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The Weekly Stat: Forecasts for VR and AR

Our firm tends to stay out of the forecasting game for a variety of reasons. First, they almost always change. When we do a forecast, we attempt to come up with a reasonable set of assumptions and scenarios to explain a best, base, and worst case scenario for the growth of a segment. The caveat is, things will always change, so the updates to the forecasts and scenarios in any given year are the most valuable part of this work. This is why we tend to focus more on the short term when forecasting rather than the long term. Most forecasts that go five years out will be wrong and will need to be adjusted annually.

We are, however, perfectly happy to comment and share our thoughts on other people’s forecasts and articulate where we agree or disagree with them using our research. So today, we will look at some broader AR and VR forecasts from third party sources.

I looked around at a range of estimates, from larger Wall St. Hedge funds and third party firms like Gartner and IDC, to come up with some kind of consensus for projected revenues for VR and AR. From what I’ve gathered, this chart reflects the ranges of a number of sources:

The chart reflects total revenue from hardware and software and, as you can see, there is much more optimism around Augmented Reality than Virtual Reality in terms of market size and growth. I fully understand this assumption. An augmented reality product allows you to still be present in the physical world and, so the theory goes, you can use it for more applications throughout the day. VR, at the moment, is being positioned more within a core “immersive” experience set of functions and, therefore, the assumption is less time will be spent using VR than AR in the course of our day to day lives.

There is no hardware path that necessarily suggests these two dynamics stay separate. I can see hardware capable of both AR and VR experiences but that is technically not possible yet and won’t be for some time. The blending of these two experiences is often referred to as mixed reality, yet no one seems to be making a separate forecast or breakout for true mixed reality devices, instead lumping them into the AR category. I’m not sure I agree with this.

The below approach is one I’m fond of and, while I don’t have the space to outline all the scenarios for each of these forecast assumptions, it gives a look at some reasonable scenarios for shipment growth of AR and VR devices.

While I can slice this by type (standalone head mounted display, smartphone-based like Gear VR and Google Daydream, or PC/console based), I think looking at total units is helpful mostly to gauge how many consumers may have a VR or AR device in their possession at some point in time over the next four to five years.

The most bullish forecast here assumes prices come down dramatically over this time horizon, content catches up, an ecosystem develops, and that most of the hardware units are like Gear VR or Google Daydream since they will be lower cost. If I had to bet on which scenario plays out, I’m probably more in line with the medium adoption. I still think we have a ways to go, technologically, to create what is a mainstream consumer experience across all the vectors and visions for the industry.

With over 70% of consumers still not having tried any kind of VR experience, the context in which consumers try this first and what their initial experience with VR is will matter. While the Gear VR and Daydream type devices are lower cost, they are also a base level VR experience and perhaps not the true showcase of the full VR experience. For that, I’m optimistic something like the Playstation VR does well and may be the first true VR for many who try it at a friend’s or family members house.

2018 and 2019 is the time I think we can see real momentum for this space, as it lines up with both technology roadmaps and content developement timelines. We still have a lot of time before anyone is late to VR and AR but knowing the consumer experiences and behaviour patterns over the next few years will be key and the main focus of our market research.

Google’s Potential Strategic Blunder with Pixel

A few posts came out yesterday that provided greater clarity on Google’s ambitions with Pixel and how those ambitions may impact the overall Android ecosystem.

First, an interview with Hiroshi Lockheimer came out yesterday where he explained in detail how Google is separating the hardware team from the Android team. Hiroshi leads the Android team and said he would basically treat Rick’s internal Google hardware team just like any other OEM. He is telling us to think of the Google hardware team like any OEM. They have the ability to take what the Android team does and use it in ways they see best for their hardware ambitions. Here is the full answer giving a little clarity at this point:

Lockheimer: Being a platform provider and knowing a manufacturer on the other side will take your platform customize it and commercialize it — that’s one model, and it’s worked great for us at massive scale. That is a different kind of engineering than Rick’s team. We’ll continue to develop the platform — that’s my job. Rick’s team will take that to a level of completion, polish, thoroughness that a platform by itself in abstract won’t get. That’s a pretty big shift. The Nexus devices have been the purest form of Android in the past. Pixel is the purest form of Google, which is Android plus a whole lot of other stuff like the Assistant, our VR platform and so on.

It makes sense to have the Google hardware team isolated from the Android team. In many ways, Microsoft’s Surface team operates under the same organizational structure to keep them at arm’s length from the Windows team. Both companies’ platform and software efforts view their hardware divisions as just another partner.

The question I still wrestle with is what will Google do to differentiate Android on their hardware? This article from Techcrunch may provide some additional clarity.

Google is bundling on the new device things like Allo, and their Photos app, along with a few other things where OEMs have choices. OEMs can ship any number of different email, calendar, contacts, photos, and more type apps when they make Android. Users can generally install other things from Google on the Play Store and use all the core Google services they are bundling on the Pixel. But most people don’t do that, which is why the core bundling of all the Google services out of the box is the big differentiator here. As Hiroshi says in the Bloomberg interview, the Pixel is not just the best of Android, it is the best of Google bundled onto one device.

However, this section from the Techcrunch article is a little puzzling and the root of what would be a strategic error potentially:

Most notably, Android 7.1, the updated version of Nougat that powers the Pixel and Pixel XL, is lacking Google Assistant. This smart virtual helper is Google’s answer to Apple’s Siri, Microsoft’s Cortana, and Amazon’s Alexa. It’s a lot more robust than Google Now, the current digital assistant that ships on today’s Android devices and in the standalone Google app.

People were tweeting this article yesterday commenting on the percieved exclusivity of Assistant. This would be a huge strategic blunder, even though I understand why they may consider it. The AI piece of this is critical. Google needs as many people as possible using it to create some lock-in around the personal assistant. I maintain, whoever cracks this “most personal” assistant for me has as a customer for life. There may be no single more sticky feature than a powerful assistant that knows me intimately and works on my behalf to make my life easier. The personal AI will be the critical consumer battle over the next decade.

Pixel phones will represent such a small share of the overall Android pie for some time (if not indefinitely) that, by keeping this most critical element of the future exclusive to a small minority, is a tactical mistake. However, I don’t actually think that is what Google will do. In Hiroshi’s interview, he makes this statement:

Lockheimer: Rick’s team will use our platform, but they will also work very closely with Google’s Search team, or the Maps team, or the Assistant team in ways that perhaps other OEMs may not want to. Other OEMs may want to differentiate and do their own thing, their own Assistant for example.

The answer he provided sound like Assistant is or will be exclusive. It does sound like there is flexibility on how Assistant can be used and integrated, but it also sounds as if an OEM came to them and wanted to use it, they would be able to. It also may be likely that Assistant comes as a dedicated app or something from the Android Play Store and iOS someday as well. Again, Google can’t leave potential users on the table here given how important AI is to the future.

They do recognize other OEMS may want to do their own assistants and that is fine. But what if I buy a Samsung phone and a Google Home? What assistant will I want to use? Am I forced to use Samsung’s when I may want Google’s? Google may say, well that’s why you buy a Pixel. However, this is not how consumers actually work nor is this how Google’s business model works. If Assistant stayed exclusive to Google Pixel, then it will likely never have as big a userbase as Siri. At which point we would conclude Apple won the personal assistant war over Google? This is why I doubt Google keeps it exclusive.

Trying to balance the horizontal and vertical is exceptionally difficult and we are honestly in new territory with Google and Microsoft attempting to do something that has not been done before and has a great many strategic issues surrounding it.

I like Google’s positioning of “the best of Google” on a device. That will likely always be true of the Pixel experience. However, should any OEM come to them and want to bundle many of the things bundled on the Pixel, it would be impossible for Google to say no. Yes, Pixel will always be the best experience at a premium, but an OEM can build a “good enough” Pixel and bundle many of the same features and sell it for less. I have no doubt this will happen, particularly in India and other emerging areas.

Apple’s margin, meaning the premium price consumers are willing to pay over a low-end, good enough option, have everything to do with the exclusivity that is iOS as a whole. This is where Pixel and Surface differ dramatically from Apple’s strategy and the core reason why both Surface and Pixel will always be subject to a good enough competitor — thus limiting their full market potential outside of some niche areas in the high end of the market.

Why “Made by Google.”

Understanding the why behind so many things is perhaps the single most important knowledge we can strive for. I’ve been saying all week I was hoping Google would explain why they needed to make their own first-party hardware in a range of categories, smartphones in particular. They have just told us all we needed to know without actually spelling it out.

As I have written before, Microsoft and Google’s first-party hardware strategy is remarkably similar. Both companies are now, technically, in direct competition with their partners, with the caveat that they are playing in the market space many of their competitors do not–premium. In both strategies from Google and Microsoft, they are focused on areas dominated by Apple where their partners generally avoid. Apple has the lion’s share of premium PCs and smartphones. Microsoft and Google seem like they want to help balance the equation. With Microsoft, their focus on premium was a direct statement to the market that their partners have been letting them down in the premium Windows PC department. So Microsoft decided to fill that gap themselves. What makes this move of Google’s interesting is Samsung is doing a pretty good job in premium smartphones (exploding batteries aside) and, therefore, there is less of a void in premium smartphones as there was in PCs. Should Google be successful with smartphones here (a big if), it would actually hurt Samsung more than Apple. It is hard to know if this is by design and Google simply wants Samsung’s share or if Google mistakingly believes this move will help them take some premium share from Apple. This is, however, extremely unlikely.

Interestingly, as solid as the design and specs of the Pixel devices are, they are Google’s least well-positioned products of the bunch announced. Neither of these devices will sell in any substantial volume, so the real question we have to ponder is, how long is the long game for Google with smartphones? I’d say they are in this for the long haul and their goal is to continue to develop credibility in the high-end of the smartphone market. I’m sure part of their hope is these devices will serve as the gold standard of Android and Google integration and they hope others may be inspired to do the same. This is a page from Microsoft’s playbook with Surface and it did not work. Nor will this work with Pixels. Google and Samsung will remain the only ones going after premium.

The low-end market disruption dynamic will always be in play when companies can not meaningfully and sustainably differentiate themselves. When you ship the same software experience as your competitors, the threat of low-end disruption is remarkably high. When you ship the same software as your competition, you are only as good as your lowest priced competitor. We will see sub $300 Android phones with specs and Google cloud + AI and all the trimmings from Google’s partners. This likely would have happened anyway, even if they didn’t do the Pixel.

Nonetheless, it is a good showcase device for the best of all things Google. I’m just less optimistic of their chances here than the other two products they launched.

Daydream and Google Home
While their smartphones are the weakest positioned devices, their Google Home and Daydream products are quite well positioned. Here, Google has a chance to be in the market with first-party hardware, from this “Made by Google” initiative, and be in on the ground floor of these markets as they develop. They may be early, but they are not late. Unlike with their smartphones where they are a few years too late.

What stood out to me most about the products not named Pixel was the aggressive price points. Note their pricing lineup.

Pixel – Starting at $649
Google Home- $129
Daydream View – $79
Chromecast Ultra – $69
Google Wifi – $129

One of these things is not like the other. From the demos I saw, Google Home was the clearest expression of their AI vision, even though they pitched the Pixel as the best manifestation of that vision. The reality is, people will get a Pixel smartphone and not use it all that differently from their current smartphones. Meaning, not fully utilizing or buying into the AI due to behavioral debt. However, Google Home is the product that can create entirely new behaviours around voice and UI. That’s the product Google should push and, at $129, that seems like a good possibility.

I believe the voice platform, something I am calling the invisible platform, is a key battleground technology. Current platform companies like Google, Microsoft, and Apple, can not lose this battle or be left out of the conversation. This plus AI is a key part of the future and can strengthen or weaken current players if they aren’t careful.

When it comes to all the hot buzzwords like Voice, AI, AR, VR, etc., it is actually not anyone’s game. It is a handful of companies’ game. These markets are likely not to be a “winner take all” market either. So, while the battle will rage, it is still early and we can expect much innovation ahead in those core areas by many of our favorite companies.

Re-Evaluating the Wearable Market

Here we are, a few years into the market for wrist-based wearable technology and I thought it would be helpful to check in on what we are seeing.

Unquestionably, the market for smart (like a smartwatch) and basic (like a Fitbit Charge HR) remains one solely focused on health and fitness enthusiasts. The problem with the market today is it simply is not very large compared to other categories. Based on a health study we did, where we were able to segment consumers around some health and fitness related themes, we concluded the total addressable market for health and fitness tech is about ~18% of consumers who are a target profile. In absolute terms, if 18% of consumers in more mature markets are the only targets for these products, we are talking about a market size of only around 200-250 million. Not bad, but not huge. In fact, I’ve reconciled the market for these type of wearables, including smartwatches, and it may not be as large as I thought initially. It’s one of several scenarios on market size I have gamed out.

When we look at wearables at large and try to make educated guesses or forecasts of where the market may go, we include things like smart clothing, ear-based smart tech, enterprise-focused smart tech, and a range of other smart tech which may sit on our person. Overall, depending on how the category gets further defined, it could seem large if we just look at the top line forecast. However, it will be a highly segmented market by type of wearable.

Right now, the market is dominated by wrist-based fitness and smartwatches. I’ve been maintaining a model on this market for a while and recently updated it with how I think the Fall and Holiday quarters will go. Below is my model of wrist-based smart tech by vendor.

For those of you who keep a close eye on the market, you will note our estimates agree with the sentiment that Fitbit still leads the category. We do not believe this will always be the case but it is today.

Apple and Fitbit do most of the volume on a per quarter basis with Apple leading the category in profit and ASP. Xiaomi has been hanging in there, mostly in China, but I still maintain that, at sub $20, it is surprising they are not selling more than they do. At that price, I’d actually consider ~3m a quarter to not be successful. This is either a criticism of the category in China or their brand. I’m not sure which one.

We see a strong holiday for Fitbit and Apple on the back of the new product lineups and aggressive promotional pricing by retailers. The health and fitness angle Apple and Fitbit are focusing on still leaves head room to grow in this space. But I emphasize, if we can’t break out broader consumer use cases, this market will not be much larger than it is now.

With smartwatches, which we think are general purpose wearable computing devices, we see much more potential than basic fitness devices. Our upside forecast of the market depends on consumers embracing the value of fitness and health as the entry point and discovering value beyond health and fitness thanks to an ecosystem which can develop once the installed base is larger. I’ll spare you the host of assumptions we are making and just show you what we believe a reasonable and educated forward-looking forecast looks like.

Mind you, this includes a range of other wearable tech products, not just fitness bracelets and smart watches. But looking at the growth trend thus far and where we believe the market and vendors are heading, this is our best guess of the next few years for wearables at large.

A major key to this market’s growth is to simply get consumers to have a first experience with the product. As we examine behavior and satisfaction once a consumer tries a wearable product, we are encouraged by what we see. Enough to maintain our conviction there is something here.

It is crucial to get beyond the less than 20% of the market of fitness and health products and that smartwatches in particular start to develop an ecosystem of apps which can extend the use cases well beyond health and fitness. We are optimistic, with Apple Watch in particular, that the upgrade in hardware features and performance is the catalyst that gets more developers excited about watchOS and to start building more apps which expand the value. This will remain the largest point of focus for us over the next year as we wait and see if smartwatches, and the Apple Watch in particular, can go mainstream.

Unpacked for Friday September 23rd

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Microsoft and Google First Party Hardware

On October 4th, Google is having an event, likely to launch both the Home, their Amazon Alexa competitor, as well as their own branded smartphone. It is safe to assume at this point that Google is getting more and more serious about Google-branded hardware in a number of categories.

Google’s efforts remind me of Microsoft’s as Microsoft has been making their own hardware like the Surface for a number of years now and is a serious contender and competitor in the PC and tablet category.

I feel it is worth taking a step back and making the observation that we have two companies whose very essence, from a computing platform viewpoint, was providing software for anyone to run on their hardware. For Microsoft, this was Windows and for Google it was Android. So why do two mostly software companies feel it is important to become a contender in hardware and compete with their customers and partners? The answer, in my opinion, is brand.

I believe, both Microsoft and Google believe their brand is strong enough to bring hardware to market and take share at a point in time when many markets are consolidating around hardware companies with strong global brands.

We are at a tipping point where PCs, tablets, and smartphones are seeing the percentage of white box, or no-name branded devices shrinking as a total of the segments sales. Consumers are less frequently buying the cheap, no-name brand and, instead, buying the brand that stands for quality and is worth investing in. This is as sure a sign as any of a market that is maturing and globally, we are seeing it take place, even in markets which we used to consider “developing.”

I’ve written frequently that I’m convinced brands will win the day in the global consumer electronics market. We are in the midst of a brand battle to see who is left standing. Many names we recognize making consumer hardware today may not be around in five years. Names like Xiaomi, Oppo, Asus, Acer, Micromax, etc. Or, if they are still around, they may pivot to be out of the large volume consumer categories and just operate in the fringe categories where they may be better suited to compete.

To see where we may be headed, just look around at any other non-tech consumer categories. Look at cars, fashion, consumer packed goods, even restaurants the masses frequent. The mainstream consumer buys from brands they recognize. Becoming a recognizable consumer brand is very difficult and out of many companies with a recognizable brand in tech, Microsoft and Google have a better brand than many of their partners and customers both globally and regionally.

For that reason, I am not going to write off either Google or Microsoft’s first party hardware efforts. It may be a rocky road and they may not get it right at first but, as they learn by shipping, they will remain well positioned as long as they are strategic about the categories they pick. For example, it makes sense tactically that Microsoft makes PCs but not smartphones that run Windows. Similarly, it makes sense that Google does not make PCs that run Windows or Android but instead, focuses on smartphones and perhaps the broader smart home. Being smart about which categories to enter and which ones to not enter, is key for any technology brand.

We will see what Google has up their sleeve and if we need to take them seriously. But I believe they have the type of brand which can make a go at hardware in a number of categories. Microsoft, similarly, is gaining share in the PC/Tablet category and, with another fall hardware event rumored, I firmly believe they are keeping their foot on the Surface gas pedal for good reason.

I can make a strong case that both these companies have a bright hardware future in front of them with brand being a strong contributor to the upside. While it is still early in many markets like AI, AR/VR, etc., I still maintain the stronger brands will win the day.

Unpacked for Friday September 9th, 2016

Apple Music Numbers Show Continued Rapid Growth – by Jan Dawson

One of the numbers mentioned in Tim Cook’s “Updates” section at the beginning of this week’s Apple keynote, which may well have been missed in the focus on the latest iPhone and Apple Watches, was a new number for paid Apple Music subscribers. Apple now has over 17 million paid subscribers, which puts it over half of Spotify’s most recent paid subscriber number of 30 million.

Perhaps more significantly, if you assume a $10 per month average revenue per user (this is the standard price in the US, whereas lower pricing in some other markets is likely offset somewhat by family subscriptions at $15), this number puts Apple over the $2 billion annualized revenue rate for the first time. Spotify’s revenue last year was around $2.2 billion in total, so Apple is now getting very close to Spotify’s scale in revenue terms. Spotify has around 100 million total users, with about 70% on the ad-supported service, so Apple achieving similar revenue numbers with a fraction of the subscribers helps explain why the music industry has been so supportive of Apple’s efforts.

The broader financial benefits together with more direct financial incentives are likely the reason why Apple has been able to secure 70 first-run and exclusive releases for Apple Music in its first year or so, another stat Tim Cook touted during the keynote. Those exclusives, in turn, are driving interest in Apple Music and Apple seems to continue to turn trial subscribers into permanent paid subscribers at a decent clip. Since the launch of Apple Music, Apple has added around 50 thousand subscribers per day, with a more recent average closer to 30 thousand. At that run rate, it might hit 20 million subs by the end of the year.

In the grand scheme of things for Apple, Music is still small – even at $2 billion a year, it’s well under 10% of Apple’s Services revenue, which in turn is only around 10% of total revenue. But the healthy growth indicates Apple can successfully launch paid content services to its installed base, something that should give it confidence to try this approach in other areas, notably video.

Traditional IT Companies Announce Major Changes: Dell, HP Enterprise, Intel – By Bob O’Donnell

Though most of the world was focused on the relatively hum-drum announcements Apple made this week regarding their new iPhone 7 and Apple Watch Series 2, there were several very important announcements from the large, traditional IT companies this week. Dell announced they completed their merger with EMC to form Dell Technologies; Intel sold off its McAfee security arm to investment firm TPG, and HP Enterprise unloaded its software business to little-known Micro Focus International, a British-based software company that typically focuses on applications that work with older computer systems.

Individually, each of these announcements was definitely newsworthy but, collectively, they demonstrate that what many consider to be the “boring” old part of the tech business is very much alive and eager to make important strategic changes. Interestingly, the HP Enterprise and Intel deals reflect a desire to slim down and specialize, whereas the Dell/EMC merger represents the complete opposite. Chairman Michael Dell’s vision is to build a powerhouse of key hardware and software technologies, with a single perspective, in order to control all the tools necessary to build and deploy comprehensive solutions to today’s leading tech problems.

Throw in the fact HP, both Enterprise and Inc., remain public companies, while the vast majority of Michael Dell’s empire remains private, and you have a nearly perfect lab experiment of opposite strategic approaches to compare. It will be several years before we truly know which solution proves to be the most successful, but the dichotomy between the two approaches couldn’t be more distinct.

From a big picture perspective, the announcements reflect some strategy readjustments that were long overdue. Arguably, the Intel deal is the most obvious in the sense there never seemed to be a great fit between Intel and McAfee, nor was there much cross-fertilization between the two companies. For HP Enterprise, their deal gives them the opportunity to fix the widely-recognized blunder of their $11 billion Autonomy purchase.

For Dell Technologies, it’s clearly more of a bet that owning several key components necessary to drive changes—the transition to public and hybrid clouds, the move towards the Internet of Things in business environments—will be key to driving successful deployments. Frankly, I like the potential of what this Dell/EMC combination has to offer but executing on the core principles will be key to long-term success.

Nintendo Decides They Finally Like Money – By Ben Bajarin

Years ago, during my first writing gig for Slashgear, I wrote this column titled “Does Nintendo Hate Money?” My argument was they were missing mobile and thus missing being a key player in one of the largest computing shifts we have ever seen. Luckily, they have finally seen the light.

Mario Runs was likely in the works well before Pokemon Go hit the market. But my hope with Pokemon Go was that Nintendo would finally see why they need to bring their iconic brands to smartphones. I’ve long toyed with the scenario of Apple buying Nintendo, since these games as iOS exclusives would only strengthen Apple’s differentiation, as well as add a big upside in software/services revenue. Unfortunately, had this even been an idea for Apple, they should have done it before their stock went on a run, thanks to their waking up to the smartphone gaming era.

I understand why Nintendo took so long. They were, in fact, deploying a philosophy not that dissimilar to Apple where they make their own hardware and software. The problem here is the video game console market is niche and very small compared to smartphones. The notion that Nintendo needs to define the hardware experience in order to differentiate their games is no longer defensible. There may be some experiences Nintendo leaves to their consolers but that is for a niche segment. The time has come to bring Mario to hundreds of millions of consumers who have never played this franchise or others from Nintendo. And it’s time for Nintendo to make money off customers they never had a chance of selling a console to.

Lastly, I like the business model Nintendo is utilizing. Coming from a gamers perspective, many of the freemium games are designed in a way to manipulate the game play so you have little to no chance to progress in the game without spending a lot of money. While I understand why, the game dynamics are the exact opposite of consumer friendly. As controversial as this statement may be to some, freemium needs to die because it creates really crappy games. Pay a small fee once is the way to go as it yields a much more consumer friendly experience. Let’s hope this model works and is used as an example for others to learn from.

Added Revenue Might Not Be The Most Valuable Benefit AirPods Bring to Apple – by Carolina Milanesi

Apple talked about the removal of the audio jack as a courageous move and, while it might be a little exaggerated, it is true that every time you try and fix something that is not broken you are playing with fire. Humans do not like change, not even when change might be bringing them a better experience or simply a futureproofed one.

What is interesting is the options Apple has given users to deal with the change. There are Lightning EarPods in the box, an adapter for older EarPods in the box, the new AirPods, Beats Headsets and all other headphones and earphones for sale. So plenty of choice for iPhone 7 users. This made me wonder what the AiPods buyers can tell Apple about themselves:

They appreciate good sound quality
They value the full ecosystem of products that can connect to the AirPods
They engage with Siri
They value Apple even over an Apple-owned brand like Beats
They are not price sensitive
They are early adopters
They are making a statement

Looking through this list, it is apparent to me many of the statements would apply to Apple Watch owners. This in turn makes me wonder if AirPods are a way for Apple to test the next step in wearables and/or the role voice UI could play going forward. A way to test how far they can push the more engaged group of users they have.

The fact AirPods came to market under the Apple brand rather than Beats is also significant in my view. It means Apple sees them not only as innovative but as a key part of the experience going forward. An experience that users who appreciate the end to end offering will seek out first and therefore become ambassadors for Apple exactly as they have been doing with Watch.

The Looming Brand Battles in Consumer Electronics

The consumer market boils down, plain and simply, to brand. Brand matters and is arguably the single most important thing when it comes to consumers. Yes, making great products must accompany this, but the brand plays a huge role in perception, consumers self-identity, aspiration, and a host of other things which may be more psychological than physical.

I jokingly tweeted this chart with the remark “the global battle to be a consumer electronics brand disguised as a smart phone sales race.”

While there are five companies on this list, at the moment, the only three I believe have a shot–from a global viewpoint–are Samsung, Apple, and Huawei. However, as Under Armor has shown us, if the recipe is concocted correctly, new entrants can rise and challenge the dominant brands in any segment. In fact, there are quite a number of parallels between consumer packaged goods brands, sports brands, fashion brands, and other categories when you dig into them. First, it is never a winner take all market. Second, there are only a handful of truly global brands in each category.

When it comes to being a global consumer technology brand, it is likely we need to conclude such a company must play in many categories in consumer tech. However, the smart ones to play in may not be the most obvious ones today. For example, TVs may become a thing of the past. So a major question for any new brand entrant could be if they should make a TV or focus on what’s ahead which may disrupt TV. This question is tricky because a company looking to establish themselves as a brand must do so within the categories of the day, while established brands can focus more resources toward the future. For example, Huawei is not in a number of consumer electronics categories Apple and Samsung play in. So they have more work to do in the areas where Apple and Samsung are established which will take away from their focus/efforts/resources in preparing for the categories of tomorrow. LeEco, Xiaomi, etc., will all face similar challenges as their first priority remains establishing credibility and consumer trust in the categories of today. This is a leading factor in remaining optimistic about the future ability of Apple and Samsung to remain relevant and competitive in the areas of consumer technology. Brands are both very hard to build and very hard to compete with. Brands are also much more difficult to disrupt than a product or a category.

The appeal of being a global CE brand makes sense. After all, the consumer electronics industry is an approximately 220 billion dollars in revenue per year in the United States alone and nearly 400 billion worldwide. These numbers only reflect the current landscape of consumer tech and don’t include the size of the market once technology invades nearly every type of consumer product (including cars) and household appliances (IoT).

The global consumer market is a complicated one and it will be a tempting mountain for many to climb only to find the journey too tumultuous before they give up or die.

Unpacked: The Health/Tech Market Opportunity

When looking forward to big future market opportunities, the health and technology intersection is one that is commonly brought up. The health/medical industry is, broadly, ripe for continued integration of new technologies. However, from what I see at the moment, it may be wise to separate consumer driven health tech from technologies deployed by the medical community and given to consumers with a health condition. The latter market is likely much greater in terms of size than the former.

Right now, when we look at consumer-driven health tech products, we look at things like health and fitness wearables, sports tech and gear, and other products targeting those with an affinity for health and fitness. The challenge is that is not a large market in reality. Looking at data we have both at a global and local level, we only find pockets of consumers who self-identify as having a health and fitness focus representing between 14-18% of the market.

Data from one of our research partners revealed that globally, those with a fitness-focused lifestyle (those who exercise in some capacity four times a week) only make up 14% of global consumers. Similarly, in our own health and technology focused research study, we found 17% of the US consumers say they are obsessed with their health, eat right, and exercise several times a week. Similarly, only 19% indicated they consider their current health level “very healthy.”

What our data suggests is that any product with a specific health and fitness focus and value proposition has a limited global addressable market that is likely only in the 100-200 million range. Not small, but also not super large. Given other data points we have, it would suggest this market is roughly only 20% penetrated if we add the percentage of consumers in each market who say they have a fitness band or smart watch, so there is still headroom. The key takeaway is the market size is not massive for dedicated health and fitness technology products being sold direct to consumers.

A larger segment of consumers indicated they were not health-obsessed but also not suffering from major illnesses. While this is a big part of the market, I’m not convinced the health and fitness tech is poised to penetrate this group. So the current crop of wearables and smartwatches need to have greater appeal outside of health and fitness if they want to grow their market size. Smartwatches are better positioned here, given they add a lot more utility overall than fitness bands but today, the largest part of the smart watch consumer pull is coming from a health and fitness angle.

At the other end of the spectrum are those who say they have a chronic illness they are treating. This represents less than 20% of the market. This is the market for which a medically-focused technology product would be suited, such as one prescribed by a doctor to a patient to help monitor health. This is also not a large market but still represents an important one as we look at the integration of health and technology.

Not surprisingly, the biggest segment of the market is more nominal in their health awareness. There is certainly overall value technology can bring to this market but the pull, at the moment, is coming largely from those with a fitness focus or someone dealing with a health issue. Wearables may be on the cusp of going mainstream and we will see how close we are when we do our dedicated wearable/smart watch study this fall.

Post Intel Developer Forum Thoughts

This week, many on our team have been attending Intel’s annual Developer Forum. Intel looked to tell a bold and ambitious story but also one that, under the hood, gave some key indicators of how Intel is positioning itself for growth.

The first thing you can spot in the last few years of the Intel Developer Forum is the lack of PC content at the show. Intel had a much more expansive story — virtual reality, augmented reality, connected cars, connected cities, cloud computing infrastructure, 5G, and more. While relevant, the PC, which was once Intel’s cornerstone, is now on the backburner and not even mentioned as a part of the future.

Building Complete Solutions

Intel’s announcement and demonstration of their Project Alloy VR/AR headset is an example of the way Intel sees itself deploying new platforms as complete solutions. Project Alloy is designed to help drive standards for the industry to build AR/VR headsets around the Windows Holographic platform. This headset and all the components and sensors are mostly Intel IP but can be designed in multiple ways by partners to fit the use case. Standards and quick time to market will be a key part of driving this solution and Intel appears to be the farthest along at the moment.

This complete solution is also embodied in Intel’s Real Sense Camera solution, Galileo, and Joule solutions that are turnkeys for applications for computer vision, the maker community, and wearables/embedded applications. In this rush to create IoT, wearables, and a host of other new technologies, companies are looking for a one-stop shop for technological solutions. Intel seems finally in a place to offer this across a range of hardware designs.

Manufacturing ARM Chips

One of the more interesting announcements, which has already inevitably led to speculation, was Intel announcing they are upping their capabilities as an ARM Foundry by acquiring the IP licenses necessary to start making ARM chips for mobile devices. Several key points from ARM’s press release on the news stood out:

I’m excited about our collaboration with Intel Custom Foundry for several reasons including:

The benefits to our partners by expanding the ARM ecosystem to offer more manufacturing choices for premium mobile and consumer SoCs.

Intel Custom Foundry will give its customers access to world-class physical IP and ARM implementation solutions.

All the major foundries now offer Artisan platforms, further confirming it as the industry standard for physical IP.

One of the strengths and differentiators of the Artisan platform is the availability of ARM core-optimized IP—what we call ARM POP™ technology. The value of POP technology for an ARM core on the Intel 10nm process is tremendous, as it will allow for quicker knowledge transfer, enabling customers to lower their risk in implementing the most advanced ARM cores on Intel’s leading-edge process technology. Additionally, POP technology enables silicon partners to accelerate the implementation and tape-outs of their ARM-based designs.

The top bullet is an expansion of the ecosystem. I’ve long made the point that Intel believes only a few manufacturers will be able to get past 10nm process technology. If that is true, then current semiconductor companies will need as many options as they can in order to get the silicon designs they need. If we believe we are heading toward a world with greater than 50 billion connected objects and sensors in nearly every gadget sold, the industry needs Intel’s capacity to help make the silicon of the future.

The second part of the point of “choices for premium mobile and consumer SoCs” is telling of the type of customers Intel wants. Intel doesn’t seem as interested in making commodity SoCs, even though they will take whatever they can get at this point. An emphasis on premium SoCs really only means two customers–Apple and Qualcomm.

While the big emphasis of this announcement was Intel’s foundry which will provide access to ARM’s Artisan IP and allow for very quick and very basic system designs. Companies like Apple and Qualcomm create their own customer architectures and have their own custom libraries which make the ARM Artisan IP points here irrelevant for those customers. Someone like Spreadtrum or LG, even TI, Mediatek, and others are ones who use generic ARM cores and would need this technology at their manufacturer to move forward.

Now this does not mean Intel could still not win Apple or Qualcomm. In fact, I think it is becoming increasingly more likely Intel could win Apple in some form. Similar to the way they have likely won some bit of Apple’s modem business in the new iPhones. My gut says we could likely see Apple-designed ARM chips on Intel process technology in the iPad before anything else. Even ARM acknowledges the superiority of Intel’s process technology and it would be fascinating to see what Apple could do with their designs on a leading edge process of Intel’s at 10nm or even 7nm in the future.

Finally, it will be interesting to see how Intel showcases ARM cores running on their process technology. While I don’t believe LG or Spreadtrum make the best market proof points for ARM + Intel process designs, they are at least market proof points. I would not be surprised, assuming Intel doesn’t win a showcase customer anytime soon, to see Intel actually design a reference chip of their own, based on the ARM architecture, to showcase what a premium ARM chip running on 10nm could really do. While pure game theory on my part, if this happened it would really signal a truly different Intel has arrived.

The Big Ad Shift

My article on Netflix from Monday fits into a much larger theme I have been looking into about who is best positioned in the paradigm shifts of media/online media we are witnessing. If you have ever dove into the advertising business of late, you know the slow shift from traditional advertising to more online/digital advertising is happening. Estimates are online advertising could take over the majority share from TV advertising around the 2019 time frame. Obviously, this could accelerate as forecasts are far from perfect, but traditional advertising is still king for the time being. Facebook and Google remain the talk of the town as this shift happens largely due to the nature of the value of the western markets from an ad standpoint. Knowing there is still huge advertising dollars moving from traditional to online is the main reason it is hard not to be bullish on Facebook (and Facebook family of apps like Instagram) and Google and to some degree Twitter and Snapchat. Many analyst notes on the matter refer to this coming dynamic as a winner take most (not all) market, and this may certainly be the case.

Recently, I’ve had some discussions with execs in the advertising space, and what I found interesting from these discussions was how advertisers were taking what is considered more “off peak” seasonal time frames to start to dabble more aggressively in online advertising strategies. We know all forms of advertising see a big spike around the holiday time frame and that time frame is also when advertisers stick to their tried and true methods. Once I understood this, it made sense to see this chart from Morgan Stanley’s online advertising analysis note on estimate vs. actual YoY advertising growth of the major US networks.

Looking back at similar data from years past, we had not seen such an impact of online in off peak times as we are today. Which, to me, suggests this shift could happen sooner than 2019 if these off-peak ad spends with the online incumbents like Facebook and Google pay off or lead to new learnings which influence the shift in spend in the coming years. To my point about Netflix, and even some of the recent data suggesting the big increase in online streaming of the Olympics vs. watching it through cable, perhaps consumers are making the shift to streaming video much faster than anticipated. Should this shift happen sooner, as I suspect it could, then advertisers are currently planning to spend in the wrong places when it comes to video. 2016 online video advertising spends look to be in the $6-9 billion dollar range in the US depending on whose estimates you look at. Compared to $70 billion spent in the US on traditional TV advertising. The spending trends simply seem out of whack with consumer behavior and the question is when advertisers will catch on.

Timing is the central discussion taking place with investors looking to gauge when a hyper growth cycle to the advertising business to the likes of Facebook and Google could happen. Obviously, as online video plays a much more central role in taking advertising dollars, Netflix, Amazon, Snapchat and others could stand to benefit by taking large chunks of these ad dollars which will be up for grabs during this shift.

Offline advertising spends signal the shift which will likely come to TV if consumer behaviour continues over the long haul. Both Newspaper and Magazine YoY spends continue their downward decline, with estimates of 11% combined spending declines in both those categories in 2016. Only TV and Online ad spending are on track to see a YoY increase in 2016. But all eyes will be watching this big ad shift, and when it happens, it is likely to inject more growth to the Googles and Facebook of the world.

Unpacked: Smart Home Product Ownership and Awareness

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

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

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

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

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

Unpacked: Consumer Preferences with Bots and AI

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

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

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

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

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

Unpacked: Smart Watch Ownership US/UK as of Q2 2016

Time for an update on the smart watch market.

Our Q2 2016 data is in and among the data set is smart watch ownership at large and by brand. It has been interesting to watch how fast (or not so fast) the smartwatch category is growing. It is growing but only roughly 1.2-1.3% each quarter of net new additions to the smart watch owner family. It is clear this is still largely an early adopter or health/fitness-focused consumer who is still driving the market forward. With ownership in these two countries hovering around the 10-11% of the market, it is safe to assume the smart watch has not yet gone mass market.

With just shy of 11% of consumers in our US and UK panel saying they currently own a smart watch, my estimate puts the total smart watch installed base at 38.4 million units approximately in the US and UK markets combined. When we look at ownership by model, it should come as no surprise Apple is the market share leader with 51% of all smartwatch owners in the US and UK saying they own an Apple Watch. Based on my model, that puts Apple’s Watch installed base at 19m units in just the US and UK. Both of these represent significant sales of Apple Watches from a market perspective.

Samsung came in at a healthy number two with 33% share of the smart watch installed base in the US and UK market. The next closest vendor at number three was LG with 4%.

The mix should not surprise anyone as it is quite similar to the duopoly Apple and Samsung have in smartphones in both the US and the UK. This also aligns with the lack of maturity in smart watches today. Consumers will buy from the brands they trust, who have proven themselves, like Apple and Samsung.

Getting the Smart Watch Mainstream

Looking at the wearable space broadly, I get asked the question of how smart watches go mainstream. I suppose there are still two sides to this debate. Those who don’t believe a smart watch is a mass market product and those who do. I’m personally still convinced smart watches will go mainstream but how far into the mainstream they go is still a big question. I certainly see smart watches hitting 20% penetration in many markets (20% of a market is what many of us consider the tipping point for mainstreaming an innovation). Whether it gets to 50% of a market is a still a debate. I can actually see the combined smart watch and smart fitness band categories getting closer to 50% but I’m not sure how much farther it can penetrate. All of this is to say, I believe there is still plenty of headroom for the category. I’m becoming more convinced this market is like the tablet market in that only a few brands will win. Apple still is the majority share leader in tablet share and I believe that will be the likely case for smart watches as well.

I’m optimistic that version two of the Apple Watch will be a catalyst to lead the charge in smart watches going mainstream. WatchOS 3.0 brings many features that are baseline expectations for the mainstream but I’ll also be watching for Apple to innovate on the hardware of version 2.0, perhaps bringing new designs and new price points. If Apple can get this product into the $200 range then we will see some significant volume upticks.

I’m still optimistic on this space and the value a wearable computer can bring in new data sets and add to the big data sets on ourselves we are amassing with our usage of personal computers. Wrist/ear based sensors can simply capture more unique data than our smartphones and there will be value in translating this learning into health-based insights.

All eyes will be on Apple in September, but I have a hunch 2017 will be the year smart watches go mainstream.

The Big Wave

There is an under-appreciated dynamic of the global consumer technology market which has just recently occurred. For many of us in the industry, when we look at the PC market we think, since PCs have been at relatively affordable prices for nearly two decades, then everyone in the developed markets has owned a PC personally and use it extensively. When, in reality, the pure consumer PC market is not that old. From our research, we learned 33% of consumers in the US purchased their first PC between 2009-2015. 37% of US consumers are only on their first or second personally owned PC. As someone who has been working professionally in the technology industry since 1997, I have owned more PCs than I can count. Seeing such a large percentage of the market still with relatively new PC ownership shines a spotlight on just how different the corporate and consumer PC industry is.

I make the point about a decent sized chunk of the US consumer market getting their first PCs in the 2009-2015 timeframe to showcase a unique scenario which took place. 2008 was the first year annual worldwide shipments of consumer PCs overtook corporate PC sales volumes. The PC market was over-indexed on consumer PC sales volumes until about 2013 when the two became relatively even. But, if you recall, it was around this same time consumers were just getting their first PCs that the smartphone hit the scene. Very quickly on the heels of smartphones came tablets. Looking back, within the span of four years, PCs, smartphones, and tablets went mass market at the same time.

I believe the rapid adoption of smartphones, in parallel to the consumer growth curve of PCs, is one of the primary reasons consumers never had the chance to establish as deep a relationship with their PC as those of us who have had them for decades. The implications of a good portion of the consumer market getting their first or even second PC around the same time they were getting their first smartphones, is a primary reason the PC growth cycle was cut short and never reached its full potential. There was a time myself and many others believed every person would own a PC. While that belief is coming true, it is coming as a PC in the shape of a smartphone, not in the shape of a notebook or desktop as we once thought.

Due to the timing, the consumer PC segment never really had a chance. This dynamic is likely, at least in part, one of the reasons 70% of consumers in our panel said their smartphone is their most important personal (not work) device. Or that 43% stated they use their PC or Mac mainly for work tasks and their smartphone for most other tasks. Or that 45% said they spend more time at home (not work) using their smartphone than their PC and Mac. And perhaps the most significant sentiment statistic we collected was 64% of consumers say they find themselves spending more time using their smartphone the longer they have owned it.

Typically, technology rolls out in waves. To use a surfing analogy, waves generally come in sets of three with periodic breaks in between. Usually, companies can ride these tech waves with enough time in between to surf a few. But in this case, we didn’t have three waves — we had one gigantic wave and those who missed it got caught up in the crashing surf break.

Obviously, a huge part of this wave came from smartphones. While consumer PC shipments ranged between 150m and 200m during this time frame and total industry PC shipments were in the 300m range, smartphone shipments quickly rose to one billion and beyond annually during the same time frame. There has been no other product in consumer tech with the scale the size of the smartphone market. That will not change anytime soon. So those companies who rode the mobile part of this tsunami were the real winners — Apple and Google (and Google partners like Samsung, Huawei, etc.). But both of these companies also rode the tablet part of this wave as the combined two segments dwarfed the consumer PC portion of the tsunami.

The consumer tech tsunami has assisted in changing the fortunes of many companies and bringing numerous new players to the landscape. However, the important observation of any wave, whether it comes all at once as is the case here, or in smaller surges, is the calm waters which follow. That is the period we are in at the moment as everyone selling hardware to the consumer is seeing dramatically slowing sales volumes in nearly every market. PC growth will be negative to the degree of 8-10% in 2016. Tablet market growth will be negative 10-15% in 2016 and smartphone growth will be between 3-6% globally in 2016. This initial wave brought new technology en masse to consumers globally but now that cycle is over and consumers tend to be content with what they have and buy less frequently.

In the developed world, all the products I spoke of are now in replacement cycle market dynamics, not growth dynamics. Because of this, we see buying patterns change, replacement cycles lengthen and overall growth of these categories halts to a decline or a slow crawl. Those who rode the consumer tech tsunami now have to manage the calm waters, which can often bring more turmoil and carnage than the wave itself. Most importantly, being prepared to not miss the next big wave becomes central.

Whether the next wave is virtual/augmented reality, wearable tech, artificial intelligence, or something else, I’m not sure we will see anything like this consumer tech tsunami for a very long time.

Facebook is the New Google for the Next Decade

I once had a theory that Facebook would not survive the segmentation of social networking. The time-tested observation that, as markets mature, they segment, was the basis for my point. What I did not predict was Facebook would buy all or as many as the social networking branch-offs like Instagram, WhatsApp, and more coming, to handle this segmentation. Assuming this is Facebook’s strategy to handle all the splinter social networks that start up and take time away from Facebook proper, then I believe Facebook is the new Google for the next decade.

No company benefited more from the rise of the desktop internet than Google and no company will benefit more from the rise of the global mobile internet, covering more than four billion humans some day, than Facebook. To understand who the winners and losers are of the next decade, all we need to do is look at how consumers spend their time while using their smartphones. While I can dissect this data in many ways to examine behaviour, what I charted was total time spent on smartphones in specific markets and the total time spent by consumers engaging in a social networking activity. As you will see, there is a trend in emerging markets against more developed ones.

Not only are consumers in more developing markets (which we consider mobile first or mobile only) spending much more time on their smartphones but they are also spending a good chunk of that time social networking. Outside of China, the most popular social networking apps consuming all this time are not that different from developed markets. Facebook, Instagram, WhatsApp, Facebook Messenger, all top the charts in terms of daily usage. In nearly all these developed markets, Facebook’s apps dominate time spent social networking.

While it is true consumers in these markets are still searching the internet, and Android is the default with anywhere from 70-80% share in most of them, the engagement level in terms of total time favors Facebook and the Facebook suite of social networking apps. Given these businesses are free services supported by ads, time spent is the key metric and Facebook has this stat over Google.

In the first era of the Internet, there was a much heavier user emphasis to start searching and exploring the Internet once you got the Internet. This next era seems to be more about connecting than searching, which is another reason I think Facebook has the most upside.

Now, one area where Google is well positioned is with YouTube. While I don’t have a “time spent using YouTube” statistic for these markets, YouTube is on the top five in all these countries in terms of monthly active usage. Unfortunately for Google, this is the only asset they have where significant time is spent.

Both Facebook and Google need to continue to effectively monetize these customers. While it is true the bulk of the next two billion consumers to get pocket computers do not have high levels of disposable income, other services like financial lending, mobile commerce, payments, etc., are tried and true ways to leverage the scale they both have. However, if Facebook (Instagram, WhatsApp, and every other app they have) dominate the time spent statistic and platform engagement, then it is reasonable they are best positioned to provide financial services, m-commerce, payments, and more, leveraging their base of x billion consumers spending hours per day on their assets. This is why, as of now, I believe Facebook is best positioned to leverage the growth of internet/mobile penetration for the next wave of consumers getting online. With every bit of data we have, it is simply getting harder and harder to be bearish on Facebook.

China’s Consumer Electronics Moment is Coming

The Information had an interesting article going into a bit more depth on what we all already know — China wants to be the future consumer electronics powerhouse.

China’s moment is coming. It seems inevitable. The evolution of major consumer electronics brands started in Japan, then went to Korea, and is now moving to China. This spans everything from appliances, to cars, to computers and all the components inside. This is a country that has built scale businesses with exceptionally low margin. We have to ask ourselves, who is better positioned to leverage that strategy and bring affordable quality consumer electronics to less wealthy parts of the world?

Take smartphones for example. We are in the midst of converting just over 2 billion existing featurephone owners in places like rural India, Africa, less developed parts of China and SE Asia, to get their first pocket computer connected to the internet. I can almost guarantee you it will be Chinese brands that make this happen. These consumers will inevitably play a role in helping their countries develop and thus rise in GDP. As they start to acquire more wealth, they will perhaps buy a TV, or a washer and dryer, maybe an oven. When they do, Chinese brands will be there with quality appliances at rock bottom prices.

It seems Huawei is the forerunner for this brand and they are following (or being influenced by) China’s mandate to own every part of the stack as homegrown Chinese brands expand and begin to grow their presence in all markets. We know the Chinese are spending massive amounts of money to acquire IP and talent to design and manufacture their own semiconductors to power smartphones, cars, PCs, tablets, wearables, and a host of other connected electronics. We have known for some time they want their own proprietary operating system and it now looks like Huawei is beginning to assist in developing that proprietary OS. They are going vertical in every way they can because they know it helps their ambition to have Chinese brands dominate the future of consumer electronics.

I’m fairly confident they will pull this off in the developing parts of the world. I’m less confident they can pull this off in the West but a strong argument can be made they don’t need to win the West to win the world. However, I’m not sure they have convinced themselves of this reality yet.

Like so many foreign brands before them — Sony, Sharp, Casio, Toyota, Hyundai, Samsung, LG, Seiko, and many more who successfully created a brand and loyal set of western customers — this temptation is fully implanted in Chinese brands. I know personally from questions I have gotten about how to enter the US market from many of them that the West is the place they all believe they have to win.

People didn’t believe Toyota or many other foreign car brands stood a chance but now they make up a healthy portion of the US car market. I am not quick to write off the Chinese brands’ chances here in the West. However, they do have to be willing to do what so many foreign brands before them did–spend the money to establish a brand. These brands are starting to be more aggressive. Huawei is spending tons of money in Europe learning how to do this. ZTE is sponsoring sports teams. TCL is starting to branch out and expand their presence. This is only the beginning and, as the Chinese get better at building a brand, it can be argued they will push other foreign brands out of markets they formerly dominated in consumer electronics.

China has taken note of what Japan and Korea did on a global scale. They believe their moment has arrived. They have nearly all the pieces in place. Let’s see if they can pull it off.

Personal vs. Communal Artificial Intelligence

Piggybacking on Carolina’s post this morning, I want to share my thesis on how I think about communal vs. individual machine learning.

I feel it is a flawed assumption that communal machine learning is the only value proposition for the development of AI. To understand the personal vs. public side of this, we need to understand the word “training”. Everyone doing machine learning has to train their network. To do so, they use big data sets that give the network enough information to accurately identify even the most nuanced of objects. For example, in natural language, it may take tens of millions of instances of a particular phrase in a particular language for the machine to be able to understand all the nuances of a dialect for just that word. Similarly, for a machine to accurately identify a tree, it may need tens of millions of images of a tree in order to be able to identify or distinguish it from a bush, for example. These massive data sets are the basis of large communal deep learning initiatives and they are the basis of how a network is trained.

These big data sets are useful in training a network for both specific things but also in identifying crowd patterns as well. A simple example of this in Google search is when you fill in a partial search query and the text field tries to guess or assist with your search so you don’t have to finish the word.

It appears there are a few Bens more popular than me at the moment. 😀

These things are convenient and the machine is trained to recognize patterns. The goal is to make life easier and more efficient for the customer. Now, where I feel a schism will occur is between a large data set of crowdsourced trends, general information like a tree or dog, and data that is unique/personal/intimately related specifically to me.

Personal machine learning has yet to happen. In the same sense that large data sets will train a network based on communal trends and data, I have yet to train my own personal AI on the uniqueness that is me and my life. There is a battle looming for the “personal life assistant” consumers will hire to help them at an individual level and be smart and predictive for things unique to their lives. This is where the technology that helps you train your own personal digital assistant will be key. And this is where I think the “on device machine learning” coupled with privacy is going to keep Apple competitive if not even give Apple an edge against others who may seek to do this.

It is hard to argue that our smartphone is not the right device to begin to learn about our individual nuances. We can argue the privacy tradeoff but, come this fall, we will be able to judge how well Apple is both learning the from individual and from the community at the same time using the privacy means they have in their toolbox. But when I look at other attempts, it seems only Cortana from Microsoft is trying to become a personal assistant. The Echo and Amazon’s strategy driven by their business model motive is positioning to be more a communal assistant than an individual one. Google’s is as well. There is nothing wrong with this strategy and ultimately I can and will use them all. But what is chosen as my personal life assistant is perhaps the most important battle when it comes to what I engage with the most and build a relationship with.

Furthermore, there is another flawed assumption that these assistants will be mutually exclusive, meaning not talk to each other. I am not sure that is how this is going to play out. If I choose to hire Siri (or whatever I eventually end up naming it once Apple allows us to change its name), then it seems likely my assistant can go and talk to Google or Amazon’s AI on my behalf. Those companies’ business model does not favor an exclusive premise and they will need to make sure their data sets can be used by all.

Many companies doing the big and communal data sets are letting these be accessed by all, if not even licensed for proprietary use. This data will exist and many can benefit from it, including Apple. The harder part of this equation, in my opinion, is the learning of the individual. It is clear how Apple plans to do this, but not clear how others will. This seems of strategic importance, particularly to Apple, but not necessarily to Google or even Amazon. As the saying goes, once you hire a great personal assistant you never let them go.

Apple WWDC: My Three Big Takeaways

Yesterday’s WWDC keynote from Apple felt like drinking from a firehose. I have sat through a lot of developer keynotes and it was, by far, the fastest paced I’ve ever seen. Because of the pace, it is easy to miss some of the more important elements so I’d like to share the three big things that struck me.

More Power to Developers

From a developer standpoint, Apple came out swinging and made sure it was clear Apple platforms are the best place for developers to invest their time and resources. Apple made it clear they have four platforms for developers to think about, each one with a different focal point. iOS, WatchOS, tvOS and macOS make up the pillars for developers. Apple has begun opening up more of each platform and allowing developers added ways to take advantage of each.

Apple affirmed their developers are a primary factor in their differentiation, even though they did not use those words exactly. Developers are central to Apple’s future and making sure they have new things to work on is essential.

tvOS’ Single Sign On

As I saw this being announced, not only did it relieve a serious pain point but it struck me that we are inching ever closer to being free from the terrible hardware companies like Comcast, Dish, Cox, DirecTV provide us. As more apps start to include live streaming and on-demand access to network shows, the closer we get to not needing our service provider’s hardware.

With single sign on, I log in once to my pay TV service and, not only do I not have to put in my credentials for every app I download, I’m presented with a list of apps I can access and use with my pay TV service. Cable bundles still make sense and we will likely pay a fee for a set list of channels or apps but the key is we are seeing the unbundling from cable companies hardware and that is a big deal.

iMessage + Devs

This one may be the biggest takeaway. iMessage is (and has been for a while) one of the most important apps not just on iOS but across the board. First, we must acknowledge much of what Apple has done has taken some cues from WeChat. Facebook and WhatsApp have done this as well. However, if any messaging app has the potential to become a platform like WeChat it is iMessage.

Apple did many things to increase the communication experience, but those are really there to keep people engaged and make iMessage a desired app to have conversations with people. The real power here is in letting developers start to integrate more of their app experiences into iMessage. Letting consumer pay friends back via iMessage, order food, share a song, and much more is coming. This will position iMessage at the center of more experiences in the same way WeChat does in China. This is a fascinating move.

Just a point on Stickers. LINE filed for its IPO and, if any company does Stickers well, it is LINE. What became public knowledge is LINE made $268 million dollars on Stickers alone in 2015. Its users send 389 Stickers per day. To put that in perspective, LINE has a little over 200 million monthly active users. iMessage likely has more than double that. There are very interesting revenue opportunities for both Apple and third parties. This may be the one area I’m interested to see what developers do and may represent the most upside for both parties economically.

A Brief Word About Privacy and AI

This is a subject I’d like to spend an entire post fleshing out. However, I felt Apple’s effort to spend the time to articulate a concept called differential privacy was very telling directionally about where they are headed with machine learning. The idea of AI and machine learning gets thrown around for a lot of things. For example, for Apple to have deep algorithms built into the Apple Watch software able to combine motion and heart rate data to know when I’m exercising and when I’m not was all generated by deep learning. However, my privacy was never invaded for Apple to take that communal/crowd-sourced learning and use it to make their software better. My privacy does not need to be trespassed for Apple’s visual processing algorithms to know a dog is a dog or Hawaii is Hawaii. But moving some of that machine learning on device allows the Photos app, for example, to recognize Hawaii but also my wife and my family when we are in Hawaii. That last part, who is my family, is the part that can and needs to be learned but also the part to stay private.

The key takeaway with the idea of differential privacy is that some elements of noise are inserted intentionally into the system so the data can not be cross-referenced to uncover my private details. This is a big thing to try and understand and, while there are many institutional research papers on the concept, Apple is applying it to machine learning and mixing both local learning with communal learning in ways I’m not sure have been tried before. But if they are going to succeed in both deep learning and still protect my privacy, it seems like this is the way to go about it.

It will be interesting to see where Apple’s deep learning efforts come to the forefront, with the Photos app and improvements with Siri in the fall. We’ll see then if they are actually behind Google or not.

Unpacked: Average Social Media Accounts per Person

Social media remains a large part of what regular consumers do on a daily basis with their smart device. Like it or not, they play a major role in the connected economy. That is why I like to share intriguing statistics whenever I encounter them related to social media apps and services.

Interestingly, of those aged 18-65, 93% have a social media account of some kind. For the average online adult, social networking activities represent 30% of their online time and this stat has risen steadily every year. The total time using social networks by an average consumer on a daily basis is now around 1 hour and 50 minutes. For those in the 18-25 group, the average time spent on social apps or services is 2 hours and 30 minutes.

The other stat that has risen every year, largely driven by the addition of new connected consumers in markets like India, Indonesia, and many other parts of SE Asia, is the number of social media accounts per person. The average online adult is now a member of nearly seven social media services. Obviously, not all are active users on a monthly basis and only a handful of apps dominate active usage. I find this statistic interesting primarily because it could be one of these fringe social media accounts that someone signs up for that could someday be the next Twitter or Snapchat. The point is not that consumers use all their social media accounts, but they are at least willing to give more than just the few dominant ones a try.

Where things really get interesting for multi-network users is what countries have higher number of accounts per person. Emerging markets where consumers are getting online for the first time are the ones with the highest – by far – number of users with multiple accounts. India for example, has an average of over ten social media accounts per online adult. Indonesia, Saudi Arabia and the UAE are all above nine accounts per person average as well.

Developed markets are slightly more controlled when it comes to how many social networks consumers try. In developed countries like US, UK, Italy, France, etc., the average number of accounts per person is closer to five, where in developing countries it is closer to nine. The outlier here is Japan with an average of 2.1 social media accounts per person. Either Japan is doing it right or wrong; you can decide.

When I look at more than 30 countries and make the observations of accounts per person in developed markets vs. developing ones, I do so within the framework of where new opportunities may lie. The fact that consumers are more willing to try out the services even if they don’t stick with them, however, appears to be more prominent in developing areas vs. developed ones. So a new social media service may have an easier time growing and scaling up in a market like India, Indonesia, Philippines, and the Middle East rather than developed markets like the US, China, and Western and Eastern Europe. Developed markets may have a more settled list of winners where that may not be the case in lesser developed markets.

I call out these particular observations in particular because, if there are any apps that can scale to the high 100 millions, it is social networking apps. I’m not sure we will ever again see something like Facebook but this data point stood out to me. 86% of online adults now have an account on one of Facebook’s four services (Facebook, Facebook Messenger, WhatsApp, Instagram). Facebook is the dominant conglomerate for the social era, in many ways as dominant as Google was during the search era. However, given consumers appetite for social apps and services and their willingness to try new ones, you could argue there is more opportunity for competition. Of course, Facebook can –and likely will– continue to buy popular apps to add to their conglomerate.

This Weeks News Unpacked

“We’re still committed”, says Jawbone CEO, but it may be time to regroup/rethink – By Carolina Milanesi

Late last week, TechInsider published an article on the news that Jawbone was slowing production of its fitness trackers and had sold its remaining inventory to a third party and concluded that Jawbone was exiting the wearable market.

On June 1st, Jawbone CEO Hosain Rahman published a blog post renewing the company’s commitment to the wearables market:

“To be clear, Jawbone remains wholly committed to innovating in and building great wearables products. We have never been more excited about our pipeline of technology and products and look forward to sharing them with the world when ready.”

Jawbone, together with Nike, started the fitness band trend as we know it today. Tech enthusiasts were split between the two brands when Fitbit started to get its grip on the market. In the US, Pebble came and started to shift early tech users towards smartwatches. Other smartwatches, including the Apple Watch, did the rest and here we are. Jawbone does not even show up in market share reports. Kantar lists Fitbit, Apple and Garmin as the top three brands in the US for the March 2016 period.

So nobody would have blamed Jawbone for exiting a crowded market where vendors are already pushed on margins and consumers still need to be convinced. However, given the January round of funding that raised $165 million plus the money that will come in from the UP inventory sale and the rumored sale of the speaker business, it should give Jawbone enough cash to rethink and regroup.

Design was probably the biggest appeal of the Jawbone UP family. Feature wise, the devices ticked the core boxes for a fitness band but did not really go beyond what others were doing, leaving them out-priced. Design will certainly go a long way but, for serious fitness people, features win over design. For less serious fitness conscious users, price wins over both feature and design. This leaves Jawbone in a tight spot, forced to either innovate on features and software in order to position its devices at the higher-end of the market or focus on design and possibly partner with fashion brands either openly or by becoming a white-label. Outside of these two options, they could only try and compete on price and we know how that usually ends.

Major American firms sign hate speech code of conduct with European Union – by Jan Dawson

Facebook, Twitter, Microsoft, and YouTube signed a new code of conduct regarding hate speech with the European Union this week. Such speech is not just undesirable but illegal in the EU and the companies signed up to do more to combat such speech, to implement notification and takedown systems, and so on. However, perhaps the most troublesome part of the Code of Conduct is this bullet point:

“The IT Companies and the European Commission, recognising the value of independent counter speech against hateful rhetoric and prejudice, aim to continue their work in identifying and promoting independent counter-narratives, new ideas and initiatives and supporting educational programs that encourage critical thinking.”

That smacks of promoting one kind of thought over another and, while I think we can all agree speech that incites hatred and violence is undesirable, it’s quite another thing to actively promote counter-programming. That could run the risk of stoking fears Facebook and Twitter in particular have policy agendas which they will use their platforms to promote. Both companies will have to be very careful to avoid being seen as partisan or favoring one set of acceptable speech over another. Facebook specifically has recently strenuously argued it doesn’t favor certain political views or arguments over others, so it will want to be mindful not to do anything to damage that perception. As a practical matter, it’s not clear exactly what such counter-narratives would look like. Identifying incitements to racism and violence is relatively straightforward but what is its opposite?

It’s therefore worth asking what would prompt these companies to sign up to such an agreement? The answer likely lies in the complex relationship between the EU and American tech companies. On the one hand, Europe is a big and important market and one that looks a lot like the US in many ways. But, on the other hand, there’s a lot of protectionism and backlash against big American companies. There’s always a risk the EU decides to investigate and take action against one of these companies so they have to do whatever they can to keep the authorities friendly and avoid that outcome. Sometimes it means preemptively making smaller, less painful concessions to avoid larger, more painful ones. With the EU action against Google as a backdrop, I’m guessing that’s part of the calculus for the companies involved. I just hope they don’t come to regret making these commitments.

Amazon and Pebble partner around Alexa – by Jan Dawson

Amazon and Pebble announced on Thursday that Pebble’s new keychain device, the Core, will feature Alexa integration. The Core is currently the focus of a Kickstarter campaign and Pebble expects to begin shipping it to backers in early 2017.

As I’ve written previously, the Echo has been a surprising success as a home device, but Amazon’s biggest challenge for its Alexa hardware is getting it out of the home. Since Amazon lacks a major smartphone platform of its own (its Fire Phone was a complete flop), it will have to find ways to get the functionality onto third party devices. This Pebble deal does little to help with smartphones but it’s likely indicative of Amazon’s strategy – partner with third parties who don’t have strong service ecosystems of their own for a win/win. In some ways, this is analogous to Intel’s strategy of working with companies from outside the traditional consumer tech markets for wearables – both companies need each other and it makes for a symbiotic relationship.

Clearly, one device by itself isn’t going to suddenly make Alexa ubiquitous, except for the small number of people who buy it. There’s a long way still to go and smartphones have to be part of the plan at some point, but there will likely be other similar deals over the coming months. The other big question is whether Alexa can perform as well on a tiny device that’s not optimized for far-field voice recognition as it does on the Echo. The answer is almost certainly is that it can’t but it will matter greatly if the performance is significantly worse. One of Echo’s most important features is the sheer quality of its voice recognition. If that goes away, it’s no better (and arguably worse) than competing solutions like Apple’s Siri, Google’s voice search, and Microsoft’s Cortana, each of which can be more useful through integration with a smartphone. I’m not convinced this strategy will pay off for Amazon over the long term but it’s good to see it’s aware of the need to go beyond its current first-party devices.

Microsoft And the Mixed Reality Platform – by Ben Bajarin
Microsoft made a bit of news at Computex that didn’t get enough attention, in my opinion. Stepping back, we have to recognize the VR/AR computing era will need some standard development platforms. SDKs, APIs, and app/content stores will be necessary for developers and content producers to distribute their creations. Like mobile, there will not be only one platform and there may be more than just the two we have today in mobile. But, Microsoft has put themselves in a position to compete for the platform for mixed reality which will span both VR experiences and VR experiences.

Microsoft has opened up Windows Holographic as a platform and will allow other companies to build hardware and software on it. Microsoft is putting Windows at the center of this knowing a lot of this content development is already taking place on Windows PCs. By extending developer tool sets and, most importantly, creating standards for development in both VR and AR, Microsoft is making the smart move to blend VR and AR and broaden the tools to create both experiences with the same hardware and software.

Samsung updates Wearable line – Ben Bajarin
Samsung has released a new version of their Gear Fit and also released a new set of completely wireless earbuds with a heart rate sensor called the IconX.

I had a chance to see both of these products during a pre-brief and, being a fan of the concept of the first Gear Fit (a fitness tracker with a big bright screen), these new devices are even better and, more importantly, very comfortable. Samsung did quite a bit of work with the user interface, optimizing it for a vertical orientation. While these devices are quite competitive on features and even one-upping Fitbit with a GPS built in, Samsung still needs to build more credibility in the health space. Both Fitbit and Apple have the lion’s share of trust and credibility in the mind of consumers when it comes to fitness and health and this is the uphill battle Samsung faces.

The IconX is a very interesting product and I was impressed with both the heart rate accuracy and the comfort of these wireless earbuds. Samsung is making a strategic error in my opinion by not bringing these products to iOS. While they support all Android devices via the S-Health app which can be downloaded from the Google Play store, it is really iPhone customers who are the primary buyers of health and fitness technology today. This could serve as a Trojan Horse for Samsung or help them compete more with Fitbit by being cross-platform. But Samsung is leaving money and potential future customers on the table by keeping their health and fitness accessories off the iPhone. Doing this would be a smart move for them in the future if they are serious about this space.

Criticizing Apple’s Patience

I’ve noticed an interesting theme from some of Apple’s more prominent and vocal pundits. Perhaps this is a theme that has always been around or is simply a rinse/wash/repeat process. Either way, I’m sensing it at the moment. It seems much of it is focused on criticizing Apple for not experimenting more or having more moon-shot projects made public. We know companies like Google, Amazon, and even Facebook do some research in public and let people try things that are half-baked. While Apple places the “beta” tag or “hobby” moniker on some things as they did with Siri and Apple TV, these products were still good enough vs some of the really half-baked products we have seen others put into the public. The narrative today seems to be around things like Siri and AI. Too often, the Amazon Echo is the product people are using to shine a light on Apple and say they are behind. While a deeper analysis of the technology would reveal Apple is not as behind as people imagine, I’d like to spend some time to make an important point about what makes Apple so different from other companies when it comes to product or idea experimentation in public.

Apple has done something few computing companies have ever done. They have managed to make a product which is bought and loved by consumers on every part of the adoption curve. The iPhone appeals to early adopters, the mass majority, and the technology laggards. There is no single consumer product that has done this at anywhere near the scale of the iPhone. Most importantly, understanding the vast majority of Apple’s now more than 600m iPhone owners are made up of those who are less techy, less geeky, and more the “average” customers who appreciate ease of use and simplicity to do what they want to do. Most of Apple’s customers have chosen the iPhone because it works best for their needs and lets them not worry about the technology. This is precisely why Apple cannot experiment with half-baked products and release them to their customers.

Unlike the customers of many other companies, Apple’s customers do not have the patience to tolerate half-baked technology. This is why Apple has always been recognized as being patient. They don’t enter the market first, but they do enter it when the time is right, with a solution that works and works to the standards that anyone can use it simply, easily, and enjoyably. Being an early adopter myself, I have tolerated some very painful experiences trying out new flashy gadgets. Most people do not have the kind of tolerance for technologies not ready for the mainstream. Apple does not have this luxury and, as much as their early adopter customers want to see them push the limits with things like AI, or voice, or VR, and believe they are behind because they are not doing these things, they forget they are not like the majority of Apple customers. I’m confident that, if Apple was to release more experimental technology, the kind most their competitors do and get away with it, it would dramatically hurt the trust their customers have with them to provide easy to use, delightful experiences. Because I can assure you, most early technology is anything but easy to use and delightful.

We should not criticise Apple for their patience in bringing technology to the market only when the time is right. This is the very thing that made them into the company they are today. They have built a significant amount of trust with their customers which could easily be destroyed by bringing technology out too early.

I understand the perspective of those who want Apple to do more, sooner and present the perception of leadership that comes with doing so. But being visionary and leading with quality is very different than throwing half-baked tech out to the world, even if that half-baked tech contains some parts of the future in it. Yes, we would all love to know where Apple is headed and what their vision of the future is. However, their patience to bring things to the market at the right time does not mean they are void of vision. I think it just means they like to surprise us.

Trends in Social Commerce

“Social commerce” is one of the biggest buzzwords in conversations I have with startups and investors in Silicon Valley. The reason is simple. Peer group influence on product decision making is one of, if not the single largest factor in driving purchases. Social networks become the glue to see what our friends are buying and to be able to purchase directly things they recommend. This can be a song, album, movie, clothing, gadgets, appliances, and more. Our social networks become a quick and easy way for peer influence to impact our buying habits. However, we are still many important steps away from achieving this reality.

But it seems Twitter has simply given up on the idea entirely. Yesterday, a story broke that Twitter had disbanded their commerce team and ceased work on their Buy button. It is possible Twitter realized their platform (if it is just a news platform) is not the place social commerce will take place. This is probably correct, but the broader idea has potential.

Let’s start with this data point. Globally, 48% of consumers said an easier/quicker checkout process would encourage them to buy online more. When we filter that answer just by active social networkers it goes up to 60%. Now comes Apple Pay. What Amazon showed us was a stored credit card and one click checkout could stimulate online buying. Other features like free shipping and easy online returns rank high among motivation for consumers as well, but easy checkout is prime among them. Something like Apple Pay or Android Pay could dramatically accelerate online shopping across a plethora of categories.

WeChat may also be setting the prime example with 47% of consumers saying they have made a purchase through WeChat using a mobile wallet in the last month. This is the highest monthly mobile wallet transactions of any market we study. WeChat has many of the foundations in place that are still void in major commerce markets like US and UK. Which is why I have hope that, once this foundation is laid, we will see a dramatic acceleration of online transactions.

Mobile wallets are the first step to driving not just more online transactions, but enabling these to easily happen on social networks. Apple Pay and Android Pay are the two most widespread wallet solutions I can see developing this. I certainly won’t give my credit card to Facebook but I’ll trust Apple Pay. If Facebook has a quick way for me to buy a product I’m interested in or a friend promotes by using Apple Pay to make it quick and seamless then I can see social commerce taking off.

Luckily, Facebook seems to acknowledge this and has stated they will support Apple Pay but this will also be up to the merchant to support it on Facebook as well. Perhaps this is an area where Google’s Android Instant Apps come into play.

While Google showed this idea first, I fully anticipate Apple will have something similar. The idea is, you get an app-like experience without having to download the app. For example, a friend posts a link to BuzzFeed on Facebook. You click the link and see the Buzzfeed mobile app UI but you haven’t installed the Buzzfeed app. Similarly, this works for commerce. Below is the screen shot examples Google highlighted to give us an idea of the use cases:

It is by no accident two of those three use cases are commerce experiences. The parking meter one highlights the pain point that many parking meters require you to download their own proprietary app in order to pay remotely. I’ve done this before where you download the app to pay then promptly delete it since you will likely never use it again.

This extends to many areas of the app/web experience and makes a lot of sense both for things like commerce, entertainment, and even app discovery. Given how many app or app commerce ads we see on Facebook, I can see an implementation of Android Instant Apps that is very good for something like Facebook when it comes to social commerce. Google is hoping these will play a role in their mobile search results but my hunch is Facebook, and other social platforms, will be the big winners here.

If at WWDC Apple does show how developers can implement Apple Pay into websites, I think we will start to see momentum pick up here. Like so many other pockets of the industry, Apple’s ecosystem will likely adopt this first and Apple customers will be the primary drivers of social commerce in markets like the US and the UK at the start.

Mobile wallets, and the ubiquity and comfort of using them, is step one to many growth drivers of online commerce. If my timeline is correct, 2017 should see many of these trends start to gain momentum.

The Real Threat to Apple: The Invisible Device

The Amazon Echo: what happens if this is all there is to a device? CC-licensed photo by Cryptik Merlin on Flickr

For years, Apple has made a name for itself through the design of its products – their combination of appearance, materials, and software functionality (which is part of the “design”, aka “how it works”). It has been able to command premium prices for desktops, laptops, phones, tablets, even routers by making things that not only work well, but look good.

What happens to that advantage and ability to command a premium, though, when there isn’t a product to hold? What happens if you don’t have a phone to pull out, a tablet to press, or a router to put in the corner of your room?

This thought struck me while listening to John Gruber and Ben Thompson discussing Amazon’s Echo, which we could roughly call a home automation device, and considering Google Home, which is going to be approximately the same thing. Both de-emphasise the physical product (there isn’t even a screen) in favour of an unobtrusive always-listening device which doesn’t need to be pressed or waved at; it just responds when spoken to.

It’s not hard to imagine future versions of Google Home or the Amazon Echo would have less and less physical hardware; essentially, they only need to power a microphone, a speaker and an internet connection. In which case, what would Apple’s version look like? It might look – might even be – the Apple TV. It’s nice, but many people would struggle to pick it out of a lineup. And once it’s underneath or behind your TV, you could forget it’s there.

Razing the playing field

But when you reach that point, the ground on which Apple used to fight – appearance, materials, “look and feel” – has suddenly vanished. The shift to systems which don’t need us to look at them directly and which feed information back to us by means other than an integrated item with a screen, doesn’t so much move the goalposts as set fire to them and terraform the field where they were standing.

In the same vein, I was asked a few years ago – when Siri had newly been announced, but Samsung was already making inroads to the premium market with the Galaxy Note – what I thought the phone of the future would look like. I suggested you wouldn’t actually look at it much. It would probably be Galaxy Note-sized but it would sit in your pocket and feed information to your headphones in response to questions you asked into the mic on the headset. Less need for the screen, less need for typing on the physical object.

Our obsession with photographs and cameras has forestalled that shift; Instagram and Snapchat demonstrate that, when it comes to social interaction, we love the visual. That suggests screens and devices – in other words, things we actually hold and carry around – remain important.

Even so, the invisible device does seem to me the biggest risk Apple faces. The advantage it has is Amazon’s Echo and Google Home are devices for, well, the home and, although we might talk a lot about it, the extent of our desire to have computing interaction with our home is surprisingly limited. Jan Dawson made this point well recently. The current “smart home” market is composed of early adopters because your fridge can’t ever be that smart and you’ll still have to load and unload your washing and put coffee into the coffee machine.

What’s more, most of us spend most of our time outside the home. And that’s where we need our devices. So far, we haven’t quite taken up the idea of chatting away to our headsets in the manner of Joaquin Phoenix in Her. But, bear in mind, social norms can shift; our parents’ generation would have been (and still are) appalled by the way teenagers today will ignore each other while across a table, or their elders, in favor of the glowing screen. And 30 years ago, walking along the street talking aloud to nobody was a sign of insanity. Now it just means you’re on a call. (Spot the difference: if you’re wearing earphones, nobody will turn a hair.) If intelligent assistants really take off, devices might shrink away too. Though every time I follow that reasoning, I arrive back at the need to digest visual information. We’ll still need screens, and hence housings for screens, and hence design.

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That this potentially poses a threat to Apple doesn’t mean that everyone’s safe. Amazon’s pretty safe; if people order things via the Echo, it benefits. But Google relies on people looking at ads for 90% of its revenues and rather more of its profits. If we don’t look at a screen, how do we get the ads? Perhaps it will adopt the solution chosen in the UK by the “Speaking Clock”, a phone service you called to get the precise time read out to you. In 1986, the newly privatised British Telecom put it out to sponsorship, which was eagerly snapped up by Accurist – and so for 22 years, you would be told, “the time sponsored by Accurist is…”

Maybe that’s how Google will adapt if voice is the new interface. Equally, maybe that will open the door for companies like Apple to charge extra so we don’t hear the ads. The invisible device might still yield a premium. It’s just a question of what you’re paying for.

Unpacked: Global Social Media Usage

Looking at many different social media networks/services from a global perspective, there are a few interesting trends, none larger than Facebook. Literally. On a global scale, Facebook not only has the most active users but also the most engaged ones. When consumers are asked how frequently they use specific social media sites/services, Facebook returns the highest at a global level than any other network.

Between Twitter, Instagram, YouTube, and Facebook, the latter has the highest number of customers saying they use the service more than once a day. In terms of consumers using it daily, and even more than once per day, Facebook is more level with services like Instagram and YouTube. Ultimately, this statistic is the one I’m most interested. All these networks/apps/services can state their daily active user numbers. However, knowing how many of those people come back multiple times a day is a key understanding.

Engagement matters when you sell ads. Not just duration but frequency. Adding to this, tracking the duration of these multiple interactions is also a key statistic to understand. But only Facebook would have this particular data. I say this because there are many bodies of research which suggest the longer a person is on a site where advertising is common, the more their brain learns to ignore the ads during that session. People who go back frequently tend to see more ads than those who spend longer times on a site but only as one session. This is one insight I learned from working with ad networks a few years ago. Which is why looking at frequency per day is more interesting to me than just daily usage.

Looking at the chart you will see WeChat listed. I looked at this data by China only (since that is where most of their active users are) to show how engaged WeChat users are in China. This is actually Facebook’s goal since WeChat is a platform by most definitions in China and has a deeply engaged customer base. I also show WeChat in China vs. Facebook globally to demonstrate the uphill challenge Facebook has in China against WeChat. We know Zuckerberg wants badly to get into China and views it as a major growth area but I tend to think the dust has settled there with WeChat. Facebook will have a challenge becoming the dominant network in China the way they are in other countries.

Circling back to WeChat’s dominance in China from a frequency standpoint. While it comes in at 54% of their users using it more than once a day in China (compared to Facebook’s global number 49%), WeChat’s global number is below 30% of active users accessing it more than once per day. However, that 54% local to China number is higher than the local, country only, statistic of Facebook multiple user sessions per day. The country with the most active Facebook users saying they frequent the site more than once a day is Sweden at 37%.

WeChat’s high-frequency usage in their home market is a sign of what can happen when a commerce platform, messaging platform, and social platform all come together in a single product. Facebook wants this to happen and, if they do, we will be checking all the markets we cover to see if daily frequency goes up. Besides simply adding new customers, increasing their frequency is a key to their growth in my opinion.