Apple – Page 13 – Tech.pinions

Why Does the iPad 2 Still Exist?

There seemed to be some general surprise from many as to why the iPad is going to stay in market. Particularly since it still has the 30-pin connector. Many assumed Apple wants to be aggressive in moving their hardware base to the new Lightening connector and were thrown for a loop with this news.

This actually makes a lot of sense when you understand a few things. First, my friend Stephen Baker at NPD pointed out in a blog post today that the iPad 2 has remained a strong seller for Apple and has outsold the iPad 4 in the US (NPD only tracks US data). Interestingly, they point out that the non-retina Mini may also follow this trend and perhaps outsell the iPad Mini with Retina as well. Either way, we know for sure that Apple sells more Mini’s than full size iPads.

One other way to look at the iPad 2 and why it is still in market is for vertical markets. There are many point-of-service use cases the iPad is used for. The healthcare industry has practically standardized on the iPad. Mobile workers and field agents. Construction markets. Retail. And many more use the iPad and have developed custom software for their mobile workers. In many of these vertical use cases the person using the iPad does not necessarily need the latest and greatest. For these markets the iPad 2 makes a lot of sense.

Now, do I feel the iPad Air will be impacted this way the same way the iPad 4 was impacted by the iPad 2 staying in market? I don’t. I feel the A7 and the software that will come out showcasing its prowess may draw more people to spend up for the “future proofing” that the A7 will allow. This may be especially true in the US. There was a time where it was common knowledge that when buying a PC you should buy as much MHZ or GHZ as you could afford. Now, while I don’t believe consumers will go shopping based on these specs. There will be something psychological to the A7 and the experience it yields that I feel carry over from the old days of PC buying.

I track all these devices so we will keep our insiders informed in real-time as we know.

Apple’s Software Pricing and the Impact on the Competition

When I saw Apple’s theme around free with their software strategy I instantly started thinking about how this could impact the competitive landscape. And while doing so I remembered a strategy from the art of war. Force your competition to compete on a battle field where they have no chance of winning. This is exactly what Apple has done by creating what I can only now call a software-as-a-service model.

Microsoft is a software company and much of their value is wrapped up in businesses like Windows and Office. Like OS X, Windows costs nothing to the person buying a new PC. The cost of the operating system is included in the cost of the hardware. But unlike Windows, a consumer who buys a Mac now knows that all future versions–that come out annually–will cost them nothing. Basically, a Mac customer will always get the latest and greatest software all simply with the initial purchase of the hardware.

When you understand that when the majority of consumers buy a PC and view it as an investment, you see how this strategy can pay off. Microsoft can not make this promise to their customers. Microsoft can and will release rapid Windows software developments but there can be no guarantee to the consumers that future OS versions will be offered to them for free. This is what Apple referred to as “the new era of OS pricing” and it is one I can’t see Microsoft competing with.

Microsoft will also see the value of Office challenged by the mass market. If you are an enterprise customer whose business has spent a great deal of money and time building templates around Office programs, then you will remain committed to Office. However, there are many hundreds of millions of consumers who have no such Office dependency. For these customers the iWork will fully meet their needs and will be offered at a price that Microsoft simply can not offer Office at–free.

Lastly, iLife is a vastly underrated suite of applications. When you survey consumers and ask them the more compute intensive things they do with their PCs it almost always comes back to creativity. They edit and manage photos, they create videos, etc. When you buy a Windows PC there is no built in software suite to serve the basic creativity needs that consumers value more than productivity, in most cases. The fact that Microsoft ignored this has baffled me for years and is further evidence that Microsoft understands business customers needs but not consumers needs.

Throughout the years we have done PC buying intender research. Now while price remains a key driver, and always led us to predict the volume mix between Macs and PCs, the consumers who were considering Macs continually brought up iLife as a reason. The other main driver of interest in Macs was built in customer support. These value proposition remain and are enhanced now by offering OS X (and all future versions) as well as iWork for free.

This is what I mean that Apple has made clear a software-as-a-service model as their strategy. A consumer knows that an investment in Apple’s hardware is also an investment in future software innovations. This can not be underestimated by the competition.

Could Apple be Reinventing The Hybrid Notebook / Tablet?

I was quite intrigued by an article in CNET that shared a research report from Barclay’s Equity Research that speculated on the idea of Apple creating an iPad with a larger screen and using their new 64-bit processor in it.

The CNET article states that “In a note to investors Tuesday, the firm laid out why it believes the new 64-bit architecture paves the way for a 13-inch model of the iPad that would be aimed squarely at replacing laptops for both casual and business users. That includes some of Apple’s Mac portables with more productivity features.” It went on to suggest that it would “Pack more RAM than current iPad models thanks to the newer 64-bit architecture; Sport a Smart Cover with a built-in keyboard and trackpad along with a battery pack to add additional running time.”

On the surface (pun intended) it would be hard to believe that Apple would create a Microsoft Surface-like device given the fundamental failure of that product to date. And while the concept of 2 in 1’s is the next big thing Intel and Microsoft are pushing to try and reignite the demand for laptops, it is too early to tell if consumers really want this type of product given the lower cost of tablets that are being used as companion devices to existing or even new laptop purchases.

If you look at Apple’s history, they normally don’t jump into a market until they see it as really valid, and then they do so by adding their design expertise, great software and services and a rich ecosystem that together delivers a better solution than any other versions already on the market. They did this when they reinvented MP3 players with the iPod, reinvented smartphones with the iPhone and reinvented tablets with the iPad. And then with each iteration of these products they made them better and rely on economy of scale to lower prices yet add more bang for the buck.

While the Barclay Equity Research Research report states that this idea is speculative, I believe they are actually on to something. While Microsoft’s Surface has been an unsuccessful product, the idea of adding a keyboard to the iPad is not new and in fact dozens of companies now create third party Bluetooth keyboards for the iPad and they actually sell pretty well. In fact, when I go to meetings I no longer take my laptop anymore. Instead I use the larger iPad and the Logitech Ultrathin Keyboard with it and using a cloud based note taking app like Evernote, Notes or even Pages I create my notes in this manner. This has worked for years and interestingly I have often thought that an even larger screen iPad with even more powerful apps would be nice, especially where true mobility is important. Surely Apple has seen the attach rate of keyboards for use with the iPad as more than a small trend and must have learned much about how people value a keyboard with the iPad.

When Apple introduced the new iPhones in Sept, they had one of the game companies show off a game they modified for the iPhone that took full advantage of Apple’s new 64 bit processor. According to them, they were able to make it work with this 64 bit chip and iOS in only about 2 hours. After the event I asked an Apple executive how they were able to do this so quickly. He said that the game itself was created for the Mac and its 64 bit architecture, but with their software developer tools, all they had to do was modify their system calls for iOS and since iOS was now 64 bit compatible, it was quite easy for them to make a Mac app work on a 64 bit iOS iPhone. Also, iOS and OSX use the same code base that underline each operating system.

For some time many Mac observers have suggested that iOS and the Mac OS were on a collision course. The fact that a Mac app could be easily and quickly adapted for iOS is quite telling. While I do think that Apple will continue to create more powerful versions of Mac OS, especially for use by their high end customers who need its raw power to handle graphics apps, engineering and other complex tasks, it would not surprise me if the Mac Apps and iOS apps are the ones that collide and delver a new type of mobile computing experience suggested in the Barclay’s report.

One could imagine a 13″ iPad/Macbook combo device that runs both Mac apps and iOS apps. Or for that matter this could work in reverse too. A 64 bit Mac OS based MacBook could easily run all iOS apps that could be modified for use on a traditional OS X MacBook. If one thought that adding 64 bit to the iPhone was a gimmick, they would be proven wrong quickly. Clearly Apple’s move to 64 bit was much more strategic than many may have thought and if this scenario is even half right, it shows that Apple has a much greater and longer vision for both of these products that could be designed in many ways, shapes and forms.

If Apple were to reinvent 2 in 1’s in this creative way, especially if the apps become cross OS and for use on all devices Apple creates, Apple could develop a whole host of new types of laptop/tablet combos that could be tied to their rich eco system that is already pretty much cross platform and deliver some rather innovative and powerful mobile computing devices in the future. Apple clearly wants the iPad to become more focused on delivering productivity as well as consumption and this could become part of their design guidelines and goals for all iPads 9″ inch’s and above. In fact, given Apple’s design chops they could even create various tablets, laptops and keyboards that could be compatible and fully interchangeable. Keep in mind, iPads are already invading the enterprise in big numbers and making them laptop like could only help them gain more ground in IT.

If this should happen, the ramifications for the industry could be very interesting. At the very least, it would validate Intel and Microsoft’s 2 in 1 designs but at the same time it could become a highly competitive product that could hinder the Windows 2 in 1’s from gaining ground in IT. And for the Android in enterprise crowd, it too would become a powerful product that could keep Android at bay for some time since Android could not even come close to delivering the same type of cross OS capabilities. And this would impact Intel if more and more of Apple’s mobile devices, including a potential 2 in 1, uses Apple’s own 64 bit processors instead of theirs. While Apple will probably never drop the MacBook, a 2 in 1 that favors Apples processor could be where the real volume will be.

Like Barclay’s, my analysis is also speculative. But given the indicators we have seen, especially how easy it is now to take Mac apps and put them on iOS, it would not surprise me at all of Apple does have various types of 2 in 1’s in the works and could try and reinvent this category of devices even if the Windows 2 in 1’s are still in the early stage of adoption by the enterprise and consumers.

Apple’s 5C Invasion Strategy

All the speculation around the iPhone 5C was that it was designed to be Apple’s product to infiltrate the lower tiers of the market and begin to take share from Android.

You may or may not know that in several markets like the US, Japan, and parts of Europe, the iPhone dominates the premium section of the iPhone market. This market makes up roughly 10-15% of the global smartphone market. Obviously Android dominates the other and much larger sections of the smartphone market. So the speculation around the 5C was that it was designed to help extend Apple’s product line beyond the 10-15% of the high-end segment. So does the 5C do this? I believe the answer is yes but it is not clear exactly by how much.

I know that is a foggy answer but this is a complex problem. If you study Apple like I do you know that what matters to Apple is not just market share but the right market share. Apple wants customers that add value to their ecosystem. Meaning that they spend money on apps, media, accessories, etc. The ultra-low-end part of the market does not do this. The larger middle-tier of the market does this to a degree. The market that Apple currently dominates does do this and in large volumes.

Apple has brought a current generation iPhone line-up in the 5C at lower-costs than previous current generation iPhones. This is why in the US market the lowest-priced iPhone with a new two year contract is $99. Now in many other markets Apple does not set the price of the phone. The carrier buys the phone then prices it at whatever they want. So this means a carrier in other parts of the world can buy the iPhone 5C then charge any price they want. They can make it free, $49, $69, etc.

So to answer the question we need to anticipate the value of the iPhone to a carrier by way of driving data services. If you follow the iPhone’s market share by way of web consumption (data) then you will know it is the undisputed leader when it comes to driving data usage on carrier networks. This is a big deal and I believe that carriers in markets outside the US understand this value and will price the 5C aggressively in order to attract the more valuable customers to their network.

So what about China?

This is the big wildcard. Apple for the first time included China as a launch day country. This is significant and the Chinese customers will appreciate this in that is shows them Apple is not treating them like second class citizens. Of course to really tackle China Apple needs to have China Mobile as a distributor.

This deal is inevitable in my opinion, especially since the new iPhones support TD-LTE which is the standard for China Mobile network. Cost aside, my firms forecast and from many others I saw, anticipated that a China Mobile deal alone could lead to 3-5% extra market share in China for the iPhone.

Is the cost high for the iPhone 5C in China? Yes, but keep in mind that all imports suffer a massive import tax. This will always keep the cost of iPhones higher than any local brands in China. This fact alone complicates the competitive landscape in China more than many realize.

All of that being said, I’ll say this about what Apple announced today. In light of the competition, they have never been up against an actual iPhone lineup. Competitors have been competing against only one current generation phone. Yes Apple offered legacy devices in the market but I can’t overstate the importance to new buyers and upgrades on current generation devices. This holiday will be the first time that Apple’s competitors will be going up this strong of a current generation iPhone lineup. With that I will add that Apple’s brand and marketing should not be underestimated by the competition.

Many of my analyst colleagues doubt that Apple’s moves today take them beyond the 10-15% they currently own. I disagree. Colors will be of interest to many segments of the market. The gold iPhone will be a huge hit in China due to what the color represents. Pair that with the project Red case and the Chinese will go crazy.

I’m not going to project or forecast what amount of extra share Apple can garner from the new lineup. But I will not be surprised if this takes them beyond the 10-15% and into the 20% if not higher. I certainly believe that in markets where the iPhone is priced even just 100-200 dollars more than a competing mid-tier Android device that the iPhone will fair well. In fact in all but pre-pay markets we estimate the iPhone to take share from the 350-400 dollar mid-tier Android devices.

There are number of data points we are tracking to validate this. Google Play app store revenue in Japan for example as well as the sales figures of Samsung and others in key regions. Lastly, we estimate that by the end of the year iOS will have gained enough ground on Android to now have more than 50% us market share.

What the A7 being 64-bit Means for The Competition

Samsung declared that it too will follow in Apple’s footsteps and embrace 64-bit processor designs in their products. I have no doubt that Qualcomm and Nvidia will catch up with equally impressive 64-bit designs. That being said, Qualcomm and Nvidia do not have what Apple does, an operating system.

Although Qualcomm and Nvidia will make exceptional processors, the question remains as to whether Google will do what needs to be done to transition Android to 64-bit.

When I first saw that the A7 was 64-bit my first thoughts were about what this means for the competition. More specifically I started thinking about what this means for Android.

Now to clarify there is a port of Android that exists that is 64 -bit. It happens to be a port of Android that Intel has developed running on their own 64-bit x86 architecture. That said, this implementation is designed for more desktop device than for mobile. Intel’s smartphone chips are not yet 64-bit. But an interesting point to this competitive story is that Intel has the expertise already to take Android to 64-bit in mobile.

There are two things to understand about this from a competitive picture. The first is that the transition to 64-bit alone is not the only contributor to performance upside. The 64-bit architecture Apple has adopted and modified is an updated version of the ARMv7 architecture called ARMv8. There are a number of optimizations ARM has included that makes ARMv8 a much more enhanced architecture than ARMv7. Efficiencies have been added that are key to the overall story. The fact that it is 64-bits is just part of the story. This is simply a more efficient new architecture built on a 64-bit framework.

Not all companies are like Apple. Apple designs their own chips solely for their own purposes. This is why they can take liberties in the design process that competitors can’t.

Competitors need to spend the lengthy time going through the ARM validation process for all their chips. Competitors also work to tune the software running on their chips but this also takes time, especially with Android, when you have to optimize for many different OS configurations.

There is no question the competition will go 64-bit but will the platform benefit? From what I see, Google wants to go downstream with Android not upstream. They are trying to commoditize computing not do something unique with it.

On Android games will benefit greatly from 64-bit. But I am not sure the rest of the developer ecosystem is trying to push the envelope. I could be wrong but we will have to wait and see. Regardless, Apple can take advantage of every bit of 64-bit computing. I’m not sure I can say the same about the competition.

The biggest blow to the competition will be the iPad. The iPad going 64-bit has the potential to transform the tablet in ways not yet imagined.

Apple’s lead time over competitors in this is significant. It will be at least a year before we see products on the market. Apple will have developers already established and entrenched.

I’ll end again by restating a point. Apple is trying to do something unique with computing. Google is not. The A7 is a prime example of this and there will be many fruits from this effort.

For a bit deeper dive on just some of the uniqueness of the A7 read this article on the role of the A7 with the Touch ID.

Apple vs. Microsoft: The Value of Strategic Thinking

Having a strategic plan and following it doesn’t guarantee corporate success. There’s always the possibility that the strategy is bad and fated to fail. But you can rest assured that the lack of a strategy will doom any enterprise to failure–and why I worry a lot about the future of Microsoft.

As Ben Thompson at Stratechery and my Tech.pinions colleague Ben Bajarin point out, Apple’s iPhone 5c and 5s announcements this week were logical steps in the careful execution of a mobile strategy that goes back at least to the original iPhone introduction in 2007. Apple’s plan is simple to state, though difficult to execute: Provide an outstanding customer experience and focus your energy on dominating the high–and profitable–end of the phone and tablet markets.

The strategy has no lack of critics. It leads to product choices that are predictable and a bit dull, endlessly disappointing tech writers who live for novelty. And Wall Street simply hates it, applying its “past success is no guarantee of future results” disclaimer to Apple with a special vengeance.

Apple doesn’t care; it has its vision and it is sticking to it.

A key element of executing a strategy is knowing what not to do. Despite its latest explosion of iPhone variants, Apple offers amazingly few products for a company of its size. And it will sell no product before its time, much preferring doing it right to doing it first (Wall Street and tech writers hate this too.) Yes, it has had its failures–me.com and Ping were recent ones–but it has had an astonishing percentage of hits over the past 15 years.[pullquote]A key element of executing a strategy is knowing what not to do. Despite its latest explosion of iPhone variants, Apple offers amazingly few products for a company of its size.[/pullquote]

Contrast this disciplined approach to the chaos swallowing Microsoft these days. All of Microsoft’s major businesses face serious threats: Long-term shrinkage of the PC market and thus the PC software market seems inevitable, attempts to turn Windows into a tablet operating system and to become and integrated producer of tablet hardware and software are sputtering, competition for Apple and Google is driving the cost of consumer-grade software to zero, and on and on.

A real strategy would force Microsoft to take a hard look at its lines of business and decide what is savable and what is worth saving. I’ve made no secret of my preference–that Microsoft should focus its efforts on business software and be prepared to let consumer-facing products go.

The acquisition of Nokia makes it clear that this is not Microsoft’s choice. But it gives no clarity whatever to what choices Microsoft will make. To attempt to defend everything is ultimately to defend nothing.

Strategic choices are difficult and usually painful. A strategically focused Microsoft, whatever focus it picks, will at least initially be a smaller company. But for Steve Ballmer in his remaining months or his successor to fail to make these hard choices will jeopardize the entire enterprise.

Understanding The iPhone Pricing and Segmentation

In my mind, the key to yesterday is to understand how the iPhone is segmenting and the role the pricing structure plays on the segmentation.

Everyone, including myself, was convinced that Apple was going to be more aggressive with the pricing of the iPhone 5c. Now, looking back, it should be obvious that Apple has not really changed much in the way of their strategy. They did fragment the iPhone line as many expected. They did introduce a ‘new’ product at slightly lower price point. But they did not do what many thought, which was hit a price point that fully targets more unsubsidized and pre-paid markets.

That being said, there is more to the pricing strategy than meets the eye.

Understanding the Segmentation

Over the last few years, Apple has sold a current generation iPhone along side several last years models at discounted prices. From looking at the sales announcements from many carriers, we know that later generation iPhones sell extremely well. Verizon even reported that half of their iPhone activations were non-LTE, meaning the 4S. This just goes to show you the strength, even in the US, of devices at the $99 subsidized price range.

Outside of the US, and in many areas of Europe, the price of handsets vary much more than they do in the US. Carriers can acquire the devices at their wholesale prices and offer them at whatever cost they want to acquire new customers. In the US we see Walmart do this from time to time with the price of the iPhone 5. Walmart just recently dropped the price to $98 of the iPhone 5 with a 2-year contract. They can do this because of the cost structure deal they have to carry the device and incentives on contracts. Couple that with the fact that people don’t go to Walmart just to buy iPhones and you can see how they can make up some perceived cost losses with additional items bought in store.

For many carriers the iPhone does a similar job on their network that it does for Walmart in stores. Carriers hire the iPhone to drive up their average revenue per user. The iPhone is the undisputed leader for network operators in driving ARPU. The iPhone 5c gives them some leverage to be creative with their pricing of the device in order to acquire new customers and drive higher ARPU than they could before with the premium iPhone model.

Take a look at the chart below and the iOS share of web traffic in specific countries.

This demonstrates the good job the iPhone does in driving premium data services. In regions still trying to drive LTE users and monetize the massive investments they have in network infrastructure, the iPhone is the best product for the job.

Looking at the lineup, I will not be surprised if the iPhone 5c becomes the larger share of iPhone sales. Thus Apple has created a phone for everyone, or at least most, and a premium phone to aspire for. This is segmentation at its best.

Economies of Scale

One other element to watch with the 5c is whether the price may come down as manufacturing economies of scale allow. Since the casing is using a process much less complex in the finishing and machining than the 5 and 5s, it may allow for economies of scale to allow for better pricing.

This of course may not be evident in anything other than the carriers ability to be creative with the pricing. It will be interesting to see if the pricing carriers have with the iPhone are the same in six months time or less.

Overall Apple’s competition has never been up against a current generation product line. They have been up against a single new iPhone in two different colors. Previously Apple had two current generation iPhone choices for consumers. Now they have eight.

I’ve always said that it took an army of Android devices to compete with Apple. Now Apple is creating it’s own army. I do have to imagine competitors are a little nervous.

The Myth of an iPhone Killer [Updated with added chart]

The resiliency of the iPhone in not just the US but global markets as well is truly a marvel. As we will see in some of the charts below, against all odds Apple’s iPhone market share remains steady.

I’ve long argued that vendors in the Android ecosystem compete more with each other than with Apple. One can take a perspective that says a consumer who buys an Android phone is a lost customer to Apple, at least for the time being. In the case of the ultra low-end and cheap phone market, those customers are likely simply not Apple’s target. They may be when they are ready, if they ever get so far as to value the things Apple creates. In the case of the premium market for devices like the S4, HTC One, etc., we notice that these devices seem to take share from each other more than Apple–especially in the US.

I don’t think many realize how dominant the iPhone is in the US among premium handset market share. Getting these specific statistics (iPhone 4s, 5) share of premium sales is tough but from inside sources I’m told that by quarter the iPhone US share of premium can go between 60-75%. The key take away is that the iPhone is the dominant sales device in the premium segment of the handset market.

Even knowing that, myself and many would agree that looking at usage of the devices is the key metric. People can buy lower end and even premium Android devices all they want but if they are not being used as smartphones, or creating value to the carrier, then we wonder if we should even count them.

Below is a look at the share of platform usage in the US.

As you can see, even when new premium Android devices are launched in the US there appears to be no significant impact to the iPhone. Perhaps even more interestingly is the dip in iOS usage share during the “droid franchise” peak. Then as we can see when the iPhone came to Verizon it gained share back. The key losers over this time period was clearly RIM.

Now if we turn our eyes to the global vendor market share, we see similar patterns. For obvious reasons, the iPhones share of the global smartphone install base is much lower than the US but what we see is that its piece of the pie stays relatively the same size.

Notice for example that Android’s gains are not making the iPhone’s share of the pie look like RIM’s, Bada’s, or Symbians. Meaning declining. Android is gaining, yes, but the iPhones share is not decreasing like the others.

Now to look at what the opportunity looks like going forward I want to show a much bigger global handset vendor picture.

When looking at this image there are several things to note. First is that the iPhone’s share again remains relatively constant. It is not shrinking dramatically like other vendors but keeps its slice of the pie relatively static. However, look at the global rise of “others” in this chart. These are largely white box label vendors flying off the shelves in China. The size of the “others” pie is even larger in China than local brands like Huawei and ZTE. Others is the real growth opporunity as we see customers refine their interests and look to go with more established brands than white box makers.

I can show charts all day of global vendor sales and in no chart will you see iPhone’s share of the pie shrink rather you see it maintain. Obviously, what we will watch going forward is for the share of the pie to grow, likely at the expense of “others” to begin with. The point to take away in all of this is simply that there is no such thing as an iPhone killer, even though many assume there is.

iOS App Store vs. Google Play: Key Stats and Important Observations

I’ve come across a few stats regarding the iOS App store and the Google Play store that are more than just a little interesting. If you follow the industry closely then you are aware of the narrative that gets circulated that iOS garners heavier user engagement than Android. There are many data points to support this but the below picture outlines where things stand today.

All of this is important to understand in context. What all data, like the above, showing engagement is tracking are identical tasks. Yet if you evaluate each platform you realize not all time spent on the device are identical tasks. The ones above are common, yet what we don’t know is how much time is spent on other apps and more importantly how much time is spent browsing or shopping in the app stores. This is why I’m more interested in data showing app stores sales and related behaviors than anything else.

I recently came across a new report from Distimo which tracked both Google Play and iOS App store revenues across many different regions. Below is their data of total revenue of each app store in each country tracked.

So many interesting observations need to be made from this chart. The first is related to the United States.

What this chart shows, and many other data points I’ve acquired point out, is simply how important the US is from a revenue standpoint for developers and for each platform. One could argue that the US is the most important strategic battle ground in many different ways. The US has just over 313 million people of which 191 million currently own smartphones. In Smartphones, Android has a slight market share lead over the iPhone with approximately 95 million users on Android and approximately 88 million on iOS and the rest with either BlackBerry or Windows Phone. ((I say approximately because I know I’m close with those estimates but possibly not exact))

The second is related to Japan. Japan is clearly the second largest app marketplace in terms of total revenue. Japan has 127 million people of which 45% own smartphones. This brings Japan’s smartphone install base to approximately 57 million. iOS has 33% OS share in Japan with just over 18 million iPhone users. Android has 66% market share giving us 37 million users in Japan. The iPhone in Japan is the single best selling device followed by Sharp, then Sony, then Samsung. I highlight this data so you have context when looking at the App store sizes and revenues.

South Korea has an active Smartphone install base of 50 million of which 70% own smartphones. Out of the 35 million smartphone users 90% use Android or 31.5 million people. The bulk of the additional 4.5 million consumers in South Korea use iOS.

Now with those data points in mind, let’s consider the following:

Japan and South Korea are Google Play’s largest revenue generating regions with significantly less Android users in each region. In Korea, and this is fascinating, 35 million Android customers outspend 95 million US customers in the Google Play store. Please don’t forget Samsung is based in Korea as well as LG and both run Android. Now back to my first point. Not forgetting that the US is a critical battle ground for App stores, what about South Korea? Put yourself in Samsung’s shoes. How much leverage does this give them against Google? Google, from a Play revenue standpoint, can not afford to lose South Korea. Yet Samsung is toying with the idea of usurping Play store and developer revenue from Google. And the scary part is that Samsung can do this just for their home country and bring in a pretty penny. Although I believe they have much more grand ambitions that just conquering their home country, which should have just happened by default if you know anything about Korean culture.

the iOS app store shows strong resilience in all the markets in which it competes. With the battle that Both Google Play and iOS are in at a global level, notice what country is not in the chart. China. Google Play will likely never be in China, yet Apple is still planning their attack.

The data also points out that the Google Play market grew 67% in the past six month’s. Mostly thanks to Samsung mind you. During that same period the iOS app store grew 15% yet the Apple app store generate two times more revenue. Much of this thanks to iPad, and keep in mind without any real help from China..

So here again we see the narrative that although Android has a larger install base, from an app economy it has the weakest position. With that we factor in the interesting question Ben Evans raised the other day:

“If total Android engagement moves decisively above iOS, the fact that iOS will remain big will be beside the point – it will move from first to first-equal and then perhaps second place on the roadmap. And given the sales trajectories, that could start to happen in 2014. If you have 5-6x the users and a quarter of the engagement, you’re still a more attractive market.”

He is just making the point of engagement and not around app store spending. So let’s look at the graphic provided from Distimo on App store growth.

Note that the Apple App store has remained relatively flat while The Play store is trending up. So the question then revolves around whether the trajectory of the Google Play store will catch up with the Apple App store. I maintain that it will not, since the iPhone and iPad are not standing still and the iPhone is still doing remarkably well in every region. Also if you look at Google Play’s biggest markets currently, Japan and South Korea, they both have smaller populations and South Korea already has remarkably high smartphone penetration. So one could argue that the room to grow in order catch up is simply not there given the timeline needed. And as I point out Google has no ‘Play’ in China (pun intended).

One market to watch with regards to Google Play is India. Per capita it is one of the largest growth sectors but this will also take time to manifest in Google’s favor from an economic standpoint. Android is doing well in India but those customers are not spending or investing much in ecosystems at the moment.

With the picture I just painted you can see what it makes sense strategically for Apple to begin to build out an current generation iPhone line of products in order to target different segments and different price points. It is all about getting customers in the door so they can invest in your ecosystems value chain.

Is Chromecast Really Android’s Attempt at an Apple TV?

I have been connecting compute devices to my TVs for nearly 20 years, the first being a Compaq Presario hooked to a massive RCA 35” tube TV via an NTSC converter. Back then, there wasn’t online audio or video content worth streaming, but there were games like “You Don’t Know Jack” that were a lot of fun. My, how times have changed. I now have three Apple TV’s and an Intel-based WiDi base station connected and also a few retired Google TVs that currently sit in boxes. I just picked up a Chromecast, and after using it for a week, I wanted to share my thoughts and impressions, and out of those, see what insights I found. One thing in particular I have a lot of questions about is exactly what Google is trying to do strategically. Let’s start with the product.

My first impression after I opened the package was just how small it was. It’s really small, thinner than my Kingston 32GB USB3 stick, but wider at the end. I was thinking, “What a great thing to travel with”, or that I could move it from room to room between my 4 HDTVs. It appears at the outset that Google is trying to “one-up” Apple as it relates to size. I do need to point out a few things, though.

What the pictures never show is that Chromecast requires USB power, either from the TV or from a charger. I first thought that it supported the MHL standard where HDMI is powered, but it doesn’t. While Apple TV beauty shots never show power cords it still bugged me because the expectation is that Chromecast is drawing power from the port.

Let’s talk setup. It’s really easy. You just plug the Chromecast into the HDMI port, plug it into your TVs USB port and the hardware is setup. WiFi setup is a lot easier than any other connected TV device as there’s no painful pass-code entry with a T-bar remote like on the Apple TV. With Chromecast, you download the Chromecast Android app, Wi-Fi connect to your phone, enter the pass-code on your phone, it hands off to Chromecast to your router, and you’re connected.

One other thing I need to point out is Chromecast’s visual style points. There’s never a black screen when it’s connected. What you see are stylish, full screens of nature and cityscapes. So Apple-esque….

One potential setup issue will occur wherever there is a logon screen to connect. Like An Xbox or Apple TV, there is no way to sign into a hotel or work WiFi screen to put in a special access code. That’s disappointing, especially if you wanted to use it while traveling. This limits Chromecast’s utility a bit and somewhat defeats the purpose and value of its small size.

Let me move to content.

Chromecast currently supports Android app-based YouTube, Google Music, Google Play TVs & Music, and PC and Mac Google Chrome browser content. I watched four movies via Android Google Play and the experience, on the whole, was good. The video and audio was high quality. My only complaint was fast forwarding and rewinding. If you miss something and want to go forward or back a few minutes with any degree of precision, it’s really difficult. I attribute this to WiFi latency. Someday, the industry need to get with the WiFi direct program and remove the router from this usage model equation, but not now in this case. Android Google Music and Android YouTube worked well, too.

The PC/Mac Google Chrome mirroring experience, albeit in Beta, worked really well for me. There is a lot of noticeable latency, much more than Airplay, but for most music, movies, video, and even doing a slide presentation, it will be just fine. There are three of classes of content on the Chrome browser: 1) those that use Google’s API and have a seamless and full screen experience, 2) those that you must set manually to full screen and, 3) those that don’t run video at all. YouTube and Netflix use the Chromecast API. Super Pass, Hulu and Vimeo don’t use the API, but work just fine. Finally, Amazon and Time Warner Cable, probably because they use Silverlight, won’t play any video.

One thing that I find most interesting is to think what Google may do down the road with Chromecast. I find it interesting they used 3D graphics from Vivante. 3D graphics sure make menuing and overlays nice, but why add the same Vivante GC1000 graphics that’s inside the Samsung Galaxy Tab 3? Theoretically, this could run OpenGL ES 3.0 games, and the user could use their smartphone as the controller.

All in all, Chromecast is Android’s impression of the Apple TV. It follows the Android philosophy- it costs a lot less, doesn’t do as much but does enough, and the experience isn’t as smoothe (in this case driven by WiFi latency). This equation has worked well for many players in the Android ecosystem, and I expect Chromecast to sell well, certainly better than the failed Google TV attempts.

Leadership Matters More Than Market Share

A leader is one who sees more than others see, who sees farther than others see, and who sees before others see.
– Leroy Eimes

In studying the technology industry, the markets that encapsulate it, and the consumers who drive it, I am less interested in how much money a company is making, or how many devices they sell, or what a platforms market share is. Those are all interesting data points. What matters, in my opinion, is whether or not companies playing in this arena are advancing computing.

Apple’s Demise

It seems as though the popular “Apple is doomed” narrative will never go away. While this is a deeply naive statement filled with flawed pre-conceived notions, it is often thrown around publicly by those with an agenda other than genuine truth.

For some illogical reason, many are just waiting for Apple’s dominant reign to end. This line of thinking forgets that the only market Apple has dominated for a length of time was the MP3 player market. Apple may never secure a decade plus of device or category dominance like they did with iPod again but that does not mean that they do not have a healthy and profitable business that will last decades. Yet all too often ebbs and flows of markets, cyclical innovation patterns, and global adoption cycles, seem to fool people into missing the big picture.

I hear a subtle tone frequently whispered among analyst peers that Apple has had their day and it is time for someone else. That time may certainly come, but it is not today. I hold this view confidently because I am yet to see the emergence of a new leader. I see platforms gaining market share leadership. We may see devices become sales leaders, but without question Apple is still the envy of the industry. ((Being the first with a spec or some technological gimmicks does not qualify as leadership))

The Secret to Growth

“The real act of discovery consists not in finding new lands but in seeing with new eyes.” – Marcel Proust

We can debate until we are blue in the face whether the biggest growth opportunities like smartphones and tablets are saturated. But whether this point is true or not both markets will inevitably become saturated at some point. Growth will someday peak and only disruption can restart the cycle.

The key for a companies growth lies in new opportunities. Sometimes you have to create those opportunities and other times you can capitalize on opportunities others have created. But in either case vision and leadership are key.

Perhaps the next growth area is wearable computing, or the digital home and car. Perhaps it is something we have not thought about yet. This is what makes this industry exciting. The point remains, who leads these new opportunities is the key thing to watch.

Leading also means you often take some arrows in the back. It is hard and not all can handle the scrutiny. As I stated earlier, I am not naive in thinking that Apple will always be in a leadership position. But I’m yet to see another holistic leader in computing emerge.

Why Apple Should Not Create a Low-End iPhone

For a while now Wall Street backers of Apple have wanted them to create a low priced iPhone and use it to gain more marketshare. They seem to think that market share will drive up profits and expand their reach. A Tech.pinions colleague has done a great jobs dealing with the issue of marketshare vs profits so I won’t go into that here and suggest you read his series on this since it lays out a very good argument that profits are much more important than marketshare.

But if Wall Streeter’s really want to understand why this is a bad idea, all they have to do is look back at Apple’s history and see that Apple tried that once before and it nearly destroyed them. Not long after John Sculley was pushed out of Apple, Michael Spindler was brought in as CEO to try and make Apple more competitive. At the time the Mac had become a niche product, mostly used for desktop publishing, graphics, and engineering. On the other hand, the PC was outselling Macs at least 20 to 1 and pressure from Wall Street pushed Spindler to try and do things to help the Mac gain market share.

So what did he do? First, he made the Mac Look like a PC in design. Second, breaking major tradition, he licensed the OS to a special group with the idea that if there were more companies offering the Mac, it would sell more. And, Apple and the licensee lowered the prices and tried to compete with the PC head on. There was only one problem. The PC clones had access to tens of thousands more apps then was available for the Mac and IT and consumers took the safe route and stayed with PCs. Even the lower prices could not help Apple gain any ground in the PC market.

During this side trip to try and be all things to all people, Apple lost a lot of money and was in the red to the tune of almost a billion dollars when Spindler was forced out. They then brought in Gil Amelio who tried to stem the losses but by that time, it was too late to save Apple. That is when Jobs came back and took it back to its roots of selling the best product they could to their core customers. As he told me in a meeting with him the second day he had come back to Apple, he would lean on industrial design and innovation to try and grow the company again.

If you look at the low-end of the smartphone market, it is becoming a wasteland. First, as long as a smartphone has an OS, some memory and access to apps it is called a smartphone. However, low-end smartphones are now around $99 in China and well over 50% of the smartphones selling in China are white box phones that are sold off the street, in cell phone flea markets and through channels we as market researchers can’t even track. But nobody in that price range is making any money.

The same goes for other markets where these phones cost $99-$139. BOM costs alone make it very difficult for them to have any margins when they sell these products and at these price ranges, profits are slim or next to none. For Apple to try and do a low-end phone for the emerging market might help market share but at the cost of any serious profit. I trust they have learned the lessons from the last time they low balled products for the market and never go after this side of the business.

On the other hand, there is precedence from the past for mid-range priced smartphones. While the Mac for the graphics, DTO and engineering worlds became premium products in their line, Steve Jobs introduced the innovative, candy colored iMacs at prices well below their upper-end Macs. To this day Apple still sells a lot of premium priced Macs but the bulk of their sales comes from mid range priced iMacs and MacBook’s selling well under their premium lines. But what they have not done is chase the low-end of the PC market and with the is strategy they still have solid profits in their Mac Line.

There are rumors that Apple will soon introduce lower priced iPhones, but don’t expect them to priced to compete at the really low-end of the market or be aggressive with pricing in emerging markets. From History, Apple knows that they can still make some good profits with mid ranged priced products and if these rumors are true, Apple new iPhones would be following a proven formula that has continued to help them stay one of the most profitable companies in the world today.

On Being Bullish on Apple

I was recently presenting some of our big picture technology trends to a group of venture capitalists. As is so often in these discussions Apple came up. They were asking me questions about the landscape and where Apple fit, and how they can compete, can they keep it up, etc., and after several remarked they were suprised how bullish I was on Apple. I shouldn’t find it suprising but I am continually inrigued when others are suprised I am so bullish on Apple.

To clarify, I am bullish on Apple the company. Apple the stock, is a very different conversation and one where the future is more hazy than clear. With regards to Apple the company I am extremely confident in the health of the company and I have written extensively so. However, with Apple the stock, I really have no idea what happens. Much of this has to do with the fact that I am not a financial analyst so understanding the games in which the stock market is played is not more core area of expertise. I, of course, have my thoeries as to why Apple’s stock is treated as it is, and I will flesh more of those out over time. But the core of the issue is that Wall St. uses a standard template to anlayze Apple when it there is nothing standard about how Apple operates. Perhaps more to the point, it appears Wall St. devalues Apple’s stock because of the competitive landscape the standard template they use influences their thinking. Google and Amazon can only have the ridiculous P/E ratios they have because Wall St. seems to view them as having no real competition.

We will continue to see over time things that Apple is able to do that competitors simply can not. This is what I call the vertical advantage. When you can build hardware, software, and integrate services all tightly together with a singular vision and customer experience in mind, you end up with a highl differentiated product. One that is differentiated both objectively and experientially. I’m yet to be proven wrong in this point by a non-vertical company who uses someone elses software to run on their hardware.

I’ll put out a teaser for our Insiders. I am planning a series for Insiders only, where I plan to make the case that Apple has no actual competition. In that, I will hopefully make some points that can end up being used as a new template to evaluate Apple. I know it sounds ambitious, but I believe it to be true and more importantly I feel I have enough data and support to make the case.

TV and Killer Apps

The Financial Times recently released a special report titled “Digital and Social Media Marketing.” The folks at Social Commerce summarized the lengthy release and drew out several bullet points I find especially interesting regarding the state of television:

The average American still spends about five hours a day glued to TV; the smart money in digital is being invested in making TV advertising better
TV is not dead, it is just evolving into a two screen experience, the TV display and a tablet or smartphone. “Lean-back” TV experiences, passively consumed from the comfort of the couch, are giving way to “lean-in” TV experiences, where viewers multitask viewing and interacting on smartphones and tablets
A survey by Time Warner’s Medialab found that 65 per cent habitually multitask with a digital device while watching TV. Much of this activity is in social media discussions of TV shows (tripled in the last 12 months), stimulated by TV networks to sell TV advertising space by showing their content is more engaging

This report only confirms what I had previously suspected: multitasking is now widespread. I used to think only younger demographics multitasked but it seems that these days people of all ages use tablets or smartphones while doing other tasks. It’s done by business execs but also by those in the home. People use their smartphones or tablets while talking on the phone and while watching TV.

Since the late 1990s I have used a laptop while sitting in front of the TV. I now often use a tablet, but until the devices came out, I was the only one in my house who took advantage of a second screen. Now my wife and the grandkids play games or surf the Web on their tablets while watching TV. In a sense this qualifies as part of the two-screen living room experience but I believe this model has enormous potential when the device is intrinsically tied to TV viewing itself.

There are currently a lot of apps designed to enhance the TV viewing experience. I have Comcast’s XFINITY TV app, which lets me record programs remotely; the IMDB app, which gives me info on movies, TV shows, actors, and entertainers; the TV Guide app; and more. All better my TV experience but I believe that this is only the tip of the iceberg when it comes to the future of two screens in the living room.

When the Apple II came out in 1978, Visicalc, the first PC spreadsheet, was developed for it. It became the killer app that moved the machine from hobbyist stature to the business world and it quickly became a tool that even large businesses started using to manage their financial forecasting. When the IBM PC came out, a product called Lotus 1-2-3 became its killer app that caused the IBM to take off like wildfire in a short time. The key for both of these products’ growth was what the industry calls an SDK, or a software developer kit, which provides tools for developers to write applications for the machines. In fact, tens of thousands of apps fueled the growth of the IBM PC and PC clones as well as the Mac and to this day remain an important part of their software ecosystems.

Various companies have been creating smart TVs, Web browsers, and their own apps but what is missing is a dedicated SDK that can work on one or multiple PC platforms and encourage the development of apps for the TV. More importantly, this SDK focus should be more on the tablet or the smartphone and how they connect to the TV to deliver a richer viewing experience. I think we will soon see a model in which the TV is just a smart screen with apps designed to work with it via tablet, smartphones, and perhaps PCs or laptops.
There has been a lot of talk about an Apple TV and I actually have a bet with my son on this. I think it will make a physical TV as well as a new souped up set-top box that gives all digital TVs access to its program. My son, on the other hand, believes the real magic will be with the SDK and a new Apple TV box. He says it doesn’t make sense for Apple to make an actual TV at this time. However, we both believe that the Apple TV focus will be on the iPhone and iPad; the TV will be more of a screen that is tied to and interacts with an ecosystem. It could ultimately change the way we view television and, in true Apple fashion, redefine the second-screen concept.

Just look at what Google is doing with Google TV. It too has a similar model in mind. Android TV apps are already popping up but the platform needs a dedicated SDK that just focuses on the TV to give developers the ability to create products that make the two-screen experience fly. Microsoft is also trying to drive a two-screen experience, albeit through the Xbox at the moment. I expect the company to flesh this out further in the near future.

It will be very interesting to watch what happens in the coming months with this two-screen concept. Google, Apple, and Microsoft all have their big software developers’ conferences within weeks (and miles) of each other. (Google I/O begins on May 15, Apple’s WWDC on June 10, and Microsoft’s Build 2013 conference on June 26.) They will all likely announce big news around their new operating systems and development tools for their core products, but I also expect that they will make clear their plans for a future TV.
The connection between smart TVs and mobile devices is still in infancy. This could be the year however, when these mobile devices take on a more interactive role within the TV viewing experience. By July we may finally get a real glimpse of what the two-screen TV future will actually look like.

The Power of The Internet In Your Pocket

Sent from my pocket computer. That is my signature for any email sent from my iPhone. When most people think of their smartphone they don’t necessarily think of it as a pocket computer. Yet that is exactly what this device is. 
In 1949 Popular Mechanics famously stated: “Computers in the future may weigh no more than 1.5 tons.” What once fit in a rather large room, now fits in everyone’s pocket.

Have we yet wrestled with the implications of this reality? I don’t think so. 

1 out of 7

Today, approximately 1 out of 7 people on the planet own a smartphone. That comes out to just over a billion smartphones in use in the world. You may think 1 out of 7 sounds like a lot but in the big picture we still have a long way to go. 
Bringing a computational device in the form of a smartphone to every person on the planet is a potential reality and the promise of the future. But even more profound and perhaps even more important to future of humanity be these devices to the Internet. I would argue that the Internet is the most valuable feature of any smartphone. By bringing the Internet to every person, by way of a smartphone, will drive it to be the primary computational device for more people than any other piece of hardware. For the masses in the developing world a smartphone is not just a pocket comptuer, it may be their only computer.

Over the last decade, the Internet has already transformed the developed world in ways never imagined. It has transformed how we communicate, how we learn, how we play, how we work, and how we are entertained. All these and more will continue to undergo radical transformation. But most of the innovations we can point to are all coming from first world perspectives and solving first world problems. Often, innovation from a first world perspective is generally more about convenience. From a third world perpsective, innovation will play a key role in survival. 
When the developing countries get their hands on the profound power of the Internet in their pocket, it will not transform how they work, play, and learn, it will revolutionize it.

Knowledge is Power

There is simply nothing like the Internet. The collection of knowledge and information on the world wide web is unparalleled. Of course the web contains its share of stupidity but it also contains quite a bit of valuable knowledge which is more readily accessible today than at any point in history. 
It is fascinating to look at this by using the analogy of good old fashioned libraries. Once upon a time in history the library (a storage facility of valuable information) was reserved for kings, nobles, and high class citizens. Over time they shifted from private access to public access. The printing press drove this shift and mankind entered into an era where knowledge became accessible in ways it never had before. I believe when the masses have the Internet in their pockets, it will have as profound of an impact as the printing press–perhaps even more. 

Think about all the free knowledge we can glean from the Internet. I myself have been amazed at the things I have learned and experiences I have engaged in that came from the web alone. Things I would most likely never have ventured to try or do without the Internet at my fingertips. For example, I learned how to roof an addition on my house all to contractor code. I learned how to milk a goat, play the drums, string a tennis racket, how to tie fly fishing flies, and a plethora of other things. 
Today, pocket computers are already transforming key parts of the developing world. In some cases they are providing a new tool in the fight for survival. For others they are transforming how they do business or engage in local commerce and even banking.

Agriculture is another area the mobile web is revolutionizing rural parts of the world. It is fascinating how smartphones are being used in Africa to negotiate prices for certain crops, get seasonal growing advice, and learn how to better manage their crops and grow new ones.

The health industry is being transformed as people can get treated or diagnosed remotely where doctors are scarce via the web and a pocket computer. In some areas doctors are even remotely training and sharing information about how to fight disease and promote better health among villages. 
Remember the Arab Spring? A civil uprising by freedom fighters was powered by the mobile web. What kind of activism will pocket computers empower as more and more people get the Internet in their pockets?

A first class education can be brought to any person. Or they can simply glean knowledge as I did on subject matters of interest which is freely accessible online.

On every continent the mobile web is positioned to revolutionize banking, health, activism, disaster management, education, communication, and even entertainment. 
Future generations from every part of the globe will grow up drastically different then the generation before them. Some parts of the world have gone from poverty to at least middle class luxury in less than 10 years. Many of them have been in China. Parts of India and Africa are equally undergoing drastic changes and accelerated growth thanks to technology. Many of us will watch as before our very eyes some of the largest populations and societies will be transformed by pocket computers and the Internet which will power them.

The Internet revolution will cause more profound global change than the industrial revolution ever did. And the crazy thing is, we have barely started this quest to bring the Internet to everyone on the planet and give them the power of a PC in a device that fits in their pocket.