Imagining Office for the iPad

ipad-with-office

It’s no secret that Microsoft has been hard at work at a true touch-based version of its Office suite, not only for Windows’ Metro interface, but for iPad and Android tablets as well. But little has been revealed about its timing or its content. I’ve decided to let my imagination run free to create a mental picture of this office of the near–I hope–future. (I’m not the only one. Two of the most astute analysts of the tech scene, Ben Thompson (@monkbent) and former Windows and Office chief Steven Sinofsky (@stevesi) have been conducting on ongoing discussion of the future Office on Twitter.)

A key element in my thinking is that the Office users who really matter are in business, or at least professionals of one sort or another. Yes, a lot of consumers and students use Office today and will continue to. But they have many other options and are likely to continue to drift away from software that is more complex and often more expensive than what they need. Consumers are not the future of Office.

The new Office needs two drastic changes. The fairly simple one is to change the way Office applications connect to the cloud. Office 13, by default, saves files to SkyDrive/OneDrive, with SharePoint as an alternative. On Windows tablets there is a fairly simple workaround to connect with other services because they can be integrated with the file system. But neither iOS nor Android gives users file system access, so the Office tablet apps have to come with built-in hooks to a broad range of cloud services including private SharePoint sites, Dropbox, Box, and Google Drive (yes, really.)[pullquote]A good starting point is the realization that touch tablets are not going to be used much for the creation of complicated documents.[/pullquote]

The much hard part is designing apps that really work on touch interfaces. This will necessarily require a drastic simplification of the complex, menu-driven user interfaces which requires eliminating a lot of features. It’s long been a standing Microsoft joke that every user of Word utilizes only 10% of the functions, but everyone uses a different 10%. Of course, this is not actually true; I suspect a Pareto analysis would pretty quickly yield a common core of functions that nearly everyone uses and a galaxy of rarely used features.

A good starting point is the realization that touch tablets are not going to be used much for the creation of complicated documents. You might use a tablet, particularly if it has a auxiliary keyboard, to write a quick memo or do some simple spreadsheet computation, but you are not going to write a white paper or build a financial model. Those will be jobs to be done on desktops or laptops and only occasionally tweaked on a tablet.

In Word, for example, you will be able to dispense vast areas of functions, including many of the more complicated layout, formatting, and style options. It would be best if the applications embed any fonts use, since substituting from the limited range of fonts available on a table will almost always cause problems with the precision rendering of documents. No one in their right mind is going to be using a tablet to create footnotes, end notes, bibliographies, indexes, tables of contents, or tables of authorities. Does anyone really need WordArt, SmartArt, QuickParts or a long list of options that  don’t believe I have ever needed, even as a heavy user of Office?

On the other hand, what is inescapable? I think that one scenario that will come up a lot is someone creates a document, then sends it along to a reviewer, who may give it a look on a tablet. The single most critical option will be the full palette of reviewing tools, especially  Track Changes and Comment. For spreadsheets, tablets aren’t much good for creation, but they could be very useful for analysis of modest sized layouts. So while you can eliminate a lot of functions, you want to keep the analytical tools, especially pivot tables.

The process, in other words, is not the usual kitchen sink approach,but a very careful selection of essential tools based on a careful study of use cases. I can only hope that this process is already well along. It will take all the cleverness UI designers can come up with to get all of the functioned deemed absolutely necessary into a clean and functional tablet UI. As we have seen with apps such as Apple’s own iPhoto for the iPad, the UI is still a work in progress.

Another huge issue will be the price. I expect the logical solution for Microsoft is to include tablet versions with no additional charge in the consumer, education, and small business versions of the subscription Office 365, with a similar deal for corporate subscribers. That’s going to hurt a company that is used to charging a lot of money for its software, but it is the way the world works today.

 

 

 

 

 

Amazon’s Long Game With Hardware

Amazon has been a fascinating company to watch. My perspective with Amazon has always framed them as a retailer who fused technology to retail in brilliant ways. Only Amazon’s retail strategy was not in physical space but in the digital space. And their mechanism for commerce was to turn our computers into a cash register. With this backdrop, it is fascinating to analyze Amazon’s Kindle Fire initiatives.

When Amazon jumped into the e-book reader market it made a great deal of sense. Amazon had a differentiated advantage due to their massive investment in gaining digital rights to many of the analog books they were selling. The Kindle readers, tied to the Amazon ecosystem, dominated the e-reader space. During that time nearly every CES (Consumer Electronics Show) I attended grew in the number of fast followers trying to jump on the e-reader bandwagon. None did as well as the Kindle readers and it was simply due to Amazon’s ecosystem. Amazon had a clear differentiated advantage that translated into consumer value with their e-readers. So does that same differentiated advantage apply to their Kindle Fire strategy?

The Kindle Fire has not turned any heads with its sales. While we don’t know for sure how many Kindle Fire sales, the best estimates I’ve seen estimate them to be around 55m to date. Not bad but not incredible compared to the iPads sales over the same time period since the Kindle Fire launched. The issue, as I see it, is that the Kindle Fire does not have the same differentiated advantage that the Kindle e-readers did. With the Fire, Amazon is competing against the likes of the iPad which offers all the same experiences of the Kindle Fire and then some. So why is Amazon in the hardware business?

There are several ways to look at this. My initial belief when Amazon launched the Kindle Fire’s was that Amazon would tightly integrate their commerce experience on the Fire tablets. Thus creating the best shopping experience within Amazon’s ecosystem on the market. This did not happen. The Kindle Fire has been more a media tablet than a commerce tablet for Amazon’s ecosystem.

In fact, interestingly, the Amazon tablet in general is driving less e-commerce spending than other tablets on the market. Data from a 2013 Monetate survey reveals that Amazon Kindle Fire users spend approximately $95 a quarter in digital transactions from the device while the iPad average quarterly spend is approximately $124 dollars. Now we can attribute some of this to the fact that there are way more iPad’s than Kindle Fire’s in the world. But I do think the this is still an important point to watch strategically for Amazon with the Kindle Fire.

Fire in the Enterprise
Amazon has recently added a number of enterprise specific features to the Kindle Fire. This, is actually fascinating and indicative of the types of usages we are observing with Kindle Fires. There is no doubt the Kindle Fire is a great media tablet but the idea that people are wanting to check email and perhaps even review documents is interesting.

We had heard that IT managers were noticing Kindle Fire’s were being brought in by consumers to use to watch video or play games during breaks and lunch. Often times these same customers were interested in checking email during these times as well. This is where we believe the enterprise friendly features Amazon built in were born from.

Without question there are better tablets on the market for doing things like productivity which is why we see iPads and Samsung tablets higher up on the IT managers support list. But it has been interesting to see how this has developed for Amazon.

The Hardware Strategy
With regard to the Kindle Fire, I have concluded that this business is important to Amazon but not essential. Like all of Amazon’s investments in businesses there is a long term goal. The Kindle Fire right now is playing more of a data gathering tool than anything else for Amazon. They are learning how tablet customers and more specifically Amazon customers using tablets are doing with regard to e-commerce, media consumption, and app usage / web browsing.

In fact, if the tablet market is hitting a slow down period then this will impact Amazon quite a bit given their strategy. It is likely that as of now, Amazon is stuck in the middle from a hardware standpoint.

This will have benefits in the long term as Amazon can continue to customize their offerings uniquely for their customers. Amazon exhibits a similarly valuable trait to Apple that continually gets mis-understood by investors and main stream media — patience.

Big Tablets and The Shift in Mobile Computing

I believe 2014 could be a big year for bigger tablets. The bulk of the tablets sold over the past few years have been tablets in the 7-8″ range. By our estimates the install base of tablets 9″ or larger is only 33%. Which highlights the point that most tablet sales over the past few years have been in smaller tablets.

Now, if you read what I wrote a few weeks ago you know that we believe we are on the cusp of a new buying cycle for more computing capable devices. While we can argue that even some smaller tablets are computing capable, we can’t argue that the more productive someone wants to be the more they may value a larger screen.

We believe we are on the cusp of a market buying cycle for larger screen computing devices. Some of these may be notebooks, some may be desktops, but we think the larger screen tablet has a real opportunity to take a percentage of sales in this upcoming refresh cycle.

Bigger Tablets Trending

It seems like most of the larger PC OEMS and tablet OEMs sense this opportunity as well. Samsung introduced their Tab Pro 12.2 at CES this year. I got to spend some time with this product and can attest to it being more impressive than I originally thought.

I was somewhat skeptical of the 12″ tablet form factor but after seeing the Tab Pro 12.2 I can see this being an attractive form factor for many large screen tablet intenders. One of the things that impressed me the most with Samsung’s new offering was the virtual keyboard. I am a heavy iPad Air user and I can type faster than most people on the virtual keyboard with ease. Samsung’s keyboard was even a bit larger than the iPad’s allowing me to incorporate my pinky into they typing process, which is a finger I don’t use on the iPad.

Ultimately Samsung’s, and all the other Android OEMs, challenge with larger tablets will be with the apps. The iPad is the uncontested leader in tablet optimized apps and I don’t see any evidence that is changing anytime soon. For larger Android tablets to have a strong case as more productivity devices the way the iPad Air is the tablet optimized Android app ecosystem will need to grow dramatically.

Emerging Market Growth

Interestingly the potential for larger screen tablets to grow as a percent of overall tablet sales in not limited to developed markets like North America and Europe. I met with several of the main SoC companies providing chips for tablet OEMs in China and India who told me they are seeing demand for larger tablets as well. While the US and Europe had a higher install base of tablet 9″ and larger, emerging markets had a very low install base of this form factor.

Several of the devices going into emerging markets are also slated to be a duel-boot Android and Windows tablet. Micromax, a popular brand in India, was showing off their LapTab dual-boot Windows 8 and Android tablet device. They were telling me the demand for this product in India was quite high. I remain quite skeptical of the dual-boot Android and Windows tablets in developed market but I can see them doing moderately well in emerging markets.

Consumers in many of these markets have never owned a PC. And while they are increasingly purchasing small tablets for primarily entertainment use cases, at some point in time they may graduate to more computing capable tablets. The likely-hood is that many of these will be larger screen devices.

All these points add to narrative that leads me to believe that 2014 could see strong growth of larger tablets. The reality is that bigger screen computing devices remain relevant for hundreds of millions of consumers. In emerging markets we are seeing new computer users coming online with tablets first.

Larger screen tablets will play a critical role in the future of computing and we think 2014 is the year we start to see progress in that direction.

Below is my firm’s slide showing forecasts for larger tablets.
Screen Shot 2014-02-05 at 8.31.19 AM

Apple First Quarter of 2014: All Eyes on the iPhone

Apple had the kind of quarter companies long for. The established new record number of sales in iPhones and iPads and had the best of any technology company. Yet the iPhone sales will remain a focal point for most. While Apple sold 51 million iPhones, more than any other previous quarter, that number was a bit short of most estimates. The reason for this is an important one to understand.

Much of it had to do with the US market. Carriers moved to a 24 month upgrade cycle from a 20 month. The implications on this were speculated but what I believe it resulted in was an even longer extension of the phone life cycle. We saw a little bit of this with Verizon’s recent revealing that their fourth quarter smartphone activations declined in 2013 vs. 2014 1 million units. Verizon has a significant number of consumers on their network that fall into the late majority and laggard category of consumers. These consumers upgrade more on a need vs. want basis. Up until recently the mobile phone category in general (not just smartphones) has continually kept pace with the 20-24 month cycle. One of the things we believe we are seeing is the lifecycle extension of smartphones in the US. So many late adopters who have come into the market the past few years may impact the annual cycles more than some realize. This will be a key thing to watch.

The 5s turned out to be the hot ticket item and it was wise for Apple to re-shuffle the manufacturing mix. One wonders how many iPhones they would have sold if the mix was anticipated correctly from the beginning and Apple was not supply constrained with the 5s.

Ultimately Apple lost smartphone share in the global market. Apple is now the second company besides Samsung to to ship 50 million units in a quarter. However, Apple did it with a much more focused lineup and a much higher margin. Both impressive feats in my opinion. However, Apple’s market share of the global smartphone market is now 15% which is down from 20% in 2012. This is a key growth statistic to watch. The iPhone needs to remain a growth business and Apple must focus on grabbing new land (like China to do this.) I estimate Apple to grow market share in 2014 perhaps back to and even beyond their previous 20% of 2012.

The Mac did well in Q4 which is impressive given how poor the PC category is doing and has done. I maintain the Mac remains a growth story for Apple over the next few years. Macs are now nearly 7% of the global PC install base and this percentage will be a key area to watch.

The iPad remains a bright spot and given seasonal trends of the PC industry are shifting to the tablet category this is of no surprise. The iPad represented 31% of the total PC sales for Q4. While the iPad may not be considered a PC that statistic reveals the volume of the iPad compared to the PC. A further point is that the iPad’s 26 million sales was more volume than any PC vendor shipped of all their PCs in Q4. Lenovo who shipped the most PCs in Q4 shipped 14 million PCs.

I stick to my growth story points for Apple in 2014 as key narratives to watch. I appreciate and understand the desire for Apple to start to add new segments or categories to add further revenue growth but also highlight the reality that there is still ground to gain in every category they currently compete.

The wording Apple executives choose to emphasize ultimately underscore the priorities. They spent time talking about iOS usage share, customer satisfaction, loyalty rates and even discussed their ecosystems momentum in commercial accounts. All are designed to highlight that Apple has confidence that once people get into their ecosystem they rarely leave. This is key as we grasp the global growth story still ahead for the technology industry and Apple’s role in it.

Three Growth Story Lines for Apple in 2014

The more I study at the economies of scale within the tech industry the more I taken aback by the opportunities that lie ahead. Some opportunities like the traditional PC may not be big market comparatively but they can be very healthy markets. Others, like smartphones and tablets, are not only very large markets but they are also extremely lucrative ones.

As I have studied the why behind many market developments from the past 30 years of this industry it is truly amazing how monumental shifts in the market have favored Apple. Things I’m not sure anyone could have predicted nor anticipated. Apple simply kept being Apple and stayed true to their purpose and vision and found themselves at the right place at the right time to capitalize on these shifts.

Looking at how many of the largest global markets are developing there are several important Apple growth stories to highlight.

The iPhone (Literally)
For the past few years, analysts have been noting a slowdown in not just particular quarter of iPhone sales but also the smartphone category overall. We are witnessing the maturing of many markets of the smartphone category. This is a key observation because when a category reaches maturity the market begins to act different. One of the key things we have observed over the past 30 years with regard to consumer markets is that when they mature they segment. The result of this segmentation is increased competition and increased consumer choice. Diversity is a fundamental to mature markets and critical as they reach post-maturity (like the automotive market for example).

Because of this we anticipate Apple to start even further diversifying the iPhone line and most logical roads lead to a larger iPhone as a part of an expanded iPhone family of products. However, a larger iPhone is actually a key growth strategy (excuse the pun) for the global growth of the iPhone.

While sales of big phones are relatively small comparatively in the US there increasingly the norm in China and to a degree India. On top of that, big phones are a key to premium segments of each of those big high growth markets. Our conclusion is that for Apple to compete in premium in China and India a larger iPhone is the key.

We believe a larger iPhone could spur new growth for the iPhone even in saturated markets like Europe and US but also be a catalyst to grab new land in markets like Asia and India.

The Mac
I’ve been anticipating the Mac growth story for some time but I believe we are finally on the cusp of it. Without question the total addressable market for PCs has shrunk. That being said we believe the fundamentals of a significant market refresh are in place. Our research indicates that a high degree of self-awareness now exists by those who know they need a desktop or notebook form factor. Because of this we are observing that worldwide sales of notebooks in the higher priced tiers actually grow where they have typically remained flat. With this we are anticipating an ASP increase in the PC category as consumers realize that if they truly need a PC they want to buy a good one, which will last, and deliver the best value for the money, since they will likely hold onto it for 5 years or longer.

The fundamental shifts in the PC landscape we are observing favor Apple’s strategy with the Mac. The Mac also has the most to gain since it is starting from a lower market share percentage than Windows based PCs. Our estimates are that Macs make up approximately 6.25% of the total PC install base to date and represented 5% of PC sales in 2013. We estimate the percentage of Mac install base to surpass 10% by the end of 2015 with a target potential of 20% of the total WW PC TAM.

The iPad Air
Much of the focus over the past year has been on the iPad Mini. But a careful analysis of the iPad install base would highlight that there are more larger screen iPad’s in the current install base of Mini’s by nearly a 2-1 ratio. We believe if a larger iPhone comes to market it will challenge the existence of the iPad Mini. In fact, one way to think about the iPad Mini is as a transitionary product. This does not mean the iPad Mini goes away and it may–and should–remain as a part of the portfolio. We simply feel the volume opportunity is with the iPad Air.

Part of this logic is due to my conviction that the iPad Air is the new general purpose mass market computer. We believe that many consumers now are self-aware of their own computing usage habits and recognize the PC is overkill for 90% or greater of their everyday use cases. They still do value a larger screen and highly mobile compute device and we believe this market awareness favors the larger iPad to absorb a significant portion of the upcoming PC refresh as well.

We also believe the iPad Air represents a significant growth opportunity in markets where PC penetration is very low. We believe the iPad has a a groundbreaking opportunity to bring computing to the masses as the first personal computer for many in developing markets.

Summary
Ultimately we believe market fundamentals are shifting into the favor of Apple’s strategy. We also believe other vendors will catch on to this which is why we are anticipating certain categories to continue to see ASP increases. Seasonality plays a role in every vendors growth and understanding each regions seasonality cycle is key. But the bottom line is we are seeing positive signs in developing markets that those price sensitive customers who entered the market with low-cost phones, tablets, and PCs, are now starting to move upstream and become more value conscious than price conscious.

Well still less than half the planet yet to own a smartphone, PC, or tablet, the growth opportunities in this industry remain significant.

The iPad Advantage

Apple’s new commercial, which aired yesterday, sent a message that I feel is the defining theme which sets the iPad apart from the competition. Here is the commercial in case you haven’t seen it.

Beyond the video Apple, has dedicated the landing page of their iPad website to this theme. The tagline “what will your verse be?” In a similar vein I pointed out in this article that the power of the iPad is in its potential. Which is why the marketing around the iPad from Apple all centers on this idea that the iPad is not only powerful but its advantage is in its multiplicity.

The iPad is without question the most powerful general purpose computer in the market today. In order to grasp that statement there are two fundamentals to understand.

Form Factor

The iPad’s form factor is the basis for its diversity as a general purpose computer. Anyone who designs hardware will tell you that the form defines the function. Yet what is unique about the slate form factor is how many forms it can take that other computing platforms can not. To grasp this, simply look at the many use cases and stories Apple uses to showcase how the iPad is being used and ask yourself whether the slate or the notebook form factor are more ideally designed for each.

The PC is for certain a general purpose computer. Yet its form factor limits all its general computing capabilities to only be taken advantage while in a fixed position either at a desk, or with the device sitting on your lap. The iPad, and the slate form factor take this idea of mobile general purpose computing to an entirely new level. The iPad enables its general purpose computing power to be used in both stationary and mobile situations. The iPad liberates general purpose computing from the lap or desk and enables it in contexts where computing was absent before.

Apple is showcasing how the iPad is being used on the sidelines by sporting teams, going into the depths of the oceans to do underwater research, on movie sets, in art studios, by DJs in clubs, and a host of other use cases. All places where a notebook form factor could and never would have gone.

One thing that goes unmentioned in this is the iPad’s aspect ratio. Apple has gone against the grain of Android OEMs and Microsoft tablet OEMs by staying with 4:3 as the aspect ratio for the iPad. At first glance the value of this is not recognized yet it is significant. By using 4:3 as the aspect ratio the iPad is able to be used in portrait mode and in landscape mode interchangeably. Microsoft’s Surface and other 16:9 tablets are nearly unusable in portrait mode given that 16:9 is largely a wide screen format and while Windows 8 supports portrait mode nearly every attempt to use it this way is clunky and burdensome.

While its not as bad as Android, there is simply not many apps that support large screen portrait mode to begin with so the use cases are fairly minimal simply due to the lack of software. Which brings us to the second fundamental.

Software

As important as the hardware element of the iPad’s advantage is the software advantage is equally important. I don’t need to beat this point over the head since it is common knowledge that the iPad software ecosystem towers over the competition. But it is this fundamental point that I feel enforces the iPad’s value as a general purpose mobile computer. This is why I think Apple is showcasing its software advantage so heavily. Because if you can do more with this product then it should be worth more.

Apple knows the iPad is not the cheapest thing on the market and it never will. Therefore the software advantage, which Apple will have for the foreseeable future, will be a key message to communicate to potential customers. The tablet market is past the early adopter stage and has gotten quite a bit more competitive. Therefore Apple’s positioning of the iPad over the competition is key. And it is the iPad’s diversity to support each and every use case a consumer would want to use it for which is the iPad’s advantage. This is what Apple needs the market to understand. And if they can they will clearly demonstrate why you should not only buy an iPad but why it is worth paying more for an iPad.

Apple has an incredible opportunity with the iPad. Smartphones are a great category and they have changed how we communicate and having a pocket computer will change public spaces more than many realize. But tablets get me excited about what they can represent as the future of computing. Many Apple observes put much of Apple’s future on the iPhone and I don’t think many realize how important the iPad is to Apple’s future but also the future of computing.

Tablet Trends in 2014

No question the tablet narrative will continue to be a key part of the conversation in 2014. While an entire report is needed on the subject of tablet trends in 2014 I thought I would highlight a few of the major trends we see for the tablet segment in 2014.

1.Tablets Will Continue to Eat PC Sales
2013 has been a very bad year for the PC. After having a great run, PC sales will end the year at 2008-2009 levels. Many OEMs and others who have deep vested interest in the PC market will continue to claim that 2014 will not be as bad as 2013. Our forecasts are still projecting PC industry declines in 2014. While they may not be as steep as 2013 we still see the PC market shrinking in annual sales.

The tablet is the culprit. And in particular the tablet is effecting Notebook sales more than anything else. As tablets like the iPad continue to be accepted as computing devices and as the 2in1 form factor from Windows OEMs flood the market, we will see traditional PC sales continue to fall.

2.Bigger Tablets Will be Released
We think that to offset the decline of PCs OEMs will begin to look for ways to differentiate and gain attention to the tablet form factor. Because of this we think bigger tablets will start to be a trend in 2014. Many of these will come with detachable keyboards but will be elegantly designed slates.

It is also likely that some of these may dual boot Android and Windows 8.1. This way when you are in tablet mode you can use a tablet OS with Android and when you are in computing mode you can use Windows 8.1.

Rumors have it that Apple is also working on a larger screen version of the iPad targeted at the iPad power users. If Apple does this it will only accelerate the work of competitors to create larger screen tablets and bring them to market at a variety of price points.

3.More Tablet Market Segmentation
The tablet market is already splintering where high-end tablets are separating themselves from the low-end in terms of computing use cases. But media tablets are still prevalent. Kindle Fire’s are selling well, so is the first generation iPad Mini, as well as Samsung’s 7″ and 8″ tablets. These are being used heavily for media and entertainment and this purely media tablet segment is growing.

But we are also now seeing growth in tablets aimed exclusively at Children. Tablets like the Nabi tablet, the ClickN Kids 7″ tablet, and the Samsung Galaxy Tab 3 children’s edition, are starting to see decent sales volume.

This makes sense for certain ages of kids, where the parents may feel more comfortable giving them one of these dedicated tablets pre-loaded with games and media but with the option to acquire more, over handing the kids a more expensive tablet which the adults use as well.

4. 2-1 Tablet/PC Hyrbrid Will Flop
Mark this under the trend I hope I am wrong about. The data points I am seeing right now do not support this form factor. Keep in mind this form factor is not going after those consumers interested in buying Android tablets or iPad’s even though Microsoft, Intel, and all the PC OEMs hope that it will. Rather, for those consumers who will look to replace and upgrade their PC in 2014 I believe will buy a PC in the shape of a desktop or a notebook and a separate tablet.

While I understand the perceived appeal of a converged device, the challenge I anticipate is in the design of the 2-1s we will see hit the market. These products are designed more like a notebook than a tablet. Given that our research indicates a high level of satisfaction with the pure slate form factor. 2-1s are designed to support more notebook like usage models than tablet usage models.

Because of this we think the smaller Windows pure slate tablets, iPads, and a few Android tablets will fair better in 2014 than converged 2-1 devices.

5. Google will release a Chrome Tablet
Lastly, I like to throw in some more bold predictions. We think Google is still looking to be aggressive with Chrome and develop the HTML app developer ecosystem for touch based web apps. This is why the Chromebook Pixel was so interesting as it got developers thinking about touch based Chrome apps.

We think this was a baby step for Google to release a ChromeOS based tablet. This would be very low-cost, be focused around the web, and could be a fascinating product.

2014 is going to be a good year for tablets. While they may come in many different shapes, sizes, colors, and prices, they will still contribute to the rapid growth we are seeing in this exciting category.

The Next Big Challenge for the PC industry

By all accounts there are about 2.8 billion people on the planet that use technology and in various ways are connected to the Internet. One third connect via PCs while the other two thirds use smartphones, tablets and other connected devices that have sprung from the Post PC Era. What is quite interesting is that for the first 30 years of the PCs existence there was little innovation in user interfaces. PCs used mice and keyboards to navigate and interact with digital information. But by 2004 touch had been introduced in some very early tablets and smartphones and it took Apple’s introduction of the iPhone in 2007 to move touch into mainstream of user interfaces. Today all mobile devices use touch for navigation and input and with the introduction of Siri and Google Now, voice has entered the scene as another form of input.

As we move forward, the goal of the tech industry is to bring the next 1 billion on line by 2017-2018. But there will be a big difference this time when it comes to delivering new devices and services to this new crowd. This new age of users will not be burdened or even tied to legacy UI’s and apps from the past. While mice and keyboard will still be optional UIs for some, the majority of the new user will enter the connected world via new UIs that include touch, gestures, voice and even bio-senors that will be used by them to navigate the next Internet age. More importantly, I estimate that at least 80% of these new users will come in through some form of mobile device and that the PC and laptop will have very little interest to them.

The ramifications of this for the tech industry is huge. PC vendors of the past will have to adapt or they will die. I see Microsoft having the greatest risk in that they are so PC centric with so much legacy baggage that making this transition will be difficult. The problem with Win 8 is not the software, but users ambivalence. Unless you are a business user tied to their apps, Win 8 and its lack of apps has little appeal to the mass market. Also, Android and IOS more than deliver what most people need and will continue to rule the OS world of this new digital era.

The biggest challenge though is two fold. The first is related to user interfaces. Mice and keyboards will have minimal interest to these next billion users. The majority of these folks will come in through mobile devices of the Post PC era. That means touch is the new “keyboard” and perhaps gestures is the new “mouse” for these folks. We also see voice playing a more important role in UI’s for the next billion users although perfecting this by 2017-2018 is not very likely. Siri and Google Now show voice’s functionality today to a point but for voice to be integral to the mobile experience it will need better speech to text recognition and more powerful voice accuracy for it to be really useful as a future UI.

The second thing that will need to be in place is a powerful service’s engine that ties these next billion users devices to the cloud and makes interacting with the cloud and their devices easy to do and seamless. Of course, the cloud based apps, synchronization, storage and communications layers have to work harmoniously too. Apple, Google and Amazon have a huge lead in this space and it will be difficult for others to keep up. On the other hand we are talking about a billion new users throughout the world and there is great opportunity to create regional versions of these services as well as deduced devices just for these regions too. The idea of one size fits all won’t work for the next billion users who will want variety in hardware and services.

I see the next two years as pivotal for all of the major players in the PC and CE industry. For the PC vendors, they have to move on and think of their PC business more in terms of a mature market that needs to be kept steady. There is still room to make money and innovate in PC’s and laptops but it will never be a growth market again. Instead they need to focus on mobile products and services that meet the actual needs of these next billion users and put serious R&D into innovating around these new computing paradigms. For the Telecom industry, breadth will be important. They too need to keep investing in building out networks, making them faster and secure to stay competitive but also expand their reach. Sprints move to buy TMobile is a good example of this. They also need to bulk up their services offerings. As for the CE companies, they have to add Internet connections to the majority of the devices they make. Gone are the days when most CE devices are islands unto themselves. They need to think connectivity and sensors and move to make most of the products they make smart. This goes for devices for the home, cameras, TV’s and even toys.

Also, all of these industries need to invest heavily in new user interfaces for their devices in the post PC era. The next billion users will demand a whole host of new ways to communicate and interact with their digital products and ultimately I see this as one of the tech industry’s biggest challenges in the near future. The good news is that there are at least another billion people clamoring to become part of the digital revolution. However, for them to come to the digital party the tech companies have to readjust their thinking about what it will take to interest and reach these new users with their brands and services and invest accordingly if they want to be a company that interests the next billion people who will come online in the next 3 to 4 years.

Microsoft Needs Their Hell Froze Over Moment

hellfrozeovercolorIn a simple tweet today from Katie Boehret. As she was cleaning out her desk for her transition from the Wall St. Journal to the new venture with the All Things D team, she found a poster from when Apple released iTunes for Windows. The famous catch phase Steve Jobs used when he announced this was Hell Froze Over. I was at this event and I recall this moment vividly. Tim and I did a number of media interviews after this announcement and we pointed out the importance of this move in driving the growth of the iPod and what in essence has become the foundation for the iTunes ecosystem and Apple’s iPods and now iPhone.

As I reflected on this moment and how Steve Jobs and Apple positioned this moment, it made me think that Microsoft needs its hell froze over moment. What this is exactly for Microsoft I am not sure. The obvious one is simply bringing Office to other platforms in a more rich and meaningful way. However, a more controversial strategy could be for Microsoft to fully embrace Android.

BlueStacks has developed solutions that allow Android apps to run in a Windows environment. Whether Microsoft works closely with BlueStacks on this or does something on their own, this could be an interesting strategy where Microsoft embraces an environment foreign to their own but uses it to strategically advance their larger agenda. Windows Phone needs apps. They must adjust their tablet strategy as Windows 8 is not the answer. Embracing Android could be an ecosystem booster if it is done right and the useful parts of the two solutions are integrated seamlessly.

All of this assumes, of course, that Microsoft does have a larger agenda and strategic plan, although I am somewhat skeptical of this assumption and its validity. Perhaps a new CEO can straighten out their path. But it remains true that Microsoft is reaching a point where they need to be willing to take more risks and be more hungry to not be passed by the mobile phenomenon.

Glimmers of Hope for the PC Industry

There have been some interesting data points over the past few quarters that I’ve been following. Most of them are related to some specific interplays between the tablet market and the PC market. As many of our readers know, I divide the tablet category into two categories–for now. One is the market for more capable tablets like the iPad, Surface fits into this category now as well, and a slew of other new tablets called 2-in-1s (I dislike the term) coming in 2014 will as well. Then there are tablets which are purely more media consumption products. Now what is interesting from a data point is that the US, who is one of the largest regions for notebooks and desktops, also happens to be one of the largest regions for tablets as well of both categories. But perhaps more importantly, the US is one of the largest markets for iPads. The rest of the worlds big markets are higher consumers of less expensive, commodity tablets, which is actually where much of the tablet growth has come from the past 6 months. So with these observations in mind let’s look at a few charts.

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What this chart is showing is that it appears the PC market is stabilizing in the US. Meaning that quarterly negative growth is lessening. What it also shows is that tablet growth is also slowing in the US. I believe there are several explanations for this.

While I believe a certain class of tablets will suffice for the masses as a PC replacement, the majority of the installed base is still using them in conjunction with their PCs. It is important to remember that over 90% of tablets sold are sold to EXISTING PC owners. Many PC owners find that owning a capable tablet allows them to delay their purchase or need for a new PC. Most are still using their tablet and keeping but using their current PC less. This would explain many data points we see from comScore and others showing PC usage high during the day and tablet usage high during the evening.

The question now becomes: Are many of those tablet (mostly iPad) owners finally ready to start upgrading their PCs? This is the theory the PC industry hopes is true. I do believe there is some merit to this theory. However, it is going to take at least another six month’s for us to have a clearer picture. My hunch is that the tablet slow down picks back up this holiday Q4 and notebook and desktop sales remain negative. In fact the Consumer Electronics Association Black Friday and Cyber Monday survey’s indicated that tablets were the second most frequently purchased product at 36% to the notebook which was 23%.

How negative notebooks and desktops are in Q4 is a key point. If it is around -4 to -5 or better then this is actually good news as it would add to the theory that the market is stabilizing. I fear it may be off more than that, but this scenario may also be interpreted as a good sign for PC refresh in 2014.

The other bit of good news is that the higher-tiered price bands of PCs are doing better than lower tiers.

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As you can see the chart shows the greater than $400 segment as doing better than the less than $400 segment. Even the premium segment of PCs is holding steady mostly thanks to Apple.

Looking forward, if the PC market is stabilizing this is good news. We could very well be looking at a pendulum swing in the industry where PC slowdown and tablet slowdown off-set each other in particular years. PCs may be slow during tablet refresh cycles and tablet refresh cycles may be slow during PC refresh cycles. The key point in this scenario is that tablet refresh cycles will be more frequent that PC refresh cycles.

2014 will be an interesting one to observe these trends and the interplay between tablets and PC. I feel that by the end of 2014 we will have a much clearer picture of this somewhat symbiotic relationship.

Tablet Metaphysics

Are you ready for some Tech Metaphysics?

“Aristotle drew a distinction between essential and accidental properties. The way he put it is that essential properties are those without which a thing wouldn’t be what it is, and accidental properties are those that determine how a thing is, but not what it is.

For example, Aristotle thought that rationality was essential to being a human being and, since Socrates was a human being, Socrates’s rationality was essential to his being Socrates. Without the property of rationality, Socrates simply wouldn’t be Socrates. He wouldn’t even be a human being, so how could he be Socrates? On the other hand, Aristotle thought that Socrates’s property of being snubnosed was merely accidental; snub-nosed was part of how Socrates was, but it wasn’t essential to what or who he was. To put it another way, take away Socrates’s rationality, and he’s no longer Socrates, but give him plastic surgery, and he’s Socrates with a nose job. ”

~ Excerpt From: Thomas Cathcart. “Plato and a Platypus Walk Into a Bar.”

Now what the heck does all of this have to do with Tech and Tablets? Well, I’ll tell you.

One of the major mistakes that Microsoft and its OEM partners are making is that they are failing to properly distinguish between the “essential” and the “accidental” properties of a tablet. Here’s two opposing examples to illustrate that point.

KEYBOARD

If you take away the keyboard from a Notebook computer, it is no longer a Notebook computer. It can’t function. But if you take away a keyboard from a Tablet, it is still a Tablet. Using Aristotle’s definitions, a keyboard is ESSENTIAL to a Notebook computer but it is ACCIDENTAL to a Tablet computer.

With me so far? Here’s a second example.

TOUCH

If you take away the touch user interface from a Tablet, it is no longer a Tablet. (See Microsoft’s failed attempts to create a tablet from 2001 until 2010.) It can’t function. But if you take away the touch user interface from a Notebook computer, it is still a Notebook. A touch user interface is ESSENTIAL to a Tablet but it is ACCIDENTAL to a Notebook.

Just one more step and we can bring it home.

PIXEL INPUT IS INCOMPATIBLE WITH TOUCH INPUT

Both Pixel input and Touch input require a metaphor that allows our minds to grasp the use and usefulness of that input. For example, menus and scroll bars are standard fare on Notebook and Desktop computers but they are anathema to Tablets. Why? Because menus and scroll bars are too small for multi-pixel finger input. On Tablets, menus are replaced by large buttons and scroll bars by replaced by “flicking” the screen up or down. This is not minor matter. A wholly new, built from the ground up, Touch User Interface is ESSENTIAL to a Tablet.

Recap

Touch is ACCIDENTAL to a Notebook computer. It’s plastic surgery. It may enhance the usefulness of a Notebook but it doesn’t change the essence of what a Notebook computer is. A keyboard is ACCIDENTAL to a Tablet. It’s plastic surgery. It may enhance the usefulness of a Tablet, but it doesn’t change the essence of what a Tablet is. Further — and this is key — a touch input metaphor and a pixel input metaphor must be wholly different and wholly incompatible with one another. It’s not just that they do not comfortably co-exist within one form factor. It’s also that they do not comfortably co-exist within our minds eye.

In plain words, it’s no accident that tablets and notebooks are distinctly different from one another. On the contrary, their differences — their incompatibilities — are the essence of what makes them what they are.

Big Tablets Could be a Big Trend

There continues to be a lot of talk around tablets which are larger than the traditional 10″ screen sizes. Rumors have it that Apple is working on a larger iPad and that Samsung is as well. While I don’t think it makes sense for Apple to make a larger tablets, and Samsung will experiment with every screen size, there may be a small role for larger tablets. Before I dive into this topic I want to level the discussion by establishing some definitions.

By tablet I mean a device that is designed as a pure slate. Something like the iPad for example. This can be used with our without a keyboard but is not dependent on one as a part of the design. Devices like convertibles and hybrids (which Intel now calls 2-1 computers) are not tablets in my opinion. Some of them may bleed over and include tablet features but they are not pure tablets.

There is no question in anyone’s mind that tablets are stealing sales from traditional PCs. IDC estimates that 2013 will end at a negative 9.7% for the year. In their press release from last a few months ago they stated”

The market as a whole is expected to decline through at least 2014, with only single-digit modest growth from 2015 onward, and never regain the peak volumes last seen in 2011.

Thanks to tablets, the market will never regain the peak volumes last seen in 2011. Very telling.

Yet even with this “PC is dead” narrative there are still many complexities. For example, if you have used a tablet for any length of time to do something considered more productive then you know these task are better experienced on larger screens. In fact in our consumer interviews they continually explain how when they go to edit a video, image, write a lengthy email or document, manage finances, etc., they choose to go to their PC to do these tasks. So in line with the theory that people love their tablets but also want a larger screen to do some tasks the question is whether or not there is a market for larger tablets.

The answer is yes. How big of a market there is for larger tablets is still the real question. In the short term I don’t believe it is that big but as certain technologies evolve the demand could get larger. But in the short term there is an interesting exception happening in the market.

The One Interesting Exception
I have been using the Dell XPS 18. Which is a tablet disguised as a desktop PC all-in-one. This product has been an interesting experiment for myself given my questions both around big tablets and my ideas on how the technology evolves to make the market interesting.

The first thing worth pointing out is that these larger “slates” actually have much more appeal from a collaborative standpoint than anything else. Things like working together, learning together, playing together, etc., all start to become more interesting when we can gather around a large touch screen and interact at the same time.

Imagine doctors being able to show patients digital images or other material and interact with it in real time. Or teachers using these larger screen tablets to collaborate on an assignment or teach something specific to a student. Even at home my family has been using the XPS 18 to play board games together. One of my daughters is taking piano lessons on it. But then as soon as you want to use it as a PC with a mouse and keyboard you place it on the dock and it is ready to go.

Large tablets have a place in certain verticals this I am sure. I can see tablets at 13-20-inches doing well in these spaces where the value of a larger touch screen for productive and collaborative use cases are more prevalent. For the mass market consumers, I’m not sure sure. For this market I can see tablets playing out differently when it comes to big screen use cases.

I mentioned that the technology may not be there yet and this is specifically where. I believe that consumers would find value in “docking” there existing 7″ or 10″ tablets into a large screen set up. And by large screen I mean something 20″ or greater. My view on this is the crux of why I am skeptical of Intel’s 2-1 category and personally feel it is a solution in search of a problem. It seems to me the more interesting solution for buyers interested in tablets is to get a pure slate tablet in the 7-10″ range and then also get a larger tablet like the XPS 18 and use them together as a solution. This way you get the benefits of a smaller more portable tablet for mobility and then the larger tablet/detachable desktop for more big screen productive desktop modes as well as more collaborative ones.

This is the advice I would give to hardware companies asking me about screen sizes. I would say for tablets focus on 7-10″ because those are the volume sellers. Then look to innovate around these larger screen detachable all-in-ones and create value in having the small tablet and larger tablet being used together as a solution.

In an ideal vision of the future, consumers will use their 7″ or 10″ tablets as their primary computing devices. Given that consumers primary needs are not that intense and mostly consumption over productivity, this device is well positioned for that. However, when they want to do something like edit a video, picture, write a long document, etc, they can “dock” their tablet to a larger screen and begin using the tablet + dock as a full desktop PC.

This vision has been shared before by many but for technical reasons has not made it to a useful reality. In the future if the technology enables this solution, it could literally mean the end of the notebook as we know it.

Whether big tablets would be an instant hit with certain verticals I’m not sure. But the common wisdom is that the larger the screen the more productive you can be.

The State of Tablets in 2013

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

  1. 85% of tablets sales have been to existing PC owners
  2. Sub $100 make up 20% of quarterly tablet sales
  3. 55% of those who spend less than $200 had buyers remorse
  4. 52% of those who spent less than $200 intend to spend more on their next tablet purchase
  5. More tablets will be sold in the US in 2013 than any other region

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

The Current Landscape

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

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

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

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

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

Outlook for Q4 and Beyond

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

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

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

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

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The iPad and PCs

A few years ago I started making the point that our behavioral research findings kept indicating that once consumers started using iPads that their PC usage declined. My overall point was not that the iPad was being purchased to replace a PC but that it was being purchased because they could do more with it than their PC. It covers the basic needs of web browsing, social apps, word processing and more, but also into the areas of e-reader, portable dvd players, art canvas and more. When you see how versatile the app ecosystem has turned the iPad into, it is no wonder it is selling in droves and effecting PC sales.

When I wrote about my experience with the iPad, I took the angle that for most it will become their primary computer. I took a lot less flak this time around than when I made the same claim when the iPad first came out. But there is still the debate. To this discussion of iPad vs. PC i’ll add a little more context.

First, there is a gigantic segment of the PC market who we classify as lite computing users. A few years ago when processor specs got to a point where each increase was hardly noticed many in our industry started saying PC performance is good enough. While I don’t entirely agree, the point was that for most consumers they did have enough performance simply because they weren’t doing a whole of performance intensive tasks with their PC. I blame this on software/apps actually particularly in the Windows ecosystem. This is one of the fundamental reasons why Netbooks took off the way they did. Most consumers realized they didn’t need all the power being pumped into PCs at their high price points and they reasoned a Netbook was all they needed. This didn’t last long and I blame the form factor and the apps.

Enter the tablet. All the same fundamental observations remain yet this form factor is more inviting than a PC and the touch interface makes it a delight to use. The app ecosystem grows and depth and breadth turn it into something much more than a PC while all the basic PC tasks remain intact. This realization by most consumers that their usage with the iPad remained high and PC usage declined was a key point.

This is why for many consumers the iPad is easily the mass market PC for the masses. In fact, with the iPad in the lead, tablets are becoming and will increasingly become the most important software development platform for the advancement of personal computing.

Based on how I look at things, I decided to start tracking the iPad as a segment with the overall PC segment. Based on my estimates of the mix of full size iPad’s in the market over the past few quarters, I estimate that the full size iPad to account for 8% of the PC sales over the past few quarters. And with PCs declining and my optimism that the iPad Air will move in significant volumes, I expect Apple’s iPad share of computing to increase.

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Tablets: The Future Of Education

“(O)ur share of tablets in education is 94%. I mean, it’s sort of unheard of. I’ve never seen a market share that high before. ~ Tim Cook

Which Computing Form Factor Is Most Likely To Dominate Education?

Handicapped students.Phones? No way. Too small.

Notebooks? Possible. They’re so much smaller and lighter these days. And they can be easily carried to and fro and set up on desktops.

Tablets? Far more likely. Tablets can be used in so very, many, more ways than notebooks can and they can be also used as a notebook, if required. The most flexible, the least expensive, the most likely choice for education.

Which Operating System Is Most Likely To Dominate Education?

Student holding digital tabletWindows? Not likely. First, Microsoft is still not making a true tablet. More fool they. Second, Microsoft’s tablet products are woefully behind in the app software market.

Android? Not likely. Security, anyone? No true tablet software. And putting your entire school’s data in the hands of the world’s largest advertising agency? Android’s chances seem highly dubious.

iOS? Far ahead already. Massive lead in education-specific software. Apple’s business model promotes user privacy and device security. The winner so far. The most probable winner in the near term.

If You Grow Up Using An Apple iPad In School, When You Graduate What Will You Want To Use At Work?

beauty childI haven’t seen any one talking about this, but if the current generation grows up using Apple iPads in school, what long-term effect will that have on their computing preferences?

The answer seems obvious. And the implications could be profound.

Why Does the iPad 2 Still Exist?

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

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

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

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

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

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

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

Slide 1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Further Analysis of Amazon

Given that they key for Amazon’s growth is expansion of offering while maintaining a competitive price, the question must be addressed as to Amazon’s reach and what cap ex will be required to realize their max potential.

The first thing we need to think about is how many regions (continents) Amazon can legitimately tackle. Part of the convenience that I address in my article would be offset if the shipping time was too long. Meaning that the CapEx Amazon has spent on regional storehouses, mostly in America, to delver goods within one-two days for Prime members pays off in the convenience department. If customers overseas need to wait a week or more then the value of convenience drops, even with a lower price, vs. going to the store and getting what you need.

I have strong doubts that Amazon has any real shot in China. Namely because Jack Ma founder of AliBaba has created a consortium and is investing just over 16 billion dollars to create a service to get any good to any part of China in less than 24 hours. So if China is out, that leaves the rest of the world.

Amazon is obviously highly focused on America. As they should be given the consumer centric nature of American consumers. With the potentially infinite ceiling of the lifetime value of a US customer for Amazon, it makes sense that the US be a “prime” sector for Amazon to focus on. Amazon still has quite a bit of growth ahead in just the US only let alone the rest of the world. Staying on the US, I am confident that at some point in time Amazon will offer either same day or less than 24 hour shipping to US prime customers. This increases the validity of the point of a non-reduction in CapEx as a profit switch strategy.

Other smaller countries in the EU will be interesting for Amazon to focus on as well to deliver similar solutions to the US. But the size of the United States will continue to make it one of the biggest grounds for Amazon.

On thing that is key to address is what happens to physical retail. I don’t believe Amazon will bankrupt every retailer customer but I do believe they stand a chance to bankrupt most of the ones they choose to compete with. Particularly those who offer non-time sensitive items. Electronics retailers will likely fall first. Perhaps clothing retailers go next as the shift to online spending becomes the norm.

That being said, I don’t think physical space goes away. Perhaps retailer figure out how to sustain by capitalizing on showrooming as a business model. Or perhaps retailers can target customers when they are in store to offer more competitive pricing than even Amazon. Either way physical space must evolve if it wants to stay relevant. Competing on price and selection with Amazon is likely not the winning strategy. To compete with Amazon retailers must focus on what they have that Amazon does not. A location in physical space. Furthermore, they need to focus on what they can do with that physical space that is not trying to compete with Amazon on price or selection. Specifically, I feel retailers need to focus on the human element and more specifically community.

For example, Radio Shack is beginning to invest in Arduino products that appeal to the emerging maker community. This community is eager to build things yet the value Radio Shack can offer that Amazon can’t in this example is worships, lessons, networking, and more that specifically appeal to these communities. As this tinkering group learns about new ideas they can then buy new parts or kits right there in Radio Shack and go home and work on them. In this model, there is a value to getting what you need and going home to work on it while the lesson is fresh rather than waiting.

Similarly cooking stores do this now. Many cooking stores offer classes, which are a decent source of revenue, that showcase certain items carried in the store and used to make specific recipes being taught. This pairs the communal experience with the commerce experience and together adds value back to items carried on shelves but is not solely dependent on just the sale of goods as a revenue stream. This is the kind of thinking retailers need to begin engaging in if they want to survive in the future.

Microsoft’s Windows 8 Blunder

When I first saw the direction Microsoft and their partners were looking to take Windows 8, I was optimistic. Metro sounded good in concept, as did some of the features and functions built into Windows 8. But then as the time got closer, it became very clear that this version, more so than any other, was going to depend a lot more on hardware than any previous version.

Prior to Windows 8, Vista was a hardware hog. In fact, I would argue that had more companies been more intentional about adding chips with better graphics, either discreet or integrated, that Vista would have performed better on early hardware. But Vista looks like a raging success compared to Windows 8 at this point.

As Patrick noted in his column the other day, it is ironic that we are in a position where the hardware is necessary to save the software. Building touch into notebooks and desktops is now the only way forward for Microsoft and partners. Microsoft has gone down a path of attempting to condition the market to not only be comfortable using touch on their notebooks and desktops but to desire it. I remain doubtful this will happen.

The primary reason is proximity and context. When we use notebooks or desktops we do so at arms length. This is the most comfortable position when the device is on your lap or on a table. Even though our arms are likely slightly bent while resting on the keyboard, the screen in most cases, is a full arms length away. Sometimes quite a bit more with a desktop.

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Adopting a New Posture

While I was at Microsoft’s build conference last week, I decided to make a point to keenly observe those attendees who have embraced touch on notebooks and watch how they use them. The plus to being at a Microsoft conference was that I saw more touch notebooks, and Surfaces for that matter, in one location than I have ever seen out in one place.

What I observed was interesting. Those who had adopted touch on their notebook would type with the device at arms length, but then move their body and face closer to the screen as they sought to use touch input. In essence to use touch they actually leaned in, performed the action and either stayed or leaned in to scroll a web site for example, and then leaned back to start typing again.

Interestingly, Surface owners had adopted an entire experience built around leaning in. I can only speculate that this is because the screen is so small that staying leaned in closer to the screen makes it easier to read the text, etc. Surface owners would even type with arms bent significantly more because of how close they were to the screen.

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My key takeaways from these observations were that to use a notebook, or an aspiring hybrid like Surface, adopting touch as a paradigm is one necessary component, but so is adopting new body language to operate it in a useful and efficient way.

So the question we need to ask ourselves is this: Is this better? Does touch bring so much to the notebook and desktop form factor that we should consider this new, somewhat un-natural required body posture worth the effort?

Let’s look at it this way. Is adding touch as a UI mechanism to something like a desktop or notebook a more efficient input mechanism? In notebook and some desktop form factors, I would argue that it is not.

I absolutely condone touch on smartphones and tablets. In these devices touch is natural, and the best and most efficient input mechanism for the use cases they are best at. This is because they are truly mobile and you use natural motions to touch the screen to navigate. But notebooks and desktop are different beasts that succeed at very different use cases for very different reasons.

WHY TOUCH?

What I’ve tried to bring out, both in public and in private, is this: does using touch as an input mechanism on a notebook or desktop make me more efficient in my workflow? I’m yet to find that it does.

When you sit behind a notebook or a desktop you are prepared to get work done. In this context speed, efficiency, and ease of use are keys to make these devices the best tools for the job. So for touch to be compelling, it must be better at the above experiences than a solid trackpad or external mouse. Does it do this? The answer is no.

Take the trackpad for example. My hands have less distance to travel for me to reach the trackpad on all installations. To use a trackpad I bring my hands closer to me a very short distance (maybe 2-3 inches). Contrast that with using touch as an input mechanism and rather than bring my hands in a short distance I must reach for the screen (approximately 5-6 inches). This requires more effort and more time than using the trackpad and is more tiring to the arm, by keeping it fully extended to operate. Unless you hunch over or lean in, which is also uncomfortable for any length of time. I concede that for some the amount of time and effort may not be considered much difference by some, but it is still a key point.

When I discuss this with those who advocate touch screens on notebooks, they propose that touching the device for input is a preferred mechanism to the trackpad. My counter point is that this is because most trackpads put on Windows PCs are downright terrible. Sometimes I wonder if Microsoft pushed OEMs to do this on purpose to make touching the screen seem like a better experience, simply because the trackpad is so bad, that it makes touching the device appear to feel like a better alternative.

I’d like to quantify this sometime by having a race with a Windows user and challenge them to a similar task, like creating a few slides and graphs in Power Point. Them on their touch notebook and me on my MacBook Air. We will see who can finish the task the quickest.

THE BLUNDER

So what is Microsoft’s blunder? Well, in my opinion, they made the strategic error of believing that what they did in Windows 8 would be the shortcut to help them compete with tablets from competitors. When in reality, to compete with other tablets, what they should have done was bring a version of Windows phone to the tablet form factor. Doing this would have done several things.

First, it would have significantly helped the Windows Phone ecosystem by way of apps. Quality and long tail apps are so dramatically void from the Windows Phone ecosystem that several carriers have specifically told me it is the reason for the abnormally high return rates of Windows Phones to their stores. By bringing Windows Phone to to the tablet form factor, it would have spurred more developer attention for phone apps and most likely tablet apps as well. Apple has lapped Microsoft in this area many times over.

The second thing it would have done was position Microsoft better for small screen tablets. Windows 8 is overkill in my opinion for what consumers want and do with smaller screen tablets. Windows Phone is positioned well for portrait mode use cases, which is the dominant orientation for consumers with small screen tablets.

Microsoft is at least 3 years or more behind in mobile. Windows 8 has and is doing nothing to help catch them up in mobile and realistically is only leading them down the path of being more behind. They have spent the bulk of their resources focused on areas of computing that are declining not growing. Tablets and smartphones are the growth segment and should have been the top priority. I would argue Windows Phone innovation and focus should have been a higher priority than Windows 8. I would even go so far as to make the case that Windows 8 should have been more evolutionary to Windows 7 and the revolutionary attempt should have been with Windows Phone and a specific tablet version of the Phone OS.

It would be hard to argue that an evolutionary version of Windows 7 would not have sold well running on the powerful, all day computing, thin and light hardware we are seeing enter the market this fall. You certainly could not make the case that we would have sold less Windows 7 devices in 2013 that’s for sure. In fact, I’m pretty sure I could make a compelling case that had Windows 7 or an evolutionary flavor of it, been the OS for 2013, that we would have sold more notebooks and desktops than we have and the PC market wouldn’t be off as much as it is.

To be clear, the blunder was thinking they could turn the ship by taking a PC approach instead of a post PC approach by focusing more on smartphones and tablets.

Who knows, maybe Microsoft will prove me wrong and announce some brilliant unification strategy with Windows 9 that solves the problems outlined above. I’d have an easier time believing this possibility if Microsoft had a better track record at getting things right the first time.

On a side note, notice that Apple has NOT introduced a touch based laptop. I believe Apple, who is very picky when it comes to user interfaces, knew that touching a screen on a laptop is completely unnatural and instead made the Magic Trackpad to emulate touch in a way that does not disrupt that natural motion of hands placed on a keyboard. I remain skeptical you will ever see a touchscreen based laptop from Apple.

How the Tablet is Killing the PC

IDC recently released its forecast of PC sales for the last quarter and said PC shipments were down 13.9%. It laid much of the blame on Windows 8, but I am not sure this analysis is completely correct. While others have also mentioned Windows 8 as a key factor in PCs’ steep decline, there are other layers to this onion and Windows 8 is just one of them.
Windows 8 being a transitional OS certainly played a role, but I think factors such as refresh cycles are also culprits. Even if the tablet had not been invented the PC industry would still face these challenges; these days consumers simply hold on to their PCs as long as they possibly can. It is not just that consumers don’t feel inspired to upgrade, it’s that the notebook they have been using is good enough.

To a degree the same has been true of enterprise accounts, and if Windows 8 is to blame at all, it would be with regard to IT purchasing. Large enterprise buying often leaned toward the first half of the year. With many IT customers not being early adopters of new operating systems, we never saw large quantity buys in this period of time for traditional PC form factors.

The days where we look at the PC as a benchmark for the health of the technology industry is over. Many PC buyers simply don’t value the PC as much as they used to. Instead the value in buyers’ eyes has shifted to mobile by way of smartphones and tablets. This is true of both consumers and enterprises. PCs continue to play a role in many people’s lives, but they are not as central as they once were. Tablets and smartphones have encroached on their place.

If anything, the PC’s future is one of very low cost. We buy them because we need them, but not necessarily because they are highly valued. Of course high-end market segments will still value the traditional PC form factor, but that is a much smaller niche compared to the mass market. This does not mean consumers are ready to toss PCs out of their digital mix altogether. We just see them holding on to current models longer, or if they do need to buy a PC, it will be the cheapest they can find to meet their basic PC needs. Current lower priced PCs are “good enough” to meet any needs unmet by tablets or smart phones.

The Revenge of Steve Jobs

I’ve mentioned Steve Jobs had hoped his Apple II, and then the Mac, would be the market leader in PCs. But IBM clones and Microsoft stole Jobs’ thunder and dominated the PC space for decades.

If you peel back another layer of the onion you see another key reason for PCs’ decline in demand. In one sense, Jobs finally did deliver a PC that gave Apple a weapon against Microsoft and the dominant IBM PC clones: you could argue Jobs finally got the dominant platform of the future with the iPad. With this tablet Apple has reversed the fortunes of PC vendors. All Things D published both the IDC and Gartner numbers for Q1, 2013 and wrote about both companies’ guidance for PC sales for the rest of the year.
“At this time,” wrote Arik Hesseldahl of All Things D, “it has to be said that much of the blame for the damage being done to the PC businesses of all the companies around the world can be laid at Apple’s feet: Sales of the iPad, the world’s leading tablet brand, have a lot to do with the collapse in PC sales.”

When Jobs introduced the iPad he said this product would drive the post-PC era. I think he knew his tablet was the reinvention of the PC he had long sought to bring to market, and that it would actually cause the decline of PCs, even if it meant cannibalizing Mac market share.” and “by the time he introduced the iPad he had in place all of the hardware, software, and services needed to connect the iPad to his ecosystem. Even with a decline in Macs he was insulated from the impact of a Mac sales downturn on his business.
On the other hand, HP, Dell, Acer, and other PC OEMs who were totally PC-driven are feeling the shock of the PC decline; unlike Apple they are not insulated from the impact of these sharp declines in PC demand. Their only hope is that Microsoft can deliver key software and services they can use on tablets and convertibles of their own. It may be too late however, given Apple’s strong lead in tablets, not to mention competitors like Samsung, Amazon and others who are in many ways better insulated through their own ecosystem of products and services.

While Jobs is no longer with us, I think he knew this would happen. Perhaps his last major act was to give us the iPad; final revenge for his years of toil in the PC market where he was always #2, despite being early with many of the innovations that actually took PCs to the masses. If Jobs were with us today I suspect he would not shed a tear to see the decline of the PC market. Rather he would revel in the role the iPad has played in bringing his PC competitors to their knees.
While we could see an uptick in PC demand later this year when low cost touch-based clamshell style laptops come out during the holiday season, I fear the heyday of strong demand for PCs is over. It is about to take a back seat to the tablets and smartphones of the future.