, while your iPhone may be the central brain, your Apple TV, Apple Watch, iPad, and future products can all feed that brain and give even more useful training data. When you look out at those competing with Apple, you quickly realize they are the only ones with any critical mass of ecosystem devices with Apple Watch and iPad being the best examples.

Hopefully, I’ve articulated a few points to think about related to how AI/ML is being used by Apple uniquely with more of a focus on the individual than a general data set of information like Google is doing. I’m still fleshing out this model of Apple’s central nervous system and learning OS and perhaps next time I update or tackle this subject I can create some visuals to clarify it even more.

I remember when Apple was near its bottom. Investors, pundits, analysts, and many commentators suggested that Sony should buy Apple. At the time, Sony was the biggest consumer electronics brand around and nearly every category the company entered had tremendous success. There was a culture of innovation, attention to detail with hardware design, and a laser focus on quality. In many ways, Apple and Sony were extremely similar but Apple was not a consumer electronics company at the time, they were just a personal computer company making Macs.

But now, the Sony we knew is gone. Their new CEO has them sailing toward a near-total pivot away from hardware and deeper into content and subscription services. This focus will include an effort to control more of the entertainment content industry in things like music, movies, and games.

The Post Mortem
Looking back, I think the nail in the coffin for Sony was they did not control any major user-interface platform outside of the Playstation operating system. Even if we believe they could have made a run competing with Apple on iPod’s, it would have made no difference in the long run if Sony did not control a large scale consumer platform. Sony did, and still does, create software UI experiences on their TVs, DVD players, and more, but none of them are true platforms that third parties develop exclusive experiences on like iOS and Android. PlayStation is the closest platform Sony has, but it reaches less 100m consumers worldwide.

In personal computers, Sony shipped someone else’s platform with Windows. We can’t fault them for this they had no choice, but their focus on the high-end could only last so long without control of an exclusive platform.

There were a couple of factors that led to Sony’s disruption. The first was the smartphone. The most important device in the world is the smartphone, and the smartphone continues to disrupt hardware categories. It is disrupting PCs, it is disrupting TVs, it is disrupting tablets, and who knows what else it pressures. The smartphone has caused almost every other category to become a commodity, while it remains the single product able to command premium prices at scale.

The second factor was Apple and iOS. It was both Apple becoming a consumer electronics brand and Apple’s control of a consumer platform that hurt Sony the most and forced Sony to have to deal with dynamics of commoditization they never had to deal with before.

Sony’s Pivot and Foreshadowing Other Hardware Companies
From a disruption theory standpoint, something I think is very interesting is how Sony tried to battle disruption using tactics right out of the playbook, and it didn’t work. When commoditization or low-end disruption takes place (which is the dynamic that hit Sony’s hardware business), the counter strategy is to double down on premium and focus on the smaller more profitable niche within a segment. Sony tried this by doubling down on the high-end with their TV business. This worked for a few quarters, but ultimately lower-priced good enough TVs even ate into the high-end the same premium features Sony tried to focus on made their way into lower-priced TVs. In short, traditional disruption theory avoidance tactics did not work in the TV category. I think this is an important and interesting observation.

I have a theory to propose as to why I’ll share briefly. The strategy of entrenching in the high-end when low-end disruption takes place ONLY works with products that have a high emotional attachment. Meaning things that are very personal to consumers. This can be things like food, clothing, automobiles, and personal technology. Things like TVs, which is an appliance, and other electronic appliances are subject to less emotional/personal attachment and therefore subject to good enough dynamics.

Sony had no sustaining innovations. They had nothing that could not be copied and offered at lower prices by their competition, and in the end, that is what killed their reign as a consumer electronics leader.

Foreshadowing For Other CE Brands
This leads us to implications for other consumer electronics brands who may have to follow Sony in a pivot away from hardware. Companies like Samsung, and to a degree LG, who have big consumer hardware brands but continually find themselves running short of sustaining innovations that can keep competitors at bay and allow them to live entrenched in the high-end.

Samsung’s hardware business may be the most vulnerable, but may also be insulated against these dynamics because of the many other businesses Samsung is in and the strength they have in the semiconductor side of the house. But many of the dynamics that hit Sony are likely to hit Samsung’s consumer electronics brands like TVs, and even smartphones. Samsung will most likely continue to use the tactics to fight disruption in smartphones and move away from the low-end to focus on the high-end. But I think the same dynamics that hit Sony in their tactics will hit Samsung but for a different reason. Smartphones are more personal than TVs, so Samsung has that going for them, but Samsung ships someone else’s platform. The implication of this is all of Samsung’s sustaining innovations will have to be in hardware features which is the easiest area for low-end competitors to keep pace or fast follow with.

When I take a step back and look at the whole picture of what we have seen happen the past 20 plus years in consumer electronics is the steep price brands pay when they do not own or control a platform. I do not see this dynamic changing, which is why companies like Amazon, Google, Apple, and Microsoft are going to viciously fight over who can gain control of the platform that comes after smartphones. Maybe it is AI, maybe it is AR, maybe it is something with wearables, or maybe it is all of the above. Losing the platform battle in the next computing cycle has grave consequences. This is the one constant observation we can rely on and why the next few years are critical for those platform winners of today.