Small is Beautiful (Sometimes)

A couple of weeks ago, I wrote in this space about the increasingly self-reinforcing dominance of a group of very large companies in the tech industry. Those companies, I argued, have made it all but impossible for smaller companies to break into the industry, to grow, and to build sustainable businesses without being either wiped out or acquired in the process by the industry’s giants. However, though as a general rule all of that is true, there are some exceptions out there, in the form of a handful of small but successful companies that have somehow managed to survive surrounded by much larger competitors. It’s worth looking at some of them and how they’ve achieved what they have, to see if there are lessons for others.

Anker – Compete Where Others Don’t Want To

Anker was, in fact, the company that made me want to write this piece. It was in the news last week when it launched an Amazon Echo competitor based on Alexa, just the latest in a fascinating series of consumer electronics products which started with batteries and went on from there. The Verge did a great profile on the company and its history, which is well worth a read if you’re interested. The key to Anker’s success seems to have been a narrow focus on competing in areas where the big players really didn’t want to. That began with accessories like batteries, first replacement batteries and then external batteries for smartphones, a place where the big companies either didn’t want to play at all or wanted to offer products at margins that provided a nice price umbrella under which companies like Anker could compete.

But the company has taken that starting point and grown from there, expanding into home automation devices and arguably taking the same quality-plus-affordability approach it took to accessories, with the Echo Dot competitor the latest example of that push. Because it undercuts others on price but has built a reputation for reliability, it occupies a somewhat unique niche between the low-cost no-name brands out of China and the more expensive stuff from the big established brands. There are a few lessons here for others: compete where the big players don’t want to; build from an innocuous base to compete more directly with the larger companies; and, lastly, don’t forget that brands don’t all have to be built at the high end.

Roku – Be Switzerland in a World at War

Roku is another company that stands out as a rare exception – a smaller player which competes head on with some of the biggest names in the business and yet has not only survived but thrived in terms of market share. Roku started out as an arm of Netflix, making hardware for its fledgling streaming service, but was soon spun out on its own and has since made a business out of providing the neutral TV box in a world where essentially all the major competitors are owned by big ecosystems. Though Apple, Google, Amazon, Microsoft, and Sony all have offerings in the space, Roku has the largest market share in the US, through a combination of a range of price points and a certain neutrality in the ecosystem wars.

But Roku’s next big step was pivoting from its focus on first-party hardware to providing a platform for others under threat from the big ecosystems, offering its operating system as a way for other smaller players to break into the smart TV space and bring a compelling and rich set of apps to that market. Again, it offered neutrality where others offered only walled gardens and ecosystem favoritism, and has now gained substantial market share in the smart TV operating system space too. That pivot is still in its early stages, and Roku still likely makes a good majority of its revenue from hardware rather than licensing, but that balance will continue to shift as Roku prepares for an IPO. The key lesson here appears to be that there can be an opportunity in being the neutral player that offers an alternative to warring ecosystems, especially when none of those ecosystems has established a dominant position.

Airbnb – Create Brand New Markets in the Digital Layer

Airbnb is another fascinating company that has come from nowhere over the last few years to build a large and seemingly profitable business in the midst of otherwise dominant ecosystems. And it’s done it largely by creating a new market rather than competing in an existing one. Airbnb exists in what I call the Digital Layer – a business model in which infrastructure-light companies leverage existing physical infrastructure and proprietary software to connect buyers and sellers in such a way that new markets or liquidity are created. Arguably the biggest and most successful companies that have emerged over the last few years in the consumer tech industry all fall into this model – Uber and Lyft are the other big examples, but there’s a plethora of smaller ones too.

The key here is recognizing that a consumer tech company doesn’t have to compete in the consumer tech market and in fact the best opportunities exist outside the tech industry in traditional markets like accommodation, transportation, and retail. By digitizing those markets, these companies create new value that wasn’t there before, often enabled by ordinary people with no history in those markets who choose to supplement earnings or make their main income in this way. Creating just the right user experience, removing barriers and simplifying transactions through smartphone apps and other digital tools, then provides the differentiation needed against legacy business models. The big ecosystems so far haven’t participated in these markets at all, though ride sharing seems to be the market segment they’re most likely to enter, with both Alphabet and Apple dabbling already. But the lesson here is competing outside the constraints of the traditional tech industry and creating an opportunity where others didn’t see one.

No Simple Answers

For the purposes of this column, I’ve necessarily kept things pretty simple here, and arguably oversimplified somewhat what’s made these companies successful. In addition, these companies I’ve discussed are by no means the only small successful tech companies to have emerged over the last few years, and there are other strategies to be achieve what they have. They do demonstrate that, however high the odds against success in a market dominated by giants, there are opportunities to be both found and created, and that it is still possible for the right combination of skill, timing, and smarts to carve out a niche where the big players won’t squash you. At least not right away.

Three Insights from The US Wireless Market in Q2 2017

One of the markets I track closely is the US wireless industry, and especially the five largest providers: AT&T, Sprint, T-Mobile, TracFone, and Verizon Wireless. All of these companies recently reported their financial results for Q2 2017, and as a result we now have a good picture of what happened in the quarter. Here are three key insights from those results.

The Risks of Facebook’s Video Pivot

Facebook on Wednesday afternoon unveiled its Watch tab, which will be the new home for video viewing on Facebook and serve as a showcase for existing as well as new and exclusive video within the app. This effort follows several months’ availability of Facebook’s apps for various TV platforms, which have served as a test of sorts for the new in-app video tab. Facebook is clearly hoping that its big video push makes it more competitive against YouTube and allows it to both increase time spent in its apps and generate higher ad revenue, but there are significant risks to this pivot.

The Evolution of Facebook’s Video Strategy

Facebook’s strategy around video has evolved over the last few years in much the same way as its mobile strategy had to evolve around the time of its IPO. Back in early 2014, Facebook talked about video mostly in a passive way, discussing the rise of sharing of video on its service by users, and its expectations that this sharing would grow as smartphones became more capable and widespread. A year later, Facebook was actively talking about proactively building a platform for video, and in 2016 Mark Zuckerberg began talking about video as a third phase in a shift that had already seen the majority of Facebook content go from being text-based to image-based.

The last couple of years have seen an active investment by Facebook in not just tools for creators but in content itself, first around live video and more recently around produced video which would eventually end up in the Watch tab it announced this week. It has primed the pump by subsidizing the creation of content to populate that tab and increase the amount of high-quality content available on Facebook, while also creating new ways for video creators to monetize on its platform, starting with mid-roll ads. Now we’re seeing the creation of a place within the mobile app where the vast majority of users engage with Facebook which is explicitly devoted to video.

The Theory and the Risks

Facebook’s strategy here is fairly transparent: as consumption of content on Facebook has shifted from text to images to video, the content consumed has gone from being hosted on Facebook to being hosted elsewhere, notably YouTube. That, in turn, has meant that any ad revenue generated directly from the viewing of those videos has gone into Google’s coffers rather than Facebook’s. As such, it wants to shift that viewing and the associated ad revenue from YouTube to its own platform, much as its Instant Articles initiative has done that for news articles. In the process, it clearly hopes to increase time spent on content hosted on Facebook servers, and generate the higher CPMs that video ads command. That’s the theory.

However, there are a number of risks associated with this strategy, at least some of which stem from the decision to autoplay videos in the News Feed with the sound off. That, in turn, meant that ads could never run before videos as they do on YouTube, and mid-roll advertising was therefore the only viable option to monetize video on the platform. We’ve seen a push in that direction over recent months, and it’s the anecdotal evidence I’m seeing from that push that has me worried here. The chart below illustrates both the theory and the risks associated with this new video pivot:

As shown in the chart, the theory from the Facebook side is that total time spent will go up, and that the ads people see while watching video will generate higher CPMs. The risks are as follows:

  • The time people do spend will shift from the News Feed to the Watch tab
  • The nature of ads they will see will go from being native and non-interruptive to being non-native and extremely interruptive
  • Facebook will go from ad formats where it keeps essentially all the revenue to models where it has to pass along much of the revenue to content owners and therefore generate lower margins, as Mark Zuckerberg confirmed on the company’s recent earnings call.

All told, there’s a significant risk here that instead of people spending more time on Facebook, people try spending some time in the new Watch tab, which Facebook will no doubt promote heavily as it has with the Marketplace and other recently added tabs, and then be put off by the mid-roll ads which will run in the videos they see there. The few ads that people do see, meanwhile, will generate less margin for Facebook than the highly profitable ads they currently see in the News Feed. Instead of increasing time spent and ad revenue generated, Facebook could actually turn people off and end up with less revenue.

Autoplay Will Turn Out to be a Costly Unforced Error

I return here to the decision to run videos in an autoplay mode without sound, which massively increased engagement with videos and therefore served that purpose well, but made it impossible for Facebook and its content partners to monetize those videos in the way that other ad-supported online video is monetized. People simply aren’t used to watching video on either Facebook or YouTube which breaks partway through and shows ads, and Facebook only has itself to blame for limiting its options now that it’s ready to turn on monetization for video. The great irony is that Facebook is now turning sound on by default for these autoplay videos, eliminating arguably the most effective aspect of the format and in the process neutralizing any benefits it might have gained from it in the first place.

It’s still possible that Facebook may be able to work its way through what at this point looks like a really costly unforced error. Perhaps the new content available on Facebook will end up being so compelling that the digital natives who’ve grown up on YouTube videos will sit through the ads anyway, but a generation trained on pre-roll ads on YouTube and no ads at all on Netflix is likely to have a tough time with random ads in the middle of very YouTube-like videos on Facebook. And that may make the hard pivot towards video Facebook is about to embark on really tough.

The Big Six in Q2 2017

Every quarter, one of the decks I put together as part of my Jackdaw Research Quarterly Decks Service is a comparison of financial and operating metrics for the “big six” consumer tech companies – Alphabet, Amazon, Apple, Facebook, Microsoft, and Samsung. As I’ve done for several previous quarters, I’m also doing a quick run-through here of some of the highlights from this quarter’s deck. And you’ll find the full deck embedded at the bottom of this post. You can learn more about the Jackdaw Research Quarterly Decks Service here.

Some Context

Before we dive into individual charts, it’s worth noting some trends and themes that will provide useful context for this quarter’s comparisons:

  • Samsung had its best quarter ever, with record revenues and profits, driven largely by its semiconductor business, but also to an extent by the slightly later than usual launch of its new flagship smartphones
  • Microsoft closed its acquisition of LinkedIn in Q4 2016, and the employees and revenues associated with that business now show up in its reported results
  • Facebook has been warning of a slowdown in ad revenue in 2017 since late last year, due to the saturation of ad load within the News Feed, where most of its ads show up, but there’s so far little sign of it, though it says it should show up in H2 2017. Meanwhile, it’s begun investing more heavily in video content and is driving a shift to video advertising, which will have lower margins than its traditional advertising
  • Amazon appears to be entering another phase of higher investment in pursuit of growth in its e-commerce, AWS, and even advertising businesses, hiring rapidly and raising capital expenditures significantly over the past year, and that is now flowing through to lower profits
  • Apple is in the middle of a return to growth, after three quarters of decline, and that growth appears to be accelerating a little ahead of this fall’s widely reported launch of its first dramatically different iPhones in years
  • Alphabet is in some ways the most stable of these businesses, providing fairly predictable revenue growth and margins, though it’s also undergoing a big push around enterprise cloud services while reducing capital expenditures and cutting costs in its Other Bets business.

With that out of the way, let’s get on to some of the key comparisons.

Revenues and Revenue Growth

As it did last year, Samsung came out on top in terms of revenue in Q2, beating out Apple in its lowest quarter of the year, thanks to its strong semiconductor and to a lesser extent smartphone growth. On an annualized basis, though, Samsung remains far behind Apple, where it’s been ever since its fall from its peak in 2014. Meanwhile, Amazon continues to rapidly close the gap with the top two on an annualized basis, and had by far the strongest dollar growth year on year of any of the six companies, a position it’s held ever since Apple began to come down from the massive growth cycle it experienced in 2015 thanks to the iPhone 6. Facebook, meanwhile, remains by far the smallest of the six in revenue terms, though its year on year dollar growth matches that of Samsung, and its percentage growth rate year on year outstrips all the others by a considerable margin. All of these results are shown in the charts below, which you can magnify by clicking on them.


When it comes to net profits, Samsung came out top this quarter, for the first time since its earlier peak in 2013, with Apple out in front in the interim. However, it’s worth noting that this doesn’t make Samsung “the most profitable tech company” as I’ve seen numerous headlines suggest: as with revenue, on an annual basis Apple remains far out ahead, and this quarter’s result was a quirk of a particularly strong quarter from Samsung in what’s seasonally Apple’s lowest quarter. Meanwhile, Facebook continues to close the gap with Microsoft and Alphabet in dollar terms, reaching nearly $4 billion of net profit in the quarter, and it closed the gap significantly in operating profit dollars. On net margin, Facebook remains way out ahead, with what has been a largely unbroken rise over the last couple of years to over 40% net margins. Microsoft came in second in margins this quarter off the back of a tax gain, while it and Alphabet were essentially tied in dollar terms. Amazon, meanwhile, saw a dip to its lowest net margin in two years.

Investment: Capex, R&D, and People

We’ll look lastly at three measures of investment: capital expenditures, research and development spending, and hiring. On the capex side, Samsung has dramatically increased its investment recently, with much of the investment going into its semiconductor business to support capacity increases to meet recent high demand. Samsung’s overall capital intensity is now nearly 20%, but in its semiconductor business it was over 40% in Q2, a level almost unheard of in such a mature business. Samsung is now ahead of the pack in both dollar spending, by quite some distance, and in capital intensity as well. Facebook, too, spends highly as a percentage of revenue on capex, investing heavily in data centers in particular. Apple’s capex continues to fluctuate widely from quarter to quarter based on the timing of specific investments across the year, and tends to manage its capex budget on an annual rather than quarterly basis as a result.

When it comes to R&D spending, the picture looks rather different. There, it’s Alphabet that’s out ahead in dollar terms, with a rapid rise over the last few years, despite a brief slowdown in late 2016. Much of Alphabet’s Other Bets segment is in areas where there’s high R&D spend and little revenue to show yet, so this likely contributes significantly to overall R&D spending, but it also spends heavily in its core business. Samsung and Microsoft spend at very similar levels, with Apple just a little behind in dollar terms, and Facebook spends by far the least, though its spending is also rising rapidly. On a percentage basis, however, it’s again Facebook that leads the pack, spending over 20% of its revenue on R&D, with much of that spending driven by high stock based compensation costs in some of its acquired businesses like Oculus. Apple, meanwhile, has increased its share of revenue that goes to R&D from 2.5% to 5% over the past few years, but still lags considerably behind almost all the others in percentage spend due to its sheer size.

Lastly, when it comes to hiring, Amazon continues to be in a league of it own, and now employs nearly 400,000 people globally, with over 100,000 of those added in the past year (with the increase roughly equivalent to either Apple or Microsoft’s total headcount a year ago). And of course the composition of these companies’ workforces is very different, with many of those Amazon employees being warehouse and fulfillment center workers, while most of those at its competitors work in engineering roles, with the exception of Apple’s large retail workforce.

That has implications for revenue per employee, where Amazon continues to be the lowest, and Apple remains just in front of Facebook. However, Amazon said on its most recent earnings call that an increasing proportion of those it’s hired lately have been sales people for its AWS and advertising businesses, with the latter a fast-growing but often overlooked part of Amazon’s overall operation. Facebook managed to hire more people than Alphabet this past quarter as it accelerates its own investment in sales and other parts of its workforce, and both of those companies are predicting a rapid rise in the second half. Apple, meanwhile, slowed hiring as its revenues fell, and although there have been some signals of a rise recently, we’ll have to wait for its 10-K for formal confirmation. Microsoft, meanwhile, added roughly 10,000 employees when it acquired LinkedIn, but has also made layoffs in its sales organization twice in the past year or so, and continues to shrink its manufacturing headcount following the decline of its phone hardware business.


Tech Dominance Begets More Dominance

As we’re nearing the end of earnings season, one of the things that’s become increasingly clear is that the big companies have mostly performed consistently with their past performance, delivering strong growth and profits. Meanwhile, smaller companies have struggled to find growth and profitability, often losing share to their bigger competitors. The recurring theme for me has been that the dominant become ever more dominant, while the smaller players continue to struggle to break in and cross over to the other side of what’s increasingly looking like a chasm.

The Big Get Bigger

On the big side, we have the giants of the consumer tech industry, as measured by revenue or by influence, all of which have now reported their results:

  • Alphabet reported 21% revenue growth and a 24% net margin
  • Amazon reported 25% revenue growth and, an exception among this group, a 0.5% net margin
  • Apple reported 7% revenue growth and a 21% net margin
  • Facebook reported 45% revenue growth and a 39% net margin
  • Microsoft reported 13% revenue growth (aided somewhat by LinkedIn) and a 24% net margin
  • Samsung reported 20% revenue growth and a 14% net margin, with its strongest quarter for both revenues and profits ever.

With one exception, these are highly profitable companies, and with one exception again, they grew by double digits year on year. Beyond the mere financials, though, these companies individually or in pairs or trios dominate key markets:

  • Amazon is increasingly dominant in e-commerce, not taking majority share of spend, but certainly eating up the vast majority of growth in the market
  • Alphabet’s Google and Apple carve up the smartphone operating system market between them
  • Facebook dominates social networking, with no viable competitors on a global basis
  • Amazon, Google, and Microsoft dominate cloud computing
  • Samsung and Apple remain the top two players in the smartphone market, and the only ones to make more than minimal profits in the market
  • Microsoft continues to dominate the PC OS market, with Apple and Google rounding out the rest
  • Facebook and Google dominate online advertising, and especially mobile advertising, and as with Amazon soak up much of the annual growth in the market in the US
  • Amazon and Google dominate the home speaker market between them, with Amazon having the lion’s share
  • Apple dominates the premium smartphone and tablet markets.

I could go on, but you get the picture: these big, successful companies are only becoming bigger and more successful, and more dominant in the various markets where they compete.

The Small Continue to Struggle

Not all of the smaller consumer tech companies have reported yet, but we have enough of a picture from those that have, and from past earnings from those that haven’t, to know what we’ll end up with:

  • Twitter’s revenue declined for the second straight quarter, down 5% year on year, and continues to lose buckets of money, with a negative net margin of 15% in Q2
  • Fitbit saw continued rapid declines year on year in its shipments and revenue, and also saw significant losses
  • GoPro will be reporting on Thursday, and my guess based on last quarter’s results is that losses and revenue declines are on the cards there too
  • Snap reports next week, and although it’s seen decent growth driven by rising ARPU, its user growth continues to struggle and it’s also losing lots of money
  • Smartphone vendors from LG to HTC to Lenovo either have reported or will likely report losses and shrinkage, with few exceptions.

Now, some of this is down to company lifecycles, with both Twitter and Snap still to generate any profits at all in any quarter, while Fitbit and GoPro have been profitable and high-growth companies in the past but have run into trouble. The lower-tier smartphone vendors, meanwhile, have always struggled in markets that offer little differentiation and intense competition and which heavily reward scale and premium offerings.

Barriers to Independent Success Remain High

In an earlier piece, I wrote about the danger of being a one-trick pony in the tech industry, with both Fitbit and GoPro among the examples I cited. And that remains a key issue for these companies, many of which are single-product companies and have failed to build broader platforms and ecosystems that can attract consumers and differentiate against powerful competitors.

But the barriers to success go well beyond that. Many of the largest players in the industry enjoy significant network effects and scale which enable them to quickly ramp up new products and services by selling them to massive installed bases of devices or regular users. I wrote about the power of Amazon’s Prime in this regard last week, but Facebook is another great example. If Facebook feels threatened by a new app or feature offered by a rival, all it has to do is copy it and make it available to its own massive user base of 2 billion monthly active users or the smaller but still substantial WhatsApp, Messenger, and Instagram user bases. The rise of Instagram Stories to 250 million daily active users over the past year, eclipsing Snapchat’s 166 million daily active users as of the end of Q1 2017, is perhaps the perfect example of this.

On the rare occasions when companies and products do manage to break through these barriers and create real differentiated value, they’re often simply acquired by the bigger players. WhatsApp, Instagram, LinkedIn, DeepMind, and others are among the list of companies which had created interesting businesses  or technologies outside of the big tech companies and yet have now ended up being absorbed by them.

For all these reasons, it’s almost impossible to cite an example of a consumer technology company that’s emerged in the last few years and achieved real financial success independently of and despite the dominance of the big tech companies. Of those that have tried, the vast majority have run up against the power of ecosystems, been cloned and eclipsed by the big companies, created markets which ended up dominated by larger players, or been acquired.

I’m far from convinced, as some are, that this means regulators should start looking at these companies on antitrust grounds, mostly because I don’t think they’re doing anything illegal. But we are going to see calls for regulatory intervention, especially in Europe and other markets outside the US, and we’re going to see an increasing backlash against these dominant players from consumer groups, would-be competitors, and politicians. Dealing effectively with these complaints and threats is going to be an important skill for these companies over the coming years, even as they begin to feel more and more invincible.

A Deep Dive on Samsung Electronics

As I was digesting Samsung’s Q2 2017 results last week, I realized that I’ve never really taken the time to come up with a robust mental picture of Samsung Electronics as a company, where its revenues come from, and how it all hangs together. I have lots of charts that I produce every quarter for my clients, but in many cases the labels on the charts don’t have a lot of meaning behind them for me. As such, over the last few days, I’ve spent a little time diving deeper and really understanding the moving parts beyond the mobile division that dominates most coverage of the company (and my view of it). Today, I’m going to share what I’ve learned.

The Power of Amazon Prime Beyond Shipping

Amazon CEO Jeff Bezos famously talks about the company’s Prime subscription service as an important part of its “flywheel” strategy, through which customers become increasingly tied into Amazon’s ecosystem and end up becoming more loyal and higher spending customers. The chief benefit of the Prime subscription has always been sold as free two-day shipping, but of course, the list of features the service offers has long since grown beyond that to include video and music streaming, access to books and magazines, photo storage and more. Now, it’s even being used as a foundation for selling additional third party subscriptions like TV bundles. It’s increasingly clear that, though the primary purpose of Prime may be selling more goods on, it’s becoming a very powerful platform for selling other things too.

Amazon’s Growing Share in Streaming Music

Though I think the Prime perk that’s most often talked about beyond shipping is video, it’s fascinating to see what Amazon has been able to achieve in music, in large part by offering a limited selection of music for streaming as part of the Prime subscription. Though other streaming music services offer 30-40 million songs, Amazon offers a subset of two million through its Prime Music service, and that’s been a popular option. Media recently reported that Amazon now has the number three position in streaming music behind Spotify and Apple Music globally, through a combination of the limited Prime Music service and its separate Music Unlimited service. My own recent surveys suggest roughly one in six Prime subscribers in the US use the music feature at least monthly, and I would bet that Echo adoption plays a role in that, given that Prime Music is integrated into the Alexa function. That’s roughly half the rate of adoption of its video service after a much shorter time in the market.

In Video, Expanding Beyond Competing with Netflix

Speaking of Prime Video, Amazon has invested heavily in the service in recent years, upping its original content spending and competing with Netflix in the catalog-based streaming space. It’s even expanded in Netflix-like fashion to many other countries around the world, though in practice its catalog remains very limited outside of a few key markets. But the more interesting part of its recent video strategy has been its creation of the Amazon Channels service, which allows Prime subscribers to bolt on monthly subscriptions to various channels, from premium networks like HBO and Showtime to niche and foreign content. Recent figures reported by BTIG Research suggest that Amazon alone may be responsible for a significant chunk of the subscribers for standalone streaming services like HBO Now through this channel. The combination of its own video service and these third party services into a bundle creates a pretty unique offering in the market, something really only matched indirectly by the subscription model offered by Apple’s App Store, albeit without a first party subscription as part of the bundle.

Other Features Also Get Usage From Smaller Segments

Though video and music are the most popular features beyond free shipping, others such as the free access to books and magazines through Prime Reading and the Photo Storage offerings are also used by 10% or more of Prime subscribers in the US. Applied to the likely 80 million plus subscribers Amazon now has globally, that means Amazon is becoming a meaningful player in a number of secondary markets almost incidentally, threatening standalone players who make their whole businesses out of providing similar offerings. Most importantly, Amazon doesn’t need to make any money directly from any of these services – indeed, it likely loses quite a bit of money on its video and music offerings in particular, simply because the benefits of increased stickiness on spending on outweigh any costs.

Implications in Messaging, Healthcare, and Beyond

This week, Amazon was reported to have created a secret group to work on healthcare projects including electronic medical records and telemedicine, while Amazon also recently created calling and messaging apps for its Echo devices and the accompanying Alexa apps. Though it would be tempting to write Amazon off as having no basis on which to build either of these businesses – after all, it’s historically served households rather than providing personalized services to individuals – the businesses it’s built in video, music, and beyond suggest that we should never underestimate Amazon to build new businesses off the back of its Prime subscription base. That doesn’t mean it will always be successful – its Fire Phone was a huge flop, after all – but it does mean that in the right business segments it has a decent shot at building a meaningful subscriber base for new services as a side effect of its investment in the Prime flywheel.

The Two Increasingly Dominant Business Models in Consumer Media

One of the most fascinating things about the consumer technology industry is the range of business models in evidence among the various companies. Though software may indeed be said to be eating the world, what’s fascinating to me is that almost no business models are based on selling software. Instead, we’re seeing the rise of two dominant business models in almost all of consumer digital media: subscriptions and advertising. And as these take over on the content side of the industry, they’re more likely to take increasing share of other parts of the industry including hardware as well.

How Will a Cashless Society Impact the Cash-Dependent?

This week, I was driving in my neighborhood when I spotted that most American of sights: a bunch of kids running a lemonade stand, waving signs and trying to flag down passing cars. In some ways, it seemed like a great business opportunity – the temperatures where I am have rarely dipped below the high 90s Fahrenheit lately. And yet I didn’t stop – not because I don’t like lemonade (or kids), but because I simply don’t carry cash anymore, and I’m fairly sure the neighbor children weren’t taking credit cards. That got me thinking about all the people and sectors of our economy which are still dependent on cash, and how they might be affected by our increasingly cashless society.

Cash is in Decline

Whether anecdotally or based on solid data, I think most of us have a sense that cash is in decline. One study from last year suggests that cash is the preferred payment method of just 11% of US consumers, with 75% preferring cards. In other markets such as China, cash is dying out even more quickly, with mobile payments increasingly eating into both its share and that of cards. Though my local dry cleaner in New Jersey was a rare (and suspicious) exception, I very rarely come across businesses that don’t take cards, to the extent that it now really takes me aback when it happens. For many of us these days, credit and debit cards and to a lesser extent mobile payments are making cash largely irrelevant. I still have a huge jar of loose change I accumulated over many years and which now mostly gets used for the occasional school lunch or visits from the tooth fairy, but not much else.

But not for Everyone

However, assuming that this pattern holds for everyone would be a mistake. There are still big sectors of the economy, and large groups of people, who remain heavy users of cash and heavily dependent on it, and as others move away from it, that’s increasingly going to cause them problems. Sadly, this likely applies most to some of the more vulnerable and marginalized parts of our society, who will be least in a position to make the changes necessary to keep up as the rest of society moves on.

Here are just a few examples of people or businesses still dependent on cash:

  • Homeless people and others who ask for money on the streets
  • Charity workers soliciting cash donations in public areas
  • Manual and casual laborers who get paid in cash, either for convenience or for tax reasons
  • Cab drivers
  • Those who don’t have bank accounts or credit cards, including many without regular incomes
  • The elderly
  • The very young, also unlikely to have bank accounts
  • Anybody who works based on tips, from waiters and waitresses to maids and barhops in hotels to valet parkers
  • Small local retailers and restaurants who can’t justify high credit card processing fees on mostly small purchases.

The list could go on much longer than that, but the point is that there are those who are in some cases heavily dependent on cash and relatively powerless to make the changes necessary to keep up. These are often among the poorer and least educated people in our society, and therefore those with least access to technology, the traditional banking infrastructure, or information about how to adapt.

Tech Has Offered Partial Solutions

The tech industry has offered partial solutions, but mostly in self-serving ways. Payment processing company Square has transformed many a small retailer or producer from a cash-only business to one that can take credit cards and even Apple Pay, and created ways for those without traditional cards to carry balances and make payments with their phones. Amazon has introduced methods for those who deal mostly in cash to obtain one-off or refillable cards to be used to pay for things on its site. Venmo has turned erstwhile cash transfers into electronic payments. But these solutions mostly tear down limits to the addressable markets for their own products, without necessarily expanding economic opportunity or promoting inclusion, while also often being based on internet and mobile technology not available to all.

But Needs to do More

What we need is solutions for the rest of society, and especially for those without access to the internet and phones to be able to receive non-cash payments. What about an app that allows patrons or would-be donors to set up a transaction in an app, and allows the recipient to walk into a bank or store to pick it up in cash with a privately shared code? Or an app that allows users of basic smartphones to receive payments and carry a balance without creating an ongoing relationship with the payer? What about a service that would provide meals, access to beds and other facilities, or other needed items to the homeless based on donations from smartphone users? Technology has such an enormous potential to reduce friction and make payments simpler, but what we need are innovations that do the same on the receiving end, including in ways that don’t themselves require technological solutions.

I feel like calling on the tech industry to step up to big societal problems has been something of a theme lately in my columns, but I can’t help but think that this is yet another area where those already most on the fringes of society will just be left further marginalized by technology rather than brought into the fold by it. It doesn’t need to be that way: the bright minds who have created so many technologies that help us deal with our “first world problems” can surely find ways to help those with more biting and pressing challenges as our society continues to evolve.

What to Look For in the Q2 Earnings Season

Another earnings season is upon us: the public tech companies will begin reporting second calendar quarter results later this week, starting with Netflix on Monday and moving on to others like Qualcomm, T-Mobile, and Microsoft later in the week, with others to follow over the next couple of weeks. Here’s what I’m going to be looking for – and what I suggest you look for – as some of the big companies report.

Apple’s Health and Fitness Push Accelerates as it Turns 3

In what was one of the most packed WWDC keynotes in recent memory, the Apple Watch got under 15 minutes of stage time, and health and fitness features got only a fraction of that. But that’s not really indicative of all the additions to Apple’s health, fitness, and broader wellness features being made this year, and it’s certainly not indicative of Apple’s commitment to the space. I spent some time this week getting briefings about both what’s new in Apple’s own software, and what developers and others are bringing to the party.

Four Key Domains in Health

Apple’s focus in health, fitness, and wellness is clear from the moment you open its Health app – it highlights four key domains for which the app can track data:

Apple’s approach to everything it does has always featured hardware, software, and services, and Health is no exception. But in this area, perhaps to a greater degree than elsewhere, Apple relies on third parties, with much of the heavy lifting in three of the four domains listed above being done by outsiders, and Apple focusing mostly on the Activity area with its own products and features. Those third-party contributions are, of course, enabled by tools provided by Apple, mostly in the form of SDKs and APIs which outsiders can use to build software and integrate into Apple’s various systems.

An Increasingly Comprehensive Play in Medical Too

That’s especially true in a fifth domain, which isn’t as visible in that home tab of the Health app, but is nonetheless important to Apple’s efforts in this area, and I’ve called that medical for the sake of distinguishing it from the other domains. The table below illustrates the roles played by Apple’s own first party products, its tools for third parties, and then the products and services provided by third parties in all this work, with areas that will change or have augmented features or functionality this year highlighted in red:

As you can see, at this point the combination of Apple’s own products and features and those provided by third parties is pretty comprehensive at this point, and you can hopefully also see the number of areas where new features in watchOS 4 are enabling new functionality either in the built-in apps and hardware or through third parties.

What’s New This Year

I want to drill down briefly on some of the things that are new this year, because they got such short shrift at WWDC but some of them are pretty notable. Here they are in bullet point form:

  • Enhancements to the Workouts app: following the new hardware from last year which introduced GPS and water resistance to the Watch, watchOS 4 adds additional functionality, including more sophisticated tracking of swimming workouts, optimized tracking for High Intensity Interval Training (HIIT), easier switching between workout types and general usability improvements.
  • Changes to the Activity and Breathe apps: each of these apps is getting some subtler changes, with the Activity app getting some smarter coaching which is more personalized than the current more generic reminders and prompts, with some really clever stuff coming here; and the Breathe app getting better explanations of why you might want to take a break and do some deep breathing, in the form of described health benefits.
  • GymKit and connected fitness machines: I saw a demo of the new integration with fitness machines, and this is going to be a big deal for anyone who does gym workouts, which the Watch naturally can’t track as well using GPS or motion sensors. The integration here is very clever, with data flowing both ways, meaning that data from the Watch can show up on the much larger, always-on screen on a treadmill or exercise bike alongside the data it captures itself. I think there’s an opportunity here for deeper integration with iOS devices to replace the corded connection some machines offer today, for things like projecting notifications or videos onto the gym machine, but the fitness-focused integration Apple is starting with here is a great start. Getting these machines quickly adopted in gyms will be the key, and I understand Apple will be talking more about how this is going to happen later in the year.
  • Core bluetooth on the Watch for more devices: Apple has enabled core bluetooth on the Watch for heart monitoring chest straps from the beginning, but not for a broader range of devices. In watchOS 4, it’s opening up core bluetooth to other devices too, enabling other body sensors and even medical devices like continuous glucose monitors, as well as connected fitness equipment like tennis racquets or golf clubs.

The Medical Domain is Coming Into its Own

Beyond the things Apple itself is going, I got to see quite a few apps and devices from third parties in my meetings this week, and one of the things that impressed me most was the innovation being done in what I labeled the medical domain above. Between the original HealthKit and the additions since in ResearchKit and CareKit, Apple is enabling some really interesting work by doctors, device vendors, and medical facilities which leverages Apple devices to do things that would otherwise have been impossible or a lot more difficult. Some examples include:

  • The Propeller Health asthma inhaler sensor and accompanying app, which automatically track when the inhaler is used and also invite users to track their symptoms and environmental conditions manually, pulling in third party data. The solution is designed to help increase “adherence” (the faithfulness with which patients adhere to a treatment plan such as using a preventative inhaler daily) and understanding of what triggers symptoms for better management. These products have been available through medical professionals but are now going direct to consumers as well.
  • A WebMD Pregnancy app which includes a ResearchKit component that is allowing researchers to learn a lot about pregnant women and their symptoms, which are surprisingly under-researched, especially in remote and rural areas far away from where most studies are conducted. The app is going to be most useful with women who have access to regular blood pressure and other vital signs measurement, but is already generating a much higher participation rate from rural areas.
  • A Sharp Health app for helping eye surgery patients get ready for and recover from their procedures. The app helps ensure that patients don’t have surgeries canceled because they forget about necessary steps to take beforehand like stopping blood thinners, and again helps with adherence after surgery, as well as giving them options for talking to medical professionals if they have questions during their recovery. The basic model here could certainly be applied to other procedures by other health systems too.

More Work to be Done

As I said earlier, it’s starting to feel like Apple has an increasingly comprehensive set of hardware, apps, tools for third parties and a growing ecosystem of apps and devices from others in this health domain. But in quite a few of these areas, it feels like we’re still just scratching the surface of what can be done, especially in the medical field, where things still tend to move very slowly and where comprehensive electronic patient records are still more of a dream than a reality. But Apple is helping here by providing tools that professionals and companies with the appropriate medical pedigrees and qualifications can tap into, while focusing on what it does best.

One question I had for the Apple folks I talked to was how it decides which domains to play in itself versus leaving them to third parties – for example, it’s added some sleep-related functionality such as the Bedtime feature, but still doesn’t do its own sleep tracking, and doesn’t really have much of a first-party play in nutrition tracking either. The answer I got was the classic Apple one: Apple tends to participate directly in a market only where it feels like it can do something unique and different. For now, that means there are plenty of areas where others are better qualified and equipped to make a difference and provide the features and functionality users need. Discovery of these in the App Store and elsewhere is going to be key for enabling users of Apple’s ecosystem to make the most of all this, and that’s an area where the App Store changes Apple announced at WWDC should help.

Apple is never going to be done in this area, and neither are its partners or its competitors. There’s lots of work still to be done by all these players in a field that I suspect is going to receive increasing attention from the tech industry over the coming years, even as politicians argue over the best ways to manage the funding of healthcare and the structure of insurance plans that will pay for much of this. I’m hopeful that we’ll see much faster change and greater benefits coming on the technology side, and this week I saw promising signs in that direction.

Subscription Music Services Have Killed US Music Video Streaming Growth

This past week, I came across some data from a service called BuzzAngle, which provides something of a unique perspective on the US music market. The service reports total numbers for physical and digital song and album sales and on-demand audio and video streaming. I was struck by a couple of the numbers in its latest report, covering the first half of 2017, and decided to dig a little deeper and chart some of the longer-term trends, which I’m going to share here today.

The Voice Speaker Tipping Point

With reports this week that Samsung is readying a Bixby-powered voice speaker for the home, and an announcement from Alibaba that its entry in the category will be launching next month, it feels as though we’re reaching a tipping point in the market pioneered by the Amazon Echo. It seems as though pretty soon every major platform and device vendor will have an entrant in the market, signaling a new phase in its development. But this market isn’t quite like other markets that have gone before.

A Tipping Point in Voice Speakers

Amazon, which arguably created the voice speaker market with its Echo device in late 2014, had the market largely to itself for a good two years. Then, Google entered the market with its Home device late last year, and this year saw a slew of announcements at CES, mostly of Amazon Alexa-powered speakers, with an announcement last month by Apple and this week by Alibaba, among others. Things certainly seem to be picking up steam, as the diagram below shows:

Apple’s HomePod should be with us later this year, while Tencent has said it’s working on something in this space, Lenovo’s Smart Assistant was announced at CES but hasn’t become available yet, multiple speakers from Microsoft partners including HP and Harman Kardon are on the way, and Samsung is reportedly working on a speaker powered by its Bixby voice interface. On top of all those, there are quite a few others from smaller companies.

A Different Kind of Market

Most markets in consumer technology go through multiple phases, often pioneered by one or two companies who prove out the opportunity, followed by a rushing in of new players as the opportunity becomes obvious to others, and an eventual thinning and consolidation of the market as the winners begin to emerge. In the last few years, the rushing in phase has been characterized by an influx of low-cost Chinese competitors in markets as diverse as smartwatches, drones, virtual reality headsets, fitness trackers, and more.

That hasn’t really happened in quite the same way in the voice speaker market, for one obvious reason: this isn’t just another hardware category where free, off-the-shelf software gets you an instant global presence. Even though Amazon has opened up its Alexa platform for others, and we’ve seen a number of not just speakers but other devices launched which incorporate it, that platform is still fairly severely geographically limited. The Alexa Voice Service which device vendors can use is so far only available for the UK, US, and Germany. And of course Amazon as a brand may be present in many markets, but is only really popular in less than a dozen countries worldwide.

The Google Assistant so far only works in English, though support for other languages is coming shortly, but even once those roll out much of the world will be left without a voice assistant platform that speaks its language. Apple’s Siri, at least on iOS, supports many more languages, but it’s not yet clear which HomePod will support, and of course Siri isn’t a licensable platform.

Localization Beyond Language

But language isn’t the only localization challenge with voice assistants. These assistants need to understand local accents and idioms, know the right conversions for locally-used measurements, be familiar with television shows, movie stars, and sports figures in each country, and so on. And they need to integrate with relevant local entertainment, information, and other services. That makes expanding into other markets particularly challenging, and it’s yet another reason why most successful voice assistants will be part of broader ecosystems coming from big companies like Amazon, Google, Microsoft, and Apple.

However, that means the broader opportunity for voice speakers is nothing like as large as for other recently hot consumer electronics categories, with the long tail of cheap Chinese vendors in particular likely to remain largely absent. It’s possible that, with the entry of players like Alibaba into voice speakers and Tencent and Baidu into voice assistants, we’ll eventually see some expansion into lower-cost tiers. But this is likely to remain a highly regionalized market, to a far greater extent than any other recent consumer electronics category.

That’s important because there’s already a false narrative around a global market in voice speakers. Several of the news outlets that covered Alibaba’s announcement this week said it was a competitor to Google Home and Amazon Echo, but of course since those devices don’t work in China and Alibaba’s won’t work outside China, they’ll never actually go head to head.

Business Models Will Vary Too

The other interesting thing about the voice speaker market is that, for at least some of the players, it will be a means to an end rather than a lucrative business in its own right. It’s already clear, for example, that Amazon sees the Echo family and the Alexa platform as an opportunity to sell more stuff on, while Google plans to use advertising to create additional revenue streams on the somewhat cheaper Home. Apple, meanwhile, will take its usual tack of monetizing the complete package of hardware and software, though it will likely see some uplift in services like Apple Music off the back of HomePod sales as well.

In China, meanwhile, we’ll likely see these and other business models play out, with Alibaba’s device named after one of its popular online stores, and Baidu’s and probably Tencent’s efforts likely to be more ad-focused. All of this will lead to different pricing strategies for the hardware itself, with the early Chinese examples hitting price points roughly half those of the two early leaders in the US market, and Apple in turn pricing its premium speaker at roughly double those devices.

This is going to continue to be a fascinating market to watch unfold, one that won’t necessarily follow any of the established patterns from other recent hot devices. It will be more regionalized – even balkanized – and more varied in the business models than other device categories. And as a result we’ll likely see several major players taking leading positions in different regions around the world, rather than global winners as in smartphones, tablets, or PCs. Over time, we’ll certainly see the usual thinning and consolidation as some winners do emerge and smaller players fail to gain traction, but in the meantime it feels like we’re going to see lots more new entrants and interesting devices and business models.

The iPhone for the Next Ten Years

Given that this week marks the tenth anniversary of the iPhone going on sale, there’s lots of navel-gazing about the impact the iPhone has had on the industry (including my own take on Monday for subscribers). However, what I want to do today is think about which products in the market today might have a comparable impact to the iPhone over the next ten years.

I put this question to my Twitter followers, and got a whole range of interesting results, including:

  • Tesla (both cars and solar shingles)
  • Oculus Rift
  • Crispr
  • and the Nvidia DGX-1 for AI and machine learning!

Those are all fascinating answers, including a couple I never would have included in my own analysis here. But I have a different set of three possible products in mind, and I’ll talk about each of them below. As a reminder, what defined the impact of the iPhone was that it was a single product from a single company, and yet that product never achieved majority market share, but still managed to transform not just its own industry (smartphones) but both created and transformed others as well. So that’s the bar that any worthy successor has to clear.

Amazon Echo

To my mind, one of the products that has the best claims to this title over the next ten years is the Amazon Echo. Like the iPhone, it has essentially created a new category which really didn’t exist in the same way previously, and has captured the public imagination in ways few would have predicted. It’s done so with a new interface (much as the iPhone used its multi-touch interface as a key selling point) and has created value beyond Amazon’s own contributions through “Skills” or apps and integrations with other companies. In the process, it’s created a market that now also includes Google and will shortly include Apple, and that also includes many smaller manufacturers and products.

Apple Watch and AirPods

Although it might seem funny to include another Apple product (or two) in this analysis, these two feel emblematic enough of two emerging wearables categories to include them here as well. The Apple Watch is by far the most successful smartwatch out there, while AirPods promise to create a new category around the ears some have called “hearables”. More broadly, though, they’re part of a trend we’ll see in the coming years in which the functions of the smartphone will be increasingly delegated to other peripheral devices, whether merely as input and output devices in the short term or as powerful processors in their own right. These devices will over the next ten years increasingly take on tasks that smartphones have themselves taken over from other devices over the past ten years.

Microsoft HoloLens

I hesitate to include this device on this list, mostly because it’s far from being a mainstream product today and therefore isn’t really in the same category as the iPhone. But it’s perhaps the most high-profile example we have today of an AR headset, and that category as a whole does feel like it will be very important over the coming years in defining new interfaces, creating new markets, and generating tons of new value. More likely, though, it will be Magic Leap, Apple, or some other company which eventually brings a mass-market AR headset to market and truly creates a new category. For now, as I’ve written previously, AR will be dominated by the smartphone, but much of the work that’s done on smartphone AR will eventually be applicable to headset AR too. Much more than the Oculus Rift, which focuses on VR and therefore a smaller long-term addressable market, AR headsets feel like they’ll be a really important category ten years hence, even if the HoloLens doesn’t yet capture what that market will look like.

Google is MIA

One thing that struck me here is that no Google device is on the list – both Google and Microsoft have recently pushed into hardware, and while Microsoft’s HoloLens made my list with the caveats above, nothing Google has made yet has been anything other than just another entrant in an existing category. On the other hand, cloud services and the AI and machine learning that powers much of the next generation of those services will have a significant role over the next ten years, though no single product or service will have a massive impact.

Two other answers

However, ultimately, I think there are two other answers that are more compelling than any of the three I’ve just listed, and they are “the iPhone” and “none”. The reality is that the iPhone turned the smartphone into the biggest consumer electronics category the world has ever seen or is likely to see. The smartphone is going to become essentially ubiquitous around the world over the next few years, and no other product can hope to match that ubiquity, at least during the ten-year time horizon we’re talking about here. Voice speakers are a fascinating new category, and will grow significantly, but won’t be in a majority of homes for many years, and it’s smartphones that will continue to provide ubiquity for voice assistants. Accessories like smartwatches and bluetooth earpieces are just that – accessories to smartphones – and though they will take over smartphone functions as I described above, they will continue to meet the needs of subsets of smartphone users and be heavily tied to smartphones for the foreseeable future. Lastly, AR will be big in time, but again it’s through smartphones that the technology will have its broadest impact, while headsets serve a much smaller market even ten years from now.

As such, the iPhone and the smartphone market it inaugurated will continue to be the most influential over the next ten years, just as they were over the past ten. And no single new product in the market today will exert a comparable influence over the industry over the next ten years, even though we’ll see some fascinating new user interfaces, product categories, and changes in the way we all use technology and interact with each other and the world around us. As I’ve long argued, though, just as Apple shouldn’t shy away from new product categories because they can’t match the iPhone’s scale, neither should any other player in the market be cowed by the impossibility of matching the smartphone’s impact on the world. There are plenty of worthy places in today’s technology landscape to put effort and investment which will pay off handsomely in the coming years, and I’m looking forward to all the innovation that’s yet to come.

The iPhone at 10 in Charts

Back in January, around the tenth anniversary of the announcement of the iPhone, I wrote here about the impact that it has had on the world, but talked mostly in qualitative terms. As we now approach the tenth anniversary of the first sales of the iPhone, it’s worth another look, this time from a quantitative perspective, because the iPhone is more or less unique among products launched in the last twenty years in the speed of its growth and its sheer scale.

Apple’s Very Different Approaches to VR and AR

This week saw the culmination of what I think of as developer season, as Apple held the last of the big developer conferences of the year, following earlier events from Facebook, Microsoft, and Google. Augmented and virtual reality were themes at each of those earlier conferences, as I outlined for subscribers on Monday, but Apple had been silent on each of these two big areas until now at its public events. Monday’s keynote, though, saw big announcements around both these areas, giving Apple a role in AR and VR, and yet its approach to these two markets is very different, and it’s worth looking at how and why.

The State of the Market

As I wrote on Monday, VR and AR were big themes at the other three big developer conferences, with more time devoted to those than any other topic at F8 and I/O and significant time given over to them at Build too. These are hot topics, as is the whole question of whether AR and VR are even the right names, with Microsoft preferring to talk about Mixed Reality (and in the process arguably sending some mixed messages), and Google’s VR lead talking about Immersive Computing, with both arguing that there’s a spectrum here.

The reality is that AR and VR as terms are the only ones many mainstream consumers can relate to, so for all the hand wringing about terminology and the attempts to introduce new terms into the lexicon, those are the terms worth using. But even within each of those two overarching categories, there are at least two sub-categories each. On the VR side, the interface – a headset – is the same across the board, but there are significant differences in price and performance between the PC and console variants on the one hand and the mobile flavors on the other. On the AR side, meanwhile, the separation is the interface itself – headsets on the one hand, and smartphones on the other. The diagram below outlines how I think about these in terms of the short-to-medium term addressable markets (think 2-3 years out), and it’s worth noting the chart is not to scale but rather shows relative differences only:

To summarize, AR sits at the two ends of the spectrum today, while VR sits in the middle. Headset-based AR is in its infancy today, with Microsoft’s HoloLens one of the few commercial products launched into the market, but very much a niche proposition and far from being a consumer product, while Magic Leap’s technology may well be the first significant consumer-grade product later this year. In the VR realm, console and PC-based VR provides the best and most powerful experiences today, but is tied to the relatively small installed bases of high-end gaming PCs and consoles. As such, Sony is the market leader with the one million sales it announced this week, but that’s far fewer than the 5 million Gear VR headsets that had been sold back in January by Samsung, and which also incorporates Google’s Cardboard and Daydream platforms and a number of others. But even these pale in comparison with smartphone-based AR, which even prior to this week was available on hundreds of millions of smartphones running Snapchat, Facebook, Instagram, Pokemon Go, and a variety of other apps with AR features.

Smartphone-based AR is therefore the one mainstream value proposition among a set of mostly niche and small markets today, and that’s therefore where you’d expect many of the major companies to be putting their money and placing product bets. And of course we saw some of that at Facebook’s F8, with a big investment in its vision of AR, which is absolutely smartphone-centric in the short term but leaves room for a roadmap around eventual glasses-based AR down the line. Microsoft and Google, though, remain very focused on other aspects, with Google’s biggest bets on Daydream VR in both mobile and standalone varieties, and only a side bet on Tango smartphone-based AR, which is available in so few phone models as to be basically irrelevant as a consumer value proposition, while Microsoft is exclusively focused on headset-based experiences across the board. (It’s worth noting that the Daydream standalone VR experience doesn’t have a slot on my chart above, but would form a third VR category, though it’s uncertain where it will eventually fit around the other two in terms of size – much depends on the price/performance ratio we see in devices later this year).

Apple’s Entries into VR and AR

Now, along comes Apple’s entry into VR and AR, which are quite different not only from each other but from what we’ve seen from the other major companies already playing in each of these markets. For context, it’s worth noting that despite the lack of official comment at Apple’s own events, Tim Cook hasn’t been shy about articulating a vision in which AR is far more appealing than VR, and that certainly seems to have informed its announcements this week.

VR – Creation and the Mac

First off, on the VR side, Apple is clearly committed to being a player here, but almost entirely on the content creation side. With the enhancements to Metal and other elements of macOS and some accompanying new hardware options, Apple is attempting to enable developers and other content creators to work on VR and other immersive experiences using Macs. It’s explicitly supporting 360° video and 3D creation on new Macs running High Sierra, and has partnered with a number of both hardware and software companies to build a set of tools for creating and testing VR content.

But in all the announcements about VR this week, Apple stopped short of promising that Macs would become an important platform for consuming VR content, and it said nothing about VR on iPhones – there’s no VRKit for third party headset manufacturers to work with or anything of that nature. This is almost entirely a Mac and creation-centric approach to VR from Apple. And that shouldn’t surprise us given those remarks from Tim Cook, which have downplayed VR as a mainstream technology. Apple understands that many of its developers and users of apps like Final Cut Pro want to be able to create immersive content on Macs, but it isn’t yet ready to commit to supporting the actual end user experiences in a big way across its platforms. That means it’ll be able to hold onto some developers and creators that might otherwise have abandoned the Mac as a platform, but it’s unlikely to do much to dispel the notion that Macs are poor devices for hardcore or VR gaming. And the entirety of Apple’s announcements here were around the Mac, a platform that has an order of magnitude fewer users than iOS.

AR – Consumption and the iPhone

By contrast, Apple’s AR announcements were all about its biggest platform and the end user. Given that the smartphone AR space today is dominated by photo and video filters and lenses, two possible entry points for Apple would have been logical: either adding its own lenses and filters to the Camera and Photos app in iOS, or opening up the ability for third party developers to create them instead (or both). Instead, what we have is a much more expansive vision for smartphone-based AR from Apple, opening up ARKit as a framework for AR in any conceivable context on the iPhone and iPad. So yes, I’ve no doubt we’ll see photo and video lenses and filters that make use of the new AR tools, but we’ll also see much more. Apple demoed several games at WWDC, but it goes even beyond that, as a tweet from just one day after the keynote demonstrated.

Apple isn’t exaggerating when it says it’s just created the largest AR platform out there – though Facebook’s user base is about twice as big as Apple’s, Apple’s developer base is far larger and the monetization opportunities far clearer than around Facebook’s AR platform, which has no monetization options at all today. And Apple’s vision for AR today is far broader than anything we’ve seen from any other player, encompassing not just the very similar visions of Facebook and Snapchat, but also the Pokemon Go AR view and many as yet undiscovered implementations. And whereas Facebook only showed canned demos of much of its AR functionality on stage and released a more basic subset, Apple’s ARKit does much the same stuff in production today.

So yes, Apple showed us its first forays into both VR and AR at WWDC, but those first steps into each market look very different. Apple’s VR strategy is indicative of its desire to support creators and developers as they mostly build products for consumption on other platforms, while Apple’s AR bet is very much about supporting its own users on its own platforms. The latter is a vastly bigger market today than the former, and much better aligned with Apple’s existing strengths and its user base. That’s going to make it a big player in AR by the end of the year even as it takes much slower more subtle steps into VR.

And of course none of this closes the door to an eventual entry by Apple into that other flavor of AR, the headset market, or as I think it will actually be by the time Apple enters: the glasses-based variety. Everything it and its developers are learning and building today will be applicable to that eventual more immersive version of AR too.

Putting the WWDC Keynote in Context

This piece will publish early Monday morning ahead of the first day of Apple’s WWDC developer conference. Some of you will read it before the keynote, and some of you will be reading it after Apple has made its announcements. Last week, I shared what I’m hoping to see at WWDC today, but here I want to step back a bit and provide some context for what’s announced at WWDC, in two ways: firstly, by showing which topics have dominated the keynotes at the other major developer conferences this year, and secondly by outlining the topics Apple has spent time on during this event in the past.

My Wish List for WWDC 2017

Next week is Apple’s Worldwide Developers Conference and, along with the rest of the Tech.pinions crew, I’ll be watching the announcements closely. At this late stage, it makes little sense to try to predict what we’ll see next week – there are a number of credible reports out there about at least some aspects of what’s on tap and we’ll know the rest soon enough.

Instead, here are some of the things I’m looking for as both a user of Apple’s products and services and as an industry observer who wants to see the companies in this space keep pushing those products and services forward. I’ve done similar exercises twice in the past, in 2014 and 2016, in case you’d like to see how those turned out.

Allow iOS to Continue to Evolve to Meet Disparate Needs

I’ve called in the past for the creation of a “padOS” – a variant of iOS focused on either iPads in general or the iPad Pro specifically. The naming and separation is largely symbolic and whether or not Apple does it is less important than that it allows iOS to continue to evolve separately in its iPhone and iPad versions. Apple’s current big push around the iPad is positioning it as a fully-fledged computer that can be used for advanced productivity tasks. That means both its role and the way it functions has to evolve separately from those of the iPhone. The iPad needs to support more sophisticated multitasking, a different home screen layout, and more advanced apps than the iPhone. Apple needs to set apart the iPad version of iOS more clearly for developers so they catch Apple’s vision and believe they can create not just great experiences but great business models around apps on the iPad.

The challenge for Apple is it has to allow iOS on the iPad to evolve in such a way it doesn’t break the core value propositions of focus and simplicity which have always characterized the OS and the devices it runs on. It would be easy to say Apple should simply either port macOS to an iPad form factor or make a touchscreen Mac, but neither would be the right solution. Apple has to strike a careful balancing act between enhancing the power and functionality of the iPad without making it seem less like an iPad.

When it comes to the iPhone, I want to see what Apple can do in augmented reality, which has already been a theme in all three of the previous big developer conferences this year. With dual cameras in the iPhone 7 Plus and arguably the most used cameras in the world, Apple is in a unique position to do interesting things with AR in the native camera app. That’s still where many of us take our pictures, even if they’re subsequently exported to social media apps for sharing. So Apple has a lot of power to combine software and hardware optimization to provide interesting overlays on photos and videos and open those capabilities up to developers. I would guess this might start with lenses and filters but there’s so much more developers could invent and create, given the right tools.

Siri needs to Evolve Faster

Siri was a major focus last year but not necessarily in the ways I’d hoped or expected. Siri extensions were a great new feature and were complemented by extensions across Maps and iMessage. But Apple did relatively little to move Siri forward as a standalone voice assistant, touting relatively few advances in voice recognition, natural language processing, or its own ability to serve up more relevant responses to queries it properly recognizes and processes. I’d like to see Siri as a voice assistant become better at recognizing and understanding what I’m saying and more consistently serving up relevant responses. Apple has acquired a number of companies over recent years which should help with this and I’m hoping we’ll see some big advances this year, including more conversational and contextual understanding.

In the context of Siri, I’d love to see a home speaker from Apple that would compete with the Amazon Echo and Google Home. These devices, specifically the Home, have grown on me over the past few months as I’ve had one in my home but, as someone who’s fairly heavily invested in the Apple ecosystem, I’ve found them frustrating. I’ve had to use other music services, messaging platforms, reminder apps and so on with these devices and, while I’ve made that transition, in some cases I’ve simply found those devices less useful as a result. An Apple speaker that would combine Siri, Apple Music, AirPlay, Reminders, iMessage, and more would be a huge advance for me and, I would imagine, for tens of millions of others. I think others have been reluctant to trust Amazon or Google with their personal data or have suspected these devices were really Trojan Horses for selling more goods or ads and, therefore, resisted them.

But Siri in that device has to be really good because the bar Amazon and Google have set in the home speaker space is high, at least in terms of voice recognition. Siri has so far always been somewhat constrained by the devices which contained it, none of which were designed first and foremost for fantastic voice recognition. A home speaker would remove that excuse. Amazon and Google have shown us what can be done in a dedicated device with mic arrays designed for far-field voice recognition and Apple now has to show it can match them and, ideally, exceed them in other areas such as ecosystem integration and audio quality.

macOS needs to Continue to Integrate and Differentiate

One of the key themes of recent years when it comes to what is now macOS is integration with iOS, whether in the form of features like Continuity and Handoff which directly integrate with other devices, or whether it’s in the form of user interface conventions, apps, and so on which now exist across Apple’s portfolio. But as Apple pushes the iPad Pro towards becoming a more powerful computer, it can’t simply leave the Mac and macOS where it is – it needs to establish a distinct identity and purpose for them in contrast to the iPad Pro. That means continuing to push the boundaries of what the Mac can do that an iPad can’t and demonstrating what it can do uniquely well because of the OS, the power of the hardware, and so on.

Beyond that increased differentiation, there’s still a role for integration and borrowing concepts and user interfaces from iOS. Nowhere is that truer than in iTunes. That software began life as a way to organize and then later, sync music to iPods, but it has become so much more since. Every time I fire up iTunes on my Mac, I have to first navigate to the right broad section – Apps, Music, Movies, TV Shows, or Books – and then to either a store or library mode (or more in the case of Music). There’s simply too much going on in that app and it needs to be broken out into separate apps for Music, Video, and syncing, at the very least (possibly even with a separate store for all of the above) to focus those content apps. That would streamline consumption, make the apps less confusing and easier to use, and make people more willing to use services like Apple Music on their Macs.

tvOS needs a Clear Focus

Ever since Apple launched the fourth generation Apple TV, it’s had a dual role as both a video consumption device and a sort of low-powered gaming console. That’s caused some confusion among video-centric users who in some cases don’t see why they have to spend significantly more on an Apple TV relative to comparable Roku devices (not to mention much cheaper Chromecasts) but it has also left gamers a little frustrated that the Apple TV doesn’t do more. Apple needs to decide how serious it is about gaming and build the Apple TV hardware and tvOS to match. It either needs to shift more clearly towards the casual gaming that’s always been the hallmark of iOS, or power up both the hardware and software to enable something more like what people are used to from consoles.

But it also needs to continue to improve the TV viewing experience. I actually like the TV app Apple introduced last year quite a bit – it consolidates my viewing in a number of apps like Hulu, CBS, and Apple’s own TV and Movies apps and shows me the next episodes or available movies in each. But it’s still glitchy and incomplete – Netflix is the obvious standout on the app side but it also frequently misses episodes I’ve watched (or ones I haven’t) and serves up the wrong episode next in the queue. The concept is good but the execution needs polish. And I really need a way to separate the stuff my kids watch from the stuff I watch. Too often, the first part of my queue is made up of half-watched cartoons rather than what I want to watch next. Some combination of profiles and/or time of day smartness could solve that problem pretty easily.

watchOS needs to Figure Out the App Model

Last year’s WWDC and the fall hardware launch felt like a narrowing of focus for the Apple Watch around health and fitness. I think that was smart and reflected the fact apps on the Watch really haven’t taken off, despite several tweaks to the model. I would expect to see continued enhancements to the health and fitness features on the Watch, possibly including sleep tracking and, ideally, including the ability for third party Watch bands to incorporate more advanced sensors and feed data back to the Watch itself, though that may have to wait until the fall. Apple still needs to figure out what the role of apps is on the Watch and how to make them easier and more compelling to use.

There’s probably more I could add here but that seems to be plenty to go on with. I’m optimistic I’ll get at least some of what I’m looking for next week and I’m certain there will be things I haven’t thought of but which turn out to be great additions too. One thing is certain: with more ground than ever to cover, Apple’s going to have a tough time getting through everything in one two-hour keynote. I wouldn’t be surprised if we see some more announcements either before Monday or in later sessions.

Streaming and the Music Business

Streaming has become the big thing in the music industry over the last few years. On the one hand, it’s the fastest growing form of consumption for music but, on the other, it’s a medium the music labels seem to feel pretty ambivalent about, given their frequent spats with YouTube in particular. The real picture, of course, is always a little more complex than it seems. Here are some data points on what’s happening with the three big music labels and how streaming ties in.

The Battle for Smartphone Growth in the US

The US smartphone market is maturing rapidly, with the vast majority of US phone users now using smart rather than feature phones. As a result, growth is slowing dramatically. That, in turn, means the vast majority of market share gains will now come from customers switching behavior between vendors and platforms rather than from new users and sales growth will come almost exclusively from switching and upgrades.

Smartphone Base and Sales Growth both Slowing

Growth in the US smartphone base and sales of smartphones are both slowing. The first chart below shows year on year growth in the smartphone base in the US across the five largest operators:

As you can see just over two years ago, we saw 28 million new smartphone users in the base year on year, but that number has now fallen to less than half at just 13 million in the past year. That slower growth itself would already be having an impact on smartphone sales by the carriers, but we’re also seeing a lengthening of the upgrade cycle as people hold onto their phones for longer, both because their phones are becoming better and more reliable and because new payment structures incentivize that behavior. As such, carrier smartphone sales have been falling for several quarters:

That decline really began to kick in after the iPhone 6 bump was over, in Q4 2015, which was the first decline ever in annualized smartphone sales in the US market. But it has continued since then. That’s the result both of the smaller number of new smartphone customers in the market, as seen in the first chart, and the slower upgrade cycles I mentioned.

Upgraders and Switchers Make Up over 90% of Smartphone Sales

What’s even more interesting is if you compare the numbers shown in the two charts to derive the percentage of smartphone sales that go to new buyers versus those upgrading an existing smartphone or switching to a different brand of smartphone. The latter category made up 70% of postpaid smartphone sales in Q3 2013 but over 90% for two of the last three quarters:

In other words, nine out of ten postpaid smartphone sales are now going to people who are replacing an existing smartphone, which means the emphasis for all smartphone vendors in the US should be on two things:

  • Convincing people who have one of your smartphones already to replace it with a newer version
  • Convincing people who own a competing smartphone to switch to one of yours.

It’s no coincidence, therefore, that Tim Cook has mentioned upgrade and switching behavior repeatedly on the last few Apple earnings calls – these two behaviors will make up the bulk of iPhone sales in many markets around the world.

The Value of Driving Faster Upgrades

It also helps to explain why we saw Apple this week launch a new section of its website specifically targeted at switchers from Android. This is where many of Apple’s customers will come from in the future, especially in the US but also in many other markets. It also means smartphone vendors in the US and other mature markets are going to have to make the upgrade argument more explicitly. Given the relatively high loyalty rates for some leading brands, switching is going to make up a minority of total sales and many sales will come from within the base.

In the past, the carriers’ pricing and upgrade policies around smartphones drove people towards a two-year cycle and though that was never the universal pattern, it held true for many people. But now, under the new installment and leasing plans, that default two-year upgrade has gone away and been replaced by an average closer to three years. As such, there’s an enormous amount of additional smartphone sales to be driven by making the case for people to go back to a two-year cycle and for a smaller number to adopt a one-year upgrade cycle.

The value here is obvious – on a base of 100 million phones sold over the last three years, a three-year upgrade cycle suggests 33 million phones sold a year, whereas shortening it by six months to 30 months drives 40 million sales a year. Shortening it by a full year to 24 months would drive 50 million a year. As such, there’s a massive incentive for vendors to drive upgrades and we’re going to see an increasing emphasis on that factor in the coming years across the board.

Arguably, some Android vendors are already trying to drive faster upgrade behavior with poor operating system upgrade support after the first eighteen months or so, while Apple has introduced the iPhone Upgrade Program to drive one-year cycles for at least a portion of its base. Leasing or “device-as-a-service” models like these are going to grow in popularity and they’re increasingly going to be driven by the smartphone makers themselves rather than just the carriers. That also fits with a broader push towards subscription models for nearly everything in our digital lives. We should expect those programs to increasingly layer on other elements including insurance plans for devices, content services, additional devices like wearables, and so on.

Checking in on China’s Internet Giants

Three companies dominate Chinese internet life to the extent they have their own acronym – BAT – for Baidu, Alibaba, and Tencent. They’ve also often been compared to US-based equivalents – Google, Amazon/eBay and, to some extent, Facebook respectively. However, in the last couple of years, the massive growth that has characterized each of these companies in the past has been less consistent across the three and it’s worth checking in to see just what’s going on with each of them.

Google’s Fading Focus on Android

Google is holding its I/O developer conference this week and Wednesday morning saw the opening day keynote where it has traditionally announced all the big news for the event. What was notable about this year’s event, though, was what short shrift Android – arguably its major developer platform – received at the keynote and that feels indicative of a shift in Google’s strategy.

Android – The First to Two Billion

One of the first things Google CEO Sundar Pichai did when he got up on stage to welcome attendees was run through a list of numbers relating to the usage of the company’s major services. He reiterated Google has seven properties with over a billion monthly active users but also said several others are rapidly growing, including Google Drive with over 800 million and Got Photos with over 500 million. But the biggest number of all was the number of active Android devices, which passed two billion earlier this week. Now, that isn’t the same as saying it has two billion monthly active users, since some of those devices will belong to the same users as others (e.g. tablets and smartphones), while others may be powering corporate or unmanned devices. But Android is a massive platform for Google and arguably the property with the broadest reach.

Cross-platform Apps and Tools at the Forefront

Yet, Android was given only a secondary role in the keynote, a pattern that arguably began last year. Part of the reason is Google has been releasing new versions of Android earlier in the year than before, giving developers a preview weeks before I/O and then fleshing out details for both developers and users at the event, rather than revealing lots of brand new information. But another big reason is a concession to two realities that have become increasingly apparent over time. First, Google recognizes it’s lost control over the smartphone version of Android, as OEMs and carriers continue to overlay their own apps and services but also slow the spread of new versions. It takes almost two years for new versions of Android to reach half the base. Second, Google also recognizes its ad business can’t depend merely on Android users because a large portion of the total and a majority of the most attractive and valuable users are on other platforms, mostly iOS.

Together, those realities have driven Google to de-emphasize its own mobile operating system as a source of value and competitive differentiation and, instead, to focus on apps and services that exist independently of it. As such, the first hour of Google’s I/O keynote this year was entirely focused on things disconnected from Android, such as the company’s broad investment in AI and machine learning, but also specific applications like the Google Assistant and Google Photos. No transcript is available at the time I’m writing this, but I would wager one of the most frequently repeated phrases during that first hour was “available on Android and iOS” because that felt like the mantra of the morning: broadly available services, not the advantage of using Android. As Carolina pointed out in her piece yesterday, that’s not a stance unique to Google – it was a big theme for Microsoft last week too.

Short Shrift for Android

But for developers who came wanting to hear what’s new with Android, the platform the vast majority of them actually develop for, it must have made for an interesting first 75 minutes or so before Google finally got around to talking about its mobile OS and, even then, not until after talking about YouTube, which has almost zero developer relevance. When it did, Android still got very little attention, with under ten minutes spent on the core smartphone version. Android lead Dave Burke rattled through recent advances in the non-smartphone versions of Android first, including partner adoption of the Wear, Auto, TV, and Things variants, and one brief mention of Chromebooks and ChromeOS.

The user-facing features of Android O feel very much more like catch up than true competitive advantages. In most cases, they’re matching features already available elsewhere or offsetting some of the disadvantages Android has always labored under by being an “open” OS, including better memory management required by its multitasking approach or improved security required by its open approach to apps. From a developer perspective, there were some strong improvements, including better tools for figuring out how apps are performing and how to improve that, support for the Kotlin programming language, and neural network functionality.

A New Emerging Markets Push

Perhaps the most interesting part of the Android presentation was the segment focused on emerging markets, where Android is the dominant platform due to its affordability and in spite of its performance rather than because of it. The reality is Android at this point, stripped of much of its role as a competitive differentiator for Google, has fallen back into the role of expanding the addressable market for Google services. That means optimization for emerging markets.

Android One was a previous effort aimed at both serving those markets better and locking down Android more tightly but it arguably failed in both respects. It’s now having another go with what’s currently called Android Go. This approach seems far more likely to be successful, mostly because it’s truly optimized for these markets and will emphasize not only Google and its OEMs’ roles but those of developers too. That last group is critical for ensuring Android serves emerging market users well and Google is giving them both the incentives and the tools to do better. I love its Building for Billions tagline, which fits with the real purpose of building both devices and apps for the next several billion users, almost all of which will be in these markets.

Microsoft’s Symbolic Shift from Windows to Cloud

I’m attending Microsoft’s Build developer conference this week and one of the most striking things is the way in which Microsoft has reversed the order of its daily keynotes from past years. Whereas the first-day keynote in the past has focused on Windows and devices, those topics have now been pushed to day two, while cloud and AI dominated Wednesday’s first-day keynote. That’s an administrative shift but an important one symbolically. It represents the broader shift in Microsoft’s business away from its legacy focus on Windows and Office software and towards a cloud- and services-based future.

From Mobile and Cloud First to Intelligent Cloud and Edge

When Satya Nadella took over as CEO of Microsoft, he replaced Steve Ballmer’s Devices and Services mantra with a focus on “mobile first, cloud first“. That was an important strategic shift for a company which had invested, under Ballmer, in building and buying device businesses, and was on the cusp of a big shift to services, but which still largely favored its own devices and platforms over a platform-agnostic approach to those services. Nadella’s new focus said the first priority was making sure Microsoft’s products and services were optimized for mobile (most of which was dominated by Google and Apple from an operating system perspective) and cloud (where Amazon and other companies played major roles and Microsoft’s business was again a minority of the market). That enabled the more aggressive expansion of the Office family to third party devices like iOS and Android, more open sourcing of functionality, the expansion of Azure and AI across platforms, and so on.

Now Nadella is pursuing a new vision, which is about Intelligent Cloud paired with Intelligent Edge. That’s a little less intuitive than the old mobile- and cloud-first vision, so it’s worth exploring a bit. There are several components to this shift. First, mobile is gone, not because it’s no longer relevant but because it’s no longer distinct from the market as a whole: building for mobile is now a given and no longer needs to be explicitly called out, at least in theory. Second, the focus on cloud remains and now expands to the totality of the vision but the cloud component now has two parts to it. First is the classic cloud core – all the servers in data centers around the world, with heavy infrastructure driving massive processing and computer power but the second part is the new and important element. Doing cloud-style processing using traditionally cloud-based processing in edge devices, whether that’s PCs, mobile devices, or tiny low-powered IoT devices like Raspberry Pi.

The benefit of that approach is that “cloud” tasks now no longer need to take place remotely from the devices and services they serve, which can reduce latency, reduce the amount of data that needs to traverse networks, and enable businesses and their processes to be nimbler. On stage at Build, Microsoft demoed an example of this approach centered on a Scandinavian manufacturing machinery company. But it has lots of applications which will start in industrial settings but could eventually spread to other enterprise and even consumer scenarios.

That’s a somewhat unique vision for cloud, with many competitors still largely focused on the large core applications and putting more power into data centers. Apple and Google have, to some extent, been experimenting with doing more machine learning and AI tasks on device in the past year but they’re doing that mostly in their device and OS businesses rather than their cloud businesses. In other words, those efforts are largely separate from their cloud businesses rather than integrated into them. The promise of what Microsoft is doing is a consistent and integrated cloud business that seamlessly works across core and edge elements. To be clear, that’s still the theory rather than the practice at this point even for Microsoft, but it’s a distinct vision.

Cloud as an Enabler of AI

One of the phrases from the analyst meetings Microsoft held ahead of Build earlier this week that stood out to me the most was “Cloud is a warmup act for AI”. The point was that cloud, together with other big architectural and structural shifts in IT, have been enormous and have enabled many things but perhaps most importantly, they have enabled AI to flourish and become truly useful and critical to future innovations. So AI itself was a key second theme from the first-day keynote at Build and one which had some important themes in its own right. Among those were:

  • Democratizing AI – although I don’t think I heard this phrase uttered explicitly on stage, it’s been a consistent theme for Satya Nadella lately. What it really represents is the enablement of AI and machine learning for developers in such a way they don’t need their own expertise in the field to make use of it. That definitely was a theme in the keynote and continues to be an important element of what Microsoft is doing with AI beyond its own use in first-party products like Office
  • Custom Features – another theme of the keynote was enabling customization of image and text recognition for developers so they can train AI and machine learning with their own unique and obscure data sets, again in such a way they don’t need to understand the tasks themselves
  • Automation and Cognitive Skills – one last theme I’ll mention is the combination of steady improvement in core cognitive skills like image and text recognition, language processing, translation, and so on. Microsoft is getting very good at each of these individually but it’s also getting better at putting them together and then providing automated functions like real-time translation, something Microsoft demoed on stage in impressive ways.

Microsoft is certainly one of the leaders currently in AI and especially in the field of enabling generalist developers with AI and machine learning capabilities. I’m always wary of declaring winners in such a complex and broad field but it’s certainly up there with other broad-based leaders like Google and Facebook, while still others like Apple use AI more quietly and in more focused ways to improve their own products.

More to come on Windows and Devices

Microsoft, like Facebook and Google, has two keynotes during its developer events, which is indicative of just how broad its business is at this point and, although Windows and devices have been pushed to day two this year, there will be plenty to talk about in terms of moving Windows 10 forward through the next update later this year, Windows Mixed Reality and HoloLens, and so on. Microsoft isn’t leaving this stuff behind by any stretch of the imagination. But it’s the cloud, AI, and this other cross-platform stuff that’s driving the majority of Microsoft’s growth today, while Windows and devices represent a more flat to declining business financially. Cloud and AI are the future and they’ll enable new functions and features of Windows and devices as we’ll see in the day-two keynote too. The order of those things is perhaps the biggest shift in Microsoft’s business and we’re really starting to see that play out now.

The Big Six in Q1 2017

Since all the major consumer tech companies have now reported their results for the March 2017 quarter, it’s time for my quarterly comparison of the “Big Six” – Alphabet, Amazon, Apple, Facebook, Microsoft, and Samsung. While not strictly the biggest six consumer tech companies (Facebook is considerably smaller than the others in the group), they’re certainly among the six most important.