Author: Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

The Unsung Hero in Apple’s Strategy

TL;DR version: It’s their A-series processors. However, I’ll lay out many of the reasons why this single component may be the source of Apple’s most significant competitive advantage.

In 2008, The year Apple bought P.A. Semiconductor, I was working with a company specializing in semiconductor industry IP licensing. The CEO became a good friend and he was a long-time exec in Motorola’s chipset business back in the day. Suffice to say, our meeting shortly after the news dropped was an interesting one. One of the key parts of this discussion was centered around how the strategy by semiconductor companies is to differentiate their chips by their designs. Meaning, how they put together the entire solution either onto a single chip or with many chips (co-processors) working together. Each vendor selling chips to others, generally, had a custom design and solution. What the smart semiconductor insiders knew with this acquisition of P.A Semiconductor was Apple was going to start designing their own chips. However, unlike others in the competitive chipset design business (Intel, Qualcomm, Nvidia, Broadcom, and a few others), Apple would not be designing these chips to sell to others but exclusively for their own devices and operating systems.

As I’ve studied the semiconductor industry for over 15 years now and the nuances between each chipset designer are fascinating. The way each one designs their chips to solve market problems and compete against other vendors is unique and creative. But all of these vendors have to design into their SoC or entire chipset solution the broadest of solutions in order to capture as many different parts of the market as possible. So a vendor like Qualcomm will design their architecture and then tailor it for different parts of the market. The initial design is broad, yet its applications can be made more specific. The same is true with Intel. They must cover the broad market with their solutions. Apple, on the other hand, does not, meaning every bit of their engineering resources, architecture designs, and nuances in optimization have a single purpose — to make iOS the most sophisticated, capable, and powerful mobile operating system on the market. Apple has been acquiring some of the best chipset designers in the world and they are tasked with making the most powerful and battery-efficient designs in the industry. These designs are exclusive to iOS while, at the same time, being competitive with the broader market chipset vendors as well. Without being a semiconductor industry insider, it is hard to internalize just how big of a deal the A-series processor design is in the grand scheme of things.

Prior to designing their own chips, Apple’s vertical hardware and software intergration stood apart because they could tune the software to the hardware, which contained many parts of the puzzle they did not own, and make specific software optomizations to accompany that hardware. This has only extended to a much deeper level now that they can tune/design the CPU/GPU and many other parts, like display drivers, motion processors, image sensors, and a host of other critical things, into the design and optimizations of other hardware and, most importantly, the software.

The results of Apple owning so many of the key components is not just the visual performance in terms of speed or graphics, but how fast Touch ID is, for example. Or their superior protection by being able to do hardware level security integrated into the chipset via the secure enclave, and locking in safeguards at the SoC level. So overall superior performance, security, and new software capabilities like 3D touch, are just a few of the things Apple can do to integrate and differentiate on their platforms. There are more to list and more will come, but there are two key points I’d like to draw out.

Other companies will be very slow to catch up. No vendor has quite nailed Touch ID the same way Apple has in terms of reliability and accuracy. The new Samsung devices I’ve tried are close, but experts have told me there are security concerns. They got one part close but not the other key ingredient. The real observation to be made here is what Apple has done to the premium hardware sector in smartphones, PCs, tablets, etc., in that it is mostly non-existent. In nearly every computing category Apple competes in — tablets, PCs, and smartphones — they own between 75% and 90% of the premium category. The impact of this reality is other vendors who compete in these spaces will find it more difficult to justify investments in leading edge components (even if they exist) because they won’t sell enough in volume. Samsung as an example, will lead in things like curved glass or other features which they own the supply chain for, but their ROI on those components won’t come from their handset business but from other companies. They key question here is, are there other customers for high end components other than Apple? If there are not, then even Samsung’s latest will be delayed due to lack of customers willing to pay premiums for curved glass or other things they focus on. And with the coming near-impossibility to sell an Android handset for more than $500, I do not forsee any other hardware vendors out there able to buy premium components en mass and commercialize them at the high-end where they must be due to their price.

Apple Suppler Leverage. Once Apple becomes the main customer for all high-end innovations, they acquire the upper hand in supplier and supply chain negotiations. Take this latest move to dual-source the A9 from Samsung and TSMC. Samsung is on 14nm and TSMC was on 16nm. Samsung had the capacity to make all of Apple’s chips but Apple chose to dual-source to not only keep their suppliers honest, but to give business to TSMC so they can use the money to invest in their next process node at 10nm. TSMC has prioritized Apple to the point of aggravating other very well known semiconductor companies, causing delays for others to get their latest chips to market. Should TSMC make the jump to 10nm and the process is mature, Apple would be the only customer for it, as they are the only ones who can afford to pay the premium. This gives Apple a great deal of leverage. This is just one example of many I hear from my contacts in the supply chain where Apple has the upper hand.

When I put all this together, what stands out to me is, in this race, Apple is sprinting and everyone else is walking. Others in the market may get there but Apple will get there first. The markets they compete in really are theirs to lose and owning all the key parts of the hardware and software and increasingly, services chain, means it’s hard to see how they lose it any time soon.

Musing on the On Demand Economy

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Living here in Silicon Valley and working with as many venture capitalists as I do, I can’t escape discussions of “The On Demand Economy”. If you aren’t familiar with this, it is an investment thesis of many investors and includes companies like Uber, Shyp, Luxe, Instacart, and many more. The premise of these companies and this investment thesis is, “anything on demand”. With a request from a mobile device, you can have almost any product or service delivered to you, any time, anywhere. Basically, pizza delivery service for practically anything.

In case you haven’t been following this space closely, the trend started in China with what the locals call O2O or online to offline. It is by far the biggest mobile internet trend in China. You can request to have food, a car wash, a massage, your house cleaned, a vast array of gadgets and household items, fresh groceries, practically anything. The kicker and the key to know about this trend in China is the speed of O2O services. In nearly every case, you can have said goods or services delivered within an hour and often times within 30 minutes.

This Wall St. Journal article tells the tale of Car8, an on-demand car wash service, which ran out of cash. This is not the first tale of such a failure and it won’t be the last from China, the US or abroad. At a fundamental level, the business model requirement for many of these companies is scale. Many companies are operating at razor-thin margins, even at a loss, in order to make up for the low profits or negative customer acquisition cost in scale. These startups pour in millions of dollars to acquire customers, make nearly nothing on them but hope they get enough of them to grow and be profitable some day. Sounds familiar to an era past and lessons learned. But there are several interesting points and observations to make when thinking about this incredibly hot category.

First, US-based on demand services lack two critical things which make many of these O2O services in China successful. They lack scale and they lack low wage workers. The reason these services have a chance in China is because, in a city like Beijing, there are over 19 million people living in relatively close proximity. In Shanghai, there are over 22 million people. Several large tier 1 (meaning more developed and wealthier) cities have populations between 8-11 million people. China has an estimated 700+ million people in cities. Many of them living in developed cities and are considered part of the rising middle class, with higher disposable income. Contrast this with the United States where only 10 cities have populations of over 1 million people. Number one is New York with over 8 million, Los Angeles with over 3 million, and Chicago with just short of 3 million people. I make these points because on demand startups like the ones I mentioned will require scale of close proximity urban living and this is something China has at much greater numbers than the US.

Secondly, China has low wage workers. This is probably the most salient point about the contrast of the two on demand economy markets. In China, you can not only have goods or services delivered in an hour or less but at costs only slightly above what it would be for you to go out and acquire the goods or services on your own. The economics work for not just the wealthy. Contrast this with the US where I know of a CEO of a large startup in San Francisco who pays $25 for a burrito once a week to have it delivered to his office from his favorite burrito joint. He could have walked down the street and paid $8 but instead wanted to stay in his office and work.

Another example I’m fond of is Luxe. Mostly because I use this service all the time when I go to San Francisco. Luxe is a company where, with the touch of a button, I set my location and someone will come to me and park my car. Luxe’s average hourly rate is $5 which by contrast, parking in most places in San Francisco is $2-3 dollars every 15 min. Luxe is a great deal and very convenient. The secret is they are parking the car in the same lot where I would have to pay much higher fees than $5 an hour. While it is likely Luxe has struck a deal with some parking lot establishments, it is the low-working wage part that has me worried about their model. Luxe’s Valets ride around on skateboards or scooters and most of whom I encountered look like college kids. They are likely making a decent enough wage but none of these kids are going to be full-time valets as a career. So churn will be high and the economics of cost between parking, wages, and other logistics means Luxe likely has barely any to negative margins. Scale is their answer. Yet knowing there is a much lower total addressable market in the entire US than China, the question is what number do they need to hit to be profitable and how big is the ceiling? Now parking may not be Luxe’s only model. They can offer to have your car washed, serviced, and maybe have the driver run errands for you. The bottom line is the dynamics many on demand startups are using in the US is totally different than China and thus will operate differently. The lack of low-wage workers in cities where these startups need scale is a huge challenge.

The China angle is important because, even with the scale of many hundreds of millions of potential customers and low-wage workers, these O2O startups are already struggling. I’ve spoken with many who describe the startup scene in China to me and I observe a great many patterns happening which bear similarities to the dotcom bubble in the late 90s in the US. While I know many investors have learned from the first dotcom era, it is all new to China and will likely see many public crash and burns. Investors in the US are already guiding these startups to have more sustainable business models. But we will also see many case studies of on demand startups where failure is an important lesson.

Lastly about Uber. Uber seems to be one of the companies many investors don’t seem to criticize too heavily when they are sending warning signs to the on demand economy. Part of this is because many are investors in Uber but also because Uber seems like they can get global scale and don’t necessarily depend on low wage workers. While I’m not saying Uber is immune to dynamics impacting many other startups in the on demand economy, they seem to be more sheltered from them. They are absolutely burning cash and their customer acquisition cost is high, but their business model scales quite well. As I pointed out here, being a taxi service is not their only way to employ people who are happy to drive around all day for a job.

The On Demand Economy Challenge in the US and Abroad

Living here in Silicon Valley and working with as many venture capitalists as I do, I can’t escape discussions of “The On Demand Economy”. If you aren’t familiar with this, it is an investment thesis of many investors and includes companies like Uber, Shyp, Luxe, Instacart, and many more. The premise of these companies and this investment thesis is, “anything on demand”. With a request from a mobile device, you can have almost any product or service delivered to you, any time, anywhere. Basically, pizza delivery service for practically anything.

In case you haven’t been following this space closely, the trend started in China with what the locals call O2O or online to offline. It is by far the biggest mobile internet trend in China. You can request to have food, a car wash, a massage, your house cleaned, a vast array of gadgets and household items, fresh groceries, practically anything. The kicker and the key to know about this trend in China is the speed of O2O services. In nearly every case, you can have said goods or services delivered within an hour and often times within 30 minutes.

This Wall St. Journal article tells the tale of Car8, an on-demand car wash service, which ran out of cash. This is not the first tale of such a failure and it won’t be the last from China, the US or abroad. At a fundamental level, the business model requirement for many of these companies is scale. Many companies are operating at razor-thin margins, even at a loss, in order to make up for the low profits or negative customer acquisition cost in scale. These startups pour in millions of dollars to acquire customers, make nearly nothing on them but hope they get enough of them to grow and be profitable some day. Sounds familiar to an era past and lessons learned. But there are several interesting points and observations to make when thinking about this incredibly hot category.

First, US-based on demand services lack two critical things which make many of these O2O services in China successful. They lack scale and they lack low wage workers. The reason these services have a chance in China is because, in a city like Beijing, there are over 19 million people living in relatively close proximity. In Shanghai, there are over 22 million people. Several large tier 1 (meaning more developed and wealthier) cities have populations between 8-11 million people. China has an estimated 700+ million people in cities. Many of them living in developed cities and are considered part of the rising middle class, with higher disposable income. Contrast this with the United States where only 10 cities have populations of over 1 million people. Number one is New York with over 8 million, Los Angeles with over 3 million, and Chicago with just short of 3 million people. I make these points because on demand startups like the ones I mentioned will require scale of close proximity urban living and this is something China has at much greater numbers than the US.

Secondly, China has low wage workers. This is probably the most salient point about the contrast of the two on demand economy markets. In China, you can not only have goods or services delivered in an hour or less but at costs only slightly above what it would be for you to go out and acquire the goods or services on your own. The economics work for not just the wealthy. Contrast this with the US where I know of a CEO of a large startup in San Francisco who pays $25 for a burrito once a week to have it delivered to his office from his favorite burrito joint. He could have walked down the street and paid $8 but instead wanted to stay in his office and work.

Another example I’m fond of is Luxe. Mostly because I use this service all the time when I go to San Francisco. Luxe is a company where, with the touch of a button, I set my location and someone will come to me and park my car. Luxe’s average hourly rate is $5 which by contrast, parking in most places in San Francisco is $2-3 dollars every 15 min. Luxe is a great deal and very convenient. The secret is they are parking the car in the same lot where I would have to pay much higher fees than $5 an hour. While it is likely Luxe has struck a deal with some parking lot establishments, it is the low-working wage part that has me worried about their model. Luxe’s Valets ride around on skateboards or scooters and most of whom I encountered look like college kids. They are likely making a decent enough wage but none of these kids are going to be full-time valets as a career. So churn will be high and the economics of cost between parking, wages, and other logistics means Luxe likely has barely any to negative margins. Scale is their answer. Yet knowing there is a much lower total addressable market in the entire US than China, the question is what number do they need to hit to be profitable and how big is the ceiling? Now parking may not be Luxe’s only model. They can offer to have your car washed, serviced, and maybe have the driver run errands for you. The bottom line is the dynamics many on demand startups are using in the US is totally different than China and thus will operate differently.

The China angle is important because, even with the scale of many hundreds of millions of potential customers and low-wage workers, these O2O startups are already struggling. I’ve spoken with many who describe the startup scene in China to me and I observe a great many patterns happening which bear similarities to the dotcom bubble in the late 90s in the US. While I know many investors have learned from the first dotcom era, it is all new to China and will likely see many public crash and burns. Investors in the US are already guiding these startups to have more sustainable business models. But we will also see many case studies of on demand startups where failure is an important lesson.

Lastly about Uber. Uber seems to be one of the companies many investors don’t seem to criticize too heavily when they are sending warning signs to the on demand economy. Part of this is because many are investors in Uber but also because Uber seems like they can get global scale and don’t necessarily depend on low wage workers. While I’m not saying Uber is immune to dynamics impacting many other startups in the on demand economy, they seem to be more sheltered from them. They are absolutely burning cash and their customer acquisition cost is high, but their business model scales quite well. As I pointed out here, being a taxi service is not their only way to employ people who are happy to drive around all day for a job.

Three Charts on the Supremacy of Mobile

There has been a certain arc to many of my recent columns regarding the schism between desktop and mobile operating systems. For what it’s worth, there is simply a feeling I’ve been having about mobile operating systems the more I think about what is happening globally at a platform level. I want to share three charts I feel signal the direction we are heading.

Screen Shot 2015-10-02 at 4.27.22 PM

This chart tells the history of where we are up to the end of Q2 2015 when it comes to operating system shipments. The percentage represents the share of a particular operating system as a percentage of all smartphones, tablets, and PCs shipped that year running a particular OS. I have grouped together Windows and Windows Phone, simply because Windows Phone alone would not have been worth charting. Also, it makes a specific point about Microsoft. I did not group Mac OS X into Apple’s share to make the point that iOS, by itself, has surpassed the number of devices it is shipped on — thus far in 2015, more than all of Microsoft’s operating systems combined. As you can see from the chart, this is the first time in decades an Apple operating system has been shipped on more devices than a Microsoft operating system. Due to the degree of negativity in the PC market in 2015, this is likely to be the case through the end of the year and I don’t see it changing from here on out.

Screen Shot 2015-10-02 at 2.07.33 PM

This chart makes for good controversy. I have lumped together the annual sales of PCs, smartphones, and tablets by vendor. As you can see from the chart, those who make smartphones are on a very different trajectory when it comes to the shipments of personal computers than those who make PCs only. Looking at the trajectory is a key part of this chart.

SPvsPC

Lastly, time spent, on average, on PCs and smartphones by region. I have this data from our research broken out by specific country. There is no country where PC usage is on the rise. It is flat, at best, in certain markets and declining in all others. The overwhelming majority of devices being shipped and humans using a smartphone as their only or primary computer is what is affecting the directionality of this chart but it is a key data point to internalize none the less.

The times have changed. Microsoft won the battle for the desk, Apple won the battle for the pocket. While Google’s Android has the market share, it is actually unclear what Google has won yet from Android, other than preventing Microsoft from being relevant in mobile.

This story is not over. The ultimate winners from Android may not be Google, in the same way Microsoft winning the desk empowered companies like Dell, HP, and Lenovo to win the desk as well. Yet it’s clear the battle for the pocket is the most important one for the next decade. It is a market big enough to sustain many winners but, outside of Apple, it is still unclear what winning looks like in Android. I expect in 2-3 years we may have a better idea, but certainly it will look different than what winning for Apple looks like.

These last few years will go down as the inflection point for the mobile computing era.

The Death of Advertising and the Future of Advertising

The debate happening regarding ad blocking both at a desktop and mobile web browser level has been an important one with respect to the future of internet publishing. In reality, while the number of internet users who use an ad blocker will be relatively small, the debate signals a much larger dissatisfaction with the user experience people are confronted with when ads are intrusive, annoying, and offer little to no value. It is this fundamental point which will have to undergo a change if publishers want to add more value to their users, or risk the potential growth of ad blockers into more of the mainstream.

While I make the point the volume of people who will install an ad blocker is likely relatively low, you can argue those who will install one are actually a more desirable audience. For one, our research indicates the extremely valuable 18-35 yr old demographic ranks highest in our surveys of those who use an ad blocker. In the US particularly, 4 in 10 millennials admit to blocking internet advertising. Anyone in marketing will tell you this age bracket is highly sought after by marketers. In follow-up interviews I’ve had with this demographic, one of the driving motivations for use of an ad blocker is so they can block ads on YouTube. Watching videos on YouTube is a hefty part of millennials’ weekly activity and many indicated to me their desire to skip ads and get right to the video was centered on their feeling ads were a waste of time. They were going to YouTube to see a short video and did not feel a 5 or 15-second ad before a video was an efficient use of their time. I also asked millennials how they found out they could block ads on the web and the most common answer was from a friend. It seems ad blockers are going viral with many US millennials and it is unlikely this trend loses steam any time soon.

The other relevant point is it seems the heaviest consumers of news and the internet in general are losing patience with web ads. This again is an audience, due to the amount of time spent on the internet reading news, looking at reviews, and generally spending a great deal of time on the web, that are quite valuable to advertisers. This group seems to be increasingly vocal about their disdain for the negative impact and overall speed decline of many websites due to obtrusive advertising. The challenge for advertisers is not that the vast majority of internet users will use ad blockers. It is that their most valuable online audiences appear to be trending in that direction.

It seems inevitable at this point something needs to change. This hostility toward advertising by online audiences valuable to marketers has been a long time coming. Many research studies concluded many years ago that internet users were quickly conditioned to ignore ads that resided on the top or side of a website. Publishers and advertisers responded by adding ads to the middle of content or by having an add pop-up or take over a screen — intentionally disrupting the reader’s ability to consume the content. What we have learned is, while many consumers will tolerate this experience, the most valuable ones to advertisers will not. In either case, the advertiser loses.

Is Native Ads or Sponsored Content the Answer?

If we acknowledge the nature of ads on websites need to change, the question will then be how. The most common answer is native advertising or sponsored content. Native advertising is when an ad becomes embedded into the content itself. For example, a Buzzfeed article called “15 things 1980’s College Students Did that Would Baffle Kids Today” is an example of a native ad. The article is entertaining, relatable, and very similar to something you would see on Buzzfeed. It just happens to be posted by Intel who is, in this case, a brand publisher at Buzzfeed. At the end of the listicle (list article) is a short promotion from Intel about Intel products. Nothing obvious yet a subtle reminder of Intel and the products they make. Intel has associated themselves with a technology-related article. This type of native advertising works extremely well.

If you listen to talk radio, or any number of podcasts, you’ll often hear the show hosts read an advertisement, often sharing firsthand experience with the product — close to being an endorsement. This is another example of native advertising that works in an audio and video medium much more effectively than typical ad rolls or commercials.

Another example of native advertising is the creative way many television shows are working ads into their shows. This is going far beyond product placement. An example I think works well is in a favorite show of mine called Treehouse Masters. This show is about a guy who runs a custom treehouse-making business. The show chronicles treehouses he makes for clients. Because it caters to do-it-yourselfers, there are a number of practical and quality native ads embedded. One may be a particular type of wood or decking he uses and he explains the benefits of the products. Another example is when he does a particular fix of a roof and explains how making practical fixes to common roofing issues can help your roof last longer and limit the need to use your insurance. In this spot, someone from Allstate or Farmers Insurance may actually show up and help make the point about good practices in keeping insurance costs down.

In all these examples, the native ad is directly related to the content, is promoting a quality product (thus making endorsing it easier), and is clearly relevant to the type of audience the content attracted.

What TV, radio, and even a site like Buzzfeed do well is understand their audience. They have a pretty good idea of their demographic. Publishers who have good demographic data stand a better chance of getting high quality advertisers promoting high quality products. What native ads do is allow the marketing material to flow into the content in a relatable way. When I see native ads done right, I can see the benefits of the product and how I can or should use it.

There is a transition taking place. The current state of online ads is not sustainable for many publishers. Creativity is how the industry will pull through this. Not by interrupting reader’s online experience with generally useless ads. The first step is for the online ad networks and publishers selling ads to realize there is a problem. At the very least, the focus being given to ad blocking will help draw attention to the problem so we can all work on fixing it.

Google’s Continued Onslaught of Microsoft with Pixel C

I’d like to dive in a little deeper on Tim’s article of earlier today and address a few points. Over the past few months, we have been having some heart to heart conversations with those in the PC ecosystem — Dell, HP, Lenovo, Intel, Microsoft and so on. The meat of these conversations is what I wrote about a few weeks ago regarding the split in computing operating systems between consumer OS’ and commercial OS’. Suffice it to say, this was a hot and somewhat controversial topic.

While Tim and I had no idea Google was making the Pixel C, we referenced the one made by Jide as an interesting example. My premise is simple. But let me share some statistics first.

There are now globally almost 3 billion active computers in use running a mobile operating system. Contrast with the fact that there are roughly 1.3-1.5 billion devices running a desktop OS in use. Narrow in on the desktop OS number and we observe about 800-900 million are used by pure consumer markets, in a home or a purely personal environment. The rest are used commercially for “work” in a work setting. We note the market for desktop operating systems is not growing and is, in fact, contracting.

What is key is a healthy percentage of those 800-900 million consumer PCs in use are not used every day. It is not a stretch to conclude the desktop operating system in pure consumer environments is not utilized nearly as much as desktop operating systems in enterprise/commercial environments.

I make these points simply to articulate how the desktop OS plays different functions in pure consumer and commercial settings. Within that context, it should come as no surprise when I say the smartphone is the primary computer for several billion people. More time is spent globally per day computing on a mobile operating system than a desktop one and this imbalance will only skew more in favor of mobile operating systems.

This is where I think Google believes the Pixel C is skating to where the puck is going. The Pixel C, like the iPad and iPad Pro, is not directly targeting becoming a desktop OS replacement. The “PC” as a truck and the desktop OS as its engine metaphor holds up. Both these moves by Apple and Google are simply a recognition that the market for desktop operating systems is simply much smaller than the market for mobile operating systems by a factor of 3-4x. They seem to have also concluded a mobile OS can play a role in the broader computing landscape than simply on screens 4-6″ large. I believe they are right.

For nearly two billion people who use a smartphone as their only computer, and many of them Android as their only operating system from a literacy perspective, should they ever want a product that gives them more machine than what they have in their smartphones, are they going to buy a Windows PC? Will they learn a completely foreign OS where many of their apps will likely not exist? My gut tells me that, for many of these consumers who on-boarded to the internet with Android, they would be more willing to stick with Android when it came time to get more machine if they ever need it.

The software angle here is notable as well. All of the exciting global software plays are happening on mobile operating systems, not desktop ones. If you follow the software that gets consumers excited, makes developers money, and marches computing forward, it is all happening on mobile. So are those developers all of a sudden going to start paying attention to desktop operating systems? I think both Google and Apple are betting they don’t. Both these companies are betting on their mobile developer ecosystem to embrace larger screen computing form factors.

This discussion is around the 2-and-1 PC form factor but, in the case of Android, you could even make a case it could work on a notebook or even a desktop form factor. The momentum of software consumers are getting excited about is mobile and, if there is upside at all for larger screen computers, I feel it will be on the back of mobile operating systems, not desktop ones.

You will be tempted to argue with me and say things like, “You can’t do real work on a mobile device or operating system”. However, this statement is not true and has a very limited view of what work is. Microsoft has embraced that even something like spreadsheets and word processing could and should be done on mobile devices by taking Office to mobile operating systems. Slack and Quip are two prime examples of work getting done on mobile. With the cloud, we can now manage our photos, music, and media all on mobile. I can edit two simultaneous 4k video streams on my iPhone — I can’t do that on several older PCs I have. The world skews mobile and, if it can be done on a mobile device, it will be done on a mobile device/operating system.

Google and Apple seem to believe, just about everything can be done with a mobile operating system.

The Curated Web

There is a great deal of discussion about “The Open Web”, the one that takes place, generally, in a browser and where access to all information is approximately equal, vs the closed web, which takes place generally in apps. Adding to this discussion is how people consume their news increasingly on Facebook, giving them the ability to curate their information to their interest and “likes”.

I’ve noted a number of debates on this subject to assess the potential societal impact of many people’s experience with the internet being more curated or controlled by outside sources. One point I hear often is how most people don’t know any better. In fact, they like their content curated beause it’s easier to digest. Newspapers, historically, were somewhat of a signpost here as they had a slant that appealed to certain people. News channels are similar, with Fox News being a prime example, of news with an angle or a bias. It is designed to cater to specific types of people. For many consumers, it is simply easier to digest information aligned to your interests, beliefs, philosophies, etc. Note, I’m not insinuating this is all people but, generally speaking, there are large numbers who like their content a specific way.

We can argue the role Facebook plays in this but a research project revealed an interesting statistic when it comes to young people and their news consumption on Facebook. This was how I framed the data point:

Facebook has become a nearly ubiquitous part of Digital Millennial Life. On 24 separate news and information topics probed, Facebook was the No. 1 gateway to learn about 13 of those and the second-most cited gateway for seven others.

Facebook is not the only social network Millennials use for news. On average, those surveyed get news from more than three social media platforms — including YouTube (83%), Twitter (65%), and Instagram (50%)

Increasingly, Facebook is becoming a primary source for millennials to hear about the news. They then talk and engage within their community. Any general look at your Facebook feed would reveal this is likely true with many demographics, not just millennials.

The Web Got Too Big

As I step back and think about where this might go, it’s worth observing that, perhaps, people are not just trying to curate or close themselves off to the bigger web intentionally. Perhaps the web just got too big. During the course of discovery, there became simply too much choice.

A highly recommended read is a book called the Paradox of Choice by Barry Schwartz. In this book, the author outlines how too much choice can often leave people incapacitated to make a decision. The volume of choice is simply so overwhelming the act of decision making itself begins to feel like a burden. Sometimes, limited options are actually easier for people to comprehend and make a decision.

Often I feel this burden when searching the web. While the breadth and depth of choice offers the widest array of options, the act of narrowing the decision can feel exhausting or lead to deeper rabbit holes that feel like a waste of time. If you search a news story or recipe or any subject, Google presents you with so many options that deciding where to invest your time, on which story, on which site, etc., can feel burdensome. Much trial and error precedes the search.

So perhaps what people are saying with a more curated web experience is, either through social media or specific purpose apps, there is simply too much choice on the web and that discovery, along with the thrill of it, has become more of a chore than a delight.

This conversation, while interesting, is no more than a series of “what ifs”. But it is at times like these where thinking through some logical possible conclusions is helpful while looking forward into the future.

Learning New Things About Global Consumers

I’ve been explaining to a number of executives at large tech companies we work with that we may not know what we think we know about consumers in a global tech market. This seems like a surprising statement. Shouldn’t we know already what does and doesn’t work? The tech industry is already 30 years old after all. My response is to remind them that, while the tech industry is actually quite old, the consumer tech industry is quite young.

I touched on this subject here, where I wrote about the uncharted waters we are seeing in consumer markets. This market started, in my mind, in the late 2000s, when consumers who did not have desk jobs started buying PCs for truly personal use. This run of the PC in consumer markets peaked in 2010-2011 as pure (non-commercial) consumers started buying PCs for personal and home use.

Screen Shot 2015-08-07 at 5.22.04 PM

When viewed via this lens, the PC industry woes make a great deal of sense. Every PC company, Microsoft, Intel, and many in the analyst community viewed this as a run that would continue. The PC would keep on this path as billions of new consumers across the planet got their first desktop or notebook PC and started benefiting from its software ecosystem and the internet. Then the smartphone happened and the nearly one billion non-commercial consumers started doing what consumers do and held onto their PCs for very long periods of time. The growth was halted and shifted to smartphones.

Now the market which was supposed to be for PCs has gone to smartphones. Nearly a billion people around the world have a pocket computer as their only device to use software and internet services. This number grows by approximately 300-400 million every year. At some point, the smartphone installed base will reach about four billion and the PC’s base is likely to drop to around one billion if current trends hold.

The point in all of this is we are still learning new things about these billions of first-time computer owners but we are learning these new things in a mobile only context. We are learning these consumers develop behaviors we had not seen before. We are learning consumers in rural India operate differently than the ones in rural China. And that consumers in Indonesia are very different than consumers in many countries in Africa. We are genuinely learning new things about global consumers as it relates to their behaviors in tech. This is why I discourage many of our clients from thinking “we have tried this before and it didn’t work.” Maybe the market wasn’t ready before and it is now? The point about learning new things about consumer behaviors is directly related to the maturity of the market. For example, China only recently matured as a smartphone market (in the developed regions) and we are now seeing fascinating behavior like a sweeping shift from Android to iOS. This maturity on the part of the consumer has benefitted Apple in ways many did not predict. Similarly, the maturity of the smartphone market in China has rekindled some interest in the traditional PC form factor. Hence this interesting move by Xiaomi to start making notebooks.

The over-arching point is to emphasize we may not know what we think we know about global consumers. Keeping our eyes and minds open to new observations and learnings is central strategically as we think about where these markets go. In reality, the global consumer tech market is only 4-5 years old. Younger, if we are only looking at smartphones as the gateway to the broader consumer tech landscape. We still have growing pains, meaning lots of companies making mistakes in this market, to endure.

New iPhones, New Behaviors

I’ve spent a little more than a week with the new iPhones. My first impression was, “Apple was not kidding when they said the only thing that has changed is everything”. This is the first iPhone experience I’ve had in quite some time where I felt a leap forward in user experience. The kind where you realize your behavior has changed, in a positive way, and you wonder how you lived without some of these new features. I’ve always considered it a good sign when a new feature is added to a device that makes you like it so much you wish you’d had it for years. The new iPhones bring several of these experiences.

Making Moments out of Pictures

While not the first to market with this feature, Apple introduced a new way for how we think about photos on our iPhones. Note I said not how we take photos, although that is also true, but how we think about photos. Live Photos turns pictures into little moments. When I saw this feature demonstrated on stage, I knew it would show well but the question I had was, would it work well in reality and practice?

My first observation about Live Photos was that I liked them so much, I wish all the photos I’d taken this past year included this feature. While there is a slight learning curve, it’s one worth figuring out because the results are worth it. We used to take pictures by snapping the photo at the desired moment. With Live Photos, since it captures 1.5 seconds before the shot and 1.5 seconds after the shot, it is a good practice to leave the camera on the target for the additional 1.5 seconds after you take the picture. This seems odd but, as I said, the results are worth it. Luckily, Apple included a small icon on the top of the screen that says “LIVE” to let you know the Live Photo is still capturing. Once it disappears, you can then move the phone. As I said, it is a slight change to how we typically take photos.

This feature makes you think about how you take photos. Part of this has to do with thinking whether or not a certain picture is good for a live photo. For example, sports or action photography work really well. One thing I learned quickly was, since Live Photos are only 15 frames per second, any Live Photo that includes fast motion is not smooth and contains some jitter in the movement because of the missing frames. I did not find this to be a huge deal but was part of my learning curve as I considered all my options when taking a photograph. One of the most compelling use cases for Live Photos was for taking selfies, something most people do daily and younger people do dozens of times a day. Selfies are always odd kind of moments, especially when they include more than one person. Some of the best moments are as the group is getting organized or focused on trying to orient their “good side” for the photo. Having the entire moment captured in the still of the photograph is incredibly compelling and addicting once you try it. As I said, it is one of those features you wonder how you lived without for so long.

It will be interesting to see how companies like Facebook, Instagram, and others integrate support for Live Photos into their apps. The mere presence of Live Photos changes how you think about photos.

3D Touch – The Evolution of Touch Computing

There is a theme I’ve been noticing Apple user experiences have been leaning toward — eliminating friction. While Apple is not always successful across the board in their offerings here, it is hard to argue they are not better than most user experience companies most of the time. The Apple Watch in its entirety is exactly this in my opinion. The Apple Watch is a consistently valuable piece of my personal computing solution because it eliminates so much friction from my digital work and personal life. 3D Touch on the iPhone 6s and 6s Plus is an Apple innovation with an emphasis on friction removal. It is another feature you don’t know how you lived without it.

There are many great examples, but I will highlight a few. I do a lot of cooking in our household which means I search for a lot of recipes. I use the “peek” feature for links in Safari. I firmly press on the link and get a quick preview of the recipe. This allows me to get quick previews of these recipe links to see if it sounds interesting before pressing firmer and going right to the page. Now of course, it is not that hard to touch the link, visit the page, then decide if I want to stay on it or not and press the back button. However, what I mentioned before about the removal of friction is key here. This is a time-saving convenience and one that is hugely beneficial from a user experience standpoint. One addition I would love to see in the future is the ability to scroll, perhaps by just slightly moving your thumb up or down, allowing you to see more than the opening part of the web page, message, or email you are previewing. This would take the experience even further in my opinion.

Quick Actions into apps are an entirely new app interface model. These quick actions are super valuable and could have some fascinating long-term impact on how developers leverage this for new interaction models with their software. After using 3D touch for quick actions, it becomes second nature so quickly you want all your apps to have it. It’s generally a good sign when you like a feature so much you want it to be pervasive. I truly hope Apple’s developers dig into this feature and run with it and think creatively about all the ways they can use 3D Touch.

Death to the Lock Screen

When Apple said the second generation of Touch ID was fast I initially thought to myself, “It is super fast now. how can it get faster?” Then you try the second generation touch ID and realize it’s so fast you nearly don’t see your lock screen. From dark screen to home screen in milliseconds. There is no need to press and hold your finger on the sensor for a reading. Just press the home screen button and in the amount of time it takes to press, you are logged in and at your home screen. I had a nice picture of my family on the lock screen which I now only barely get a glimpse of. Here again is an example of shaving split seconds of time off an experience to let you do the things you want to do with your phone faster and more efficiently.

As I stated at the beginning, this was the first time a number of new behaviors emerged that are now ingrained in my patterns of device usage. Overall, these latest generation iPhones are laying new ground for Apple to build upon for all future versions. There is simply no going back. Desktop class CPU, 3D Touch, and more are all new foundations for which Apple can further develop their hardware, software, and services.

Lastly, for fun here are some benchmarks using Geekbench of the new A9 Apple processor in the 6s Plus. To put this in perspective, the iPhone 6s and 6s Plus compare favorably to the new Macbook in terms of performance.

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Podcast: The Amazon Fire Lineup, Apps and TV, The Ad Blocker Debate

This week Jan Dawson, Tim Bajarin, and Ben Bajarin discuss the latest announcements from Amazon, the role developers play in platforms and Apps’ role in the future of TV, and the controversy over iOS 9’s content blocking capabilities.

Click here to subscribe in iTunes.

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

The Consumer Operating System Schism

In thinking broadly about the consumer market and all that has changed within it, I’ve been struck by an observation. It seems we have a schism in operating systems. It may very well be we are down the path between more consumer-centric operating systems (iOS and Android) and more corporate/business operating systems (Windows and OS X).

This is on the basis of what I’ve been saying about the iPad Pro along with Tim’s point about the potential of an Android PC. If we step back and reflect on the broad landscape, a specific observation stands out. There has been very little real software innovation when it came to things consumers care about in the desktop space. Most of what we have seen interesting and new around desktop software is about utility or productivity (outside of PC gaming, of course). The vast majority of interesting software that gets consumers excited and emotional is happening on mobile operating systems. After all, consumer-centric developers are mostly focused on mobile platforms, not desktop or laptop ones. One platform, the mobile one, has all the developers thinking about pure consumers while one platform has all/most developers thinking about business users. While business developers are certainly, out of necessity, crossing over and thinking about mobile platforms, the plethora of consumer-centric developers do not seem to be and are not spending much, if any, time thinking about desktop operating systems. This, in my mind, has led to the schism.

This hit me while I was discussing the overview of my thinking with a company very much centered on desktop/notebook platforms. The question revolved around invigorating the PC category again. My response was, more consumer-centric developers creating unique and innovative experiences for desktop and notebook platforms won’t happen. The question about reviving the PC is not one that is relevant to enterprise customers. Those customers aren’t going anywhere. It is squarely centered on consumers use/need of a PC in the shape of a desktop or notebook. The issue is the same as it’s always been — there simply isn’t a lot of innovation in consumer software happening on either Windows or OS X. It is all happening on iOS and Android. I don’t see that changing.

Apple taking a mobile OS, along with the developer ecosystem around it, and adding devices with larger screens is my central point. For all intents and purposes, the iPad Pro has a screen size now common among all notebook vendors at nearly 13 inches. What Apple is proposing to their developers, many with consumer-centric mindsets, is to start to think about larger screen computers and go crazy innovating on software. Now, there is no guarantee developers push the needle here any more than they did with the iPad. However, if we had to make a bet on whether innovation in consumer software will come from traditional developers (mostly corporate ones) who have been focused on desktop operating systems, or developers who have been innovating in consumer software for years and are now starting to think about bigger screen computers, which ones would we bet on? I’d bet on the mobile developer community.

This is why I say we may need to accept there is a schism between consumer operating systems and business/corporate operating systems. You’ll use Windows for “work,” if your job requires such a tool, and you’ll use iOS or Android at home and for play.

I suppose the question is whether or not there is hope at all in the consumer space for desktop operating systems. This obviously has huge implications to many on the platform side of PCs, especially those in the Windows camp. However, this schism is inevitable if Microsoft in general and the Windows ecosystem in particular, cannot stimulate a healthy consumer software developer ecosystem for their platform.

Apple and the Subscription Business Model

Fellow authors on this forum have pointed out some of the implications of Apple’s Upgrade Plan. This was, perhaps, one of the most significant announcements Apple made and many seem to be missing why. Apple is fundamentally changing their business model and this is lost on many. The impact of this change will not be seen overnight or even over the next few years. However, a decade from now or longer, I have a feeling he will note this moment in Apple’s history.

It starts with iPhones that is certain. Consumers can purchase an iPhone, from Apple, and pay $32 per month for two years. This plan comes with the option to get a new iPhone every year if they so choose. If they don’t choose to upgrade yearly, their phone will be paid off in two years. At this time, said consumer owns an unlocked world phone that will work on any carrier in the world. The unlocked angle of this is interesting from a carrier standpoint because it gives power back to the customer. The world where you can have a smartphone that works on any carrier, then simply shop the best plan has not existed in a number of markets like the US and China for example. Now it can and the implications over the next few years on how carriers adapt will be interesting. I liken this to cable and satellite companies. Smart consumers know, once your contract is up with your cable or satellite company, you can call and threaten to cancel your account to switch to another provider and, generally, that provider will throw many offers at you including a lower rate in order to keep you from leaving.

Another angle of this plan of interest is how it could potentially make iPhones more affordable for new customers. Wall St. seems to views this as a way for Apple to manage churn and keep existing customers upgrading. However, the data suggests this is not a problem Apple struggles with. While Wall St. sees this as a program for existing Apple customers, I see it as a program for Apple to appeal to new customers as well.

However, the bigger point I’m making here is how this program could extend to other things than just smartphones. Horace Dediu of Asymco wrote a great piece called Apple Assurance. In this post, Horace does the math under the scenario that Apple extends this program to other Apple hardware. From his math, he lays out how for basically $3.53 ($103 dollars a month) a day a person can own all of Apple’s hardware. That is basically the price of a Starbucks coffee. A Mac, Apple Watch, iPhone, Apple TV, for the price of a Starbucks coffee a day. Fascinating way to look at this business model. Especially, if Apple has trade-in and upgrade programs for all these products. Upgrade your Apple Watch every year or every two years. Upgrade your Mac every 4-5 years. What is fascinating is how the residual value of Apple’s products is what allows them to do this. I have decent data on the global secondary market for iPhones, and iPads, which I’ll share in-depth at another time. Unlike many other hardware companies, Apple (or a third party partner) can profit from the trade-ins of iPhones, Macs, iPads, and potentially Watches although it is too early to tell about that one.

A short anecdote just to make this point. During a recent business trip, I stopped at the exit checkpoint from my rental car lot. The young man who had to do the final paperwork asked me how I liked my Apple Watch. I gave him my thoughts on it, and he said, I ask because I’d really like to get one but its so much of my paycheck. I asked him, if he could pay $20 a month to Apple and get the Apple Watch you do it? I’d sign up tomorrow he said.

If we believe this is Apple’s direction then almost anything becomes fair game. For example, if we believed they would come to market with a car wouldn’t have financing been essential? With where Apple TV is heading, why don’t I just pay Apple for my full TV bundle? Again, I have no idea what Apple’s future plans are, but you can see an interesting dynamic that applies to Apple once you can pay money directly to them and subscribe to the entire Apple Package.

iPad Pro and Surface. The Future of Notebooks

There is an unquestionable trend emerging — tablets are evolving into notebooks. This does not mean all tablet/notebook combinations will replace PCs. However, it does validate the opinion that there is a segment for these devices and our conviction is that the segment is quite large.

In my view, what Apple has done with the iPad Pro has legitimized the Surface form factor. Our data and analysis of overall PC shipments continues to highlight that 2-in-1 tablet and notebook hybrid sales have remained relatively small as a percentage of the mix of pure notebook and desktops. But it does feel like this is about to change.

Our firm has long been predicting these worlds would converge and all notebooks — at least, the vast majority of them — would converge around this form factor. There is a place for the pure notebook form factor. Think of it as a portable desktop. But the issue remains that the market for a portable desktop is very small. The market for a 2-in-1 PC is actually quite large, especially when you lump in consumer market sales, which is nearly half of the ~300 million ~ desktops, notebooks, and 2-in-1 form factors shipped today.

The iPad Pro validates the 2-in-1 form factor, albeit with a very different philosophy which I will discuss shortly. It is likely to help fuel the sales of these products in the market and is likely to help Surface in its enterprise adoption specifically because these are markets where a “Desktop OS” is still necessary. For example, one thing the Surface can do the iPad Pro can’t is run two Excel documents side by side. There is a place for a desktop OS in enterprise environments and I still believe Windows based 2-in-1 PCs fill this space.

Certainly, the iPad Pro will have its enterprise deployments. However, its opportunity there as well as its opportunity with creative professionals is simply smaller than the broader opportunity for consumers.

Tim Cook said, in a very calculated statement, “The iPad is the clearest expression of our vision of the future of personal computing.” This statement has implications and needs some unpacking.

First, we must establish the point the iPad Pro contains desktop class capabilities but runs a mobile OS, not a desktop OS. Although we can argue the specific version of iOS built for iPad is maturing to be more desktop-like with the simplicity of a mobile first experience. Second, and not to take anything away from Macs as they have their place in Apple’s lineup, this statement means Apple believes the future of computing runs on ARM not x86 (perhaps a thought nugget for those who believe Apple will bring ARM-based chips to its Mac lineup).

The Future of Personal Computing Running on ARM

This statement makes quite a bit of sense. Platforms running on ARM dominate the mobile landscape today. These platforms are Android and iOS. All the mobile first, consumer-centric developers are already writing for ARM. But when it comes to the tablet’s ability to take on notebooks (not desktops), Apple’s philosophy of leveraging the developers of the mobile ecosystem is central. I’ll make the point this way. If you were betting on developers that could carry the future of computing forward, would you bet on Windows developers or iOS developers? Hopefully, this question is easy to answer. This is where the philosophical difference between Windows 2-in-1 devices diverge from that of the iPad Pro.

Microsoft has corporate developers, this is certain.

ARM/iOS/Android has consumer developers and much more global ones at that. One market and one developer ecosystem, is significantly larger than the other. This is why it makes sense for Apple to bet on iOS developers from the viewpoint that Apple is broadening computing hardware capabilities for their developers to start thinking about the future of computing beyond pocketable screens.

It is within this vein of thinking Tim’s article about Android on “PC like” form factors makes sense. As the founder of the Remix OS said to Christopher Mims of the Wall St Journal in this excellent article on tablets:

“If two-thirds of the population of the world has not gone online yet, and if they do go online using and Android-based cellphone, then when they want to move into the productivity space, chances are they will want to use a familiar operating system.”

This was essentially what I proposed in this report on tablets. As consumers graduate to and have a desire to move up in this mobile-only world, it makes sense they stay with a mobile-first OS. Hence, our strong recommendation of late-to-PC OEMs to look at Android for the 2-in-1 form factor as a variant OS for their hardware.

The iPad Pro helps to further my conviction that Windows will remain a niche operating system in the personal computing market.

Creativity vs. Productivity

One last point. I’m continually frustrated by the commentary that states “real work” is defined by productivity. In my mind, for consumers, tools that let us create are just as important as those which help us produce. Making a home movie is more fun than creating a budget. But both sets of tools are necessary. My point is the idea of proclivity is not exclusive to Word documents and Excel spreadsheets. It also consists of making films, art, and creating things worth sharing with friends and family. This is why I’ve often been stunned Windows has never come bundled with software like the iLife suite (iMovie, iPhoto, etc.). Steve Jobs may have said it best, “iLife would do for creativity what Office did for productivity.” Consumers value the ability to create at a deeper, more emotional level. This angle is another one I’m intrigued by the upside potential of the iPad Pro, not just in vertical markets, but for the broader consumer market as well. It is up to Apple’s developers to take it there.

The iPad, Re-invented

(Earlier today, we posted an analysis of Apple’s event for Tech.pinions Insiders but we wanted this snippet from our full note to subscribers to be seen by a wider audience. If you’d like to read more or want to become a Tech.pinions Insider, please click here)

Unquestionably, a new era for the iPad has begun. I admit, I was skeptical a larger iPad would do much for sales declines but, after seeing the iPad Pro and experiencing it first hand, I think I’m changing my mind.

The iPad is first and foremost larger. Some may look at it and say, “It’s just a larger iPad!” That is exactly the point. Larger means you can do more with it, plain and simple. What strikes me as monumental with the iPad Pro is the new A9X processor. Apple spent ample time explaining how the new A9X was designed specifically for iPad making it more powerful than most PCs on the market. This statement of processor performance is extremely telling about the iPad Pro’s positioning and upside. It is, in fact, a full-blown personal computer. If there was every any doubt the iPad was a PC, the iPad Pro puts that to rest. Let this statement sink in: The iPad Pro is more powerful than most PCs, yet as easy to use as an iPad.

That statement encompasses what I feel is Apple’s vision for the future of personal computing. PCs are hard to use. They have a learning curve. Smartphones are easy to use, but limited in screen size. Steve Jobs positioned the iPad best when he first announced it. He said:

“The iPad is more intimate than a notebook and more capable than a smartphone.”

I fully believe the iPad Pro is the manifestation of that vision. Here is where this gets interesting. There has been a great deal of consumer software innovation in mobile phones. There has not been much consumer software innovation in PCs. Windows simply doesn’t have a robust consumer thinking/focused developer community. Apple, on the other hand, does. Ask any developer and they will never tell you they have enough performance. They always want more. This is why Apple’s positioning of the iPad Pro as having as much and, in many cases, more performance than many PCs is key. They are hoping to get developers to re-think personal computing software and create software experiences for the iPad not found anywhere else.

The keyboard cover is a natural accessory. Keyboards have high attach rates to larger iPad sales. The new Pencil is interesting. I was able to try it and it was by far the most accurate and natural feeling stylus solution I’ve ever used. It will be very interesting to see where developers go with Pencil integration.

Overall, the iPad was a cornerstone of this event. After spending time with it, I’m extremely optimistic there is something here but it really does depend on developers to carry it forward and break new ground.

Apple Event Analysis: A new Era for iPad, Strong iPhone Update

After attended the Apple Fall Launch Event, there are many dynamics to analyze. I’ll share a few key takeaways in this immediate post-event analysis and weave in more over time.

iPad Re-Invented

Unquestionably, a new era for the iPad has begun. I admit, I was skeptical a larger iPad would do much for sales declines but, after seeing the iPad Pro and experiencing it first hand, I think I’m changing my mind.

The iPad is first and foremost larger. Some may look at it and say, “It’s just a larger iPad!” That is exactly the point. Larger means you can do more with it, plain and simple. What strikes me as monumental with the iPad Pro is the new A9X processor. Apple spent ample time explaining how the new A9X was designed specifically for iPad making it more powerful than most PCs on the market. This statement of processor performance is extremely telling about the iPad Pro’s positioning and upside. It is, in fact, a full-blown personal computer. If there was every any doubt the iPad was a PC, the iPad Pro puts that to rest. Let this statement sink in: The iPad Pro is more powerful than most PCs, yet as easy to use as an iPad.

That statement encompasses what I feel is Apple’s vision for the future of personal computing. PCs are hard to use. They have a learning curve. Smartphones are easy to use, but limited in screen size. Steve Jobs positioned the iPad best when he first announced it. He said:

“The iPad is more intimate than a notebook and more capable than a smartphone.”

I fully believe the iPad Pro is the manifestation of that vision. Here is where this gets interesting. There has been a great deal of consumer software innovation in mobile phones. There has not been much consumer software innovation in PCs. Windows simply doesn’t have a robust consumer thinking/focused developer community. Apple, on the other hand, does. Ask any developer and they will never tell you they have enough performance. They always want more. This is why Apple’s positioning of the iPad Pro as having as much and, in many cases, more performance than many PCs is key. They are hoping to get developers to re-think personal computing software and create software experiences for the iPad not found anywhere else.

The keyboard cover is a natural accessory. Keyboards have high attach rates to larger iPad sales. The new Pencil is interesting. I was able to try it and it was by far the most accurate and natural feeling stylus solution I’ve ever used. It will be very interesting to see where developers go with Pencil integration.

Overall, the iPad was a cornerstone of this event. After spending time with it, I’m extremely optimistic there is something here but it really does depend on developers to carry it forward and break new ground.

iPhone: An Impressive Upgrade

The new iPhones are arguably the largest YoY upgrade since the “S” era. The iPhone 6s and 6s Plus have some fascinating new features, many made possible because of Apple’s tight integration of hardware (including chipsets) and software. 3D Touch is likely to get most of the attention and for good reason. I tried it and could tell instantly once you use this feature there is no going back. I predicted Force Touch, called 3D Touch on the iPhone, would be huge the first time I used it on the Apple Watch. My instincts proved true. The demos don’t do it justice. New navigation and interaction layers with peek and pop are loaded with promise. The haptic engine brings another dimension to the iPhone and the hardware and software integration yields an experience like nothing out there.

You can’t overstate how important images and media are to consumers. Features related to the camera consistently rank among the highest for consumers in purchase intent. Apple has done two interesting things with the camera I think will gain attention. The first is live photos.

Live photos is a unique take on photos. The iPhone captures a small amount of time before and after you take a photo and then lets you see that one 12mp photo and relive the memory via a short video. I have a hunch consumers are going to love this feature. Technically, there is a lot happening here and it’s again a testament to their tight hardware and software integration.

The second is the front facing flash. This is fascinating. Apple developed a custom chip just to power the phones display to 3x the brightness and act as a flash for front facing photos/selfies. A custom chip just for this one feature. What other company would, can, do that? Using the screen for a True Tone flash is clever and, here again, a feature that will pay off with consumers.

I remain extremely confident Apple will keep their momentum going with iPhone sales. With 27% of the base upgraded, likely 34-37% by the end of the current quarter, Apple is keeping features fresh and will continue to keep upgrades cycling. However, these features will also help fuel the fire for Android switchers, which is happening at record levels. So much in fact, Apple developed an app for Android which makes switching to iOS easy. But Apple is taking this one step further in a potentially disruptive way. They have developed their own iPhone upgrade plan.

At $32 a month, with AppleCare+ included, you can get an unlocked iPhone from Apple and upgrade every year. Carriers have been driving these plans but Apple has put themselves in a position to take that relationship from the carrier. So I can get my phone from Apple, go to the carrier and shop the best deal. This could have huge implications. First, if Apple has large uptake on this, they put themselves on a yearly upgrade path with many customers. Second, they could bring this to other markets, not just the US. How many in China, India, Brazil, or Indonesia would sign up for a payment plan through Apple vs. purchase the phone for $649 or more? Apple offering a payment plan through their own channel, either retail or online, is a bold and potentially huge play for the future of iPhone sales.

The Holy Grail of Set Top Boxes

Apple stated the future of TV is apps. I absolutely believe this. However, the future of TV is still years away at best. I believe an important foundation is being set with tvOS, and Apple’s efforts to turn the TV into a platform for developers like it has never been before. Apple was clear in their positioning of this device even calling it “the foundation for the future of TV.” This is a foundation and a step toward the future of TV, but this narrative will take time to play out.

Apple Watch

I remain optimistic on the future of the Apple Watch. WatchOS 2.0 will move Apple’s offering forward. Here again developers are the story. Third party complications may be a much bigger play than third party apps. Both are important but how the Apple Watch functions as a glanceable computing device makes complications a key part of its value.

Overall, I feel a strong year ahead for Apple based on the foundations being laid. Their ecosystem has been strengthened and, more importantly, unified.

Apple and the Benefit of the Doubt

I’ve struggled to articulate some of the sentiment I sense toward Apple in many public and private conversations, as well as the many we will see over the coming weeks and months. Apple has been an area of study for me for over 15 years. For my father, Apple has been a focus for over 30 years. The company, the cast of characters involved, their role in the tech industry, are all fascinating topics. Yet for Wall St., pundits, and so many commentators, there is a sensibility I could not put my finger on until recently. Apple does not seem to be granted what many companies like Amazon, Google, and more are–the benefit of the doubt.

Too often, it seems, discussion surrounding Apple tends to lean toward doubt and skepticism. “Apple is doomed!” is basically the underlying and all too common tone. Interestingly, this is nothing new. Steve Jobs was asked, during a Q&A at the 1997 Macworld Expo, why Apple is continually shorted by the media. He explained how this is common and it’s been going on forever. Whenever they shorted Apple, he said he recommends buying more stock. Steve believed. He had faith while many others did not.

The examples of Apple’s death are too numerous to count here but Bryan Chaffin of The Mac Observer has been keeping tabs with his Apple Death Knell Counter For many years. Check it out for some instances of Apple’s imminent demise being horribly wrong.

I’ve been having these discussions of doubt with many in the investor community, both on the private and the public side. How can Apple keep growing? How can they do better than last year? How do they keep the momentum going? It all has to end sometime, right? These are all questions and part of key debates in the industry. More often than not when I hear these remarks, they are statements, not questions. For smarter investors, these are questions. For the narrow-minded ones, they are remarks. The latter is generally deep with conviction from the all too dangerous viewpoint of a strong opinion strongly held. Regardless of whether these statements are questions or remarks, my favorite response is a simple why?

Are you absolutely certain they can’t keep the momentum going? Are you sure this was their best year? Does it really have to end? I submit the following charts from Jan Dawson. These charts are part of a service he offers for subscribers. I recommend checking it out if you are interested in the financial details of many public tech companies.

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While not every line is an S-curve, and perhaps the line has slowed at times, the bottom line is Apple’s growth has continued. Of course, as the saying goes, we can’t ALWAYS use historical data to predict the future. What we can do is set up a belief system of the fundamentals — “if this holds true, then so does this”. Hence, the last slide from Jan’s deck. While I won’t go into every bit of fundamental analysis of Apple, the developer chart is an interesting one. Apple is an amazing company that makes amazing products. Those amazing products attract amazing developers. If those developers don’t just survive but thrive, then Apple succeeds. If Apple’s amazing products benefit more than just themselves, meaning, if they create things that create value for others, then their run will likely continue. It’s not entirely that simple, but it is a fundamental piece of the puzzle.

I’m not suggesting the benefit of the doubt be given lightly. On the contrary, I believe it should be earned. But so many other companies seem to have that benefit without earning it. While Apple’s stock trades at a P/E ratio much lower than many other companies, historical data doesn’t necessarily suggest they earned it in the way we can make a case Apple has.

No company is perfect. I think we have to make that clear. There are many things that make Apple unique and it is the culmination of people, process, culture, philosophy, and more that tend to help me extend Apple the benefit of the doubt. What they have is very rare. Maybe someday it won’t be but it is today.

As I pointed out in this article, seeing your death before it happens is tricky yet doable. Investing in the future and taking on new challenges with your company’s unique people, processes, and philosophies is the best way to keep momentum going. As we’ve seen, Apple is not afraid to enter new categories. Today it’s watches, then cars? TV? Apple doesn’t seem to be slowing down or believe their growth will end or that they are doomed.

The benefit of the doubt or “faith” in a company should not be given frivolously. It should be well earned. But, objectively speaking, Apple has indeed earned it.

Future Features of the Apple Watch

While it may seem like a fruitless effort to predict the future of the Apple Watch, knowing what features existing owners are most interested in could present some clues. This is exactly what the Wristly team and I set out to do with our panel of Apple Watch owners. We have recently published the definitive “State of the Apple Watch” report and I encourage you to check that out for insights on the Apple Watch 1.0 era. This great research is only possible because of opt-in respondents, so if you have an Apple Watch and would love to participate please consider joining. Our goal with our latest survey was to understand what capabilities the Apple Watch doesn’t have today existing owners would like it to have in the future.

We gave our panelists a number of options for new features they would like in the next version of the Apple Watch. Here are their responses.

Ben 1

It turns out the watch’s independence from the iPhone would be quite valuable. This makes sense even with my own use cases – going out to dinner, out to run an errand or to a gathering, the ability to not have to bring my iPhone would be useful. The key to this feature is the option to leave the iPhone at home. Of course, this means the Apple Watch would need its own independent cellular connection. This could impact battery life, add another cellular connection fee, and possibly impact the size of the Watch. Despite this feature, likely still a few years away, it is good to know it is something strongly desired by existing Apple Watch owners.

It also appears existing Watch owners want the Watch to be more waterproof. Apple does not suggest or give a depth rating for submersing (It is IPX7 rated, which covers a depth of up to 1m) the Apple Watch though they indicate splashing with water is ok. So things like showering, running in the rain, etc., are ok but not swimming or fully submersing it. However, many reports have suggested the Apple Watch is much more waterproof than Apple suggests but it does not seem our panel is fully aware of this and is following Apple’s suggestion to not swim or submerge the Apple Watch. Our panel would certainly like to see Apple officially embrace making the Apple Watch much more water resistant, swimming and submersing features included. This suggests many Apple Watch owners simply don’t want to take it off no matter what they are doing.

Rounding out the top three of desired additional capabilities is blood pressure monitoring, contrasting this with something like blood sugar monitoring. Blood pressure is more generally useful in monitoring overall health, fitness, stress levels, and more which makes sense that the general consensus of our panel had this feature in the top three. Monitoring blood pressure from a device like a wrist wearable is still a ways off but advances in sensors are heading in this direction.

Taking pictures from the Apple Watch ranked lowest. We found this interesting, but not terribly shocking. This is one of those features that could be great but very hard to tell at this point. The concept of being able to get a picture of a moment without having to pull your phone out seems compelling. However, the camera on the wrist seems tricky ergonomically as it would need to be on the bottom of the strap in order to see the display well enough to frame the photo. The concept is sound, but it seems this feature is not interesting to our panel.

We also asked some questions of size and performance. Overwhelmingly, our panel wants the Apple Watch to be faster. 80% said this feature was Extremely/Very important. Apple seems to have the size of the Apple Watch about right as only 18% said they would like the Apple Watch larger. A thinner option may also be a reasonable form factor with a majority of our panel saying a thinner watch is somewhat important (40%) or extremely important (26%).

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One of the great things about the Wristly research panel is the ability to survey real world Apple Watch owners and track their progress as they become more familiar with the product. While this was a high-level look at some features of interest for version 2.0 of the Watch, discovering what Apple Watch owners want in the future from their Apple Watch will be an ongoing focus of our research.

On the Future of TV

With a complete overhaul of the Apple TV imminent, there will continue to be fuel for the future of TV discussion. Set-top boxes that let you stream internet content have had moderate sales in the past but the question is, how or when will that change? This is a global point. Even in a market such as China, where regulations and contract rights are not an issue and consumers can have a broad and full range of access to live, VOD and broadcast content, streaming box sales would still classify as a niche market level of volume. Going from tens of millions of unit sales to hundreds of millions of unit sales annually is the broader goal and upside for streaming boxes. The question is when?

The Bundle

From a perspective of markets where broadcast and licensed network TV show content is bundled, I see a number of challenges. Yes, there is a contract rights issue. This issue stares you in the face when you believe for a second you can cut the cord and it won’t cost you money. When it comes to entertainment content, in this case TV, there will be a price. Cutting the cord is not free. Many can argue they can simply get away with only paying for a service like HULU and Netflix. This is certainly true even though each come with limits to access. One of the most interesting things out there is the innovation in original programming. HBO has set a trend in motion where it seems many networks are rising to the challenge with more quality original programming. A huge question will be how they believe they recoup these investments. Most major networks have apps now for iOS and Android. I have a page on my iPad dedicated to these apps.

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The iPad serves a role as my personal television and it is largely due to these apps. I often use the iPad in bed while my wife watches one of “her” TV shows on the TV in our bedroom. I use my iPad when I travel instead of the TV in my hotel room. But again, these apps are not free. Or the content inside them is not free. Most of the apps on that page require you to be a subscriber of a Pay TV service to access the features you really care about, like TV or an archive of all their network shows. Here is the issue. If they are not free, how much would all these services cost added together if they even offered them? $30 a month? $40? $50? The answer is likely higher when you take into account the huge investments being made in higher budget original programming. So, if this experience is to cost me say, $75 or more, and thanks to certain contract rights I would still have to give up things like specific live sports, then why would I drop a pay TV service if it only costs $10 more? Perhaps another observation is why would pay TV providers sit by and let this happen? Their infrastructure with bundles is such that they could offer me pay TV bundles that could end up being cheaper than my effort to subscribe to every different network out there that has content I want to watch.

Which brings me to the heart of what I feel so many have an issue with regarding their TV service providers — the technology. The hardware they provide us with is downright terrible. The content is what we pay for but our experience suffers greatly with awful set-top boxes. My hope in all of this is there comes a time where a pay TV bundle is offered but I can choose my own hardware. Should companies like Dish, Comcast, Charter, DirecTV, etc., allow the access of their conditional access DRM broadcast content to run on the hardware of my choosing, we may be in for a much more interesting world.

This is, of course, the world they are all afraid of. In this world, they lose control of the customer and ultimately it is this viewpoint that leads them to do things that are far from consumer friendly. However, if they did not have to front the costs of the hardware they give for free to customers, they could potentially offer lower priced subscription costs to compete with a la carte offerings.

The main point remains. Cable operators won’t stand idly by. They have to get more creative and, ultimately, there is still value in a bundle of content. There is value in a broader guide too and perhaps this is why the new Apple TV is rumored to have universal search (Google TV has this as well).

It seems like the tech world and the cable companies are at odds when, in reality, it would be better for everyone if they worked together.

Why Android Wear is Critical for the Smart Watch Category

Earlier this year, I published a brief report on the smartwatch market opportunity. A key part were several scenarios I laid out. Here is that section of my report:

• The vast majority of watches sold today go “smart” over the next five years and run Android Wear or another third party smart watch platform.
• Watch makers standardize on a smart watch platform and there is little to no smart watch platform fragmentation.
• Google or a third party standard platform is genuinely competitive with Apple’s.

It seems a safe assumption Apple will have the advantage in the early stages of the smart watch category. Like the iPhone, they have a five to seven-year advantage on the competition. It is logical that Apple maintains an advantage in this market for at least two years, if not longer, and we feel scenario #1 is how the market will look for at least the first three to five years if not longer.

While there is a strong case to be made for scenario #2 simply because it is logical the competition will need to contend at some point with Apple and will have to choose a platform to use or create their own and the market may likely flood with low cost Android (or another third party) smart watches. It is unclear if these products will stick or be competitive.

A mix of both scenarios is possible as well. Apple may not be destined to be the only dominant vendor in the top 20% of the smart watch market but poised to have much higher market share even if not the total majority starting to make watches.

It is certainly too early to know how all of this will play out but, from what I’ve observed and studied about the market the past year, I’m convinced the role of Android Wear is important to the smart watch category. I say this with the caveat that, if only Apple is successful in this space, then we don’t actually have a smart watch category. If that happens, there is absolutely nothing wrong with smart watches only penetrating a percentage of Apple’s approximately 500 million customers. The point is, for there to be an actual smart watch category, more companies than Apple need to be successful. If the TAM is to be larger than just Apple’s user base, Android Wear will play a critical role.

A fundamental concept of how markets mature is important to understand. At the beginning stages of any new category, the market is immature. Immature markets occur when consumers have no frame of reference for the product and are being exposed to something new for the first time. In the early stages of a new category, the landscape is also very fragmented. I use this slide to tell the story.

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Fragmented hardware and software platforms plague the early stages of a market. We see it in wearables and even IoT today — the same way we saw it in mainframes, mini’s, personal computers, and smartphones. This formula is tried and true and predictably repeatable. But what happens once a standard software platform emerges, and compatible hardware is build up around that standard software platform, is the market is driven to maturity. The hardware landscape becomes competitive, begins to scale, and market fundamentals emerge to bring that technology to the masses. Most recently, we can observe this with Android. If it wasn’t for Android, there wouldn’t have been much of a smartphone market. In fact, if it wasn’t for Android, it would have taken much longer than 5 years for the market to catch up with Apple. Offerings from Microsoft, Symbian, Blackberry, Samsung, etc., were not on a trajectory to go mass market. I’d also argue these companies were not well positioned for the broader consumer audience which is why it would have taken longer for them to adapt to catch up with Apple. Android helped mature the smartphone market by becoming the standard platform for smartphones and smartphone hardware companies.therefore, Android Wear is crucial to the smart watch category in the same way Windows was crucial to PCs and Android was crucial to smartphones.

If we are to have a smart watch category, we need a plethora of choice and Android Wear offers OEMs that choice. Choice in hardware design, price, features, etc. This is crucial for the category to grow. Google was smart to also bring Android Wear to iOS, a move we saw coming from a mile away. Interestingly, I think this will actually help Apple.

I believe Apple’s thesis is this. Consumers will enter a market buying the most affordable device they can. This could be a PC, tablet, smartphone or a smart watch. Apple knows they are not priced at entry level in most of their product offering, so they likely assume their product is generally not going to be the first choice, particularly of the price conscious first-time buyers of a new product. Therefore, Apple’s thesis is, as a market matures and those consumers who started entry level begin to want more and “spend up to move up”, their products will be ideally positioned to compete for those customers. We need look no further than China to see this play out. iPhones were not the first smartphones owned by hundreds of millions of Chinese consumers. However, as Chinese consumers started to mature and self-identify with what they like and don’t like and want and don’t want in a smartphone, they started to move up the chain. Hence, China has the single largest Android switcher numbers of any market we study. Similar dynamics are happening in the US with Android switching as well as many parts of Europe. This dynamic also explains the slow, yet steady growth of Macs. Customers are identifying value within their specific needs, wants, and desires, and many are considering Apple products. Apple is best positioned to compete when a market matures.

Therefore, if Android Wear helps mature the smart watch category, potentially both with Apple customers and non-Apple customers, it stands to reason, once the market matures, the Apple Watch may benefit from a similar dynamic Macs and the iPhone are currently experiencing.

There may or may not be a smart watch category/market. We know for sure there is an Apple Watch market but beyond that, consumers have yet to speak. Android Wear breaks this open and it may take us into 2017 before we can come to any conclusions about the category.

Someday, All Companies Will be Tech Companies

I find it interesting how, in many conversations I have about the business and technology landscape, so many people make a distinction between the “tech” industry and everyone else. It is certainly true today, but when I put my long term thinking cap on, it strikes me this will not always be the case. Eventually, every company will be a technology company of some kind. What we call technology today, we think of hardware with sensors, microprocessors, memory, software, connectivity, and a host of other things. Within our definitions, it makes sense there are tech companies and there are other kinds of companies. But the ones I think may be the most interesting in the future are the companies today we would not consider tech companies. Let’s use a few examples to make this point.

Sleep Number: While Sleep Number highlights their beds’ “technology” I’m not sure the company themselves would say they are a tech company. Sleep Number makes mattresses. Sleep number technology is designed to help you get better night’s sleep. Their new Sleep IQ solution embeds sensors in the mattress to track your sleep and give you all kinds of insights in how to sleep better as an extension of what they are actually selling. Sleep Number is not selling technology, they are selling better sleep. Technology is playing a role in that process and is a means, not an end.

Babolat: Because I play a lot of competitive tennis I use this example frequently. Babolat sells several of the most popular tennis rackets in the world. In two versions of these best selling rackets, they have included a microchip and a series of sensors into the handle. This allows the racket to receive information about your swing, impact location of the ball, forehands vs. backhands, power, and a plethora of other useful things for analyzing your swing. Babolat certainly uses all kinds of technology to make their rackets stronger and lighter but, here again, I don’t think Babolat would position themselves as a technology company. And in this case, with the addition of Babolat Play technology, they are not actually selling me technology. They are selling me a competitive advantage.

When it comes to sports, there are a number of examples from connected soccer balls and basketballs, sensors you put on your golf clubs, baseball/softball bat, tennis rackets, and more. Again, the technology is an enabler of something greater. The tech is out of the way, rather than in the way. Too many technology companies work so hard on the technology that it gets in, rather than out of, the way. This is why companies who are not actually technology companies today but who will use technology as a means to an end are among the most interesting to me.

As the smartphone’s supply chain scale democratizes many components and drives costs down in sensors, microprocessors, memory, and even software, we will see more companies like Sleep IQ and Babolat be able to integrate cutting edge technology into everything they make and offer at mainstream prices. A good example of this is the June Oven.

The June oven is an intelligent oven. It is loaded with technology — from a CPU, to cameras for visual processing, software, and connectivity. It is easily the smartest oven out there. It can recognize the food you put into it and cook it accordingly (so it claims). It can self-monitor what is being cooked so to adjust the heat for perfectly cooked food. It has video cameras in it so you can use your smartphone to look at what you are cooking and see how it’s doing. There is a lot of great technology in this oven. But it costs nearly $1500.00. But, eventually, every oven sold will include all of these features and more. Every company making ovens will load it with sensors, microprocessors, software, and a host of other features to help you cook better food. Because ultimately, they are selling better cooked and tasting food. Technology is the means of an end for that goal.

A common phrase around the valley is “technology for technology’s sake.” It is the implication that too often technology is developed or integrated into something just for the sake of the technology. This is common among engineering and R&D labs. It is when these products come to market things can get weird. Google Glass comes to mind. The focus is too much on the technology or enabling a product to do something just because the technology exists or said company invented it. Technology companies sometimes focus too much on the technology. This is where companies who focus on other things like beds, cars, ovens, appliances, sports equipment, retail stores, etc., will be the interesting story when it comes to using technology and integrating it as a means to something greater than just the technology itself.

Trend to Watch: Social Commerce

As I study the global landscape for e-commerce, I’m becoming more convinced several trends are converging which will bring us into new eras of commerce. I’ve built some of the framework for this thinking in The Mobile Commerce Inflection Point and Eastern vs. Western Business Models, among others. Both highlight, at a fundamental level, a shift that will happen from advertising-based business models to transaction-based business models. Mobile will be a driving factor of both, creating a global increase in overall e-commerce transactions. However, if we take a step back, all of this may be converging around the concept of social commerce.

Social commerce is, at a high level, the idea we will be inundated with “Buy Buttons.” In essence, the online world becomes a giant Amazon store. Places like Twitter, Snapchat, Pinterest, Facebook, Instagram, Google, and many others will integrate buy buttons whenever and wherever they can. Certainly, this has the potential to become annoying (and it likely will be at first) but something like Pinterest is a good example. I consider Pinterest to be a niche social network catering to the DIY and idea crowd. Lots of crafty folks sell their products on Pinterest but so do mainstream outlets like Macy’s. Pinterest is a great place to get good ideas and, when the product is a good fit, why not take a chance and buy it within Pinterest. Like all of these offerings, the goal is to eliminate friction. Once I find it, let me buy it. The stickiness comes from the location in which I’m discovering things to buy.

In a broader set of my primary research with global customers, we asked recently if a buy button on a social network site would impact the motivation to purchase. Through my methodology, I was able to filter these answers by active users of specific social networks to see their answers. Interestingly, Snapchat users indicated strong motivation to purchase within Snapchat via a buy button. Nearly 20% of Snapchat users said a buy button would motivate them to purchase products through the app. Facebook was second at 15% and third was Pinterest at 12%. This particular research focused on western markets, hence the exclusion of services like WeChat or Weibo. (I’m doing something separate on China for social commerce research.)

What interests me about this trend is not that social constructs will influence spending. It is logical it will. Who better to recommend and basically sell a product than me to my friends and family. A recommendation from a trusted friend or family member is among the top reasons people indicate as influential for many purchases. Buy buttons, or the result of buy buttons, showing friends on social networks what I’ve purchased could influence others. Or, if someone is looking at a product and sees that myself and a number of others in their circles have also purchased this product, it could influence the behaviour even more.

At a deeper level, social commerce could add another element that itself could impact retailers. Right now, I go to Amazon. But with buy buttons, it isn’t Amazon’s destination (website or app) that matters, it is their inventory. I’m not limited to going to Amazon to buy something. I can purchase from Amazon or any number of retailers from any number of destinations not their own.

In a way, this could level the playing field. But it also highlights the question of the payment method. Either these destinations will make me put in credit card information at each of their sites or they will simply let me use whatever wallet solution I’ve already chosen, like Apple Pay.

I see social commerce as an added dimension to eliminate friction and, more importantly, add a dimension of discovery not available today. While not the tipping point to drive e-commerce globally to new levels, its role will be most interesting competitively for social services.

I maintain mobile commerce will lead us to the inflection point and lay the groundwork to drive new ways for us to transact. Couple mobile commerce with free shipping and we may very well have the tipping point moment.

I have an update to our global e-commerce report which I’ll publish for insiders in the coming weeks.

Recognizing Your Product’s Irrelevance before It Happens

I’d like to make a few points on something I understand is extremely difficult — seeing your products’ irrelevance and ultimate market share decline before it happens. Seeing your company’s product fade is by no means easy. In fact, it may often be easier for those outside looking in than those on the inside heads down making the products.

While I feel bad for picking on Samsung so often, they provide an excellent case study in many things. However, their struggles in mobile and the actions they took to gain market share and now, lose market share, provide valuable lessons. Many of our readers will know I have been pointing out Samsung’s peaking in mobile phone sales for quite some time. Part of this is because I had the data in the charts below.

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I’m showing you four of ten markets I have detailed smartphone data for. In every one of the ten markets, Samsung’s line is the same shape. In many of them, Apple is one of the significant reasons for their decline. In markets like India, LATAM, Africa, and several others, it is a combination of local brands and Chinese companies like Huawei who are challenging Samsung’s brand and product offerings. There are many reasons for the shape of their line. What’s most interesting is how their peak in many markets happened in the 2012-2013 time frame. When you ask industry insiders about this, most would say it was late 2013 or early 2014 but, in reality, their peak was much sooner. The question is, could they have seen this coming? If so, what could they have done about it?

It was clear at the time Samsung was not investing in a sustainable differentiated strategy. The weakest point in their entire offering was Android. While this was not fully understood by upper management, I do know there were a number of people in Samsung who agreed. Hence Tizen, and the many manifestations before it, was an attempt to control their own destiny. However, it was too late as the Android train was too powerful to fight against and had too much momentum. I’d argue Samsung was simply never in a position to control their own destiny and no matter what they did, any tactic was a prolonging of the inevitable.

What is interesting about this is how we are learning from history and the new dynamics we are still learning from the globally maturing consumer tech market — that many companies may be stuck in industry dynamics they simply can not get out of. Looking at how the life cycle of many companies is shortening, I think this is a significant observation and trend I don’t see ending due to these new dynamics of the industry.

There are many great books on strategy and management but I want to offer my top three recommendations when it comes to keeping your company relevant.

Understand Your Market

Given my primary job function is to study consumer global markets, I find it very interesting how many companies do not truly understand their market. This is true of public companies and shockingly true of many startups I do late stage due diligence on for the VC community. I’m often quite surprised how much money has been given to a startup when, after spending time with them, it becomes clear they don’t truly comprehend their market.

While I understand how difficult it is internally to do this, since I know how difficult and time-consuming it is, it is still absolutely fundamental. Understanding your market at a base level helps you understand customer needs. More importantly, it helps you recognize how those needs evolve. Ideally, your product will move your customers needs forward. Markets are dynamic, not static. They change both as needs evolve, competition increases, and a range of other factors move a market forward.

This is ultimately Samsung’s struggle today. They are operating the same way they did in 2012 and 2013 and believing these tactics will still work. Unfortunately, the market changed and Samsung did not change with it. Perhaps it was impossible given their structure to change, but that is a separate topic.

A key part of understanding your market is also understanding why you are successful. What is it about your product or service that is resonating with customers? Understanding the why behind the what may very well be the most profound thing you can focus your attention on. This knowledge plays a major role in how you adapt and innovate strategically for your target market. Talking to customers, understanding their needs, how your solution is solving real problems, and more are all things you can do to discover the why behind the what.

Have a Monopoly on Something

There are many ways to slice this but what do you have that your competition doesn’t? This could be any number of things, but this is key for differentiation. In relation to Samsung as a case study, a primary cause of their struggle was they use the same operating system as their competitors. Contrast this with one of the fundamental reasons Apple can do what they do — they have a monopoly on their operating systems.

What this teaches us is the importance of a primary engagement point as something you own. Price is not a good monopoly since it is likely someone will always come in and find a way to do it cheaper, unless of course that person is you. But, even then, price alone is dangerous place to be. This could be the trickiest part of a long-term strategy but finding what critical piece of the puzzle you have a monopoly on is key to maintaining relevance in the long-term.

Invest to Solve Future Problems

Lastly, and this is related to the first point about understanding your market, make investments in future problems. Customers needs will advance. Invest to lead them down this road. As your customer base and the market matures, anticipate these needs. Sometimes this means creating something new, sometimes it means disrupting yourself, but your customers needs trump the desire to hold on to yesterday. Take risks but having a deep understanding of your market and your customers’ needs — the why behind the what — are all things that can be done to help minimize that risk.

I Believe in a Future with No Car Accidents

A little over a month ago, I was in an accident. It was not as bad as it could have been but was still worse than a little fender bender. It was my fault and several human factors contributed. The first was traffic. Traffic in Silicon Valley is at an all time amount of awful. What’s worst about it is how traffic will pick up then all of a sudden stop. My accident occurred under these circumstances. I was on a freeway I don’t normally drive during heavy traffic times and was not familiar with the heavy spots. Traffic had been a parking lot for several miles, when all of a sudden, it picked up as if there was no problem. I started to accelerate because it seemed as if the traffic issue was over. I had several car lengths of distance but not the recommended three-second distance. Suddenly, traffic came to a (literal) screeching halt. As I went to hit the brake my foot slipped and I hit the gas pedal instead. I hit the car in front of me.

A month before my lease was up on my work commuter car, I traded it in for brand new Prius. I was still adjusting to the new pedals which is why I think I didn’t hit the brake cleanly and my foot slipped. As with many accidents, it happened fast. My airbags deployed and rung my bell. I was going about 25-35 MPH. As I reflected on this experience, I realized just how big of a deal it will be when all cars on the road have sensors that can prevent such situations of human error and avoid accidents and, ultimately, avoid injury.

Many high end cars, like some from BMW and Mercedes, have sensors which will stop the car automatically if it believes it is going to have a collision and the human operator does not react in time. Commercials demonstrate these features using use cases like backing out of a driveway and the car stops before backing into a child passing by on the sidewalk on their bike. Or driving on a dark windy road and stopping before going head on into a fallen tree. But the use cases are seemingly infinite when it comes to accident avoidance due to human operator error, or most likely, lack of reaction time.

These sensors along with assisted breaking and, in some cases, assisted wheel control, have huge potential to make our roads safer. But a high level point to be made is all cars on the road need to have these sensors for maximum safety. Most of the use cases today help cut down on a single human error, primarily by braking for them to avoid collision. But unless all cars have this feature, we can’t avoid the mistakes of multiple humans. Even if my car stops to avoid me hitting the car in front, the car behind me can still hit me unless it also has sensors. Or a car that swerves off the road toward other cars can correct itself while all other cars around it make necessary speed adjustments. If all cars can talk to each other and visualize the world around them to make adjustments for human error, we may have a world free of accidents. Interestingly, this point of all cars needing to have sensors, cameras, CPUS/GPUs with visual processing power like ones being developed from companies like NVIDIA and Qualcomm, is true also of autonomous vehicles.

I was chatting with a friend who happens to be in the automobile industry and is close to autonomous car research at his company, and he was explaining to me one small proof of this. Let’s say, for the sake of argument, a fully autonomous car comes to market and I purchase one. For this car to have passed all regulatory restrictions it will have to have a number of road and traffic safety rules programmed into it. One would be the “three second safe following distance” rule. So I’d be driving down the road, at the speed limit, likely in one of the right lanes and the space front of me would be a three second gap to the car in ahead. As soon as a car (inevitably) pulls into the gap front of me, my car would automatically slow down to give a three-second gap to the new vehicle. You can see how this could cause issues for traffic behind me as well as slow my travel time down significantly. Now if all cars were autonomous, it would be a different story and, in this case, the three second rule would not need to exist. If all cars were autonomous and could talk to each other and make adjustments in real time, cars could travel down the road ver close together. Not only would we have no accidents, we would have no traffic jams. The downside in this is when you stop and think about how long it will take for all cars to have these sensors and all cars to be autonomous. Unfortunately, we are several decades away, at a minimum, from this reality.

Ultimately, the hybrid autonomous concept is likely to happen first. My car will be able to make decisions for me in many circumstances to avoid or minimize accidents. And, as long as there are cars on the road that are 100% controlled by humans, the risk of automotive accidents remain high. Then, in the future, accidents will be a thing of the past.

The Wearable Gold Rush

In case you haven’t noticed, the wearable technology segment is the fastest growing consumer electronics market in the world. You can expect nearly every company in the consumer electronics space to either enter the wearable market or put their foot on the gas pedal. There are already over a dozen companies with different products but only two with any meaningful volume–Apple and Fitbit. When a market is growing at over 100% YoY, we can expect to see it get even more crowded very quickly, both with products from companies you have heard of and from companies you haven’t.

While I’m skeptical, for now, that any other vendors will garner meaningful share from Fitbit or Apple in the foreseeable future, I still view this gold rush as a positive for the segment. We are still early in the wearable computing market. Companies and consumers need to experiment with different products. This is how a segment matures. With each generation of the product, consumers refine their interests, needs, wants, etc., and develop their own personal tastes. I love this visual of the car industry because it the best depiction of what a post-mature (a market that has been mature for a decade or better (something not true of any consumer computing category yet)),looks like.

Car-Body-Types-1

There is a car for every type of need or desire. A post-mature industry is extremely segmented. Now cars are expensive, as are PCs, so looking at things like wearables, which many will sell for well below $300, we can expect this segmentation to be even richer at some point. At least until the types of sensors that collect data from our bodies we deem useful and valuable get integrated into all our clothing and apparel. I expect consumer electronics companies, or ones aspiring to become consumer electronics companies, to look for areas of differentiation within this segment. There is an interesting challenge, however.

This is not your typical area of consumer electronics. Wearable technology is not like PCs, TVs, stereos, or other categories they are used to. This category, similar to cars, fashion and even smartphones, is deeply personal. Deeply personal purchases generally tend to have some emotion attached. Price is not, and rarely will be, the driving factor. Commodity electronics dynamics likely will not apply. Things like brand, quality, and design all matter when a purchase is personal and emotion trumps price. This is where so many who chase the wearable gold rush will fall short. It’s also why those companies with a focus on the design as well as the utility will have a stronger chance. I’m not just talking about Apple here since the category is large enough to sustain a number of players.

Back to the point of why the gold rush is good. We need more companies to experiment and throw ideas out there so we can see which ones stick. This is a key part of evolving the category. There are tons of sensors still waiting to go mainstream. Things like sweat, blood oxygen, UV, air quality (especially for China), glucose, and many more. Do consumers care about these? If so why? What are the positives for behavioral change once we have more sensors collecting data on our bodies? What are the software or services potentials around them? These are all things that need to be fleshed out in the market.

There are some very interesting changes to the healthcare industry coming as well. Dynamics that I believe will impact the wearable segment and further strengthen or weaken those who chase the wearable gold rush. More on this topic next week.

The Story on Ad Blockers and Implications on Business Models

The rise of ad blocking has been a story as of late. Interestingly, I first caught onto this earlier in the summer from a project I did for a big tech company on millennials and their habits and behaviors with technology. I decided to do some custom research by way of interviews with college-aged students. I was hoping to get a read on how receptive they were to online marketing and advertising. When we started to hear things like “I don’t see ads since I use an ad-blocker,” or something along those lines from a number of interviewees, I wondered if this was a trend. So I decided to run this question to our larger global survey panel. Here is what our data turned up.

Screen Shot 2015-08-17 at 8.53.12 PM

As you can see, while ad blocking is used across demographics, millennial’s use of ad blockers is higher than other demographics with teens (18-16 in our age brackets) not far behind.

Upon further examination, we found a primary driver of using ad blocking services among millennials was to block ads from YouTube. Not terribly shocking when you realize how much YouTube video they consume on a daily basis. At a more fundamental level, when you observe millennials use technology, you realize they are extremely efficient. I see ad blocking as a service that fits in this vein of their technological philosophy. Ads for millennials are simply a waste of time. Perhaps, this is somewhat of a universal truth for many advertising experiences we have. Rarely is anything we see online remotely useful or applicable to our needs, wants, and desires.

Pair this thinking with what I wrote yesterday on Eastern vs. Western business models. If you think about some of the extremely relevant ad experiences we have today, they often come in the form of things we pay for–namely magazines. Personally, I continually find magazines to provide the best ads for my interests. This has everything to do with the magazines being focused. I read magazines on a range of topics specific to my interests and hobbies. Time and time again, I find things I buy or order online because I discovered them in magazines. When we look at how this happens online, we realize that even targeting as it stands today is not truly tied to my unique interests as well as a magazine does on a specific subject.

It seems this needs to be replicated in the online world but we notice patterns online where sites are so broad, the advertising is broad as well. Online ads are more similar in relevance to TV ads than magazine ads. This seems like the opportunity staring many in the face. Adblockers create this unique problem, however. Once you install them, will you uninstall them because, all of a sudden, you want to see advertising? I suspect not.

Now, while I don’t expect websites to become free, I do think we need to see a dramatic evolution in these free services to provide more relevance with their advertising. I also suggested something like buy buttons could become more prevalent. We could also see an increase in more topical or interest specific websites. This was my original thesis on social networks — they would eventually splinter into networks of specific interests like dogs/cats, cars/motorcycles, moms, sports teams, etc. I believed, and still do to a degree, that niche social networks would become useful, and valuable, but also present magazine-like advertising experiences due to the specific nature of the social network. Niche sites or niche social networks are the easiest kind of targeting.

While it feels like we have a mature consumer internet, the reality is we may not. We are still watching the consumer internet shift from desktop to mobile and have yet to observe the ramifications of this shift. Yet, ad blocking is real and appears to be rising. With iOS bringing this to mobile, it will be very interesting to watch if this heightens awareness as well. Regardless, this is a new dynamic many who rely on advertising-based business models need to be aware of and think through.