Fairly Confident Predictions for 2016

A couple of other Tech.pinions contributors have already outlined some predictions for 2016 but, in my first Insiders post of the year, I thought I’d chime in too. The predictions below are mostly ones I’m fairly confident about, but I’ll sprinkle in a couple that are a little more “out there” and identify those clearly.

Amazon: Both AWS and E-Commerce Driving Growth

The big success story for Amazon over the last several years has been AWS, even as its e-commerce business seemed to lose some steam and margins evaporated. But, in late 2015, it became clear Amazon still had a lot of headroom left for its e-commerce business, as that business regained momentum and the combination of AWS and better-performing sales in e-commerce helped boost margins. I still believe Amazon faces some major obstacles in replicating its US model (which relies heavily on infrastructure density) in some overseas markets like India and China, but it’s likely to have success in 2016 in expanding in the UK and other markets where its infrastructure is already strong and the geography and population density are more favorable.

Apple: Continued Growth, Including iPhone

The biggest single question about Apple in 2016 has to be whether it will grow revenues significantly, which in turn is heavily dependent on its ability to grow its iPhone business. I wrote a piece a while back in which I did something of a deep dive into the various factors driving (or holding back) Apple’s growth in 2016, so I’ll refer you to that for the details. But I believe the iPhone will grow for Apple in 2016, albeit at a significantly slower rate than in late 2014 and 2015. However, I don’t think the iPad will return to growth just yet, even with the launch of the iPad Pro. I also think we’ll see significant investment from Apple around iMessage in its 2016 software releases, including peer-to-peer payments and other advances. My long-shot prediction for Apple is it will launch its own smart home hardware in 2016. Its HomeKit strategy just doesn’t seem to be delivering results, and I think the only way to fix that is for Apple to get into the business itself.

Facebook: Another Acquisition, Possibly an Asian Messaging App

Facebook has made several high-profile (and high-value) acquisitions in recent years, including Oculus, Instagram and WhatsApp. I suspect it’s not done yet and one big gap in its strategy continues to be messaging in Asia. As I and others have written about here, Asia continues to be a fragmented market when it comes to messaging and Facebook’s presence in Asia in general continues to be weaker than elsewhere. Acquiring one of the major Asian messaging apps might be one way to help address this weakness, with LINE and Daum Kakao being the obvious candidates.

Google: Alphabet Split Reveals Dichotomy in Businesses

One of the biggest things that will happen in Google’s world this coming year is the first reporting under the new structure created by the new Alphabet entity. What we know is this reporting will come when the company reports its results for Q4. What we don’t know is what those financials will look like and financial analysts have widely divergent views on the performance of the “other bets” business in particular. My prediction is the core Google business will emerge from this new reporting structure looking better than ever but, conversely, the other businesses will look pretty awful from a financial perspective. That increased transparency will, in turn, lead to more pressure and scrutiny for those “other bets”, and my out-there prediction is one of these businesses will be shut down, spun off, or otherwise scaled back as a result in 2016.

Microsoft: Surface Phones Launch, With as Little Success as Lumia

With the launch of Windows 10 and new devices optimized to work with it in 2015, Microsoft has got some of its biggest news out of the way already. But there are signs and reports Microsoft still intends to launch a revamped line of Windows Phones, possibly under the Surface brand, and it’s possible this will happen in late 2016. However, I predict these phones will ultimately suffer from the same fundamental challenges as Windows Phone in general and Nokia/Microsoft’s Lumia line in particular. As such, Windows Phone will continue to struggle, though it will likely limp on in some form indefinitely, especially if it gains any sort of meaningful traction in the enterprise, which is clearly a major focus now.

Samsung: Smartphone Business Fades, Chips Ascendant

Samsung spent 2015 stabilizing its smartphone business, at least in terms of revenue and shipments, but at the expense of margins. 2016 will likely see more of the same, even under new leadership, with an inevitable tradeoff between driving shipment growth and falling selling prices further pressuring margins. It’s going to become clearer than ever in 2016 that Samsung’s heyday as a consumer electronics powerhouse is behind it and that its future lies at least as much in providing components to other manufacturers as in making its own consumer-facing goods. Its chip business should continue to flourish, driving more and more of its revenue and profits and helping to offset the poorer performance in smartphones and elsewhere.

Twitter: Still no Core User Growth, Slowing Revenue Growth

As a heavy Twitter user, I’m invested in its future and its success, but it’s becoming increasingly difficult to believe Twitter will get user growth going again. Jack Dorsey’s leadership seems to have breathed some new energy into the company and he’s outlined a plan for returning user numbers to growth, but I suspect we’ll see very little of it in the core, monetizable, user base (i.e. excluding “SMS Fast Followers” and “Logged-out Users”). As user growth continues to stall, it will be harder and harder for the company to grow revenues as it has to date and revenue growth will slow.

Asking Apple To Do The Impossible

On December 28, 2015, Nilay Patel wrote an article for The Verge entitled: Apple’s Year In Beta. The sub-title was “Everything Needs More Focus And More Time.” (All quotes, below, will be from the article unless otherwise attributed.)

(I)t is surprisingly easy to make the argument that everything on Apple’s huge list of new products and features this year sucked a little bit. ~ Nilay Patel

Easy? Yes. Fair? Maybe not.

Straw Man

All of Apple’s products this year were just fine…. And that’s really the issue. We’re not used to Apple being just fine. We’re used to Apple being wildly better than the competition, or sometimes much worse, but always being ahead of the curve on some significant axis. ~ Nilay Patel

Wildly better? Always ahead of the curve?

A “Straw Man” argument is an informal fallacy based on refuting a position that no reasonable proponent would actually make. It’s easy for Apple to disappoint Nilay’s expectations when Nilay sets his expectations so unrealistically high. If Nilay thinks Apple’s successful products are always wildly better than the competition, it’s no wonder that he would tend to be wildly disappointed in Apple.

Take a gander at some past Apple products:

– Apple III
– Apple IIe
– Apple Lisa
– Apple IIc
– Quadra 700
– Powerbook 100
– Centris 610
– Newton
– Macintosh TV
– Pippin
– Performa
– eMate 300
– Power Mac G4 Cube
– Apple Mighty Mouse

You’d have to look far and wide to find anyone who reasonably considers any of these Apple products to be “wildly better” than those of the competition. Further, products such as iCloud, Maps, and iMessage — which are now considered to be critical to Apple’s ongoing success — were all severely criticized in their time. Even Apple’s most successful products — the Macintosh, iPhone, MacBook Air and iPad — were severely panned when they debuted…and long afterwards too.

Nilly’s premise is correct: Apple is sometimes (not the hyperbolic “always”) ahead of the curve. However, the implied conclusion is incorrect: Apple’s products are not admired because they are ahead of the curve, rather, they are CRITICIZED precisely because they are ahead of the curve.

Incomplete

(W)hat we got in 2015 was an Apple that released more products than ever, all of which felt incomplete in extremely meaningful ways — ways that meant that their products were just fine, and often just the same as everyone else’s.

I would go so far as to say every new Apple product or feature released in 2015 was essentially in beta. Apple released a lot of big new platforms that, by themselves, weren’t nearly complete. ~ Nilay Patel

Yeah, here’s the problem with that argument: “Incomplete” is not a valid criteria for critiquing tech products.

Name me a significant new tech product that didn’t feel incomplete when it first appeared on the market.

(Crickets chirping.)

The original Macintosh? The original iPod? The original iPhone? The Original iPad? The original MacBook Air?

The Kitty Hawk? The Ford Model-T? The steam engine? The printing press?

None of these products felt “complete” when they debuted.

The contention that a product has to feel complete at birth is all backwards. Tech products don’t feel complete when they debut. On the contrary, the closer a tech product is to becoming “complete”, the closer it is to becoming obsolete. “Complete” comes at the end — not at the beginning — of a tech product’s life cycle.

Killer App

Apple needed — expected, really — its vast army of dedicated and passionate third-party developers to come up with killer apps for things like the Apple Watch and iPad Pro. ~ Nilay Patel

Nilay goes on to say that the Apple Watch, Apple TV, Apple Music and iPad Pro are all new platforms in search of a killer app.

Why do we continue to think that new platforms immediately — or ever — generate killer apps? It was years before apps such as Uber and airbnb appeared on smartphones. And even those two industry altering apps don’t truly fit the definition of “killer apps”. In the nineteen-eighties, people bought desktop computers in order to get Lotus 1-2-3, but no one buys a smartphone in order to get the Uber or airbnb apps.

Truth be told, there probably hasn’t been a true “killer” application since Lotus 1-2-3. It turns out that when it comes to smartphones, the killer feature is — well — the killer feature is the smartphone itself.

To get a sense of what I mean, just consider the first iPhone, which introduced a new platform with two incredible killer apps: the Safari browser (which was revolutionary in 2007) and Maps. The next iPhone introduced the App Store with a laundry list of additional killer apps, and you know what happened next — the entire tech industry turned upside down. And eventually Apple introduced iMessage, a platform-level feature that creates and reinforces an extraordinary amount of value if everyone you know is an iPhone user — those blue bubbles mean something in the culture now. ~ Nilay Patel

Hmm. Most of those examples are system features, not apps, right? But what the heck, I’ll play along.

You can’t have it both ways. You can’t claim that Apple’s newest products feel incomplete at inception and then support your position with examples of products that weren’t nearly complete at inception themselves.

The examples Nilay provides resoundingly disprove his thesis. The iPhone was not complete when it appeared, Maps was considered a joke as recently as last year, the App Store, sans apps, appeared a year AFTER the original iPhone did, and iMessage did not show up until June 6, 2011 — FOUR YEARS after the iPhone was introduced. Who’s to say that Apple’s newest platforms won’t mature in a similar fashion?

Not to go all biblical, but if you are building an argument on the twin premises that a new platform needs to be mature at birth and needs to have killer apps, then you are “like a foolish man who built his house on the sand.” ((Matthew 7:24-27 English Standard Version))

Change The World

And that’s really the story of Apple in 2015. After years of promising investors new products, the implication over and over again was that the iPhone changed the world, and it would happen again with another new product. And while the company delivered on dazzle and hype — sometimes far more than usual — the products themselves often felt searching, waiting to be imbued with reason. ~ Nilay Patel

Say what now?

First, I assure you that the implications Nilay is projecting onto Apple occurred only in his fevered imagination. In no way, shape or form did Apple imply “over and over again” that they were, in 2015, introducing a world changing product that would eclipse even the iPhone.

Second, the iPhone is big deal. A really, really big deal. Expecting ANY product to be the next iPhone is asking a bit much.

Third, try to remember that in 2007 we didn’t know that the iPhone was going to become the juggernaut that “The iPhone” became. Let’s give Apple’s new products a little time to grow before we prematurely declare them to be mere iPhone wannabes.

One of the mantras of modern business is to “under promise and over deliver“. If Nilay thought Apple literally promised to change the world in 2015, then it is no wonder that he also thought Apple under delivered on that promise. How could he feel otherwise? It would be nigh on impossible for Apple — or any company — to meet those kind of inflated expectations.

Asking The Impossible

There are no right answers to the wrong questions. ~ Ursula K. Le Guin

If you’re asking why Apple’s new products aren’t “wildly better than the competition”, why they’re “incomplete”, why they didn’t inspire the creation of “killer apps”, why they didn’t change the world; then you’re going to get the wrong answers.

A critic is some who never actually goes to battle, enters the battlefield after the fighting is done, and shoots the wounded ~ variously attributed to Tyne Daly and Murray Kempton

Apple Watch has been on the market for 8 months, Apple Music has been on the market for 6 months, the iPad Pro and the newest iteration of Apple TV have been on the market for a mere 4 months. No new platform can create a robust ecosystem in that short amount of time. It’s impossible. However, the impossible is precisely what Nilay expects — nay, demands — of Apple.

We shouldn’t be asking why Apple’s new platforms and platform enhancements haven’t ALREADY generated significant new ecosystems. Rather, we should be asking whether Apple’s new platforms are broad enough and strong enough to support robust future development. My short answer to that question is that some products look promising and others do not. But it’s still far too early to know for sure.

Expecting Apple to introduce platforms that are mature at birth is asking too much. Apple can’t do the impossible. They’re only capable of doing the improbable.

Concerns and Predictions for the Tech Industry and Market in 2016

For the last 25+ years, I have written an annual predictions column and have tried to look forward to what might happen in tech in the New Year. Actually, they were less predictions and more like researched observations about what I expected to happen and, in a lot of cases, I drew my observations from products I saw that would be released in that new year or from being inside tech labs and seeing things companies were working on that I believe would have impact in the upcoming year.

But, this year, I am deviating a bit from this tradition. I want to share a few researched thoughts on potential products that could impact us in 2016 but also share some real of concerns I have for the overall tech market in the coming year.

Let me start with four tech products I believe will be interesting in 2016.

Windows 10: Although Windows 10 did not give the PC market a boost in 2015, it should cause a bit of growth in PC sales, especially in IT, next year. This year, PC sales will be off around -10% but most of the researchers and PC vendors we talk to say Windows 10 is the best OS Microsoft has introduced in 10 years and they are seeing serious interest from IT to start upgrading in larger numbers in 2016. If so, that would mean we most likely will only be off -2% next year. PC vendors have finally concluded PC demand will never grow and they see yearly demand for at least the next three years hovering between 285-300 million sold world wide annually. However, I have talked to some vendors who think that, within three to five years, we may see only about 225 to 250 million sold each year. If that happens, there will be even more industry consolidation and we should prepare for a PC world where only HP, Dell and Lenovo survive.

2-in-1s and convertibles start to catch on: By the end of this year, 2-in-1s and convertibles will account for less then 10% of all PCs sold in 2015. Despite heavy advertising from Microsoft and the PC vendors, products like Microsoft’s Surface Pro and others in this category have been slow to take off. Even Apple getting into 2-in-1s last fall has not helped this segment of the market grow. But that may change in 2016. Both 2-in-1s and convertibles are beginning to make more sense for a lot of laptop buyers since they do add a level of flexibility to the computing experience. Interestingly, if the industry pushed them as “future-proofed laptops”, they would get a lot more attention as people now hold their laptops and PC’s well over four to five years. But vendors would never do a future-proofing campaign as they really want people to buy new laptops every 3-4 years. Although they will still be slow to gain any serious market share, PC vendors have a goal of making 2-in-1s and convertibles account for as much as 40% of all laptops sold by 2018-2019.

Android 2-in-1s and laptops hit the market: Although Google is still trying to push Chrome as their OS for laptops, the tide is turning and, by the end of 2016, we should see many Android-based laptops and perhaps even Android desktops on the market. We know that at least one or two Android 2-in-1s will be launched at CES in January but we are hearing that, by next year at this time, Android fans could have many more to choose from. Android on laptops and perhaps desktops face serious technical challenges that Google must address but we hear that is in the works too. These types of products would especially be attractive to a younger audience who cut their computing teeth on iOS and Android and have little interest in Windows or even the Mac OS as they start entering the workforce.

VR and AR gain ground in 2016: I bought myself the $99 Samsung VR Goggles for Christmas. Samsung’s Goggles work only with a Samsung phone and need special Occulus apps to really work. But I found the experience, even with its limited apps, fascinating. The idea of delivering 360 degree 3D images and 3D videos, even at what I would call an entry level, gives users a sense of how immersive VR can be and how both VR and AR represent the future of personal computing at all levels.

It is very clear to me VR and AR is many years away from delivering a great consumer experience that will have any impact on the way people see and interact with the technology. But, if you do try out the Samsung Goggles, you will get a glimpse of our future. On a personal level, I think VR and AR delivering a more immersive computing experience will be a game changer for the overall PC, CE and communications industries. Once they work well, are easy to use and the software development community embraces these products and creates great apps for them, they could rewrite what the computing experience will be in the next 2-4 years. But in 2016, they will have a minimal impact on the tech scene and VR and AR in 2016 will be one in which more building blocks will be laid for an eventual VR and AR experience that could be very cool for everyone.

Concerns

Increased hacking of IT and sensitive infrastructure: For years, I have been predicting hackers would go after our power grid and other parts of the US energy, banking and communications infrastructure. News last week that hackers in Iran stole plans from a power plant in the US underscores this threat. If you have ever had the power go out for any length of time, you know how serious something like this is to businesses and homes. With hackers stealing personal identities and going after banks and even trying to take down the internet, the need for increased security measures to protect these institutions has never been higher. I talked with a major IT director recently and he told me as much as 20% of his IT budget is now allocated to security and protecting his company from outside attacks.

The US government, local utilities, banks and communications companies need to increase their effort in this area and become much more diligent in their protection of US citizens. This threat will not go away and will only get worse. These folks need up their game in this area.

IoT will remain confusing and stifle market acceptance: I am really concerned that the industry as a whole has no real plan to harmonize IoT in a way that really makes it work for consumer audiences. Today, most IoT companies and products act like islands unto themselves and some treat their products as one-offs or standalone models that only have value by themselves. While that may be true in some cases, most need to talk to each other and work together harmoniously in ways that bring them together to deliver a richer ecosystem of features, functions and services. IoT, as it is designed and marketed today, is just too confusing to a mass consumer audience and, if it is to live up to its trillion dollar potential, industry leaders like Apple, Microsoft, Google, Intel and others need to make nice with each other on IoT and start working together to make their devices, products, and even services talk to each other and deliver to the consumer a much cleaner and easier to understand implementation of IoT across the board.

What Hoverboards Say about Our Hardware Future

There is a lot of talk about hoverboards in the media lately. There is also a great deal of misunderstanding about what is happening here. Sure, it is interesting hoverboards were talked about and gained some momentum as a product during the holidays. But the big picture story here is not about the actual product itself. It’s about what is happening in the Chinese manufacturing ecosystem.

While the focus of this article I wrote on the future of consumer tech hardware being owned by Chinese companies was on smartphones, it applies to other categories as well. The past few years, the way China’s manufacturing prowess has increased has been unprecedented. The fact a relatively sophisticated product like a hoverboard is being mass manufactured at such low-price points is astonishing. Now, we can criticise the design decisions of these companies, particularly the quality– or lack there of– of the lithium-ion battery which causes some of them to catch fire, but that is easily solved. The $400-500 products solve this by using higher quality batteries and, even at those prices, a self-stabilizing board mass-produced is still impressive and just the start. But, as Tim point outed here, this quality wake up call to the Chinese OEM manufacturing ecosystem will turn out to be a blessing in disguise.

This Quartz article highlights that the hoverboard makers are taking quite a hit. The key point here is how Amazon laid down the law about safety requirements and patents. This is the part that will be the blessing in disguise.

These Chinese OEMs will understand more fully next time around that, when they hit on a consumer tech product that goes big, they need to be more prepared both with safety issues and particularly the patent discussion. I speak frequently with those in the manufacturing ecosystem and I can assure you the Chinese understand and are renewing their focus on original innovation. It is easy, too easy in fact, to mistakingly assume all the Chinese will ever do is knock off other people’s products and offer them cheaper. There is, and will be, unique hardware innovation coming from China, for the simple reason that so many other sources of hardware innovation will struggle as the business model for the vast majority of hardware companies today move away from hardware margins.

Another good read on this matter is a recent Wired editorial titled “How a Nation of Copycats Transformed Into a Hub of Innovation.” There is a mind-shift happening in China. I see it and many other very smart people I know see it as well. There is a foundation being laid that will pave the way for what we see happening in the future with Chinese innovation. It is exceptionally dangerous to write this off and underestimate Chinese tech companies as I see so many people do.

This is not going to happen overnight and I’m not trying to say it is. What I want to convey is how the foundation for our consumer tech hardware landscape is changing. There will still be plenty of opportunities for companies of other countries to invent and create hardware experiences. However, it will come in the face of increasing competition from China in many of the same categories. I fully expect several showcase Chinese innovations to happen over the next few years that bring more evidence to the change we are seeing take place. We can not throw away the history of Chinese people and the many inventions and innovations that once came from that country. The skills are there and all it takes is a renewed focus on originality. I think this is imminent and it will make for a very interesting economic and global competition landscape in consumer tech for the coming decade or longer.

Consumer VR may go Mainstream Sooner than Expected

For Christmas, I bought myself Samsung’s new Gear VR Goggles to get a better handle on the basic consumer VR experience and to find out if it is any closer to being technology consumers will embrace anytime soon. To use these goggles, you need one of Samsung’s Galaxy models and to download the special Oculus software that lets it deliver 360-degree photos and videos that allow you to play games and see movies in 3D. I had tested the Oculus Rift Goggles a number of times in the last 18 months so I already knew how great an immersive VR experience could be, but the Oculus Rift setup cost about $3000 and needs a pretty powerful PC to drive it.

But at $99.00, Samsung’s Gear VR Goggles were more in my price range and would give me a more consumer-focused view of VR’s potential impact on our computing experience. To my surprise, this product and the Oculus software and apps delivered a relatively good consumer VR experience. The 360-degree photos were spectacular and the few short videos they had were very cool. It also was quite a hit with the granddaughters as they both loved watching a 360-degree tour of Disneyland and watching divers under water checking out the wildlife. In fact, the girls kept fighting to get to use it and they clearly loved the experience. One note about this experience though – Don’t watch one of the roller coaster videos if you have equilibrium issues. This particular video is not for the faint of heart.

While these Goggles do deliver what one would could call a VR experience, the optics are very poor, and the actual content available for it is minimal at best. But, at $99.00, it made my Android phone come alive and deliver a fun, albeit limited, VR experience for the holiday. Of course, Samsung and Oculus will bring in more content and with many new 360 degree cameras coming to market, users will soon be able to create their own 360-degree images and videos for use on this system. Yet, this product and VR for consumers is still clearly a work in progress and will probably take another few years before it gains real acceptance with a broad market.

As a researcher and analyst, my use of this product has given me a glimpse into VR’s consumer potential and makes me a real believer that VR has a bright future that will have a dramatic impact on our overall computing experience in the not too distant future. The actual trend behind VR, AR and other highly visual products like Microsoft’s Hololens, is something called “Immersive Computing”. It seems to be the buzzword for 2016, at least, when it comes to the big PC vendors who all are going down this path to give their PCs and laptops new UI functionality. However, I am starting to think that, while adding things like Intel’s Real Sense Camera, 360-degree images and video and better sound and gestures to PCs, the real consumer VR experience will come through some type of 3D VR goggles and a smartphone.

At the higher end, and probably used more for gaming and vertical applications, there will be the more expensive and more powerful VR Goggles like Oculus Rift and HoloLens. These systems require a lot of processing power and are not cheap. But they will deliver the best of breed VR and, for users, they will bring a new dimension to their personal computing experience. In normal market conditions, these higher-end systems would start the market development of this category. While the audience of users might be small, they would define the market for personal VR for the first few years before the second tier of users adopt them as prices come down, and optional devices become available.
However, if the smartphone delivers the actual VR experience and low-cost goggles like the one from Samsung can get better optics, and more 360-degree content and apps, an actual consumer market for VR could develop in tandem. With the current version, you can buy some popular 3D movies and, if app developers get behind creating more applications like the one’s Oculus Rift has for Samsung, consumers could start enjoying the virtue of VR much sooner than I had thought.

I actually find it interesting that Google and Samsung have led the way with this and, most likely, will develop the early stages of the consumer market for VR. However, it has me wondering if, in the end, Apple is the one who gets the most mileage from this concept.

As you know, Apple does not invent categories. But once they see a category gain serious consumer interest, they jump in with a superior device and a rich ecosystem to support it. They did not invent the MP3 player but made it better and a giant worldwide hit. They did not invent the smartphone, yet their iPhone, while not the world leader regarding units sold, brings in over 73% of the revenue for all smartphones. They also did not invent the tablet, yet their tablet rewrote the rules for personal tablets, and the iPad is still a solid, well-selling product for Apple that taps into over 800,000 apps and a multitude of services. Just imagine if Johnny Ive designed Apple’s VR iGoggles or whatever they call it and sells it for twice as much as Samsung’s current Gear VR Goggles. Quality would be at the heart of their design and, in the end, it would probably outsell Samsung’s version three to four times more with a host of new apps and services tied to their program.

Of course, Apple getting into mobile VR is pure speculation on my part but, if the consumer market for mobile VR does take off, Apple’s version of this product would not be far behind. Regardless of whether Apple does jump into mobile VR, my experience with Samsung’s version suggests VR going mainstream may come sooner rather than later especially if we can get better goggles that are relatively inexpensive and more related apps and services to support the products. If you have a Samsung smartphone, I suggest you get the Samsung VR Goggles to check out how it works. The experience will be enlightening and fun.

Revenue Streams Automakers Reap from Smarter Cars

At CES in 2013, I had lunch with Glen Lurie, then the GM of ATT’s mobile business. At the time, he told me of his vision of equipping all cars with a cellular wireless radio and using this to deliver more intelligence to a car. Part of the vision was to use the cellular radio as a mobile Wifi hot spot but he saw the time when the car’s entertainment system and its diagnostics would need to be tied to wireless communication so it could help carmakers deliver smarter and more intelligent cars. This meeting took place before Apple introduced their Auto Play or Google rolled out Android Auto.

Two years later, his vision is becoming more of a reality with just about every carmaker adding a cellular radio as an option and integrating Apple and Google’s systems or their own to make cars smarter and safer.

I recently saw a Business Insider report on Connected Car Revenue streams and was intrigued by their forecasts. Here are the highlights of the report:

• Connected-safety features bring in the most revenue of all of today’s connected-car services, at $13 billion. These features alert customers of road conditions, such as severe weather or an approaching hazard, as well as collision avoidance.

• Entertainment is one of the most popular features available for the connected car, but it is not a major revenue driver. The category will account for only $13 billion in revenue in 2020. Entertainment features include integrations with apps such as Pandora, Yelp, and Facebook.

• People who actually use connected car services are satisfied with them. About half of those who have a connected car actually use the car’s connected features and those who do use many of these features show high levels of satisfaction with them.

• Consumers are pretty split on how they want to pay for these services. 25% of global consumers would be willing to receive in-car advertising if it meant they got free basic services in exchange. This means marketers are likely to have a big opportunity to tap into the connected-car market.

You will notice in the chart below that driver’s assistance and connected safety features are projected to bring in the most revenue, followed by entertainment.

connected-car-revenue-from-systems

The fact safety is at the top of the revenue list should not be too much a surprise as drivers have always considered safety a key priority when they buy cars. But, as I listen to the various automakers outline their short term ideas about increasing driver safety, I am coming to understand that, if this is where the money is, then creating a self-driving car needs to be their biggest priority for the future.

Indeed, if these forecasts are right, people who buy cars are willing to pay extra for safety. If you follow the whole autonomous car concept and study Google’s experience with their driverless car, you can see how these types of vehicles have the potential of being the safest cars on the road in the future.

But I have to admit smart entertainment system revenues in this forecast seem low to me. If a car has Google or Apple’s auto systems and they are tapped into apps and services, it would seem the revenue potential should be more. Also, since most cars on the market today do not have a smart entertainment system built in, the new retrofit kits coming from many of the top line audio companies should surely bump these revenues up.

In fact, I think millions of car owners who have cars without these new connected entertainment systems will want to buy these retrofit systems and/or kits in the next few years. I see those who own iPhones and Android phones wanting to extend these smartphones features to their cars to give them the special apps and services Google and Apple and their app providers will deliver for Apple’s CarPlay or Android Auto. In fact, this may be one of the most untapped and more important market opportunities for auto makers, Apple, and Google when it comes to these special extensions of smartphones.

Although Business Insider estimates that “of the 220 million total connected cars on the road globally in 2020, we estimate consumers will activate connected services in 88 million of these vehicles.” The report also states, “By 2020, nearly 40 million cars will be using Android Auto and 37.1 million will be using CarPlay, according to IHS, and that will cover nearly all cars launching connected car services”, according to BI Intelligence estimates.

But this is just in new cars that have these services built in. If the industry is not looking at the retrofit market in a similar way, they will be missing a big opportunity. I know most retrofit systems today are expensive. But we should see some moderately priced models as CES. I happened to lease my last car before newer cars came out with Apple’s CarPlay in them and I am one of their target customers, along with millions of others that would like to extend their iPhone or Android phone with their car apps to their existing cars. This could be a very large market opportunity that to date I just don’t see the car makers or even the top line audio suppliers pushing to their current customers but I sure hope they get behind this and make it possible for millions of smartphone users to take advantage of these new auto services by Google and Apple.

Significant New Products for 2015

Here’s my take on some of the more interesting and significant products for 2015.

Apple Watch: The eagerly anticipated Apple Watch finally arrived and, once again, showed Apple’s unrivaled skills in design and integration of software and hardware. While not a must have, it’s a useful tool for helping us do small tasks. It’s significant because it gives us the best wearable yet and has the potential to do much more.

Microsoft Surface 4: Microsoft took a huge chance on their all-in-one tablet and computer platform and endured (deserved) derision for its early models with the Windows 8 operating system. But with Windows 10 and their latest generation surface hardware, they have a compelling product that provides a real alternative to Apple’s two product approach. Microsoft’s vision of carrying an all-in-one device instead of a separate tablet and notebook now looks prescient.

Apple iPad Pro: As a large tablet, the iPad Pro is more of an evolutionary product that brings the first really useful pen(cil) to an Apple product. But it also could be Apple’s early efforts at building a portable notebook using the iOS operating system, a toe in the water to Apple’s all-in-one offering.

HP Sprout: This unusual looking desktop computer is a product from the future available today. It’s a computer, touch tablet display, scanner, camera and projector integrated into one. As a result, it offers huge versatility as a home and business work center that can bring the real and virtual together. Its touch mat sits on the desk and can work as a second screen or be used to interact with the computer like a tablet. Its camera can scan physical objects to combine with virtual ones. It’s the most imaginative product from HP since the all-in-one printer.

Amazon Echo: This clever product puts another device on our desktop or kitchen counter that is as close to magic as anything this year. It’s surprisingly good speech recognition and intelligent programming let you access a wealth of information and entertainment from the internet, as well as performing simple tasks like keeping lists.

Blackberry Priv Phone: Clearly a product more significant to Blackberry than the rest of us, it’s the first smartphone with a very good physical keyboard and access to all of the Android apps. After reading the fascinating book, “Losing the Signal”, about Blackberry’s former tone-deaf management, it’s good to see this effort to gain back relevancy.

LG 55” OLED TV: The promise of affordable OLED HDTVs was realized this year with LG offering a 55-inch model for just $1799. OLEDs offer more contrast and deeper blacks than LCD displays and are what Samsung uses on their Galaxy phones.

Chevy Volt: While we all lust for a Tesla, the new 2016 Chevy Volt is a more affordable ($35K) way to drive on electric power with the advantage of no “range anxiety”, as it shifts to its gas-powered motor when the batteries run out. It provides 50-60 miles on a single 3-hour charge and gets about 40 mpg. The second generation Volt has an all new look with many improvements over its predecessor, the car I’ve been enjoying for the past two years.

Ring: In spite of some difficulties installing it and an occasionally slow response, this replacement for the front doorbell provides an added level of protection few of us have had. It’s a replacement for the peephole in that it lets you see who is at the front door over your phone from wherever you happen to be. It’s emblematic of the many new Internet of Things products we’ve seen this year and just the beginning of what we can expect in 2016.

Drones: 2015 was the year of the drones, with dozens of new models launched this year. Representative of this category is the popular DJI Phantom 3 Standard Quadcopter Drone with 2.7K HD Video Camera at $700. This robust model has a built-in video and still camera that can stream images a half mile away and it flies for 25 minutes on a charge. Just be sure to register it.

Last but not least is the Tesla Powerwall, a 230-lb home battery that charges using electricity when the rates are low at night or from solar panels during the day. It provides power during the times the rates are high, independence from the grid, and an emergency backup.

Apple Pay in China a New Catalyst

China is quickly becoming Apple’s largest market and, in many respects, one of the most important to the Apple growth story in the next five years. This is why Apple Pay starting to roll out in China with Union Pay and a number of major banks is potentially a huge catalyst for mobile contactless payments in general in China.

Similarly in the US, Apple owns the largest share of NFC capable devices in active use than any other vendor. Which means there is no single brand better positioned to drive secure mobile payments than Apple. In China as of the end of Q3 2015, our primary research indicates over 40% of active iPhones in China are comprised of iPhone 6, 6s, 6 Plus and 6s Plus models. By Q2 2016, well over 50% of iPhones in China will be NFC/Apple Pay capable. No other single OEM is anywhere close to this number of active devices in use being NFC capable. Couple that with a growing installed base of NFC capable Apple Watches and a culture in China that has increasingly become tech savvy, and the stage is set for mobile contactless payments to thrive. In fact, as optimistic I am about Apple Pay and mobile contactless payments in the US, I believe China will quickly surpass the US in percentage of mobile retail transactions from mobile devices at point of sale.

I say this with confidence because, when Chinese consumers are asked if they believe their smartphone will become their primary tool for transactions, they have the largest number of respondents who strongly agree with this statement than in any other market. 35% of consumers in China believe their smartphone will become their primary tool for commerce compared to 8% of Americans. China is ripe for Apple Pay.

While no other vendor has more active devices in use in China, the ecosystem for mobile payments is being laid beyond just iPhones. NFC will be rolled out in POS terminals across the country and quickly in major retailers in top cities like Beijing, Shanghai, Shenzen, etc. While iPhones are extremely popular in those top tier markets, Android at large is still the dominant operating system. Local leaders like Huawei and Xiaomi will adopt NFC and likely their own mobile wallets throughout 2016 as well. While Apple has the more elegant solution, there will be competition from Android OEMs as well looking to appeal to this new consumer behavior. Fragmentation may slow down the adoption of Android-based mobile wallets and contactless payments, but it will get fleshed out over time.

The dynamic to watch is how companies like Alibaba respond with AliPay. While mobile contactless payments, meaning using your phone to tap or authenticate a payment at retail, remains low in China, now over 50% of smartphone owners in China engage in mobile commerce each month. Meaning, use their phone to make a purchase over the internet. When it comes to mobile e-commerce, AliPay is the dominant transaction method. You have to imagine Alibaba will want to maintain this position and not let Apple take control of their customers. One thing to watch will be more retailers accepting AliPay at retail. This will be interesting to see if, when given a choice, consumers stay loyal to AliPay or start to alter their behavior in light of the benefits of Apple Pay as it gets more widely accepted.

While it is interesting to talk about Apple Pay, NFC, mobile commerce, AliPay, etc., the real winners in all of this are the components companies providing the solutions to roll out tens of millions of new payment terminals necessary to make this transition. From the companies providing NFC technology like NXP or those providing touch-screens for the terminals or those providing the terminals themselves, all are poised for explosive growth as many markets support NFC transactions at retail.

While markets like the UK have embraced NFC for some time, that market alone never acted as the catalyst to drive this adoption. Both China and US, but perhaps more quickly in China, will be the catalyst that moves this forward. And I believe faster than many are anticipating.

Is CES still Relevant?

When I head off to the 2016 edition of CES in a few weeks, it will be the 37th year I will be attending the winter CES show. I have actually attended more that 37 because CES used to have summer shows — I did at least 18 of those as well. But I have seen CES evolve significantly over this time and its role in our tech world continues to be important and, in my view, still very relevant.

I realize this flies in the face of many who find the show too crowded, noisy, and confusing and have decided to “watch” CES from their easy chairs or office desks instead of fighting cab lines, paying ridiculous prices for hotels and rubbing elbows with 175K of their best friends. I have been tempted to do this myself since pretty much every press conference will be blogged live, every keynote will be accessible online and, with 1700 reporters and bloggers covering the show, a desktop warrior could easily cover the show from their homes or offices.

But even with those logistical issues, I find the show itself fascinating and the ability to touch and feel products and do one on one meetings with vendors is still worth it for our Creative Strategies and Tech.pinions staff. Of course, it is impossible to cover the show completely but, by doing some scouting beforehand and setting up only the meetings I want to take, it is still worth my making the annual trek to Vegas to check out the latest and greatest tech products that may hit the market in 2016.

Since many of the media know I have gone to CES for so long, I often get questions about this show. The first is how it has changed over the years and second, what are the key things I will be looking for when I attend the show. My first CES was in 1976 and, back then, it was literally just a consumer electronics show. I skipped a few years in the late 1970’s but when I first started attending CES it was mainly about audio and video and included things like household appliances and other electronic goods of various types. PCs had not hit the scene and, while there were some primitive games systems at my first show, like the Atari game console, most of the 70s and 80’s really did not have the types of products CES has today.

These early shows also defined what were often called “booth babes” and in many ways this definition was apt. Many of the electronic vendors would hire Playboy Bunnies and Penthouse Pets to sit in their booth and sign autographs to lure customers into their area. Thankfully CES outlawed them by the early 1990s.

The biggest change to CES came in the late 1990s and early 2000 when the granddaddy of PC shows, Comdex, began to falter. Although CES had tried to get PC vendors into their show in the early 1990s, the two shows were just 40 days apart and CES itself had lost some of its luster. But with the eventual demise of Comdex, CES started really courting the PC crowd and very soon CES became a consumer electronics and PC show and, over time, the addition of various spin-offs of the PC industry, such as smartphones, tablets, IoT, wearables and other extensions of our tech world got wrapped into the show.

This is at the heart of the organization behind CES’ name change. From the beginning, the group that sponsored the show was known as the Consumer Electronics Association, or CEA. But a month ago they changed their name to the Consumer Technology Association or CTA to reflect the broader scope of products they have at CES.

This is a very important move and distinction for CTA. In the past, the main companies that were part of the organization were mostly from the CE industry. But now, their members include companies in the PC industry, telecom and communications industries and, most recently, include most of the auto makers. Companies in the healthcare industry who are also targeting consumers with digital representations of their products and services are now members of CTA.

In fact, two of the three main things I will be researching at CES are related to the auto and health industries as both are taking direct aim at consumers. As researchers, they have now come on to our radar as we research the impact of tech on many new market areas. The CEO of VW will use his CES keynote to launch their first self-driving car. All of the major auto makers will be at the show to demonstrate how smart their cars have become by using things like Apple’s AutoPlay or Google’s Android Auto or their own versions of these types of services that include embedded cellular/Wifi services inside the car. Major health industry companies like United Healthcare will be there showing their backing of various fitness trackers and how their own Web services are being used to help people navigate their health issues.

The third thing I will be checking out is the Chinese companies who at CES. Their increased presence is kind of deja vu for me. In the early 1990s, the giant Japanese players started embracing CES in a big way. Companies like Sony, Toshiba, Panasonic, etc., made CES the place they showcased their wares and, while most still have a major presence at CES today, the Chinese companies like Huawai, Hisense and at least six more have huge booths on this year’s show floor and will have a major presence. This is very significant. Some of the Japanese companies are really struggling and are losing ground to the South Koreans and now these Chinese CE companies as they move into their territory and become serious competitors. Of course, CTA and the CES show is international and they embrace companies from all over the world. But, make no mistake, the Chinese have arrived and they plan to disrupt the traditional CE players as much as possible and take market share away from them fast.

The NFL brings Some Sanity to Rights Licensing

Last week, the NFL sent out its formal requests for proposals to the companies it expects to bid for the rights to broadcast its Thursday night games over the next two years. Though the new approach it’s taking isn’t perfect, it brings some much-needed sanity to the rights licensing process and there are elements here other content owners should be watching closely.

The NFL’s complex rights system

The NFL’s rights packages are the most lucrative in US television, selling for more than any other sports packages, but they’re also fairly complex. Over the years, the NFL has split the rights into several discrete chunks, with Sunday, Monday, and Thursday night games, along with playoff games subject to different contracts and owned by different companies. Three of the four major broadcasters share many of the rights, with ESPN owning the rest, while the NFL’s own NFL Network gets in on the action too. These rights expire at different times, with almost all of them currently locked up through 2021 or 2022, but the Thursday night games have been sold on a shorter-term basis and are up for bid in January.

Audience size a major guiding principle

One of the most interesting aspects of the NFL’s approach to selling its rights is it’s never been motivated just by getting the highest possible price for the team owners who receive much of the proceeds. Rather, as described by NFL Network CEO Brian Rolapp on a recent episode of the Re/code Decode podcast, the major guiding principle has been getting the biggest possible audience. This is the key reason why all the rights haven’t simply been sold to various cable networks over the years, which likely would have netted higher fees than licensing to the broadcast networks.

Given how much rights have been fragmented in recent years, with various players lobbying for exclusive content, which in turn means large portions of the overall audience don’t get access to the content, this commitment to achieving the broadest possible audience is admirable, especially if it’s really true this means they forgo some revenue as a result.

Approaching digital as an “and” rather than an “or”

The last time rights for the Thursday night games were sold, Yahoo purchased the right to broadcast one of the games as a digital exclusive. This was arguably something of an experiment for both Yahoo and the NFL and one that arguably didn’t go so well for Yahoo. However, it’s increasingly clear digital players want to broadcast at least some of these games and there have been frustrating barriers to their ability to do so because of some of the current rights contracts. The best example of this is Verizon Wireless’ exclusive right to broadcast games to mobile phones, which means that even TV packages which offer mobile apps are unable to show those games on mobile devices, even if other content streams fine.

Based on the article I linked at the beginning of this piece, it seems the NFL is taking a more inclusive and less exclusive approach to digital rights than it has to mobile rights in the new contracts. The digital rights are being sold off as additional options rather than alternatives to the broadcast rights. In other words, companies like Apple, Google, or Amazon could acquire digital rights without removing those same games from broadcast schedules. This would prevent some of the fragmentation and frustration associated with some of the past contracts, and also with increasingly exclusive content rights in general.

 

A reflection of the way the world works now

These changes mean the NFL’s new approach to rights is remarkably sane and more reflective of the way the world works now. Whereas Verizon Wireless once acquired those exclusive mobile rights in a world where mobile content services were still a thing, the world we live in today is filled with content services that are platform-agnostic. Netflix, Hulu, TV Everywhere solutions and more, all operate across devices in a relatively seamless fashion. In addition, most customers aren’t going to sign up for every video service under the sun, such that exclusives break the traditional model of being able to buy a single package that would give the customer access to all the relevant content. The NFL’s new approach promises to reflect this reality better than its past processes have and could also serve as an example for other content owners going forward. Here’s hoping they pay attention.

What’s Next for Fitness Wearables?

This year, some 50 million fitness trackers will be sold. Devices such as the Fitbit HR, Jawbone Up, and Garmin Forerunner are among the most popular “tech” gift items this holiday season. This category has come a long way in terms of capability and functionality. 2015 was the year where “optical heart rate monitoring” moved into the mainstream, catalyzed by the introduction of the Fitbit HR.

Yet, shopping for these devices is overwhelming. Going online to read the many articles on the “best wearable tech of 2015” yields little sense of major product differentiation. Ask the guy at Best Buy which one to buy and you’ll get a deer in the headlights sort of stare.

One of the reasons Fitbit has nearly 70% market share is because it’s the wearable tech equivalent of the old adage, “you’ll never get fired for choosing IBM” (or an iPhone). There are at least 25 fitness oriented wearable devices that do almost exactly the same thing. With Fitbit, you’re buying into the ecosystem and what all your friends have. Withings and Misfit make beautiful looking devices but are not as strong technically. Garmin and Polar are the athletes’ products. With Pebble, you’re rooting for the ‘startup’. If you buy the Apple Watch, it shouldn’t be because of its fit-tech capabilities. Android-based wearables are like most Android phones: lots of choice and a little cheaper, but generally lacking in hardware refinement and software polish. You want to root for the Microsoft Band 2, which is a very competitive product, but falls just short of the mark in a few key areas.

One has the sense this space is about to plateau. The devices introduced for the holiday selling season, such as the Microsoft Band 2, Polar A360 (is it car?), and Garmin Vivosmart HR, don’t break any new ground. You can get a good device with optical HR for ~$100 now. That same price point next year will probably feature GPS, too (if you want/need it). What’s interesting is there is no one “best” product in the category, such as “if you are willing to spend an extra X, then get this”. The device with the most accurate optical HR isn’t the best for sleep tracking, etc, etc.

So, with commoditization a distinct possibility, what’s needed in order for fitness wearables to get to the next stage? I’ve broken it into a few categories.

Accuracy. Read the reviews and this is the area that still needs work. We’re in the early days of optical HR and most devices out there don’t perform as well as a chest strap. GPS accuracy is also an issue with some who are introducing this capability into fitness trackers, compared to those who have been in the “GPS Watch” business for a long time. Some companies have also put a lot more effort into being able to passively determine what activity one is doing, such as walking/running/cycling/tennis, etc.

Sensors. This will be a continual area of product innovation. Today’s best of breed products incorporate an accelerometer, motion sensor, HRM, altimeter, and more. Other categories ‘in development’ include blood pressure, hydration, oxygen levels, cholesterol, etc. Which of these measures are for the mainstream market and what are the tradeoffs in form factor, price, and, potentially, battery life? Another question is whether there will be any modular type capability in these products. For example, the ability to buy a base band and then add sensors or functions geared toward a particular area of interest, such as fitness, sleep, nutrition, and so on.

Ecosystems. We all know a huge part of Apple’s success is the ecosystem: Hardware-software-apps. Fitbit comes the closest in this category, which is one of the reasons why it has nearly 70% share. This success, and a strong IPO, has allowed the company to continue to be the category leader, making acquisitions, hiring a large sales force to push into the enterprise, and provide great customer service. The other strong ecosystems in this space are, in my view, Garmin, which remains the athlete’s choice, and Apple, more for the foundations (Watch, HealthKit) it has laid. Withings is another interesting one because of its focus on superior design and a focus on the health rather than the fitness category, and their product innovation.

Additional Analytics. A slick, detailed dashboard has become the ‘ante’ in this category. I think the next wave is to provide additional analytics by pulling data from other sources, whether on the net or apps on your phone. How do weather, nutrition, type of work, and other aspects of lifestyle affect goals? For the daily runner, for example, is there a correlation between sleep and speed? Are there correlations between diet/exercise and sleep quality? An interesting aspect of this could be having some information to report to your doctor/nutritionist/coach, etc., all permission-based and with the right safeguards and controls.

Big Data. The leading companies have been very careful about privacy and the sharing of data, as they should be. But as the devices become commoditized, I believe there are some compelling additional opportunities for monetization, with the appropriate safeguards in place, given the incredible amount of data being collected. Waze, for example, has done this with traffic, packaging its crowd sourced data, on an anonymized basis, to entities such as government departments for urban planning and other initiatives.

Nutrition. While there has been some progress in making it easier to incorporate nutrition data into these apps, for the most part the process is still painstaking, time consuming, and not accurate. Whoever is able to pull off the “Shazam of Food” is a guaranteed Unicorn. If we find a better way to incorporate nutrition with health/wellness/fitness, this space will become a much larger ‘lifestyle’ category.

Clothing. Many have thought ‘smart clothing’ would be one of the next big things in this area. So far, these products remain niche, expensive, and gimmicky. But there are some serious dollars and designers doing work in this category and it would be great to see breakthrough products some time in the next year or two, particularly if they play well with existing ecosystems.

Market Segmentation. The thrust for most companies in the space has been toward the mass market. I think we will see more segment-specific wearables emerge over the next couple of years. They will all have some core functionality but then elements of hardware and/or software geared toward particular market segments, such as athletes, nutrition/weight loss, and so on.

Finally, I think we will see some consolidation in wearable tech. Already, a couple of companies have pulled their products over the past couple of months. Rumors swirl about Jawbone. I can see Garmin and Polar coming together.

The pieces are in place for the fitness wearable category to move to the next stage in 2016.

The Tech Lull of 2016

By this point in the year, I have a pretty good sense of what is in store for 2016 from a hardware standpoint. Smartphone sales will likely only be in single digit growth. Tablets will likely be double digit negative again. PCs will similarly also be single digit negative YoY again as well. I’ve just listed three core categories of personal computing hardware to have minor to negative growth. The slowdown of these categories can not be overlooked. Each of these is also an extremely mature product segment. Which means, don’t expect any leaps in innovation in any of them this year. There is nothing wrong with this. It simply means it just keeps marching forward relatively predictably. But it also means the excitement has now become more muted.

This period we just went through with explosive growth in smartphones and innovation in form factor, features, performance and more, was extremely exciting. However, I feel 2016 is going to be a bit less of an exciting year, at least from what I’m seeing and hearing so far with regards to hardware trends for the year.

The challenge, as I see it, is the one segment that will be hot in 2016 is wearables but these are also still companion devices to the smartphone. While still interesting, it is not quite the same. I expect the Apple Watch to do some interesting things next year but this category is still working to gain momentum. With the slowdown and more predictable pace of innovation in smartphones, PCs, and tablets, it is likely wearables benefit the most from the lull in personal computer categories.

The other categories that are quite exciting to watch — drones, virtual reality and augmented reality, smart cars, digital home, robots, etc. — are all still early and being fleshed out. They are not ready for mainstream yet as the foundation is still being laid from a technology standpoint. I expect many interesting things to happen in these areas but I don’t see the mass market ramping up yet in 2016.

Early in 2016, you will see me start to talk about the post-mobile world. This is not to say mobile isn’t important or that we have anything immediately ready to shift focus to. However, it is a recognition that much of the industry growth will be on things built on top of the mobile platforms. The hardware and the platforms themselves start to become a piece of the puzzle but less the center of the story as they have been for the past five years. Interesting things on top of mobile are things like financial services (FinTech), mobile commerce, and many of the software experiences and new businesses built on mobile platforms.

Look at the past 20 or so years and much of the tech industry up to this point has been built on the foundation of getting the PC into the hands of workers and consumers. Similarly, the next 20 years will be built on the foundation laid by smartphones but at four times the scale of the PC. Interesting and important growth periods are ahead but, from a pure hardware innovation standpoint, we may be in for more interesting and less exciting.

Granted, I’m saying this all before I head to CES in a few weeks and scour the show for trends and hopefully come across some exciting things. It is entirely possible my perspective could change but from the things I’m hearing will be at the show, I tend to think more interesting and less exciting is going to be the theme.

I’ll have a “key industry theme for 2016” article for subscribers after CES but the narrative changing from hardware excitement to more predictable hardware trends is an indicator of the maturity of these markets. It is an important observation because it tell us what stage of the cycle we are in and helps us plan accordingly.

Competition is Shifting to the High End

The consumer electronics industry has always fascinated me. I spent my first ten years as an analyst covering the telecom industry, which historically has had very good margins. But, when I started covering the consumer electronics industry, I was struck by the fact the vast majority of players in that market make razor-thin margins, if they’re profitable at all. Even more striking is Apple, which might be described accurately, if incompletely, as a player in the consumer electronics market, makes telecom-like margins while competing with those barely profitable vendors. And just as interesting is the fact that, as players that have historically only competed indirectly in the consumer electronics business enter it, at least some of them are choosing to follow Apple’s route to the high end of the market.

Historic consumer electronics margins are abysmal

It’s been quite a while since I updated this chart, but the broad picture it shows remains largely unchanged. It shows operating margins for most of the major companies in the consumer electronics business. The point isn’t to highlight specific companies, but to show the broad pattern of there are only two companies consistently above the 5% mark (Apple and Samsung) and Samsung was rapidly reverting to the consumer electronics mean (shown in yellow):

Consumer electronics margins

As I mentioned, Apple is the one exception to all of this, with between 25% and 30% operating margins during the latter half of this chart, while everyone else scrambles at 5% or lower margins. How does Apple achieve this distinction? Well, it’s due to a combination of factors but it’s probably best summarized this way: Apple provides premium products at a premium price, and is able to justify the premium through differentiation based on a tightly integrated approach to hardware and software.

Three new players: three different strategies

So far, we’ve largely focused on those vendors who make the bulk of their revenue from selling consumer electronics hardware. But there are three relatively new players in this business who have traditionally participated only indirectly in this competition and who are entering the computing hardware market (in its broadest sense) in new and interesting ways. Google and Microsoft have traditionally participated mostly by providing operating systems to hardware vendors, while Amazon has participated largely as a seller of other people’s hardware. Each of their strategies is unique and different but, with two of them, there’s an emphasis on the high end which I find interesting.

Look at Microsoft’s most recent hardware event: it announced the Surface Pro 4, a Windows tablet which starts at $899, and the Surface Book, a Windows laptop which starts at $1499. Both of those price points are well above the average prices in their respective categories and very much represent premium products. These (along with older versions of the Surface line) are essentially the only computing hardware products Microsoft sells, and they’re very much premium merchandise. In fact, the Surface Book starts at a higher price than the vast majority of Windows laptops on sale today and almost all the products announced by OEMs during the same period had lower prices. Microsoft is very much pursuing the same “premium product at a premium price” strategy as Apple and attempting to provide the same levels of optimization and integration as well (with mixed success).

Arguably at the opposite end of the scale here is Amazon, which has moved increasingly down-market with its tablet strategy. One of the reasons people were so surprised by the pricing of the Fire Phone was it seemed to fly in the face of the clear strategy Amazon had laid out with its tablet line: decent hardware at prices that undercut the competition. Since the Fire Phone launched, Amazon has lowered the prices for its low-end tablets even further and it’s increasingly clear this is the main focus of Amazon’s hardware strategy today. Yes, it has some “premium” devices too, but even these tend to sell at prices that fall much more into the mid-tier rather than the high end. I’m still unconvinced as to whether this is a good idea, as I’ve explained elsewhere, but there it is.

We come now to Google, who also had a hardware launch event this past fall and where its strategy was on display. Google’s approach has arguably been something of a mix of Microsoft’s and Amazon’s. Attacking the low end with devices like the Chromecast but also moving increasingly upmarket in the smartphone and tablet categories. There was no new Chromebook at this event but the only one Google has sold under its own brand so far is the Pixel, which retails at $1000, well above any other Chromebook. In smartphones, the Nexus line is an odd mix of Google branding and OEM manufacturing but even that line has been moving steadily up-market, while taking something of a cue from Amazon’s higher-end tablets, with premium hardware at discounted prices. But the product that perhaps signifies Google’s pursuit of the high end best is the Pixel C tablet, with high-spec and well-designed hardware, but at a starting price of $500, with an optional keyboard for another $150. In a world of cheap Android tablets, the Pixel C is as unrepresentative as the Surface Book is of Windows laptops.

The only Android and Windows vendors not struggling

Even though Google continues to pursue a low-end strategy with some of its own hardware, it’s increasingly clear that both OS vendors turned hardware vendors have decided to embrace the high end along with its high margins, while leaving the scale and the thin margins to their OEMs. Meanwhile, their OEMs continue to struggle to make the business work, with several exiting segments of the market entirely and several others clearly having a hard time staying afloat. Sony has abandoned PCs and continues to struggle in smartphones, HTC increasingly looks like it’s on its last legs as an Android vendor, Toshiba is considering spinning off its PC business, and Samsung’s smartphone business – once the poster child for success making Android phones – continues to slip. It sometimes seems as if the only vendors making Android phones and Windows PCs who aren’t struggling in some way are the licensors of the operating systems. And though we don’t have detailed financials for either company’s hardware business, they’ve both done it by focusing on selling premium devices at premium prices, and by tightening the integration between hardware and software.

What’s interesting is we haven’t seen any of the OEMs pursue this strategy. That likely reflects, in equal parts, a lack of capability and a lack of will, as these OEMs have neither the experience nor the desire to pursue the high end of the market. And yet it’s been clear for years that, while scale may be in the mass market, the margins are in the high end. These OEMs’ continued focus on the low end and mid-tier of the market, combined with their licensors’ focus on the high end, is likely to make life increasingly difficult as saturation and even decline begins to set in within the markets they serve.

Tech Products the Tech.pinions Team would Buy

One of the more interesting questions our team gets around the holidays is, what tech products we would buy with our own money. As analysts, we are given dozens of products to check out and, in a lot of cases if we want something to test, all we have to do is ask the company behind it to send it and we get to play with them for a good period of time.

But there are some products we would buy with our own money because they are something we would like to use personally and permanently. Some of the products on our list come in the category of “technolust” products that are pricey but we can really see value and would like them for ourselves. Others are less expensive but still are something we would personally buy.

Here is the list from the Tech.pinions Team.

Bob O’Donnell, President and Founder, Technalysis Research

Sony 4K TV—Sony’s latest 4K TV, the X950B, features a tiny bezel, thin design, HDR, and an extended color gamut. Bottom line: an incredible, high impact picture and some integrated connectivity and home control apps to boot.

HP Movado Bold Motion Smart Watch—The new combined effort features an elegant, screenless design that still offers basic intelligence and haptic notifications

Star Wars Bb8 Droid robot—because everyone is still a kid inside.

Jan Dawson-Founder and Chief Analyst, Jackdaw Research

The new Apple TV – lots of fun for games with the family and the best box for Netflix and other video apps too.

Yeti Blue microphone – it’s what I use to do the podcast and it’s great for any kind of recording you might want to do. Also tons of deals on it recently.

Magnetic air vent mount for a smartphone – I’ve bought these for both our cars recently. They’re dirt cheap and, if you’re using a case on your phone, you can just insert the magnet into the back of the case. When you get in the car, you just stick your phone to the magnetic holder attached to your air vent and there’s no fiddling with adjusting anything or all that stuff you have to do with most car mounts.

Ben Bajarin, Principal Analyst, Creative Strategies and co-founder of Techpinions

GoPro Hero 4 — The Hero 4 packs the power of GoPro into their smallest, lightest, most convenient camera yet, featuring a rugged and waterproof design, easy one-button control, revolutionary battery efficiency, 1080p60 video and 8MP photos.

Amplifi connected guitar amp — I did buy this. It comes with an iOS and Apple Watch companion app. Great tool for musicians and the watch app allows me to get info while still playing.

Acaia smart scale for coffee making — Because making perfect coffee is a passion of mine.

Shawn King, Tech.pinions Editor

iPad Pro & Apple Pencil — As a photographer, the sheer size and speed of the iPad Pro is immensely attractive to me. The pencil is just cool.

Apple Watch — The health tracking and benefits alone make this an interesting piece of tech.

The Skully AR-1, the self-proclaimed “world’s smartest motorcycle helmet” — anything that can help me be a better, more aware motorcycle rider is a good thing.

Tim Bajarin, President, Creative Strategies and Cofounder of Techpinions

Dell Ultrasharp 34-Inch Curved Ultra Wide Monitor — Ever since I saw this monitor I have really wanted one. As a person who sits and writes for long periods I need a great monitor that I can also use with split screen for multiple windows and applications. This is my dream monitor.

Lola Blue Headphones — While I am not a serious audiophile, I am very discriminating when it comes to using headphones to listen to my music, podcasts, and the like. However, I really do not want to spend $400-$600 for headphones that I use mostly when flying or lounging around the house in my easy chair. That is why I like the Lola Blue headphones priced at $249.00. I consider them the best bang for the buck when choosing a high quality headphone but not wanting to break the bank.

Oculus Rift — As a researcher and one who has to look at the impact of products in the future, VR is probably one of the most interesting and exciting areas to explore for me. I would have actually suggested Microsoft’s HoloLens if it was on the market but the Oculus Rift product is a close second. I would enjoy being able to use to help formulate my thoughts and opinions about VR’s impact on our world in the near future.

Sony Alpha a7RII — There is one other product I really would like. While most of my pictures are taken on my iPhone, I am a hobbyist photographer. I have had many expensive DSLRs over the years but I am intrigued with Sony’s new top of the line mirrorless camera, a full frame 42 megapixel camera. The body alone is about $3100 and, if you add even a basic lens, it’s closer to 4K. However, I recently got to see this camera in person and this is one amazing small camera with the kind of features that even the pros would like.

What China Needs to Learn from “The Hover Board Fires”

One of the hottest products on the market this year are hover boards. These cool products have caught the imagination of a lot of people, especially kids, who want this type of scooter to zip around school campuses, malls and sidewalks. However, they are hot products for another reason. Many of them keep catching on fire. This has become such a problem, Amazon has pulled them from their store until they can get more details on ones that are safe vs ones that keep catching on fire. Additionally, all of the major airlines have banned them for travel on planes.

The reason for most of these fires is, especially with the lower cost hover boards, they use a cheap lithium battery. When they get hot, they catch fire. One of these fires burned down a house In New York state and there have been injuries too.

At the moment, there are two factories in Shenzen that make these hover boards and they all use similar designs. But in China Inc’s quest to dominate this market and move it forward, they may have actually shot themselves in the foot with the lack of quality control and rushing these to market. China clearly wanted to drive this market and have the type of leadership role in this new category of mobile transportation that lets them extend the Chinese brand around hover boards.

But with these fires, Chinese manufacturers and China Inc. need to realize quality and safety does matter if they want to blaze new trails and try and bring new products to market with a real Chinese stamp on it. Now, with dozens of stories about poor Chinese quality controls and hover boards catching fire, Chinese manufacturers in the Shenzhen ecosystem have egg on their face and even worse, their work is being called into question.

This needs to be a serious learning moment for China. Taking a leadership role when it comes to popularizing a product means there is no room for error with the first product to lead in a new category. I know they wanted to have products at the low to mid/high end but, even though it is the low end models catching fire, the overall impression of hover boards coming out of Shenzen is now tarnished. The bans on them and the safety issues will come with a high price since it could include law suits against the factories as well as the companies behind them along with more questions about the overall safety of this product. I wouldn’t to be surprised to see local city level legislation banning them and, if they are deemed a hazard, federal legislation as well.

Of course, over time the kinks will be worked out and there will be solid models of high quality that will be safer and even more stable. Think Segway-like stability on a hover board. But the leadership moment for China is gone. Let’s just hope they learn their lesson before they try and do something like this again in the future.

Enterprise and Choose Your Own Device

Several years ago, BYOD (“Bring Your Own Device”) was a buzzword. There were theories this would help the PC market rebound, or at least stabilize. Yet, our constant interactions with CIOs and IT managers revealed only a very small uptake of BYOD plans when offered. As we dove into the reasons, employees were often still concerned about the support of the PC they would bring into the enterprise. The idea of an employee getting a credit to go to a retail store and buy their own PC sounded good but the reality is, many employees still like to be issued a PC so they know it will be supported or, more importantly, quickly replaced if something goes wrong.

BYOD appears to falling by the wayside and new plans called CYOD (“Choose Your Own Device”) are gaining in popularity in enterprise. These plans offer employees the choice of a PC from a list provided by the company. The employee can then pick which PC they want off the menu and it is then handed out. These plans make a great deal of sense, especially in the PC hardware world we live in today where they are more options than ever for people to choose from.

What I like about these plans and why I think we will see them become commonplace is the employee knows their workflows as well as anyone. So, if they believe they have a workflow that would benefit most from a PC like a 2-in-1 for example, then they get to pick the best device for them. Similarly, if an employee wants something more powerful because their workflow demands, they can pick something different.

I’ve been a big advocate for the diverse hardware landscape we see today because workers should get the best tool for the job — that is not always a laptop or a desktop macine. The right tool for the job should be decided by the employee rather than decided for them by an IT manager. This is the upside of the choose your own device plan.

Looking at hardware trends, meaning which PCs show up on the menu for employees to choose from, it is interesting to hear from companies that increasingly, Macs are showing up on the menu. This is a testament to Apple’s attempts to make the Mac easier to support and manage, as well as their relationship with IBM. It is also an example of Apple’s consumer efforts paying off. By focusing on the consumer, it is helping them win in enterprise. Years ago, I continually heard the theme that, to compete in commercial, you had to compete in consumer. Many PC brands struggled with this until late and now Apple is starting to show up much more in the enterprise. Another new angle I hear frequently from enterprise accounts is how they believe they need to offer Macs in order to draw Millenials. The point they make is how millennials in many markets increasingly want to use the Mac for their job. I spoke with several large enterprises here in the Bay Area and they told me not only are having Macs on their list of PCs essential to hire millennials in today’s day and age but that Macs are being picked 3 to 1 over Windows PCs by new millennial hires. We have all seen the images floating around of the dramatic usage of Macs on college campuses and Apple’s appeal to the younger generation is impacting the enterprise as well.

Among the younger generation, it is not just Apple that seems to be gaining interest. When I ran a study of millennial consumers, Microsoft Surface products have begun to climb the ranks in terms of consideration to purchase. What these dynamics indicate is the strengthening competition for consumers amongst PC makers. Devices need to be just faster but become more stylish and visually appealing. Everyone needs to start stepping up their game and consumers will benefit from it. It seems the days of large, boring, square PC notebook designs are finally past us.

Breaking Down GoPro’s Business

In last week’s column, I talked about the challenges that face what I termed “one trick ponies” – companies whose entire business is built on a single product, especially when that product is relatively undifferentiated. One of the three companies I used as examples of that phenomenon was GoPro and today I wanted to do a deeper dive on the company. As I mentioned in last week’s piece, GoPro’s financials actually look pretty sound but there seem to be two major concerns on the part of investors about where the company goes from here.

Sound Past Financials

First of all, GoPro is growing at a decent clip. It had a little blip in early 2014 where revenues briefly dipped but has grown strongly since then off the back of the launch of the Hero4:GoPro revenue

This growth has come with improving margins as you can see from the chart below:

GoPro operating margin

Again, things looked dicey for a while in early 2014 but they’ve recovered nicely since. To be sure, margins have leveled off over the past year and this is definitely worth watching, but they’re leveling off at a pretty respectable level for a consumer hardware company.

Investor Concerns About the Future

Of course, all that growth is driven almost entirely by an increase in devices shipped – GoPro shipped 7 million cameras in the past 12 months: GoPro units shipped

Generally speaking, GoPro’s fourth quarters have been by far its largest – last year, it shipped 2.4 million devices in that quarter alone. However, that was driven by the launch of the Hero 4 and GoPro doesn’t have an equivalent product introduction this year to drive similar sales. It did launch a product this year – the Hero 4 Session, a smaller, simpler alternative to its top-of-the-line models – but it has sold poorly and, just in the last few days, its price was reduced by $100 for the second time, leaving it at half its original price of $399. The combination of these two factors led to disappointing results in Q3 and poor guidance for Q4, when the company is expecting 17% lower revenues than a year ago. 2015, as a whole, will still be well above 2014 in terms of revenues, but Q4 is going to be significantly down and investors are starting to get worried this is a sign of worse things to come.

GoPro’s management maintains it’s just the Session that is selling poorly, and the high-end Black and Silver models are still doing fine. But, with the heavy price cut to the Session, there’s a risk that, if it starts selling in better numbers, it will be because it’s cannibalizing high-end sales. GoPro’s major chipmaker, Ambarella, has reported its next quarter’s sales will be down as well, which has been taken as another negative sign for GoPro’s performance in the quarter.

Revenue per unit shipped – not exactly average selling price, but fairly close to it – has been declining already and there’s a danger this decline will continue:

GoPro ASP

Reasons for Optimism

GoPro’s management, of course, is attempting to paint a more optimistic picture – it’s pointing to the company’s investment in content management tools and in content itself as possible future revenue streams and has also shown off early footage from a drone camera called Karma it intends to launch next year. But the content strategy is unlikely to generate significant revenue in 2016 (the company refused even to comment on whether this revenue would be material in its last earnings call) and full details around the drone product haven’t been released yet. So investors are having to take these reasons for optimism on faith at this point, something few of them seem willing to do.

One other factor has helped the share price in the past week or so. The reports Apple might want to buy the company. However, there’s no concrete evidence this is the case and it seems likely it’s little more than wishful thinking on the part of those reporting this possibility.

Reinforcing the One Trick Pony Problem

All of this serves to reinforce the problem I outlined in last week’s column: companies highly dependent on sales of a single product – in GoPro’s case, “capture devices” – may do very well for a period of time but, unless they are able successfully to parlay that success into a broader-based strategy that goes beyond a single category, they often begin to struggle. This is particularly the case when the company fails to build a meaningful ecosystem around its products. GoPro’s financial filings suggest it believes its partnerships with retailers, celebrities, and others will provide differentiation but, given its latest product has essentially flopped, there are now legitimate questions about whether its single trick is enough.

Apple and a New, Smaller, Potentially Less Expensive iPhone

Recent rumors suggest Apple may be planning to release a new iPhone in 2016 with a return to the smaller 4″ form factor. Some reports suggest this iPhone may target the lower-end of the market, like the iPhone 5c in a way. Other reports indicate it will still have relatively premium pricing — not as premium as the 6s or 6s Plus but also not $300. I imagine this will be an evolving story, but I want to share my thinking about this at a high-level.

Let me be honest, I struggle with this rumor. I’ll also be the first to admit I struggled with the need for Apple to launch a larger screen iPhone, even though I knew the market was trending in that direction. But my struggle is rooted in the basis that the market is trending and moving to larger screen smartphones. I’ve seen a number of research reports suggesting roughly 20-30% of the market is currently interested in a smaller 4″ iPhone. Of course, we know consumers don’t always know what they want until they see it. However, it seems all the data suggests larger screen phones is what the entire smartphone market is shifting to.

There is an argument to be made about price. This I interpret in the same vein of theory which led many to believe Apple needed a less expensive iPhone to get the growth they needed for their stock to remain valuable. But it turns out, what they needed to reset the growth button was a larger screen and a more expensive price point.

My concern with the lower-cost argument is that it targets a demographic that is unquestionably buying larger screens. For example, we may rationalize that Apple could take a lower-cost iPhone and bring it to markets like India. The challenge with this is consumers in India can already purchase very well made, high-spec, 5″ or larger Android smartphones for less than $200. So, can a brand new, smaller screened, slightly more expensive iPhone compete with a $150 well spec’d, 5″ smartphone in India? Maybe, maybe not.

Another market this product could be targeting (if it comes to market) is the pure post-paid segment in western markets. These are customers where price really is the most important factor. They pay their phones off up front, are often using pre-paid SIM cards, and/or simply can not afford a >$600 device or a $25 dollar a month payment plan. While I concede this is an interesting play, here again is a space where we see consumers purchase larger screen phones because, in many cases, it is their only computer. Therefore, the largest screen real estate they can afford is often the most desirable. This mindset is very similar to those of emerging markets consumers as well. Big screens are valued most and they need them to be affordable.

While I can’t yet rule out this potential move by Apple, I’m still skeptical. Most of the arguments presented to me for the need for a smaller iPhone don’t seem to hold water with the market insights we are seeing at the moment. Again, consumers rarely know what they want until they see it. However, the evidence presented for Apple’s need to address this price point to get new customers, if lined up with the data, would suggest they need to launch a lower cost, large screen phone. Essentially, a lower cost version of the 6s or 6s Plus. This seems highly unlikely. But again, we can’t rule anything out yet.

Sad State of Retail Apps

I was having coffee with a friend this past Saturday morning when I noticed his leather wallet case on his iPhone 6 Plus. I googled the brand a few hours later, found the $27 case on Amazon, and purchased it. That same evening, the doorbell rang and an Amazon driver handed me the item.

This experience has been repeated by millions of people over the past few weeks. Amazon continues to transform the shopping experience, much in the way Polaroid transformed the photo experience, eliminating the need to wait. The impact Amazon is having clearly has to be a big concern to retailers.

A few years back, we heard lots of ideas about how retailers could use technology to improve their shopping experience. There was talk of in-store mapping, location technology, and even face recognition software. Analysts described how this would allow physical stores to better compete with online shopping, to improve the experience, make it more convenient, and even fun. There was talk of walking into a store with your phone and being recognized, suggesting items you might be interested in buying, based on previous purchases, and guiding you through the store, all done with a mobile app.

So how is all this going? Based on my survey of several major retailers, not very well. If there is technology being developed in this area, it certainly wasn’t visible in any of these stores where I shop. There were a few nuggets of ideas, but nothing that showed much imagination.

In my survey, I downloaded the mobile apps from Target, Wal-Mart, Kohl’s, Sephora, Nordstrom’s, and Bloomingdales, and signed up with each of them. I used each app for at least a week and visited all of the stores to see how the apps enhanced my shopping experience.

Sadly, the results were disappointing. First, the apps were primarily just mobile versions of the websites with a focus on online shopping from a phone. Few were designed for use in the physical stores. In fact, none of the retailers even promoted the mobile apps in their stores. It seemed the physical stores and the online entities were entirely different operations.

Most provided online product search, reviews, ordering, and the option to pick up merchandise at a store or shipped to home. Most had the ability to create shopping lists and provide a list of store locations.

But none of the apps came close to the potential of what a mobile app could do to entice you into their stores. While most of the stores had public WiFi, none of the stores reached out to me as a customer via the app proactively, even when connected. None identified I was in the store, nor told me about or directed me to sales in progress. And none allowed me to do self-checkout using the app in the way the Apple stores allow.

I would have loved to see a help function where I could press a button on the app and have a salesperson come to me. I would have liked to have been able to search for an item and have the app direct me to the location of the product in the store. I’d love an app that allowed a sales person to direct me by name and let me know about a new product my past purchases showed I might like.

I can understand why some shoppers might want to maintain their privacy and not be recognized while shopping, but I know there are many shoppers that would opt-in to make their store visit more useful with much more thoughtful interaction compared to impersonal online shopping.

While most of the apps seemed to emulate one another, the quality of execution varied widely. Those from Wal-Mart, Sephora, and Kohl’s were the best, while the Target app was the worst of the group with its confusing interface split into several different apps.

The most technically advanced features in these apps were barcode scanners you can use in the store to learn more about a product or check a price. Wal-Mart had a clever feature that allowed you to scan your receipt using its mobile app and it would compare the prices you paid with neighboring merchants and match any lower prices. Sephora allowed a shopper to use their own image to learn how to apply makeup using its app.

However, with Amazon’s same day delivery service being expanded, retail stores will need to work much harder to get you to pay them a visit. Their big advantage once was that you get the product the same day, but even that advantage is disappearing.

The Challenge of Being a One Trick Pony

The most successful companies in the technology market are often those who are able to develop broad portfolios of products and ideally create ecosystems around their products. By contrast, there are other companies which are heavily reliant on a single product. When the product is highly differentiated, that may be the basis of a decent business over time. But one of the most challenging places to be as a business is a “one trick pony”, especially when the single product or service is relatively undifferentiated.

GoPro, Fitbit, and Dropbox as One Trick Ponies

There are lots of companies we could choose to illustrate this point, but let’s focus on three: GoPro, Fitbit, and Dropbox. The single “trick” for each of these companies is:

  • GoPro: making “capture devices”
  • Fitbit: making “connected health and fitness devices”
  • Dropbox: providing cloud storage services.

Conceiving of a Broader Mission

However, none of these companies describes itself in this way. Rather, each has a broader mission statement:

  • GoPro’s S-1 filing contains the following couplet: ““Versatile capture devices are what we make and sell. Enabling engaging content is what we do””
  • Fitbit’s S-1 filing contains this mission statement: “Fitbit helps people lead healthier, more active lives by empowering them with data, inspiration, and guidance to reach their goals.”
  • Dropbox has in the past described its mission as follows: “The mission of Dropbox is to simplify life for people around the world. Dropbox lets people bring their docs, photos and videos everywhere and share them easily. “

The challenge is each of these companies essentially monetizes solely through its single trick. As GoPro puts it, “To date, we have generated substantially all of our revenue from the sale of our cameras and accessories,” and Fitbit uses very similar language in its SEC filings to talk about how its device sales dominate its business, with other sources making up less than 1% of revenue at the time of its IPO. Meanwhile, Dropbox has essentially no business model other than paid cloud storage. So, even though each of these companies has a broader “mission”, their business models reveal the extent to which they’re really still one trick ponies at their core. GoPro intends to grow its content revenues meaningfully going forward but, as of its most recent filings, revenue from these efforts is still minimal.

The Danger of Commoditization

For each of these three companies, there’s a significant danger of commoditization, requiring a constant effort to improve their differentiation and stave off that threat. Dropbox provides the ultimate commoditized service in the form of cloud storage and attempts to differentiate through the quality of its syncing service and its apps. However, it’s also attempted to differentiate by acquiring or building new apps to act as front ends for new cloud services, notably Carousel for photos and Mailbox for email, both of which it killed off this week. As such, Dropbox’s most high-profile attempts to develop additional “tricks” have both failed, leaving it back where it started. At this point, its differentiation focus seems to be partly on providing tighter integration with third parties, notably Microsoft’s Office applications, and on Dropbox Paper, a collaboration product.

For GoPro, the very real danger is the combination of smartphones and cheap imitations of its capture devices undermine its core market. Its response to this threat is twofold: playing up the advantages of more capable smartphones as controllers for its cameras and doubling down on its branding, retail relationships, and its content strategy as differentiators against more direct competitors. GoPro’s finances actually look really sound, but the market seems to be concerned that this competitive moat is inadequate.

Fitbit, meanwhile, faces new threats from both above and below its current market position. As Ben Bajarin outlined in a piece for Insiders this week, Apple is encroaching on its territory at the high end with the Apple Watch, while Xiaomi and others are capturing the low-end of the fitness device market. Here too, investors seem concerned that Fitbit’s differentiation may be inadequate to protect it against commoditization and an invasion of cheaper Chinese imitators, even though its current financials also look pretty healthy. Though Fitbit’s online and app-based dashboards are far more advanced, they generate very little revenue and it’s not clear that every potential fitness device buyer really sees the value in those.

The Threat of Ecosystems

I started by talking about the power of ecosystems, and it’s some of these very ecosystems that provide some of the greatest threat to these one trick ponies. Apple in particular poses a fairly direct threat to all three companies in different ways, while many others compete with one or more of them. It’s going to be increasingly tough for these companies and others like them to survive and thrive in the face of competition from larger, broader-based competitors. Though focus can be a powerful thing, a singular focus on a relatively undifferentiated product continues to be a poor basis for building a long-term, sustainable business.

A New Battery Case from Apple

As popular as the iPhone 6 is, it has one huge weakness — one of the shortest battery lives of any smartphone. That’s because Apple has prioritized thinness over runtime. As an iPhone 6 user, it’s hard to get through the day without needing to charge my phone. Often, the battery is dead by 2 or 3 pm.

Now, Apple has introduced its own snap-on battery case, much like the cases from Mophie and many others that have been available for years. Battery cases or power cases, as they are often called, contain a second battery that can double the run time.

The Apple version works on the 6 and 6S and has some unique features but battery life is not one of them. It extends the normal battery life by about 80%. Apple’s case is a compromise between providing sufficient added power, while not making it as bulky and heavy as other cases.

Many of the reviews appearing from the Wall St. Journal, The Verge, and Engadget, assess the Apple case as simply an over-priced version of a Mophie case with a smaller battery. But, after using the product for a few days, most of the reviews completely miss the point. These reviews take a very simplistic approach: How does the product compare with others based on what the reviewers deem to be important, namely battery size versus cost. In my opinion, this is not what should be important.

If I were Apple’s marketing chief, my design brief to the engineers would be to come up with a solution that is able to get a heavy iPhone 6/6S user through the day without running out of power. You want to insure a user away from home or the office need not search for a plug until he is home in the evening. At the same time, I’d ask for a solution that minimizes the case’s bulk and weight and makes it as convenient as possible to use. In other words, find the right balance.

In my use of the product, Apple has managed to “thread the needle” and come up with an optimum solution. The added battery capacity solved my problem of running out of power in the middle of the afternoon and took me to late in the evening instead of only mid-afternoon. A larger battery that lasted to midnight or 3 am would not provide me any added benefit.

By using a smaller battery, Apple eliminated the huge appendage of other cases that often doubled the phone’s thickness and made it hard to hold and slip in a pocket. The Apple case maintains the thickness of the phone in a moderately sized case around its perimeter and adds thickness to the middle of the back only. That makes the phone as easy to hold and grasp as an iPhone 6 with just with an ordinary case on it.

The Apple case is also much simpler to use than other battery cases. It uses a lightning connector instead of a USB connector, allowing you to use one cable to charge the combination or either alone.

There is no need to manage or worry about which battery to use. Like other cases, the connector on the case charges both the phone’s battery and its own simultaneously. In use, the case’s battery discharges first, eliminating the need for a user-selectable switch. Battery life of both is precisely displayed on the display, eliminating the need for LEDs used by other makers.

Unlike the competitors’ case made of hard plastic, the Apple case is made of silicone rubber that provides a firm grip and is easy to put on and off. It provides a raised ridge around the screen that is better able to absorb a drop.

So no, the Apple case does not have the biggest battery, but it does offer the maximum utility for what I would define a battery case should be: Enough power to get a heavy user through the day and evening, in an easy to hold package that makes it much more likely you’ll keep the case on the phone all of the time.

Apple’s new SmartCase comes in gray or white and costs $100.

Why Glass is Critical to the Future of Tech

From the beginning of my career in tech, I came to understand how important the various materials are when it comes to creating products. My journey in semiconductors started by understanding the raw materials needed to create silicon-based wafers and then the processor itself. I continue to study the various materials needed to create all types of tech products that dominate our market today. It turns out, the material sciences are the lifeblood of all of tech creations and as such, science has advanced these materials, our tech products have become faster, smaller and more durable. It has made it possible for us to carry a PC in our pockets as we do now with our smartphones.

Up until about 2000, most of my work covering the PC industry was focused on components like PC displays, sound cards, semiconductors and similar items that made the PC a powerful tool for business, education and entertainment. But, with the introduction of the first flip phones and then eventually the smartphone, there is one material that has emerged that is probably only second to the processor when it comes to the importance of delivering a great user experience in all types of devices, especially mobile ones. That material is the glass screens on billions of feature and smartphones in the market today.

While I have known for some time the screens on our smartphones and tablets are a critical part of their design, I have to admit it was not until I saw the movie “Minority Report” did I realize the glass screen could be a key component of our digital future. Then in 2011, I discovered a fascinating video Corning put out entitled “A day made of Glass” and the important role glass will play in our digital world became clearer. In the video, glass mirrors become touch screens, glass table tops become computer screens, glass wall screens turn into touch-based portals to interact with content, etc. And in 2013, Corning updated the video to include even more fascinating ways glass will be integrated into our digital lifestyles.

Not long after Apple’s failed sapphire adventure, the role of glass, more specifically, Corning’s Gorilla Glass, became even more of a focus for me. It became clear Corning was advancing the properties of their glass screens and Gorilla Glass 4 is the most durable and scratch-free version they have ever brought to market. A new version in the works, code name Phire, is said to have properties close to if not equal to sapphire when it comes to delivering the scratchproof finish in a glass screen. Their R&D and advances in glass materials used in tech products seem unparalleled in our industry today.

There is a new entry in the market from Motorola that uses an OLED display and a plastic cover I also find interesting since Motorola claims their screen is unbreakable. Using a special five-layer process, which includes a plastic top cover for the OLED screen and the way they integrate it into the physical design of the Turbo Droid itself, it is purported to be an unbreakable smartphone. I hope to test one soon and, while I accept their premise, those who understand material sciences tell me a plastic screen could be dented or marred and over time could even yellow, which would impact its clarity. The folks from Motorola tell me they do not expect that due to some special coating they have on this plastic screen. But this is the first premium phone to use a plastic cover and it may be too early to tell if a plastic screen continues to hold up for the life of any smartphone.

That is why all other premium and mid-range smartphones use Gorilla Glass, as it has proven to be the best option for use on a pocket PC/smartphone and delivers the type of scratchproof durability needed, given the wear and tear smartphones take because of how they are used on a daily basis. While Glass screens are critical to the ultimate DNA of billions of smartphones in the market today, it is the future role glass will play in our digital lifestyles that should get most techies excited.

Corning’s futuristic videos give us a solid glimpse of our digital future. Putting glass screens on a table top and turning it into a huge interactive screen could change the way many people interact with their digital content. Making glass walls that can show off all types of video and content and applications that can be touched to activate them is exciting. Imagine a glass screen on your refrigerator or a glass mirror in the bathroom that delivers a touch-based gateway to all of your digital “stuff” and you begin to see the role glass will play in a much broader way in the near future.

The futuristic view Corning showed in 2011 and 2013 is closer to reality these days. If you happen to be at CES 2016, I understand Corning will be bringing this vision to life, featuring glass surfaces with extraordinary capabilities. If you are there, it would be worth seeing how much progress they have made in delivering their vision for glass and its potential impact on our tech future.

Why Google is at a Major Crossroads

For the last few months, we have been writing about the fact that millions of people, especially the younger generation, came into the digital age via smartphones. More importantly, their primary OS has been Apple’s iOS or Google’s Android. While Windows is still an important OS, it is mainly used for PCs. For billions of people taking part in the digital revolution, they have never used Windows and most likely never will.

This has led us to believe that, when this younger generation of users moves into the workforce, they will want to have the OS, tools and apps they grew up with and will want to use them as they go off to school and work as they grow older. We believe Apple understands this well and is moving more and more to make iOS important for all of their customers. With the iPad Pro, they are even creating a new set of devices using iOS targeted at business. I believe we will even see an iOS-based laptop in the not too distant future.

I think Google understands this to some extent as they continue to push Android developers to create more productivity apps and ones that can be used in all types of business settings, albeit mostly targeted for use on smartphones and tablets. But Google’s approach differs from Apple in that they have also introduced another operating system into their program called Chrome. This is an HTML-based OS and is the OS they push to laptops and even some all-in-one desktop computers as an alternative. To date, Chrome and Chromebooks have made some progress including major inroads into the education market.

But I see Google at an important crossroads. While Chrome is an interesting OS in its own right, it is Android in both an official and unofficial form that dominates the market for mobile. I believe it should be the principal OS Google pushes to a younger generation as they move into the workforce. At the moment, Google has what I would call a hybrid solution. Instead of working with hardware vendors to create Android laptops and 2-in-1s, they are pushing them towards using Chrome as the core OS and then creating a way for any Android app to work within Chrome.

The key reason they are doing this is because they have lost control of Android and, at the moment, they are not making the kind of money off Android they originally hoped they would. By fragmenting the OS and making it open source, mobile vendors have created their own versions of Android and, in millions of devices that use it, they are not tied back to Google’s services or ads since these vendors customize their version and create their own apps and services instead.

But with Chrome, they can enforce their control again since you can’t get into the OS without your Google ID and password. Then, once you are in, you are immediately tied to Google’s products and services including search and their productivity tools. This might be OK for some people but, for most of the world, this would not be acceptable. Indeed, we are starting to see some vendors, especially in emerging markets and one’s that are trying to bring PCs to a younger generation, starting to create Android based 2-in-1s and cheap Android laptops. They believe the iOS and Android generation could, at some point, want a device with a larger screen to be used for things like productivity, education, etc.

Today, companies like Xioami, Huawei and MicroMax have moved from smartphones to are either making laptops or rumored to be making one soon and, while they are–or will be–low-cost Windows laptops now, we expect them to soon offer Android-based 2-in-1s and laptops very soon. They are not the only ones planning Android 2-in-1s and laptops. I expect even some of the bigger PC vendors to do Android portable PCs in the not to distant future as well.

If Google continues to think Chrome running Android apps will work in emerging markets they are delusional. And, if they don’t find way to support these Android 2-in-1s and laptops as they come out, they will lose this Android battle too. Google is at a serious crossroads with this. At the moment, they are not backing any Android based 2-in-1s or laptops in the works and I see that as a major mistake. Hoping to attract the Android crowd to a PC platform by giving them Android apps, which may or may not run well within Chrome, may work in the US but this strategy is a dead end for them in the rest of the world.

Memory Goes and Comes

Intel has returned to making memory chips, a business it was in before and left. While the old failed business was in DRAMs, the new business involves making flash, the non-volatile memory fueling the mobile revolution, the Internet of Things, and multilevel server memory architectures, not to mention some PC hard drives. The rise of this business is fortuitous because the company’s traditional volume business in PC processors has slowed. The server processors contributing so mightily to Intel’s bottom line are more profitable than the PC processors, but sell in quantities one-to-two orders of magnitude lower. The company needs to keep its factories filled to remain profitable. Perhaps the rise in memory volumes will help make up for some of the decline in PC processors. If not, Intel may have to consider doing foundry work for other firms’ chip designers. Today’s piece lays out the case.

There’s a certain irony in Intel’s return-to-growth financial projection for 2016 in that some of it comes from a resurgent memory business. Those of us with long memories can recall when Intel left that business, ceding it entirely to the Japanese, who had assembled a semiconductor manufacturing juggernaut.

At the time, 1985, the exit was a brave move, a huge gamble for Andy Grove and Gordon Moore, Intel’s president and CEO, respectively. Leaving the dynamic random access memory (DRAM) business meant that Intel’s revenues would plummet — memory manufacturing accounted for by far the largest proportion of its revenue at that point. Quite rightly, management understood that for every processor sold, many memory units would be attached to it, and since the economics of semiconductor manufacturing are a lot like cake-baking, better to sell more cakes than fewer.

However, the Japanese had figured this out, too, and what mattered was scale. Japanese firms had easy access to capital from friendly banking partners, and U.S. firms faced expensive capital. Remember those 20 percent interest rates? It seems like a dream now … A high dollar resulted from all that foreign capital flowing into the United States to take advantage of those high interest rates, and that helped kill off exports. Once the Japanese memory industry hopped on the cost curve, it was able to lower prices to the point where all rivals lost money.

Quality Japanese memories drove Intel to abandon them entirely, just in time to focus on the growing microprocessor business, which was taking off as PCs started to become popular. Processors were more complex than memories, and so commanded a higher price. But most importantly, Intel was the near-sole supplier for a standard that was about to proliferate around the world. Although the exit from DRAMs ultimately proved prescient, at the time it meant facing a Wall Street that often misses subtleties in explanations of why a technology company’s revenue is declining.

But if you live long enough, everything repeats itself. Well, repeats itself more like a spiral than a circle. Intel is back in the memory business, but that business has changed enormously. DRAM technology continues to evolve, but increasingly, system makers like to work with flash, which holds data without electric current but is still pretty fast. Flash is critical for mobile devices because it doesn’t use much power, and, with no moving parts, it’s hardier in the field. It plays a big role in the nascent Internet of Things (IoT) as well. In addition, it also figures into dense server architectures that employ tiers of memory and storage for fast, efficient computing.

Times have changed, though. With its now-unrivaled manufacturing scale, Intel is in a position to dictate the economics of the memory business rather than being victimized by them. This story’s unfolding will be fascinating to watch, particularly given that server processors sell in a ratio to endpoint processors somewhat similar to that of processors to memory chips; that is, one server can serve about 20 endpoints. This balance implies that Intel’s 14 manufacturing facilities will have plenty of room to make all the memories it wants.

In fact, Intel’s strong growth in servers, mirrored by a sharp decline in mobile and stationary endpoints, points to far fewer gâteaux being baked in its plants overall. Even a memory business growing like a weed might not be enough to fill those factories, which must be kept running at 90 percent capacity or greater to make money. It’s quite possible, then, that Intel will increasingly take on a foundry role in the industry, making chips that others have designed.

At the moment, the foundry business belongs to Taiwan Semiconductor Manufacturing Corp. (TSMC), Samsung, and Globalfoundries. Important customers for these services include Qualcomm, Apple, nVidia, and AMD. Like all things coming full spiral, there’s a yin-yang quality to the story: strengths are also weaknesses. Owning lots of factories is wonderful, but having to keep them filled is a Sisyphean task. Below a certain level of capacity, that great strength becomes a gargantuan weakness.

Some Thoughts on Yahoo

Yahoo has been in the news again recently, ostensibly because its board is considering two new options for fixing the company: replacing Marissa Mayer as CEO and selling off what most people still think of as Yahoo itself – its US-based internet business. All of this raises lots of questions about how Yahoo got to where it is today, whether Mayer really has done as bad a job as some people think, and whether there’s any way to actually turn the business around at this point.

A poisoned chalice?

There’s definitely an argument to be made that the CEO role at Yahoo when Marissa Mayer took over was a poisoned chalice – in other words, no one could have succeeded in turning the company around. The brand itself appears to belong to a previous internet era, associated with Yahoo’s early dominance of the directory/search business and a variety of other domains, rather than any present prominence. Like AOL, Mapquest, Hotmail, and other brands, Yahoo is likely a name or service many of us used to use but have long since abandoned. How can you turn around a brand that has that much baggage?

Still a top Internet destination

However, for all that the Yahoo brand may feel dated and tarnished, it’s one of only a handful that still touches a majority of the desktop internet audience in the US every month, along with Google, Facebook, and Microsoft. For Google and Facebook, that audience is the basis of multibillion dollar businesses that are growing rapidly and hugely profitable. Shouldn’t Yahoo be able to build a business with similar financial characteristics?

In the wrong part of the online ad business

The biggest barrier to Yahoo’s ability to better monetize its online audience is it’s in the wrong part of the online ad business. Almost all of Yahoo’s properties are only really suited to traditional display advertising – banners, sidebars and the like. Meanwhile, a great deal of online spending is going to several key areas where Yahoo is essentially unable to play: search advertising (where Yahoo has been hamstrung by its deal with Microsoft), mobile native display advertising of the kind offered by Facebook and Twitter, and video advertising (which requires a compelling video offering to begin with). Stuck in traditional display advertising, Yahoo has suffered from all the negative trends impacting that space, while its exposure to search is too marginal to make a meaningful difference in its performance.

When Mayer first arrived at Yahoo, it appeared she was going to try to remake it in Google’s image, with stronger search and video plays to match Google’s strengths in those areas. But it’s taken years to extract Yahoo even a little bit from the Microsoft agreement and, even after its deal with Firefox, it has a tiny market share. In video, it’s tried and failed to acquire DailyMotion, a much smaller YouTube clone, while dabbling with marginal video offerings like its NFL games and acquiring a season of Community (an investment it’s since written off). At the same time, Mayer has made dubious investments in online “magazines”, in Tumblr (which suffers from the same fundamental problem with display advertising), and other areas that have served more as distractions than strategic advantages for the company.

A lack of differentiation – and innovation

One of Yahoo’s biggest challenges is it has failed to differentiate itself in a meaningful way. Yes, it has these huge audiences, but many of them are around properties that are essentially indistinguishable from competing properties and easily substituted by them. If Yahoo News, Sports, Email, or other core services went away tomorrow, users could easily jump onto equivalent ones offered by others. Yahoo has also suffered from a lack of true innovation – yes, it has launched a number of new and interesting products and services over the last couple of years, but these have almost all been “me-too” type products, piggybacking off the innovation of others. Just this week, it announced a messaging app which borrows from many of the features found in other apps, several years after it became clear messaging was a hot space. Yahoo has invented nothing new during Mayer’s tenure while investing ever more heavily in things that others already do well.

Can Yahoo be saved?

At this point, Yahoo is losing money every quarter (margins have plunged into the red since Mayer took over), although revenues are now growing a little again, following several years of decline. The biggest problem is Mayer doesn’t seem to have changed her strategy at all, despite all the failures outlined above. Given the extent to which the members of the current board were appointed during her tenure, there seems little likelihood she’ll be ousted anytime soon. But there’s also little sign things will go differently from here on out compared with how they’ve gone so far under her leadership.

Is it possible to save Yahoo? It’s likely it will only be if it’s stripped down and built back up again in a way that is organized around properties that can really drive growth and profitability for the company. That means stripping out a lot of stuff that’s popular but not generating profits and spending some significant money investing in new growth areas. All of that means taking the company private may well be the best option, giving the company and its leadership some breathing room while they take on the bigger task of truly transforming the business. If the core part of Yahoo really is going to be spun off, an acquisition by a private equity fund might well be the best option.