Apple in the “Post-Mature Consumer” Era

The era of hyper growth in smartphones and tablets is over. Which also means the land grab for global consumers is largely over. The most important dynamic facing Apple today is a maturing installed base and globally maturing Android owners.

It was by no mistake Apple called out that the 4” iPhone form factor was serving as the global gateway for increasing numbers of brand new iPhone owners to enter Apple’s ecosystem. Much of this has to do with price more than size, but we can’t ignore the worldwide demand we see from customers in markets like China, India, Indonesia, and Brazil, who long to own an iPhone but simply can’t afford it. By essentially launching their first true mid-range priced iPhone with the iPhone SE at $399, Apple is targeting that market with a powerful offering.

Apple told us they sold 30 million 4” iPhones in 2015. That means 13% of all iPhones sold in 2015 were the 4” model, likely a 5s. They also said 33% of first time iPhone buyers bought the 4” model. While I’m not sure size was the primary reason, more likely price for this dynamic, it does suggest the strong entry level role this product plays. In a study we did recently, we found only 10% of consumers in our panel indicated their minds were made up to stick with the 4” device. 20% of the respondents said they had not upgraded yet because they were unsure if they would like the larger phones but they were not hostile to the larger phones like the 10% seemed to be. While there is certainly a portion of the developed markets which want to stick with this smaller form factor, it is emerging markets where I think this product is targeted. Particularly parts of China and India are seeing waves of consumers mature from their entry level Android phones and starting to look for more quality devices since their needs have also matured. In this role, the iPhone SE can compete on many performance specs and target the $300-400 Android premium mid-range effectively. The core point is Apple now has a smartphone offering for every end of the replacement market offering. Apple is not going after first-time smartphone buyers, and this understanding is key, they are positioning themselves for consumers as they mature.

The above observation sets the stage for what I think is where I think Apple will sit tactically for the next few years. Beyond the Apple Watch, all other categories they play in are very mature markets. Apple is selling to existing customers looking to upgrade and new customers looking to switch platforms. That is the battle they are fighting. Which is why it was by no coincidence they picked up on the 600m PCs in use 5 years or older. That’s just shy of 50% of the active PC installed base worldwide. The vast majority of that 600m number is consumer PCs. Apple, and every other PC OEM, is going right to the heart of this aging PC base to pick up share. Microsoft and their ecosystem with 2-1 PC devices and Apple now with the iPad.

Apple, for the first time, began positioning the iPad as the tablet which can replace your PC. This is now an all out battle for the aged PC installed base. But, here again, the replacement theme comes into play. This is Apple operating in a replacement market that is ex-hyper growth as smartphones and tablets now are. Which means the tactics Apple is now using and executing on will be different. What we are seeing is Apple develop a strategy for the post-mature consumer era, one that has bitten many companies who have massive amounts of stubborn users who hold onto their hardware longer than seems reasonable. But the dynamic of the consumer tech market that is glaringly obvious is, “If it isn’t broke, don’t fix it”. Surprisingly, for many consumers, their old tablet, old PC, and old iPhone aren’t broke. A key part of Apple’s evolution in the post-mature consumer era will have to include an evolution of marketing as well. We have seen Apple’s hardware strategy for the post-mature consumer tech era and near term it will be interesting to see how the marketing evolves as well.

Overall, it is hard to not conclude Apple has the strongest hardware lineup possible across the board. They have given consumers every reason to upgrade their smartphone or tablet in 2016. Over 30% of consumers in our panel have yet to make up their mind as to their upgrade plans this year so there is an opportunity. Our consumer studies are watching this closely but every time I survey the mainstream I’m reminded of how stubborn these customers can be. Even with a strong hardware lineup, Apple has their work cut out for them.

Podcast: Game Developer Conference, Virtual Reality expectants, and Apple Event Preview

Tim Bajarin, Jan Dawson, and Ben Bajarin discuss the game developers conference and uptick in virtual reality interest. They also dive into their thoughts on the upcoming Apple event on Monday.

If you happen to use a podcast aggregator or want to add it to iTunes manually the feed to our podcast is: techpinions.com/feed/podcast

Unpacked: Percentage of TV Viewing Online vs. Offline

Unquestionably, behaviours are changing with regards to how we consume content once reserved for the TV. Every quarter we capture quite a lot of data around online and standard/linear TV viewing time and can see these behaviour changes play out before our eyes. Through a range of data points, including network data, consumer surveys, and app analytics, we triangulated the following model for the percent of total TV content viewing time done through streaming TV services. This is the individual TV watcher’s % of time watching streaming as  a total percent of all their TV watching time.

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To no one’s surprise, it is rising globally. As we dissect this by region the following highlights stick out:

  1. APAC (31%) and MENA (29%) are the two largest regions percentage wise consuming online TV
  2. 16-24 (37%) and 25-34 (31%) are the two largest age groups consuming online TV as a percentage of total TV watching time
  3. Globally, only 56% of respondents currently pay for a linear/offline TV service
  4. 73% of consumers who pay for linear/offline TV service also pay for a streaming service like Netflix or Amazon Prime
  5. In every region and every age group, less than 5% of consumers watch online TV ONLY
  6. The combination of people who pay for a linear/offline TV service and a streaming service is remarkably high. This suggests these are not only related but consumed in tandem. Perhaps highlighting the different content offering from both services as well as the flexibility both offer to consume content.

    Now, we know there are still many hooks for linear/offline TV services with sports and other live content being primary for these services. But seeing these two stats so closely tied together, from a consumption standpoint, is intriguing to analyze and see if there are interdependencies between the two.

    Here is a stat, that follows closely my behavioural debt theory, 64% of 55-65 year old demographic watch no offline/streaming TV. Meaning about 3 out of 4 in that demographic consume TV only in linear/offline fashion.

    Interestingly, a good portion of this online TV consumption happens on the big screen. 41% of respondents own either a smart TV or a streaming TV stick. When it came to devices not the large screen, the PC still remains the dominant device to consume online TV vs. smartphones and tablets.

    As I was doing consumer research for the conference I put on called Subscribe, I decided to ask iOS owners specifically the things they subscribe to from Apple and the things they intend to subscribe to over the next year. Answers included things like the Apple iPhone upgrade program, iCloud, Apple Care, etc. However, in the forward looking question around intent to subscribe, I snuck an answer in there which stated “Any TV service Apple may release.” 17% of iOS owners selected this answer. So, sight unseen, 17% of Apple customers will subscribe to whatever service they release without even knowing what it is. This signals a high level of trust to deliver quality and, with the streaming and behavioral shifts around the consumption of TV content, it seems like new ground is being laid and a fundamental shift in how we pay for our TV service is imminent.

Google and Facebook’s Battle for Virtual Reality and Apple’s Entrance

Between a recent virtual reality/augmented reality study I did and a host of conversations and demos I’ve had at the Game Developer and VR Developer Summit this week, I have been able to form some important perspectives. The virtual reality market is unquestionably gaining steam. To highlight this, I was talking to a Best Buy representative who was saying they were seeing a dramatic increase of in-store demonstration requests for the Gear VR at the Samsung stores within Best Buy. This is likely people just wanting to experience it for the first time, not necessarily purchasing. However, the interest in the mainstream market appears to be growing. Even from my consumer market study completed last week, 65% of US and UK consumers have some level of interest in VR. Even with the market being so new, only 33% said they have absolutely no interest in virtual reality.

The battle for VR mindshare will be fierce. The most interesting nuance I captured from the show in my meetings with key players was a hesitancy to embrace Android, or the Android developer ecosystem, due to their lack of trust of Google but also their desire to not simply commoditize the hardware quickly. It is the larger concern of getting too close to whatever Google is doing. This why Facebook is not building their VR strategy on any Google platform but instead on the Oculus platform. Similarly, Qualcomm has released their own SDK, designed to capture developer value from their own assets vs. whatever Google releases. Yet, it has become clear to me it would be detrimental to Google’s business model to not be a major player in VR, for the primary reason of the advertising opportunity in VR.

Behind closed doors, I saw some VR demos of travel destinations. One was a virtual/immersive tour of a new resort in Tahiti. You could explore the rooms, the restaurant, the facilities, etc. as if you were there. There were guided tours, exploration of the food options and more. A completely new way to experience a travel destination before you go there. It was compelling and in no way felt like and ad. More importantly, it was an ad but it was an extremely useful one from a travel perspective. If we believe VR headsets will disrupt TVs, as many do over the long arc of time, then advertising or commercials could play a key role in this experience. It could usher in an entirely new era of producing commercials, ones that are deeply compelling when done right. Which means those with advertising business models and ones who want to take more of the video ad share, like Google and Facebook, can not afford to miss the virtual reality movement.

Looking back at our fresh VR consumer study, consumers stated “travel” –as defined in the statement: Being able to explore a location or vacation spot to see what it is like before traveling there– 57% indicated interest in this use case. 31% of respondents indicated retail exploration as defined by: Being able to sit in and explore a car you may be interested in, or a new food establishment, etc., without leaving the house. — as a use case of interest. So more than 80% of mainstream consumers indicated interest in use cases where ads can play a role. Which is why it is easy to reason this will be a fierce battle between the advertising-based companies.

Lastly, I found it interesting from a number of backroom conversations I had that Apple was the elephant in the room. It seems everyone fully expects them to enter this market and play a relevant role for Apple’s customer base. Thinking through the custom silicon and componentry needed to deliver quality VR, an engaged developer and content ecosystem who will embrace a VR solution, and the broader ecosystem value, the industry is right to be concerned if Apple enters the market and takes a chunk of the share. In my VR study, I asked consumers what brands were not in the market yet who they viewed as a viable and trusted brand to bring a quality VR experience. 70% said Apple. So I think others are right to be worried.

Unpacked: Offline vs. Online Shopping Mindsets

I’m seeing an interesting trend with regard to the mind of the online shopper vs. the offline shopper. What I’m about to explain has deep implications for what the future of retail looks like.

E-commerce vs. in-store commerce is a question I get asked frequently by both retailers and e-commerce companies. While I capture quite a bit of data on what products are researched vs. purchased online every quarter, I was interested to see if there is a different set of factors which influence the online buyer mindset vs. the offline buyer. Sure enough, I found some key distinctions.

What stood out to me the most is the online buying mindset is most influenced by price, with 78% of respondents saying price was the biggest factor in their decision to purchase a product. Contrast that with the offline buyer where only 45% of people said price was the primary factor in their decision to purchase. So what is changing? That is likely the most interesting part of this.

First, I interpret this to be the result of the internet as a resource for research on what to buy. If there is a product you are comfortable enough to not have to go see at retail, or you went and checked it out at retail then purchased it online, your decision was set and now you were just looking for the best price. This is likely the common consumer behaviour behind online purchasing. Once your mind is made up, the mindset becomes who has the best deal.

One thing that came out of the in-store mindset research was, with many specific categories, technology being key among them, 43% of consumers said they had an idea of what they wanted when going into the store but would make their final decision after seeing and feeling the products. This was the most popular answer in the question set for this retail study. Now, the in-store shopping experience didn’t always lead to the purchase, but the key takeaway here is it did influence which product they ultimately bought, even if they went back online and looked for the best price. I believe this has huge retail implications and one of the reasons I think Amazon is opening stores.

Retail is still essential in helping consumers decide on certain products. This is clear from my study. Most consumers say when they enter a store, their mind is fully made up. It also suggests there is still an opportunity at retail to help consumers decide. Yet, only 10% of respondents in this study said they will seek the help of the retail associate to help them make a decision. Essentially, they will decide for themselves but want to go see the products before they do. My takeaway here is the positioning and packaging is still very important in the retail environment. What is on the package, how it looks, the opportunity to see, touch, and even try the product, are all key parts of this decision-making process. Retail sales people? Not so much.

How physical retailers understand and adjust to this new reality is key. I strongly believe retail will become more specialized where depth trumps breadth. Consumers can find breadth online but the opportunity to capture depth or specialty at retail is likely the larger opportunity. This is going to be very hard for big box retailers to adjust to, which is why this Amazon store strategy is one to observe very closely.

Android N, Samsung’s Last Stand, Rough Q1 for iPhones

Google gave a handful of blogs a preview of their new Android N operating system. Amongst the two best guesses I have seen for what N will stand for is Nutella and Neopolitan. I’m voting for Nutella since I love to the stuff.

We know new Android releases only get used on a small fraction of devices. This is actually one of the things I hope to see Google address at Google IO and it would be validated if the rumors are true they are trying to take back control of Android. With Marshmallow running on less than 3% of devices, for these updates to truly mean anything Google needs to take more control on how they get rolled out.

Some inside baseball nuggets on Android from an OEM standpoint. Android OEMs have multiple choices of apps to use when it comes to things like calendar, mail, contacts, text messenger, etc. This is one of the reasons there is dramatic inconsistency across Android devices. I run into this frequently when I bounce between Android devices — some of them sync with my Microsoft exchange stuff and some don’t. Some handle text and MMS messages differently. All because the OEM can use a range of different core apps. This lack of consistency in these core apps that come with the device is a hot mess. These are the types of things Google needs to clean up. I’ve heard is starting with the messaging app in Android N )which is supposed to be much more like iMessage) and OEMs will only use that one across all devices. This would be a positive step forward.

The other big initial feature I think is interesting is the split screen mode for apps. This is clearly a tablet feature. While our data continually shows the market for Android tablets is mostly sub $100 and shrinking, not growing, I have been optimistic on the idea of an Android-based device in the Surface or iPad Pro form factor for emerging markets. My thesis has been, this $300-$400 Android 2-1 PC makes more sense in markets where PC/Windows penetration is low and Android is the main OS in country. India is a prime example of this and a key market where I can see an Android 2-1 PC doing well. I’m actually doing a study on this very idea in India at the moment to see if I’m right. If this idea has legs, it will need Google’s assistance to embrace it and take it to market. I’m hoping this feature in Android N is a step in that direction.

Samsung’s Last Stand

Samsung’s mobile business is in transition. Their blended ASP (combined feature phones and smartphones) was around $190. Their smartphone ASP is in the $220 range. I believe what we hear from management is they would like this to change. They are reorganizing to attempt to attack the markets where more premium smartphones are sold, particularly in the US and China, with a goal of focusing on selling more premium devices even if it means selling fewer smartphones overall.

Models for this year by buy-side investment firms model Samsung in the low 70m range for Q1 2016 which will be a seasonal decline. However, expectations are that ASP goes up. I am yet to be convinced. The dynamics of the Android user base are so dramatically different than that of iOS I fear this will be the undoing of their new strategy.

When you look at Samsung’s installed base, you realize their mix of devices skews much older in key markets. For example, the Galaxy S6 represented only 9% of the US installed base according to Kantar’s latest data and it shows up as 10% in my data for US mix. The 6S Edge shows up at 2% in Kantar’s data and 4% in my data. So combined Samsung’s S6 flagships represent 12-14% of their US installed base. The vast majority of Samsung’s base is actually on the S5 at 20% of their installed base. So we can certainly gauge this as an upgrade opportunity, possibly. Samsung does have a solid intent to repurchase rate, with 63% of consumers in our most recent study who currently own a Samsung smartphone saying they are very likely to repurchase a Samsung device. Contrast that with 82% of iPhone owners who not just plan to buy another iPhone but have also not even considered switching. 26% of existing Samsung owners have considered or plan to switch to the iPhone compared to 8% of iPhone owners who have considered switching to a Samsung device. The picture for Samsung is even bleaker outside the US where other brands are gaining steam.

The new S7 lineup is a good one and I do think they have a healthy base of S5 and S4 users to pull from. But they’ll stay flat in premium shipments, likely ~40m in total in 2016, which is their normal range. The Galaxy Note lineup in the fall could add another 5-8m in calendar 2016 so ~50m current gen flagships in 2016. Not terrible, but not changing the trend line.

Rough Q1 for iPhones

While it appears the Chinese New Year was good for Apple and Q1 2016 iPhone sales of the 6s and 6s Plus are on a steeper adoption path by several percentage points than this time last year. But it seems other global markets are weaker as many analysts have modeled. We still have one month to go, but it does seem there is reason to worry about total iPhone shipments in Q1, despite China being strong. Closer to the end of March, I’ll have a better read and will send out updates on how Q1 is looking for iPhones.

Despite the rumored launch of a 4 inch iPhone, it is looking like 2016 will be a tough year overall for iPhone shipments. I am, however, optimistic on other Apple products like the Mac, the iPad Pro, and even the Apple Watch which I’m modeling to help balance some of the weaknesses in iPhone sales in 2016.

Predicting the Markets Apple will Disrupt Next

I’m admittedly using the headline as a bit of click-bait. But it is absolutely applicable to Apple. I believe many markets are on their short list to disrupt, for a specific reason I will explain. However, any company that takes this philosophy to heart and actually delivers on it will play a disrupting role.

One of the pieces I wrote that got quite a bit of feedback was one on why Apple is a User Experience Company. I articulated in this article how at the heart of Apple’s business model is user experience. All the decisions they strive to make are focused with the user experience in mind. And, while they don’t always hit that mark, objectively they have a better batting average than many in the market. Ultimately, those companies who have user experience at the heart of their philosophy have a solid chance at disrupting new markets, particularly those where the user experience is terrible today.

With that background in mind, let’s look at a few examples of terrible user experiences: Subscription cable and automotive.

TV is ripe for disruption and we know Apple wants to do it. Everyone feels it. The way we discover, consume, and share TV shows and movies is ready for a revolution. Cable companies are the farthest thing from good user experience companies. Sometimes, as with the experience I have had with Dish and the hardware they gave us, I wonder if they actually hate us. Their whole world must collapse in the same way the carrier experience with controlled hardware and proprietary carrier “on deck” content stores were entirely disrupted and went the way of the dodo bird once smartphones hit the scene. This is why I’m in favor the FCC’s move to break the cable companies hold over us and the proprietary hardware model they have to access their subscription content. The entire thing today feels like a giant Ponzi scheme.

Just for grins, I timed how long it took me to turn on my TV and get to a DVR show recorded last week. Starting from the sleep screen (my tv was already on) it took me 34 seconds to get to the show I wanted to watch. Inferior technology and slow set top boxes is what we put up with today because there is no better solution. It simply feels ripe for disruption as the user experience with this hardware is absolutely terrible. In a tie with my printer, my set-top-box is the most hated piece of technology in my house.

Similarly, I was discussing with a friend his recent car shopping experience. His family is growing and they were looking at a minivan. The manufacturer in question had offered a wide range of choices in features and functions that came with the vehicle. When it came down to features, there were two features his wife really wanted. Navigation and a built-in vacuum. He found it strange to realize they could get the navigation system or the vacuum but the manufacturer had no configuration that included both.

Contrast the mainstream consumer car shopping experience with Tesla and you immediately see what I mean. Tesla is the prime example of a consumer experience company making a car. Everything from the showroom experience, to the way they handle the demonstration, to the seamless process to take a test drive, to the first feeling of walking up to the car, getting in the car, being in the car, etc. Any high-end automotive shopping experience has this in common. It is an entirely different experience than shopping for a Dodge minivan.

As technology invades all areas of every industry, user experience companies are the ones to bet on. Those are companies that, when you use their product, you see the category as it was meant to be. Tesla shows us this in the automotive industry. Apple’s unprecedented customer satisfaction level with their products, head and shoulders above their closest competitors, show us consumer reaction to what happens when luxury experiences are made mainstream.

Healthcare is a mess and ready to be disrupted. Our user experience with our doctors is terrible. Retail is about to get disrupted. Who wants to go to a mall and spend an hour trying to park on the weekend just to be surrounded by hoards of people and sort through racks and racks of things? Banking and a plethora of financial services from lending to payments are all poised for disruption. When you look at the world today from a user experience perspective and critique it, it becomes clear there is dramatic room for improvement in many markets and product segments. This will come and it will be done by user experience-focused companies. Currently, that list is a very short list.

If we understand Apple as a user-experience company, not a computer company, not even a technology company, then any market where user experience is terrible is a potential for them to disrupt.

Wearables can Drive the Digital Health Movement

The more I study the consumer landscape for wearables, the more I’m convinced the wrong narratives are circulating about their value. Because the market is so young, most of the use cases being presented skew toward a tech or fitness lifestyle. Consumers see people running or working out as primary advertising angles and most won’t immediately identify with the use case. Or they see and hear about more tech/gadget-centric value propositions being the reason they need a wearable and don’t identify with the use case. This is the challenge of being early in a market. The mainstream value is there. Consumers just don’t see it yet.

Over the past few months, I’ve had a range of discussions with agencies in the healthcare industry. Following those discussions with my own interviews of consumers who don’t own a wearable, I get the sense the health angle is the least understood but also has the most potential in helping wearables go mainstream. Most consumers (74% of our consumer panel) have no immediate plans to buy a wearable tech product and 53% say they don’t see the need for one. However, when you talk them through the health benefits specifically, you can see their attitude soften.

On this note, some research was recently conducted by Accenture. Here are the stats that stood to me:

  1. 77% of consumers and 85% of doctors say using wearables helps patient engagement
  2. 78% of healthcare consumers wear or are willing to wear technology to track their lifestyle and/or vital signs
  3. 40% of health app users have already shared data with a doctor in some capacity
  4. When recommended by a doctor, 3 in 4 consumers followed advice to wear technology to track health

Interestingly, the study found that, when it came to whom to share this data with, consumers responded with the following:

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In recent Wristly research, we discovered 61% of the panel would consider switching healthcare providers if they offered a subsidized smart watch. 49% of the Wristly panel also said they would be “likely” or “very likely” to share health information with their provider if offered a discount on their bill. (This information and more are detailed in the latest edition of Wristly Pro)

All of this confirming the motivation behind the recent trend of corporations planning to implement corporate wellness strategies to offer employees a subsidy on a wearable in order to motivate them and track their progress toward staying healthy. The benefits to increased health and wellness to the consumer, employer, and consumer/doctor relationship is overwhelmingly positive and can’t be ignored.

We are in the midst of a transition, however. The healthcare IT world is still working out the kinks as they move to a digital world. A specific study done by Accenture with doctors found, “Nearly all US doctors (90%) say better functionality and an easy-to-use data entry system are important for improving the quality of patient care through healthcare IT. Interoperability remains an unmet need.”

When you take a step back and see the foundation being laid right now with the digital healthcare transition and technologies around health apps and wearables, it seems clear where we are headed but not clear how long it will take to get there. The health story is a strong one, as even consumers will agree health is important to them but admit a lack of education is a main reason they feel challenged to get and stay healthy. Technology will aid in this process and that core understanding is one reason I remain so bullish on wearable products. The sensors which can capture essential information in helping us stay healthy will remain unique to something we wear on our person. It remains one of few functions our smartphones will not be able to do. Whether these sensors stay on our wrists, move to our ears, get embedded into our clothing, or something else, we don’t know. But we do know we will wear quite a bit more technology in the future.

Unpacked: Consumer Security Awareness and Apple vs. the FBI

Over the past few weeks, many companies have been running consumer polls to see if the public is behind the Apple or the FBI. Given the fact we know consumer education on this matter is extremely weak, doing a poll on this subject is difficult to get right. Philip Elmer-DeWitt did a roundup just to show the range of sentiment and, more importantly, all the different ways people are asking the question. It is how the question has been asked I have a problem with.

If you were to walk up to a stranger on the street and say something to the effect of “The FBI is asking Apple to unlock the iPhone used in the San Bernardino terrorist attacks. Should they cooperate?” Asked that way, very few people would say no, Apple should not cooperate. Yet this kind of leading question is very common in consumer research polls and is entirely disingenuous.

This kind of research is hard. While I’m not sure I’ve even framed the question right, I still sought to do my own poll in our consumer panel. But I did so with some pre-questions to see what consumers are willing to admit about their own knowledge of this issue. Below is the result of three questions I polled consumers with regarding this case. Click to enlarge the images.

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I set out to not just see if consumers are backing Apple or the FBI but their overall understanding of the case and security/privacy matters at large. As you can see, awareness of the case and consumers’ own admission of their understanding was varied. There was no dominant sentiment that the majority of respondents understood or even somewhat understood the case.

The next question was an attempt to get an awareness of some common elements of online security and privacy. With 51% of respondents having an understanding of the types of sites that track them and those which they believe are more secure, it gave me confidence we had a consumer base that understood some of the realities of online security and privacy.

Then, without leading survey respondents, I wanted to state the main points of the case which are true without using words like “terrorist” or “hacking”. It was an attempt to get an answer yet state some of the fundamental points, as if I was explaining it to a friend or family member to make sure they understood the basics before giving their opinion. While the majority backed Apple, I made sure to give consumers an out in case they didn’t feel confident answering one way or the other. With just over 30% saying they did not understand the case enough, I feel we captured at large the kind of sentiment around this issue with the mainstream consumer.

The public may not always know what is best for them but, in this case, I think we conclude the public understands we should not give any government the potential to become Big Brother.

Dual-Lens Cameras and a New High End iPhone

The rumor mill is alive and well discussing some research analyst notes around the alleged dual camera feature for the new iPhone 7 this fall. It appears the rumors are looking at three variants for the iPhone with the 7, 7 Plus, and something above that which will supposedly feature dual-lens cameras. I’ve been tracking the component landscape in optics for some time and dual-lens cameras (I’ve seen demos with a dozen camera arrays) is a question of when not if.

The more demos I’ve had of some of the capabilities of dual-lens cameras on a smartphone, the more excited I get about the possibilities. For example, recording multiple videos at one time, perhaps one in slow motion and the other speed up and then being able to blend or edit them. Taking a large enough picture, megapixel wise, that you get the equivalent of 10x or more optical zoom with no image degradation. All consumers will see the benefit of zoom and not needing to carry a DSLR just so they can get pictures of their kids playing sports because they aren’t close enough. With dual-lens cameras, those days are gone. The ability to take pictures in extremely low-light gets even better with dual-lens cameras. Optical image stabilization sees dramatic performance increases. 3D imaging becomes possible. This could lead the way to VR and more immersive images and video. The benefits of dual-lens cameras are significant and, when consumers see what can be done with imaging with phones that sport dual-lens cameras, there will be a real “wow” factor.

Knowing this gives me confidence the technology is the kind of thing which could drive a new buying cycle and be the “must have” of the high-end devices that support it. Interestingly for Apple, many component analysts point to the LinX acquisition as playing a role with the needed IP to do unique things with optics. There is also clear capacity expansion in many of Apple’s core suppliers around optics. There is enough smoke here to take it seriously. However, the rumors are saying this dual-lens camera tech will only come to the highest end variant of the iPhone 7 Plus due to supply chain constraints. Essentially, there is going to be a very expensive high-end version of the 7 Plus which contains this stuff and it will be in short supply but likely very high demand.

Huawei was actually the first OEM to ship a dual-lens camera smartphone in the fall of 2014. It seems the supply chain is reinforcing that Huawei is also looking to be aggressive with this feature. Right now, these are the only two OEMs being mentioned for 2016. Samsung it appears won’t have anything until 2017 and, hopefully during that time frame, Apple will be able to scale the tech down the line.

From what I’ve seen and heard, it does seem this could be one of those must-have features. More importantly for Apple, the camera capabilities rank quite high among the features Android owners are considering when thinking of switching to an iPhone.

The challenge will come in the form of the rest of the market embracing these features and moving them to lower cost smartphones fairly quickly. I think 2019 is probably the time frame when you see really good dual-lens camera experiences in products under $500 so there will be a time advantage.

However, there is a software and ecosystem element of this which will favor Apple. The software to do this well will be very difficult and, more importantly, the app ecosystem to take advantage of it favors Apple’s developers who move much faster than others. So, while the rest of the market will get these features, the ecosystem may be void or less supportive of the value.

The long and short of it is that I’m bullish on the prospects.

The Amazingly Elusive Non-Smartphone Owner

The non-smartphone owner — you know who I’m talking about. You may even know or be related to one of these people. You may even be one yourself. We spot them every now and then in the wild using these ancient devices and we are bewildered.

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In the US, roughly 15-18% of the mobile market still uses a feature phone. Personally, I find this fascinating and I’d like to share some insights we uncovered in our latest US smartphone market study.

I take nearly every opportunity to talk to a consumer who is doing something interesting whenever I spot them in public. Often these conversations happen in a line, at a gas station, while waiting for my wife outside the bathroom at a movie theater, etc. One thing I learn when talking with these non-smartphone folks is how it all boils down to them simply not wanting a smartphone. Sometimes this is out of principle, sometimes cost, sometimes they don’t want to learn something new or be bothered by technology. But I decided I’d ask questions specifically to those in our mainstream consumer research panel who say they don’t own a smartphone. Here are some of the things I uncovered.

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The top answer from the non-smartphone owners of our panel was “no interest in capabilities of a smartphone.” I added the “I like my basic cell phone” in order to capture sentiment. This mentality is exactly the one I encounter whenever I get a chance to interview someone who doesn’t own a smartphone. They simply aren’t interested. They understand the benefits, they don’t find them too hard to use, they don’t want to be bothered by the costs and, when it comes right down to it, they don’t believe they are worth it.

They skew older with 50% of them saying they were in the 60+ demographic. They skew slightly more male than female. Here is the really crazy part. Most non-smartphone owners in our panel have owned their current feature phone for 3-4 years and said they have no intention of replacing it for another 2-3 years. Does a Samsung or LG (the most popular brands owned by this cohort) last for 6 to 7 years? Remarkable if so.

Out of curiosity, I wanted to gauge what brand of smartphone they may lean toward should the dark day come when they can no longer get their precious feature phone. Samsung, Apple, Motorola, and LG were the top five answers with Samsung among the top with just over 50% of the responses. Interestingly, this cohort tends to lean more Android if they had to choose a smartphone and lean toward a similar brand of feature phone they previously had like Samsung or LG.

It intrigues me that price comes up as much as it does, given it seems US carriers are penalizing those who don’t yet have smartphones by charging them more in various ways on their bill than consumers who do have smartphones. We see this often on family plans where the kids with the smartphones pay less, either per line, or something else, than the parents with feature phones. So you would think at some point in time the cost issue goes away and it just becomes a principled stand against smartphones themselves.

Around the same time we did this study a few weeks ago, I also did one on the PC/Tablet market to gauge where the market is currently leaning with purchase plans for 2016. Those non-smartphone owners also skew toward Windows desktops from brands like Dell or HP. They purchased their current machine 5-6 years ago and paid less than $400 for it. Most don’t own a tablet of any kind, most don’t plan to and the small percentage who do plan on buying an iPad. Over 60% have no plans to buy a PC/laptop of any kind this year while 12% said it they would “possibly” buy a new PC this year and only 10% have definite plans to buy a new PC in 2016. And when they do, the majority of respondents said they plan to spend in the $400 range–again.

They spend most of their PC time doing social networking, a list of things that qualify under file management, and streaming videos. Nothing which requires a high-priced PC and, since they don’t have a smartphone or tablet, it is their only product to do such things.

The picture is clear, after both studies, who this type of customer is, what they own and don’t own, their primary use cases and behaviors, price bands, and sentiment toward the smartphone. While interesting, and rare, these customers are unique in many ways and represent a part of the market many of us who live and breath tech find hard to comprehend.

I want to leave you with this key understanding as to why I bring up this customer. In many of the consumer market and device usage studies we have conducted in the past year the same glaring evidence stands out. We can directly tie price paid for a PC/Smartphone/tablet to usage of the product. Simply, those who pay more for their computers use them more. For a consumer who is very price conscious like the non-smartphone owner, they have no intention on using the increased capabilities so see no need to pay for it. Similarly, those who buy lower end smartphones, PCs, and tablets are less engaged with the device and the surrounding ecosystem. This insight helps us understand the surrounding ecosystems, and engagement levels around hardware prices. Anyone in the software (apps) or services ecosystem needs to understand this dynamic as it relates to their business focus and customer priorities.

The Future of Video: Snapchat vs. Twitter vs. Facebook

It appears a battle is brewing between Snapchat, Twitter, and the Facebook family of apps. The battle will be for eyeballs on video content on these platforms.

Snapchat’s CEO Evan Spiegel re-enforced some statistics about his Snapchat platform at yesterday’s Morgan Stanley’s investor conference saying the service had right billion video views per day and more impressively, users spent an average of 25-30 minutes on Snapchat per day.

Facebook’s average time spent was, at one point, 12-13 minutes per day but has now slightly decreased and is no longer reported or tracked publicly. Our primary research indicates usage of Facebook is tied directly to length of time being on the platform. Usage is most heavy by those onboarding most recently and usage declines over time for those who have been on the platform for more than a few years. This is a problem well understood by Facebook which is why they have purchased companion platform apps in an attempt to collectively increase user time with the Facebook assets. Even with Facebook’s auto-play videos and Instagram’s shorter form video support, the 25-30 minutes per day on Snapchat average is among the industry best for a social platform.

With Facebook and Twitter maturing, and Snapchat needing to grow beyond the 13-24 year old demographic, it seems video is the strategy all believe will earn their way to consumers’ hearts. The kind of video which wins is up for debate.

It seems both Facebook and Twitter believe live streaming video is their next logical step. Twitter unveiled this strategy in their 10-k filing. They believe live video naturally extends the nature of Twitter and is a core focus area for growth.

Facebook released their live streaming feature but I’ve yet to see any of my friends actually use it. Perhaps this statistic gives us a clue to the state of live streaming. Look at usage of Meerkat (a live streaming app) and Periscope (Twitter’s own live streaming app) and the percent of people in our data set who said they used either app last month.

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As you can see, live streaming apps have yet to enter the consciousness of the mainstream consumer. Now, with well over 70% of our global panel saying they use Facebook (on any device) compared to the measly percentages of Periscope and Meerkat, we can wonder if Facebook is better positioned than any of the competition for live video. Or maybe we reason, live video is not actually going to be a thing.

Snapchat, on the other hand, takes a story-centric approach, which at times feels live but is often not. For a comparison, I went back and forth between how Snapchat was handling the Oscars as a channel and comparing it with how Twitter was handling the Oscars as a channel in Moments. Snapchat’s implementation was far superior as it felt live but with minimal production.

Similarly, over the weekend, another event showcased the live element of current events but, in this instance, Twitter was the better implementation. Saturday night featured one of the best regular season basketball games, possibly ever, but definitely in the last decade, between my beloved Golden State Warriors and the Oklahoma City Thunder. Near the end of the game, Steph Curry made a game-winning three-pointer 38 feet from the basket. The Twitterverse blew up after this happened but there was nothing on Snapchat to see — no reactions and no video because of the lack of a live community or platform.

The last point worth making is this is largely a demographic trend. Younger users are the ones driving all three of these companies to cater to a younger demographic. Not only are these younger consumer groups the future, they are also very influential when it comes to household spending or even their own spending. One could argue as these companies cater more to younger people, the experience gets worse for the older generations who may then go elsewhere. But I’d bet that is a gamble these companies are willing to take.

As I reflect on this, I’m intrigued at the competition emerging but not entirely excited about all the different options we are going to be presented with to experience content in this new form. If good experiences emerge around a live event on all three of these platforms, which will consumers choose? Or will they just bounce back and forth between them to soak it all in? As video becomes the main hook driving usage and retention, it is clear it will be a highly competitive battle for eyeballs and time share. And I do wrestle with whether or not this is a winner take all scenario around video.

Unpacked: iPhone Sentiment from Android and Windows Phone Users

I recently conducted a study trying to understand smartphone platform loyalty. My goal was to seek out some insights on what keeps people with a platform and what are the catalysts to make them switch to another platform. A few very interesting things stood out.

As I often do with surveys, the types of answers you give take you to different sets of questions. So in this study, those who said they had an iPhone got separate questions from those who said they owned an Android phone, a Blackberry, or a Windows Phone. My goal for each user base was to understand what kept them there, if they had ever considered switching to another platform and, if so, why. Two questions in particular were intentionally placed to measure hostility toward Apple from each non-iPhone base. Below are the question and the results.

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A few observations. First I’m comparing like questions, in this case, two specific ones. What we observe is the key stronger sentiments from both Android owners and iPhone owners. In the case of Android consumers, the “Apple is not as open” choice was the second highest reason chosen as a barrier to switching. The first was “iPhones are too expensive.” Given what we know of some of the more passionate Android users, I thought the “will never buy anything from Apple” sentiment was going to be higher but that is not a hostile view shared by mainstream consumers.

However, with Windows Phone users it was a different story. The “I’ll never buy anything from Apple” ranked higher in total percentage from Windows Phone users than it did with Android users. While this 20% of “hostile” Windows Phone user sentiment was higher by these owners than by Android owners, the percentage of respondents who said they plan to switch to Android or to iPhone from the Windows Phone user base dominated the percentages of answers.

We know the Windows Phone market is not that large. But I did find the stronger hostility of their base toward Apple intriguing, although somewhat understandable when you think about the type of consumer who purchases a Windows Phone and the history between Apple and Microsoft.

The openness argument is common of Android owners and, considering it was as high as it was in this representative mainstream sample, it is certainly still there. However, cost was the biggest inhibitor as indicated by Android owners in our panel. Showing the price sensitive nature of most Android users in the market.

It was interesting to see the different nuances of sentiment toward iPhones from both the Android owners and Windows Phone owners and how some animosity from the PC era battles has carried over into mobile.

Intel’s Bet: All in on Process Technology

It is hard to watch everything going on at Mobile World Congress and not sense the missing force in computing that is Intel. The charts I posted yesterday showing the growing mobile landscape and the stagnant PC one is causing a great deal of pain for Intel. While their server business is strong and yet to be threatened by any serious ARM competitor, and while their modem business looks promising for 5G, we saw many other competitors show off new processors and new design wins with their mobile processors. If this were a PC trade show, Intel would be all over it. At a mobile trade show, their impact is limited.

That being said, I’m quite intrigued by Intel and reading between the lines I’d like to explain what I believe their bet on the future is and why I’m not writing them off.

To really understand Intel, we need to separate their x86 chipset architecture from their manufacturing capabilities. Intel may be tempted to tell you these two things are related but they are not. As Intel pursues Moore’s Law, they push the size and shape (geometry) of the silicon so you can get more out of each advancement in process technology. When we refer to chipsets in nanometers we are talking about their geometry. Going off memory, in 2005 we were at 90nm. Today, Intel is shipping at 14nm, as is Samsung. That is the most advanced process technology mass producing chipsets today and, at 14nm, you can fit 5,000 transistors on the width of a human hair.

I believe Intel’s bet is on process technology, not their x86 architecture. The reality is, it is getting harder and harder to progress process technology to the smaller size. 10nm is next and Intel and Samsung will get there but it is getting harder and more expensive. TSMC, who manufactures for Apple, may get there but it will only be because of Apple that they do. I’ll explain that another time.

Plain and simple, I believe Intel’s bet is they are the last man standing at the end of the day in process technology leadership. After 10nm comes 7nm after 7nm comes 5nm. There is huge debate as to whether the industry gets to 7nm and there is even more doubt we get to 5nm. Intel’s bet is they will get to 7nm or to 5nm, or even beyond, and no one else does. Which means they end up making the chips for everyone who needs them and that is a huge business.

Should this happen, Intel will have to make ARM chips for Qualcomm, Mediatek, TI, Nvidia, Apple, etc. One could argue they should make this transition already but, for whatever the reason, they are staying the course. Is this plausible? It actually is. Intel’s engineers have proven they could beat the odds before to keep Moore’s Law going. Which is why I’m not writing them off.

At the same time, if I was running Intel, I’d throw down the gauntlet to my engineers. Intel believes they have some of the best chip designers in the world. Right now, those designers are architecting x86 designs which largely go into PCs and servers. If I ran Intel, I’d assemble a team and tell them to show me if they could develop some of the best ARM designs in the world. If they could, I’d use this as the foundation for their future.

If their ARM designs were competitive and they could bundle them onto the SoC with their modem, then all of a sudden they have a competitive product to Qualcomm. Thanks to their ability to manufacture, they can actually sell at an aggressive price, perhaps even undercut Qualcomm and start getting customers for the Intel ARM architecture suite of products. Intel is unique in this case because they design and manufacture and, as long as Intel does have some of the best chipset designers in the world and they create a competitive ARM product on their leading edge process technology which no one else will have, then this thesis could work out.

There are a lot of assumptions I make in this, as does Intel. It all feels very risky but Intel has a great deal of confidence in their engineers and they have a proven track record of overcoming obstacles that stand in the way of Moore’s Law.

The End of Standardized Platforms

Historians of the technology industry observed a pattern that was predictable with regards to new computing platforms. In the early days of a computing segment, like mainframes, minis, and desktops, there was a great deal of platform fragmentation. These early computing systems often ran proprietary software and operating systems with little interoperability. Eventually, a standard emerged — Windows. Even though Macs stuck around, their market share stayed well below 3% for much of the build-out of the PC era. Here is a visual to show how platforms started fragmented and then standardized around Windows.

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What you are looking at is operating system share of devices sold annually. Of computing devices sold for most of the time period above, Microsoft was the standard. Fast forward to today and we see a slightly different picture emerge. Windows runs on PCs and Android and iOS run on mobile devices, giving us three primary operating systems occupying the bulk of computing devices sold each year.

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You can see as the pie went from several hundred million computing devices sold each year to now almost 2 billion computing devices sold annually (when you add up PCs, tablets, and smartphones), the pie has gotten much larger but the landscape has also changed. While Android has the largest chunk of the pie, they do not have the 97% share Microsoft once had. The size of the pie and the global diversity of the consumer market brought with it the opportunity for several computing platforms to exist simultaneously.

If we take a step back and look at the installed base, we see an even clearer picture of the diversity in computing platforms in use today as well as the size of the market.

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There are now well over three billion active computing devices in the world with five primary operating systems/computing platforms — Windows, OS X, iOS, Android, and AOSP (non-Google) Android running in China. The key point here is, with the addition of scale in mobile and the inclusion of the global consumer market, there is no single standard computing platform. The question then is, what will happen with things like Virtual/Augmented reality platforms or artificial intelligence platforms? Should we expect VR/AR or Artificial Intelligence to unify and one single platform emerge like during the enterprise PC days or will many different platforms exist as we see today in consumer computing?

I tend to lean toward the latter. While VR/AR will start off segmented with Oculus having a platform, Sony having a platform, Microsoft having a platform, Google having a platform and even Apple having a platform eventually, it may also stay segmented rather than consolidated.

The global consumer smartphone market has shown us it can sustain many platforms so perhaps whatever comes next will follow the same paradigm. As I’m observing with wearables, where the market is actually developing into a rich segmentation, perhaps VR/AR or artificial intelligence will do the same, adding new layers of computing platforms onto the existing ones rather than consolidating into a single one.

Fitbit Earnings and Wearable Market Insights

As many of us suspected, Fitbit had a great quarter. They’ve announced they sold 8.2 million wearables and had $712 million dollars in revenue. I had estimated 7.5 million shipments in the quarter and an ASP around $85-$90. My full model of wearable device shipments looks like this:

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As you can see, the market is still dominated by two players and I honestly don’t see that changing in 2016. My gut tells me Fitbit is still going to benefit as the market and brand leader in the space with the continued growth we will see in wearables, particularly in the “dedicated fitness tracker” segment.

In the latest Q1 2015 wearable market study I just finished, only two brands dominated the “intent to buy” segment this year — Fitbit and Apple. More consumers said they plan to buy a Fitbit than those who said they plan to buy an Apple Watch but these brands were the primary two being considered.

Of those looking to get into the market, the main price bands being considered were in the $100 and $150 price range. Looking at the overall price element of the study, it is very hard to conclude the market is commoditizing. The US and UK markets showed little interest in brands charging below $50. This has everything to do with the state of the market being immature and consumers looking for brands they trust or see others wearing. Hence, Fitbit and Apple’s credibility in this space is being carved out now. Also, as we dug into the things consumers were looking for, it became clear that, when it came to their health and fitness, they were willing to pay more for things that delivered on their expectations.

Fitbit will have a hard time going upstream to compete with Apple but they also don’t need to play the price game yet which should relieve investors. Fitbit’s abandonment rate dropping also means they are getting more consumers to stick with their product versus putting it in a drawer and not wearing it. Only 18% of respondents had said they have stopped wearing their Fitbit completely. However, for those who have owned the product for one year or longer that number goes up to 28%. Still, positive progress given it was not too long ago when Fitbit’s abandonment rate was over 60% of those who owned it a year or longer.

I also asked consumers about customer satisfaction of their wearable device if they owned one. Fitbit owners overall gave their Fitbit a score of 82%. This satisfaction rating did not change drastically by length of time owned. One key differentiator, outside of the overall score (Apple Watch scored a 92% in the updated Wristly research) we noticed of Fitbit owners compared to Apple Watch owners, was the percent who said they were “very satisfied” and “somewhat satisfied” was fairly even. With the Apple Watch, those who said “very satisfied” outweighed those who just said “satisfied” by a significant margin.

Looking at the overall results, there were a number of things which stood out. The male vs. female dynamic is certainly a major theme, but so was the notifications feature. When I asked which features the owners of wearable devices found more useful than they originally thought, notifications stood out by a massive margin. This was true of Apple Watch owners but it was also true of previous owners of a Fitbit who had since purchased an Apple Watch. This point reinforces what I’ve felt for some time — notifications is the sleeper killer app but it is not one of those things you realize until you have tried it.

Lastly, while Apple Watch and Fitbit are well positioned with intenders, there is a gigantic percentage of the market who could care less about smart fitness bands and smart watches. 75% of the respondents in our study of nearly 2,000 consumers said they have no intention to purchase a smart watch or a fitness band. Why? The number one reason, by a landslide, was “don’t see the need for one.”

There exists this odd dichotomy. Those who start using a wearable generally like it and find many features more valuable than they thought they would. Indicating consumers are entering the market with fairly low expectations. Then, as the data shows, certain things exceed their expectations and now they are quite satisfied. All of this suggests that more people would likely benefit and find value added to their digital life if they adopted a wearable. For many, a need they never knew existed is exposed once they own one. It is getting them to own one which is the bigger challenge and will remain at the center of the story for the next few years.

Unpacked: Wearable Tech Ownership

I recently completed a “first half of 2016” wearable technology study. I sought out to understand many things related to this space, including purchase drivers, whether the product purchased met or exceeded expectations, why people aren’t buying or interested in wearables and, if they intend to buy one, what is driving their interest. I came away with a very comprehensive look at the market today and can draw out some insights on where it might go over the next year or so. But one thing in particular stood out and is worth more thought. I’ll share this simple stat for this Unpacked post. These are US and UK specific data points.

It will not surprise anyone to say that most consumers do not own a wearable. It will also not surprise our readers that Fitbit and Apple dominate the market in terms of ownership. Garmin came in a somewhat distant third. In hard numbers, 81% of consumers in this study said they do not currently own a smartwatch or fitness band. What did stand out to me as I dug into this was the gender divide in terms of wearable ownership as it stands today. The headline of this slide is “Apple Watch is for Men and Fitbit is for Women.” Here is the demographic breakdown of ownership.

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The majority of Fitbit owners skew towards women while the majority of Apple Watch owners skew towards men. Given where the watch is in its adoption cycle, it is not surprising more men bought v1 of the Apple Watch when we know men tend to be more tech enthusiastic than women. The over-indexing of Fitbit owners by women is most interesting to me. The simple answer is to say women may be more interested in fitness than men. However, we know owners of Garmin’s products skew highly athletic as runners and cyclists tend to prefer Garmin. Looking at Garmin owners, there were more male than female. Perhaps the basic exercise tracking is of interest to more females than males if we use the exercise angle as an explanation.

Whatever the reason, I’m intrigued by the idea that the wearable category may be the first consumer tech segment to truly have a gender divide. Meaning, specific products need to be developed for different genders. For the most part, PCs, tablets, and smartphones are gender neutral. A wearable tech product likely aligns more with subjective fashion and other tastes more so than things like PCs, tablets, and smartphones. Which makes the case that we may see more gender specific designs from a wearable tech standpoint but also that this is an important strategy to keep in mind when developing a wearable plan. If one size does not fit all, and it likely does not in this category, then an entire portfolio of products is key to succeed in this space.

The Encryption Precedent, $4 Smartphones, and 3D Printer Toys

The legal battle taking place publicly between the FBI and Apple is all about a precedent being set for or against backdoor encryption. Philosophically, we are at a junction that could alter the direction of our digital future. In reading this letter from Tim Cook, many things stood out including this paragraph in particular:

Specifically, the FBI wants us to make a new version of the iPhone operating system, circumventing several important security features, and install it on an iPhone recovered during the investigation. In the wrong hands, this software — which does not exist today — would have the potential to unlock any iPhone in someone’s physical possession.

The software to do this does not exist. Which means, Apple has to create it. Once created, then what happens? One master key in the hands of the wrong people is not good. Certainly the device in question could be given to Apple who does the work and gives the device back to the government and then destroys the key. The issue here is whether such a thing should even be created.

Apple has been intentionally designing iOS so this is not possible. And, while it is speculated a master key could be created even for devices with a secure enclave, inevitably we are heading in a direction where someday it will be impossible to have a master key. Encryption will be that good. My concern is, if the government wins, then Apple and others will always have to make sure a backdoor or master key exists. Essentially always building this into their devices thus never creating the inevitable unbreakable device. At which point, we are never really secure because a backdoor will always exist.

How this plays out will determine whether or not true security will be possible.

$4 Smartphones

I had predicted a few years ago we would see a sub $10 smartphone at some point in the next five years. I was thinking that prediction would happen toward the latter part of that time frame but we find ourselves in 2016 with a $4 smartphone. Now, there are some skeptics out there who rightly point out you simply can’t make a smartphone given the bill of materials (BOM) for $4 and this is true. It appears this device is being subsidized by the Indian government.

Anyone who looks at this price point will think the price of the device makes it so that anyone can get a smartphone. The problem is, it is not the initial cost of the device that is the barrier. It is also the cost to get the device on the network, the cellular and data fees, and the cost to charge it.

Note this chart via stats from the ITU:

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As you can see, the data rates are most expensive in the least developed countries. While pre-pay plans exist that allow people to pay for as much data as they use, given the costs in these countries to use the internet, you have to wonder how many meaningful things they can do for a few bucks a month.

The next issue is charging. Since those who can only afford a $4 or even a $20 smartphone are likely much more rural or village residents, it means they likely don’t have electricity. My brother-in-law lives in rural Kenya and said most Kenyans in the village where he lives go to a guy who has a hut and a car battery. They pay anywhere between $1.25-$2.00 (surge pricing applies) per charge. Granted, this is for a feature phone needing to be charged once a week or maybe once every two weeks.

Two billion people have smartphones and pay to be on the internet. Another two billion have a feature phone and pay for basic cellular coverage. We assume at some point those next two billion with feature phones will transition to smartphones but it will take some time. 1.5 billion people or so are living on less than $2 a day. As you can see, the economics are not in favor of the poor getting on the internet even with a $4 smartphone.

3D Printer Toys

I came across this Mattel 3D printer called ThingMaker. The device is $300 and positioned as a way for kids to print their own toys.

First, notice how fast 3D printers have come down in price. Just a few years ago, they were nowhere near prices that seemed like they would get in people’s homes anytime soon. Now a toy company is going to market with one targeting kids. Fascinating times, but it just goes to show you how fast prices can come down with new innovations.

Second, this is interesting as a “razor and razor blades” play, a trend I think you are going to see more of in consumer tech. The physical cost of the printer is just the Trojan Horse to a larger business model. Kids can buy new patterns, need to fill it with printer material, buy new colors, etc.

This is just one example of what I think many companies will start to do as they embrace getting into hardware, but doing so with a business model that is not solely hardware dependent.

The Concept of Behavioral Debt

I’m fortunate to be a part of several circles here in Silicon Valley that get together frequently to discuss big ideas and engage in all kinds of technology related philosophical questions. I started sharing a concept I had been thinking about in this group and was encouraged to flesh it out further. So I would like to introduce it to all of you for thoughts and feedback. Consider this one of those posts you need to have your thinking cap on. I’m calling this concept “Behavioral Debt” and it explains why a company’s customers don’t act or do the things they want them to.

The simplest way to understand this is with the popular saying, “You can’t teach an old dog new tricks.” I am attempting to put more understanding around this idea as it relates to the consumer tech landscape. I seem to run into issues around behavioral debt regularly in my research on the consumer market. Companies want to know why their customers aren’t buying new products or services they offer while their old ones seem to be all their customers are interested in. In most cases, what we observe is simply entrenched behavior that is very difficult to evolve. Once a behavior is established, debt is built up around it. The longer that behavior remains entrenched, the larger the pile of behavioral debt. The larger the pile of behavioral debt, the more difficult it is for that customer to climb out from under it.

Let’s use a tangible example in Facebook. Facebook would like to move into a more transactions-based model for the buying and selling of goods on their platform. Here we may likely see the ugly reality of behavioral debt rear its ugly head. Consumers have built up years of behavioral debt just doing a few main things on Facebook. Consumers are likely content in this reality and, when they want to buy something, they go to Amazon or some other established online merchant. Facebook wants to offer them the chance to do this on Facebook so they don’t have to leave and go spend time and money somewhere else. But you can’t teach an old dog new tricks and I have a feeling convincing consumers to do anything more than they do today will prove quite tricky for Facebook due to the many hours/years spent building up behavioral debt around how they use Facebook.

Similarly, Intel, Microsoft, and the PC makers would all like to sell more of the 2-in-1 PC concepts. These devices are not the cheapest machines on the market but they offer better margins. The problem is, 2-in-1 PCs sell at a fraction of the volume of notebooks. What Intel and Microsoft have not yet learned is there is a massive amount of behavioral debt built up around the PC form factor. People understand it, they are comfortable with it, and they have established workflows on it. Many of you have heard me say those who grew up with a PC have a bias for it. This bias is explained by behavioral debt.

This is why we observe consumers in emerging markets or the Gen Z kids of today do things with their smartphones and tablets many of us can’t believe. We see them do things and think there is no way they can do those things without a PC. The reason this “you can’t do real work on a tablet” phrase keeps incorrectly showing up is because those who use it have a ton of behavioral debt around PC-based workflows. Those who do not have PC behavioral debt are free from those biases and are able to break what seems like new ground but is entirely natural to them.

This should also be recognized by startups trying to do something similar but better than what a popular service already does. We see startup after startup offering a feature, like a messaging app or a commerce store that proposes to be better than what hundreds of millions of people already use. More often than not, these fail because, when behavioral debt is built up, the person rarely wants better — they simply want familiar.

Getting customers to break free from behavioral debt is very hard. It also seems it is very rare given the case studies I’m finding and working through. This one point, circling back to Facebook, is what makes something like Snapchat so interesting. Snapchat is on pace with Facebook in the number of videos played. The main difference being the vast majority of videos played on Facebook are not clicked on where on Snapchat they are. Facebook wants/needs videos to be successful but their users just want to get on Facebook, post a picture or share something, see some posts from others and move on. Getting video engagement has been a challenge for Facebook because of their users behavioral debt. But with Snapchat, video was the assumed experience from the beginning. Starting fresh means stating without behavioral debt. This is why, in my opinion, Facebook must continue down the road of acquiring a family of assets which encompass the needed consumer behavior. Buy Snapchat for video, Twitter for real time news and global social communication, and whatever else springs up.

I’m working on some principles that seem to be a way to shake up consumer experience and jolt them from their debt but I’ll share more on that at another time. For now, I’d love to hear what you think.

Unpacked: Consumer Interest in Virtual Reality

With Tom’s article on VR today, I thought I would share a stat from a VR-focused study we did. It is no secret VR is early and we shouldn’t expect the mainstream to have experienced it yet. I still wanted to gauge what the current market sentiment is as we seek to understand the market today.

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When we look at current sentiment, nearly half of respondents have either no interest or have not heard of virtual reality, while just over half have some interest or is very interested. We live in an increasingly technologically savvy world so it is not surprising there is interest in the idea of a new way to experience content and media. Most consumers, 76% of them, have yet to experience a true VR solution.

Within the past year, VR solutions had gotten good enough that those who experienced it could see its potential. I emphasize that is the stage of the market we are in and the job I have to do analysis of. Right now, we are focusing on its potential. It is unhelpful to judge the current crop of products as they will change dramatically over the next 5 years. What is helpful is to spend time thinking about the potential of what we have experience of so far.

I have personally experienced every major VR/AR solution on the market or will be in the next year. I’m optimistic others who experience these solutions over the next year will be able to see the potential. Currently in my house, we are vetting the full Gear VR and Oculus experience. Both Samsung and Oculus continue to add new content in the way of games, videos, pictures, movies, and more, which keeps the experience fresh. My girls love to show their friends a video where divers take you scuba diving in many exotic locations. You explore the ocean floor, coral reefs, and learn about different underwater species in each location. They also show their friends a tour of Disney World that takes you on roller coasters and shows many highlights of the parks.

What I’ve enjoyed the most is having friends or family over who I help to experience VR for the first time and to get their feedback and reactions. Every single person was blown away by how immersive it was and they came up with many use cases from travel, education, entertainment and more they thought were interesting.

Imagine you had a 360-degree capture camera and used it for family events, kids soccer games, etc. You would be able to capture moments and re-live them on more than just a flat screen. But the one experience which has still stood out to me today was the Sony Morpheus. Gaming will clearly play a role in this first wave of adoption. If you play and love video games, as I do, VR is going to change your life. Sony has an installed base of over 36 million PS 4 consoles, all of which can support their VR solution. I expect Sony to be the winner of this first phase.

Ultimately however, the units need to be untethered. Solutions which require cables will not stand the test of time and ones that either use a phone or, more likely, have the technology built right into the headset like the Microsoft Hololens, will ultimately win the day. I believe in the cordless solutions since, after experiencing them, it becomes clear you need freedom to move around. Especially with those that will blend both virtual and augmented reality together.

There is still an odd hostility around VR. I experience it on Twitter whenever I show pictures of my kids enjoying their experience with it. As to be expected, certain demographics do not like change. New things are approached with skepticism. Fortunately, the demographics that will drive this technology forward, the younger generation, have no such reservation.

Now, no one believes we will all walk around with our heads in VR/AR headsets all day. But they will be a tool similar to how our PCs, TVs, smartphones, tablets, and smartwatches are tools today. Our modern technological tools are good for work, play, and education and VR/AR will fit nicely into the mix.

The New Economics of Moore’s Law, Twitter Earnings, Facebook Free Basics

The New Economics of Moore’s Law

The subtle dynamics of the semiconductor industry are often underappreciated. Since working at Cypress Semiconductor in 1997, this industry has always been a key focus of study for me. I’m fond of saying, “There is no greater predictor of the future than understanding semiconductor roadmaps”. Knowing what is possible in silicon several years from now or longer, helps us know what will be possible and, more importantly, when.

While Moore’s law states the number of transistors on a microprocessor can double every two years or so, the underlying point of the law is that this doubling must also do so economically. In other words, it should cost less to put twice as much on that same piece of silicon than it cost two years prior.

This cost reduction, plus the efficiency gained in performance and lower power consumption, is engrained into the pursuit of Moore’s Law. However, as of late, and because of the many technological challenges facing Moore’s Law, the economic benefits of the law are fading. Companies like Intel, Samsung, TSMC, and others can still technologically continue the law but it is becoming less economically beneficial to do so. As the costs to pursue Moore’s Law increase, the implications throughout the industry add a new dynamic.

For example, if the costs to move from 20nm to 14nm go from $10 billion dollars to $16 billion dollars, then the company must believe they will have customers willing to pay the increase in chipset costs in order to profit from the investment. As PCs, smartphones, tablets, and other devices become more commodity items and hardware costs go down, it becomes harder to find customers willing to pay a premium for premium chipsets.

These few customers willing to pay premium prices are doing so to fund the technological advancement of Moore’s Law, not necessarily the economic advancement. Which means either they do so but volumes are low and prices don’t come down or they have a lock on premium performance and low-power chipsets, or no foundry is willing to invest in leading edge process technology and Moore’s Law ends.

We are already in the “fewer customers willing to pay the premium for leading edge process technology” phase. Where we go next is unclear.

Twitter Earnings

Two charts, related to Twitter earnings, tell most of the story. First, revenues continue to trend upwards.

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However, Twitter is not adding new users in the US or abroad.

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Predictably, Twitter is attempting what I anticipated — better monetize their user base. This is the standard tactic for when your growth stops or slows. Most of Twitter’s adjustments and new features are designed to maximize their revenue per user and increase that ARPU over time.

The issue with this tactic is you run the risk of making the service’s experience poor due to the severe attempt to monetize and thus, lose your user base. There are only so many ads a person can take. Twitter can certainly make the ads better, more relevant, include transactions, etc., and they likely will, but this tactic can only go so far.

Twitter’s challenge will increasingly be keeping their most engaged users happy while tweaking the service to be easier to use and more attractive to new people. I still maintain they can do this with a pro (paid service) and free service. I myself use Tweetbot exclusively for Twitter and, therefore, I’m sheltered from ads, Moments, and other tweaks to the service. I find when I want to have the more all-encompassing Twitter experience, I’ll use the app but when I need to produce/do work in Twitter I use Tweetbot. Hence the need for a pro and free version of the service.

Twitter is proving they can monetize their base and this is good. However, if the shift to mobile internet advertising is a “winner take most” market between Facebook and Google, Twitter is likely better off selling to one of them and joining Facebook or Google’s app family.

Facebook Free Basics

I’m watching with much interest what is happening in India and the ruling to block Facebook’s attempt to bring the internet to those who can’t afford it. Many things are fascinating about this which could shed insight into how best to bring the internet to poorer regions.

Part of Facebook’s thesis is that as the internet comes to places that did not have it, the economic status of that region will rise. Global economists are largely in agreement that the internet adds anywhere from 1-3% GDP rise to a region when it gets it for the first time. They also largely agree that, as the broadband speeds increase in said regions, GDP can rise .5%.

Suffice it to say, it is difficult to argue the internet is not a benefit. What we are observing with India is perhaps the growing pains of the global internet economy. Everyone who can afford an internet connection has one and those who don’t need to increase their economic status in order to get it. Yet this is the hump we are not sure how they will overcome. If not free then how?

This article makes some interesting points using metrics to present the argument that, even while it was not blocked, Facebook Free Basics was not adding users at a significant rate. Whether because of device acquisition costs (smartphones are not $10 yet) or the monthly rate or simply not grasping the value, the issue it not fully known yet. But how this plays out could be an important case study in what happens in other markets like Africa, rural China, South East Asia, and other regions where the same economic issues apply.

The next two billion will likely come online, but it may take quite a bit longer than myself and many others originally anticipated.

Snapchat (The Teen Social Network), Google and VR, Amazon’s Head Fake

Snapchat – The Teen Social Network

Buzzfeed wrote an excellent article on Snapchat where Ben Rosen interviewed his sister about her Snapchat usage. It is not only entertaining but also very insightful. I recommend you read it. A few things stood out to me.

The first is how Snapchat is basically a social network for teenagers. I’ve shared this data before, but our research suggests the vast majority of Snapchat’s ~200 million active users are under the age of 25. A key point here is I track this by quarter and don’t see older users jumping on the platform in any statistically significant percentage. One could also argue, if Snapchat succeeded in luring older consumers to the platform, young people would just up and leave, thus potentially hurting the business.

The second was a stat shared Rosen where his sister used over 60GB of data in a month. Over a decade ago when I was studying Millenials, I brought a high schooler into our research group to a panel hosted by Nokia. My talk was on millennials’ usage of smartphones. She was a Blackberry user and the most prolific texter I’ve ever seen. She averaged 6,000 texts a month. During my on-stage interview with her, when she stated this stat to a room full of old white men, there was a gasp through the crowd. This stat, and the shock that comes with the GB usage of Rosen’s sister, reminded me of the texting story from a decade earlier. Where we were once in shock and awe at how many texts teens send per day/per month, we are now in shock and awe at how much data they consume. 60GB per month of data usage is the new 6,000 texts in a month.

Google and VR

The Virtual Reality Platform wars are heating up! The Financial Times broke a story about Google looking to release a VR headset that will work with a range of Android-based smartphones. Certainly only ones with enough processing power but it seems Google is looking to bring broader VR support to Android itself.

On paper this makes sense. Android runs on over 70% of all smartphones in use so bringing VR capabilities to Android certainly could help the category. However, can Android develop a robust ecosystem around it? Logic says yes, but given they are competing with Facebook and the Oculus VR platform which already has significant developer and content momentum, and with Facebook having more users than Google, it isn’t wise to write off Facebook and Oculus. In early days it is hard to call but interesting times ahead.

Of course, Apple is still waiting to get into the game and, given what we know about Apple’s ecosystem, it stands to reason they will also be a force to be reckoned with in VR.

Amazon’s Head Fake

It appears Amazon is up to more than they led on during their investor call. During the call, it seemed it was made clear they were not trying to build a system to replace UPS and FedEx but to supplement them. Bloomberg got a scoop on Amazon’s plans and it seems their ambitions are larger than just supplementing their partners.

This move makes sense when you consider the reason Amazon wants physical stores, tons of warehouses, and shipping infrastucture is so they can capture more share of the wallet from both buyers and sellers. The report also includes this gem:

If the logistics business takes hold, financial services could follow, with Amazon giving loans to merchants, processing international payments and consulting its network of sellers on customs and tax matters.

Financial services, in the form of lending to the global commerce economy, is going to be a huge business. As with any new industry, owning the canals, tracks, roads, pipes, all the infrastructure, is always the place to bet big. As the world moves away from retail to online commerce, Amazon is making moves to own as many parts of the infrastructure for the new world as possible.

Unpacked: The Silent Smartphone

I recently completed an in-depth study on the wearable technology market. As I dug into some of the key features as to why people bought or found usage value in their smartwatch or fitness tracker, the products with notification capabilities had this feature ranked high. As I thought more about this, I was struck by an observation.

If you recall in the early stages of the smartphone growth cycle, it was not uncommon to hear ringtones when you were out and about in public spaces. Most people had the same ringtone, which provided amusing scenarios where everyone reached for their smartphone. Today however, I can’t remember the last time I heard a ringtone in public. So I decided to test my theory through my broad consumer research panel.

I asked consumers how often their phone is on silent:

– 40% of smartphone owners said their smartphone is on silent ALL the time
– 29% said most of the day
– 18% said several times a week
– 11% said rarely
– 2% said never

This got me thinking. Many consumers have a product that provides simple notifications to the wrist. This feature may be more valuable and valued than they thought because so many people keep their phone on silent most of the time. Therefore, the value of the notification is enhanced due to the fact they often miss notifications because their phone buzzes instead of rings.

I’ve been adamant that, as of now, our market data suggest notifications are the killer app for wearables. This certainly will likely evolve. However, the silent phone dynamic being a reality in the mass market makes this single feature a bit more interesting to think through.

Microsoft’s Fight for the Consumer, Google’s Mobile Search Shift, Amazon Retail

Microsoft’s Fight for the Consumer

Related to Microsoft’s earnings, I’m going to focus on one segment of earnings I will be keeping a close eye on in the next few years. It is this chart:

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Why you ask? Because Microsoft’s Surface strategy is the frontline of their battle to not lose the consumer. No one doubts, at this juncture, Microsoft will lose the business customer. The question I’ve struggled with for the better part of five years is, will Microsoft lose the consumer? If Microsoft completely loses the consumer market, the shape of their company is very different.

Windows 10 is a dramatic improvement over Windows 8 and a decent improvement over Windows 7. By the end of this year, Windows 10 will likely be running on 500-600m PCs (possibly more but that’s my estimate for now). In the consumer PC segment, while shrinking, Microsoft still has a play with Windows. PC OEM hardware is another matter entirely. And I feel Microsoft’s first-party hardware is central to them putting up a fight for the consumer against Apple.

We ran research at the end of 2015 looking at brands consumers were considering purchasing over the next year when they upgrade their PCs. Of those consumers who said they do intend to shop for a new PC, Microsoft ranked #3, just barely after Dell and above Lenovo in US and European consumers’ consideration. Microsoft’s rise, as they barely ranked in consideration over a year ago, was a bit surprising. But, given their ~billion dollar spend on marketing the Surface, it makes sense they are grabbing consumer mindshare and now I can quantify it is paying off.

Don’t let their 1.4-1.6m sales in Q4 2015 of Surface fool you. From what we hear from enterprise accounts (around CYOD) as well as retailer interest in Surface, I can see Surface breaking new sales highs in 2016. Their first party hardware has become quite competitive with consumer appeal. So watching this revenue line will be most interesting to me. Microsoft makes their Band and Xbox as well as first party consumer hardware plays and, as they battle to not lose the consumer, I expect them to make more consumer hardware in the coming years. This could become a key part of their larger narrative.

Google’s Mobile Search Shift

Alphabet has proven that, like Facebook, they too can successfully shift to mobile. As more and more internet searches move from desktop to mobile, several points show Google is potentially gaining momentum.

Google websites’ (google.com search and affiliates) revenue had its fastest growth since 4Q of 2011 at ~27%. Much of this is estimated to be due to mobile search revenue growth. Overall, Alphabet showed the best QoQ revenue growth since 2006.

With what we witnessed from both Alphabet and Facebook, advertisers have gotten the mobile memo. Both companies are likely in for a decent run as offline advertising starts to accelerate its shift to mobile in full force.

Google is also still ripe to monetize YouTube even though I’ve presented data that their most valuable millennial demographic uses an ad-blocker to block YouTube ads. There is still upside in monetizing it. Both Facebook and Google are best positioned in this full shift to mobile advertising and while there is plenty to go around, I expect them to battle fiercely for advertiser wallets.

Amazon’s Retail Focus

Amazon has a not so secret retail ambition. Whether Amazon is simply intuitively recognizing humans still like to touch and feel things before buying, especially higher ticket items of a more personal nature, I recently discovered something which causes this move to make sense.

I recently did a project for a larger consumer electronics company who depends heavily on US retail. While the focus of this research project was not how people research and come to conclusions around the buying process online, I snuck in a question about it. What I quantified was a stat I already knew. 80% of consumers research online before they buy. The nuance of the next question I added brought deeper clarity. I then asked consumers whether their mind was made up solely by the research they did online or if they went in to a store educated but waiting to make up their mind on their final decision. Surprisingly, only 31% of consumers said they walked into a retail store with a definitive decision in mind for their tech-related purchase. The rest were still ready to be swayed or were looking at several products at one time, and were going to make the final decision in store. Alternately, they could showroom and go back online and buy it once seeing it in store. Bottom line, the retail presence still has value in the decision-making process.

Here lies Amazon’s strategy. The book angle is just the start or a cover to a larger, new type of retail experience that focuses more on showcasing technology than pushing sales of technology at the retail endpoint.

Despite the significant number of research notes on US retail companies I read stating this move is confirmation to be bullish for other retailers, I think US tech retailers like Best Buy are totally screwed. They are simply not set up for this shift. Ultimately, I believe Amazon’s approach is viable but also that we may see new breeds of retailers start popping up with similar showcase strategies. Or we simply will see more dedicated brand stores. Either way, I’m not optimistic those who started with physical retail can transition well to omnichannel when their approach is more heavily dependent on physical sales.

With US consumer tech retail being off a billion dollars YoY, this is just the start of a larger trend and much pain is coming to US tech retail.

Earnings Insights and Key Charts: Facebook, Amazon, Samsung

Facebook Earnings Takeaways

While there are some key reasons to be cautious about Facebook (namely teens in the US are slowly beginning to disengage), Facebook’s earnings showed they are growing in many key areas where investors want to see them grow. This chart in particular is the first I look at each quarter when Facebook releases earnings.

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This chart is telling because it has typically shown Facebook’s challenge to monetize the rest of the world. The big concern for Facebook was they could not grow revenues outside of the West. Clearly, Western markets are extremely valuable. However, you can only extract so much value that leads to growth from one market. Facebook needs show they can grow in other markets as well. While all of Facebook’s other markets are nowhere near the revenue of the US, the key point is they are growing.

In Friday’s Unpacked, I shared some data specific to Facebook’s advertising upside. The question of capturing a greater spend of advertising budgets was brought up frequently on Facebook’s earnings call as analysts were trying to understand the nature of their conversations with advertisers. Facebook’s management reinforced that advertisers were very happy with the return on their investment spends with Facebook, claiming quality of ads had much to do with it. With Instagram poised to capture more of an advertising share of the wallet as well as Facebook at large, it seems investors see the key challenges facing Facebook as being overcome. If they continue to show growth, not just in US which seems likely, but in rest of the world by increasing ARPU in other regions on a quarter-over-quarter basis, I expect their stock to continue to rise.

Amazon

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By most accounts, Amazon had a great quarter. Yet, their performance fell short of expectations in a few areas. Some underlying numbers may be what is causing some pause with investors.

Amazon is poised to continue to dominate the US retail to e-commerce shift. This is likely a winner take all, or at least most, scenario and Amazon is that winner. As I dug through some of the numbers and several hedge fund research notes, an interesting bit of information surfaced related to Amazon’s fulfillment costs. This is one key point listed as to why Amazon didn’t beat consensus estimates. Amazon’s fulfillment costs rose in Q4 2015 after four straight quarters of decline. In short, their factories were at max or demand exceeded capacity — causing them to run less efficiently (slower shipping, packaging errors, more overtime hours, etc.) to meet shipping deadlines and demand. As one financial analyst pointed out in their research note, “We think Amazon’s 4Q15 demand was even greater than it estimated.”

While this is a reason to be bullish, it means Amazon needs to invest more of their profit into more fulfillment centers. Analysts are forecasting Amazon’s fulfillment costs to be higher in 2016 and 2017 as they invest to meet demand. This is another area where Amazon’s investment in additional delivery fleets come in. While many speculated Amazon would invest and build shipping fleets to eventually replace their partners like UPS, USPS, and FedEx, they seemed to calm investor concerns around that point by stating their fleet investment is designed to help meet demand, not replace existing partners.

Long term, Amazon needs to make strides in India. If their dominant market and growth story depends on the US, they will only grow to a point. Amazon is still a distant third to Snapdeal and Flipkart in India, but India remains a market where e-commerce is poised to grow in dollar value. This will remain an important part of the Amazon story to watch.

Samsung

Similar to Facebook, I have a specific chart I look at for Samsung. Here it is, as charted by Jan Dawson:

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Readers will know I am not optimistic of Samsung’s mobile/smartphone side of the business. Their blended ASP was about $180. That’s ASP of smartphones and feature phone sales which totaled about 97m units combined for the quarter. Their feature phone sales declined ~15m units and smartphone shipments were around ~82m. With smartphone shipments up and feature phone sales down, the flat YoY blended ASP of $185 is not a good sign for the unit. Smartphone ASPs were then ~$225 range which was lower than last year’s Q4 by my estimates. Their tablet ASP was also around $180 even as shipments rose 1m units to 9m for the quarter. This tells us one singular story: Samsung sells a lot of low-end phones and low-end tablets. Competing in the low-end is not sustainable and they will lose this battle to the Chinese.

What is perhaps of more concern is the components division struggles. However, realizing most their components and margin are geared to sell to high-end manufacturers and the high-end is becoming mostly saturated and seeing slower growth, this is not terribly surprising. Which means these groups will likely continue to struggle. The semiconductor side of the business is where a lot of their upside is, in my opinion. However, with Apple rumored to go back to TSMC for 100% of the iPhone 7 business and Samsung’s mobile unit rumored to go back to Qualcomm in more of their mid-high end devices, it seems the outlook for components is not rosy.

Their consumer electronics division fared well, but this was on the back of higher margin 4K TV sets being up YoY at retail, mostly US retail.

2016 is likely to be a very tough year for Samsung all around.