Unpacking the Week’s News: Friday, March 17, 2017

Google Learns Quickly how People Feel about Ads on Google Home – by Carolina Milanesi

On Thursday, Bryson Meunier posted to Twitter a video of his interaction with Google Home. Many publications were quick to report it and you can see it here.

After asking, “Ok Google, what’s my day like?” Google Home delivered the time, the weather, the drive to work as you would expect but then followed that with a commercial. The delivery was cute: “By the way, Disney’s live-action Beauty and the Beast opens today.” Piano music is played and then the ad continues with, “For some more movie fun, ask me something about Belle. Have a good one!” Despite the cuteness of the topic, it was an unsolicited ad and that’s the problem.

The reaction on Twitter echoed the sentiment of a recent study on Privacy and Security we did at Creative Strategies. It came out, loud and clear, that consumers do not expect much privacy from Google and they feel they are the product – their information is sold to advertisers.

Google denied this was an ad by providing a statement:

“This wasn’t intended to be an ad. What’s circulating online was a part of our My Day feature, where after providing helpful information about your day, we sometimes call out timely content. We’re continuing to experiment with new ways to surface unique content for users and we could have done better in this case.”

Giving Google the benefit of the doubt, it is clear they heard loud and clear how people feel about having ads played by Google Home, especially in the same voice as Google Assistant.

Just in case Google was still contemplating running ads on Google Home, let me highlight why the tolerance level would be so much lower.

The ads are coming into MY home. This is my computer screen where I can ignore them (most of the time) or play them with my volume down while I am doing something else, waiting for them to let me get to my content or even bypass with an ad blocker.

But you let ads come to your TV and that’s in your home too, I hear you say. Clearly, I do, when I do not have an option, but I know the ads are appropriate to the content I am watching so my child does not get exposed to content I need to spend 20 minutes explaining afterward. I am also used to TV advertising. I cannot remember a time without ads; they were more limited but they were there. As a matter of fact, I remember growing up in Italy and knowing that the ad time was my bed time.

Google Home, however, belongs to a new category of devices where, so far, we have not had any advertising. Voice is also much more intrusive than video content. In the case of Bryson, he was receiving information to get his day started before heading out the door. The timeliness of that ad was poor and, most likely, the relevance was as well, although I did hear a little kid in the background being ecstatic about it which would just make the ad creepy. A voice-enabled ad gets in the way much more than a video one as people who listen to the radio or any free music service know very well.

The other concern Google should have is about the relationship consumers might want to create with their personal assistant. It already feels like the name “Google Home” and the awake word “OK Google” is a barrier for users to feel as close as they do to Alexa. Having to be concerned about getting a pitch every time you ask your assistant something would be huge barrier to developing a meaningful relationship. Think about fearing to get an ad for solar panels every time you go and pick up your phone to make a call.

An opt-in model would probably be the only one that works in this case but, even then, I would argue the expectation of the relationship I will build with Google Assistant would be very different and not one that should be what Google aspires to.

Microsoft Unveils Teams Chat App – By Bob O’Donnell

Microsoft took the wraps off the newest member of their Office 365 application suite this week with the release of Teams, a multi-platform, persistent chat application design to encourage collaboration in the workplace. Perceived as a direct competitor to Slack, Teams provides an environment where co-workers can communicate in real time via chat, document sharing and editing, calendar and contact integration, and more. Thanks to integration with Skype for Business, Teams also simplifies the process of creating and initiating voice and video conferencing as well.

One of the key attractions of Teams versus something like Skype is the fact it seamlessly integrates with all the Office applications. Document creation and editing occur with the “real” versions of Word, Excel, PowerPoint, etc. In addition, Teams works with SharePoint to allow workers to find and store documents on shared company storage.

As potentially capable as tools like Teams (and Slack) may be however, there can be challenges in getting individuals to use them on a regular basis. While startups and newer companies that don’t necessarily have much communications infrastructure in place have been quick to jump on these tools—and many would absolutely swear by their capabilities—things are tougher in larger and more established companies. In these organizations, email and voice calls are still the primary means of communication and collaboration.

Recent research I completed on workplace trends, in fact, showed while approximately 30% of companies said they currently had some kind of persistent chat tool available to them, only 4% of their collaboration with people outside their company and 5% of these efforts with co-workers are done using this kind of tool. Clearly, some education and awareness training needs to come with the installation of these new tools to drive wider usage.

In the case of Teams, Microsoft has helped grease the wheels by making it a free add-on to existing Office 365 customers. Obviously, this will reduce some basic sources of potential friction but research indicates that, to move away from old communication and collaboration habits, companies need to have strong internal advocates at the management level to essentially force the transition to these new tools. As with many important new technologies, simply having a better widget (or application, in this case) isn’t good enough to guarantee the kind of success that comes with widespread usage. Instead, it takes a long-term education and awareness training regimen to get people to realize the new tools can make their work lives more effective and productive.

Tesla Raises More Money to Fund Model 3 Manufacturing – By Jan Dawson

Tesla this week announced it will raise a little over a billion dollars in additional funding in order to help pay for the manufacturing process for its new Model 3 cars, scheduled to begin production in July.

If there’s one thing that has characterized Elon Musk as CEO of Tesla, it’s a combination of an uncanny ability to execute on a long-term plan while simultaneously repeatedly failing to hit short-term targets. It’s almost the exact opposite of many other business leaders, who tend to hit short-term targets but fail to make adequate long-term strategic plans. Elon Musk is clearly something of a visionary, who famously outlined his “secret master plan” for Tesla on his company’s website back in 2006 and then spent the next ten years successfully executing on it.

But it’s on the short-term targets — production numbers, launch timeframes, and the like — where Musk has often fallen short. The Model 3 launch looks to be, by far, the most ambitious attempt to beat that run of poor forecasting. Production is supposed to begin in July and quickly ramp to 500,000 cars in 2018, which would be a more than five-fold increase over production last year and require a much faster ramp than it has ever attempted before in so short a time. On the one hand, it’s no wonder the company needs more funds – it will spend $2-2.5 billion on capex in the first half of 2017, versus around half a billion dollars in the same period in 2016. But, on the other hand, it feels almost shockingly unrealistic to expect to pull that off.

It is possible Musk will finally deliver on one of these longer-term objectives and his investors so far seem pretty forgiving of these missteps. They seem unusually long-term in their thinking relative to other technology investors and buy into the eventual ideal of mass market, high-performance electric cars as much as short-term financial and production targets. There’s no doubt a car priced as low as the Model 3, with the performance it’s promising, could transform Tesla from a niche manufacturer into a mainstream one. But I’m betting it will take rather longer than Musk says to deliver that half a million milestone.

Unpacking the Week’s News: Friday, March 10, 2017

Google Goes after Slack with Collaboration Chat and Video – Ben Bajarin

Collaboration software and services suites are increasing their enterprise penetration. More companies we talk to are less interested in cobbling together disparate systems for their collaboration software and prefer to have employees and teams collaborate in one place. Most organizations, like colleges and other educational institutions, use some combination of Google Docs, Microsoft Office, and a messaging/teams service like Slack. It seems with the latest moves by Google to integrate better messaging and video conferencing into their G-Suite offering of applications, they are attempting to further bundle collaboration suites together in the hope of boosting sales of the G-Suite apps to businesses and schools.

Both Microsoft and Google seem to be taking a integrated approach to bundling these services. They are saying you need to use all THEIR apps and services to have the whole suite. What make Slack interesting is they are coming at it more as a collaboration platform for which other third party services can integrate their services. For example, we at Creative Strategies use Slack but we also like the Zoom video conference system. Zoom has Slack integration that allows us to video conference as a team right from a channel in Slack. While not exhaustive in third party services, Slack has a robust offering from many different enterprise services sectors which integrate into Slack (demonstrating the power of a platform approach), versus a more walled garden strategy of Microsoft and Google.

Considering businesses and schools don’t always prefer or work with walled garden approaches, I find myself thinking Slack’s “collaboration as a platform” is the more interesting approach and aligns more closely with how organizations work in the real world.

Snap’s Celebration of Women Backfires – by Carolina Milanesi

On International Women’s Day, many tech companies took to social media to celebrate women and, in many instances, call out their own in-house female talent.

In true Snapchat fashion, Snap wanted to celebrate women by creating filters of famous women in history you could superimpose on your selfies. The three lenses featured Frida Kahlo, activist Rosa Parks, and scientist Marie Curie. The Kahlo lens gave people a set of thick eyebrows, red lips and a flower headband, true to the style the artist displayed. The Rosa Parks lens gave users a sepia-toned picture, with a hat, hair and glasses styled like the civil rights activist. While these two are far from perfect and some Snapchat users pointed out they were borderline racist, it is the Madame Curie lens that caused more furor. The scientist’s lens featured heavy eyeliner and smokey eyes. It is no surprise many women took to Twitter to point out the poor choice Snap had made. This is not the first time Snapchat lenses have raised eyebrows. Over the summer, there was the release and quick withdrawal of an Asian and a Bob Marley lens which were, of course, seen as offensive.

The kind of response Snap received about these lenses underlines two major points: first, good intentions are not always enough and marketing blunders are much more painful now, thanks to social media.

Snapchat is a fun app and lenses are a means to entertain, not educate. Trying to use lenses, which are designed not to be taken seriously, as a political or social statement is not only dangerous but inappropriate in my view. Even with the best intentions, as it was in the case of International Women’s Day, the room for error is very limited. Even if the lenses were not racist and sexist, they would still have come across as a diminishing rather than a celebration of the work these three women had done in the arts, activism, and science. Snapchat would have been much better off by creating a red filter – the color that this year was celebrating women around the world. With diversity and sexism being such a hot topic in tech right now, Snapchat came across as out of touch and insensitive.

Thanks to social media, many marketing and PR faux pas that, in the past, would have gone almost unnoticed are today there for everybody to see. More often than not, these missteps are also right in the face of those consumers who are the most important audience for the brand. Think about the #deleteUber campaign or #DumpKellogs. The second issue with social media is the pace is so fast that apologies and rectifications have only limited impact. By the time these come about, your audience has moved on to something else and the damage was done.

As I think about this issue, I do wonder if many brands, especially brands that deal with social media and content, are underestimating how politically aware Millennials are — maybe even more than my generation.

Amazon Announces its 10th Physical Bookstore – Jan Dawson

Amazon this week announced the location of what will be its tenth physical bookstore. This latest one in Bellevue, Washington, where it has a large office presence already. It has four stores open and six additional locations to come, just under 18 months from when the first store in Seattle was announced in November 2015.

Amazon’s physical retail strategy continues to be a tiny minority of its overall business, but it’s clearly a part of its business it feels is working and worth investing more in. Beyond the bookstores, it is also working on its first grocery store near its headquarters, which will feature automated checkout. There’s a certain irony in a company held to be responsible for the demise and struggles of many physical retail stores and chains investing so heavily in building them itself. But this is a concession that there are certain things for which physical retail stores are just better.

Chief among those is the browsing experience which, for books in particular, continues to be sub-par online versus in a bookstore. One of the things physical bookstores have always been really good at is presenting lots of options in a an easily digestible way and it’s what makes spending time in bookstores so fun. I don’t imagine anyone has ever spent any significant amount of time simply browsing Amazon.com for the fun of it. Physical bookstores restore some of that enjoyment and the serendipity that comes with it.

But, of course, physical stores are also still the best way to show off most consumer electronics, which people generally like to see in person and try before they buy. So, as Amazon deepens its investment in physical hardware, it will also likely need to do more to own a proprietary retail channel for that hardware, especially items like the Echo range and its Fire TV devices.

The reality is though, anything like a national footprint is still years away. All but one of Amazon’s ten announced bookstores are in coastal states or near big cities, with the planned Chicago store being the only one in the middle of the country. As such, the vast majority of Amazon’s customers won’t ever see one of its stores even if it builds several times as many, let alone live within a few miles of them. This becomes yet another aspect of Amazon’s infrastructure which will be very real for some of its customers while remaining highly theoretical for many others.

Smartphone Brand Repurchase Intention

As I’ve said before, the global smartphone sales race is establishing the global consumer tech brands to fuel the next decade. When we talked about global consumer technology brands in the past, companies like Samsung, Apple, LG, and Sony were in the spotlight. Out of those, only Samsung and Apple are left with companies like Huawei solidifying themselves in the discussion and others like Xiaomi, Oppo and, to a degree, Vivo, trying to get there. Smartphones are the entry point for the next big tech brands and, while most can make a healthy living staying in China, they will not enter the global brand picture unless they can succeed elsewhere. As Huawei attempts to grow in Europe, Africa, and parts of the Middle East, Xiaomi and Oppo are the only other brands we track beginning to make inroads in markets outside of China. Since this is a brand (or future brand) discussion, I think its helpful to see how sticky the brand is when it comes to repurchase intention.

This is likely one of the more global looking brand repurchase intention charts you will see. Most do not cover as many countries as we have access to. However, for the sake of where these brands have some traction, I’ve included a specific list of countries for balance.

The chart depicts top “brands to purchase” as the consumer’s next smartphone. I have charted it out by smartphone owners of said brands. As you can see overall, Apple’s repurchase intent is quite high. As is Samsung’s and Huawei’s when we look at the average across the six countries. You may have seen stats of Samsung’s repurchase rate being high 60% before and we can arrive there when we look at just a few countries. Similar to Apple, it varies quite a bit by specific country when we look just at that country’s responses but, given this is a more developed market look at North America, Western Europe, and China, I think it gives a holistic picture.

When I dig into this data, I’m looking more at how the Android brands are performing and where consumers are looking to go next within Android. Apple seems to maintain a 20-30% range of interest from Android brands any given quarter consistently. Where we see these spikes of intent are as consumer jump from Android brand to Android brand. Looking specifically at this chart, it seems Huawei is poised to gain a lot of customers from Xiaomi and Oppo in the near future, particularly in China. It follows along with the trend we have been seeing with Chinese consumers sentiment toward Huawei continuing to grow. In fact, recent research studies we have read from Mainland China suggest Huawei is coming up on the heels of Apple as a brand local consumers consider most innovative.

From a global perspective, Apple and Samsung are holding relatively steady. The data suggests Huawei is stabilizing as well, thanks to their efforts in recent years since there was a time when their churn was quite bad. Huawei is in a strong third place and the real question is, can any other vendor cross the 100m smartphones sold a year bar? Xiaomi came close, Oppo is nearing Xiaomi’s range with 60-70m per year but that seems to be the ceiling at the moment and largely driven by China alone.

It is worth remembering that pulling off a global brand is exceptionally difficult. Right now, Apple and Samsung are the two that have accomplished this to varying degrees. Apple has maintained a premium global brand status where Samsung has done that in some markets but not all as Apple has. Huawei is using the “affordable premium” strategy and, depending on what other hardware they feel they can tackle, it will be interesting to see how far and wide their brand can go. But, from the data we are seeing, I’m not sure anyone beyond those three is even remotely close to being included in the discussion.

Note on the data: It is not longitundinal which would yield the most accurate repurchase intention, however, I am confident it is directionally accurate.

A Deeper Look at FB, Instagram, Snapchat, and Twitter

When we look at behavior data across many different social networks, it is interesting that not all social networks are created equal. Behavioral patterns are the key things to look for, especially with the ones I’m going to look at here. It is key to know if consumers are behaving in a way that works with the current monetization plans. For example, if no one watched video on Facebook all the while the company was trying to monetize their video strategy, we would know that would yield little value to an advertiser. We do know watching video is the second most common behavior on Facebook by the general global population, so it seems Facebook’s move here is a good idea. If Twitter came out and said they had a huge strategy to monetize “Moments” and were selling packages to advertisers, I would know this is a bad idea because only 3% of their user base uses Moments on a monthly basis.

With all the ways I can slice our analysis of the major social media services, I always find it helpful to remember these services depend on the most valuable part of a consumer’s life — their time. So I think looking at usage frequency is a great starting point to know which social network services are leading the pack and which are struggling.

The key question is, which social networks are a daily habit? Or, in some cases, a more than once a day habit. Below is the key chart.

The key stat here is the percentage of people with active accounts on these services who say they use it daily. Having the “more than once daily” option is really icing on the cake. Companies that have this have a disproportionate engagement of time than those who just have a strong percent of daily interactions with their customers. Clearly, there are social networks here with dramatically more users than others. Facebook has over a billion, WeChat has nearly 800 million and Instagram has 600 million or so. Snapchat is rumored t have 150-200 million and Twitter has approximately ~300-350 million. Knowing the proportion of users certainly is helpful when looking at this chart but also strengthens the case for the likes of Facebook and Instagram when we know how many users they have and how engaged most of their users are with the service.

I make the point that Snapchat is more like Twitter than Facebook (to much heated debate in emails from readers), but this data tells the story. Both are tiny on the grand scale of active accounts and both dramatically trail other services in daily engagement. While these stats cover a global population, if I isolated only millenials via this data on Snapchat, it would show much higher daily engagement. Everyone knows they own millenials, unfortunately, to make the claim they are trending more like Facebook, you need to look at every demographic, not just teens and 20-somethings.

I mention WeChat, isolated to only China responses, to show how engaged this service is in China. It shows us WeChat is much more like a social network than just a messaging platform. WeChat is, for all accounts and purposes, the true Chinese operating system. Key point is WeChat, and their nearly 800 million active users, has similar dynamics to Facebook.

Lastly, and another reason I am bullish on Facebook, is while their unique user number is well over a billion and heading toward two billion, the sheer number of humans using different apps/servivces in the Facebook family is massive. Besides the number of Facebook and Instagram users, they have over 900 million people using Facebook Messenger. They also have WhatsApp with around a billion users. Each of these is a dedicated service for Facebook to monetize besides just the Facebook service. This is truly global scale the likes we have not seen before. While Google is well positioned to benefit from the offline to online advertising shift, Facebook will remain the single biggest beneficiary of this shift and the most dominant player in it. This is likely to be a “winner take most” scenario and I think Facebook is that winner. What’s more is, there doesn’t appear anyone remotely close to challenging that dominance on the playing field.

Global Device Ownership at 2016 Year’s End

In all my years of studying the technology industry, I’ve always found it more helpful to know installed bases of devices, platforms, apps, etc., vs looking at what is selling in terms of market share in any given quarter. Just focusing on sales share of hardware products per quarter is a deceiving statistic when looked at in isolation. We orient our research and data gathering around understanding how many people own what and what exactly they are doing with the technology they own. For this reason, I’d like to end 2016 by giving you a big picture view of the technology landscape in terms of ownership. Below is a chart of global consumers, broken out by age, and what percentage each tech category is owned.

ownership

The above chart is comprised of a global representative sample size of just over 30,000 consumers. It highlights some of the nuances within demographics but PC and smartphone ownership remains the largest piece of the pie. Once we understand the global picture of device ownership, we can more easily understand the behavioral patterns we see with software and services.

An important point is none of these categories are seeing stellar growth. We are, for the most part, hitting a peak in these categories and many are moving to replacement cycle market. Undoubtedly, a key debate will remain of the products on the far right of the chart with smart watches and fitness bands. My opinion, having sifted through the piles of data we have on those categories, is the market is simply not that large. This opinion will remain so long as their main value proposition is tied to fitness, as is the case today. If over the course of the next 4-5 years the value proposition evolves, then we can adjust our market sizing approach accordingly.

At the moment, I’m not sure if smart headphones (like the AirPods) will make their way into the tracking category of wearables, although you could make a case they should. The wearable category will undoubtedly expand into many things beyond just fitness bands and smart watches. However, those are the only two things selling in any kind of volume right now. One thing to watch in early 2017 will be the retail category growth. In the 2015 holiday season, the wearable category was up over 100% growth annually and the only real category of growth at retail. I’m not going to make any predictions but there is a good chance that category is low single digits to negative growth this holiday season. The data we will get will not include Apple retail, which would unquestionably change the number.

To look at another source, note this chart from Deloitte, specifically on the US market:

screen-shot-2016-12-22-at-7-37-54-am

PCs are not shown here but, if they were, they would be mostly flat. Interestingly, tablet access increased, as did both smart watches and fitness bands. I’m using the word access here because their question was not purely ownership but also access. Which is relevant for categories like the tablet and VR, for example, which could be shared. I’d be comfortable saying the smart watch and fitness bands are “ownership” points since they are personal and not shared products. A noteworthy point though is, just because they say they have access, it doesn’t mean it is used daily. So I’m not sure I’d bet that active daily usage of things like tablets or fitness bands is entirely reflected here. We know fitness bands do still have some abandonment issues but it is not nearly as bad as it once was.

This study was taken at the end of August and we are running a device ownership study in January. We will see what the holiday season brings to the mix of ownership. I’d bet VR goes up but probably not significantly. So will Bluetooth/wireless headphones, which trended very well in our intent to buy study for this holiday season.

Knowing what technology people own and use is a key part of knowing the market. As we look at multi-deivce homes, specifically ones where smartphones, tablets, and PCs are owned, we see some dramatic differences in usage behavior. The key part of this analysis is to build a broader thesis on how likely these scenarios are to become more common. If so, then we can expect some fairly dramatic behavioral changes in the market which will lead to opportunities that are less obvious today. More on that to come in 2017.

Unpacking This Week’s News – Friday, December 9th, 2016

Apple Wants Early Access to Movies on iTunes – by Carolina Milanesi

This week, Bloomberg reported Apple is in talks with Hollywood studios to get early access to movies to be distributed at a premium price on iTunes. 21st Century Fox Inc., Time Warner Inc.’s Warner Bros, and Comcast Corp’s Universal Pictures all confirmed they are looking at the opportunity to bring movies to your home shortly after they open in theaters as a high-price home video rental.

This is not the first time studios have contemplated such a move. However, the strong resistance from theaters had them back off on previous occasions. The big loss for theaters would be the money we all spend on popcorn and other concessions more so than the number of paying customers for the movies themselves.

For the studios, the biggest problem would be to guarantee the content could not be easily pirated. Although earlier, wider availability might lower in-theater piracy. While iTunes encrypts video, one could always record the movie from an external device such as a phone. Screening Room, a new service Napster’s founder Sean Parker is trying to create that also allow for early viewing of movies still in theater, used a watermark which, while not deterring piracy, makes it trackable and therefore punishable.

For consumers, a rental price of between $25 and $50 per movie would still represent a very competitive price compared to what a movie outing usually costs. The service would also speak to changing consumers’ behaviors. Larger, higher-definitions TVs are dropping in price making the home theater experience a reality for more and more consumers. At the same time, the theater experience has not improved in a way many consumers would consider proportional with the price hikes for 3D and IMAX. It only takes going to a couple of popular movies to see the longer line is usually for the regular screening rather than 3D or IMAX screenings.

This news hit the same day as Eddy Cue, Apple’s SVP of Internet Software and Products, announced Apple Music reached 20 million paying subscribers. While this is still only half of Spotify’s paying customers, it does make Apple Music the second largest paid-for music service.

For Apple, a higher-priced movie rental service would be a great revenue generator. More importantly, though, it would help to position Apple as a stronger, one-stop-shop of content for consumers. More eyeballs, premium-paying eyeballs, would also make Apple a more interesting partner for content providers. Let’s not forget the Apple TV “hobby” is waiting to become a full-time job!

Square Cash Partners with Apple to Integrate Virtual Cards into Apple Pay – by Jan Dawson

At the Code Commerce conference this week, Square (and Twitter) CEO Jack Dorsey announced Square’s virtual credit cards would now be integrated into Apple Pay. Both Dorsey and Apple Pay head Jennifer Bailey spoke at the conference, with Bailey speaking mostly about general momentum and possible future directions for Apple Pay rather than making any big announcements.

This is the latest in a series of evolutions for the Square Cash service. It began life as a Venmo-like peer-to-peer payment service but added the ability to maintain a cash balance in February of this year and, in September, added the ability to create a virtual credit card to spend that balance. The big limitation on that virtual card was it was mostly useful for “card not present” transactions — like paying for your Netflix account or Uber rides — and wasn’t much use in stores. The addition of Apple Pay integration now makes it possible to use that virtual card in physical retail stores which accept Apple Pay.

Apple and Square are interesting bedfellows here – both are involved in the payments space but both have chosen to work in partnership with the major card issuers and banks rather than trying to supplant them, so they have that in common. Where their interests align – as they do here but also in the case of the newest generation of Square card readers accepting Apple Pay – we can expect them to work together to achieve mutually beneficial objectives. The adoption of those newest readers by Square’s merchant base is broadening Apple Pay support along with the many merchants adopting NFC-capable point of sale systems as part of the ongoing EMV liability shift.

The key thing that draws Apple and Square together is that Square mostly works on the merchant side of the equation and Apple works exclusively on the consumer side. Square has dabbled in the consumer side with Square Cash but it’s still a tiny part of its business relative to point of sale systems and even business loans. I’ve argued in the past that Square would, in fact, be an interesting acquisition for Apple, one that would allow it to simultaneously drive both the consumer and merchant sides of NFC and Apple Pay adoption. It still feels like a long shot, not least because Apple has generally steered clear of acquisitions that are B2B first rather than having B2B sales as a byproduct of consumer products, but it would be an interesting way to drive faster adoption among merchants. Assuming such an acquisition doesn’t happen, these partnerships are a good secondary way to drive faster adoption and increase the attraction of Apple Pay for consumers.

In the meantime, Apple will also need to continue to focus its efforts on those transactions that occur most frequently, a strategy which is driving its emphasis on transit systems and fast food service establishments like Dunkin Donuts and Starbucks. To the extent Apple Pay becomes an indispensable part of transactions Apple’s customers engage in daily (or multiple times per day), this will drive a much more meaningful engagement with the platform than the occasional grocery store run or ride in a cab. All of this is critical for turning Apple Pay from something people use occasionally out of sheer curiosity into something people use regularly because it provides benefits on a predictable and frequent basis.

Microsoft Brings Windows Back to ARM – by Ben Bajarin

On Wednesday, Microsoft made a number of announcements at WinHec, including outlining the details of the specs for Windows Holographic, but a suprise announcment came at the end — Windows is coming back to the ARM chipset. We all remember too well Windows RT and the disaster that turned out to be. Many conversations I’ve had around this topic the last few days were about if this was just another rerun of Windows RT. While I appreciate the (warranted) skepticism, I think this time around we can look at this product strategy differently. We can’t make the assumption that ARM-based Windows devices are going after the same markets Intel-based PCs are going after. In fact, a fascinating data point in today’s PC markets is that ASPs are rising, something I predicted a few years ago in this report. Both enterprise and consumer PC customers are not looking for something that is less than capable, or even cheaper, but rather something that will last. This is not the target for ARM-based PCs. Instead, this announcement sets the stage for ARM-based Windows PCs to go after more thin-client use cases in both enterprise and education markets. While many of the benefits Microsoft outlined in moving to ARM are also true of Intel devices — all day (or longer) battery life, thinner and lighter machines, etc. — there is one thing Qualcomm has which can prove to be a true differentiator — their integrated modems. I do sense there could be some value in having integrated connectivity to laptops, especially if I’m right about the target for these products being more thin-client applications. The form factor of these products can be 2-in-1 detachable and convertible devices which make for great thin-client, connected, field work machines.

Microsoft and Intel Partner to Drive AR and VR Adoption – by Bob O’Donnell

Though most of the news from this week’s WinHEC conference in China focused on the Microsoft and Qualcomm partnership to bring a full Window 10 experience to ARM CPU-based devices (again), there was an equally important set of announcements from apparent “frenemies” Microsoft and Intel. Specifically, the companies discussed Project Evo, an effort to evolve the PC in multiple areas.

It actually involves several different pieces, some of which are further along (or more important) than others. First, there’s a continued push to improve the security of PCs through a combination of hardware-based secure boot technologies as well as some Intel-created software technology that enables password management in Windows-based browsers via a plug-in. While these are interesting, they’re frankly best seen as part of a continuing saga regarding PC security.

A second development is integrating eSIM technology into PCs so PC owners can more quickly (and theoretically, more cheaply) sign up for LTE data services on their PC. This concept has been tried by several PC vendors before with little success. But today’s telecom environment is different and its possible it will gain more traction this time around. In this particular case, however, the potential tie-in to a Qualcomm 835 CPU with an integrated 4G modem could make it more interesting for those devices than for Intel CPU-based devices. The reason is Intel-based PCs have to absorb the cost of a 4G modem and, even though Intel now makes modems, the additional part will likely add a $75-$100 cost to the price of the PC, which could be hard for consumers to accept.

The biggest news of Project Evo, ironically, is something it still doesn’t have (yet really needs) — a name. Specifically, the companies have created agreed upon specs for both mainstream and premium performance-level AR and VR-capable PCs. The specs themselves are actually somewhat backward looking in that they incorporate PCs that have been shipping for over a year but at least they set a baseline consumers, AR/VR headset makers, and AR/VR content and application developers can work around. The problem is, without a name and a logo to specifically identify them, these specs will be of somewhat limited value. Hopefully, that obvious oversight will be fixed soon because it could help make 2017 a really big year for AR and VR on PCs.

Apple in India and Porsche vs. Toyota

We recently conducted an Indian market study in several of the more developed cities with a range of ages and consumer types. I crafted this study with a couple of goals: a deeper understanding of some of the nuances in the smartphone market in India and a better understanding of how Apple and the iPhone are perceived in India. My hopes with the second goal was to gauge what the opportunity for India truly is for Apple. While I won’t divulge the entire study, I want to share a couple of points I found enlightening.

First, even though Apple’s installed base in India is relatively small, the iPhone is the second most owned brand behind Samsung and slightly ahead of Micromax. The massive number of smartphone brands sold in India plays into this dynamic. Second, the iPhone tends to have greater business/professional penetration than consumer penetration. More people who said they have a job in upper eschalons of business said they own an iPhone than any other cohort. Understanding that Apple has a strong brand and brand perception in India is key. Several other surveys I’ve seen on smartphone brand and purchase consideration in India have ranked the iPhone quite high. Our own internal study confirmed this. We took it one step further as we explored some deeper sentiment around Apple and the iPhone and asked consumers which brand they believed was the global smartphone leader as defined by things like brand reputation, product quality, design, etc. Overwhelmingly (61%), Indian consumers said, in their opinion, Apple and the iPhone was the leader.

Similarly, when we asked which brand Indian consumers would make their top preference to own, 66% said an iPhone. However, when faced with actually purchasing an iPhone, most India consumers choose a different brand that is a better fit for their budget. After doing some digging, I feel the best way to articulate what is happening is to use a car analogy. The iPhone is to Indian consumers what a Porsche is to me. I love Porsches and think they are iconic and amazing cars in every way. I’d love to own one. Will I buy one with my own money? No. I can appreciate the Porsche or a Ferrari or any number of luxury cars many of us agree are fantastic but they are simply out of the range I’m willing to pay for a car. This is how I believe Indian consumers view the iPhone.

This is where the contrast between Indian consumers and Chinese consumers stands out. Chinese consumers view the iPhone the same way as Indian consumers, only they are willing to go to extreme lengths saving and doing anything they can to buy the iPhone due to its high status. Indian consumers are much more pragmatic and do not strive for status as the Chinese do. Similarly in the US, with iPhones being subsidized (at least initially and now with very affordable payment plans), the US consumer does not have the same sense that the iPhone is out of reach financially as it is in India.

Apple’s bet is, over time, Indian consumers will rise in affluence as India continues to develop and rise in GDP. As their disposable income rises, the iPhone may seem less out of reach and, hopefully, their brand reputation, design, and all the other things that led Indian consumers to believe they are the leader will still hold true and more of them will choose the iPhone. Of course, we can wonder if they will be too entrenched in Google’s ecosystem by then or if it takes so long that, by the time the Indian market is truly ready for Apple, we may be on to the next thing beyond the iPhone.

Unpacked for Friday November 11, 2016

Snap Starts Selling Spectacles Through Bots of a Different Kind – by Jan Dawson

Snap (formerly Snapchat) on Thursday started selling its Spectacles camera glasses through a vending machine (dubbed a Snapbot) in Venice, California, close to its headquarters. A line quickly formed and the vending machine sold out of the Spectacles at least once before being refilled. Snap also employed Ellen DeGeneres as an early tester and had her share her experience, appropriately enough, through Snapchat. The company also launched a Snapchat filter allowing users to virtually try on a pair of Spectacles.

Snap has always indicated it had a small production run in mind for Spectacles, at least at first, and its distribution strategy certainly reinforces that idea. A single vending machine is never going to sell a large number of Spectacles, even if it’s moved around from place to place roughly every 24 hours. But, of course, selling a large number of Spectacles isn’t Snap’s goal here – creating buzz, excitement, and a sense of exclusivity is. Given the high markup for Spectacles currently selling on eBay, it seems the strategy is working and the company certainly got plenty of buzz through what’s essentially a viral marketing campaign.

At some point, Snap will have to evolve beyond this early strategy if it’s to sell Spectacles in any sort of volume. The question is, just how many people will want to buy the glasses, which are relatively expensive, fairly obtrusive and, of course, better suited to the summer months than the winter (which should theoretically be arriving any day now despite the warm weather people in many parts of the US are currently enjoying). This start, though, with artificial scarcity coupled with social buzz, is a great way to test the market and seed early adopters with devices. It’s telling that Snap isn’t making review units available to journalists or traditional gadget reviewers – this will be very much a word of mouth marketing campaign, as befits a social company.

The big question is where Snap goes from here. It will likely have to move to some combination of direct online distribution and third party retailers over time to support significant scale. It’s a safe bet it will pick retailers other than those who typically distribute consumer electronics, likely including some fashion brands. In some ways, this will be the most interesting tech product launch from a distribution perspective since the Apple Watch, which also played to fashion and jewelry audiences not usually associated with tech products.

In some ways, the most amazing thing about the launch was no one was really talking about whether the Spectacles actually work well. Towards the end of the day, some tech blogs managed to grab some of the early buyers and get their feedback and it seems to be largely positive. The simplicity of the glasses is their strongest point and, of course, their integration with Snapchat is a huge strength, though it seems as though the videos can also be shared to other social media. I’m guessing we’ll be seeing circular videos shared more extensively on Facebook and Twitter in the coming months, but it’ll be a slow build given the limited distribution, at least for now.

Foldable Phones Might Be Better Off  Not To See The Light of Day – by Carolina Milanesi

The Verge reported this week that Samsung filed a patent back in April for a foldable phone. The drawings show a narrower phone with a hinge similar to what you see on a Surface Book that bends inward to close on itself like an old fashion flip phone. The folding movement is said to be automatic or semi-automatic.

A couple of weeks ago, Patently Apple uncovered an Apple patent that refers to a bendable, foldable iPhone using nanotube structures. The iPhone differs from the Samsung design in that it looks like it closes like a book.

I do not really want to get into the details of what is needed to make bendable phones that are commercially viable. Lenovo showed a concept earlier this year and so have other manufacturers.

My question is really about the need to have a bendable phone. There seem to be two main reasons: giving us more screen and protecting that screen. While I do not think smartphones should be growing much more in size, there is still room for giving us more screen without growing the overall real estate of the device. I also think there is a balance we have to think about when it comes to a device we have with us all the time. The reason why there are still consumers who like the less than 5” phones is they want something compact. Foldable might help with the size of the device but it is unlikely to help with the thickness. When I saw the iPhone patent design, I immediately thought of the many 2-in-1s that have a foldable design vs a detachable one. The weight of those devices is less than ideal and hinders the experience. As far as screens Gorilla Glass is getting better and better and our data shows major screen breaks are actually less common than we are lead to believe.

Apart from phones, however, there is a lot of opportunity for bendable technology, especially if you think about wearables. Here we have seen some curved displays but not yet a bendable one that has the guts of the device spread around your wrist — the wristband is not just an accessory but a functioning part of the device. Think how much more accurate the heart monitor could be if the sensor was where you usually take your pulse without you having to wear your watch with the screen positioned there.

VR and AR seem like another area where bendable could benefit the experience. While you can turn your head to see things around you, there would be a benefit if the headset was stretching more around your head so your eyes would have less of a blind spot and a more fluid field of vision. I am very shortsighted and I see a big difference between wearing glasses where I clearly have blind spots vs. contact lenses which allow me to really see more. Curved TVs, although not changing your experience dramatically, do help to immerse you more in the content.

There are still hurdles to a commercially viable, bendable phone but even if it could be done it does not necessarily mean it should. We also might see different iterations rather than what we have seen in the patent drawings, more aligned with what the market will call for by the time the technology is ready.

Oculus Software Update Lowers PC Requirements for VR Headset – By Bob O’Donnell

One of the more exciting developments expected to drive growth in the PC market is interest in virtual reality and head-mounted displays. The problem is the hardware requirements for the PC used to drive those headsets has been very high. That, in turn, translates into expensive new PCs—typically at least $1,000, but sometimes even more—which severely limits the potential market size for these exciting new devices.

Yesterday, Oculus took a big step toward reducing those costs—and expanding the potential audience for their Rift VR headset—with a new software update. The update leverages technology the Facebook-owned company calls “asychronous spacewarp.” Though similarly named to the “asynchronous timewarp” technology the company introduced with the official Rift launch back in March, “asynchronous spacewarp” is different and has a key advantage: it essentially allows the Rift to deliver what’s said to be a quality experience at just 45 fps (frames per second) instead of the minimum 90 fps typically required.

Translated, that means you can now get away with a less powerful (and less expensive) video card to drive a Rift experience. In theory, that means you buy a cheaper new PC and still successfully use the Rift. Realistically, though, it means a large collection of existing gaming PCs can likely be pressed into service—at no extra cost for their owners.

Specifically, instead of requiring an nVidia GTX 970 or AMD Radeon 290 GPU, the Rift can now be run on a system with any nVidia 900 or 1000 series or any AMD RX 400 series GPUs. As you might expect, the experience isn’t supposed to be as good as you would get with a newer GPU but, for existing gaming PC owners who have been dying to try a Rift, this could be a good option.

Over time, of course, the CPU and GPU requirements necessary to do high-quality VR and AR will fall into mainstream price points and be available to virtually anyone who buys a new PC. Until then, however, these kinds of software innovations will be increasingly important to introduce a wider audience to the wonders of VR.

Weekly Stat: E-commerce Purchasing Trends

One of the many things I keep an eye on is overall trends in e-commerce. If you have followed my analysis, you know I am still waiting for a true tipping point in e-commerce. As I shared here, worldwide e-commerce is still less than 10% of retail commerce. This varies by country — markets like India and China have a much higher and more balanced percentage between online and offline. Developed countries like the US, the UK, and key parts of Europe range between 20-30% of online retail as an overall percentage. Most analysis on this subject is generated on the assumption this is a “Winner Take Most” category. Meaning, Alibaba in China remains dominant but other vendors like JD.com and other more segmented and focused competitors can carve out a niche but not challenge the dominant players. Similarly, Amazon is viewed as a winner take most in the US, UK, and several other markets where they are investing heavily in logistics. This does not mean other players will not take share, only that there will be a few dominant players and a host of smaller players. It is critical to understand the winner take most thesis applies to specific markets and is not a worldwide view. So, the winners in each market will vary heavily vs a worldwide dominant player in e-commerce.

Thre are many ways you can slice who the winners and losers may be when it comes to the point of purchase but I think an interesting way to start looking at this is to understand the dominant categories that are purchased online. From our data collection practices, I’ve charted the most recent look at Q3 e-commerce categories consumers said they purchased online in the last 30 days.

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We have quarterly data for over 90 categories but I’m showing you the top 21. With the exception of a few areas, you can sum up this list by fashion and consumer packaged goods. This is one reason why most analysis and data on Amazon has them threatening department fashion stores like Walmart and Target. If consumers start to get more comfortable ordering common and frequent CPG items online, then the likes of Target and Walmart are diminished to only the things you need in a pinch and ASAP. Obviously, if Amazon can also figure out within-the-hour deliveries, that can take some of that share. But I’m not convinced Amazon can blanket their markets with that solution.

It is abundantly clear the fashion department stores are in serious trouble. Fashion and clothing shopping behavior is clearly changing in ways many department stores can not adapt to. This chart from a Morgan Stanley clothing retail study shows some of the changing behavior in purchasing trends at department stores.

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The depth of selection and aggressive pricing strategy which made big retailers like Walmart, Target, Macy’s, JC Penny, etc., all successful are dead in the water value propositions for online commerce. E-commerce will always have more selection and better prices. The value of physical retail is being reduced to instant needs and that may not be sustainable either.

As I mentioned at the start, looking at the categories where purchasing behavior is changing is key to looking at the short and long term trends of which parts of physical retail is about to be disrupted and which may have a fighting chance.

Unpacked for Friday November 3rd, 2016

The On-Demand Fail – by Ben Bajarin

Just over a year ago, I shared some thoughts regarding the “On-Demand Economy”. In particular, why it works in China but may find struggles here in the US. I highlighted the US-based struggles in the form of two major problems:

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

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

There has been some public news around funding rounds for on-demand startups like Door Dash, but this recent scoop on Instacart is interesting.

Instacart changed the terms of their payment structure and, it turns out, workers delivering for the company are earning less. The company claims this is necessary for the company’s continued growth. This is the lack of low-wage workers problem staring Instacart right in the face. They want to lower prices for delivery because the premium for on-demand services is way too high to ever go mainstream. To account for that, the on-demand companies were taking hits on their margins which is also unsustainable. This is the beginning of the likely downward spiral for US-based, on-demand startups as the entire system is unsustainable and prices simply can’t come down enough in this model to make it attractive to a significant part of the market.

It seems logical that there is a market for food and grocery delivery but it will likely be filled by Amazon or someone else with a better structured unit economics model. The idea is sound. The current execution by on-demand startups is not.

There is a Wider Opportunity than Large Enterprises for Microsoft Teams – by Carolina Milanesi

Last Wednesday in New York, Microsoft launched a new online chat application called Microsoft Teams. I attended a parallel event in San Francisco aimed at giving me the opportunity to demo Microsoft Teams at the end of a broadcast of the official launch event. The best way I have to explain Microsoft Teams – not Skype Teams as it was rumored leading up to the event – is it is a portal through which all team interactions happen. It is a web-based chat that adds to office 365 Enterprise and Business editions and will roll out in early 2017. It adds to current services like Skype and Yammer vs replacing their functionality, offering different options to users. While at first, Teams look very much like Slack, a few minutes playing with it shows the similarities are more on the look and feel of the portal than the actual functionalities. While you have teams and channels like you do in Slack, Microsoft Teams turns more into a hub where different tools plug into it from Microsoft and third parties that have access to open APIs.

As the presentation got under way and we moved to testimonials, it was clear who Microsoft’s target customers are: it is the large enterprises already invested, not just in Office, but in SharePoint, Power BI, Delve, OneNote, Planner, etc. It was also clear Microsoft was speaking to IT managers, not users. Microsoft Teams will be pushed down to users by IT which oftentimes sees even the most useful app met with resistance just because it is perceived as an imposition.

I believe Microsoft is missing two big opportunities: user push and education.

Letting individual users access Teams could have been a much stronger weapon against Slack vs. the IT mandate approach. Appealing to the user side and how work can be facilitated by a tool like Teams focusing on how it scales up but also how it scales down would have spoken to users more than IT managers. The only time there was a mention of users during the presentation was for trivial things like stickers and gifs. While it is true messaging has an entertaining component, I think it is patronizing to come across as implying all it takes for users to be happy is a sticker.

Education is another area where Microsoft is currently losing to Google and Apple and one that should be a priority when it comes to collaboration. It should be a priority for the short term opportunity of deployment but, more importantly, for the long term opportunity to hook millennials to the platform. Microsoft told Mary Jo Foley that Office 365 Education will eventually get Teams but I strongly believe the right way would have been to make it available in the Student Edition of Office. Once again, Microsoft is thinking top down rather than bottom up.

Overall the event seemed a bit of a contrast to the Devices event from the previous week where so much attention was given to individuals vs enterprises and creators vs employers. The focus was on empowerment of the individuals which ultimately is what Teams does but it did not come across as well in the positioning.

Fitbit and GoPro’s Results Highlight Challenges of Niche Hardware Companies – by Jan Dawson

I wrote a column last December about the challenge of being a one-trick pony in the consumer technology market. Two of the three companies I cited as examples in the article were Fitbit and GoPro. At the time, their businesses were generally doing well but the risks associated with being a niche hardware vendor have come home to roost at both companies since. Fitbit’s growth has slowed significantly, squeezing its margins, while GoPro has been shrinking markedly and losing money for four straight quarters.

Though each company has its own problems, they share most of them. They both provide hardware in categories with limited addressable markets – both fitness trackers and action cameras are niche propositions. In both cases, they also suffer from the combined effects of device abandonment and low upgrade rates among their bases. And both companies are facing low-end commoditization as well as encroachment from increasingly capable smartphones and other general purpose devices like smartwatches.

In both cases, the companies have dismissed concerns over saturating markets but it’s increasingly hard to ignore that these companies dominate their respective market segments, yet struggle to grow. The excuses for poor growth change every quarter, but the performance trends are remarkably consistent. Both companies have attempted to diversify into new areas – Fitbit into corporate wellness and GoPro into media. But neither company’s strategies are yet bearing meaningful fruit. Indeed, neither even breaks out revenue from these new categories in its financial reporting.

The future looks somewhat brighter for Fitbit, which continues to be profitable and is at least growing modestly. GoPro projects another year of losses in 2017, though also a return to growth. The challenge with GoPro is it’s missed its own guidance and analyst expectations so often recently, it’s hard to take its guidance seriously. The big question around both companies has to be whether they are best suited continuing to go it alone or whether they would do better as part of bigger consumer technology companies that could wrap ecosystems around them and leverage economies of scale and scope. Both are certainly considerably cheaper for potential acquirers at the end of the week than they were on Monday.

Mobile vs. PC Commerce

One of the main stats we track is what is happening globally with m-commerce vs. PC/desktop/notebook browser-based commerce. In many developed countries, we are yet to truly see the shift from desktop-based commerce to mobile-based commerce as the majority of transactions. Perhaps even more interesting to track as a part of this analysis is how much headroom e-commerce has to grow as a part of overall purchases worldwide. Here is the current share of e-commerce as a percentage of retail transactions and the forecast from eMarketer.

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As you can see, e-commerce has tremendous upside globally. It is one of the main reasons to take the long view of companies like Amazon, Baidu, and others who are poised to dominate the share of online shopping in many parts of the world.

Our belief is the mobile device will be the catalyst that will drive e-commerce to continue to aggressively take share from physical retail. This is not to say physical retail will not participate in this trend but that the mobile device will become a central gateway to purchasing many of our most common goods from both online and physical retail outlets. Part of our thesis here is because of our conviction of things like Apple Pay and Android Pay to eliminate many barriers to friction in transactions across the board. As consumers become more comfortable with mobile wallets, we believe this will act as a catalyst to drive a hyper growth cycle of e/m-commerce.

Another part of this thesis is built from what we see in markets like China, where mobile wallets within WeChat and AliPay are driving the same kind of cycle we think mobile wallets can drive in the US. While PC penetration is nearly 60% of the online population in China, purchasing from the mobile device has overtaken PC based e-commerce thanks to mobile wallets. In India, only 10% of the online population has access to a notebook or desktop and the rest of the online population uses only a smartphone as their primary computer. This is true of markets like Indonesia, Vietnam, Philippines, etc., where mobile-only is the norm.

As of this latest quarter, here is a snapshot of a few select countries and the percentage of consumers who said they buy a product online each month via either PC or mobile device.

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As you can see, the more developed countries with a larger and more mature PC (desktop or notebook) installed base is still seeing the majority of online transactions from traditional PCs whereas, the more mobile-first or mobile-centric regions have more mobile e-commerce transactions than desktop or notebook ones. However, it is worth noting that, a year ago, both the US and the UK were in the low 20% range of mobile commerce and are now well over 30%. We think when mobile wallets are more widely accepted we will see a sharp S-curve take place in mobile commerce vs. the slow steady line we see today. It is also worth noting that the younger millennial demographic is already much more mobile-centric in their buying habits in countries like the US and the UK. Millenials are already well over 50% who say they engage in monthly buying of goods from their smartphone. Highlighting another element central to our thesis that younger generations in developed parts of the world are showing many similarities to other mobile-first consumers in other parts of the world.

Again, this is not to say that only Amazon, or Baidu, or other online market places are the only winners here. It is a recognition that even physical retail must stay on the ball or risk losing customers. WalMart, for example, is struggling to figure this out as Amazon continues to eat much of their business. Retail used to be about breadth and depth of selection and price as a basis of competition. Hence, WalMart’s advantage for the better part of the last few decades. However, every single advantage big box retail offers is destroyed by online merchants like Amazon or Baidu. Retail has to change if it is to compete.

This was a central theme from the Money 2020 conference I presented research at last week. The value of retail needed to move to more customer experience-based vs just breadth of selection and price. It’s hard to see how a WalMart, Macy’s, or Best Buy survives this transition but companies like Starbucks, which offer “order ahead” via mobile, or Home Depot, which offers order ahead or inventory searching in store for contractors, are adapting nicely. Home Depot, for example, now sees 40% of their online store transactions coming from in-store via their app. This is fascinating since last year at this time, it was only 10%. Contractors are seeing a huge need met via order ahead and in-store ordering at other locations when the current doesn’t have stock. These are two examples of how mobile adds a new dimension to physical retail and the kind of enhanced commerce experience physical retail needs to develop if they are to stay competitive.

If retailers think Amazon and others threaten them today via mostly PC-based commerce, just wait unitl they see what happens when mobile starts to play a bigger role.

Unpacked for Friday October 21st, 2016

Apple’s Eddy Cue says TV needs to be reinvented – by Carolina Milanesi

At a Vanity Fair conference in San Francisco this week, Apple’s content guy, Eddy Cue, repeated something his CEO Tim Cook has said before: TV needs to be reinvented. What was interesting is he specifically referred to the difficulties of navigating and finding content.

As reported by Macrumors, Cue said television needs to be reinvented because of confusing, hard to navigate interfaces. “You live with a glorified VCR,” he said. “You’re still setting things to record. There are 900 channels, but there’s nothing to watch.” He went on to say there’s incredible stuff to watch but the interface makes it impossible to find content. “The problem is the interface,” he said. “The ways you interface with it are pretty brain dead.”

This seems to be very much in line with the rumors we have been hearing over the last few months that referred to Apple’s intention to focus on a content guide rather than on a TV set. The current version of the Apple TV has already started to show the potential with the focus on apps, Siri universal content search and single sign on. While many think this is a plan B for Apple, given the inability to close content deals, I believe it is not a bad plan at all. Focusing on the content guide part allows Apple to do several things.

It would strengthen our reliance on Siri to look for content, something we can already do today with the latest Apple TV. It would give more visibility to Apple as to our viewing habits, helping Siri to get smarter in making recommendation on content as well as search. As users get to their content through the Apple guide but not necessarily pay Apple for the content, they will see Apple as an enabler strengthening their ties. As we know, users are loyal to content, not TV stations or service providers, which means Apple will be helping disenfranchise content providers even further. Lastly, it might help with original content production.

Cue also said Apple is very much interested in original content and they would have made Game of Thrones if they had had the opportunity to do so. As we know, Apple is planning a series on apps as well as “Carpool Karaoke”. He also added Apple is looking to be a platform for their own content but for competitors’ as well as the focus remains to deliver on the experience of bringing the content to users with the least friction and the best user experience. Sadly, however, this does not necessarily mean all competitors will play nice as we have seen this week with Spotify said to be de-prioritizing developing an app for Apple’s tvOS. It is clear Apple needs to grow the current base of Apple TV owners if it wants to appeal to more content providers an,d in order to do that, they might need to think about a different hardware approach, either by lowering price or maintaining price but adding functionality. Right now, Apple TV is for hardcore Apple buyers which represent roughly 20% of the Apple installed base. While this is not a small number, it might just be that content owners are looking for more so they can make up for the revenue that would go to Apple for using their store.

Nintendo Reveals the Switch – by Ben Bajarin

Today, Nintendo revealed their newest member of the Nintendo game console family called the Nintendo Switch. The product combines a range of ideas that have been tried before but elegantly put together in one device.

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As you can see, it looks like a tablet with standard game controller buttons on the side. The game unit is both mobile, to played on the go in this form, but can also be the heart and mind of a game console that plugs into a TV for a bigger screen and multiplayer experience. The Switch is both a TV gaming console system and a portable gaming console system in one package.

Interestingly, the company which has experimented with solutions like this is NVIDIA with their Shield gaming tablet, gaming handheld, and gaming set-top box; Which is why it wasn’t surprising to learn that a custom version of NVIDIA’s mobile Tegra processor is what is powering the Nintendo Switch.

Honestly, I’m extremely skeptical of this approach. This type of solution, which tries to be a hybrid TV gaming console and mobile console, runs the risk of not being good at either. Now, the caveat for Nintendo is they don’t have the most graphically intense games and, to be honest, their biggest asset is their proprietary game titles like Zelda, Super Mario Brothers, Pokemon, Donkey Kong, etc. The fact these extremely popular brands will run only on this system is what may help it succeed but even then, I question if this is the right approach.

I’m not convinced Nintendo’s customers want another mobile screen. In fact, I’d argue Nintendo would have been better off focusing their software on iOS and making custom gaming controllers for iPad and iPhone. Take, for example, this approach that Apple shows off in many of their Apple stores.

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This is not that dissimilar of an approach to the Nintendo Switch. Yes, Nintendo would have more control over the entire experience if they control all the hardware and thus, design a better experience but I wonder if the world is heading in the direction of us using the phones and tablets we have with us to play games vs. buying another portable screen.

While I fully understand why Nintendo wants to control the entire hardware and software experience, I do feel they are leaving money on the table by not focusing their first party software strategy more on iOS and Android than their own mobile hardware platform.

Verizon Reports Results and Sheds Light on iPhone and Note7 in the Process – by Jan Dawson

Verizon reported its results for the third quarter on Thursday morning. It’s the first of the four major US wireless carriers to report, though both T-Mobile and Sprint have provided some preliminary numbers and, among those three, it saw the worst performance in terms of the traditional postpaid phone business — it lost subscribers while the other two made solid gains. However, it did better in prepaid and overall, though there are some ongoing worries about the FiOS TV business. Verizon said soft demand for linear TV was one of the challenges it faces.

However, the company also shed some light on both the iPhone 7 and Note7 in its remarks. Executives said the Note7 recall had impacted upgrade rates, which were up in Q2 but down year on year again. In general, device sales were slow for much of the quarter but picked up right at the end thanks to the iPhone 7 launch. However, the “backlog” in meeting demand, especially from upgraders, also impacted the overall upgrade rate among the base. Verizon is expecting supply to eventually meet demand sometime this quarter but wasn’t sure at what point.

More broadly, it’s looking like the iPhone 7 will drive a healthier upgrade cycle this quarter for the wireless carriers than we’ve seen in quite some time, after several quarters of falling upgrade rates across the board. Though we’ll only see a minor impact in the Q3 numbers reported over the coming week or so, we should see a much stronger impact in Q4, when the vast majority of this year’s upgrades to the iPhone 7 will happen. It’ll certainly be worth listening to the other carriers’ earnings calls for any commentary about how sales are going so far this quarter.

More broadly, Verizon continues to face several headwinds at once – it has reduced its landline footprint significantly in recent years and has also dramatically slowed the rollout of its FiOS services, both of which are limiting its upside in both broadband and TV services. Meanwhile, it’s investing more heavily in alternative video services, with both skinny bundles through FiOS and its Go90 over the top service. The latter has some impressive viewing figures on a per user basis – 30 minutes per day – but Verizon still hasn’t provided any actual user numbers, which leaves us without much context for the usage figures.

On the wireless side, we’re seeing the ongoing impact of intensifying competition as both T-Mobile and Sprint compete more aggressively for a fairly static base of customers with pricing and promotions designed to lure customers from the competition. Verizon lost postpaid phone subscribers in a third quarter for the first time ever, likely as a result of both increased direct targeting from Sprint (which lured away Verizon’s old “can you hear me now?” pitchman), and more general competition from T-Mobile and AT&T. Verizon is the only carrier that continues to refuse to offer unlimited data plans to new customers under any circumstances and it will be interesting to watch whether it can hold out indefinitely on that point.

Tesla Hardware Upgrade to Enable More Autonomous Cars – By Bob O’Donnell

Tesla Motors unveiled a next-generation set of sensor hardware and compute engine for its line of electric cars and announced that, going forward, all of its cars will be enabled for fully autonomous driving with future over-the-air software updates. Of course, exactly what’s meant by “fully autonomous driving” remains to be seen, but it is, nevertheless, an important step for the company.

One of the big winners in the announcement is NVIDIA, whose DrivePX 2 platform was selected to sit at the computing heart of this new technology upgrade. The DrivePX 2, which was unveiled at this year’s CES, features NVIDIA’s Tegra CPU and Pascal GPU engines and is targeted exactly at the kinds of semi-autonomous and fully autonomous driving applications Tesla promises will be enabled over the new several years.

In addition to the DrivePX 2, the upgraded Tesla solution features eight new 360° cameras, 12 ultrasonic radars and one forward-facing radar versus one forward-facing camera and a lesser number of lower-resolution radar sensors. According to the company, these additional and upgraded sensors are essential in enabling the additional levels of autonomous control they plan to offer.

In a strange and controversial move, Tesla CEO Elon Musk chided people not to write negative articles about the potential concerns around the semi-autonomous capabilities this new upgrade will enable (something I did several months ago in a piece for USAToday: “Is semi-autonomous driving really viable?”). In fact, he actually said doing so essentially amounts to “killing people” because it could somehow delay the expected safety benefits autonomous cars are expected to bring.

While I’m certainly positive about the potential for saving lives and improving overall automobile safety, attempting to shut down debate on a discussion-worthy topic seems dangerous itself—particularly in a democratic society with a free press.

Despite this problematic stance, it is good to see Tesla continuing to press forward with its ambitious plans for improving autonomy and safety in cars. There’s no question that, without their aggressive efforts, the rest of the auto industry would be moving at a slower pace.

Unpacked for Friday, October 14th, 2016

Amazon Demonstrates Its Pragmatism with Physical Retail for Groceries – by Jan Dawson

The Wall Street Journal reported this week that Amazon is planning to build convenience stores and curbside pickup locations for groceries, in an expansion of its existing grocery delivery business. The convenience stores would sell basic items, while the pickup locations might make use of clever technologies to automate and speed pickups.

This investment, assuming the reporting is accurate, is a great demonstration of Amazon’s pragmatism when it comes to expanding its business. Yes, its retail business is almost entirely about online ordering and delivery but it’s not religious about either of these things. Ultimately, what Amazon is building is an online-first and not an online-only business. That gives it the flexibility it needs to dip its toe into physical retail when it makes sense, as it has already done with its first brick-and-mortar bookstore in Seattle.

Why groceries? Well, this is easily one of the largest retail categories and doing well here would boost overall spending on Amazon considerably. However, it’s not one that lends itself well to traditional e-commerce – it often involves last-minute purchases as well as heavy, bulky, and perishable items which are not well-suited to traditional shipping. First-party delivery can solve some of these problems but still runs into issues with people not being home, traffic, and so on. Shifting to a physical retail model turns this from a customer delivery model into a store logistics model, something that eliminates many of the challenges associated with selling groceries. The convenience stores also support the impulse buy on the way home, which Amazon.com can’t manage for most purchases.

Amazon, of course, isn’t the only online company dabbling in physical retail. Google has announced it will have a pop-up store in New York in the coming months to support sales of its new hardware products. These companies are learning that, when it comes to certain product categories, online retail just doesn’t cut it, while third-party retail also has its downsides. It’s interesting, though, that all this is happening in the context of a very challenging overall market for physical retailers, with many closing stores in the face of higher e-commerce sales driven by – among others – Amazon.

The big benefit for these online-first retailers, however, is they can be very strategic and selective about their physical retail presence, creating new categories of stores rather than following traditional models, and thereby avoiding some of the pitfalls their offline-first competitors are struggling with. In addition, because these stores are complements to, rather than competitors for, online retail they don’t have to offer everything – just those categories of products that make sense in a store. These stores, then, are best seen, not as a standalone strategy for Amazon, but as part of a continuum of options for both ordering and receiving goods which will likely to continue to evolve over time.

Of course, for those of us that don’t live in the major coastal cities, this will be yet another example of a service that exists only in theory, as Amazon tends to invest ever more heavily in additional shopping and delivery options in the most densely-populated areas first. Citizens of New York and other such cities already enjoy one-hour delivery and other perks the rest of us can only read about online.

Sony PlayStation VR Brings Virtual Reality to the Masses – by Bob O’Donnell

The buzz and hype around virtual reality has been extremely high for the last few years but the real-world impact has been fairly muted. Sure, there’s been some interesting experiments with Google Cardboard, Samsung’s Gear VR and other mobile-driven VR headsets, but most people acknowledge those products can’t really compete with more powerful PC-driven options from Oculus and HTC when it comes to a truly immersive VR experience.

Sony, however, is looking to take a different tack with its new $399 PlayStation VR headset, which works along with the 40 million+ PS4 game consoles already in people’s living rooms. Essentially, they’re bringing what many reviewers are saying is a VR quality of experience similar to those higher-end headsets but at a more affordable price. Even more importantly, they’re providing it as an accessory to a device people already own.

The result is an opportunity to really bring virtual reality to the masses in a way no previous offering from other vendors has. Plus, because much of the early compelling content for VR is gaming and entertainment-focused, it’s a great match from both a product and a customer perspective. Anyone who has invested in a PS4 is clearly interested in gaming and the PlayStation VR promises to bring a new, higher-level of gaming immersion than most have ever experienced.

This is an important point to remember because the vast majority of consumers have still had very little or no experience with VR. For many of them, PlayStation VR will be their introduction to virtual reality. As a result, I think is likely going to get some of the benefits that come from being first to market—it’s bound to create a lot of buzz and excitement around the product and the Sony brand. Given how long it’s been since Sony has had a truly groundbreaking product, it’s likely going to provide a much needed boost.

Though it’s still early, initial reaction from Japan suggests the company could have a big hit on its hands. Customers travelled long distances and formed lines outside of retailers in an Apple-like way to purchase or place an order for a PlayStation VR—that’s something we haven’t seen for a Sony product in quite some time.

Moving forward, Sony is also hoping to expand beyond gaming and possibly even bring new customers to the PS4 and forthcoming PS4 Pro updated gaming console by providing entertainment-related “experiences” tied to Sony-owned media content, as well as educational and virtual travel type offerings.

It’s still early days for VR, but I have a feeling Sony is making a strong debut.

PC Market Shows Little Sign of Improvement – by Carolina Milanesi

It is that time in the quarter when IDC and Gartner publish their PC market share and, while the numbers differ slightly due to methodology (Gartner does not include Chromebooks and iPads), the sentiment is similar. IDC is calling for a 3.9% decline while Gartner puts the year on year decline at 5.7%. The US market was practically flat for Gartner while IDC recorded a second quarter of positive growth.

In their commentary, both companies cited slower replacement rates in the consumer market and lack of upgrades generated by Windows 10 in the enterprise. Nothing new really. Back in April, we ran a study in the US market to understand intention to purchase and the picture was not encouraging. Of the 550 consumers we interviewed in the US, only 12% had upgraded their PC in 2015 and 26% had a PC that was five years old or older. When asked about intention to upgrade, 62% said they were not upgrading over the next 12 months. When asked why, 70% of owners of a five years old or older PC said their current PC works fine and they do not see the need for a new one. Only 9% said they could not afford it. Looking at usage paints the entire picture. Users of newer PCs are more engaged and use their PCs for a wider variety of tasks. Most users with PCs 5-6 years old say they do social networking (28%) and manage files (22%). In comparison, only 10% of owners of PCs 1/2-year-old use their PC to manage files.

Vendors need to re-engage consumers with the PCs by making them appreciate the rich experience a PC can deliver compared to a smartphone and a tablet. When mobility is not the priority, consumers need to perceive the added benefit of a PC experience. Clearly, price is not an issue as that only comes up with less than 10% of consumers who are not intending to purchase a new device. They are clearly saving that money or using it on something else. With more devices being pitched as smart, consumers no longer see the PC as the only device with brains. The biggest problem I see in the Windows ecosystem remains the lack of applications which would bring some of the most used features and experiences people love on their phone to the PC.

If vendors can crack this “added value” point with consumers, they could see an increase in ASP even though sales might not return to growth quite yet. Times remain tough, as shown by the recent news from HP that they will lay off 3,000 to 4,000 employees over the next three years in an attempt to save $200 to $300 million per year beginning in fiscal 2020. Earlier in the year, HP had already announced they will be laying off 3,000 employees by the end of December. HP is currently number two in the market ranking very close to leader Lenovo.

Apple Increases Its GPU Talent Acquisition – by Ben Bajarin

Business Insider broke some news that Apple is increasing its talent in the GPU department by hiring key folks from Imagination Technologies. Apple uses a GPU license from Imagination and does some customization to the IP but it is unclear how much. It has been rumored Apple was looking to design its own GPU. However, I’m not sure starting from scratch is the likely way they would accomplish this.

The GPU is increasingly becoming one of the most important parts of our computing devices. When it comes to computer vision, AI, AR/VR, and anything related to the visual and graphic elements, the GPU is involved. Knowing Apple likes to own and control the full stack when it comes to the critical components of computers, it seems inevitable this will continue to spread to the GPU given how critical it is for future computing experiences. This is a matter of when not if.

Unpacked for Friday October 7th, 2016

Samsung Buys Viv: Let the Battle Begin! – by Carolina Milanesi 

On Wednesday, news broke Samsung had agreed to buy Viv, the AI and assistant system founded by the creators of Siri. Viv will continue to operate as an independent company that will provide services to Samsung. While the acquisition was lead by the Mobile group, you could see how Viv could appeal to other Samsung lines of business such as TV and home appliances.

From a technology perspective Viv differentiates itself in two key ways:

  • It is interconnected, meaning the information flows more freely so the queries can be more complex and conversational — closer to how humans actually speak to one another
  • A software feature called ‘dynamic program generation” which allows Viv to understand what the user wants and to create programs on the fly to handle those queries

Given Viv is not in any commercial products as yet, I will focus my discussion on what this means for the companies and their competitors.

Samsung has been trying to limit its dependence on Google services for a while. Samsung has also been competing with Apple pretty much feature for feature. Given also their SmartThings play, the Viv acquisition announcement should really not come as a surprise to anyone. The timing of the announcement – a day after Google’s Sundar Pichai announced they are moving to an AI first world from a mobile-first one – could not have been better. Even more so after we heard Google Assistant will, at least for now, remain bundled in Google’s new phone Pixel instead of being pushed through any Android phone running Android 7.1.

For Viv, going with the top smartphone vendor in the world also makes sense although I would urge them not to see all the phones Samsung sells as a possible host for a personal assistant.

While everything on paper makes sense, how this acquisition will work remains to be seen. I struggle to see Samsung aiming to compete with the digital assistants that Google, Apple, Amazon, and Microsoft have been talking about — ones that require powerful back ends and ton of data. Samsung, for me, remains first and foremost a hardware company and I would expect them to use Viv to add value to their hardware. Lately, Samsung has been pushing the ecosystem of products they have from phones to tablets to wearables to TVs. Having a strong voice UI that bridges those devices could be a strong push in the “better together” story.

Twitter looks doomed to go it alone or be snapped up by Salesforce – by Jan Dawson

Rumors started some time ago that Twitter was becoming an acquisition target, largely because its share price was so depressed that it was becoming cheap. Since that time, a number of possible suitors have emerged and the share price has risen sharply, only to fall precipitously again as those suitors have fallen away one by one. At the end of trading on Thursday, its share price was more or less identical to a month earlier, after something of a roller-coaster ride.

The big challenge with acquiring Twitter is the synergies are pretty thin for almost any potential acquirer. Each of the companies floated has had some potential synergy but the combination of the rising price and the downsides to an acquisition have made it tough to justify the purchase. For the ad-centric acquirers such as Google, the ad synergies seemed the most obvious drivers, but Twitter is still such a small business it wouldn’t make much difference to scale for any of the big players. Yes, a Google acquisition would help Twitter by giving it far more scale and a bigger audience, but it’s far less clear a Twitter acquisition would help Google.

Media buyers were among the other strong suitors, notably Disney. The rationale here seems to have been more about distribution and leveraging Twitter as a channel for content. The big problem here is any content owner who wants to use Twitter to distribute content today can already do so – as demonstrated by the NFL, Bloomberg, Cheddar TV and others. Perhaps the integration might deepen a little under an acquisition scenario, but not by much. On the other hand, an acquisition by one media company would make every other media company reconsider its use of Twitter as a distribution channel, for fear of playing second fiddle to, and sharing usage data, with a competitor. Disney’s pullout seemed inevitable, but it was also smart.

Salesforce appears to be the last big company still considered to be in the running but here too the rationale is weak. Salesforce ostensibly wants Twitter for its customer service and data possibilities, but it feels like Salesforce could accomplish much of what it might want by integrating with Twitter rather than absorbing it. One wonders whether this is something of a vanity acquisition for Marc Benioff and Salesforce, as much as a rational one, which is always a dangerous starting point for such a thing.

Lastly, and perhaps most importantly, it’s also not clear that any of these acquisitions would be good for Twitter as a product. None of the companies considered to be in the running had a pedigree that suggested it would somehow run Twitter better than it’s currently being run. And that’s what Twitter currently needs more than anything: better strategy and execution. Yes, ad synergies would help on the monetization side but it’s user growth that’s the real problem (and the real reason for the depressed share price). It’s looking more and more likely Twitter may have to simply go it alone at this point, unless Salesforce really does come through. Neither option seems all that appealing, however.

Facebook Pushes VR Forward – by Ben Bajarin
Facebook announced some interesting things around VR at the Oculus developer conference yesterday.

The first was a social VR experience and a set of developer tools around having people’s avatars join them in virtual reality. Mark Zuckerberg did the demo and had two colleagues on stage in VR with him during the demo.

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There are a number of things going on here that signal some interesting directions for VR. First, notice they aren’t totally in virtual reality. This is basically mixed reality, where you blend the physical and the virtual. There are cameras capturing the room in VR and then showing that video in the headset to the user while placing digital elements over the physical world. The avatars are digital and the room is the physical element. The demo went on to have all three people together underwater and on the moon, all the while interacting with each other while in any number of virtual spaces. Imagine, you are at a sports venue, concert, park, another world, etc., with your friends in VR displayed as their avatars. While you notice the avatars look like cartoons today, that will not be the case in the distant future. At some point, your friends or family will look virtually real in this space as you interact with them from afar.

Second, there are facial expressions happening as well. This gets interesting as the headset will look to capture the person’s facial expressions in real time and display them virtually so you can see their reactions as well. Capturing the body as well will be coming in the future so, not only would you see friends or families facial expressions, but all of their body movements as well.

Every major player in VR hardware or components talks about all the additional facial and body expressions which will be enabled in the future so we can have physical representations of us inserted virtually into any environment we choose.

Secondly, Facebook announced a standalone VR headset that will be better than a Gear VR device but not as good nor tethered to a high-end gaming PC.

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This product has all the major components integrated into the headset and is code named Santa Cruz. There aren’t many technical details available == like what the processor or GPU specs are — but this is the direction the industry needs to go to take VR mainstream. Wireless, head-mounted VR units are where the market is headed but we need a lot of development still to make it happen.

Overall, we are making great progress in VR and even the mixed reality technology. Mixed reality is what I think has the biggest potential and makes the most sense for us to spend significant amounts of time in spaces that blend the physical and the virtual.

The Weekly Stat: DSLRs and Pocket DSLRs

I truly feel there is something happening as we give consumers better and better pocket cameras. Whether it is because I have many friends who buy tech early or the iPhone 7/7 Plus is selling better than many expected, I’ve noticed a distinct upgrade in photo quality on my Facebook and Instagram feed by those taking them on the new iPhone 7. Whether it is pictures in lower light, landscapes, family, pets, or food, it honestly seems like the pictures are of higher quality.

I am close friends with a number of professional photographers across the globe. With those folks, the quality of the photos they post were unquestionably magnitudes better than the general ones I see from non-professionals. I’m convinced, over the next few years, all of that is about to change.

Let’s talk specifically about the DSLR trend for a moment. We knew consumers were purchasing DSLRs because of the upgrade in picture quality. What most missed in this trend was consumers were buying DSLRs to be better versions of their point and shoot cameras, which typically were slower and underperformed compared to a DSLR with an interchangeable lens. The vast majority of consumers who purchased DSLRs were buying a product that vastly overserved their needs, yet very easily yielded high quality, high-resolution photographs.

I did a quick poll with a small sample of one of our panels and found 30% of consumers in this representative panel owned a DSLR. However, the vast majority of them only owned two lenses (often, DSLRs come with two lenses, one telephoto and one short range 18-55mm kit lens). What is most interesting to me about what the new iPhones offer over these DSLR kits is the f/1.8 aperture fixed length lens. In many ways, the new iPhones are bringing a signature tool of professional photographers known as a prime lens.

Having taken many years of photography in HS and college, I am a prime lens shooter with my DSLR. I have apertures as large as f/1.4 ranging from 28-80mm. These are what I take many portrait photographs with and the new iPhones have brought the capability of prime lens shooting to me at all times. This gets enhanced even more with the new portrait mode on the new iPhone 7s, which is nothing short of amazing technologically.

In the poll I mentioned above, I asked those who owned DSLRs what was the largest aperture lens they owned. I used f/2 as the benchmark and asked if they had a lens with a number that was lower than f/2 (assuming most would have no idea the smaller the number, the larger the aperture). Only 10% of those who owned a DSLR had an aperture lens of this size. Which suggests to me that 10% were the more professional of the audience. Fascinatingly, 22% did not know if they did or not. That’s very telling of a segment of the market who bought a DSLR just to be a glorified point and shoot. 70% said they did not have a lens with an f-stop larger than f/2. Knowing how most kit lenses come packaged, it is unlikely the vast majority of DSLR owners have lenses with an aperture larger than f/2.8.

What all of this means is, not only do the new iPhones basically do all the jobs regular consumers have been hiring DSLRs to do the past few years, but it also gives them an aperture size they have never had access to with their DSLR. Which, I would argue, means for these DSLR owners, the iPhone 7 and all subsequent iPhones will, on average, yield for them a greater number of more quality photographs. As Apple makes things like bokeh (shallow depth of field) techniques easy and acceptable, I’m even more inclined to stand by this prediction.

The amazing thing is Apple still has a lot of room to grow. We could see them get to an aperture size of f/1.4 in the near future but also add more advanced software techniques and effects which bring professional capabilities to any and every consumer who needs no more training than simply how to frame or compose their pictures better. That’s something that can more easily be learned than having to adjust ISO, WB, shutter speed, f-stop, and do many things manually like I had to learn.

We have this odd family tradition where each family stand in front of the Christmas tree and has their picture taken by nearly every other family there with a DSLR. Usually it is three of four DSLRs all snapping photos and flashing us blind. I’m yet to ever see any of those photos make their way to me via email, Facebook, Instagram, or any other sharing medium. Our family probably has years of Christmas photos all sitting PCs or memory cards and none get shared. The ones from these events that do get shared are the ones taken by the smartphones. Let’s usher in this era of DSLRs in our pocket.

Which leads me to this last point. Perhaps the biggest difference here between where the iPhone, and smartphone cameras in general are going, is that these great photos will get shared. I’d wager more often than not all those wonderful photos taken by consumers rarely leave the PC they get loaded onto, if they get loaded onto a PC to begin with.

I told my wife this over the weekend as we were hanging out in Santa Cruz taking pictures at different locations. Thanks to the vastly increased capabilities of the iPhone 7, this next year will undoubtedly be our best year in both quality and quantity of our family photographs.

Unpacked for Friday September 23rd

Facebook Overestimates Video Consumption – Ben Bajarin
In an interesting twist to the Facebook narrative, a report came out that Facebook is letting advertising partners know they overestimated the metric for time spent watching videos on their platform.

A number of Wall St. notes I saw late last night warned of investor concern that this could have a negative impact on ad spend budgets as advertisers cut back on their ads due to this blunder. As much of a tactical error as this is, I don’t believe this will have much impact on Facebook’s advertising prospects.

Going back to the early days of Facebook ads, numerous times in discussions with big companies or advertising companies running campaigns with Facebook, I heard the dissatisfaction in the ROI in working with Facebook. This was one of the main reasons Facebook took as long as they did to truly be relevant to advertisers. What these interactions told me was how advertisers were scrutinizing and measuring the ROI with digital ads more than they were with analog ones. It was almost as though they trusted analog ads work since they have for so long, while they were skeptical of digital ads’ ROI and, therefore, they tracked it more closely.

Through the years, Facebook’s strong gains in ad budgets can only be supported by the fact these ads are working. Advertisers are finding it worth the increased ad spend they are giving Facebook. And this could possibly be with an overestimation of video metrics. I stand by my thesis on Facebook — few companies are better positioned to benefit from the shift of offline ads to online ads over the next five years and beyond. This could certainly spur the embracing of third party metrics for Facebook as there are with other digital mediums, like TV, but advertisers can’t afford to not continue to embrace Facebook and their assets in a major way given how much time consumers spend in the Facebook family of apps.

Google’s Allo Makes a Strange Coming-out Party for the Google Assistant – Jan Dawson

At Google’s I/O developer conference in May, it announced the Google Assistant as well as a couple of communication apps, among other things. Duo, the video calling app, debuted a few weeks ago, and Allo, the messaging app, debuted this week. But Allo is also the coming-out party for the Google assistant, Google’s first attempt to brand and provide an identity for its AI, which has been evident in subtle ways through Google Now and other products in the past.

Allo is a strange way for the Google assistant to be launched into the world though. For one thing, it’s a messaging app, ostensibly about communicating with other people and not an AI. And yet, it also seems doomed to have very few users, making it fairly useless for its core purpose. It’s almost as if Google wasn’t sure quite what to do with the assistant functionality and decided to put it into a messaging app as an afterthought. The debut of the Google Home hardware device, akin to Amazon’s Echo (likely to be announced in a couple of weeks), is a much more logical place for the assistant to make its bow, so this is a doubly odd decision. Perhaps Google felt pressure to rush Allo out on literally the last day of summer in order to meet its planned launch timeframe.

The app itself is nicely designed, though I’ve found it to be fairly buggy. I had issues getting it to use my personal Gmail account rather than my work Google Apps account and subsequently found that even using its suggested canned responses often generated weird replies from the AI. Literally, no one else I know is using the app right now, so it’s useless as a communication channel, not least of which because we’ve all already made investments in competing apps.

I’ve also been uneasy from the moment of the first demo at I/O about the idea of an AI cooking up responses for me in what’s supposed to be a personal communication app. That feels like a supremely Google-y idea but it’s not a very appealing one. It makes communication more efficient but also less personal. Some of the suggestions feel positively robotic and not at all what a real person would say.

I’m much more hopeful about the Home device and I’m a big believer that the Google assistant has promise that might well eclipse Amazon’s Echo and Alexa. This just feels like a very odd way to debut the functionality. The assistant would also make a lot more sense in settings like Gmail, where Google already has a billion users, or even as a core function on Android. I’m sure we’ll see it arrive there eventually and I think, at that point, it’s much more likely to fulfill its promise.

Rumored Pixel and Pixel XL signal a change in Google and HTC strategy by Carolina Milanesi

At the upcoming Google event on October 4th, the company is rumored to be unveiling Home – the Echo like product introduced at Google I/O – as well as two new phones: Pixel and Pixel XL.

The phones are rumored to be a departure from the Nexus program Google has been running for the past few years. While still aimed at showcasing the best of what Android has to offer, it seems Google is trying to put things more into its own hands by commissioning the products from HTC but then bringing them to market itself.

Adopting the Pixel name that so far has been used for their Chromebooks would signal a change in strategy for Google who has not really benefitted from the Nexus line in the past. That said, a change in name without a change in distribution would not necessarily deliver different results. In order to make a considerable impact on getting the most up to date OS flavor into the hands of consumers, Google would have to sell these devices through a broader channel than the Play Store. While fragmentation driven by vendor differentiation might be less a problem today as vendors like Motorola, HTC, and LG opt for a purer version of Android, fragmentation in software versions is still very much a reality. Making sure these Pixel device have the broadest addressable market would help change that and really have a greater set of consumers experience the latest and greatest of the operating system.

Rumors also has it HTC will be the vendor manufacturing the two Pixel devices but consumers might never know that from looking at the phones as the brand will not be present. This will regress HTC back to how they started in the market: being a whitebox. HTC has been struggling over the past couple of years to get back some of the traction they lost in the phone market while they embarked in other areas like wearables and cameras but only their VR headset Vive created any excitement in the market. Having HTC move back to a whitebox business in phones might be the beginning of the end for their brand in the smartphone market. While long term that might turn out to be fine, the timing might be a little premature as Vive is still a long way from becoming mass market. However, playing between white-labeling phones and re-establishing the brand as a leading name will not work in my opinion. White-labeling, of course, works for many vendors out there and HTC could use that business to sustain its VR endeavor.

We will know in a couple of weeks if the rumors were right and, if they turn out to be, we could then start speculating what will happen to Android next.

Unpacked for Friday September 16, 2016

Samsung officially recalls the Galaxy Note7 in North America – by Jan Dawson

Samsung has finally issued an official recall of the Galaxy Note7 phone in North America, working with the US Consumer Product Safety Commission. This follows several weeks of informal recall activity, with Samsung encouraging owners to return their devices to retailers in exchange for refunds or alternative devices. The official recall formalizes the process but will hopefully also raise awareness, as only a small portion of owners have complied with the instructions to return their devices up to now.

The whole Note 7 problem couldn’t come at a worse time for Samsung. It has completely hamstrung its ability to compete with Apple’s new iPhone 7. Rather than being out for several weeks ahead of Apple’s devices and benefiting from the strong reviews, Samsung is now unable to sell any Note 7 phones through the pre-order period for the iPhone 7 and much of the first week of retail sales. That’s going to put a big dent in Note 7 sales and, given Samsung will have to focus on replacing devices already sold when its inventory starts to ramp up again next week, it’s quite possible the phones won’t be available to first time buyers for some time to come.

To its credit, Samsung acted quickly once it was clear there were significant and widespread problems with the devices but its recall hasn’t been successful in getting people to return them in large numbers. At the same time, Samsung’s messaging around the recall has been inconsistent and even misleading at times, with them at first promising new devices would be available within days but, more recently, pushing the date back to September 21st.

The bigger damage – as Tim Bajarin wrote earlier this week – is the lasting damage to the brand. Samsung’s reputation for customer services has taken some knocks previously across its various product lines and, without a direct face to customers in the US equivalent to Apple’s retail stores, it struggles to communicate with customers and give them somewhere to go with their concerns. Instead, those concerns have to be managed by wireless carriers and consumer electronics retailers, most of whom have no incentive to sell customers another Note 7. Many customers will end up buying other devices, including iPhones. Obviously bad news for Samsung.

There’s no doubt Samsung will recover eventually, though there will be some after effects. But when it comes to Note 7 sales, it’s now a certainty Samsung will sell far fewer than it would have hoped to and the costs of the recall and the lost sales will be significant. That’s particularly sad given Samsung has largely righted its smartphone ship recently and begun making some progress in terms of sales and profits. These problems will now set those efforts back for at least a quarter and probably more.

A Tough Week for Wearables – by Carolina Milanesi

Unless you are Apple, Fitbit, and maybe Samsung, this week seems to have been a tough week for wearables. Two unrelated news items point to an industry struggling to make this new set of devices really compelling to consumers.

Will We See a Microsoft Band 3?

On Wednesday, ZDNet reported the team working on Microsoft Band to run Windows 10 is no more and there are no plans to bring to market a new Band this year. Microsoft then issued a statement saying it will still support its Health platform and will continue to sell Microsoft Band 2. If this were not enough reassurance, on Thursday Microsoft changed the name of the health app on iOS, Android and Windows Phone to Microsoft Band.

Not seeing a Band 3 by the end of the year would not necessarily be a bad thing. Microsoft is clearly not interested in the wearables market as a way to drive revenue from hardware. There are two things that matter to Microsoft: showing off the cloud platform and engaging consumers with a much more personal device than a Surface. While the first one is a clear asset and one that is appreciated by the current Microsoft Band owners, in order to take advantage of it from a big data perspective Microsoft needs a larger number of users than what it currently has. However, the design of the Band did not appeal to many users and the sophistication of the data provided is more than most current consumers looking at wearables are interested in.

In other words, Microsoft Band was too early for the market. Consumers are certainly interested in health and fitness, as we have discussed on a few occasions over the past weeks, but their requirements are actually pretty basic. A recent survey we ran in the US points to the vast majority of consumers wanting information on their caloric intake and activity level and not much else beyond that.

Microsoft could go back to the drawing board from a design perspective but educating the market requires a lot of effort. Effort it might leave to its competitors and then come in and say, “We can do that and more.”

I very much doubt Microsoft will entirely abandon wearables as they offer a good platform to Cortana, especially as Microsoft cannot rely on its own mobile phones and data points to a low uptake of Cortana on non-Microsoft smartphones.

No New Devices Coming from Google’s Key Android Wear Partners

LG, Huawei, and Lenovo all confirmed to CNET this week they are not planning to launch any new wearables before 2017. I guess they do not expect consumers to flock to the stores over the Holidays to buy smartwatches. As I discussed in my IFA article last week, it was quite telling that a show that has been the stage to important wearables launches in the past only had Samsung unveil a new product this year and it does not run Android Wear.

Sales outside of Apple and Samsung have been pretty limited as have been Android Wear developments. It seems to me Google has bigger fish to fry with Home and Daydream – things consumers are actually excited about – than trying to convince consumers they really need to buy a smartwatch. I would also argue that, considering how tepid the response from developers has been on WatchOS, it does not bode well for the Android Wear camp. Historically, developers have chosen to go iOS first and, with the new enhancements coming from Apple Watch Series 2, I would expect them to speed up their development there. So, even if Android Wear could improve, users might be faced with limited apps that would curb the value of a smartwatch over a fitness band. A fitness band which, on average, is $100 or more cheaper than a smartwatch.

Given how slow the uptake has been, unless you have resources like Samsung, you need to pick what you are focusing on and vendors are wise not to rush to deliver something for the Holidays that is not that different from what they had last year. Between Apple and Samsung’s marketing, their effort would be more than likely wasted.

The bigger question is whether or not waiting for 2017 will make the market any more receptive. Most vendors believe having cellular connectivity will make a big difference in uptake but I remain highly skeptical this is what consumers are really waiting for.

Unpacked: The Time Shift from Linear to Online TV

The writing is on the wall for online TV to be the predominant way humans consume video content. It truly is only a matter of time. Some countries, like parts of Asia and Europe, are much farther along in this transition as content providers there increasingly offer their full suite of content options to be streamed over the internet to the hardware of choice by their subscribers. That will eventually be the reality here in the US as well as generations of consumers demand content on their schedule. It will not happen overnight but it will happen. And, as the following charts will show you, it will be driven by the younger generations.

When you look at the percentage of consumers, by age, who say they consume some form of linear TV and some form of online TV daily, we see the following pattern.

Screen Shot 2016-08-28 at 7.20.27 PM

This chart represents a visualizaiton of my concept of behavioural debt. Some demographics are simply comfortable doing things the way they have always done them, where other generations, with fewer years of behavioral debt stored up, are more open to change as this change more accurately fits thier lifestyle. There are so many different data points I could show that would have the similar pattern as in this chart. Younger demographics’ openness and willingness to adapt and adopt new technologies is creating a gap between themselves and the generations that precede them. What needs to be pointed out in this data is how Gen X seems to fill the gap in this transition. However, Gen X is only estimated to be around 50 million people in the US, where as millenials are well over 90m, depending on whose estimates you like. Either way, while Gen X has some traits of boomers and some traits of millenials, the size difference is signifant and shows us where the balance of power lies. As Mark Lowenstein pointed out, boomers are no slouch in size (roughly 80m in the US) and they still maintain a large financial power as they have much more disposable income than millenials on average. This is one reason we see such a high disparity still today in the ad spend on traditional TV — the most valuable baby boomer generation still consumes their content via TV. As I said, that will someday change, but we have to understand the real habits of these demographics during this shift.

Similarly, the pattern holds when we look at time spent per day on each medium broken out by demographic.

Screen Shot 2016-08-28 at 7.33.07 PM

Here we still see the behavioural divide of the young and old demographics as the trend line continues away from linear TV to streaming/online TV and video content. To be clear, linear TV today still has the edge in time and overall consumption. However, that is because many of the Pay-TV services have not yet fully embraced over the top delivery of that content. It seems every year, providers get closer to allowing their subscription content to be consumed on any hardware the consumer wants. If we look back on YoY trends in linear TV, we see the trendline slowly climbing upward. As the Pay-TV providers offer their subscription services holistically, including live sports and other live content, I’m certain we will see that line go up more quickly. Again, it is only a matter of time. When, not if, is the central question.

Unpacked for Friday, August 26th, 2016

Rumored $5 Amazon Music Service for Echo is not an Easy Sell – By Carolina Milanesi

This week, several publications reported on the rumor Amazon might be launching a music service for $4/5 that will be available only through the Amazon Echo. The news was received positively but I am not so convinced that uptake will be a slam dunk.

Current Echo Owners

Sales of the Amazon Echo have been estimated at four million units thus far, which would not be a bad start for the service. Yet, consumers who bought an Echo did not do it for a music service but for Alexa’s abilities. If they did try the Music service that comes free to Prime Members, they might have been somewhat disappointed given the limited choices. Trying something that requires paying a monthly subscription, albeit cheaper than most out there, might require some reassurance on the quality of the catalogue.

Music Lover vs. Casual Listeners

It is hard for me to see music lovers invest in an Echo in order to listen to the music through the service as the quality of the speaker is ok but not great. Of course, you could link your Echo to a Sonos or other speaker systems. Yet, if you are serious about music, you might find the fact the service is only available within the home (at least for now) leaves having to choose another service for your on-the-go needs.

If you are a casual listener, you might be ok with the quality of the speaker but not with the cost of the service. It will be interesting to see if Amazon will stop supporting other music services through Echo. This would not be a surprise after we saw the Amazon store stop sales of Apple TV and Chromecast.

Pitching to Potential Echo Buyers

Echo is a speaker so listening to a music service through it makes a lot of sense. Except, I really do not think of Echo as a speaker. I think of Echo as the genie’s bottle where Alexa lives. Trying to advertise it as an enabler of a music service would risk, in my view, confusing consumers as to what Echo’s true value proposition is, bringing this magical device to the level of a commodity one.

Maybe my concerns are misplaced and consumers will just consider the money savings vs. a different service and be happy with it. Time will tell.

WhatsApp begins passing user data to Facebook – by Jan Dawson
WhatsApp on Thursday announced it would start passing the user data it collects to Facebook, with the intention of helping to better target advertising. This coincides with a move to allow businesses to send users messages through WhatsApp and it’s easy to see the two changes taken together as a potential invasion of privacy.

Technically, WhatsApp is sticking to its anti-ad principles in a strict sense — ads won’t appear in WhatsApp. Rather, Facebook will gain additional insights into its users by tapping into this new set of user data, much as information is already passed back and forth between Facebook and Instagram. But it’s hard to avoid the sense WhatsApp founder Jan Koum’s principled stand against advertising in WhatsApp is beginning to erode or, at least, this is the first step in that direction.

History suggests this will be in the news for a few days, causing a small outcry and perhaps prompting some users to opt out of data sharing with Facebook but that it will quickly blow over. People in tech tend to have long memories – I saw people sharing a tweet from Jan Koum decrying advertising in general that was several years old after the news broke – but most ordinary people have no idea who Jan Koum is, never mind that he has an opinion on advertising. All they know is that WhatsApp doesn’t have ads and, if that doesn’t change, they likely won’t care what else might be happening behind the scenes.

Perhaps more significant is the business angle on WhatsApp itself, which is the first hint of a real monetization strategy for WhatsApp. The company famously had very little revenue when it was acquired and it subsequently killed off the annual fee and with it, revenue altogether. But opening up to businesses in a manner similar to some Asian messaging apps has been in the cards for some time for both Messenger and WhatsApp and we’re starting to see the first moves in this direction. This needs to be very carefully managed by WhatsApp so as to protect the user experience and avoid the sense of spam, something the company’s blog post on Thursday makes clear it’s aware of. Some businesses, of course, are already using WhatsApp in this way informally and, in those markets, it won’t be much of a cultural shift. Elsewhere, it will be a bigger change and it will be interesting to watch how users respond (and whether they show any interest at all) in markets like the US.

Two Interesting News Bits About Apple – Ben Bajarin
I want to add a few points to some news tidbits about Apple from yesterday that are of particular interest. The first is this note by Bloomberg that Apple is looking to integrate a specific technology that is, as far as I know, is unique to Japan. It allows for an Apple Pay-like tap-to-pay feature in areas of Japan like their transit system.

I find this interesting because Apple was on a path to sell only one SKU of the iPhone in every part of the world. This would make the supply chain a bit easier to manage rather than having different SKUs for different countries. However, if they are taking the path to localize specific hardware and features in iPhones that contain would be unique to that country, it could signal a strategic direction of a more local focus of products. While I’m speculating here, Apple could be on the path to start selling region specific iPhones. Of particular interest to me with this strategy is India. I’ve long held a scenario in my mind where Apple sells products that are only sold in certain regions. India was always one market I thought this made sense in since the market has much more extreme price sensitivity than others Apple is eyeing. The more they flex their supply chain muscle to regionalize iPhone hardware in different regions, the more this type of strategy becomes possible.

The second is another article from Bloomberg that Apple is working on some new apps that could fall into the social category.

The article speculates this is an attempt to compete with Snapchat and Facebook but this is highly unlikely. The trend within social networks is not to consolidate. The most recent Q2 data we have on social networking behavior indicates that, on average, global consumers have eight different social networking accounts. While the number they use regularly is lower than that, the bottom line is people have a broad capacity to use many different social networking apps and they use them for different reasons. It would be absolutely foolish to believe people will leave Snapchat or Facebook. This is less about competing and more about enabling. Apple can integrate features, similar to Snapchat for example, into something like iMessage or the camera app which enables consumers to share in whatever way the choose. I could imagine a scenario where features Apple comes up with for the camera app or others find their way to Snapchat.

Bottom line is that Apple is smart to create new experiences via first party apps which are capable of things that don’t exist in other apps or platforms. But no one is going to leave the networks they are part of. It means the better strategy is to enable unique things of the iPhone to be used on these different apps and networks. Live Photos being integrated into Facebook is a good example of this. Look for this type of strategy rather than a replacement or a compete with type of strategy from Apple.

Unpacked for Friday, August 19, 2016

US Wireless Carriers Continue to Evolve Data Pricing – by Jan Dawson

This week saw three of the four major US wireless carriers introduce new pricing. AT&T kicked things off earlier in the week with new pricing options designed to eliminate overages, while T-Mobile and Sprint announced new unlimited data plans on Thursday morning.

All three of these announcements – and an earlier price increase by Verizon Wireless – are indicative of changing dynamics in the US wireless market. AT&T’s changes were a response to pressure from T-Mobile (and, to a lesser extent Sprint) around overages and to give its store and call center staff an easy response to customers threatening to switch to another carrier to avoid overages. T-Mobile’s price changes (which I analyzed in detail here) are part of its longer-term “Un-Carrier” strategy to eliminate pain points for customers. But it also builds on its introduction a year ago of a video-throttling technique which restricts videos to 480p quality and reduces bandwidth by two thirds in the process. Sprint’s announcement seems to be an attempt to capitalize on T-Mobile’s price changes by undercutting it while focusing on the same unlimited message.

These changes reflect increasing confidence by the three larger carriers that their network advantage allows them to charge higher prices without driving noticeably higher churn, while Sprint’s focus on price is an indication of its need to compete there to offset perceptions of poorer network quality. The US wireless market remains very competitive, as the absence of meaningful market growth means new subscribers have to come from competitive wins, but it’s also characterized by historically low churn rates between the carriers. Many subscribers have simply made up their minds to stick with the carrier they have, regardless of the pricing and promotions offered by various companies. Almost 99% of customers on the major postpaid plans decide to stay put each month.

This increasing competitive intensity will drive more and more differentiation around service and pricing structure rather than necessarily pricing alone, with the two smallest carriers emphasizing “unlimited” plans (both of which involve throttling of video and, in some cases, other content), while the larger two will continue to emphasize their superior networks and service quality. All the carriers are also investing in better customer service and experiences across both their postpaid and prepaid portfolios. Ultimately, though, the postpaid phone business is becoming a zero-sum game and the carriers need to look elsewhere – principally to connected devices, like connected cars and machine to machine deployments – for future growth.

Honor 8 Delivers Great Value for Money but Will Consumers See That? – by Carolina Milanesi

On Tuesday night, Honor launched their new flagship smartphone for the US market: the Honor 8.

If you wonder if you could trust this brand, I can tell you they are the 3rd largest smartphone manufacturer in the world. Surprised? While Honor positions itself as a smartphone manufacturer, they are, in all terms and purposes, the e-brand for Huawei smartphones and tablets and they are part of the Consumer Business Group.

If you read the details on the device specification, you can quickly see why this is a flagship device. The look and feel nicely fit the specs and you could be forgiven for thinking the Honor 8 looks a lot like a cross between the Galaxy S7 and the iPhone.

But the real story of this device is the price: $399.99 for a 32GB model, unlocked. Pre-order started on August 17 through the following retailers: Best Buy, Amazon, Newegg, and B&H Photo Video as well as on HiHonor.com. For the first 60 days, Best Buy will offer the Sapphire Blue edition exclusively. Customers pre-ordering Honor 8 between August 17 and August 31 will also receive a $50 gift card from participating retailers or a $50 rebate.

Honor is able to deliver these prices as it leverages Huawei’s economies of scale as well as the lower costs associated with an online channel. Online is growing as part of overall smartphone sales as carriers have started adding the option of bringing your own phone to a subscription service. The move from contract to installment plans has also helped clear the confusion around smartphone pricing. More consumers than ever before realize that smartphones are not all $199. Some have started to question why they are paying anywhere between $600 and $900 for some models. Brand remains very important in the space and price tags do not seem to matter for certain brands or “Hero” products. For everybody else, however, competition is getting tougher and we have seen many vendors from HTC to Motorola struggle in the high-end.

While online is growing, most consumers are so used to buying through their carrier so trying to compete by going through the direct channel remains a challenge. The list of partners Honor is working with is encouraging but I see the biggest opportunity with Amazon, especially if Honor 8 is picked as a partner in the way we saw Amazon do with Blue and Motorola – providing a discount to Prime Members who will receive ads on their locked screen. Associating a popular and trusted brand like Amazon to Honor will certainly reassure customers unfamiliar with the name as well as increasing visibility.

Honor 8 is targeting Millenials which makes sense from a feature vs. price proposition but the channel might not necessarily be the preferred one – we will have data shortly on this very topic. Brooklyn Beckham as the world-wide brand ambassador might work but, judging from the audience at the event, not many Americans are familiar with the son of soccer player David Beckham and Posh from Spice Girls, Victoria Beckham.

Bottom line, I think the Honor 8 is a strong product but discoverability will be a challenge. Honor will have to focus on communication channels millenials rely on for advice, which puts social as a top priority. As for sales, however, the channel as the advertising medium is not enough. Messaging needs to be right and Asian vendors do not have a great track record — a lot gets lost in translation.

Intel Focuses on Automotive – by Bob O’Donnell

The day after their IDF developer event, Intel held an Investor Day focused on the company’s efforts in the automotive industry, particularly around autonomous driving. To date, Intel has been fairly quiet about their efforts but it’s clear that approach is changing and frankly, for good reason. The company said they’ve done over $1 billion in revenues in automotive-related efforts over the past 12 months.

The company’s approach focuses on a complete end-to-end perspective—from the car to the cloud in this case—and highlights what they see as opportunities for software and silicon in the car (through 5G connectivity in the networks) and into more silicon as well as machine learning and deep learning applications in the data center. In some ways, it’s similar to how the company is thinking about a whole range of large vertical opportunities, such as some of their work in medical research, which they used as an example during their various presentations.

One of the fascinating parts of the connected car opportunity is it pulls together a number of key technological developments into a single story. From sensor fusion, through high-end multi-core computing, to increasingly sophisticated graphics, to multiple types of radio connectivity and network connections, and into cloud computing with artificial intelligence and deep learning, connected cars are a technologist’s dream. Of course, this explains why Intel and so many other tech companies have been so focused on the automotive market of late—it’s the cool place to be.

But that doesn’t mean it doesn’t have challenges. Right now, the semiconductor bill-of-materials is about $500 per car, which sounds decent at first, until you realize average new car prices are in the $25,000-$30,000 range, making silicon components still just a small part of the puzzle. Over time, as more autonomous capabilities are added, the revenues per car are expected to increase, though the actual number of components is expected to consolidate to a lower number. So, the potential opportunity is to get a piece of those more expensive parts, instead of battling it out for the roughly 150 $2-$3 parts that currently sit inside today’s cars.

It was clear from the Intel event there’s still a great deal of work to be done by component makers, Tier 1 suppliers, and automotive OEMs to reach the goal of fully autonomous cars. Watching how it develops and how computing and other tech vendors jockey for position is going to make for some great observing for some time to come.

Apple Watch and Cellular Connectivity – Ben Bajarin
In what I consider a non-story, Bloomberg is suggesting the newest versions of the Apple Watch will not have cellular connectivity. While we should always take rumor or leaked “scoops” with a grain of salt, this one will not surprise me and is also a non-issue and there is no reason for concern for Apple’s Watch outlook going forward.

Apple makes the entire computer board for the Apple Watch. They call this the S1 and it is a designed by Apple computer on a chip. In order to keep this model going forward, Apple would need to design the modem onto the S1. This is something they can not do — their only third party modem options are Qualcomm and Intel. I have been suggesting for some time it is likely Apple is working on their own baseband processor and designing their own modem is the only way they can integrate that part onto the S1 for a fully integrated design for the Apple Watch. From semiconductor industry gossip (the best kind of industry gossip) I’ve heard, Apple’s modem designs were behind in the development timeline. This could be due to power, as the article suggests, but any sufficiently designed LTE modem will have only an approximate power or thermal increase of about 10%. The real battery hog is making phone calls. So, if Apple’s modem design did not pass a battery sniff test, it would have likely been due to a heavy future or use case of making phone calls from the watch, not consuming data.

Untethering the Watch from the phone is certainly a heavily requested feature from existing Watch owners but I do not personally feel the lack of this feature will inhibit Watch sales in any way. While existing customers want it, I still think the smartphone tether is sufficient for most of the key use cases for the foreseeable future. Also, I’m not convinced in any way the Watch’s lack of a modem is a is a barrier for sales to new customers. I believe at this point, the way to move the chains with the Watch is to lower the price. How Apple expands the line and offers a wider range of prices is the key to look for as they attempt to make the Apple Watch more mainstream.

Unpacked for Friday, August 12th, 2016

Why I Hope the Rumors of a Surface All-in-One Come True – by Carolina Milanesi

The Verge this week published an article suggesting Microsoft is prepping to launch three Surface-branded all-in-ones (AiO) as well as an update to the Surface Book.

Launching Surface-branded AiOs now might seem out of place, considering everybody is talking about mobility and, in notebooks, thinner and lighter has been the anthem for years. Yet, when we look at what Surface devices usually deliver in terms of experience and specs, a Surface AIO device would have a role to play in both the enterprise and consumer segments.

In the enterprise market, these new additions would do two things. First, they would address some specific business verticals or locations where all-in-ones seem to be the preferred form factor: business receptions, higher-end kiosk locations, hospitality, etc. Most importantly, however, it will continue to add credibility to Microsoft as a committed hardware and solution supplier for enterprises as it builds a fuller portfolio of products.

It is, however, in the consumer segment where I see more opportunity. As mobility continues to take over, we see users replacing existing desktops with notebooks and, less so for now, two-in-ones. Some add to their current desktops with lighter and smaller notebooks and tablets. With these devices, users often put mobility over performance and screen real estate, making these devices not ideal for more serious gaming and content consumption.

With on-demand TV consumption growing, an AiO would function as an additional screen in the home. More importantly though, the current need for VR headsets to have a powerful PC to control them might also help drive AiOs. For Microsoft, a Surface AiO in the family or living room will also add another entry point for Cortana so she can become the family assistant of choice.

If Microsoft remains serious about hardware, the Surface family can only grow so users who appreciate the attention to detail in both design and specs can start building a portfolio of products that delivers on the Microsoft services and experience side in a similar way users do in the Apple camp. This is usually easier to do when the offering falls in the high-end of the market which is exactly where Surface has been playing thus far.

Kantar: iOS Returns to growth in the US and EU5 – by Carolina Milanesi
On Wednesday. Kantar released their OS market share for 2Q16 and, while the report focused on the return to growth of iOS in the US and EU, I think the interesting dataset is how well the iPhone SE is performing.

We heard during the latest Apple earnings call how they had initially underestimated demand but now production has caught up and they are able to fulfill orders. If you look at the numbers Kantar released, you can see how strong the SE is performing, even in the US:

“The iPhone SE became the third best-selling phone at 5.1%, contributing to the overall growth of iOS during the period.”

More evidence of the iPhone SE success is to be found in Europe — specifically GB where Apple accounted for 37% of sales in 2Q16:

“In Great Britain, the iPhone SE was the top selling device in the quarter at 9.2%, followed by the iPhone 6s at 9.1%.”

Let’s be clear. This is not just for the love of the smaller screen. Yes, many are upgrading from previous models with smaller screens but only some of these did not want to give up that particular feature. Many, however, have been holding on to what they had because they did not want to spend more money on the new models. 49% of US iPhone owners, according to Kantar, still own an iPhone 5s or older. The second source of buyers, and one Apple was eager to highlight during earnings, is represented by brand new iOS buyers.

They are clearly not early adopters. Some of them are upgrading from feature phones but most are switching from Android where larger screens have been available for much longer than on iOS. It would be safe to conclude that, while screen size may play a role in the buying decision, it is more likely the real driver was price.

As the iPhone SE base grows, Kantar should be able to share more data on the split between upgraders and new buyers. Ultimately, both groups are good for Apple as they serve different purposes. The upgrade to the SE guarantees the installed base of users is more future proof when it comes to services such as Apple Pay, while new buyers expand the installed base, keeping it appealing to developers as well as content and service providers.

Intel Purchases AI Chip Vendor – By Bob O’Donnell
The quest for influence and control in the burgeoning fields of artificial intelligence, machine learning and deep learning took another turn this past week as semiconductor giant Intel purchased Nervana Systems. Started by ex-Qualcomm employees, Nervana Systems has been working on a dedicated deep learning accelerator chip, along with software and development tools, to enable the creation of software that will run on their unique architecture.

Intel’s purchase of the company reflects their interest in dramatically speeding up their efforts in deep learning, no doubt in part from the near-term competitive threat from nVidia. Longer term, this looks to be a very strategic purchase for Intel as it gives them access to some key IP and expertise around these AI-driven technologies.

Deep learning, and convolutional neural networks in particular, are expected to have an important and long-term impact on overall computing trends, so most major vendors have made efforts to increase their relevance and capabilities in these areas. It’s particularly valuable for Intel because the company has the scale and manufacturing expertise to leverage this IP for both standalone chips initially and eventually, as a core computing block they could embed into future processors and other chips. This will allow Intel to bring deep learning capabilities to servers in the short term and client devices longer term.

In addition, Intel can manufacture the chips themselves and, if they prove to be popular enough, this could help keep their production lines running closer to capacity, which helps them keep their overall manufacturing costs down.

Of course, it remains to be seen how well Intel can integrate the Nervana Systems’ personnel and technology into their own. In particular, there are questions about whether or not the Nervana Systems IP can (or should) be implemented alongside x86 IP but the promise and potential of the deal makes it look very appealing at first glance.

A number of other startups are also working on deep learning accelerators, so there are also questions from a competitive technology basis about how the Nervana Systems IP will stack up longer term. However, given Intel’s financial strength and their desire to continue driving computing platforms in the data center and for client devices, it’s a safe bet to say Intel will work hard to remain relevant.

Walmart acquires Jet.com – by Jan Dawson
Arguably, the biggest tech news this week was Walmart’s proposed acquisition of startup online retailer Jet.com for $3 billion in cash and around $300 million in stock. This is the first really sizable e-commerce deal since Amazon acquired Zappos in 2009 for what ended up being around $1.2 billion. It goes somewhat against a recent trend of smaller online retailers either going out of business or being sold off at downgraded valuations.

The logic behind the deal is fairly obvious. Walmart, the world’s largest retailer, has nevertheless struggled to grow its e-commerce business at anything more than a fairly anemic rate and badly needs help. Jet.com, meanwhile, has grown rapidly but is likely not yet profitable and needs a financial cushion while it scales its operations. Walmart’s scale, distribution, and, perhaps most importantly, pricing leverage can all help Jet significantly. Amazon is the obvious target here, as the largest pure-play online retailer and the company that’s capturing the vast majority of the overall growth in e-commerce in the US. And yet, it will likely take some time for Walmart and Jet to make any kind of meaningful impact on Amazon.

Amazon’s shadow looms over the entire e-commerce marketplace. In essence, Amazon has cracked the e-commerce model for the US and a number of other markets by building a massive distribution infrastructure and selling Prime subscriptions, which create strong incentives for people to concentrate their online spending on Amazon. Jet and others have tried to innovate in their own ways (Jet’s focus has been on bulk buying) but none of these alternative models really seems to have worked. Scale continues to be enormously important and this is where Walmart might well help Jet quite a bit. I wouldn’t be surprised if the more unique elements of Jet’s business model fade away over time in favor of a purer e-commerce play.

While Jet’s technology and user interface are clearly a large part of what Walmart is paying for, I suspect it will also benefit from having an innovative startup culture somewhat separate from the rest of the company. Walmart would do well to give the Jet team considerable independence and space to keep doing what they’re doing, as this team is more likely than the core online team at Walmart to be truly innovative and drive real change in e-commerce. That could end up being very valuable in its own right.

Should Amazon be worried? Not yet, certainly. But I’m very curious to see if Walmart can marry its massive scale and distribution operations with Jet’s user interface, technology, and innovation without squashing it. If it can, this deal might just pay off.

Unpacked: Smart Home Product Ownership and Awareness

We are still clearly in the early days of the smart home. I’m reminded of this reality time and time again with many smart home research projects we are currently engaged in. I came across a private report which had a few interesting statistics on ownership and awareness of specific smart home technology.

Screen Shot 2016-08-07 at 2.50.40 PM

With similar findings to our own internal research, smart lighting remains the most owned piece of the smart home. The report points out that ownership of smart lighting products jumped 40% YoY as of March 2016, the highest of any smart home technology tracked. For reference, the study defined a smart home product as one which had a supported app or website allowing control of the product or appliance.

The gap between ownership of a smart home product and awareness is significant. We at Creative Strategies wrestle with the how and when this gap will close but, many smart home products still remain either expensive or hard to setup/install for normal consumers so we don’t see the gap closing anytime soon. We have, however, noticed a trend that consumers do not generally stop at one smart home product. Indeed, they tend to add multiple new smart home products in rapid succession after acquiring their first smart home/smart control product.

Our thesis here is consumers recognize the value and convenience of smart home control only after acquiring their first product. Once they see the value/convenience of remote or automated control of appliances, they look to connect other things. We see this as a positive trend for the smart home. It means we simply need the mainstream to acquire the gateway product. The problem is, we aren’t sure what that gateway product to the smart home will be. The data suggests it is lighting of some form which serves as the gateway to the smart home for the mainstream consumer. While I can see this being the case, I could see something else being the gateway as well. Maybe a smart speaker like the Amazon Echo or even something as simple as smart TV cable boxes like the Apple TV or Roku which begin supporting smart control features and serve as a gateway. Or there may simply not be one gateway product to the smart home.

Regardless, the point remains. Once consumers buy one smart home product, they do not usually stop there. This is the trend line we feel is positive and, as we solve some technical issues around installation for many of these products (it doesn’t require you to be contractor/electrician/plumber/etc.), then we will be confident we will close the gap between the early techies who make up the smart home market today and see the smart home capture the masses.

Unpacked for Friday, August 5th, 2016

The Human Family – Apple’s New “Shot on an iPhone” Ad – by Carolina Milanesi
Apple just released a new “shot on iPhone” ad and, as usual, it is simple, elegant and will probably strike a chord with many who will watch it.

What I love about these ads is they advertise the product, the iPhone, and position it as the camera millions of people use every day. It shows beautiful pictures people are empowered to take, thanks to the iPhone. Yes, these “oh ah” videos are ads — Apple is not a moviemaking business after all — they sell hardware as their core business.

This is the second time this year Apple delivers more than pictures though. In its earlier Mother’s Day ad, Apple included a picture of a mom with a headscarf and an oxygen tube and one of a same-sex couple. No message was really needed and including those pictures was deliberate. So was excluding the same-sex couple picture from the ad in specific countries where the unspoken statement could have easily been seen as offensive by many.

This latest ad is loaded with a message beautifully delivered by Maya Angelou’s poem “Human Family”, “e are more alike than we are unalike.” The ad will be aired during the Olympic Opening Ceremony on Friday, August 5. If you think getting a Super Bowl slot is great, multiply that by the 207 nations that will be taking part in the Olympics in Rio. The ad is ideal for the Olympics — all people from the different corners of the world coming together. It is also a perfect reminder of human value for the US that has seen a lot of ugliness recently, both inside and outside of the Presidential race. Tech companies have been called to be more vocal about social issues as their leaders are seen as having a lot of influence, both in politics and as role models.

Tech companies have also been called to do more within their own businesses. This week, women and minorities inside Apple can also say “we are more alike than unalike” as Apple published its “Inclusion & Diversity Report” showing women and minorities now have equal pay. Back in February, Tim Cook had said an internal study had found women made 99.6 cents on the dollar compared to men, while underrepresented minorities made 99.7 cents to the dollar compared with white employees. Hiring practices are moving more slowly, however. Apple increased the percentage of female new hires from 31% in 2014 to 37% so far this year, while the figure for underrepresented minorities has increased from 21% of new hires to 27%.

Apple Announces Security Bounty Program – by Ben Bajarin
Late yesterday, Apple announced a new program where they are inviting the research community to spend more time digging into and looking for security vulnerabilities in their software and services. In 2014, Techcrunch encouraged Apple, at the request of security researchers reporter Matt Panzarino spoke with, to be more transparent about security. A bug bounty program was one suggestion in moving forward with that transparency. By bringing the research community more broadly into the security effort with this bounty program, Apple is doing just that.

The big question is, why now? As I’ve always said, Apple is the master of timing. Looking back on how the foundation for Apple’s security has been laid, a key piece came with the jump to 64-bit processor architectures and the creation of the secure enclave processor design. Both of these manifested themselves in the iPhone 5s and subsequent products. Meaning, in reality, we are only a few years into the hardware designs from a security standpoint. Built from those hardware bits are all the new layers of iOS security and iCloud server side security as well. So the foundation has been being laid the past few years and is now ready.

I had the opportunity to speak with Apple about this program and one point that stood out to me was their mention that security bugs are becoming harder to find. This tells me they had been aggressively poking holes at their security solution (as they should be, given their priority here) and, for the past few years, they were finding enough on their own. Now that security vulnerabilities are becoming harder to find, they are inviting more experts beyond Apple’s walls to start digging deeper into their security solutions and to help them make more secure products.

What we have to keep reminding ourselves is the security discussion is not a static one. Hackers get better and so companies like Apple with a security/privacy priority must keep advancing. Apple’s products will never be “secure enough” as there is no such thing. This security bounty program will motivate experts in the community to help Apple continue to be aggressive in making the security of their products best in class.

Instagram Clones Snapchat’s Stories Feature – by Jan Dawson
This week, Instagram launched what is effectively a clone of Snapchat’s Stories feature, in which users collect a series of photos and videos into a daily Story which is viewable for 24 hours and then disappears. I’ve already discussed the merits of the act of copying on my Beyond Devices blog, so I won’t rehash that argument here. Suffice it to say, I’m not impressed with how precisely Instagram has copied Snapchat’s feature, right down to the name and unintuitive user interface.

However, the logic behind this move is sound and that’s what I’ll focus on instead. The reality is virtually all services competing in the same space almost inevitably end up with very similar feature sets. We’ve seen fairly predictable transitions from photos to videos to live video and beyond in dozens of apps already and many of the details also end up being the same. But one of the things that has always set Snapchat apart is the ephemeral nature of the content posted there and the rawness that goes hand in hand with the fleeting nature of Snapchat sharing. Instagram, by contrast, is a far more curated and cultured experience, with individual posts being carefully crafted in order to get the most likes (and with some teenagers deleting posts that don’t measure up in order to curate their feed even more carefully).

Enter Instagram Stories, which is clearly designed to foster that same kind of fleeting sharing within Instagram. Facebook famously tried and failed to acquire Snapchat itself and has also failed with several organic attempts to build competitors, so it’s interesting to see Instagram as the home of the latest move in this direction. Two factors make this a sensible move, though. First, Instagram is enormously popular already among the same demographics that use Snapchat, especially teenagers. Second, Instagram is already focused on the kind of visual content Stories is built around. As such, Instagram’s Stories gets to tap into both existing habits and a very large base of users in the target age group.

I don’t think the intention here is to kill Snapchat – the app and service has evolved significantly from its early days as a somewhat shady messenger and there’s a lot more to it now than the original version of Stories. But I do think Instagram’s version is intended to steal away usage and to keep its users in the Instagram app longer. If a key reason for using Snapchat is to post Story-type content, then allowing users to do the same on Instagram should keep more of them there and give them one less reason to go to Snapchat. Precisely because Instagram has a similar penetration among teenagers to Snapchat, it has most of the necessary social graph in place to make the transition fairly seamless. That’s smart and arguably the closeness of the Instagram version to the Snapchat original will only help with that, even if I find the morality of such cloning questionable.

The only possible downside is more clutter in the Instagram user interface for those who have no interest in Stories. The concept is deliberately different from (and arguably even utterly foreign to) the core Instagram experience and I worry some users might be put off by the inclusion of Stories in such a nice clean setting. But I suspect Instagram will benefit far more from its addition to the app than it will be hurt by it.

Unpacked: Consumer Preferences with Bots and AI

We are starting to study how the market will react to AI in general and business/services bots in particular. There is no question we will see more and more digital agents act as front ends to services. Businesses will build these bots to capture leads or offer a first engagement point with their business. Many interactions with services agents rarely require a human. The shift is from automation to conversation with bots and AI. Automated responses are generally pre-scripted and are the primary digital interactions today but, going forward, these will become more diverse and free-flowing, allowing us have more natural engagements with whatever digital agents we are interacting. To that end, I have a few data points to share.

Simply looking at preferred interfaces for a digital agent, 52% of consumers in our panel said their preference is to type/text as their main interaction point. 46% said using their voice/talking to a digital agent is their preferred interface. This tells me bots/AI agents are going to need to support both voice and text driven conversational interfaces. This is one reason why I think it makes a great deal of sense for Apple’s Siri to also be a chat agent, perhaps integrated into iMessage. While preference is helpful to understand here, there are many times we are not in a position to start talking to our AI assistant, in public for example. The conversational AI/bot experience needs to have options for voice and text interfaces and businesses will be wise to use tools that let them do both.

The most interesting question I asked was if the individual wanted to be notified they were not talking with a human chat agent in this conversational interface. Quite interestingly, 78% said they would like to know up front if the digital agent they are talking/texting with is a human or a bot. This was quite a bit higher than I expected, as my sense was, as long as it was being helpful, who cares? Certainly, there are demographic elements at play here, where younger people are not as concerned about the agent being a bot or a human. But we are also in a technological transition when it comes to artificial intelligence. Meaning, some cultural and demographic nuances are to be expected. 21% stated they did not care if it was a human or a bot as long as it was being helpful. Five years from now, I doubt this human/bot agent divide will even be in the public consciousness.

Lastly, when looking at industries the conversational bot/AI interface was desired, the top one was banking with 29% of consumers saying they would most use an AI/bot and the conversational chat interface for banking-related matters. The second was retail-related (product questions, ordering issues/returns, etc.), and third was medical-related inquiries.

In most of the cases in industries where this type of interface is preferred, it was the same ones consumers said they interacted with most on a monthly basis. Meaning, at first, these digital AI agents will likely be an extension of customer support of some kind. The big question is how and when we can extend these services to be more than front end interfaces for customer support and perhaps encourage and generate new behaviors and value propositions.

Unpacked for Friday, July 29, 2016

Huawei’s Growth Continues but Challenging Apple will not be Possible without US – by Carolina Milanesi

On Tuesday, Huawei Consumer Business Group announced its 2016 half year financial results, reporting an increase in revenue of 41% year-on-year. Smartphones shipments stood at 60.6 million units, an increase of 25% over the same period in 2015. Richard Yu, the business unit CEO, cited Europe, North Africa, Central Asia and Latin America as the key growth driver. In their press release, other than quoting GfK’s market share numbers, Huawei pointed to sales of the Mate 8 and P9 as evidence they are making inroads in the high-end market:

“Sales volume of the Mate 8 increased by 65% when compared with sales of the Mate 7 during the same period in 2015. Furthermore, 4.5 million P9 and P9 Plus devices have also been sold, of which the number of devices sold internationally increased by 120% when compared with sales of the P8 during the same period in 2015.”

This is certainly a good set of results but Huawei’s ambitions to challenge Apple and Samsung as the number one smartphone vendor in the world remains not an easy task despite these results.

Huawei is facing more and more competition in its home market that challenges its current leadership position. The shift in focus towards the high-end of the market might cap Huawei’s potential going forward as the lower-end market is much larger and, right now, being captured by local brands that will look to upgrade their users over time. Honor is Huawei’s lower cost option in China but the online distribution will limit how much they can penetrate the less urban areas in China where there is still a lot of untapped potential. Basically, Huawei will be facing similar problems Samsung and Apple are already facing. When looking at intention to buy, only 10% of consumers are considering Huawei vs 12% for Samsung and 16% for Apple. The combination of the Chinese players is the real threat as 5% of consumers are considering Xiaomi and 7% are considering Oppo, Vivo or Coolpal.

As the growth opportunity in China decreases, Huawei needs to make sure to make significant inroads in the US, the only other single market that will give them enough volume to really make the climb to the top possible. Huawei only has a 2% installed base in the US and intention to purchase of only 3%. It is clear Huawei has a lot more work to do in the US. The online channel in the US is growing which is good news for Huawei’s Honor brand. The bad news, however, is consumers who are preferring the online channel are much more price conscious and less brand conscious. This mean that, while Huawei brand strength is not enough in the high-end, in the low-end having a leg up over more unknown brands does not actually help either.

The Yahoo-Verizon Deal – by Bob O’Donnell

After months and months of speculation and doubtless hours and hours of negotiations, Verizon announced at the beginning of the week they were purchasing the core internet content assets of Yahoo for $4.8 billion. Yahoo’s investments in Alibaba and Yahoo Japan are not part of the deal and will be spun off into a yet-to-be-named new entity.

The deal closes a major chapter in internet history as Yahoo served as a key gateway to the web for 21 years and to billions of users. Even the Yahoo brand is likely to take on a diminished role. While Verizon will likely keep using it for certain content properties, it will be just one of several Verizon will need to rationalize over time.

For Yahoo, the deal is likely about as good as they could get but certainly a far cry from valuations it’s held in the recent past. Despite four years of efforts to turn it around by CEO Marissa Mayer, the company ultimately was never able to overcome its lack of focus. Numerous efforts at creating new types of content and services never gave the company the boosts it needed and it slowly lost share in both search and web-based advertising.

For Verizon, the purchase is clearly part of an effort to build up a growing portfolio of web-based content. The traditional carrier business continues to be challenged by lower prices per data bit, the ongoing decline of voice services, and the low-growth, utility-like nature of the business. Recognizing these challenges a while back, Verizon has been acquiring content (such as AOL, the Huffington Post and others) in order to create a potentially high-growth, advertising driven business. With Yahoo, they get an established name and, most importantly, a billion active users.

As has become clear with major web-based content properties, the only way to really succeed is with scale and Yahoo gives Verizon more of the scale it desperately wants. Having said that, there are many remaining questions about how the two companies’ cultures will blend (or not), whether or not key employees will want to stay and, as mentioned earlier, how all the various content properties will be organized.

History has shown us these megadeals often don’t work out very well and, to be honest, the cards seemed to be somewhat stacked against this one as well. However, if Verizon can address these issues, they may be able to break the mold. If not, it really could be the end of Yahoo as we know it.

Samsung’s Profits Boosted by Smartphones Sales – by Carolina Milanesi

Samsung’s second-quarter operating profit jumped 18% to 8.1 trillion Korean won ($7.17bn; £5.46bn), in line with the company’s guidance issued in July. Operating profit at its mobile division soared 27% year-on-year to 4.3tn won. That is mainly driven by strong sales of its Galaxy S7 and Galaxy S7 Edge smartphone models.

As I’ve mentioned before, Samsung is where Apple was with the iPhone 6 upgrade cycle. The Samsung Galaxy S6 did not excite consumers and many passed the upgrade opportunity by until the 7 came along. With a much greater upgrade cycle this year, Samsung will struggle to replicate the cycle in 2017. From a revenue perspective, Samsung might be able to deliver a stand-alone VR solution in 2017 at a more affordable price than Oculus and HTC Vive and supplement any slow down in smartphones.

In smartphones specifically, Samsung could experiment with bendable displays but it would be a risk that might not pay off in sales as, when we look at history, mass market consumers have proven to be quite conservative when it comes to design – think of the Nokia 7600 or the 3650, the Bang and Olufsen Serene, or the Samsung Serenata and how they all flopped.

Samsung should also incentivize more annual upgrade options as those will help create a more predictable cycle.

As far as the rest of 2016, despite Samsung pointing at the upcoming Note launch, I expect a repeat performance of previous years where sales will not actually make a difference to the bottom line. With most phones now having a larger screen and the Edge 7 having many of the features once exclusive to the Note, it will be hard for the Note update to really stand out and pen input is still not a major driver for consumers.

Apple Sells its Billionth iPhone – by Carolina Milanesi

On Wed, Tim Cook announced, “Last week we passed another major milestone when we sold the billionth iPhone. We never set out to make the most, but we’ve always set out to make the best products that make a difference. Thank you to everyone at Apple for helping change the world every day.”

Looking back, Nokia is the only vendor to have devices that got anywhere near this milestone. Apple did not just do it with one model as many will rush to point out. Nokia’s 1100 and 1110 sold around half a billion units. Price points were of course very different — the 1100 cost around $100. In fact, Nokia’s billionth phone was an 1100 back in 2005. Aside from price, doing worldwide winners like the 1100 was much more difficult than it is today in a world of software-defined devices. Back then to ship in different countries, you had to have different physical keypads and the cellular standards were more fragmented than they are today. Different times.

Apple’s achievement, despite what critics say, is a considerable one when one accounts for the average selling price of the different iPhone models which ranged from $400 to $800. This is what the installed base looked like at the end of the second quarter of 2016:

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Source: GWI, July 2016

As you can see, the current mix of the installed base offers ample opportunity for the future iPhone 7 to encourage upgrades from current iPhone 6 users. The iPhone SE’s target is more those iPhone 4 and 4s users out there. From an ecosystem perspective, the latter is as important to Apple than the former. Making sure users have access to Apple Pay, Touch ID, Live Photos, etc., ensures their level of engagement and satisfaction remains as high as it can be. So, while ASP might be impacted for now by the success of the iPhone SE, in the long run, Apple will benefit from it.

As I mentioned in my earnings analysis however, Apple needs to start looking at its installed base more deeply as it is much more segmented than it used to be. The iPod might be the only product that had comparable breadth in user base characteristics but, due to the price difference, parallels will only go so far in helping with predicting or understanding iPhone upgrade behavior.