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Global Smartphone Vendor Market Share and OS Installed Base Statistics

I’ve updated our global smartphone statistics and installed base estimates up to Q1 2014. There are several important observations to call out in the following graphs.

First, let’s take a look at the market share of each smartphone vendor going back to Q4 2009.

The first major observation is what has happened to Nokia. As you look at the graph, you notice the shift in share from Nokia to Samsung. As we all know, Samsung “fast followed” Nokia and the graph tells the rest of the story. The second major observation is how Apple has maintained their share of the market and is holding steady each quarter going between 15-20%.

Another important observation is what happened when Chinese consumers started joining the smartphone conversation. As you can see the ramp in China happened around the end of 2011. At that point you see the local Chinese vendors like ZTE, Huawei, Coolpad, and eventually Xiaomi (Mi) helped make our chart (and the world) more colorful/competitive.

Let’s see how this looks from the volume shipments of the same vendors over time.

What this chart does a good job of showing is the overall growth of the smartphone market in terms of volume.

If you recall from the first graph we saw most of Nokia’s market share go to Samsung. What this graph points out is the size of the scale Samsung reached. While their share of the market basically swapped, Samsung’s volumes were significantly larger than Nokia’s ever were. This graph shows Samsung’s steady and persistent growth when it comes to volume. Where Apple and others see pretty seasonal Q4 spikes, Samsung has stayed relatively steady.

Another important point about this slide is to look what happens when the China smartphone market began to ramp. As we see China coming online, we observe the rise of local Chinese manufacturers who begin moving enough volume to get them out of the “other” category and to be tracked as a vendor. Most notable should be Xiaomi. Xiaomi started selling phones in the third quarter of 2011 and by the end of 2012 were moving enough quarterly volume to get on our radar. Now after the first quarter of 2014 they are nipping on the heels of every other local Chinese OEM. In fact, if Xiaomi’s quarter-on-quarter growth rate continues, they may pass Huawei. That would put them at number three in the ranks of vendor quarter volume after Samsung and Apple.

Installed Base

While calculating the exact active installed base of smart devices is an imperfect science, based on historical sales data of devices factored along with active statistics of operating systems on major carrier networks and regionally dominant web services, we can get an approximate that is defendable. The following charts break down the install base of smartphone operating systems over time and where each stands today as a percentage of the active install base.

As you can see, Android and iOS have been the biggest growth driver of the smartphone install base. Symbian was the biggest loser with most of its user base moving to Android. Blackberry held relatively steady in install base even though their quarterly shipment declines have been steep. What Blackberry’s numbers highlight was while their install base peaked in 2011, they have not participated in any growth and while maintaining a relatively small portion of the install base even at their peak, the next year will likely show steep declines in their install base.

The pie chart shows each smartphone operating systems as they currently stand as a percentage of the install base. Some of my numbers around Apple’s iOS smartphone share and Android’s seem counter to the narratives we hear that Android has 80% or iOS has 15-18%. This is because when most analysts use those numbers they are sharing the percentage of quarterly or annual sales by OS — not as installed base.

There are many fascinating evolving narratives that will continue to be fascinating to watch over the next year. The primary being as the India smartphone ramp starts to show up. India is where China was two years ago and is ramping fast. Karbonn, Lava, and Micromax to name a few may start showing up in our charts soon enough. I’ll continue to update these numbers each quarter and tease out the key observations over the year.

A Google Like Device for Physical Objects

In late April, I had a fascinating video call with a gentleman named Dror Sharon, the CEO of Physical Objects. He showed me a product that just went up on Kickstarter about a month ago. The device is a hand scanner that can scan physical objects and tell you about the chemical make up of that object.

“Smartphones give us instant answers to questions like where to have dinner, what movie to see, and how to get from point A to point B, but when it comes to learning about what we interact with on a daily basis, we’re left in the dark,” Mr. Dror told me via a Skype video call. “We designed SCiO to empower explorers everywhere with new knowledge and to encourage them to join our mission of mapping the physical world.”

Physical Objects’ Kickstarter campaign so far has received over $2 million for SCiO (which is Latin for “to know”). At first, SCiO will come with apps for analyzing food, medication, and plants. You can use it to refine the ingredients of your homebrewed beer or figure out if an internet site’s cheap Viagra is fake. Later, the company will add the ability to check samples from cosmetics, clothes, flora, soil, jewels, precious stones, leather, rubber, oils, plastics, and even human tissue or bodily fluids.

Above: Consumer Physics prototypes

Mr Sharon told me the “spectrometer figures out what the object is based on an infrared light that reflects back to the scanner. Most objects have different absorption rates, as they vibrate at different levels on the molecular scale. The app takes the data and compares it to a cloud-based database of objects in a data center. When it gets a match, it sends the results to the user’s smartphone.”

According to Mr. Sharon, “the food app tells you calories, fats, carbohydrates, and proteins, based on your own estimate of the weight of the food you’re about to eat. (With many food packages, you can get the weight from the label). The app could tell dieters exactly how many calories they’re about to consume, while fitness apps can tell them how many calories they’re burning. That helps people figure out exactly how much exercise they need to do in order to burn off the food they’re eating.”

As I understand it, the food app can also gauge produce quality, ripeness, and spoilage for foods like cheese, fruits, vegetables, sauces, salad dressings, cooking oils, and more. It also analyzes moisture levels in plants and tells users when to water them. Mr. Sharon suggested one could even analyze your blood alcohol level one day, but SCiO is not currently approved as a medical device.

What I find most interesting is, as users conduct more tests, the app gets better and better at correctly identifying objects. The more people use it, the richer the database of information will be to add to the precision levels of the SCiO over time and, more importantly, expand what it can understand. In the demo I saw on an Android smartphone, a ring fills up with circles on your smartphone screen to deliver the proper info. It takes only a matter of seconds to recognize something. SCiO has to be about 20 millimeters from an object before it can be used for scanning. The scanner uses Bluetooth low energy to connect with a smartphone, which needs either iOS 5 or Android 4.3 or higher.

He also showed me its ability to scan what looked like a unmarked white pill and correctly identify the chemical make of the pill. He told me it as an Aspirin and even showed it was made by Bayer. In another demo, he aimed the scanner at a plant and it identified what the plant was. These are the first category of physical products they will target but eventually it could identify the chemical makeup of just about any object. That is why he likened it to being “Google for physical objects.”

If you are a fan of police procedurals like CSI or NCIS you already know about things like mass spectrometers — professional machines that analyze the chemical makeup of objects. These machines can be very large and while there are some handheld versions available today, all are very expensive. SCiO does similar tasks in a device that can fit into your pocket. And when it ships is will cost considerably less, about $149. Now, I am not suggesting SCiO is as powerful as professional mass spectrometers. However, from what I saw in the demo, it can do much of the same kinds of chemical analysis and do it pretty quickly with the readout showing up on your smartphone.

While I find the idea of a pocket spectrometer interesting, where this could have real impact is if it could be built into a smartphone. According to Mr. Sharon, this ultimately is where he sees his technology going. His initial focus is on food, medication and plants although over time it can be expanded to cover just about any physical object. Imagine being able to point the scanner in a smartphone at an apple and know exactly how many calories is in it based on its weight. Or if you had a stray pill lying around and wanted to know what it is before you dare ingest it.

I see this particular device as a game changer of sorts. Today all of our searches are being done via text, numbers and through structural databases of some type. But with a consumer-based spectrometer in a pocket device and then eventually in smartphones, gaining a better understanding of the make up of the physical objects we come in contact with each day would expand a person’s knowledge base. I could imagine it as being part of a teaching tool and get perhaps more kids interested in science. Or used in a science related game so it becomes an important tool to solve a puzzle. At the other extreme, its impact on health-based problems and solutions could be enormous.

This is a technology to watch. As it gets smarter as more people use it and it gets into smartphones, it would add quite a new dimension to our understanding of our world and become an important way for folks to connect to our physical space in ways we just can’t do today.

The Android Paradox and Computing Inequality

Benedict Evans wrote a great article on android fragmentation. He and I have covered this theme a variety of ways but I wanted to add a few more elements for you to think about. I also tweeted over the weekend on this theme and faced fire from the twittersphere.

It is a paradox that one can do so much with Android’s “open” OS yet the majority of its users do less than the “closed” iPhone’s iOS.

— Ben Bajarin (@BenBajarin) May 17, 2014

Furthermore, Benedict makes a point in his post key to understanding the Android paradox:

Again, this is a paradox: Android is the platform best for early adopters and iOS the one best for late adopters who just want something that works, but the market adoption is the other way around.

There is no question Android is a unique beast. I’ve long heard Android compared to Windows. However, I have never been comfortable with this comparison. There are certainly some fundamental similarities but there are also a great deal of fundamental differences. They are similar in that they are both software platforms available for third parties. OEMs can take the software platform and create their own hardware. While those are basic similarities, Android has a fragmentation problem Microsoft never really had.

In the PC era, Microsoft maintained very strict hardware constraints for products running Windows. Intel, and AMD to a degree, also assisted with this a great deal to make sure OEMs had a certain bar that was maintained in terms of computing experience. This came crashing down with Windows Vista. This was an example of Microsoft having too computationally complex a piece of software which made machines with underpowered CPUs, and more importantly weak graphics capabilities, have many issues with Vista. I remember telling the OEMs around the time if everyone just shipped a discreet GPU on all their Vista machines it would be fine. But that would have driven costs up at a time they were all trying to drive costs down. For the most part, we have not had the same fragmentation issues with Windows we have with Android. Curiously, we saw the beginnings of the issue with Netbooks. For the first few years, these devices ran underpowered CPUs which consumers then attempted to use to do things they would do with more powerful computers. This is why early Netbooks didn’t play flash video well, or games, or other CPU intensive tasks. It brings us down an interesting thought trail of where we are today with computing power in lower cost devices. Which leads us to the Android paradox.

Where Windows seemingly was always designed to run computationally capable silicon, Android is and must be designed for the lowest common denominator. Android must run on an extremely low end CPU and an extremely high end CPU. This problem is outlined well in this video and in this post by Game Oven.

The point the folks at Game Oven highlight is the challenge of building a computationally complex piece of software and getting it to run on every Android device in the world. This is a significant problem for the future of computing and it begs a fascinating question. Architecturally speaking, is ARM or x86 better suited to address this particular issue? I do not have this answer yet, but it is a key question.

With my background in semiconductors, I look at this problem and doubt Google can solve it. Google can not maintain control of the hardware in smartphones the same way Microsoft could with Windows PCs. Mostly this has to do with the fact Android OEMs want to make a phone that can be sold for $100 dollars or less. Those devices, by sheer economics, will have to use an inexpensive and low powered CPU. That vendor will also have to make decisions on which sensors or other chipsets to include or not include in order to hit that price. Which means software developers like Game Oven simply can’t run their software on those devices. It emphasizes the point that a software developer Android addressable market is limited by hardware if they are looking to push the envelope of computing.

Going further down this rabbit hole gets even more interesting for the future of computing. With roughly 80% of the Android install base being lower end, underpowered devices, and even more so as we add another billion plus first time computer owners with a smartphone costing less that $150, we have an issue of exposing those first time owners to the full potential of handheld computing. Perhaps that isn’t necessary, since it is their first computer, but it is from the standpoint of personal computing.

However, this may only be a short term problem. When you look at silicon road maps and Moore’s Law, it seems it’s possible that, 4-5 years from now, some incredibly powerful CPUs will be able to run in devices that can be extremely low cost. That being said, as long as Moore’s law exists, software developers will hopefully exploit the new capabilities of latest generation silicon and push software to the limits. Until Moore’s law is passed, conceptually, there will always be an inequality gap with regard to computing.

Intel may have something to offer to solve this problem, as x86 brings many efficiencies to the table for complex operations. Should they get to a very low power yet high performance benchmark over the next few years and gain traction in smartphones, I will be curious to see if the fragmentation issue around what Game Oven highlights could be solved through an x85 Android environment. We will have to wait to see, but I am still skeptical fragmentation can be solved simply by all computing devices running the same application processor architecture.

Remarkably, Apple is one of the few companies who can solve computing’s inequality gap. Should they be able to bring their experience to hardware at lower costs, it could be a huge benefit to the future of computing. Until then, we remain firmly set in an environment where the capabilities of hand held computing are unequal.

Insider Intelligence Charts: Global Market Share Mobile OS

I pulled some recent data from Statcounter to get a sense of what the most active platforms were in each region. Statcounter, like NetMarketShare, tracks over a billion websites globally. Therefore, the tracking and market share numbers represent those actually using their devices to access the web in some way, shape or form. Interestingly, I have caught wind of some data that highlights a larger number of consumers than I anticipated in key markets like China who use VPNs or proxies to access blocked sites from within their country. Many of these VPNs or proxies are based in the US or Europe which means there is a high likelihood that some country numbers are skewed because of these consumers who access via proxy. I’ll deep dive on this as I gather more data.

Let’s look at platform statistics for several key regions and tease out some observations.

Global OS Market Share

Looking at the global breakdown of operating systems, broken out by those actively accessing the web, several key things stand out. The first is the noticeable and undeniable trend that Android continues its steady climb. This will continue as billions of consumers get into the market with their first smartphones from price tiers lower than $200 and most likely running Android.

Despite Android’s rise, iOS market share remains relatively steady. For many, this should defy their beliefs about how “open” operating systems crush more closed systems. There is a raging debate around the topic of whether the smaller ecosystem always loses. We are in uncharted territory and history is unlikely a helpful guide. Every time I look at this data, Apple’s ability to maintain share re-enforces the staying power of a premium customer base.

Series 40, while having a smaller market share, also remains steady. This demonstrates Nokia’s ability to maintain brand and solutions in markets like India, Africa, Indonesia, and Brazil to name a few. Ultimately Series 40 will be replaced by Android in those markets. It’s just a matter of time.

Globally, there are around 1.4 to 1.5 billion smartphones in use. That number will be over 4 billion by the end of 2018.

US

This chart remains relatively unchanged from multiple sources besides Statcounter. In the US, it truly is a two horse market and each have relatively close market share. Statcounter tracks the iPhone as having over 50% share based on their tracking methodology. This also lines up with recent data from Chitika stating that, when usage is tracked, the iPhone remains the market share leader.

If Apple does release a larger screen iPhone, it will be interesting to look back at these charts and see if Apple has indeed widened the gap against Android in the US as many, including myself, believe will happen.

The US has over 190m smartphones as an install base.

China

Android is the dominant OS in China. This should not come as a surprise. However, Apple’s continued growth in market share lines up with many Insider posts on Apple’s device installed base in China. This remains an under appreciated story. I remain convinced the number of iPhones in China is larger than most other analyst firms’ estimate.

Related Posts on iPhone in China
How’s the iPhone Doing in China
Data on China: Apple’s Biggest iPhone Market

While Android will remain dominant, I’m not sure the vendor landscape is as clear as others. While Xiaomi is all the rage in China, it is unclear if their model is sustainable, particularly as they run into challenges scaling to meet demand. The hardware/OEM landscape in China is nowhere near settled. This is a key storyline to follow.

China has nearly 600m smartphones in active use in the region.

India

India as a market could not be more different than China. These are two completely different regions who mass market customers think about technology differently and value very different things. Where in China consumers place a high price tag on status, and technology identified as status symbols, India places a priority on value for the money. This is why India will remain a challenge for Apple.

India has approximately 60-70m smartphones as an install base currently. While estimating total iPhone sales in India has been tough, I believe it to be in the 6-8m range. Likely toward the lower end of that number but certainly less than 10m as a total.

Indonesia

Why am I showing you Indonesia? Every so often, we will look at a market that doesn’t get a lot of attention. I could, and will, continue to show charts from Brazil, and other countries in SE Asia, but I thought looking at Indonesia would be interesting. Indonesia is a huge market and an important one to watch. It is also growing quickly overall as a market for smartphones.

As you see from the chart, Nokia’s handsets have had a good run in Indonesia. But the trend is toward Android — which is no surprise. One other point worth mentioning is BlackBerry handsets have a higher percentage of the install base than indicated in this chart. The reason they don’t show up higher is because many BlackBerry devices in the region are not used to access the web through a browser or apps. Instead, these devices are used more as secure communication platforms due to a high level of distrust of the government. Some percentage of consumers have two devices. They use the Blackberry for secure communication for business or other uses and the Android or Nokia device for other smart phone features/use cases.

This is a snapshot of the overall platform trends in several key markets. In future Insider posts, we will also break down the vendor market share in these markets as well.

Insider Analysis: Android Silver, Good for Google Bad for the Industry

Google is trying to reign in Android with a new program called Android Silver according to recent reports. There are pros and cons to this strategy, however. I believe Google is trying to control something that inherently can not and does not want to be controlled — Android.

There is a paradox about stock Android that is fascinating. It is the purest and best manifestation of Android. My favorite Android devices always tended to be Nexus devices. However, the Nexus program was really a developer program not a consumer one. The goal of the program was never to sell in masses to mainstream consumers. It was for developers to experience the best of Android and to use a model to get them thinking about how to take advantage of the platform with their apps.

What Google fails to realize is one of the primary reasons for Android’s early attraction from OEMs was because they desperately wanted an alternative to Microsoft. Google came in with a solution and provided this one. Which was why early OEMs like HTC adopted it even though it was still very early. The other thing that struck a nerve with OEMs was the opportunity to differentiate with Android. Microsoft offers virtually no customization of their software which means vendors who ship Microsoft software can differentiate through hardware only. All the software looks the same. Imagine how boring it would be to walk into a retail store and see lots of rectangles all running the exact same software look and feel? There would be little differentiation.

OEMs were attracted to Android early on because they allowed enough customization for their products to stand out. Forcing OEMs or creating a new class of device where the software looks the same across all vendor hardware is a step backward not a step forward.

Mature markets value differentiation. This is why a parking lot in 2014 looks very different than a parking lot from 1955. Differentiation is one of the most sustainable strategies a company can invest in. If Google is successful at creating a new premium class of device, yet those premium Android devices all have the exact same looking software on them, we will have the sea of sameness all over again just like we had, and still have to a degree, with the Windows PC market.

This environment favors the ones who stand out. Google would be better off working with their vendors to create sustainable strategies for differentiation. The challenge for Google is that one of the ways every partner wants to differentiate is through services, which is Google’s cash cow. Remarkably, Google’s success with Android was strategic for them but has also put them at odds with the inevitable way this market plays out for their partners — shifting from hardware margins and profits to services margins and profits. History teaches us the value chain always shifts from hardware then to software then to services in horizontal/modular ecosystems. This happened with Microsoft PC ecosystem and it will happen with Android in smartphones.

Which leaves you in an uncomfortable position if you are an Android vendor — deeply tied to Google and their services for your future success. Your partner is actually your primary competitor.

The Genius Of Steve Jobs Or Why Google And Facebook Must Make Big Bets

The ghost of Steve Jobs haunts Google and Facebook. Unlike Apple, which has always aligned its interests with its users, both Google and Facebook must serve two masters: users and customers. They are not the same. Indeed, the divergent demands of these two groups has placed both web giants at a long term competitive disadvantage against Apple — one that will cost them billions to correct and will likely never be fully resolved.

Steve Jobs repeatedly veered from conventional Silicon Valley wisdom. His successes were legion. Given Apple’s current size and dominance, it’s easy to forget how so many of the big strategic gambles Jobs made were almost laughable at the time.

Vertical integration
Make both hardware and software
Keep design in-house
Create a global retail chain
Lock down your ecosystem
Make money on the hardware
Focus on fashion
Touchscreens are superior to physical keyboards

Google is, despite occasional shout outs to “openness”, absolutely following the Apple playbook which Jobs crafted decades ago. Facebook will follow as best it can, I suspect.

It’s not going to be enough.

Jobs made an even more profound strategic decision, one neither Google nor Facebook can ever match. It was a decision stunningly obvious in its simplicity, yet even today, despite Apple’s success, is still rejected throughout the Valley. That primal Jobsian strategy?

Your users are your customers and your customers are your users.

Sounds so simple, so obvious, yet think of nearly every start-up success in Silicon Valley this millennium, every hot new business model trend. Is the actual end user the actual paying customer?

In nearly every case, the answer is no.

In this disconnect, there is much weakness.

By linking Apple’s fortunes with the happiness of its actual users, Steve Jobs unleashed a slow-motion revolution that haunts Google and Facebook even now. Others, too. Even once dominant Microsoft, which remains radically dependent upon corporate buyers — not the actual users of their product — is hurting.

Obvious is not always easy.

The High Cost of Serving Two Masters

The divergent interests of users and customers is why Google and Facebook have been on such a massive buying spree recently. I do not expect a slowdown.

The latest acquisitions are not, as so many confounded analysts suggest, a sign Google and Facebook lack Apple’s “focus”. Rather, the fault lines in the Google and Facebook business models demand these acquisitions. That is, to make users happy and to make advertisers happy and to ensure an uneasy peace across both consumes enormous resources. Google and Facebook will always need to keep the checkbook handy. It’s not a lack of focus which explains their acquisitions. Just the opposite, in fact. Their focus is on a two-headed beast.

Before I go any further analyzing Google and Facebook acquisitions, I must acknowledge there are other, less critical factors at play:

Real Control
Fake Money

Google’s and Facebook’s founders have radically disproportionate voting control relative to their total ownership share. They can buy, even on a whim, and almost without explanation. Steve Jobs had no such control, nor does Tim Cook. Essentially, Larry Page and Mark Zuckerberg can buy whatever they wish without a single voice being raised.

In addition, the respective CEO-owners of Google and Facebook are fortunate enough to have inexplicably high PE values. $GOOG is at 31, $FB is 92 — that’s not a misprint. $AAPL on the other hand, trades at a stunningly reasonable 13. Whether you think the market is appropriately valuing these three companies is a separate issue. For now, the market is throwing money at Google and Facebook and money is of no use if it’s not being spent. I suspect if the market pushed Apple’s share price to a PE of 31, that Cook would likewise go on a shopping spree.

These two fortunate, albeit anomalous realities notwithstanding, the primary motivator behind the massive Google and Facebook spending sprees is, in fact, their respective CEO’s keen understanding of what their businesses require to succeed.

Think of a gushing well that nonetheless requires continuous priming.

Encourage. Capture. Present.

To continue earning billions, both Google and Facebook must:

Encourage use — to the point where they pay whatever is necessary to get billions more people online.
Capture our personal data — including where we are, who we are with, what we are doing, even how we are feeling.
Offer screens, tools, services and platforms so their paying customers — advertisers — can effectively present their message.

All their respective acquisitions are to maximize these three building blocks: Encourage. Capture. Present.

Thus, while couched in feel-good language, it’s shrewd business to encourage more people go online.

Last year Facebook and other tech companies launched Internet.org, a global partnership to make the internet available to the two thirds of the world’s population that doesn’t have it.

Thus, cool-sounding “AI” projects are really little more than a means of better extracting maximum value from the captured information of a billion plus users:

By teaching a computer to think, Facebook hopes to better understand how its users do too. So today the company announced that one of the world’s leading deep learning and machine learning scientists, NYU’s Professor Yann LeCun, will lead its new artificial intelligence laboratory.

Thus, a few years from now, when we spend as much time inside ‘virtual reality’ as we now do staring at our smartphones, Facebook will need to have a suitable platform for its advertisers to present their message. Enter: Oculus Rift.

SWOT

Of course, each company has its own unique strengths. As the graph below illustrates, I contend Google does a far better job of capturing user information — via Play, Wallet, Android, search, Maps, etc.

Both Google and Facebook do an equally good job of encouraging use.

Facebook offers advertisers more and better options to present their message — Facebook, Instagram, WhatsApp.

We should therefore expect both companies to acquire other firms, talent and technologies that enable them to further enhance their existing strengths and to shore up their weaknesses. For example, Facebook needs to build or buy tools to more effectively capture critical personal data. Might this lead to buying Foursquare, for example, with all its user-location data?

As we increasingly look to our wearables and smart watches, expect Google to buy or build tools to ensure their advertisers can present their message onto these new screens.

There’s still another consideration for potential acquisitions. The companies currently are split in the type(s) of information they are best at encouraging, capturing and presenting.

Facebook’s superiority is better suited for encouraging us to share how we feel, and its platforms allow users to more fully express themselves. Google by contrast, is far better at capturing what we want and what we are doing.

Given this, I suspect while both Google and Facebook will acquire companies that help them shore up weaknesses across the feeling-doing-wanting-expressing spectrum, the really big money will be spent on ensuring their current leadership is almost impossible to surpass.

Focused Acquisitions

Was $19 billion too much for WhatsApp? Likely. As was $2 billion for Oculus and $3+ billion for Nest. Fair enough. But, these acquisitions do not reveal a lack of focus – just the opposite:

Driverless cars will present ads and content in a captive environment without distraction.
Internet drones, lasers and balloons encourage more of us onto the web and onto the many and varied Google and Facebook platforms.
If any of us spends any appreciable time in the “metaverse”, then Facebook’s Oculus Rift gamble will enable advertisers to present a stream of messages into our eyes and ears, without any of the real world’s messiness.
Google Glass can (soon) present the latest reviews of the newest restaurant as we walk past — or instantly display where we can get a better price on our favorite gear.
Nest will help Google capture our home information.
WhatsApp encourages us to share a great deal of personal information.
Instagram encourages us to express ourselves.

The list goes on.

Therefore, when you read financial analysts, such as Felix Salmon, who insist Facebook’s latest acquisitions aren’t related, they are missing the big picture.

Look at his big purchases — Instagram, WhatsApp, Oculus. None of them are likely to be integrated into the core Facebook product any time soon; none of them really make it better in any visible way. I’m sure he promised something similar to Snapchat, too.

Wrong. It’s not about being “integrated into the core Facebook product.” Rather, it’s about encouraging use, capturing use, and maximizing its value to advertisers — which means enabling those advertisers to present their message to every user at any time, in all places, on all screens.

And it will never end.

Apple must make its customers happy. That’s no easy task. Google and Facebook, however, must make both their customers and their users happy. That’s much harder. The checkbooks will remain at the ready.

How Microsoft Could Hijack Android

Last December I wrote a piece for PC Magazine where I suggested Microsoft embrace Android in order to tap into the world of Android apps for use with Windows 8 and Windows mobile.

I argued that Microsoft would never get the long tail apps for their Windows desktop or mobile platform but there was a solid way to offer Android apps within the Windows framework that would allow Android apps to run, as is, on top of both operating systems.

I also suggested they adopt the Bluestacks player which launches the Android apps and will then run on Windows in such a way a user would not even know it is an Android or Windows app; it just works in its own right. It would give Microsoft the long tail apps they desperately need to keep Windows 8 and Windows mobile viable in the future.

At the time I wrote this I was not aware of the work Nokia was doing to create a dedicated Android Phone using the Android base AOSP (Android Open System Platform). Instead of offering Google’s dedicated apps and services, they installed Microsoft’s services and cloud apps instead. We were able to see this a month before it was introduced at last month’s Mobile World Congress. We immediately realized this was ground breaking from a soon-to-be Microsoft company and could have ramifications for Nokia and Microsoft in the near future.

While Microsoft has somewhat downplayed Nokia’s Android phones and continues to say their mobile strategies are all focused on Windows Mobile, this move by Nokia could actually become a blueprint for how Microsoft could embrace Android in a broader way and make it their own. While it would require Microsoft eating some humble pie, I see the idea of bringing Android apps into the Windows ecosystem as a powerful way to extend their OS market reach and potential while at the same time wrestle some control from Google in the process.

So, how could they do this? The simplest way would be to use the Bluestacks player as mentioned above. Instead of tying the apps and services to Google Play, they could create a dedicated Microsoft Android store and services area thereby substituting anything Google has in this space with Microsoft services. All Android apps are written under the basic AOSP architecture but are currently tied to the Google Store. It would not be difficult for Microsoft to create a Microsoft Android store and offer all Android app developers the API’s to hook into Microsoft’s Android store. It would become another outlet for Android app vendors. Android app vendors would be crazy not to do this since it expands the audience for their apps and could generate more revenue from an audience of over 150 million current Windows 8 customers and another 280-290 million Windows 8 PCs that will ship in calendar 2014.

They could do the same thing on Windows Mobile phone. In this case they would use the core Windows mobile OS, which includes all of Microsoft’s apps and services and then use the Bluestacks player to deliver the Android apps in a similar way. They would do it on their desktop or laptop platforms of Windows 8. This would mean all Windows mobile phones would now have access to the one million plus Android apps and the long tail content and apps Windows Mobile phone needs to grow.

Microsoft already makes money on Android due to license agreements with most of the Android hardware vendors. Using this strategy, they could hijack Android for their own purposes and at a dreaded competitor’s expense. While doing this would mean quite a sharp and humbling turn for Microsoft, the chance of using Android for their own purposes and wrestling it from Google is just too delicious for them to not go in this direction.

Better For The World? Apple Or Google?

Arguably, Apple and Google are the largest, richest, most powerful, most influential technology companies on the planet. Across many markets their products, services and technologies directly compete with one another. Yet, in countless endeavors, each benefits the other, enabling both to earn more, reach more, do more, grow ever larger, their creations touching nearly all of us.

Which begs the question: which company creates more good in this world? Apple or Google?

Unknowable?

I think the question a valid one. Despite their many similarities, the companies have profoundly divergent strategies when it comes to the development, release and spread of technology. Seeking the answer to this question might help us better understand how we should construct future tech companies, offer insights into what we should value most and whose methods we should help foster.

Pay To Play

As both Apple and Google continue to extend their reach deeper into our lives, the more obvious differences between the two begin to peel away. Once, Apple was hardware and Google was software. Now, both are mobile devices, cloud computing, entertainment, maps, apps, payments, productivity, music, messaging and — even if poorly — social media. We have to look deeper.

Start with pricing. Apple, whose products no one is required to purchase, is regularly blasted for ‘premium’ pricing. Google, whose products are mostly free, generates no such acrimony.

Is it better to demand customers pay for a product, to enter into a covenant where value is promised at a specific price, as Apple requires? Or is offering services for free the superior model? Certainly free seems better, but the price of free in today’s world is constant advertising, payment of which is continuous mining of our personal data. Does the Google way — pulling off tiny pieces of ourselves, bit by bit, moment by moment, and then selling these off to an unknowable coterie of people and businesses — better serve humanity?

I want to be in favor of free, but in its current form, the price of free seems too steep for me. For the rest of the world, I think in pricing Google trumps Apple, whether I wish it so or not.

No Product Before Its Time

Another core difference: product development and release.

Is it better to release products only when they are ready, as Apple does, or as soon as they reach sanctioned beta stage, as Google does, allowing anyone to experiment with their creation, make it better, expand its reach? Again, this seems to favor Google.

While we wait for the next insanely great product from Apple, a hyperfast-moving Google is — right now — helping us understand the pitfalls and benefits of driverless cars. Google Glass is forcing us to consider our views on personal privacy in public spaces and it must be acknowledged, pushing the technical boundaries and design limits of wearable technologies.

Google is meeting with city leaders, exploring methods to offer cheaper, radically faster broadband. They are unleashing ‘balloons‘ to bring the Internet to all points of the world. Push, push, push, now, now, now. The Google Way seems more right for our world.

Meanwhile, Apple…what, exactly? An iWatch likely few can afford once its finally released?

Tim Cook recently tweeted:

“Remembering Steve on his birthday: ‘Details matter, it’s worth waiting to get it right.'”

Is this true? Is this best for the 7+ billion of us on the planet? To wait?

Consider Android. Android is now the most widely used operating system in the world in part because Google unleashed it, for free, even while its business model remained in flux, and without waiting for agreement from potential stakeholders like Java’s Oracle. Nor was it perfect, by any stretch. Our gain.

We are rapidly connecting with one another, linking to astoundingly low-cost information resources whose total value is nearly incalculable, thanks in large part to this essentially free, freely available and extraordinarily robust mobile operating system. Humanity has been aided by Android, clearly.

Step back. Did Apple’s deliberate plodding make all this possible?

Look at an Android device pre-iPhone: it is an evolutionary dead-end. Think of all the apps, services, knowledge, entertainment and productivity we garner from all the phones that came only after Apple and the iPhone cleared the way. Consider the rather glaring limitations of Android, pre-iPhone. Had Apple launched iPhone before it was ready, before all the “details” were just right, the entire smartphone industry, now over a billion users strong, may have taken a completely different path – and died on the vine.

Might the same thing happen in wearables — likely the next iteration of the ongoing personal computing revolution? As wearable technologies abound in type and quantity, we await Apple’s entry.

Yet it may be wearables can only achieve their fullest potential for improving our health, our fitness, our connectedness to our minds and bodies only after the details are exactly right. That is, only after Apple clears a broad, lasting path just as they did with Mac (PCs), iPhone (smartphones), and iPad (tablets).

We have significant evidence Apple’s entry into a category has disproportionately, even radically re-shaped all that came before and all that follows. Perhaps we are better served in our analysis if instead of viewing Apple as sitting atop the ‘high end’ or ‘premium’ segment of a market, we acknowledge their products as a sort of official start, or a big bang of a new product category, unleashing and enabling the full potential of such technologies.

Thus, it may be that Apple better serves humanity even as their products are viewed by many as the tools of the wealthy. Apple made possible the very revolutions Google has seized upon. I think when it comes to the development, creation and release of products, Apple does humanity better.

Origin Myths

While I harbor suspicions regarding some of Google’s actions, I deeply admire their speed and scale, along with their willingness to try, to fail, to push. Google’s fast, expansive focus seems much more aligned with our nature and certainly more aligned with our times. Google’s beliefs include:

fast is better than slow
democracy on the web works, and
great just isn’t good enough

Thanks in part to such beliefs we most likely will have faster broadband, more bandwidth, radically cheaper smartphones connecting the world, tablets everywhere, a nearly infinitely scalable and mobile-optimized real-time web, all manner of affordable information and content, search, driverless cars, and whatever else Google is cooking up in its labs or scouting for acquisition.

That’s a substantial list.

It took Google for us to have YouTube, free maps, real-time-anywhere search, and the ability to live our lives within a fully digital realm. Yes, this comes at the creeping and rising cost of advertising everywhere and aggressively lobbied laws that do not necessarily favor our privacy interests. Almost seems fair.

Apple’s mission, by contrast, is shockingly prosaic:

Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.

That’s it? No move fast and break things? No do no evil? Not even a computer in every purse?

In vision and purpose, I say Google bests Apple.

I suspect that despite their overlapping business interests, core differences between the companies are inextricably linked back to their founding — the mad, beautiful and deceptively detailed vision of computing borne inside the mind of Steve Jobs, versus the youthful, audacious and limitless grandiosity of Page and Brin.

Apple and Google are a mere five miles from one another, yet the difference in their work and world views appears an impassable chasm. I do not know who does more for humanity. I am greatly proud, nonetheless, that these two giants of innovation are American-born, American-led, and are both, separately and together, creating a better world.

Chart: Android Install Base

Google recently released their latest platform numbers for each version of Android. This chart shows what percent of each platform is still in use on an Android device in the market. A couple of things are worth pointing out regarding this data. These metrics from Google only track a piece of hardware that has passed Google’s certification process and has access to Google services. What Google is showing us with this data is the number percentage of each platform, active in the market, that has access to Google’s services. This is important context because these percentages do not reflect the entirety of the Android install base. They only account for the install base of Google’s version of Android. Most the devices sold in China are not accounted for in these number from google, for example. Here is Google’s chart with a breakdown per Android version.

I have done my own research to work out the non-public data and have come up with estimates on the Android install base of Google’s version of Android. Below is my chart.

It is incredible to look at the install base of Gingerbread. This version of Android was released on Dec 10th, 2010 and was updated until September of 2011. Even a device updated toward the end of Gingerbread’s lifecycle is over two years old. I am at a loss at how to explain this. The only explanation which seems plausible is that these were customers who purchased an Android phone, but are only using it as a feature phone to make phone calls. This period correlates with strong sales of both the Motorola Droid brands and several HTC phones. Knowing that some manufactures were still shipping Gingerbread into 2012 may also help explain this number. Still, the fact that there are over 200m smartphones in the market, being used, that are over 2 years old is remarkable.

India And The Future Of The Smartphone Wars

Perhaps I should have titled this “India Is The Future Of The Smartphone Wars”?

The appointment of the highly capable Satya Nadella to lead Microsoft only partly explains why I am thinking more about India and technology. The other reason is that it increasingly appears that the future of smartphones, and the winners and losers of the global smartphone wars, will be determined in large part by what happens in India. Great news for Google, possibly even for Microsoft and Nokia. Less good for Apple.

Despite the rather remarkable success of Indians in Silicon Valley, many of whom, like Nadella, are now leading tech companies, I still meet far too many analysts who remain disproportionately focused on what’s happening in China, or in Europe, while steadfastly ignoring the speedy, highly iterative tech landscape in the world’s second-largest nation.

Consider the following about India:

There are over 1.2 billion people — that’s about 4 USA’s
The median age is 25 (China’s median age is 36 and the US is 37)
India is the world’s 11th largest economy — and still one of the world’s fastest-growing
Annual per capita income is a dismaying $4,000 (by comparison, China’s is $10,000 and in the US it is $53,000)

Populous, young, growing, eager for technology, eager for connectivity, albeit with relatively meager resources to spend. It seems to me that is the perfect mix for disruption. Likely, this disruption centers around what is now our most important tool, the smartphone.

There are already about 150 million total smartphone users in India. Despite that number, and despite the nation’s large population, India is the world’s fastest-growing smartphone market. The giant feature phone market is collapsing.

According to IDC, 44 million smartphones were sold in India in 2013. Phablets (smartphones between 5-6.99 inches) garnered at least 20% of the Indian smartphone market, though other sources place this number much higher.

Using IDC’s latest data, Samsung is the leading smartphone company in India, with India-based Micromax and Karbonn trailing. (Nokia, a leader in feature phones in India lags, though sales of its Lumia devices have steadily increased and the company now may have a 5% share of the market there.)

Given the size of the market, and its rapid growth, and the number of new users, current sales rankings may not matter much. As DNA India notes:

Tier one smartphone brands are ignoring the writing on the wall in the world’s fastest growing smartphone market in order to cater to a global market. This could be a dangerous thing to do especially at a time when the market is growing at a rate of over 150 percent and with 85 percent users still using feature phones. (emphasis added)

2014 could prove a watershed year, considering that:

225 million smartphones will be sold in India just in 2014 — compared to 89 million in the US
Of these 225 million devices, an amazing 207 million will be to first-time smartphone buyers — the largest proportion of new users to existing users anywhere in the world

More so than the spread of 3G/4G, and the rapid improvements in mobile-optimized services, it is the almost unbelievable low prices of new smartphones that are enabling the rapid jump to smartphones in India:

“The median price of a handset has fallen from 8,250 rupees (Dh490) in 2012 to 7,000 in 2013.”

That’s $115.

In fact, about 2/3 of all smartphones sold in India are priced under $200.

The derisively labelled “race to the bottom” is in truth, connecting India, and the world, and gifting us with unbelievably accessible technology.

Mozilla is seeking to create a $25 smartphone. Nokia’s X devices are all priced under $150. The new BlackBerry Z3 costs less than $200. This is amazing and laudable. Indeed, marketing firm Jana, has cleverly predicted that 2014 may be the year when a smartphone costs less than a carton of cigarettes.

The world will never be the same, and what’s happening in India offers us clues to our future.

As the Guardian notes, 2014 is when “the number of mobile internet users in the developing world will overtake those in the developed world.”

Connectivity is flowering in abundance. Equivalent access to everyone and to nearly every data resource will very soon be in the hands of the old and very young, male and female, rich and poor. This may be a first in human history.

We can’t know how this will change us, or change the world. But I suspect that watching what happens in India, and it’s happening so very fast, will provide us with many clues.

Predictions

Sorry. This market is too big, and moving much too fast for me to offer any reliable predictions. That doesn’t prevent me from sharing my thoughts, of course.

Apple

Meh.

Right now, Apple simply has nothing much to offer India. Offering the iPhone 4 for over $200 as they are again, when there are so many other amazing, new smartphones available for far less seems to me almost certain to fail. In fact, I think marketing very old devices against clearly superior ones, at the same price, only harms Apple’s brand. They shouldn’t even bother.

For example, India’s own Lava offers the following Android device for around the same price as the iPhone 4, but here’s what you get:

A sleek, sexy product running on stock Jelly Bean 4.2.1 with a magnesium alloy body, a 4.7-inch HD display, a MediaTek MT6589 chipset, 1GB of RAM, an 8MP camera in the back, a 3MP camera in the front, a panel that includes Sharp’s OGS solution, and Gorilla Glass from Corning.

Or, you can get a Moto G. Even the new Nokia X devices are all available for much less — and they carry the beloved Nokia brand name, look great, and include multiple popular Microsoft services.

In addition, India loves phablets — which pose a direct threat to iPads. Thus, even sales of iPad are hemmed in. Apple probably won’t have anything to offer India for years, in fact.

Will this harm the bottom line of the world’s largest tech giant?

Not so much, and certainly not in the near term. As long as Apple can peel off the world’s top 10% of buyers, they’ll be fine. It is a shame, however, that Apple and the world’s biggest democracy have so little a connection.

That said, Apple can certainly learn from the India market. For example, Indian handset makers are known for their ability to rapidly iterate, offer a host of new products, new models, all with the latest, most affordable hardware, and all at breakneck speed. Apple offers a minor iPhone upgrade about once a year, and a major upgrade about every 2 years. This has to change for success in the developing world — and it may already be underway. As the Wall Street Journal recently discovered, Apple is “hiring hundreds of new engineers and supply-chain managers in China and Taiwan as it attempts to speed up product development and launch a wider range of devices.”

Android is the most popular (smartphone) OS in the world. This is especially true for India, where Google Android may make up 90% of the market. Google should do all it can to continue India’s love of Google Android.

Consider that nearly a third of “Android” smartphones shipped worldwide — that’s now over 70 million devices per quarter — come without Google apps and services installed. Blame, or thank, China, and don’t expect this to change soon. Chinese handset makers, Chinese app stores, Chinese web companies, and the Chinese government itself have little reason to embrace Google or to embed the company’s apps and services into their finished product. If Apple should ignore India for now, as I suggest, Google should similarly ignore China, which will continue to be unfriendly to the company, and instead embrace India.

Google should ensure that its very best tech, its latest services, its most amazingly affordable visions for computing devices all flourish in India, where value and accessibility are paramount. Efforts such as Project Ara, where Google hopes to offer a DIY smartphone for $50, should be heavily promoted and tended to in India, China’s manufacturing prowess notwithstanding.

Nokia

The widely mocked Nokia move to incorporate Android in its new Nokia X line could prove a rather bold, canny move. A feature phone stalwart in India, Nokia has to make an aggressive move to retain relevance in the country’s rapidly shifting phone market. Given the country’s speedy, almost wholesale adoption of Android, this may simply not be possible if Nokia remains fully wedded to Windows Phone.

Nokia’s new X phones will operate on Android, which is everywhere in India. However, they will carry the Nokia brand, retain the familiar Nokia design, keep the look and feel of Windows Phone Metro — and just might renew the company’s smartphone fortunes, all while potentially bringing millions more into the world of Microsoft services.

As Ben Bajarin states:

[Nokia X] is going to help Microsoft acquire customers at the low-end where all the growth is going to come from for the next few years. Every ecosystem needs entry points. Microsoft has a chance to acquire new customers getting their first smartphone and bringing them into the Microsoft ecosystem with a Microsoft ID.

Should the Nokia strategy fail, it’s hard to envision any other OS that is not Android finding any appreciable success in India, no matter the cost.

Where this might be wrong, although I think it unlikely, is if Chinese manufacturers such as the aggressively capable Xiaomi, successfully push out the top Indian mobile phone vendors (e.g. Lava, Karbonn), and thus effectively force them to offer something unique — Windows Phone, even Firefox OS, for example.

Understand, however, that India’s homegrown phone makers are formidable. I do not expect China’s own manufacturers, even such capable ones, to crush India’s leading vendors.

Not all aspects of India’s smartphone market will have a direct parallel elsewhere. The popularity of phablets may never be matched in the US and Europe. Features such as dual SIM are irrelevant in many parts of the world. Nonetheless, the smartphone skirmishes that take place in India will reverberate far beyond its borders. Analysts should pay more attention to this market and its users.

Samsung and their Fragile Relationship with Google

For Insiders I wrote a while back about Samsung’s precarious position in the market place. Samsung finds themselves between a rock and a hard place. It is not surprising that a bit of news surfaced stating that the next version of their Galaxy Gear will run Tizen not Android. Tizen is a joint venture OS between Intel and Samsung. Several other big name firms are involved with Tizen as well but Samsung is the largest to date said to actually take it to market.

Samsung’s move to run Tizen on their smart watch platform, if it does indeed turn out to be true, would not be a surprise. As many PC OEMs will attest shipping someone else’s software can only take a hardware company so far. When the day comes where a segment of the hardware industry becomes a commodity it makes life for hardware companies difficult. Samsung is a hardware company who desperately needs to become a software and services company. If history is our guide then it favors software and services companies. Facebook’s acquisition of WhatsApp emphasizes this point.

Samsung is not in a position to control their own destiny. Samsung’s challenge is that they struggle for customer loyalty. Currently, there is little reason for a customer to choose next years Samsung phone when they upgrade. If there is a better Android device on the market that catches their eye they are equally going to consider that device as well. What Samsung, and other Google Android OEMs, do is help drive loyalty to Google and Android but not necessarily to their brand. Apple does not suffer from this problem since their loyalty is built on more than their brand but on their ecosystem of not just hardware but software and services. This is why Samsung appears to be teetering on the edge of going vertical as much as they can without fully leaving the Google Android ecosystem. Samsung needs Google. Yet they need to not need them for their mobile group to thrive.

A Tizen based Galaxy Gear could be a step in this direction. If Samsung were to release an SDK around this Tizen Galaxy Gear product and get a critical mass of developers and apps creating applications for a product unique to Samsung then it could be the foundation for a Samsung ecosystem. It is worth noting that Samsung does not run Android on their Smart TVs. These Smart TVs do have apps but a critical mass of apps or developers exist for the Samsung Smart TV platform. Mobile is inherently where Samsung needs to have a critical mass of developers. If Samsung can’t figure this out and destined to be stuck in the rut of a hardware company then very troubled times are ahead for their smartphone and tablet operations.

Samsung does not have a services business to support forking Android. Amazon does. Xiaomi does and both have been successful at taking Android and building a services platform on top of it. Similarly, Microsoft could have a strong business case to layer their services on top of an AOSP implementation of their own. I’m yet to see something similar from Samsung. Which leaves them in a position to have to “platformize” Google’s version of Android as best they can without over stepping their boundaries as a Google certified OEM.

What we must watch with regard to Samsung is how they make steps in this direction on devices for which they don’t have to go through Google’s certification process. Products like their TVs, Smart Watches, or even new product categories, that are ecosystem boosters, are where they can start to lay a foundation to grow and foster their own platform.

The Future of Microsoft, Apple, and Google

It seems today like the dominant players in computing, social media, infrastructure, services, and many other big industry segments is settled. It is easy to look at the current environment and say Google and Apple have both won. Both have large thriving ecosystems in the hottest segments of technology. Yet as Benedict Evans and I discussed on our last podcast, while everything seems settled, in reality, the future is still very much anyones game.

Taking into all the major players strategies is essential. Here are some thoughts on a few of the major players.

Microsoft

Microsoft faces some of the most difficult questions in my opinion. What kind of company is Microsoft going to be in the future? This is the key question a new CEO must address. The market where they dominate market share, the PC, is contracting in annual sales every year. They are not participating relevantly in any of the growth sectors like smartphones and tablets. Is Microsoft a commercial company whose destiny is to focus on backend services like IBM and be a much smaller company than they are today? Are they going to choose to only focus on commercial applications and ignore consumer ones?

If their current commercial which aired during the Super Bowl yesterday is any indication then lets hope they see themselves as a technology company rather than just an operating system company, software company or an enterprise services company.

Microsoft is among the top spenders in research and development. Ranking #2 of the top 2,000 companies according to the European Union. Samsung was number 2, Google number 13 and Apple number 46. Samsung should not be a surprise given the number of businesses they are in. Microsoft on the other hand is not in nearly the same number of businesses as Samsung but spend nearly as much as them in RND in 2013. If Microsoft can commercialize their R&D spending in a meaningful way they can evolve beyond their own platforms and enable a broader ecosystem. While I have serious questions and doubts about Microsoft going forward, I’d be more optimistic about them if they evolved into a broader technology company driving growth for themselves and others out of their R&D.

Apple

Apple may always have the smaller ecosystem. A fundamental question to explore is now much this matters. There are industry executives who have seen and participated in key paradigm shifts in this industry who believe that the smaller ecosystem always loses. Yet there is no clear answer from them as to why. It is not a foregone conclusion that the smaller ecosystem always loses. As long as an ecosystem is supported by a long list of third parties the ecosystem will thrive. There does come a point in time when an ecosystem is too small to support, take RIM and Windows Phone as examples.

I believe Apple can successfully acquire and maintain an ecosystem of around 800-900m ((I have logic and deeper analysis from my firm Creative Strategies to justify these numbers)) install base of core device hardware. By core device hardware I mean computers small, medium, and large. Apple will inevitably offer peripheral businesses to the hardware core, and those may be software or other hardware businesses (new categories) but they will all revolve around personal computers small medium and large. At least for the foreseeable future.

Assuming Apple can maintain this core user base, which will err toward the higher more profitable segments of the market, then I am confident their ecosystem will sustain and thrive, despite what many believe about ecosystems (800-900m is not really a small ecosystem).

Apple’s latest ad 1.24.14 is an excellent insight into Apple’s product future.

30 years ago we introduced Macintosh. It promised to put technology in the hands of the people.

By the end of the video you get the sense that the iPhone is the promise and full manifestation of that vision. It ends making the point that the entire video was created with the iPhone in one day.

Personal computing is the focus. In the hand of many is the goal.

Google

Interestingly, while many seem to have established Google’s future being secure, I’m still not so sure. At least I’m not sure about what they offer today as being what sustains them or secures their future. Android is actually still a moving target for Google. It seems established but it is actually a quite fluid product and strategy. Android may look entirely different in 5 years if it even exists.

As evidenced by the recent Samsung and Google patent deal, which likely includes a lot more than the patents, Google is able to leverage their services to bend OEMs to their will. Which gives us a clear line in the sand between Android OEMs using Google services and those that are not. The focus then should not be on Android but Google’s services. Services like search, maps, the play store, and more are at the core of what Google uses to push their agenda.

This is what makes China so fascinating. 90% of the Android install base in China is Android Open Source Project (AOSP) and have not been certified by Google to receive their services. China is unique in that Google’s services are mostly blocked at a network level inside the country. This is why so many alternatives to Google’s services exist in China and are used by the masses. Android AOSP makes it very simple for a hardware company to install a platform and in essence create their own unique platform. This is the case with Amazon, Xiaomi, and many other OEMs. I estimated the market share of Android AOSP vs. Google’s Android with their services in the chart below.

Developing regions like India, Latin America, and Africa are all big continents with lots of people where smartphones are growing the fastest. India has many local smartphone OEMs like Micromax, LAVA + XOLO, and Karbonn. While these devices do utilize Google’s services, what is stopping regional upstarts or entrepreneurs from creating their own set of competitive services to Google’s specifically designed to only serve the unique interests of that region?

Google is a services company that monetizes those services through ads. Whether advertising is their business model or something else in 5yrs time, or longer, I believe Google will see increased competition in many of their services which they depend heavily on.

Google Sells Moto to Lenovo for a Song, Exits Phone Hardware

In the end, Larry Page tacitly admitted that the critics were right all along: In buying Motorola Mobility, Google created an irresolvable conflict with its Android partners. Today, it ended that conflict by selling Moto to Lenovo for a paltry $2.9 billion, which becomes a lot more paltry when you realize that only $660 million is in upfront cash.

Page wrote in a post on Google’s official blog:

We acquired Motorola in 2012 to help supercharge the Android ecosystem by creating a stronger patent portfolio for Google and great smartphones for users… But the smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo—which has a rapidly growing smartphone business and is the largest (and fastest-growing) PC manufacturer in the world. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere.

The Moto venture has been a major flop for Google. The company paid $12.5 billion for Moto and has absorbed more than a billion dollars in additional losses. It did receive $2.5 billion from Arris for the Motorola Home set top box division and will retain the bulk of the Moto patent portfolio. But it’s not getting much from Lenovo: $660 in cash, $750 in Lenovo common stock, and the balance in a three-year promissory note (in other words, Google is lending Lenovo the money to take Moto off its hands.) When the deal closes, and it requires regulatory approval in both the U.S. and China, Google will be taking a monster write-off.

But it’s probably worth the price for Google to simplify its relationship with the complex world of Android. The deal only made sense in the first place if Google were willing, at a minimum, to make Moto first among equals in the Android OEM business. But Google was never willing to make that commitment–or to risk an open break with Samsung and other Android OEMs. That left Moto as just another struggling Android OEM and while it made some nice products, particularly the high-end Moto X and the Moto G for lower-income markets, it failed to gain much market share of get anywhere near to profitability.

Google, meanwhile, has been trying to move closer to its Android partners and, particularly, to ease a badly strained relationship with Samsung. It recently concluded a broad patent cross-licensing agreement with Google, an arrangement that makes more sense now that Google is keeping the patents but leaving the phone business.

For Lenovo, meanwhile, the move is risky but a clear sign that the Chinese-American hybrid is on the march. Earlier this week, the company reached a deal to buy IBM’s x86 server business for $2.3 billion (mostly cash.) Lenovo first rose from obscurity by purchasing IBM’s PC operations in 2005 and in recent quarters, it has been ejoying strong market share growth in a very soft PC market.

Google and Nest: Why Now and Why Not Apple?

After spending many days at CES and perusing the show floor it was clear to me that the big theme at this years CES was The Internet of Everything. I was also struck by the fact that one trend many have been tracking for years, home automation, was up front and center in IOE and this was the first year I saw new products for automating the home that convinced me that we are really close to seeing the home automation dreams of many finally come to fruition.

Nest itself is the darling of home automation at the moment as their Nest connected thermostat has reinvented how a thermostat should work in a connected home and their connected fire alarm adds a new dimension to a very important device that should be in very home. While these products in themselves are great, the genius behind them is Tony Fadell, long time Next and Apple executive who is one of the smartest guys I have met in tech. More importantly, Fadell and team are zeroed in on creating easy to use, powerful home automation platform and devices and surely must have had a powerful roadmap in the works to garner a $3.2 billion cash buyout from Google.

While Google has not said much to date about IOE, their Android OS is at the software center of many IOE related devices and while they had an internal team working on their own version of home automation, buying Nest jumpstarts a major push into home automation Google style. This gives them a powerful platform to build out Google branded devices connected to a host of current and future Google services.

At first, Nest will continue to run generic Linux but you can bet running Android is not far behind. Nest’s platform and future products will also help Google become a powerhouse in home automation faster than if they tried to build their own solutions from scratch. Buying them now gives them the core platform to build on and helps them move to a strong position in IOE that will drive much of the next generation of Internet infrastructure, networks, devices and services over the next three years. Nest delivers them the framework for Google’s Home automation solutions.

So, why Google and not Apple?

Apple is the only major player that has the entire framework to build all types of IOE devices at any level. They have infrastructure, devices, software and services and I believe that they have had an advanced team of engineers who have been working on their own home automation products for years. You will notice that they did not bid for Nest. Nor had they invested in Nest. They had no interest in Nest since they are probably pretty far along in their own home automation roadmap. I believe that this will just be another significant area for them to connect to Apple’s iOS, devices and services and will have their own dedicated home automation devices in the future that helps give them an even stronger Apple and iOS solutions approach to the market.

What is fascinating about this move is that is highlights the reality that our connected homes, and our personal devices will run a number of different operating systems. In essence a consumers connected lifestyle will consist of a heterogeneous mix of operating systems rather than a homogeneous one. Some level of interoperability and standard supports will be key for this to take off in any meaningful way.

Understanding the Market for Chromebooks

A few days ago NPD released numbers that caused many media outlets to proclaim the amazing success of Chromebooks as a data point in the market. These numbers were bring used in blog posts to suggest that the rise of Chromebooks were impacting PC sales, and in particular Macs and Windows PCs. As so often happens, the media has mis-interpreted the data points released in a vague press release from a device counting and tracking agency. However, this press release is specifically talking about the commercial sales channel (i.e the channel used by organizations for purchasing) not the consumer retail channel like Best Buy, Staples, Fry’s, etc.

NPD is about as reputable of a US retail consumer electronics tracking firm of any I follow. In fact, I generally trust their data more than most. This is because NPD has relationships with all the major US retailers and gets actual channel sell through data. So when they release data we know that we are getting actual numbers of products being sold at US retail. However, we have to keep in mind that while their data is accurate it is also somewhat incomplete in some cases. NPD does not track Amazon sales, or other e-commerce sales, nor do they track Apple store retail sales or other OEM vendor channels. So while NPDs data is important and useful it is also somewhat incomplete. In most cases this doesn’t matter since the bulk of US consumer electronics is sold through retail channels which NPD tracks. While Apple does sell more than average product through their own retail channels they still sell the bulk through retail channels.

Now the story around Chromebooks has been a fascinating one to watch. Earlier in the year, we had picked up on a key data point that Chromebooks were selling almost as many per month as Ultrabooks. Ultrabooks were a specific segmentation of notebooks at retail which had quite a bit of marketing behind it. To learn that Chromebooks were moving in similar volumes to Ultrabooks did take me by surprise. So the question we had to answer was why.

Chromebooks as Textbooks

Earlier in the year I spoke at a conference of educators and IT managers that worked for the state of California and managed the technology purchased and implemented for all California school districts. What we learned was that education markets were buying and deploying Chromebooks in fairly significant numbers. Much of California’s, and many other states, computer programs and curriculum are web based. School districts have a license to education software that is accessed through a browser and teach things like computer literacy, language arts, math, and several other subjects. The bottom line, is that when you dig into many of the ways in which computer based curriculum has been evolving in school districts you learn that much of it is becoming browser based.

There are still many PCs still being used in schools, particular at more advanced grade levels, but many districts are implementing Chromebooks as dedicated web portals to online education software to be used in classroom settings.

This is not surprising given the cost of Chromebooks vs. the cost to replace or add new PCs during these times when many school districts across the US are facing budget restraints.

The key takeaway about Chromebooks in this use case is that they are being used a specific purpose devices. In fact, it is reasonable to think of Chromebooks very much like textbooks in many education environments.

While Chromebooks have a great deal of upside as they evolve, they are being used as specific purpose devices in nearly all markets today. This is both the potential of the upside but also the products challenge in going up against more general purpose computing devices.

Chromebooks has a role, but over the next few years whether its role is as specific purpose devices or general purpose applications will wait to be seen. Stay tuned, however, should Google release a tablet running Chrome OS things could get very interesting.

The State of Tablets in 2013

Tablets represent one of the greatest opportunities to expand and enhance computing. However, it is a very mis-understood product. I want to share some statistics about tablets and then add some key points on the market as it stands today as well as a projected outlook for Q4 and beyond.

85% of tablets sales have been to existing PC owners
Sub $100 make up 20% of quarterly tablet sales
55% of those who spend less than $200 had buyers remorse
52% of those who spent less than $200 intend to spend more on their next tablet purchase
More tablets will be sold in the US in 2013 than any other region

What this data tells us is that consumers are latching onto the idea of a portable larger screen device. Currently, there is a heavier mix of lower-cost small screen tablets being purchased primarily as media devices. But it seems that early market data suggests that while these low-cost media centric tablets are being used primarily for media today, consumers appear to be graduating to tablets that are more capable than just consuming media. In fact, consumers in many emerging markets primarily appear to want to use this tablet form factor more like PCs than smartphones.

The Current Landscape

The real point of clarity needed for the tablet market as it currently exists is the two distinct tablet markets emerging. On one hand we have tablets in which a degree of computing is possible. That is tablets that can be used and to a degree replace PCs. The large iPad, Surface, and many 2in1 devices coming from PC OEMs running Windows 8.1. At the moment we are looking at breaking these out by screen size. 9.7-13″ tablets would be considered computing tablets. 8″ and below would be considered media tablets. But right now any and all slate devices are being counted as tablets. So while this works for now as a category, it will need to become more granular in order to gain the right perspective about what is happening in the market for tablets.

While the 9.7″ and above more computing centric tablets are cleaner to understand and track the sub 8″ devices are where all the growth is and have a much more blurry picture. Branded OEM tablets from Samsung, Amazon, LG, Apple, etc., in the sub 8″ screen size form factor are clear but it is the ‘other’ category that muddies the waters. In all conversations with service providers from areas like China and India we do not see much evidence of the existence of these tablets showing up on anyones networks. We here more often then not they are simply being used as portable TV players to side load movies on to watch. We have heard of upticks on Flash media in certain regions so this theory could be plausible. Another explanation is evidence pointing to smartphone chips like a Cortex A5 being used in many of these low-cost white box tablets. Which would mean they would run a smartphone OS and perhaps show up on service providers networks as smartphones. Lastly, it is possible that the numbers of white-box tablets are simply inflated and not accurate. There are a number of new SoC vendors popping up giving out numbers to the tracking firms and these new companies could be inflating their own numbers simply to get attention. Those are a number of the theories I have but it is extremely difficult to confirm any of them.

What is interesting as well is what is happening in the US in two areas.

Subsidized Tablets: Carriers are beginning to offer tablets at a subsidized rate with the purchase of a new smartphone and tablet data plan. As well as the tablet alone subsidized with the purchase of a data plan. We have heard from a number of sources that Samsung’s 7″ tablets have been doing well on certain carriers offering this discount. AT&T is also offering a free Samsung small screen tablet with the purchase of a Galaxy Note 3 or Galaxy S4. These promotions will clearly drive sales of tablets even higher for this calendar year.

New brands and unbranded: Nabi Tablets are a brand to watch in the US. They are sold in US retail and are specifically targeting kids at different age ranges. Most of these run on Android. The appeal is parental controls for the devices. They even have a tablet with a keyboard accessory that looks to compete more in the 2in1 category products like the Microsoft Surface. From retail sources I have spoken with, there is evidence to suggest these Nabi tablets could sell in the millions this Q4 in the US.

Outlook for Q4 and Beyond

We are projecting tablet sales WW in the 72m range for Q4. Interestingly we are also projecting PC sales to be below 80m for the first time since 2008. The sales of PCs and tablets are likely to be very close in volume this Q4. We remain convinced that WW sales of tablets will overtake WW sales of PCs sometime in 2014.

The CEA research department highlighted that tablets made up 29% of the Black Friday weekend and cyber Monday sales. They also reported continued increases in tablet purchasing intent. Their Chief Economist Shawn Dubravac pointed out that there were over 300 tablet specific promotions in US retail over the holiday shopping weekend.

Tablet sales in 72m range would be a 38.4% increase over last years Q4 of 52.2m. We are projecting total tablet sales in the 215-220m range for CY’13. Which would represent a 76% increase from 2012.

We expect the US and Asia to be the largest consumer markets for tablets going forward. Currently the US has the highest tablet ownership at 45% which could be as high as 55% by the end of 2013. Below are the forecasts I’ve assembled from other sources, as well as our own internal estimates.

Google’s Android Bait and Switch

You may or may not have caught an interesting change Google has made with KitKat. Google is no longer including Chrome as a part of the Google services license. Meaning that the Chrome browser will not come pre-installed on Android devices running KitKat. OEMs in essence can now choose to license the Chrome browser as a part of this or not depending on if they want it pre-installed or not. Consumers can still go download it from the store after purchase. When you think about the bulk of Android’s install base being the low-end segment of the market you realize these users will generally just use whatever is installed.

This struck me as odd, given Google’s business model. One would think they want Chrome front and center on all devices in order to push search to all users. So giving Android OEMs a choice seems like an odd move. This is what got me thinking about the bait and switch strategy Google may be using with Android.

One thing to note though, is that Google is doing everything they can to rein in the low-end devices and try to get more control and more value from them. Google may ultimately be planning a bait and switch type maneuver where once they have the majority of devices they start forcing OEMs to license their search engine for example. Google services certification requires vendors to comply with Google’s rules in order to get access to the Play store, Maps, now Chrome and other key services. What is to stop them from adding to search to that list? Which seems like a contrary move given their business model but the bottom line is there is no search engine better than theirs so if they did this many would not have a choice. But if you think about it, if Google can create a dependence on Android and their services by keeping them free or low-cost to gain market share, then start charging, it would be the ultimate bait and switch. Google doesn’t get much revenue from low-end devices on search so this would be a way to monetize these devices regardless.

While this is purely speculation, I am told there is a strategic agenda inside Google to figure out how to better monetize the low-end Android devices since that is the bulk of the Android install base. Which creates the challenge, since low-end Android OEMs make next to nothing on the device. But it is clear Google is not seeing much benefit, if any, to their ecosystem on these devices.

Google’s Strategy with the Moto G and KitKat

I’m observing several interesting things from Google’s moves as of late. The first has to do with the recently launched Motorola G, premium spec smartphone at low-end prices. The Moto G has a $179 price point. This price range is a significant part of global smartphone sales in developing markets. See the slide below which shows the most recent snapshot of the global smartphone vendor market share.

Notice who is missing from this chart? Motorola. From meetings I have had with their teams it was made clear to me that Motorola wants to push to be a more global brand playing in more global regions than they are today. The release of the Moto G is a step in this direction. The handset fits the spec and price range that should make it attractive in the markets they choose to go after. Adding dual sim for India and Brazil makes them a potential competitor for Samsung, Nokia and other regional brands competing at the non-premium price points.

While I think the price is interesting, Motorola will be going up against local brands in markets like India and it will be interesting to see if they can compete with the more established local brands. Brazil, Russia, and other parts of Europe are likely targets as well.

The key for Motorola will be marketing. Right now their brand is not strong globally at a handset level and if they are serious about becoming a global player developing regionally relevant solutions, they need to build their brand in those areas.

KitKat

Several things have happened with KitKat that I have observed and found interesting. First, the UI seems to be a departure from the more geek centered focus and feel that prior stock versions of Android had. This happens to be one of the things I liked most about stock Android and Nexus devices. KitKat seems to be a OS transition from appealing to geeks to appealing to a more mainstream audience.

Second, it is much more deeply integrated with Google services. Each stock version of Android was always positioned as the best of Google but KitKat takes it to a new level. This is incredibly important. Google’s stock Android solutions get installed on the majority of mid-low range smartphones and tablets. Most vendors just take the generic AOSP, load it on their hardware and go to market. Only a few vendors actually change or ‘skin’ their Android devices with custom software work before they go to market. Samsung, HTC, and Xiaomi being the notable ones. For most other vendors stock Android is what gets shipped. This is why over the past 6 month’s Jelly Bean (version 4.1x-4.3) is now used on nearly half of all devices that have been shipped over the same time frame. Many new devices going to market run the latest OS. We don’t see this in the US but it is true in emerging markets.

For this reason, I feel Google is trying to get a handle on Android’s fragmentation as it specifically relates to their services. As I, and several other analysts have pointed out, Google’s services are practically nonexistent in many emerging markets where locals favor local services over Google’s. This is anything from email, social services, messaging apps, and more. My read with KitKat is that Google understands Android’s growth in the low-mid range is where the volume is and they have yet to capitalize on that market from a Google services standpoint. Android had for the most part been hi-jacked by the low-end and adding no value to their ecosystem. I believe KitKat is a step in the direction to address that.

Apple Upbeat About The Holiday Quarter

There were a number of key takeaways from Apple’s Q4’13 earnings call. iPhones continue to beat estimates and grow. We expect this trend to continue into the holiday quarter. Even though many are pessimistic about the iPhone 5c (some un-intelligibly calling it a dud) we anticipate the 5c to continue to do well as a mid-tier offering. Tim Cook was clear on the phone call that the 4S is the entry level iPhone, the 5C is the mid-tier offering, and the iPhone 5S is for those who want the latest and greatest. He even pointed out that we should expect demand to be high for the 5S due to the predictability of the early adopter market. We expect the 5C to gain steam once the early adopter phase passes.

The iPad sales were lower than most expected but easily explainable by the increased seasonality of the iPad for the mass market. One has to assume that the bulk of the sales last quarter came from markets like education, business, and other verticals. I also expect the iPad 2 to have made up a healthy mix of iPad sales. Mainstream consumers likely held off in anticipation of new devices for the holidays. Given no new iPads in all of Cy’13 14.1 million iPads is impressive. We anticipate significant pent up demand for iPads going into the holiday quarter and expect Apple to yet again set all time record sales for iPads.

The one growth story we are still anticipating is with regard to the Mac. It is significant that Apple spent as much time as they did at their fall unveiling on the Mac. It is also significant that the theme of last weeks event was personal computing and that Apple included the iPad in that event. Although Windows PC sales are down, the Mac has largely outgrown the segment for over two years. We believe that there is still a growth story for the Mac to continue to grow its share in the PC segment and take share from Windows. Annually we still sell upwards of 300m PCs every year and Apple has approx 6-8% of the WW PC market (higher in the US) but is poised to grow that share over the next few years.

Apple has strengthened the value proposition for Macs by making all future versions of OS X, iWork, and iLife free for customers. They have also been aggressively lowering the price of their Macs annually. I believe Apple smells and opportunity to gain share of the WW PC sales against Windows OEMs and will begin being very aggressive to capitalize on this opportunity.

Those are the three categories we expect holiday season upside with. Tim Cook said it is likely to be an iPad Christmas but is more likely to be an Apple Christmas like so many Christmases before.

Why Does the iPad 2 Still Exist?

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

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

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

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

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

Apple’s Software Pricing and the Impact on the Competition

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

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

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

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

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

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

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

Could Apple be Reinventing The Hybrid Notebook / Tablet?

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

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

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

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

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

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

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

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

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

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

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

Did You Hear The One About How Eric Schmidt Got Hired At Google?

Perhaps you’ve heard that Eric Schmidt called Android ‘more secure than the iPhone.’

Did you hear the one about how Eric Schmidt got hired at Google?

Google had a tryout for the leading CEO candidates. They invited the best and the brightest to their campus and gave them a one-question exam. They picked up a chair, plopped it on a desk and wrote on the board: “Using everything you have learned, describe the most effective way to remove the chair from the desk.”

Most of the candidates began furiously writing their answers. However, Eric Schmidt finished in less than a minute, turned in his paper and left the room. Weeks later it was announced that Eric Schmidt had been named CEO of Google.

His answer to the examine question consisted of two words:

What chair?

When you’re reality sucks, simply deny that the reality exists.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Let me move to content.

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

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

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

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