Category: Think.Tank

In the spirit of full non-disclosure, the # 1 reason I did not go to MWC was I was invited to speak at a conference in Maui. I accepted that engagement rather than spend four days walking MWC’s aisles in Barcelona, jostling among 90,000 people who all want to get close to new slabs of glass being showcased at this event. I also was promised some free time to sit on the beach and contemplate the universe. The option of this peace and quiet overruled any potential pull towards Barcelona. Don’t get me wrong, I love Barcelona the city, but MWC’s draw paled in comparison to Maui. 

The second reason is I get to see most of the top smartphones being announced at the show in the privacy of hotel suites in the US and get one on one time with company execs in these settings. By the time Samsung unveiled their new Galaxy 6 devices, I already had a week to drool over the Galaxy Edge and try to put some analysis around its potential impact in the market. The Galaxy Edge was the best new smartphone announced at the show and it clearly puts Samsung back into the premium smartphone market and should help people forget the Galaxy S5 that flopped last year.

However, even if I had not had the Maui opportunity I would have bypassed MWC for another major reason. As my colleague Bob O’Donnell posted on Tuesday, the show was basically hardware specific. Besides the Galaxy Edge, there was very little innovation in devices at this show. I encourage you to read Bob’s first hand observations and analysis as he brings up one of the big things I think threatens the long term viability of MWC — the show is hardware-centric with very little innovation. After a while, all you are looking at are pieces of glass in various shapes and sizes all doing the same basic thing.

The other real problem about this show is the real trend is not in hardware but in software and services. Many of my friends who went to the show told me that finding anything interesting and innovative in software and services was pretty much a lost cause at this year’s MWC. This is very troubling to me. If you look at Apple’s success, software and services combined into an ecosystem has been critical to their growth and profitably. 

The same goes for Xaomi in China. They have their own stores, music services, video services, etc., and are innovating a lot around software. We see this from Micro Max in India, Cherry Mobile in the Philippines, and many other countries where they are innovating with software — especially eCommerce services. The bottom line is Samsung, Huawei, HTC, and many others have all launched products but the focus on the user experience, software, and ecosystem is almost completely absent. 

As Bob O’Donnell points out, at the user interface level we need to see new ways to interact with these devices including things like gestures, more tactile devices and better UI experiences. The event must show off how various countries are innovating in software and services, especially at the local level if it wants to keep the interest of thousands of people trekking to Barcelona year after year. I just can’t see how a hardware focused show can grow if it just keeps showing us the same thing over and over with minimal tweeks to their designs and not showcase where the real innovation in software and services are headed, especially in emerging markets where all the growth will be the coming years.

As part of work I’m doing for some of my clients, I created this chart which shows the makeup of the device base on the major US wireless networks. I thought I’d unpack it a little for Tech.pinions Insiders:

The pie chart represents the devices on the five largest US wireless operators, including the four major network operators (AT&T, Sprint, T-Mobile and Verizon Wireless) and the largest mobile virtual network operator, Tracfone. It excludes the network operators’ wholesale subscribers (many of which are Tracfone customers), to avoid double counting.

Smartphones dominate

As you might expect, smartphones dominate the picture. I’ve actually separated out postpaid and prepaid smartphones, but together they constitute almost two thirds of the total. Among all phones, smartphones now account for around 75%, but 17% of total wireless connections among these operators are still feature phones. That may not sound like a lot, but when you realize the pie chart represents around 340 million devices, 17% is actually large — around 58 million subscribers. Given the rates of conversion to smartphones, it’s likely many of these 58 million will become smartphone users over the next two years, representing a significant additional opportunity for vendors during that time.

Phones aren’t growing

The pie chart is a snapshot of a moment in time: specifically, the end of December 2014. What you don’t see is how this picture is changing over time, or how fast the various pieces are moving. But the reality is phones as a total base are barely growing at all. There are about 200 million postpaid phones and about 75 million prepaid phones on these operators, and that number isn’t moving by more than a million or two per year. The rapid growth in smartphone adoption gives the impression of a dynamic market, but the main movement behind those numbers isn’t market growth but conversion from feature phones to smartphones. A year ago, there were around 190 million smartphones in this group, and now there are almost 220 million, with the decline in feature phones accounting for most of that growth.

“It’s all about not phones”

Back in January, during AT&T’s Developer Event at CES, PC Mag analyst Sascha Segan (who covers mostly phones) tweeted the following:

It’s all about not phones. @ATT pic.twitter.com/1nTmtY6yuM

— saschasegan (@saschasegan) January 5, 2015

And that’s a pretty good summary of the growth prospects for the US wireless market: it’s all about not phones. Smartphones will grow, but the phones category as a whole won’t. That’s really what the rest of the pie chart is about. The light gray category really isn’t growing – that’s “other mobile broadband devices” and it’s mostly things like standalone WiFi hotspots, connected laptops, 4G dongles etc. Much of that market is being displaced by the hotspot functionality in smartphones and tablets, so it’s actually likely to decline over the next few years. But the other two categories are where the growth will be.

Tablets overtake phones as a source of growth

Tablets are already growing rapidly, albeit from a small base. The carriers have struggled historically to get consumers to buy cellular-enabled tablets as opposed to WiFi only ones, because of the combined cost of the modem ($129 for iPads) and the service fees associated with them. The price delta for 4G-enabled tablets hasn’t really come down, but carriers are starting to find ways around the high service fees. T-Mobile has been giving away a small amount of data with tablet sales, while AT&T and Verizon have been allowing subscribers to attach tablets to shared data plans relatively cheaply. Every carrier except T-Mobile added more new tablets to their subscriber bases in Q4 than they added phones and this trend is here to stay. Verizon continues to be the leader at adding tablets, mostly because it has a tablet it sells exclusively at a fairly low price as a way to drive adoption. But AT&T is in a strong second place, and the four major carriers between them added almost 3 million tablets in Q4, compared with just 1.4 million postpaid phone customers. Tablets will continue to be a source of overall growth for carriers, though not a huge driver in the grand scheme of things.

Connected devices are the real driver of growth

The thing that’s really going to drive most of the growth going forward is the connected devices category. For the uninitiated (or simply those wondering whether all the devices I’ve already described aren’t connected devices), “Connected Devices” is the term used by carriers to describe devices connected to the networks which aren’t sold with traditional service plans. This includes e-readers such as Kindles, which are sold to customers with the wireless connectivity built in for no fee. It also includes a variety of machine-to-machine (M2M) services which rely on cellular connectivity and the increasing number of connected cars hitting the market. For AT&T in particular, that connected car market has been a big deal. It added 1.3 million connected cars in the second half of 2014 alone and it has basically sewn up the major manufacturers for 4G connectivity in 2015 model year cars. Verizon, having missed out on selling to those car manufacturers directly, is launching Verizon Vehicle, an aftermarket solution that can target the millions of cars already on the roads. Sprint also has a dedicated automotive team going after both consumer vehicles and commercial transportation.

Connected home solutions, broader M2M services, and many other opportunities have the potential to drive the market well beyond its current size, even as traditional devices like phones and tablets barely move the needle. I believe AT&T is best placed to capture this future growth with its progress in Connected Cars, its Digital Life home services, and its broader enterprise base. While all the carriers continue to squabble over the same phone subscribers, it’s this area where all of the carriers should really be focused.

The Federal Communications Commission voted on Feb. 26 to approve net neutrality rules for the distribution of internet traffic. The long fight is over.

Hah! This decision will complete a level of debate and now move to another round of battle in the courts and maybe Congress. The winners will be the lobbyists, lawyers, and folks with political views who show up endlessly at meetings to make the same arguments again and again.

The real question is just how important this fight is in the long run. Yes, the confusion around the rules could be eliminated (and I’ll admit I sort of favor net neutrality giving the absence of compromise choices because the fight has eliminated better compromises), but the far more meaningful situation will be changes to technology to improve communications.

Network capacity the key. The key issue is providing enough network capacity to provide data capacity to homes and businesses. The endless political argument over who gets to control the capacity is based on an assumption there are shortages worth fighting over. But what if there were ways to increase capability more than by transferring spectrum from TV broadcast to data?

Consider the newly announced pCell as an example. Artemis Networks has developed a new technique that uses actual network interference to create a vast increase in the data capacity of an LTE wireless service. ((If you really want the technical detail, Artemis has a 99-page white paper online.)) The system relies on pings sent out by Artemis I Hubs to be redistributed as interfering signals among pWave devices to exchange very large volumes of data. Recent testing shows spectral efficiency 35 times that of standard LTE signals.

Now, I am not enough of an expert to conclude whether pCell can delivery its promise. The accomplishment was led by Steve Perlman, who has a history of very attractive inventions and not so successful businesses. He was one of the developers of WebTV and succeeded in selling it to Microsoft. Perlman and his investment company, Reardon Steel, invented Moxi, a big advancement in cable TV boxes suitable for distributing broadcast throughout a house. But the device took a long time to finish and was nearly impossible to sell to cable companies. Then he came up with OnLive, which distributed Windows systems running on servers over standard wireless or wired PCs or tablets. It ran impressively well, good enough to handle high-demand games over less network capacity than seemed necessary. But it was a lousy business and dumped Perlman.

Solid trials underway. So given that history, some caution is worthwhile, at least on the business side. But Artemis is moving ahead with some solid seeming trials. DISH Networks, which seems as ready as Perlman to give any technology a try, has leased its H Block spectrum in San Francisco for a field test.

In theory it can work on any LTE phone, tablet, or PC, though some set up is required. The existing SIM has to be replaced by a pWave device that will generate the signals to other pWave using devices. And the voice signal has to be revised to handle calls over the data network (VoIP), a technology that’s out there but not currently used a lot.

Other competition is out there to increase wireless data capacity with focusing of spectrum exclusively. Wireless phone inventor Martin Cooper, who has been working on other alternatives for years, told The Wall Street Journal that companies including Qualcomm were working on their own plans and that the sort of improvement for LTE networks “will happen within the next couple of years, just by competitive forces”.

The more, the merrier. The real importance is that the need for future capacity of data requires new technology much more than it does the endless arguments between content producers and network operators, between libertarians and liberals, and just about every lawyer and peddler of political influence in Washington.

As I’ve covered earnings season the last few weeks, I’ve made a few references to the online advertising business. I thought I’d spend my time today looking at some of the key metrics relating to US-based online advertising in the set of companies I track closely. These are the seven largest businesses in this space which report their ad-related revenues with reasonable consistency. LinkedIn, Amazon, Yelp, Pandora and others follow a little way behind.

Google continues to dominate this space

The most obvious thing you see when you start looking at these numbers is the extent to which Google still dominates the space:

Google’s revenue run rate from advertising alone is around $60 billion a year and it dwarfs everyone else in the market, with Facebook coming a distant second. If we remove Google from the picture, we start to get a clearer idea of how the others shape up:

Facebook is increasingly pulling away from the next set of companies, with a run rate of around $12 billion per year, while the others are all at around $4 billion or less annually. Microsoft is third and growing at a decent clip, while Yahoo is close behind with more stagnant revenues. AOL, Twitter and IAC round out the top seven. For all the attention it gets, people might be surprised to see Twitter is still smaller than AOL in ad revenue terms, and quite a way behind Yahoo and Microsoft, though it’ll catch AOL in 2015 and likely Microsoft and Yahoo in 2016 or so.

Search is a much faster growing business than display

For those companies who separate search and display advertising, the former is a much faster growing business than the latter. Google doesn’t explicitly separate these two in this way, but we can use Google’s “Sites” revenue line as a rough proxy for search and its “Network” line as a rough proxy for display. That gives us this picture, alongside the other companies which do report a direct split:

As you can see, search advertising revenue at these companies is growing quite a bit faster than display, which is in negative territory for three of the four companies. Only Google has positive year on year growth, but even its growth is slower than in its search and related businesses. The main reason for the slower growth in display is prices are falling rapidly. Google has had negative year on year price changes for seven out of the last eight quarters in its Network business, while Yahoo has had year on year declines, sometimes over 20%, in its display ad prices for the past eight quarters. Meanwhile, prices for search advertising continue to go up, reflecting its superior effectiveness in reaching a relevant audience that eventually clicks on an ad.

Mobile advertising a major driver of growth but hard to identify at Google

The last thing I wanted to look at was mobile advertising revenue, but it’s sadly very hard to identify and separate from general ad trends at most companies, including Google, which is the largest mobile ad firm. Only Facebook and Twitter give us the numbers to be able to tease out a revenue figure and their growth is impressive:

In both cases, this mobile ad revenue growth is the major driver of overall growth, which is equally rapid. But in both cases, non-mobile ad revenue is relatively stagnant. As I said, we don’t have an equivalent figure for Google, but eMarketer estimates its 2014 mobile ad revenues at a little over twice Facebook’s, which is growing much faster. Google is rapidly losing share in this market, primarily to Facebook and Twitter, though of course the market itself is growing rapidly, so Google’s revenues are still growing. But this just highlights the challenges Google faces in replicating its desktop dominance in the mobile market. It faces much more, and much stronger, competition here. Search in particular seems likely to capture far less of the total opportunity than on the desktop. Meanwhile, Google is relatively poorly placed to capture revenue from the sort of native, in-feed advertising which is behind so much of Facebook and Twitter’s growth in mobile.

Amazon and Apple are also players

Two other notable companies which have at least some stake in this space are Amazon and Apple, neither of which breaks out revenue from advertising officially. eMarketer estimates Amazon is already in the top 10 by online advertising revenues, while Apple is much smaller, but has a meaningful share in mobile advertising through iAd. Amazon seems very keen to grow its ad revenues, while Apple’s relationship with advertising is more nuanced, since it’s keen to differentiate against Google on privacy. Both are worth watching, though.

Qualcomm has announced a series of new Snapdragon processors ahead of the Mobile World Congress. There are a few key takeaways and observations to be made about these new chipsets.

This quote from Qualcomm’s press release is key:

“It has always been Qualcomm Technologies’ strategy to introduce industry-leading features first at the premium Snapdragon 800 tier design point, and then scale these features into our Snapdragon 600, 400 and 200 products, so that we can help our customers deliver great user experiences to cost-conscious consumers,” said Alex Katouzian, senior vice president of product management, Qualcomm Technologies.

As I pointed out in this analysis on ARM’s new A-72, ARM is essentially bringing a standard and more premium set of specs to their generic SoCs, which makes it harder for companies like Qualcomm to sustain their premium products as an architectural licensee. But, Qualcomm is similarly in a position to trickle down their innovations to lower price points, and often very quickly.

However, the big differentiator, and the thing Qualcomm can ride for some time, is their modem technology. When I think about where the world is with broadband, it feels like modem technology is still in the mHz years of CPU technology. During that time, each new performance gain was realized observationally. We could notice our software open faster, or crunch data faster with each new Intel processor. Similarly, there are many parts of the world where bandwidth is painfully slow. Consumers will be able to observe their devices getting faster as carriers and chipsets support faster speeds. This is where Qualcomm can continue to attract customers to their SoCs over the offering from generic ARM vendors. Importantly, with these products they are bringing the top line modem technology all the way down to their Snapdragon 425, which essentially enables smartphone manufacturers to hit a wide variety of price points with flagship modem speeds. This rapid trickle down of their current generation modem technology all the way to the 4xx range processes is one of my most important take-aways from this announcement.

The elephant in the room related to Qualcomm is around their custom ARM architecture called Krait. To get 64-bit out the door faster, Qualcomm elected to use the generic ARM cores rather than customize the ARM architecture with their own Krait architecture, which they have the capability to do as an ARM architectural licensee. We have yet to see Krait on the 800 series processors and, given the quality of the A-72 and rapidly commoditization of the smartphone market, a key question is whether it is worth it for Qualcomm to spend the resources to bring Krait to this lineup going forward. I’m certain there is an argument to be made for and against continuing with Krait which I will engage in at some point in time.

Ultimately, I am bullish on this lineup based on the advancements in modem technology where Qualcomm continues to have a lead. Now that the issues related to China are resolved, I think Qualcomm is poised for a solid 2015, especially as new markets evolve quickly to 4G where Qualcomm SoCs have a distinct advantage.

With many things I have talked about regarding the premium smartphone market being nearly locked up by Apple, it seems the new area for many component manufactures to compete is the middle. Meaning premium in Android has shifted from $500 devices and above, to devices in the $300-$400 price points. This is a fascinating development and one that has smartphone brand and component manufacturer competitive demise which we have not seen yet in this space.

Something I’ve done after each earnings season is plug all the results from some of the biggest and most important consumer tech companies into a spreadsheet and compare them. Much of my analysis during earnings season focuses on individual companies, but it’s often instructive to sit down and put these numbers side by side. I have seven companies I typically refer to as the “Big 7”, though they’re strictly speaking not the seven largest. They are:

• Amazon
• Apple
• Facebook
• Google
• Microsoft
• Samsung
• Sony.

The odd one out is Facebook, because it’s a fraction of the size of these companies, with revenues of just $12 billion in 2014 compared to at least $65 billion for the others. But it’s included because, of all the smaller tech companies out there, it feels like the one that has both the greatest potential and the broadest reach into our daily lives. Its base of users is on par with, if not ahead of, the rest of the Big 7 which is why I include them even though their size doesn’t justify the name.

What I’m going to do here is run you through just a few of these comparisons, with some commentary. As a special freebie for Tech.pinions Insiders, I’m also going to embed the full set of charts I send to those who subscribe to my quarterly decks service. We’re looking for a way to make these decks available to Tech.pinions as an additional tier also, so watch this space.

Revenues

First off, revenues. This is the best measure of the scale of these companies and what becomes very apparent from the chart below is there are three distinct tiers within this group:

The top tier is Apple and Samsung, which jockey for position throughout the year as the largest by revenues. On an annualized basis, Samsung has been the larger of the two for the last several years, despite Apple’s monster fourth quarters. But in 2014, Apple finally pipped Samsung, thanks to its massive Q4. The second tier is made up of four companies with annual revenues between $60 and $95 billion: Amazon, Microsoft, Google and Sony. Facebook brings up the rear, with far lower revenues. Two other things worth noting are cyclicality and trajectory, with the former sometimes making the latter hard to discern. Only some of these businesses have highly cyclical revenues, with Apple perhaps the most dramatic, having huge spikes every Q4. But Amazon, Microsoft and Sony have pretty dramatic Q4s too. Even Google and Facebook have bigger fourth quarters driven, in their case, not by holiday sales to consumers, but by higher ad spending in Q4, which in turn is intended to drive higher Q4 spending by consumers. The only company which is not notably affected by seasonality is Samsung, which has such a broad range of products across its various consumer electronics and appliance categories it sees a pretty steady flow of revenues throughout the year.

Trajectory is harder to see but the chart below shows year on year growth rates:

Two things stand out to me: Facebook’s massive faster growth rate compared to all the other companies (though it appears to be slowing), and Samsung’s dip into the red. But, if you look closely, you’ll see Apple had a significant move in the last couple of quarters, from low single digit year on year growth to 12% growth in Q3 and over 20% growth in Q4. Meanwhile, Amazon’s growth has slowed over the past couple of quarters and there’s no discernible trend in the other companies’ revenue growth.

Profitability

Profitability is another way in which Facebook justifies its inclusion in this elite group because it’s one of the most profitable companies in consumer technology. There are various profit metrics you can use to measure this, but let’s focus on net income, the true bottom line:

As you can see, Facebook was the most profitable of these companies over the last two quarters in margin terms, even at a time when Apple was generating record net income dollars. Apple, Facebook, Google, and Microsoft are all clustered very close together around 20-25% margins (Microsoft’s was easily the highest before the Nokia acquisition). Samsung’s margins have never been as high, but have also dipped significantly in the last few quarters, dragged down by the mobile business. Sony and Amazon, meanwhile, compete for the “least-profitable” crown. While Amazon’s low margins are ostensibly the result of an intentional business strategy, Sony’s are the result of several businesses in turmoil and transition, but the result is the same: very low margins. What’s impressive to me is Facebook has rocketed so quickly to margins similar to those at the very largest consumer technology companies without the same scale benefits – it’s clearly a very different business model. But it’s also likely to see continued declines as it absorbs Oculus and WhatsApp, two businesses with minimal revenues today, but fairly significant expenses. Though the chart above focuses on percentage margins, it’s instructive to note Facebook’s $5 billion in operating profit in 2014 is greater than Amazon’s entire operating income dollars for the last nine quarters combined.

Business models

The last thing I want to touch on is business models, which vary enormously between these seven companies. I’ve created eight broad categories of products and services to characterize these companies’ revenue streams and the chart below shows an estimated breakdown of their revenues over the past year by these eight categories:

What you get is some broad themes:

• Facebook and Google’s revenue is equally dominated by advertising, at around 90%, though the source of the rest of their revenues is quite different. Facebook is deriving just under 10% from its legacy payments product, while Google derives the rest from the Play Store, Nexus devices and enterprise revenues.
• Apple, Samsung, and Sony derive a majority of revenues from hardware, with Samsung’s dependence on hardware starkly illustrated in the chart, while Apple and especially Sony have much more diverse businesses. Apple’s other revenue is, of course, very closely tied to its hardware revenue, while Sony’s is in many cases entirely disconnected — a major part of its ongoing struggles.
• Microsoft and Amazon are unique, with the former deriving most of its revenues from software and services, and the latter from general e-commerce. However, these two companies and Google each have a growing revenue stream in enterprise cloud services hidden in these various categories.

These business models, as I’ve written about before, have far-reaching implications in terms of profitability, the ability to differentiate, tensions between users and paying customers, and so on. They also have implications for the revenue these companies generate per employee, which varies enormously:

Much of the difference, of course, is driven by the kind of employees these companies hire. Many of Amazon’s employees are stockpickers working in warehouses, while a great majority of Apple and Google’s (edit: non-retail) employees are highly trained engineers, commanding the best salaries. It’s also interesting to see Facebook and Google, which have very similar businesses, generating very similar revenues per employee, though Facebook has now eclipsed Google. It’ll be interesting to see if that trend continues.

More charts in the deck below

Below is that deck I mentioned at the beginning – there are quite a few more charts in here if you found the ones above interesting. I do this on a quarterly basis for my clients.

There have been rumors flying around Apple has hired up to 50 Tesla employees to join a secret project. Some have speculated this project is an electric car that would compete with Tesla. Those of us who know Apple well hear this rumor and roll our eyes. That does not mean we don’t believe Apple is not very interested in cars. But building an actual car is not in Apple’s DNA. In this same vein, many think Apple is building their own TV. This too is not in Apple’s traditional capabilities.

A more likely scenario would be based on one key fact about Apple some people don’t understand. It goes back to one of Steve Jobs’ personal mantras — take a product such as the PC and make it easier to use and deliver a greater overall user experience tied to apps and services. That was at the heart of creating a graphical user interface for the first Mac. This philosophy is also applied to the way he and his teams designed the UI on the iPod, the iPhone and the iPad.

In each case, the product or hardware had existed for some time. What he did was make it easier to use, give it apps, content and services, and make sure it appealed to a broad audience. In other words, the hardware was just a vehicle (pun intended) to deliver these overall apps and services.

It is true that, in these cases, Apple had to create the actual hardware to serve as the receptacles for the apps and services. But the need to create an Apple Car is pretty farfetched given Apple’s core competencies. In this case, as well as the TV, it makes much more sense to work on a way to integrate a new and rich UI, apps and services for use in the car and on a TV than resorting to creating their own branded hardware in each of these categories.

For the car, I believe Apple is interested in creating a whole in-car digital experience that spans navigation, voice search, communications, media, and safety and wants to learn from what Tesla has done so far. That is why they poached so many Tesla employees. Ultimately they want to revolutionize the in-car navigation, audio/video, communication and safety features experience and work to get them integrated into future automobiles.

For Apple TV, it makes no sense for them to create their own given the TV market competition and the rapid change in TV hardware itself. However, Jobs had a major vision on how to revolutionize the TV navigation and user interface and deliver live and streaming content with integrated apps and services. That is most likely going to be delivered through a brand new Apple TV box I believe will be released later this year.

You can never rule out Apple doing something brand new in hardware and even in a new category of devices but doing an Apple branded ar or TV is just not in the cards.

However, it would not surprise me if Apple is creating a vehicle reference design in the form of an automobile shell. Or, for that matter, they could take an actual existing car and customize it to show off what this experience could be like. Apple could wait for the car makers to figure out how to integrate what they are doing into future car designs but it would be more productive if Apple created a working model of this that demonstrated and showed exactly what their future Car Play vision is an,d more importantly, how to actually implement it in future vehicle designs. If so, this could be where rumors of Apple creating a car may have come from.

This could also explain why some have seen an Apple vehicle driving around with a lot of cameras and sensors. Any new whole car digital experience would need to include cameras and sensors to delver innovative ways to navigate and get critical sensor related information in real time through having access to various apps and services that could be tied to cameras and sensors in future Car Play designs.

But the idea of Apple doing an actual branded vehicle or even a TV just does not make sense given who they are and what they do best.

“Nobody cares about security” — or so we thought. It appears many consumers care about security; they simply weren’t made to care in any real capacity about security when it came to digital things. That is in the process of changing.

A common argument I heard about consumers not caring about security was related to Facebook. The sheer fact people posted anything and everything on Facebook somehow translated into a lack of consumer awareness or concern over security or privacy. Yet the observation was not made that, in most cases, people were sharing in what they believed was a trusted environment and they weren’t sharing things that truly crossed the boundary lines, from a security standpoint, such as social security numbers, credit card numbers, bank account info, etc. Essentially, consumers weren’t doing anything digitally they felt they needed to be worried about.

Consumer trust is the single most difficult thing for companies to acquire. When it is broken, it is very hard to get back. Lose a consumer’s trust and more often than not, you have lost that consumer. This is why nearly every tech company you can think of is investing in or acquiring assets related to security.

HP announced they purchased a security company, ARM Holdings announced they acquired a security company. These were just in the last few days. Over the past few years, companies with core security IP have been snatched up as all the major players realize the era of secure computing is upon us.

The digitization of all things creates questions we have not had to deal with before as an industry. In particular, major issues around security and privacy are in green territory both for consumers and companies providing digital experiences. The latest news around Samsung’s Smart TVs potentially listening at all times to conversations and sending data to third parties is just scratching the surface of this issue. What happens when the digital world in our homes, work places, public spaces, starts to contain ubiquitous cameras, audio sensors, biometric sensors, and more? Who has the right to use that data and how does one dictate how that data is used to benefit the customer?

There is a sense stories like the Samsung TV one and any number of public events, from the iCloud hacking, or major retail breaches of credit card data, and more, are all continuing to create heightened awareness of these issues by the mainstream consumer. It is at this point those companies who are integrating security as a service, or core part of their offering, are aligning themselves well.

At the end of the day, this is an end-to-end solution. Security needs to be integrated at a chipset level, device level, software level, and cloud services level. All need to work together to provide end-to-end encryption. This is why chipset companies like Intel, Qualcomm, and even ARM are focusing on semiconductor IP for a secure digital world.

The transition is likely to start with passwords. Intel has a “you are your password” initiative where biometrics from camera to thumbprint technology on PCs allows you to authenticate yourself via your biometrics. Similarly, Apple is generating awareness of adoption of biometric authentication through Apple Pay. This is how the adoption process is starting. Over time, it is inevitably going to evolve and require more sophistication as consumers demand it.

We have yet to embark into a fully secure computing environment where we can make certain security assumptions about our computing space. Wearables are a good example of this. There is collection of personal health data being gathered but how is the data being managed or shared in a secure way? The management of secure data both from a personal authentication standpoint as well as authentication by those whom the consumer has granted access to said data is one of the next steps of many in this process.

Companies not paying attention to the coming secure computing era run the risk of being obsoleted by those companies who are focusing, integrating, and prioritizing security in their solutions. This is an area where key battlegrounds for consumer loyalty will be won and lost.

Earnings season technically isn’t over yet – there are still a few companies reporting their results in the next few weeks. But the vast majority of the big name tech firms have now reported, so I wanted to review for Insiders some of the key trends from what these companies have reported over the last few weeks. Note: I do a lot of analysis of earnings as they happen on my personal blog. I also offer a subscription service which provides lots of charts illustrating financial and operating metrics on these major companies and we’re working on a way to offer this directly as a product for Techpinions readers too.

iPhone puts a big dent in Android, especially in China

I think the most obvious trend that pops out of my analysis of the major device makers’ results is the impact the iPhone had on several of the largest Android vendors, especially in China. The chart below illustrates this: For most of these large Android vendors, growth rates from Q3 to Q4 this year were significantly worse than Q3 to Q4 rates last year. Lenovo (excluding Motorola) and Xiaomi were particularly badly hit, with most of their shipments in China, but Samsung and LG also saw quarter on quarter declines. Among vendors, only Huawei and Sony managed to weather the iPhone’s impact. At Samsung of course, there are longer term challenges at play but, for most of these vendors, the iPhone accounts for a substantial portion of the impact.

US wireless carriers had a huge quarter for smartphones

Three of the big four US carriers have now reported their Q4 results and each of them saw very high rates of smartphone upgrades. Results for those carriers that reported numbers are shown below: All three of the big carriers have reported a higher percentage of upgrades than in any quarter in the past three years and I would expect T-Mobile to join them. Several factors play into this. The iPhone 6 and 6 Plus obviously drove a big iPhone upgrade cycle, but another major factor was the move to installment-based billing. There’s been quite some debate about whether this new model will stimulate or slow smartphone sales, but this quarter it was a huge factor for all carriers and they all sold tons of smartphones as a result. In Q4 alone, the four big carriers likely sold almost 40 million smartphones between them. Despite this upgrade behavior, however, the vast majority of the subscribers these carriers added in the quarter were not new smartphone lines, but tablets and “connected devices” (machine to machine subscriptions, e-readers and the like).

Social networks battle for users

Facebook and Twitter both reported and shared very different user growth numbers. Facebook, as is customary, reported huge user growth in its core product, up to almost 1.2 million mobile monthly active users. But they also reported significant growth in three other mobile products: Meanwhile, Twitter reported just 230 million mobile MAUs, a number that has barely moved since last quarter (its overall MAU number didn’t grow by much either). These numbers just reinforce the difference in scale and breadth of appeal for Twitter and Facebook in their core products. But this doesn’t tell the whole story. Facebook’s entire product is private and based on being logged in to an account. But Twitter’s product is inherently public. So much of the exposure most people get to Twitter is not through the core service itself but through embedded tweets, hashtags on TV, and so on. Twitter is at a crossroads in terms of its user growth: it clearly believes it can get MAU growth going again, but even if it does, it’s simply not going to be on a trajectory to reach Facebook (or Google) scale. But Twitter’s management seems to believe it can capture another kind of audience that isn’t logged in (and may not even have an account). It already attracts a pretty significant audience this way but it makes almost no effort to monetize it yet. That’s the next challenge for Twitter.

Trends in advertising – Display down, Native, Search and Video up

The last big theme I want to cover is the diverging trends in advertising. I’ll use Microsoft’s results from the Bing business to illustrate this, but the trends are much broader. The chart below shows the proportion of Microsoft’s ad revenue from Display and Search, according to my estimates: This illustrates the divergence nicely, because this is happening across major companies that play in the advertising space, whether Google, Yahoo, IAC, AOL or whoever. Display ad prices are falling, clicks aren’t growing as fast, and the business is generally performing much worse than other forms of online advertising. Meanwhile, search continues to be a very lucrative business for those who offer it, notably Google (though even there, there are signs of challenges). But the other major growth areas are native advertising, whether at Facebook or Twitter or news sites such as Buzzfeed, and video advertising, which is obviously already a huge business at YouTube, but is also increasingly important at Facebook, which now reports 3 billion views a day. Of course, Twitter and Snapchat both recently announced video products both for users and advertisers, and Instagram has tweaked its video product too. Video will be increasingly important for these companies in generating ad revenue, especially as non-native display advertising continues to suffer.

Don’t believe that the Federal Communications Commissions coming agreement of network neutrality will end a long-running fight. FCC Chairman Tom Wheeler finally announced he will support a formal regulation line for internet services. With the expected support of Democratic commission members Mignon Clyburn and Jessica Rosenworcel, the decision now seems in place. But the final outcome is far off and in doubt.

Wheeler didn’t mention it, but the fact paper of his “proposed new rules for protecting the open internet” represents a surrender of his earlier position to find ground between the Democratic push to regulate internet carriers as utilities and Republican pressure to maintain things as they are. As a new chairman, he cut off an appeal of a court decision that rejected the FCCs original regulation. He moved instead for a plan that would increase regulation but would not move internet carriers from the Communications Act’s Title I to Title II, which covers phone companies.

Little support. The problem is he ended up with very little support. The Republicans wanted to do nothing while the Democrats, from President Obama to the majority of House and Senate members, favored moving to Title II. Wheeler’s new proposal, in line with the Democratic position, is likely to pass a Feb. 26 FCC open meeting on a 3-2 party line.

The key element of the proposal is to “reclassify ‘broadband internet access service’ … under Title II.” It would prohibit broadband providers from blocking any legal content, throttling or degrading traffic based on content, applications, services, or non-harmful devices, and providing “fast lanes” to producers willing to pay for better service. It bars the use of “interconnection activities of ISPs that are not just and reasonable.” And it would not include some regulations that apply to phone companies, including rate regulation, contribution to the Universal Service Fund, and any new taxes or fees.

It’s far from clear just what will happen once the FCC acts. The new proposal will have strong opposition from internet carriers starting with Verizon and AT&T (Google, Microsoft, Apple, and other internet content providers will likely be on the other, pro-FCC, side). But the opponents may not have the obvious opportunity to sue the FCC because of the complex history. The commission’s action is an official response the D.C. Circuit Court of Appeals ordered in response to its overturning of the original commission decision in Verizon v. FCC. That may leave no room for another appeal.

FCC opposition. Congressional Republicans will be opposed to the FCC and, with control of both the House and Senate, have a good chance confront Wheeler and Obama  by voting to block the net neutrality action. But there may be enough pro-FCC senators to block the bill with a filibuster. And, if they do, a veto is all but certain from President Obama who, after all, called for the FCC position long before Wheeler got around to proposing it. My guess is the opponents–both carriers and the Republicans–will find some way to get a case into court, but they may face less freedom than they expect.

The Harris Poll has come out with its 2015 Reputation Quotient (RQ) and the result suggests, at least in the tech industry, people should be careful interpreting the results. Actually, the No. 1 company on the list is a serious warning. The top pick, Wegmans Food Markets, is a popular and fast growing grocery, but it only has stores in the Northeast US. Amazon, either a retailer or a tech company depending on how you look at it, was second.

Things get really weird with Samsung as No. 3.  Now, by any reasonable standard, Samsung is coming off a rotten year. Its U.S. phone business went from a comfortable first to a shaky tie with Apple and the TV market is going nowhere. Maybe it was the kitchen appliances?

Meanwhile, Apple came in at number nine, down five places since 2012. The data was collected in October through December, so I suppose its possible the would-be Apple voters were off buying iPhones instead–its sales during the period were all-time record breakers. Samsung rose 10 points since 2012.

Google finished 10th and suffering Sony came in two places ahead of Microsoft. Intel was 20th, LG 23rd, and IBM and Hewlett-Packard tight at 39 and 40. The full list of 100 companies and their scores follows:

	2015 RQ RANK	RQ Score
1	Wegmans Food Markets*	84.36
2	Amazon.com	83.72
3	Samsung	81.98
4	Costco	81.69
5	Johnson & Johnson	80.88
6	Kraft Foods	80.83
7	L.L. Bean*	80.78
8	Publix Supermarkets*	80.73
9	Apple	80.69
10	Google	80.44
11	Berkshire Hathaway*	80.28
12	The Walt Disney Company	80.04
13	Sony	79.93
14	CVS (CVS Health)*	79.83
15	Microsoft	79.74
16	Lowe’s	79.48
17	Kellogg Company*	79.25
18	Chick-fil-A	78.96
19	The Boeing Company*	78.93
20	Intel Corporation*	78.54
21	Whole Foods Market	78.47
22	USAA	78.22
23	LG Corporation*	78.20
24	Procter & Gamble Co.	78.08
25	Nike	77.88
26	Unilever*	77.80
27	Whirlpool Corporation*	77.54
28	General Mills*	76.88
29	Honda Motor Company	76.80
30	Nestle*	76.45
31	Starbucks Corporation	76.32
32	The Kroger Company*	76.29
33	Wendy’s*	75.94
34	The Coca-Cola Company	75.89
35	Fidelity Investments*	75.69
36	PepsiCo	75.59
37	FedEx Corporation*	75.53
38	The Home Depot	75.38
39	Meijer’s*	75.37
40	IBM	75.32
41	Hewlett-Packard Company	75.26
42	Kohl’s	75.17
43	eBay*	75.14
44	Aldi*	74.78
45	General Electric	74.77
46	Southwest Airlines	74.76
47	Nordstrom	74.46
48	Ford Motor Company	74.32
49	Toyota Motor Corporation	74.01
50	Progressive Corporation*	73.79
51	State Farm Insurance*	73.61
52	Macy’s	73.16
53	DuPont*	73.09
54	Walgreens*	72.80
55	American Express*	72.63
56	YUM! Brands*	72.60
57	Nissan Motor Corporation*	72.60
58	Hobby Lobby*	72.51
59	Best Buy	72.28
60	Dell	72.13
61	JCPenney	71.61
62	The Allstate Corporation	71.03
63	Target	70.99
64	Hyundai Motor Company	70.97
65	21st Century Fox*	70.14
66	Verizon Communications	69.74
67	Safeway*	69.70
68	Blue Cross Blue Shield*	69.50
69	United States Postal Service*	69.49
70	Royal Dutch Shell	68.92
71	McDonald’s	67.77
72	Sprint Corporation	67.66
73	Altria Group*	67.65
74	Wells Fargo & Company	67.55
75	T-Mobile	67.54
76	AT&T	67.26
77	Facebook	67.17
78	Chevron*	67.09
79	Delta Air Lines*	66.52
80	Burger King*	66.23
81	Chrysler Corporation	65.76
82	ExxonMobil	65.43
83	DirecTV*	65.27
84	Walmart	65.05
85	Time Warner	64.93
86	United Airlines*	64.91
87	JPMorgan Chase & Co.	63.98
88	General Motors	63.89
89	Citigroup	62.19
90	BP	62.01
91	Bank of America	60.73
92	Charter Communications*	60.30
93	Comcast	60.04
94	Koch Industries*	59.89
95	Sears Holdings Corporation	59.79
96	Halliburton	59.63
97	Monsanto	59.18
98	Dish Network	58.07
99	AIG	55.23
100	Goldman Sachs	55.07

* New to Most Visible List this year (not in 60 Most Visible 2014)

Guide to RQ Scores:

80 & above: Excellent

75-79:  Very Good

70-74:  Good

65-69:  Fair

55-64:  Poor

50-54:  Very Poor

Below 50:  Critical