DISH Moves In

DISH Network is a company that has not gotten a lot of attention in the internet business. After all, it mainly exists as a cable TV competitor, suppling service to about 14 million customers through satellite dishes. But, pushed along by founder Charlie Ergen (left), it is moving in on the business, starting up new internet television services and elbowing its way into U.S. wireless channels.

The satellite-based internet service doesn’t draw a lot of envy from customers except those who have no better way of reaching the net. It has about 550,000 customers of what it calls “broadband” service, not enough to qualify for the term under the Federal Communication Commission’s new definition of 25 megabits per second. But DISH is making its way based on facilities of landline and terrestrial wireless services.

Aggressive DISH. The latest has been an aggressive movement into the most recent auction of wireless service. DISH is spending about $10 billion for wireless spectrum, most recently $3 billion in the FCC’s Advanced Wireless Services (AWS-3) auction. “That spectrum, combined with the wide-ranging spectrum licenses that DISH already owns, will turn Charlie Ergen’s company into a spectrum powerhouse,” writes Phil Goldstein of FierceWireless.

DISH is no stranger to controversy and this deal is no exception. It was able to get bargain prices on some of the AWS bids by working through two small companies, Northstar Wireless and SNR Wireless, which were eligible for a discount program. DISH owns 85% of the companies. According to the Wall Street Journal, Republican FCC Commissioner Ajit Pai will ask Chairman Tom Wheeler to investigate the action, which he claims “makes a mockery” of the small business program.

DISH has not yet laid out plans for the new spectrum it is acquiring, but it seems a safe bet it is not about to get into the wireless telephone business. Its aggressive bidding increased prices in the auction for competitors Verizon and AT&T. Maybe it’s hunting for a deal with the hungry Sprint or T-Mobile, or perhaps outright acquisition of one of these second tier companies. Or it could be building a network for a new land-based video service.

DISH’s new ideas. One description of the video idea is DISH has been looking for ways to expand its current TV services over the internet. In 2007, EchoStar, DISH’s parent company, acquired Sling (original model below), a device that accesses your cable TV system so you can watch service on any internet capable device in any location. ((Sling was the invention of Blake and Jason Kirkorian and sold for $380 million. One of its key functions was its ability, in pre-Netflix days, to adjust its service to capture the best available bandwidth.))

SlingAlthough Sling remains a separate product, DISH has incorporated the technology in several ways. Hopper, originally a feature for moving cable service to different TVs in the house, now has Sling capability that lets you move content from your cable device to any device on the wired or wireless internet (as the ad points out, so the kid can watch the big game on his phone while making a visit to his TV-less aunt).

Now, a new service called Sling TV will be launched to compete head-on with an internet-based service available on PCs, mobile devices, and several plug-into-your-TV systems (detail for Insiders). A $20 monthly subscription will provide a variety of programing. The basic service is very close to what is available on Roku, Google TV, Xbox, and other internet-based services, either free in the basic subscription or, such as Netflix, at extra subscription costs.

But the difference that makes it a standout from the crowded field of internet delivery competition is the availability of ESPN and ESPN2. The inability of non-cable carriers to present live sports events has been a big disadvantage. Customer insistence on live sports kept them as cable service customers. While DISH has yet to demonstrate the success of its service, it has a real chance to make a dent in the existing cable business.

Cable competition. DISH, and Ergen, are well positioned for a cable and TV business that is changing in fundamental ways. The cable carriers are holding their share of the market–there have been slow decline in TV subscribers, but each year their landline business is developing more and more into providing internet (broadly defined as all TCP/IP traffic) rather than video channels. The wireless carriers are seeing less and less voice traffic and more and more data and video. Their growing LTE service runs on TCP/IP that is more like the traditional wireline but available anywhere. Cable carriers programming began mainly with broadcast channels and ESPN. Then it added enhanced networks, first paid channels such as HBO, then original programming on ad-supported ones such as AMC and Lifetime.

The companies that own most of the businesses–from CBS to Comcast to Verizon–move slowly, seeking to replaced their expensive services. It’s hardly a surprise HBO is prepared to offer its shows over the internet to buyers who are not already cable subscribers after Time Warner unloaded Time Warner Cable from the business. In a field marked by this turmoil and with real room for change, it is potentially a fine market for a daring company like DISH.

Sexiest New Devices? PCs…

After narrowly escaping death (not really, but a lot of people sure tried to convince us of it), the PC industry is regaining some color in its face and starting to make bold moves forward. Yes, the road ahead will be challenging and nobody’s expecting any kind of magical return to the glory days, but at least we can all now agree there is indeed a road ahead.

Timed perfectly in conjunction with this sense of rebirth are the release of arguably some of the most innovative PC designs we’ve seen in a long time (I’m not even counting the widely expected new version of Apple’s MacBook Air). Yes, I’m going to say it—PCs are starting to look sexy again.

Most of the attention is rightfully focused on notebooks, but before I go there, I do want to give a quick shout out to HP’s Sprout desktop system. Even now, several months after its surprise launch, Sprout stands out as a remarkably innovative reimagining of what a PC can be and what it can do. It’s not the kind of product that will sell in big numbers—and to be fair, the first version has a few limitations I’m sure HP will address in future iterations—but Sprout has broken the mold on traditional PC designs. In so doing, it has given consumers—and the tech industry—a vision of where personal computing could go in the future. I think it deserves a tremendous amount of credit for doing so.

On the notebook side, the innovation has arguably been more of a continuous evolution, but the end result is a set of products that are remarkably cool and undeniably sexy. (When’s the last time you’ve been able to say that about a PC?) Dell’s new XPS13, for example, wraps together a magnificent, nearly bezel-free, ultra-high resolution 5 megapixel screen (on some models) with an ultraslim, light weight 2.8 pound body (2.6 pound on standard HD screen models) into a machine that is the first to really deserve the title “ultrabook”. Leveraging Intel’s new 14 nm Broadwell architecture design, the XPS13 features great performance and a claimed 11+ hours of battery life with the high resolution display. Best of all, it’s a 13” notebook packed into an 11”-size package that looks cool to carry around.

Not to be outdone, Lenovo has put together a wide range of innovative designs, leveraging both their ThinkPad heritage as well as their groundbreaking swivel screen Yoga products. My personal favorite is the 14” ThinkPad Carbon X1—which, like the XPS13, has been through several iterations. The latest version of this 2.9 pound device has been refined not only with performance and battery life boost from the addition of Intel’s fifth-generation Core-based CPUs and Broadwell architecture, but also comes with an improved touchpad. This is a classic design now taken to the nth degree.

For those who prefer the full wrap-around capabilities of their popular Yoga designs, Lenovo’s Yoga Pro 3 features a cool watchband-like hinge in a half-inch thick, 13.3” design that offers a similar resolution 5 megapixel screen to Dell’s XPS13. At 2.8 pounds, the company claims the Yoga Pro 3 is the lightest 2-in-1 available on the market. Having checked it out on several occasions, I can tell you it’s a very light weight, impressive machine.[pullquote]Seeing the kind of innovation now coming out of an industry many had given up for dead, you can’t help but be impressed.[/pullquote]

As light as the Yoga Pro 3 may be, however, it’s not the lightest notebook on the market. That honor now belongs to another Lenovo machine—the LaVie Z, a 13.3” notebook that, in its 180°-swivel design, comes in at an incredible 1.7 pounds. Designed by NEC of Japan (which was purchased by Lenovo in 2011), the LaVie Z is built from a special magnesium-lithium alloy that not only makes it light weight, but keeps the machine rigid.

In addition to these more mainstream designs, there’s also been PC innovations in more specialized areas. Microsoft’s HoloLens is, of course, one impressive example, but even in the field of education I’ve seen some interesting designs that have flown under the radar. One is Panasonic’s 3E, which in addition to offering a ruggedized, more kid-proof design in a 2-in-1 detachable device, adds a clever magnifying lens to the standard webcam, turning it into a mobile microscope for kids to explore the world.

Taken together, these devices, and many others like them, offer a surprisingly robust set of new PC choices that should make even the most jaded individuals take a second look at new PCs. Some might argue these are nothing more than a collection of incremental changes, but it’s this combination of improvements that really do make the difference. Just as people who haven’t seen friends or relatives in several years suddenly notice a big change when they do see them again, people who have been living with old PCs and haven’t really seen what new options are available are bound to be impressed. Most of these new PCs leverage the kind of technologies people have wanted in their notebooks for a long time: fast, reliable SSDs (solid state drives) leveraging flash memory technology, beautiful high resolution displays, and even the often-overlooked but critically important large touchpads. They’re the kind of PCs we dreamt about having several years ago and now they’re actually here.

Yes, it’s easy to get cynical about the PC market and how it often felt like it was looking backward instead of moving forward. But seeing the kind of innovation now coming out of an industry many had given up for dead, you can’t help but be impressed.

The iPhone and the Minority Majority

There is an observation I keep thinking about. When I step back and look at the big picture of the Entire mobile industry, it is becoming increasingly clear Apple is acquiring what is essentially a monopoly on the most profitable customers. Apple’s iPhone market share is hovering around 20% of the total installed base of smart phones and was about 15% of smart phone sales last quarter. No other vendor offering a premium priced phone sells anywhere near the volume of the iPhone. Apple’s global share of premium sales had always been in the 60% range but my estimates have that number now much closer to 70% than last quarter. In markets like the US it was much higher.

It seems somewhat inevitable when you sell a premium phone and grow your base of premium customers you amass a very profitable customer base. However, prior to the last six months, there was an assumption that the playing field for premium customers was more level than it actually was. Even though Apple had consistently been selling more premium price smart phones than Samsung, many believed the two were more equal in premium share than they actually were. We are seeing the shape of the market for premium customers now play out, and it unquestionably falls in Apple’s favor.

In a recent podcast, Benedict Evans made the key point that Google’s version of Android has the biggest part of the mobile market share, but Apple has the best part. He is making the same point I’m making and that I made earlier in the week for our subscribers. Apple has the most valuable customers, not just to Apple, but to everyone else.

Countless times we hear from global carriers that they prefer Apple’s customers. Apple brings them a lower risk customer with higher credit. Apple brings customers who spend more and thus have higher annual revenues per user. From discussions I have had with retailers looking to support Apple Pay, they make the point that it is iPhone customers they want in their stores. These customers spend more, plain and simple. We see the same reality in the app stores. Apple makes their developers more than 2x the revenue of the Google Play store — with less than half the user base. Amazon’s most profitable customers are on iPhones. Google’s most profitable customers are on iPhones. Carriers most profitable customers are on iPhones. Even Microsoft is learning their most profitable customers are on iPhones. I could rattle off statistic after statistic that highlights this reality. Apple’s customers are higher value customers and their growing installed base means they are amassing one of the largest, if not the largest, installed base of premium customers on the planet. This observation has some striking implications on the market.

#1: Innovation around iOS First

Even when the belief was the premium playing field was equal, any casual observer of this industry could note that much of the software innovation happened on iOS first, Android eventually, and sometimes never. The economics of these app store differences is hard for developers to ignore. Developers can and do make money on Android, but overwhelmingly app store economics favor iOS.

Hardware innovation is another area that favors iOS. I’ve done a number of projects and provided market insights for the major accessories makers and there is no question their focus is iOS and specifically the iPhone.

Lastly, we are seeing services innovation as well around the iPhone. Apple Pay is a great example of this. As I mentioned before, retailers are jumping on board for many reasons but one of the largest is attracting Apple’s customers to their stores. Similarly, when we talk to companies looking to support HealthKit and HomeKit, we hear from the services companies like health, security, etc., that they want Apple’s customers.

This theme resonates continually throughout my analysis of this industry and discussions I have with many in it.

#2: On the Competition

The hardest pill to swallow is the impact this has on the competition. With smart phone manufacturers having a harder time sustaining their premium market share and their innovations to try and appeal and compete in premium, it seems likely Apple will face less competition. I’d love for this to not be true. However, it feels like all forces are going in that direction.

From the headwinds I sense from many smart phone manufacturers it seems their sights are moving from the premium market where Apple is dominating to the one below it. As all the future smart phone industry growth will come from devices costing less than $200, it seems many vendors are going to go after volume and thus chase lower price points. In doing so, having any credible offering in premium becomes difficult.

Similarly, there could be competitive implications on components. If you are a component manufacturer for a premium part like an SoC, memory spec, display, etc., you really have only one customer to go after. If you don’t land that customer, how can you justify future R&D spending to advance your components when your customer base is chasing lower prices.

Historically, and when the tech industry was much smaller, people would target business customers if they wanted to go after the higher value base. But now, as the tech industry is much larger and fully mature beyond business and into pure consumer markets, it seems the way to target a high value customer is if they own an iPhone.

I’ve teased out a few implications I see, but I am still wrapping my head around this observation and what it means going forward. As innovations from the Apple ecosystem trickle down, some of them will certainly make it into products in other ecosystems. However, it is clear it will happen largely in Apple’s ecosystem first. Consider this an ongoing analysis but a key industry narrative that is shaking out.

UPDATED: I’m finishing my smartphone market report for our subscribers for tomorrow, and wanted to share this relevant stat. Apple’s share of premium smartphone sales in 2014 was ~65%. Samsung’s was ~24%, and the others like LG, HTC, accounted for ~10%.

Tech Earnings: Apple, Google and Amazon

Welcome to the Tech.pinions podcast. This week, Tech.pinions regulars Tim Bajarin, Bob O’Donnell, Ben Bajarin and Jan Dawson share their thoughts on the quarterly earnings announcements this week from Apple, Google and Amazon.

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Why Apple is not a One Trick Pony

Apple’s recent earnings report was spectacular. The company sold 74.5 million iPhones in the last quarter and had $18 billion in profits, setting a record in both categories. Most of the revenue and profit came from the iPhone which has clearly become Apple’s cash cow. But it begs an important question or two.

The first has to do with the ability to sustain growth with the iPhone and to continue to have strong profits from this product. The second has to do with the three legged stool metaphor in which Apple has three legs with the iPhone, iPad and Macs yet only one continues to deliver blockbuster earnings. To many, this is a troubling trend and they wonder what else Apple can do to boost long term profits.

The first question is quite significant to Apple’s long term profitability. Keeping up demand for the iPhone is strategically important. I am certain this is top of mind at Apple. In fact, in Tim Cook’s answers during the analyst call, he pointed out that, during this last quarter, only a small fraction of their current customers actually upgraded to the iPhone 6 and 6+. He also stated Apple saw record numbers of Android switchers jumping to the new iPhones. I suspect it will be hard to continue to set records with iPhone sales every quarter but it does appear there is still a lot of pent up demand for these new iPhones and, at the very least, it will drive strong iPhone sales through this year. And who knows what they bring to iPhone 7? Any significant new features could boost sales again by year’s end.

I base this prediction on a couple of important facts. As Tim Cook pointed out, very few of the Apple iPhone users have actually upgraded and we know that, when their contracts come up for renewal, it is highly likely they will go with a new iPhone. You don’t see a lot of people switching from the iPhone to Android and, more importantly, most iPhone users have an ecosystem of apps and services already committed to the iOS platform. Another reason to expect strong iPhone growth this year is that these larger iPhones are a big draw here in the US and around the world. In fact, one of the reasons Samsung made such strong inroads in China and parts of Asia is because they beat Apple to the market with 5 inch and 5.5 inch phones, something highly prized in China, Korea, Japan and most of South East Asia. When Apple finally introduced larger phones, demand jumped significantly in China during the last quarter and we hear demand even in Korea for iPhones over Samsung was amazingly strong.

One more interesting fact about this upcoming quarter. We believe Apple will do record iPhone sales in China due to the Chinese New Year. This is a major holiday in the country. People go home for two weeks, have big celebrations and buy gifts for themselves and their family. We believe iPhones will be at record numbers during this time and will keep Apple’s China growth strong in this new quarter too.

Another leg of the stool is the iPad. Yes, growth has fallen off but it is still a strong and profitable business. Apple sold about 75 million iPads in 2014 and most likely will sell at least that many again in 2015. One problem for Apple and other tablet makers, especially those making tablets at the upper end, is the refresh cycle of tablets is longer than most anticipated. Also, the build quality of Apple’s tablets are especially high — they last a long time. That said, I don’t believe Apple is sitting on their hands when it comes to innovating around the iPad. Rumors are strong they are doing a 12.7″ or 12.9″ tablet and this could help sales of iPads, especially in the enterprise. In fact, I suspect this larger tablet is specifically aimed at mobile business users and could bring some interesting new UIs and innovative input to the design when it comes to market. I also think we will get faster and thinner iPads by year’s end that will have some new UI features to re-energize iPad sales by the end of 2015.

The third leg is the Mac. Apple has good news here. They sold 5.5 million Macs last quarter, up by 500K over the previous quarter. I believe Apple is going to bring new Macs out this year that could help boost Mac sales even more. One product I am certain will be refreshed is the MacBook Air. Rumors have Apple doing a 12″ version and I suspect this will end up being the thinnest and lightest laptop ever made when it comes out. I also believe Apple is going to innovate on Macs and, while they’ve already added 5K monitors to this computer, it too could become thinner and lighter as well as more powerful with enhanced UIs and inputs.

However, I think we actually have to look at this stool analogy and add at least two more legs to it — as awkward a stool as that may be. Sometime in April, Apple is going to ship their new Apple Watch and I believe it will be a big hit. Next month, I will do a more extensive piece on why I think the Apple Watch will be huge but Creative Strategies and many other forecasting firms are predicting Apple will sell between 22-24 million Apple Watches in the first 12 months it is on the market. That could bring another $20-$35 billion in new revenue to Apple and make it another important profit leg in this stool.

Then you have the Apple TV. Apple has sold over 25 million Apple TVs and clearly this is past the hobby phase. Given Steve Job’s comments to his biographer about Apple planning to do more with the TV, I am pretty certain this too could eventually become a cash cow of sorts to add substantially to their bottom line as early as Q4 of 2015.

Add to the fact I believe Apple plans to become the largest broker of health data between a consumer and their health provider as well as extending IOS through HomeKit to IoT and CarPlay, adopted by over 12 automakers so far, and it is hard for me to see Apple as a one trick pony. Plus, Tim Cook has said there are things they are working on that people have not even written about, which says, at least to me, Apple has even more irons in the fire that could add many new legs to this stool over time.

The iPhone Economy

Apple’s earnings this week were such that it’s almost impossible not to be distracted by the sheer scale. However, since that’s been well covered every where the last couple of days, I wanted to focus on a particular way of looking at Apple, which I suspect fits well with where the company will go in the coming years. I’ll start with this chart, which is a datapoint you probably won’t have seen anywhere else – it’s the total revenue Apple generates as a company divided by the number of iPhones sold. Note: it’s not iPhone revenue per iPhone sold (i.e. average selling price), but the total revenue from all products and services per iPhone sold in each quarter:

Revenue per iPhone soldWhat I want to look at today is the degree to which the iPhone has become central to the Apple ecosystem and the degree to which Apple can essentially be seen as the iPhone company. To some extent, we can also begin thinking about “the iPhone economy” as existing beyond the confines of Apple itself. What the chart shows is Apple is starting to stabilize at around $1,000-$1,100 per quarter per iPhone sold in total revenue. Now, iPhones themselves account for somewhere between $600 and $700 of that $1000, but the rest is made up of other devices and services and that’s where I want to focus our analysis.

Other devices – today

About 30% of Apple’s unit shipments in the quarter were something else – iPads, Macs and a few iPods. As the iPod goes away, the other devices are essentially becoming companions to – or extensions of – the iPhone. I’d bet a very high percentage of iPad and Mac owners are also iPhone owners and, with concepts such as Continuity and its implementation in features such as Handoff, the iPhone is becoming more and more interconnected with those other devices. These devices will largely be sold in future to iPhone owners and their interconnectedness with the iPhone will make them more and more attractive purchases, which will have a positive effect on sales over time (witness what’s happening with Mac sales, in contrast to the broader PC market). Today, these other devices make up about 25-30% of Apple’s revenue in an average quarter.

Other devices – tomorrow

But of course these aren’t the only devices Apple will be selling going forward. With the launch of the Apple Watch in April, Apple will have another companion device to the iPhone – the first to be explicitly tied to it (and of very little use without it). The revenue opportunity around the Apple Watch is significant – if it ships 20 million or more in 2015, as I think it might well do, then it could generate $10 billion or more in revenue, contributing about 5% of Apple’s overall revenue after it launches. Over time of course, it’s likely to generate significantly more than that and will make an increasing contribution to overall revenues. Then there are other devices that become part of the iPhone ecosystem: home automation devices connected to HomeKit, other wearables connected to HealthKit and the Health App, and so on. Apple will likely sell many of these in its stores and so capture revenue that way. But it’s also possible Apple will launch some of its own hardware in these categories, further stimulating sales. The Apple TV, of course, is another device tied in many ways to the iPhone, and which plays a role in HomeKit too. If it evolves and Apple manages to move it beyond the “hobby” phase, it too could play a significant role in boosting the iPhone economy.

Accessories

Then there are accessories – Apple sells lots of these today, though it’s just stopped reporting this number separately. Apple has also acquired Beats, which makes first party accessories for Apple and has the potential to grow and expand over time into other categories. And there are quite a few other segments Apple could expand into over time, within the broad scope of accessories, which could further boost revenues per iPhone sold.

Services and content

Lastly, there are services and content, including iTunes content, the App Stores across iOS and OS X, iCloud, and newer services such as Apple Pay. Assuming Apple is able to turn content performance around with whatever Beats evolves into, each of these has the potential to grow significantly over the coming years and make an increasing contribution to revenues and profits.

Perpetuating astonishing growth

All this is relevant because, even though the revenue per iPhone sold number has been falling, I expect at some point it’ll turn around and start rising again, as each iPhone sale generates not just $650-700 in revenue directly but an increasing amount of ancillary revenue through sales of iPads, Macs, Apple TVs, and Apple Watches, along with iTunes content, apps, Apple Pay, iCloud and a plethora of other products and services. Apple’s December 2014 quarter was astonishing in its scale and the growth it entailed and Apple will continue to feel the effects of the iPhone 6 and 6 Plus launch for several more quarters. But if it’s to generate that kind of astonishing growth going forward, these additional revenue opportunities, adding up to over $1,000 per iPhone sold, will be increasingly important as iPhone growth slows down a bit in a year’s time. But at the same time, these peripherals to the iPhone will help ensure its place as the most attractive ecosystem for both developers and consumers, which in turn should help keep iPhone sales ticking over nicely as well.

Apple as the Number One Smartphone Vendor

In the December quarter, Apple became the largest seller of smart phones in the world for the first time. Here is my tweet from September 4th.

Screen Shot 2015-01-29 at 7.11.06 AM

So I can’t say I’m shocked. Yet, with a number of analyst firms reporting or about to report we are getting confirmation Apple did indeed pass Samsung in sales last quarter.

You can expect some mild disagreement with this claim. Counterpoint has come in and given the lead spot to Apple. While Strategy Analytics has called it a “shipment” tie. Granted, the Strategy Analytics headline acknowledges Apple as the top vendor, since Apple sold through their number and Samsung did not. I also expect Gartner and IDC to come in around this range for Samsung shipments. The takeaway is it was close. However, one thing no one at any of the firms will deny is Apple did, in fact, sell more smart phones than Samsung.

I prefer to base my models attempting to track sell through. I have access to live device data which helps me put parts of this puzzle together. From all the sources I have, and trying to get closer to sell through by the vendors, this is where I landed.

Screen Shot 2015-01-28 at 8.23.14 PM

For Tech.pinions subscribers next week, I’ll do a deep dive on the December quarter smart phone data and detail the implications pointed out in my global model as well as look at some updated installed base estimates.

While an impressive feat, last quarter’s iPhone numbers are further evidence Apple defies conventional wisdom. Certainly, Samsung will be number one again next quarter. There are also certain questions circulating around Apple sustaining this growth as Bob O’Donnell goes into here for our subscribers. What we have to recognize is the trend lines. Trend lines, followed by sound study of global markets, is what gives us insight into not just current trajectories but future ones as well. Ultimately, that is what matters in this analysis. A good analysis is not just a snapshot in time but sheds insight into where things may go. This is where the focus will lie as we analyze the key story lines for 2015. Luckily, using sound data models, we can develop more educated insights about what lies ahead.

The Big Picture for Windows 10

Joe Belfiore

Microsoft’s latest in a series of Windows 10 show-offs yielded, seemingly as planned, attention for two display products under development — the 3D personal HoloLens and the giant Surface Hub. But the risk is not in these designs which, though very sexy, would cause little damage if they never made it to market. The challenge is Microsoft’s latest effort to unify its software as Windows across its product lines in reality, not just branding.

Microsoft has always been a bit ambiguous about the meaning of Windows. In the beginning, Windows was an operating system for PCs built on x86 processors (there were occasional stabs at other chips, even the PowerPC, but none survived for long). But versions varied. From the introduction of Windows NT in 1993 until the unifying release of Windows XP in 2001, Microsoft offered two families of Windows for PCs based on very different code

Early mobile Windows. The Pocket PC, a competitor of the Palm (( Microsoft wanted to call it the PalmPC, but was beaten down by the threat of lawsuits)), bore a resemblance to Windows in appearance but almost no relationship to the code. As Microsoft looked for the success in Windows Phone, the company fiddled with making it a winner. But it never got the display to work satisfactorily, nor found a way to unify the PC and phone code. Windows has moved closer with Windows 7 and Windows 8 and will get there with Windows 10 (9 has been skipped).

By itself, the change will be of little importance to Windows Phone owners. Even the developers of Windows Phone applications probably won’t see much change. The impact is on where the market goes from here. In terms of phones, Microsoft is starting with a new version of Office–Word, PowerPoint, Excel, Outlook–where a single code base serves PCs, phones, and any tablets that come along, and with UIs appropriate to the devices. In terms of user functions, I suspect the difference will not be very great and I still expect the function of, say, Excel, will remain limited to the small display of a phone.[pullquote]Windows is a bit odd from other approaches to operating systems[/pullquote]

Windows is a bit odd from other approaches to operating systems, however. Almost everything except BlackBird’s software is built on Linux or, in the case of OS X and iOS, Linux’s cousin BSD Unix. But Linux is just an operating system in the classical sense; the file systems, user interfaces, and everything else are done separately. Android is built on Linux.

Unix’s children. OS X and iOS are both built on Unix, but are separate code from each other. They share some APIs but nowhere near all of them; for example, OS X does not have the phone functions and screen touch that are critical to iOS. But Windows will have the same full OS for all products.

TwitterAlthough Microsoft has said this, it is not completely clear what it meant. Microsoft Vice President Joe Belfiore tweeted information explaining the difference between “desktop” versions of Windows for PCs and any devices with displays bigger than 8″ and the “No dsktp” version for phones and smaller devices.

The veteran Windows watcher Mary Jo Foley of ZDNet did her best to make sense of what she calls “the muddy waters.” One problem is Microsoft is coming up with so many APIs for different products. There is one basic version designed for devices running on ARM processors, including Lumias and other manufacturers’ Windows Phones and any tablets with displays less than than 8″. What Microsoft refers to as the Desktop SKU ((The use of SKU, which stands for stock keeping unit, is mysterious. It is normally a retailing and wholesaling term used to describe specific versions for stocking and pricing, but Microsoft seems to use it for versions of Windows used for different products.)) are devices including desktops and laptops as well as larger tablets. It’s not clear how many versions there will be for consumers and business customers, but there will definitely be special versions for HoloLens and the Surface Hub. (Microsoft has not yet talked about Windows Server and its code relationship to Windows 10.)

The fate of Surface RT. There will also be a Mobile SKU, described by Foley: “The Mobile SKU is aimed at devices with small RAM and disk requirements. It’s built for locked down devices, though, in theory at least, it could run on a device with any size screen.” One question is whether Microsoft will find a way to revive something replacing Surface RT, a sort-of tablet running a stripped down Windows 8, without the Win32 component, which permits the use of pre-Windows 8 versions.

Windows RT was a flop, both on the Surface and a handful of other tablets. One of the major flaws was the fact that pre-Windows 8 applications would not run and new Metro apps did not develop quickly enough–or even by now–to make a Windows version that couldn’t run them be attractive. Would the version of Windows 10 for the 10″+ tablet run Win32? Microsoft’s division at 8″ also rules out the approach of Apple, along with Samsung, HP, Lenovo, and other makers of Android tablets, of offering functionally equivalent tablets with screens between 7″ and 10″.

This all gives the evidence of why the operating systems story at Apple is so much simpler. iOS goes on the iPhone, iPad, and what’s left of the iPod (a stripped-down iPhone). The Apple Watch will use a version called, of course, Watch OS. One version of OS X runs on all Macs. Apple got out of server hardware and Xserve in 2010 and abandoned the Mac Pro Server in 2013. It now offers the OS Server, which is just a $20 add-on of server management for Yosemite intended for using a standard Mac for low demand server applications.

It would be nice if Microsoft’s offerings were as simple as Apple’s but the world of Windows is much more complex and, in the line of PCs, much bigger. We haven’t even seen the pricing plans yet (except for the free upgrade of Windows 8) but we can expect it will be expensive. But Microsoft doesn’t have the beautiful, simple freedom of supplying an OS to its own hardware and always updating it without charging users.

How Will Windows 10 Impact PCs and Tablets?

Much has been written about Microsoft’s Windows 10 announcement overall, as well as their recent earnings. One key issue that I haven’t seen discussed in great detail, however, is the real-world impact that Windows 10 will have on the PC and tablet markets.

From my perspective, Windows 10 will likely have a very positive impact on the PC market, both consumer and commercial, and the forthcoming OS is likely to have more of an impact on tablets than Windows 8 ever did.

For PCs, Windows 10 provides a much needed “fix” for Windows 8, at several levels. To start with (pardon the pun), the importance of returning the Start Menu cannot be overstated. While it may seem like a foregone conclusion at this point, Microsoft’s untimely removal and now triumphant return of a well-enhanced, essential element of the Windows UI will impact more PC users more profoundly than anything else they’ve done.

Even better, Microsoft has managed to leverage the Start Menu’s return in such a way that they’ve nearly completely destroyed the dichotomies they created between Desktop Mode and Modern/Metro Mode in Windows 8. The whole Windows experience now feels much more coherent—frankly, it’s what they should have done with Windows 8.

They’ve also managed to combine the best of each environment, even on simple things: for example, “modern” apps can now float in a window and you can choose to close a “desktop” app by pulling down on its title bar. Neither are earthshaking, but they’re good examples of the unification efforts Microsoft has made with Windows 10 on PCs.

To keep things interesting, Microsoft has also added some new capabilities to the mix—most notably Cortana, the virtual personal assistant software they first introduced on Windows Phone. With Cortana, the company is finally delivering on promises it made years ago to bring voice recognition and voice-based interactions to PCs. While the jury is still out on how well it will work for most users, the possibility of letting an individual talk to their PC to do things like “show me all my photos from my trip to Hawaii,” could have a profoundly positive impact on how people work with their computers. Dare I say, it might even make working with a Windows PC fun again.

On the tablet side, the Windows 10 benefits are a bit more subtle, but I still think they can have an important impact. The new tablet mode in Windows 10 offers a few nice enhancements over the stock Windows 8 modern UI. More importantly, the company’s Continuum features make the process of using a convertible 2-in-1 like a Lenovo Yoga, or a detachable 2-in-1 like Microsoft’s own Surface Pro 3, significantly better. Now, when you flip the screen over or detach your keyboard, you get a smooth transition into a more touch-friendly environment. As soon as you flip back or re-attach, you get a smooth transition back to a keyboard and mouse-friendly environment. Again, it’s what I think a lot of people hoped Windows 8 would offer (but never did). Frankly, Windows 10’s Continuum is probably the best argument I’ve seen for the whole 2-in-1 category, and I think it will lead to a significant jump in shipments for those devices.[pullquote]Windows 10’s Continuum is probably the best argument I’ve seen for the whole 2-in-1 category, and I think it will lead to a significant jump in shipments for those devices.”[/pullquote]

Obviously, many of these capabilities are going to be beneficial to consumers, but I believe Windows 10 is equally important to business. Not only are most of these features potentially relevant for companies, Windows 10’s most critical business capability is a path forward. The truth is, very few business IT organizations had made the move to Windows 8 and quite a few were starting to consider other options. Now, however, the general consensus in business seems to be that companies can simply skip over Windows 8 (as many did with Windows Vista) and just migrate from Windows 7 to Windows 10. Though I don’t expect too many companies to make that move very quickly (late 2016/early 2017 are more likely timeframes), the mere fact that the option exists is a huge relief for many IT organizations.

One other question that’s come up is the potential impact on new PC sales because of Microsoft’s free upgrade policy as well as their shifting OS licensing model, particularly for smaller and lower-end devices. Long-time industry watchers know that very few people have actually made the effort to upgrade across versions of Windows. Obviously having a free upgrade will change that to some degree, but for many people sitting on very old PCs, just knowing that there’s a viable new option will likely lead to a reasonable number of consumer PC replacements.

In addition, it’s clear that, from a business model perspective, Microsoft is increasingly focused on web-based services, such as Office 365. As a result, the manner in which the company is making money is shifting rather profoundly and moving toward things like annual fees for services. Finally, as I suggested above, Windows 10 is also likely to drive much stronger interest in new types of form factors, both for consumer and commercial buyers, nearly all of which will require new PC purchases.

Microsoft has laid out a compelling vision for what Windows 10 is and what it can enable (and I haven’t even touched on things like universal apps, Xbox integration and other cool capabilities they’ve talked about). The challenge that remains, however, is executing that vision in a timely fashion. Their hardware partners clearly need a shot in the arm and, for the first time in quite a while, they’re looking relatively fondly towards their friends in Redmond and hoping that Windows 10 really can deliver. I, for one, believe it can.

Teens and Their Social Media

When I joined Creative Strategies in 2000, one of my first tasked areas of research was the millennial generation and their demands on tech. The world was different then. There were no smart phones and, while two way pagers and basic cell phones existed, the PC was the primary computer of this demographic. I was tasked with trying to understand the millennial generation because, depending on whose definition of millennials by year born, I am one — or at least, just missed the cut off. So it was relatively easy for me to do focused studies on youth and technology at high school and college campuses. I gave more keynotes and presentations on millennials and their current and future demands on tech and did some fascinating projects, including some for the U.S. Government. I still maintain some degree of that focused research today and there is an interesting thing that stands out. Teens dominate social media.

We do quite a bit of data gathering on monthly app usage of the top apps in the market today. When it comes to social media, teens are the heaviest users of key social networks. Note these stats from my research panel:

  1. The heaviest users of Facebook on a monthly basis are 26-35. The second largest demographic is 15-25, followed by 36-45. This data is fairly even between males and females of that age group
  2. The heaviest users of Instagram on a monthly basis are females 15-25, followed by females 26-35, followed by males 15-25.
  3. The heaviest users of Twitter on a monthly basis are males 26-35, followed by males 16-25 then females 16-25.
  4. The heaviest users of Snapchat on a monthly basis are females 16-25, followed by males 16-25. What stands out about Snapchat is no other demographic even comes close in usage to those two.

I have app data on a plethora of other apps and the pattern is all the same. The graphs for the demographics between 15-35 overshadow the graphs of other demographics. Why does this matter?

Well, what drove me to study the younger demographics early in my career was my belief in how influential they would be in the future. I knew they would adopt technology quickly and therefore they could potentially dictate trends. While early evidence of this proved true in the US, it is glaringly clear in areas like China and increasingly India, where the younger demographic is embracing mobile and, in doing so, disrupting many incumbents who serve the needs of older demographics better.

An argument I was always faced with was the line of reasoning about the younger demographics having no money to spend. Therefore why spend time and effort focusing on a demographic who has no money? Yet nothing was further from the truth. From youth in America to China, brands continue to witness firsthand the spending influence of the younger demographic. Both from their own money but also how they influence the spending of others, including older demographics.

There are many articles worth of observations to make on this data but the one that is interesting to me is why? It isn’t like those above 35 aren’t also interested in these sites. I have a theory. What if this is all a stage of life thing? Meaning, at a certain age, everything changes.

Using myself as an example, I find it interesting that a few years ago before I was 35, my console gaming time declined dramatically. This was at a busy time of life family and career wise, and inevitably my priorities changed. I wonder how much priority shifting during different life stages will impact the success or failure of future apps and services? In the Snapchat example, what if this demographic simply grows out of it? This is exactly what happened to MySpace. Who’s to say the same doesn’t happen to modern day apps dominated by the young demographic? Can we safely assume an app will grow with them? Or evolve in a way to capture the interest of the up and coming young demographic? I don’t think so. This evolution of life stages and changing priorities is why I’m relatively skeptical of things like Snapchat. As these young consumers evolve and mature, their needs will change. As needs change, it opens the door for different and new services.

While it is clear millennials drive the usage and, arguably, the financial upside of many of the most talked about apps today, they also pose the biggest risk when their needs and life stages change.

Consumer evolution is nothing new. However, what we are witnessing is consumer evolution of the first digital and mobile generation. Which means that whatever we think we know about how they may evolve, we may not really know.

Windows 10, Microsoft HoloLens, Google MVNO

Welcome to the Tech.pinions podcast. This week, Tech.pinions regulars Tim Bajarin, Bob O’Donnell and Jan Dawson share their thoughts on Windows 10, Microsoft’s HoloLens and Google’s rumored efforts to become an MVNO.

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The 100th Anniversary of the first Transcontinental Phone Call

Those who have read my columns over the years know I am a serious student of technology history. I think it is partly because I was present at the birth of the PC revolution. My first project for Creative Strategies was working with the team at IBM that developed their first PC. Consequently, I saw the PC market develop from the beginning and how it begat laptops, tablets, smartphones, the internet, the servers of today, the cloud and has made it possible for us to move from the world of analog in the first half of the last century to the digital age that began in the second half of that century.

My office museum has technology that goes back to the early 1800s in the form of one of first portable typewriters and one of the first batteries — made in 1875. It includes many of the original PCs, tablets and even early cell phones the size of bricks that hit the market in the mid 1980s. In fact, in 2012 I spent part of my summer at Oxford studying the historical contributions British scientists made to the world of technology. I love to learn abut technology history and devour anything I can find on the subject.

This coming Sunday, we will celebrate one of the major milestones in our technology history. It was on January 25, 1915, the first transcontinental telephone call was made. At that time, Alexander Graham Bell placed a call from New York City to his assistant, Thomas Watson, who was at the Panama Pacific Exposition in San Francisco.

Here are some fun facts about the first phone call:

• Traveling east to west, the line stretched 390 miles from New York to Pittsburgh, 545 miles to Chicago, 500 miles to Omaha, 585 miles to Denver, 580 miles to Salt Lake City, and 770 miles to San Francisco – close to 3,400 miles in total.

• Transcontinental telephone service was officially opened to the public at 9:01 p.m. the evening of January 25, but long distance calls were available only to those able and willing to pay the hefty price of connection. A three minute coast-to-coast call was billed at $20.70 – that’s $483.99 in today’s money.

Speed of Transcontinental Travel

• 1849 – By stage coach, 5 months.

• 1859 – New York to San Francisco by sailing vessel around Cape Horn, 3 months.

• 1869 – By railway, 20 days.

• 1914 – By steamship through the Panama Canal, 16 days.

• 1915 – By railway, average time 90 hours.

• 1915 – By transcontinental telephone line, one-fifteenth of a second.

Construction Data

• Total weight of material used: 5,500,000 pounds

• Of this, 3,578,000 lbs were poles, 730,800 lbs were copper, and insulators, hardware, tools, etc., made up the rest.

• 47,700 cubic feet of earth was removed digging holes for poles and anchors. If piled in a vertical column one foot square, it would have been nine miles high.

Material used

• 13,900 poles

• 1800 miles of No. 8 copper

• 146 miles of No. 12 copper

• 14,000 crossarms

• 700 patent anchors

• 58,000 bolts

• 72,000 washers

• 56,000 insulators

• 90,000 insulator pins

Transportation/Equipment

• 34 wagons

• 116 horses

• 4 automobile trucks

• 1 caterpillar tractor

• 3 automobiles

Interestingly, AT&T had demonstrated they could make a call as far as Denver as early as 1911 but could not get enough boost in amplification until after Dr. Lee DeForest introduced his vacuum tubes, a central technology that made it possible to make calls from one side of the country to the other with any clarity.

Below are some fascinating pictures from ATT’s Archives of the workers who built the coast-to-coast telephone lines.

Workers1Workers2Workers3Workers4workers5

I had the privilege of attending a special media event on Thursday where folks from AT&T’s archives had the actual phones used by Alexander Graham Bell and Thomas Watson when they made this historic call. During the call, they also patched in President Woodrow Wilson from the White House and Theodore Vail, President of AT&T who had injured his leg and could not travel to NYC. So they did the call from a lab near his home in Jekyll Island, GA.

The first image is of the two phones used by Watson and Bell.

BellWatson2VailWilson4
The second is of the four phones used in the call — the one on the far right was the one Woodrow Wilson used in Washington and next to it is the one ATT president Theodore Vail used in Jekyll Island, GA. The line up of phones is Watson, Bell, Vail and Wilson.

The next image is of Bell making the call from NYC and the last is Watson receiving the call in San Francisco.
BellWatson

“The first transcontinental phone call was not only a breakthrough for AT&T, it was a key milestone in
our nation’s rich history of innovation,” said Ken McNeely, President of AT&T California. “A hundred years ago, the world marveled as AT&T was able to send the human voice over 3,400 miles of wire from one coast to the other. Today, we can hold the whole of human knowledge in the palm of our hand.”

Mr. McNeely should probably have also mentioned we can now call anywhere in the world using our smart phones, something that Bell and Watson probably never even dreamed of.

As I stood looking at these phones in front of me, I found myself in a state of awe. Here were the actual devices Alexander Graham Bell and Thomas Watson held to make this historic call.

I suppose this might sound childish but to me they were almost sacred. I tried to imagine what it would be like standing in that crowd in San Francisco witnessing this in person. I tried to think about the surroundings of the Palace of Fine Arts where this first call was made and where this Exposition/World’s Fair took place.

And how, during the year of the Pan-Pacific Exposition and World’s Fair, these phones were used to demo the concept of long distant communication by letting people listen to the water splashing against the shores of Rockaway Beach in N.Y. How they must have marveled to the sound of music or the reading of news being sent live from New York to SF over this long distance line. Imagine the wonder in these folks as they were witnessing a new era of communication.

It is amazing to me how much technology has advanced in just 100 years. Imagine what else technology may bring to us in the next 100 years.

From Needing Windows to Loving Windows

At yesterday’s Windows 10 event, Satya Nadella highlighted the theme I think encapsulated both what Microsoft is trying to do with the new operating system and what it needs to do more broadly as a company. In his closing remarks, Nadella said (I’m paraphrasing slightly in the absence of an official transcript):

  • “We want to go from users needing Windows to choosing Windows to loving Windows”
  • “We want people to love Windows on a daily basis”
  • “We want to make Windows 10 the most loved release of Windows”

What these three phrases have in common is the use of the word “love” in relation to Windows. That’s strikingly new language for Microsoft and it’s a big departure from how I think many people view Microsoft and its products today. As with much Nadella has said over the past year, it’s also refreshingly honest in its recognition of Microsoft’s current status as the default option but not a chosen option (let alone a loved one). Microsoft thrived in the past on being the de facto standard in both operating systems and productivity suites (mostly in the absence of mass market, affordable alternatives) but it can no longer do so in a world where Apple is resurgent, Google increasingly dominant in certain categories, and free options in many categories abound. Microsoft now needs to return to getting customers to choose it, and that in turn means getting them to associate positive things with the brand and the products.

The big challenge: does anyone love operating systems?

As a goal, I think this is laudable and appropriate for Microsoft – it’s a great rallying cry internally, apart from anything else. But as it applies to Windows specifically, I think the biggest challenge is that no one loves their operating system. If people love an experience on a computing device, it’s usually associated with the device as a whole, and often times with the device maker rather than the software developer. Apple doesn’t have this problem as such, since it combines both in a single company. But for Microsoft (and for Google, as I’ve written before), the challenge is I suspect people associate positive computing experiences with the device much more than the operating system. This could change and, in the case of Windows, the core experiences are at least preserved more or less intact compared with the Android experience on many OEM devices, but I think it’s a fundamental challenge for this idea of “users loving Windows”.

The single operating system is not a consumer pitch

Another challenge is, despite the common naming, I’m not sure consumers will buy the idea of Windows 10 as a single operating system, or that this idea will even matter to them. As Microsoft has taken pains to point out, the OS is optimized for different form factors and so won’t even necessarily feel like the same OS on different devices, especially now Microsoft is rolling back some of the touch-centric UI stuff in Windows 8. These will feel like different operating systems in many respects, as they should (I wrote previously about the mistake Microsoft made with Windows 8 in making the two seem too similar). What I think is much more compelling is Microsoft’s concept of the “Mobility of Experiences”, which refers to the ability to carry over experiences from one device to another. It’s definitely an echo of Apple’s Continuity concept, something Microsoft is now clearly embracing wholeheartedly. Interestingly, Google has always focused its cross-device integration at the services layer, whereas Apple and Microsoft are now clearly baking it into the OS (something I first wrote about here). Many of those experiences will carry over between specific apps, some of them not even running on Windows, rather than between versions of Windows 10. Again, I’m not sure Windows 10 is the thing users will come to love even if this works well.

Need for OS loyalty above services

So, why is Microsoft even pushing the OS so strongly? The theme over the last few months has been one of cross-platform development and services which were agnostic to which device or OS they were running on. Meanwhile, Microsoft’s operating systems remain also-rans on the fastest growing device categories and it might be tempted to give up or dial back. Instead, Satya Nadella made an incredibly clear statement in his closing remarks at Wednesday’s event, to the effect that Microsoft will make its services and the application endpoints for them available everywhere, but Windows will be the home for the best Microsoft experiences. The flaw with the cross-platform mantra is it’s impossible for Microsoft to bake its services as deeply into Apple and Google’s operating systems as they are into its own and, at the same time, both Google and Apple are integrating their services ever more deeply into their OS’. In this world, Microsoft can at best run an “over the top” strategy which focuses on the application layer, but as integration of first party services into voice assistants, cloud storage and the like becomes ever more important, it will be tough for Microsoft to keep up as long as it’s reliant on third party operating systems for distribution. That – I believe – is the reason why Microsoft is still talking up and trying to gain share for its own operating systems, including Windows Phone, despite the seemingly overwhelming odds. As Nadella put it, Microsoft experiences and services will be “uniquely harmonized” in Windows in a way they can’t be anywhere else.

Building love beyond Windows

For all the reasons I’ve talked about, I think getting consumers to love Windows is a tall order and I don’t know if Microsoft will be successful in the way Nadella describes. But I do think getting customers to change their perceptions of Microsoft is critical if it’s to transform itself and grow in the future. However, that love (if it comes) can’t be centered in an operating system. It will be directed at key specific experiences that Microsoft creates. Getting consumers to engage with those experiences means changing their perceptions of what kind of company Microsoft has become. To that end, I think Wednesday’s unveiling of HoloLens and Windows Holographic is hugely important in building a narrative that Microsoft is a technology company that can truly innovate and bring new experiences to market. If Microsoft is to be successful in the consumer market, it does need to engender more than just a grudging acceptance of its products and get consumers to actively choose, and then enjoy using, its products. From what we saw Wednesday, Microsoft has a good start on doing this in gaming, but the rest is more up in the air.

It’s Scary: Government’s Fight Against Encryption

Cameron-ObamaMost governments’ reaction to the terrorist attack on Charlie Hebdo and a kosher market in Paris seemed sensible. The major exception was a pledge by Prime Minister David Cameron to shut down encryption on messages in the U.K. No better is the push on President Obama to follow the mission. One reason for limited reaction in the U.S. is the lack of memory of the last U.S. fight in the 1990s.

The latest encryption brawl is a bit mysterious since if the police know something about the Paris attackers using encrypted messages they have not shared the knowledge. Instead, Cameron rolled out a promise to restrict encryption he made in his re-election campaign last year. Obama seems to base his position on friendship with Cameron and support for restrictions made last year by FBI Director James Comey.

The British technique would prohibit encryption of communications, likely to cover fast growing chat programs including Google Message, WhatsApp, Apple iMessage and FaceTime. These apps are designed so, unlike most email, messages are encrypted end-to-end by participants and cannot be read even with a warrant. The change would require providers install a mechanism for decrypting the messages as they pass through their equipment. (Good detail on the proposal is written by BoingBoing’s Corey Doctorow.)

Confused cooperation. The U.S. position as of the moment is confusing. The White House issued a “Fact Sheet: U.S.-United Kingdom Cybersecurity” but was only clear in endorsing a broad framework, neither including nor denying the anti-encryption moves proposed by the U.K. (adding to the problem, the links to the U.S. and U.K. documents in the fact sheet don’t link to anything). So we are working with the U.K., but it’s unclear on what. The FBI supports cutting in on encryption, assuming it sticks with the statement of Director Comey: “Encryption is nothing new. But the challenge to law enforcement and national security officials is markedly worse, with recent default encryption settings and encrypted devices and networks—all designed to increase security and privacy.”

In any event, both Obama and Cameron should look back on the 1990s encryption fiasco. Back then, commercial internet communications were just beginning to take off. There was growing pressure for law enforcement to prevent criminals and terrorists–yes, even then–from transmitting secret information in encrypted messages. Then-Senator Joe Biden was the sponsor of the Comprehensive Anti-Terrorism Act of 1991, which would have limited the use of encryption. (( Thanks to Declan McCullagh for pointing this out. ))

Clipper chipThe National Security Agency came up with a scheme called Skipjack, better remembered by its implementation on a chip called Clipper (left). The program would have made available two encryption codes — the regular code for users and an encrypted “escrow” code available to law enforcement. The Clinton administration fiercely supported the plan, with the effort led by Vice President Al Gore (although the effort got started under President George H.W. Bush, it really got rolling under Bill Clinton). The proposal set off a spirited argument between the technology industry and privacy and secrecy advocates on one side and the Clinton Administration, the NSA, and the FBI on the other.

The death of Clipper. Skipjack/Clipper was finally done in by the fact it just plain didn’t work. The flaw was the Law Enforcement Access Field, part of the key that gave officials access to to the encryption data. Matt Blaze, a security scientist at AT&T Research (now at the University of Pennsylvania), published a paper, “Protocol Failure in the Escrowed Encryption Standard”, but the technology it explained became generally known as the “LEAF Blower.” Nothing in a situation like this is more quickly lethal than ridicule; LEAF Blower killed Skipjack/Clipper.

Details of how the government would be able to access classified messages has yet to come out, but the history of Skipjack/Clipper reveals how difficult it is to get it right. Skipjack developers at NSA had worked for years but never realized the flaw. Furthermore, many of the cryptographic plans toughened by Apple, Google, and other message providers were installed after the collection of information was revealed in the data Edward Snowden released from the NSA. Getting their cooperation this time will be very difficult.

This is almost certainly a factor in the U.S. resistance to go as far as the U.K. wants. But Obama is under considerable pressure from Cameron. The Guardian reports the prime minister is working hard to convince Obama to go along. According to the paper, a British government source said: “The prime minister’s objective here is to get the U.S. companies to cooperate with us more, to make sure that our intelligence agencies get the information they need to keep us safe. That will be his approach in the discussion with President Obama – how can we work together to get them to cooperate more, what is the best approach to encourage them to do more.”

This fight is a long way from being over. So far, the opposition is left mainly to the companies trying to protect their information, but it’s a good time for the rest of the industry to get involved.

Whither Windows 10?

On the eve of the launch preview of the next version of Microsoft’s operating system behemoth, there are numerous questions in the air about what Microsoft plans to do with Windows 10 and, more importantly, what impact it’s likely to have.

The company is expected to use the Windows 10 launch as an opportunity to bring all their disparate operating system efforts—Windows for desktop, Windows Mobile, Xbox and even the long forgotten Windows RT—into a structured, cohesive whole. The idea is by doing so, they can create a broader base of potential customers. Then, in turn, they can attract a wider array of application developers and create a virtuous circle that will drive both important improvements and growth to the platform.

While I believe there is some truth and logic to these arguments, I also think they’re only capturing part of the story. The problem is that much of this logic is based on traditional ways of thinking about platforms, developers, the number of apps, etc. Essentially the argument goes: “Whoever has the most apps wins”.

I’ve argued in the past and continue to believe, that the app ecosystem as we know it is not long for this world. I mean really — who can keep track of 1.5 million apps for each of the major platforms and expect the developers are going to keep feeding into a system that isn’t really paying the vast majority of them back?

Instead, I expect to see a bigger shift to web-based services that, while they may leverage a platform-specific app, aren’t necessarily dependent on a particular app, or a particular platform, or even a particular device. Nor do I believe these services will be completely dependent upon mobile devices.

In fact, in nearly everyone’s haste to describe the world as “mobile first,” they seem to forget that mobile first does not mean mobile only. The multiple devices per person reality we live in is only going to get more diverse and more complicated as wearables and other smart connected “things” come onto the scene. Just as no individual is constantly on the move all the time, so too can it be argued that people only need and will only use mobile devices a certain percentage of the time.[pullquote]In nearly everyone’s haste to describe the world as ‘mobile first,’ they seem to forget that mobile first does not mean mobile only.” [/pullquote]

Which brings me back to Windows 10. On a most basic level, I believe Windows 10 will have a positive impact on the less mobile PC industry and keep it important and relevant for many years to come. As we’ve seen with business in particular, PCs continue to play an extremely important and vital role in the lives of enormous numbers of people. I also expect Windows 10 can inspire more creative consumer-focused devices and help rejuvenate the still struggling consumer PC market.

The question remains however. What about mobile? There’s no question Windows will remain challenged if we purely look at it from a share of smart phones perspective. Even with Microsoft’s efforts to combine platforms (and whatever other tricks they pull from their sleeves later this week), it’s an enormous uphill battle to try and overcome the lead Android and iOS have over Windows Mobile. Do I think they can gain some market share? Yes, but not really enough to make a critical difference.

However, what I believe Microsoft will try to do with Windows 10 is position it as a platform that’s as friendly as possible to cloud-based services (the “cloud first” portion of their public strategy) on devices of all shapes and sizes. That’s where I think Microsoft’s real opportunity lies. The company has already shown a willingness to bring some of its cloud-based services—everything from OneDrive, Skype and even Office—to multiple platforms, so it’s clear they aren’t concerned about the traditional “walls” that have separated one platform from another in the past.

If Microsoft can entice cloud-based service creators to support Windows 10 by enabling easy hooks from their services either directly into the OS, or perhaps even into a layer that sits above the main OS (a concept I’ve written about in the past I call a “MetaOS”) but links down to the OS, then the whole “app gap” problem in mobile starts to look a lot less concerning.

Windows 10 clearly represents some huge opportunities and challenges for Microsoft, but looking at it solely through traditional metrics won’t give you the full story.

Tablet Market Misconceptions

The vast majority of commentary on the tablet market have a fair number of misconceptions about the segment. The tablet market is both a unique computing category as well as the most diverse one. So it is not surprising so many people misunderstand it.

The biggest fundamental mistake most make when they think about the tablet category is to see it as only one thing. When, in reality, there are many tablet markets. To use a somewhat imperfect analogy, we can use the automotive segment. The auto industry will lump annual sales of all motorized vehicles, cars, trucks, motorcycles, boats, RVs, etc., into a single statistic. The point of this statistic is to simply show how many motorized vehicles were sold each year. Yet, to truly speak accurately about the automotive industry, it is more helpful to see the entire category broken out into each segment. At a big picture level, it is fine to know how many motorized vehicles were sold each year, but that alone doesn’t actually tell us anything truly helpful. It is more interesting to know how many small cars, or large cars, or trucks, or motorcycles, or RVs, etc., are being sold. Growth or decline in each category tell us more about the market than simply lumping all of them together.

This is exactly what is done with tablets today. The fault many make is when they think “Tablet Market”, they think iPad. Yet the iPad is only one kind of tablet — albeit one more similar to a computer that happens to be in tablet form. Yet the iPad’s growth or decline is currently lumped in with kid’s tablets. The two are entirely different in their usage yet spoken about without the key functionality of each being understood separately. The tablet market is harder to analyze than the market for motorized vehicles because of the computing power and underlying software contained in tablet devices. One form factor can genuinely be used in so many different ways.

I have consistently tried to look at the diverse ways the tablet market is segmenting. Below is a chart I use during my presentation on the category.

Screen Shot 2015-01-18 at 4.39.17 PM

When I see a forecast saying the tablet segment will be up or down in 2015, I like to ask, which segment? Will gaming tablets be up or down? Computing tablets like the iPad? Tablets that get stuck on walls at retail? Which ones are growing and which are not? No good answer exists to these questions because those projecting such numbers are not looking at the market this way. Yet this is the most helpful way to understand the category.

The Rise of Appliance Tablets

With this in mind, I want to make a comment about something fascinating happening at the sub $100 tablet segment. In this article on the low-cost tablet era for our Tech.pinions subscribers, I explain how usage of devices in this price tier are starting to cause people to do a double take. Most never anticipated the way these low end tablets are being used. I explain that, under $100, the tablet becomes a cheap, somewhat disposable piece of smart glass. Walmart sells an RCA 7″ Android tablet for $59.99. At these price points, some fascinating things take place with smart glass. Buy one and stick it next to your bed and use it as an alarm clock with widgets for weather, stocks, etc. Buy one and put it in your workshop as a TV. Buy four and have them in your car for the kids to play with and use. Buy several and have them in every room as a quick and easy web browser. Our research of how these low cost tablets are being used by consumers in every country continue to highlight new uses cases — these devices are being used in ways most don’t understand.

What is intriguing is, while these tablets may be capable of quite a lot, the price is so low they are actually becoming more specific in their use. The other very clear trend of a large number of tablets is how they are being shared. Over a year ago, I was among the first, if not the first, to highlight data showing over 40% of people we researched indicated they shared their tablet with at least one person. Our most recent research near the end of 2014 indicated that number had grown to over 50%. Each group of sharers — sharing with two people, three people, and four people — grew in percentage in our recent data. The striking one that stood out was how many responded they shared their tablet with four or more people. At the end of 2013, 7% of respondents indicated they shared their tablet with four or more people. By the end of 2014, 21% of respondents in our global survey indicated they shared their tablet with four or more people. What becomes clear is, for a large number of the tablet installed base, it is more of a communal than an individual product.

What is happening in this category is fascinating. Most of this heavy segmentation and diverse usage is being driven by the sub $100 category. In fact, while many will argue the tablet market overall will be down in 2015, I’d argue they will actually be up because of quality sub $100 tablets hitting the market from recognizable name brands. How these will be used will be diverse and somewhat hard to predict. But as we research the market and hear from consumers themselves how they use these products, it will help us understand the market at a much deeper level.

Google Glass, Samsung/Blackberry, Xiaomi, Intel

Welcome to the Tech.pinions podcast. This week, Tech.pinions regulars Tim Bajarin, Bob O’Donnell and Jan Dawson share their thoughts on the Google Glass changes, the rumored tie-up between Samsung and Blackberry, the impact of Xiaomi and their new smartphones, and Intel’s earnings.

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

Google Glass NOT at CES

One of the more interesting areas at CES was at the Sands Hotel where the startups, IoT, smart watch and fitness tracker areas were located. Last year, most of this was in the basement of the South Hall but this year, they were the heart of the Sands. In fact, it made it one of the more important areas of the show and I think the crowds in the Sands were more difficult to navigate than they were at the LVCC at times.

But there was one product pretty much absent from this year’s show that was all the talk of CES 2014 — Google Glass. While Epson was there showing off their new Moverio models and Sony had a version in their booth with their clip on glass displays, there was little discussion or talk about Google Glass during the show from any colleague or media contacts I talked to.

This is not good news for Google. This is one of those products that over-promised and under-delivered and Google tricked many people into paying a ridiculous price so Google could underwrite its development. While I doubt Google Glass is dead, it surely has a wounded reputation and Google’s approach with Glass is now suspect, especially when they tell us it is a great product for consumers.

One of the more important tenets of technology is, in most cases and especially ones that are hardware focused, the initial markets for them starts at the top end of the business world and more specifically, vertical markets. One reason is price. Most hardware starts out with limited runs and, as a result, first gen products in the past have been expensive. Second, the business community or vertical markets are usually the one’s who see the need first and are early adopters.

This was true of the PC, cell phones, pagers, tablets and even glass products that hit the market in the late 1990’s and for most of their existence were used in vertical applications and the military.

Google’s lack of understanding of this stuns me. I realize they are mostly focused on ads for consumers but when it comes to hardware and especially breaking in a new category, history has been pretty clear that it starts at the top and gets fleshed out there before moving down the chain to consumers. At the moment, I feel Google Glass as we know it is a wounded product and Google’s approach has left consumers with a feeling of distrust of Google when it comes to any Glass product they may bring to market under their own brand.

The good news is the market for glasses used by vertical markets is actually starting to take off. Although this market has existed for 15 years and has had a modicum of success in specialized vertical markets, it is now starting to get broader uptake in many more vertical business settings. Ironically, while Google itself failed miserably with Google Glass, the hoopla it created in the market brought it back to the attention of vertical markets and demand for glasses in these markets is finally heating up. I am seeing greater interest for its use now in manufacturing, aeronautics, first responders, surveyors, gas and mining, etc. And software from companies like APX-Labs are creating industrial strength apps that can be used in dedicated vertical markets as well for cross-industry applications. A good example of this is how Boeing is using their app for replacing paper airplane repair manuals and tying these glasses directly to special servers that include specs and video to help the repair person on site and delivering info over a WIFI connection.

Like most technology of the past, it will be the business and vertical market sectors that will be early adopters and flesh out usage models at first. Although Vuzix and others have been working in this area for over 15 years, the upswing for using these types of smart glass is finally gaining broader business market attention and will give these products an lift. However, I am inclined to think it will be at least five to seven years, if not more, before smart glasses will ever really strike the fancy of mainstream consumers. Besides getting past the issue of privacy, public acceptance, cost, etc, it will take some killer apps to get the consumer market to even consider it. I just don’t see any of that happening any time soon.

Apple’s Diversifying and Maturing User Base

Microsoft’s biggest asset and liability

I’ve long said Microsoft’s enormous and diverse installed base of Windows and Office users is both its biggest asset and its biggest liability. The base commands respect and interest from would-be partners and customers and helps to preserve sales of its software and services. But it also means any time Microsoft wants to make a change to its products, it has to bear in mind the needs of all the many groups and individuals who use it and ensure any new products are not only backwards-compatible but also not too jarring for those who are transitioning from (often significantly) older versions, among other issues. This holds Microsoft back, prevents it from innovating as rapidly as it might, and forces it to maintain a breadth of features and functions often not well-suited to competing in today’s fast changing market.

Apple used to be immune, but is increasingly susceptible

I’ve also contrasted Apple’s position with Microsoft’s: with a much smaller and less diverse user base, Apple has the freedom to innovate without having to please quite so many masters. Its customers have been, for the most part, self-selecting and therefore exhibited a degree of homogeneity Microsoft’s billion plus users have not. Apple has also been able to focus mostly on the consumer market, with education and business markets secondary focus areas, which has also prevented some of the long development cycles often associated with developing software for enterprises.

However, all this is starting to change as Apple has gone from tens of millions of Mac users to hundreds of millions of iPhone customers and to a billion iOS devices sold. Whereas Apple once served a fairly small number of specific niches, it now serves almost every kind of customer imaginable: from the power user to the first time smartphone owner, from the wealthy American to the rising Chinese middle class. It’s also increasingly being adopted in the enterprise market and the IBM deal will only accelerate this trend. To be sure, Apple still isn’t universal in its appeal, especially since its devices tend to be costlier than those from other manufacturers, particularly in markets where phones aren’t heavily subsidized. But Apple’s customer base is becoming ever more diverse over time.

The other thing that’s happening is Apple’s customer base is maturing. I don’t mean it’s getting older (though that is almost certainly the case), but an increasing proportion of its customer base is using its third, fourth or fifth Apple device. These customers are becoming accustomed to a certain way of doing things, becoming “trained” in the Apple way of delivering tightly coupled software and hardware. Their expectations of how Apple will act, therefore, start to harden over time, leading to less flexibility in response to major changes in iOS and OS X.

Far-reaching implications

What are the implications of all this? Well, I think there are several:

  • Apple may start to meet the same sort of resistance to change as Microsoft and other platforms with large and diverse bases, with users responding negatively to major changes, or a lack of backward compatibility. We’ve already seen grumbling in response to the release of Final Cut X, the killing off of Aperture, and the reboot of the iWork suite. Each was a necessary evolution in Apple’s product strategy in the category, but in each case Apple appeared to abandon part of its base in pursuit of new customers or new use cases. This will get harder as the ratio between the existing base and potential new customers continues to change.
  • Apple will start to face a tension between the needs of different segments of its user base. The recent complaints about the quality of Apple’s software reflect this tension. Some users absolutely want iOS and OS X to keep moving forward rapidly and to keep pace with competing platforms, but others would make different tradeoffs, sacrificing speed of change for stability, for example. Interestingly, iOS 8 is seeing the lowest adoption rate of any version of iOS as far as I can tell, and this may in part reflect this bifurcation. Many users would rather see a stable platform than rapid iterations.
  • This, in turn, can start to make it challenging for Apple to roll out new features across its devices, if they’re tied to specific operating system versions. Handoff and Continuity arrived with iOS 8, but didn’t work properly until users were also running Yosemite on their Macs. The irony is Google users complain about not being able to upgrade to the latest version of Android quickly enough, while Apple may increasingly struggle to get some of its users to upgrade even when updates are freely available.

Apple and Google’s shared problem

Interestingly, Ben Bajarin highlighted a similar challenge faced by Google in his piece (for Insiders) on “Facebook vs. Google in 2015” yesterday:

Facebook can be a “one platform to serve all” where I feel Google can not. Google is going to have an extremely difficult time keeping Android interesting to their first billion users AND their second billion users. The primary reason for this is because the next billion Android customers will want and need completely different things than their first billion. A “one size fits all” Android solution is not going to work to satisfy the needs of their most demanding and most profitable customers versus those who are getting online for the first time with their first computer. Completely different set of customers.

I absolutely agree with this assessment and, to be sure, Google faces the challenge I’ve been talking about in an even bigger way given the diversity of its base. However, I think the challenge is in some ways easier for Google to overcome because Android is already very diverse in its applications. Since Google doesn’t have to address every possible market segment itself, but can serve these needs through OEMs, it can (and does) meet a more assorted set of needs, much as Microsoft has always done through its Windows OEMs. Apple’s challenge is it has always met all its customers’ needs itself and yet, it likes to keep its product portfolios very simple and focused. How does Apple continue to meet all its customers’ requirements while preserving this strategy?

How to solve this problem? There’s an app for that

I think the answer partly lies in the richness of the app ecosystem that has grown up around iOS. From the beginning of the App Store in 2008, Apple’s approach was to highlight the ability of apps to extend the utility of the iPhone well beyond the functionality Apple itself provided. In some ways, as time has gone by, the core functions Steve Jobs originally highlighted in introducing the iPhone (iPod, web browser and phone) have become less and less important, while the functionality provided by apps has become all the more important. I think the increasing importance of apps is ongoing and will continue as the user base for the iPhone (and Apple products in general) continues to diversify.

However, I’m not convinced apps are the entire answer here. Apple is going to have to think through the implications of its diversifying and maturing user base and figure out how to avoid being stretched too thin by the need to continue to move its various platforms and products forward and capture new customers without alienating that base.

Engineers, Math, and Invention

Slide rule

By no stretch of the imagination am I a mathematician or an engineer. But nearly every January, I spend much of a week at the Joint Mathematics Meetings, the annual collection of lectures, seminars (and job interviews) of academic mathematicians. One obvious thought that came out of the latest meeting in San Antonio is just what is math education contributing these days to the non-mathematicians, many of whom run tech companies. 

Are engineers mathematicians at heart? In the minds of many in the public engineers, especially those doing computer-related work, are indistinguishable from mathematicians. But many math teachers, especially those offering advanced courses in both high school and college, are more focused on theory than the practical. ((The concern here is not with controversy over the Common Core Standard, which is generally involved in earlier subjects.))

Mathematical tools. Once upon a time, when I was in school, the only tools you used were a slide rule and, maybe in college, a mechanical desktop calculator. One interesting effect is you learned a lot of calculating methods in high school courses, such as computing the square root of a number or using a trig table to find the cosine of an angle between those in the list.

The universal availability of electronic calculators, especially the Texas Instrument calculators, eliminated the need for anyone to understand these techniques. They could compute faster, but would lose some depth of knowledge.

To get some expert opinion on the difference in the belief of mathematics and engineering, I had the fortune of consulting my sons. Jonathan Wildstrom, a research computer engineer at IBM’s Watson Research Center, and D. Jacob (Jake) Wildstrom, a mathematics professor at the University of Louisville.

Calculation precision. One crucial difference in style is the precision of calculation. Mathematicians usually want an exact value, even if that means an expression full of square (or higher) roots and e’s. An engineer generally prefers a calculation that gives the result that is needed, which is both easier and more useful.

“In computer science and software engineering, for the bulk of things close, is usually enough,” says Jon. “In most applications, the existing algorithms are ‘good enough’. There are tricks of the trade—memoization is one, dynamic programming another—that help improve algorithms without needing mathematical support.” An example is calculating the Fibonacci numbers. ((Numbers in the infinite series 1,1,2,3,5,8… that are often needed in computations.)) Mathematicians proudly use a somewhat complicated formula that can compute the nth term in the series. For an engineer or a computer program, it will do well to just run the series of n terms. It’s not elegant, but it’s efficient and practical. For very large numbers, there’s a fast term that will give a close approximation.

“I think mathematicians tend to see approximation as an interesting challenge,” says Jake. “But unlike those in the engineering or scientific domain, we don’t have a well-defined notions of ‘good enough.’”

Engineers’ work focuses on the efficiency of their techniques. “Algorithms and tricks to access specific memory areas quickly can be important,” says Jon. “But in all these algorithms, multiplication is frowned upon and division is flat out forbidden because of the performance implications of even a single division.”

“It seems to me mathematicians do revel in the arcaneness for its own sake,” says Jake. “Even a mundane problem such as ‘how do we approximate this closely?’ ends up swaddled in layers of abstraction once mathematicians are through with it. We may exaggerate beyond the point where it is necessarily helpful or instructive to those who aren’t planning to be mathematicians.”

Practical separation. The separation of mathematicians from the more practical fields is a relatively recent development, no earlier than the middle of the nineteenth century. From Aristotle to Leonhard Euler in the eighteenth century, the best mathematicians were often put to work to apply their skills to military needs. More recently, serious mathematicians have typically found themselves limiting their involvement to theoretical physics, where those from Hermann Minkowski and Henri Poincare to Richard Feynman and Edward Witten have been leaders in both math and physics. ((As a matter of fact, a lot of interest in pure mathematics recently has become of much greater interest to biologists and biochemists. ))

But modern theoretical physics, like math, avoids obsessions with the practical or even understandable. “I’ve definitely thought of the mathematician/engineer divide as one going back philosophically to the long-standing difference between Plato’s ideal schools and Aristotle’s empirical schools,” says Jake. “Mathematicians invariably drank from a well of ideals.” Not surprising, or impractical, that their approach often offers something far from what engineers want or need.

Smart Home Situation Likely To Get Worse Before It Gets Better

One of the many big themes that came out of this year’s CES show was the idea of the smart (aka “connected”) home. Of course, it’s not really a new concept. People have been talking about smart homes for several years, and the success of products like the Nest thermostat have started to provide concrete evidence of real-world progress in the category.

At this year’s show, there was a huge focus on smart homes, with an entire section of the show floor dedicated to the segment, as well as many other companies participating in things like the Pepcom press event. Companies displaying their wares ranged from behemoths like Lowe’s, who is bringing its own proprietary set of solutions to the market, to smaller firms like Wink, who is bravely battling the mountain of incompatible radio, platform, and protocol standards in order to get smart home devices to talk to each other.

Smart homes were also a key part of the larger IOT (Internet of Things) theme that was prominent throughout CES and at events like Samsung’s rather over-the-top keynote on the eve of the show. At their keynote, Samsung attempted to paint a rather glorious picture of how everything, and everyone, was going to be connected thanks to IOT, but they were painfully light on details of how exactly they were going to do it.

Unfortunately, this is exactly the problem with IOT overall and the smart home in particular. Because so many people view it as one of the next big opportunities, lots of big players are making lots of big bets to establish a foothold in the smart home platform wars. Not surprisingly, though, many are looking to do so in a proprietary way. Even companies like Samsung, who made a big deal about pressing for open standards, is really only open to a point. For example, they provide access to a very limited set of features on their smart appliances to outsiders, and only provide complete control if you’re using a Samsung device.

Similarly, Nest and parent Google have been reluctant to share their means of communication between devices, forcing some vendors to reverse engineer (i.e., “hack”) their way in. On top of that, Apple hasn’t even released all the official details of HomeKit and, in typical Apple fashion, will likely keep devices that run HomeKit as part of a walled garden.

Unlike other big themes at CES, smart homes have been around in some form for quite some time and actually have “legacy” connections. In fact, a company like Insteon—who announced a deal with Microsoft but is also working with Apple on HomeKit—traces its roots back to the early days of X10 and other simple DIY protocols. Today, the company has over 200 different SKUs—from smart outlets and lighting products, to hubs and much more, all leveraging a proprietary radio technology that’s different from ZigBee, ZWave, Bluetooth, WiFi and other proprietary options, such as those used by lighting company Lutron and door lock vendor Schlage.

Through a number of in-depth conversations with high-level executives at many of these companies during CES, it became apparent that the challenges facing the smart home market from just a connectivity perspective are enormous. The inconspicuous looking Wink hub device, for example, apparently includes six different radios in order to be able to communicate with a wide range of potential devices. On top of that, vendors need to support multiple protocols (some of which are still being defined) as well as multiple operating systems on the devices running home control apps.

If you multiply all the possibilities, you end up with a staggering array of combinations just to be able to send intelligible data back and forth. Throw in the need to organize it into an intuitive, consumer-friendly way, and you get an inkling of the challenge.

While some people may choose to sidestep the complexity by staying in one closed ecosystem, I think that could prove to be much more challenging in a market as diverse as home automation. In addition, when people buy home improvement-style products, they often expect devices to last for decades, not just years, and it’s not clear any smart home vendor has really tackled that challenge.

I am looking forward to truly integrated smart homes some day, but I’m not holding my breath.

Microsoft’s $29 Smart Phone and a Non-Obvious Trend

There are a lot of angles at the 2015 CES worth talking about. When I go to a CES show, I look for trends. Sometimes, the things I find could be a trend or be nothing at all. This early in the year it is hard to know. But a number of things happened and some side conversations occurred around a possible trend, or it may just signal one of the primary reasons a buzzworthy product being released in 2015 may need to exist.

It all started with Microsoft’s $29 smart phone. While the Nokia Series 40 platform is not considered a smart phone by most, it is pretty darn close. It has an app store, runs a full web browser and functions just like many smart phones do. Which is why Microsoft releasing it at $29 (before any subsidies) is quite an offering. Especially when it comes with many Microsoft services bundled in. This phone is actually a perfect fit for the next billion users and I actually believe Microsoft can be quite competitive with this offering against Android in the sub-$50 smart phone market. But that should be relatively obvious for those who follow mobile closely. But it is was a different point about this phone that ignited an interesting conversation. It is encapsulated in this quote in the promotional material.

Screen Shot 2015-01-11 at 6.51.36 PM

It is the second value proposition of the sentence that is interesting: a “secondary” smartphone for just about anyone. What are they implying? I had some time with executives from Microsoft to talk about this particular product and an interesting point was made. Some people may want a simple phone, one which doesn’t contain all the bells and whistles (which are often an invitation for distraction) when they go out to dinner, exercise/run, away for the weekend, etc., but would like a smaller, usable phone to make calls, receive texts, and do other simple web stuff.

As phones get bigger, they also get less portable. I ran a 15K race with my family in San Francisco over the weekend and saw numerous people with an iPhone 6 Plus or Galaxy Note strapped to their arm. The sheer size of these phones made this look a bit ridiculous, yet it sort of works. So I can see, for certain things, how a smaller phone with some music capabilities, a SIM card in case of emergencies to make calls, a camera, and some basic web stuff could be useful.

The following day at CES, after meeting Microsoft about their $29 smartphone, my friend Benedict Evans and I were walking around the China/Shenzen manufacturing section and noticed some fascinating little gadgets that contained phone keypads, but were wrapped in things like walnut and other woods, jewelry, clean metal, and other well designed fashionable materials. These devices were essentially diallers paired with your phone that let you use them to make phone calls. You could leave your tablet or phablet in your bag, purse, or pocket and use this elegant little object to make calls. Very similar to this idea from HTC of a few years ago.

Screen Shot 2015-01-11 at 7.03.44 PM

Benedict and I talked through this idea and found it interesting that such a thing was taking place in Asia. It also seemed interesting this was the similar value proposition of developed markets for the Nokia 215. While I am certain the Nokia 215 will be an attractive offering for first time smart phone owners, I’m not sure it is the right product for the secondary phone concept. While I agree with the potential, the discussions around this idea had me thinking, what if this is an area where the smart watch comes in? Apple themselves floated the idea around the Apple Watch that you could leave your iPhone at home and still use it for basic things like music and payments. What if also in version one, you can get the Apple Watch on WiFi in a public area and use it to get iMessages, emails, etc.? Carrying this further, what if the smart watch eventually evolves to fill the use case of a secondary phone you can take with you when you are doing things that don’t require all the bells and whistles of your smart phone and is essentially much more portable?

I’m not sure if there is something to this idea of the need or want of a secondary smart phone-like product for a range of uses but I can make the case there may be something to it. A key thought I’ve had from day one of the Apple Watch reveal is how these much bigger smart phones will make a complimentary small screen product even more valuable. Since I’m an iPhone 6 Plus user, I’m looking forward to testing this when the Apple Watch comes out.

I’ve been forming a number of thoughts on smart watches and was on a panel at CES last week on the subject. I published a report this week on smart watches and you can download it here.

Tech.pinions CES 2015 Podcast

Welcome to the Tech.pinions podcast. This week Tech.pinions regulars Tim Bajarin, Bob O’Donnell and Jan Dawson share their thoughts on this year’s Consumer Electronics Show (CES) in Las Vegas.

Click here to subscribe in iTunes.

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

Tech’s Most Disruptive Impact Over the Next Five Years

One of the more interesting panel discussions at CES was about disruptive technologies over the next five years. The panelists tossed around ideas they thought would be disruptive over this period — robotics, self driving cars, sensors, wearables, home automation and a few others. Creative Strategies Partner and Tech.pinions co-founder Ben Bajarin was on the panel and was asked at the end what he thought would be the most disruptive technology he saw on the horizon. He stated it would be the fact that more people will come online for the first time over the next five years than have in the past 30 years. The global implications of adding another two billion Internet users could be quite disruptive. Panelist Avi Greengart of Current Analysis echoed that and said the most disruptive technology is already here in the form of the smart phone.

Ben’s comments are based on research we have been doing at Creative Strategies as we try and forecast the longer range demand for smart phones and the market for the next two billion. Over two billon cell phones will be sold in 2015 and ~1.5 billion will be smart phones. However, the move towards making smart phones at the price of features phones suggests that, by 2017, almost all phones sold will be smart phones. At the same time, wireless infrastructure is being added to most countries around the world and that is laying the groundwork for more and more people to go online. If they get their hands on low cost smart phones it could have major political, economic and educational ramifications I don’t think any of us fully realize.

Screen Shot 2015-01-08 at 8.45.52 PM

Ben pointed out if we thought the Arab Spring (which happened mainly because of smart phones and social media) was big, imagine when people in Africa, South America, North Korea and other regions of the world that live in oppressive countries go online and get access to information, video, social media and connect with each other. How will that would impact their future? He also mentioned pocket computers could have a major impact on people’s ability to do commerce, trade, manage their crops or businesses and potentially impact their earning ability.

Another way to think of this is that smart phones or pocket computers connecting the next two billion people to the internet is similar to what the Gutenberg Press and the Bible were to the masses in the Middle Ages. Before the Gutenberg Press, knowledge and control of the people was in the hands of a select few who controlled the flow of information. As a result, they lorded it over the populace and made them beholden to the church or more educated authorities who ruled them. But once the Bible and other documents could be dispersed to a larger audience, those authoritarian rulers were challenged and eventually marginalized as more and more power went to the people over time.

In this day and age, it is hard to believe this kind of controlled ruling still exists but all one has to do is look to North Korea as a modern day example. This hermit kingdom keeps knowledge from the people and lords their authority over them in oppressive ways and has fooled the people into thinking their leaders are gods. Imagine what would happen if hundreds of thousands of North Koreans get a smart phone and have broad access to information. In some countries where people cannot even read, the info would flow through video and even soap operas showing a narrative of the outside world.

Interestingly, technology was at the heart of the break up of the Soviet Union. I went to Moscow to protest the lack of religious freedom in 1973 with a group of people and we were arrested and kept completely away from Russians so as to not give them access to any outside information. We were eventually expelled and our protest was blocked from any of their news media. Twelve years later, I was in Hanover, Germany at CEBIT and met with a clandestine group smuggling fax machines in to Russia and using them as a way to get outside information to the average Russian people. Interestingly, I had the privilege of meeting Michail Gorbachov five years after the break up of the Soviet Union and he said in that meeting it was the fax machine and technology that broke open the flow of information and played an important part in breaking down the walls that kept people under a repressed form of government.

While I have no doubt robotics, self driving cars, wearables, etc. will have a disruptive impact on many of us, I think Ben is on to something when he suggests the most disruptive thing technology may deliver in the next five to ten years will be making it possible for another two billion people to get on the internet and how it will impact their lives in terms of politics, commerce, and education.

For more detail on this trend, download our report on the next phase of mobile.

Why I’m bullish on Lenovo

I’m at CES this week and its given me an opportunity to check in with many of the key players in the technology industry and hear their latest news. One of the companies I’ve found most intriguing to catch up with is Lenovo, which I continue to believe is the company to watch in the smartphone space and beyond.

Motorola acquisition is a great fit and solves key problems

One of the keys to my bullishness on Lenovo is the acquisition of Motorola. I’ve been talking about why I think it was such a good idea since the acquisition was announced. In January 2014, I wrote this:

As for Lenovo, they’re now in a very strong position to become the third major company in the consumer hardware business after Samsung and Apple. Last quarter they were number four in smartphones, number four in tablets and number one in PCs. It’s one of the few companies in the hardware business that’s grown profits over the last couple of years and the only one to have grown shipments across all three categories. The biggest challenge for Chinese vendors in the smartphone business has been moving beyond the white label business as HTC did a number of years ago. Both Huawei and ZTE have struggled to establish their own brands in the major carriers’ postpaid channels. But Lenovo will be buying both carrier distribution and a known brand, which should dramatically simplify the process. Moving manufacturing to its facilities in China and taking advantage of domestic scale will also be hugely beneficial. Assuming regulatory approvals come quickly and Lenovo is able to make a quick start, it could quickly leapfrog much more established brands like Sony and LG and take a prominent position in the market.

The way Lenovo has executed on the acquisition and the things it’s talking about now that the acquisition has closed, lead me to believe all this and more will pan out as I predicted. One of the best things about the acquisition is how complementary the two businesses are geographically. The way Lenovo talks about the split is Motorola has been strong in carrier-controlled device markets such as North America and Western Europe. Meanwhile, Lenovo has been stronger in markets which are more retail oriented, including China, many emerging markets and Eastern Europe. While there’s some overlap in India and Latin America, for the most part the companies have focused on and found success in different markets. The biggest problem Motorola solves for Lenovo is how to break into more Western markets, especially the US. This is something both Huawei and ZTE have struggled to do and something Xiaomi will likely fail at too, if it even tries. But with the Motorola brand, carrier relationships and past success in the US, Lenovo now has a clear strategy for the key US market as well as Europe. The two companies taken together are now third or fourth in the global smartphone market share rankings, depending on who you believe and how you measure these things, putting Lenovo in the top four across smartphones, tablets and PCs.

One thing that’s worth mentioning is, although Lenovo and Motorola are working on combining some of their engineering and R&D resources, they haven’t yet shifted Motorola device production to the facilities Lenovo is using in China. That could still change over time, but it doesn’t appear to be on the short term roadmap.

ThinkPad business provides a route into the enterprise for smartphones too

Another interesting aspect to the acquisition is Lenovo has a strong enterprise sales force selling ThinkPads into businesses around the world. As the number one PC maker, Lenovo is already selling lots of PCs into businesses and, while Lenovo’s own smartphones haven’t necessarily been an obvious fit for most of those enterprises, Motorola’s could well be. The big piece that’s missing though is a strong MDM solution for managing those devices in the enterprise. Samsung developed Knox in-house and has now partnered with BlackBerry to create an end-to-end management solution and Motorola needs something similar. I understand they’re working on this at the moment but it can’t just be more of the same superficial stuff other device vendors have done in the past – Motorola needs a really strong, world class MDM solution tightly integrated with its devices if it’s to pull off an enterprise invasion.

Motorola’s software innovations and China

One of the things Motorola has done best over the past couple of years is focus on software innovations that matter. It’s eschewed the ubiquitous Android UI customizations in favor of a very clean approach to the core Android experience with real added-value software improvements. Moto Voice, Moto Actions and other enhancements really set Motorola’s devices apart from other Android devices. I’ve written in the past about the fact I think Samsung would have done well to innovate in similar ways to set its hardware apart instead of the gimmicky stuff it’s focused on to date. But Lenovo has a relatively weak software and services ecosystem, with only some basic device-to-device sharing technology setting its version of Android apart. It could use some of Motorola’s innovations as a way of differentiating its hardware and preserving its margins in the face of the onslaught of cheaper Android competitors also coming out of China. But one of the challenges is the stock Android experience doesn’t work well in China because the Google Mobile Services can’t run there. As Motorola re-enters China over the coming months, it’s going to have to build a set of replacement services for the traditional Google ones and it’s not yet clear how it will do that, though here it’s likely to borrow from Lenovo.

Brand positioning needs to be worked out in more detail

Despite the fact many of Motorola and Lenovo’s key markets are mutually exclusive, there is some overlap in markets where the two both compete. So far, Lenovo seems to focus on channel distribution and price bands as ways to set the two brands apart where they’re present in the same market, but I feel like the company needs to go further in establishing clearer values and positioning for both brands. Motorola’s positioning is relatively clear, with its emphasis on software innovation, premium and customizable materials, a stock Android experience, and so on. But, by contrast, I’m not sure Lenovo’s positioning is as clear. Where it wants to have both brands in a market together, it needs to find ways to set the two apart better: with the Moto G and Moto E at the low end of the market, it’s not clear that price band delineation will work all that effectively, for example.

A clear number three player in devices, with potential to move up

Lenovo is arguably already the clear number three player in devices given its rankings across three major categories, but with Samsung’s recent stumbles (including this week’s preview of Q4 results) it seems possible Lenovo could move into the top two in the not too distant future. Interestingly, Lenovo has built up its business in a very different way from Samsung, which used massive marketing spending and premium devices to establish a very large and high margin business, at least for a time. Lenovo’s business is more like the rest of the consumer electronics market, operating on relatively modest (but consistently positive) margins, and it seems to be OK with that. That may just make for a more sustainable route to success than Samsung’s.