Apple and the Mainstream Consumer

Much of the commentary post-Apple’s September product launch event California Streaming was about what I expected. Most of it emphasized Apple’s iterative approach, and some went as far as to say Apple has lost its innovative touch just relying on small iterations year over year. I try to not let these approaches frustrate me because I get it, pundits are bored and desperate for the next big thing. In some ways, I’m craving what’s next technologically. Still, I also balance that desire with what I know about where most of that technology is today and how far away we are from seeing anything commercially viable in categories like AR, etc. I have written about how we are in a bit of a waiting period while some key technological breakthroughs can pave the way for what is next. Even though Samsung is on its third generation, categories like foldable phones are still way too early for mass-market consumers.

As I read much of the analysis of Apple’s event and the opining of how Apple just relies on iteration, I felt like I was back in 2016/2017 because that was also the commentary then. To quote my own analysis from that time frame, leaps of innovation happen maybe every 4-5 years, and in between then, iteration is what we can expect. That’s just how it works, and expecting something mind-blowing year over year is just not realistic.

But, Apple has a market challenge that no other tech company has. Understanding the dynamic Apple has with their customer base sheds more light on their strategy and why they will never be first to a market or technology.

Apple’s Customer Base
Apple is in the fascinatingly unique position of having one single product that spans the entire consumer adoption cycle spectrum. Apple has products that every category of the adopter (early adopter, early majority, mainstream, and late adopter) owns. I honestly can’t think of one single product in consumer technology that has this dynamic. That product is obviously iPhone.

Now you can rightly point out an operating system like Windows or Android similarly spans the adoption cycle. It is correct operating system accomplishes this, but no single product does since Windows and Android hardware has very different designs and specs that appeal to each type of consumer category.

And while it is impressive that Apple can appeal to early techies all the way to late adopters with the iPhone family, I would argue Apple’s eyes are always set on the mainstream and bringing the most technologically advanced hardware to as many people as possible.

I always find it entertaining when Apple critics cry out about a feature, in this case, ProMotion, that other companies had first. They like to make it sound like said other company is more innovative than Apple, and Apple is just playing catch up. But this critique misses perhaps one of the most important points about innovation. Is it better to be first or to be the company that gets that technology into the most hands so they can use it and benefit from it? I’d argue the latter is more important because what is the purpose of true innovation if it only gets into the hands of the few? Apple may not be first with a particular technology or innovation, but they will be the one who brings it to the most people. Technically speaking, it is easy to be first. It is much harder to package innovation in a way that is easy enough the masses can use it and benefit from it.

With that context in mind about Apple’s customer base, it is interesting how Apple continues to trickle down features that were specifically for “Pros” in last year’s models and down into the mainstream model iPhone 13. Lens technology on the front and back cameras there were exclusive to the Pro line iPhone 12 Pro now find itself in the iPhone 13.

Apple is also leveraging the strength of its silicon to bring its newest video feature, Cinematic Mode, to the iPhone 13 as well. In years past, this may have been a feature that was only reserved for the Pro line of devices, but this is just another example of Apple bringing a Pro/high-end feature to their flagship mainstream product of iPhone 13.

There are still features reserved for the Pro lineup like Macro and Macro video, ProMotion, Telephoto, etc., but from my standpoint, the iPhone 13 packs more formerly Pro features than previous years mainstream lineups. This is likely why most large investment banks are signaling year over year iPhone growth and suggesting the iPhone 13 cycle could be even stronger than the already very strong iPhone 12 cycle.

Making Pro mainstream, or more generally stated, bringing high-end innovation to the masses is one of Apple’s greatest strengths. Sophisticated technology requires simple solutions, or the masses can not take advantage of it. And in a world becoming dominated by user-generated media, it will be very interesting to see how creative content evolves over the next year.

A Few Takeaways From the Epic v. Apple Ruling

I know this has been a somewhat persistent subject, but the implications, from a broader antitrust standpoint, are important to keep a pulse on. Below are a few takeaways from the ruling.

  • Apple is not a Monopolist: This may be the most important statement to come from the ruling. Keep in mind many governments, including the US gov, are posturing themselves to start cracking down on “monopolies” via several bills and perhaps more DOJ/FTC lawsuits. Judge Gonzalez’s ruling in several areas will make future lawsuits against Apple much more challenging.
  • Judge Gonzalez was convinced that Apple provides significant value and competitive advantage with IAP. This means IAP is not going anywhere. Despite some of the headlines, Apple’s in-app-purchase will remain the default transaction mechanism consumers are presented with for App Store transactions.
  • Judge Gonzalez’s ruling affirms that Apple provides clear and distinct value from the App Store ecosystem and underlying mechanics, which include app review and IAP
  • The one area Apple will now be required to modify their App Store rules is around developers being able to “steer” their customers to other payment methods and options. It is unclear how this will be implemented, but from the initial wording, it seems unlikely app developers can attempt to cut Apple out entirely. Judge Gonzalez agreed all of Apple’s innovation and IP related to the App Store warranted a commission of some kind. She did not necessarily feel the 30% was justified, which I took as a hint for Apple to strongly consider lowering that rate as a whole. How developers will offer an alternate payment method or process via this steering provision and still give Apple some cut is unknown, but Apple has options in front of them to concede this point and still get a commission given the way this point was worded

One of the biggest things that stands out to me in this case, as well as the FTC vs. Qualcomm case, is how hard the burden of proof actually is in an antitrust case. Two of the largest antitrust cases of the last decade both largely went the way of the defendants in Apple and Qualcomm, respectively. Which, in my opinion, does not bode well for all the posturing of the US Gov to try and bring more monopoly suits against tech giants.

And, ultimately, governments tend to do more damage and enable a variety of unintended consequences when they try to forcibly legislate change rather than pressure the companions to self-regulate. This is where I think we would all prefer, for the most part, tech companies take responsibility to run their platforms in a competitive manner.

While I do believe Apple sensed the allowing of developers to steer customers to alternative means of transactions that IAP was the one they felt they would lose, Apple can still be rigorous in their approach here.

As details emerge on how this will be implemented, it will be interesting to see how Apple approaches this and how tightly they try to hang onto their 30%. As I have repeatedly said, the cleanest solution is for Apple to simply lower their rate. Alternately, after some other broad conversations, another potential angle is for Apple to split out the games portion of the App Store and have a dedicated game store where they are more strict in enforcing IAP and more closely manage the implementation of outside linking and alternate payment methods. Games account for ~70% of Apple’s App Store commission, so if there are going to be aggressive protecting IAP commissions, this is the area it makes the most sense to apply more stringent rules to.

The other angle that does not get talked about is Apple’s advertising strategy within App Store. There is a belief that I think is logical, that once Apple starts getting enough revenue from ads that they are then incentivized or more willing to lower their rate and allow the ads revenue to offset any losses. This theory has legs, but it is a big assumption that Apple’s ads business is lucrative in this regard.

Key Debate: App Store Commission Rate Drops and Competition

Things are already changing around Apple’s App store, and more will change with app stores broadly in the next few years. For Apple, their changes as of late are what many have referred to as “self-regulation.” Nevertheless, even if minor, Apple has made some concessions to start addressing some of the antitrust concerns surrounding the app store.

I firmly believe Apple has several more changes ahead for App Store that they will initiate whether legal regulation forces them to or not. But as I have mentioned before, none of these changes, even in a worst-case scenario, will impact Apple in any significant way. This is why I have consistently argued that making these changes for the better of the ecosystem, both now and in the future, is worth more than the small amounts of money they get or will lose from making changes to the App Store.

To summarize the economics again, Apple makes roughly ~$15-17b from their commission on App Store a year. That is roughly two weeks of iPhone sales in an average quarter. Apple makes two times as much total App Store revenue as Google, which likely means Apple’s commission is 2x that of Google.

Apple makes most, the vast majority, of their App Store commission from games. Several detailed financial analyst models approximate the percentage of commission Apple gets from games is ~60%. This suggests the only major threat to Apple’s commission revenue is if most game developers successfully bypass Apple’s IAP. At best, this is a long shot, given that IAP is a key reason for the lack of friction inside games that makes most microtransactions happen. And, even if an alternate in-app payment option was allowed to be offered, most normal consumers are unlikely to trust random game developers more than Apple. There are certainly a few game developers who could pull it off but certainly not most of them.

The foremost challenge I see is that as developers begin to exercise some freedoms to attempt to get users outside of Apple’s ecosystem to make a purchase, or try and onboard them in the app with a user account, enter credit card data, etc., all it will do is dramatically hurt the user experience for Apple customers. This is certainly true with purchasing a Kindle book via the Kindle app on iOS or signing up with Spotify, Netflix, etc., where you have to leave the app, sign up and transact, then go back to the app. All of these experiences are loaded with friction, and can you imagine a scenario where every app is free, but then the developer makes you jump through all these hoops to use it after you download it? The app experience would be miserable, but that is a likely road we could head down.

So what is the solution? Honestly, Apple needs to lower their commission to 10% for small developer businesses and 15% for everyone else. Apple needs to make it a no-brainer to use its IAP to collect transactions. The ONLY negative to lowering the rate is they would half their revenue on commissions. But, via regulation or self-regulation, they will lose money anyway at the potential cost of vastly injuring the customer experience with apps.

The positives dramatically outweigh the negatives here to just lower the commission to a rate that makes it a no-brainer for nearly everyone, including even someone like Netflix or Spotify, to embrace if they feel they can make more money by lowering friction to conversions.

But there is another angle I’m interested in. If Apple does, that is a huge positive if it plays out. If Apple dropped their rate down from 30% to 15%, it is reasonable that Google would have to as well. And what if not just Google felt pressured, but all the video game app stores got pressured? That may be a harder point to argue. Still, if Apple’s devices became more attractive as a platform for AAA game developers to embrace then, it would pressure console and PC distribution platforms to lower their rates as well. And if console makers really do operate at a loss, then a drop from 30% to 15% in-game commission could be quite devastating to their businesses. I am well aware this point on the AAA games is more broadly a less likely scenario, but I make it because Apple’s 30% commission was reasonable. After all, it was the standard for all game stores. If Apple lowers its rate, you could argue competitive and/or regulatory pressure could force all app/game marketplaces to do the same. At large, this would have some dramatic impacts competitively.

Lastly, while I advocate dropping the rate, which has both pro-ecosystem and pro-competition benefits, I still maintain Apple has App review processes that need to be refined. However, it does seem there are positive moves in this direction. Still, Apple’s success in some future platforms like AR/VR is dependent on the third-party developer goodwill they have had that is certainly being impacted at this moment. In my opinion, Apple can easily get this back and continue to modify and refine the App Review process in a way that gives developers confidence. Apple views them as partners may be the most important thing related to App Store Apple can do for its future.

App Store Regulations Debate – Apple’s Worst Case Scenario

It has been several months since the Epic v. Apple court case and just over one year since Epic’s battle with Apple began. Since a ruling is expected any day now, I thought making a few additional points would be good timing.

There is a range of implications to consider regarding certain outcomes, but the angle I will take is to assume the worst-case outcome in a few of the trial’s most critical points. I’ll then look at some of the implications assuming the harshest verdict/opinion. The bullets below will be the basis of ruling a worst-case scenario for Apple.

  • Apple must allow third party app stores
  • Apple must allow third party payments in its app store
  • Apple must allow developers to steer customer from the app store to an outside source for transactions

Economics. I’ll start with the economic impact. Assuming the following ruling and Apple losing any appeal, a big question will be what is the financial impact to Apple. The answer to this is tricky, but I think the key metric to understand is that currently, Apple pays around $15 billion a year to developers who make up about 6% of their revenue. Yes, $15 billion is a lot of money, but it is a drop in the bucket in the grand scheme of things for Apple and how they make their money.

The key to that $15 billion number is to know it mostly comes from games and probably less than 100 games driving the vast majority of revenue. The only way I see Apple taking a financial hit here is if all the games driving most of the revenue rally around a third-party store and ONLY distribute their games there instead of Apple’s App Store. On this point, it is not outside the scope of reality that if Judge Rogers rules Apple needs to allow for third-party app stores, she could also rule that all apps must ALSO be submitted to Apple’s app store. I make this point because Judge Rodgers went out of her way to mention that she recognizes the platform provider should get an incentive to keep the platform vibrant. So I find it hard to believe she would provide an opportunity for third parties to completely bypass the store or any avenue that allows for no compensation to Apple.

With all the variables that can factor into how Judge Rodgers may arrive at the listed bullets above and the ways that Apple will still be able to receive compensation, it is unlikely their $15b and growing cut of App store revenues takes too large of a hit. Plus, as I mentioned, even if it does, it is not that big of a deal. So in my mind, the economic impact is less of a concern.

Consumer Behavior. Tangled into the economic point is a broader point about consumer behavior should all the above changes be forced on Apple. To this point, I want to reference an excellent article by Benedict Evans where he makes the below point I wholeheartedly agree with.

There are lots of privacy and security arguments about side-loading, and to some extent also third-party app stores, but I would argue pretty strongly that this is mostly a waste of effort – that these are not a mainstream consumer behavior and the dominant route-to-market for most developers will be the default, preloaded app store.

This is essentially my conviction as well. Even in a worst-case scenario ruling, where all my above bullets exist as options for consumers, the vast majority of them will still use Apple’s default store and Apple’s default payment system. My confidence in this viewpoint stems from my many years researching consumer behavior and consistently quantifying how hard changing consumer behavior is once established habits have set it. I outlined this in my theory of behavioral debt piece many years ago.

Benedict also points out that only a few brands have the power to execute either a third-party app store or an alternate payment option to Apple. A good example of this is Netflix and Amazon for e-books who successfully, yet highly inconveniently, get customers to transact on their website and then consume on their Apple device. If I had to stake a bet, I’d say this and not a third-party app store would have more success but still be limited to only a handful of brands.

The important factor here is to recognize that the only reason a Netflix, or Amazon, can do this is that they are a large brand, trusted, and already managing customer relationships at scale. This applies to the argument for Spotify because I can guarantee that when Spotify started, if they asked customers to leave Apple’s store and go directly to their website to transact, they would never have grown to the size they did. It was primarily because of the lack of friction Apple provided an upstart company like Spotify that allowed them to acquire customers as easily as they did.

This provides the challenge to ultimately deal with the charge Epic has brought against Apple. The argument is that these rules are limiting innovation. And limiting innovation is something Apple itself would agree is not what they want. So, assuming it is true innovation is being limited, what is the solution? That is a harder question to answer, and I think it comes in two parts which I could probably write an entire analysis on individually. But, as much as I am sure Apple would disagree, I think dropping the App Store commission to 15% for developers that don’t fit into their small business program (those that make less than $1 million a year) would be a huge start. And then dropping the commission for small business program participants from 15% to 10% as well. But, again, neither of these changes would impact Apple financially in any significant way. On the other hand, in some cases, if Apple made it attractive enough that Netflix, Amazon, etc., would embrace IAP because of the dramatic decrease in friction, there is a chance Apple can win back transactions they have lost, which would be a net positive financially.

And lastly, as I outlined in the analysis of our developer research study, I do think some app store rules need to be changed/modified as well as the App Store review process, and those things would do wonders for Apple’s developer community and perhaps help eliminate some of the barriers the small developers face when trying to innovate on their app and service. Apple should be doing everything in its power to continue to incentivize the kinds of innovations that help developers make money because ultimately, by doing so, Apple will make more money as well.

The Long Road for EVs (Electric Vehicles)

Near the end of June, we road tripped to Denver for my cousin’s wedding. I do some of my best thinking while I drive long distances, and this trip had me thinking about the coming fusion of technology and the automobile industry. As I drove, I observed quite a number of cars in different states and also observed the widely varying gas prices from California to Denver.

My main thesis for the adoption of fully electric cars has always been that of a very long road. There is a range of circumstances that need to change in order for fully electric cars to make more sense than gas-powered ones. Now to clarify, when I talk about fully electric car adoption, I’m not talking about autonomy at the same time. We are seeing electric vehicles being adopted that do not have fully autonomous features, but I maintain technology + autonomy will play a key role in tipping the scales from gas to electric vehicles in the consumer’s mind.

My main belief is price + technology + grid will be the formula for driving EV adoption. And unfortunately, all three have a long way to go to make more sense than a gas vehicle for most consumers.

As of today, in most markets, fully electric vehicles do not have price parity with gas-powered ones. Which causes the struggle right off the bat. If a consumer is torn on the decision, the price will often be the deciding factor. Even if it logically makes sense that cost to charge vs. the cost of gas over time will save them money, that initial higher price of the car can be a deal-breaker. For this, however, it is interesting to look at Norway as a use case for EV adoption.

Norway has, easily, the highest installed base and annual sales of EVs compared to any other country. They did this by having significant tax breaks, financial incentives, and other cost benefits for EVs and not for gas cars. While the sticker price may be similar, the Norweigan government offers a range of tax breaks and financial incentives that make EVs the clear and more cost-conscious choice. For context, 54% of cars sold in Norway are fully electric. In the US, EVs make up less than 5% of all car sales.

I came across a global survey on EVs by a large investment bank, and interestingly, 80% of consumers in the survey indicated they would only pay the same or less for an EV. Only 20% said they would be willing to pay more for a fully EV than a gas-powered vehicle (which includes hybrids). But the initial price of the car is not the only factor. Consumers are looking at the total cost of ownership, where the annual cost of gas vs. the annual cost to charge is a factor. But even in that case, there are some variables. The main one being, will there be a cost to charge the car, if needed, outside your home. If so, will the cost prices to charge vary, and if so, by how much?

It seems Norway gives us the best model of how EVs will broaden adoption in the foreseeable future. They essentially make it less economically viable, via the taxes imposed, on gas vehicles, and regulations favor EVs making them the easiest choice for consumers.

As car companies are forced to become technology companies, this is where things will get really interesting, in my opinion. And, again, this is a decade or more (likely more) of competitive battles that will play out. That line, which has now become a meme, that “technology companies won’t just walk in here and..” is apt in automotive as I’m sure many automotive execs are vastly overestimating how “hard” it is to build a car. The likely reality is that tech forward-thinking companies will absolutely come into the automotive market and disrupt the incumbents for the simple reason that the technology part is the hardest part, contrary to what the incumbent believes. For this reason, I’m still bullish on Tesla and Apple since it seems clear they will enter this market somehow at some point.

In an increasingly technologically forward world, companies who approach a market with a mindset where technology (hardware, software, cloud services) is the central advantage for them will generally disrupt the incumbents. I think this will be true of nearly any market, retail, healthcare, automotive, etc.

That being said, I thought this article was interesting with the headline Nvidia is Detroit’s Only Hope to Beat Tesla was directionally on the right track. I agree with the author’s point that Nvidia has the complete solution,. Most incumbent automotive companies will be incapable of building this technology on their own like Tesla and Apple and, therefore, will need to get the solution from someone else. But, this means we will end up having an automotive world that looks and functions much like the Windows and Android hardware ecosystem world, which makes it much harder to compete and differentiate since, like in Windows and Android hardware ecosystems, those vendors end up competing more with each other than with the more vertical competitors like Apple, and Tesla in the automotive space.

Interestingly, Apple and Tesla will be extremely fun to watch at some point. I worry slightly about Apple’s attempts in automotive because they will likely stick to their premium strategy and go mostly after the higher-end markets. Where Tesla is trying to hit all markets from entry to premium and is much more philosophically like Apple (vertically oriented) than any competitor, Apple has ever faced. Suffice it to say, I’m extremely excited about that competition.

The Grid
I’ve left the grid point for last because while it is important, I don’t think it is the most important of the three. The main difference for EV owners is they can charge at home and at work. We don’t have gas stations at our house or places of work, so the need for a built-out EV charging grid compared to the gas station network is less relevant. That being said, it does factor into consumer thinking.

There is still peace of mind around gas vehicles that you will always conveniently find a gas station in a pinch. As of now, Tesla is the only company where a similar peach of mind exists. Tesla stations are mostly convenient, but thanks to Tesla software, it will always, intelligently, guide you to a charging station before you run out of power. Tesla’s grid is a big difference, in my opinion, and one that will be particularly tricky for competitors.

As different charging grids for EVs get built out in key locations and consumers become more mindful of where their options are, it will help ease the concern of being stranded with a drained battery. But this will again take time and is more evidence for my thesis that this is a very long road of adoption for fully electric cars.

If we see 30% global penetration of EVs by 2030, I’ll be very impressed.

Apple’s Competitive Advantage 2.0

One of the first articles/analyses I ever published on Tech.pinions was aptly titled Why Apple Has a Strong Competitive Advantage. I’m linking to this article, but I encourage you not to read it as my writing skills have greatly improved, and when I go back and read is a little painful. Nevertheless, that article remains the most read article on Tech.pinions to this day and still generates significant monthly views because of people searching the term “Apple’s competitive advantage” via search engines. Meaning, this is clearly still a topic many are interested in.

I’m not going to go back through my points, but I will list the core pillars because I still believe they apply to Apple’s competitive advantage today. The core pillars of Apple’s advantage I outlined in my essay were:

  • Apple’s Hardware + Software
  • iTunes & Digital Asset Management (what turned into the services businesses)
  • Apple’s Retail Strategy

This piece was written in 2011, and Apple as a company has matured greatly. What I outlined for iTunes/digital was the early seeds planted for Apple’s services business, which is absolutely a key part of their differentiation and advantage. Other things I would include today are things like Apple being a functional organization (one PNL instead of competing business units) and their hyper-focus on customer experience as a culture and philosophy. One could argue these are ingredients of their advantage more than pillars, like their integration of hardware and software is or retail, and I could agree with that. But if I were writing that article today, I would add two new areas that I feel are undoubtedly pillars of Apple’s competitive advantage.

Apple Silicon
My belief that Apple’s investment in custom silicon is a pillar of differentiation won’t shock many of you since I cover this subject extensively. However, in today’s computing economy, I would argue that Apple’s efforts in Silicon are the underlying foundation on which ALL of Apple’s differentiation is built. Meaning, every other pillar of differentiation and competitive advantage is made possible because of Apple Silicon.

I’m not saying Apple would not be as successful if they never started making their own silicon, although I am quite confident the lead they have over multiple competitors would not be nearly as significant if Apple shipped the same silicon components their competition does. In essence, their differentiation and advantage would likely still exist, and it would just not be as strong.

Apple’s investment in silicon brings them many advantages but first and foremost is the custom tuning of components to hardware, software, and services vision. Apple has the luxury of roadmap planning in lockstep with hardware, software, and silicon engineering, and this is a luxury they have that none of their competitors do.

It could be easy to say their efforts in silicon are just part of their integration strategy. And that is true, however, I contend it is the core of their integration strategy. I’ve long said the famous quote from Alan Kay that “people who are really serious about software should make their own hardware” should be revised to say “people who are really serious about software, and hardware, should make their own silicon.” I think if Steve Jobs were around today, he would be ok with that revision as an orientating way that Apple thinks about integration.

In looking at structural competitive advantages, we look for things that the company we are analyzing is uniquely equipped to do that competitors are not, or at least not in the same way. This is why I would add Apple’s efforts in privacy as a pillar of their competitive advantage.

Apple’s business model is a key reason they aren’t able to harvest user data for economic gain. I know this has become a topic of debate lately since Apple has been clear they do collect some data to improve their products and services for their users. However, there is a difference between observing some of your habits for other people vs. observing some of your habits to make your experience better, and Apple falls more into the latter than the prior. I’m still on the fence on a few areas with Apple’s advertising pushes, but that’s for a different analysis.

Ultimately, the point I want to make here is people trust Apple, and it is becoming clear their trust Apple with their data and their sensitive data. I’m not saying people don’t trust other companies, but I am saying that if you asked a random person on the street what technology companies they trust their most sensitive and private information to, it would be an extremely short list.

People have proven to trust Apple with their credit cards, location data, family location data and information, medical records, health information, and more. Of course, Apple didn’t get there overnight, and its efforts to protect consumer privacy have been around for a while. But making this a point of marketing and doubling down on privacy will award them some advantages that other companies will not have.

The main one that comes to my mind is around Apple Watch. Apple is by far the leader in wearable consumer devices, and the advancements made to Apple Watch every year only go deeper into a consumer’s health and well-being. However, they could not do this if they didn’t have a base of trust, and in some cases, are still working to earn the trust of their customer base.

Leveraging the Advantage
With those two additions to the pillars of Apple’s competitive advantage, I want to look forward to future products and industries Apple can move into. When we think about going deeper into health/healthcare, more personal and intimate wearables, computers like glasses and beyond, and even automotive where our lives are at stake, Apple Silicon and Apple’s privacy stance become fundamental advantages that will allow them to go into markets competitors can’t.

It is easy to see the whole picture now, but seeing how far back Apple has clearly been planning and deepening their advantage with the pillars of silicon and privacy as competitive advantages, shows us just how far down the road Apple thinks strategically.

Epic’s End Game

Thus far, the Epic vs. Apple case has been anything but Epic. I wrote a much more expansive Op-Ed in Fast Company sharing more of my thoughts on the case and the main arguments, but there is a more nuanced element I want to bring out.

As I pointed out in my Fast Company article, Epic is not the best candidate to bring this complaint against Apple. I say that because it is tough to argue that game distribution channels have no competition. This paragraph from my article is the one I want to focus on today.

Another challenge I see in Epic’s overall stance is it has singled out Apple amidst all the other game stores that charge similar 30% commissions and have many, if not all, of the same regulations as Apple. Epic has gone into battle with Apple while still willfully participating in all other game stores from Nintendo, Sony Playstation, Microsoft Xbox, and others. The other particularly curious part of Epic’s stance is that it makes more money from these other game stores than it does from Apple’s, yet it attacks Apple’s marketplace and not the others.

When pressed on this, Epic executives, including CEO Tim Sweeney, stated that consoles are generally sold at a loss or break-even and recoup their costs through the commission they collect. Epic is insinuating they are sympathetic to consoles because of this business model, but not sympathetic to Apple for their business model of making money on the hardware and the App Store itself. The latter is a claim they can’t prove, but they are using the argument anyway. I find this reasoning perplexing that Epic is more supportive of giving a commission to consoles simply because their business model is to sell hardware at a subsidized rate and then recoup those costs via commission on software sales.

With this stance of Epic more supportive of hardware sold at a loss angle in mind, the true breakdown comes when we understand Epic’s end game. Epic is seeking a total change to all stores, not just Apple’s App Store, that will allow them to bypass the stores entirely. If Epic wins this case against Apple, I see no reason they don’t force the other games stores (XBOX, Playstation, Switch, Steam, etc.) to comply with similar rules letting game developers bypass stores and offer store within a store, where Epic is under no obligation to give a commission.

In this scenario, if Epic forces this change to all game stores, including the console game stores, Epic would not be the only developer/publisher who will want to go to lengths to avoid giving a commission. In the end, this will ultimately hurt console hardware the most because they don’t make money on the hardware. The business model Epic says they are sympathetic to becomes nearly impossible if most game devs and publishers bypass their stores. The result would inevitably be a higher cost of console hardware that could kill the console category.

I make this point to highlight the often common issue of antitrust regulations having unintended consequences that lead to higher prices somewhere in the value chain. The intended result of any such antitrust remedies is to keep costs from rising, especially for consumers. However, should console game stores be forced to take less commission on game sales or have their commission bypassed entirely then, there is no way the result is not higher prices of console hardware.

The irony of this scenario is not lost on me. The console subsidized hardware business model Epic says they support in sharing commission will go away when game publishers no longer have to share a commission with said console makers.

Chip Shortages and the Trailing Edge

In the last few months, I have had some very interesting conversations with executives knee-deep dealing with the supply chain shortages for their company’s procurement. The narrative about the shortage of chips has concentrated on the leading edge manufacturing node, meaning 7nm, 5nm, etc. But from the conversations I have had, this is not the biggest issue impacting our industry shortage, nor is it their worry about where semiconductor manufacturers are investing their money. It turns out, the semiconductor’s biggest issue is at the trailing edge.

The Trailing Edge and Legacy Nodes
The leading edge gets all the attention because it is the most exciting. The leading edge powers the supercomputers in the cloud, our desks and laps, and our pockets. But computing devices are not just made up of leading-edge microprocessors. The vast majority of other components are made up of legacy nodes and quite often many chips on the trailing edge.

What became clear in these conversations is most of the fabs in the media like TSMC, Samsung, Intel, and even Global Foundries, to a degree, are not relevant in the trailing edge semiconductor manufacturing process. Most of the companies making these chips largely on 90nm process and larger are located in China. Generally, these chips are a commodity, which is why most big fabs do not invest much in the trailing edge. Yet, most modern digital devices run at least a handful of chips built on the trailing edge. So while not nearly as sexy as the leading edge, chips made on the legacy processes are still as important to the manufacture of computing devices.

No End in Sight
Sadly, this likely means there is no end in sight for the capacity shortage. The fear alone of semiconductor drought has caused most of the big technology firms to stockpile both chips and POs with suppliers. Unfortunately, this only exacerbates the demand and delay for the foreseeable future.

In discussions on the matter, even an easing of demand is not necessarily light at the end of the tunnel. This situation has highlighted the steep challenge of predicting demand and the fine line companies procurement divisions have to walk to manage such a diverse supply chain of components. However, there are worries that companies are now hyper-aware of the delicate supply chain balance and may move forward with a new strategy and philosophy of procurement that includes more advance purchasing and volume guarantees.

If, in the end, supply chain management and procurement logistics go through a strategy and philosophy change, it could mean a prolonged challenge to get core components in a timely fashion. The discussions of strategy happening in the supply chain are uncharted waters, which is fascinating in its own right.

A Point on Semiconductor Supply Chain Nationalization
I have written in the past the role the semiconductor supply chain plays in a national security discussion for a nation-state. This was the basis of my thesis around the US needing to invest more in semiconductor manufacturing for both the competitive need of its companies and its own national security. And while that is true and needed, it is likely entirely impossible.

Even if there was a leading node manufacturer owned by the US company and operated on US soil, said the company would still be subject to a global supply chain of parts required to make silicon. For example, things like wafers, lithography machines, etc., are generally purchased from companies outside of the US.

I make this point simply to say that for all the points we make about the need for local manufacturing of Silicon, the reality is we can’t escape the global supply chain of semiconductor manufacturing that make it near impossible for a nation like the US to have every aspect of that supply chain operations within its borders.

Our takeaway, then, is first and foremost that this semiconductor supply chain shortage has no end in sight. Second, manufacturers of mass-scale technology are securing their orders in bulk and creating a wait-in-line scenario for everyone else, exasperating the shortage. And lastly, even an emphasis on domestic manufacturing of silicon can’t alone solve this problem for companies that operate on its soil.

Enterprise Workplace Epiphanies

The last year has led to a number of what I call “COVID Epiphanies” by employees and employers. One of the main concerns I’ve heard was what the impact COVID would have to corporate culture going forward and how much more in control of their destiny employees will become.

We have never seen such a disruption to the workforce in the tech era, and it appears many employees have had profound enlightenment about their own work style and corporate position. One of the main implications COVID will have on many enterprises is empowerment to the employee themselves over how and where they work. We have run several research studies at our firm and have concluded the hybrid workplace is the new normal. I recently found another study that found similar results, stating 68% of employees surveyed want the option to work from home and the office—confirming that employees want the choice to be in office or remote. Similarly, in our own research study from November, 31% of respondents wanted to continue to work from home a couple of days a week, and 46% wanted to continue to work from home as much as possible. The reality of the new enterprise is giving employees the flexibility of being remote or in person.

The challenge is this will cause turbulence for many companies, and the result will be a higher degree of talent churn, which goes back to one of the COVID epiphanies I mentioned that employees are contemplating their workplace with a much higher level of scrutiny. For many, they now realize their work-life balance is out of whack and seek to rebalance their lives. Particularly as COVID has brought many to appreciate how fragile life is and can be and therefore prioritize their own life and family. This is a good development in my opinion. Others have the epiphany that they do not like their corporate culture, or their managers, or their location and are contemplating how to put themselves in a better situation for life and career ambitions.

Ultimately, what this will lead to is corporations having to adapt to provide their employees with the flexibility they desire, or they risk losing the talent to another company. Talent acquisition and retention is going to become even more of a challenge in the post-pandemic world, and the result could have a dramatic impact on a companies ability to compete.

One of the interesting wrinkles from our research and others has been the difference in sentiment between young employees and older ones who are more set in their career and life stage. Younger employees are continually looking for upward mobility, and in-office networking interactions are often the things that help them find upward opportunities. This is obviously much more difficult in a fully remote environment. Even in a hybrid situation, figuring out how rising stars in an organization can get the right interactions with managers and execs will be important if they are to retain younger talent.

Quite literally, we are going to see a hotbed of opportunity as employees look to be more in control of their destiny, and software and services companies look to provide enterprises with what they need to retain talent and adapt in this new world. Enterprises and the tools we use to get work done still have a long way to go to provide employees with the flexibility they desire.

Tech Essential

There is a saying that the tech industry is recession-proof. Every industry will be hit in some ways when there is a crisis, but history has shown us that tech is hit the least and rebounds the fastest. This is a primary reason tech stocks have done well throughout the pandemic. Investors foresaw that tech spending would remain steady, but the amount of growth the tech industry has seen was something no one could predict.

Last week we hosted on the podcast our friend Stephen Baker, VP of NPD, whose focus is on US retail sales of consumer technology products. During the podcast, he mentioned the unprecedented YoY revenue growth of 17%. Something that has not happened since at least the early 2000s he mentioned during the podcast.

As we chatted about the different category growth and the specific areas of consumer electronics that were up the most, things like TVs, PCs, smartphones, gaming PCs and consoles, and accessories, the overarching theme of how essential technology is was apparent. If the notion that tech is so deeply ingrained into the fabric of our lives, that most of it is no longer just wanted but is needed, was not clear before it is now.

But there is a broader observation that I think needs to be made about this pandemic caused boom the entire technology just observed.

During the podcast, Steve Baker was mentioning his conversations with the broader tech ecosystem and warning them not to use 2020 as a comparable or bar for their sales people. 17% YoY revenue growth in a mature market like consumer electronics is certainly a once in a pandemic kind of situation. That being said, I do think we can look for the overall consumer electronics market to be stronger than it was pre-pandemic due to the market expansion the pandemic caused.

What stands out to me is the total addressable market for almost every major consumer technology category was increased because of the pandemic. What would have been a small single percent trickle of growth YoY leading to slow market expansion was rushed forward in one year. We went from an average of 1-2 PC/Macs per household to every person in the house has some kind of larger-screen personal computing device. TVs saw their average age decrease, which meant upgrades as well as new purchases for other areas of the house where TVs did not exist before. Gaming PCs and consoles, really gaming PCs saw the most growth of the TV, exploded as online multiplayer video games became a common way for people to spend time together during the pandemic. People bought monitors, printers, and a host of accessories they may have never been in the market for if it weren’t for the global pandemic. All of this and more led to a massive expansion of the market for consumer tech products.

Now, looking forward, while we will not be stuck working and learning from home forever, there is a reality that a lot of the products purchased in the tech expansion will still be used in some capacity for working and learning at home and will be upgraded in the future. PCs are a simple example of this, where the market likely added tens of millions of new notebook/desktop owners, and it is likely those will be upgraded in the future. If it stands to reason that these tech products purchased in the market expansion don’t collect dust when the world returns to some state of normal, then we can expect a new potential ceiling for annual tech spending and category revenue going forward.

This is indeed the case with more forecasted models I’ve seen in all the major categories, other than smartphones. I say other than smartphones because that is the only category that truly has a 1:1 device to consumer adoption of now more than 4.5 billion people on the planet. Few tech products will ever reach that scale, but in most developed markets, the pandemic has caused more individuals to purchase and adopt more tech for themselves personally than ever before. The belief is that the relationship with those products will remain, and while the exact timing of those refresh rates will remain a key debate, it is unlikely they are not refreshed at some point in the future.

The COVID pandemic, in every category in enterprise and consumer, rushed forward three to five years, maybe more, of anticipated market expansion of key tech areas into one year. This is why the supply chain is overrun, and this is why products are hard to find, as no one is prepared for this kind of explosion. The rushing forward of years of adoption into one year has created the market challenges we see in supply/demand imbalance, but it has also created a significant market opportunity for competition in areas that did not have much competition before.

While tech is essential, and there is no doubting that anymore, the tech market has almost instantly become magnitudes more interesting than it was before, and a new bedrock of competition that is great for consumers and enterprises alike is going to be as alive as ever in the coming years.

The Ad Business Paradigm Shift

A lot is going on in the world of advertising at the moment. Actually, I should clarify a difference between advertising (which, when done right, also contains a heavy dose of branding) and simply trying to sell a product. When it comes to the Internet and the many free ad-subsidized services that exist, anyone paying attention would agree the clickbait articles, dozens of trackers, websites filled with malicious code, and more have gotten out of control.

I understand this world all too well. From 2008-2010 I was very close to one of the largest tech blogs on the Internet. I spent a great deal of time working with them on their business model, growth strategy, and revenue growth strategy. The product itself was free but was subsidized with ads. During negotiations with our ad-placement agency, I was under the constant pressure of their demands of how they wanted ads to show up. The disconnect, which I found nearly impossible to educate them with, was that you could place all the ads you want in the world all over an article, but if it hurts the customer experience and lessons engagement, there is no ROI. This was where the internal data we had via reader (I still called them customers) analytics and ad-engagement were clear.

The battle I was up against was the belief that with enough ads thrown at a person, via pop-ups, video, in-line articles, etc., that you could inundate them to the point that they simply could not ignore it. This is where tracking came in, and I saw many internal ad-deck pitches that demonstrated volume across websites and some shady statistics about how that helps consumer awareness. But my gut was always that this would create a more negative sentiment to that product and brand than a positive one. What is happening with ad-tracking and following today is the equivalent of a traveling salesman following you around everywhere you go screaming “buy this product” at the top of his lungs. Such a thing would turn people off to the product, even if it is decent, simply because of the tactics of the salesman.

From years of studying this space and having spent time in it, I’m convinced of several things. The first one is that consumers genuinely enjoy discovering new products and brands that enrich their life. The second is that excess ad-placement, and tracking is a turn-off and creates a look of a desperate product or brand, then one confident to go up against the competition.

Google and Facebook are both central to this debate. Both have proven effective, given current means of ad-targeting. Both have lowered the customer acquisition costs for brands and product companies, but again at the cost of feeling creepy, or at the least overly aggressive. This is why Google’s announcement of phasing out third-party tracking cookies and their privacy sandbox is of interest.

From reading through the blog-post, on the surface, it appears Google is simply distilling the information gathered on a person to the bare minimum to put them into a defined cohort of interests. In some ways, this is how Google functioned in its early days and historically the analog age’s advertising industry. If I’m a reader of a magazine on skateboarding, or tennis, or cars, etc., then it is safe to assume I’m interested in said topic and products within the category.

This is why I’ve always believed niche content is the best bang for the buck for any ad or product spend. I’d bet good money those ads will perform better any day over Facebook and Google if done right and placed relevantly. Niche content breeds more engagement, and more engagement creates higher Ad ROIs.

Google remains in the best position here, with the exception of an audio/podcast platform which I believe are excellent ad mechanisms given the integrated flow of ad read and placement. For Google, YouTube is this mechanism, and I’ve noticed a lot more content creates on YouTube start to integrate ads cleverly into their content. Anecdotally, YouTube is becoming one of the driving forces behind my purchasing behavior as I find authentic product reviews on YouTube the most helpful source to influence my purchases.

While Google remains well-positioned, I still question Facebook here and its ability to adapt. I’m even less optimistic of Facebook proper where I can see Instagram in a better position to adapt. The Facebook app/website itself may very well end up being like Yahoo. Not dying but fading more and more into irrelevance. Facebook’s likely inability to develop new assets or acquire new companies doing something innovative in a social media adjacency is going to hurt the companies overall ability to compete, in my opinion.

The model Facebook has appealed to is the Web 2.0 way of advertising but not the web/digital world 3.0. Oculus may be the one bright light for the company, and if they can make the Oculus experience mainstream, there is more upside. But this is still a question mark if Facebook is the company that will mainstream VR and AR.

As I mentioned, advertising can not get in the way of the customer experience. This is an evolving landscape that will need to find a sweet spot in helping consumers discover new brands and products that enrich their lives without stalking them, harassing them, and protecting their privacy. That will be a cornerstone for success for any company looking to subsidize their service with ads, and that is still a very different world than we live in now.

Chip Shortages and Foundry Monopolies

One of the biggest issues facing the tech industry right now is significant delays and a backlog of semiconductor foundries. Almost every tech category has seen a boost to demand, and that led to a dynamic of significant demand and not enough supply of semiconductors.

While an unanticipated surge of demand is a chief cause of the chip shortage, China’s initial shutdown this time last year due to the pandemic was going to cause delays for the entire year regardless of an uptick of demand. The surge in demand exaggerated this problem even more, which now brings an important observation to bear.

When I wrote last week about Apple perhaps partnering with Intel, I was only scratching the surface of what should be on every tech companies mind if their products rely on semiconductors in some way. This shortage is brought about because of the lack of foundry options for semiconductor companies. TSMC has had the clear lead for several years, and if you want a product on leading-edge process, your only option was TSMC. Samsung kept pace, but they hit some snags with their 10 and 8nm product which led some of their customers to go to TSMC.

While TSMC is not a semiconductor foundry monopoly yet, we are seeing a glimpse of what the world may look like if TSMC either is the last foundry standing or, at the very least, having a multi-year advantage on leading-edge process technology.

In either scenario, competition is painfully impacted. If only a few of the biggest tech companies, with scale and money, have access to leading-edge process technology and transistor designs, then those companies will maintain an edge on everyone else because they will be the few who can actually secure inventory. Everyone else will have to wait to get their chips to market. This is not a good scenario.

While TSMC is investing in foundries in the US, right now in Arizona, it will take several years to build out and be ready to start producing wafers. But the dynamic of TSMC having a monopoly on the leading-edge process, at a minimum, is concerning since they control who can get supply AND they could control pricing. This is why it is of the utmost importance that foundry competition is established and remain.

Yesterday Joe Biden signed an executive order to investigate the issues surrounding the chip shortage and look to strengthen the supply chain. Many hope for a renewed focus and more investment around the Chips Act and actively look to make US-based foundries more competitive.

Semiconductor foundries are not startup opportunities. Therefore, the US government’s options are Intel and Global Foundries to support US-based semiconductor manufacturing. While I do hope there is more around the Chips Act that can be established, I do not have the most faith in the government to help solve this. Which is a key reason I mentioned Apple, as I feel it makes more sense for private enterprise to help Intel via joint ventures or supply commitments.

The Art of Dual Sourcing Foundries
Given the reality, both short and long-term is the industry will only have a few viable foundries supporting the growing demand and need for semiconductors, companies who can strategically execute a dual-source strategy will be well-positioned.

This was always something Broadcom did well. I recall many conversations with their executives who were proud of the fact their chip design libraries were portable, and they could make them at whatever foundry they saw fit. Qualcomm is similarly executing a dual-source foundry strategy as they have versions of the same chipsets made at both TSMC and Samsung.

Companies that dual-source will be extremely well-positioned to weather a number of different storms that could come their way. From the geopolitical that I have outlined before, national economic issues, global catastrophes, etc. While this isn’t discussed as much publicly for obvious reasons, it is top of mind for many executives in the supply chain and those whose companies make products via semiconductor foundries.

While I keep circling the wagon on this, the fundamental point that needs to be addressed in the long-term is how to keep foundry competition alive. I believe Intel is critical to that future, which is why the industry needs to be concerned with Intel’s future whether they buy chips from Intel or not.

The Silicon Valley Exodus that May or May Not Be

It has always been hard for me to fully grasp the anti-silicon valley or anti-bay area narratives, given I was born here, grew up here, and have only lived in LA for a short amount of time during a stint at a college in Southern California. I had the opportunity to jump into tech at a young age starting at Cypress Semiconductor as my first job at the ripe age of 19 in 1997. I participated in the first Internet tech/startup bubble as both an investor and a founder, and I’ve developed relationships with many who come from a similar journey and have been out here because of tech since the 90s or before.

It’s easy to forget the past 15 years have brought in a significant number of transplants, who for better or worse, left their roots to come to Silicon Valley. The network I have always had is from those whose roots are in tech and the valley, and I think that history brings quite a different perspective of the valley and broader bay area.

I understand the viewpoint of those who left their roots to come to the valley, and how for many adapting to the drastically different culture has been a challenge. For those who left their roots, I understand the desire to return to family, friends, and other elements of life, and for many, the COVID-19 pandemic and remote work situation will allow for that to happen, and I think that is great. But anyone proclaiming the death of silicon valley or that the total exodus is inevitable is missing the bigger picture.

I want to first affirm how the digital transformation that the COVID-19 pandemic forced has now presented the real option for people to leave the bay area and go back to their roots and keep their jobs. I think it is great that those who don’t want to remain in the bay area have the option to go elsewhere. While it is true, and I know many, who have decided to leave the Bay Area, the exodus is not quite as large as some would make it seem.

There are data points of San Francisco housing rates dropping, even longer time on market. But constant evidence, including this from USPS, shows most are leaving the city for other Bay Area counties. From the wide network I have in the Bay Area, I’ve heard vastly more stories of people moving from the SF to counties north and south than I have people leaving.

While I am all in favor of other “silicon valleys” showing up in more places, I also recognize how hard that is due to the culture that has developed in the bay area, which goes all the way to WW2, and Radar research coming from Stanford, Berkely, and other institutions.

If you don’t live or haven’t lived in the Bay Area and worked in tech, it is difficult to grasp the culture here, but it is unlike any other tech/startup/business vibe of any other location I have spent time in, which includes hubs like Austin, NY, San Diego, etc.

If you have been to LA or felt the vibe of LA culture, you know how a predominant conversation in culture is entertainment. Similar in NY how its finance, or in the D.C area how its politics. The dominant conversation in the Bay Area is tech. In the same way, another Hollywood has not shown up in the US, or another political hub like D.C, or another finance hub like NY, it’s hard to see how another true Silicon Valley emerges elsewhere.

In all those examples, an ecosystem has become entrenched. Capital, talent, experience, ambition, and more exist in massive quantities centralized to that region. In all the examples I’ve given, it took decades, and sometimes even longer, to build the ecosystem which is entrenched to the expertise of the region. And that is why those regions are attractive to people who want to get into the field. If you want to get into entertainment, you go to LA. If you want to get into politics, you to D.C, and generally, if you want to get into finance, you go to NY if you want to get into tech, you to the Bay Area.

While I understand the criticism, mostly from outside SV about SV, what I’d love to see happen is more diversity of voices and influence for the tech scene in the Bay Area. Given SV is going to be around for a while, this is the healthiest change we can try to promote.

While tech hubs can and will exist in other regions, it’s the culture that will be hard to replicate. This is why any narrative of the valley being dead seemed premature. As much as I want our traffic to get better, there is an unmistakable tech culture. Until we see the next generation of talent go elsewhere, I’ll be hard-pressed to call the valley dead or over.

Clubhouse and the Pure Play Audio Opportunity

Clubhouse has gained quite a bit of attention lately. Before I share how I’m viewing the audio platform that is Clubhouse, I think it is helpful to give a little context around the audio opportunity.

For a while, I have known that something was going to happen around a pure-play audio platform for 3 years or so now. The reason I knew was because of my work with the VC community. Several years ago, I did the rounds with most of the top-tier VC firms, and they ran me through their central investment thesis for the next several years. The audio was the most consistent thesis I saw that showed up in nearly all VCs investment thesis.

Essentially the thesis for audio was this. The visual opportunity is gone. YouTube, Snapchat, Instagram, Facebook, Netflix, etc., has sucked up all the available time to view something visually with our eyes. Basically, the battle for the eyes is gone, but the battle for the ears is a different story. We commute, we exercise, we walk, and in general, we do things where we can’t always stare at screens. This is where the opportunity for the ears comes into play. Pure play audio is an area most investors believed there was room to compete for consumers’ time. And thus, something in audio was going to come out of this.

Many investors believed Podcasts were the audio opportunity evidence but knew Podcasting platforms were mostly settled and would not be an investment opportunity. Then came Clubhouse, and now we have a highly evolved take on many previous audio platforms.

If you aren’t familiar with Clubhouse, it is basically an app where anyone can host a room, start talking, and people can show up to listen. Hosts of the room can invite listeners up to the stage to participate or call on listeners to ask a question to those on the “stage.” You can liken it to talk radio with listener participation, a panel at a conference where people with subject expertise have a moderated discussion, or even as one of my followers on Twitter pointed out like the days of Ham radio where people could connect and talk to each other even if they didn’t know each other.

The clubhouse is the evolution of many former audio meetings but not a 1:1 comparison to any of them. It is like many things but not exactly like any of them. This perplexed a lot of investors, but given their thesis, it was only a matter of time before Clubhouse raised funds.

What I find curious is the black and white nature of Clubhouse. The public commentary I’ve seen, at least, in general, paints it as the next big thing or a total failure waiting to happen, which will get crushed by other players. Its future is not so black and white, but when something new shows up, we don’t totally understand. This dynamic seems to be common, and quite curious.

The reality is Clubhouse could be big, or it could fail. Both possibilities exist. I agree with the investment thesis I explained, and pure-play audio is certainly an area of opportunity.

That being said, what I find interesting about audio, is how different it is from video. Video allows people to be more passive or let their brain shut off. Audio is a different story. Listening requires much more attention by the listener. Listening was at risk of becoming a lost art. This is why I think the pure-play audio opportunity is so interesting. One’s audience is potentially much more captive than any visual platform. And captive audiences are lucrative.

Lucrative niches have always been my personal thesis of how the digital world breaks up. I’ve always believed Facebook would struggle because it is too general-purpose as a platform. It was successful at first because it was general-purpose in nature and ultimately why it may fade into irrelevance someday. If your business is advertising, subscription media, or direct-to-consumer content or products, then a focus on a niche is your only way forward. Platforms that empower focused niches, like Substack for niche newsletters, or Shopify enabling as a platform for niche businesses, or in this case Clubhouse for niche audio, all become enablers of lucrative niches with little to no upfront cost.

While it is unclear Clubhouse’s fate, what it is enabling as a platform is the most interesting part of analyzing from my perspective. I caution being too optimistic or too pessimistic at this point. It’s easy to write things off we don’t fully understand yet but, as the thesis I laid out, there is something here.

The Fork in Intel’s Road

At an industry level, what happens with Intel going forward has significant implications. That is why, if you follow industry commentary, what is going on with Intel, their CEO shift and the larger discussion about semiconductor manufacturing in the US is getting attention.

It’s worth digging into the debate as to whether Intel should spin-off their foundries, as has been suggested, but I’ll save that for another article. What I want to tackle is more specifically why this is a tough decision for Intel and why they are still standing at the fork in the road.

For context, it bears repeating that foundries specialize in proprietary process technology and chip design companies (i.g Nvidia, Qualcomm, Apple, AMD, etc.) specialize in proprietary architecture. Foundries compete on trying to create differentiated process solutions that customers find attractive. Chip companies focus on creating architectures that differentiate their end products from competitors. Intel is in the unique position of doing with the caveat that their process is largely only used for their architecture.

What makes Intel’s challenge unique is their process and their architecture are both quite good. Despite their process technology not being on leading-edge nodes, the process design itself is quality. Similarly, their architecture is very good. This is highlighted with consistent performance benchmarks that show Intel’s architecture is competitive with others, in performance, even while their process is behind. The only major area Intel loses is in power consumption, which for things like smartphones, and portable PCs matters. But even in some specific designs, Intel is able to keep performance per watt relatively close to competitors even with a process generation that is behind. This would be evidence for Intel to continue its conviction to stay the course in the process given it is not years competitively behind even though their process/manufacturing is years behind.

If it was extremely obvious that their process manufacturing was simply the albatross and unrecoverable then I think this is a much easier decision for Intel. But, for now, that is not the case and performance benchmarks Intel and others keep seeing against the competition is enough to keep them optimistic.

The other wrinkle, that I think is quite interesting, is let’s say Intel does shift to TSMC. Then Intel architecture would compete with others on equal footing. If this happened it really would become a battle of who can design the best chips, not necessarily who can manufacture the best chips. Which, if my logic about the quality of their architecture is true, then Intel would be quite competitive if all things were equal with process technology. But the tradeoff will come with an undifferentiated process technology, which strategically could be an issue if everyone uses TSMC process.

Lastly, Intel staying relevant, if not cutting edge in manufacturing is strategically important for the United States. Semiconductor technology very well could be, one of the most important strategic technology assets for the digital future and if that moves off US soil, there a significant risks involved. Especially, when China is having a hard time with their own proprietary technology manufacturing with SMIC, and if they catch onto how important this is, TSMC becomes a political and national target. Having a plan B, in case anything happens to TSMC should be the utmost concern for all US companies, including the US Government, and as of now Intel is that plan B and ideally, Intel can become Plan A. I do not believe spinning off Intel’s foundries has even a glimmer of hope of making Intel’s process cutting edge again. It could certainly still be a big and viable business but, strategically, Intel process needs to be cutting edge.

Tim mentioned our friend Jim’s article today, where he suggested out of the box thinking about Intel buying Global Foundries. Any move like this has to have with it the direction to getting back to cutting edge process and likely making Arm chips a priority as well.

This, in my mind, is one of the most important dynamics for the US and tech industry at large at the moment. The next few years will be critical for Intel.

Positive Signals In Remote Work Sentiment

Early into the COVID-19 pandemic, we fielded a research survey looking to get a remote working environment pulse. This was late April/May and for most in our survey, having to work remotely was a new experience. We had prior surveys where we looked at how teams collaborate and work together while not in the same place, and often in those surveys, and we found more positive experiences with digital collaboration tools by workers who worked remotely more often or permanently. This is why we jumped on the opportunity to research workers moving remote for the first time, as we figured we would capture more pain points with existing tools and see what is working well and what products need more work.

In November, we updated our research to see what had changed eight months into remote working. The data tells a number of important stories and has further our convictions that COVID-19 has brought about some fundamental changes for the future of work.

Prior to 2020, the future of work and workplace transformation themes focused primarily on the tools we use to run companies and empower teams, but it rarely discussed location as a part of the vision. It seems clear that the future of work is not just about how we work but also about where we work.

Our study asked some sentiment questions about working from home, and the following data points stood out.

  • 61% of respondents said they have settled into a routine working from home and are more comfortable working remotely than they were at the start of the shelter in place.
  • 43% of respondents indicated they want more flexibility going forward to work from home at least one day a week or more
  • Only 33% of respondents said they miss in-person meetings with their team.

One of the theories from remote work naysayers was once people tried it, they would quickly realize they miss the physical workplace. Our April/May survey certainly indicated a honeymoon experience of remote working our fall survey seems to indicate the lack of a desire to rush back to work. The fact we are still dealing with the pandemic could certainly play a role, but the majority of respondents saying they have settled into a routine is telling and makes it easier for employees to choose more flexible options of remote vs. in-person as more companies offer this to their workforce.

A few other telling data points we collected. 50% of our respondents said they want to continue to work from home as often as they can. 39% want to be more selective of the time and days they go into the office. Only 18% said they couldn’t wait to go back to the office.

From April to November, the research indicates remote working will be a reality. More companies will live with day in and day out. What COVID-19 has accelerated is the distributed workforce trend many had been predicting, and it is unlikely we will return to a concentrated, campus workforce in mass for most companies.

I’ve seen a number of studies large companies conducted with their employees, and the data was similar in conclusion. From a handful of surveys from large corporations in different parts of the US, anywhere from 20-40% of their workforce wants greater flexibility and even permanent options to work from home.

Assuming the data is an accurate signal of workplace sentiment around remote work, the smart office, and smart home office concept may accelerate as well. Many corporations were already building a plan to greater connect their conference rooms and huddle rooms so small teams could work effectively together with teams in satellite offices in different locations. The new wrinkle could be ITs need to now support turning a worker’s home office into a huddle room extension to support their remote working with teams in office or remote.

We have been promoting the idea of no remote worker left behind as a theme for IT to embrace. Remote workers were treated more like second class citizens, at least in experience, to those working in the office. Many of you can probably relate to being the remote worker on a screen in a conference room looking into a conference room of people working together. That experience sufficed, but it was not the best productivity and collaborative experience for everyone participating and giving remote workers and or teams an equal experience as being in the same room. This may require more cameras, microphones, and collaborative tools.

I am increasingly confident many corporations will not return to their state pre-pandemic. A reality I know many executives are wrestling with as they rethink what the office experience is for their workforce. We still have a long way to go before people return to the office in any meaningful capacity, and we are nowhere near solving many of the hardware and software problems that still exist. If anything, I’m more convinced than ever that the opportunity for new innovations in the workplace across hardware, software, and services is as ripe as it has ever been.

Twitter, Birdwatch, and why Misinformation is Impossible to Control

Yesterday Twitter announced a new feature that is designed to combat misinformation. Birdwatch is a feature that allows the Twitter community to identify dangerous, harmful, and/or completely false or misleading information and even offer factual content to combat the misinformation. The new feature is called Birdwatch. Social media has created great value in many respects, but one of it’s most harmful side effects has been the ease of spreading misinformation. Unfortunately, behavioral psychology has a great deal to offer us that informs us why controlling misinformation will be a near-impossible task.

Prior to social media, if someone wanted a voice online or to build an audience, they started a blog. They relied on things like Google or other destination aggregators for people to find them online. Social media turned that concept on its head and gave birth to platforms where anyone can share anything and very quickly go viral. This means important ideas or voices who never had a voice now do, and that is a huge benefit to society. But the same is true for bad ideas and bad information, and that is why most social media platforms are working hard to control this problem. The challenge is humans and their relatively predictable nature. Two behavioral psychology concepts are important to understand when we think about the spread of information and how humans process it and allow it to form their beliefs and opinions.

The first is a concept most may be familiar with called confirmation bias. The general definition of confirmation bias is: Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms or supports one’s prior beliefs or values. This concept is why information, of any kind, spreads in the first place. And the Internet is the master of fueling confirmation bias, and social media adds gas to that fire. Most social media platforms understand this dynamic and, in some cases, capitalize on it for engagement and economic benefit. The problem is once that snowball starts rolling downhill, there is no stopping it.

The lesser-known psychological dynamic at play is called the backfire effect, which is also often referred to as belief perseverance. Defined, belief perseverance/the backfire effect is: maintaining a belief despite new information that firmly contradicts it. Such beliefs may even be strengthened when others attempt to present evidence debunking them.

David McRaney has a chapter dedicated to the backfire effect in one of my favorite behavioral psychology books called You Are Now Less Dumb. After a section where researchers show subjects misinformation, then show them the corrections, they found the backfire effect in full swing. His commentary:

Once something is added to your collection of beliefs, you protect it from harm. You do this instinctively and unconsciously when confronted with attitude-inconsistent information. Just as confirmation bias shields you when you actively seek information, the backfire effect defends you when the information seeks you when it blindsides you. Coming or going, you stick to your beliefs instead of questioning them. When someone tries to correct you and tries to dilute your misconceptions, it backfires and strengthens those misconceptions.

– McRaney, David. You Are Now Less Dumb (p. 145). Penguin Publishing Group.

If anyone has tried to have an argument with a friend or family member who has fallen into the trap of believing misinformation, fully understands how hard it is to convince them of the truth using reasoned arguments and facts. Essentially, humans do not want to believe they are wrong, and once a belief takes hold, it is exceptionally difficult to get them to change their minds. As both these psychology concepts enforce, people actively seek out information that confirms their beliefs and double down on those beliefs despite mountains of evidence of the contrary.

This is the ultimate challenge social media is up against. Despite Twitter’s best efforts, which are necessary, they are up against these dynamics that once the idea gets out there, and it fits people’s confirmation bias, no amount of corrections or experts notes, facts, etc., will help and, in many cases, it will make it worse.

This opens up the entire conversation about how to keep information like that from getting out in the first place, which would lead down roads of censorship or limiting of speech, which I think always has to err on the protection of such rights.

There is honestly no great solution to the online problem of misinformation. However, I would as this moment of time serve as a lesson to which we consider adding more critical thinking into our education system. Namely, building into the learning process more philosophies of the scientific method, which includes aggressively challenging any hypothesis or conclusion and seeking out as much information to the contrary as possible. I came across a quote, which I, unfortunately, do not know who to attribute it to, speaks to the scientific process, and how mind change is a critical part of science. The quote is: “The ability to change one’s mind is not a sign of the weakness of their conviction but of the strength of their process.”

It has to start with education and early in the education process. Once people get set in their ways and lose the ability to think critically, it is very hard to learn later in life. While the efforts Twitter, or Facebook, etc., will take to combat the viral spread of misinformation is needed, it will also largely fail. Battling this begins in our education of the next generation of adults, or we will be stuck in this vicious cycle.

Intel’s Big Hire; Qualcomm’s Big Acquisition

Big news from the world of semiconductors is dropping this morning.

Pat Gelsinger Comes Home to Intel
I did not want to write about things that were rumors regarding Intel management, even if I had a hunch they were true, but Charlie Demerjian of SemiAccurate broke the rumor Intel ( Paywalled) was on an internal CEO search. I had a hunch this may be true but didn’t want to speculate.

Today, Intel announced that Pat Gelsinger, former Intel CTO and the runner up to Pat Gelsinger as the CEO choice to succeed Craig Barrett (whose nickname, the silicon cowboy I am extremely jealous of). I vividly remember this time in Intel’s history, having been around Intel a great deal those days. Many inside Intel wanted Pat to be named CEO, myself included. No disrespect to Paul Otellini, who managed Intel well, but I’ve always been a fan of more technical CEOs when it comes to semiconductor companies.

With Intel bringing Pat back, or “home” in Pat’s own words, carries with it a great deal of significance for Intel’s future.

Intel is faced with some very hard decisions going forward. Decisions that in many ways go against the engrained philosophies and culture of Intel’s heritage. A major one is a potential shift away from Intel fabs being the primary manufacturer of Intel chips, and Intel perhaps licensing or building technology on another companies process. In years past, this thinking would be heresy. However, in light of Intel’s lagging process technology, it may be necessary. In many ways, some of the hardest decisions for Intel lie ahead.

This is one reason, out of many, I like the move to bring Pat Gelsinger back to Intel as CEO. If anyone has the history, credibility, technical authority, and company respect to make these hard decisions and not be doubted and second-guessed by employees, it is Pat Gelsinger. One of my main worries about Intel bringing in an outsider would have been the doubt cast from employees, and the potential impact on employee confidence, if an outsider made the hard decisions, even if they were the right ones. Should Gelsinger have to make some decisions that are even counter to the Intel of old he helped build, he has the credibility and respect to maintain, and in many ways, boost confidence inside Intel to commit to the new way forward.

Now, that is not to say all is lost with Intel’s own technology and process. Bringing Pat Gelsinger back also brings with it the potential that Intel can gain some ground back with their own process technology and their own manufacturing. I certainly hope this is true since I’ve been vocal that it would be tragic for the US to lose out on semiconductor manufacturing of a US companies semiconductor IP. Even if Intel never regains process technology leadership, that does not mean they can not continue to innovate and deliver a quality process technology solution. With Pat Gelsinger at the helm, I think a number of very positive potential futures exist for Intel.

At the end of the day, Pat’s background and technical expertise are a strong asset for him as he leads Intel. But, instilling new confidence in the company and the company’s future is among the most positive benefits Gelsinger will bring back to Intel as he leads them forward.

Qualcomm’s Big Acquisition
This morning, Qualcomm announced they are acquiring Nuvia, Inc. Nuvia made noise when the announced their company and came out of stealth, largely because of the founding team, which includes a pedigree of ex-Apple employees who were key on the Apple semiconductor design teams.

There are several important points to make about this acquisition. First is the broad impact this acquisition will have on Qualcomm products. While Nuvia’s solution and custom CPU architecture were planned to be a data center product, Qualcomm intends to use this team and their proprietary Arm CPU architecture in most, if not all of Qualcomm’s core products, namely their Snapdragon family of CPUs.

Qualcomm formally is saying this team will help lead Qualcomm down a more vertical path with much more custom CPU cores. Some will remember that Qualcomm used to create their own customized CPU cores with their Krait architecture, and they moved away from that approach with their current Kryo architecture, which uses more generic Arm IP. This acquisition and the pedigree of the team Qualcomm acquired now positions them to go back to fully custom-designed CPU cores and back to a proprietary CPU architecture, which I think is the right technical direction for Qualcomm. I never agreed with their move away from fully custom cores because of the advantage it gave them to differentiate. Qualcomm will now have fully custom solutions for graphics, CPU, AI, DSP and image signal processes, and more.

This will take some time to manifest, but it puts Qualcomm in a strong position to drive current markets like smartphones, AI and the edge, AR/VR, PCs, and extend even more deeply into new markets.

The future will be driven by the semiconductors that power them, and not every brand has the luxury of being fully integrated like Apple. While Intel and Qualcomm are still strong and competitive today, these moves will only help both companies be more competitive and thus good for the tech industry overall.

My Tech Wishlist for 2021

I have spent a bit of time with reporters over the last week who have asked me to comment on my thoughts about tech in 2021. Many of these reporters know that I have done an annual New Year prediction column in late December for about 28 years. Last year was the first time in decades that I decided not to do any prediction column for the next year. Based on what we have gone through in 2020, this looks like a wise move as I don’t know of anyone who predicted the year we are about to leave.

We did see some bright spots for tech in 2020, as I outline in my Forbes column last week. I list areas like increased demand for PCs and notebooks, a move towards the cashless transaction, and faster adoption of things like Apple and Android pay.

I also point out the broader acceptance of work-from-home, which helped deliver greater adoption of video conferencing. Zoom is now a video conferencing company as well as an adjective. Tech companies have bandied about digital transformation for over a decade. But 2020 seems to have forced all types of companies to move faster towards digital business processes, which might not have accelerated without this pandemic.

As I have thought about doing an end-of-year column that focuses on predictions and trends for 2021, I still doubt that anyone can fully predict our economy, political landscape, and most industries’ ability to rebound in the new year. I am in the camp that we may still have some unknown landmines to navigate around in 2021.

On the other hand, there were a few tech developments in 2020 that I would like to see advanced in 2021.

The first one is related to foldable mobile devices. I think that the interest in larger/folding screens on smartphones is a legitimate trend, but a smartphone like Apple’s iPhone 12 Max Pro, with a 6.7-inch screen, maybe the largest screen anybody might tolerate in a smartphone in the future.

Samsung and others have introduced folding phones, and LG has created one that has two screens side by side in a case that, when opened, doubles the viewing screen size. I have tried most of the available folding smartphones, and while they are creatively designed, they are not a smartphone that will ever have mass adoption by consumers.

I would like to see more innovation at the hardware and software level with folding smartphones in 2021 that make them more acceptable, along with more consumer-friendly prices.

Folding laptops, while not what I would call a significant trend anytime soon, show promise. As I wrote in Tech.pinions a few weeks back, I have spent about three months now working with an early version of Lenovo’s X1 Fold.

The X1 fold is very innovative. The patented hinges that allow it to fold are a remarkable feat of engineering. The folding screen works well, and the way they keep the screen flush to the case when folding is genius. As I pointed out in the column, Lenovo and others doing any folding portable computer are stuck using a standard version of Windows 10, which is not optimized for dual-screen apps and multiple screen integration.

Sometime in 2021, Microsoft will make more broadly availale a Windows version, called Windows 10X, designed to work on dual-screen/folding devices. Once this happens, I expect other PC vendors to bring out folding laptops of their own to compete with Lenovo’s X1. With foldable devices, an operating system designed for them is critical for any folding laptop’s success. While they may never be big sellers, many business professionals could adapt them to their mobile business work-styles. 2021 could see new designs and lower prices, and coupled with Windows 10X, they could find a favorable niche in the market.

Another technology that has seen a bit of an uptick in 2020 has been VR travel. Oculus headsets gained a broader consumer adoption in 2020, and virtual travel and gaming drove new demand for this VR product.

While VR is a questionable technology for the masses, it is gaining serious traction in business and the enterprise. Especially in training, simulations, and manufacturing.

I have been working on a project related to VR training and CRM and have been amazed at how many enterprise-class apps are available using VR headsets of various kinds. Even more impressive is how many of the Fortune 1000 have integrated VR into all types of training programs for internal training and even customer service and sales programs.

I do not believe VR will ever be a mass consumer product like I think AR will eventually be; however, VR in business is growing. I would like to see even more VR innovation for the enterprise in 2021.

Over the next few weeks, you will see many articles and story’s about 2021 tech predictions. Some may have legs, and others may only be pipe dreams. Given the turmoil all of us have endured in 2020, and not seeing any of it in 2019, suggests you take any predictions, whether tech or not, with a grain of salt.

I am cautiously optimistic that 2021 will be better for tech and other industries, as well as individuals. But anyone who believes that any forecaster can see 2021 through their crystal ball and accurately predict what happens in 2021 will be disappointed.

Five Tech Concerns for 2021

2020 is coming to a close, and I will be glad when this annus horribillis, as Queen Elizabeth proclaimed at the end of 1992 after the fire that damaged a large portion of Windsor Castle, is over.

The world of tech in 2020 had mixed results. It made video conferencing and Zoom, in particular, a housed hold name. PC and notebook sales had a banner year. Work from home became normalized and forced companies to realize that allowing people to work off-site works well.

But it was also a year where social media propagated an increased volume of false news and hate speech and became a threat to democracy around the world. By the end of 2020, Facebook was facing a major anti-trust lawsuit. Two Silicon Valley stalwarts, HPE and Oracle, decided to move their headquarters out of Silicon Valley.
Part of the US had more negative views of tech than positive ones, and the anti-science movement picked up steam.

And of course, 2020 brought the Covid-19 virus that has killed over 1 million people, and counting and millions more contracted the infection. At all levels, people will be glad to get 2020 behind us and begin looking for a brighter year ahead, especially if the vaccines created to counter this virus works. As Dr. Fauci has said, “there is light at the end of this tunnel.”

However, I believe that the world of tech will have at least five big challenges to deal with in 2021 that could make the new year a rocky one for many tech companies.

The first big issue that tech will deal with is going to be increased regulatory challenges to their perceived monopolies and worldwide influence. The Democrats and Republicans do not agree on much, but they are unified going into 2021 on their belief that tech is too big and needs more regulation. The Facebook Anti-trust suit is just the first of many other regulatory challenges big tech will face in the new year.

The second one is related to the first but will be focused on new laws on big tech from the EU that could become huge problems for the bigger tech companies in 2021.

According to CNBC,-“Tech giants could soon face fines and stricter controls over their behavior as part of sweeping new rules in the EU. The European Commission, the executive arm of the EU, presented two new pieces of legislation that will affect how Big Tech operates. One of the potential changes is putting an end to self-preferencing, when, for instance, app search results in an Apple product display options developed by the tech giant. Companies like Apple and Google will also have to allow users to uninstall apps that have originally come with their devices. Failure to comply could result in fines as high as 10% of the companies’ annual turnover worldwide.’

The Third big issue relates to a massive cybersecurity breach the US government learned about recently. Fortunes’ Robert Hackett, in his Data Sheet column, predicts a “Digital Pandemic” next year stemming from what look likes like the largest cyber attack on the US Government-

“Cybersecurity investigators are scrambling to assess the damage caused by a widespread breach of U.S. federal agencies and private companies. A list of affected organizations includes the Treasury, Commerce, Homeland Security, and State Departments, plus the National Institutes of Health, and parts of the Pentagon, according to the latest news reports.

Yet, the blast radius likely extends much farther. In addition to the government, top national labs, and hundreds of universities, many big businesses may have been targeted by the 9-month-long cyberespionage operation. It is early in the investigation, and it appears the attack was from Russia’s Intelligence Service, the successor to the KGB. While it is unknown what info they attained, it is clear from reading the various reports on this attack that the impact and fallout could be disastrous, with major ramifications that the US government and tech will have to deal with in the coming year.

The fourth issue will be the ability of tech companies to forecast PC and Notebook demand for 2021. PC vendors across the board were caught off guard by the strong demand for PCs and notebooks as companies to upgrade many personal computers when they sent staff home to work due to the pandemic in April.

Demand for personal computers increased in homes, too, when kids were sent home and quarantined and had to do all of their classes via video conferencing at home.

This bump in demand continues to be strong in this quarter and most likely in Q1 of 2021. Intel believes that demand will continue to be ultra-strong throughout 2021, but many market researchers, including ourselves, see this burst in demand tied to forced work and learn at home and that demand in 2021 is hard to predict at this point in time.

One other thing that concerns me is a potential move on Taiwan from China. In a piece I did recently for Fast Company, I outlined these concerns and stated, “Taiwan is very important to the tech industry since most of the companies that perform contract manufacturing are headquartered there, as is TSMC, the world’s largest for-hire chip maker. It is too early to tell how fast China could move to nationalize Taiwan, but this has been its goal for decades. Now, high-level Taiwanese tech executives see this as a real possibility, and it could have an unknown impact on our current tech market in the future.

I encourage you to read this article as I delve into the history of China and Taiwan’s relationship and how China’s potential control of Taiwan could impact the worldwide supply chain and create major headaches for any tech company that uses Taiwan-based manufacturers.

2020 has been a difficult year for many, and the tech industry had a better year than I predicted it would back in March when Covid-19 starting hitting the US. While it is too early to predict if 2021 will be better for tech in general, these five concerns listed above will be issues we will encounter. How tech leaders navigate these coming problems will determine how well tech will do in 2021.

Looking to 2022 It Could Be a Big Year for IT Hardware Purchasing

Thanks to the Covid-19 boost, demand for PCs and laptops has been surprisingly strong in 2020. At the beginning of this year, most PC forecasters suggested that unit sales of PC’s and laptops in 2020 would be down anywhere from -3% to -5%.

It now looks like sales of PCs and laptops could be in the positive next year slightly and total 270-280 million PCs While this demand is welcome, the big question is, will this type of growth continue?

Most of the primary industry players believe that demand will continue to be strong. Businesses will continue to buy updated PCs and laptops for those forced to work at home at least through mid-year. However, demand for major IT refreshes seems to be soft for 2021, making accurate forecasting of 2021 PC demand difficult at this time.

Thanks to some research I am doing with a former CRM consulting colleague, I was able to talk to three high-level IT executives over the last ten days. Our calls were related to the research we are doing, and being the opportunist I am, I snuck in a question about their IT spending in 2021 and thoughts about 2022 PC purchases.

All three confirmed that Covid had changed a lot of their PC buying strategies since they have had to buy and manage new laptops purchased for work-at-home staff. A lot of those purchases were driven by how old the work-at-home user’s laptop is, and if it was over five years old, they upgraded them.

They also upgraded some younger laptops based on the quality of that laptop’s camera, but the lion’s share was to replace older ones with lower speed processors that could not handle more complex workloads from home.

Two of them stated that they wanted to be clear that these purchases were upgrades to meet current work from home needs and not corporate IT refreshes as in the past. These two IT decision-makers said that broader refreshes of older PCs and laptops were not in the cards for 2021.

Due to the economic instability and lagging effects of Covid-19 in the broader business world, any aggressive PC refreshes in 2021 are slim. On the other hand, all three suggested that if the economy stabilizes and starts growing by the end of 2021, they could begin to pursue more aggressive PC upgrades to mainstream IT staff the following year.

Currently, ~450 million PCs are still in use worldwide that are four years or older. That is a huge market opportunity for PC vendors to tap into in the future.

I found it interesting that these IT directors I spoke with are already looking at 2022. 2020 was a difficult time for them, and they seem to have a clear idea of their needs in 2021. Like many other IT directors, I suspect that they see a future need to do some aggressive personal computer refreshes in the not too distant future.

That said, a lot could happen with Covid-19 recovery and the world economy in 2021. If Covid-19 vaccines work and the world starts to get back to some sense of normal business rhythms by 2022, the PC makers and our industry need to be sure they are ready for possible robust enterprise demand in 2022.

Apple’s December Announcements; Antitrust and Startups

Apple’s December Announcements
Early this morning, Apple made a few new announcements, keeping them on their monthly announcement cycle since late summer. Today’s news was AirPods Max and the availability of Fitness+. When I first heard the rumor about AirPods Max being announced on December 8th, I was initially skeptical because of the late release, mostly missing the holiday shopping cycle. The more I thought about it, the more it made sense they would be super high-end, which would not be the same type of holiday gifts as AirPods or AirPods pro would be. Given the ultra-end high creator, audiophile, target audience, this announcement coming in December will not make an impact but getting them to market matters most. $549 is a pricey solution, but audiophiles would know it’s hard to get a great pair of studio headphones for less than $500, and some of the top ones used by DJs and producers can cost over $2,000.

Commenters are going back and forth on the design, but as with all of Apple’s products, and their wearables, in particular, it is clear their design is meant to stand out and call attention to itself and the wearer. I keep this in mind when I think about Apple’s future glasses solutions and how they will likely follow this pattern and shoot for an iconic look.

As interesting as the AirPods Max headphones are, they will likely be reserved for the premium customer base where Fitness+, Apple’s fitness service now available December 14th, will likely see more widespread adoption. Fitness+ is one of the more interesting services I think Apple is pushing, given some of the philosophical similarities to a Peloton workout. The other thing that stands out with this service is Apple’s integration with Apple Music, iPhones, iPads, AppleTV, and Apple Watch. With this latest service, Apple is creating services in more areas of consumer’s lives and possibly working for a solution to touch all the potential parts of an Apple customer’s life.

Antitrust and Startups
You may have noticed a lot of news about different startups starting to explore or file to go public. There is a range of factors playing into this and one that is starting to cause the startup world to think long and hard about their investment strategy.

First, it is important to note most VCs prefer their startups to go public than get bought. This generally has a longer-tail of reward and upside. But many investors know exits are often their quickest way to return ROI on investment and sometimes the best thing for the startup and its team. The range of IPOs we are seeing is an indication of many of these businesses feeling the need to go beyond private capital to scale their company, and some have a great chance of succeeding in the public market. But the angle that got me thinking recently was how some startups and investors are starting to consider the regulatory challenges around antitrust as a potential barrier for more exits in their portfolio.

With antitrust scrutiny now circling, it does seem it will be harder for large-scale acquisitions to take place, and most startups are raising the kind of capital that will require a large scale acquisition in order for it to provide a return to their investors. This makes for a challenging new dynamic as investors will now have to take this into consideration as they are looking to deploy capital.

All of this to say, a healthier, more balanced venture system is one that I think will do both investors and startups well. I’ve never liked the need for a grand slam for a winning approach but rather an approach that favors singles, doubles, and triples more consistently. Simply meaning, the freedom to invest in a business that is at heart a good business, even if not “venture scale,” is a much more healthy investing philosophy. The challenge is, up to this point, those businesses didn’t do well in the public market. If that changes, and I hope it does then the entire definition of what a “venture scale” company is could change, and that would be a good thing, in my opinion.

Two Months With a Foldable PC

Over the last two months, I have had the opportunity to work with and test Lenovo’s ThinkPad X1 Fold, the first truly folding laptop in the market. I actually got to see a prototype of the ThinkPad X1 Fold at a Lenovo customer event in Orlando, Florida in May of 2019. What I saw there was perhaps one of the most fascinating portable computing designs I have ever seen. The notebook has always held a specific passion for me as one of my earliest projects was helping IBM work on the first clamshell laptop they brought to market in 1986.

While laptops, especially over the last 10 years, strived to be faster, smaller, lighter, and with great battery life, the actual clamshell design has had very few fundamental design changes. We did get 2-in-1’s, where the screen is detachable so it could be used as a tablet, but most still end up being some type of a clamshell design in the end.

With the Lenovo X1 Fold, this China-based PC maker has pushed the laws of physics with its clever hinge designs that are patented. They integrated a folding screen in a mobile form factor that is more like carrying a book, than any type of portable computer.

After two months of using the Lenovo ThinkPad X1 Fold, here are some of my observations about this product, as well as my thoughts about the future of folding laptops.

1-Impressive design. One cannot look at the Lenovo ThinkPad X1 Fold and not be impressed with its design. When you open it up from its book-like form factor, the screen folds out to become a 13 ” screen that has a stand behind it allowing it to sit upright in front of a person as a normal laptop screen does today. The keyboard sits in the center of the fold when the screen is folded. Once the screen is in place, it charges while sitting in the center of the fold and can be taken out and used for typing input. One big issue with this keyboard is that it is half the size of a full travel keyboard; so, getting used to typing on a smaller keyboard was problematic for me with my chubby fingers.

2-The screen. The screen itself is not a high-resolution screen but offers crisp text and images and is very readable. The key reason for a lower screen resolution has to do with the folding screens being made by companies like BOE and others who perfected folding screens using lower resolution screen technology. They promise the next versions could support higher resolution screens, but the first generation of folding smartphones and laptops use the best possible folding screens available at the time.

4-It uses standard Windows 10. One of the bigger promises of any folding device is having an OS that can support folding dual screens and is optimized for the kind of multitasking that should come with folding designs. Microsoft is working on a version of Windows called Windows 10X for foldable devices, but it was not ready for Lenovo to use in their first folding laptop.

When the screen is unfolded and placed to use as a normal Windows laptop, the ThinkPad X1 Fold works exactly like a normal laptop, albeit with a smaller keyboard. This is the way I used the X1 most of the time and, at least for me, this was more like a normal laptop experience I am used to using daily.

When in the slightly folded mode where you can have dedicated screens and apps to use, Windows 10 is not designed for this type of function. Yes, you can do multitasking and have multiples screens open on a Windows 10 computer, but in a foldable device, Windows 10 is not optimized yet for this type of form factor.

5-Battery life. The ThinkPad X1 fold’s battery is quite limited. At best I got about three hours of continual use. If I wanted to watch a streaming movie, battery life was just over two hours.

6- The X1 Fold has a SIM card slot. Lenovo believes that this type of device will be one you carry with you everywhere and made sure to include a sim card slot for wide-area networking. It only supports 4G in this version, but future models will support 5G modems too.

The Lenovo ThinkPad X1 is a marvel of innovation and design. I found it to be highly portable and most of my experiences with it were positive. I am anxious to try it with Windows 10X, but for now, and by using it more as a laptop, than an optimized folding portable, I was pleased and surprised at its ability to meet my mobile computing needs.

The bigger question that eventually needs to be answered is if there is a market for folding portable computers?

I don’t think we can answer this question based on just one folding portable computer available today. Over the next 12 months, we should see at least two other big-name PC companies release some type of folding portable that would compete with the ThinkPad X1 Fold.

We are asking a similar question about folding smartphones. We are also too early in the folding smartphone market to answer this question too. Both folding laptops and folding phones are in the highest price range in each of their categories. That means only high-end enthusiasts and ultra-early adopters will even buy these first versions.

The biggest takeaway from my experience with the ThinkPad X1 Fold is that since laptops hit the market back in 1985, we are seeing radical designs that break the clamshell mold. Thanks to folding screens, breakthroughs in hinge design, new battery technology being created for foldable of all types, PC makers are gaining a new toolbox of components that make it possible for them to innovate in mobile devices of all types.

While we may not have the proper business cases yet for folding portable computers, I truly hope that the PC makers keep the drumbeat of innovation going in mobile computing.

Salesforce + Slack; Amazon AWS Trend Setting

Salesforce + Slack
The news is official that Salesforce is acquiring Slack for ~$28b, which is roughly a ~25x multiple of Slack annual revenue projection for 2021. What has been extremely interesting to observe with this deal is how negative financial analysts have been on the deal. I’ve read four notes from large institutional banks, and all of them don’t like the deal. My hunch is they all think ~25x revenue multiple is too rich, which is part of the negativity, but there is another common thread of negative sentiment that strikes me.

Overwhelmingly, Salesforce financial analysts (meaning financial analysts whose job is to provide notes on Salesforce) seem to be fuzzy on the synergy Slack brings to Salesforce. And, to go one step further, many of them are not grasping Salesforce moving further from its CRM roots. It was around 2016 and subsequent years with acquisitions like Quip, Mulesoft, Tableau, etc., that the street began to notice Salesforce pull away from their CRM roots, and this seems to cause some confusion. Looking at it this way, with Slack, Salesforce would now become a market leader for software in sales, customer support, marketing, eCommerce, data analytics, application integration, and collaboration software.

My take on the negative read from the street is they are looking solely for the synergy of these acquisitions to CRM (where little synergy exists) but are not taking into account parallel revenue streams to offer Salesforce’s large customer base. From my perspective, Salesforce is smart to not only want to diversify their revenue streams but to be able to become as close to a complete solutions provider for their customers. Salesforce has not only an extremely large customer base but also a very good, well Salesforce, and the customer engagement opportunity to upsell value-added services that their customers need to run effectively internally and externally puts them in an entirely different competitive solution than those companies just offering one piece of the pie.

Many readers would know I’ve commented before how Slack was unlikely to be able to survive on its own long-term in a world where enterprise software is increasingly becoming a bundled world. I always believed Slack would be acquired. I thought Google made the most sense, but understanding how Salesforce wants to become full suite this deal makes sense for Salesforce as well, even if the acquisition number is quite high.

The last point I’ll make here is how I find it interesting that Salesforce’s investor relations team is not doing a great job helping investors understand the companies long-term vision. If most of their large institutional analyst followers are sending notes to investor clients saying they worry the company is going too far away from CRM roots, and this is clearly the case, then someone internally is not communicating this strategy and working to sell investors on the vision and upside. I track a lot of companies who do investor relations remarkably well, and I sometimes forget how poor some companies can be as well as this practice.

Amazon AWS Trend Setting
Amazon has had a busy week throwing a number of announcements out in relation to Re:invent. When I looked through a range of the announcements it was hard to not conclude that not only is Amazon the market leader when it comes to cloud providers but they also set the trends for the market. Essentially, where AWS goes in terms of features and technology, others will follow. Amazon is also extremely aggressive from a technology standpoint. Note the specific bullets from what I consider their most telling slide.

  • Fastest networking with P4d instances (400 Gbps)
  • Largest high memory instances for SAP (24TB)
  • Largest local storage instances with D3en (336TB)
  • Most powerful ML training instances with P4d
  • Most powerful ML inference instances with Inf1
  • Best pirce/performanice for graphics-intensibe workloads with G4ad
  • Only cloud provider with on-demand macOS instances
  • Only cloud provider that supports Intel, AMD, and Arm processors

I emphasized in bold the fastest, largest, most, best, and only to make the point of where Amazon is looking to lead but also trendsetting. Some of where Amazon goes is feature decisions, these can be copied, others are entirely strategic like macOS support and their own efforts with their Graviton processor for Arm instances. But it is hard to not see Amazon being extremely aggressive and extremely customer-centric with AWS.

It is interesting when reading Jeff Bezos note to investors and the language he uses to convey Amazon’s relentless focus on customer experience and the customer overall. Often when I read this I think about Amazon e-commerce and forget that this culture extends to AWS customers as well. If I was Microsoft and Google, I think this element would worry me the most when competing with Amazon.

The other point I want to make here, and this point is actually extremely relevant to both data center/cloud and client computing devices. What Amazon is emphasizing is a clear shift from general-purpose technology to specialized technology. This shows up in the diversity of underlying computing components AWS is adopting. The data center is less about just CPU/GPU and now more about specialized processors for specialized workloads. A good example of this is Amazon’s adoption of Intel’s Habana Gaudi AI Processors.

Nvidia has long argued the GPU is the ideal general-purpose computing tool for all non-CPU related tasks. For a long time, this was true but we are now seeing the move away from the GPU’s general-purpose back to specific purpose silicon for many of the tasks previously done on the GPU like AI training, inference, AI modeling, etc. I’m not saying there are not still good reasons to use the GPU for some of this modeling, but AWS adopting Habana Gaudi AI Processors which are specific purpose accelerators for AI training demonstrates how some tasks will move of the GPU because they will do these critical tasks better.

Broadly, the trend I’m talking about is the move away from general-purpose solutions to specific purpose technology, and as I said it applies to the data center/cloud as well as client devices. In client, Apple is the biggest champion and adopter of this trend as all their A-series chips and the new M-series chips for Mac contain a range of specific purpose silicon designs. One of Apple’s key performance differentiators is because they focus more on the total silicon solution and specific purpose components rather than just try architect a CPU/GPU to handle a broader range of tasks. Apple designs its chips with specific accelerators or co-processors that handle specific workloads better and let the CPU and GPU do what they are best at.

Honestly, I feel like this approach is the only way forward to compete in the modern digital world. This is a fundamentally different approach to computing solution design than the predominant one of the past 30 years. Many companies will struggle to adopt this approach or understand its full merits, but as I said, ones ability to compete will require embracing this move from general-purpose computing solutions to specific purpose ones.

Intel: From Market Leader to Underdog

Before I dive too deep into the point I want to make here about the challenges Intel faces, and it is worth calling out that my initial theory about Intel’s long-term position turned out to not play out. In 2016, I wrote this article titled Intel and the last foundry standing theory. My intro paragraph laid out what this theory was in a nutshell.

Coming out of the Intel Developer Forum (IDF), I thought I would share more on what I believe is Intel’s long-term thesis about themselves. Quite simply, I believe they feel they will be the last foundry standing with their leading-edge process technology. If you follow this as closely I do, you will note Intel and other foundries like TSMC and Samsung are in a race to get to the next process node. Today, these foundries manufacture at many different nodes, but 14 nanometers and 16 nanometers are the leading edge processes of today. With each jump to new process nodes (10nm being next and 7nm after that), designers can pack more processing power onto a single chip while still keeping a low power profile. The industry calls this “performance per watt” and the amount of performance increases with each new process while still maintaining a lower power voltage.

At the time of my writing of the article, Intel was not yet behind in process technology. And although they struggled to get to 14nm on the timetable they proposed, they were still the leading foundry. But moving from 14 to 10nm proved to be the challenge that sent Intel from leader to underdog. In the time it took Intel to get from 14nm to 10nm TSMC has successfully offered 16nm, 7nm, and 5nm process technologies. In the same time frame, Samsung has transitioned from 14nm, to 10nm, and currently 7nm EUV. Essentially, since 2016, each competing foundry has moved two full process generations ahead of Intel.

Intel should be fully moved to 10nm in 2021 but their process at that density has around 100 million transistors per millimeter square. Which is roughly the same amount of transistors per millimeter square as both Samsung and TSMC 7nm process.

This chart, which UBS created in a recent note on Intel, creates a compelling visual both in terms of process generation timelines and transistor density at each process.

This all ties into my initial thesis that Intel had always believed they would lead in process technology, and that is clearly no longer the case. That being said, the above chart highlights both the reason why Intel struggled for so long to get from 14nm to 10nm. The main reason always stated by Intel for the delay was because of their aggressive targets of transistor density for 10nm. As you can see, Intel’s 14nm had ~40m transistors per mm square, and both TSMC and Samsung’s 10nm had ~55 transistors per mm square. Intel’s target for 10nm was 100m transistors per mm square, which backs up the overly aggressive density target Intel was shooting for. Had they not been so aggressive, it is likely they would not be that far behind TSMC and Samsung.

Intel’s management and manufacturing group has been clear they will not be as aggressive on future notes, which bodes well for Intel executing on a more predictable timeline. But I do not believe they will catch up or surpass TSMC or Samsung.

One of the other elements of my theory was an acknowledgment of how difficult it would be and how much money in research, development, and patent innovation would be required to keep advancing manufacturing to new process technology. With that in mind, another chart I found in the aforementioned UBS report is a bit of a surprise.

The below chart maps the CapEx spend of Intel and TSMC over time.

One of the indicators most of us watched for was Intel’s CapEx spending as it related to buying manufacturing equipment in order to scale up for the next process development and manufacturing. As you can see, Intel had been spending the most in Capex and now is trailing TSMC, although both have been spending less than their peaks. While both are slowing slightly their annual CapEx spend, it is noticeable Intel is behind TSMC, which is telling in my opinion.

While the lower spend in CapEx could signal the less aggressive density targets or the long delays in process technology transition, at this point, Intel committing less and less to CapEx each year further convinces me that Intel will not catch up to other foundries, and further worries me that Intel can sustain their foundry business in the long-term.

Intel’s management, and the company as a whole, find themselves in a situation they have never been in before. They went from undisputed industry leader to now chasing the field as the underdog. In many ways, Intel was a dynasty that is facing a cross roads where decisions will need to be made that could dramatically alter its trajectory and some scenarios would leave us with an Intel so different from its roots for better or worse.

But the great thing about an underdog story is the chance of the upset. Intel does have a rolodex of great technology. They remain competitive still despite the shortcomings they have had the last five years. Process technology is not everything, but it still matters more than some companies want to admit. AMD has been gaining ground on Intel every quarter and in every category. Apple just released silicon for PCs that will likely set a new bar of expectations for notebooks and desktops in the years to come. In some ways, there has never been more excitement, or more ambition, or more validation for a computing architecture other than Intel’s standard of x86.

A well known venture capitalist Josh Wolf coined one of my favorite sayings “chips on shoulders put chips in pockets.” We can only hope that Intel has a massive chip on its shoulder with everyone counting them out. Because while we may not see Intel put chips in pockets, a competitive Intel is good for the industry and honestly good for the US as a country. It would be a terrible shame for no leading semiconductor company to be based in the US. Intel is down but they are still in the game and I do hope the adjustments they make at halftime will keep them competitive in the second half of the game.