Category: Apple

Very soon, Apple will make its 100th M&A acquisition since it acquired NeXT Computer in 1996. This acquisition was done by then Apple CEO Gil Amelio, and just before he made that acquisition, he asked me about my thoughts about buying this company from Steve Jobs. At the time, because I was helping Mr. Amelio with Apple’s mobile strategy, he and I talked weekly about his goal of reviving Apple. Long time Apple watchers will remember that Gil Amelio was on Apple’s board when the company had lost its way and was over $1 billion in the red. When the board ousted Apple CEO Michael Spindler in 1995, Mr. Amelio was asked by the board to become CEO and try and turn the company back to profitability.

When Gil Amelio told me about the idea of buying NeXT, I have to admit that I was pretty skeptical and was not sure it was a good idea. But as he shared with me how he thought Apple could integrate the NeXT OS into Mac OS and make it even more powerful, he began to win me over. But when the deal was announced, the overall market perception was that the deal made no sense and many were concerned, yet intrigued with the idea that if Steve Jobs got anywhere near Apple, he could find a way to gain more influence on Apple’s future.

Well, history has shown that Mr. Amelio and Apple’s Board’s decision to buy NeXT and bring Steve Jobs back into the company he co-founded was a streak of genius and thanks to Steve Jobs, Apple was put on a fast track to becoming one of the most profitable companies in the world today. The move by Mr. Amelio to buy NeXT set the tone for Apple to become very aggressive with their M&A strategies and given the fact that they have over $240 billion in the bank, they certainly have the money to buy IP and technology companies to bolster their overall hardware, software, and services platform.

The CB Insights chart below shows the forward path Apple has taken with their M&A activity since 1996 and last weeks’ apparent purchase of Shazam for a reported $400 million is another excellent example of how Apple uses the acquisition of IP and real companies to help them maintain an edge when it comes to innovation.

This does not mean Apple does not innovate from inside the company. Indeed, Apple files hundreds of patents based on internally created IP each year and has shown that they continue to develop new technologies and intellectual property for all of their products and services on a regular basis.
But as the chart above shows, all of the acquisitions shown above are strategic and are used to help bolster their overall IP portfolio in one way or another.

Recently, Apple committed $1 billion towards new types of partnerships and allocated $100 million of that to a joint venture between them and Corning Glass. This investment apparently is to create a new facility in the south that presumably will be used both for R&D and some manufacturing that has not be detailed yet by either company.
At the same time, we expect Apple to expand their overall M&A activity in the next three years as they seek ways to tie more customers to their ecosystem.

While the need for innovation in hardware and software is always part of their overall strategy, Apple will also probably be aggressive with M&A activity around their services business. One way to look at Apple’s overall approach would be to call it ONE Apple..an environment where hardware, software, and services encompass a total package that Apple’s customers buy into to get the best-integrated experiences within their Digital lifestyle.

This is becoming more evident with the continuous growth of their services business. Services account for around $30 billion of total revenue and are growing each quarter. This is extremely important for Apple’s future.
Apple sells about 16 million Mac’s a year, and that number stays pretty constant. And iPhone sales, while still strong and growing, needs more and more content and services if they want to get more switchers and keep current customers in their ecosystem on a continual basis. This in turn helps drive services revenue and on the whole, keeps Apple one of the most profitable companies in the world.

While it is hard to predict what type of mergers and acquisitions are next, we know that Apple is highly interested in AI, Self Driving cars and LIDAR, enhanced voice and text recognition, music and streaming media as well as new ways to strengthen their CPU’s, GPU’s and various radio technologies. I sense that Apple will be particularly aggressive in acquiring AI based IP as this technology will be highly critical for Apple to stay competitive and offer more innovative products and services in the near term. I also believe that Apple will do even have more M&A activity in the next 18 months as Apple will be under even more pressure from Google, Microsoft, and Amazon, especially in the area AI and media services.

Apple’s pile of cash in the bank gives them an excellent position to accelerate their M&A activity, as long as it is strategic for the business. That is why I expect them to be more active in this area in 2018 and early 2019.

I’m not sure if there is a misunderstanding of the smart speaker category or if it is just because of how I have my news, analysis, and Twitter feed curated. Whichever the case, I’d like to elaborate on how I think about this space now that we have a few years of market intelligence and consumer behavior with these products in our database.

In retrospect, we should have seen this category coming from a mile away. To more greatly understand why this category took off so quickly all we need to do is look back at the iPod, perhaps even further to the Walkman. The value of a personal and mobile music collection was a driving force behind some of the most successful consumer electronics products up until the smartphone. To this day, listening to that music collection on smartphones remains one of the most common use cases. Bottom line, music matters a lot to consumers.

But music hasn’t gone that far beyond the individual and their pocketable computers. People do certainly listen to music on their notebooks or desktops, but the vast majority of an individual’s audio experiences are with their smartphones today. There was a fascinating blip on the radar as portable Bluetooth speakers had a several years runs and our learnings from that episode should have made the smart speaker opportunity clear as day.

The short run Bluetooth speakers had shown us consumers wanted a way to play music from their smartphone on something with a bit more sound, likely for a broader audience both in the home and outside of the home. The problem was these devices added friction to the music experience as you had to turn them on, connect them to your phone (often unsuccessfully), select your music and choose the Bluetooth device. While not entirely miserable, there was more hassle than normal for consumers. This is probably why getting a speaker device like an Echo or Google Home where simply asking to play the artist, song, playlist, or album of your choice helped make these products no-brainers for many consumers. The same value-proposition, and now at even lower prices than Bluetooth speakers, without all the added friction to listen to music, was the genesis of this market.

However, the value didn’t stop at music. I could argue these products would have still had great success even if all they did was have a voice interface to play music but Amazon was smart and tied it to their ecosystem and the broader growing ecosystem of the smart home. But there is a more important way to think about this product overall, and why Amazon has it positioned correctly.

Smart speakers are accessories. The question is what are they an accessory to? In Amazon’s case, the Echo line of products is an accessory to the Amazon ecosystem. It eliminates friction for commerce from Amazon and allows consumers to consume more of Amazon’s services like music and video via a voice interface. CNBC highlighted this report that indicates owners of an Echo tend to spend more in Amazon’s marketplace. You could argue this is more correlation than causation, but I’m not sold. For example, I use the Echo to regularly purchase all kinds of things I normally buy on Amazon. However, there is an overlap of some of those things that I also buy at the store simply because I am there, at the store, and it is more convenient just to purchase it right then and there. This is how I view the convenience factor of voice commerce. I’m cooking and I realize I’m out of flour, or I’m doing dishes and realize I’m out of dish soap and it is out of sheer convenience I can just say “Alexa order me more Meyer’s dish soap.” Here, I would argue, the combination of convenience with lack of friction to shop does lead to more regular purchasing. Yes, I can whip out my phone and open the Amazon app and search for my soap and click on it to buy it. But maybe I won’t; maybe I’ll forget then just buy it at the store when I remember. This is what Amazon wants to avoid and having a frictionless door to their ecosystem via the Echo is very smart on their behalf.

So for Google and Apple what are these smart speakers accessories to? For Google, it is searching the Internet. Is that enough? That is the question I’m left with. That is what Google is best at and the only real differentiator they have with a smart speaker play. This is why I don’t think Google Home is doing or will do very well.

What about Apple? What ecosystem is there for HomePod? Well, I think a much larger one than we realize. For example, communications. While the Echo can call people, or be used as a whole home intercom, many Apple customers are deep in Apple’s communications ecosystem like iMessage or FaceTime. Calling or texting my wife from a HomePod will be a much better experience than an Echo and more tightly integrated. This is one advantage Apple will have over Amazon with the communications layer. Broadly speaking about HomePod, however, leaves many questions to still answer about what this product is an accessory to. Maybe Siri, maybe key apps for calendar, email, and other core Apple software. We don’t know yet, but when I can get my hands on one, this is a central question I hope to answer.

I do not believe these smart speakers are a fad, but rather the first opportunity for us to see ambient computing manifest itself in consumers lives. I’m not sure what shape this ambient computing platform takes, perhaps it is something we wear like a watch or have in our ear or on our faces or something entirely different but consumers embracing of these ambient computing interfaces has convinced me there is something there. Now it is time to build on this foundation and see where it goes.

If you keep an eye on what the financial analysts are saying about Apple these days, you know that almost all have raised their stock price targets closer and closer to the $200 per share range. Almost all are bullish, and some believe Apple’s new fiscal year will break all records and that we could see Apple become the first company ever with a trillion dollar valuation sometime in 2018.

Our research continues to show high demand for Apple’s iPhones and Services and a very lucky $299 HomePod can’t but help Apple reach this valuation. They Have $250 billion in the bank and are increasing that cash on hand every quarter. But if you think Apple is sitting pretty now, just imagine the position they will have once the Republican tax cuts take affect, and their tax rate goes to about 12%-14%. When this happens, they can repatriate billions of cash held overseas at a highly reduced rate of 12% instead of the hefty 30+% it would be today if they brought any of that money back to the US.

One of the beliefs of the Republicans who passed this tax cut bill is that if corporate taxes are reduced, and companies like Apple can bring billions of dollars back into the US, they and others will build new factories and create new businesses which in turn will create new jobs.
History suggests that tax cuts like this could work if companies did put that cash into building new factories and starting new businesses but in many cases that are not what happens.
In a lot of instances, they use the surplus cash to buy back more of their stock and then increase the dividends they give back to their shareholders. If you are a shareholder, this is good. But if you are a normal citizen who does not own stocks of these companies, it has minimal impact on you and your financial situation.

I can’t speak to how other big companies will use their new cash-rich windfalls, but in Apple’s case, they have so much money in the bank now that if they wanted to build new factories or hire more people, they could already do that. While I do think Apple may invest in more factory partnerships with suppliers, I highly doubt that many will be in the US. Most of their suppliers are outside the US and even the ones who are based here, most of their manufacturing is being done overseas.

As for hiring more people, Apple’s business is growing exponentially, and they are hiring as fast as they can. Also, most of the kind of talent Apple is looking for are in the area of programming and engineering and highly skilled positions. At the moment, all of their US facilities are jam-packed, and they are even planning to build at least two new significant complexes in Silicon Valley, and as each goes up, they will fill up as fast as possible.

So if Apple already has gobs of money to work with and will now get more via tax breaks and overseas fund repatriation, how will Apple spend this extra cash? Most financial analysts I have talked to see Apple buying back more of their stock and then increasing the dividend to shareholders. Yes, some money will undoubtedly be applied to R&D and perhaps expanded investments through acquisition, real estate and building new properties to house more workers, but as I said, they already had enough money to do that even without the tax break or cash repatriation program.

While those behind the tax cuts would like Apple and other tech companies to hire unskilled labor, the fact is that most of the people Apple and many other tech companies need are trained programmers and engineers. And the idea that US companies will build more US factories is probably also a non-starter as anyone who studies worldwide manufacturing knows that it is just not economical in most cases to build many of the kind of manufacturing plants those who voted for these tax cuts want in the US.

It will be really interesting to watch how Apple and others companies use these big tax breaks and if it will be used to hire more workers. But if history is our guide, that just might not happen as our legislators hope it will come via the big tax breaks they are giving American corporations.

Apple Switchers and a secure ecosystem.

At Creative Strategies, we recently did a report that showed about 30% of Android users who do not have an iPhone are thinking of switching over to an iPhone.

This should not be a surprise given that Apple, in their last two earnings call’s, has stated that they see a rise in switchers every quarter.
Data from other researchers also confirm this trend.

The latest Consumer Intelligence Research Partners data for the April to June quarter showed that Apple was attracting more Android switchers than at any time in the past 12 months.

The good news for Apple is that relative to earlier quarters, they attracted a higher percentage of iPhone buyers from Android phones. In the past three quarters before the June 2017 quarter, Android owners had represented 14% to 17% of iPhone buyers. With lengthening upgrade cycles and a growing percentage of owners with the most recently released models, continued platform switching will be important to the success of the next iPhones.

Apple even has the campaign to answer the question of why someone should switch to Apple iPhones over Android phones.

Head over to the iPhone tab on Apple.com, and you’ll see a new box in the middle of the page. Called “Why Switch,” it declares that “Life is easier on the iPhone,” and offers ten questions potential switchers might be asking:

[ Further reading: Everything you need to know about iOS 11 ]

1. Will it be easy to switch?
2. Is the camera as good as they say?
3. Why is the iPhone so fast?
4. Will iPhone be easy to use?
5. How does iPhone help protect my personal information?
6. What makes Messages so great?
7. Can I get help from a real person?
8. Can I switch at an Apple Store?
9. What about the environment?
10. Will I love my iPhone?

This interest in switching comes at a time when Samsung and Google both have stellar smartphones that are equal to and in some ways, have even a few better features than Apple’s newest iPhone models. The interest in Apple’s iPhone line of smartphones is getting greater interest these days from the Android crowd.

Our research on this suggests that there are four main reasons for Android users to seriously consider the move over the iPhone and Apple’s eco system of products and services.

The first reason is an age-old one and focuses on Android’s basic security. Googles have so many versions of Android out there and until only recently started updating their current versions on a more regular basis. But in many reports, basic Android versions, even one’s using specialized software from dedicated vendors, is shown to being the most vulnerable mobile OS and in many ways insecure. Samsung appears to have done the best job with their extra layer of security software via KNOX, which has helped them gain traction in enterprise and business accounts, although Apple’s iPhone still dominates the smartphone market for business at almost all levels.

The second reason is perhaps the most important one, and that is Apple’s overall ecosystem continues to get better and is becoming a real draw for Android users. The OS fragmentation within Google’s Android ecosystems still makes it difficult to manage all of a users content seamlessly across other Android devices. And, when we look at switchers and ask about why they want to switch, the reason of interest also includes Apple’s security because Apple has, at the technical level, the tightest controls over their apps and ecosystem so that they are more secure than what is available within the Android environment.

Some consider Apple’s approach as a closed system, and for many Android users and non-iPhone users, this is a reason for them not going over to Apple products. But we continue to see the public looking at Apple’s closed system as a protected environment that keeps out false apps, services, and outside intruders and in that context, Apple’s ecosystems are looked at in a very positive light. This seems to be a highly cherished part of Apple’s world as users are becoming even more afraid of hackers, identity thefts, and all sorts of nefarious threats facing them these days. To them, Apple provides a “safe harbor” to digitally live their lives out, which I believe is why we are seeing such a high interest in switching.

The other thing we keep hearing from those looking at switching is the fact that Apple’s continuity system, the feature that keeps all of your Apple passwords, settings, pictures and video always in sync across all Apple devices is of very high interest to them. Yes, within Google and Android they have simmer features, but in my experience, they don’t work as well as those within the Apple ecosystem when it comes to seamless synchronization and integration within Apple’s protected ecosystem.

The fourth thing in our estimation that is the big differentiator is Apple’s store, Genius bars and overall customer service and support. I recently had a serious issue with Android on a high-end smartphone and trying to get answers from Google, or even vendor support to solve this problem was like pulling teeth. Ben and I have written in the past about Apple’s stores giving Apple a huge advantage over their smartphone competitors, and this is not going to change.

Microsoft has done a good job with their retail stores that sell Windows laptops and desktops, but they also provide classes and customer service when it comes to Windows-based devices.

As we go into this holiday season, our research suggests that Apple will continue to draw strong interest from Android users and could accelerate the pace of switchers in the new year. Apple is well aware of the opportunity they have in moving more and more people over to Apple products, and like the page, they have for switchers shows, they are becoming even more adept and aggressive in trying to lure them over to the Apple ecosystem.

Last week I participated in the UBS global technology conference where I talked broadly about Apple but also had some fascinating conversations with many of Apple’s key investors. In the course of these Apple focused conversations, many where I was sharing quite a bit of our recent research, a theme stood out to me that is worth exploring. This theme centers around Apple’s user base but focuses more on how subtle yet significant behavior changes happen within Apple’s customer base which we don’t see around other products.

A Remarkable Customer Base
Anyone paying close attention to the broader analysis will know that Apple continues to gather the most profitable group of consumers around their ecosystem. It is no secret that Apple’s customers are the most valuable group of customers ever assembled in mass around one ecosystem. Amazon, Target, Microsoft, all app developers, even Google itself, will all admit their customers who own Apple hardware are their most profitable by a large margin.

Services providers will tell you that customer coming to them from an Apple device are more profitable by a significant ratio of ones coming to them from Android. In fact, according to our data, an Apple customer is three times more likely to be a subscriber to a specific service than a non-Apple customer.

But we discovered a fascinating nuance about Apple customers that remains fundamentally underappreciated. Through a series of studies we did over the last year, we confirmed that customer behavior changes once a person joins the Apple ecosystem. As a customer comes from Android over to iOS, they end up spending more money in the iOS ecosystem than they did in Android. Similarly, the longer this customer remains in the Apple ecosystem, the more then end up spending in year three or four is more than the amount the spent in year one.

I learned another interesting insight from talking with specific investors at the UBS summit which added to this angle. Some investors, who do or have internal research departments, also found that while an Apple customer may be more likely to spend money in and around Apple’s ecosystem, thus being a high-value customer to Apple, they don’t necessarily mean high-value customer to other companies or ecosystems.

I can’t share the full details of their data, but it correlates to Apple customers being valuable and spending money on Apple’s ecosystem, but that high-value customer profile doesn’t always translate to other ecosystems. For example, an Apple customer may be a high-value customer in Apple’s ecosystem, but that same customer may not be as highly valuable in Amazon’s ecosystem.

This point added some fascinating nuance to this discussion that changed my thinking and helped me realize it is not Apple’s base that is remarkable.

Remarkable Products (or product experiences) Make Remarkable Customers
I used to think Apple just had customers who in general had higher disposable income and thus made them more likely to spend money and thus be more profitable as a customer base. That is true of a small chunk of Apple’s base but not the vast majority of their customer profiles. As a whole, Apple customers tend to act like more profitable customers and be more willing to spend money, even if that is not a characteristic they employ in other places and ecosystems.

Which leads me to conclude there is something about the overall Apple product experience that lends itself to a behavior change toward more valuable customers. My friend Horace Dediu of Asymco was also participating in this UBS event, and he and I got to talking about this observation. He made an excellent parallel to high-end retail stores. Whether it is Nordstrom, Harrod’s, Tiffany, Burberry, etc., it is the environment, the fit and polish, the customer service, it is the entire experience that can turn a customer who normally does not spend high-end dollars anywhere else to act as a high-end customer when they go into these stores.

This seems an apt parallel, but I’d add another that may be more mainstream than some of the retail outlets I explained. The example that nails it to me is Disneyland. I say this because you know at Disneyland/Disneyworld gathers the widest range of demographics to their parks yet when people are there they act differently than they would on a normal basis. They may spend more money sure, but they also maybe act more like kids, more free-spirited, more relaxed, and a host of other things. Essentially, the environment and experience Disney provides create a behavior change among customers that seem only to be exhibited when they are in the Disney experience.

My main point here to take away, is simply that an environment, when done right and designed a certain way, can create a set of experiences that make these customers stand out as remarkable, or highly valuable, when in reality it is not anything special about this customer but rather the products themselves that are special.

This viewpoint clears up a lot of questions for me, as it did for many investors I spoke with when you look deeper at the Apple customer base. For a category like Apple’s services, for example, the upside is not because Apple simply has high-value customers but rather that Apple creates an environment where they act like high-value customers. This insight means these customers will continue to engage in Apple’s services, and the services of third parties to which Apple gets a cut, simply because Apple creates an environment that causes consumers to feel as though they are getting more value from these services.

What I outlined here is more than just anecdotal data but empirical and measurable examples where an environment is unique and thus makes consumers look more valuable while in certain situations even though as a whole they are not specifically “high-value” customers, which many associate as high-net-worth.

This is truly where Apple has a unique advantage that keeps deepening and building as they focus on the totality of the customer experience around their hardware, software, and services in ways many other companies do not.

On numerous occasions, Apple CEO Tim Cook has stated that he is extremely excited about AR and believes it will usher in a new era in mobile computing. I have done many interviews on Cook’s comments with media and industry folks about Apple’s overall optimism about AR and I tell them that I believe Apple is moving in a very calculated manner when it comes to how their AR strategy plays out.

One big lesson we learned from Google Glasses is that you don’t just bring out a new technology like glasses without doing a lot of prep work in advance. Google Glasses was targeted at consumers and was a disaster that has tainted their position in this space since they were introduced.

I have always maintained that any new technology gets started at the high end and vertical segments of a market where it is flushed out and can find companies and customers who are willing to pay the early high prices because it meets a specific need. That should have been Google Glasses target market with their first generation of glasses. Only now, three years later, are they doing a new version of Google Glasses that are just targeted at vertical markets. How successful they will be is hard to tell as many other major glasses and goggle makers have been doing glasses for vertical markets for over 20 years and still less then 1-million of these are sold worldwide each year.

I believe Apple understands this market very well and knows that doing AR glasses now and even in the next two years would be folly without many years of getting people use to AR on their smartphones before even suggesting that there is another way to deliver AR that could be more optimal for any AR experience. Indeed, What Apple has done and continued to do so well is to enhance their hardware as they have with the iPhone X so that developers can create AR apps using the new cameras and sensors built into Apple’s top of the line smartphone.

While the optimal AR experience will be on an iPhone X, they have made AR apps work with iPhone 5’s and up. The heart of their strategy lies in the idea that with AR on the iPhone, they can introduce mainstream users to AR and use the iPhone as a way to make AR easily understandable to consumers and give them cool apps that are imaginative and useful for everyday activities.

A good example is of course the IKEA app that lets you place furniture in a blank room through their AR app on the iPhone and iPad so a person can virtually see how it would look in any room. Or the various ones that use AR to see the exact image of your face and then tells you the size of the glasses you should order online. You can keep track of new AR apps here.

Think of the next few years leading up to 2020 as the evangelistic period for Apple to get all of their users use to and engaged in AR apps on the iPhone and make these apps indispensable to them over this period. During this time we will see Apple enhance AR Kit, bring more AR technology to at least two new models of iPhones created during that period so that when they do introduce their AR glasses most likely in 2020, it will just be a natural evolution of their user interfaces.

From the time Steve Jobs introduced the Mac, Apple has been on the leading edge of user interfaces. With the Mac they gave us the graphical user interface and a mouse. With the iPhone they gave us touch screens, gestures, and most recently voice and Touch ID and Face ID as new elements of their user interface design and progress.

I believe from a hardware standpoint Apple could deliver glasses as early as 2019 but I don’t see that in the design plan. Rather, they are not here to beat anyone to market with AR glasses. Indeed, I suspect many AR glasses will come out from competitors between now and 2020. Instead, Apple will play to the big long-term win and only bring them to market when they are certain that their customers will be ready for what will be for most a radical addition to the Apple experience.

In the chart below, you see how the VC community has already decided that AR is where they should invest in a big way. Although VR came to market much earlier even they understand that VR will have its greatest impact in vertical markets and AR is the technology that will eventually have the biggest impact on the market.

Tim Cook and his team have a grand plan to make AR the heart of their future products and user interfaces. It is easy to see that using the plan I suggested above how they could achieve a strong position in AR and make it a mainstream technology in the next decade. That is why when you hear Tim Cook talk about AR, he does it with such confidence. He knows that if they do this right they could dominate this space and change mobile computing again in ways Steve Jobs perhaps did not even dream about when he was still here with us.

I have been using the iPhone X since yesterday morning and have not had enough time to do a full review. So consider this a brief highlight of my thoughts so far. I posted some of this on Twitter, which you can read here even if you aren’t on Twitter. On Friday, I’ll have a more detailed piece as the main column after spending a week with the iPhone X.

There seems to be the most interest in FaceID and the camera system at the top of the display which some call the “Notch.” I’ll start with some thoughts on FaceID. I was optimistic but skeptical that I’d like FaceID more than TouchID. Even after a short day of using FaceID, there is no going back. It is superior in almost every way. Primarily because you don’t have to do anything buy swipe up. It’s as natural as going back to swipe to unlock in the days before TouchID. That natural gesture is back and now with added security. One thing that gets overlooked is how TouchID often does not work with wet hands, super dry hands which happen when its cold, or dirty fingers. I hate to admit this, but I have fairly sweaty hands, and because of that, during the summer, in particular, TouchID doesn’t often work for me, and I put my passcode in many times a day. FaceID has completely eliminated those little nuances that came with TouchID.

Ultimately FaceID showed me how much friction there was in TouchID even though TouchID was fast and elegant. FaceID recognizes your face so fast that you just pick up the phone, swipe up and you are logged in. Authenticating purchases, or accessing passwords, logging into apps that support TouchID login are all seamless and frictionless as it instantly recognizes you and completes the secure task. FaceID is no doubt a step in a direction and has a great deal of potential beyond just logging into your device. It can detect emotion, more objects, other people, etc., and play a much larger role in personal experiences and contextual computing.

People asked me about different lighting situations, and in both very bright and pitch black environments, it worked every time. In the just more than 24 hours I have been using it I have not had any issues with FaceID, outside of it not working with my sunglasses. Which have bright green reflective mirrors on them. I may need new sunglasses.

The other big debate had been around the TrueDepth camera system cutting into the edge to edge display. I recall seeing it for the first time at the Apple iPhone event and thinking it may look a little off, however, after a very short time it disappears, and you don’t notice it anymore. Mostly because all that is next to is the time and your carrier bars each on either side. Your mind blocks out the notch and focuses on all the screen below. In fact, I showed it to my wife and asked her thoughts, and she said she had not even noticed it until I pointed it out.

During the big notch design debate that happened mostly in the tech blogosphere and on Twitter, I was of the opinion apps should just hide the notch. I’ve since changed my mind. Most the apps I use regularly are already scaling for the notch. I don’t think devs had to do much to support this. And I can say I greatly prefer apps that use the whole screen instead of ones that leave a big black bar at the top, which is the ones not optimized. Here is an example.

I tweeted these pictures and still got some pushback on the notch. However, it is one of those things you have to see, use, and feel to understand what I mean that it just goes away and you prefer full-screen apps. Ultimately, I do not believe this will be an issue and developers will hopefully optimize their apps accordingly to support full screen on iPhone X.

I’m genuinely curious how users of the iPhone Plus take to the iPhone X. I came to love the width of the Plus devices as I felt it was superior for two hand usage and typing in particular. Here is a side by side comparison of the Plus to the X.

It is hard to tell, but the iPhone X display is taller than the Plus, but the Plus’ display is wider than the X. Suffice it to say if this rumor that next year there will be a Plus size version of the X, you can bet that may be the perfect size device for me.

I just wanted to share brief thoughts here but will have more fleshed out observations for Friday.

Three very exciting new technologies on the horizon have much of the tech world buzzing about, and billions of dollars are being invested into this new area of tech.

The first technology that hit the scene about two years ago was VR or Virtual Reality when Oculus Rift introduced their VR Glasses at CES in 2015. This product was the big hit of that CES, and shortly after, Facebook bought Oculus For $2 Billion.

Shortly after, after that Microsoft introduced their HoloLen’s project. It was entirely different from Oculus Rift’s VR version in which you are enclosed in virtual worlds; whereas Microsoft’s glasses or goggles allowed you to see through the lenses and superimpose virtual images and objects onto any scene and called it Augmented Reality or AR.
Since then another termor third technology has come into the tech lexicon called Mixed-Reality that tries to bridge the gap between VR and AR and tie the VR and AR worlds together.

Most people got a glimpse of AR, with its virtual objects displayed on a smartphone, when Niantic introduced their Pokemon Go game to the world. This game allowed people to place virtual objects on any object or scene they are viewing as part of the game and made AR a household name.

Since then Apple has created a robust AR platform through its AR kit, and hundreds of AR apps are already available on iPhones and iPads. Google has also jumped into the AR game with ARCore, their AR developer tools for Android that lets Android developers create AR apps for the Android smartphone platform. But in both of their cases, these AR apps are all delivered to a smartphone or tablet. The big question in Silicon Valley these days is whether AR will ever gain a broad audience if it is only used on a smartphone, or will select AR or mixed reality glasses be a more natural way for people to view and interact with AR and mixed reality applications in the future?

At the recent Wall Street Journal Conference, John Hanke, chief executive of Niantic Inc. discussed the success of their Pokemon Go AR app and made a crucial prediction.

Speaking about glasses:

“He said he thought it would take “probably in the order of five years” before the technology is mainstream. Augmented reality technology debuted on the smartphone, Mr. Hanke said, “because you build it for the platform that exists.” AR will reach “full fruition when we get to the glasses,” Mr. Hanke said. With glasses, the potential for AR “is immense because it can be woven into your daily life.”

Over my 35 years in Silicon Valley I have learned that when pioneers of a technology weigh in on a subject, they are involved with, it is best to listen to what they say. Mr. Hanke is a pioneer in AR, and since millions of people have played Pokemon Go, he has the kind of knowledge and experience to predict where AR is headed. As he states in the WSJ article, he created Pokemon Go for the platform that was already there, in this case, the smartphone. But he does not believe AR or mixed reality will reach its real potential without some AR or mixed reality glasses or goggles.

On the other hand, Apple’s Tim Cook is over the moon with AR for the iPhone. In multiple interviews, he has stated his excitement for AR and believes AR is a game changer for the iPhone and has committed to working closely with developers to create the most innovative AR apps possible using AR Kit for IOS.

Google seems to be equally excited about AR on Android smartphones although they have not been as vocal as Tim Cook has been about AR on the iPhone. The good news is that AR on a smartphone or tablet will become an essential step in getting people very familiar with the concept of AR and mixed reality and I believe it will play a prominent role in making AR glasses or goggles more acceptable once they do hit the market.

If Apple or Google had tried to push AR or mixed reality into the mainstream via glasses today, they would be a flop. Just look at the disaster Google had with their Google Glasses project a few years back, and you can see why glasses even today would be a hard sell. Getting people used to AR apps on smartphones and tablets will start the ball rolling. Once the technology is ready to create AR glasses that would work and be stylish and easily integrated into our daily lifestyles in 4 or 5 years as Mr. Hanke predicts, then glasses become the preferred way to work with and interact with AR or mixed reality apps in the future.

For their part, Apple, Google, Microsoft and many others are doing much R &D around AR, and mixed reality glasses that would be acceptable to mainstream users and all have filed multiple patents on various glasses designs already. But as Mr. Hanke of Niantic says, it could be at least another five years before the technology is here to make the kind of glasses that will bring AR to the masses in a more personal and interactive way.

I am excited about AR on smartphones but agree wholeheartedly with Mr. Hanke of Niantic that it will take some AR glasses or goggles to fulfill the promise of AR and mixed reality for the mass market. In the meantime, we should get some stunning AR apps for use on smartphones and tablets, but keep in mind that these are essential stepping stones that will eventually need AR glasses for AR and mixed reality to ever reach its full potential.

This past week saw the opening of Apple’s newest flagship retail store, this one on Chicago’s Michigan Avenue. The new store is enormous and strikingly designed, and is part of the company’s new model for roughly one-fifth of its nearly 500 stores. It also reflects the shift Apple is trying to make in how people perceive its stores, from which it’s now dropped the “Store” moniker and which it would like customers to think of as “town squares” or gathering places as much as retail experiences. Today, though, I’d like to take a step back from Apple’s reinvention of its stores and look instead at the growth of its store footprint over the last few years, and what it tells us about the role of retail and Apple’s regional focus.

Approaching 500

Any day now, Apple should open its 500th store, a milestone it’s been approaching for some time now. The chart below shows how that number has grown over the past eight years, from 273 stores in September 2009 to 499 at the end of September 2017:

As you can see, the growth rate has sped up and slowed at various points during that period, and in the last year in particular seems to have slowed overall, as the company focused instead on what the new experience should look like and revamped a number of existing stores.

Regional Distribution Favors the US and Europe

Those stores, though, are far from evenly distributed across the globe, with the US still very over-represented and other regions under-represented. The pair of charts below shows the mismatch between the contribution of each region to Apple’s revenues and the mix of stores in those markets. The first chart shows the percentage share of revenues and stores, while the second shows the ratio between the two:

As you can see, the Americas as a region has a share of retail stores which vastly outweighs its share of revenues – 61% of stores, but only 42% of revenues. At the opposite end of the scale is Japan, whose 8 stores (2% of the total) belie its 8% contribution to revenues. Europe is very close to parity between the two measures, while Greater China still has a 2x mismatch between its revenue share and its share of stores, and store presence in the rest of Asia-Pacific outside of Greater China also lags its revenue share.

Growth Over the Last Three Years Favors China, the US, and AP

It’s interesting, then, to look at where Apple has opened new stores over the last few years, with the country breakdown shown in the chart below:

As you can see, a single country stands out starkly here: China. It has seen 31 new stores since May 2014, or over 40% of all the 75 new stores opened during that period. Together with the US, where 16 new stores were opened during that time, it accounts for 63% of total stores opened. Many countries saw either a single net new store or none at all during that period, including Canada. Of the other countries where more than one new store was opened, three are in Europe (France, Italy, and Germany) and two are in AP (Hong Kong and Australia), with one in the Middle East, also reported as part of Apple’s Europe region.

Many New Countries in the Last Few Years

Apple currently has retail stores in 23 countries, with ten of those added since 2011. Of those, three have been in Asia Pac, and all but three have been in regions where Apple has had little penetration previously, including Latin America and the Middle East.

So the story of expansion over the last few years has three parts:

• Continuing to expand in markets where Apple’s retail presence has been strong, notably the US and to a lesser extent Europe
• Expanding massively in China, a region that’s suddenly become very important to Apple, and which now has more Apple Stores than any country after the US, passing the UK in the past year
• Continuing to add a presence in new countries, by way of testing the water – Apple has ten countries with three or fewer stores, and five with just a single store.

Overall, that expansion has slowed a little over the past year as Apple has launched its new strategy and store concepts, but I would guess that as the company returns to growth and the strategy is implemented in a core set of stores, we’ll see it speed up that expansion and continue to focus on those three main sets of markets in much the same way.

By now I am sure you are all aware of the incredible story of Google, Facebook, and Twitter taking ads from Russian trolls with the intent to influence America’s last election. In essence, Russia has declared Cyberwar against America, and our social overlords at these three companies were asleep at the switch when this was done right in front of their faces. Even worse, it looks now like some Facebook ad salespeople even guided some of these trolls on how best to reach their intended targets with these “fake” ads.

Every day we awake to new news coming out about the depth of what Russia has taken to try and create a new type of civil war between not the North and South but the left and right. They have figured out that most American’s are easily duped along their partisan way of thinking and that during their election if a story helped give credence to their way of thinking, they embraced it as truth without even questioning its authenticity.

I admit that when it comes to reading any stories, my background in debate makes me question any story I read and try and check its authenticity. I got pretty high in State Debate tourneys and was actually good at debating both sides of the issue regardless if I believed the premise of the debate. But if you have ever debated any subject, especially at the high school or college level as part of your education, you know that facts are extremely important, and lies and conjecture could easily cause you to lose the argument when you were in front of debate judges.

But I am finding that not many people who read social media are willing to take the time and check out a story for its authenticity and instead are much more likely to take what they see as “gospel” especially if it underscores their opinions and beliefs. This is something that Russia knows all to well and has their “cyberwar” machine in high gear. Their goal is to try and divide us as much as possible and in the process sow seeds of destruction not only to our way of life, which they actually covet but our government that they, in their wildest dreams, would like to overthrow.

What worries me about this is that I don’t think that most people in the US understand the gravity of this situation. America’s Forefathers fought for the right of us to determine our leaders and have the freedom to vote our conscience. An outside force like Russia highjacking this the very heart of the US constitution should infuriate people. On my case, I want to be the last person ever to be duped by a foreign government whose attention is out in the open and yet many embraces these “fake” stories

Of course, outside sources trying to influence what our people think and how they vote is not new. The British tried desperately to reach the settlers and colonists in the “New World” to try and keep them in the British Kingdom. Some of the pamphlets they distributed were as much fake news then as recent fake news is today. I but have read how the Nazi’s tried to get their message to the US in the early 1930’s and lest we forget, some British Royalty and even some US leaders were Hitler sympathizers. Certainly “fake” news was deployed here too to cover the real vision Hitler had to wipe out all but an Arian race.

But there is one very big difference on how the Fake News of the past was spread to influence how people thought. In 1772-1776 it was done through pamphlets and very crude news gazettes. Before WW II it was done through newspaper and radio. But in both of these instances, the messages were very broad and not personalized. But this time around this level of fake news is distributed by a social network medium that is highly personal and can include very targeted ads or fake stories. As we see with the current reports from very credible sources, A foreign entity-Russia-has taken direct aim at trying to destroy America’s values, the way of life and pit bother against bother to sway the results in their favor.

Whether Facebook, Google or Twitter like it or not, they now have a major responsibility to be very clear about what “fake ads” were bought by which foreign entities and contrast them to the facts that are known so that the American Public can see how they have been duped. Just as importantly, any social network that helped spread fake stories needs to own up to this in a big way and start putting key measures in place to screen their ads in the future and make sure this does not happen again.

Of course, this gets right to the heart of each of these company’s business models, which is almost exclusively based on ad revenue. A recent Guardian story laid out Mark Zuckerberg and Facebook’s predicament given their business model and why they are under such serious scrutiny by US Govt. officials now. Taking Fake Ads may be profitable but not very responsible and that has to be corrected. For Zuckerberg and Facebook, along with Google and Twitter, ads are at the heart of these distribution mediums, and they need to get serious about educating people about what was said in these fake ads and identify who bought them in detail. Then put in safeguards to make sure this does not happen in the future.

“Fortunately, the top Democrat on the House Intelligence Committee, Adam Schiff, D-Burbank, has called for the ads to be released publicly. Schiff has been working with Facebook to find a way to make that happen.The American people deserve to see the ways that the Russian intelligence services manipulated and took advantage of online platforms to stoke and amplify social and political tensions,” Schiff said.”

These ads need to be released soon and with it very clear descriptions of who was behind them and where possible, tie their motives to the ad’s message. This needs to be done soon so that by the time our next election happens in 2018, this does not happen again.

I’ve spent the last month with the Apple Watch Series 3, and during that time a few key observations have stood out. One of the big value propositions of the Series 3 is the cellular connectivity, and that is the part I was most interested to try and see how not having to have Apple Watch tethered to my iPhone changed the overall experience.

I tried just about every use case I could think of from the obvious ones of sports and fitness to running errands, going out to dinner, I even spent an entire Saturday with my iPhone turned off and relied only on Apple Watch as my source of connectivity to the Internet. I love the promise, but many of the software experiences are not yet evolved enough to support long periods of time on Apple Watch only.

Now, we can debate if that is ever a goal, but to be honest, I think it should be whether or not anyone believes someone will spend half a day or longer on just Apple Watch and without their iPhone. I completely understand the current perspective that Apple Watch is not a replacement for your iPhone, and it is not, however, there are times where I want certain experiences to stand on their own and not require the iPhone. Email is a good example. I still wanted to check and read email, perhaps reply short responses with Siri, or at least be kept up to date on my email. But Apple’s email app continually tells me there are things in the email that can’t be read on Apple Watch, and I can read the full email by looking at it on my iPhone. When you don’t have your iPhone with you, this is a frustrating message.

This was one area where the experience was inconsistent as some emails could be read and responded to on Apple Watch and some could not. My point is here, is what being iPhone-less caused was an expectation that apps, and certain app experiences, should work independently of the iPhone. This may simply be an area where app developers have not yet caught up.

The app developer challenge with Apple Watch is probably the clearest problem I see facing the platform. A few weeks ago, I wrote how connectivity on the Apple Watch would change the product from accessory to platform, but developers have not yet caught onto this shift. Part of the problem is the small installed base, and lack of third-party app demand from consumers. However, as more consumers go out into the world without their iPhones, they will start to want apps to stand on their own and provide more full-featured experiences.

This was the one thing that surprised me when I left the house without my iPhone. I found myself wanting to use many of the apps I regularly use on my iPhone even if just for a brief check-in, or to make sure I didn’t miss anything. Things like Twitter, Slack, Apple’s Notes app, Overcast (my podcast app), and a few others. Most of these apps still assumed a tether to the iPhone as a part of their experience and didn’t deliver on the standalone experience I was hoping. Given the iPhone tether on all previous versions of Apple Watch, these developers truncated their app experience in some capacity and that becomes abundantly clear once I started leaving my iPhone behind and going out into the world.

Apple’s Messages app, and Maps app, stocks, calendar, etc., all delivered on what I expected as a full-featured and stand-alone experience on the Apple Watch, but the paradigm shift in software is necessary for this platform to live up to its potential. I think my desire to use more third-party apps, as I do on my iPhone, while Apple Watch only was one key observation that stood out to me. If that is the case, then as more consumers move to an Apple Watch with cellular connectivity, then developers are going to need to catch up and embrace the Apple Watch as a true platform now that stands independent of the iPhone.

Lastly, Siri is a standout feature of Apple Watch now. Not just because it has a voice and speak back to me but because Siri now is faster and works much better with previous versions. While being out in the world with only Apple Watch, I relied almost exclusively on Siri for text input. Largely dictation as a primary input. But apps that support Siri were helpful here letting me use Siri as an interface to their app. But here again some experiences fell short. Like when I’d ask Siri to see if I have any new emails, she would say she can help me on my iPhone and a button appears to that says “open on iPhone.”

There is a great deal of potential, from what I experienced, around Apple Watch Series 3 and the possibility of less dependence on iPhone. But the reality is that once you leave the house without your iPhone, your expecations around using the Apple Watch change. It is here that, unfortunetly, Apple and third party developers have more work to do to meet the needs of customers.

Some fascinating news broke yesterday that Apple is returning to Google for certain aspects of search within iOS and other core software. Apple is returning to having Google as the default search within iOS and macOS as well as for web-based search within Siri. When the iPhone first launched, Google was an essential partner for Apple as the Google search and Google Maps were core features touted as capabilities of the original iPhone.

Most of us remember how the story goes as Apple and Google started to part ways thanks to Google’s move to compete more directly with Apple, and Apple’s concern over consumer privacy and Google’s overall stance not being in sync with Apple’s. Apple removed Google as the default search engine for iOS in exchange for Microsoft Bing and Bing also powered Siri from the start.

While over time Apple Maps proved to be a competent alternative to Google Maps, search is really where Bing’s integration with Siri particularly let Apple down. Consumers could still choose Google Search as their default engine in things like Safari, but by having it as the default for search from iOS 11 and macOS will add another level of consistency. As the statement from Apple points out:

“Switching to Google as the web search provider for Siri, Search within iOS and Spotlight on Mac will allow these services to have a consistent web search experience with the default in Safari,” reads an Apple statement sent this morning. “We have strong relationships with Google and Microsoft and remain committed to delivering the best user experience possible.”

But Siri is the real winner in this move.

Siri Get’s Smarter
It has long been a concern of mine that Siri’s lack of quality in general web searches was hurting Apple’s broader ambitions with the voice UI. While I remain adamant that search alone does not make a great AI/assistant experience, you can not debate the reality that general knowledge search inquiries are a major part of our engagement with voice assistants.

Charting some data from our latest Voice 2.0 Survey we see the most common tasks consumers use Siri for.

This chart emphasizes my point that what defines a smart digital assistant is not how well it searches the web. It must do the assistant tasks just as well, but I’d argue that having inferior search has a broad impact on the overall product’s experience. I’d go so far as saying Siri could set alarms, get directions, play music, etc., all fabulously well but if it is bad at general search consumers won’t trust it as much.

In a number of interviews we conducted prior to our study, we heard consumers say things like “Siri doesn’t always answer my question,” or “Siri is not reliable (referring to a search query),” and often times we heard “Siri is dumb.” The last one “Siri is dumb” had nothing to do with the consumer thinking the product is dumb just that they didn’t feel she knew anything useful and further digging showed this was specific to searching the Internet with a question or general search query. It was these kind of comments that concern me because they are the kinds of things that start to erode trust in consumers. I also recognize how important search is to the overall assistant experience and Apple was not in a position to drastically improve their search by themselves. This is why this move to give Siri the power to get information from Google so important. Siri is going to dramatically improve in a critical use case and overall will provide a much better experience overall for Apple customers.

What about Privacy?
I say all of this while still being sensitive that many consumers are highly privacy conscious and intentionally avoid using Google products because of this. What has always intrigued me about Apple’s approach and in this case using Siri as an interface to Google, is what our agent can do to shield us from exposing certain things we don’t want to be shared but still get us the information we need. For example, if Siri is our interface to Google, it does not need to reveal to Google our location, anything about us specifically, or any number of things Google doesn’t actually need to provide us the relevant information we are looking for. So what if, in all of this, Apple can provide us a safe way to use Google services and still get benefits of the vast data they have access to in general information all while securing our privacy? While I can’t confirm yet if this is exactly what is happening, I have a hunch something along these lines is going on behind the scenes.

Apple does not seem to be backtracking on their stance on privacy and if anything they are doubling down. So I don’t believe they are all of a sudden backing off this element just to add Google search back to their software. However, I do believe they are intentionally creating the necessary software integrations to make sure the information that does invade our privacy does not go back to Google when we use iOS, macOS, or Siri as the interface to Google search.

Google, under Sundar Pichai, seems to be going back to the Google of old that understood it needed reach for its products. And if that reach is ever cutoff, as it was with Apple customers largely, then it hurts Google’s business and mission of organizing the world’s data into one place. There are many parallels to Google and Microsoft as they embrace their horizontal nature and get back to being better partners than competitors with the companies they depend on if they want to have a future.

Alexa on your Face whispering in Your Ears

Earlier in the week, the FT published a story reporting that Amazon was allegedly working on a set of glasses using bone conducting technology to bring Alexa to your ears. Given Amazon’s hiring back in 2014 of Babak Parviz- founder of Google Glass – the Amazon’s eyewear should not come as a surprise. According to the FT, the glasses will have no screen, will work tethered to a smartphone and will look like a traditional set of glasses.

Via The Financial Times

• I have talked before about AirPods and the power Siri gains from being able to whisper in your ears. I can only assume if these Amazon glasses exist, that Amazon shares my view that having your assistant whisper in your ear is very effective.
• As the FT article explains very well, Bone Conducting technology has been around for many years, but the main reason why it has not taken off is that the quality of the sound is not as clear, which could cause some issues when wanting to talk to Alexa in noisy environment
• The biggest question for me on doing glasses is why Amazon would make me wear glasses instead of earbuds if the glasses are not used as a screen? While the FT says the rumored glasses will have no screen, I can’t help but think that there must be a reason why Amazon would link the ears and the eyes.
• Most consumers already use some kind of headphones so that would be much more natural than using glasses unless there was a specific purpose the eyewear would serve other than hearing. Failing that, I just don’t see how consumers will find the proposition compelling especially when they can have other assistants in their ears through headphones. I am sure there is more to this story, but we will have to wait to know!

Google buys most of HTC’s design and engineering staff for $1.1B

On Wed. Google and HTC announced a definitive agreement under which certain HTC employees – many of whom are already working with Google to develop Pixel smartphones – will join Google. HTC will receive US$1.1 billion in cash from Google as part of the transaction. Separately, Google will receive a non-exclusive license for HTC intellectual property (IP). This agreement also supports HTC’s continued branded smartphone strategy, enabling a more streamlined product portfolio, greater operational efficiency, and financial flexibility.

Via HTC

• While the main release did not give much detail, we know from HTC’s CFO that the deal covers about 2000 people most of whom were already working on Pixel with Google. This leaves about 2000 people left at HTC
• This investment was a smart move on Google’s part as it acquired talent without having to pay for manufacturing capabilities which we know are not necessary to be successful. There are plenty of people out there who can manufacture a phone but not as many who can design a great phone.
• I was surprised that the deal did not include Vive as I thought Google could benefit from acquiring assets to directly compete with Facebook. There might be two reasons for this. One, that VR is still a long way away when it comes to dedicated devices and Google will prioritize AR Core and Daydream. Two, that HTC was just asking too much for Vive or was not ready to let go yet.
• It seems that the injection of capital might actually end up more supporting Vive than the smartphone business. I am however concerned about what HTC expects it will be able to do in the long run. Even if HTC continues to manufacture Pixel for Google, I doubt it will be enough to keep it going.
• HTC talked about streamlining the portfolio, but we are talking about a portfolio that is quite limited already. I am not sure if this means HTC will try and go down in price and give up on some markets such as the US clearly a top priority for Google.
• HTC had mentioned in the past to wanting to retrench into China because the market offers a big enough opportunity for its business. However, despite the brand still being relatively strong in China, competition has never been tougher.
• Google is clearly very focused on hardware in a very different way that it was when it acquired Motorola. Back then, it wanted market share in the high-end but more for smartphone sake than ecosystem sake. Now the stakes are higher. Amazon, Apple, Microsoft, and Samsung are all pushing more and more into devices broadening their reach into the home critical for the next phase of AI and Ambient Computing. The phone remains a key asset in that push into the home and Google must be able to control the experience from top to bottom.

Google launches mobile payment Tez in India

Earlier in the week, Google launched a new mobile payment service in India called Tez. The service allows to pay for goods as well as peer to peer payments. Tez lets users link the app directly to their bank account and uses audio QR codes to transfer the money. Supported banks include Axis, HDFC Bank, ICICI and State Bank of India and others that support Unified Payment Interface. Online payment partners include large food chains like Dominos, transport services like RedBus, and Jet Airways. And tellingly, to help address one of the many ways that the Indian market is fragmented, the app has support for English, Hindi, Bengali, Gujarati, Kannada, Marathi, Tamil, and Telugu.

Via TechCrunch 

• This is a great move by Google as it lowers the barrier of entry for mobile payments to phones that do not have Bluetooth or NFC. Going across platforms on both iOS and Android is also a good move. While Apple still has a low market share in India, it is well known that Tim Cook has great hopes for Apple in this market.
• The service is free for consumers and small merchants for now as users have the app linked to their bank account, but it will be interesting to see if Google adds fees once it adds supports for cards. Other payment serices such as PayPal also differentiate in that way
• Google also said that there will be devices coming from several brands including Nokia, Lava, Micromax, and Panasonic that ship with the app preloaded which would lower the barrier of entry further both from a discoverability issue and avoiding the data cost of downloading the app.
• Of course it will be interesting to see how Google will monetize from the service but considering how big micro payments are in India I would expect this service to become easily popular, especially as the government seems to be supporting the service in an attempt to help consumers move away from cash

With Apple’s announcement last week of its new 4K Apple TV, it reinforced its positioning in the market, which remains remarkably distinct from the other three major players competing for US buyers. So far, that strategy has seen it take fourth place in market share, something that seems unlikely to change going forward. Why is that? And does it matter?

The Market Context

Shortly before Apple’s event, I put together some charts comparing prices for the smart TV boxes from the four major players in the US market – Roku, Google, Amazon, and Apple. The first chart shows the price ranges for each company in this space:

There’s a very clear pattern here – three players compete almost entirely in the $35-100 space, while Apple competes entirely in the $150-200 space, well above the others. The picture is even starker when we look at the discrete price points each company offered within that range before Apple’s recent announcement:

Two players stand out here – certainly, Apple again with its vastly different price range, but also Roku with its many different price points, with six options between $30 and $110.

Apple’s 4K TV Announcement

Leading up to Apple’s 4K box announcement, one might have concluded that the existing Apple TV would drop in price by $50 or so to get it down into that $100 range to compete more closely with Roku and Amazon’s high end, but instead it stuck with the same base pricing and introduced new models within the existing price bracket. Instead, the first of the two charts above remains completely unchanged following Apple’s event, with the old Apple TV remaining at $149. The second chart, meanwhile, only changes slightly, with an additional price point between the two former prices:

Apple discontinued the larger-storage version of its older box and slotted the two new 4K boxes in at $179 and $199, keeping the overall price range the same, but now with three options instead of two.

Business Models Determine Pricing

I’ve heard quite a few people suggest that Apple somehow doesn’t get this market, or that it’s failing because it’s pricing its product all wrong and avoiding the “stick” market in which the other three players compete. But the biggest difference here isn’t really pricing but the business model behind that pricing, and that in turn determines where and how the players compete. The reality is that at this point three of the four players are in this market for reasons other than making money on hardware:

• Amazon wants to drive its broader ecosystem including its Prime Video service and its Alexa voice technology, and to do that it’s willing to sell various hardware products at breakeven or even at a loss across a number of different categories
• Google wants to add value to Android smartphones and as such sells cheap dongles for TVs and stereos which act as outputs for audio and video from those devices
• Roku made very clear in its recent S-1 IPO filing that its business model involves getting as many people as possible using its platform, and that it doesn’t actually prioritize making money on hardware anymore, instead licensing its platform essentially for free and pricing its boxes to sell.

The business models that drive these three players, then, all lend them to sell devices at far lower margins than Apple is willing to, because they each intend to monetize in other ways. Apple’s business model, meanwhile, has always been to craft and sell premium devices which it also sells as a premium, with any additional revenue from services a bonus on top. To provide a cheap but inferior experience on a TV stick would go against Apple’s DNA and require a major shift in how it thinks about hardware.

Apple’s Market Share Suffers as a Result

With all three other players pricing their products to sell rather than generate profits, it’s no surprise that Apple’s premium strategy has left it with by far the lowest market share among the four, as shown in the chart below, based on recent eMarketer data for the US market:

The big questions at this point are whether this will ever change, and whether it matters. The answer to the first question is “probably not” – changing Apple’s approach to the TV box at this point would be a huge shift and entirely uncharacteristic. Apple sees hardware as the key locus of value in the broader value chain, and to subsidize or give away its boxes in the TV space would be a signal that the real value lies elsewhere. I think that’s therefore very unlikely, even if Apple eventually begins selling its own premium subscription video service.

The answer to the second question is more complex, but I think still fairly clear. Firstly, Apple knows better than perhaps any other company that TVs are far from the only devices people use to watch video content, and its other devices including iPhones and iPads are gaining increasing share in the broader market, with many subscriptions to video services being both bought and being consumed on those devices. Its share of smartphone and tablet viewing is vastly higher than its share in the smart TV box market, and that’s arguably far more strategic. But it’s also worth noting that Apple has never been in the business of market share for its own sake, and that’s also unlikely to change. Looked at in their entirety, the smartphone, tablet, and PC markets all dwarf Apple’s market share, though it takes a far larger slice of the premium segment in each of those markets. And that’s pretty much analogous to Apple’s position in the smart TV box market, taking almost the entirety of the $100-plus segment.

Ultimately, Apple seeks to provide a premium experience in any category where it operates, and often concedes the majority of the market to others as a result. However, it also often captures a disproportionately high share of actual usage and especially revenue generated from its base of users, and that’s almost certainly the case in the smart TV box market too. And that should continue to serve Apple very well as it prioritizes generating subscription service revenue through both its own and third party services from customers willing to pay.

As you are reading this, I will be on my way to the Apple Fall event at Apple’s new campus, and more specifically the Steve Jobs theater. I was thinking about all the things Apple may announce at this event and all the ways I will slice and dice my analysis of the products. While much of my focus will be on the iPhone, Apple Watch, and anything else that may debut, the less talked about product that I plan on spending some time observing and thinking about is the Steve Jobs theatre itself.

Apple prides itself on being a customer experience company. And I expect nothing different from them as they thought about the experience their guests will have in the Steve Jobs theatre. Tomorrow will be the first time we enter the event using invite credentials from Apple Wallet/NFC terminals than simple badges that hang around our neck. Tomorrow is the first time we get a glimpse of the hospitality area Apple has us wait in before being seated. Tomorrow is the first time we see the layout of the theatre and the visibility and experience from many different seat angles. We will test many things in the Steve Jobs theatre, and I’m curious how much attention to detail was placed on this experience compared to others from Apple I’m used to.

This is the first time Apple has designed its venue to showcase its products at launch. I believe that Apple plans to hold all of their future events here, with the exception of WWDC due to audience size. With that in mind, I have to imagine they have thought through all the intricate details of the entry, hospitality, event logistics, and hands-on area where we can see and try the products after the event.

It may be weird to think about companies building this way, but given this is Apple, this is how I am approaching analyzing the experience being at the venue itself and not just the products we will be shown.

Steve Jobs had a vision for this campus and this theatre where we will all experience Apple events, and in many ways, this was the last major Apple product Steve had significant direct influence over. He would have wanted his guests to have a specific kind of experience which, hopefully, will only add to the overall experience of witnessing new products from Apple be announced and experienced first-hand after the event.

While most of my writing over the next f ew days will be on the announcements themselves, I want to revisit a recount of the experience of being in the Steve JObs theatre itself for the first time. I have high hopes, but we will have to see if Apple delivers on a fairly critical, yet less talked about part of the Apple event experience.

Hopefully, most of you read Carolina’s deep dive on our iPhone 8 interest study. For the purpose of this post, I want to dive into some specific data around iPhone owners and their interest and intent to buy the iPhone 8. Carolina charted, or shared some of these stats but I want to recap a few specific and notable data points.

• 71% of US iPhone owners we surveyed, who intent to upgrade their smartphone in the next six months, said they are either extremely likely or very likely to buy the iPhone 8.
• Over 60% of this cohort has had their smartphone for nearly two years or longer.
• 58% of iPhone owners looking to upgrade in the next six months own either the iPhone 6/6Plus/6s/6s Plus
• 33% of this cohort said if the iPhone 8 was too expensive they would opt for a different model.
• New and improved camera, wireless charging, and quick charging were the top features of interest for iPhone owners looking to upgrade to the iPhone 8.

We know Apple enjoys the industry leading retention rates, so it isn’t surprising that a big part of the interest is being driven by iPhone owners with phones near the 2-year-old or longer mark. While this study focused on the US, we know in many other countries like UK, key regions of Europe, China, and Japan, Apple’s retention rates are also in the 80% consistently. Knowing this, we can safely assume a good portion of Apple’s iPhone installed base is in need of an upgrade and will stick with Apple by getting either the newest iPhone, updated model, or last years model at a discount. All in all, a number of signs and data points are aligning for Apple to have a big year.

As Carolina pointed out from our research, the one big variable is the price. However, while I’ve seen a significant amount of research suggesting that iPhone owners, in general, are more receptive to spending upwards of $80-$100 dollars more on their iPhone if it has features they consider innovative, there is a max price consumers are willing to spend. All available survey research testing pricing suggest anything more than the $1000 dollar mark puts the device out of reach of most consumers.

While iPhone owners in the US market specifically seem more receptive to spending more on their next iPhone, the rest of the world becomes the key challenge. In markets where payment plans are offered, the monthly price of an iPhone costing $1000, spread out over two years, and after tarriff’s and fees, could cost between $50-60 per month. In many markets, a monthly fee of this size would take up a big chunk of monthly household income.

From a macro economic standpoint, looking at household budgets for communications is generally lower than 5% of monthly household income sheds light on what the possible ceiling is for the price of a smartphone. Most research I’ve seen on the subject seems to indicate ~$1000 is the top of the price threshold. See this specific point from UBS research data:

Assuming that 5% of the total household monthly income is spent on this expenditure (we believe average household spend on communications is typically lower than this) in developed countries, this would require a minimum household income of c$1,233/month to be able to afford such a smart-phone. We found that an increase in price to $1,000 for the handset would reduce those able to afford the handset to 76%, vs. 87% able to afford a smart-phone costing $600

Again, Apple has the only customer base who seems receptive to spending more for their iPhone if they feel it is worth it, but there is a ceiling that Apple needs to be aware of and sensitive about. This all gets even more interesting when we look at the increasing costs for components like memory, display, and a number of other key components. One of the reason’s the price of the iPhone 8 will be higher is because the BOM (cost to manufacture the device) is going up. Consensus is the price of the new iPhone will cost between $380-$400 to manufacture which is the highest cost to make an iPhone yet.

But as Apple seeks to keep innovating on the hardware front, costs of components will still be high and continue to rise in some cases. Which means if Apple doesn’t want to price themselves out of the market by going too high, then they could take a margin hit and absorb some of those costs as margin points. This seems like a very likely scenario over the next few years.

How Apple navigates the price of the iPhone is going to be one of the more interesting points to watch from a market strategy standpoint. All things considered, it is hard to find too many negative narratives out there that are intellectually honest. But, Apple is in uncharted territory with respect to their pricing of iPhones so it will be important to observe how the market (consumers) reacts.

Next week Apple will release their 10th anniversary iPhone line, which is a huge milestone for this Silicon Valley giant.
To date, Apple has sold well over 1 billion iPhones since its launch in 2007.

Apple accelerated the growth of iPhones by close to 1/2 billion from 2014 to 2016 or in just two years and given what we know from the last three Apple earnings reports Apple’s sales of iPhones to date are around 1.3 billion to date.

With the new iPhones about to be launched and given that Apple has interest in using this 10th-anniversary model to move the design and features of any new iPhones to a new level, I expect that Apple could have its best year of iPhone sales in its history over the next 12 months.

A recent CNET story titled “70 percent of iPhone buyers won’t even consider another brand” shared a report from marketing platform Fluent that gives us a hint of what iPhones sales could be once the new iPhones get to market later this month. From the article:

“A survey published Friday offers a grim picture for the company’s rivals.
The research, performed earlier this month by marketing platform Fluent, asked 2,117 adult smartphone users about their phone feelings.
Feelings on the Apple side appear strong.

80 percent of iPhone owners said they planned to stay faithful. Another 47 percent stated that they’d owned at least four iPhones. It’s not clear whether these were four different iPhone models or whether the people kept buying the same model because it kept breaking.
Here is perhaps the most remarkable number: 70 percent of those who said their next phone would be another iPhone stated that they wouldn’t even consider another brand.

You might think this is a deep level of love. Indeed, 67 percent said they simply believed that the iPhone was the best phone one can buy.
Another clue, though, was offered by 41 percent of these loyalists. They admitted that they’re so used to iOS that the idea of switching would just be too painful.”

This study aligns with much of our own research at Creative Strategies around smartphone brand and mobile OS retention rates. In every major market like US, much of Europe, and China, Apple enjoys the highest retention rates of any brand. Digging into this further, Carolina Milanesi published some details of a recent iPhone 8 interest study we conducted of ~1000 US adults.

From our study, overall 26% of all US consumers surveyed said they are extremely likely or very likely to buy the upcoming iPhone 8. That number goes up sharply when just looking at iPhone owners, and even higher when just looking at iPhone owners intending to upgrade their smartphone in the next six months. Nearly all data points we see from our research and others are showing positive signs for Apple over the next year.

But what is important with this trend and one key reason most financial analysts keep moving Apple’s buy target up is that it could cause a new super cycle of sales, revenue and earnings records for Apple that could last at least another two-to-three years.

We saw the last super cycle when Apple introduced the iPhone 6 with its larger screen, and from that point, Apple’’s iPhones sales began to rise exponentially. With a new design and new features, along with a better camera on the high end that most likely will make AR Kit based apps work even better, these new iPhones could push the newest super cycle of sales and, if some estimates are right, could make them the first trillion dollar company we have seen in the world of business.

So next week’s introduction of a new iPhone is not just another upgrade event. This one has a lot riding on it and could drive sales of iPhones in new ways as AR Kit and IOS 11 is also expected to help boost sales of these phones and earlier models still for sale on the market today.

One of the modern day debacles coming from any tech company was Google’s Glasses. I was quoted in the WSJ saying that buying Google Glasses for $1500 was one of the worst purchases I have ever made in my life. Although in my case it was for research purposes, I am sure that any prosumer or consumers who bought Google Glasses had the same feelings about spending any amount for these worthless prototypes. I also chided Google at the time for even offering prototypes to the broad market at any price as they were not even close to being ready for prime time.

These glasses proved to us researchers that glasses of this type, even with dedicated software available for them, had little value for consumers and for many, the fact that they made them look like a geek, made the situation even worse. They were banned in movies theaters, bars, and most public places and were pretty much shamed by the broader public and Google was forced to take off the market altogether after slightly a year of their availability.

But to me, Google’s biggest sin is that they did not understand that technology in almost all cases starts at the top of the user’s pyramid, and it takes years to trickle down to a broader consumer market. If there were any real interest in Google glasses, it came from the top of that pyramid, which mostly represents what we call vertical markets or markets in business and industrial programs where one could create custom applications to solve real world problems for them.

Four years later the demand for glasses today come from only these vertical markets, and I do not see any glasses gaining any interest by consumers for many years into the future. The good news is that some great glasses are being designed for use in these vertical markets now, coming from companies like Vuzix, Epson, Meta, and others. I am also seeing serious software created to support them from companies like Atheer, who’s Air Enterprise software delivers a set of applications that can be customized for use with these glasses even today.

Today, I still have many reservations about Glasses becoming a mainstream product. We do not have the technology or even the right UI today to even make glasses that I believe could entice a consumer to use them anytime soon. There are also challenges of depth perception of our eyes, adding gestures, voice, etc., all things that will take a long time to perfect in a small form factor. However, I do think that sometime in the next ten years glasses of some type will become an extension of our digital user interfaces.

But for that to happen I believe some important things have to happen for these glasses to be accepted by consumers and become useful beyond the vertical markets where they will become relevant in the next 2-5 years. Here are some ways watch for which could help drive adoption:

• The first thing we need is technology that delivers the video screens built into ordinary looking glasses that are acceptable to the public and won’t make them look like geeks. They have to be invisible in the sense that they look like regular glasses but on digital steroids. We just don’t have the optics and types of displays that would work in this form factor now, and I do not know when we will see these types of digital displays that would work in normal looking glasses.

• The second thing we need will be a set of software tools to create applications optimized for glasses and hands-free gestures and voice actions to control them. The public will not accept having to navigate a digital glasses world if there is a touch pad on the glasses that they need to use just to navigate the content they will want to access through these glasses. We will need significant hardware and software advances in voice, gestures and other hands-free UI’s if glasses are ever to be accepted by a broad market of users.

• The third thing we will need is for the consumers to not only want to use glasses as part of their digital experience, but they will have to have compelling reasons and applications for them even to be interested in any glasses. This is where Apple may have a real effect on this market over the next 2-5 years. Apple’s introduction of ARKit and its AR platform is set to revolutionize the user experience on the iPhone and the iPad. ARKit and the applications that will be generated by it will begin to get Apple’s customers familiar with this significant experience and start to introduce a new user interface that includes voice and gestures to the AR experience delivered on their mobile devices.

In the next 2-3 years, I expect Apple to evangelize the idea of AR and mixed reality and get their customers not only used to using these apps on an iPhone and iPad but will want some additional ways to have even better ways to view AR and mixed reality content beyond the iPhone and iPad. We know that Apple has two or three glasses patents in the works and if Apple can use these next three to five years to get their customers familiar with AR and mixed reality it will be much easier to transition them to some glasses that would serve as an extension of Apple’s UI prowess. ARkit will certainly help emphasize the pain point of holding your phone up out in front of your body while walking around the world using AR applications. After a few years of these experiences, glasses will be a no brainer.

Google, of course, has not given up on glasses and their newest versions are focused on vertical markets today. But they too want to use AR on Android phones to start getting their customers more familiar with AR and mixed reality applications. This too will help make people more familiar with these types of apps and eventually more receptive to some glasses Google may bring to market for consumers in the future.

I do not doubt that someday glasses will become an extension of the broader consumer digital experience but much must happen before that ever becomes a reality. Just don’t expect to see them anytime soon.

Word came out last week that Apple had earmarked $1 billion towards creating or acquiring new media content shortly. Like other big companies such as Netflix, Amazon, and HBO, the race is on to either create original content or acquire content that would help them boost their offerings to their customers and in turn, increase their subscriptions and services revenue.

When I saw that Apple was only committing $1 billion to this venture (Netflix’s budget is $6 Billion, Amazon’s is about $4 billion, and HBO’s is $ 2 billion) it got me wondering why Apple is spending so little on the kind of content their competitors are rushing to create.

Philip Elmer-Dewitt publishes the best newsletter about Apple called Apple 3.0. He shared a note from Royal Canadian Bank analyst Amit Daryani about Apple’s $1 Billion Media fund. If you are a serious Apple follower, I highly recommend you subscribe to this newsletter-Worth every penny if not more.

Here is a highlight of the note Amit Daryani sent to his clients and Mr. Elmer Dewitt shared in his newsletter

If AAPL can get an additional 7-8MM paid Apple Music subscribers, it would recoup the $1B investment (after paying record labels’ share of subscription) in three years. Given the double digit growth in music streaming subscribers and a 20-25 million paid subscriber gap between Spotify and Apple Music, upside to market share gains could be significant. We think this itself provides AAPL sufficient incentive to sustain the level of these investments.

Also, over the longer term, content investments open multiple possibilities including:

• strengthening iTunes media sale/rental business,
• launching an Apple TV exclusive streaming service,
• leverage in negotiating with media companies, and
• driving M&A strategy.

Ultimately, we think the investments fit well with AAPL’s goal of doubling Services business by 2020.

I believe that Mr. Daryani’s view is the correct way to view what Apple will do with a big part of this $1 billion fund. Although they may earmark a portion of this for some original content or licensed video programming, I agree that the bigger priority is to invest this in an area that would pretty much guarantee they grow their services business via their music subscriptions faster.

Today, Spotify has 140 million users while Apple has 27 million as of June of 2017. While Apple still has high aspirations around Apple TV, I just don’t sense it has the same priority that Apple Music has in Apple’s short term strategy. More importantly, music is an area that Apple knows and understands while creating original content for Apple TV has a deep learning curve and would require budgets north of $5 billion just to compete with today’s leaders in streaming video.

Apple’s streaming music service is getting better and has been a big part of their growth in services revenue. However, given the world wide audience, they have to IOS devices, innovating around their music service and bulking up on special deals with artists would help them make a real return on the $1 billion being invested in media shortly than they would if they used that money specifically for original video content.

That said, I believe this $1 billion media fund is probably the tip of the iceberg when it comes to Apple eventually opening up the purse strings and investing billions more in both music and video content over time. But this first $ 1 billion gets them on the road to eventually being more aggressive in both mediums that can help them get to their goal of doubling service revenue by 2020.

Reports from Bloomberg suggest Apple is working on designing a new piece of silicon specifically for AI or more likely Machine Learning. Anyone tracking semiconductor trends could predict this since nearly every company working on AI/ML is using or designing a companion chip like a dedicated ASIC or FPGA for their AI efforts. At a fundamental level, these dedicated companion processors that are programmed for specific tasks are better suited for a range of tasks and AI is one of them.

Most companies are using these companion processors for inference, which is what happens after the computer is trained and you ask it a question. The trend in machine learning is to use the CPU/GPU to teach the system and then use a dedicated co-processor to handle the inference. Nearly all benchmarks I’ve seen confirm this process speeds up the computers ability to answer a question dramatically. A practical example of something like computer vision is once you have trained a system (using the CPU/GPU) to recognize a dog the dedicated AI chip for inference is what is doing the work to identify the image is a dog. Experts in the AI/ML industry as well as some of the best silicon architects I know have concluded this heterogeneous architecture is the right path forward.

This is why it makes all the sense in the world for Apple, a company who looks to design every piece of silicon it can that will give their products a superior and differentiated experience, to develop a dedicated chip for their AI efforts. I suggested this very thing last year when we discovered the iPhone 7/7 Plus had an FPGA in it for the first time. This FPGA was being used for sensor fusion (to manage a number of the sensors more efficiently, but it signaled Apple understood these specially designed co-processors were optimal for efficiency and performance.

So What Might This New AI Chip Do?
A high-level point I’ll make is here is much of Apple’s machine learning applications are hiding in plain sight, and you wouldn’t recognize them if you didn’t know what you are looking for. For example, when you are at your office, or any location not your house, and you pick up your iPhone, and it says it will take you X number of minutes to get home. That is Apple’s machine learning at work looking at your location, looking up the traffic/routes, and letting you know its estimate of your time to get home. Or when a get a phone call from a number you don’t recognize, and under the number, there is text saying “maybe John Smith.” This is Apple’s machine learning at work looking on your device for this phone number in case it is associated with this contact (like in an email) even if you didn’t add the number to your contacts. Or when you pull up Apple Maps to look for directions and start searching for an address for an upcoming meeting, and below the search box the address pops up automatically because it saw this address in your email. That is Apple’s machine learning working indexing address data in your email and date/time information, and it anticipated you might look for this address at some point. All of this happens behind the scenes and it is a complex series of algorithms which accomplish these feats, and they are all tactics in machine learning.

One of the things a casual iPhone owners may not recognize is that iOS is always learning about them, and to a degree, becoming customized uniquely for them. iOS is a learning operating system that conforms to its owner. While this is still very early in how it is done, this is essentially how Apple is designing their operating systems and apps, and this AI chip will likely move this ambition forward in leaps and bounds.

Another way we may see the benefits of this chip right off the bat is with Apple’s rumored new facial recognition system. This solution will undoubtedly have extremely sophisticated software working behind the scenes for what is being called FaceID. The system will need to recognize your face in the dark, from all angles, be secure and not fooled by a picture of you so will require 3D mapping, as a few examples. But some new recent leaks even suggest the front facing camera sensors may indeed gain some intelligence as well. This feature in particular, suggested the iPhone will know when you are looking at it and add some intelligent context to things like notifications in this case.

Given computer vision is one of the most computationally intense use cases out there, I suspect a range of intelligent features to come to the iPhone camera app as well. This can expand beyond simple effects to even identifying people in real time, not taking a picture if everyone is not smiling, and even using Siri more specifically for things like a selfie. While I appreciate Apple’s Siri promos with the Rock when you ask Siri to take a selfie all it does is launch the camera but not take a selfie. I hope this evolves so when I say “hey Siri take a selfie” the app opens and Siri then says “let me know when you are ready.” Then I say “ready, ” and it waits until I’m smiling and the picture is the best it can then take the picture. Just one example of others I can think up.

The bottom line is, a dedicated and specifically designed piece of silicon from Apple’s world class design team makes all the sense in the world. Apple is uniquely positioned to do this and provide a superior AI experience at the core of their learning operating system. The competition will try, but it will be extremely difficult to match the on device learning from Apple.

There is a quote that has been bounced around, with some debate to who said it, that says “a computer should not ask you a question it knows the answer to.” This has been a notoriously difficult but I suspect Apple’s custom effots in silicon and tuning that software specifically toward more intelligence and adaptive OS/apps we will start to get closer to this vision. We have talked about Apple designing an anticipation engine and I’m certain this AI chip will help greatly in this effort.

Apple’s Fiscal Q3 earnings were a bit more interesting than I thought. Much of this interest came from extensive commentary from Tim Cook on a range of things from iPad to Apple Watch, to autonomous systems, and the iPhone in emerging markets like India. First, let’s start with the iPad.

iPad
iPad unit shipments were up 14% YoY. I suspect this had a lot to do with the new aggressively priced iPad Apple launched earlier in the year as well as some regional help in China and enterprise/EDU. iPad ASP was down, which does suggest the $329 iPad drove a good volume of sales. This is not surprising as there was still a large base of iPad two still in use and it made sense it was time for some upgrades. Half of iPad sales in China were also to new customers to iPad. For quite some time we have been watching the iPad slowly grow its base and lure in China, and this trend continued in the June 2017 quarter.

Apple’s main mission with iPad remains to reposition it as an entirely new type of computer. This is the goal of their ads, and it may be slowly working. We need to see how the fall plays out with iOS 11 and iPad, but according to a poll, we ran 36% of our respondents had not yet seen Apple’s new iPad commercials. 24% indicated these commercials had still not increased their consideration to buying iPad over a new PC or Mac. 16% said they are still happy with the PC or Mac they have, but they may consider switching to iPad when their current notebook/desktop needs to be replaced. Only 5% of respondents had already made the switch from PC/Mac to iPad. I remain convinced there is a lot of upside for iPad. However, there is still work for Apple to do.

Apple Watch
Apple Watch is quietly off to a strong 2017. It appears both the March and June quarters of 2017 were up approximately 50% YoY. In each quarter Apple shipped approximately 2.3-2.6 million Apple Watches. This is not as strong 2015 quarters but much better than 2016. As of now, I’m relatively confident 2017 will be Apple Watch’s best sales year yet.

By most research estimates, Apple is the second largest watch brand to Rolex in revenue, and regarding end, customer sales Apple sells more watches each year than all Swiss watch brands. Note this interesting snippet from a Wall St. note on the European luxury market.

The other thing to consider about the Watch is the data collection platform it is becoming. With an installed base nearing 30 million people, Apple is getting more health, fitness, and overall activity data than any company out there. Even as Apple is anonymizing that data for user privacy, they are still benefitting from learning the data trends which overall helps make better products and more personal services over time for the end customer.

Autonomous Systems
The most interesting part of Tim Cook’s commentary on autonomous systems was not his affirmation that they are interested in autonomous systems/vehicles but that the applications for autonomy go beyond vehicles. He said you are all thinking about this too small! It seems many have lost the forest for the trees by just looking at autonomous systems through a vehicle lens. Apparently, Apple has much larger ideas in mind. So what can that be?

Robots, for one, may be an interesting angle here. If perhaps, we are heading toward a future where we have personal robot assistants then Apple is certainly well positioned for that future. Autonomy can also benefit Apple’s assembly factories helping them further cut manufacturing costs. It was Tim Cook’s coy comments about autonomy being more than just for cars/vehicles I found the most intriguing and worthy of deeper thought.

The iPhone just getting Started in Emerging Markets
Apple remains bullish on emerging markets like India, and even lower tier areas of China. This lines up with our data that suggests consumers are moving up the price chain not downwards even in price sensitive markets. So long as Apple has competitive price products, that are not too much more expensive than the competition, then I agree they have some ground to gain in markets like India, lower tier China, and SE Asia.

Continued investments in these regions in store fronts, developer ecosystems, local services, manufacturing, etc., are all necessary for Apple to grow their installed base in these regions. Apple is playing the long game here, and we can’t forget it is a long game.

Set up for a Big Year
The last thing I want to call out was the confidence coming from Apple management. I don’t read this as being cocky but more just sensing the winds are trending in their favor for the next 12-18 months. Honestly, I’ve been scouring reports and data we have, and I can’t find much evidence to counter Apple’s confidence. Nearly every Wall St primary research study indicates a huge number of iPhone customers waiting for the iPhone 8. Upgrades have been delayed, and consumers have engaged in what I now call the great wait for the iPhone 8. I know it rhymes.

Apple is not just poised for a big second half but a big 2018. With developers jumping on ARKit as fast as any new toolset Apple has released, there is going to be a new developer app boom around AR which will be exclusive to iOS. This will also be a very public display of innovation. AR is going to demo very well, and iPhone customers will be more than happy to show off all the cool features of AR which will only help in driving consideration of their Android owning friends to switch.

As I mentioned here, AR will also help drive exclusive experiences and new app innovation in China that will generate even more interest to iOS from Chinese Android owners.

Apple’s ecosystem as a whole is getting bigger and more powerful. I’m fond of saying platforms broker trust, and that trust only deepens over time and becomes attractive and hard to leave. Apple is creating value for third parties not just themselves and this again contributes to the rich value of the ecosystem.

Much has been said and speculated around the pricing for Apple’s iPhone 8. iPhone rumors is especially hot in the summer thanks to the slow news cycle and publications hunting down every story and angle which will generate interest and the iPhone 8 fits that need.

This is one of the most asked questions I get from clients, readers, and in particular the Wall St. community of investors. There is a range of concerns which I will cover and share my thoughts and perspective on, but I think it’s helpful to remember why–besides being a 10th anniversary year–this particular iPhone launch is of the utmost interest, and perhaps importance to Apple as a company.

Many may remember the iPhone 6 launch year and what many referred to as a “super cycle.” That simply means there was a large base of pent up demand of Apple customers who were in need of an upgrade to their 2-3-year-old iPhone. This cycle was also strategically important for Apple as the move to a larger screen form factor helped accelerate their installed base growth and subsequently boosted the annual percentage of customers switching from Android to iOS. We find ourselves in a very similar situation, and many hoping history repeats itself with this iPhone 8 “supercycle” should it happen.

The logic of these assumptions is the expectation/hope that:

• Apple breaks sales records of the fall thanks to pent up demand to upgrade (especially in China)
• The iPhone returns to growth (which is likely)
• These new devices to usher in another round of installed base growth driven by hoards of new switchers from Android.

As always, there are bull, base, and bear cases build around this cycle, but the hope is there that this cycle will generate a new growth period from Apple. Interestingly, some reports I’ve read are predicting iOS growth in 2018 to be higher than Android growth as the entire industry has been hit by a slowdown due to smartphone purchases being delayed. The data seems to suggest the slowdown in 2018 will hit Android more than iOS with iOS being posed for a growth year with estimated iPhone sales forecasts ranging between 230-250 million for Apple’s fiscal year Dec-Sep.

The two biggest parts of the bear case are the price and rumors of a delay. Those are the two I’ll spend time on and end with some thoughts on how Apple may shake up the lineup this fall.

Will the iPhone 8 (exact name TBD) Suffer Massive Delay?
This is probably the hottest question I get from investors. My answer is probably but not any later than November. The root of this concern is because of the number of innovations Apple is bringing to market with the highest end model of the iPhone 8. Things like OLED screen, breezeless design, new 3D image sensor technology, Touch ID under the display, new colors or materials, etc. Many of these technologies are in their infancy and don’t just suffer from challenges in manufacturing scale but also short supply. From my supply chain conversations, Apple has locked up a good chunk of the new 3D image sensor supply they are using but even then may not be able to secure enough to meet demand. These two issues combined are likely to result in some delay meaning customers who want the iPhone 8 will have to wait a month or two at most.

This is not a huge issue since early adopters who will likely be the target of this product will be willing to wait to get the latest innovative iPhone. Meaning, if Apple comes out with a supply of 35-45 million supply in the Dec quarter (estimated 35-45% mix of Dec qtr sales), they will sell all of them and keep their higher end product mix in line with past quarters.

Overall, the delay will be widely critisized in the news but if the supply chain reports are accuate and late October/early November is the longest consumer will have to wait then it seems a big quarter is possible and likely in Dec for Apple.

Pricing
Price has been another major concern. The concern being the iPhone 8 assumes a much larger bill of material (BOM) cost which will drive it’s price up well over $1000 dollars. Folks have speculated it could be $1400 or $1500 which I don’t feel is likely.

A cost analysis of how Apple prices it’s premium products against other premium players in a given category shows that Apple never prices too high above the competition. This true of iPad, Mac, iPhone, and other products in Apple’s lineup as well. While Apple’s products are the most expensive in most categories they compete, they are never too expensive compared to their competition. This is a key point when addressing this concern since the root of the worry is that if the iPhone was too high priced that devices like the Samsung Galaxy S8 and soon to be launched Note devices may become more attractive. Or that consumers may start to feel like Apple is price goughing them and get fed up and switch to another vendor or cheaper iPhone model. Here agin, knowing Apple tries to be price compeititve should give us all the historical context for pricing we need.

My gut is we will see and entry level 64gb iPhone 8 (x, pro, TBD) in the $900 dollar range and a 256gb version starting at $1000-$1100. Yes that would make it the first time in USD the iPhone crosses $1000 in price but a high end 7 Plus today is not that far off in price.

The other angle Apple can pull is lower the price of the updated iPhone 7 models, if indeed they update the models instead of redesign all three offerings. This move would absolutely add to their installed base it makes it easier for Android switches to enter the Apple ecosystem with more affordable current generation models. While most believe Apple will update and release three newly redesigned iPhones in the fall, the iPhone 8, 8 Plus, and Pro/X(TBD), some analysts think Apple may be extremely aggressive and even lower the price of the 8 and 8S in order to further grow their customer base. While I have a feeling they are skipping the 7s and 7s plus cycle and releasing three new iPhones, two LCD, and one OLED, I’m not as confident they will be extremely price aggressive with 8 and 8 Plus. But this logic does give more reason for a buyer to be interested in the 8 Plus given its screen size will be similar to the iPhone 8 (X, Pro, TBD).

I’m intriqued by the price aggressive theory with current generation phones as it would absolutely lead to an injection of growth many did not see coming. Given Apple’s continued strides in monetizing users through the ecosystem and creating massive value for developers and other third parties, it seems like the more Apple aggressively grows its base the bigger and more robust its services revenues can become. I’m still not confident of this thesis but I find it intriguing given the growth injection to Apple’s customer base it would cause.

It’s fun to speculate, but I’m not as worried as others at this moment given the historical context on pricing I provided above. Things like augmented reality will continue to help further Apple’s differentiation in the market and provide a new batch of iOS only experiences. This will help China, India, and key parts of Europe as the smartphone market reaches maturity and consumers are harder to excite. Ultimately, I’m still bullish on the iPhone 8 supercycle but once we have the details in September, it will be easier to provide more concrete scenarios for the Dec quarter.

Last month I wrote a piece in the Think.tank stating that I believed Apple was going to be doing major work in AR to advance the personal user interface by mixing virtual and real worlds into their mobile platforms. We are already seeing some fascinating AR examples coming out of early developers who have been using AR kit to create early AR applications for IOS 11. (Check out @madeforarkit on Twitter to see many of these early examples.) In this article, I also stated that while I believe the iPhone is the best vehicle for Apple to deliver AR at first, I also suggested, based on some patents that eventually Apple will add some form of eyewear tied to AR and MR to their portfolio. These new products will offer an even new way to interact with mixed reality in the real world.

But I do not see that coming for at least another 3-5 years since at the moment the technology is just not here to deliver a set of glasses or goggles that can work without the iPhone and could be even fashionable enough to gain serious market acceptance. It is possible that the first version of Apple’s glasses or goggles will need to be connected to the iPhone to work, but the Holy Grail would be to make them work on their own and without wireless tethering to the iPhone.

If there is a company that could eventually bring smart glasses to the masses in the future, I believe it will be Apple for one major reason. That reason lies in the work they are doing now with Apple Watch. Apple Watch is an important product in its own right. Apple’s has used Apple Watch in their quest to deliver a whole host of wearable health, medical tracking, information and services, it is also serving as an important development project to create an extremely small PC motherboard that I believe will eventually be used to power their glasses or goggles.

If you look at the major VR glasses or goggles today, they are all very bulky and in the case of Sony’s PlayStation VR, HTC’s Vive and Oculus Rift, these need to be tethered to a powerful PC with high powered graphic chips to work. And even with Intel’s project Alloy, which is un-tethered, it too is heavy and bulky as it uses a rather large mobile motherboard inside to power it. And even if you were going to try and deliver some glasses or goggles that were usable today it would need to be wirelessly connected to a smartphone and not work without this type of mobile connection.

Today, Apple is the only one that has created the equivalency of a personal computer motherboard that will fit in a smart watch. Yes, Samsung and others also have smart watches, but at the motherboard level, Apple appears to be cramming much more in the way of CPU’s, graphics and wireless radios in it to power the thousands of Apps available now for Apple Watch. And given this power, Apple can advance the OS quickly as they will do with Watch OS 3 and I suspect that Version 4 of Apple Watch will be even more powerful and more capable when it finally comes out in the very near future.

What I see happening is Apple using the Apple Watch as a major R&D project that they can then transfer/use in smart glasses once they have the right optics, right design and more importantly, fulfills some type of pain point that one has after 3 or 4 years using AR on a smartphone. While I don’t ever see people walking around with smart glasses all of the time, if they had these types of mixed reality glasses that fit a need or pain point at their disposal they would be more likely to use them often when that need arises.

Apple never works on products with short term goals. I am convinced that while the Apple Watch stands on its own in its role as part of Apple’s hardware, software, and services approach to the market. I can see how the miniaturization of a PC motherboard could morph into the type of PC motherboard that could eventually power a set of mixed reality glasses or goggles. If And if anyone is going to get this right, I suspect it will be Apple.

As you all can imagine, augmented reality has been given a speed boost thanks to Apple. Apple’s release of ARkit has a number of their competitors scrambling to come up with a competitive strategy on a timeline that will keep them from falling too far behind. This is going to be a challenge, as Android is going to struggle as an AR development platform. Understanding this point is central to the argument I am going to make for Apple/iOS in China.

Android’s fragmentation is going to hurt the platforms AR efforts more than it hurt the app efforts. It is no secret, and now a well understood industry reality, that all the latest software/app innovation happens on iOS. Many great apps come to iOS and never make it to Android. The ones that do are often poorly designed clones with sub-par user experiences. Even big companies have struggled with this as they try to bring their flagship iOS apps to Android. The root of this issue is the hardware, mainly at the component level, in the Android ecosystem. Because Android is now in two billion people’s hands, and the vast majority of those two billion devices being mid-low end CPU, GPU, camera sensors, etc., developers are forced to make sure their apps work on the lowest common denominator performance and spec wise. That is, after all, what most people have on an Android device, is a mid-tier device performance wise. This was an issue in software and remains a development problem, but the problem will be exacerbated when it comes to augmented reality due to the demands in CPU, GPU, and most importantly camera sensor technology. The key takeaway, is the mid-tier spec AR experience will not just be terrible, it may not even work. Roadmap wise, it will be years before mid-tier and low-tier components can even resemble a decent AR experience.

So if we believe, ARkit will usher in a new wave of app/software innovation as I do, then it stands to reason iOS is going to only widen the gap for the foreseeable future over Android from an app/software development standpoint. Apple’s lead will be at a minimum 12-18 months, but in all likely hood, it will be much longer.

Following my logic, there will be a significant and objective difference in the software experience and evolution of apps around AR on iOS than Android. This will peak the interest of a lot of consumers who see all the interesting, valuable, useful, and entertaining, things AR will bring to our mobile devices and the stark observation will be made that you can only do these things on iOS. Every market will see this. However, I feel it will make the biggest impact in China.

First, you have to understand Chinese consumers are all about experiences. They save, scrimp, and go to great length’s to pay for anything that is a unique experience. This is evident in the typical Chinese consumer’s travel strategy to go to places in the world and stay in modest (low-priced) hotels, eat low-cost food, but then on one day or maybe two, of their trip, they plan their luxury day. They then splurge on that one day to stay in the nicest hotel, eat the most delightful food, and do a unique local experience they can in that one luxury day. Time and time again, we see overwhelming evidence of this behavior in Chinese culture to splurge on unique experiences.

Not only will the iPhone 8 lineup be a form factor change, that by itself, will ignite the Chinese market for iPhones but pair that with innovative, unique AR experiences only found on iOS and we are setting the stage for Apple to make a big run in China.

The other key factor here is that these new AR experiences can be found in a range of new apps. This reality alone can break the “WeChat is the only app consumers use in China” narrative. While I’m certain WeChat will remain a key platform and maintain heavy usage, a plethora of new apps will hit the scene that gives Chinese consumers reasons to try and use other apps than WeChat. However, going even further, ARKit will even give WeChat some incredible new capabilities that will be found only on iOS. Imagine WeChat adding ARKit capabilities to its platform and enabling a WeChat AR experience that is only found on iOS.

Chinese consumers are also the closest ones regarding behavior to AR behaviors today thanks to QR codes. I’m not saying QR codes is augmented reality, even in some cases a QR code does launch and AR like experience, but that the behavior is similar.

Scan a code in the real world and get information about it digitally. Imagine QR codes being taken to a new level with ARKit in the Chinese market by not just taking them to a digital page, or app, but bringing product information or the overall experience to life right in front of their eyes.

Perhaps more than any other market, the Chinese market is poised for rapid adoption of augmented reality experiences. Put all of this together and Apple is in a perfect place competitively.