Tech Hardware Magnets, Shopify Launches Shop

Tech Hardware Magnets
I remember being told growing up to keep magnets away from computers. This is why it seems all the more fascinating that magnets, integrated as a part of the experience with many tech products, have such a positive impact on the experience. Here are some examples.

iPad. An obvious one of that got news because it just launched is the new iPad Magic Keyboard. Part of what makes this case so magical is the magnet that holds iPad up and lets you tilt the angle of the screen in a number of ways. The other is how the magnet holds the Apple Pencil on iPad and charges it.

Surface Pro. Surface Pro had the first magnetic pencil attachment, and it was always something I wanted Apple to duplicate. Now with Surface Pro X, the pen is hidden in the case and held by a magnet. This subtle makes losing the pen nearly impossible.

Earbuds. Many companies have smartly made their earbuds firmly hold and lock into place in their cases with magnets. Galaxy Buds, AirPods, Google Pixel Buds, etc.

What I’ve noticed through the years of observing how different companies have integrated magnets as a part of the experience with their hardware, is how the subtle feeling of the pull of the magnet to secure something is so satisfying. It’s hard to explain, but there is something about that snap or lock into place feeling that has a positive psychological impact.

I notice this daily with my AirPods Pro when I put them back in the case and feel the pull of the magnet, and they snap into place. It brings about a sense of delight each time I do it.

I have no idea if tech companies realize the satisfying nature of this, but that feeling is consistent every time it happens. With Apple Pencil, with putting iPad on the Magic Keyboard, etc. Sometimes the stronger the magnetic pull, the more satisfying. I’ve been playing with Google’s Pixel Buds 2, and their entry into the case is even stronger than Apple’s with AirPods Pro. I just love it, and I can’t explain why.

I say all this to make a point. As we go forward into new device types and particularly around some aspects of miniaturizing computers, I expect more work and innovation to be done with integrated magnets into devices. While subtle, I expect this to become a fascinating part of overall product experiences to watch for and one that has a fascinating impact on the product experience.

Shopify Launches Shop App
Today, Shopify launched an app called Shop. I know I have written about Shopify before, and my overall opinion is that I would much prefer small businesses, D2C upstart brands, and more use Shopify than Amazon for commerce.

If you have not had the experience of buying a product from a merchant on Shopify, it is fantastic on many levels. From the ease of checkout using any payment method you want, including Apple Pay, Paypal, Amazon Pay, etc., to order confirmation and order tracking. The app will make all of these even better and, in my opinion, encourage even more commerce from Shopify merchants. While I know Shopify is not yet a household name by consumers, if I know a merchant is on Shopify, I am many times more likely to convert my purchase.

As a slight aside, I do think Shopify would be well served to start doing more aggressive consumer-facing marketing. This app may very well be a part of that strategy. But another thing the app has that is clever is a way to find local merchants on their platform who are near you. This has a benefit in the COVID-19 situation to help link local buyers up with local sellers.

There has already been a steep rise in e-commerce over past annual and seasonal trends with the nationwide and, in many cases the global shelter in place. A shift in e-commerce for many more transactions is coming and likely to be one of the broader things that stick going forward. Although, I do expect when the shelter in place is lifted or eased, people will want to go out, and we will likely see a sharp, gradual rise in retail spending. But the main point here, is with many things, once a barrier is broken down, and in this case, people using e-commerce for more things, we tend to see the barriers stay down and the habit grows.

I fully expect COVID-19 to have a dramatic impact on the penetration e-commerce has as a part of retail annually. This will benefit companies like Shopify, who have a unique moment to capitalize.

Zoom’s User Growth, Zoom Fatigue, Magic Leap Layoffs

Zoom User Growth
Despite the barrage of negative headlines around Zoom for having security and privacy concerns, the service still saw 100m growth in new users in about a month. This again speaks to one of the most important points we have been forced to conclude, that so many end users say they worry about security and privacy but do not actually let their behavior reflect that concern. This is why it is ultimately in the hands of the tech companies themselves to protect consumers because consumers, at least the masses, will not do it themselves.

Zoom, by volume, is the most used video platform on a daily basis. This came through clear as day in a recent work from home research study we concluded but Microsoft Teams is not far behind. The interesting debate here around Zoom, more so than Microsoft Teams, is how many of those users will stay once the mass shelter in place is over? Zoom went from 10m users, in a world where video meetings were not the normal culture in most enterprises, to now 300m in less than six months. From a user base perspective, no company in the space has benefitted more from the mass shelter in place than Zoom. But potentially, no company could see as significant user declines when this is all over.

I do strongly believe video meetings will become much more commonplace even as work returns to normal in the coming years. Our recent research also confirms this as a tipping point has happened for many companies when it comes to remote workers and distributed workforces, and I don’t see us returning to audio calls only as the dominant way teams collaborate remotely. But we certainly won’t see the same size and scale of video meetings we see today, at least not for a while. This is where Zoom must have a clear strategy to retain as many of their new users as possible with either new creative business model approaches, or new services that emerge during this time that gets their users hooked.

Zoom may be one of the only video platforms that can straddle the fence of mass consumer usage and corporate usage, but walking this line will be tricky. The entire reason their security and privacy issues came up was because the service was built with consumer onboarding in mind not enterprise onboarding. Zoom has since made many changes to satisfy the security needs of enterprises, but that has also come at the cost of some of the ease of use to add new customers. But Zoom is the snowball that keeps rolling downhill right now, and it will be fascinating to see what they do to try an retain their new users.

Zoom Fatigue
That being said, this concept of Zoom fatigue is real. Video meetings are undoubtedly harder and more mentally taxing than in-person meetings. As this article I linked to points out, it requires more concentration for us to present ourselves in a manner for video meetings as well as harder to read the important visual cues we are used to reading from other people during these meetings. Essentially, many of the core social evolutionary traits we have developed are either not possible or extremely difficult during video meetings.

We have seen new behavior emerge here. However, that is interesting as we consider a future with more video meetings as a part of everyday life. Most companies are now having only the speaker be on video when the meeting consists of a large group of people. Everyone staying on mute helps with distracting background noise, but the often distortion of video quality and audio being out of sync is a huge impact on the overall experience. I average, at the moment, 3-4 hours of video calls a day right now, and nearly everyone has video or audio quality issues.

I came across this article that quotes psychologists on some of the reasons Zoom, or just video meeting in general, is a cause of mental fatigue.

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

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

I recall talking about this with my colleague Carolina Milanesi once we started embarking on many hours of video calls each day and how we both felt so much more tired than normal. I think everyone realizes the difficulty of video meetings, due to the difference in cognitive load even though we didn’t quite realize why. This is something employers, employees, and the companies providing such technology need to be aware of and work to solve.

Magic Leap Layoffs
Magic Leap looks to be toward the end of it’s run. This is one of those times I hate being right from early predictions where I cast my doubt on their long-term future. Honestly, this was simply never a venture company due to the size and scale and patience needed to succeed. This was always a market, I believed, that the incumbents would have the best chance at success. But it is unfortunate none-the-less.

Magic Leap pivoted away from consumer ambitions and moved to the enterprise, but that market is still not big enough to financially support their business. They looked for an exit and again, unfortunately, were not sitting on enough proprietary IP to be of interest to anyone at the time. Should things continue to go south, I expect they find some kind of a buyer, but for far less money they ever imagined they would take in an acquisition.

If I had to bet on the buyer, I would bet on Facebook, and that would be as much for the talent as it is any technology they developed.

Magic Leaps troubles only convince me more that we are much farther out from any kind of mass adoption of augmented reality, and even virtual reality head ware than anyone truly realizes. Not only is the technology years out, but the market and end-user willingness to adopt this are also many more years out.

Privacy Post COVID-19

I made a brief appearance on NBC/CNBC last night talking about what tech companies are doing to help monitor contract tracing of COVID-19. That discussion spurred me to write a bit more on the subject. It has been interesting to monitor the sentiment and conversations around this in the media and on social media. At a high-level, contract tracing seems to be an important part of both public information as well as a method to hopefully start to re-open the global economy. The right decisions need to be made by our local and national leaders and intertwined in the ability to make good decisions is good data.

The thing that strikes me about this moment in time is when we find ourselves in a situation like this, we may be willing to make more trade-off (even if short term) around privacy than we normally would in normal times. I personally would want to know if I was somewhere, like a store, at a time when someone who tested positive or had symptoms of the virus was also present. This would let me know to more closely monitor myself and perhaps stop going out entirely for a longer period of time. But contact and hyper location tracing are the only ways to accomplish this. Of course, there are ways to still do this and protect our privacy, and I think Apple and Google’s collaboration here accomplishes this by making sure that information is not traceable to the individual by personal information identifiers.

Similarly, in a way, Facebook partnered with Carnegie Mellon University’s Delphi epidemiological research center to offer data maps in an attempt to locate, and visualize COVID-19 hotspots before they get too large.

In both cases, people seem to be willing to give up information they may have otherwise been more hesitant to give up in order to stay safe, healthy, and be informed. In both cases, the consumer has to have some level of trust in the institution. Google partnering with Apple, in this case, was wise and rode the coattails of the years of Apple entrenching their privacy position. Google could not have done something on their own, in the same way, Facebook could not have, and both needed a partner where more public sentiment around trust exists.

While these collaborations are necessary for this moment in time, and consumers may be willing to make some short-term trad-offs around privacy, particularly around their location, I want it to be clear these trade-offs are truly short term and we aren’t giving up more than we are able to get back over the long-haul. I say that because the companies I mention are not going to be the only ones asking consumers to share information, sometimes highly sensitive information, in exchange for some peace of mind during this situation. Fear is a driving factor in many communities, and that fear can lead many to agree to things they would not otherwise. This is why it is extremely important this gets thought through, so we don’t end up losing more privacy going forward.

Yes, it all comes down to who you trust. But, my concern is in moment of fear and paranoia, people may not be as rational as they normally are when it comes to their rights around privacy. Making too big of a compromise with the wrong company right now could make it more difficult, if not impossible, to get some of that privacy back.

In times like these, with the media driving fear and paranoia, it puts consumers in a tough spot, and again in a place where technology companies can help or take advantage. My hope is big tech seizes this opportunity to be a helper and have people’s best interests at heart, even going outside of their customer base to help.

The iPhone SE and Apple’s Art of War

I’m going to come right out and say it. In the last few years, Apple has been enticing its competition onto battlefields where they can’t compete, and their competition keeps taking the bait.

What has to be appreciated about this strategy at a high-level is only Samsung has the development and manufacturing capital to zig and zag with Apple. Huawei, while seemingly competent, does not sell many premium phones. Therefore, I don’t put them on the same level as Apple or Samsung capability wise despite Huawei being the second-largest smartphone maker by volume.

While Samsung makes great premium phones, they sell magnitudes fewer premium smartphones compared to Apple. Bearing all that in mind, every smartphone OEM has had to be extremely tactical vs. Apple. The Android market is enormous but also divided up into many pockets of a market, and each OEM has the slice in mind they are targeting. However, at a high-level, a key part of their strategy and specifically the strategy for Huawei, Xiaomi, and Oppo and Vivo has been to gradually go upmarket into the premium tier. Knowing quite a bit about how the Chinese think strategically, should they achieve success in the higher-end, they would put more resources into those models and spend less time and attention in their entry-level products. This makes sense considering they make zero margins on their low-end phones. Little did they know they this is a tactical error, and more importantly, they don’t understand why. I know they see the data, that large groups of buyers still choose Apple products over theirs even though Apple products cost more. I have had countless debates with executives of Chinese companies who compete with Apple, and they simply can not understand why people would choose Apple’s product over theirs at a few hundred dollars more when theirs is less expensive and competitive “on paper.” I emphasize “on paper.”

This mindset is exactly why they can move upstream onto the premium battlefield and still not succeed with the volume they want or hope anywhere near Apple’s premium volume. Nonetheless, Apple’s competition ventures out and puts enormous resources and focus on their premium devices for a hope to compete and, from data we see, it just doesn’t work. Part of their hope is that by simply having a premium device, something aspirational, it will help the rest of their portfolio, where they have always believed Apple would not go, until now.

This is what fascinates me strategically about the updated iPhone SE, Apple now has what anyone would consider an affordable premium SKU that may actually be better, “on paper,” and without a doubt experientially due to Apple’s vertical integration, that strikes right at the heart of where the competition was becoming vulnerable as they were prioritizing the premium segment.

Apple’s competition is about to see what happens when Apple starts playing the affordable premium game and starts picking off their competitions more mainstream consumers.

The iPhone SE Land and Expand
While it is certainly true, to Carolina Milanesi’s point today in her analysis, the iPhone is perfectly and purposefully targeted at the portion of Apple’s existing customer base who does not buy flagship phones and often buys last years, or the year before model, at a lower price and holds onto it for 3+ years.

There is also a massive second hand, or hand-me-down, market for iPhones that this device will play an interesting role against. I’ve seen estimates that anywhere between 350-450 million of Apple’s ~ 1 billion iPhone installed base is second hand or hand-me-down devices. At $399 the new iPhone SE makes for an interesting proposition to get someone on the latest and greatest technology.

For Apple’s existing base, the iPhone SE now offers a much more interesting option than going to last years or the year before model, with the added benefit of longevity, security, better experience, etc. That being said, I’m more interested in the land and expand strategy of the iPhone SE.

We are at a point in time where on the best years, smartphone sales have neared 1.5b annually around the world. Apple sells ~200m a year on average, which means there is certainly room to grow. But, we all know the market for premium flagships is capped, and that has played a role in Apple’s volume ceiling.

Expanding beyond premium will almost guarantee Apple attracts new customers in every market of the world, and particularly those where the price is more of a concern. In every market, there is a tier of smartphone prices and customers who fit those tiers. Apple asking every potential customer to spend well north of $500 for modern technology, was always going to limit their potential customer base. The iPhone SE is perfectly positioned for the middle tier of the market and the customers who look more at price and value for the price than anything else. This market is extremely large around the world.

There are markets outside of tier 1-3 in China where this device could be attractive, although import tariffs may still make it too expensive. However, in India, where Apple has begun local manufacturing of certain SKUs in order to keep prices low, the iPhone SE is perfectly positioned. I strongly suspect the iPhone SE can be made locally in India and have a regional SKU just for India to keep the costs competitive. Again, this is not designed to go against the flagships of Xiaomi or the premium market in India, but it is designed to go after the largest segment of the Indian market, which is the mid-tier, and there I think it will appeal to many Indian buyers.

The iPhone SE is likely to be the entry point to the Apple ecosystem for many first time buyers, and that has a significant impact on Apple’s long-term prospects.

The last point I want to make is this strategy could also benefit their wearables and services strategy. For wearables, the more potential customers, the better the sales prospects are. Having said that, combined, AirPods and Apple Watch have still not penetrated 20% of Apple’s customer base. This segment has massive headroom to grow within Apple’s existing base, let alone new customers they may acquire. But more new customers means more potential to sell more Apple Watches and AirPods. Services could also benefit. Every data point I’ve seen from research suggests that when customers get onto the newest devices, they tend to subscribe and pay for more services. Knowing this is a price-sensitive target segment could mean that trend doesn’t follow, but there is a chance newer devices do offer better experiences with services and become more attractive. It is noteworthy Apple is offering the Apple TV+ free year subscription with the purchase of an SE.

Apple keeps zigging, while others keep zagging, and whether Apple is strategically this savvy or not, I don’t know. Still, the reality is the iPhone SE will put tremendous pressure on Apple’s competition in the smartphone space, and I’m certain will end up expanding Apple’s customer base.

Google and Custom Silicon, China Tech Market Rebounding

Google and Custom Silicon

Interesting news from Axios that has uncovered a collaboration between Google and Samsung to create customized silicon for Made by Google hardware, including Pixel smartphones and Pixel Chromebooks. This always seemed inevitable to me, given how much success custom silicon brings Apple. However, I put this move in a much more similar fashion to Microsoft’s custom silicon efforts for Surface than I do Apple’s.

Apple is truly creating custom-designed silicon across everything but perhaps the instruction set from ARM. It is unique and proprietary in nearly every way. The efforts of Google, which are more closely matched to Microsoft, seems more a joint-effort than a true custom solution. There is nothing wrong with this approach, and it is entirely understood since Apple is unique in that they have acquired and built a world-class semiconductor team inside Apple, where other companies simply don’t have this luxury. Microsoft and Google are able to work closely with partners to create versions of chipsets that are customized or tuned to specific things. This is a fine approach but very different from Apple’s.

Notably, Google is working with Samsung closely on this and not Qualcomm. This may very well be a tactical error, but we will have to see. I personally have begun losing confidence in Samsung’s Exynos architecture and Samsung devices running that chipset solution compared to Samsung devices running Qualcomm’s seem to have dramatic differences where Qualcomm’s has proved superior. It has been a not so secret rumor, that Samsung’s silicon efforts have been impacted a lack of success in getting customers who can drive volume. While their process technology still looks competitive, the custom chipset solutions they design seem to be lacking.

This is where Google will need to prove they have some architects who can help and are worth their value in architecture design, or they run the risk of having a part that is not competitive to Qualcomm flagships in their flagship Pixel smartphones and Chromebooks. Going down this road is a big bet for Google, even more so than Microsoft partnering with vetted leaders like Qualcomm, and AMD for their customized solutions. This will be an interesting one to watch develop.

China Tech Market Rebounding

Via analyst notes on the Chinese gov smartphone report.

Phone sales in China recovered in the month of March after an abnormally low February (~500k units) were up 414% month/month along with the overall smartphone market (up 232%) as the country emerged from a COVID-19 related lockdown. iPhone sales were up 20% on a YoY basis likely due to some pent-up demand.

Analysis of monthly gov’t smartphone data from China shows Apple outperformed the overall market. This was expected as Apple has a higher percentage of its sales in the country through online channels vs local retail outlets. iPhone sales were up 20% while the overall market was down 22% in the month of March. For the first quarter, Apple sales were down only 4% YoY compared to the overall market decline of 35%. We would expect market share shifts to normalize with economic recovery.

This looks like good news, and a signal of a similar dynamic in Western countries as parts of the world begin to open back up. The idea that smartphones have pent up demand is interesting, and numerous research reports I’ve read indicate that pent up demand could lead to an upswing in sales. While not everyone needs the latest and greatest flagship smartphone, and not everyone buys a phone every two years, there is a much larger segment of the market that simply need to upgrade because their device is broken or old and slow (as I like to call it). Outside of the Dec quarter, this steady flow of upgraders from devices that are old and slow continue to fuel the market on a per quarter basis. The uptick in China is likely due to this dynamic and is a signal it will happen in other markets. Even though this is a known factor, it will be incredibly difficult to predict the volume, which creates an interesting challenge for Apple uniquely.

Apple is among the best, if not the best, at managing manufacturing build orders to weeks to inventory. Apple is such an efficient operational machine that they are experts at building just what they need every quarter and not being stuck with loads of excess inventory. This efficiency, however, sometimes catches them off guard, and they end up being short on supply if demand exceeds the modeling data they are using. This has happened more than once to Apple in the last ten years.

I have no doubt Apple will see a lift, one that will be extremely hard to predict, once people get the confidence back to start spending again on things like smartphones. To that point, you could argue this lift could happen sooner than later if it becomes apparent our global shelter in place extends to the fall as people will realize themselves and perhaps their children are going to rely on technology even more as a part of work and learning from home.

I’ve said from the start of this COVID-19 situation, that it will prove which companies have strong leadership and which ones don’t. This is applicable in every type of company from hardware, software, and services. I know investors are heavily scrutinizing the management of all public companies and confidence in certain companies vs. others will be applied appropriately based on what is observed during this unprecedented time.

Economic Report Synopsis

I know many of our readers are business professionals and are keeping a close look at the economy as it relates to their businesses and industries. I always monitor sell-side reports via access I have to different report portals, but over the past few weeks I’ve been reading every report on the economic downturn, I can get my hand on. I wanted to share a summary of some of the key take-aways I gathered that help us frame where we are today and what the next few years can look like.

Below are some top-level points about what everyone is calling the Great COVID-19 Recession.

  • No Quick Recovery: There was a brief thesis going around that the economy would see a V-shaped recovery. Essentially a rapid recovery after the large dip. There is generally no one who holds that thesis any longer. The V-shaped recovery thesis hinged on a rapid slow down and victory over the COVID-19 pandemic, and a return to life as normal would not take more than 60 days. That is no longer possible, as defeating the virus is taking much longer.
  • How Long Will be in a Bottom? The conversation has now shifted to how long will we be at the bottom of the recovery curve? Nearly every economist report I’ve read now suggests the earliest we could see some recovery would be in Q4 of 2020, and most believe it will take all of 2021 for us to recover fully.
  • How Bad Will Unemployment Get? This question saw little to no consensus. Which I generally view as positive because the variance means it may not be as bad, but it may also not be great when it comes to unemployment. Economists range from the worst-case scenario I’ve seen of unemployment at 28%, and more consensus thought around 14-18% range as the worst case. Both scenarios are significant when it comes to job losses, the need for government intervention, and the deeper the job losses, the longer the road to recovery.
  • The Hit to GDP: All economists point to t Q2 2020 being the biggest hit to GDP. This is logical since the expectation in the US will see the worst of the virus in April and May and then start to see it slow down 🤞. The worst-cast GDP scenario I found was GDP contracting as much as 45% in Q2 20, and that came from Morgan Stanely. That was their worst-case scenario, and their best-case scenario has 2Q 20 contracting to 23%. So both cases, that is still a large hit to GDP. Most other economic reports I read had their worst case GDP declines at 20-25% in Q2 and everyone seems to believe in a soft-ish recovery in 3Q and slightly more in 4Q although everyone agrees GDP will be down all of 2020 now.
  • What Will Be the Hardest Hit Industries? Consensus is found here that the top industries hit will be (in order) recreation services, Food services & accommodation, travel and hospitality, automotive, clothing, and home furnishing round out the top. I found a subsequent report on payment spending, which was a survey of 5,000 consumers across all income levels that validated these industries are the ones where spending cuts seemed to be the harshest.
  • A Good Sign on Savings: Per the last big recession, one of the big worries was the knowledge that most American’s did not have ample savings. All data today indicates a better savings cushion for most than in the last recession. The data also suggests most American’s started to prepare and save seeing the trend coming in the economy as early as Feb with a savings rate continuing to be higher than normal through March. This suggests supporting basic need consumption over the medium term, which is why economists agree not every industry is hit. There will be industries that benefit as consumers do have a cushion of discretionary spend this time where they didn’t in 2008-2009. This cushion is a reason to believe the depth of the recession will not last as long as the worst-case scenarios as there is angst to get the economy going by every, one and all will be incentivized to do so.
  • The Fed Still has Options: I understand the necessity of government aid. Still, given our current debt situation and the monetary policy and currency cliff we keep getting dangerously close to, I worry about the government screwing this up more than anything. Still, economists believe there is more the fed can do to ease the pain and inject stimulus back into the economy. The interest rate will stay at 0% for some time and disinflation (not deflation) for a few years. Assuming this holds, and we do see disinflation, not deflation. This is actually a positive economically as it will result in some better pricing opportunities for many. I’ve long been a fan of the boom, bust, buildout theory due to the value it brings in access to goods at lower prices which leads to innovation. While we are not in as large of a bust as past bubbles, what this situation is resulting in is pricing strategies of goods and services that, I believe, will spur an innovation cycle for a period. It is likely this disinflationary period is not long, which means prices will go up before too long, savvy businesses will capitalize immediately on the opportunities rather than cut back. Across the board, we will see “deals” that were previously not to be had.

Structurally it seems everyone views this recession as quite different than previous ones. Which is a reason there is more optimism going forward for a full recovery and even some positive economic changes as a result. Nearly every business has had to make changes they would have never made had they been forced to with humans not being able to leave their houses. Most of the industries I mentioned who were hardest hit are being creative in these times and many using digital/online technologies to still offer engagement and commerce. I have long said they someday every company will have to be a technology company but I was reasonable in any forecast of that happening because of how slow so many companies can move. Especially when they are not pressed to the fire. The situation around COVID-19 has forced many into the fire and while not all establishments will make it out those who do will have been refined and stronger as a result of the changes they made.

When we look back at this event in many years, I do hope it serves as a springboard to bring more businesses, governments, and humans into new and better processes that will better prepare us as a civilization for the turbulence that will inevitably find us, but also force many companies to shake off the crust the have developed and be in a better position to keep innovating into the future.

Amazon and Apple: When a 30% Cut is Justified and When it Isn’t

Amazon and Apple
Some interesting news dropped yesterday with Amazon enabling Prime video rentals and purchases to now take place inside the Amazon Prime Video App. As of a few days ago, I know because I tried, you still had to go out of the Prime video app and to Amazon’s website to buy or rent a video from Amazon. This news changes that, and finally lets people seamlessly purchase premium content from Amazon and never leave the app. There are some important aspects of this to unpack.

First, we know Amazon has long held out doing this for their customers to avoid paying Apple’s 30% cut on digital purchases taking place in an iOS store. Note this applies to digital purchases that are then played on an Apple device. Oculus has long had the ability to pay for content on the Oculus iOS app but then play that content on an Oculus VR device. This pushback on Apple’s 30% cut for in-app purchases has also come from companies like Spotify and Netflix.

Apple’s comments on the matter suggest there was already an established program in place for this, but that has caused some doubt by independent developers reading through the lines.

I have no idea if Ryan is correct, but honestly, it doesn’t matter. Whether there was a program or not, or whether Apple and Amazon worked this out together, is irrelevant. What is relevant is that it exists now and that’s great for Amazon’s customers. But it is worth taking a deeper look at the reason for Apple’s 30% and why that reason has never applied to Amazon.

Apple’s 30% cut, in their minds, is justified for a few reasons. First is because the iOS store is a marketplace. Apps on that marketplace are put before customers and given an environment in which to be discovered and sell content. For the vast majority of apps, without the iOS store, they would not exist. That alone equals some value to both parties. Second, Apple is acting as the merchant/payment processor. This is important because without Apple acting as the seamless and trusted intermediary between business and customer. If the App store’s mechanism for payment through Apple did not exist, the vast number of companies collecting payments via in-app purchases or subscriptions would not be possible. The alternative would have been these companies setting up their own payment mechanisms and asking a consumer to set up an account, enter payment information and key personal details, etc., All too much friction most would never have bothered.

Not only would most consumers not bothered, most would have never heard of these companies before and never given them their payment information to begin with because they did not trust them. This is where Apple becoming the trusted intermediary for payments is crucial. If that did not exist, I am extremely confident there would not be the iOS economy there is today, processing billions of dollars annually.

If there is one company, for whom I have always believed this rule should not apply, it is Amazon. Amazon was already a dominant commerce company before the iPhone. Amazon was the pioneer of simple one-click checkout, and Amazon was already a trusted brand that already had customer accounts in the tens of millions before the App store ever launched. Amazon NEVER needed Apple for either market place assistance or payment/trust processing. All the reasons Apple felt their 30% cut of digital transactions was justified never applied to Amazon. And honestly, I think Amazon is the only company I can say this about. Feel free to debate me 😉

Yes, perhaps Netflix, but even then, I’d argue a large surge of Netflix new customers was due to this ease of payments through Apple. But Netflix will be fine using its own payment mechanism. Spotify, on the other hand, despite their lawsuits and complaining, would have had a significantly more difficult time growing to the size of the customer base they acquired without Apple’s in-app payment process. If Spotify would have asked every new customer to go sign up and give them their payment information, etc., it would have been a wall and, in reality, a wall that would have greatly benefitted Apple Music. One could argue the level playing field in ease of transactions was a significant reason Spotify could compete with Apple Music to begin with, and had they had their own payment requirements, the playing field would have actually not been even. It’s a paradox, I know.

This, now, raises a few questions.

  • First, will other companies start to use their own payments to get around the Apple 30% cut. The answer is yes, and for many companies, they will fail and need to return to Apple’s in-app-payments.
  • Will Amazon doing this hurt Apple’s services revenue? No. Apple was not getting any revenue from Amazon anyway on digital purchases. Therefore this will have no revenue impact on Apple’s services business.

  • Will this impact Apple’s services business as new companies try this? My gut answer is no, and it is for this reason. As I pointed out, it takes a company that has reached a certain size, scale, brand, etc., even to pull this off. Amazon is that Netflix is that, and now Spotify is that Disney could do this as well. However, it behooves them to not. I’d argue that in any companies growth strategy, or as we like to call it in the business land and expand, using Apple’s payment processing for easy one-touch transactions will be essential. It is only once that company has reached a certain size of customer base when they can move to their own system, and at that point, I’d argue, their growth would have slowed. So Apple would capture a share of the revenue during their growth stage, and by the time they can pull off their own system, they won’t be adding customers nearly as fast and thus would be contributing little to Apple’s services business any longer.
  • Overall, this is great for Amazon customers, and one does wonder if there is some unions between Apple’s tvOS and FireTV in-store now this is worked out. It will be interesting to see what other companies move in this direction, but as I said, there is a shortlist of companies who can pull it off, and that is not going to change any time soon.

Zoom’s Security Challenges, PC Hardware Surges

Zoom’s Security Challenges
The undisputed winner, in terms of name recognition and likely usage, of the remote working/learning situation is Zoom. Influential venture capitalists, and CEO, and more are all tweeting about Zoom, brands are sharing images to be used as Zoom backgrounds as marketing.

People all over are sharing images and stories of teachers and all educators doing Zoom’s with their students to stay in touch and teach remotely. Like I said, in terms of mentions in public as well as the public’s mind, if you were to ask them who is winning video conferencing, most would likely say Zoom.

Zoom is a solid product. It is arguably the easiest platform to get set up, use, and start video conferencing. It is also highly reliable in terms of video quality and audio quality. We had known for a while that Zoom was spreading like wildfire because of its ease of use. It was continually being adopted by users for a variety of reasons.

Zoom has also been crushing it from a stock perspective. It is currently trading at a P/E of just over 1600. There is debate about whether Zoom is over-valued, and its a good debate, but you can’t argue Zoom becoming the generic face of video conferencing during this period of quarantine is not valuable and will not do wonders for their continued growth.

But, it is not all good news for Zoom as some security and privacy concerns are now starting to gain headlines. It was reported last week that Zoom was sending data to Facebook when their customers choose the log-in with a Facebook option, which should not be a shocker to anyone who looked into how the log-in with Facebook SDK was working. The fascinating question is, why did Zoom even offer log-in with Facebook to begin with? I’ll hit on that in a moment.

Zoom has since plugged that hole, and did so quickly, also releasing a blog post on the matter.

More recently, today, an article came out today looking at the lack of true end-to-end encryption on Zoom calls.

While I do, perhaps naively but I do, take Zoom at their word that they are not spying on customers or actively selling their data, I do think Zoom’s growth strategy, or land and expand as its called in the business, was developed with a much more consumer-friendly attitude than an enterprise-friendly attitude. What I mean by that is Zoom took a bottoms-up approach that focused on making things dead simple for the end-user and through that process got adopted into enterprises with a less than thorough security and privacy approach. Now, for a lot of businesses and institutions, that may not matter. I’m sure educators, colleges, many SMBs, and even plenty of large enterprises are not trading in deep secrets and are ok taking Zoom at their word they aren’t spying or selling data. However, there are also plenty of organizations like Governments, global tech companies, perhaps medical and healthcare, and others who will simply not use Zoom because of security and privacy concerns.

I’m not worried about Zoom even with these security and privacy reports. I say that knowing full well that without standard security and entrenched encryption in place they will not land certain customers, but the market is big enough for all the players now seeing tremendous growth like Microsoft with Teams (they need to kill skype), Cisco with WebEx, Google Hangouts/Meet, etc.

Zoom’s lesson is that a user-focused approach where ease of use is central is the quickest way to land and expand your customer base. But, the lesson is also to consider how much of a pure enterprise company you want to be as you start. Zoom, I think, also wants a pure consumer play, and because of that, there will be some tradeoffs they will make.

PC Hardware Surges
In a turn of events, no one saw coming, nor could have predicted, the PC ecosystem is surging. At a time when smartphone demand is at an absolute abysmal low, the good old PC and its ecosystem of monitors, mice, keyboards, and other accessories (beauty lights and external cameras) are surging.

I first got wind of this weeks ago when talking with those in the PC supply chain and then double confirmed it with the PC OEMs we work with. All of them are seeing a surge of demand as corporations are refreshing machines quicker than normal to get employees the hardware they need to

Further confirmation came from our friendly NPD analyst Stephen Baker who published a brief report today highlighting surging sales they see from retail and B2B resellers they track.

So why is this interesting? When we step back and look at the big picture and the potential trends and market place changes, knowing that PC demand and a flurry of work from home accessories are surging, it emphasizes the point that more corporations and individuals will have adequate hardware solutions in place to embrace more remote working as needed or demanded.

Once companies make this shift, as they are forced to know, there will be new processes and new comfort levels of the business and its employees. I’ve long said that people should not have to come to the office every day, and or they should be able to live where they want and still be an integral part of their team. What we are witnessing right now is going to make this possible.

There are so many positives that come out of this reality. Not only killing traffic in metro areas but cutting down on pollution, companies not needing as much real-estate, the development of other areas and city economies not located on the coasts, etc.

The other thing I’m wondering is if people are starting to build new habits with their PCs again now that they are being used for more than just work at a workplace but also at home and in kid’s education. This is purely a hypothesis to watch I’m pointing out, but we know smartphones were stealing tasks from PCs on the homefront, and I wonder if now PCs will start to steal some time back going forward.

Podcast: Technology and Remote Education

Ben Bajarin and Carolina Milanesi are joined by special guest Dr. Mitchell Salerno who is head of school at Monta Vista Christian School.

They discuss the school’s rapid transition to distance learning, the role technology played, and challenges and opportunities learned from distance learning.

Subscribe on your favorite podcast client or Apple iTunes Podcasts.

Apple Watch and Other Health Tech During Pandemics

As I wrote the other day, I like to look at things in the big picture. As I do that, one thing I’m certain of is something like this will happen again, and it will likely happen sooner than people think. Which got me to thinking, how can health-related technology help play a role in early identification and even protection? Naturally, that got me thinking about Apple Watch.

You may or may not have seen some timely marketing data from a company called Kinsa that makes a smart/connected thermometer. Kinsa positions itself as a public health company dedicated to providing the knowledge, guidance, and tools to keep communities healthy. During this time of COVID-19, they have been using data gathered via randomized and anonymized samples of specific regions in the US to track fevers. They blanket this under their initiative to track Flu-like symptoms in country regions, but since fever is an indicator of worsening symptoms of COVID-19, this works in their favor.

Here, they share a link showing how fevers have varied in certain areas where social distancing was implemented sooner. It is designed to show how places that hunkered down and people groups who limited interaction with others did have an impact on the health of a community.

The challenge with the data is generally high-income class groups, and more tech-forward people are going to have a Kinsa smart thermometer. So while the data is relevant, it is also indicative of a social base who would have hunkered down early and whose employment likely allowed them to do so. It is not totally representative data, but that does not mean it doesn’t prove the right point.

That being said, their motivation is directionally correct and highlights a specific point about how health data can help us detect and even prevent the spread of contagious diseases.

More data and more Sensors
This whole situation has actually got me thinking even more deeply about Apple Watch’s vision as an intelligent guardian of our health. The Apple Watch currently can’t play much a role to help early detection of things like Flu or even a new virus-like COVID-19. But what if it could? There are other sensors we expect to see Apple Watch include, a blood oxygen monitoring via a pulse oximeter is one of them, but what if Apple could figure out how to measure other things, maybe even temperature via the wrist or via the ears/face?

What if AirPods and eventually AR glasses can help monitor vitals in our ears and face that can now detect any range of things as a platform for preventative health? We know the ears offer unique benefits for measuring heart rate and temperature, so that seems possible. But obviously, our eyes are another indicator of health and wellness. I had thought about AirPods as a health platform but not something like AR glasses until today.

What you can see happening is a comprehensive computing solution emerging that is the combination of sensors on wrist, ears, and eyes/face that are not just good for potential computing applications but a much richer solution for health and wellness as well.

Going beyond the benefits of this to a single human, the Kinsa example shows how health-related data tracking is useful for early identification and spread of infectious disease in a community. This would be an opportunity for Apple as well if the sensors are there. Even just looking at the benefits to flu season seems an incredible opportunity.

I can imagine getting a warning that flu-like symptoms are spreading more rapidly in my area and then be encouraged to practice some social distancing while out and about and perhaps be overly rigorous in my personal cleanliness. Although I’m a germaphobe, so I already obsess over hand washing and using hand sanitizer. But many aren’t, and warning and detection can help remind others to be more aware and, in general help slow or stop the spread of something like the Flu.

Going beyond that, I’d love to see how sensors we wear, or use like a Kinsa thermometer, can help detect anomalies earlier and perhaps get the right health organizations early data to start digging into the potential spread of something we don’t see coming. This could be everything from anomalies in a group of people’s heart rate, temperature, oxygen levels, etc.. Still, the point being early detection of something via health sensor data would do wonders for our world going forward.

I’ve been slowly convinced that nearly every person on the planet, in developed parts of the world, will someday wear some health tech on their body. Even if it isn’t a smartwatch, I’m now certain some technology will find itself onto every human that plays a role in health monitoring and preventative health. This current pandemic certainly shines a light on the reality and need for such solutions, but the data is too valuable to us individually and as a community. Particularly when you realize something like this will happen again, and again, and again.

Creativity in Times of Chaos

I’ll be honest, it is hard to keep writing these days as it seems like the world is burning down. It’s hard not to watch the news or keep checking Twitter in the hopes of some good news in containing this virus and all the while just seeing more chaos. I truly hope everyone is taking mental health in these times as seriously as physical health.

My brain naturally looks for big picture observations and patterns. Many of the patterns I’ve talked about have been about the broader trend with remote work, what we can learn, and how we can use this situation to shape us better as humans, society, governments, and businesses going forward.

One of the more interesting things I’ve seen is how businesses, particularly those in the services economy, are adapting to stay in business and keep their workers employed.

These are exceptional times, and I’ve been encouraged by the quick and creative adaptations of many companies. As a consumer, I have noticed many of my favorite brands doing unique offers right now, some doing things they have never done before. A random anecdote is one of my favorite breweries in Santa Rosa called Russian River Brewing offered to ship bottles of some of their famous, and very hard to find beers to fans. They brew several beers recognized in the top 20 beers of the world, and my personal favorite, Pliny the Elder, is very hard to find. They are struggling, so they offered to sell 12 packs and ship to consumers for the first time ever, and they sold the deal out in 4 hours. I jumped on this deal early as it was a total win-win for both parties. This is a simple example of many we are seeing as workers in food services.

Airlines are having to pivot to use their planes for cargo delivery during less travel and minimizing routes. Elon Musk, begrudgingly, shifted resources from making Teslas to making respirators. I even saw on the news today Tito’s vodka is using their knowledge of distilling alcohol to make hand sanitizer. Clothing makers are pivoting to help make masks for hospitals and healthcare workers.

It’s also been fascinating to see local and boutique retailers now get set up online, mostly with Shopify, which is why their stock price is, growing. I’ve seen friends on Facebook or Twitter, all promoting local retailers making unique products and now offering online in order to save their business.

Out of trying situations, people are being creative and in the process, many of their businesses may be better for it. This forced change among businesses, companies, governments, etc., is disrupting the status quo and out of that disruption may come needed change. Whether it is an evaluation of old processes, or technologies, business models, etc., many are having to move fast and adapt to the new way of doing business, at least for a prolonged period of time.

I’m trying to round up more stories of this creativity in chaos. If you know of any send them over to me. But this remains one of the small things helping to give me hope during these trying times. We, humans, are creative, and in many cases, it is inspiring to see so many people willing to help each other during times of crisis.

The iPad Pivot, Apple Slaying Sacred Cows

A few weeks ago, it seems like a year ago now, I wrote about how the rumors of iPad getting a mouse/trackpad would be a pivot from the iPad’s original positioning. I still believe that is true. However, there is a better point to make now that we have seen the new iPad Pro and the new Keyboard with a trackpad for iPad.

Overall the new iPad is a nice upgrade. The LiDAR camera is interesting as it provides a new level of capabilities in-depth mapping, and we can expect that to come to iPhones before too long. But the talk is really about the new Magic Keyboard.

I have wanted a better iPad Keyboard since day one. I’ve tried practically every third party solution out there time and time again and never found one that was right. When it came to tablet-like devices, I have always agreed with my colleague Carolina Milanesi that Surface Pro sets the bar with their keyboard, not their trackpad but their keyboard. That is why I’m extremely interested in trying the new Magic Keyboard for iPad Pro.

The biggest benefit to choosing my iPad to my Mac was portability. When I go out to meetings or travel, etc., I like to travel light, and the iPad has always been the best device fro Apple that combined productivity and portability. Note, I said the best device from Apple because, as I highlighted in the article last week, I’ve also been using Surface Pro X more in travel situations. Granted, no one is going anywhere now for some time.

A key point to re-emphasize from my article a few weeks ago on iPad evolution is this:

I wrote last week, that I have been living in a Windows world and using both a 15′ Surface Laptop and a Surface Pro X and the more I become comfortable with my new workflows on Windows the more I like the Surface Pro X tablet functions as a companion to the laptop. Being able to seamlessly move from one device to the next and keep my workflow intact is efficient. This is counter the experience I have using Mac and iPad together as they both have two very different workflows for most of my main tasks.

I want to emphasize this point of seamless workflows. This has been a positive of going from iPhone to iPad, but iPad’s more PRO workflows are quite different from macOS. By evolving iPadOS and adding trackpad support in apps, my guess is the workflows from Mac and iPad will not be that different any longer which is good in my opinion.

I hate the debate as to whether the iPad is a computer, or not since I think it should simply be clear it is a new type of computer. That being said, it is extremely interesting to me they dynamic that has been at play between the iPad and the Microsoft Surface. If you had told me when iPad and then shortly after Surface launched, that in 10 years iPad would look more like a Surface, I would have told you you were wrong until I was blue in the face. Yet here we are.

Slaying Sacred Cows
I’ve said, and still believe, Steve Jobs’s original vision was much more transformative to the computer paradigm than perhaps humans were ready for. I honestly don’t think where iPad has evolved is where Steve hoped, but I could totally be wrong here, that’s just my hunch. I think humans again are stuck in my behavioral debt theory, and we gravitate to old things that are comfortable, and old habits really do die hard.

There is nothing wrong with this, there is simply wisdom in understanding the universal nature of this truth. When something transformative enters the picture, it is not the established users who embrace it but the new users who grow upon it. For example, my daughters use iPads for school. One of them will be a Sr. next year, and I had been thinking if she was going to need a Mac/PC to go off to college. She much prefers iPad to Ma,c and now with iPad Pro and the Magic Keyboard, I am confident that will do just fine for her in college.

But, what I think matters here in the big picture is Apple’s willingness to slay sacred cows. I do have a strong hunch, not bringing mouse/trackpad to iPad was a sacred cow for many early years into the iPad launch. It is extremely mature of Apple to be willing to leave behind ideas that may have had genuinely good intentions, and evolve in a way that fits the user, not their (Apple’s bias). This is not the first time we have seen this either. I think the iPad Mini was a concession by Apple, and I think smartphones larger than 5 inches were a concession by Apple. But, their concessions met the market where its needs evolved, and those concessions kept them in dominant positions with device sales.

I think these new feature improvements to iPad will do the same. It will keep iPad as the best selling tablet/computer combination and even leader to stronger sales going forward. It will also help the Mac, as I alluded to in my piece a few weeks ago. Bringing mouse support to iPad OS will absolutely help iOS developers bring their apps to Mac, which will create a software boon for Mac, which we have not seen since the early days of Mac software development. Apps help drive platforms, and if we see a flood of new macOS apps, this strengthens the case for developers for both iPadOS and Mac at the same time and could very well put both platforms on a new trajectory.

Tech’s Time to Shine and Re-Build Trust With Society

I’m going to keep today’s note short and sweet. For one, we are now in a shelter in place in the Bay Area and that has caused a bit of chaos in many of our worlds. On top of that, a friend had an issue with his sheep who was giving birth today so I had to run over and help the situation.

Right now it feels as though there are chaos and turmoil. Humans are panicking as many of their worlds have been disrupted, turned upside down, and fear and panic are resulting. As I observe the totality of the situation, it strikes me that right now is the time for big-tech companies, and the technology industry as a whole to shine and rise to the occasion.

For some time now, tech companies have been getting a bad reputation and being viewed more like evil entities than friends of humanity. This is a golden opportunity for leaders in the tech industry to rally together and rebuild trust in society and around the world.

This starts with something like misinformation and presents a massive opportunity for Twitter, Facebook, and more to start managing how better they sort and present trusted information as this is a critical time for people to rely on information they can trust.

Interestingly, I have really appreciated how Apple News is handling curating important news related to COVID-19. In case you haven’t seen it, the first page of Apple News, at the top, has this highlight.


As opposed to going to Twitter early each morning as I drink my coffee, I am going to this section of Apple News for all the latest information. This is not to say I don’t find valuable information related to the outbreak on Twitter, but that I’m not sure what I can trust on Twitter and right now I care more about having confidence in my information and maybe having less information than I do having too much information and wasting time figuring out if it is credible.

Facebook has felt like a total waste of space when it comes to anything related to the virus because people in my feed are sharing content that fits their narrative. Either this is the end of days or it’s no big deal it seems based on the variety of content I see. Facebook has been the most frustrating place to frequent during this crisis.

But, now is the time for all these companies to see this as an opportunity to showcase their best approach to these problems and play a helpful role in helping us get past it. This is, likely, the most impactful global event since World War II, and it represents an unprecedented need for technology to do the right thing for humanity. Those who fail may only increase the negative posture many people and governments have toward technology.

It has been encouraging to see tech companies offer many of their tools for free to institutions who need it. While that is a win-win business case, the reality is it creates a positive posture that will help these companies look better in the public eye.

I have also wondered if the companies who play this right, Apple, Amazon, Google, Facebook, Microsoft, etc., who may have come into some government regulatory speculation may also come out of this with a changed tune. For example, I think a reasonable question would be if breaking apart a company due to regulatory issues would actually hurt the global situation in case of a catastrophe? Would a company be able to respond as quickly to a global crisis if the government was to burden them with restrictions? These are not questions faced before when big tech was bad, but if big-tech can help prove good, and in light of the situation we find ourselves in, these are interesting questions in the here and now!

I want to be optimistic in my outlook on current events and look at the positive scenarios that could play out. Ultimately, this is a massive test for everyone. For individuals, for businesses, for governments, and for leaders. I genuinely hope we have more who pass than fail this moment in time which will go down in history books.

Magic Leap Explores Sale, A Global Recession Looms

Magic Leap Explores Sale
Yesterday Bloomberg posted a story that Magic Leap is exploring options which include a sale. This is not surprising to many since the company raised way too much money to be sustainable and the market adoption for this technology is simply too far off.

I have always had my concerns for Magic Leap. I knew the solution was incredibly early and the technical problems they were trying to solve were not easy ones. The massive amounts of venture money they raised was necessary to try and solve these technical problems and they simply could not raise enough to solve those problems and play a patient capital game and wait for the market to develop. We honestly may still be 5+ years away from any reasonable AR solution and a decade or longer away from the mass adoption of AR head-mounted solutions. Magic Leap simply can’t wait for the market.

What gets tricky in the analysis of this market and Magic Leap’s role, is historically we have needed companies to try and fail in order to pave the way for an upcoming market. If you look at the history of any major technology going back to shipping and railways, perhaps farther, early entrants learned the hard lessons and paved the way for future companies to succeed. It’s unfortunate it took a tremendous amount of capital, that won’t likely be returned for a dividend, but hopefully, Magic Leap is purchased and the tech and IP used at a larger company who has a better chance at future success.

A Global Recession Looms
It seems like COVID-19 and its impacts are completely dominating the conversation right now, but for good reason, we need to be well informed and wisely charting a path forward. It seems ever likely things are going to get worse before they get better and while we will likely get past this virus, the impact from it is looking more likely to linger much longer.

The economic impact and fallout are looking to be significant and government involvement seems absolutely necessary at this point to help aid in the situation. Countries leadership is going through a scenario we have never seen before, and for which there is no manual. It will be a defining point, or a crumbling point, for many governments.

For China, even the quick action they took as a nation will see prolonged pain. Even though they seem to have contained the virus and are now starting to return factories to full capacity, the markets in which they export are being hit and likely going into financial/economic distress. So while China was hit economically as they dealt with the virus, they are now going to be hit a second time as nations whose markets they rely on could go into recession and possibly a prolonged one.

While the Chinese government puts on a posture of affluence, those who study the reason know they are leveraged beyond what is economically viable as they overinvested in their growth, real-estate, and to some degree economy, and could be strained to figure out how to support their people if a prolonged recession hits and many people lose their jobs, even if temporarily.

Even as we hear in the US work to contain the virus the government is already trying to propose an economic stimulus package. We are starting to see the job losses in retail, food, travel, entertainment, and while small for the moment we should expect this to grow. This is not just happening in the US but those workers impacted when people stay home in mass is inevitable. Bigger companies are at least still paying their hourly workers even if they can’t come in but not every local or small business has that capability.

My personal view on the matter is that if nations can not contain COVID-19 quickly, and by quickly I mean in the next month or two at most, then we face the reality a deep recession is likely and it will take years to recover. This scenario impacts everyone, not just a few.

Smartphone Market Pain, Throw Recovery Assumptions Out the Window

Smartphone Market Pain
I have been following the smartphone market as it relates to COVID-19 impact since if smartphones get hit bad, other categories could be worse. Basically, the smartphone market is the canary in the coal mine.

Looking at the smartphone market the past few months a few things stand out as micro and macro observations. The first one being the whole market is off, likely around 50%. China was hit the hardest as the country was ground zero for the virus and went into lock-down relatively quickly. Country data on smartphone sales show most vendors having their historical monthly sales halved, Apple included.

All investor notes I’ve read on the subject have cut estimates for vendor sales anywhere between 2-5m units. For Apple, most are cutting roughly 2-3 million off their sales numbers for iPhones, which could put Apple into the 38-39m iPhones sales figure, a number that has not been this low in quite some time. If you recall, there was a time Apple sold north of 60m iPhones in the March quarter. Yes, those days have been gone for a while but mid to high 40m units was where iPhone sales normalized in the March quarter. I share that number to highlight how impactful COVID-19 has been to Apple in terms of iPhone sales in March.

Apple is not alone, and again I use them as an indicator to gauge how hard Apple is hit because other smartphone vendors will be hit even harder. Apple, Samsung, and Huawei all are impacted but these three companies are in the best position to absorb the hit. Where companies like Vivo and Oppo (all owned by BBK) are not in as strong of a position, despite being owned by a larger company, and the impact to these brands could be greater. Outside of those five, most other smartphone brands could be hit even worse with potentially devastating financial impact.

The broader point here is the smartphone is arguable the most important piece of technology most humans on the planet own. If this market is hit and seeing potential declines of 50% or more in certain regions, then what about other hardware categories like PCs, TVs, even accessories, etc? My gut is these other categories are seeing even greater impact and may be off even more than 50% for the foreseeable future.

Throw Recovery Assumptions Out the Window
I personally do not believe demand has gone away. I don’t think any smart folks actually believe that. However, demand will be delayed is the right perspective. The problem is most assumptions believe the virus will be contained around summer and that the second half of the year, even going into 2021 should see recovery. That is a fine theory but I don’t think we can make any bets on it at this point in time.

Obviously, if we do not contain this virus globally by at least July then I think there is a chance the whole of 2020 is shot. Even if we do contain this virus by July, and that is probably optimistic from what I’ve read, we may see a recession follow as countries recover and how long a post virus recession could last is entirely unknown. In many ways, we are in uncharted territory and do not have much historical information to compare. We are literally learning in real-time about how humans are behaving and will behave when it comes to a global epidemic.

The main point about recovery, for smartphones, in particular, is the last big recession we had in the smartphone market, and Apple specifically did quite well. But those were different times. The smartphone market was just starting to scale and masses of consumers were still getting their first smartphones. Their realization of how important and central to their life a smartphone was caused them to prioritize it as a purchase even in the midst of economic hard times. That is not the market where are in today where most consumers are not buying the first time but are replacing older smartphones. During this period of economic hard times, it is extremely likely consumers put off replacing their smartphone even longer than they may have intended.

What 2020 becomes is manage through the hard-times situation for tech companies executives. Managing demand with your supply chain is going to be extremely hard, and my gut is most companies will be conservative in their build estimates for the quarter. Which in turn, could make supply more scarce.

Should the market pain, and situation worsen, and lead to a deeper recession, you can also expect then a less than ideal launch for fall device, and what could have been a strong 5G launch this fall. Which brings me to an interesting point to watch.

It was rumored Apple was going to release an updated iPhone SE, and some new accessories this Spring perhaps in March. I’d argue it is likely Apple will, or should, delay this launch because any new product launch this Spring is launching into nearly zero demand due to the uncertainty of both the virus and potential economic hard times. Regardless of people’s overall concern about the situation, their money is being held tightly for more critical basic needs than a new smartphone. It is simply unwise to launch anything new at the moment by any company.

We do believe a recovery will come. Whether it comes quickly or is drawn out and gradually ramps is the central question no one knows the answer to or has any good historical comparatives to build a defendable thesis. From a macro view, I think we have a lot of important market observations and learnings happening right now at every level from human behavior, government protocol, science, and society at large.

The Silver Lining With Remote Work’s Moment

As the fear of the spread of COVID-19 increases rapidly, our predictions, more companies will quickly adapt remote working environments that seem to be happening. In some cases, it is happening quicker and at a larger scale than even I anticipated.

Every company with a remote working set of tools like Microsoft, Google, Cisco, Zoom, etc., is offering their tools for free for some time to help companies easily start implementing and support remote working. What has stood out to me as I have had some conversations with friends at companies big and small who are embracing remote work was how many companies were either not prepared or structured for remote work. I don’t know why, but in my mind, I figured most companies at least had some form of support for remote work/collaboration, and that is not the case.

I view this as not only remote work’s moment but also a significant opportunity to learn and create even better tools for remote work. From my own experience working remotely, the biggest gap in the experience is when you try to work remotely on something in real-time. Meaning a team is distributed but all working together at the same time. This is the use case where I think we will see the most holes in current team-based solutions in the market today.

Video meetings work well for a group or team to get together and plan, get caught up, brainstorm, etc. It is not great for a group to make progress on a project or its team-based tasks. Other tools like chat or collaborative documents, when individuals make progress on their own but not as great for a group to work together. I’m not saying it is not possible, I’m simply saying it is not the same as sitting next to someone and executing a project, task, or troubleshooting a problem, etc.

We at Creative Strategies have been researching collaboration for years now. In a study, we did late in 2018, we found that less than 25% of workers (in tech companies) are working remotely in real-time on projects with team members. Even though it is now 2020, I doubt that the number has changed much. Similarly, less than 30% of workers (in tech) were working remotely regularly. This data emphasizes my point that most companies are just not set up for this, both in tools and in culture.

While I think it is great companies like Microsoft, Google, Zoom, and Cisco will see more of their tools get used, it will also shine a bright light in many of the gaps in these offerings that may frustrate workers who will now put these tools to the ultimate test. Remote working, and using the tools to support remote work, is not something you just wake up one day and start doing. You have to change some of your thinking, workflows, discipline, etc., and this will be a major wake up call for many organizations.

That being said, the silver lining will be the lessons learned by these big companies, investors, and even ambitious young founders, who will see the gaps in existing tools, and we will, hopefully, start to see these tools evolve and get even better.

Interestingly, even within companies who already support work, this will be a moment where they will observe new learnings and challenges as well. Even companies like Microsoft and Google, who offer a competitive suite of collaboration tools, will have more of their workforce use their own tools, eat their own dog food is the term, and provide the company with essential learning and feedback.

I was alerted to this blog post by a Microsoft employee who is based in Shanghai and thought it made some interesting points. Similarly, many work from home experts are publishing articles on the challenges and best tips for working at home or remotely. This is the best time to learn and adapt and be open-minded for many workers and their companies.

This has implications beyond just the desk-based workforce as well. We see an increase in telemedicine as people are fearful of going to the hospital. We see schools cancel in-person classes and go fully remote learning. Interestingly, I’m starting to work with my daughter’s private school on a remote learning plan as a worst-case scenario. This is also turning into an exercise for future preparedness for when something like this inevitably happens again.

Interestingly, by starting to work on remote/video-based learning, the positive side effect is students will have the opportunity to still participate in classes even if they have to miss school. One thing that is very clear in higher-education is students will come to class unless they are dying or have a fever because of fear of falling behind. This only helps spur the spread of illness and video/remote learning opportunities will allow students to participate still and not fall behind.

While the concern is real over COVID-19, I view this as a massive opportunity for us to work now to put solutions in place and be better prepared for when something worse inevitably hits the population. This includes the governments being better prepared, institutions, communities, healthcare and more. We should view this as a wake-up call and seize the opportunity, in all respects, to not be caught off guard in the future.

iPad’s Evolving Vision and Unintended Consequences

The iPad has been a hot topic lately. 2020 marks the tenth anniversary of the iPad launch and the beginning of its rapid rise to fame in the years following. Looking back at the last ten years of iPad, it becomes clear the original vision for the product has not yet been reached, nor has its full potential.

The challenge, however, is the iPad’s true vision may have been too forward-thinking and perhaps require too much behavioral change than the market was willing to embrace. I still believe the iPad represents a much broader vision of personal larger screen computing. Still, the sad truth is most consumers are just happy to do the vast majority of their day-to-day computing on their smartphones.

There is nothing wrong with smartphones, they are just limited in capabilities. This is why, to this day, I think Steve Jobs’s framing of the iPad that it is more intimate than a notebook and more capable of a smartphone remains one of the most brilliant positioning statements of a device I’ve ever heard.

I personally bought into the vision, believing the iPad would make large-screen computing more accessible for the masses, by making it simpler and more enriching for more people who are less computer literate and tech-savvy. But, iPhone sales peaked and for Apple to reach that vision, a pivot may be on the horizon.

The potential pivot comes in the way of a mouse. Even as I write this, it pains me to even think about mouse/trackpad support on iPad. But if a recent leak/rumor is to be believed, Apple is ready to launch a brand new keyboard for iPad that includes trackpad support.

iOS 13 brought with it accessibility support for a lightweight cursor experience. And if Apple is building full support for mouse/trackpad, then I do feel it is a pivot away from the iPad’s original vision. Good or bad, that is my conviction. And if that is the direction Apple is going, I fear the unintended consequences.

Merging Operating Systems
Apple has long fought to merge macOS and iPad in the way Microsoft has with Windows where the same operating system runs across all Windows hardware. iPad has always been more iPhone like, just more capable, and tried to focus on reinventing the concept of work/productivity by hoping new classification of app experiences would be developed. Touch and pen-based computing bring more to the table than just mouse and keyboard, but those experiences have not become mainstream in everyone’s daily workflows. Perhaps they never will.

Ultimately, my thesis on behavioral debt may be at play again. Most people don’t seem willing to change or learn new habits, and thus, the demand for PCs remains strong, despite some initial fears iPad would impact PC sales.

I don’t believe Apple ever wanted to bring macOS and iPadOS closer together, if not merge them entirely, but this may now be the inevitable path. I wrote last week, that I have been living in a Windows world and using both a 15′ Surface Laptop and a Surface Pro X and the more I become comfortable with my new workflows on Windows the more I like the Surface Pro X tablet functions as a companion to the laptop. Being able to seamlessly move from one device to the next and keep my workflow intact is efficient. This is counter the experience I have using Mac and iPad together as they both have two very different workflows for most of my main tasks.

This is why I’m not as down on the idea of Mac and iPad merging as I once was. I still believe it would be a pivot from the original vision. Still, I do recognize the value of having a notebook and tablet working together and having consistent workflows and software across the two.

I received some questions on this from readers last week about whether this would lead to a touchscreen-based Mac. It is a good question, and my hunch would be the Mac does not necessarily need a touch-screen even in a world where macOS and iPadOS are merged. We know from our research, the vast majority of people using a touch-screen based Windows notebook rarely, if ever, touch their screens. The mouse or trackpad is still the primary and most used input. However, when people use a Windows 2-1 form factor, the usage of touch screen and pen input goes up significantly over the traditional notebook form-factor.

This suggests that when a device looks and feels like a traditional notebook, people use their traditional tools, and I’d bet that stays the same for Mac users even if they had a touch-screen, Mac. This would suggest a unified OS could live in harmony on Mac and iPad, and the software to support a range of inputs could potentially thrive.

I alluded to this point in my piece last week as well, but merging macOS and iPadOS could help iPhone development if/when the iPhone gets a foldable screen that turns it into a small iPad. Interestingly, this sequence of moves could ultimately end up benefitting iPhone the most. if a folding screen is in the cards. This would enable the iPhone to become even more of a productivity device than it is today and encourage developers to embrace entirely new software paradigms for iPhone apps, which in turn would also help iPad and Mac if all operating systems are essentially unified.

Unintended Consequences
There could, however, be unintended consequences for merging operating systems. The main consequence of being a sub-par experience with software that hurts both iPad and Mac software more than it helps. But, what sticks out to me is something like this has never worked before if we consider the unification of OS, development tools, UI, etc., impacts Macs, iPads, and iPhones from a software standpoint.

My personal main concern is the potential negative impact on software/apps, something like this could bring. I also worry developers aren’t willing to put the extra work in and that consumers are simply not willing to embrace change.

Of course, this is all just game theory at the moment and just one of many potential scenarios facing Apple as they think about their software platforms. But, the common truth remains, developers are key to the success of any platform, and Apple has historically been blessed by its developers. I just hope that continues as their software platform evolves, and continues to move into a post-mature computing world.

Remote Work’s Tipping Point, Apple Arm Mac Rumors, Unified Operating Systems

Now that we are several months into assessing the full impact of COVID-19 on the global economy and the tech industry as a whole, one narrative has continued to stand out. Remote working may have its inflection point.

One of my takeaways from Zoomtopia, Zoom’s annual customer conference, was discussions with executives of companies who have adopted remote work and video meetings as a culture. Every CTO/CIO who shared their experience talked about how difficult it was to change the culture from predominantly in-person meetings and audio-only conference calls. Employees were hesitant to embrace video, and it was a slow-roll. However, once employees started trying it, they didn’t want to go back to audio-only conference calls/meetings, and the culture changed quickly. One CTO of a big health care firm said within three years they went from zero video calls/video meetings to over 90%. All the workforce needs to do is try it, and they won’t go back.

As companies are limiting travel to key countries, and China, in particular, teams are working together in those countries are not going to stop working together. Rather they will adopt new means to collaborate still and function as a team, and video meetings are what everyone is now rapidly adopting whether they were ready or not.

Yesterday, noted investor Fred Wilson wrote a brief post proclaiming this was videoconferencing’s moment. He made the point while commenting on Zoom’s stock price, something I have been watching for over two weeks now. Investors think Zoom is among the winners of this moment for video calls/meetings. In part, it may be because many of them are now trying Zoom for their own needs and realizing how easy and convenient video calls/meetings are in practice.

While it is true, Zoom is the front-runner due to how easy it is to set up and start having video meetings, this moment created by COVID-19 is likely to benefit Microsoft Teams, as well as G-Suite with Hangouts. Companies who are in Microsoft’s ecosystem or Google’s will likely use the tools they provide for video meetings, and overall, I expect this to be a boon for remote working.

That being said, the question is if this potential workplace transformation will stick or not once the COVID-19 concern is over. My colleague Carolina Milanesi and I were talking about this yesterday, and she made the great point that for many cultures, both entrenched company cultures, and regional cultures may still prefer to be in person, or continue to mandate employees come to work due to lack of trust or concerns about productivity. I think it is reasonable to assume remote work and collaboration will move faster in some companies and some countries, but may not take off as quickly in others.

That being said, if anything, the increased remote work happening now due to COVID-19 will expose both companies and employees to the benefits of video calls/meetings and at the very least starting getting the workplace thinking about how best to enable and support more efficient team collaboration from distributed workforces.

Arm Mac Rumors
Everyone’s, well maybe not everyone, favorite Mac rumor has resurfaced. Noted Apple analyst Ming-Chi Kuo put a report out saying Arm-based Macs could be coming in 2021.

We all know, Apple has one of the world-leading semiconductor development teams inside their walls, making incredible SoCs for iPhone and iPad as well as a host of companion processors all designed to give Apple products unique differentiators.

Apple has the best track record as any company making transitions from semiconductor technology, and the vast majority of Apple’s ecosystem already runs on Arm. But as Microsoft has demonstrated, and still battling, the PC ecosystem has remained stuck in x86 land for such a long-time most of the Windows ecosystem is slow to optimize for Arm, if they do so at all.

Perhaps one of the best Windows devices using Arm is the Surface Pro X, which has a co-designed SoC between Qualcomm and Microsoft, and to meet performance requirements, the CPU is boosted to 3ghz. This is due to Microsoft emulating x86 software on Arm, which takes a significant performance hit.

Apple likely knows this, and that any Arm-based Mac would require software to emulate native x86 software. To emulate the native x86 software on Mac, Apple would need to design a chip that over-indexes on performance and I’d have a high degree of confidence Apple could do this if they wanted to. Still, the question remains whether or not it is worth it or not.

Answering the question of if it is worth it for Apple now becomes a philosophical question. Does Apple want to unify macOS, iPadOS, and iOS. If so, then moving to an Arm-based Mac is absolutely the right strategic move for Apple. The world may be going to a unified OS, and that may be a good thing.

Unified Operating Systems
Personally, I’ve started living a hybrid operating system life. I’ve been using a Microsoft Surface 15′ laptop along with the Surface Pro X as its companion. A the same time, I use a 16″ MacBook Pro along with the 12.9′ iPad Pro as its companion.

I absolutely understand this is a luxury and not the kind of thing most people do, however, using one platform that is very close to a unified operating system and using one that has separated operating systems is a fascinating experiment.

Long-time readers of my analysis know I like to boil things we do on our machines to workflows. We establish the most efficient means we can to get things done on our devices. I have been using a Mac for nearly two decades, and I have some deeply entrenched workflows. I always found bouncing those workflows between Mac and iPad to be a challenge because with iPad, I had to develop totally different workflows to do similar things I do on my Mac.

Contrast that with my current Windows experiences and all the workflows I developed on Windows are easily picked up on the Surface Pro X because they are the same operating system running the same software. I was surprised how beneficial this unified operating-system is now that I have been immersing myself in it.

Apple has stayed away from this, and for many years I thought this was the right approach for Apple. However, I am now reconsidering that stance and wondering if the division between macOS and iPadOS has actually been more of a factor holding back the potential of these two platforms than the benefit I originally thought.

If Apple goes this route, does it mean a touch-screen Mac? I think it has to, whether or not the touch dimension is used in a notebook factor, doing so would be beneficial to the more mobile computing factors of iPad, which would also carry with it a benefit to a potential folding iPhone.

So the current thinking is then, unify the OS, get a boost of more large-screen touch productivity apps on Apple’s A-series processor designs and accompanying development tools. All of which will create an even more powerful iPad experience, which in turn would pave the way for an incredible solution in a folding iPhone.

Time will tell if my logic holds!

Corona Virus Impact Update, Smartphones and Premium vs. The Masses

A few weeks ago, I shared the concerns I was hearing from supply chain vendors over Coronavirus. Then it was only a warning, but now we see the first impact on tech manufacturing. Apple has come out and said it wouldn’t make March’s guidance due to issues in their factories being able to manufacture iPhones. Apple had already provided a wide range of guidance, and things ended up being worse than even Apple thought.

Talking with contacts in the manufacturing supply chain, factories had to have a 14-day quarantine for employees coming back from certain regions of China after the Chinese New Year. Most factories did not even allow employees to come back to work until Feb. 10th, at which point most factories did not see a full workforce return due to quarantines.

Another fun fact I found out was a rule was implemented that if any employee who was found to have symptoms, mainly a fever, at a manufacturing plant, then that plant had a mandatory shut down for 30 days.

It has been kept relatively quiet in which factories have been impacted the most, but a lot of different components come out of Wuhan and the city shutting down alone would have had a significant impact on manufacturing as other factories were stuck waiting for parts even if they were operational.

Yes, this is a short term blip, but it may go longer than even the March quarter. As companies seek to re-ramp their supply chain and meet demand, they have a lot of catching up to do. Some companies are likely to manage this better than others, but I’ve already heard concerns products may be delayed or in short supply even into the holiday season of 2020.

Premium vs. Mass Market Smartphones
With Samsung’s newest smartphone launch, and even coming off observations from Apple’s fall launch, my perspective has been altering now that both Apple and Samsung are creating a line between pro smartphones and non-pro smartphones. This line has been drawn both by pricing and capabilities.

As was evidenced by the iPhone Xr, the masses are going to buy the cheaper option of the new lineup. Apple learned there was a price threshold in any lineup the masses were willing to pay, and that limit was over $800. Samsung has priced all three of its flagship devices above that price, which will be interesting to see how the market responds. What interests me the most to analyze, as this market has evolved, is to look less (short-term) at what the pro device capabilities have because those are not features the mass market will have access to, at least right away.

It’s great that iPhone and Samsung devices have pro-features that do incredible things technologically, but the masses are not using those features. When we look at the opportunity for modern technology to impact the types of content we consume or create, we have to look not at what exists in the small pro-segment of consumer smartphones but at what is in the hands of most people. Interestingly, here, the gap between pro and mainstream is much smaller in Apple’s current lineup than Samsung’s. And I’ll be curious if Apple keeps this strategy consistent even as they bring more pro-features (largely camera related) to their lineup.

That being said, looking at what pushes the envelope in pro-smartphones is relevant if it is viewed as something that starts in the pro-segment and then becomes common throughout the lineup. My guess is those pro-feature innovations coming to smartphones are things that become common to the lower-priced models either the next year or the year after. In that regard, it is worth analyzing the technology behind the pro-features to understand what could be possible for the mainstream at some point.

The last thing that has impacted my thinking lately, is how much farther can we push the boundaries on features for pro-devices before we dramatically overserve the market? There is more than ample evidence that supports the consumer psychology behind the overserving features of a product where it can quickly move from cool to off-putting. Historically, consumer products have had to balance this fine line of making features that dramatically overserve the market and then lose more value than gain with a technological advance.

This is also a key part of our analysis, to understand where the line from useful to over-serving is drawn and help the market make sense of the impacts of what technology becomes mainstream, and what technology remains niche.

Roku’s Challenge, Streaming TV Platform Wars

Embedded toward the end of this article on TCL, is an interesting nugget about Roku. The whole article is about TCL, which remains one of the fastest-growing TV brands and is truly operating on a low-end disruption strategy in a way Vizio could not execute on. Part of this reason is TCL is a much larger Chinese tech company with a fair amount of IP and technology that Vizo never had.

TCL smartly partnered with Roku and is a significant part of Roku’s success. While streaming sticks and boxes were not a bad way to get started, integration with the TV will always be a better way to drive adoption and usage, and I have no doubt the TCL partnership is a big reason Roku has done so well.

Roku is the Windows or Android of the TV world for the moment. Android TV has done well outside the US, and FireTV has been growing but needs more design wins as the primary TV operating system before it can truly ramp it’s user-base.

I’m not sure Android TV has much chance in the US at this point, so when it comes to TV platforms, it seems like Roku or FireTV are the only games in town. I know people want to argue for Apple TV as a player, but I will address that in a moment.

I first want to highlight something in the article that speaks to Roku’s challenge by relying more on being an aggregator of content and TV services. From the Protocol article:

There’s only one problem: Roku doesn’t share its advertising and services revenue with TV manufacturers like TCL, Protocol learned from multiple industry insiders with knowledge of these relationships. What’s more, Roku controls virtually all aspects of its operating system on TVs manufactured by partners, making it much harder for TCL to promote its own services.

That’s very different from the way other TV platform providers engage with hardware manufacturers. Google, for instance, gives TV makers a dedicated section on the Android TV home screen to highlight apps or content of their choosing, which some device makers have been using for paid promotions.

Amazon is said to offer partners financial incentives as well. Amazon’s general manager and vice president, Marc Whitten, declined to comment on specific deals with hardware manufacturers during a recent conversation with Protocol but acknowledged that there is an industry-wide shift toward recurring revenues. “It would be rare to find a hardware company that’s not thinking about downstream revenue these days,” he said.

My concern for Roku is they will suffer from the challenge of being a one-trick pony. They must focus on more specific levers for growth than Amazon does because the only business model Roku has to lean on is advertising. They will be reluctant to share that much revenue from ads, and even a cut of the small percentage they get from subscription services they can help drive. Despite Roku’s stinginess, I suspect they will have to share some revenue with hardware companies, but, I think the financial upside for TV hardware OEMs may be more lucrative with other companies than Roku, which has me more concerned about Roku over the long-haul.

Streaming TV Platform Wars
The shift to cut the cable bill and move to streaming apps and services is accelerating. Most estimates now have the cable subscriber losses in 2020 to be north of 6 million and some as high as 8. Each year those estimates have been low but assuming it is in that range, that is a steady loss for the cable business.

It’s hard to bet against Disney at this point, given the overwhelming success of Disney+ and the opportunity for them to leverage Hulu and provide more content bundles. Cable networks seem to understand their revenue model is changing and are looking to streaming services and their apps as a part of this transition away from broadcast distribution. This shift will take time, but it is inevitable, and I’m not optimistic the traditional broadcast cable providers will figure it out or have a chance competing with the new guard.

Given there still needs to be an aggregator of content in this new world, the platform for these apps and services is an important part of the debate. I mentioned Apple might have lost too much ground here, and my worry for Apple is they simply become an app for content and not a platform. As of now, I view Apple’s play with TV to be more like HBO than Roku, or FireTV, or Android TV. I know folks at Apple would disagree with me on this, but that is how I see this playing out for now.

While there will be a battle for the apps themselves, the platform you use to navigate, discover, subscribe, and more is one of the more interesting and less talked about parts of this war. Controlling the TV interface puts the winners in a strong position when it comes to media and entertainment.

If I had to pick the platform I think will win, in the US at least, I lean toward Amazon with FireTV. I think they pose a much larger threat to Roku than many realize, including Roku investors, but it all comes down to getting more deals with TV OEMs.

Lastly, on Apple, if they are serious about being a TV/movie content provider I think they need more content an some IP. I think it would be very interesting if they bought ViacomCBS even though I know it would be expensive. But if they are serious something like this may be necessary. It also may be time for us to reignite the Apple should build a TV debate ;).

EU Antitrust Push, Apple Watch vs. Swiss Industry, Chinese OEMs vs. Google

EU Antitrust Push
The EU looks like it is stepping up its anti-trust efforts and is going after Google (over ad-click), Facebook (over its data practices, and Qualcomm (over anti-competitive practices). None of this is shocking, as the EU sees plenty of opportunities to pursue given some of the FTC’s initial work in these areas providing influence and ammunition.

There will be a time to more deeply analyze each of these cases and their implications, but the ambition here is clear of the EU, and this is just one of many shoes to drop when it comes to the broader tech regulation conversation.

Apple Watch vs. Swiss Industry
From year one, Apple Watch has demonstrated revenue that was larger than any Swiss Watch manufacturer, but not yet the entire industry. New reports now suggest Apple shipped more Apple Watches than the whole of the Swiss Watch industry which is the first ball to drop. The next will be when Apple Watch generates more revenue than the whole of the Swiss Watch industry.

For years, I maintained a model of both Apple Watch shipments and installed base. Getting a ballpark number for shipments is not that hard. However, the installed base is much more difficult. Refresh rates for Apple Watch are all over the place, with most holding onto them for quite a while. I believe the installed base is nearing 100m, but getting to a precise number is nearly impossible.

What’s happening with smart wearables is a groundswell, and when it comes to watches specifically, the high-end watch brands feel like dinosaurs. While the highest-end brands like Rolex, Omega, etc., may always only focus on being jewelry, some like Tag is trying to compete in the smart-watch sector. But they have not yet found their strid,e and I do wonder if any Swiss Watch brand figures this out or if they simply get stuck in a corner as niche products.

While Android Wear remains the likely platform of choice, the platform still has a lot of maturing that needs to happen to meet the needs of this quick-growing market that is entirely dominated by Apple Watch. My hope is Google focuses on more tech-forward companies and creates a pure smartwatch solution more like Apple Watch than like a Swiss Watch.

The Apple Watch is a low-end disruption in plain sight for the Swiss Watch industry, but it also represents the sleeper category for the future of computing. The latter is what I think is being missed most often by those commenting on smartwatches. It’s not a watch, nor is it simply a smartphone extension. It’s the underlying platform for an entirely new way of computing that includes our ears (audio) but will also include vision at some point as well.

If more companies understood this they would be much more aggressively competing here.

Chinese smartphone OEMs. vs. Google Play Store

In what I think is the most interesting news, at least so far, today is the Chinese smartphone OEMs are reportedly looking to create a replacement for the Google Play store.

China’s Xiaomi, Huawei Technologies, Oppo and Vivo are joining forces to create a platform for developers outside China to upload apps onto all of their app stores simultaneously, in a move analysts say is meant to challenge the dominance of Google’s Play store.

The four companies are ironing out kinks in what is known as the Global Developer Service Alliance (GDSA). The platform aims to make it easier for developers of games, music, movies and other apps to market their apps in overseas markets, according to people with knowledge of the matter.

I want to be skeptical, and I sort of am, that this can be successful outside of China. However, it’s hard to ignore just how big the Chinese OEMs are globally when it comes to shipments. This chart shared by IDC’s Francisco Jeronimo helps paint the larger picture.

Chinese OEMs essentially control over half of the smartphone sales globally. On paper, it looks like the Chinese are well-positioned to challenge Google. But it’s not that easy.

The report looks at the App Store and providing an alternative for developers to upload their apps to this new platform. But the challenge is not necessarily the App Store, and it’s the range of other services Google provides that is core to the global Android experience. Maps being a big one, search another, and Google’s growing prowess in AI-fueled services that add value to the overall experience.

I can see a scenario where Chinese OEMs can provide a sufficient alternative to the Play Store, but I see no scenario where they can provide even adequate replacements to the range of other Google services that are entrenched in every major market outside of China.

This dynamic will be interesting to watch, as it may be nothing more than a tactic designed to negotiate with Google, but if I’m Google, I’m not taking this threat seriously, at least yet.

Coronavirus Economic Impact, China, and the Tech Supply Chain

While we are not in a global epidemic panic yet, and hopefully not ever, the reality is the situation in China is volatile. This blurb from a private report, the latest from top global economists:

Negative impact on Q1 growth could be >2ppts Quantifying the economic impact of the outbreak is extremely challenging at this stage. Assuming that the outbreak will be controlled in Q1 with few new cases after that, we estimate that Q1 GDP growth will drop to 3.8% y/y, while subsequent normalization of activities, the release of pent-up demand and policy support should see growth rebounding in Q2-Q4. With this assumption, we downgrade China’s 2020 GDP growth forecast to 5.4%. The risk to our forecast is biased on the downside. In the case, the outbreak lasts well into Q2, GDP growth will likely fall <5% in 2020.

This creates a dynamic of interest to watch as it relates to trade war with China, the business outlook for companies who compete in China, and the overall supply chain related to the tech industry.

What many economic reports I’ve read agree on is the long-term trends in China are intact. This is viewed as a short term issue and one that the Chinese government, local businesses, and those global companies who compete in China, need to navigate in the short-term.

The biggest areas most agree are impacted relate to consumption more than trade. Tourism and travel industries like hotels and local commerce will be hit the hardest, given people’s concerns about going out in public and traveling to China. Spending is likely to be down as well, which will hit many industries, including technology. One thing that will be of interest is to see what happens with e-commerce shopping, already something more than 50% of Chinese in tier-one cities do weekly. We could likely see a spike in e-commerce, assuming those online sellers can field a workforce during certain quarantines.

Interestingly, global GDP is expected to be in the 1% range, also a downgrade due to global fears and impact of Coronavirus. How far outside of China, and the extent this virus hits other countries is a concern since the impact on GDP could become more significant.

For tech, a big issue in the supply chain. This is a key reason Apple, in particular, gave such a wide range of guidance for their March quarter. Apple’s Dec and March quarters are typically their strongest, and a weak Chinese economy coupled with a shortage in the workforce to deliver Apple supply to meet their relatively strong demand for iPhones, is a concern. Another worry is how much the virus could spread to Taiwan, another area where the tech supply chain is centered. We could see an impact, not just on smartphones but PCs, and other consumer electronics if the workforce takes a hit or factories have to be shut-down during specific quarantines.

Whether or not the virus accelerates in certain areas, there is good chance precautions are taken and areas that jobs like those in the supply chain, where highly concentrated numbers of humans interact with each other, get shut down just to play it safe. We hope it does not come to this, but for the sake of the global population, it is better to be safe than sorry.

Another development to watch is how the Chinese economy bounces back once this virus is contained and beaten. Economists are expecting a significant surge to take place once the local economy gets going again. This may not be immediate, but it makes sense logically. As local citizens are not out consuming, they will want to make up for lost time once they can get out again. I’ve seen estimates of a surge of 6-9% of GDP impact that could take place in late 2020 and into 2021.

This could have a range of implications, and the main one being related to the supply chain’s ability to ramp up to meet a surge in demand. The kind of demand for the tech categories hit, iPhones, for example, would be hard to predict due to unknown comparables. You don’t want to overbuild and then risk having too much suppl,y but you don’t want to underbuild either and leave money on the table. If a surge happens, it will have to be carefully navigated as well.

This year was already shaping up to be a slightly lower one economic wise in the US since that is the trend in election years. It will be interesting to see how this plays out between the US election year and coronavirus concerns. The bottom line is this year will be particularly tricky to navigate now for many companies, and excellent management will be necessary.

Apple and Defying Gravity

Apple had a stellar holiday quarter. There are several things that stood out, which contributed to their record quarter, which showcases the incredible foundation Apple has laid as a global business.

  • Revenue grew in nearly all geographies. Apple reported all-time revenue records in the Americas, Europe and Asia Pacific, and a return to growth in Greater China. During the earnings call, CFO added a nugget of insight that services growth was broad and double-digits across all five geographies. This point, to me, signifies an important fundamental point that services is a global growth story and not restricted to specific regions. Apple’s hardware growth was global, and the growth of its services was global.
  • The active installed base continues to grow. Apple reported their customer base size is now 1.5b devices in use, nearly one billion of those iPhones (my estimate). This indicates something that has long been a thesis in our analyst circles. A colleague named Carl Howe, who used to cover Apple but is no longer in the analyst community, put forward a thesis called the Android leaky bucket. In summary, his thesis was iPhone loyalty will always remain stronger than Android. He built his thesis out explaining the rate of change from iPhone to Android would be slim, while the rate of change from people using Android to iPhone would remain steady.

    The data shows the rate of change from those switching to iPhone from Android has slowed dramatically since early in the decade, quarterly averages globally in the single digits. But that switch correlates to an increase in disposable income. This was true in China, even segments of SE Asia, and even India, all markets where research shows those with higher income choose the iPhone. It’s safe to say that at a global level, the iPhone completely dominates the high-end of the smartphone market.

    Apple’s active installed base continues to grow because customers remain loyal, and Apple is benefitting from a slow leak of Android particularly when countries see economic growth, and a rising middle class emerges. It’s safe to assume Apple’s installed base continues to grow at a relatively steady rate.

  • The iPhone will have a solid 2020. From a Wall St. perspective, the worst of the iPhone sales declines appear to have happened. A new baseline normal, of average annual sales, has now been established in the 180-200m range, and analysts simply need to feel out if a particular year will be in the high or low end of that range. 2020 appears to be more in the 190-200m, and most Wall St. research notes I’ve seen are upping their iPhone estimates for 2020 into that 190-200m range. That is still well off from iPhone’s annual peak sales of 230m units, which we likely won’t see again, but strong given the maturity of the market. While Apple does not disclose unit sales any longer, most believe sales were in the 69-72m range for the quarter with an ASP between $780-$795.

    This year the iPhone 11 lineup was particularly strong. A starting price of $699 for iPhone 11 helped as well and will continue to help for the remaining quarters. I don’t believe in the iPhone supercycle theory any more when it comes to iPhone upgrades, but I do this year is seeing a healthy percentage of upgraders and new customers over the last two years.

To the Apple bears, and yes, there are still those who are bearish on Apple, it looks as though Apple is defying gravity. But for those who truly understand the company, none of this is surprising. What is most impressive about the Dec quarter earnings was that Apple set an all-time record in revenue without needing to set a record in iPhone sales. We were used to them continually setting quarterly records while the iPhone was still in growth mode. Now, with the iPhone ex-growth, Apple is still setting records.

I’ve argued all along that just focusing on iPhone sales was the wrong way to look at Apple. If you believe they are just an iPhone company, this is what you would do, and it is what many in Wall St. did. But when you step back and look at the forest in the trees, you could see Apple building strong revenue streams across the board. Total revenue growth was easy to predict, even if iPhone sales slowed when you see the big picture.

I’ve long argued Apple is a product company that is among the best at customer experiences. They are consistent in their ability to make great products with great experiences across the board. So it stands to reason that any category Apple gets into would follow this philosophy and end up being a healthy business. Mac/iPad, wearables, and now services all follow this philosophy and showcase the strength of Apple’s fundamental business.

Building great products leads to higher customer engagement, loyalty, and willingness to purchase more product offerings. This is the fundamental reason to remain bullish on Apple’s growth prospects and what truly sets them apart from so many other companies.

Going Forward
There are a few points worth making as it relates to Apple’s 2020. First, I found it interesting that Apple is getting a handle on estimating the growth of their subscriptions. Apple gave a forward estimate of reaching 500m by the end of March and 600m by the end of 2020. For Apple to have the confidence to share an estimate like this, it means they have seen relatively steady and predictable metrics. This is positive when it comes to understanding the steadiness of services as a whole.

I understand the guidance range given and the concerns of Coronavirus. I was quoted by CNBC earlier in the week, making the same point that if the virus gets bad enough that cities or factories get shut down, it will impact Apple’s ability to meet demand, which is already relatively tight! For the sake of China, and all of the world, I hope it does not come to that, and we can contain the virus’ spread.

I’m still curious about what happens with the Apple TV+ promotion over the long-haul. It will be good to know for many of us who study this, how many customers remain loyal to AppleTV+ after their promotion, and how Apple can continue to grow that business and recoup the costs of their content spend, which is large and getting larger. Apple’s ultimate goal with AppleTV+ is something I’m still looking for evidence with, given the increased competition. One can argue if they want this service to be a revenue growth business, they may need to acquire more assets, even a studio or network. But things are getting competitive, and Apple’s long-term strategy here is interesting to watch.

Last point which is on wearables. I find it fascinating demand for Apple Watch Series 3 is still so high. But, given the price to feature ratio for Watch, this is an incredibly powerful product to get people into the Apple Watch family. This is a positive for the business because those customers will likely now stay loyal to Apple Watch, and upgrade at some point down the line. Five generations into Apple Watch, and we see why a new product category takes years to build, and why a robust product line is essential to its success. Quickly on AirPods/AirPods Pro. That product is going to continue its momentum in 2020 as Apple can’t make them fast enough. I firmly believe the S-curve for AirPods is only getting started and will be steep.

Streaming Media Numbers, Intel Earnings, Semi Stocks

Streaming Media Numbers
The WSJ published an article that got a bit of attention that included some estimates of subscribers of streaming services in the US. This was the first time we caught a glimpse of an estimate of Apple TV+ user number. The chart in the article ranked the services user base like this:

Netflix: 61.3
Amazon Prime: 42.2
Apple TV+: 33.6
Hulu: 31.8
Disney+: 23.2

While I always take these estimates with a grain of salt, particularly when they come from a firm looking for marketing exposure, they do seem within the ballpark from other estimates I’ve seen from investment banks, particularly the Netflix number and Hulu number.

If the Amazon number is correct in the ballpark, then it suggests half of US Amazon Prime members are using Prime Video. The Apple TV+ number is a fascinating one because we know a good portion of those are people using their free year of access when they purchased new hardware. A big question many of us had when Apple launched this promotion was what the conversion rate would be given it was free for a year. This seems a reasonable test for the strength of the service that if a good portion of the ~100m people who would buy new hardware from Apple in the Dec and March quarter convert then it would suggest TV+ is compelling, however, if very few converts even if free it is not a good sign.

I initially thought the AppleTV+ number sounded a bit high, but I believe the 30% conversion is the correct number to assume. Benjamin Mayo, via Twitter, from 9to5Mac, had some sound logic to challenge the 33.6m number.

Hopefully, Apple will give us some potential reads on AppleTV+, and other services during the earnings call (but I doubt it). Until then, many will be trying to figure out the subscriber numbers for their services.

Obviously Disney+ is the one that, while lowest, has the most weight. Right off the bat if Disney+ has more than 20m subscribers, it is already ramping faster than Disney’s initial estimate of 25-30m subs by end of 2020. This is not shocking honestly as it seems to reach high US household penetration of Disney+ is a safe assumption. The only limiter, in my opinion, is how many potential customers have access to the Disney+ app on their big screen. The other weight Disney will have is their majority stake in Hulu. Disney will have opportunities to bundle Hulu, ESPN+, and Disney+ at some point this year and could very well accelerate the take of those services.

This space is fun to watch because we are seeing the groundswell of disruption for traditional TV which includes tremendous competition now that has the old guard of networks like CBS, NBC, Fox, etc., being forced to think and compete in new ways which are great for entertainment.

Intel Earnings
Intel reported strong earnings on the back of the data center business. More importantly, from a confidence perspective, they guided to a positive number for the first quarter of 2020. What is mostly positive, from a business perspective for Intel, is the growth in cloud/data center was healthy enough to cover the losses from their CPU shortages. Intel remains one of my stocks to watch in 2020 as I do see some positives for them overall in 2020 and the upcoming battle with Nvidia on GPU will be truly fascinating to watch.

That being said, this year will still hold some bumps for Intel. There is a concern, on the cloud front, that we see a slow down in the data center. Part of that concern is this being an election year in the US, and historically business pull back investments and heavy spending decreases. There is already a concern Intel’s CPU shortages continue and couple that with a slowdown in data center growth and you have the rocky 2020 I spoke about.

Granted, in this modern age and competition increasing, companies may not hold their historical pattern of spending more conservatively in election years, but the possibility remains.

Semi Stock in 2020
The semiconductor industry, as a whole, continues to be one of the hottest sectors from many vantage points but from a stock perspective specifically. We are seeing a growth period for semiconductor stocks and all the top names, Intel, Nvidia, AMD, Qualcomm, etc., are seeing growing confidence in their growth story.

I’ve been bullish on the semiconductor industry for years since we are seeing a period of technological growth that rivals the industrial revolution as integrating technology into your business is now seen as an absolute must to compete. The upside addressable market for semiconductors still has tremendous growth ahead as more and more industries embrace technology fully and embed into nearly all their organizational processes.