Big Tablets and The Shift in Mobile Computing

I believe 2014 could be a big year for bigger tablets. The bulk of the tablets sold over the past few years have been tablets in the 7-8″ range. By our estimates the install base of tablets 9″ or larger is only 33%. Which highlights the point that most tablet sales over the past few years have been in smaller tablets.

Now, if you read what I wrote a few weeks ago you know that we believe we are on the cusp of a new buying cycle for more computing capable devices. While we can argue that even some smaller tablets are computing capable, we can’t argue that the more productive someone wants to be the more they may value a larger screen.

We believe we are on the cusp of a market buying cycle for larger screen computing devices. Some of these may be notebooks, some may be desktops, but we think the larger screen tablet has a real opportunity to take a percentage of sales in this upcoming refresh cycle.

Bigger Tablets Trending

It seems like most of the larger PC OEMS and tablet OEMs sense this opportunity as well. Samsung introduced their Tab Pro 12.2 at CES this year. I got to spend some time with this product and can attest to it being more impressive than I originally thought.

I was somewhat skeptical of the 12″ tablet form factor but after seeing the Tab Pro 12.2 I can see this being an attractive form factor for many large screen tablet intenders. One of the things that impressed me the most with Samsung’s new offering was the virtual keyboard. I am a heavy iPad Air user and I can type faster than most people on the virtual keyboard with ease. Samsung’s keyboard was even a bit larger than the iPad’s allowing me to incorporate my pinky into they typing process, which is a finger I don’t use on the iPad.

Ultimately Samsung’s, and all the other Android OEMs, challenge with larger tablets will be with the apps. The iPad is the uncontested leader in tablet optimized apps and I don’t see any evidence that is changing anytime soon. For larger Android tablets to have a strong case as more productivity devices the way the iPad Air is the tablet optimized Android app ecosystem will need to grow dramatically.

Emerging Market Growth

Interestingly the potential for larger screen tablets to grow as a percent of overall tablet sales in not limited to developed markets like North America and Europe. I met with several of the main SoC companies providing chips for tablet OEMs in China and India who told me they are seeing demand for larger tablets as well. While the US and Europe had a higher install base of tablet 9″ and larger, emerging markets had a very low install base of this form factor.

Several of the devices going into emerging markets are also slated to be a duel-boot Android and Windows tablet. Micromax, a popular brand in India, was showing off their LapTab dual-boot Windows 8 and Android tablet device. They were telling me the demand for this product in India was quite high. I remain quite skeptical of the dual-boot Android and Windows tablets in developed market but I can see them doing moderately well in emerging markets.

Consumers in many of these markets have never owned a PC. And while they are increasingly purchasing small tablets for primarily entertainment use cases, at some point in time they may graduate to more computing capable tablets. The likely-hood is that many of these will be larger screen devices.

All these points add to narrative that leads me to believe that 2014 could see strong growth of larger tablets. The reality is that bigger screen computing devices remain relevant for hundreds of millions of consumers. In emerging markets we are seeing new computer users coming online with tablets first.

Larger screen tablets will play a critical role in the future of computing and we think 2014 is the year we start to see progress in that direction.

Below is my firm’s slide showing forecasts for larger tablets.
Screen Shot 2014-02-05 at 8.31.19 AM

The Future of Microsoft, Apple, and Google

It seems today like the dominant players in computing, social media, infrastructure, services, and many other big industry segments is settled. It is easy to look at the current environment and say Google and Apple have both won. Both have large thriving ecosystems in the hottest segments of technology. Yet as Benedict Evans and I discussed on our last podcast, while everything seems settled, in reality, the future is still very much anyones game.

Taking into all the major players strategies is essential. Here are some thoughts on a few of the major players.

Microsoft

Microsoft faces some of the most difficult questions in my opinion. What kind of company is Microsoft going to be in the future? This is the key question a new CEO must address. The market where they dominate market share, the PC, is contracting in annual sales every year. They are not participating relevantly in any of the growth sectors like smartphones and tablets. Is Microsoft a commercial company whose destiny is to focus on backend services like IBM and be a much smaller company than they are today? Are they going to choose to only focus on commercial applications and ignore consumer ones?

If their current commercial which aired during the Super Bowl yesterday is any indication then lets hope they see themselves as a technology company rather than just an operating system company, software company or an enterprise services company.

Microsoft is among the top spenders in research and development. Ranking #2 of the top 2,000 companies according to the European Union. Samsung was number 2, Google number 13 and Apple number 46. Samsung should not be a surprise given the number of businesses they are in. Microsoft on the other hand is not in nearly the same number of businesses as Samsung but spend nearly as much as them in RND in 2013. If Microsoft can commercialize their R&D spending in a meaningful way they can evolve beyond their own platforms and enable a broader ecosystem. While I have serious questions and doubts about Microsoft going forward, I’d be more optimistic about them if they evolved into a broader technology company driving growth for themselves and others out of their R&D.

Apple

Apple may always have the smaller ecosystem. A fundamental question to explore is now much this matters. There are industry executives who have seen and participated in key paradigm shifts in this industry who believe that the smaller ecosystem always loses. Yet there is no clear answer from them as to why. It is not a foregone conclusion that the smaller ecosystem always loses. As long as an ecosystem is supported by a long list of third parties the ecosystem will thrive. There does come a point in time when an ecosystem is too small to support, take RIM and Windows Phone as examples.

I believe Apple can successfully acquire and maintain an ecosystem of around 800-900m ((I have logic and deeper analysis from my firm Creative Strategies to justify these numbers)) install base of core device hardware. By core device hardware I mean computers small, medium, and large. Apple will inevitably offer peripheral businesses to the hardware core, and those may be software or other hardware businesses (new categories) but they will all revolve around personal computers small medium and large. At least for the foreseeable future.

Assuming Apple can maintain this core user base, which will err toward the higher more profitable segments of the market, then I am confident their ecosystem will sustain and thrive, despite what many believe about ecosystems (800-900m is not really a small ecosystem).

Apple’s latest ad 1.24.14 is an excellent insight into Apple’s product future.

30 years ago we introduced Macintosh. It promised to put technology in the hands of the people.

By the end of the video you get the sense that the iPhone is the promise and full manifestation of that vision. It ends making the point that the entire video was created with the iPhone in one day.

Personal computing is the focus. In the hand of many is the goal.

Google

Interestingly, while many seem to have established Google’s future being secure, I’m still not so sure. At least I’m not sure about what they offer today as being what sustains them or secures their future. Android is actually still a moving target for Google. It seems established but it is actually a quite fluid product and strategy. Android may look entirely different in 5 years if it even exists.

As evidenced by the recent Samsung and Google patent deal, which likely includes a lot more than the patents, Google is able to leverage their services to bend OEMs to their will. Which gives us a clear line in the sand between Android OEMs using Google services and those that are not. The focus then should not be on Android but Google’s services. Services like search, maps, the play store, and more are at the core of what Google uses to push their agenda.

This is what makes China so fascinating. 90% of the Android install base in China is Android Open Source Project (AOSP) and have not been certified by Google to receive their services. China is unique in that Google’s services are mostly blocked at a network level inside the country. This is why so many alternatives to Google’s services exist in China and are used by the masses. Android AOSP makes it very simple for a hardware company to install a platform and in essence create their own unique platform. This is the case with Amazon, Xiaomi, and many other OEMs. I estimated the market share of Android AOSP vs. Google’s Android with their services in the chart below.

Screen Shot 2014-02-03 at 9.56.05 AM

Developing regions like India, Latin America, and Africa are all big continents with lots of people where smartphones are growing the fastest. India has many local smartphone OEMs like Micromax, LAVA + XOLO, and Karbonn. While these devices do utilize Google’s services, what is stopping regional upstarts or entrepreneurs from creating their own set of competitive services to Google’s specifically designed to only serve the unique interests of that region?

Google is a services company that monetizes those services through ads. Whether advertising is their business model or something else in 5yrs time, or longer, I believe Google will see increased competition in many of their services which they depend heavily on.

Apple’s Premium Smartphone Dilemma

As I have reflected on Apple’s earnings the past few days I kept coming back to what I am observing with the premium smartphone market. What I think is interesting about what we learned with the 5c is that Apple customers prefer them to be in the premium segment. Brian Hall wrote a column last November that Apple couldn’t go downstream and he anticipated the 5c struggling in the market.

I was skeptical of his remarks but now I am wondering how much truth there is to it. There is absolutely nothing wrong with a premium strategy. It is an excellent business that is healthy and can stand the test of time. However, I’ve never been convinced Apple only wants to focus on the top 20% of any market they enter with personal computing products. In Walter Isaacson’s biography of Steve Jobs, he writes about an interview where Steve was talking about why the Mac lost to Windows. In summary Steve Jobs admitted the Mac was priced too high. In fact, at the 30th anniversary of the Mac John Markoff mentioned that Jef Raskin, the original creator of the Mac wanted to make the Mac a very approachable $500 highly portable computer. All the Mac team wanted to do ended costing a bit more than that. But then in September, in Tim Cook’s interview with Businessweek, something he said stood out to me.

We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost. – Tim Cook

The last line, “we figured out a way to do it at a lower cost” is the one that intrigues me. I believe Apple is committed to this line. Creating the best, not the most, but figuring out a way to make the best and offer it at a lower cost.

This brings us back to the 5c. The statement above from Tim Cook is referring to the iPhone 5c. The 5c was ultimately challenged in the market because it was too close in price to the iPhone 5s in subsidy markets. More consumers seemed to spring for the extra $100 to get the iPhone 5s than did for the 5c perhaps hinting that if Apple is to have two different current generation and differently priced iPhones in the market that they need to be priced further apart.

Perhaps an option is to focus on making the best product they make at lower cost. If Apple’s manufacturing can support them offering their flagship premium phone but doing so at lower costs, and maintaining margins, they could in theory bring the premium fight to the middle tiers of the market. Which would open up their total addressable market pretty quickly in markets like China and India. It could also bring the cost of the subsidized flagship product as well which could increase quickly the number of iPhone users to switch from Android in key western markets.

Ultimately, the current carrier subsidy model is a challenge to Apple in lower price tiers. If they release a phone that is in the most popular price tiers in China and India ($115-246 USD), it would be practically free in subsidy markets. Apple could of course release phones that are only available in certain markets as well to deal with this but one has to question what Apple could release in one market that would not be desired in others as well.

Apple’s dependence on the iPhone is growing. In 2013 the iPhone made up 53.4% of their total fiscal year revenue which was an increase from 2012 where the iPhone was 50.3% of fiscal year revenue. Of course, new revenue streams (categories) are ways to increase revenue growth in new ways and perhaps lesson the dependence of Apple on iPhone revenue. But it needs to remain firmly planted in everyone’s heads that as much as new categories or new revenue streams are good additional sources of revenue there is no market in annual units sold as large as the smartphone market. We estimate that in 2018 we will sell 1.9 billion smartphones every year.

The key thing to understand about the smartphone segment is that growth has slowed across the board. We added approximately 450-500 million new smartphone owners in 2013 and that number will drop to around 300-350 million in 2013 and stay somewhat flat. The vast majority of those new owners will be in the sub $200 (wholesale) price category. Likely not customers for Apple. So who is Apple competing for? They are competing for owners whose interests are maturing and who may value their ecosystem. Interestingly, among current smartphone owners worldwide we are seeing 25% begin to move upstream from the low-end to the mid-market. The question, should Apple continue to focus on the high-end price tiers, is if/when will more mature consumers move from the mid to the higher end of the market. This may be only a matter of time, but it will require time to manifest.

We do anticipate some growth still to be had in the higher tiers as markets mature and more importantly as the rapid development happens in developing countries. I firmly believe Apple is employing the correct strategy by focusing on making the best products not the most. But if we read between the lines from Apple’s executives speaking, making the best does not necessarily mean charging the most.

Apple First Quarter of 2014: All Eyes on the iPhone

Apple had the kind of quarter companies long for. The established new record number of sales in iPhones and iPads and had the best of any technology company. Yet the iPhone sales will remain a focal point for most. While Apple sold 51 million iPhones, more than any other previous quarter, that number was a bit short of most estimates. The reason for this is an important one to understand.

Much of it had to do with the US market. Carriers moved to a 24 month upgrade cycle from a 20 month. The implications on this were speculated but what I believe it resulted in was an even longer extension of the phone life cycle. We saw a little bit of this with Verizon’s recent revealing that their fourth quarter smartphone activations declined in 2013 vs. 2014 1 million units. Verizon has a significant number of consumers on their network that fall into the late majority and laggard category of consumers. These consumers upgrade more on a need vs. want basis. Up until recently the mobile phone category in general (not just smartphones) has continually kept pace with the 20-24 month cycle. One of the things we believe we are seeing is the lifecycle extension of smartphones in the US. So many late adopters who have come into the market the past few years may impact the annual cycles more than some realize. This will be a key thing to watch.

The 5s turned out to be the hot ticket item and it was wise for Apple to re-shuffle the manufacturing mix. One wonders how many iPhones they would have sold if the mix was anticipated correctly from the beginning and Apple was not supply constrained with the 5s.

Ultimately Apple lost smartphone share in the global market. Apple is now the second company besides Samsung to to ship 50 million units in a quarter. However, Apple did it with a much more focused lineup and a much higher margin. Both impressive feats in my opinion. However, Apple’s market share of the global smartphone market is now 15% which is down from 20% in 2012. This is a key growth statistic to watch. The iPhone needs to remain a growth business and Apple must focus on grabbing new land (like China to do this.) I estimate Apple to grow market share in 2014 perhaps back to and even beyond their previous 20% of 2012.

The Mac did well in Q4 which is impressive given how poor the PC category is doing and has done. I maintain the Mac remains a growth story for Apple over the next few years. Macs are now nearly 7% of the global PC install base and this percentage will be a key area to watch.

The iPad remains a bright spot and given seasonal trends of the PC industry are shifting to the tablet category this is of no surprise. The iPad represented 31% of the total PC sales for Q4. While the iPad may not be considered a PC that statistic reveals the volume of the iPad compared to the PC. A further point is that the iPad’s 26 million sales was more volume than any PC vendor shipped of all their PCs in Q4. Lenovo who shipped the most PCs in Q4 shipped 14 million PCs.

I stick to my growth story points for Apple in 2014 as key narratives to watch. I appreciate and understand the desire for Apple to start to add new segments or categories to add further revenue growth but also highlight the reality that there is still ground to gain in every category they currently compete.

The wording Apple executives choose to emphasize ultimately underscore the priorities. They spent time talking about iOS usage share, customer satisfaction, loyalty rates and even discussed their ecosystems momentum in commercial accounts. All are designed to highlight that Apple has confidence that once people get into their ecosystem they rarely leave. This is key as we grasp the global growth story still ahead for the technology industry and Apple’s role in it.

The Mac Then and the iPad Now

Today marks the 30th anniversary of the Mac. My father was one of the few industry analysts there to witness the the birth of the Mac and wrote a great piece reflecting on the Mac’s role in computing over the past 30 years. But rather than look back I would rather look forward.

The Mac has played an important role in paving the way for computing in many areas. I believe the iPad is playing an equally important role in the future of computing. It is interesting to think that in the future we may be celebrating the 30 year anniversary of the iPad while some manifestation of the product is still in the hands of many.

About 10 years ago, pent up with frustration and nearly throwing my Windows desktop out the second story window of the house I was living at, I switched to a Mac and never looked back. How many consumers today are not upgrading their Windows PCs and instead are switching to an iPad as their primary personal computing device? How many people across the globe who never owned a PC will get an iPad as their first PC?

Apple’s vision for the Mac was all about making computing simple and accessible. The vision centered on bringing computing to everyone not just those with a degree in computer literacy. This remains Apple’s vision holistically today and it is further manifested in the iPad. While the Mac’s reach has remained limited (about 6% of the total PC install base today) the iPad has the potential to reach the masses in way the Mac cannot but with the same original vision in mind.

Many keep pounding the narrative that the PC is dead. While there is some truth to this statement computing is alive and well it simply has shifted to new form factors. Even though I believe there is still a growth story for the Mac there is no question the iPad has the greatest potential reach with its computing form and function.

The iPad may not acquire the vast majority of the global personal computing market share but it will not matter. Competitors will still study it and learn from it because it will lead the way with simplified mass market computing. Which is something many companies struggle to execute on. While the iPad itself will continue to play a role in the future of computing its influence will be visible industry wide for decades to come. The iPad is as important today to the future of computing as the Mac was 30 years ago.

Steve Jobs shipped the first Mac 30 years ago today. The first portable Mac debut in September of 1989. And while I’m not sure Steve Jobs knew all that he had at the time, I believe he shipped the first truly mass market “Mac” on April 3rd 2010.

Three Growth Story Lines for Apple in 2014

The more I study at the economies of scale within the tech industry the more I taken aback by the opportunities that lie ahead. Some opportunities like the traditional PC may not be big market comparatively but they can be very healthy markets. Others, like smartphones and tablets, are not only very large markets but they are also extremely lucrative ones.

As I have studied the why behind many market developments from the past 30 years of this industry it is truly amazing how monumental shifts in the market have favored Apple. Things I’m not sure anyone could have predicted nor anticipated. Apple simply kept being Apple and stayed true to their purpose and vision and found themselves at the right place at the right time to capitalize on these shifts.

Looking at how many of the largest global markets are developing there are several important Apple growth stories to highlight.

The iPhone (Literally)
For the past few years, analysts have been noting a slowdown in not just particular quarter of iPhone sales but also the smartphone category overall. We are witnessing the maturing of many markets of the smartphone category. This is a key observation because when a category reaches maturity the market begins to act different. One of the key things we have observed over the past 30 years with regard to consumer markets is that when they mature they segment. The result of this segmentation is increased competition and increased consumer choice. Diversity is a fundamental to mature markets and critical as they reach post-maturity (like the automotive market for example).

Because of this we anticipate Apple to start even further diversifying the iPhone line and most logical roads lead to a larger iPhone as a part of an expanded iPhone family of products. However, a larger iPhone is actually a key growth strategy (excuse the pun) for the global growth of the iPhone.

While sales of big phones are relatively small comparatively in the US there increasingly the norm in China and to a degree India. On top of that, big phones are a key to premium segments of each of those big high growth markets. Our conclusion is that for Apple to compete in premium in China and India a larger iPhone is the key.

We believe a larger iPhone could spur new growth for the iPhone even in saturated markets like Europe and US but also be a catalyst to grab new land in markets like Asia and India.

The Mac
I’ve been anticipating the Mac growth story for some time but I believe we are finally on the cusp of it. Without question the total addressable market for PCs has shrunk. That being said we believe the fundamentals of a significant market refresh are in place. Our research indicates that a high degree of self-awareness now exists by those who know they need a desktop or notebook form factor. Because of this we are observing that worldwide sales of notebooks in the higher priced tiers actually grow where they have typically remained flat. With this we are anticipating an ASP increase in the PC category as consumers realize that if they truly need a PC they want to buy a good one, which will last, and deliver the best value for the money, since they will likely hold onto it for 5 years or longer.

The fundamental shifts in the PC landscape we are observing favor Apple’s strategy with the Mac. The Mac also has the most to gain since it is starting from a lower market share percentage than Windows based PCs. Our estimates are that Macs make up approximately 6.25% of the total PC install base to date and represented 5% of PC sales in 2013. We estimate the percentage of Mac install base to surpass 10% by the end of 2015 with a target potential of 20% of the total WW PC TAM.

The iPad Air
Much of the focus over the past year has been on the iPad Mini. But a careful analysis of the iPad install base would highlight that there are more larger screen iPad’s in the current install base of Mini’s by nearly a 2-1 ratio. We believe if a larger iPhone comes to market it will challenge the existence of the iPad Mini. In fact, one way to think about the iPad Mini is as a transitionary product. This does not mean the iPad Mini goes away and it may–and should–remain as a part of the portfolio. We simply feel the volume opportunity is with the iPad Air.

Part of this logic is due to my conviction that the iPad Air is the new general purpose mass market computer. We believe that many consumers now are self-aware of their own computing usage habits and recognize the PC is overkill for 90% or greater of their everyday use cases. They still do value a larger screen and highly mobile compute device and we believe this market awareness favors the larger iPad to absorb a significant portion of the upcoming PC refresh as well.

We also believe the iPad Air represents a significant growth opportunity in markets where PC penetration is very low. We believe the iPad has a a groundbreaking opportunity to bring computing to the masses as the first personal computer for many in developing markets.

Summary
Ultimately we believe market fundamentals are shifting into the favor of Apple’s strategy. We also believe other vendors will catch on to this which is why we are anticipating certain categories to continue to see ASP increases. Seasonality plays a role in every vendors growth and understanding each regions seasonality cycle is key. But the bottom line is we are seeing positive signs in developing markets that those price sensitive customers who entered the market with low-cost phones, tablets, and PCs, are now starting to move upstream and become more value conscious than price conscious.

Well still less than half the planet yet to own a smartphone, PC, or tablet, the growth opportunities in this industry remain significant.

The iPad Advantage

Apple’s new commercial, which aired yesterday, sent a message that I feel is the defining theme which sets the iPad apart from the competition. Here is the commercial in case you haven’t seen it.

Beyond the video Apple, has dedicated the landing page of their iPad website to this theme. The tagline “what will your verse be?” In a similar vein I pointed out in this article that the power of the iPad is in its potential. Which is why the marketing around the iPad from Apple all centers on this idea that the iPad is not only powerful but its advantage is in its multiplicity.

The iPad is without question the most powerful general purpose computer in the market today. In order to grasp that statement there are two fundamentals to understand.

Form Factor

The iPad’s form factor is the basis for its diversity as a general purpose computer. Anyone who designs hardware will tell you that the form defines the function. Yet what is unique about the slate form factor is how many forms it can take that other computing platforms can not. To grasp this, simply look at the many use cases and stories Apple uses to showcase how the iPad is being used and ask yourself whether the slate or the notebook form factor are more ideally designed for each.

The PC is for certain a general purpose computer. Yet its form factor limits all its general computing capabilities to only be taken advantage while in a fixed position either at a desk, or with the device sitting on your lap. The iPad, and the slate form factor take this idea of mobile general purpose computing to an entirely new level. The iPad enables its general purpose computing power to be used in both stationary and mobile situations. The iPad liberates general purpose computing from the lap or desk and enables it in contexts where computing was absent before.

Apple is showcasing how the iPad is being used on the sidelines by sporting teams, going into the depths of the oceans to do underwater research, on movie sets, in art studios, by DJs in clubs, and a host of other use cases. All places where a notebook form factor could and never would have gone.

One thing that goes unmentioned in this is the iPad’s aspect ratio. Apple has gone against the grain of Android OEMs and Microsoft tablet OEMs by staying with 4:3 as the aspect ratio for the iPad. At first glance the value of this is not recognized yet it is significant. By using 4:3 as the aspect ratio the iPad is able to be used in portrait mode and in landscape mode interchangeably. Microsoft’s Surface and other 16:9 tablets are nearly unusable in portrait mode given that 16:9 is largely a wide screen format and while Windows 8 supports portrait mode nearly every attempt to use it this way is clunky and burdensome.

While its not as bad as Android, there is simply not many apps that support large screen portrait mode to begin with so the use cases are fairly minimal simply due to the lack of software. Which brings us to the second fundamental.

Software

As important as the hardware element of the iPad’s advantage is the software advantage is equally important. I don’t need to beat this point over the head since it is common knowledge that the iPad software ecosystem towers over the competition. But it is this fundamental point that I feel enforces the iPad’s value as a general purpose mobile computer. This is why I think Apple is showcasing its software advantage so heavily. Because if you can do more with this product then it should be worth more.

Apple knows the iPad is not the cheapest thing on the market and it never will. Therefore the software advantage, which Apple will have for the foreseeable future, will be a key message to communicate to potential customers. The tablet market is past the early adopter stage and has gotten quite a bit more competitive. Therefore Apple’s positioning of the iPad over the competition is key. And it is the iPad’s diversity to support each and every use case a consumer would want to use it for which is the iPad’s advantage. This is what Apple needs the market to understand. And if they can they will clearly demonstrate why you should not only buy an iPad but why it is worth paying more for an iPad.

Apple has an incredible opportunity with the iPad. Smartphones are a great category and they have changed how we communicate and having a pocket computer will change public spaces more than many realize. But tablets get me excited about what they can represent as the future of computing. Many Apple observes put much of Apple’s future on the iPhone and I don’t think many realize how important the iPad is to Apple’s future but also the future of computing.

The Last Days of the Internet of Everything

I had a conversation with a colleague this week at CES and he offered me a bet. He bet me $20 that in three years time we will no longer be talking about the internet of things. After a few seconds of thinking about it, I declined to bet because I realized I agreed with him.

In the very near future we will not be talking about the Internet of everything at CES, or as an industry, because everything shown at the show will already be participating in the Internet of everything. Our excitement when we see that this or that connects to the Internet, or to our smartphone via an app, will shift to an expectation that this or that will absolutely connect to the internet or another smart device. In fact, in just a few years time if something is developed and shown at CES that does not connect to the Internet or another electronic device we will doom it an instant failure. This is the trajectory we are moving to which is inevitable. Every electronic device will connect to the Internet and/or another electronic device.

We are on a trajectory to ship 6 billion connected devices in 2016 alone. In 2015 alone connected devices will generate over 8 billion zetabytes of data. By 2020 there will be over 200 billion connected devices in use. Nearly every forecast I see grossly underestimates the size, speed, and scale of the trajectory of the Internet of things. Which is why I share in our industry presentations that our anticipation is that by 2025 there will be a trillion connected objects in use.

This years CES convinced me even more that this will happen faster than many realize.

The Embedded Internet of Everything

I want to highlight a number of things I saw at CES that showed me the full potential and inevitability of this future.

Sleep Number Sleep IQ
Sleep Number announced a new technology called Sleep IQ which will be a standard feature in all their Sleep Number beds by the end of 2014. These beds have over 500 rows of sensors integrated into the mattress. These sensors exist to track your sleep patterns. Because they are embedded into the mattress they can get significantly more data about your sleep patterns than any device you put on your person. It will track heart rate, breathing patterns, hours of deep sleep vs restless sleep, as well as the patterns of your partner should you have one. This data lets you analyze patterns of your self and your partner throughout the night. For example, say your partner goes to bed early and you go to bed late. Does your pattern change once they get in bed in any significant ways. This is the kind of in depth data you can get when sensors and connectivity are embedded into your everyday objects vs. something you just stick on your wrist.

Connected Sports
Two things I saw were extremely impressive. The first was from a company called 94fifty. This company has created a basketball with sensors built into the ball which measure backspin rotation, arc of the ball while in flight, as well as where on the rim or backboard you missed as well as if you made the shot. You can use this data to understand and get tips on what you can do to get better while training.

The other is a new tennis racket released from Babolat called the Babolat Play. This innovative new piece of sports tech has all the appropriate sensors and microchips built into the handle of the tennis racket. What this does is accurately and precisely track things like how many forehands vs backhands you hit in training or in a match. How many first serves vs. second serves. How many topspin, flat, and slice shots you hit on each forehand and backhand stroke. It tells you your power averages of each stroke variety. It even tells you the location of where on the racket strings you hit as a percentage of each and every stroke variety. Being an avid tennis player I find this is an incredible innovation. If I go to train and realize I wasn’t getting as much power on my groundstrokes, I can use the data gathered by the racket to note that perhaps I am missing the sweet spot either too high or too low on the racket strings and make any necessary adjustments. Compared to other sensors I have tried that mount onto the end of the racket, the data generated by being embedded into the racket itself is far superior and more in depth than when it is mounted.

The Connected Baby
Lastly, Rest Devices showed off the Mimo Baby which is a onesie for infants with a series of sensors built in that gives parents data about their baby. While the object on the onsie is a bit larger, it demonstrates the future where sensors and microchips will be embedded into the fabric of our everyday clothes. When this happens wearable computing will truly be a reality.

What these examples show us is the true inevitability that sensors and microchips will be integrated into every day objects we use and provide us with valuable data without having to stick a separate object on us all the time to get that data. What is important to me is the data. And when everything I own which is electronic, and even a great many of things which are not, have sensors and microchips in them I no longer need to worry about wearing a separate object to gather this data.

When you look at it this way it is easy to do the math. How many beds are sold every year? How many golf clubs? How many Tennis rackets? How many soccer balls? How many basket balls? How many pairs of shoes? How many sets of clothes? How many home appliances? You get the picture.

Now, as wonderful as this future may seem few seem to address a critical part of this story. How will this data be managed, accessed, shared, and more importantly secured. What I suggest in this big picture view of the IOE industry is that it brings up massive challenges that will catch many off guard over the next few years. Security and data management being a big one. But also network capacity, spectrum, and a host of other infrastructure issues which are not ready to support the embedded Internet of everything.

This future is lucrative and abundant with opportunities but we still have a lot of work to do to get there.

Why I am Skeptical About Smart Watches

There is significantly more hype than substance around the smart watch category. While I completely agree there is a market for these products, I am still unconvinced the size of the market / opportunity is as large as others do.

Smart watches appeal to me entirely. I am an early adopter and a techie so I like many things that more normal consumers do. So I grasp the appeal of a smart watch. But I also know that my gadget desires to not reflect the mass market in most cases. So in order to understand the smart watch opportunity we need to land on what the form factor offers your mainstream consumer who represents the largest market opportunity.

Notifications

The primary value proposition being touted of the smart watch is notifications. These are the same notifications which a consumer would receive on their phone. So the logic behind the value proposition goes like this. You have your phone in your purse or pocket and when a notification like a incoming call, text message, email, etc., comes in it will alert you on your smart watch.

The strongest value proposition is one of convenience. The only problem with this value proposition is that the percieved value of this proposition is not universal. The conveneince of getting a notification on your wrist so you don’t have to pull out your phone of your pocket or purse has a limited appeal.

From my use with smart watches I’ve encountered and interesting dilemma. While I am in a meeting or at a lunch or dinner and I get a call or text or other notfication it is convenient to get a message on my wrist but I’m not in a context where I can do anything about it unless it is an emergency. In fact, in the same way that it is viewed as soically rude to be checking your phone every time it buzzes or makes noise in a meeting or lunch or dinner it feels equally rude to be chekcing your watch all the time. So where I thought I would want notifacations, I came to realize I didn’t unless it was an emergency.

Enter the need for smart filters for your smart watch. Meta, the rebranded name of the company Meta Watch, has filters built into their software that lets you choose which notifications to alert you and which to not. While Pebble does not have filters they have recently added the addition of a “do not distrub mode.” Which I found that I used to turn off notifications in nealry every context where I initially thought I wanted notifications.

The watch by itself requires the smartphone or another connected device to derive its value. The value features of the smartphone are extracted from the phone and placed elsewhere. Again, I don’t doubt this is valuable to a segment of the market. I simply struggle to believe it is a mass market solution.

Not a single product I use today is anywhere near ready of the mass market and I often struggle if it is even a mass market solution at all.

An iWatch

This leads us to the inveitable question about what Apple could do in this category. On this question I have several thoughts.

Let me first start off and state that while I understand those heavily vested in Apple’s future there is a sense that they need to attack a new or disrupt an existing category in order to march forward. I don’t personally believe this is true, although I see the investor point of view on this, but I will address this at a later date. Let me just say on this point, that China is Apple’s growth opportunity. More on this at a later date.

The fundamental challenges facing Apple with a watch form factor is in the required diversity of design in order to come remotely close to addressing the mass market. This is an area where one product design will not cover all the bases. Watches, for those who wear them, are extremely personal choices from a fashion standpoint and even more than smartphones in this regard. In order to Apple to be able to address a larger market they would need to offer a lineup from of these products. Perhaps not on day one but diversity in fashion is the key for every brand that choses to compete there. This tact is required if they are going after existing watch market customers or ones who are at least interested in a watch.

The other point worth considering is whether Apple can attract customers who aren’t watch wearers already or didn’t have any previous interest in a watch. Again, this is a harder sell than any other offering Apple has made in personal electronics. While our firm didn’t predict the iPod we saw and projected the market opportunity for music devices embracing the shift from analog to digital. And with the iPhone the market opportunity was clear even before Apple entered it. Even before the iPad we outlined outlined the market opportunity for tablets as we continue to do today. So it is within this industry and market context that we still remain skeptical of Apple’s offering being a watch at least at this point in time. While Apple’s products were not necessarily foreseen a market opportunity was. Many fundamentals of the technology market would still need to evolve for this category to make sesne outside of just the predicable early adopter category. These are not things we are certain even happen. Even before things like the iPod, iPhone, and iPad, as we speculate what Apple could do we could a market play that appealed to a wide audience. We don’t see this for smart watches.

I certainly understand the logic that people believe Apple can come in and do it right and show the market how to make one of these products. This is certainly how they operate, however, as I outlined above the market opportunity was clear before they entered with the right product. The smart watch is a category where this is not the case and may never be.

Tablet Trends in 2014

No question the tablet narrative will continue to be a key part of the conversation in 2014. While an entire report is needed on the subject of tablet trends in 2014 I thought I would highlight a few of the major trends we see for the tablet segment in 2014.

1.Tablets Will Continue to Eat PC Sales
2013 has been a very bad year for the PC. After having a great run, PC sales will end the year at 2008-2009 levels. Many OEMs and others who have deep vested interest in the PC market will continue to claim that 2014 will not be as bad as 2013. Our forecasts are still projecting PC industry declines in 2014. While they may not be as steep as 2013 we still see the PC market shrinking in annual sales.

The tablet is the culprit. And in particular the tablet is effecting Notebook sales more than anything else. As tablets like the iPad continue to be accepted as computing devices and as the 2in1 form factor from Windows OEMs flood the market, we will see traditional PC sales continue to fall.

2.Bigger Tablets Will be Released
We think that to offset the decline of PCs OEMs will begin to look for ways to differentiate and gain attention to the tablet form factor. Because of this we think bigger tablets will start to be a trend in 2014. Many of these will come with detachable keyboards but will be elegantly designed slates.

It is also likely that some of these may dual boot Android and Windows 8.1. This way when you are in tablet mode you can use a tablet OS with Android and when you are in computing mode you can use Windows 8.1.

Rumors have it that Apple is also working on a larger screen version of the iPad targeted at the iPad power users. If Apple does this it will only accelerate the work of competitors to create larger screen tablets and bring them to market at a variety of price points.

3.More Tablet Market Segmentation
The tablet market is already splintering where high-end tablets are separating themselves from the low-end in terms of computing use cases. But media tablets are still prevalent. Kindle Fire’s are selling well, so is the first generation iPad Mini, as well as Samsung’s 7″ and 8″ tablets. These are being used heavily for media and entertainment and this purely media tablet segment is growing.

But we are also now seeing growth in tablets aimed exclusively at Children. Tablets like the Nabi tablet, the ClickN Kids 7″ tablet, and the Samsung Galaxy Tab 3 children’s edition, are starting to see decent sales volume.

This makes sense for certain ages of kids, where the parents may feel more comfortable giving them one of these dedicated tablets pre-loaded with games and media but with the option to acquire more, over handing the kids a more expensive tablet which the adults use as well.

4. 2-1 Tablet/PC Hyrbrid Will Flop
Mark this under the trend I hope I am wrong about. The data points I am seeing right now do not support this form factor. Keep in mind this form factor is not going after those consumers interested in buying Android tablets or iPad’s even though Microsoft, Intel, and all the PC OEMs hope that it will. Rather, for those consumers who will look to replace and upgrade their PC in 2014 I believe will buy a PC in the shape of a desktop or a notebook and a separate tablet.

While I understand the perceived appeal of a converged device, the challenge I anticipate is in the design of the 2-1s we will see hit the market. These products are designed more like a notebook than a tablet. Given that our research indicates a high level of satisfaction with the pure slate form factor. 2-1s are designed to support more notebook like usage models than tablet usage models.

Because of this we think the smaller Windows pure slate tablets, iPads, and a few Android tablets will fair better in 2014 than converged 2-1 devices.

5. Google will release a Chrome Tablet
Lastly, I like to throw in some more bold predictions. We think Google is still looking to be aggressive with Chrome and develop the HTML app developer ecosystem for touch based web apps. This is why the Chromebook Pixel was so interesting as it got developers thinking about touch based Chrome apps.

We think this was a baby step for Google to release a ChromeOS based tablet. This would be very low-cost, be focused around the web, and could be a fascinating product.

2014 is going to be a good year for tablets. While they may come in many different shapes, sizes, colors, and prices, they will still contribute to the rapid growth we are seeing in this exciting category.

What I love about Apple’s Strategy

I see many headlines cross my twitter stream that say something along the lines of what Apple should do in 2014. I always find these to be entertaining ramblings that never amount to any useful information about Apple’s strategy or yield market insights to back up the writer’s opinion with valid data as to why such a move would make sense to Apple.

In summary, the big moves for Apple in 2014 people seem to think “Apple” needs to do are:

  1. A TV
  2. A smart watch
  3. A bigger iPhone
  4. A bigger iPad

Let me just say, don’t be surprised if Apple releases none of these things in 2014. Pundits and critics will hoot and holler that Apple has gone stale and other non-helpful online banter. Getting to the crux of why pundits errors reveals what I love most about Apple’s strategy. [pullquote]Apple has customers not competition[/pullquote]

The broad claims that are made about what Apple should do are almost always based a round competitive reasons. Folks claim that because Apple’s competition is doing something that Apple should also or they will lose. Yet what I love about Apple’s strategy is that it is never around what the competition is doing. Apple marches to beat of their own drum. This is fundamentally mis-understood by so many. In fact, Apple’s strategy is best understood within the view that internally they literally believe they have no competition ( I personally believe this also but that’s the subject of a much longer essay.) Apple has customers not competition. The decisions they make as a company are not based around what their competition is doing but around what is best for their customers. Like it or not, this is their strategy.

Entering markets simply because perceived competitors do is not Apple’s strategy. If entering a new market is the best way to serve Apple’s customers needs then they will do it but not because someone else is doing it. Execs at Apple may take a deeper look at competitors strengths and weaknesses but I am convinced their strategy is developed and set as if they have no competition. What is good for Apple may not be good for others and vice-versa.

Apple May have a bigger TV strategy up their sleeve. But their efforts will be defined by the needs of their customers not by what their competition is doing. Apple may launch a wearable product of some kind but not because their competion is but because it serves the needs of their customers. The same is true with a bigger iPhone and iPad. All the things Apple does strategically is intended to meet the needs of customers and round out their ecosystem. Trying to think about Apple in the same way of any other tech company is to instantly think about them wrongly. Their strategy is uniquely Apple

It’s bold. Some may call it arrogant. But it works.

The Decentralization of the PC

I’ve been trying to figure out a better way to articulate what is happening in the multi-screen era we have shifted to. I say shifting because there are many markets where one screen still dominates most consumers connected experiences. What is fascinating about those markets is that it is a mobile device which is the primary computing device not a PC with a mouse and keyboard designed to be used in a fixed or stationary setting. But in many western markets growing numbers of consumers are using multiple screens in collaboration with each other.

I’ve never liked the term “post-PC.” Primarily because in many western markets the mouse and keyboard PC is still being used in conduction with other connected devices. The term post-PC gets has carried with it a tone which de-emphasizes the role of the PC more than it should. The other term we have used, which I no longer like, is the PC plus era. This term emphasized that the mouse and keyboard PC was still relevant but also puts too much emphasis back on the mouse and keyboard PC for my liking.

The best way to understand what the computing shift which is happening is that the PC has been decentralized. Prior to our smartphones and tablets, the PC was the center of our computing universe. I vividly remember Macworld in 2001 where Steve Jobs eloquently positioned the Mac as the center of consumers digital lives. For nearly a decade this was true for many computer users. Everything revolved around the PC and was an accessory to the PC.

This is no longer the case. Think about the last time you physically–with a wire–connected your smartphone or tablet to your PC? I honestly think its been at least a year since I plugged in my iPhone, iPad, or even my DSLR with physical wire to my PC.

The decentralization of the PC has become even more evident to me in the past few years. Being that I’m the most technical person in my immediate and extended family I’m generally the person who fixes PCs for family members. For the better part of the past decade I can’t remember a family gathering around the holidays at someone else’s house where I wasn’t asked to take a look at what was wrong with someones Windows PC. Yet over the past few years, I’ve noticed those requests have shifted from fixing Windows notebooks or desktops to showing tips or tricks of things to do with their iOS or Android devices.

What is key to internalize about this shift and the decentralizing of the PC is that it is being led by mobility. We have noticed this shift with every advance in computing. Notebooks overtook desktops as the dominant computing form factor and now smartphones and tablets are overtaking Notebooks as primary compute devices as a percentage of computing time for many (especially if we take a worldwide view of the market). ((In fact, more people are actively online with mobile devices that PCs on a worldwide level.))

The center is now mobile. The mobile market is bigger than the PC market. The mobile Internet is bigger than the desktop Internet. The mobile Internet is the first class citizen and the desktop Internet is secondary to it. ((Yes I include tablets in the mobile Internet discussion.)) The world is already mobile. The PC will still live on and sell hundreds of millions of units annually while mobile devices will grow and sell billions of devices annually. Each plays a role as a part of a computing solution. The cloud will keep all our devices in sync, allowing us to choose any number of screen size and form factor combinations as a part of any individual computing solution.

Mobile computing devices will become more powerful and more capable. This reality will continually challenge legacy devices that require a consumer be stationary to get the full value of the product. The share of compute time is already shifting from fixed to mobile devices and this reality is upon us. The PC has been decentralized and mobile is the new center.

What is interesting to ponder is if there is still a shift to happen that can decentralize the smartphone.

Understanding the Market for Chromebooks

A few days ago NPD released numbers that caused many media outlets to proclaim the amazing success of Chromebooks as a data point in the market. These numbers were bring used in blog posts to suggest that the rise of Chromebooks were impacting PC sales, and in particular Macs and Windows PCs. As so often happens, the media has mis-interpreted the data points released in a vague press release from a device counting and tracking agency. However, this press release is specifically talking about the commercial sales channel (i.e the channel used by organizations for purchasing) not the consumer retail channel like Best Buy, Staples, Fry’s, etc.

NPD is about as reputable of a US retail consumer electronics tracking firm of any I follow. In fact, I generally trust their data more than most. This is because NPD has relationships with all the major US retailers and gets actual channel sell through data. So when they release data we know that we are getting actual numbers of products being sold at US retail. However, we have to keep in mind that while their data is accurate it is also somewhat incomplete in some cases. NPD does not track Amazon sales, or other e-commerce sales, nor do they track Apple store retail sales or other OEM vendor channels. So while NPDs data is important and useful it is also somewhat incomplete. In most cases this doesn’t matter since the bulk of US consumer electronics is sold through retail channels which NPD tracks. While Apple does sell more than average product through their own retail channels they still sell the bulk through retail channels.

Now the story around Chromebooks has been a fascinating one to watch. Earlier in the year, we had picked up on a key data point that Chromebooks were selling almost as many per month as Ultrabooks. Ultrabooks were a specific segmentation of notebooks at retail which had quite a bit of marketing behind it. To learn that Chromebooks were moving in similar volumes to Ultrabooks did take me by surprise. So the question we had to answer was why.

Chromebooks as Textbooks

Earlier in the year I spoke at a conference of educators and IT managers that worked for the state of California and managed the technology purchased and implemented for all California school districts. What we learned was that education markets were buying and deploying Chromebooks in fairly significant numbers. Much of California’s, and many other states, computer programs and curriculum are web based. School districts have a license to education software that is accessed through a browser and teach things like computer literacy, language arts, math, and several other subjects. The bottom line, is that when you dig into many of the ways in which computer based curriculum has been evolving in school districts you learn that much of it is becoming browser based.

There are still many PCs still being used in schools, particular at more advanced grade levels, but many districts are implementing Chromebooks as dedicated web portals to online education software to be used in classroom settings.

This is not surprising given the cost of Chromebooks vs. the cost to replace or add new PCs during these times when many school districts across the US are facing budget restraints.

The key takeaway about Chromebooks in this use case is that they are being used a specific purpose devices. In fact, it is reasonable to think of Chromebooks very much like textbooks in many education environments.

While Chromebooks have a great deal of upside as they evolve, they are being used as specific purpose devices in nearly all markets today. This is both the potential of the upside but also the products challenge in going up against more general purpose computing devices.

Chromebooks has a role, but over the next few years whether its role is as specific purpose devices or general purpose applications will wait to be seen. Stay tuned, however, should Google release a tablet running Chrome OS things could get very interesting.

Most Read Columns of 2013: Apple Turns Technology Into Art

During this holiday week, we wanted to re-showcase some of the most read columns of 2013. Whether you read them before or are seeing them for the first time, enjoy some of the most read columns of our site from the past year.

As I was reflecting on my first experience with the new iPad and its retina display I was intrigued with a thought. There has always been something about the iPhone’s retina display and now with the iPad’s display that has me mesmerized. When I first saw the new iPad and the screen at Apple’s event I couldn’t stop looking at it. Even today I sometimes just turn it on to look at it and shake my head in disbelief.

The thought that I was intrigued by is how the visual appeal of Apple’s devices, and in this case of the screen, causes us to be so emotionally attached to them. Even this NY Times article in September of last year points out that consumers do actually love their iPhones. I believe this affect however as everything to do with the visually appealing experience with Apple products.

In a TIME column I wrote last year, I pointed out that Apple’s desire to create products that are at the intersection of liberal arts and technology drives them to create technology products that are in essence art. Apple turns technology into art we can use. Apple exhibits an unparalleled focus in the technology industry to design some of the most visually appealing hardware in all of computing. This focus of creating objects of desire is one part of many that encompass the Apple experience. That experience, the visual and emotional experience tied to Apple products creates an emotional response in consumers of Apple products that create as much passion around a brand as I have ever seen.

The Most Passionate Community

I would challenge you to find a more passionate community anywhere in computing. I have attended many industry conferences and trade shows and the Macworld’s where Steve Jobs spoke had a level of energy associated with them that I am yet to encounter anywhere else in this industry.

The experience around Apple products is what I think many who compete with Apple take for granted and simply don’t understand. I’ve said often at industry talks I have given that consumers don’t buy products they buy experiences and that is what Apple delivers.

Consumers in droves are discovering what the hard core long time Apple community has known since the beginning and are converting in droves buying iPads, iPhones, and even Macs. It all leads with the visual experience and beautiful and attractive hardware. Believe it or not, however, beautifully designed things are easier to use.

What is Beautiful is Usable

In 2000 a scientist from Israel named Noam Tractinsky, wrote a book called “What is Beautiful is Usable.” He started with a theory and built the scientific evidence to back it up. To quote his report on the subject:

two Japanese researchers, Masaaki Kurosu and Kaori Kashimura1, claimed just that. They developed two forms of automated teller machines, the ATM machines that allow us to get money and do simple banking tasks any time of the day or night. Both forms were identical in function, the number of buttons, and how they worked, but one had the buttons and screens arranged attractively, the other unattractively. Surprise! The Japanese found that the attractive ones were easier to use.

Noam himself then wanting to test this theory with the Israeli culture so he duplicated the experiment. He thought that aesthetic preferences may be culturally dependent. His observation was that the Israeli culture is more action oriented and they care less about beauty and more about function. However when he duplicated the results with an Israeli group of people the conclusion was the same. In fact in his research the sentiment was stronger with the Israeli sample size. So much so that in his research report he remarked in his paper that beauty and function “were not expected to correlate” — He was so surprised that he put that phrase “were not expected” in italics.

It appears that Apple has been on to something from the beginning. Perhaps Steve Jobs absolute resolve to make technology products beautiful carried with it inherent user experience paradigms that simply made products easier to use and that theme is continued today all throughout Apple. This in my opinion is truly what is setting Apple apart in the market place. They create objects of desire and out of that focus comes a visually and easy to use user experience paradigm that drives emotional responses in consumers of their products.

We know humans are visual beings, especially men, and interestingly enough a great deal of science exists today linking beautiful things to ease of use. There are companies who can design objects of desire and easy to use products and there are those who can’t. Apple’s advantage in this area is that they create the hardware and the software with this technology and software as art philosophy. We see this in their hardware and their software and will eventually see it more in their services.

Noam Tractinsky is right and his book title highlights a profound truth. What is beautiful is usable and this philosophical truth carries over into computing and human interaction with computing.

Right now there is only one company who I think truly understands it.

References:
– Don Norman, Why We Love (or Hate) everyday things, Feb 4th 2003
– Tractinsky, N., Adi, S.-K., & Ikar, D. (2000). What is Beautiful is Usable. Interacting with Computers, 13 (2), 127-145.
– Tractinsky, N. (1997). Aesthetics and Apparent Usability: Empirically Assessing Cultural and Methodological Issues. CHI 97 Electronic Publications: Papers

The iPhone and China Mobile. Impact and Expectations

Yesterday Apple announced that the iPhone will finally come to China Mobile on January 17th. Pre-orders will start on December 25th. The timing of the iPhones availability will coincide with the Chinese New Year. This time of year is a popular time for Chinese consumers to give gifts that reflect good fortune and coming prosperity for the new year. Which makes the initial timing of the iPhone release in China Mobile to be significant as a jumping off point.

China Mobile is the largest carrier in terms of subscribers by far in China. China Mobile has over 700m customers and largely due to their expansive converge of the country. Of course, not all of these devices are smartphones and even more relevantly not all of these devices are 3G. In fact most are still 2G. China Mobile over the past year as added between 23-31 million new 3G subscribers per quarter with their base of 3G subscribers at 169.5m at the end of Q3 2013.

This is a significant tracking statistic to have watched the 3G penetration grow over the past 2-3 years. It may shed some insight into the adoption rate of 4G devices, and in this case the iPhone, over the next 3 years. The iPhone will support China Mobile’s 3G/TD-SCDMA and of course their latest 4G/TD-LTE network in which the iPhone will be a flagship device.

The biggest question most are asking is what the impact of the China Mobile deal will do for iPhones in China. Most financial sell side analyst figures I’ve seen speculate that the bear case is an additional 5 million with the most bullish case estimating the deal could amount to an additional 31m units in 2014.

I tend to think estimates in the 20m range are reasonable as an increase to iPhone sales in 2014. That being said, I still believe most are underestimating the demand for the iPhone in China on China Mobile in particular. But even with that in mind a few things need to be pointed out.

Firstly, there are already an estimate 40-45m iPhones already in use on China Mobile’s network which were purchased on the grey market and brought onto the network unofficially. These devices, however, do not support all the bands of China Mobile’s network therefore have spotty coverage. A key question for the iPhone 5s and 5c are how many of these grey market devices have already been purchased and are running unofficially on China Mobile’s network. If this number is large then it potentially impacts the number of new consumers ready to buy officially from the network.

I have a hunch that many of the rumors, leaks, and even promo material being floated around China from China Mobile about the iPhone coming to the their network was designed to help thwart some of these grey market purchases in the hope that those consumers would wait for the device to be officially launched on China Mobile.

The other key question is what the price and or subsidies for the iPhone will be on China Mobile. While the device is still going to be out of the price range of most consumers on both the subsidy and pre-pay markets, if China Mobile gets creative it can potentially increase the market opportunity for the iPhone. Payment plans, on top of subsidies are examples of ways they can be creative.

When networks invest in new infrastructure they need to find ways to recoup those investments. Carriers around the globe have found that the iPhone is the best device in the market to focus on as a premium services promoter. The job the iPhone does for carriers is to help them sell premium services. China Mobile understands this and we believe is willing to push the iPhone hard as the flagship device for 4G on their networks and begin helping them down the road of recouping their investments in LTE.

A paragraph from Apple’s press release on the subject succinctly points out the aggressiveness of China Mobile’s 4G LTE roll out.

China Mobile now has over 1.2 million 2G/GSM, 3G/TD-SCDMA, 4G/TD-LTE base stations and over 4.2 million Wi-Fi access points, providing broad coverage to quality networks for iPhone 5s and iPhone 5c customers. China Mobile is rolling out the world’s largest 4G network. By the end of 2013, China Mobile’s 4G services will be available in 16 cities including Beijing, Shanghai, Guangzhou and Shenzhen. By the end of 2014, China Mobile plans to complete the rollout of more than 500,000 4G base stations, which will cover more than 340 cities with 4G service. The collaboration between Apple and China Mobile will give a big boost to the development of China’s homegrown 4G/TD-LTE technology. iPhone on China Mobile supports major cellular network standards, making a global phone a reality for China Mobile customers.

While there is still some speculation about the impact of the iPhone being on China Mobile, the key take away is that this is a marathon for Apple. China is poised to be Apple’s largest market for mobile. It is a mobile first and mobile primarily market making it the perfect place for iPhones and iPads from the view of the future of mobile computing.

Apple will surely benefit from this deal in 2014 but over the next 5 years, we expect China to be a booming market for the Apple ecosystem.

Happy Holidays From Tech.pinions

We would like to personally thank our readers for helping make 2013 the best year on record for Tech.pinions in every category. We truly have the best readers and the best commenters of any technology publication. We have encouraged our columnists to take this week off to get rejuvenated and get the minds ready for an ambitious and exciting 2014.

Each day this week we will re-feature one of the most read articles of the year. So enjoy re-reading, re-discovering, or even discovering for the first time some of the most popular and most read Tech.pinions columns from 2013.

Happy Holiday from all the columnists.

– The Tech.pinions Team

Microsoft Needs Their Hell Froze Over Moment

hellfrozeovercolorIn a simple tweet today from Katie Boehret. As she was cleaning out her desk for her transition from the Wall St. Journal to the new venture with the All Things D team, she found a poster from when Apple released iTunes for Windows. The famous catch phase Steve Jobs used when he announced this was Hell Froze Over. I was at this event and I recall this moment vividly. Tim and I did a number of media interviews after this announcement and we pointed out the importance of this move in driving the growth of the iPod and what in essence has become the foundation for the iTunes ecosystem and Apple’s iPods and now iPhone.

As I reflected on this moment and how Steve Jobs and Apple positioned this moment, it made me think that Microsoft needs its hell froze over moment. What this is exactly for Microsoft I am not sure. The obvious one is simply bringing Office to other platforms in a more rich and meaningful way. However, a more controversial strategy could be for Microsoft to fully embrace Android.

BlueStacks has developed solutions that allow Android apps to run in a Windows environment. Whether Microsoft works closely with BlueStacks on this or does something on their own, this could be an interesting strategy where Microsoft embraces an environment foreign to their own but uses it to strategically advance their larger agenda. Windows Phone needs apps. They must adjust their tablet strategy as Windows 8 is not the answer. Embracing Android could be an ecosystem booster if it is done right and the useful parts of the two solutions are integrated seamlessly.

All of this assumes, of course, that Microsoft does have a larger agenda and strategic plan, although I am somewhat skeptical of this assumption and its validity. Perhaps a new CEO can straighten out their path. But it remains true that Microsoft is reaching a point where they need to be willing to take more risks and be more hungry to not be passed by the mobile phenomenon.

Glimmers of Hope for the PC Industry

There have been some interesting data points over the past few quarters that I’ve been following. Most of them are related to some specific interplays between the tablet market and the PC market. As many of our readers know, I divide the tablet category into two categories–for now. One is the market for more capable tablets like the iPad, Surface fits into this category now as well, and a slew of other new tablets called 2-in-1s (I dislike the term) coming in 2014 will as well. Then there are tablets which are purely more media consumption products. Now what is interesting from a data point is that the US, who is one of the largest regions for notebooks and desktops, also happens to be one of the largest regions for tablets as well of both categories. But perhaps more importantly, the US is one of the largest markets for iPads. The rest of the worlds big markets are higher consumers of less expensive, commodity tablets, which is actually where much of the tablet growth has come from the past 6 months. So with these observations in mind let’s look at a few charts.

Screen Shot 2013-12-16 at 7.55.57 AM

What this chart is showing is that it appears the PC market is stabilizing in the US. Meaning that quarterly negative growth is lessening. What it also shows is that tablet growth is also slowing in the US. I believe there are several explanations for this.

While I believe a certain class of tablets will suffice for the masses as a PC replacement, the majority of the installed base is still using them in conjunction with their PCs. It is important to remember that over 90% of tablets sold are sold to EXISTING PC owners. Many PC owners find that owning a capable tablet allows them to delay their purchase or need for a new PC. Most are still using their tablet and keeping but using their current PC less. This would explain many data points we see from comScore and others showing PC usage high during the day and tablet usage high during the evening.

The question now becomes: Are many of those tablet (mostly iPad) owners finally ready to start upgrading their PCs? This is the theory the PC industry hopes is true. I do believe there is some merit to this theory. However, it is going to take at least another six month’s for us to have a clearer picture. My hunch is that the tablet slow down picks back up this holiday Q4 and notebook and desktop sales remain negative. In fact the Consumer Electronics Association Black Friday and Cyber Monday survey’s indicated that tablets were the second most frequently purchased product at 36% to the notebook which was 23%.

How negative notebooks and desktops are in Q4 is a key point. If it is around -4 to -5 or better then this is actually good news as it would add to the theory that the market is stabilizing. I fear it may be off more than that, but this scenario may also be interpreted as a good sign for PC refresh in 2014.

The other bit of good news is that the higher-tiered price bands of PCs are doing better than lower tiers.

Screen Shot 2013-12-16 at 8.24.23 AM

As you can see the chart shows the greater than $400 segment as doing better than the less than $400 segment. Even the premium segment of PCs is holding steady mostly thanks to Apple.

Looking forward, if the PC market is stabilizing this is good news. We could very well be looking at a pendulum swing in the industry where PC slowdown and tablet slowdown off-set each other in particular years. PCs may be slow during tablet refresh cycles and tablet refresh cycles may be slow during PC refresh cycles. The key point in this scenario is that tablet refresh cycles will be more frequent that PC refresh cycles.

2014 will be an interesting one to observe these trends and the interplay between tablets and PC. I feel that by the end of 2014 we will have a much clearer picture of this somewhat symbiotic relationship.

Personal Computers: Defined by Possibilities

There continues to be a great deal of mis-understanding within the discussion of the PC vs. the tablet. It is easy to say that no one wants a PC and everyone wants a tablet. The reality is that this is only partially true. But more importantly it does not tell the whole story of what is actually happening in the US marketplace and abroad. But for this article I want to focus on how we define a PC.

The biggest challenge facing the tablet narrative today is in its definition. I can show you charts and data of what is happening in the ‘tablet’ category until you are tired of staring at them. All those charts do is tell you that we are shipping–and will be shipping–many hundreds of millions of pieces of glass between 7-10 inches for years to come. It does not tell you what people are doing with these pieces of glass in the market place. More importantly, it does not inform us as to whether many of these pieces of glass should even be compared to PCs in the narrative as they so often are.

Which brings me to my point on how we should define and classify tablets in the PC narrative. A computing device should be defined by its possibilities. Even though someone may buy a notebook and only use it for games, videos, social media, etc., we will count it as a PC because of the possibilities of computing it enables. Said consumers may not be using it to do what many consider “personal computing” tasks but the point remains that said consumer CAN do more at any point they choose using the very device they purchased. This point is not true of all tablets being lumped together in the grand tablet category. In fact, I’d say that there are only a few tablets in the market today that should enter the conversation of personal computing possibilities.

This is why myself, and many others in the industry, are so adamant about the point of the PC and the role it plays in the future of computing. Where I may differ with other analysts is on how we define a PC or what we consider ‘real work.’ We agree we want to put devices in consumer’s hands that bring them the potential of computing, not limit their computing potential. The iPad’s limitation is not that it doesn’t have a keyboard and believing so misses the point. However, the Surface’s (and many products being designed like it) limitation is its necessity of a physical keyboard. ((I have to thank Harry Marks for this point.)) [pullquote]The best way to think about many of the tablets being sold today are as accessories to PCs.[/pullquote]

Tablets that are running a smartphone processor, outdated OS, and can only be used to watch movies are not PCs. Tablets stuck on walls at retail are not PCs. Even some tablets that are tied directly to media and commerce services but can also check email and do minor modifications to word docs, etc., are not PCs. The best way to think about many of the tablets being sold today are as accessories to PCs.

That brings me to the iPad Air. This product signifies in my mind a blank slate of possibilities for personal computing. The iPad is truly a blank slate of opportunities for the future of computing. In fact, it is not by accident that this image is used in Apple’s marketing of the iPad Air and that the iPad Air is metaphorically being compared to a pencil.

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If you saw this ad and just thought the pencil was there to show the scale of the iPad in terms of size you missed the big picture of this ad. The pencil, or any writing utensil, is all about possibilities. Before computers, typewriters, printing press and other technological innovations the pen and pencil were for centuries the key innovation for many societies which helped them progress. And so the iPad Air commercial ends:

and we can’t wait to see where you’ll take it next.

This statement is not about location it is about innovation. How will people use this unique computing form factor and create the future? Because that is the reality of what is going to happen. The next billion computing consumers are going to be touch computing literate not keyboard and mouse computing literate. The iPad has fundamentally altered the landscape for personal computing to one that brings more attainable possibilities of computing to the mass market. We will look back in 20 years and fully realize how central the iPad has been to the history of computing.

Big Tablets Could be a Big Trend

There continues to be a lot of talk around tablets which are larger than the traditional 10″ screen sizes. Rumors have it that Apple is working on a larger iPad and that Samsung is as well. While I don’t think it makes sense for Apple to make a larger tablets, and Samsung will experiment with every screen size, there may be a small role for larger tablets. Before I dive into this topic I want to level the discussion by establishing some definitions.

By tablet I mean a device that is designed as a pure slate. Something like the iPad for example. This can be used with our without a keyboard but is not dependent on one as a part of the design. Devices like convertibles and hybrids (which Intel now calls 2-1 computers) are not tablets in my opinion. Some of them may bleed over and include tablet features but they are not pure tablets.

There is no question in anyone’s mind that tablets are stealing sales from traditional PCs. IDC estimates that 2013 will end at a negative 9.7% for the year. In their press release from last a few months ago they stated”

The market as a whole is expected to decline through at least 2014, with only single-digit modest growth from 2015 onward, and never regain the peak volumes last seen in 2011.

Thanks to tablets, the market will never regain the peak volumes last seen in 2011. Very telling.

Yet even with this “PC is dead” narrative there are still many complexities. For example, if you have used a tablet for any length of time to do something considered more productive then you know these task are better experienced on larger screens. In fact in our consumer interviews they continually explain how when they go to edit a video, image, write a lengthy email or document, manage finances, etc., they choose to go to their PC to do these tasks. So in line with the theory that people love their tablets but also want a larger screen to do some tasks the question is whether or not there is a market for larger tablets.

The answer is yes. How big of a market there is for larger tablets is still the real question. In the short term I don’t believe it is that big but as certain technologies evolve the demand could get larger. But in the short term there is an interesting exception happening in the market.

The One Interesting Exception
I have been using the Dell XPS 18. Which is a tablet disguised as a desktop PC all-in-one. This product has been an interesting experiment for myself given my questions both around big tablets and my ideas on how the technology evolves to make the market interesting.

The first thing worth pointing out is that these larger “slates” actually have much more appeal from a collaborative standpoint than anything else. Things like working together, learning together, playing together, etc., all start to become more interesting when we can gather around a large touch screen and interact at the same time.

Imagine doctors being able to show patients digital images or other material and interact with it in real time. Or teachers using these larger screen tablets to collaborate on an assignment or teach something specific to a student. Even at home my family has been using the XPS 18 to play board games together. One of my daughters is taking piano lessons on it. But then as soon as you want to use it as a PC with a mouse and keyboard you place it on the dock and it is ready to go.

Large tablets have a place in certain verticals this I am sure. I can see tablets at 13-20-inches doing well in these spaces where the value of a larger touch screen for productive and collaborative use cases are more prevalent. For the mass market consumers, I’m not sure sure. For this market I can see tablets playing out differently when it comes to big screen use cases.

I mentioned that the technology may not be there yet and this is specifically where. I believe that consumers would find value in “docking” there existing 7″ or 10″ tablets into a large screen set up. And by large screen I mean something 20″ or greater. My view on this is the crux of why I am skeptical of Intel’s 2-1 category and personally feel it is a solution in search of a problem. It seems to me the more interesting solution for buyers interested in tablets is to get a pure slate tablet in the 7-10″ range and then also get a larger tablet like the XPS 18 and use them together as a solution. This way you get the benefits of a smaller more portable tablet for mobility and then the larger tablet/detachable desktop for more big screen productive desktop modes as well as more collaborative ones.

This is the advice I would give to hardware companies asking me about screen sizes. I would say for tablets focus on 7-10″ because those are the volume sellers. Then look to innovate around these larger screen detachable all-in-ones and create value in having the small tablet and larger tablet being used together as a solution.

In an ideal vision of the future, consumers will use their 7″ or 10″ tablets as their primary computing devices. Given that consumers primary needs are not that intense and mostly consumption over productivity, this device is well positioned for that. However, when they want to do something like edit a video, picture, write a long document, etc, they can “dock” their tablet to a larger screen and begin using the tablet + dock as a full desktop PC.

This vision has been shared before by many but for technical reasons has not made it to a useful reality. In the future if the technology enables this solution, it could literally mean the end of the notebook as we know it.

Whether big tablets would be an instant hit with certain verticals I’m not sure. But the common wisdom is that the larger the screen the more productive you can be.

The iPhone is My Midwife

It’s the first time for both Betsy and me: she’s never given birth before and I’ve never helped a goat produce a kid. My heart races as I pace her pen, reviewing what I need to know to make sure she has a safe delivery. She seems as content in her element as if she were an experienced mother.

My days are mostly spent in a windowless office. I meet with clients, analyze data, and wear fancy clothes. Now I’m out in the bright sun in a slightly smelly goat pen wearing overalls and galoshes and about to assist with a birth. Betsy’s instincts kick in as delivery becomes imminent. Mine did as well. I was not altogether unprepared: I had my iPhone.

Overgrown

My wife, Jennifer, and I began our journey the first year we planted tomatoes, zucchini, onions, lettuce, and strawberries. Each year the garden got bigger, and we experimented with new seeds and starters. The garden started to overflow our tiny backyard. Our front lawn was doing us no good, so we pulled it out and planted more crops in its place. In the very traditional suburban neighborhood in which we lived, our micro-farm became increasingly out of place. Our neighbors had nicely manicured green lawns and we had nicely manicured rows of vegetables.

Neighbors and passers-by thought either that what we were doing was inspirational or that we had gone crazy. To make peace with the latter group, we built some planter boxes next to the curb and planted vegetables for the neighborhood to pick from freely. We enjoyed giving fresh, homegrown goods to neighbors, friends, and family out of our abundance. We even started our own FSA (friend and family supported agriculture) to help others learn the benefits of growing your own food.

The more we “farmed,” the more we joked with friends and family that our next move should be to the country. It was appealing to think about sitting in our yard and looking out at an expanse of land rather than a solid wood fence 20 feet away, but it also seemed unrealistic. Our dreams had outgrown our boundaries.

It took a chance meeting to break through the fence. I ran into a friend with whom I’d started a company in the late 1990s, and we wound up talking about hobby farming. He mentioned that his father had looked at a house with lots of usable pastureland. We decided to check it out.

The farm was a 30-minute drive south of San Jose (add 15 in rush hour), where the sprawl of the Bay Area has dropped away and one enters something approaching real country. We took a look at the house and its fields, and we were sunk: we agreed that this was the place. The house was simple and came with three acres that already included a pool and two different playgrounds for our kids. We could see nearby hills from the house and hear and sense the quiet. We didn’t hesitate. We packed up and headed south.

It took just a few weeks until we settled into the calm and peace of our newly christened Bajarin Farm. Sitting and relaxing in the yard was like going on vacation. Everyone around us, and many we met in town, had similar gardening and farming interests. I knew we had made the right choice, though, the first time I saw two guys riding horses down our street, each with a beer in hand.

We rapidly expanded our gardening into farming and planting a greater variety of crops, and then we progressed into ranching — my idea. My wife resisted. “You do have a day job, you know,” she reminded me. I sold her on the chickens easily enough, as they don’t require much work and plenty of city slickers have them now. The taste of a fresh, free-range egg is the capper.

I agreed to take on all the animal duties, even if it meant getting up at the crack of dawn. We brought in two dozen chickens and shortly thereafter added three goats, two female and one male. Our goats quickly became family favorites. We knew it was likely that they would have babies, and we even fancied the idea of their kids running and jumping around our property. It simply happened much faster than I thought nature needed to take her course.

Push technology

As I pace Betsy’s pen wearing overalls and galoshes, I picture a rancher sitting on the back of an old pickup truck watching me. He has a face weathered from seasons of working outdoors, his cowboy hat is pulled low, and a long strand of hay hangs from his mouth. He shakes his head and has a good deep laugh at the city-boy office worker.

But so far the Internet has delivered — figuratively to date and soon literally. Jennifer and I relied on the Web to supplement our suburban farming knowledge. For today’s work, there’s a bucket of warm water and some clean towels nearby, and an iPhone in my hand with a Web page loaded that contains step-by-step directions on assisting with a goat delivery.

Birth went quickly. In moments, the first two kids are on the ground breathing and starting to move around. I let out a sigh of relief, wipe the sweat from my brow, and sit down on the ground near the newborns, taking a minute to admire them. I imagine the faces of my daughters when they arrive home from school that afternoon and see the newborns.

I pat myself on the back that my digital assistant and I managed everything so neatly. That was premature, of course. Betsy begins to push again. I expected twins but she was carrying triplets, which I later learned is uncommon. I roll up my sleeves for the next delivery, but an hour passes and she’s not progressing. Something is wrong.

Betsy is pacing, and she is trying on her own every position that she can to get the baby out. I start searching for delivery position complications. It takes minutes, but I find a forum that helps me diagnose the situation: the third kid was positioned poorly and Betsy can’t get it out on her own.

The reality of what I have to do next hits me along with a jolt of adrenaline. I’m about to get my soft, uncallused expert-typist hands dirty. I have to work up the courage, and it takes a few minutes of deep breathing to get there. Betsy looks exhausted. She’s been through an hour of hard labor, and if she could talk she would say, “Are going to sit there and play on your phone or are you going to help me, you idiot?!”

Reluctantly and cautiously, I reposition the kid and give a gentle tug to get the process started. I watch and wait impatiently. At last the kid emerges and breathes on its own. If I was the goat’s midwife, then the iPhone was mine.

No kidding

That was years ago, and while I’m not yet grizzled, I ride a tractor, wear cowboy boots, and occasionally snack on the wheat berries that grow in my pasture. Often new neighbors or friends from San Jose and beyond come over to see what we are up to and ask how to do it themselves. When people visit the first time, I usually have one rule: they have to try to catch a chicken. Purely for my entertainment purposes, of course.

I think back to Betsy’s first delivery at times, and remember my reaction when it became complicated. I didn’t call a vet; the thought never entered my mind. I’m a problem solver, and it seemed natural to turn to the same repository of information that serves my career to serve Betsy.

I probably should have had a vet’s number on hand, but being new to the community I didn’t yet know who to call. To save Betsy and the baby, I knew I had to act fast. That was where the Web came in, and it’s turned out that every fundamental bit of information we’ve needed to run the farm we’ve been able to find on the Internet, often from far-flung pocket farmers like ourselves, who share information that our grandparents and great-grandparents would have learned firsthand. The scale of a hobby farm has let us more recently connect in person, too, with local 4-H clubs, rather than the resources that family and larger farms rely on.

Every year around delivery time, I reflect on how a process that once seemed so foreign has now become second nature. Since that time, we have birthed 14 happy and healthy baby goats and I’m now the old hand. Neighbors come to consult me in similar situations, where I gladly offer any knowledge I have or teach them how to effectively use the Web for their needs.

Betsy is doing well to this day, and we have added more goats (and a sheep) in the years since and have helped them deliver happy, healthy newborns. Since moving we have also added ducks, geese, turkeys, and bees. But unquestionably, the highlight of our year is when baby goats arrive on the farm. Now, on to cows.

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Low-Cost Tablets are the Netbooks of the Tablet Category

The tablet category is quickly becoming a tricky one to analyze. As in the early stages of any technology category we are seeing the tablet market segment or splinter into separate markets.

While I like to point out how large the tablet category is, one can’t accurately analyze the tablet category without peeling back the layers of its onion.

As I, and others have continued to point out, the tablet market is really two separate categories. In fact, it may actually be more than that. The challenge that we have is that the generic term ‘tablet’ is actually a term that means many different things to different segments of the market. For example, a tablet that is purchased only to mount in a retail store is lumped into the tablet sales estimates with products like the iPad, Nexus, Kindle Fire, Samsung tabs, etc. So while point of sale tablets will be counted among tablets that get sold to end users and are used, we have to wrestle wit the question of whether they should or not. ((The other question we have to deal with is whether the dedicated kids tablets should be counted as tablets, or the white box ones primarily being used as TVs))

The same is true with the many low-cost tablets that are flooding the market but not showing up on anyone’s radar. These devices, to the best of our knowledge, are really more appliances and dedicated-use tablets that have low-specs, low-res, screen, cheap casing, and are primarily being used in emerging markets to just watch movies. These tablets do not go online, don’t connect to anyone’s services, don’t download apps, etc., so should they be counted in the same numbers as iPads, Samsung tablets, Kindle Fires, etc?

This is the challenge we are faced with in understanding the tablet market. When you study it as I do, you see what is happening in the market but also know it is somewhat disingenuous to make a bold claim of how big the tablet market is or how many tablets we are selling when not all tablets are created equally or being used equally.

This even complicates things even more with the tablets are replacing PCs narrative. For example, here is my chart including historical sales, current estimates and our forecasts for PCs and tablets the next few years.

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When you look at this picture, it looks very bleak for the PC. And there is some truth to this. However not all these tablets are being used to replace the PC. I believe a percentage are but not all of them. In many cases, the bulk of tablets sold are being used to compliment PCs. Then there are those being used in markets by people who do not own a PC, and these devices are not being used in PC like ways at all. More importantly, they couldn’t even if the person wanted to use it more like a PC. In this light, and for the moment, comparing tablet sales to PCs is more inaccurate than it is accurate.

Now while there is some truth to the critique that sometimes people buy PCs and don’t use them to do PC things either, the counter point is that those same consumers are using a machine which is capable of compute even if they are not using it. The low-cost tablets which I am pointing out do nothing but watch movies, are not capable of doing much more due to their low-cost underpowered CPU and are not capable of much computing.

In this regard, I propose we look at low-cost tablets in a similar light as Netbooks. If you recall, a Netbook was in essence a truncated PC. It looked like a PC but failed miserably when someone bought it and tried to use it like a PC. Hence the astronomical return rates we saw in the early Netbook days. Netbooks were treated as second-class citizens to PCs by everyone who made them and by retailers. The term itself was invented to try and call these devices out separately as to not confuse consumers into thinking they were PCs.

The same issue now exists with these low-cost tablets. Consumers who have bought them and tried to use them like higher priced tablets were disappointed. These devices are simply weak tablets in the same ways the Netbook was a weak PC. Both barely sufficed at a few tasks and were extremely limited in their use cases.

Now, while there is a place for these devices which are dedicated consumption devices primarily, we can not confuse them with the big shift of computing from notebooks to tablets capable of more computing like the iPad Air or the Surface Pro or any number of more powerful larger screen tablets coming from the Windows ecosystem.

As you can tell from some of the reviews of these tablets, like this one from Walt Mossberg, you see that these devices are being described very similar to Netbooks. People need to understand the difference between a budget tablet and the ones that are capable of more things. For some who just want to use a tablet in very simple ways, perhaps a budget tablet is the way to go. But in this regard they are being bought for a specific purpose. Where other tablets are capable of being more general purpose computing devices.

For those of us who track and count these things, the tablet market is more complex and filled with variety than many other segments we have tracked before. The key to understanding the tablet market is its layers. And it has more layers right now than any other.

The State of Tablets in 2013

Tablets represent one of the greatest opportunities to expand and enhance computing. However, it is a very mis-understood product. I want to share some statistics about tablets and then add some key points on the market as it stands today as well as a projected outlook for Q4 and beyond.

  1. 85% of tablets sales have been to existing PC owners
  2. Sub $100 make up 20% of quarterly tablet sales
  3. 55% of those who spend less than $200 had buyers remorse
  4. 52% of those who spent less than $200 intend to spend more on their next tablet purchase
  5. More tablets will be sold in the US in 2013 than any other region

What this data tells us is that consumers are latching onto the idea of a portable larger screen device. Currently, there is a heavier mix of lower-cost small screen tablets being purchased primarily as media devices. But it seems that early market data suggests that while these low-cost media centric tablets are being used primarily for media today, consumers appear to be graduating to tablets that are more capable than just consuming media. In fact, consumers in many emerging markets primarily appear to want to use this tablet form factor more like PCs than smartphones.

The Current Landscape

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The real point of clarity needed for the tablet market as it currently exists is the two distinct tablet markets emerging. On one hand we have tablets in which a degree of computing is possible. That is tablets that can be used and to a degree replace PCs. The large iPad, Surface, and many 2in1 devices coming from PC OEMs running Windows 8.1. At the moment we are looking at breaking these out by screen size. 9.7-13″ tablets would be considered computing tablets. 8″ and below would be considered media tablets. But right now any and all slate devices are being counted as tablets. So while this works for now as a category, it will need to become more granular in order to gain the right perspective about what is happening in the market for tablets.

While the 9.7″ and above more computing centric tablets are cleaner to understand and track the sub 8″ devices are where all the growth is and have a much more blurry picture. Branded OEM tablets from Samsung, Amazon, LG, Apple, etc., in the sub 8″ screen size form factor are clear but it is the ‘other’ category that muddies the waters. In all conversations with service providers from areas like China and India we do not see much evidence of the existence of these tablets showing up on anyones networks. We here more often then not they are simply being used as portable TV players to side load movies on to watch. We have heard of upticks on Flash media in certain regions so this theory could be plausible. Another explanation is evidence pointing to smartphone chips like a Cortex A5 being used in many of these low-cost white box tablets. Which would mean they would run a smartphone OS and perhaps show up on service providers networks as smartphones. Lastly, it is possible that the numbers of white-box tablets are simply inflated and not accurate. There are a number of new SoC vendors popping up giving out numbers to the tracking firms and these new companies could be inflating their own numbers simply to get attention. Those are a number of the theories I have but it is extremely difficult to confirm any of them.

What is interesting as well is what is happening in the US in two areas.

Subsidized Tablets: Carriers are beginning to offer tablets at a subsidized rate with the purchase of a new smartphone and tablet data plan. As well as the tablet alone subsidized with the purchase of a data plan. We have heard from a number of sources that Samsung’s 7″ tablets have been doing well on certain carriers offering this discount. AT&T is also offering a free Samsung small screen tablet with the purchase of a Galaxy Note 3 or Galaxy S4. These promotions will clearly drive sales of tablets even higher for this calendar year.

New brands and unbranded: Nabi Tablets are a brand to watch in the US. They are sold in US retail and are specifically targeting kids at different age ranges. Most of these run on Android. The appeal is parental controls for the devices. They even have a tablet with a keyboard accessory that looks to compete more in the 2in1 category products like the Microsoft Surface. From retail sources I have spoken with, there is evidence to suggest these Nabi tablets could sell in the millions this Q4 in the US.

Outlook for Q4 and Beyond

We are projecting tablet sales WW in the 72m range for Q4. Interestingly we are also projecting PC sales to be below 80m for the first time since 2008. The sales of PCs and tablets are likely to be very close in volume this Q4. We remain convinced that WW sales of tablets will overtake WW sales of PCs sometime in 2014.

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The CEA research department highlighted that tablets made up 29% of the Black Friday weekend and cyber Monday sales. They also reported continued increases in tablet purchasing intent. Their Chief Economist Shawn Dubravac pointed out that there were over 300 tablet specific promotions in US retail over the holiday shopping weekend.

Tablet sales in 72m range would be a 38.4% increase over last years Q4 of 52.2m. We are projecting total tablet sales in the 215-220m range for CY’13. Which would represent a 76% increase from 2012.

We expect the US and Asia to be the largest consumer markets for tablets going forward. Currently the US has the highest tablet ownership at 45% which could be as high as 55% by the end of 2013. Below are the forecasts I’ve assembled from other sources, as well as our own internal estimates.

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Solving Twitter’s On-Boarding Problem

Whenever I speak with people on the subject of Twitter I always pick up interesting perspectives. It seems there several groups of people in respect to Twitter. There are those who are on it, have figured out how to use it, and love it. There are those who are on it, but don’t totally get it, but want to be on it anyway to make sure they don’t miss something. And those who just don’t get it and aren’t on the service. For Twitter addressing these later groups who are on it but not fully engaged or don’t get it is a key strategic initiative.

For the group who is on it but not fully engaged, Twitter must advance what is called the on-boarding process. That is moving someone from signup to engagement as quickly as possible. In a short amount of time if people sign up and find no value they may likely not return or engage with the service. Twitter, in essence, has an on boarding process today that is loaded with friction.

Twitter is like Facebook in some ways and not like it in others. It is like Facebook in that the more people you connect with the more interesting and dynamic your stream becomes. But Twitter is unlike Facebook, in that you can’t have too many friends. Facebook becomes less interesting the larger your social network where Twitter becomes more interesting the larger your network.

I’ve been on Twitter since 2008 and the first few years I didn’t get it. I Didn’t use the service much and didn’t invest much time in it. But over time as I followed more sources I trusted, the more engaged I became. Once I learned that the key to Twitter engagement was to follow as many smart people, or trusted sources, or sources of interest possible, the more engaged I became. I found around that once I started following around 500 sources of interest things got interesting. The challenge for Twitter is that this process takes time. I had to manually follow each source. I discovered most the sources from people I followed re-tweeting smart things from other people who I then decided to follow. So it seems to me, the best way for Twitter to get more engaged customers quickly is to speed up the way in which they can follow large sums of people of interest. Here is what I propose.

Twitter should curate a large number of sources related to topics. For example, they could create a tech news category, finance category, or a cooking category, or a cars category, or a celebrity category, etc. Then curate that list with a large number of sources. This way when I sign up, I choose the categories I am interested in and I am instantly following large groups of people curated to make that category interesting. This way, within a few minutes, I could easily have a list of several hundred people or more that I follow. Which would instantly make my stream more interesting.

This process would at least get the ball rolling and then allow consumers to discover new sources of interest from there. Discovery is a key part of the stickiness of any solution and should not get lost in the on-boarding process. This solution allows the customer to sign up and start following large groups of people without having to follow each by hand. Some people just need help getting a head start and this would do the trick.

Given the broadcast medium Twitter has become and how mainstream media and entertainment are using it there will continue to be interest for new customers. The trick is to make on-boarding as easy as possible and I think this might do the trick.

Android is Eating the World

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Benedict Evans has a must read slide deck from his mobile is eating the world presentation. I’m going to piggyback on his title a little and tackle the narrative that Android is eating the world. It is the narrative that is hard to escape and it would be a significant point if it was a unified version of Android which was eating the world. However, when you take a step back, and view Android in the big picture, you learn it is in fact an extremely fragmented Android which is eating the world.

I’m fond of saying that Android in its purest form is not a platform. It is a technology which enables companies to create platforms. Samsung is using Android to create a platform. Amazon has used Android to create a platform. Nearly every major OEM in China is using Android to create a platform. ((There are 100 different app stores in China based on Android. 20 of them are the major players and each has its own billing and certification process)) And Google is using Android to create a Google specific platform. ((Consumer behavior, by way of app download trends and purchasing vary greatly by each app store)) All of these companies and more are taking Android to create their own platform and their own ecosystems. There is no single unified Android codebase which is dominating the world. There is no single Android app store, there is no single Android ecosystem. What does exist is a vast array of different platforms and different ecosystem running this underlying kernel called Android.

Where I think the confusion in the Android is eating the world narrative exists is the line of thinking that Google = Android. That every bit of the Android is winning narrative is a narrative that benefits Google. This view represents a clear mis-understanding of Android and what it is and why it exists.

The Role of the Android Platform

There is only one company in the market right now that does not need platform assistance from a third party. That is Apple. Every other hardware company needs a third party to provide them with software to run on their hardware. Microsoft has been this company for most of the computing era. Google, with Android, has provided the Microsoft alternative to the mobile world. Hardware OEMs need this third party software support because they need a company to provide a platform and standards support for a wide variety of technologies.

However between the two, Android offers to hardware OEMs what Microsoft does not, the ability to differentiate. Ship Windows or Windows Phone and your product from a software standpoint is no different from your competitors. Which means your basis to compete is extremely limited to form and price. Android, on the other hand, allows hardware companies to take the platform which Google is supporting with standards and driver support and customize it in a way to offer some level of visual and feature differentiation at a software level. Microsoft is providing a standardized unified platform. Google is providing a standardized platform to create other platforms / ecosystems. These solutions are very different and enable entirely different ecosystems.

The Multiple Android Markets

I wrote a few weeks ago about how Android is enabling appliance electronics to get more intelligent. In this regard, Android is very similar to embedded Linux. Android is likely poised to power refrigerators, thermostats, coffee pots, robots, you name it. Android as a platform in this regard is very interesting. But again this the embedded version of Android not the one that powers smartphones, tablets, TVs, etc. That is a very different Android. This version of Android is the most interesting to me.

The other Android market is the one for products like smartphones and tablets. This market is the one that garners the most attention. Yet when you look at Android’s smartphone and tablet market share you see that the bulk of it is made up from devices that are considered in the mid-low range of price points. Android’s share of premium handsets is very small, less than 15% globally. The vast majority of Android’s market share rise over the past few quarters has come from the low-end or devices costing wholesale less than $250. ((Creative Strategies, Inc estimates.))

The same is true in tablets where last quarter Android white box tablets costing less than $100 made up just over 30% of device shipments. ((IDC estimates.))

Looking at the share of devices at certain price points, and what OS they run, it is clear that Android owns the low-end and Apple owns the high-end. In many emerging markets there will be a battle for the mid-range between Apple and Android OEMs. Looking at Android in this light highlights its importance. Had Google not released Android what platform would have risen to serve the low-end? Android is in fact helping develop, developing parts of the world. From a technology standpoint, Android’s role in helping to develop emerging markets is in fact a good thing.

So while is true that Android is eating the world, it is doing so in a very non-unified way outside of driver and standards support. This adds to the level of complexity to any analysis about Android. Android is eating the world but what is interesting is that not only Google owns Android. Android is owned by all and benefit all in entirely different ways.

When you take a step back you realize that we have never had anything quite like Android before. While we may make assumptions about what Google may do with their version of Android, we can’t make the same assumptions with what other hardware companies will do with their version of Android. To keep enabling this multiplicity of Android ecosystems all Google simply has to do is keep up with driver and standards support. Perhaps this was the point of Android all along.

What remains unclear is how Google can benefit, which may not be the point or even necessary, from the landscape Android is enabling. They have all but given up in China. iOS devices are worth more to them in every major developed market. They would of course love to see this change but there is no evidence to suggest otherwise. So Android dominants the low-end of the tablet and smartphone market and commodity connected electronics. Time will tell in what ways this benefits Google. But as I mentioned, it may not the point of Android or even necessary for Google.

Google does not equal Android. You understand this when you can see the forest in the trees.