The Rise of First-Party Pre-Installed Apps

Next week should see the announcement of Apple’s latest iPhones and, about ten days later, their availability and the public release of iOS 9. Among other features, one of the interesting things to note is iOS 9 brings a couple more pre-installed apps from Apple over iOS 8. Apple isn’t alone in this – Android, too, has been adding to the range of apps that Google pre-installs on stock devices and Windows on mobile devices is moving in the same direction. Today, I’m going to take a look at what’s been changing and what it signifies.

iOS – from 15 to 33 pre-installed apps

iOS – or iPhone OS as it then was – began with just 15 pre-installed apps in its first version. The home screen – then uneditable – had an awkward space on the final row for the first year, an indication of the discipline with which Apple approached the task (it must have been tempting to add another for looks alone). The following year of course, Apple added three more pre-installed apps and the ability to download more from the App Store in iPhone OS 2.0. That story has largely continued over the years since, with only iOS 7 adding no new applications:

Pre installed apps on iOS – 3

Note: it’s actually surprisingly difficult to get an official indication of which apps were pre-installed in different versions of iOS – Apple doesn’t maintain an official page on its website for each version after it’s been replaced and third-party sources often don’t explicitly list them out. In addition, some apps that began as optional installable apps have, over time, become mandatory pre-installed apps. As such, it is possible there are one or more errors in this analysis but the broad trends are accurate.

What has driven this increase over time? There are several broad categories here:

  • Splitting functionality into multiple apps – there are several examples here, including the separation of Videos from the iPod app (which happened on the iPhone long after the iPad and iPod Touch); the creation of a separate Contacts app, splitting the functionality of the Phone app; the separation of FaceTime functionality into its own app, along with the separation of Podcasts from iPod/iTunes
  • Making previously installable apps pre-installed, including Podcasts, Find my Friends, and Find iPhone, which all debuted as optional apps in the App Store before they became pre-installed in various versions of iOS over the years
  • The absorption into the core iOS experience of functionality hitherto provided by third-party apps, including Passbook, the News app, Reminders, iBooks, Voice Memos, and Health
  • The rest are a mishmash of items, including the Tips app and Game Center, but also apps driven by new hardware functionality, including the Compass app and the Apple Watch app (driven, not by new functionality in the iPhone, but by new separate hardware).

To my mind, the third of these categories is the most interesting, in that it suggests the category Apple is likeliest to expand in future. Apple has steadily absorbed functionality provided by third-party apps into the first-party experience and it’s a safe bet it will continue to do so. The big question is in which directions Apple will move – many of its new apps have been in the content category, with News, iBooks, and the new Music app (not a new app per se, but certainly new functionality which mirrors that previously only found in third-party apps on iOS) the best examples. An Apple TV service might well be the next big example though, as with Music, it might well find a home within an existing app.

Comparing iOS to Android and Windows Phone

The other thing that’s interesting is to compare iOS to Android and Windows, the other two mainstream smartphone platforms. However, the comparison is tough to make on a direct basis, because Apple’s flavor of iOS is the only version there is, whereas Android and Windows make their way to market on handsets made by OEMs and often sold through carriers, each of which add their own apps.

The latest version of Android, now known by the codename Marshmallow, has 31 pre-installed apps, close to the 33 pre-installed on the iPhone. However, almost no one will use this version of Android, which is only really available on a handful of Nexus devices or by installing ROMs manually on other devices. The vast majority of end users of Android will buy a handset made by an OEM which adds its own apps and a carrier which will layer on several more. As an example, the Galaxy S6 sold by AT&T has at least 50 apps, of which a dozen or more are AT&T apps and services, — many others are Samsung-specific. OEMs using Android have to include those apps which are baked into Android itself and then another 11 or so which are part of the Google Mobile Services package. But in reality, many OEMs substitute their own apps for several of the optional Google apps, or provide duplicates, such as their own browsers alongside Chrome. This quickly swells the total numbers to 40, 50, or even more.

Windows shares some of these characteristics, with OEMs and carriers layering their apps on, too. This has fallen off somewhat in the case of OEM apps on the Microsoft devices compared with the devices made by Nokia before the acquisition, but carriers still add quite a few apps of their own. It’s hard to know what a “stock” Windows 10 experience looks like but, by my calculations, there are around 29 standard apps pre-installed in Windows 10 on smartphones. However, there can be up to a dozen carrier apps added to the version most users will actually see and some OEMs will add their own too.

As such, a “stock” experience on Android or Windows will provide a very similar total number of pre-installed apps to iOS, but the reality is, outside of iOS, that experience won’t be the one most end users actually encounter. Instead, they’ll likely buy devices with a dozen or more additional apps, which may well leave them with around 50% more apps pre-installed than iOS.

Google, Apps, and the Closed Web

The accusations Google has been manipulating search results have been happening for some time. It was this last article I read on the subject which brought about a thought. We shouldn’t blame Google for manipulating search results in order to favor their business model. But, as we reflect on how (through apps) Google did it and how the web may actually be becoming more closed than open, I wonder if the masses actually care?

As long as I get the information I’m satisfied with or get information from a search query that’s “good enough”, do I really care if I’m not seeing all the choices? Apps are showing us the internet experienced within the shell of an application satisfies the needs of many people every day. We have “containerized” the internet because it is more efficient to do so. It is possible this contraction from a broadly open internet to a more closed one is a result of the vast amount of data/choice out there. I’d wager most consumers rarely get past the first page of Google search results. I’m sure they know there are many more pages of results, but the first page is generally good enough. Part of this is because Google is extremely good at returning relevant results. The other may simply be that the first set of answers is sufficient for most.

There is a great book I read years ago called The Paradox of Choice. The book outlined a behavioral observation that too much choice can often cause people to be overwhelmed and thwart the decision-making process. In a world of more than 600 million websites and hundreds of thousands apps, there is, arguably, too many choices and most people don’t want to spend hours sifting through all the apps or websites their search results return. This is perhaps why relevance is prioritized and is critical to continue to improve upon, as the number of websites, apps, and overwhelming options continues to grow.

We return to the question of, is intentionally limiting choice through curation actually a bad thing if it yields what we are looking for? The walled garden experience of Facebook in many countries, or WeChat in China, appears to be gaining in popularity as the amount of time spent in closed web experiences grows across the globe.

We can certainly argue manipulating search results is morally wrong. Particularly since it puts Google in a position to punish or exclude otherwise valid options consumers should be presented. But, I do think there is a trend toward the curated web and the question of discovery is central to this shift. We already see evidence of consumers curating their social graphs to get the information they have deemed important. This includes new outlets and brands they follow, celebrities, etc., on things like Facebook or Twitter. Some data points from a research project I have on Millennials highlight this shift.

  1. Millennials acquire news for many reasons, which include a fairly even mix of civic motivations (74 percent), problem-solving needs (63 percent), and social factors (67 percent) such as talking about it with friends
  2. Facebook has become a nearly ubiquitous part of “Digital Millennial Life”. On 24 separate news and information topics probed, Facebook was the No. 1 gateway to learn about 13 of them and the second-most cited gateway for seven others 

  3. Contrary to the idea that social media creates a polarizing “filter bubble,” exposing people to only a narrow range of opinions, 70 percent of Millennials say their social media feeds are comprised of diverse viewpoints evenly mixed between those similar to and different from their own. An additional 16 percent say their feeds contain mostly viewpoints different from their own. And nearly three-quarters of those exposed to different views (73 percent) report they investigate others’ opinions at least some of the time — with a quarter saying they do it always or often

While this is focused on news, it also has relevance to discovery. Many demographics in our research panels specifically point out that what friends are linking to on social media, Facebook in particular, is how they discover most current events. One has to wonder how much this curation will bleed into other areas and perhaps even search in particular.

Hopefully, what Google is doing is emphasizing relevance rather than actually manipulating results. Time will tell if the lawsuit reveals any further truth in the matter. Overall however, there may be a larger trend around the filtering or intentional limiting of choice by consumers themselves due to the overwhelming amount of information they are already presented with online. Consumers may be closing the web themselves as a result.

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Why Context is the Next Battleground for Apple, Google and Microsoft

At this year’s Google I/O Conference, the company announced Now On Tap, the next-gen version of its Google Now digital assistant, which can contextually improve how you experience apps using an updated machine learning algorithm and something they call “deep linking.” The idea behind this is, if you get a text saying to meet at a certain place, Now On Tap is smart enough to put it on your calendar, give you a map of the place you are going to and, if it is a restaurant, it could even serve up the menu for you to review. It might even show the best parking areas nearby as well as stores that might be of interest to you based on your Google profile preferences.

Last week, Apple announced a new version of Spotlight and Siri at WWDC in which you can type or ask questions of Siri and it is supposed to give you an answer based on a better contextual search engine. And, in May, Microsoft used their developer conference to launch an updated version of Cortana that, at its root, is also an AI-based personal assistant that will take a question and put it into context in order to give the user more precise answers to their questions.

I believe the consumerization of AI is set to be the next major battleground to drive differentiation, especially into the mobile space since hands-free communication is often critical to accessing information in real time and making our mobile devices even more useful. This is why Google Now, Siri and Cortana personal voice assistants are important front ends to their contextual AI offerings.

In an excellent piece in Fast Company titled “Apple finally learns that AI is the new UI”, author John Brownlee asks the question of whether UI or AI will win the war in this new battleground. In it he says:

“The thing is, Google knew something we didn’t. It knew that Apple’s taste was a temporary advantage. It knew that designing a host of functional, universally integrated services was harder than designing pixels. And in the protracted thermonuclear war between Apple and Google, which first started when the search giant launched Android in 2008, Google knew that ultimately, it would be AI, not UI, that would win the war.”

While I agree AI is the new battleground, I would argue UI still is critical to the success of a mobile OS and user experience. After talking to Apple officials at WWDC, I am convinced they have a deeper level of research going on in AI than Mr. Brownlee gives them credit for. I also believe Microsoft has put serious investment in this level of machine learning and AI and it is being applied to Cortana and Windows 10.

On a personal level, this can’t come fast enough. Like many readers, my days have become packed with meetings, research, and writing and I admit I often miss the little things that are an important part of my daily lifestyle. For example, I often head to an offsite meeting thinking I know where I am going only to get half way there and realize I did not have the proper directions or even the right location. Too many times, I have had to pull over, check my email, go to Google Maps and find the exact way to go. Or I may leave the office and head to Office Depot only to get there and forget why I went in the first place.

Now, you may just think I am unorganized and, while that may be true in some cases, the reality is I have information overload that deeply impacts my overall efficiency. And I have to admit my memory banks are overloaded too. An AI-based personal assistant that anticipates things that impact my lifestyle is something I would pay for and, I suspect, many people are in similar shoes. In fact for many of this, it would be our killer app.

Although smartphone vendors can still differentiate around OS, design and UI, I agree with Mr. Brownlee that contextual AI-based services will be where the next major investment needs to be by these big players. Within the next two years, I believe users are going to demand more proactive contextual services that add greater value to our mobile and overall PC experiences and help us better manage our digital lifestyles. If done right, it would be a game changer for all of us who use this technology and, in my case, make my life much easier too. This is one of the promises of technology people have been wanting for some time and AI for mobile is getting better each year. I just hope Apple, Google and Microsoft double up on this research and make it a reality soon.

Understanding Android to iPhone Switching

There are several dynamics I want to explore about Android-to-iPhone switchers. I’ve seen enough data to suggest double digit percentages of Apple’s iPhone sales the past few quarters came from consumers switching from Android. The bull case for Apple’s growth is driven by share gains from Android, not new/first time smartphone owners. Apple’s larger screen offerings, the iPhone 6 and 6 Plus, are the clear catalysts driving Android switching. I’ve been trying to gather research and insights with a goal to understanding more deeply this switching dynamic. For now, I’ve concluded a few things.

Upside Outside the US

From data models I’ve made and thanks to discussions with local analysts and carriers, it seems those switching from Android to the iPhone are largely coming from outside the United States. Research suggests two markets in particular are where the bulk of Android switching is happening–China and parts of Europe. In both these regions, the installed base of premium Android phones, ones from Samsung, HTC, and LG, are much higher than in the US. In China, Apple has always led the premium market in terms of sales but, until recently, this volume was relatively low. Premium Android in China is in the $300-$400 range and that price tier represented the largest volume of sales during the Chinese smartphone boom and is driven by local Chinese OEMs. In both these markets “premium” was more defined by specs than price. The Asian consumer viewed larger screen devices as more premium than smaller phones. This point underscores the significance of Apple making larger screen iPhones and why they are now selling in significant quantities in China.

Europe, also has a much larger Android installed base of upper mid-tier and premium smartphones. In both markets, the larger installed base of Android and market demand for larger screen smartphones creates the fertile ground for Apple to attempt to gain share. Where there is clear evidence this is happening is in China, with over 38% of Chinese saying they switched from an Android phone to an iPhone in the previous quarter. According to Kantar, a similar dynamic happened in Europe last quarter with 32% of iPhone buyers switching from Android. Similar data from our surveys shows the US switching rate was in the low 20% range. However, Apple is up against a dynamic which may slow sentiment to switch some of our behavioral research is uncovering.


In some recent research, I set out to understand what percentage of Android users in the US self-identify as Android users. Meaning, they have come to the conclusion Android, not iOS, is for them. I did a consumer insight panel and found 38% of Android users I interviewed specifically used the phrase (or something along the lines of) “I’m an Android user” as we were discussing preferences and decisions to keep buying Android phones vs the iPhone. This group was keenly aware of their self-identification as an Android user. Within this group, the sentiment was stronger to self-identify as an “Android user” for men than women. Another dynamic I uncovered in these interviews was 34% of those I spoke with were staying with Android because it did all the things they needed and felt no need to switch. For this group, Android was “good enough”. In nearly every discussion with Android users, the Android operating system was their entry into the smartphone world and they have built up a familiarity with it. To many, the idea of switching seemed overwhelming given how many years they had experience and invested in the Android platform. These interviews validated a great deal of larger survey work we did. It highlighted the first smartphone OS a consumer used tended to be the one they stuck with.

Through conversations from the carrier ecosystem, I learned the carriers themselves are weary of this familiarity angle and are hesitant to push consumers to switch operating systems, if they are undecided or on the fence, fearing it could lead to higher returns. Whether this is true or not it is a dynamic to keep in mind. In the US, Europe, and key parts of China, the smartphone market is mature. Mature markets have historically not seen platform share churn in significant quantities.

The case for switching from Android to iOS has indeed gotten stronger. However, those switching from Android are not the majority of iPhone buyers today. This dynamic is one worth continuing to study as it is extremely relevant to the global mobile discussion around smartphones. The majority of new customers for Apple already have a smartphone and it is most likely an Android phone. Apple’s iPhone installed base growth hinges on their ability to get consumers to switch platforms. While there are some share gains to be had in the US, it is the switching dynamic outside the US to keep an eye on.

Google I/O: Optimism and Skepticism

The wise understand Google’s predicament. Google’s growth is slowing as the customers who matter the most monetarily to Google are now online in some form via a PC, tablet, or smartphone. Monetizing this customer base is how they will grow meaningful revenue. Adding another billion people using their services is not the short term answer to Google’s revenue problems. So what do they do? This was the question underlying the I/O Conference for many of us who study the industry. After watching the keynote and then having the luxury of being at an event with many smart analyst colleagues to kick around ideas, I’m both skeptical and optimistic for Google.

My skepticism has always been tied to their business model. My conviction is free-with-ad-supported business models can only take you so far. I feel Google has reached the limit of that model. Google may sense this also, even though they may still believe the free-with-ads model can take them farther in the consumer space. In an interview with Adam Lashinsky of Fortune Sundar Pichai noted Google can afford to be patient. My interpretation of this statement and other parts of this interview is he says it because Google has a growing business, cloud platform, and enterprise apps segment. This business is not free — using their enterprise apps and cloud platforms are solutions businesses pay for. Similarly, Pichai made this point in his interview:

“First, if we help users get information, a lot of which is inherently commercial, monetization opportunities arise. Second, history always shows that if you build something millions or billions of people end up using, that builds a lot value too.”

The underlying tone of this statement is essentially where the bull case for Google can be made. They are ultimately a machine learning company, arguably the best in the world. Leveraging their machine learning capabilities and monetizing data in many different ways for both commercial and consumer customers is key. Much of the focus on Google has been on their consumer facing stuff like Android. While Android is not a money making platform for Google as an endpoint, it has helped them feed their machine learning engine. However, more emphasis on Google analysis must move toward the commercial side of their big data story.

How this story manifests itself is the tricky balance. You can see the strategic imperatives all over Google’s moves with Android. A good example is their newest feature which gets users out of the app and into the browser when clicking a web page link. Google is essentially trying to un-bundle the web from the app with this tactic. Google is not collecting data so long as people are in non-Google apps. This is why they want to do everything they can to get you out of the app and back to their browser. Their business model incentives are all over this move. Arguably, this is also not a bad move, user experience wise, but it does showcase how their model drives endpoint experiences in things like Android. But there are times when this can and will hurt the user experience as well. Which is where my skepticism in free-but-ad-supported business models lie. They are simply not always aligned with the best interests of the customer in mind.

With a basis of Google more effectively leveraging their machine learning expertise, optimism can be found in their willingness to be more horizontal than they previously were. Bringing their new Photos app to iOS is a good example of this as is bringing their updates of Google Now with Now on Tap to iOS via their Google search app. But these moves may ultimately be a challenge on iOS since tight OS integration is the key to a better experience. The vast majority of consumers will use what is integrated more times than not over what they have to install and set up themselves.

Google Now on Tap was perhaps the most interesting thing I took away from Google I/O. I’m extremely bullish on artificial intelligence engines (I call them “anticipation engines”) and what they bring in terms of a much deeper “assistant” experience to our smart devices. However, I also believe Apple’s and Microsoft’s ability to develop an anticipation engine are being underestimated. A number of use cases Google pointed out for Google Now on Tap are being done on iOS now. For example, iOS will already keep track of where you parked your car and help navigate you back. It also pro-actively shows you your boarding pass the moment you reach the airport. I experienced this for the first time yesterday while traveling home from Austin, Texas — my boarding pass showed up on my lock screen the moment I got to the airport. Now on Tap certainly goes deeper than this, but my point is building a comprehensive anticipation engine will not be exclusive to Google.

But the greater point is Google Now and the new On Tap features are a step closer to the future of smart devices. Underlying artificial intelligence, residing on both the local hardware and the cloud, will help predict, anticipate, and surface value for us before we realize we even need something. Perhaps a good example of this is where Google Photos can go. While no explicit advertising or data collection is specified from Google at the I/O conference, you can imagine in the future Google may notice a picture I took with my car in the background, see my tire is low on air, and recommend I get it fixed or looked at by a professional — even offer local tire shops who have available deals. To many, this will sound or seem creepy, but it is also convenient. There are certainly many security conscious people out there who will hate this but, for the mass market, I’d argue usefulness trumps creepiness in many cases. This may also be one of those things were we need to opt-in to if we want these predictive features or not.

The IoT platform is one I’m very skeptical about. Google does not have the influence over customers the way SoC companies do to drive IoT standards. Apple is truly in the driver’s seat here since they have the customers to drive connected IoT products while the market is still immature. In 3-5 years, we will see where these IoT standards are but it is still early days.

After WWDC, I’ll do a greater ecosystem contrast between what Google and Apple are building as foundations for the future. But the consumer facing stuff from Google I/O was not particularly earth shattering and even the things they are doing with Now are way off from being mass market. But the moves Google is making in deepening their machine learning and monetizing that in commercial segments is a source for optimism.

Foundations for Apple and Google

For the time being, there are two developer and ecosystem events which set the tone for the consumer tech industry at large — Google I/O and Apple’s World Wide Developer Conference. For the much of the past 4-5 years as these events have gained steam, Apple and Google seemed to be on similar paths. On the surface, it looks as though Google and Apple are laying the same foundations. They seem to both be laying the groundwork — offering solutions in similar areas like mobile OS, TV, automotive, health, payments, and the smart home. However, now I believe their paths will diverge. Whether by choice or force, only time will tell.

At a high level, we recognize both Google and Apple have entirely different business models. It is within a business model analysis framework where I am more optimistic of Apple’s success than Google’s, at least from a revenue perspective. Ideally, both foundations being laid create value and revenue for others as well. If it does not, then its chances for success are slim. Whatever Apple is building in TV, automotive, smart home, payments and anything else, must add value to third parties and the same is true for Google. This is why the framework of recognizing Apple has a near monopoly, greater than 65% share of the most profitable customers of computing products (smartphones, PCs, tablets, cars, etc.) makes it easier to believe Apple’s customers are the ones who can and will spend more money on TV content services, automotive features, smart home technology, health and fitness services, and using Apple Pay to buy online and offline. However, because Android runs on over a billion and a half devices, ((smartphones and tablets, and Google’s Android on 1.2-1.3 billion devices and Open Source Android in 500-600m devices)) it is important Google offer these basic and similar foundations to the market place for areas where Android is the dominant mobile and tablet OS — the greater Asia market, LatAm, and Europe. If this foundation battle was limited only to the US market, I’d be even more skeptical of Google’s efforts. But Android is a global enabler and is deeply relevant in this regard.

However, the issue and concern for Google is I sense they are taking a very US-centric view to their foundation. On the surface, this makes sense since the US is by far the most valuable market Google competes in. China is arguably more valuable but moot since Google doesn’t, and will not, be able to compete in China. What I’m watching for, as both Google and Apple lay their foundations, is how they both cater to regional differences and nuances while still adding proprietary ecosystem value. As I have been articulating, the global playing field is actually more regional than global and both companies need their foundations to be flexible to cater to local needs. This is particularly true of payments where, if both Apple and Google try to compete, it will be fascinating to watch, due to their difference in customer base.

How both companies begin to diverge based on the difference of customers, regional needs, and even new experiences and products based on those regional differences and customer bases is one of the core things I watch as both companies do their groundwork for the years to come.

Why Steve Jobs went Ballistic over Android

Anyone who follows the smartphone and tablet market knows Android has become the #1 mobile operating system in the world. And Steve Jobs was not very happy about Android. In fact, he made a rather bold threat when he talked about his dislike of this competing mobile OS:

“I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. I’m willing to go thermonuclear war on this.”

— Steve Jobs

The background story on this is interesting and still has some very important unanswered questions surrounding it. When Apple was working on their iPhone strategy, which included what is now iOS, Google’s CEO was Eric Schmidt and served on Apple’s board of directors. He was clearly privy to all of Apple’s iPhone strategy as well as its roadmap.

During this time, Google acquired Andy Rubins’ company that had created the mobile OS which eventually became Android. Here are some of the questions I still cannot get a solid answer from anyone involved with this issue.

  • The moment Eric Schmidt realized Google had what would be a potential competing OS to iOS, why did he not resign from Apple’s board?
  • Did he declare to Steve Jobs and the board that Google had a smartphone OS in the works? If so, did he recuse himself during the time the board discussed the iPhone and its OS?
  • Once Google announced the acquisition of Andy Rubin’s company, which I and a lot of industry people knew was creating a mobile OS on the heels of his former Danger mobile OS, did Apple ask Eric Schmidt about this and, if so, did he tell them it would compete with Apple’s mobile OS?
  • Once Apple knew Google had a competing OS, why did it take Apple so long to ask Schmidt to resign from Apple’s board?

While these questions still linger in my mind and may never be answered, the bottom line is Google created Android while Eric Schmidt was on Apple’s board and from Steve Jobs’ threat it seems clear — at least to me — he felt it was stolen from them during this time period. That is why he was so angry whenever he talked about Android.

Steve Jobs died with the knowledge Android had started to own the mobile OS space and Apple could no longer keep that from happening. The best they could do was to try and slow it down or challenge its growth via lawsuits targeted at vendors like Samsung that used Android.

Apple also went after Google and Android via patents they bought through The Rockstar Consortium, a joint venture owned by 5 prominent tech companies. Apple and Microsoft are two of the main backers. Rockstar was the entity that outbid Google in the 2011 auction to acquire Nortel’s massive patent portfolio, winning with a $4.5 billion offer. Apple put up $2.6 billion with Microsoft, Cisco and others putting up the balance.

What is significant about this patent portfolio is it included important intellectual property surrounding WiFi networking and cellular connectivity, among many other areas related to mobile technology. Rockstar proceeded to sue Google and numerous Android OEMs like Samsung and HTC with these patents a little over a year ago.

Word came down recently that Google has settled this patent fight with Rockstar and, though we don’t know what the dollar amount of the settlement is, it appears Apple will get at least some compensation from Google’s “theft” of their mobile OS IP. However, I doubt the settlement would even come close to covering Apple’s portion of the $2.6 billion they put into the Rockstar consortium. I am not sure what Steve Jobs would think about this “solution” to his thermonuclear threat but Apple is under new management now and it seems Tim Cook and team is being more realistic about the Android challenge and is instead trying to thwart its growth, especially in high end smartphones, by innovating with their own smartphones and iOS.

And it seems to be working. Very few Android phones are sold into the premium market since Apple pretty much owns this space, especially in China. Word that Samsung’s Galaxy 6S has had very slow sales and not done well in Asia underscores this. They do seem to be getting strong interest in the Galaxy 6 Edge, but from what I am hearing it too will come in under Samsung’s projections with demand for Apple’s iPhone 6 dominating the high end of the market.

What is interesting is Apple has gained ground on Android even in the mid-range smartphone market too. This has challenged all of the smartphone vendors as Apple continues to ship record numbers of their iPhones around the world. Apple also has the lion share of the profits in the smartphone space, something Steve Jobs would gloat over if he were still with us.

To be clear, Android is still the #1 smartphone OS and Apple will never have that position, something that really made Jobs angry. But Tim Cook and team are more realistic. Apple has calmed down a bit with their legal challenges and is instead innovating and expanding the functions and capabilities of the iPhone and using their competitive nature to help them lead the market forward.

Will Google get Project Fi Right?

I have been spending time looking at a new telecom initiative that Google is about to launch called Project Fi. If done right, it could  be a disruptive move into the wireless telecom market. This project is both an experiment and an innovative concept at the same time.

The idea is that if a person signs up for Project Fi, wherever you are with your phone, it will automatically connect you to the fastest possible network. That could be a Google-approved public WiFi hotspot or it a 4G LTE link from one of its partners (Sprint and T-Mobile are on board to start). This service maps very closely to Qualcomm’s vision of making LTE and WiFi seamless. The idea is a person can be connected all of the time and automatically be shifted to the lowest cost option for that data transmission. 

This is a more ambitious version of the cellular/WiFi switching we’ve already seen from Sprint and T-Mobile, functionality that lets you swap from one to the other. But Project Fi goes beyond switching from WiFi to cellular connections and back again. The goal is to create a truly cross-platform experience where, for example, you can forget your phone at home and still make calls and texts from your work computer.

What I find the most interesting aspect of Google Project Fi is it conceptually puts the SIM card in the cloud. Google users can already get to their email, documents, photos and much more by logging into a Web browser but Project Fi adds calls and texts to that mix. As an intense smartphone user, I like the overall objective of Project Fi. The idea of making sure smartphone users are on the fastest possible speeds and lowest cost option wherever they are and on whatever device is a home run for Google — if it works as advertised. 

That “wherever” part extends across the world which, as an international traveler, really interests me. Project Fi users pay $20 a month for talk, text, WiFi tethering and international coverage in 120+ countries and it’s $10 per gigabyte of data. Another great feature is you never pay for unused data and that cost is credited back to you monthly. Google is letting users request an invite from the Project Fi web site but, at this stage, you’re going to need a Nexus 6 to get involved. That’s partly because some advanced circuitry is required for switching between so many types of network around the world. But Qualcomm is working on similar architecture and you can bet Apple will be doing the same with their iPhones in the future since this network switching concept has great merit. 

While in principal I really like this idea, the actual adoption by users is questionable to me. The fundamental goal is great but it comes with two levels of cost. First is the hard cost of $20 a month and $10 per gigabyte. It would have to work perfectly on all types of handsets if it was to really benefit Google and a large customer base. On the other hand, it is a bargain for international travelers if this really works across international networks and allows for seamless transition between voice, data, etc., and at these costs. If you have travelled internationally and used your smartphone and had to pay for international data plans, you realize the cost of Google’s service would be significantly less, especially if you are a heavy data user.

But the other cost is the amount of mobile ads you will be bombarded with by Google, which is key to their overall business model. I recently saw a private report on consumer’s views of Google’s mobile ads and it shows people are increasingly annoyed with the constant ad campaigns they have to endure on their smartphones from Google pushing ads incessantly. The other issue is that Google knows where a person is, what their preferences are and invades people’s life in ways most people do not want. This too would be part of this service.

Google’s Project Fi is in its early stages and will, of course, evolve and could be an interesting way for Google to entrench themselves as a telecom provider with extensive services. But, at this stage, I really wonder what its adoption rate will be given issues of privacy and increased mobile ads that will clearly be part of their business model and add to the overall cost/benefit ratio for people who decide to use this program.

All Eyes on Android

Few topics come up more in my work with the major technology industry players than Android. From the outside looking in, everything may look rosy in Android Land. But get inside the heart of the industry where long term business decisions about Android are being made, you’ll see a different picture.

The Promise of Android

When Android first hit the market, there was a great deal of excitement because it offered an alternative to Microsoft many hardware companies were dying for. It wasn’t just the lure of a platform other than Microsoft’s but the idea of differentiation. The PC era was not, and is still not, kind to many PC OEMs revenue wise. Windows provides very little sustainable differentiation for hardware OEMs. This is the curse of being a modular company. When you ship someone else’s software, inevitably, the biggest point of differentiation one can offer is price. Shipping Windows creates what I like to call “the sea of sameness”. Other than some moderate hardware differences, which few care about, everything looks mostly identical. When everything looks the same, price becomes the driving factor in decision making for the mass market.

Android was to provide a different environment for hardware companies. One where they had some hope to avoid the sea of sameness. And this is exactly what HTC, Samsung, LG, Sony, Xiaomi, and others have done. By not shipping stock Android, they looked to create layers of value on top of Android to differentiate. However, we observed a tried and true reality in this environment — hardware companies are not great at software. The attempt to add value on top of Android often made it more bloated and lessened the experience. This is why we see a shift back from OEMs, not entirely, but closer to the Android experience Google intends. The designs and UI paradigms OEMs were adding onto Android are starting to look and feel closer to stock Android without completely allowing their software to look exactly the same to everyone shopping for a smartphone.

This is the Android world as it sits today for Google’s version of Android. Google’s version of Android has somewhere between ~1.3-~1.5 billion users today (hopefully this number gets update at I/O). 70-80% of customers using Google’s version of Android are not necessarily just looking for bottom-of-the-barrel cheap hardware and OEMs looking for some margins still have an opportunity to make money in hardware with this customer base. What happens next is where more uncertainty exists.

Myself and others have made the point that the next two billion consumers to come online via their first computer, a smartphone, are going to be nothing like the existing two billion. This creates both new opportunities and new challenges. How these will be met is a key question. More central to this is the role Google itself will play with Android as these new challenges and opportunities present itself. I’ve made the point that something like Cyanogen seems to be attractive to OEMs looking for a packaged non-Google Android solution. The vast majority of OEMs who are now starting to use China as contract manufacturing aren’t even going to try to build software, so they need someone else to do it while, at the same time, offering ways to customize their services, where their real revenue will come from.

Interestingly, Google’s weakness in China and among the China tech manufacturing ecosystem is posing quite a challenge for them with the next billion plus. Companies are looking to China to get into tablet or smartphone hardware and Google’s version of Android is not an option. There are way too many hoops for an aspiring brand looking to get into hardware to jump through that many have no intention of doing it. They would prefer to simply go to China, pick the hardware off the menu of options, slap their brand on it, and go to market. Because of this, over 30% of smartphones sold in India last quarter were not Google certified (GMS compliant) but did have Google services installed after purchase. Brands sold the phones, flashed with AOSP in China and consumers installed the Play store and maps on their own once they got the devices. This is not a tight integration of Google services and their value is minimal compared to something like Android One, which Google would prefer service the next billion.

The headroom to grow in this space is extraordinary. I created this chart of smartphone installed base by many major countries compared to their population.

Screen Shot 2015-04-21 at 8.25.11 AM

As you can see China, India, and the whole of the African continent are where the bulk of the next two billion new internet users will come from. What Android is and looks like for these groups is where all eyes are focused. Is this a Google company play or a non-Google company play? Is Facebook via WhatsApp and other assets better positioned to connect the next several billion or will it be something else? These markets will look very different than developed ones so will incumbents succeed or will it be new companies who rise to power? I see little reason at this point that some flavor, or even many flavors of Android, play a major role in this next phase. But the uncertainty around the details is fascinating considering we are on the cusp of a new global push to bring the internet to previously unconnected people.

Google’s “free but ad supported” Challenge

I can’t begin to tell you how many conversations I have had about Google with nearly every one of my firm’s clients. Many of our clients in the hardware business rely (depend) on either Google or Microsoft to get a product out the door. Many of our Wall St. clients are getting concerned over what Google’s next phase will be. I’ve been very vocal in articulating the conundrum Google is in. The un-wise write this analysis off, thinking the mighty Google is too dominant. But I’ve become convinced of something. Google will be dominant, but only during a phase of this industry’s cycle. In many ways, I believe we will look back in some number of years and see Google, like Microsoft, dominated only for a brief time.

I could write an extremely long analysis of how similar Google and Microsoft really are. But this discussion would better take place in a class room. However, at a fundamental level, the core relevant similarity is they both depend on other companies to take their products to market. There is a symbiotic dependency between Android hardware OEMs and Google in many of the same ways there is with Microsoft and PCs. Looking back, Microsoft, and their hardware partners, made PCs affordable. Thus, Microsoft was the default computing platform for the masses. Similarly, Android has standardized mobile computing as, across the planet, Android is the default platform. Both Microsoft and Android played a role in maturing the industry. But Microsoft missed the next phase due to their business model as well as the strong-arming of their partners during their growth phase. I believe the same fate will befall Google. Google has undoubtedly strong-armed their partners during their growth phase, and there is now more of a level of distrust and concern of depending too heavily on Google than I’ve ever seen before (it was bad before, but even worse now). But, ultimately, it is Google’s business model of “free but ad supported” I believe will cause them to play a minority role in the future.

Free but ad supported got us to where we are today. It played a role, but I’m not sure it plays a major role much longer. A great deal of this has to do with the experience. Meaning, it can get out of hand and intrusive if abused. While Google may not the abuser, they are not in complete control. Publishers layer ad unit after ad unit, interstitials at the beginning, middle, and end of an article, and cover sites with ads to the point they are painfully unusable. All because they need to make money and it gets harder every year doing so with a free but ad supported business model. Let’s look at a couple of data points.

First, I saw this chart on Twitter last night.

Screen Shot 2015-03-30 at 8.28.38 PM

Consumers are getting so annoyed with overloaded ad unit websites that the number who are employing an ad blocker is actually growing. On this point, I recalled some quantitive data on this subject we acquired toward the end of last year on a project related to this very topic. Here are some global data points from the study:

North America

  1. I delete cookies so websites will not remember me – 82.3%
  2. I use services such as Adblock to stop websites from displaying ads when I visit them – 48.6%
  3. I use services such as DoNotTrackMe to stop companies from monitoring my internet activities – 29.9%


  1. I delete cookies so websites will not remember me – 71.4%
  2. I use services such as Adblock to stop websites from displaying ads when I visit them – 45.5%
  3. I use services such as DoNotTrackMe to stop companies from monitoring my internet activities – 24.9%

Asia Pacific

  1. I delete cookies so websites will not remember me – 75.6%
  2. I use services such as Adblock to stop websites from displaying ads when I visit them – 48.5%
  3. I use services such as DoNotTrackMe to stop companies from monitoring my internet activities – 40%

Latin America

  1. I delete cookies so websites will not remember me – 72.9%
  2. I use services such as Adblock to stop websites from displaying ads when I visit them – 44.2%
  3. I use services such as DoNotTrackMe to stop companies from monitoring my internet activities – 29.7

Middle East

  1. I delete cookies so websites will not remember me – 67.2%
  2. I use services such as Adblock to stop websites from displaying ads when I visit them – 42.1%
  3. I use services such as DoNotTrackMe to stop companies from monitoring my internet activities – 30%

The ad supported model is wreaking havoc on the user experience of the web. The rise in customers wanting to get away from a blood sucking experience is rising. And with more and more time being spent on mobile, publishers are likely to move their experience more toward apps. If web browsing via a web browser declines, this is not good for Google. If people end up spending more time in apps, this is not good for Google.

A few weeks ago, I wrote the main reason Microsoft’s dominance went from 97% share of computing platform share at its peak to 18% in 2014 was because Microsoft built growth on the back of an enterprise IT customer. This customer does not value user experience. This is why Apple came in and stole the consumer segment from Microsoft.

Similarly, Google’s customers are publishers not end users. This model, and this customer, who cares and values different things, was the right customer during the phase of the web’s growth. But I don’t believe it has as large of a role to play in the next phase of the internet.

Google can certainly adjust and maybe they can play more of a role than I believe they will right now. By focusing on who the true customer is, it sheds light on what a company is and isn’t oriented to do. From all the data I’m seeing on the next phase of the market, I’m increasingly convinced Google is not oriented well to maintain their dominant position with regards to the internet. I believe we will look back and observe their dominance was temporary, just like Microsoft’s, and in the future they are just one of many players.

Google: Good Guy or Bad?

Google searchWhat is Google up to?

In the technology world, Google is mostly seen as a good guy. Of course, its development of the working search was a critical contributor as was Apple with the personal computer and Microsoft with PC software. In none of the cases did any of those companies invent their key products; they just made them useful and lasting.

Google has spread its efforts in a broad range of efforts: Android, Google Glass, Wi-Fi blimps, community internet fiber service, self-driving cars. and who knows what else. The problem is these lines don’t make money and mostly, perhaps all, never will. Even Android, the world’s largest supplier of smartphone software, whose popularity and unprofitability share Google’s decision to give it away. All of these efforts generate lots of support for Goggle among techies.

Search matters. But the thing that really matters is search and its related efforts such as mapping. That’s where most of the revenue and all of the profit comes from. It is an area where Google is not restricted to colorful campus bicycles and cute offices. Google is tough, fierce, and probably just clever enough to stay on the right side of the law.

FTC ReportA great deal of information on Google search opportunity came in a 2012 Federal Trade Commission staff report that was released, sort of, in response to a request by The Wall Street Journal. Sort of because the FTC really did not intend to release the document and what it sent by accident was every other page. (I’m grateful to the efforts of Danny Sullivan of Marketing Land to publish text and comments on the report in a series of tweets.)

The FTC study found a number of cases where Google attacked its competitors, especially the “vertical” searches that focus on specific areas. One section dealt with a feud between Google and Yelp, particularly after Google’s attempt to buy Yelp. “Google agreed to remove–and did remove–Yelp’s content,” the report said. “However, after offering its own review site for more than to years, Google recognized it had failed to develop a community of users–and thus, the critical mass of reviews–that it need to support its local product. In an attempt to gain quick access to a large storehouse …” Unfortunately, the completion of the sentence ran onto a missing page. Other companies whose own search operations were seen as competitors by Google: Amazon, TripAdvisor, CitySearch and others. The staff found the pressure on verticals bothersome, but not enough to justify an FTC action.

Scraping suit. It was more prepared to take on Google’s use of content scraped from vertical searches: “Google’s threat also sent a message to the broader marketplace that Google could, and would, use its monopoly power over search to extract the fruits of its rivals’ innovation.” The FTC staff also found violations in Google’s requirement of “anticompetitive, exclusionary agreements” with web sites for syndicated search and AdSense plans.

The staff wanted to bring legal action against Google, but the FTC commission decided not to go to court and settled for a mild agreement instead. The Journal may have gone a little over the top with the story that suggested the decision may have been the result of close relationships between Google and the Obama administration: “Google’s access to high-ranking Obama administration officials during a critical phase of the antitrust probe is one sign of the Internet giant’s reach in Washington. Since Mr. Obama took office, employees of the Mountain View, Calif., company have visited the White House for meetings with senior officials about 230 times, or an average of roughly once a week, according to the visitor logs reviewed by the Journal.”

Google friendships. There certainly is a great deal of friendship between Google executives and administration officials.  Several Google executives have held government posts and Megan Smith left a vice president’s job at Google to become the White House’s Chief Technical Officer. (( The idea of executives taking a role in the government is hardly new. General Motors CEO Charles E. Wilson declared what “was was good for our country was good for General Motors and vice-versa” when he was nominated as President Eisenhower’s Defense Secretary. Hewlett-Packard founder and CEO David Packard served as Deputy Defense Secretary under President Nixon. )) But the suggestion the FTC decision was a gift to Google buddies won a heated response from the commission. Chairwoman Edith Ramirez and Commissioners Julie Brill and Maureen Ohlhausen issued a response:

Today’s Wall Street Journal article “Google Makes Most of Close Ties to White House” makes a number of misleading inferences and suggestions about the integrity of the FTC’s investigation. The article suggests that a series of disparate and unrelated meetings involving FTC officials and executive branch officials or Google representatives somehow affected the Commission’s decision to close the search investigation in early 2013. Not a single fact is offered to substantiate this misleading narrative.

It could be that Google used its weight to get the statement issued, too. But that’s pretty unlikely. There are a couple of truths. Knowing how to stay this side of the law when you go close is vital. And making friends with the government is a good idea. Any big company with intelligence learned this from Microsoft.

But Google has also proved that, while it and its fans  have a lot of fun with experiments that don’t make profits, remembering that it is tough search that makes the money. Lucky Google competitors get bought; the rest are likely to be eaten.

Google: Play Store Ads, China, and YouTube

It is no secret any longer that Google is facing challenges growing revenue at the pace they once were. Horace Deidu was the first person I read to point out the challenges to Google’s revenue growth. The point he made, and the one I think is the most interesting, is how Google’s revenues have been directly related to net new Internet users:


Following these graphs he made the following comment:

If the company does not alter its business model then the future potential of the business could be measured as a function of Internet (ex. China) population growth.

Having discussed this quite a bit with Horace and covering this in detail at an executive summit he and I put on, helped shape the basis of my thinking to separate the stages of the internet/mobile internet into stages. In this first stage, Google had a predictable ARPU tied to net internet user additions because it was a more profitable audience for advertisers getting online. These users came from more developed countries and developed areas of emerging countries. In this next stage, the growth in new internet users will come from those not very valuable to Google’s business model.

So we arrive at what Google must do to appease Wall St. and keep the growth engine going. The recent news about Google looking to place advertisements in the Play Store shed light on their strategy. Their efforts will be to better monetize their existing base. Essentially, try to make more money and more ARPU off of each existing customer. Apple’s strategy is similar since, like Google, Apple has a peak total addressable market. They haven’t hit it yet but they will at some point unless there is a change in strategy. But Apple’s probability of monetizing their base seems to have much higher potential than Google’s. More importantly, Apple’s strategy to monetize their base is to increase their products’ features and capabilities. Where Google, as evidenced by trying to place more ads everywhere, is arguably creating a negative on the user experience. So, where Apple’s strategy is to deliver an increasingly better experience, Google’s actually worsens the experience.

I buy the argument that, perhaps, Google’s ads will get smarter, more relevant, more contextually aware, and thus more useful, but I’ve yet to see any execution of that, particularly around mobile.

There’s another interesting tidbit that came out of a recent Forbes interview with Sundar Pichai. Toward the end of the interview, Sundar mentions trying to get back into China. This makes sense on paper. Google has over 500m Android users in China with less than 10% of them using any kind of Google service. However, this is a pipe dream. Not only is Google’s whole model fundamentally opposed to the nation state of China, there are many competitive services to Google in China and all of them significantly better. China has also recently begun getting aggressive with all foreign companies who do business in their market and trying to push local technologies over foreign ones.

All in all, a very tough road ahead for Google. By getting pushy with ads, and thus decreasing the quality of their services, they risk moving fed up customers to other solutions. The next billion plus internet users are not valuable to their current model and it is not where they will find revenue growth even if they find customer growth.

That leaves us with YouTube.

Screen Shot 2015-02-12 at 5.40.17 PM

Is YouTube the answer to Google’s woes? This report goes into some detail of how Google is profit-challenged when it comes to YouTube. Given research I have on YouTube, where we find the average length of time spent watching a video is less than 5 minutes, and how the report details the usage, it seems Google will continue the uphill battle with YouTube to grow its revenue as a percentage as well.

What all of this has me thinking lately about Google is that it shines a light on the fact they are a one trick pony with search. In the first era of the internet, that was not a bad thing. In this second era however, this will be a problem. The other fact is, I believe, like Microsoft, we will see Google’s dominance fade. Search will not got away, but it will no longer be the dominant interaction model it is today. I’m fond of saying we have to keep looking at the world in terms of market shares not market share. This is not a zero sum game and, while Google will play a role, it will be less central than it is today. They will be one of many with a share of a market. Google must evolve and we will see if they can.

Microsoft’s model worked at a certain stage of the market. Google’s model worked at a certain stage of the market. As customers evolve and a new stage or phase comes upon us, the models that worked in the previous stage are challenged. “Free with ad supported” was good to get us where we are but I’m not sure it is the right model going forward. I have some thoughts on what these new business models are for the next era and I’ll share those in a future analysis.

Facebook vs. Google in 2015

As I look forward to the next few years through the lens of the “mobile first world”, I find a number of interesting things about Facebook and Google to tease out. The next phase of mobile will bring an additional two billion people on the internet for the first time via a smart phone. While this is a huge number of people, they will also be low value customers. So the question is, who is best positioned from a platform standpoint to serve this next two billion?

As I point out in this report, Google faces a very tricky problem. they have likely peaked and earnings numbers this year will highlight it. Google’s revenue numbers have been very closely tied to new internet users. However, in the past, new internet users were worth more to Google than new internet users connecting today and over the next few years. Inevitably, Google is acquiring lower value customers at a more rapid rate. Which means the ASP of an ad unit will go down as Google cannot make as much money from this booming lower-end audience. I am extremely skeptical of Google’s position in this next phase of mobile.

Facebook has a similar issue attempting to monetize the lower-end audience in this next phase. However, Facebook (and assets like WhatsApp and Instagram) are better positioned than Google because it is a demand driver of smart phones at this tier. Consumers in rural China, India, Africa, etc., are not lining up to get Google Maps or a Gmail account. They are, however, being driven to connect to get on Facebook, WhatsApp, Instagram, etc.

As we dive into what consumers in this next phase of mobile care about, it becomes clear Facebook’s services are better positioned than Google’s. Whether or not this will always be the case, it will be at least for the near future. Those who are getting online for the first time don’t care about an app store with a million apps. They aren’t browsing the web yet and they aren’t purchasing much of anything online. Their needs are very simple. Education apps, for example, do exceptionally well in this market. A rural farmer in India gets online for the first time and starts selling his sheep on Instagram. For those in this next phase of mobile, a smart phone means a chance at a better life and to up their standing economically, learn, and connect to others. At the core, this is not all that dissimilar to developed markets except that, for them, it is their first time on the internet.

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

Facebook, on the other hand, can serve the full spectrum with their solutions. They have proven they can and are executing admirably. This does not mean there are no major hills for Facebook to climb but it does mean their foundation is stronger than Google’s.

As a growing number of consumers get online with their first smart phones costing less than $50, it is difficult to see clearly who makes money on this audience. It will, without doubt, be companies who are services companies and not hardware companies. Which is why I look at areas where services are in demand and valued, and that is where I see Facebook being better positioned than Google.

Lastly, it is also unclear whether or not Android is going to be the dominant platform for the next two billion. There is a very good chance it is something else. Firefox OS for example, enables very low cost hardware closely tied to web services. What Microsoft is doing with Series 40 on the Nokia 215 is also interesting. Maybe Samsung gets smart and takes Tizen down to this level in an attempt to get first time smart phone buyers. It sounds crazy to even mention this, but perhaps Android over-serves the needs of the next two billion.

With this first phase of mobile complete, a lot of my time thinking about mobile is dedicated to the next two billion. The obvious point I keep returning to is how dramatically different the market for the next two billion internet users looks from the first. Massive challenges, but also great opportunity for those who get the recipe right.

Does Google Care About Android Tablets? Should They?

One of the nice features of Android is the operating system has built-in functions that allow smartphone apps to scale well to many different screen sizes. As Google can’t control the screen sizes their Android hardware partners create, they needed to make apps extensible to many different sizes. With tablets, however, this has been more of a curse than a blessing.

Android developers have not felt the need to create new versions of their applications for the larger screen tablet form factor. This has been a fundamental failing of the Android tablet ecosystem. Apple’s developers have been finding success creating new/different version of their apps optimized for smaller screen iPhones and bigger screen iPads. The same has not translated to the Android developer ecosystem yet. The real question is, why not?

Is it Google’s Business Model?

One has to ask if Google is to blame for this. One thing that always sticks in my mind about Google is their business model. Google makes the bulk of their revenue from search queries that happen through a web browser on a smartphone, tablet, or PC. What are people doing when they are in an app — playing a game, watching a video, messaging friends, etc? I can tell you what they aren’t doing — searching the web. Native software via applications is, to a degree, counter to Google’s business model. More to the point, the vast majority of apps in Google’s app store are free. Which means revenue from Google’s app store, while healthy, is still nowhere near their core business in search. In the back of my mind, I wonder if Google is not pushing tablet apps because of the fear it impacts their search revenue. The point gets even more interesting when we observe how tablets are used in the same way as PCs in terms of web browsing. Google’s desktop search is still a healthy percentage of their revenue and, if tablets took away from that, it would make an impact.

Ultimately, developers are in the driver’s seat. They have to know they can make money on their apps and that optimizing their apps for the tablet form factor is a worthwhile investment. For whatever the reason, it appears this is not an investment developers feel is worth making. Yet this point is fascinating given there are more Android tablets in the world than iPads. However, developers are succeeding more with tablet optimized apps for iPad than they are with Android. If Google is serious about the tablet platform with regard to apps, then this is the first issue they need to solve.

Consumer vs. Enterprise

While the absence of dedicated tablet apps is an issue in the consumer marketplace, it is less of an issue in the commercial sector because, for the most part, enterprises are deploying their own custom applications. In this case, the enterprise is the developer and can create apps optimized for whatever screen size they choose. However, even with that reality, the iPad is still king in the enterprise. Samsung is hoping to add more software optimization to give their tablet products more appeal but, at the end of the day, the dearth in optimized applications will play a role in how consumers think about one tablet over another.

The Tablet is not a Smartphone

The key point about tablets and their upside is they are not smartphones. In my opinion, to be limited to running smartphone applications on your tablet is the same as being limited to running smartphone applications on your PC. One would not tolerate smartphone apps on their PC and one should not tolerate smartphone apps on their tablet. The tablet platform is loaded with potential and the large screen should be taken advantage of. Hopefully, Google recognizes they have an issue on their hands. If they want Android to become the tablet computing platform it can be then they must bring the Android ecosystem on board and envision a bigger picture for Android tablets and its role in personal computing.

This is a fascinating dynamic in the Google tablet story. There is mounting evidence of the severe bifurcation of the tablet market. Apple owns the high end with the iPad and many no-name vendors seem to be selling the majority share in the low end. But these low cost tablets are not being used in ways that benefit Google — rather, they are functioning as disposable pieces of glass and are taking shape as more of a utility than a computing device. Ultimately, I am not sure Google cares and, at this point, any attempt to try to create a robust development environment for dedicated tablet apps would be a fruitless endeavor.

The Evolution of Search

One of the data services I subscribe to highlighted a specific trend their survey research uncovered. They called this trend “the slow death of search”. To illustrate, they graphed the following data.

Screen Shot 2014-12-17 at 10.39.29 AM

While the Y-axis is capped at 95% rather than 100%, and the bottom at 85% but the point remains. Search is happening less on DT/NBs. Given the global trend away from PCs to mobile devices, I assume that this time next year that chart will show the bottom to keep trending downward. The question was regarding websites visited on a PC. The specific question listed a range of websites — one of them was a search engine. Thus, the resulting graphed data is how many respondents (30,000+ globally) answered that they visit a search engine at least once per month from a PC/laptop. The question asked dated back over many years so the graph shows the answer’s evolution over time. What we see is a clear trend away from desktop search as a frequent monthly task.

Clearly, search is still important. No one will say they never search the web but the interaction model for search has changed and is still changing. The idea of pulling up Google and doing a search is the fundamental engagement model in question. The graphed data likely highlights a shift from desktop/laptop search to devices like mobile and tablets. I have access to similar data sets that highlight a similar question regarding mobile search and more than 65% of respondents said they perform a search of some kind from their mobile device every week. This point shouldn’t be surprising.

Ultimately, when we understand the constructs of search, it is helpful to view it in the lens of decision making. Helping me make a decision looked like a blank text box in the past but in the future, and thanks to mobile devices enabling device and contextual awareness and intelligence, the paradigm is poised to change.

What sits at the crux of this conversation comes back to a shift in interaction models. This could be something like Google Now, or elements of Siri, which create more predictive analytics to bring things to my attention that are relevant before I have to search for them. Smarter beacons, integrated with smarter local hardware, could be another dynamic that helps shift the search interaction model. However it manifests itself, it is clear the search interaction model is changing and evolving and will likely look very different than a blank text box in five years.

As we look out at who is in a good position to capitalize on these it is those both at the platform level, but also those who are gaining data to build a comprehensive anticipation engine. Ultimately I feel it is companies like Apple, Microsoft, Google, Baidu, Tencent, even perhaps Amazon and Yahoo.

Why Chromebooks Have No Consumer Market Future

The question of whether Chromebooks will have a future in pure consumer markets is an intriguing one. There’s no question Chromebooks are well positioned for education markets where they are selling in volume. But I don’t see Chromebooks being successful in pure consumer markets.

At a fundamental level, we have to understand consumers do very little “heavy lifting” with their current PCs. While it is true consumer do quite a bit of basic web browsing on their PCs and this is a primary point for Chromebooks in consumer households, that activity has largely shifted to their smartphones or tablets, which now have over a 53% household penetration in the US. Other devices currently serve consumers with the same value proposition of Chromebooks and offer even more. As larger phones increase penetration, it hurts the Chromebook consumer proposition even more.

The other challenge is the form factor. A Chromebook is a clamshell which means where and how it is used is limited. Things like phones and tablets are more easily carried and used in more convenient ways around the house to browse the web and more. It is the clamshell form factor I also believe is not attractive to general consumers.

Lastly, there is the issue of software. If we step back and look where ALL the software innovation for consumers is happening, it is on smartphones and, to a degree, tablets (meaning the iPad). There is simply no software value proposition on Chromebooks that consumers can’t get on their existing PCs or even their smartphones and tablets.

Even with a fundamental leap in consumer-facing cloud software/apps, I believe the pure consumer market has largely moved past the PC. All the innovation happening in native apps for mobile is accelerating this shift not just in time but priority, with value being placed on mobile computing devices and not “fixed” ones like notebooks and desktops.

Some things I think could be very interesting from Google’s ChromeOS are tablets and smartphones. I think media consumption as a large percent of time spent with mobile devices plays into a future where thin-client and heavy back end server computing can come together nicely. I still feel ChromeOS may be the future of Android but that is just speculation. Where I have a strong opinion is that ChromeOS has little to no future in pure consumer markets in the shape of a clamshell PC.

Mozilla, Apple and Google

The Mozilla Foundation, makers of the Firefox web browser, have announced the end of their partnership with Google to be the default search engine on the US version of the browser in favor of Yahoo. I wanted to pen a few thoughts for Tech.pinions Insiders on the significance of this deal, especially when taken together with Apple’s recent moves away from Google. I’m going to share some quick stats and some thoughts on each of them.

Browser market share – Firefox waning, Chrome gaining

First, off, let’s look at desktop browser market shares. Firefox has been in steady decline and Chrome has been steadily increasing, and it’s amazing how the two have largely traded places over the last couple of years:

Chrome and Firefox share change

Just in the last year or so, Chrome has risen from 16% to 21%, while Firefox has fallen from 18% to 14% or so, according to those same NetMarketShare stats. Arguably, Google no longer needs Firefox anywhere near as much as it once did, since it’s been slowly taking browser share from Firefox over the last few years. Interestingly, Internet Explorer’s share has barely moved over the same period and it remains dominant at around 58%. Firefox is becoming less and less relevant, and driving less and less traffic to Google as a result, which may be one reason why Google was willing to allow the agreement to lapse.

US search market share: Google constant, Microsoft and Yahoo trading places

In the US, which is where the new deal between Firefox and Yahoo applies, the positions are rather different. Here, it’s Google that’s been virtually static, at around 66-67%, while Microsoft and Yahoo have largely swapped users:

US search market share

Interestingly though, Yahoo’s share has started to stabilize in the last few months, as has Microsoft’s. The shift seems to have stalled recently, perhaps as a result of some of Yahoo’s successes in transforming its search products. The funny thing about that, of course, is both providers use the same underlying provider: Bing. Microsoft benefits both from Yahoo’s share (I estimate a large majority of Yahoo’s search revenue goes straight to Microsoft), and from its own share, so to some extent this doesn’t matter. The percentage of US searches powered by Bing hasn’t moved more than half a percentage point in the last year and a half:

Powered by Bing share of search

The key thing, therefore, is for Microsoft and Yahoo to find a way to stop taking share from each other, which is expensive but ultimately doesn’t benefit Microsoft much either way, and to start taking share from Google instead. Hence this deal.

Google’s traffic acquisition costs: climbing as a percentage of revenue

Google has long provided the vast majority of the funding for Mozilla – around 90% by most estimates. This partnership has been mutually beneficial, as Firefox has very few other sources of funding and Google has derived a great deal of traffic from Firefox. However, just as Google and Apple began as complementary partners but became competitors, so Mozilla and Google have slowly become competitors too, as Mozilla launched Firefox OS in competition with Google. What began as an alliance against the dominance of Microsoft has become a philosophical fight between erstwhile partners who now see the world differently. Mozilla has tried to out-open Google in recent years, both in its browser and in its mobile OS, and it’s possible these philosophical differences also played a part in the move away from Google and into the arms of Yahoo.

Despite Firefox’s slow decline however, traffic acquisition costs (TAC) paid to partners like Mozilla have been rising steadily as a percentage of Google’s revenue from its own sites:

Sites TAC

So, even as Google is able to drive more and more traffic to its own search engine through browsers it directly controls on both the desktop and mobile, its cost of acquiring that traffic has been rising faster than its revenues. Why is that? Well, this is where Apple comes in. An increasing amount of Google’s total search traffic comes from mobile and Apple is a very significant source of search traffic in mobile, through iOS, where Google is the default search provider. Much of the almost $1 billion in revenue Google pays out to partners each month goes to Mozilla and Apple, with the majority now likely going to Apple.

The likely impact of Google’s two biggest external referrers moving away

So we now have a situation where Google’s two largest external referrers for search are moving away from it. Mozilla explicitly, in the form of the new partnership with Yahoo, and Apple less explicitly with the insertion of Siri and Spotlight search (both powered by Bing) between users and a search results page. On the plus side, Google’s TAC should start to fall as it stops paying Mozilla for US search, and to a lesser extent as iOS and Yosemite start to drive less traffic to Google. But more significantly, Google’s search revenue growth may be dented somewhat by both moves. Neither is going to damage Google’s dominant position in search, but together these moves may finally start to move market share not just between Microsoft and Yahoo but between the Google and Bing camps. To be clear, with Google now in second place in desktop browsers and dominant in mobile browsers, it will drive an increasing amount of its own traffic from properties it owns. But more and more of the traffic it doesn’t own will now start to shift away to others by default, and apathy is a strong force in these areas – default options tend to become actual options for many users.

The biggest risk to Google remains Apple

The only thing that could cause more significant damage for Google is if Apple switched the default search provider from Google to Bing or Yahoo in Safari. So far, all its moves away from Google have been subtle and barely discernible to users, because they’ve occurred in scenarios that don’t involve a page of blue links. I think that’s in part because Apple recognizes Google really is superior to competing search engines when it comes to traditional search results. I’ve tested both Bing and DuckDuckGo as default search engines on iOS over the last few months, and found both to be noticeably inferior when it came to more obscure searches. Apple has shown before it’s willing to (temporarily) damage the user experience in order to make a strategic shift away from Google – the big question now is whether it sees that move in retrospect as a mistake or as a price worth paying.

BlackBerry and Samsung: Will a security partnership help either company?

Yesterday, Blackberry held an event where one of their announcements was a deal with Samsung to help add a deeper layer of security to Samsung/KNOX devices. Given the criticism of KNOX’s security, questions surrounding its integrity aren’t surprising. In my view, it’s a recognition/admission that Samsung needed help in the security arena if they wanted to be viewed as a valid player in more secure enterprise accounts.

I view this deal more as a necessity for Samsung than for Blackberry. Blackberry’s BES 12 operating system already supports Android in general, along with iOS and Windows Phone. But Android at large continues to have a negative opinion held by many IT administrators and since Samsung is hands down the leading Android vendor in the enterprise, this view carries over to Samsung to a degree. This move could help Samsung fill the void in their offerings, assuming Blackberry is successful in growing their software and services accounts of BES 12 over the next year.

While BES 12 is a cross-platform enterprise mobility management product, iOS is still standing in Blackberry’s way. iOS continues to increase its dominance in many of the key accounts where Blackberry’s value adds are relevant. In fact, I have heard from many IT managers that more and more groups inside their enterprise are using or being deployed only iOS devices for their teams. For teams where heightened security is more of a need, this is happening even more frequently. If this trend continues then it raises the question of the need for cross-platform, outside of a very general solution to cover all employees which can come from many different providers.

Blackberry is at least moving in the right direction with BES 12. By bringing Samsung along for the ride, it gives them a partner they can have deeper integration with in the hopes a higher degree of cross-platform security is needed within a specific group or company function.

As both RIM and Samsung pointed out in the release, it is about choice. Ultimately, that is the angle they hope to exploit.

Google’s Ads: Defense or Offense?

I recall not too long ago Google did zero advertising. “Just Google it” was spreading virally and Google was growing and had no need to spend money on marketing. Slowly but surely over the past few years, Google has stepped up its advertising efforts. Which, and some may disagree, I interpret as a sign of their slowing growth. Myself, along with others, have pointed out that Google’s long term growth prospects have been challenged. From internal discussions I have had with execs there it seems this is well known inside the organization. I have been observing two distinctly different advertising efforts and I have a few observations.

North American Advertising

Google has, all of a sudden, begun advertising Android in several prime time commercials in the US/Canada market. I see several fundamentals causing Google to get more aggressive in Android marketing.

  1. Samsung’s US dominance is declining. Samsung is currently in a very vulnerable position in the US. Many fail to realize Samsung’s aggressive marketing and sales commissions helped get them to where they are today in the US premium segment. Yet Apple still sells nearly ~2:1 more phones than Samsung in the above $500 wholesale price tier. Despite Samsung’s best efforts, and a massive internal effort to become the leading US smartphone vendor, they have yet to knock off the king of the hill. Furthermore, it is doubtful they will in the foreseeable future. It is not a secret that Google makes more money from iOS consumers globally but Samsung was helping them get the profitable US consumer more embedded to Google’s services. If Samsung’s growth slows or declines and it is not picked up by another Android vendor but instead by Apple, Google could be loosing key advantages in the US.
  2. Carriers backing iPhone 6/6 Plus more than other premium Android devices. In case you haven’t noticed, nearly every major carrier commercial running in prime time right now is for the new iPhones. This may very well be a part of the agreement between the carrier and Apple but the point remains. More promotion is going on currently for the new iPhones than any other US smartphone. Google must recognize Samsung alone can’t push the Android agenda forward in the US. Yet Motorola and LG are not equipped to embark on the same kind of marketing blitzkrieg Samsung can.


Google winning in India is not a slam dunk. I’m not sure many realize this. India is a completely green field when it comes to smartphones and smartphone ecosystems. In fact, Microsoft even has a chance in India. Google can not afford to be a minority player in India and they know it. Android One is Google’s push at getting Android deeply engrained into the Indian mobile ecosystem. Their challenge is things like Facebook, WhatsApp, and even other app stores/distribution methods, are more dominant than many Google services. Which is why Google is advertising on behalf of several Android One OEMs in India to help spread the word and drive the brand/ecosystem. I expect Google to be ruthless in competing for India. Which is fantastic for Indian consumers but may be quite challenging for competing ecosystems and even to a degree competing hardware vendors.

What Google has me thinking about with regards to their marketing strategy is a lot like Intel’s. When a vendor picked an Intel chipset, Intel offers marketing assistance as a part of that design win. Most PC OEMs do not shoulder the bulk of their marketing — Intel does. It is one of the main advantages they have had with OEMs over AMD. Intel’s chips may be more expensive but they will help/do the bulk of the outbound marketing for you. Similarly, Google is beginning to do the same. Understanding that their partners are not good at marketing nor can they afford big marketing budgets, it seems Google is willing to take on the marketing efforts for many of their partners.

What impact this has on their margins is a key metric to watch. Their growth is already stalling and they currently have the most profitable customers they are going to get to fuel their current business model. Spending marketing dollars to acquire customers who will they will reap less revenue from is both a necessity but also risks off-setting any gains.

Research: Who’s Buying What Tech around the Globe This Holiday Season

We have some research that gives us insight into what tech products are on the interest horizon for purchase over the next six months. While intent to purchase surveys don’t always lead to purchases, it does give us an indication of what products are top of mind and more importantly how that may differ from each region across the globe. This research comes from surveys across 32 different regions and over 30,000 people in total. With as much data as I have, I struggled with the best way to display it. Since percentages did not equal 100% and were also based on sample size from each region making the percentages vary, I decided to weight the values numerically by priority. 12 is the highest priority / interest to purchase over the next 6 months and one is the lowest.

Here is the chart from a global standpoint with all 32 regions included.

Screen Shot 2014-11-03 at 8.31.48 AM

As you can see, globally tablets, smartphones, and a PC (laptop) have the highest interest level/priority to purchase over the next six months. While mobile phone numbers shouldn’t be surprising, it is interesting that, in all regions, the tablet still remains the highest priority with the PC (laptop) third. As I look at what we see happening in the market, my gut tells me there is still a large number of global consumers struggling with whether to get a laptop or a tablet. I’ve been saying for some time that, when the consumer market moves and finally upgrades their PC, we will see how the tablet and PC conundrum plays out. Still, looking at the data, one has to believe companies like Microsoft and Intel look at this and believe the 2-1 value proposition is strong if a buyer is struggling between both products.

To look at the data more granularly, I’ve broken it out by some of the larger regions by population. The sample sizes were also quite a bit larger in these regions giving us better detail of who intends to buy what.

Screen Shot 2014-11-03 at 8.43.14 AM

As you see, most regions are prioritizing the tablet from a purchase intention standpoint. A few markets like China and the US are prioritizing mobile, thanks to these two regions being extremely seasonal with mobile purchases. When it comes to the PC, it still ranks high, but only Brazil consumers have it as their top priority over the next six months. What is interesting to me is other categories on this list which can also be served by a tablet should the consumer desire. Take the e-reader for example. While lower on the priority list, a tablet can also be an e-reader. Perhaps, as a consumer gets savvy to this, it sways their decision more toward a tablet or a 2-1 rather than a desktop or clamshell? The tablet or 2-1 could also conceivably fill the role of a game console or even a DVD player where access to digital movies exists. What this highlights is my point about the tablet as a much more diverse device due to its form factor than previous heavy computing devices like notebooks and desktops. The tablet form factor can simply “morph” into so many things thanks to the software and services. As consumers become more knowledgeable, I believe the value of the tablet increases.

One point that stands out and is worth highlighting is India’s intent to buy a mobile phone. Look at the data point and you would think buying a mobile is simply not a high priority for Indian consumers. When in reality it is the highest priority among the masses from a tech purchase standpoint. Keep in mind, to take this survey, you have to be online already in some capacity with a smartphone, PC, or tablet. The online population in India is still very small in contrast to India’s population (somewhere over 200m people are actively online). So people who are answering these questions from every region are already online in some way, shape or form. Google’s head of India estimated 5 million new Indian consumers are coming online every month. Most of those are coming from mobile devices. For the unconnected, the mobile phone is the highest purchase priority since it is most people’s first computer. Looking at the data, we are focusing a bit more on what the purchase intent of the already connected is for the next few months.

Where that reality stands out is when we look at what tech was purchased over the past six months. This is a question I like because it brings a bit more clarity to the picture since consumers are stating what they have actually purchased rather than what they intend to purchase. Similar to the above chart, I weighted the percentages numerically. The most purchased product over the past six months is a 12 while the least purchased product is a one.

Screen Shot 2014-11-03 at 8.59.54 AM

Here we see the clarity of the mobile priority. As expected the mobile phone has dominated purchases over the past six months. We also see the strength of the notebook and desktop rebound we are seeing as it shows up in this data. The desktop in particular was a frequently purchased product globally over the past six months. We had a hunch early last year the PC would do well this year and we were right. Partly based on similar intent to purchase data we got this time last year. In fact, the above chart showing who purchased what was very similar to the same intent to purchase data from a Q3 2013 survey.

We know about the centrality of mobile, but what intrigues me about this data is the continued interplay between tablets and PCs. As a part of my overall industry analysis of both categories, this remains a story line and one that does not have as crystal clear of an ending as other categories. I get this data every few quarters so we will check back early in 2015 and see how the story is playing out. My guess is that Mobile is still high, but where PCs and tablets fall is the key question.

My Apple vs. Samsung Conspiracy Theory

The Samsung issues we are seeing has me thinking about something. It’s a conspiracy theory with zero evidence but something that strategically intrigues me. Tim Cook said in a recent interview with Charlie Rose that Apple could have made a bigger iPhone years ago. So the question is, why didn’t they? The writing was on the wall that larger screens were trending upwards. The pundits read this as Apple’s inability to see market demands and hailed Samsung as the rising star who will dominate forever and ever. Apple must have known that all they needed to do to shut everyone up and crush Samsung in the high end Android camp, where it would really hurt them and Google combined, was to release a larger iPhone. Well, my theory is they did know this and they let Samsung and perhaps even Google have their time in the sun intentionally. In the art of war, this tactic is referred to as a feigned retreat.

A feigned retreat is a military tactic whereby an army will pretend to withdraw or that they have been routed in order to lure an enemy into a position of vulnerability. Feigned retreats are one of the more difficult tactics for an army to undertake, and require well-disciplined soldiers. This is because if the enemy presses into it, undisciplined troops will lose coherence and the rout will become genuine.

Samsung knew the large screen iPhone poised the greatest threat. Yet Apple had no sense of urgency. I recall many conversations with Samsung execs who asked with genuine surprise, “What are they waiting for?” Over time, I heard them convince themselves Apple just must not be interested in larger phones. That the one handed operation conviction will trump where the market is going. All the while Apple was sitting back patiently waiting to employ their thermonuclear war that had less to do with the battlefield of the courts and more to do with the battlefield of the market. Knowing that, once they released larger phones, they would gain share in the premium smartphone segment mostly at the expense of Samsung. From every data point I see globally that is exactly what is happening. In fact, I just read a report from Baidu today in China that highlighted data from a survey they did. Over 40% of current high end Android buyers are planning on switching or strongly considering switching to the iPhone 6 Plus. 21% said they would absolutely plan on buying it and 21% said they would strongly consider buying it. All primarily because of the larger screen.

Obviously this is just a theory. I could poke many holes in it with counterpoints. Perhaps I’m giving Apple too much strategic credit. Nonetheless, I thought I would put it out there to spur some fun conversation.

The Future of Retail

Physical retail and the world of technology have yet to combine in any meaningful way. I believe that is all about to change. Having spent more time speaking with retailers recently, it is clear they are about to make a technological leap. All of them have a deep fear of Amazon. Showrooming is a trend spoken about often internally at large brick and mortar locations. Yet one of the more interesting trends of late is called “Webrooming”. I outlined this trend in this insider report but, at a high level, webrooming is when consumers research online but then purchase the product in store. Our research on consumers who do this revealed the primary reason for webrooming was to read customer reviews of products they were interested in. 78% said they use Amazon reviews as their primary source for getting reviews of things they plan to purchase in store. Perhaps more interestingly, 42% said they read reviews on Amazon about products they were considering while at the store where they eventually made the purchase.

What I find intriguing about this environment is Amazon has been playing the game with an unfair advantage. Amazon has been using technology to gain competitive advantage. The playing field is not yet equal since most retailers have not been using technology to their advantage. I believe the groundwork is being set to level the field.


If you didn’t understand why the timing was right for Apple to get into payments and embrace NFC, then I encourage you to look into the EMV Migration and the accompanied credit issuers liability shift which has a deadline of October 2015. EMV is essential a “chip and pin” solution which enables credit card issuers to put a secure chip into their credit cards. The process for payment will be pin-based — meaning consumers will have to enter a Personal Information Number to authenticate the transaction. This shift will require all new payment terminals at physical retail locations. Merchants are incentivized to embrace this shift because as of October 2015, if they have not meet the deadline for the EMV transition, either they or the issuing bank becomes liable for any fraudulent charges. This shift in liability from the credit card companies to the merchant or the bank is the mechanism driving the investment in infrastructure change that makes not just chip and pin but NFC viable now in the US market.

Apple will sit right in the middle of this, playing a key role in helping limit fraud, thus limiting the risk to banks and merchants. This is just step one of brick and mortar retail stores embracing technology. The next will be Beacons.

Contextual Shopping

Beacons can help bring retail into the technological age. As our research on commerce highlighted, consumers are increasingly using the internet to make purchasing decisions. After the Christmas season last year, I spoke with several IT managers for major retailers and all of them were surprised at the high level of usage in store of their mobile app. This was everything from coupons, to product information, and sometimes just a map of the store to find a certain section. Thanks to our mobile devices, the in-store experience stands to get significantly better and low power proximity beacons can play a role.

If you have never seen this video from Estimote, I encourage you to take a look as it presents a vision of how beacons can transform retail.

Things like QR codes, and RFID tags are used today to give customers relevant product information. But the experience still needs to get much better and more interactive. This is what the promise of Beacons can deliver.

When we dive into the trends in markets like US and Europe behind webrooming and showrooming, it becomes clear in both cases technology is what has enabled them. This is why it will be interesting to see what happens once technology comes to physical retail in a meaningful way.

E-Commerce is growing but is still less than 10% of all retail sales. Clothes, shoes, gifts, books, and snack foods are the top five items purchased online out of 50 product options and categories. Automobiles, flat screen TVs, laptops, and mobile phones are the most researched online and purchased offline.

While still early, I have a hunch that, when technology is deployed strategically at retail, it could have an impact on Amazon. As I mentioned earlier, Amazon has been playing with an unfair technological advantage. Convenience and reviews are at the core of their value and both can be replicated and advanced by physical retail through the use of technology.

Further Thoughts on the Apple Watch and Smart Watches in General

After spending more time digesting the Apple Watch announcement and talking to dozens of journalists, doing several radio shows, reading many articles, and doing two podcasts, I have some updated thoughts.

If you have read many of my posts on smartwatches, namely this one and this one, you will know it has been a category where the value proposition has not been clear. I’ve been very specific that notifications alone, or at least in their current form, are not entirely useful for your wrist. The value can not and is not in notifications alone. That is the primary value Android Wear has implemented and as myself and many others who have tried every version point out, it is unclear if there is any real value there. So what have we learned from the little bit of information we have on the Apple Watch? Does this product extend the value proposition in any meaningful way? At a high level, Apple brings several assets to the category.

User Interface

As Tim Cook said, in a recent interview with Charlie Rose:

Apple’s goal is to be the best, not necessarily the first, but the best.

This is achieved by their user experience prowess. Apple takes things, related to computing in this case, and simplifies them from the current complex state they are in. If I was to articulate why an average consumer would not like any of the smartwatches I have tried, the word complex would be front and center. For this category to take off, Apple’s user interface and user experience design chops will need to be front and center.


Apple has stated their screen philosophy as “the right screen for the right moment.” This is their argument for not merging iOS with OS X the way Microsoft has with Windows 8. So the interesting question with the Apple Watch becomes, what is the right moment the watch is the right screen for?

Even though I am critical of smartwatches, there are pockets of time where I have found them valuable. All of those instances when I have found value have been when my smartphone is not near me or I’m not in a place where I can use it. For example, when I am at home, I often take my smartphone out of my pocket and leave it on a table near my entry way. With the Android watches, I only get value from the watch when it is in proximity (appox. 15 ft) to my phone. So if I go outside or upstairs or into the kitchen, all my smartwatch is is a watch. Apple’s approach with Wifi will allow the watch to remain smart even when it is not in proximity to my smartphone. The same is true in the car. Personally, I’ve found wrist notifications quite useful during my long commutes. Exercising, bike riding, even walking down the street in the city between meetings, become interesting use cases where arguably a better device than our smartphone could exist to add value to our digital lives.

The right screen for the right moment philosophy is, I think, a key way to think about the role the Apple Watch will play in Apple’s ecosystem. Both for us watching Apple and for Apple itself.

The Evolution of Communication

If we think about it, mobile phones have played a role in the evolution of our communication. Arguably, nothing has had as large an impact on communication as SMS. Hands down, the longest conversations I have with people are when we are face to face. Audibly talking on the phone would come second, but in the digital world, our conversations are shorter and more compact. With SMS, short responses are the norm. Even though a conversation can be engaging or drawn out, it is simply done with shorter messages. Part of me wonders if we are on the cusp of yet another form of mass communication evolution.

Benedict Evans and I discussed this briefly on the Mobile Focused Tech.pinions Podcast, and we mentioned an upcoming iOS app called Popkey. Popkey, in a similar style to Line stickers, is enabling new ways to communicate but through a more visual nature than text. For example, a friend of mine named Ben Thompson who is the author of Stratechery, turned me onto Line. It is one of the seven messaging apps I use, but I only use it to talk to certain people and he is one of them. Our conversation will go along and then I’ll say something like “I’ll email you the details.” He will then follow up with this Line sticker.

Screen Shot 2014-09-15 at 3.44.57 PM

This sticker is his way of saying “Ok” or “sounds good” and it is always this same sticker. It has a style and a personalization unique to him. But these stickers are somewhat static. You can create your own but how many people do that? Perhaps Apple’s doodle type method on the screen will enable similar yet even more creative ways for us to interact as a part of this communication evolution.

All of that being said, there are still questions I have that will not be answered even after the Apple Watch is released. For example, what is the replacement cycle? Is there a replacement cycle? Benedict Evans had a great tweet the other day that said, “watches replace their owners.” Meaning, a great watch outlives its current owner and is handed down or re-used by someone else. Is this a product category Apple is future proofing like a watch or is it more like a typical electronics product? Is this an annual release cycle of a product or longer? If you spend $2,000 on a watch will you be angry if it is outdated in a year when the new one comes out? I have a long list of other questions to dive into for another analysis but I’ll leave it at this for now. Smartwatches are officially a category thanks to Apple and good or bad, I have a feeling there will be some bumps in the road.

PC Computing Market Shares

Lastly, I’d like to take a look at the PC category. This is the one area where Microsoft is dominant. However, there is a clear shift happening in the PC segment many fail to realize. Let’s start with the platform share of traditional PC form factors.

Screen Shot 2014-08-05 at 10.05.01 AM

I estimate the total installed base of the desktop and notebook form factor to be 1.52b devices. While PCs were significantly impacted by the monumentally fast rise of tablet adoption, we are starting to see PC sales return to balance as many enterprises begin refreshing old terminals, point-of-sale terminals, workstations, and laptops. 2014 will certainly be a better year for PCs than the past few years. Yet there are still many questions facing the category.

  1. Windows: Microsoft still has a lot of work ahead for them. Luckily they have a partner in Intel who is equally hungry to right the PC ship. Annual shipments of PCs are in the low 300m range and I don’t expect to see a massive jump any time soon, excluding tablets of course. We are seeing a refresh cycle bump, which I alluded to, but I’m not sure the low 300m range of PC sales is the bottom for traditional form factors like desktops and tablets. After the next few years of refresh are complete it, is likely to be a famine again for PC vendors.This is what Microsoft is hoping to address by evolving Windows to be both a touch based computing system and a mouse and keyboard based computing system. If they are successful in this, their single platform can cover the range of use cases from desk to mobile. This attempt would be deemed a failure in my eyes if we were to just use Windows 8 and the existing 2-in-1 and convertible PCs. However, Microsoft never gets things right the first time so we must wait for Windows 9 or even Windows 10 to see if they have the right recipe to keep Windows dominant in the PC category.
  2. OS X and iOS: While Apple with OS X is around the 4-5m Mac sales per quarter, I remain bullish that Apple has an opportunity to gain share with OS X in the overall PC category. More aggressive price points with products like the MacBook Air could be a catalyst. Should Apple move from Intel for a more mainstream priced notebook, this could also be a catalyst for lower priced Macs. Apple is sticking to their philosophy of the right OS for the right form factor. Counter to Microsoft but the right strategy I believe. Apple may be also looking to blur the lines even more between iOS and OS X. Tim Bajarin writes here about the possibility of an Apple-like 2-in-1 form factor. Looking at what Apple could do to start to move the iPad up into broader computing capabilities is interesting thinking. Should they do this, it would still run iOS in my opinion, since its primary uses would be more mobile, but the addition of an Apple designed keyboard, and perhaps a larger screen, could evolve iOS even further to become more capable as a general purpose personal computer.
  3. Chrome OS: Chromebooks, while a small percentage of the installed base and annual sales comparatively, are devices to keep an eye on. They are continuing to rise in sales in the education channel and are challenging tablets in education. It is the commercial sector where Chromebooks are doing well today, but should they crack the consumer nut we could see these devices rise rapidly as a percentage of quarterly sales and overall installed base.

Now for the twist. The conversation, perhaps debate is more accurate, around tablets and PCs is relevant. Referring to my prior post on tablets, there are tablets that are being used for specific things like games, kids, TVs, etc. I would not consider those tablets more general purpose computing devices. The iPad, a few of Samsung’s tablets, and now even some Windows slate tablets fit this build. However, I believe at least the larger iPad should be counted among PC sales. For the sake of the point, I’ve created a chart looking at PC sales by vendor each quarter and have included Apple. For Apple, I added the sales of Macs and iPads.

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From this chart, you will notice by including the total of Macs and iPads, Apple becomes the leading vendor in PC shipments. Now to fully see this landscape, we would also need to include Samsung’s PC sales plus their tablet sales but I don’t have Samsung PC sales. Vendors who sell Android tablets should also be included but those are very minimal and wouldn’t up their numbers much. But the point with regard to Apple is the role the iPad has actually played for them when it comes to the PC arena. The iPad no doubt either gave many consumers the ability to hold off refreshing their PC, or not refreshing their PC entirely. I view the iPad as a part of Apple’s play for the the PC market. Either way, the tablet, and in this case the iPad, is a product that steals time from the PC. ((Yes the smartphone does as well and ultimately we will have to debate the degree the smartphone steals time from the tablet)) That is why I’ve included their iPad sales in this chart. Apple was once almost entirely irrelevant in computers, and the iPad has helped them in a variety of ways in relation to the PC category.

The line blurring between traditional PC form factors and tablets is the narrative to watch in this market going forward.

A Controversial Business Idea for Google, Inc.

As many of our readers know, I have been thinking quite a bit about the issue of security. As we move into the next era of mobile and all things digital — where our identity is tied to digital devices — I believe some form of security consciousness will arise with consumers. Which always lead us to the question of a company like Google. Every time I raise this issue the point is made that it is counter to Google’s primary business model, which is data. It behooves Google to gather as much data/knowledge about you as possible to feed their massive machine learning engine. All of Google’s advertising revenue models are built off this machine learning to help advertisers target customers appropriately. But what if in the era of digital identity Google adjusts their model?

While it is way out there, I propose Google could offer a security service and actually charge consumers to entrust them with their digital identity. This sounds crazy. But think about it — if Google became your locker for the key elements of your digital identity and offered it as a service, it could become an interesting model for them. Security as a service offered by Google. Of course, this would require some significant infrastructure changes but it may not be as far out of an idea as you think. Take Nest for example.

It is possible Google is employing the standard anti-disrtuption strategy with Nest and acquisitions like it. The strategy where you bring in a separate brand/entity to deal with the potential disruption in a new way. What if Nest, or other acquistions around wearables or smart devices, become the trusted Digital identity gateways? These brands could serve as the revenue model within Google’s ecosystem for digital identity management and security.

In this model, Google could conceivably operate their ad business but only have access to certain data I am OK with being public because I get value from being advertised to when it meets my interests or needs. But the private areas of my identity I want to keep secure and managed are kept by a separate entity, for a fee, but still by someone in the Google family. Interesting to think about.

Of course, Google could conceivably just do this themselvs and simply offer a secrity/privacy service for a fee if they deemed it was an important enough issue. Either way, while this is an entirely controversial idea, I think it is an interesting angle to think about relative to the issue of security, privacy, digital identity, and other things that could cause issue for Google in the future.

I know this sounds crazy but I wanted to throw it out there for our members to kick around and share feedback or other thoughts on.