Understanding The iPhone Pricing and Segmentation

In my mind, the key to yesterday is to understand how the iPhone is segmenting and the role the pricing structure plays on the segmentation.

Everyone, including myself, was convinced that Apple was going to be more aggressive with the pricing of the iPhone 5c. Now, looking back, it should be obvious that Apple has not really changed much in the way of their strategy. They did fragment the iPhone line as many expected. They did introduce a ‘new’ product at slightly lower price point. But they did not do what many thought, which was hit a price point that fully targets more unsubsidized and pre-paid markets.

That being said, there is more to the pricing strategy than meets the eye.

Understanding the Segmentation

Over the last few years, Apple has sold a current generation iPhone along side several last years models at discounted prices. From looking at the sales announcements from many carriers, we know that later generation iPhones sell extremely well. Verizon even reported that half of their iPhone activations were non-LTE, meaning the 4S. This just goes to show you the strength, even in the US, of devices at the $99 subsidized price range.

Outside of the US, and in many areas of Europe, the price of handsets vary much more than they do in the US. Carriers can acquire the devices at their wholesale prices and offer them at whatever cost they want to acquire new customers. In the US we see Walmart do this from time to time with the price of the iPhone 5. Walmart just recently dropped the price to $98 of the iPhone 5 with a 2-year contract. They can do this because of the cost structure deal they have to carry the device and incentives on contracts. Couple that with the fact that people don’t go to Walmart just to buy iPhones and you can see how they can make up some perceived cost losses with additional items bought in store.

For many carriers the iPhone does a similar job on their network that it does for Walmart in stores. Carriers hire the iPhone to drive up their average revenue per user. The iPhone is the undisputed leader for network operators in driving ARPU. The iPhone 5c gives them some leverage to be creative with their pricing of the device in order to acquire new customers and drive higher ARPU than they could before with the premium iPhone model.

Take a look at the chart below and the iOS share of web traffic in specific countries.

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This demonstrates the good job the iPhone does in driving premium data services. In regions still trying to drive LTE users and monetize the massive investments they have in network infrastructure, the iPhone is the best product for the job.

Looking at the lineup, I will not be surprised if the iPhone 5c becomes the larger share of iPhone sales. Thus Apple has created a phone for everyone, or at least most, and a premium phone to aspire for. This is segmentation at its best.

Economies of Scale

One other element to watch with the 5c is whether the price may come down as manufacturing economies of scale allow. Since the casing is using a process much less complex in the finishing and machining than the 5 and 5s, it may allow for economies of scale to allow for better pricing.

This of course may not be evident in anything other than the carriers ability to be creative with the pricing. It will be interesting to see if the pricing carriers have with the iPhone are the same in six months time or less.

Overall Apple’s competition has never been up against a current generation product line. They have been up against a single new iPhone in two different colors. Previously Apple had two current generation iPhone choices for consumers. Now they have eight.

I’ve always said that it took an army of Android devices to compete with Apple. Now Apple is creating it’s own army. I do have to imagine competitors are a little nervous.

What Will Microsoft Do With Nokia’s Feature Phones?

There are many things curious about this deal. Particularly, the things Microsoft did get and the things they did not get. By not acquiring the totality of Nokia, Microsoft got a steep discount in order to acquire the parts they did. But looking over at the way the deal was structured, it is logical to assume that Microsoft did not have to include the feature phone business from Nokia and could have let that business run its course.

So the key question is what why did Microsoft include the feature phone business. Let’s explore some scenarios.

First, if you subscribe to the theory that Microsoft acquired Nokia because they were going to lose Nokia as a partner, either to Android or to bankruptcy, then it would make sense to not leave a bit of hardware business to Nokia to continue making devices that they can chose to switch to Android. The deal instead states that Nokia can not use the Nokia brand name on any device until the end of 2015. So technically, Nokia could again start making hardware in 2016 but can not use the Lumia name since Microsoft owns that as well. At the outset it seems unlikely that Nokia will make hardware again in the future. However, should things go south over the next few years with this deal with regards to the Nokia assets, name, brand, etc., the door is still open. But by absorbing the feature phone business, Microsoft ensures that by this time next year there are no Nokia Asha handsets running Android in emerging markets or elsewhere.

So what to do with it?

Nokia still sells a lot of feature phones. Even though it is declining, every quarter the industry still sells several hundred million feature phones. Last quarter over 200m feature phones were sold with 12-14% approximately carrying the Nokia brand.

Take a look at the chart below which shows global handset vendor market share by sales to end users.

Screen Shot 2013-09-04 at 3.09.20 PM

Although on a downward trend, Nokia still held 14% respectively, of all phones sold over the past two quarters. Again the vast percentage of those being non-smartphones like their Asha line.

Here is another chart showing global mobile phone OS usage share as measured by web usage.

Screen Shot 2013-09-04 at 3.08.06 PM

I bring up this chart for reason. Nokia’s Asha brand running the S40 operating system is practically a smart phone. It runs Java apps, has an app store, has a UI that feel smart phone like but few consider it a smartphone. This phone targeted emerging markets exclusively and strategically was the device that would be used to transition emerging markets from feature phones to Nokia smart phones.

By keeping this group Microsoft could simply bring Windows Phone to all hardware, including Asha, and keep the low-price points the same in those countries and within a few quarters garner double digit global market share for Windows Phone. Believe it or not many in these countries buying these low cost Android phones have no preference of OS yet. This is why I’m convinced in markets like India, Africa, and even parts of China if Microsoft just put Windows Phone on the very low end the would get market share.

Market share alone may not be enough to build the ecosystem out. I try to remind our readers that market share is fine but it is more important to have the right market share. It is yet to be seen if these low end consumer contribute any real value to ecosystem. But if Microsoft can get some of these customers early in their maturity cycle then it will at least be a start.

A Suspicious Angle to Microsoft’s Acquisition of Nokia

Not long after Microsoft and Nokia did a deal for Nokia to back Windows Mobile and Microsoft exec Stephen Elop moved over to become its CEO, I mentioned to some of my colleagues that I thought this was a set up. In fact, I wrote a Techpinions piece on Aug 15th, 2011 that literally said Microsoft WOULD buy Nokia in time.

If you look back at this period in which Nokia was Microsoft’s major Windows Mobile vendor and Elop got serious experience being a CEO of a multi-national company, one has to wonder if there was not some type of grand plan put in place between Ballmer and Elop from the beginning. Surely Ballmer knew even then that his days might be numbered and that while Elop was a natural successor to him then, he needed responsibility as a CEO before he would be seriously considered as a successor.

I have known Ballmer since 1985 and over the years have watched as he has aged and the pressure of running Microsoft was catching up with him. During this time his kids have all grown up and I am sure he looks back on the missed times he had with them during their most formative stages of life. Regardless of his performance at Microsoft, I have felt for a couple of years that he was ready to step down and allow someone else to try and bring Microsoft into the post PC era.

While it is true that Elop’s tenure cannot in itself be considered a success, let’s be honest. He was handed a highly wounded Nokia from the beginning and he gets street cred for just keeping them alive and competitive given the beating they were taking from Apple, Google and Samsung. And Nokia became the #1 vendor of Windows Mobile phones and, as research stats have shown, Microsoft actually gained ground in a lot of international markets where Nokia already had a large place in those parts of the world.

While Microsoft and Nokia have no chance of rising above Apple, Google and Samsung in terms of units sold, together they can clearly become the third option in a smart phone market that is still in its early stages of growing and will sell at least 1 billion units per year for the foreseeable future. And even at #3 there is a lot of money to be made if they execute well and aggressively at a competitive level.

If you read many of the news stories about the Microsoft/Nokia deal, most of them suggest that Stephen Elop is now considered the #1 candidate to replace Ballmer as CEO of Microsoft. At the moment, he will be running Microsoft’s recently announced device division and will focus on helping Balmer in the short term achieve Microsoft’s One Vision goal of being a hardware, software and services company.

I believe that this will be a short-term role. I doubt that Ballmer will stay the full year and would not be surprised if Elop is in place as the new CEO by Dec 1, 2014.

But the neatness of Microsoft now buying Nokia to anchor their device division, at a discount no less, seems to me to be less happenstance and rather part of a grand scheme hatched a couple of years back. And if Elop does become the new Microsoft CEO, it would come full circle and be looked at as one of the more interesting premeditated corporate purchases of all time.

About Those NY Times and Twitter Attacks: What Really Happened

General news media mostly do a terrible job covering tech issues. And in the case of the attacks, allegedly by the Syrian Electronic Army, that effective took nytimes.com off-line for a good part of Tuesday, the tech media haven’t done too well either. One of the big problems is the use of the word “hack” to describe any attack, as in “the Times web site was hacked.” In fact, neither the Times site, nor twitter.com, which was attacked less successfully, was ever touched.

To understand what happened, you have to know a bit about the Domain Name Service, which is both a great strength and a great weakness of the internet. Its strength is that its distributed design has let the net scale seemingly without limits to handle orders of magnitude more sites that were even envisioned by its designers. Its weakness is that it is, at least in its standard form, insecure.

If I want to load www.nytimes.com, the Times home page, my browser generates a DNS query that will poll a hierarchy of DNS servers until it finds one that can  report that the address corresponds to 170.149.168.130. In the case of nytimes.com, access to the DNS database is controlled through an Australian company, Melbourne IT, through which the  Times has registered its domain name.

The successful attack was not against the Times  itself but Melbourne IT, a domain registrar and hosting company. According to Timothy B. Lee of The Washington Post‘s The Switch blog, the Syrian Electronic Army got access to Melbourne IT through credentials of a legitimate customer. Once inside, the attackers were able to change any records that hadn’t been locked down tightly, and that included nytimes.com. All they had to do was change the DNS record to point to a site of their choice–an attack known as DNS hijacking–and nytimes.com effectively disappeared.

This is probably the least effective way to attack a web site. Because of the distributed nature of DNS, changes take hours to percolate through the system. I never lost access to nytimes.com, probably because I go to the site a lot in its correct address was cached locally. It was also quick and easy for the Times to set up an alias that let people route around the damage to find the site.

The attackers did less well with Twitter, whose DNS account, also at Melbourne IT, was locked down. All they were able to do was change Twitter’s record in the whois database to indicate that twitter.com was owned by the Syrian Electronic Army. But since the whois database (accessible through www.whois.com) is not actually used in the DNS lookup process,  the Twitter change had no practical effect.

The lesson, of course, is that if you own a domain, make sure it is locked down so that only you can make changes.

 

 

 

Samsung’s Dangerous Smart Watch Gamble

Next week, just before the IFA consumer electronics show opens in Berlin, Samsung is expected to introduce their first smart watch apparently called the Samsung Galaxy Gear. By my count, this will be at least the 14th smart watch introduced in the last 18 months. I have had a chance to work with and review at least six of these so far and members of my staff have reviewed at least two more recently.

One thing to note about all of these watches so far is that they are all rather big, not very stylish and to be truthful, aimed mostly at male geeks. I can’t even imagine any woman clamoring for any of these early models and suspect that Samsung’s version will be just as geeky as the others given the technology available today for use in building this first generation of smart watches.

Most of these new smart watches are focused on being an extension of our smart phones and delivering glanceable data or information tidbits from our smartphones on a wearable screen. After using a couple of smart watches with this feature I can attest that this is a very cool idea and in fact, the watch will most likely become the #1 wearable computer in the market over the next few years, trumping things like Google Glasses that may take a decade before it hits consumer stride.

Although I think Samsung’s smart watch may actually be cool in functionality, one thing I am pretty certain is that it will not be stylish and be attractive to anyone but male geeks. While Samsung has created stylish smartphones and tablets, let’s be honest here; this design basically copied Apple’s iPhone and iPad designs and literally rode Apple’s coattails into these markets.

This is where introducing a smart watch now is a real gamble for Samsung. I fear that they are rushing this to market so they can say they beat Apple to the market but their model will be very similar to the smart watches already available. Sure, they have a strong marketing machine and big bucks to try to drive this into the mainstream but Samsung’s track record in creating ground-breaking designs in any product is historically weak.

While creating a product for male geeks is not bad in itself if these male geeks buy them, there is one very key issue about watches that will prove problematic to Samsung and that is “stylish” designs. Watches are fashion statements and very little about functionality to most people.

I believe that this will be at the heart of Apple’s eventual smart watch in which functionality will be important but stylish design will be equally important to whatever they finally deliver to the market place. And it is doubtful that Apple does not understand the difference in style design between men and women and will factor this heavily in their actual product designs.

Notice that Apple is not rushing a product like this to market just so they can have skin in the game. If you look at Apple’s history, they usually wait to see if a product takes off and then, and only then, do they re-invent the product with an eye on form, function, design and eco system that lets them control and drive their products into a broader mass market. Apple did not invent MP3 players. They reinvented them. Apple did not invent smartphones. They reinvented them. And Apple did not invent the tablet. They reinvented it and along with their iPhone launched the post PC era.

I suspect that Samsung understands this and is taking a calculated gamble by introducing the Galaxy Gear now. However, I think it is a dangerous gamble. While smart watch functionality is cool, in watches, style and fashion play a key role in its ultimate success. By introducing something before Apple does it runs the risk of not even coming close to what Apple will deliver and in the end, Apple will do the Apple thing and reinvent the smart watch that transcends the geekiness of todays models and be the one that drives the smart watch wearable revolution to the masses.

Now they have to wait for the other shoe to drop from Apple and if history is our guide, copy Apple again if they really want to be a player in the smart watch wearable revolution for the masses.

The Myth of an iPhone Killer [Updated with added chart]

The resiliency of the iPhone in not just the US but global markets as well is truly a marvel. As we will see in some of the charts below, against all odds Apple’s iPhone market share remains steady.

I’ve long argued that vendors in the Android ecosystem compete more with each other than with Apple. One can take a perspective that says a consumer who buys an Android phone is a lost customer to Apple, at least for the time being. In the case of the ultra low-end and cheap phone market, those customers are likely simply not Apple’s target. They may be when they are ready, if they ever get so far as to value the things Apple creates. In the case of the premium market for devices like the S4, HTC One, etc., we notice that these devices seem to take share from each other more than Apple–especially in the US.

I don’t think many realize how dominant the iPhone is in the US among premium handset market share. Getting these specific statistics (iPhone 4s, 5) share of premium sales is tough but from inside sources I’m told that by quarter the iPhone US share of premium can go between 60-75%. The key take away is that the iPhone is the dominant sales device in the premium segment of the handset market.

Even knowing that, myself and many would agree that looking at usage of the devices is the key metric. People can buy lower end and even premium Android devices all they want but if they are not being used as smartphones, or creating value to the carrier, then we wonder if we should even count them.

Below is a look at the share of platform usage in the US.

Screen Shot 2013-08-27 at 8.35.52 AM

As you can see, even when new premium Android devices are launched in the US there appears to be no significant impact to the iPhone. Perhaps even more interestingly is the dip in iOS usage share during the “droid franchise” peak. Then as we can see when the iPhone came to Verizon it gained share back. The key losers over this time period was clearly RIM.

Now if we turn our eyes to the global vendor market share, we see similar patterns. For obvious reasons, the iPhones share of the global smartphone install base is much lower than the US but what we see is that its piece of the pie stays relatively the same size.

Screen Shot 2013-08-27 at 8.28.05 AM

Notice for example that Android’s gains are not making the iPhone’s share of the pie look like RIM’s, Bada’s, or Symbians. Meaning declining. Android is gaining, yes, but the iPhones share is not decreasing like the others.

Now to look at what the opportunity looks like going forward I want to show a much bigger global handset vendor picture.

Screen Shot 2013-08-25 at 8.54.26 PM

When looking at this image there are several things to note. First is that the iPhone’s share again remains relatively constant. It is not shrinking dramatically like other vendors but keeps its slice of the pie relatively static. However, look at the global rise of “others” in this chart. These are largely white box label vendors flying off the shelves in China. The size of the “others” pie is even larger in China than local brands like Huawei and ZTE. Others is the real growth opporunity as we see customers refine their interests and look to go with more established brands than white box makers.

I can show charts all day of global vendor sales and in no chart will you see iPhone’s share of the pie shrink rather you see it maintain. Obviously, what we will watch going forward is for the share of the pie to grow, likely at the expense of “others” to begin with. The point to take away in all of this is simply that there is no such thing as an iPhone killer, even though many assume there is.

Microsoft is at a Fork in the Road

Many of us have caught the news that Microsoft’s CEO Steve Ballmer’s tenure is up. Over the next 12 month’s Ballmer will work to transition a replacement. This replacement will be faced with extremely hard decisions about Microsoft’s future. Whoever he or she is, I hope they are ready.

In my opinion the crux of Microsoft’s fade into irrelevance is their complete ineptitude to understand consumers. I believe Bill Gates, Steve Ballmer, and the rest of the crew at Microsoft understood a business user but I don’t believe for a second that they had any genuine understanding of consumers and consumer markets. On the flip side Steve Jobs had an amazing understanding of consumers. This was who Steve Jobs built products for and unfortunately in the early days it almost killed the company. The reason for this was because there was no true consumer market for PCs there was only a business/enterprise market. Bill Gates and Steve Ballmer and crew, built solutions that they understood–business and enterprise focused solutions. And during this time it was exactly what the market needed to grow. However in the early 2000s things changed. A pure consumer market emerged for computers and Microsoft was not prepared to compete against a company whose focus and passion were consumers.

The Fork in the Road

So Microsoft finds itself at a fork in the road. I find it very hard to believe in todays global marketplace that a single company can compete effectively in both consumer and enterprise markets at the same time. I believe Microsoft must choose to focus on business/enterprise customers OR consumer customers. They cannot do both.

Not much need change in the way of Microsoft’s outlook and strategic direction should they choose the enterprise focus. However, I don’t believe this is the path they will choose. RIM was in a similar position and chose to go after consumers and it killed them. But I believe the allure of a giant, yet not always profitable, consumer market will entice Microsoft to go this route. If this is the case, a lot must change at Microsoft.

The new CEO must change the culture first and foremost. Microsoft needs an agile and forward thinking group of executives with a vision of the 20 year future and Microsoft’s role in that future. Microsoft needs to focus more consumer oriented RND and innovation efforts. But perhaps most importantly, Microsoft needs to bring executives to the forefront who actually understand consumer markets. Things like the whats and why regular consumers buy things. This is not easy and only a few companies even remotely do this well.

The other expertise Microsoft needs to acquire if they choose the consumer path is regional expertise. Consumer markets in each region outside of the US like Asia, India, etc., will all behave differently. Gaining consumer intelligence is key but so is gaining that insight for the nuances of each region.

Without question Microsoft’s new CEO will be faced with a gamut of challenges. Even a new CEO does not guarantee Microsoft’s future security.

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.

Screen Shot 2013-08-15 at 8.07.16 PM

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.

Screen Shot 2013-08-15 at 8.57.47 PM

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

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

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

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

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

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

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

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

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

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

Let me move to content.

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

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

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

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

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.

OpenPower Consortium: A Trip Down Memory Lane

IBM announced today that it was working with Google and Nvidia in an alliance called the OpenPower Consortium to promote the use of IBM’s Power processor as an alternative to x86 CPU’s from Intel and AMD. Power, a descendant of the PowerPC chips that were the heart of Apple’s Macintosh computers until the 2005 switch to Intel, currently are used primarily in IBM’s midrange line of servers, a business that has been shrinking of late.

Ian Betteridge tweetA tweet from Ian Betteridge tweaked my memory and reminded me that this looks a lot like a road we have traveled before. Back in the mid-90s when the PowerPC was young, Apple, IBM, and Motorola–the companies behind the chip–came up with something called the Common Hardware Reference Platform.

The idea behind CHRP was a hardware design independent of the software that would run on it. So an IBM CHRP machine could run the UNIX-like AIX (the original version of AIX was a lot further from stock UNIX than what eventually evolved.) Motorola’s system could run Windows NT for PowerPC. And Apple could use Mac OS.

Not much ever came of the scheme. Apple incorporate CHRP-like elements into its Power Macs, but to the best of my knowledge, it never built a CHRP-compliant Macintosh. Motorola, at the time a licensed maker of Mac clones, developed a system called the StarMax 6000. I saw it once, perhaps at Comdex, dual-booting Mac OS and Windows NT. This was very cool, but whatever commercial possibility it had disappeared when Apple abruptly discontinued the Mac OS licensing program before it shipped. The only significant product to come out of the experiment was a version of the IBM RS/6000, a precursor of IBM’s very successful p-series server line.

I wish IBM better luck with the new venture. The support of Nvidia and Google is impressive, especially the latter with its thousands and thousands of x86-based servers. But making a dent in x86 while at the same time holding off a new challenge from ARM servers is a very tall order.

Disclosure: My son for some years developed system software for the p-series servers. He’s still with IBM, but working on an unrelated project.

 

 

Leadership Matters More Than Market Share

A leader is one who sees more than others see, who sees farther than others see, and who sees before others see.
– Leroy Eimes

In studying the technology industry, the markets that encapsulate it, and the consumers who drive it, I am less interested in how much money a company is making, or how many devices they sell, or what a platforms market share is. Those are all interesting data points. What matters, in my opinion, is whether or not companies playing in this arena are advancing computing.

Apple’s Demise

It seems as though the popular “Apple is doomed” narrative will never go away. While this is a deeply naive statement filled with flawed pre-conceived notions, it is often thrown around publicly by those with an agenda other than genuine truth.

For some illogical reason, many are just waiting for Apple’s dominant reign to end. This line of thinking forgets that the only market Apple has dominated for a length of time was the MP3 player market. Apple may never secure a decade plus of device or category dominance like they did with iPod again but that does not mean that they do not have a healthy and profitable business that will last decades. Yet all too often ebbs and flows of markets, cyclical innovation patterns, and global adoption cycles, seem to fool people into missing the big picture.

I hear a subtle tone frequently whispered among analyst peers that Apple has had their day and it is time for someone else. That time may certainly come, but it is not today. I hold this view confidently because I am yet to see the emergence of a new leader. I see platforms gaining market share leadership. We may see devices become sales leaders, but without question Apple is still the envy of the industry. ((Being the first with a spec or some technological gimmicks does not qualify as leadership))

The Secret to Growth

“The real act of discovery consists not in finding new lands but in seeing with new eyes.” – Marcel Proust

We can debate until we are blue in the face whether the biggest growth opportunities like smartphones and tablets are saturated. But whether this point is true or not both markets will inevitably become saturated at some point. Growth will someday peak and only disruption can restart the cycle.

The key for a companies growth lies in new opportunities. Sometimes you have to create those opportunities and other times you can capitalize on opportunities others have created. But in either case vision and leadership are key.

Perhaps the next growth area is wearable computing, or the digital home and car. Perhaps it is something we have not thought about yet. This is what makes this industry exciting. The point remains, who leads these new opportunities is the key thing to watch.

Leading also means you often take some arrows in the back. It is hard and not all can handle the scrutiny. As I stated earlier, I am not naive in thinking that Apple will always be in a leadership position. But I’m yet to see another holistic leader in computing emerge.

Semi-random Thoughts on China

I’m writing this as I am flying home from 10 days in China. Not the tech temples of Shenzhen but a concert tour of five of China’s largets cities with the Children’s Chorus of Washington. This opens you eyes to an amazing country in ways that visits to factories and electronics markets do not.

The single most striking thing about China is that the country has reached a point where the explosive growth of large sities simply must slow down because they are hitting two limits: pollution and traffic. Pollution has reached a point where, particularly in places like Beijing and Xi’an, it is a serious public health issue. And choking, immovable traffic is destroying any efficiency of urban life.

It’s not that China fails to recognize these problems. But the situation is very different from more developed countries, especially the U.S. We suffer emissions and traffic problems, too, but our political system seems unwilling or unable to address them. Washington,D.C., for example, is about to get rapid transit most of the way to Dulles Airport 25 years after the need became obvious.

China, by contrast, is building infrastructure as fast as it can. Every city seems to be torn up by cut-and-cover subway construction. The utility industry is moving to retire coal-firerd power plants. But the efforts simply cannot keep up with the growth, so the situation grows worse despite heroic efforts to improve it. Our tour guide’s answer to all questions about how long it would take to reach our next destination seemed to be “if no traffic jam needs one hour.” But there was always a traffic jam, making it nearly impossible to maintain a schedule.

Matters are not helped by the Chinese penchant for American-style big cars. Although SUVs are rare, the streets are choked with Honda Accords, Toyota Camrys, 5-series BMWs, and Audi A6s. Obviously, these are not the vehicles of average Chinese workers, but these luxury cars are seen with a density typical of the plusher areas of Washington or Manhattan. Though there is a plague of scooters and trishaws darting in and out of traffic, bicycles have largely disappeared from the main streets. Nine million bicycles in Beijing is a nice song, but it no longer reflects reality.

Political freedom is a tricky question. Certainly, China is not a free country. Political leadership is picked by the Communist Party, which except for the doctrine of democratic centralism that concentrates all power inthe hands of the Party, bears no allegiance to any communist princles that Marx, Lenin, Khrushchev or even Toglitatti would recognize. There are no meaningful elections and no real citizen input into government. The free flow of information is blocked and treatment of dissidents can be, and often is, harsh.

On the other hand, I have been in real police states, the Soviet Union for one, and China doesn’t come close. The pervasive fear is lacking and I found ordinary Chinese remarkably willing to talk about their political and social aspirations. There are video cameras everywhare, but these days that hardly distinguishes China from the US or UK.

The real test for China will come with the invetiable slowdown in growth. The Chinese people has made a faustian bargain since the end of their Cultural Revolution. They have accepted a level of Party control and repression in exchange for a government that delivers boundless growth that has created a vast urban middle class and raised aspirations throughout the countryside. But the pace is unsustainable, and as it slows, will the people stick with the bargain. There are no revolutions more dangerous than revolutions of rising expectations.

The iPhone is My Midwife

I wrote this article for The Magazine which is available on iPad. I’m releasing it for our insiders and I intend to write more short stories like this on tech that are hopefully enjoyable reads. Enjoy the quick glimpse into my analog life.

———————–

It’s the first time for both Betsy and me: she’s never given birth before and I’ve never helped a goat produce a kid. My heart races as I pace her pen, reviewing what I need to know to make sure she has a safe delivery. She seems as content in her element as if she were an experienced mother.

My days are mostly spent in a windowless office. I meet with clients, analyze data, and wear fancy clothes. Now I’m out in the bright sun in a slightly smelly goat pen wearing overalls and galoshes and about to assist with a birth. Betsy’s instincts kick in as delivery becomes imminent. Mine did as well. I was not altogether unprepared: I had my iPhone.

Overgrown

My wife, Jennifer, and I began our journey the first year we planted tomatoes, zucchini, onions, lettuce, and strawberries. Each year the garden got bigger, and we experimented with new seeds and starters. The garden started to overflow our tiny backyard. Our front lawn was doing us no good, so we pulled it out and planted more crops in its place. In the very traditional suburban neighborhood in which we lived, our micro-farm became increasingly out of place. Our neighbors had nicely manicured green lawns and we had nicely manicured rows of vegetables.

Neighbors and passers-by thought either that what we were doing was inspirational or that we had gone crazy. To make peace with the latter group, we built some planter boxes next to the curb and planted vegetables for the neighborhood to pick from freely. We enjoyed giving fresh, homegrown goods to neighbors, friends, and family out of our abundance. We even started our own FSA (friend and family supported agriculture) to help others learn the benefits of growing your own food.

The more we “farmed,” the more we joked with friends and family that our next move should be to the country. It was appealing to think about sitting in our yard and looking out at an expanse of land rather than a solid wood fence 20 feet away, but it also seemed unrealistic. Our dreams had outgrown our boundaries.

It took a chance meeting to break through the fence. I ran into a friend with whom I’d started a company in the late 1990s, and we wound up talking about hobby farming. He mentioned that his father had looked at a house with lots of usable pastureland. We decided to check it out.

The farm was a 30-minute drive south of San Jose (add 15 in rush hour), where the sprawl of the Bay Area has dropped away and one enters something approaching real country. We took a look at the house and its fields, and we were sunk: we agreed that this was the place. The house was simple and came with three acres that already included a pool and two different playgrounds for our kids. We could see nearby hills from the house and hear and sense the quiet. We didn’t hesitate. We packed up and headed south.

It took just a few weeks until we settled into the calm and peace of our newly christened Bajarin Farm. Sitting and relaxing in the yard was like going on vacation. Everyone around us, and many we met in town, had similar gardening and farming interests. I knew we had made the right choice, though, the first time I saw two guys riding horses down our street, each with a beer in hand.

We rapidly expanded our gardening into farming and planting a greater variety of crops, and then we progressed into ranching — my idea. My wife resisted. “You do have a day job, you know,” she reminded me. I sold her on the chickens easily enough, as they don’t require much work and plenty of city slickers have them now. The taste of a fresh, free-range egg is the capper.

I agreed to take on all the animal duties, even if it meant getting up at the crack of dawn. We brought in two dozen chickens and shortly thereafter added three goats, two female and one male. Our goats quickly became family favorites. We knew it was likely that they would have babies, and we even fancied the idea of their kids running and jumping around our property. It simply happened much faster than I thought nature needed to take her course.

Push technology

As I pace Betsy’s pen wearing overalls and galoshes, I picture a rancher sitting on the back of an old pickup truck watching me. He has a face weathered from seasons of working outdoors, his cowboy hat is pulled low, and a long strand of hay hangs from his mouth. He shakes his head and has a good deep laugh at the city-boy office worker.

But so far the Internet has delivered — figuratively to date and soon literally. Jennifer and I relied on the Web to supplement our suburban farming knowledge. For today’s work, there’s a bucket of warm water and some clean towels nearby, and an iPhone in my hand with a Web page loaded that contains step-by-step directions on assisting with a goat delivery.

Birth went quickly. In moments, the first two kids are on the ground breathing and starting to move around. I let out a sigh of relief, wipe the sweat from my brow, and sit down on the ground near the newborns, taking a minute to admire them. I imagine the faces of my daughters when they arrive home from school that afternoon and see the newborns.

I pat myself on the back that my digital assistant and I managed everything so neatly. That was premature, of course. Betsy begins to push again. I expected twins but she was carrying triplets, which I later learned is uncommon. I roll up my sleeves for the next delivery, but an hour passes and she’s not progressing. Something is wrong.

Betsy is pacing, and she is trying on her own every position that she can to get the baby out. I start searching for delivery position complications. It takes minutes, but I find a forum that helps me diagnose the situation: the third kid was positioned poorly and Betsy can’t get it out on her own.

The reality of what I have to do next hits me along with a jolt of adrenaline. I’m about to get my soft, uncallused expert-typist hands dirty. I have to work up the courage, and it takes a few minutes of deep breathing to get there. Betsy looks exhausted. She’s been through an hour of hard labor, and if she could talk she would say, “Are going to sit there and play on your phone or are you going to help me, you idiot?!”

Reluctantly and cautiously, I reposition the kid and give a gentle tug to get the process started. I watch and wait impatiently. At last the kid emerges and breathes on its own. If I was the goat’s midwife, then the iPhone was mine.

No kidding

That was years ago, and while I’m not yet grizzled, I ride a tractor, wear cowboy boots, and occasionally snack on the wheat berries that grow in my pasture. Often new neighbors or friends from San Jose and beyond come over to see what we are up to and ask how to do it themselves. When people visit the first time, I usually have one rule: they have to try to catch a chicken. Purely for my entertainment purposes, of course.

I think back to Betsy’s first delivery at times, and remember my reaction when it became complicated. I didn’t call a vet; the thought never entered my mind. I’m a problem solver, and it seemed natural to turn to the same repository of information that serves my career to serve Betsy.

I probably should have had a vet’s number on hand, but being new to the community I didn’t yet know who to call. To save Betsy and the baby, I knew I had to act fast. That was where the Web came in, and it’s turned out that every fundamental bit of information we’ve needed to run the farm we’ve been able to find on the Internet, often from far-flung pocket farmers like ourselves, who share information that our grandparents and great-grandparents would have learned firsthand. The scale of a hobby farm has let us more recently connect in person, too, with local 4-H clubs, rather than the resources that family and larger farms rely on.

Every year around delivery time, I reflect on how a process that once seemed so foreign has now become second nature. Since that time, we have birthed 14 happy and healthy baby goats and I’m now the old hand. Neighbors come to consult me in similar situations, where I gladly offer any knowledge I have or teach them how to effectively use the Web for their needs.

Betsy is doing well to this day, and we have added more goats (and a sheep) in the years since and have helped them deliver happy, healthy newborns. Since moving we have also added ducks, geese, turkeys, and bees. But unquestionably, the highlight of our year is when baby goats arrive on the farm. Now, on to cows.

Why Windows RT Will Survive $900M Later

Yesterday, Microsoft announced that they were writing off $900M in Surface RT inventory.  This is based on price reductions on Surface RT to clear inventory.  If we assume that Microsoft factored in $150 per unit and we do some simple math, we can then estimate that Microsoft is sitting on 6M Surface RTs.  This is an absolute abomination, and I don’t think this is a surprise to many that Surface RT didn’t sell well, but what is a surprise is the magnitude of the write-down.  Even with nearly $1B in write-downs, I don’t think Microsoft will cancel Windows RT and I want to share my thinking.

I would be remiss if I didn’t first give my opinion on why Windows RT didn’t sell well.  First, I disagree with the notion that it has to do with the dual tablet-PC nature of Windows 8, and for that matter, RT.  Research I have conducted and research I have seen shows that once users actually use a use a touch-Windows device, they like it.  It’s that trial that is the tough part.  What doomed Surface RT, plain and simple, was the lack of premier apps and because the tablet market shifted to the 7-8″ form factor.  This isn’t the main topic of this post but I needed to weigh in.

To better understand why Microsoft will keep investing in Windows RT, we have to know why they invested in it in the first place.  When Microsoft would have had to make the decision to support an ARM-based Windows RT, Intel did not have a competitive mobile part and had just come off of some very public mobile failures, Menlow and Moorestown.  The CloverTrail schedule was risky, too, and Microsoft felt that they needed lower power ARM-based SOCs to meet the battery life bar set by the iPad and the Motorola Xoom.  The other factor is that in the minds of both Microsoft and Intel, any dollar invested by an OEM into each others products, is a dollar that they lose.  Microsoft is interested in cheap hardware so they can charge more for software.  Intel is interested in cheap software so they can charge more for hardware.  Makes sense, right?

The first reason Microsoft will keep investing in Windows RT is to keep Intel competitive on tablets.  Microsoft thinks that if they don’t hold something over Intel’s head, they won’t see solutions in the future as competitive as Bay Trail which, at least on paper, looks very competitive for holiday 2013 Windows 8-based tablets.  Microsoft is also seeking to lower prices on 7-8″ tablets, and they see ARM-based SOCs from someone like Rockchip or Huawei providing that cost reduction necessary to enable Microsoft to charge more for software or lower the product street price. We also need to factor in phones.  Windows Phone 9 will most likely share the same kernel as Windows RT (9) and therefore it would make sense to cease development now for ARM to revive it a few years later.  Finally, Microsoft is thinking wearables and IoT devices based on this shared Windows RT (9) kernel, and so far, Intel doesn’t have a roadmap that would provide this level of performance/watt necessary to last weeks on a single charge.

So even with nearly $1B in “losses” racked up so far, Microsoft will trudge on, because they believe that they need ARM-based silicon to cover all their product segment bases and increase the price of their software to OEMs.

Why Apple Should Not Create a Low-End iPhone

For a while now Wall Street backers of Apple have wanted them to create a low priced iPhone and use it to gain more marketshare. They seem to think that market share will drive up profits and expand their reach. A Tech.pinions colleague has done a great jobs dealing with the issue of marketshare vs profits so I won’t go into that here and suggest you read his series on this since it lays out a very good argument that profits are much more important than marketshare.

But if Wall Streeter’s really want to understand why this is a bad idea, all they have to do is look back at Apple’s history and see that Apple tried that once before and it nearly destroyed them. Not long after John Sculley was pushed out of Apple, Michael Spindler was brought in as CEO to try and make Apple more competitive. At the time the Mac had become a niche product, mostly used for desktop publishing, graphics, and engineering. On the other hand, the PC was outselling Macs at least 20 to 1 and pressure from Wall Street pushed Spindler to try and do things to help the Mac gain market share.

So what did he do? First, he made the Mac Look like a PC in design. Second, breaking major tradition, he licensed the OS to a special group with the idea that if there were more companies offering the Mac, it would sell more. And, Apple and the licensee lowered the prices and tried to compete with the PC head on. There was only one problem. The PC clones had access to tens of thousands more apps then was available for the Mac and IT and consumers took the safe route and stayed with PCs. Even the lower prices could not help Apple gain any ground in the PC market.

During this side trip to try and be all things to all people, Apple lost a lot of money and was in the red to the tune of almost a billion dollars when Spindler was forced out. They then brought in Gil Amelio who tried to stem the losses but by that time, it was too late to save Apple. That is when Jobs came back and took it back to its roots of selling the best product they could to their core customers. As he told me in a meeting with him the second day he had come back to Apple, he would lean on industrial design and innovation to try and grow the company again.

If you look at the low-end of the smartphone market, it is becoming a wasteland. First, as long as a smartphone has an OS, some memory and access to apps it is called a smartphone. However, low-end smartphones are now around $99 in China and well over 50% of the smartphones selling in China are white box phones that are sold off the street, in cell phone flea markets and through channels we as market researchers can’t even track. But nobody in that price range is making any money.

The same goes for other markets where these phones cost $99-$139. BOM costs alone make it very difficult for them to have any margins when they sell these products and at these price ranges, profits are slim or next to none. For Apple to try and do a low-end phone for the emerging market might help market share but at the cost of any serious profit. I trust they have learned the lessons from the last time they low balled products for the market and never go after this side of the business.

On the other hand, there is precedence from the past for mid-range priced smartphones. While the Mac for the graphics, DTO and engineering worlds became premium products in their line, Steve Jobs introduced the innovative, candy colored iMacs at prices well below their upper-end Macs. To this day Apple still sells a lot of premium priced Macs but the bulk of their sales comes from mid range priced iMacs and MacBook’s selling well under their premium lines. But what they have not done is chase the low-end of the PC market and with the is strategy they still have solid profits in their Mac Line.

There are rumors that Apple will soon introduce lower priced iPhones, but don’t expect them to priced to compete at the really low-end of the market or be aggressive with pricing in emerging markets. From History, Apple knows that they can still make some good profits with mid ranged priced products and if these rumors are true, Apple new iPhones would be following a proven formula that has continued to help them stay one of the most profitable companies in the world today.

Microsoft Reorganization and the Future of Xbox

Microsoft today announced a long-awaited reorganization that is aimed at eliminating the company’s often warring business units in favor of a more unified, collaborative organization. Kara Swisher at All Things D had the details first and has reported them in great depth, so I’m not going to go over that ground. But I do want to speculate a bit on what the new arrangement means for the Xbox, the one product that has generated any real excitement out of Redmond in the past few years.

On the one hand, putting Xbox in a consolidated hardware unit, under former Windows engineering chief Julie Larsen-Green, shows how mainstream and central to Microsoft’s ambitions the Xbox has become. On the other, it marks the formal end of Xbox as a rebel within the Microsoft camp.

Xbox was the product of a Microsoft skunkworks run by J. Allard and Robbie Bach. It was based in Redmond, Wash., like the rest of the company, but was physically located in offices and labs a few miles away fromt the main Microsoft campus. At least in its early days, it felt very different, and much less corporate, than other Microsoft operations. The team produced the original Xbox, the Xbox 360, and the revolutionary Kinect sensor.

To be sure, a lot of what made the Xbox unit special ended when Allard and Bach left the company in 2010 and Xbox got reeled in closer to the mother ship. Don Mattrick, who took over for Bach as head of the unit,  announced recently he was leaving Microsoft to become CEO of game maker Zynga. After today’s reorganization, it’s official that Xbox is just another product in the Microsoft family.

 

Why Softbank buying Sprint is a big deal

Last week, the FCC gave their blessing on the Softbank purchase of Sprint. I consider this a very big deal and one that could have dramatic ramifications for the Wireless industry in the future. The leader of Softbank is a brilliant thinker and is never lacking in vision.

I have had the privilege of interacting with their founder and CEO, Masayoshi Son on numerous occasions and in fact did Fireside chats with him at two conferences in the late 1990’s. At that time, he became prominent because he bought Comdex, the largest PC show in the world in those days, and for his statement that he had a 300 year business plan for Softbank.

I got a chance to understand a bit about his business acumen and tenacity during one of our fireside chats. It took place at the Phoenix Technologies Conference at Spanish Bay in Monterey. Mr Son explained that in Japan, the telecom industry, which was basically controlled by the Japanese Govt. needed shaking up. It was controlled by NTT and the Japanese Govt dragged their feet when it came to open competition. This led to very low bandwidth Internet connections as well as a wireless infrastructure that, in his mind, was going nowhere.

So he approached the telecom Minister of the Japanese Govt, which regulated the telecom industry, and kept pushing him to present a plan that would open up the their telecom laws for more competition. He went to see this person at least 4 times and each time he was either rebuffed or was told he would look into it but nothing happened. So, on his 5th visit, he barged into this telecom Minister’s office with a full can of gasoline in tow. He told the Minister that if he did not agree to take his proposal to their ruling body that he would pour the gasoline over himself and light it on fire.The telecom Minister got the message and agreed to start the process of discussing opening up their telecom industry to competition. Because of that push by Mr. Son, Japan’s broadband and wireless industry began to explode. Softbank was the first to give users 50+ megs of download speed and I hear his goal is to get them to 1 gbps in the very near future. Softbank is now the #2 wireless company in Japan.

When I first heard that Mr. Son and Softbank had bid for Sprint, I had a vision of him walking into the offices of the FCC with his gas can in hand. However, given his success in Japan, everyone I talked to about this took his bid for Sprint very serious and knew that he would be tenacious in his desire to own this American Wireless company. However, his ownership of Sprint has to be watched very closely. He is not content with the status quo. One thing he could do is try and bump Sprint to 5G sooner than later and leapfrog ATT and Verizon. He could also utilize these assists, which includes Clearwire’s wireless spectrum, to create some type of mesh networks that blend wired and wireless in some areas to boost speeds for their customers.

Bottom line is that Mr. Son will not be a conventional wireless CEO. He is likely to be a firebrand within the wireless industry and do things that will irk and frustrate the competition. He wants to win, not just be a bit player in the US wireless market. Look for him to shake things up at the govt and industry level and perhaps surpass the competition and delight his customers along the way.

A Requiem for WebTV

It’s not too often that I am reminded of something I wrote 17 years ago and am able to read it without cringing, at least not too much. This happened over the weekend, after Microsoft quietly announced that it was shutting down its MSN TV service at the end of September. The Verge linked to a 1996 BusinessWeek  column in which I said that the brand-new WebTV might be the “product that could turn the World Wide Web into a mass-entertainment medium.”

That call was premature by about a decade, but the folks who created WebTV–Steve Perlman, Bruce Leak, and the late Phil Goldman–and soon sold it to Microsoft for $425 million were onto something important. WebTV was the first of a long line of set top boxes designed to merge standard television with what we now call over-the-top internet video, and effort that continues today with Apple TV, Google TV, Roku, Xbox, and many others.

WebTV and its successor MSN TV never found much success. It turned out that not very many people wanted to see a mostly text internet on their TV sets, nearly all of which were then CRTs. The WebTV engineers did a brilliant job of making text readable on displays never designed for it, but there were limits to what they could accomplish. Content was a huge challenge, especially with the standard connectivity coming through a 28 kilobit per second dial-up modem (later versions supported broadband.) As I wrote:

WebTV also requires a Web that is much more visual than today’s. This is an entertainment appliance, not a research tool. You can’t save or print pages. On the other hand, an online tour of an art gallery was beautiful on WebTV. Support for a number of multimedia technologies, including Java programs, RealAudio sound, and QuickTime movies, was missing from my prototype, but they should be ready soon.

It’s easy to imagine what’s needed to make TV-based browsing take off: shopping, with click-to-order multimedia catalogs. (WebTV comes with a slot for the “smart” credit card of the future.) Movie guides with previews on demand. Travel information, with on-screen booking services. Online games.

Perhaps most important, setting up WebTV was drop-dead simple to set up and use at a time when most people  were still struggling with recording on VCRs.

We are still a long way from the perfect, do-everything set top box. But WebTV was an important first step on the path that is getting us there.

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.

Android Apps on Windows PC’s via Dual Boot- Are they DOA?

We are hearing from a lot of vendors that the idea of dual booting Windows and Android is a hot topic of discussion these days. Asus and Samsung both have laptops on the market that include Windows 8 and Android and the thinking behind this is that Windows Metro apps have less than 100K in their store and by using a dual boot of both operating systems, vendors can deliver Android apps on Windows machines to make Windows laptops and PCs more desirable. Remember, they only want to push hardware and they think this will help their ability to do so.

Asus gives users a toggle switch like key to go between operating systems while Samsung switches seamlessly between the two and even pins Android apps to the Windows 8 start screen. “Users will not only get access to Android apps via Google Play but will also be able to transfer files to share folders and files from Windows 8 to Android, truly marrying the mobile and PC experiences,” Samsung said in their launch press release.

The Need to Stand Out

Let’s be clear what is going on here. Vendors have gotten desperate to differentiate since all PCs and laptops pretty much look and work the same these days. Everyone is trying to find a hook to get his or her new product into the jaw of the consumer. This is especially true with the PC crowd where competition between the big PC vendors are coming in contact with no name brands, especially in emerging markets, and in some countries causing a real decline in demand of name brand products. But, the history of dual boot systems has been littered with failures. The only one with legs so far has been the Parallels solution of delivering Windows on Mac’s. While it works and has done well, their audience is by no means a large one and much of their demand has come from business users.

Another thing that is going on is that demand for PCs on a whole is down. IDC and others believe demand for PCs and laptops will be off 7% over last year and down at least another 7% -9% the following year. PC vendors are becoming desperate to find new form factors and if possible, software tweaks to drive demand for their products that are core to many of their company’s survival.

But perhaps the bigger issue behind this Windows/Android dual boot idea is the failure by Microsoft to get the software developer community excited and incented to write Metro Apps in large numbers. With such a small offering of Windows Touch based apps, no wonder users who have Win 8 systems would even consider finding ways to get Android apps working on Windows machines.

Truth be told, users can do this already without the need of a dual booted OS. Bluestacks has offered a way to put Android apps on Windows for almost two years now and in fact they already have over a million users doing just that. Many vendors have had the chance to put the Bluestacks Player on their systems but there has been a question of whether Bluestacks violates a key element of the Android anti-fragmentation license so most have opted to not piss off Google. A similar problem exists with Microsoft. One vendor told me that if they put the Bluestacks player on their PC’s, Microsoft would cut off any future marketing funds. While I understand Microsoft’s position and that they would rather try and boost the development of their apps for their own systems, the fact is that getting any serious momentum for developing Windows 8 apps is lagging far behind and it is folly to think that they can scale up their store offerings anytime fast, let alone ever really compete with IOS and Android touch based apps stores.

It seems crazy that both Google and Microsoft would veer away from Bluestacks given its potential help for their market goals. In Google’s case, they could offer Android apps and get millions of Windows users acquainted with Android as well as tap into the ad potential they would get from these new users. For Microsoft, it would give their users access to hundred’s of thousands of apps that they will never get as Windows 8 Metro apps and bring them into their own fenced in Windows environment and find ways to leverage these for their own ad and search links.

This heightened interest in putting Android on Windows machines seems to be quite a serious movement at the time. And at the moment, the vendors are choosing dual boot over Bluestacks’s approach, something that adds cost to their system and threatens user pushback if this approach taxes the system and makes these dual booted PC’s and laptops preform sluggishly.

I am not sure if these dual boot systems will be DOA or not. History has shown that dual booted operating systems on a single device platform do not do well and I suspect that these hardware implementations could have only minimal interest with consumers.

But Microsoft should learn from this dual boot push that users want hundreds of thousands of apps to use on Windows machines and if Microsoft can’t give it to them, users may look elsewhere to get them. Microsoft needs to see that this does not bode well for them, especially if Android and Chrome merge as we expect them to do in the next few years and Chrome OS based system with Android Apps on them deliver much more than Windows 8 could ever give them.

You should keep an eye on this area of dual booted Windows/Android systems. Whether they are successful or not, it shows that vendors and consumers want more Apps for their PC’s and Microsoft is not delivering.

It’s Officially Over for RIM

I like to try and remain optimistic about companies because I realize that true innovation can often trump market trends and be a catalyst for growth. But since the the beginning of the year, I have been observing a growing list of evidence showing that RIMs time may be officially up.

The first bit of data came from a dozen or so different CIO interviews where more than 80% of the CIOs interviewed stated they were actively moving away from RIM and their enterprise server solutions. Many didn’t emphasize this point but 2012 was a contract year for more than 60% of RIMs enterprise server accounts. These contracts are generally done in two year increments and a majority came up for renewal in 2012. What many of these CIO interviews I read indicated was that most of those were not renewed.

In fact this downward trend may have been started when Good Technology launched their service which allowed BlackBerry server and the push email solution to go to other devices, namely Windows Mobile and Palm OS at the time. This way if a business was running on BlackBerry Server other non-RIM devices could access the service. In fact one of my business mentors, who was then at Kleiner Perkins, made the point that RIMs days may be numbered using the Good solution as an indicator. Even in those days, before the iPhone, enterprises saw the need to support a number of devices and not just one.

The other data point has been conversations I’ve been having with insiders in the telco space. From those conversations, and from casual conversations I’ve had with telco execs, it became clear that RIMs latest devices were among the lowest selling smartphones, even being surpassed by Windows Phone. The bottom line is the BlackBerry devices are suffering a negative momentum.

Today, in their earnings, RIM stated the following:

RIM said it sold 6.8 million phones overall versus 7.8 million last year. That includes older models. In the conference call, it said about 2.7 million new devices were Blackberry 10 models.

RIMs YoY decline continues and is dropping extremely fast. Given RIMs focus on enterprise sales, the seasonal boosts that come in Q4 has not benefitted RIM in years and I strongly doubt it will this year.

As much as I tried to remain positive for RIM it is time to officially say it is over. BlackBerry like Windows Phone needs time to be successful. There is a dominant duopoly of Android and iOS and I see nothing in the works that will change that anytime soon. RIM does not have the cash or the patience with investors to stick it out until a small, yet doubtful, opening appears to make a go at it. Microsoft does have the cash and the ability to be patient and wait for their market opportunity, should it arise.

An interesting thought exercise for RIM is a question raised by Ben Evans this morning on his blog after the RIM announcement. He stated:

It’s also interesting to ponder what would have happened if both companies had swallowed their pride and gone with Android, or even forked Android. I don’t actually think Blackberry would be in a better position, but Nokia might have been.

This is an interesting question and I agree with him that I don’t think going Android would have saved RIM. Nokia could definitely have faired better but what I think is fascinating about Android is that by committing to Google there is no guarantee of success. With a host of failed Android devices on the market, it proves that simply going Android is not the answer. All of this points out how very difficult it is to compete in the most cut throat business of telecommunications.

It is only a matter of time now for RIM and the real question is who does their exit from the landscape benefit most. I believe it benefits Apple the most and Windows Phone second.

What to be Aware of Installing Windows 8.1 Preview

It has been 24 hours since Microsoft released Windows 8.1 Preview and while many have successfully installed it, some have not. I want to share with you my experiences so that it may hopefully save you some time this week.

Immediately after the preview.windows.com link was released, I started downloading on my primary notebook, the Dell XPS 12.  I got an error message that said, “Your Windows 8.1 Preview install couldn’t be completed. Something happened and the Windows 8.1 Preview can’t be completed.”  I get the choice to “try again” or “cancel”  My expectation was that there was a lot of traffic hitting the servers and I tried again… and again, and finally connected t the store.  At the end of the 20 minute download an error message appeared.  The message said, “Something happened and the Windows 8.1 Preview couldn’t be installed.  Please try again. Error code: 0x80240031.”  I was given the chance to “Try again” or “cancel”.  I tried and tried again.  Then I searched on the error message but no information was available.  So I figured it was a bad machine or Windows 8 load.  Time to try another.

So I tried a system builder constructed new Intel Haswell machine.  Same problem.  Then a Lenovo Yoga 13.  Then Microsoft Surface Pro. Same issue.  I contacted the helpful folks at Microsoft who said they would look into it and get back to me.  They did ask some clarifying questions about what I had, because there are some issues they have found and shared on a blog post.  Users cannot upgrade yet Atom processor-based systems or those with Windows 8 Enterprise.

So I then decided it had to be an overwhelmed server issue so I waited  till the next morning.  I tried all four systems again and then, because I had seen someone from Nvidia talk about Yoga 11 success, I tried it on that.  Same result.  No joy.  I am currently in the process of reimaging the Yoga 11 and I will keep you updated along the way.

My message to you: Don’t waste your time like I have on 5 different systems…. move on, do something different for a few days and come back until they’ve sorted out the issues.