Author: Ben Bajarin

I watched the vast majority of the antitrust hearing where Jeff Bezos, Sundar Pichai, Tim Cook, and Mark Zuckerberg were present to make opening remarks and then take “questions” from members of congress. I was hoping there would be more back and forth and that there would be more discussion with the CEOs of these big tech companies, but that was not the case. The direction of the topics and questions were a bit all over the place. There are many angles that came out of the hearing, one strong one being the vast insufficiency of the answers from many of the CEOs who had to use their words carefully to dance around with their answers. But the first thing I wanted to hit on, which was the most glaringly obvious, is how broken this process is and how the government will dramatically need to adapt if they want to see meaningful change around tech going forward.

Talking not Listening
This was billed as a hearing, but it was just talking. Part of that has to do with the format. Members of Congress had 5 minutes per questioning round, and because of that, they spent more time making a point than having a discussion or letting the CEOs respond accordingly. More often than not, the Congress member questioning the CEOs cut them off and rarely let them explain. For me, this is the first thing that needs to change format-wise. The 5 min per person does not allow for meaningful opportunity to engage in discussion and listen but only to make a point in a very trial/courtroom like way.

This format was not the way to have the most genuine dialogue with these CEOs. Both Pichai and Zuckerberg have shown up in person for a hearing with them individually, and I found that a much more effective format allowed for more time and more scrutiny of the answers provided. In this current COVID situation, I understand not being able to organize full-day sessions with each of these CEOs individually. Still, from the information gathered, if Congress wants to proceed, I firmly believe a follow up with each of these CEOs is necessary.

The other element this format induced was the opportunity for several members of Congress to grandstand and simply pander to their constituents vs. ask meaningful questions of the CEOs present that would help shed light on the antitrust conversation. To that degree, the conversation also went back and forth with questions to Pichai on Google and Zuckerberg on Facebook that were less about antitrust/anti-competitive behavior and more about censorship and free speech. While I understand some potential elements of overlap, this (the power of Google and Facebook and the issue of censorship and free speech) seems like something worth having more dedicated conversations about.

Predetermined Conclusions
Another bothersome element of this format was the pre-determined conclusions. There was a lot of work done in advance of this hearing and a great deal of evidence to support positions of anti-competitive behavior. While I thought several members of Congress, Rep. Pramila Jayapal being primary among them had very good questions and good banter back and forth, the vast majority of Congressional participants felt the need to push their agenda, or bias, in their questioning rather than meaningfully look for answers to the issues they put forth. This was unfortunate because many did bring legitimate issues to the table but attempted to force the CEOs into yes or no answers rather than seek to understand the CEO’s perspective or answer. This was also a byproduct of the 5 minute limit per person as they felt the need to rush to address all their topics. Again, a completely flawed process, in my opinion.

While I understand the need to prepare remarks, it was the pre-meditated prepared conclusion from Rep. David N. Cicilline that showed quite clearly their minds were made up before this hearing, and how the entire thing was a dog-and-pony show rather than an attempt to listen and learn. Here is a brief excerpt from his concluding remarks, which he read aloud at the end of the hearing.

This hearing has made one fact clear to me—these companies as they exist today have monopoly power.

Some need to be broken up; all need to be properly regulated and held accountable.

We need to ensure the antitrust laws first written more than a century ago work in the digital age.

When these laws were written, the monopolists were men named Rockefeller and Carnegie.

Their control of the marketplace allowed them to do whatever it took to crush independent businesses and expand their power.

Well, the names have changed, but the story is the same.

Today, the men are named Zuckerberg, Cook, Pichai, and Bezos.

Once again, their control of the marketplace allows them to do whatever it takes to crush independent businesses and expand their power.

This must end.

Minds were made up before the hearing, an,d there was nothing the CEOs would say that was going to change. So again, what was the point? It was not to listen and learn, so in the big picture, was it helpful or necessary?

The Ability to Actually Compete
Being someone who appreciates observing and studying business strategy, I found troubling the emphasis on some basic competitive tactics, employed by businesses of all shapes and sizes, as being anti-competitive. Observers were noting on Twitter, as the hearing was progressing, that clearly, a new definition of monopoly or even anti-competitive practices needs to be adapted for the modern business arena. But the tone members from congress took, at least to me casually watching in, was one that these companies should not even have the right to compete. The tone and direction of much of the questioning were suggesting these companies should not have the chance to use competitive tactics to protect their businesses.

My worry, should this proceed to a case and we get to a spot where remedies are enforced, is the degree that overall competition itself is harmed. The over-bearing fear of monopoly carries with it the consequence of causing companies to compete in the market with their hands tied behind their back. This would be bad for business, bad for America, and just overall bad.

I’m certainly in favor of keeping companies accountable, which is why I wish this process were better suited to gather relevant information, by knowledgeable people in the space, to suggest potential solutions that lead to better change for all. Too often, in most cases, the attempt to regulate has little to no change in the market and, in some instances, hurts consumers more than its effort to help them.

This topic isn’t going away, and in many cases, I personally was not satisfied with many of the answers given by the CEOs. I hope a follow-up, with much more discussion, ends up happening in the not too distant future.

AMD posted better than expected earnings on the back of two significant points and milestones. The first was the increased share gains of their EPYC server chips. AMD, for the quarter, saw double-digit share gains in server thanks to the continued adoption of EPYC. Notable is the revenue increase for AMD in servers came almost exclusively from EPYC CPU’s as AMD’s server GPUs have not yet seen the adoption against Nvidia I’m sure management would like. The AMD GPU for datacenter story remains one of the potential upsides for AMD’s business. AMD also noted they hit their goal of double-digit market share in server and server revenue accounted for 20% of quarterly revenue.

The other area, also a significant milestone, was AMD’s record quarter share of notebook sales. The strength of the notebook market because of work from home and learn from home, combined with PC OEMs committing more design wins to AMD due to Intel’s supply constraints, led to the highest revenue from client processors in 12 years.

When you look at the business of Intel and Nvidia, the datacenter part of the story is one of the most important mostly because datacenter is extremely lucrative as I’ve written before. As important as client processors are, even when volume grows, it drags down ASP as Intel and AMD consistently see ASP fluctuation during periods of strong desktop/notebook sales. I make this point because the upside to AMD is mostly because they have so much headroom to grow in the datacenter. While the same is true for the client business, where AMD also has less than 20% share, growth there is not as lucrative.

In light of the competitive challenge and dynamic between AMD and Intel, it is worth highlighting AMD’s historical struggles and multiple fundamental architecture failures that nearly sunk the company several times. Knowing AMD’s history, the near-death experiences, the technical and architectural missteps along the way, only makes their position in the market today that much better of a comeback story. In large part of this turnaround is current CEO Lisa Su and the engineering team who overcame the architecture challenges AMD faced integrating ATI with the Bulldozer architecture. That team led them to the Ryzen core architecture, and EPYC server architectures that are as competitive of technical solutions to Intel AMD has ever had in the market.

At this point, it is hard not to stay bullish on AMD, given they are firing on all cylinders. Their guidance for the next quarter echoed the strong market for PCs we see due to COVID-19. Still, their server growth guidance was weaker, which is similar dynamics both Nvidia and Intel signaled, which does confirm the broader market slowdown of cloud and server/datacenter after the strong momentum from cloud infrastructure seen during the early stages of the pandemic.

Intel Needs to Pull and AMD
I’ve read several investor notes on AMD post-earnings this morning, and everyone says the same thing, which is a point I completely agree with, which is that Intel is not going to sit back and let AMD run away with the market. Intel still has a dominant market position, and their fate in the grave is far from sealed. But Intel must fix what is now obviously a broken architecture and process technology. In many ways, Intel is facing the same issue AMD has faced and overcome, which is why I say Intel must pull and AMD as ironic as that sounds.

Intel’s recent reorganization is their attempt to do so. Still, it will also require extremely difficult choices for Intel, which may very well include a new manufacturing strategy both in terms of outsourcing their X86 designs to someone like TSMC and possibly collaborating more with TSMC inside Intel foundries.

Intel making drastic changes, per a pivot, or bold decisions elsewhere are the biggest thing to bear in mind when considering AMD’s total upside. But ultimately, healthy competition in the semiconductor space between AMD and Intel is one of the best things to happen to the semiconductor space in a decade.

US and Semi Manufacturing
The last point I want to make, and one that I’ve been thinking about for a while is what cost to the West will come if Intel has to drastically change their US-based manufacturing. An argument can be made that from a US perspective, there is a matter of national security concern if the US is to lose domestic semiconductor manufacturing by a US company. Even if TSMC was to make more chips in Intel foundries, even if those are Intel chips, TSMC is still not an American company.

Given we know China is investing heavily in owning the full stack of semiconductor technology, there should be concern about certain government’s security future should the US no longer be a player in semiconductor manufacturing.

This should be a topic being discussed within the US government, and possible solutions need to be discussed due to the great risk of losing semiconductor manufacturing.

The next year will be extremely important for Intel, and the semiconductor space as a whole.

The hits keep coming to Intel. Yesterday, Intel posted earnings reflective of a decent quarter revenue-wise but it was the forward-looking commentary that is much more concerning.

The first takeaway that is relevant to watch for regarding many companies, not just Intel, was management commentary that data center momentum was slowing down. If you look at Microsft’s earnings, you see a similar deceleration related to Azure. Nvidia also reported some datacenter decline in areas as well in their May earnings call. That’s enough data points to believe data center is slowing to a degree, and we will see what AMD says next week as well as Amazon’s AWS commentary next week as well.

But that is not the market dynamic that has Intel’s stock off 16% as of this morning. It is the news that their 7nm process and subsequent chips on 7nm are delayed six months. Given the challenges Intel faced with moving from 14nm to 10nm, this would stack back to back process generation delays, which only further puts Intel behind their competition and will likely lead to continued competitive challenges and market share loss to competitors, specifically AMD.

I will be the first one to defend a position that says process technology leadership is not everything. However, being competitive from a product standpoint does require not falling dramatically behind from a process technology standpoint. It was AMD that demonstrated this as they first sold off their own internal manufacturing when it became clear they could not keep up with Intel, and then similarly moved away from Global Foundries (which was the AMD fab assets spun-off) and joined at the hip with TSMC which has now paid off in dividends strategically and financially. Falling too far behind in process technology is the absolute worst-case scenario for Intel, no matter how you spin the narrative.

To help you understand the timeline, Intel is now saying late 2022 or early 2023 for their 7nm products. Intel CEO Bob Swan indicated they figured out the root issue and believe the 6-month delay is all that should be expected. But let’s look at that same timeline and see what TSMC is saying. TSMC’s management talked about 4nm in H122 and 3nm in H222. The takeaway from that is Intel will be rolling out their 7nm products at the same time TSMC is rolling out 3nm products. In a best-case scenario for Intel, they will be 1.5-2 generations behind customers using TSMC process technology. With AMD being chief among their competitors in CPU/GPU, it is hard to not firmly believe AMD has a great deal of potential growth ahead to take share from Intel in both datacenter and PC clients.

The data center is a critical battleground because of how lucrative it is, even though the volumes are low compared to PC clients. The data center is the biggest chunk of Intel’s revenue, so this is of higher strategic importance. One thing Intel management has now started saying, that many views as a positive are their willingness to look at outside fabs for assistance in manufacturing. Intel stated they would use an outside foundry, most likely TSMC, for their upcoming data center GP-GPU Ponte Vecchio to keep it on track. I believe this upcoming GPU from Intel is of utmost strategic importance to their product portfolio, and that is telling that it will be built on someone else process technology. To be entirely honest with you, there is a part of me that simply can’t believe it has come to this for Intel.

It’s also worth mentioning a few things about PC client hardware. While less than 30% of Intel’s revenue, client is where a lot of the glory is in semiconductors because it is the tangible part of the business most humans get to see and touch. Remaining relevant in client PC hardware is extremely important. With Intel’s delays now in 7nm, this makes Apple’s move to their own silicon that much more interesting and potentially strategically detrimental to Intel.

Intel has historically been the company to bring leading-edge process technology products to the PC client space. The leading-edge process means better performance per watt, which is extremely relevant in bringing better performance with better battery and power management to notebooks. So you can argue in PC notebooks, where performance per watt is extremely relevant, then competing with leading-edge process tech is incredibly important.

AMD is bringing their 7nm Ryzen products to notebooks potentially by the end of the year but early 2021 for sure. But the interesting story here is Apple. I am not sure what process generation from TSMC Apple’s upcoming silicon for Macs will use, but even if it is on TSMC 7nm, Apple will still be out the gate first with leading-edge process technology. It is also a safe bet Apple will be first with 5nm, and beyond due to TSMC now leading the charge in process technology.

All of that to layout the point that Apple may very well put much more competitive pressure on the PC OEMs than I first thought last month. If Apple’s Macs, running Apple Silicon, take the clear lead in benchmarks, and a big reason for that being not just their design. Still, because they are running better process technology, then their devices will stand head and shoulders over competing PC OEM hardware. If Intel has no solution even close, then PC OEMs will increasingly turn to AMD, who should “technically” remain more competitive with Apple. To emphasize my point here, to better compete with Apple, OEMs will need to more deeply embrace AMD if this scenario plays out.

So now, the biggest question for me is what does Intel does with their fabs. Being vertical, designing, and manufacturing their chips was once an incredible strategic advantage for Intel. Yet, it is now looking like one of their biggest strategic disadvantages. The strategic quandary they are in is they can’t move their CPU manufacturing anywhere else because TSMC doesn’t have the capacity. Perhaps Samsung could, but even that is somewhat questionable.

Intel can outsource more of the promising companion parts like GPU, AI accelerators, etc.. Still, they have to deal with this issue with their CPUs being tied to their process, which is consistently causing problems. In the back of my mind, I always had a worst-case scenario for Intel, where they had to pivot with regard to their fabs. Either sell them off or have someone like Samsung or TSMC collaborate on designs made in Intel fabs. We are sadly at the point where to meaningfully move forward, structural change must occur for Intel.

Apple’s App Store Report
In advance of next week’s congressional hearing on Antitrust, a report was released by Analysis Group in collaboration with Apple showcasing how Apple’s app store commission rates are the industry norm.

There is a lot to unpack around this, and it is worth emphasizing this is not a black and white issue. The best way to approach this topic intellectually is to see both sides of the argument. Apple has a valid position, as outlined in this report showcasing how their rates for the app store are in line with the vast majority of other app stores. Note these charts from the report.

While these charts tell the story of all marketplaces employing the same fees, there are some nuances to point out. I thought the inclusion of video game stores was interesting. Video games are one category that has largely always been a market distributed by marketplaces. Historically when you purchased a video game, you went into a retail store, and that retail store took a lot more than 30%. With game consoles, the game stores are entirely locked to the platform. Meaning you can’t go out to the general web and download a game for your Xbox or Playstation. In many ways, console game stores are the most similar foundationally to Apple’s iOS app store, which makes those comparisons, perhaps, the most relevant.

I make that point because one of the pushbacks I got via Twitter yesterday when I tweeted both those charts was that with Apple’s app store, you could only get apps from the app store, and Apple is strict on requiring you use in-app-purchases for those apps. The point was to say that Google allows you more flexibility in going outside the app store to purchase an app, and you can get around giving Google the 30% if a developer so chooses.

As I’ve articulated before, Apple simply would do good to be more clear about how a developer can allow a customer to sign up for an account, and purchase a subscription, etc., from their website and then download the app and log-in to their account thus taking they payment directly. Apple allows this for a range of solutions, but as the ordeal with Hey revealed, it is unclear how a developer gets their app approved when they are charging that subscription outside of Apple’s app store to avoid the 30% fee. Transparency here will help, but this is one of those areas I said is not black and white.

App stores have their value, and no one will disagree that those who provide these app market place solutions should be compensated. There are benefits to software developers and consumers in terms of ease of discovery, security, privacy, and ease of friction for commerce. App stores aren’t going away, but the question of how they should evolve in economic practice is the heart of this discussion.

Another point that was thrown at me in my Twitter discussion was that just because others use the same economic model of app store commission, does not mean that Apple is stuck abiding by them if it is not the best thing for developers. The point was more that maybe Apple could be a better leader here and set a new bar about App Store practices rather than just say it’s ok we do it because everyone else does as well. I resonate with this point because I think Apple should be a leader with the App Store, not just one who follows the same practices of everyone else. There has to be some common ground here, and I’d love to see Apple find it.

The other thing that struck me was the Mac app store, in many ways, is much more flexible. For the Mac, you are not restricted to just the Mac App Store to get apps. You can download apps from developers and companies themselves, sign up and pay for software and subscriptions directly to that developer or company. So the question that then sticks out in my mind is, why is Apple living by a double standard? If all their arguments are true of the iOS app store, then why are they not the same with the Mac app store? Then this thinking led me to another question. When Apple moves its Macs to Arm, will the iOS app store policies then come to Mac?

This is going to be a critical story to watch, and I think Apple has to find the common ground I mentioned especially if they want this new world of Mac apps to thrive, and be attractive to devs, as they switch to their silicon solutions in Mac and away from Intel.

I’m very excited about Monday’s congressional hearing honestly because it will be fascinating to see what the big tech CEOs say.

TikTok Spinoff
TikTok is reportedly exploring some options to avoid any potential ban on the app.

Bytedance, TikTok’s owner, is exploring selling a majority stake in TikTok to a company with US interests or spinning it off as a separate US-based company. Both scenarios and scenarios within those scenarios are interesting. A full sale of TikTok would be tricky as the list of buyers would be small. Snap likely couldn’t afford it. Facebook would not be allowed to buy it, and maybe Google could make a play. Private investors could make a play as well, but the dollar amount would be out of reach for many in the private world I’d think.

If Bytedance believed they could spin the company off and still have some control and say in the company but also have it appease US concerns over the company, then that route makes the most sense, in my opinion.

In the big picture, the thing about TikTok that is worth bearing in mind is how the most successful Chinese app to come to the US was built by a conglomerate from China, not a startup, or smaller company. Assuming other Chinese apps will attempt to come to the US, one can assume this may be the template China uses going forward. For that to happen, how TikTok handles this situation will likely help determine the strategy used by Chinese companies in the west. For that reason, I view this as important to watch to see if TikTok/Bytedance can navigate these waters successfully. If not, it may serve as a barrier that deters Chinese companies from even trying to break into the West. Which also may be a goal of the current administration.

Amazon and Streaming E-Commerce
There has been a new e-commerce trend in China I have been watching, and it is an evolution of social commerce. The trend is individual influencers live streaming e-commerce events. Social commerce is already much bigger in China than it is in the US. Influencers are used to talking about products and using their social mediums to promote products and services. In China, it was a natural evolution to bring a live component to the social commerce experience.

Influencers in China are using all kinds of tactics to promote and sell products live, and one includes integrating the flash sale concept. Meaning, offering a limited quantity of an item, sometimes even limited edition, and creating a sense of urgency to purchase a unique item not many people will have a chance of owning. In many ways, this is a modern evolution of the home shopping network using many of the same elements to sell goods.

The market in China is massive for social commerce, and live streaming e-commerce is rapidly growing. Estimates are that in 2020 alone, 570mmn users will participate in social e-commerce. Streaming e-commerce in China is growing at a rate of 71% annually. Live streaming e-commerce is easily one of the fastest-growing trends in China, and Amazon may just be making it easier for the same trend to grow in the US and other parts of Europe.

Amazon announced Amazon Live. Here are some key details of Amazon Live:

Amazon is giving live streamers a new way to earn commissions on purchases of products showcased in their streams. The company is today adding live streaming to its existing Amazon Influencer Program, which before today, allowed social media influencers to earn money by pointing fans to their favorite Amazon products through posts on Facebook, Twitter, Instagram, and YouTube.

Though Amazon already catered to video creators through the program, the new live-streaming option is focused on its own Amazon Live service. A sort of modern-day version of QVC that streams directly on Amazon’s shopping site, Amazon Live launched last year as the retailer’s latest effort to attract consumers by way of live video.

To broadcast to Amazon Live, video creators, and now, influencers use the Amazon Live Creator app to live stream and chat with viewers as they show off the products to be shopped. On the Amazon Live homepage, fans can also chat with the host and one another in a Twitch-like side panel next to the live video.

As with many trends that come from China, there is always a question on if it will come to the west and with the same success as it has in China. The same questions exist for live streaming e-commerce, but Amazon making it easy for this trend to succeed will help.

Slack Files EU Antitrust Complaint Against Microsoft
Up until today, Microsoft has been able to stay out of the anti-trust conversation. Slack announced on their blog, they have filed a complaint claiming Microsoft is illegally tying Teams to office. A few key statements from the post:

The complaint details Microsoft’s illegal and anti-competitive practice of abusing its market dominance to extinguish competition in breach of European Union competition law. Microsoft has illegally tied its Teams product into its market-dominant Office productivity suite, force installing it for millions, blocking its removal, and hiding the true cost to enterprise customers.

“We’re confident that we win on the merits of our product, but we can’t ignore illegal behavior that deprives customers of access to the tools and solutions they want,” said Jonathan Prince, Vice President of Communications and Policy at Slack. “Slack threatens Microsoft’s hold on business email, the cornerstone of Office, which means Slack threatens Microsoft’s lock on enterprise software.”

While commentators on Twitter were quick to throw CEO Stewart Butterfields comments that Microsoft is not a competitor back at him. I do, technically, agree with Stewart that Slack is an additive solution to Office that it many ways makes Office more effective. Microsoft Teams is also more of a video meeting platform, that shines when collaborating in real-time where Slack is more about asynchronous collaboration than synchronous collaboration.

The reality is Slack loses out not having a video conferencing solution, and Teams loses out by only have chat that works best chatting while you are on a video meeting. In many ways, the solutions are complementary, but both are competing for valuable productivity hours from workers.

I posted this on Twitter, but it is an interesting thought to wonder if Slack is like Netscape in many ways. Netscape was the browser of choice for many during the Internet boom. They were early with a great browser, but then as Microsoft bundled Internet Explorer the anti-trust issues hit. Microsoft still won the battle as Internet Explorer completely displaced Netscape.

I go back to Slack’s statement that they are confident they can win on the merits of their product. This is a better focus of their time and efforts than trying to battle Microsoft in court. The best product will win, and any distraction from Slack could end up leaving them blindsided as Microsoft has a chance with Teams to compete on the merit of the product just as much as Slack does.

Similarly, if Slack has a claim against Microsoft, they should be worried about Google. And if Slack has a claim, then so would Box and DropBox conceivably as Microsoft Bundles One Drive and Google bundles Google Drive.

Ultimately Slack should be worried they are primarily a chat solution and do not offer a wider range of products. This is already a competitive challenge against companies who do have a suite of solutions and, ultimately why you could argue Slack is much closer to Netscape in reality. Let’s hope they don’t suffer the same fate.

Softbank Exploring Arm Options
Yesterday, the Wall St. Journal reported Softbank is exploring options around Arm Holdings, which they own and purchased for $32 billion four years ago. The price, which was shockingly high for a company that does a little over a billion dollars of annual revenue and has a little over 3 billion in assets. Regardless, Softbank saw something and paid a pretty premium.

Softbank had stated their plan was still to let Arm go back into the public markets with an IPO, and that likely still makes the most sense. However, the Wall St. Journal reports Softbank is even exploring a sale of Arm as well. Interestingly, Arm last week announced they were proposing to transfer its two IoT Services Group (ISG) businesses, IoT Platform and Treasure Data, to new entities that would be owned and operated by SoftBank Group Corp. and its affiliates. The move is positioned as allowing Arm to focus more on its core semiconductor IP. This tells us the IoT platform and data were not core to Arm and perhaps more core to the primary reason Softbank purchased Arm in the first place. This move will allow Arm to focus purely on client, infrastructure, automotive, and embedded/IoT devices.

The areas of focus for Arm make sense since those are the growth areas and, as a public company, the ones where most revenue growth could happen and, therefore, positively impacting their stock if the public option is the route they go. But the question of the sale is an interesting one.

I immediately got questions on Twitter and via email from subscribers asking if Apple should try to acquire Arm’s IP. The short answer is no, for various reasons, but I understand why the question arose. The concern for Apple and any Arm architecture licensee, which consists of big hitters like Nvidia, Qualcomm, Broadcom, to name a few, is if Arm IP was to fall into the hands of a competitor. Given the asking price would be quite high, I still don’t think an acquisition is the most likely scenario, but it is worth thinking through potential scenarios just in case.

The first thing that I truly do believe is Arm needs to be a neutral entity. This is why IPO makes the most sense, but even in that scenario, I worry investors don’t see enough growth potential to infuse Arm with cash, it needs to keep innovating their IP for customers. While it is true Apple and others only license the instruction sets from Arm and then make their own custom designs, these companies often do benefit from IP innovations in new Cortex designs that, in many cases, influence their own architectures.

The other element of ownership that comes into play is that of politics. It’s no secret all of China’s semiconductor ambitions rely on Arm technology. Softbank has already sold off a majority stake in Arm’s China business to a Chinese private equity firm that includes some of Arm’s partners which likely include Huawei, and possibly Mediatek. While I am not sure if China could, or if regulations would even allow China to make a play to buy Arm, it is certainly a scenario that would hurt many global companies who rely on Arm.

While again, I prefer an IPO for Arm and total neutral operations, a fascinating intellectual exercise could be what if Intel purchased Arm and kept it as an independent company but started intentionally tying more Arm chip manufacturing to their fabs. There is obviously a strategic need for Intel to fill fabs, and many of us have long argued they needed to make Arm chips using their process technology. One could argue if they did this many years ago, they might have kept process technology leadership rather than lost it to TSMC.

The other context here is around the US CHIPs act. While I think the US government needs to do more with this to encourage semiconductor innovation in the US, keeping Arm IP in the hands of western countries is strategically important.

I could make an argument the semiconductor race has taken on new importance and, in some cases, maybe as critical to countries’ future innovation/economics as was something like the space race. Arm plays an important role in the future of computing, and while revenue potential is questionable, the value of their IP is exponential. What happens with Arm IP is more important than many realize, which is why what happens with Arm will be critical to watch.

TikTok’s Algorithm and the Censorship Debate
Ben Thompson had a great article today that brings up a new debate in my mind. In fact, Ben has largely been critical of Facebook and Twitter’s handling of misinformation as he has warned about the slippery slope of censorship. Something I completely agree with.

The critical point Ben touches on is that of TikTok’s algorithm. This paragraph is extremely impactful.

The point, though, is not just censorship, but its inverse: propaganda. TikTok’s algorithm, unmoored from the constraints of your social network or professional content creators, is free to promote whatever videos it likes, without anyone knowing the difference. TikTok could promote a particular candidate or a particular issue in a particular geography, without anyone — except perhaps the candidate, now indebted to a Chinese company — knowing. You may be skeptical this might happen, but again, China has already demonstrated a willingness to censor speech on a platform banned in China; how much of a leap is it to think that a Party committed to ideological dominance will forever leave a route directly into the hearts and minds of millions of Americans untouched?

Early on in my use of TikTok, I observed the power of this algorithm as a primary differentiator in discovery. It is this algorithm that drives its stickiness. Understanding TikTok is a staple of Gen Z’s daily habits, when I talked to my kids about this it was shocking to me how much they understood that the more videos they liked, the more the algorithm showed them content they wanted vs. content they did not. I tried this, mostly clicking on videos of dogs, or animals, or things that were funny, and sure enough, I saw more of those videos than one memes or other things I did not care about.

The algorithm itself is TikToks largest differentiator. But to Ben’s point, if controlled by someone with an agenda, then whoever controls the algorithm could then potentially control or sway public opinion. My first reaction to Ben’s piece was to say it is not the algorithm that is the problem but the fact it is controlled by a Chinese company. But as I thought more about it, I think the question should be raised if such an algorithm should exist, to begin with.

This element of AI bias has been a concern voiced by many for years. It seems increasingly difficult, at least at this point in time, to not have a bias in AI and even more worrying if a political agenda or misinformation campaign could be injected into that algorithm intentionally. TikTok’s algorithm is unique in that you get a steady stream of content from people or sources you don’t follow. YouTube may come the closest in showing you a feed of recommended content from outside the channels you subscribe to, but you still have to click that content to watch it. TikTok just shows you a continuous stream of content dictated by the algorithm.

The uniqueness of this brings up the question I mentioned if it should even exist. Should TikTok get banned, is it likely Google, Instagram, or Snapchat would just duplicate this experience, or should they even try? I don’t have the answer, but I do believe this is an important debate.

This week, news broke that Nvidia had passed Intel as the most valuable (by stock valuation) semiconductor company in the world. When I saw this, it was not a surprise but more of an inevitability I’ve felt for some time mostly because I read more notes from investment banks than I’d like to admit and the calls on Nvidia have been growing stronger for years as the datacenter, and cloud computing, has become a more critical growth sector for semiconductor companies.

While there is certainly a pure business analysis that is a part of this story, and this business end is what drives the stock, there is a sentiment part of this story that is a bit more telling, in my opinion.

From Client to Cloud
The first poignant thing to observe is the dramatic shift in value from the client, end computing devices, to the cloud. This is not to say end computing devices are not important, only that there is limited growth to be had going forward in client devices.

Another point to understand about cloud vs. client is while the addressable market for end-computing devices is dramatically larger than the market for cloud, one could argue price competition has stalled the pricing power of CPU/GPU components in client computing devices and therefore underscoring the point that growth has peaked and has for many years.

Prices for computing silicon in the cloud is significantly more expensive and has much higher ASPs than in client. Which is a primary reason the growth headroom in cloud and datacenter demand makes for such an attractive market at a business level and then by nature at a stock level.

When we break this point down, investors appear to believe Intel will not be among the biggest winners in this continued shift from client to cloud. Which on the surface is interesting since Intel owns ~90% of the datacenter CPU market, and has the majority share in several other components. However, they have no presence in the datacenter GPU category, which is notable from an analysis standpoint.

To further cement, this point about investor’s lack of confidence that Intel will grow in the cloud in some of the most profitable growth areas all we need to do is look at their P/E vs. Nvidia and AMD who both seem to have investor sentiment from a growth potential standpoint. AMD’s P/E is a crazy 132, Nvidia’s is 78, and Intel’s is 11. Now I completely understand P/E is just one telling indicator, and not the end number to look at, however, investing is all about betting on future profits and P/E tells part of that story. The relative P/E’s, in this case, tell us quite clearly investors believe AMD and Nvidia have more future profits to acquire than Intel does.

Rightly or wrongly, this is the story investment banks are telling their investors. But there is something more fundamental to this story that is worth highlighting.

Intel’s Lost Industry Leadership
The bigger part of the story to grasp is that Intel is not viewed as an industry leader in semiconductors any longer. To be clear, Intel is the market share leader in most metrics of product dominance. 90% share in data center CPU, ~90% share in PC CPU share, steady share of accelerators, memory, etc. Despite being the market share leader in most computing categories, Intel is not viewed as a leader in terms of innovation.

The criticism over the decade has been that Intel has lost its vision and has been run more from an operational perspective rather than an innovation drive. Their string of more operational CEOs is where the finger has been pointed, as critics point out a more engineering-driven CEO may have put more focus on innovation than just business operations.

I’m not sure where I fall in this debate to be quite honest. Mostly because you could, and many do, argue that Apple has a more operational CEO than a product/engineering focused CEO, and yet Apple is still viewed as pushing innovation in many areas. Of course, Tim Cook gets his criticism, and many hardcore Apple critics claim Apple needs a product/engineering minded CEO, but the point is that even with an operational focused CEO, Apple still has industry leadership accolades in many areas. All that to say, I’m not sure the CEO point about Intel is the reason their leadership position has declined in terms of outside sentiment.

On this point, I want to briefly point out a common criticism of Intel where they lost leadership in process technology having TSMC and Samsung beat them to 10nm and to 7nm. Folks will point out Intel’s missteps in getting to 10nm as evidence of this lack of engineering/innovation focus. However, company commentary has clearly stated their troubles with 10nm is a result of being overly ambitious in their density goal. Which, if true, would indicate an attempt to further push innovation despite it not working. Which, unpacking why may make for an interesting case study someday.

Now, all that said, even if Intel had process technology leadership, I’m not sure the narrative of lost leadership as an innovatory would have been gone. Leadership in the semiconductor industry has moved beyond just performance per watt. The reason the market is so excited about Nvidia is because the view is their technology sits at the center of some of the most exciting new technological advances. Things like AI/ML, robotics, automation, and a host of other exciting new areas for computing.

Nvidia’s technology being viewed as fundamental to spurring innovation and bringing new applications for technology is a key reason for the continued positivity in investor sentiment. It also helps Nvidia has a visionary CEO who is eloquent, passionate, engineering-driven, and a proven track record in placing strategic bets and having those bets pay off.

Intel’s story is not done, far from it. However, their competition has never been stronger. The industry is getting bigger and more challenging as a whole. Intel still has a chance to get back in the driver’s seat, but it will take a unique combination of vision, engineering innovation, and execution.

Walmart+
Yesterday, Walmart announced a subscription service that looks to be an Amazon Prime competitor. Walmart is an interesting competitor in this space, given the retail footprint they have. You could argue for the vast majority of commodity items and consumer packaged goods, a same-day option or in-store pickup could eat into some of Amazon’s share. Where it is unclear if Walmart+ can compete with Prime is in the breadth and depth of inventory and products in the Amazon Prime marketplace.

That being said, Walmart saw a distinct rise during the COVID-19 for both Walmart.com transactions and Walmart groceries as a part of online food delivery. Looking at the Second Measure data for both, Walmart saw both their average transaction value and average transactions per customer spike in April and continue to rise until late June. Interestingly, Walmart’s average e-commerce transaction per customer of 4.25 was very similar to Amazon’s pre-COVID average transactions per customer of 5.1. Amazon’s post-COVID transactions per customer rose to 8.25 as of mid-June, according to Second Measure data.

Amazon has a huge head start, but Walmart has what everyone believes Amazon will need more of in the future, which is more physical retail space. This is a good competitive battle, and if anyone can pressure Amazon, it is Walmart.

Microsoft and Android
For Microsoft’s upcoming Duo, dual-screen Surface device, it appears they are bringing more of the outside design house who helped with the Android integration in-house. This is an interesting move, and in my mind, crystalizes Microsoft’s commitment to Android as a platform to not just ship on future hardware but also as a platform for deeper integration of Microsoft services.

Another thing this cements in my mind is that Microsoft is not done making Android-based hardware products. Could they someday make a Chromebook? Crazy to think but not out of the realm of possibility. It will be interesting to see the market respond to Duo, but regardless of how the product performs, this is clearly not the last Android-based hardware product Microsoft will make. Which, all things considered, is a fascinating shift in strategy which reinforces Microsoft’s cloud and services first approach.

Both Windows and Android can serve to help better integrate Microsoft’s apps and services. While Windows is important, it’s clear for Microsoft the OS is not the end goal, but services are, and in that world platform-agnostic strategy and thinking are crucial.

Twitters Subscription Possibility
The Verge reported on a Twitter job listing that initially mentioned working on a subscription service, which has since been edited to not mention any subscription.

This is interesting news and an interesting potential feature for Twitter users and more pro Twitter users. While Twitter’s stock is up slightly on the news, I can’t see this appealing to more than a few percent of its user base. So while it could be material financially, it may not be a huge source of revenue.

While this is still just a rumor/speculation based on a job-posting, should it happen, it does raise questions as to how well ads or promoted content on Twitter is doing. Social media advertising as a whole seems to be in a bit of a slump, so it is interesting if Twitter is now seriously considering other revenue streams as potential ways to keep bringing in income.

Ultimately, I like the subscription idea for Twitter, I always have. Even if it appeals to small percentage of their user base, this group that would pay for it tends to be the most vocal and most influential. Giving them better tools, and an overall better Twitter experience could become a rewarding strategy for the platform as a whole and perhaps help grow their user base.

Google Buys North
You may not be familiar with North and their Focals product, but today Google officially announced they are buying the company and absorbing them into their Made by Google hardware group. North is possibly the closest thing on the market to a future augmented reality/ambient computing solution consumers can get their hands on. I’ve personally spent some time with a version of Focals 1.0, and while interesting, it only deepened my conviction of how far off augmented reality is from a consumer market reality.

But ultimately, this acquisition helps Google advance from both a software and hardware standpoint as they acquire the talent and technology North was working on. I never had a chance to demo North Focals 2.0, but they looked to be a big step up from the 1.0 versions. Due to this acquisition, North won’t ship their 2.0 versions, but my gut is this puts Google in a position to bring to market a smart glasses solution in 2021 that may check all the boxes of a version 1.0 AR/ambient computing platform.

I’ve done quite a bit of user research on augmented reality the past two years, and Focals 1.0 was a solution we tested and got user feedback on. In every bit of research, we did the excitement was there on what AR/smart glasses could potentially become, but the experience has always been lacking. That being said, the smart assistant and voice-based computing solution will be a critical component of smart glasses experience, and as of now, Google is best positioned with this technology. It is telling that the blog post from Rick Osterloh Senior Vice President, Devices & Services, positions this acquisition as a part of Google’s ambition and focus on helpful devices.

Ultimately this space is starting to shape up interestingly from a competitive standpoint since Apple is rumored to also be looking to ship an AR glasses solution in 2021. However, as exciting as a pair of AR glasses from Apple will be, I fear they will struggle if Siri does not dramatically improve in all-around intelligence. Apple’s AR Kit continues to impress, but that has to be mapped with cutting edge ML and AI to fill the gaps in human interface models. Apple needs to keep investing heavily in this area since Google has the edge here for now.

All around, I like this acquisition, and I’m excited to see what Google does with it.

Amazon Buy’s Zoox
Zoox never had a chance to bring their solution to the market, but it was one of the more interesting technologies in development. Their car/transport pods were being developed with tires that can rotate to help the car move sideways, which I thought was interesting, particularly for dense metropolitan areas.

Zoox was focusing more on Robo-taxis, but they were also busy mapping a number of metropolitans areas. I thought this tweet from Elon Musk was entertaining when he saw the news.

I’m not sure what Elon is interpreting Amazon will do with Zoox, but I can say with certainty it will largely be for Amazon’s deliver fleet of vehicles at least to start. My gut is Amazon will be laser-focused on the commercial side of this technology, where Tesla is still more focused on the consumer side of vehicle automation.

If an Amazon facing consumer car is in their future, it is a long way out.

Lulu Buys Mirror
Another interesting acquisition was by popular athletic clothing maker Lululemon agreeing to purchase Mirror, a hardware-based startup that developed a mirror display for fitness. The Mirror and screen are simply a display, but I had heard they were seeing an uptick in sales thanks to COVID-19, which makes it an interesting time for Lululemon to pull the trigger on the acquisition.

The amount of the acquisition is $500m, which does not seem like a lot. However, it is interesting to see an athletic brand move to make a technology acquisition like this right now. I think Lululemon feels the situation with COVID-19 presents an opportunity for home-based fitness, and they see a path to integrate services and commerce more directly into the Mirror product.

I played golf with the Lululemon COO last summer (happy accident just happened to be in my foursome), and she was extremely well informed on the industry and technology and gave some insight into how Lululemon thinks. I’m not generally in favor of a clothing company getting into technology, but from what I heard about how Lululemon thinks, this will be interesting to watch from an execution standpoint.

Lastly, for what it is worth. I know six people who purchased a Mirror during this nationwide shelter in place, and they all had nothing but nice things to say about it.

I have done a number of media and investor calls in the wake of the confirmation of the latest worst kept secret that Apple was transitioning away from Intel for Macs. The question came up, and it is a good question to ask, as to whether other dominant platform and hardware companies will move to make their own silicon in the future just like Apple.

I have no doubt the temptation has loomed. Especially since Arm is making it easier and easier for companies to acquire a license and tweak their solutions to their needs. Apple, along with a small handful of others, has a more robust architecture license to Arm IP and completely customize architectures based on just the Arm instruction set. Companies like Amazon, Microsoft, Google, etc., don’t need to be architecture licensees of Arm in order to modify silicon more toward their liking and vision. This is why the temptation will hang around.

Before I go deeper, I need to make some clarifying points about Intel for context.

• First, Intel losing Apple as a customer will only have roughly 2-4% revenue loss. Not much of a hit, and that is why Intel’s stock did not take a significant hit upon this news. In fact, Apple moving away from Intel has been priced into its stock for at least a quarter or two.
• Second, Intel’s cash cow is the datacenter, not PCs, or the client business as it is called technically. Depending on the quarter, Intel’s client revenue from chips sold to PC OEMs varies between 27-30% of total revenue. That number has been shrinking, slowly, for some time now. I’m not mentioning this to suggest Intel does not care about the PC business, only that it has been a steadily shrinking part of their annual revenue.
• Lastly, to be clear, the threat to Intel is a loss of share to a competitor. Something Apple is not given they do not, and will not, offer their silicon solutions to anyone other than themselves. The threat to Intel is AMD, and to a degree, Qualcomm is Arm-based Windows PCs can be successful and gain a significant share of the PC market.

Given that context, it is worth looking at what Intel can do in the PC space to better compete and fend off share loss by AMD, and potentially Qualcomm. And the answer to that is rooted in the reason Apple is leaving Intel.

As I explained in my column Tuesday, the clear message Apple sent as their reasoning to shift away from Intel in Macs was because they have a vision to build products they simply can’t with what Intel is offering. It is this idea that could become attractive to other Intel customers. Interestingly, Microsoft may be giving us the trend PC OEMs may follow.

In last Fall’s Surface launches, Microsoft released two new computers that did not run Intel processors. One they launched in conjunction with AMD, which was a collaborative processor design that had specific tuning Microsoft wanted to make to deliver a specific experience with a Surface. Second, was another collaboration with Qualcomm to release the SQ1, which was a custom version of Qualcomm’s ACX processor that was designed for Microsoft Surface Pro X. In both these devices, Microsoft wanted to deliver a specific experience, and to do that, what was offered off the shelf was not sufficient. The only Surface product that did not have a high degree of silicon customization was the Surfaces launched on Intel silicon.

As of now, both Qualcomm and AMD have shown their willingness to partner and create custom variants, optimizations, and other customizations for customers. Interestingly, Intel does offer custom solutions in some cases. If a customer wants a total custom solution, Intel will work with them, but it won’t be cheap since it is just for that customer, and volume would be low. Intel is more willing to collaborate if the customer’s need or ideas, is general enough. It can be applied to more customers or future Intel technology. While I’ve heard Intel lay out these options, and I’m sure some customers (mostly in the data center) may take Intel up on it for the PC business, I know of no one collaborating with Intel on anything like what Microsoft did with AMD and Qualcomm.

Ultimately, this is the pivot I think Intel needs to make. If their competitors are willing to do it, Intel must as well, or they will risk losing design wins, particularly in the high-end of the PC market. There is a risk for PC makers as others like Apple or Microsoft start further differentiating their products with custom silicon, which enables them to do and create products and product experiences those who run off-the-shelf silicon can not.

Alan Kay’s famous quote, “those who are serious should make their own hardware,” was certainly an inspiration for Steve Jobs’s conviction To control their whole stack. I’ve since adapted that saying to add “those who are serious about platforms should make their own silicon.

When you ship the same software or components as your competition, you end up losing a great deal of differentiation. Differentiation is what fights of commoditization, and if you can’t differentiate, you will be commoditized by a competitor who will do it cheaper.

This is ultimately where I think Intel needs to wrestle with how they will help customers in the PC business compete in the high-end when two companies who sell a lot of premium PCs in Apple and Microsoft are going deeper to control more of their core components. If the trend continues, Intel risks not necessarily losing tremendous share in PCs but losing share in the ever-important and highly valuable premium sector of PCs.

As we are several months into remote working, I think it is safe to assume that humans are not meant to sit through 4-5 hours of video meetings in the same way they are not meant to sit in 4-5 hours of meetings all day every day.

From early on, when COVID-19 forced economic shutdowns and many industries forced to rush into a work from home/work remote situation, we have been tracking the process. We did some research, and the chart below shows how rapidly the increase in video meetings as a normal day to day activity rose.

As we had conversations with employees at various companies of different sizes and in different industries, it has been fascinating to see the early positivity in video meetings by many we talked with. Fast forward now two months into the situation, and the sentiment as changed in several specific ways.

Early on, and in particular, as our social interactions became limited, video seemed to be a welcome way to interact with colleagues. Companies rushed to replace the day to day in-person interactions with video calls, and that was a primary reason for the spike in video meetings being reported by Zoom, Microsoft with Teams, and Google with Meet. But after about a month, video call fatigue set in, and we see it in various forms now today.

In April, I wrote about this for subscribers, and linked to this article and highlighted this paragraph.

‘One reason may be that most video calling platforms will include the user’s camera view on the call screen. It is likely that this is enhancing our self-awareness to a greater level than usual and therefore resulting in us making additional self-presentation efforts than in face-to-face interactions in the real world.

‘Another explanation for fatigue may simply be from technical restrictions and our inability to be able to fully use the usual array of social cues and non-verbal communication. Within video calls, the bandwidth of social cues is much narrower, and we have to pay additional attention to others’ behavior to enable us to monitor social interactions effectively. These extra attentional efforts can become tiring over time.

Nilay Patel from The Verge tweeted this yesterday, which is a sentiment I have heard from dozens of friends and colleagues already who want to go back to audio calls and not a video for 1:1 interactions or with people you are familiar with.

I noticed this early on as well in my own experiences where being on video, where someone was watching you, took another level of focus and energy as an element of participation. I like to multitask, stand, walk around to think, and more, and that is very hard to do when sitting looking present in front of a camera.

I can’t tell you how many calls I’ve had with friends who simply find it refreshing to talk audio-only rather than Zoom. Nilay’s point was well-received on Twitter, with many commenters agreeing with him.

There is a time for video meetings, and there is a time for audio calls, and the refinement in criteria is what is being worked out right now. However, as a result of this exercise, I firmly believe those refinements in the process will trickle down to impact in-person meetings once people are allowed to go back to the office, and some sense of in-person work returns to normalcy. Not every meeting needs to be a physical meeting. Physical meetings also require a great deal of energy and, limited them to the absolute necessity will have a positive impact on everyone’s productivity.

That being said, if I’m directionally correct in this shift, then it means we need much more innovation in the software, tools, services, and even hardware, to make remote collaboration even better than if it was done in person or over a video call. This is the challenge but also the opportunity to innovate on many levels.

For me, this whole experience has brought to light new understandings of what the failures are of real-time remote collaboration as well as the failures and challenges of in-person meetings. While I know the effectiveness of in-person meetings and subsequent best practices have been studied, I still think there is more digital solutions have to offer that can marry the best of both worlds. There is no perfect solution, and there may never be, but I firmly believe there is an opportunity to innovate here. Those who do may end up gaining a stronghold on digital transformation and the new era of collaboration that sits ahead of us.

When we started Tech.pinions in 2010, we wrote numerous articles a week on the topic of trying to counter terrible articles written about Apple every week. During that moment in time, writing about Apple drove page views, and being cynical or negative drove even more page views. I had just come off a stretch of working with SlashGear helping them grow their publishing business and creating a long-term strategy. In an advertising model that awards page views with money, I saw first hand this dynamic play out. I was no longer shocked with the content I saw on most blogs as it made total sense economically even if the content itself was terrible or just plain wrong.

During the same time, I was even more active with sell-side analysts and big hedge funds than I am now on their investment strategy for Apple. I was always shocked and often wrote about how Apple confounded most of its investors. There we active short sellers all around Apple, and their thesis was built on flawed assumptions and templates for companies or business models that worked for other companies but would not work for Apple. The worst part was most of them did not understand why their template would not work.

Fast forward to 2020, and Apple’s stock just hit all-time highs. In a moment in time where there is chaos in America, Apple’s biggest market. In a year where COVID-19 will dramatically impact hardware sales, Apple will not be immune, and we have at least a year-long recession. Despite every sign that Apple’s stock should decline, it has reached an all-time high. The market as a whole is acting irrationally, but that is a different topic.

As I continue to read sell-side analyst notes on Apple, I get the sense most investors have either come to grips with what they don’t understand about Apple and just know they can trust the reliability of the stock performance, or investors have actually finally come around and understand. What is it they finally understand?

Apple’s Customer Loyalty
I have long argued Apple has some of the most loyal customers, and now it seems most investors finally understand this. One of the key arguments the short-sellers had with Apple was their customers would eventually leave to find something cheaper. Apple’s products were treated like commodity consumer electronics, and the template they were using were traditional consumer electronics products that don’t typically see high degrees of customer loyalty. Apple’s brand was certainly something that was factored in, but that did not seem to have as much weight as it should either, in my opinion.

Many of our readers and subscribers know that my company does a lot of product research, and Apple products are a big chunk of that research. Loyalty/engagement is a metric we always include in some fashion in our product research, and Apple continually has the highest customer loyalty/engagement of any company we track.

I know people are sensitive to the word monopoly, and Apple certainly doesn’t have a monopoly in an enforceable sense. Still, it is the best word to use because of the weight it holds when we say things like Apple has a monopoly on iOS, macOS, or their silicon and core components. I firmly believe these things contribute to Apple having the most loyal customer base out there.

At the root of the significant change in how big bank investors think about Apple, is this awakening to the strength of Apple’s loyal customer base who continue to buy Apple products, and invest in the Apple ecosystem. This is why the narrative of Apple services has been so strong in the market.

The investor mindset is largely driven by future revenue. And while the growth curve for Apple is not what it was as iPhone was scaling, Apple has created steady continued growth and investor belief is the services and wearables group still has headroom to grow and contribute to revenue growth.

It is fascinating to see the dynamics that used to impact Apple’s stock greatly, not play as much a role any longer and see the many investor notes I read seem to finally present a better understanding of Apple’s fundamentals.

The US and global economic recovery, and the lingering question of consumer confidence to get back to normal life is a top question in nearly all conversations I’ve had lately with industry executives and investors. There is no crystal ball here, we are in uncharted waters, but we do have a great deal of data at our disposal. I’ve appreciated several large banks, UBS and Morgan Stanely, specifically, who have been running regular research tracking consumer behavior and sentiment. As we near the end of May, I wanted to summarize what the data tells us so far and make a few points on the trends.

Here are a few highlights from a recent Morgan Stanley report they sent to investors.

• The virus is still the top concern among consumers, but the percent reporting it as a top 3 concern remains stable at ~ 2/3. Job loss as a top concern is also stabilizing (~1/3), while concerns about the election (38%) and inflation (34%) have been on the rise for several weeks.
• The number of consumers who believe the economy will improve in the next six months continues to trend up – 44% this wave from 28% in mid- March – while the number expecting the economy to deteriorate fell to 45% from 64% in mid-March. We see similar trends in the outlook for personal financial situations.
• Consumers generally expect to take more precautions with respect to large gatherings, spending, and travel over the next 3 months, though more are open to traveling by car.
• For the first time since mid-March we note an upward inflection in participation in some outdoor activities – 12% of consumers said they ate out at a restaurant (skewing to states that are reopened) compared to 6% two weeks ago. Intention to participate in outdoor activities continues to improve as well while the intention to participate in indoor activities is falling.

Directionally the data is much more positive than what it showed in early April. There was significantly more caution around the economic outlook and concern over personal finances than what the data is showing as we end May. With most states now moving to new phases of re-opening, reports are coming in suggesting small businesses are starting to see the pent up demand for goods and physical retail overall is seeing a gradual recovery.

It’s clear some industries will still struggle, specifically related to travel and leisure. Note the chart below from the Morgan Stanely report, signaling caution in specific behavior over the next three months.

It’s clear from this chart that cautious consumer behavior will still exist for some time. It validates the theories that the recovery will be slower and gradually get better until there is a vaccine or treatment for COVID-19. Vacation industries seem to show no signs their troubles will ease soon.

Near the bottom of the chart, 22% of people saying they will work from home more often lines up with our research, and others as well, and fits the theory that we could see 20-30% of the workforce move to a more permanent work from home situation if they can. Right now, surveys from CIO/CFOs indicated anywhere between 50-60% of the workforce is in a work from home situation right now.

Overall, the good news is nearly all economic reports, and consumer behavior research I’ve seen suggests people are gaining confidence but are still cautious and wanting to see more progress getting COVID-19 under control. Right now, there is no reason to believe the worst is still ahead of us unless we start to see a massive spike or second wave in late summer or fall. If that happens, then all the positivity we see right now is off the table.

Apple Glasses
My note yesterday got quite long digging into the data we have on AppleTV+, but I was going to talk about the Apple Glasses rumor that has gained some traction since so many readers emailed or messaged me on Twitter about it.

As far as the details go, any educated guess could have told you what Jon Presser included in his video as far as features. Given he did not go into any depth of the look or the UI, I strongly doubt he has seen them, and even if he has, he has not seen any final version or design.

Apple develops many product prototypes well in advance, so whatever they are toying around with right now is nowhere near final. Suffice it to say, take any rumors or so-called “leaks” about Apple Glasses with as many grains of salt as possible.

The video was a vast amount of smoke and mirrors, in my opinion. But the one thing I want to spend a moment on is the timing. While I’m as interested and anxious for Apple to release their AR glasses, I do not believe 2021/2022 is the timing. I even think 2023 is a stretch. Part of my conviction is the technology itself. Both the display and projector needed to amplify high-resolution text or images so your eye can see them without straining is not there yet. Some can argue Apple has had some breakthroughs in a lab, and while that is possible, it is also unlikely given the science behind some of the core technologies they would still need to acquire from an outside source. I stay deeply connected to every part of the supply chain and have seen many of the best solutions for AR lens and micro projectors available, and they are all nowhere near ready for a mass-market product.

The other part of my conviction is market readiness. I’ve had the opportunity to research augmented reality products and experiences in the last few years. The responses from even the most enthusiastic of tech adopters convince me the market’s readiness to accept AR glasses is still years away. The eyes the most difficult place to place technology by far. The wrist, ears, etc., are much easier and offer use cases for everyone. The challenge with glasses will be both in the number of use cases where value can be found. The challenge I see comes specifically to non-glasses wearing humans. This is an area where glasses will differ from the watch. Why would a non-glasses wearing human leave glasses on their face for a small number of use cases? Will they just put them on in certain circumstances where they want the AR experience, then take them off and put them back in their pocket? Yes, this isn’t that different from a phone experience, but a phone experience has drastically more use cases today than glasses will at launch.

In my mind, if Apple can crack the value for non-glasses owners that will convince them to leave them on for long periods, even though they don’t need corrective vision, then I think the market will be more willing to adopt. For existing glasses owners, it makes sense since they leave glasses on all day anyway, having an AR experience pop up in certain circumstances makes some sense.

This is an exciting category, and it will also be one of the most difficult to crack we have ever seen in a consumer product. Apple is extremely well-positioned here, but I think they still need a few more years with AR Kit adoption to support enough use cases to appeal to a broader market at launch. That is why I think the next two years are too early.

Facebook Shops
Facebook has taken one step closer to executing the broad vision of social commerce. This trend has been talked about, but rarely have we seen it executed well and Facebook shops hope to accelerate the potential viral momentum of a brand or product discovered on their service.

Facebook has essentially created a way for merchants to create better storefronts, within Facebook, and provide a complete experience all the way to checkout, and potentially tracking, all through FB. FB working to support Shopify is a huge benefit here since I think Shopify provides the best commerce platform for brands wanting to control their total customer experience. But other backend solutions will be supported as well.

Some data point here for context. When it comes to advertising, and specifically ads that lead to commerce, both Facebook and Instagram have the highest conversion rates. In a recent advertising and media survey conducted by UBS Research, they found Instagram had the highest engagement of monthly users taking action when seeing an ad at 60%. Facebook was a close second at 54%. Both services also had the highest conversion to purchase after clicking an ad than any other services with Instagram at 22% and Facebook at 21%. While those conversion rates seem low, they are among the highest in an industry that usually sees below 10% conversion rates via ads.

UBS does this survey every year in May, and they specifically called out Facebook and Instagram as the only social media services who saw year over year growth in the category of social commerce and conversions where all other services like Pinterest, Snap, Twitter, etc., saw a decline. What this suggests is Facebook remains the best positioned to capitalize on social commerce.

Social Commerce’s Time?
Can social commerce succeed now in ways it could not before? I think the answer is yes, as the foundation has now been laid, partly accelerated by COVID-19, in ways that did not exist years prior. First of all, e-commerce is now so deeply entrenched in the global customer, thanks to COVID-19 in ways we have never seen before.

All you have to do is look at the growth of major merchants e-commerce platforms across the board, and the incredible acceleration in US e-commerce as a percentage of retail which when from 16% to 27% in a matter of 8 weeks. And it is still growing. Merchants everywhere were forced to e-commerce just to stay in business, and I strongly doubt they give up that strategy as a part of their business going forward.

The role of social networks will be critical in the hardest part of commerce, which is product discovery. In particular, connecting commerce to the social graph is an entirely untapped opportunity. I could see either Shopify or Facebook having a dedicated experience where I just see the things friends in my social graph are buying. This is one of the most powerful product discovery mechanisms. This gets even more powerful if the concept of Facebook likes moves to something like recommend. I’d love a way to see what new products bought or discovered by my friends are recommended by them because they like/love them so much. This would be a powerful addition to the social graph concept of social commerce. Here again, Facebook is the best positioned to succeed.

Bloomberg had a report yesterday that got widespread attention around AppleTV+ and Apple looking to build a broader catalog of content. The report also consisted of a user number that is likely low and more representative of a paying base of customers vs. active users.

As luck would have it, we at Creative Strategies did a recent product experience study on AppleTV+, and we gained some fresh insights on the service. I’ll address the point of the article about Apple looking to secure a back catalog first.

AppleTV+ had a tough comparison to nearly every other video service out there in that all of them had a back catalog of content. Even Disney+ launched with a huge back catalog, and experts in this subject were right to label this as a flaw in AppleTV+’s launch strategy. It seems consensus in those who know and study the space, knew a rich catalog was an essential bar that had to be met to gain consumer attention. Here we have two data points.

The first is this chart, where we asked consumers in our survey to rate specific features of AppleTV+. As you can see from the chart below, sentiment around content selection skewed to average at best.

Our study also revealed the lack of interesting content as the major reason most have not signed up or tried AppleTV+. 34% of those not active users of AppleTV+ checked “not enough content I care about” as the main reason they have not been interested in trying or subscribing to AppleTV+. The second main reason checked for not trying/subscribing to AppleTV+ was due to already having/paying for too many subscriptions.

This was insightful to us since we asked what other subscriptions were subscribed to as it gives us a glimpse into what pay content services AppleTV is competing with for share of wallet. Among those not trying/subscribing to AppleTV+, Netflix, Hulu, Dinsey+, and HBONow sat among the top as the main video services consumers were paying for. The list of top services currently subscribed to was nearly identical among those actively trying/paying for AppleTV+.

We also asked people to freely write in feedback on AppleTV+. I share below a few highlight quotes from our respondents.

“I was onboard with Apple’s apparent rationale on the service. “You don’t just come to the party to become another Netflix. Their offering was unique – we don’t have unlimited shows, but you don’t have unlimited time. So we’re just giving you enough of the BEST content to fill the hours you DO watch”. It’s never lived up to its promise. The Peanuts show is good. Don’t really care about any of the others.”

“They are making a lot of shows, but I don’t think there’s any real vision underlying the network. The productions values are very high, but I haven’t found a show yet that I really felt I had to watch or would strongly recommend to anyone. That being said, Apple has a lot of money, and they’re pretty patient, so I’m guessing they will learn, and it will get better.”

“Apple just needs more content.”

“Just too limited on content.”

“Needs more content in general.”

“Content, content, content. For me, none of the content rises to the level that I’d pay for a service.”

Those are just a few that follow the normal pattern of the hundreds of comments I’ve read through.

It will be interesting to see how Apple evolves TV+. A rich catalog of content is what will keep consumers actively engaged in the service. However, should Apple’s game here be extremely long, in a few years, they will have a decent catalog on their own of original content. That being said, I do think it wise Apple license, or even buy, content to help boost their catalog as it will no doubt benefit AppleTV+.

Now to the total user number. One thing that was quite surprising to me in our study was how few were actively paying for AppleTV+ and how many were using it as a part of their free year promotion for buying new hardware. Here is the chart on this point.

As you can see, the number of paying subscribers is surprisingly low. However, of the base of users in our study, 60% said the $4.99 price tag is extremely (36%) to moderately (24%) priced.

Along that thread, we found intent to convert to a paid subscription once the trial or promotion is over relatively high as well. 22% of respondents said they are likely to continue to subscribe to AppleTV+ after their trial or promotion is up.

All of this, in my mind, still raised the macro question of what AppleTV+ is to and for Apple holistically. Our data reveal the potential of the service that much is clear. Should it be bundled with other services and or hardware going forward? Is Apple thinking about this more like Amazon does with Prime, where the value of the content/service is a part of a broader service or product strategy? I think, while fairly priced at $4.99, Apple still has steep competition not just for a share of wallet but also for a share of time. If consumers are likely to subscribe to 3-4 media services, maybe more, and all those services have a depth of content, then there is simply not enough time in the day/week/month for all the media services out there. To me, not necessarily wallet but time is the biggest competitive factor Apple needs to overcome, and for that, the old adage remains true; content is king.

The conversation around remote working continues to get more interesting. The topic of remote work is now coming from all aspects of the tech industry, and the news from Twitter that all their employees have the option to work remotely forever has many believing this will be the new trend.

Many believe Twitter’s move to allow permanent remote work will set a trend that many Silicon Valley companies will follow. I tend to think this is true, to a degree, as a new perk of the job may very well be the option to work from home more or permanently. I’ve been having several conversations with friends at various tech companies around the valley and have asked if they think they will try to work from home more going forward. One constant phrase I hear from these conversations is, “now that I know I can work from home.” What this tells me are most workers who have been able to work remotely have overcome the hurdle that existed prior, which may have simply been a question as to whether they could effectively work from home. What this current situation has presented us with is enlightenment as to what is possible when it comes to remote working.

As more workers become aware of the potential for them to work from home, my guess is they will get at least one to some of the time, even if for only a day or two a week. This means that from a competitive hiring standpoint, many more companies will have to embrace the freedom for workers to work from home or risk losing quality candidates to other companies.

While I don’t think the vast majority of workers will choose to work from home remotely, I do think the option will be necessary for most companies to offer. Depending on the industry, the approximation of people who work full time from home is between 13-15%. My gut guess would be that number could go up to over 25-30% of the workforce at least working remotely some of the time and potentially growing at a rapid rate as companies adopt more work from home options.

That being said, this shift brings up even more questions once we embrace it as not just possible but also extremely likely.

A major question being one of wages. I’ve seen multiple debates on Twitter talking about a remote worker leaving they valley and moving to another state and whether they would still make silicon valley wages. My guess would be the answer is no, given the company should not have to pay the high cost of living wages in an area where the cost of living is not as high as California but, this remains an open question.

Similarly, what about the perks one gets when going into the office in terms of free Internet, often free food, access to an on-campus gym and services, etc. Where this matters to some people, likely younger workers, I imagine the lure of working remotely all the time is not as high. But the question will be one of the trade-offs. Just like there are benefits to working in an offices from perks or social standpoint, there are many benefits to working from home. To me, the most important point here, and the one I believe will emerge from this situation, is simply one of having the option. If someone wants to go to the office they can, if they want to work from home or anywhere they choose they can. The choice is up to the employee, and that is not a situation that was universal before COVID-19 came onto the scene.

Of course, there will be exceptions. There was news Apple will look to start bringing people back to the office in the fall, which is viewed as a bucking of the trend of other valley companies like Google and Facebook who have said their employees can work from home for at least the rest of 2020.

Apple is unique in its culture that it would be very hard for their employees to work from home all the time. Apple has a very collaborative culture, and they work on physical products which I also think adds an element of difficulty to do remote. That being said, I know Apple employees have much demanded of them. I have many friends who work there who have told me work/life balance is hard working for Apple, which leads me to the conviction that Apple should offer employees the chance to work from home at least now and then if not once a week if possible. This goes back to my point of options, that the choice of working from home becomes a perk of the job.

One last question I have with this is if big companies see larger portions of their workforce want to work from home or move away from Silicon Valley to another state, what happens to the companies culture? Every company strives to inject a certain culture that drives company and product vision, and I wonder how that is implemented and maintained if a large portion of the workforce is remote. I have no answer to this question, but it is something I’m interested to observe if we do see a broader shift in remote work going forward.

Quibi’s Struggles
An interview with Quibi co-founder Jeffrey Katzenberg was published in the NY Times yesterday. Even if you didn’t read it, you probably saw a quote from him, which went viral, stating he blames their launch struggles on COVID-19.

It did seem an odd quote, and as many people rightly pointed out, on paper, it seems there was no better time to launch an entertainment service. With millions of people sheltering in place, and content hubs like Netflix, HBO, Amazon Prime, etc., all-seeing tremendous growth in content hours consumed, you would think a new offering from Quibi would at least generate some interest.

Playing devil’s advocate, one could argue the behavioral habits that are the basis of Quibi’s strategy, meaning people who are pressed for time and want entertainment snacks, does not exist right now. The current environment COVID-19 presents with the shelter in place seems to fit better long-form content, not the short form type Quibi is based around. Quibi’s value proposition in content assumes you have less time rather than more time. The current situation we find ourselves in offers more time for most people rather than less.

That being said, I agree with the overall sentiment that if any time was actually a good time to launch a new entertainment service, it is while millions of people shelter in place in their homes. Another challenge facing Quibi is one of budget. While only $4.99 a month for a subscription that includes ads ($7.99) for ad-free, every bit of available research I’ve seen indicates, 3-4 media subscriptions is about the limit for most consumers. And given the ripe time for media services, it seems that 3-4 limit may currently be hit, and there is little to no available budget left for something like Quibi.

The broader issue, however, is the content just isn’t compelling. And I find that true in several ways. Firstly, I personally find it hard to tell engaging stories in the format Quibi has chosen. I have a sense I’m not alone. To my point about budget, if there was a must-see piece of content in Quibi, then I sense more people would have at least tried the service. With roughly only 3.5m people even trying the app and less than half that remaining as active customers (per Katzenberg’s remarks), it seems there was not much compelling content to pull people in overall.

I could do a full analysis of what the patterns have been for success in direct to consumer entertainment, but that is for a later analysis. In short, Quibi has little to none of the things that have driven successful D2C content going for it at this time, and if they didn’t have any of the core elements in place at launch, then it will be harder to find them going forward.

The last point I’ll make here is it seems Quibi’s vision was that young people want to consume content differently. And while that is true, Quibi seems just to be trying to repurpose a traditional Hollywood template into some elements that are designed to capitalize on the trends of how young people consume content. This whole strategy from Quibi feels like the kind of thing you get when management consultants do research and tell you this is what consumers are doing but yet have no real insight as to why the market is doing what it’s doing. It looks good on paper but fails to capture the true needs of the market.

Many had hoped Quibi was a re-invention or innovation on the idea of original content. Still, the market response today suggests they have a lot of pivoting ahead if they want to meet this vision.

Remote Work Dogfooding
I like this tweet from Benedict Evans, and it echoes something I have been saying since the work from home mandates started coming in.

What is most interesting to me about this observation is whether these apps will come from big companies or small ones. No doubt, software engineers everywhere are using the tools from the likes of Zoom, Microsoft, Google, etc., and seeing all the gaps in their offerings.

In recent conversations I’ve seen from venture capitalists, they are seeing an increase in pitch decks from startups looking to plug some of the holes in the offerings from the big software companies. But the debate will be if the startups can outrun the big companies.

At the same time that entrepreneurial software engineers see the holes in common productivity and collaboration software, so are the masses at companies like Microsoft and Google dogfooding their solutions and realizing they have gaps as well. Internally, I’m sure there are a host of feature requests for the dominant suites of Office and GSuite in the modern enterprise.

I view this as a fascinating race. While it is a general known that startups can move faster than the large tech companies, startups have to swim upstream in much fiercer waters against the incumbent productivity suites from Microsoft and Google.

With more companies now starting to embrace remote work, and my hunch that remote work becomes a normal part of the workforce than before, the tools we use and rely on for productivity and collaboration may be in for a wild ride of innovation. This space, in a matter of months, got much more competitive.

I know I don’t write that often about stocks or the stock market. That being said, studying the business fundamentals and how the companies and markets we study are intertwined with stock price is always something I keep an eye on. I hate admitting this, but I read way more sell-side reports on the tech companies and markets I study than I probably should. But I often find data gems in these reports, even if the mining of them can be frustrating.

I have been having several conversations with investors, large and small, about what is happening in the market with tech stocks and, in particular big tech stocks. Big tech meaning Apple, Amazon, Microsoft, and Google mostly. But there is a conversation to be had about the whole of the tech sector and how it has not just been holding up but defying the typical things that would cause dramatic losses in the market. So the question is, why and longer-term is this a new reality or a short term moment investors are holding onto?

The World Runs on Technology
A common narrative I’m seeing from the buy-side analysts at banks like JP Morgan, Morgan Stanely, and UBS is a key difference in this economic situation than past recessions/depressions. The role of technology in the world has changed, and the realization is the modern world can not function without technology. Everything from devices, to telco, to software, to cloud platforms are now so deeply ingrained in modern business, and there is no longer any debate about the essential nature of technology. This point is being taken even further now with the rushing forward of digital transformation trends when many companies are now embracing technology solutions from devices, cloud, commerce platforms, SaaS, and more out of immediate necessity.

So many trends that most pundits thought were still a 4-5 year transition are happening now in less than six months. There is still room for growth around this concept of digital transformation, but the situation around COVID-19 has caused business to transform digitally much faster than they anticipated. And in this point, is the reality that all business are relying on technology more than they were last year, and the result is much higher dependence on the world of technology.

This was not true in prior economic downturns, and it appears the insulation of tech stocks, or any company that has a tech angle (see Disney with Disney+) is not just holding their ground but even seeing gains that defy the harsh economic realities and inevitable job losses, financial pain, worries of inflation, and decrease of countries GDP. In future downturns, this combination would have crashed the stock market, but instead, we are seeing the Dow jump 300 points on the same day job losses hit an 80-year record, which happened yesterday.

The Stock Market is Held Up by Tech
The point I made above about the world, and all business, being dependent on technology shows the shift from prior eras where the stock market is now held up and sustained by the tech industry. In past eras, the market was held up by different industries, from finance to manufacturing, automotive, etc., and the torch has been passed to the world of technology.

I’ve seen economic and investors debate if this shift means less volatility overall in this segment of the stock market. This is unclear, in my opinion, given I believe this is uncharted territory, and making comparables to past downturns will be quite difficult. But, if we just look at the minimal dip that happened overall in tech stocks, which came at a time when the worst news about the virus was happening, the dip was not as dramatic, and the recovery of most those tech stocks took less than 60 days.

I’ve heard theories of a second dip, as many bought the last dip in the market and kept waiting for a second. But, as of now, most of the worst-case GDP, job loss, and economic deficit scenarios are priced into most stocks, and they are still holding ground is telling. It could suggest only a minor dip vs. a dramatic one, if any, coming before the end of June.

For many, what is going on in the market seems to confound. The market is reacting in untraditional ways. But I say again, these are untraditional times. The role of technology as a backbone is new within the last ten years. This is not something that will change anytime soon as the pace quickens for every company to, in some way, become a technology company.

The deeper we go with COVID-19, the more I’m thinking about what the future looks like post-virus. About a month ago, I saw articles that sought to look at the world post the 1918 flu pandemic. Authors seemed to insist that because you could not find much-published material, in newspapers and other media, about the 1918 flu that people must have moved on pretty quickly. While there may be some truth to that, I think we live in a very different world than that of 1918, and I do not believe this will leave human consciousness anytime soon.

To carry things further, the lasting remnants of this virus will have an impact on every cold and flu season until there is a treatment or a vaccine. Because COVID-19 seems to look like so many other common illnesses, there is a good chance anyone with cold or flu symptoms next year will worry, in the back of their mind, they have COVID-19. But as a general point, the more I’ve thought about how technology can help identify and limit the spread of any contagious disease in the future, the more I’m convinced of how important the collaboration between Google and Apple is. Still, I’d like both companies to go even farther than they are at the moment.

The Big Deal
While Google and Apple compete, they are actually much better collaborators when they need to be. But, both companies have a duopoly in mobile operating systems, and when it comes to the point I’m making, the mobile platform is the most important one. This means for any meaningful work to happen here, Apple and Google had to work together. I’d actually argue that for the sake of public interest and safety, this collaboration is necessary.

Given how other governments around the world are in a position to track, monitor, and spy on their citizens, the technology that travels with us everywhere in our pocket, and someday on our bodies, gives any entity a malicious opportunity. I wrote a few weeks ago, my concern over governments using crises to erode its citizen’s privacy. This is still a worry, but the collaboration efforts of Google and Apple give me some hope, especially if they are willing to be more strict in their app store approval and rules about how people can be tracked.

But I do think, and I believe this epidemic proves that we need something that can help give us peace of mind for the future that we are protected and aware of the health risks around us as they arise. I certainly understand how weird it may be for a person to get an alert that makes it obvious their smartphone knew where they were, but I also think there is peace of mind when it is a matter of safety. Doing so in a privacy-centric way is the key, and it’s one the public needs to accept.

What Apple and Google are doing is essentially providing the technology layer. They have built the underlying technology and protocol that allows app developers to build the kind of apps that can alert us if we have been exposed, in this case, to COVID-19. Still, my mind is thinking ahead about any future pandemic or easily transmitted disease. In the scenario, Apple and Google are providing an entity like WHO, CDC, perhaps the State, or even the country would make the app and promote it to the public. There are pros and cons to this approach.

The main pro is that as long as whoever is making the app uses the technology from Apple and Google, it doesn’t matter who makes the app they will all still work together. So, for example, the USA makes an app, and I download it. Spain makes an app, and its citizens download it. I go to Spain, and I’m around someone who either has symptoms or a confirmed case of a disease, I will still get notified. This matters because there is a chance many organizations will build apps using this technology, and how a consumer chooses one will all be a matter of trust.

However, this matter of trust is also where the big negative comes in. First off, letting nation-states, counties, or other health organizations, or whoever really, develop these apps do not guarantee the public will download it, or trust it, even if Apple and Google’s technology is behind it. What Apple and Google are providing is a public service technology, but it also requires nearly 100% buy in to make it effective. This is why I worry about the plethora of apps that may be developed using this technology and that being a limiter to adoption.

Where I think Apple and Google should go further is they should provide the app themselves as a general health and wellness app. I may even take it one step further and argue this app should be a default app on the device. While I still think you would have to opt-in to use it, I think if, as a part of a broader health and wellness app/service, more of the public would adopt and use the technology in this scenario.

What we have learned from this situation is how unprepared the United States and many other countries were for this breakout. This simply can’t happen again, and technology has to play a much larger role in averting all future health disasters. What Apple and Google have built is central to that reality. As a matter of public health and safety, I think it needs to be as widely adopted as possible, and I doubt that will happen if Apple and Google do not directly provide this service to their customers.

Apple Earnings
Over the last few weeks, I had been reading numerous sell-side research reports from investment banks, and all of them were in union with low-expectations for the quarter for Apple, especially around iPhone. Apple, overall, beat the lowered expectations, which post-earnings commentary indicates, is positive. What was quite interesting was the commentary from Tim Cook during the call that before the economic impact of COVID-19, Apple was trending to the top end of their previous guidance. This suggests the iPhone was trending stronger than many realized into 2020. There was also likely, a strong lift from China that could have been even stronger should COVID-19 not have happened. This should give observers a great deal of confidence that what many of us have been saying about iPhone demand not going away, just being delayed, is what happened. Overall, Apple is staying quite resilient< amidst the backdrop of COVID-19, and I think it is safe to assume that will remain the case as the economic issues continue or even worsen. I want to highlight a few constants that can now be depended upon.

• Growing Installed Base. I beat this drum frequently, and have for many years, but a highlight of Apple’s earnings was executive commentary that the active installed base is at all-time highs. This data point was not just about one product line or one geography, but each product line and every geography saw a new high of the active installed base. People are not leaving the Apple ecosystem. This point may be one of the most important fundamentals to their business to understand.
• Services Continues to Roll. The services growth train just keeps on rolling. I have said to watch how this business will not be subject to the same seasonality of Apple’s hardware business, and now people are starting to realize that it is true. Apple is setting quarterly records quarter after quarter in the same way they did with the iPhone for many years straight. There will come a time this business slows down, but it is likely not anytime soon. Apple’s ecosystem is uniquely positioned to keep growing services, and this business could be one of the most recession-proof.

Wearables Growth. Wearables remain the single greatest hardware growth segment for Apple. This business has massive headroom to keep growing. From a variety of research reports, I’ve seen suggest the penetration of Apple Watch and AirPods has neither product penetrating deeper than to 20% of the iPhone installed base. I don’t expect the adoption curve here to be sharp, so my expectation is the steady and continued growth of this hardware business over many years to come. Both AirPods and Apple Watch are becoming as indispensable to their owners as iPhone is, and that speaks to the value of both products.

Overall, Apple looks to be positioned to have a strong series of quarters toward the end of the year, or even longer, as the global economy picks up steam again.

Facebook Earnings
I am not going to dive too deep into the fundamentals here, but I want to touch on two specific things. As the impact o COVID-19 began, I saw a number of reports come in suggesting dramatic advertising declines as a whole. What was most interesting to me was how it seems specific advertisers knew their businesses were the ones that would be impacted and therefore stopped advertising. Things like clothing, retail products, travel and resorts, automotive, etc. These are big advertisers whose main channel is TV, so it made sense the reports were outlining the networks struggling with ads.

My theory all along was those who were still advertising could move to Facebook because of the more targeted nature of the ads, and hope they saw better engagement there. Couple that with the reality that during the shelter in place, people were spending more time on social media, and Facebook’s properties were beneficiaries. Facebook reported daily active user growth of 11% when prior quarters, this number was flat to declining. This confirmed more people are spending more time on Facebook during the lock-down, and even some people re-activating their deleted accounts. This current global situation actually worked in Facebook’s favor.

The main question is how sustainable this is going forward. After the shelter in place, an economic recovery is underway, people will not stay as engaged, and therefore some of these fundamentals may turn negative. The key for FB is to prove to those engaging more with their service that it is again a safe and meaningful way to engage socially. And the upside potential is for them to retain advertisers and show the benefit of Facebook ads platform. If Facebook can retain some of the shifts in the ad budget they received during this time, then hopefully, they can keep them when this is over.

Microsoft
I only want to touch on one data point from Microsoft’s earnings as it is indicative of an accelerated trend where Microsoft is well-positioned. Azure grew 59% YoY. It seemed like common sense that the shelter in place and work from home mandate would force many businesses to invest in the cloud more quickly than they had planned. We had seen IT surveys and had anecdotal evidence this was the case, but to see the massive growth in Microsoft’s cloud business affirms this is what is happening.

What is interesting to me is how Microsoft saw larger growth for Azure than Amazon did for AWS. Azure grew 59% to AWS’s growth of 34%. I have a sense Microsoft’s growth is also tied to the growth in Office 356 and the remote collaboration and productivity tools Microsoft provides. While these are two separate businesses, the Office/M365 offerings and the essential role Office plays in the modern business is something Amazon does not have. In a way, Microsoft can provide levels of integration across these segments in ways Amazon can not given AWS as a pure backend solution. This is an interesting dynamic to watch as Microsoft can leverage a holistic set of solutions during sales conversations. This is an advantage I think Microsoft has that perhaps only Google can offer as well.

There is an overall point here that cloud infrastructure companies and specifically AWS, Microsoft, and Google are well-positioned to grow as the shelter in place and work from home mandate is accelerating digital transformation in the workplace much faster than anyone could have predicted. Making this space one of the most competitive to watch in the near-term.

Tech Resilliancy
I want to lastly touch on the macro theme from many tech company’s earnings thus far, and that is of the resiliency of the tech sector. I was watching many macro-economic reports as the lock-downs started happening, and most of them were significant doom to the economy and the stock market. I saw investor calls that were pretty wild about how far the market could drop. But tech stocks have not come to anything close to what people were thinking. This is a fascinating point.

We learned during the last few recessions that tech was resilient, but this time around it seems even more resilient. And even more resilient still are the big tech companies like Apple, Microsoft, Google, Amazon, etc. It seems that there are many more safe bets in the stock market than people thought going forward, and big tech stocks are one of them. This will not comfort much those who feel there is an unfair monopoly-like market power given to those names I mentioned, but the reality is as every single company in the world becomes a tech company in some fashion, it is these companies who are the tried and true, vetted, solutions businesses can count on.

Many of my friends in venture don’t like the power given as they are investing in companies that hope to fill the gaps or provide alternate solutions to those of the big tech companies. Big tech’s dominance is not exactly a startup-friendly environment when it comes to more dollars from IT going to the big companies. This does not mean startups don’t have opportunities, only that their world needs to be one of co-existence with big tech rather than displacing it. At least for the time being.