Apple is the World’s Most Valuable Player

apple_store_france_carrouseldulouvre_002As you may recall, the late Steve Jobs was said to have a reality distortion field in the way he saw the world. It was articulated that Steve would create alternate realities which were actually distorted realities. Since his passing his reality distortion field still exists but it has moved from inside Apple to outside Apple. Mainly to the many on the street and the mainstream media (just looking for headlines) who have caught the reality distortion field syndrome and now live in a reality distortion field and believe in a reality that does not exist.

I wrote two articles that should help any smart person understand the landscape of the tech industry. The first one was titled What Tech Company is More Healthy Than Apple. The second I wrote yesterday called Google or Microsoft? That is the question. It is designed to give you the perspective of the landscape from an OEM (not named Apple) shoes and the immense challenges that lie in front of them. If you read them both in succession, I do not personally see how you walk away with any doom and gloom scenario for Apple.

However, even more data came out today proving that most outside observers and naysayers have caught the reality distortion field.

Fortune today released their list of Worlds Most Admired Companies. This is not a list of just tech companies but simply of enterprises on a global level from every field. This work and research is done in conjunction with the Hay Group and it surveys 15,000 business executives and directors to rate their peers in several different category. To use an analogy, this survey is like ones in sports where athletes vote for other athletes they think are the leaders in certain categories.

The result is in. The global industry professional audience has voted Apple the MVP of the business world. The Hay Group, in conjunction with Fortune, found that Apple is the world’s most admired company. Apple came out number one in the following four categories:

The Worlds Most Admired Company
The Worlds Most Admired Tech Company
Most Admired in Innovation
Number 1. in product quality

People say Apple is doomed, people say they have lost their “mojo” but those in the industry running actual fortune 500 companies disagree. They still say Apple is the gold standard on many levels. This is just more fuel for the fire that the reality distortion field has moved from Apple the company and out into the views of those who have lost the ability to think critically about Apple.

Fortune’s own description in the listing should be enough to burst the reality distortion field.

it (Apple) remains a financial juggernaut, posting $13 billion in net income last quarter, making it the most profitable company in the world during that period.

Apple is the most profitable, can’t make enough products to meet demand, is the most admired by its peers, yet it is doomed. Reality distortion field.

The facts don’t line up with the picture being presented by the street and the headline seeking mainstream media. And the most unfortunate thing about it is that it is affecting many who aren’t stuck in the reality distortion field. Apple’s shareholders.

There are many good people who understand that Apple is positioned for success and made wise long term decisions to have Apple stock as a part of their retirement funds and who either depend or will depend on that money some day. In my opinion, Apple’s shareholders are being punished for being wise. I do not own any Apple stock but if I did I would be livid at the fact that all the evidence in terms of health and signs of long term success favor Apple. Yet the Street continues to play the game and live in the reality distortion field. The media is to blame as well because as unfortunate as it is they can to a degree, alter public sentiment in incorrect ways simply because they have the desire to chase page views with a catchy headline full of half-truths.

We can only hope that wiser minds prevail but one thing is certain. Those who run and manage billion dollar companies find Apple the gold standard. We can only be glad that those living in the reality distortion field don’t run those billion dollar companies or our world would really be in trouble.

Comparing The Profits of The Five Titans Of Tech

Side by Side Revenue & Profit Comparisons

Introduction

Today’s five Titans of personal computing are Google, Microsoft, Apple, Samsung and Amazon. Horace Dediu of ASYMCO has created a side-by-side comparison of their respective revenues and profits.

Google

Google is a money making machine, but I think that many overestimate its profitability. As the graph clearly shows, Google doesn’t make nearly as much profit as does Microsoft, Apple or Samsung.

Further, we know that the vast majority of Google’s profits are still derived from its desktop advertising business. Android, for all its success in the marketplace, has not yet proven to be profitable to Google.

In a reversal of Microsoft’s business model over the past twenty years, all of the Android profits currently reside with the hardware makers rather than the software provider. Perhaps this is why Google is moving more and more towards making their own hardware. (Google currently owns Motorola and makes Nexus phones, Nexus tablets, Chromebooks and the newly minted Google Chromebook Pixel.)

Microsoft

Microsoft has been making ungodly profits for almost two decades. Microsoft’s problem isn’t profitability, it’s growth. Despite making money hand over fist, Microsoft has been unable to grow its base for much of the past ten years.

And Microsoft is facing serious challenges to even maintain the profits that it now has. In the above graph, the red portion of Microsoft’s profits come from Microsoft Office and the blue portion comes from Microsoft Windows. Both currently reside primarily on desktop and notebook machines. With those devices declining in sales and with phones and tablets rapidly growing in sales, Microsoft needs to make the transition to mobile and they need to make it fast or their two cash cows are going to be isolated and start to dry up.

Apple

As you can see from looking at the graph, Apple’s profits are not just good, they’re spectacular. They far outdistance the other four titans of tech. At yesterday’s shareholder meeting, Tim Cook reputedly said that Apple grew revenue by about $48 billion, more than Google, Microsoft, Dell, HP, RIM, and Nokia combined.

Apple’s problem is the perception that they are the next Microsoft – that they will continue to make great profits but that their growth will stagnate. The graph, above, does not seem to support that view, but past performance is not a guarantee of future profitability.

Samsung

Samsung is an amazing story in oh so many ways. By all rights, Samsung shouldn’t even be on this list of Tech Titans. For the past two decades, the PC manufacturers – the Dells, HPs, Lenovos, Samsungs, etc – were at the bottom of the tech totem pole. Always trapped in a race to the bottom, Microsoft and Intel took all the profits while the hardware manufacturers were relegated to fighting for the scraps.

No more. Samsung has turned that business model on its head. Android – like all licensed operating systems – was supposed to encourage a wide variety of hardware providers. But Samsung has swallowed the Android market share and the Android profit share whole.

Amazon

What can one saying about the amazing Amazon. Their revenues go up but their profits do not. And the less profit they make, the more successful they are perceived to be.

John Gruber once described Amazon as the crazy guy at the poker game. You simply don’t know how to play your cards against Amazon because they don’t play by any of the known rules. And you sure as shooting don’t want Amazon to come after you because they will sacrifice profits in order to win your market. And they are relentless.

Summary

So long as Apple is profitable and their ecosystem healthy, they’re not going anywhere. Microsoft is in it for the long run too. They have the money to sustain their efforts and they well know that they need to be in mobile or they will be locked out of the future of computing. Amazon appears determined to be part of the mix too.

The two titans that seem the most unstable to me are Google and Samsung. Google controls the Android operating system and the ecosystem but they make little profit from either. Samsung makes almost all the profit from Android, but they have little control over the operating system and they make little to no money from the sale of advertising, apps or content sales. That seems like an unsustainable relationship to me. Something has got to give and it’s clear that each side is weighing their options. Google is moving more and more towards making their own hardware and Samsung is flirting with a variety of different operating systems. The future is always uncertain but it seems clear that the relationship between Google and Samsung is certain to change.

How Not To Win in Washington

Photo of U.S. Capitol (© imel-fotolia.com)   In November, a young staffer named Derek Khanna won brief notoriety for writing a report for the House Republican Study Committee urging a change in copyright policy to favor consumers rather than rights holders. The effort got him fired, and earned his a fellowship at the Yale Law School’s Information Society Law Project.  Now Khanna is back with a manifesto, published by BoingBoing, entitles “Cellphone unlocking is the first step toward post-SOPA copyright reform.” Unfortunately, it betrays about as many misconceptions about how Washington works as an episode of “House of Cards.”

Phone unlocking should be allowed. But the issue is a very poor choice for a showdown on the future of copyright. First, hardly anyone understands what unlocking actually does. In the U.S., it is mainly useful for using an AT&T phone on the T-Mobile network (if the phone itself operates on all the frequencies used by the two semi-compatible carriers), or, more practically, for allowing the phone to work with a non-U.S. SIM card when outside the country. Early termination fees for subsidized phones bought on contract (unsubsidized phones should be sold unlocked and usually are) mean there’s little advantage to unlocking a phone while it is still in contract, and most carriers will unlock the phone for you once the contract is over. These realities make it hard to build up a lot of outrage over the Copyright Office’s failure to extend an exemption that allowed phone unlocking, and in fact, were a major consideration in the Library of Congress’ decision.

Understand the fight. Second, this proposed fight is based on what are, at best, half-true premises. The fact is, there is no law criminalizing phone unlocking–not as such, anyway. Section 1201 of the Digital Millennium Copyright Act makes it illegal to “circumvent a technological measure that effectively controls access to a work protected under this title,” and, for complicated legal reasons, unlocking a mobile phone constitutes circumvention. There is a provision for criminal penalties, but only for willful violation for commercial gain, and, notwithstanding those FBI warnings on DVDs,  criminal prosecutions for copyright violation are very rare and nearly nonexistent for consumers.

There are more problems with Khanna’s manifesto, summarized by him in this open letter to congress:

Dear Congress, Please remove these items from your DMCA contraband list (both for developing the technology, selling and using the technology):

• Technology for unlocking and jail-breaking (currently allowed for iPhone, not allowed for iPad).

• Adaptability technology for the blind to have e-books aloud (currently subject to triennial review by the Librarian of Congress – it’s legal to use the technology but illegal to develop or sell).

• Technology to back-up our own DVD’s and Blue-Ray discs for personal use (current law makes this illegal and injunctions have even been used to shut down websites discussing this technology).

Signed,  The people

As noted above, there is no DMCA contraband list. There is a blanket ban on circumvention, with the Librarian of Congress empowered to grant specific exemptions. All 4G iPads are sold unlocked, so they don’t need an exemption. Jail-breaking (modifying an iOS device to let it accept non-App Store software) is a separate issue from unlocking and it is not even clear that it is prohibited by DMCA. Apple has warned that jail-breaking will void the warranty on an iPhone or iPad, but has never claimed a copyright violation The exception for adaptive technology for the blind is the least controversial of all the DMCA waivers and does not seem to be under any threat. It would be good if Congress got around to including the exemption in law, but the practical effect would not be significant.

Looking backward. The suggestion regarding DVDs and Blu-ray (not Blue-Ray) is particularly odd and backward looking, given the fact that distribution through physical media  is slowly going away. The fight over the ripping of DVDs is one of the oldest disputes under DMCA. But the fact that courts found  DVD ripping, even for personal use, violated the law does seem to have stopped anyone from doing so for the past dozen years. Software that extracts video files from protected DVDs is readily available, and no one seems to be making any serious effort to stop it. Copying Blu-rays is someone more difficult, but mainly for technical rather than legal reasons.

I wrote at the time that an internet-based revolt killed the Stop Online Piracy Act that this fight was easy. The legislative process is designed for failure, especially in the current partisan environment, and this makes stopping legislation simple.The real challenge is to get something passed, and if we are going to make the effort, we might as well look to the needs of the future rather than the fights of the past.

The issues must be understandable and capable of drawing broad support. One thing worth fighting for is guaranteeing a right for purchasers to resell digital media. U.S. copyright law follows the first-sale doctrine; once you have bought a copyright-protected product, you can do anything you want with it it except reproduce it. But copyright owners have used technological means to prevent resale and as more and more media goes digital, first sale is effectively disappearing.  We need our first-sale rights restored (with reasonable protections for copyright owners to make sure that copied are being sold and not multiplied.)

Another area of concern for the future is protecting the potential of 3D printing. This is a bit tricky, because the current legal environment is actually favorable to 3D printing–there generally is no copyright protection for physical objects  other than works of art, but some assault on the technology seems likely. You have to be very careful about copyright legislation because of the real possibility you will end up worse off than before.

You also have to frame the fight correctly. Khanna somewhat oddly sees the phone unlocking issue as an infringement of the property rights of phone owners. In fact, this, like so many tough fights, is a case of rights in conflict: The rights of the intellectual property creator vs. the rights of phone owners. But framing this s a property rights issue is a formula for getting lost in the weeds of an arcane legal dispute.

It’s also worth consulting the history of DMCA adoption. The tech industry, represented mainly by Microsoft,  generally favored the law and, in particular, the anti-circumvention provisions because of the fear of software piracy. This was consensus, not “crony capitalism.” There are fights worth having, and Khanna is correct that the best strategy is the build a powerful coalition through small victories and the time to get started is now.

 

Google or Microsoft? That is the Question

gors

If you are a technology company—not named Apple—then the answer to this question is vital to your future. The fact of the matter is that all technology companies, other than Apple, do not solely control their own future. Samsung, HP, Acer, Dell, Lenovo, LG, HTC, Nokia, etc., must rely on either Google or Microsoft for their operating system for the smartphones, tablets, and or PCs they choose to make. So the answer to the question, Google or Microsoft, is as strategic as it gets. Making a wrong decision could mean the end of your company.

Google

Right now Google’s platforms are the hot ticket item. But they come with a price, or a lack of a price for that matter. Google would prefer that all hardware that runs their software be virtually free. That may seem counter to the logic of them releasing a ChromeBook for $1200 but that is simply a strategy to take advantage of a particular market and get early adopters to pay them for their own market research. It is actually quite brilliant.

The long game, however, for Google is one where their services are running on every device and getting there requires the hardware be practically free. This is the world I firmly believe Google wants to see happen. So if I am one of the aforementioned brands trying to make money in the hardware game, I should be mindful of betting my future on a company who would rather me not make any money on my hardware. Also, Google gets almost all of the ad revenue that comes through Android devices. In Samsung’s case, they get 10% but the rest goes to Google. Who really makes money in this case? If you say Google, you are correct; this is part of their end game. How do others make money?

Microsoft

Microsoft on the other hand genuinely wants their hardware partners to make money. This is why they offer a healthy premium on the license of their software. The assumption is that Microsoft software adds value and is therefore valuable. That value should translate into a reasonable price willing to be paid by the mass market in order to capture that value. This was how it worked for nearly two decades in the peak of the PC era so is there reason to believe it will not work again with devices in the post-PC era?

The challenge with Microsoft is that their ecosystem, mainly in apps, is well behind that of Google. To put all your eggs, or even most your eggs, in Microsoft’s basket brings with it the assumption that they will yet again get it right someday, after many tries. Maybe they will.

The Universal Downside

There is a downside to licensing someone else’s software as the main software interface your customers will be using. Actually there are several. First the hardware manufacturer does not actually own the end consumer. This creates platform loyalty but not hardware loyalty. In this scenario, the next time a consumer needs to by a new PC, smartphone, or tablet, they may stay loyal to Microsoft or Google, but said hardware manufacturer must now compete for that customer each time they go back to buy new hardware.

Building out the downside of platform loyalty for the hardware manufacturer comes with it the other challenge of licensing someone else’s software. Your competitors may also license that software which makes standing out or differentiating much more difficult. It is this differentiation, which must go beyond hardware, that can begin to create customer loyalty. But when all your competitors, not named Apple, are running the same software as you, it makes it difficult to stand out in a crowd. I call this the sea of sameness and its getting bigger and deeper every year. Standing out in the sea of sameness is the biggest downside of licensing someone else’s software.

This is why there must be and there will be consolidation in the hardware side of this industry. The current players can not keep going the route they are going forever. Companies may make a go at building their own OS, but they risk losing time and resources to the dominant players. The platform providers like Microsoft and Google, may also start making more of their own hardware, which will complicate matters even further and cause consolidation to happen even faster.

These are certainly tricky waters to navigate and for those who have done this before they are in uncharted territory. The companies that survive the turbulent waters of the sea of sameness will either sail through or sink with the flag of Google or Microsoft mounted high on their mast.

webOS: Phil McKinney Hopes Third Time Could Be the Charm

Photo of Phil McKinney (HP)

webOS is the best mobile operating system that never really had a chance. It was developed by a struggling Palm but sank under the weight  of poor execution and inadequate capital. Hewlett-Packard acquired it with great hopes and even greater ambitions, but top management intrigue  undermined and ultimately killed the project. With the code released to open source, it languished for the past year and a half, unused except for the occasional hobbyist experiment, until its surprise purchase by LG, which plans to use it in televisions and other devices.

Is there really hope that the Korean electronics makers can revive an operating system that maintains an intense, if small, fan base. One expert who thinks it might is Phil McKinney, president and CEO of CableLabs, the cable industry’s research arm. McKinney was CTO of HP’s Personal Systems Group at the time of the Palm acquisition and was one of the architects of the aborted plan to make webOS a full-fledged rival to Google’s Android and Apple’s iOS

“The attraction of webOS is that it is HTML5 to the core,” McKinney said in an interview. “It’s a great platform for all kinds of systems. Early on, there was interest from TV manufacturers and other to find a way to use it.” Despite sitting on the shelf for many months, McKinney says “a lot of the features are still advanced. It has true multi-taking, a great multi-application user interface, and a notification system that was years ahead of Apple and Android.”

The big question in McKinney’s mind is whether LG can assemble right the team of engineers, make the required investments, and give it the breathing room it needs to deliver results. “Will LG put the resources behind it? Can they get the expertise?”  he asks. “If they thing they are buying it all tied up with a bow and ready to go, they aren;t right. Innovation always takes longer than you anticipate.”

McKinney, who at HP had dreams of webOS running seamlessly on everything from cellphones to PC desktops, hopes LG in in it for the long haul. “Every time I tweet about webOS I get flooded with emails. There’s still a lot of passion out there. I’m still a fan. It’s a great platform.”

 

Asus FonePad Phone Functionality not as Odd as it Seems

20130226-074657.jpgAfter having spent a few days in Barcelona at this year’s Mobile World Congress, I have had the chance to play around with a few mobile “toys”. A few of these devices caught my eye and the Asus FonePad was interesting not in form factor, but utility. The FonePad is essentially a 7″ Android tablet that makes phone calls. The phone usage model has been the butt of jokes, particularly when holding the tablet u to your face to make a phone call. After seeing the tablet and thinking of future applications, it’s not as silly as it seems.

As a tablet alone, the Asus FonePad is relatively straight forward 7″ Android Jelly bean tablet. The graphics resolution isn’t spectacular at 1,280×800 but in line with other low cost tablets. It also offers storage upgradability, which is a nice feature the Nexus 7 doesn’t offer. The biggest differentiator is the inclusion of a 3G phone, and when priced at $249, provides a real interesting value proposition. This is particularly true as 5″ smartphones can cost $699 unsubsidized.

Let me drill into the phone functionality.

Backup Phone

Too many people focus on the phone functionality as a primary phone…. but it doesn’t have to be the primary phone. The PadFone could make a decent backup phone if your primary has run out of batteries. When I travel, I undoubtedly run out of battery power on my primary device and scramble for a Mophie charger or a power cord. I’d prefer to eject my SIM and put it into my tablet. Sometimes while on a call and while charging, the phone will run out of power and interrupts the call. I’d much rather put my SIM in my tablet.

Primary Phone

It is a little harder to think of the PadFone as your primary device, but there are certain use cases, phone features, and demographics where it cold make sense. Let me dive into those.

Headphone user Many people don’t put the head up to their ear and opt for a headset. I am one of those. I use a high quality cabled headphones. Others prefer Bluetooth enabled headsets. The worst case is that if they lose their headphones they can put the PadFone up to their ear.

Purse or murse carrier– A 7” tablet for most people puts it out of range to comfortably place in a pocket. Some carry 7” in their back pockets or put it in their coat pocket, but most don’t. Anyone who carries a purse or murse (man purse) won’t have an issue, though.

Battery life– Tired of your smartphone running out of batteries? The PadFone gets 9 hours of continuous use, more than a phone, and it makes sense because it has a much larger battery. It could even get more battery life in usage models where the display isn’t lit up because essentially the guts are a phone.

Speakerphone- A good speakerphone typically has two microphones that are spread out to do noise and echo cancellation. The PadPhone is wider than a phone and theoretically could make a much better speakerphone. Tablets also have more area with louder speakers, too, which is better for a speakerphone.

Price– At $249, this is cheaper than almost every smartphone without a subsidy. You would think a larger 7” tablet costs more than a 4-5” phone, but in some cases, it’s the opposite. With more surface area, manufacturers can use less expensive components that are less integrated, cheaper thermal solutions, and even cheaper glass. Smaller and integrated is more expensive. It’s similar to the way desktops were back in the 90’s. They were cheaper than laptops because they could use larger components and were cheaper to assemble.

Summary

More tablets like the Asus PadFone will emerge that blend voice with tablets. Samsung launched the Galaxy 8 that had voice, too. As consumers and business people get more comfortable with this usage model, it will start to become pervasive, particularly as vendors are looking to differentiate their tablets. Just as some said video was to be watched on TVs, not personal media players like the iPod, consumers want to do most of their usage models on multiple devices and not limit themselves, more people will make calls with their tablets. They already make Skype, FaceTime, and Google Hangouts on tablets, so what makes a phone call any different?

 

 

 

The Invasion of Cheap Tablets

Fotolia_42210115_Subscription_Monthly_XXLGiven the massive market demand for tablets and the fundamental shift in consumer sentiment from PCs to tablets, it was only a matter of time before the tablet race to the bottom took place. I wrote about how this was happening in China at rates hard to fully comprehend. It looks like 2013 will be the year cheap tablets start showing up in numbers at retail in mature markets like the US and Europe.

The precedent for these products was already set by the Nexus 7, which has likely been the most successful Android tablet to date. The last data checks I saw at the end of 2012 suggested that the Nexus 7 was selling around 1 million units a month. That may have slowed as of late but I’m sure it is still selling well.

It seems that the sweet spot for Android tablets has been in the sub 8-inch screen size and I don’t see that changing in the short term. At MWC 2013, Samsung and HP have just added more flame to the fire of Android tablets. Samsung is coming out with an 8-inch version of their Note product line and HP is bringing their first Android tablet to market with a 7-inch device called the Slate 7. Pricing and availability is yet to be disclosed on the Samsung Galaxy Note 8.0 but I expect it to be in line and most likely slightly less than the iPad Mini. If it costs more, it’s DOA. HP on the other hand chose to be very aggressive with the pricing of the Slate 7 and will bring it to market at $169 and will be available in April. These are the first of many Android tablets I expect to see in 2013 with 8-inch or smaller screens and at lower cost price points.

The Role of Cheap Tablets

Believe it or not, I believe these products have an important role to play. They will help mature the market for tablets and they will bring low-cost entry points to the Internet into the home.

The market for tablets is still immature. Even though there are now well more than 150 million tablets (mostly iPads) out in the wild, there are still many consumers who have not owned a tablet nor have they deciphered what their needs, wants, and desires are with such products. This understanding is a critical part of the adoption cycle and it requires an understanding of what a product means to a consumer. This is also something that only comes with ownership. Having a plethora of choice around tablets, from small to large as well as varying price points, is a healthy part of product market maturity.

The other role I think these devices play is one of low-cost Internet access points. I’ve stated in previous columns my belief that some tablets in the home will not be personal but will be communal. They will be products anyone can pick up and use and will be likely not tied to one person but perhaps more tied to general entertainment, media, automation, or other general cloud services relevant to the household as a whole rather than one specific person.

Last Friday I pointed out how I am doing this now with more than a dozen tablets in my own home. Everyone has their personal one, which they have customized but since we don’t carry them around with us everywhere, we have communal tablets one can use for web browsing, streaming media, playing games, etc, lying around the house for free access. Low-cost tablets will make experiences like this more a reality.

Winners and Losers

The arrival of low-cost tablets from major brands (especially legacy PC ones) will certainly impact many players in the technology industry–some more than others. In the case of HP, I found this strategy interesting because one of the things a low-cost sub 8-inch tablet does is it continues to emphasize dependence on a traditional PC form factor. By keeping this particular tablet in the low-end both in terms of price and experience they are not in danger of cannibalizing their PC sales, even still, others may cannibalize it for them. Regardless, I actually think this is a smart move for HP in the short term. They need to figure out their software and services add value on top if they want to stay relevant in the long term.

Samsung will keep doing what Samsung does, which is offer a wide range of devices in all shapes and sizes and price points.

The real loser in an invasion of low-cost tablets, in my opinion, is Microsoft. They are just getting started and they have no intention of allowing their customers to compete in the lower end of the tablet spectrum (they don’t even have a 7” tablet offering near coming to market). I expect these low-cost tablets to hurt the adoption of Windows 8 tablets initially but not necessarily in the long run.

Of course that leaves Apple. I’m sure the Apple naysayers and critics will look at all the cheap tablet buzz and assume that this means danger for Apple. I certainly don’t believe that is the case. Apple has no intention on competing with the lowest end of the market. They chose to compete on experience and have proven they can do it extremely well. I also believe they don’t want to price themselves out of the market and will do anything necessary to keep their products affordable. There is a market for cheap but there is also a market for high-value products which are affordable. There is a big difference between cheap and affordable. This strategy alone for Apple can keep their profit share high even if they have smaller market share.

We will see how this all plays out. I’m not sure the degree the current tablet forecasts took into consideration the size and scale of the potential cheap tablet invasion. My gut tells me all the current tablet forecasts for 2013 are still much too conservative.

Why the iPad Needs a File System

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Over at Monday Note, the always perceptive Jean-Louis Gassée writes about how the lack of a true user-accessible file system is holding back more intensive use of the iPad as a creation tool. Jean-Louis has been on this kick for a while, and I couldn’t agree with him more.

My creative process, and I expect many of your workflows too, consists of creating documents by writing original text combined with bits and pieces from a variety of sources, including web pages, image files, Word documents, PDF files, email messages, tweets, and who knows what else. On a Mac or a Windows PC, this is very easy to do, by openeing multiple windows and cutting and pasting between them. The lack of multiple windows can’t easily be overcome on a tablet; at best, you could manage two small windows on the limited display real estate.

But Apple makes this much harder than it has to be by imposing tight restrictions on communications between iOS apps and by denying users access to any sort of listing of files available on the system. There are lots of ways around this, using third-party apps such as SugarSync and Documents to Go, but like all workarounds, the are clumsy, halfway solutions. I love traveling without a laptop, but even writing a simple blog post on an iPad is a lot more challenging that it ought to be.

I like Gassée’s suggestion of a two-tier user interface for the iPad, with the advanced version exposing features such as the file system while the standard mode keeps them hidden. I don’t think Apple would ever offer this–it violates the canon of iOS simplicity–but it sure would be a big help to some of us.

 

Live the Future Now

By nature of what I do for a living, I spend a lot of time thinking about the future. As a part of that exercise I like to employ a tactic I call live the future now. I’ll explain. Part of how I attempt to create a vision for the future and analyze opportunities and weaknesses of solutions is to try to use existing technology to do things I believe we will do in the future. This is why I am currently using tablets in and around my house in ways that seem unorthodox, or “crazy” as some have told me. I’m trying to get a sense of how these devices may evolve. For example I believe someday a tablet computer will exist in every room. They may also be communal and thus may be mounted on walls, refrigerators, in bathrooms, etc. This is why I literally have 15 tablets in some use around my house (or perhaps that is simply how I justify it).

In the early 2000’s, quite a bit of my research focus was the digital home. I spent a lot of time piecing together solutions in an attempt to stream HD videos wirelessly to all my displays in my house (which was 4 at the time) because I knew wireless whole home video would someday be a reality. I used any and all technologies I could get my hands on as I attempted to build the most connected and automated digital home possible. I basically used my own house as a lab. Interestingly, 10 years later and we still aren’t close to mass market commercialization of the digital home I envisioned and tried to create. It was a painful experience trying to create this digital home back then and many man hours were spent connecting DMAs (digital media adapters as they were called), home theatre PCs, 5ghz proprietary line of sight video points, beam antennas, and many more technologies.

This exercise was valuable and it was all based in an attempt to live the future now so I could learn and observe the potential of certain experiences. The point, however, was an attempt at technological ethnography of the mass market of tomorrow.

Understanding the Mass Market of Tomorrow

One of the most critical things any company can do is seek to understand the needs, wants, and desires of their customers of tomorrow. This is generally why RND labs exist. A key component of any RND lab are individuals with a vision of how the mass market may use their innovations based on tomorrow’s customers needs, wants, and desires. This is often done very poorly by many technology companies.

Understanding what the current mass market needs is important for the short term. Understanding the mass market of tomorrow is important for the long term. This practice is at the core of what we do at Creative Strategies, and it is why I engage in the practice of attempting to live our technological future in the present as much as possible.

Different Approaches

There are two approaches a company can take to understand the mass market of tomorrow. One is to do it solely inside the companies walls. Apple does this for example but so does Microsoft and many other technology companies. This model is traditional but as I pointed out above, requires incredible insight and understanding about the future market in order to know what to commercialize and what to scrap. Apple is perhaps one of the only companies who has continually done this well. Some companies may actually test their products with large groups of employees in order to broaden their sample size as well. Palm used to do this, and I am sure many others do this as well.

The other approach, and the one I think is extremely interesting, is Google’s approach. Google does their RND out in public. ChromeBooks and Google Glass are two prime examples of this. These products may have mass market potential, or they may not, but a great way to find out is to test it with people and observe their behaviors and translate that into learnings. Call it market research with the help of the broad public. Things the market likes, keep. Things the market doesn’t like, don’t keep. Testing future products on actual future consumers and learning from their observations is an extremely interesting way to do future use case research. I appreciate that Google does their RND in public. I also applaud their ability to get people to pay for the privilege of doing their homework for them.

Most consumers don’t know what they want until the see it or experience it. It’s extremely hard in internal RND labs to truly understand mass market sentiment. This is why I think Google’s approach is so interesting. Competitors can learn from this and adapt, which is a risk. But I like the direction they are taking. Regardless of your opinion of the products themselves or Google, I like the idea that Google is getting back to its roots.

Does The Rise Of Android’s Market Share Mean The End of Apple’s Profits?

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It’s an article of faith in the Church of Market Share that Android is nearing a tipping point where its market share lead will inevitably turn into a developer share lead, too. ~ John Gruber

Matt Asay, writing for Readwrite Mobile, puts this argument into words in his article entitled: “As iPad’s Market Share Falls, Must Profits Follow?

For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market. Profit share follows market share…

Only, here’s the thing. I HAVE been paying attention to the smartphone market. Perhaps more importantly, Horace Dediu has been too. And as his chart, above, demonstrates, the facts belie the argument that profit share follows market share. Even as Android’s market share has grown by leaps and bounds, Apple’s iPhone profit share has grown too. How can this be?

What’s Really Happening

Here’s what the facts are telling us. First, Android’s growth has not hurt Apple’s profit share. Instead, Android gobbled up all of the profits from the other smart phone manufacturers. Second, Samsung subsequently gobbled up all of the profits from the other Android manufacturers. Samsung now makes as much profit share as the entire mobile industry did five years ago. Third, the iPhone has not only survived the growth of Android’s market share, it has thrived, growing its profit share from 21% in 2008, to 50% in 2010, to 57% at the start of 2011, 73% at the start of 2012, and 72% at the end of 2012. And since the pool of profits has grown dramatically over the past five years, Apple’s profits have too.

What will it take to get Apple’s critics to acknowledge that Apple’s iPhone strategy is actually a raging success rather than the raging failure they constantly portray it to be? Does Apple need to take in 100% of the profits in perpetuity for them to be convinced?

Faulty Analysis

The problem with our obsession with market share is that it rests on two faulty foundations. First, it assumes that every product sold within a category is always just as valuable as another. Second, it assumes that every customer who buys a product is of equal value. These two premises are laughably wrong.

It’s A Mistake To “Pool” all sales together

Are all smartphones or all tablets of equal quality or used in the same way? Hardly. No knowledgable person would argue that they were. Yet when we use market share as our metric, we assume exactly that.

Kiddie pools and above-ground pools and in-ground pools are all considered to be “pools”. But does the sale of one necessarily impact on the sale of another? Sandals and dress shoes and winter boots are all considered to be “shoes”. But does the sale of one necessarily impact the sale of another? Similarly, when we lump all types and makes of phones or tablets together, we create a false basis of comparison. Is the iPhone or the iPad really competing with the gray market phones and tablets being sold in China anymore than in-ground pools are competing with kiddie pools or dress shoes are competing with sandals? Just because two products fall within the same category, does not necessarily mean that they are in competition with one another.

Not All Customers Are Equal

“(T)he fundamental flaw in the Church of Market Share doctrine is the assumption that users are users. That one platform with, say, 40 percent market share, must be in a stronger position than another platform with, say, 20 percent market share, simply because a larger number of users is better, period. What Apple has shown with the Mac, and now with the iPhone and iPad, is that all users are not equivalent. Counting only the Mac, Apple is not the biggest PC maker by unit share. But it is by far the most profitable, quarter after quarter, year after year. What’s more important than a company’s share of the overall market is the company’s share of the profitable side of the overall market.” ~ John Gruber

The fact that customers are not of equal value is so fundamental that I shouldn’t even have to say it. There are whole industries and entire fields of learning devoted to the art of finding the right customer for the right company or product. Not only do companies target preferred customers, but they actively shun customers who are counter-productive too. Yet when we use market share as our metric, we assume that a customer is a customer is a customer. Nothing could be further from the truth.

For example, I might be an ideal customer for Krispy Kreme Donuts. But I might be a lousy customer for Victoria’s Secret. (This is because I stopped wearing frilly lady’s underwear years and years ago. You can confirm this with my parole officer who will totally back me up on this.)

Being a bad customer is not the same thing as being a bad person. Good people can be bad customers. But being a customer is not the same thing as being a good customer either.

Does Market Share Matter To Apple?

Absolutely. Take a gander at this critique of Apple from Steve Jobs:

“At the critical juncture […], when (Apple) should have gone for market share, they went for profits.” ~ Steve Jobs

Steve Jobs wanted, and Apple wants, market share. But they want the RIGHT market share. Apple wants customers who are willing to pay for their products. And Apple wants customers who are good for their platform. In other words, Apple wants market share in their target demographic. Based on the fact that Apple is taking in 72% of the mobile phone profits with only 8% or 9% of the market share, it sure sounds like they’ve aquired the right market share to me.

Does the rise of Android’s market share mean the end of Apple’s profits? Hardly. You can argue as loudly as you like that developers and profit share must necessarily follow market share. But the facts will shout you down.

Chinese Hacking: What Is To Be Done?

Photo pf People's Liberation Army parade (Wikimedia Commons)

We’ve known for a long time that hackers in China have been responsible for massive intrusions into both government and commercial networks in the U.S. Most recently, the New York Times, Washington Post, and Wall Street Journal all reported sustained Chinese spying on their networks.

Now, working with Mandiant, the firm it hired to investigate the attacks, the Times has collected and published conclusive evidence of official Chinese involvement in the hacking (full Mandiant report here). Specifically, the efforts all seem to be coming from a Shanghai office building that houses People’s Liberation Army Unit 61938.

The question now is what are we going to do about it? And what is the role of the tech industry in dealing with the problem?

Spying is a reality. Countries, even friendly countries, spy on each other. But there are limits to acceptable espionage behavior, and the Chinese has gone well beyond them. The most problematic behavior described in the Mendiant report is the PLA’s role in the theft of massive amounts of intellectual property from U.S. companies, presumably for the benefit of Chinese competitors.

The U.S. government can and should step up efforts to improve Chinese behavior. For a long time, I believed that as Chinese industry developed and Chinese companies began developing valuable IP of their own, the nation would come to have an interest in an international rule of law. This same belief shaped U.S. policy under both Democratic and Republican administrations and was a major reason that the U.S. supported Chinese membership in the World Trade Organization more than a decade ago. It hasn’t worked.

The revelation of the PLA’s role—hardly unexpected—in the attacks may be grounds for a strong demarche from Washington to Bejing, but it is not going to change the fundamental economic and political relationship between the two countries. Our economies are too deeply entangled and our security interests too enmeshed for open hostility to be desirable, or even possible.

So beyond hoping for China to clean up its act, what should we do? The best answer lies in a much better defense, but that is going to require some significant changes in attitudes. Much of U.S. business still is not very serious about information security. Witness the endless vulnerabilities to attacks far less determined and sophisticated than those mounted by government entities. Business, including the tech industry, has mightily resisted any efforts to impose security regulations, but it has failed badly to act on its own. If it takes regulation to get the job done, so be it.

But the government also needs additional weapons in this fight. The reintroduction of the Cyber Intelligence Sharing and Protection Act provides the platform for a healthy debate on the subject. Last year, unfortunately, CISPA became hopelessly conflated with the Stop Online Piracy Act, and the notion has now pervaded much of the tech world that because SOPA was an awful idea, all measures designed to protect IP are bad. There are problems with CISPA, particularly with respect to privacy protections for individuals, but the charge echoed in many quarters of the tech world that it is “son of SOPA” (this, for example, from BoingBoing) are misguided. Instead of mounting knee-jerk opposition, the tech community should work to make it a better bill that will help the government deal with real threats.

The government also needs to refocus its priorities. There has been far too much talk of “cyberwar” and far too little of “cybercrime.” The U.S. does need to act to protect vital infrastructure from electronic attack, but the threat as of now is purely notional. It is hard to imagine a state—even an Iran or a North Korea—committing an act of naked cyber-aggression against the United States, because any serious attack on infrastructure has to be regarded as an act of war. To quote the late Omar Little, “You come at the king, you best not miss.” The chances that any state could successfully launch a knockout cyber-blow are vanishingly small. And it is difficult to conceive of a non-state opponent, which would have less to fear from retaliation, with the wherewithal to do serious damage.

On the other hand, the threats to U.S. assets are real and on-going, and their sponsorship by the government (or the PLA, to the extent there’s a difference) are becoming impossible to deny. If gangs sponsored by the Chinese (or Russian, or Canadian) government were robbing banks in the U.S., you can bet the FBI and the banking industry would be working together to end the assault. A similar concerted effort needs to get top priority, both in Washington and in corporate boardrooms.

The reality is the even the best defense will not completely protect us against the online theft of assets. Attackers have too big an inherent advantage in this game, mostly because it is impossible to fulluy secure systems without destroying their usefulness. But the threats can be mitigated significantly, and it’s time we got cracking.

HTC One, Android Zero

Photo of HTC One (HTV

There was a word missing from HTC’s unveiling of its impressive new HTC One phone. HTC executives talked about the BlinkFeed streaming home screen, the redone Sense user interface, the BoomSound audio system, and the Zoe photo-plus-video app. But there was no mention of the phone’s Android software. Even on the One’s web page, you have to drill down to specs to learn that it runs Android.

This downplaying says a lot about the branding efforts of both HTC and Google. HTC, having come through a very rough patch that saw its market share and profits tumble, is anxious to relaunch itself as a premium smartphone provider. Talking about Android cannot do this; mentioning Android just makes it look like a provider of commodity hardware running commodity software.

So instead, HTC is promoting the One brand as well as the subbrand it has chosen for the proprietary apps and services that it hopes will distinguish itself from the Android pack. HTC isn’t alone. Samsung has established Galaxy as its premium brand and is spending heavily in both development and marketing to establish a unique hardware identity. About the only one promoting Android these days other than Google is Verizon, with its Droid franchise. (Probably not coincidentally, Verizon is the only one of the four major U.S. carriers not offering the HTC One.)

Of course the One does run Android (version 4.1.2, to be precise) and HTC, which doesn’t offer much in software beyond the apps it has developed for the One, needs the Android app ecosystem and the Google Play store to make the phone valuable to users. But HTC’s handling of the announcement makes it clear how much the brand value of Android has eroded even as its market share has grown. For Google, which seems to be struggling to find a way to make money off Android, that cannot be a good thing.

 

The Nvidia Tegra 4i: A Step Forward in Smartphones

Nvidia today announced the Tegra 4i, a smartpone chip with an integrated LTE modem on the same physical die.  This is a follow-on to t4ithe Tegra 4 that was announced at this year’s CES 2013.  Nvidia is making some very bold claims about the Tegra 4i versus Qualcomm’s Snapdragon 800, and while there are no 3rd party benchmarks yet substantiating the performance and efficiency claims, if Nvidia does deliver as promised, they could have something very unique for smartphones.

Today, Qualcomm is the only mobile phone SOC designer who currently offers an integrated LTE solution and they have historically led in different and new communications standards.  Qualcomm also have one of the few ARM architecture licenses, meaning they can optimize their CPU solution as long as they adhere to the ARM instruction set to assure app compatibility. Nvidia has an architecture license for the 64-bit v8 version going forward.  Qualcomm took advantage of integrated LTE in 2012 and were rewarded by their unique offering.  Phone makers, however, rarely like one dominant supplier and that’s where the Nvidia Tegra 4i and the Icera i500 modem come into play.

Let’s dive into the Nvidia Tegra 4i and run down the spec list:

  • Processors: four A9 (latest revision 4) CPUs running at 2.3Ghz plus one power saver core
  • GPU: 60 GPUs (shader units) with Ghz. TBD
  • Modem: integrated i500 LTE solution
  • App-specific processors: camera ISP, video decode, video encode, audio
  • Camera features: similar to the Tegra 4, supporting real-time HDR , tap to track and HDR panorama

With the Tegra 4i, Nvidia will become the only other supplier in 2013 to offer an integrated LTE solution. Integration can mean lower power, lower cost, and smaller package and this is a big deal in itself.  The bigger deal are Nvidia’s performance and efficiency claims and estimates versus Qualcomm’s Snapdragon 800:

  • Tegra 4i is half the die size area of the Qualcomm Snapdragon 800
  • Tegra 4i is 2.7X the CPU performance per mm2 than the Snapdragon 800 on synthetic, integer-based benchmarks
  • Tegra 4i is 1.2X the CPU performance than the Snapdragon 800 on synthetic, integer-based benchmarks

What is absent are GPU, usage model, application and power benchmarks which will need to come later.  Nonetheless, if Nvidia’s estimated do stand true and the synthetic numbers do translate to real-world  usage models, then this is a real step forward for Nvidia. Timing is another area where Qualcomm appears to have an advantage.  Qualcomm said its new silicon would ship in phones in Q3 and Nvidia in Q4.  If this stands true, Nvidia is risking it schedule-wise for the holiday selling season.

So what do we make of the Tegra 4i?  If Nvidia can deliver the goods with an integrated LTE solution at the estimated perfomance levels which extend to real-world usage models, they will have raised their game in smartphones and have the ability to take some share.  Smartphone SOCs are a competitive business, in particular, with continued vertical integration by smartphone makers like Apple, Samsung and Huawei, low-priced SOC vendors like Mediatek delivering the low end, and Intel with a major mobile chip on its shoulder.  Regardless, Nvidia has raised the smartphone SOC stakes for 2013.

Apple’s Penchant for Sophisticated Simplicity

SimplicityI mentioned in an earlier column that I had finally figured out why iOS is the mobile operating system of choice for me. I take the time to objectively look at all the flagship devices on the market. I don’t just use these products for a day or two and then form an opinion but rather I use them as my primary phones, tablets, PCs, etc., for at least a few weeks and sometimes more. However, for me, all roads lead back to iOS. I always go back to my iPhone or iPad. None of the flagship devices I use can keep me from going back to the iPhone or iPad. I think I finally understand why.
 

Simplicity

Sophisticated simplicity is the term I think of when I think of iOS. This is true also of OS X in my opinion but for today I am focusing on iOS. This is perhaps why so many non-tech savvy consumers appreciate and choose the iPhone. Believe it or not there are billions of people on the planet who are not in search of the next big thing in technology. Rarely are the masses looking for the pinnacle of innovation in a product; more often they want things that just work and make their lives easier. To put it succinctly the mass market favors convenience over cool. If that product happens to be incredibly innovative then so be it. But it is not the fact of innovation by itself for which they buy it but rather the problem it solves for them. The mass market hires technology products for reasons that are largely based on convenience not specs. They will favor the technology that helps them get their tasks done in the most convenient, efficient, and simple way possible. Sometimes that task is entertainment, sometimes it is productivity, sometimes it is communication, but the point remains that for many, convenience is what is valuable.

The simplicity of iOS translates into convenience for me and my many mission critical tasks. Yet its simplicity provides a feeling of sophistication that allows me to get very complex things done in an efficient manner. Simple solutions require sophisticated technology. In my opinion, iOS is both.

Sophistication

I spend as much time away from a desk as I do at a desk. For me, it is critical that I stay as productive and efficient as possible while I am mobile. No platform that I have used in recent years has come close to iOS in this regard. It is important to point out that this was not always the case for iOS. In the early days of using the iPhone, I still carried a Windows Mobile device for my more work/productive tasks. Apple caught on and evolved iOS in a way that it is now invading the workforce at unprecedented rates. iOS is not just simple to use it is also extremely sophisticated.

Some thoughts from Steve Jobs at the launch of the iPhone bring clarity to the sophistication of iOS. When Steve Jobs announced the first iPhone, he explained how iOS was based on OS X and because of that it ran desktop class applications. This would explain why time and time again we hear from developers that they are overwhelmingly happy with the quality of applications they can write for iOS. More importantly these applications are extremely sophisticated. They are not simply dumbed down mobile versions of desktop software, but an entirely new class of software all together.

Because I am rarely at my desk doing real “work” it is essential for me that I am able to fulfill my job role any place, any time, and with any device I have with me. The bottom line is I don’t always have my notebook, and I don’t always have my iPad with me. However, I always have my smartphone with me. With every single device and mobile OS I have evaluated, I have never felt as productive or efficient on the go with regards to my specific job functions as I do with iOS. As much as I enjoy and appreciate evaluating other other platforms and as much as other platforms have some things that I truly like, at the end of they day I will choose the device that makes my life and my job easier. For the kind of work I do and the manner in which I get things done, other platforms I’ve tried require more work and more time than it takes to do the same thing on iOS. That alone makes the choice easy for me. I don’t want to work for my smart devices, I want them to work for me.

For Me and Maybe Not You

Now I’m sure at this point many passionate fans of other platforms want to point out all the reasons why their platform of choice is better than mine—but let’s remember one thing. Just because your favorite color is green doesn’t mean mine has to be also. Just because you like BMWs doesn’t mean I have to as well. Insert any analogy you like here. The best device is the one you chose for specific reasons unique to your wants. The best device for me is the one that meets my individual needs, wants, and desires. Yours may be different and that is ok. We don’t live in a black and white world and I hope we never do. I fully acknowledge and appreciate the benefits of other products. I also know no device is perfect. But for me, time after time, device after device in which I put through the the paces of my personal life and workflow, all roads lead back to iOS.

Apple iWatch vs Google Glasses and the Next UI Battle

iStock_000021284452XSmallRumors of the Apple iWatch continue to sprout. Google Glasses will soon be for sale. The “Internet of Things” and wearable computers are quickly transitioning from the realm of science fiction into our everyday reality. Very soon, sensors throughout our homes, on our pets and possibly inside our bodies, all monitored or even controlled by our smartphone, will be the norm. Imagine now if these were ad-subsidized devices, like Android or Kindle, offering no escape from the latest marketing pitch or sponsored social media update. Is this a tolerable future?

While many analysts doubt the ability of Apple to maintain its margins in the face of stiff competition from the likes of Google and Amazon, companies that sell hardware at cost and make it up on advertising and ‘content’, I think the opposite is true: We are on the cusp of a world where personal computing hardware will become increasingly more important and more profitable. This favors Apple. Moreover, as hardware and computing become increasingly smaller and more personal, the Google business model, which fully relies upon advertising, may simply become too intrusive to tolerate.

Tim Cook recently said Apple is not a hardware company. With iTunes and iCloud, retail, services and accessories revenue, Cook is technically correct. Nonetheless, Apple makes most of its revenues directly from hardware. Google CEO Larry Page prefers talking about “moonshots” and driving “10X” changes in our thinking. He doubtless understands, however, that his company makes nearly all its money – and has from the beginning – on advertising. Following the money helps us not only to properly value these companies, but serves as a lens into their future. I suspect we will quickly witness fundamental differences in the design philosophy and user experience from the new wearable computing products coming out of Apple and Google.

The next design battle will almost certainly not be about “skeuomorphism” versus “flat design”. Rather, monetizing hardware, the Apple way, versus monetizing data and advertising, the Google way, will set the stage for this next great battle.

Advertising

As hardware becomes ever-more integrated with our physical self, will we dare rely on lesser hardware that is subsidized by advertising? Maybe. While many may reflexively assume that advertising is always bad, this need not be the case. The promise of Google is that it will provide us with the right information at the right time in the right format for the right device. In some cases, this may be an ad. The problem, of course, is that to succeed with such a mission, every user must hand over to Google an exponentially larger set of personal data, more personal than ever before: where we are, who we are with, what we are doing, how high is our blood pressure, how sad is our mood, how many calories in that muffin we weren’t supposed to eat. When will this become too much?

Intrusion

Advertising is not merely built upon data collection. It also requires interruption – what I call the “intrusive business model”. I think the most potentially intractable problem that Google faces in its quest to create connected, personal hardware devices, one that Apple is liberated from, is the fundamentally intrusive nature of its business model. We may all “search” for information, but that does not necessarily mean we want to be bombarded with ads. Ads are already everywhere, it seems; within our (free) apps and games, on Google maps, scattered across web pages, inside YouTube videos, and more and more on the Google search page. Where does this end?

I don’t want my Google Glasses, for example, to pop up ads right in my eye, nor have a commercial play some catchy jingle into the sensor I keep in my ear. I don’t want my iWatch clone, for example, to vibrate every time it thinks I might be interested in some deal or datapoint – when in fact, it’s really because the sender – the intruder – is making money off stealing my attention. As computing becomes increasingly more personal, there is a very real chance that Google’s business model becomes increasingly more intrusive.

Apple is almost the exact opposite of intrusive. What is iPad but a beautiful pane of glass that we operate with the touch of a finger. Complexity vanishes. We are free from intrusion. This is the case for Apple software as well. Consider that both iOS and Mac OS place the focus squarely on, well, focus – and not on multitasking, alerts, notifications and other intrusive messaging forms.

Presentation

There is an obvious tension here, and it may favor Google. With Apple products, when you want data, you swipe the screen, for example, or beckon Siri. Consider Android versus iPhone differences. Notifications, reminders, alerts, home screen messages and the like are all much more readily presented and visible with Android. Apple’s model favors waiting for the user to seek and request data. For advertising, I absolutely favor the Apple way. But not all data is advertising. In many instances, we want immediate ‘glanceability’ for real-time information. Sometimes, when the data is truly what we need, we want to be intruded upon. I want my maps app to tell me that the road ahead is jammed – even if I am on the telephone. Or, as in the case of a Fitbit bracelet, for example, I may ultimately want to be reminded over and over again to do my exercise for the day. This form of data intrusion favors Google.

The question for Google, though, is can they truly intrude upon our personal space only when we really want or need the intrusion? For a company that has made all its money over the years by flashing advertisement upon advertisement across every one of our screens, I have serious doubts.

Through patent filings, we know that Apple has been working on wearable computing devices for at least several years. Such devices can continuously record our heart rate, monitor our environment, potentially know us better than our friends and doctors. As our devices learn more and more about us, know more of our likes, habits – and needs – there will be a great debate on when and why to ‘intrude’ upon the user. Google plasters extraneous information across all their products and services because their business model demands this. Crossing that ‘intrusive’ line will likely become too enticing for them, I suspect, pushing more and more users to Apple and its “expensive” hardware. Apple, however, needs to understand that sometimes, in some cases, intrusion is good.

Putting Tablets to Work

logo_tswTablets are rapidly becoming an integral part of many work forces. Fortune 500 companies are deploying them in the tens of thousands and small business everywhere are integrating them into their workflow. The myth that you can’t be productive on a tablet or do “real work” has been de-bunked. In the early days of computing smart people got together and discussed how the desktop computer could be used in work environments to transform the work place and bring analog processes into the digital world. It is for that reason that I am pleased to be involved with the Tablet Strategy West conference happening San Francisco on Wednesday February 20th. Tablets have the potential to impact computing in ways the PC never could. It is for this reason conferences like this are important.

I will be speaking at this event and giving a state of the industry related to tablets. I’ll discuss trends, adoption cycles, key business use cases, and more. The conference organizers have been generous enough to offer an 80% discount to the first 20 or so Tech.pinions readers who register. So for those of you on the West coast, if learning and discussing the latest regarding tablets and their role in the market is of interest, then I invite you to come. And of course I’d love to meet and talk with any of our readers, so if you come, seek me out.

Here is the link and use the promo code TP to get an 80% discount.

They will post videos of my session after the event, so even if you can’t make it, I will link to the videos so you can watch my presentation. Hope to see you there.

Spectrum: The Wheels of the FCC Grind Slowly

Dark Side of the Moon album cover

Remember back at CES in January when Federal communications Commission Chairman Julius Genachowski announced a plan to free 195 MHz of spectrum in the 5 gigahertz band for expanded Wi-Fi? I hope you we’re planning on using it anytime soon.

As outlined by wireless guru Steven Crowley, it’s going to be at least 2015 before the new unlicensed spectrum becomes available. The FCC has put a Notice of Proposed Rule Making (FCC-speak for its snail-paced official decision-making process) on the agenda for its Feb. 20 meeting.

One problem is that the FCC shared responsibility for spectrum allocation with the Commerce Dept.’s National Technical Information Administration–and NTIA doesn’t seem terribly enthusiastic about the idea and certainly is in no rush to implement it. The big complication is that  federal government radars and ground-to-air communications systems operate in the 5 GHz band, and any new Wi-Fi uses will have to protect those operations. A preliminary NTIA report of  spectrum allocation warns of interference risks and concludes “that further analysis will be required to determine whether and how the identified risk factors can be mitigated through, for example, the promulgation of new safeguards in addition to the FCC’s existing requirements.” That report is not due until the end of 2014, and then it is anyone’s guess how long it will take for whatever safeguards are recommended to be implemented.

Another threat to the additional Wi-Fi spectrum comes from, of all places, the auto industry. Once of the proposed new Wi-Fi channels is adjacent to spectrum allocated for Dedicated Short-Range Communications, a very promising technology that can be used by cars to communicate with each others and with roadside sensors. The Intelligent Transportation Society of America has written to Genachowski warning of possible interference with DSRC and asking for further study before the expansion of Wi-Fi is approved.

Nobody ever said this spectrum stuff was easy.

The History and Role of Analysts

men-in-suits-hi

Analysts often take a beating by the new media generation. Many simply look at the term analyst and wonder what in the world this community does. More importantly, many in the media use the term analyst liberally and don’t understand the difference between financial and industry analysts. I was one of the first “analysts” that were called computer analysts when I first started. The firm that I am the president of, Creative Strategies Inc. has a deep history in the technology industry as a market intelligence and computing research firm.

Many have come through our company and gone on to bigger and better things. Trip Hawkins was an intern at our company before he was hired away by Steve Jobs and then later started Electronic Arts. One of the founders of my firm went on to start Dataquest, which was later purchased by Gartner. Analysts have and always will play an important role in this industry. Since I often get the feeling that the analyst community is misunderstood, I thought I would take time in this week’s column to explain the history and the role of technology industry analysts.

Doing this job for 31 years has been fascinating. It has allowed me to literally watch the PC industry develop from its birth and chronicle, as well as analyze it, through its major growth phases.

The Early Days of Computing

I joined Creative Strategies in 1981, the year IBM introduced their PC and became one of the first PC industry analysts in the market place. In fact, in 1981 there were no PC analysts when I first started and the few of us who got the title of PC analyst were given this because most of us were mini-computer analysts or IT researchers and were asked to include PCs in our analytical and research coverage.

The first IBM “analyst” event I went to in Boca Raton, FL was not even actually an analyst’s event, as we know it today but could be consider one of the earliest personal computer analyst events. All of the analysts invited, who were 5 in total, were from major market research firms who covered computers in general and all were professional analysts newly saddled with covering the Personal Computer. The event was designed to show us how their PC could help business’s with the goal of us being better informed to help our industry and IT clients understand what a PC was as well as its current and future potential.

Two years later, when Compaq introduced their PC, I was invited to their first analyst event in Houston and six of us analysts were asked to join them at an extremely private event with their president and co-founder Rod Canion, and Compaq’s major financer, Ben Rosen. It turned out to be an intimate discussion about why they decided to build a PC and take on giant IBM and to help us explain to our IT customers why Compaq should be taken seriously.

During the next five years the PC gained momentum and demand for information from research companies like ours rose. During this time I started traveling around 100K miles a year to meet with just about everyone in the PC supply chain, specialized PC sales outfits like Businessland, and even early IT customers using PCs, with the goal of understanding the role and impact of PCs in the market. During this time I also authored industry reports on hard disk drives, desktop publishing, portable computing and multimedia as part of our work to inform our customers about the role of PCs in the overall marketplace whether it be used for business or by consumers.

The Analysts Role

Traditionally, the job of being a PC analyst was defined by professional researchers who were drafted to add PCs to their research portfolios and are today represented by companies like Creative Strategies, IDC, Gartner, Forrester, Strategy Analytics, NPD / DisplaySearch, to name just a few. Our role as analysts is to study the industry and all of its parts. We seek to understand markets, products, solutions, adoption cycles, trends, and core strategies that impact the current and future market. We use this data and information to generate market intelligence and forecast trends related to the overall computer industry. However, we do not recommend or attempt to influence stocks. In fact, most of us on the industry analyst side can’t and won’t hold tech stocks in order to maintain our objective positions on companies we study.

Many tech companies subscribe to the services of industry analysts in order to keep a wide view of the market. Most companies are knee deep in heads down execution. An industry analyst’s job is to always keep their head up, looking and researching everything they can that is related to their core areas of expertise and focus. Their job is to be as informed as possible so that when called upon, they can use their data and research to help customers who need clear and concise analysis related to the markets they care about. This data is often used in companies internal planning process.

The job of researching the market and recommending stocks goes to another important analytical community known as financial analysts. Most of these analysts are also professional researchers whose job is to study specific companies and determine their strategy and growth potential and if their customers should buy or sell stocks in these companies. They play a key role in the overall stock market and are very important to the investment community as they provide the kind of data that is needed to make smart and calculated decisions for those who put money into the stock market. An interesting side note to this is that financial analysts often query all of us industry analysts and they use some of our research and data in their final reports and recommendations.

Analysts seem to get referenced more often in todays times and not always in a positive light. I myself have read some pretty “unique” things financial analysts say out loud but let’s understand one thing about them; some of what they say publicly is a game to throw off competitors at other investment firms. If you read their research notes to the fund managers, many times they are largely different than what is said publically.

Analysts at their best offer insight, perspective, and critical dialogue about key topics in the industry. When done right, this comes from rich experience and a depth of understanding about the areas they are called to shed insight on. This is why the established media outlets often quote industry and financial analysts. The media has often utilized both groups, which have separate roles in the market, as a resource to help add shape, context, and proprietary research to their story. Industry analysts, financial analysts, and journalists will continue to play an important role in the market place. The technology industry keeps getting bigger. The world is moving from an analog one to a digital one. Technology is destined to touch just about every aspect of our business and personal lives. We are all along for the ride and we all have a role to play.

Tim Cook Addresses The State Of Apple

images-43On Tuesday, February 12, Apple CEO Tim Cook spoke at the Goldman Sachs Conference and provided us all with some miscellaneous thoughts on the state of Apple. What follows are my thoughts on his thoughts. (All quotes are from Tim Cook unless otherwise attributed.)

Cannibalization

“The cannibalization question raises its head a lot. The truth is, we really don’t think about it that much. Our basic belief is, if we don’t cannibalize, someone else will. In the case of iPad particularly, I would argue that the Windows PC market is huge and there’s a lot more there to cannibalize then there is of Mac, or of iPad. I think if a company ever begins to use cannibalization as a primary or even a major factor of what products to go to, it’s the beginning of the end.”

Some variation of this statement should be tacked on the wall of every corporate CEO in the world. We live in an age of accelerating disruption. If you don’t constantly seek to disrupt (cannibalize) yourself, someone else will surely do it for you.

Low-Cost Phone

“We are making moves to make things more affordable. When we came out with iPod it was $399, today you can buy an iPod Shuffle for $49. Instead of saying how can we cheapen this iPod to get it lower, we said how can we do a great product, and we were able to do that. The same thing, but in a different concept in some ways.”

Industry watchers should pay particular attention to these words. Notice that Cook didn’t say that the price of the iPod had dropped. Rather, Apple created a wholly new product in the form of the Shuffle that provided a lower cost alternative to the iPod

During the holiday quarter, Apple sold almost every iPhone 5 that they could make. Apple is not going to make a lower cost phone just to make a lower cost phone. Like the Nano and the Shuffle, Apple will make a lower cost product if they can find a way to provide greater value to their customers. But like the Nano and the Shuffle, it’s likely to be a wholly new product, not just a cheaper version of the original.

Apple Retail Stores

“The average store last year was over $50 million in revenue.”

As the chart from Asymco, below, shows, Apple didn’t just make double the per square foot value of the average retail store, they made double the per square foot value of the second best retail store in the world (Tiffany). To say that this is astonishing is to damn with faint praise.

An average of fifty million in revenue, per store. That’s breath taking. There isn’t a CEO in the world who wouldn’t give their eye teeth to have such numbers.

tumblr_mi6lncmDlx1qz4gevo1_500

Demand

“We had a difficult time last quarter with satisfying everyone.”

On January 13, 2013, The Wall Street Journal reported:

“Apple Inc. has cut its component orders for the iPhone 5 because of weaker-than-expected demand, people familiar with the situation said…” ~ Wall Street Journal

Well, “people familiar with the situation” should be embarrassed and the Wall Street Journal should be mortified for printing that poppycock. We now know that Apple couldn’t make iPhone 4, iPhone 5, iPad Mini and iMacs fast enough. Apple’s inability to meet demand may be a problem, but demand most assuredly was not their problem last quarter.

Tablets

“The tablet market will be huge, it will be a huge opportunity for Apple.”

“If you look at the full year last year, there were more iPads sold than HP sold of its entire PC line-up. There has been a sea-change. We’re in the early innings of this game. The projection is that this is going to triple in 4 years. When you think about that, the actual number is 375 million, that’s more PCs than are being sold around the world. The tablet is attracting people who have never owned a PC and people who have owned them but aren’t great in the experience.”

“Sea change” is exactly the right phrase to describe what is happening in computing. The inimitable Horace Dediu commented that: “…iPad revenues were $10.6 billion last quarter. Google revenues (ex-Motorola) were $12 billion and Microsoft’s Windows and Windows Live were $5.9 billion. It won’t be long before iPad will be bigger than both Windows and Google.

Below is a chart showing the relative position of Apple to other tablet manufacturers.

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(Image courtesy of Why Apple Will Continue To Climb)

To put it in a nutshell, no one is better positioned to take advantage of the changeover from notebooks and desktops to tablets than Apple is.

So, to sum up, iPhone revenues already exceed all those of Microsoft and the iPad is about to duplicate that feat. That’s a pretty nice little business you’ve slapped together there, Mr. Cook.

Market Share

“I have no idea what market share is, we’re the only company that really reports the units we sell.”

Does Apple’s market share really matter all that much? Well, let me put it this way. During the past year and a half, Android’s market share numbers have exploded. And what is the price that Apple has had to pay? Apple has INCREASED its profit share from 50% in May 2011 to 72% last quarter. And they’ve done all that while only controlling a total of 7.8% of the mobile handset sales. There isn’t a business in the world that wouldn’t gladly take profit share over market share. And that should be the end of the story.

Of course, the counter-argument is that profits are a trailing indicator and that dominant market share must, inevitably, lead to a dominant platform. Only all the available evidence says just the opposite. Apple has the smaller market share, but they have the dominant platform. In fact, Tim Cook just provided us with 8 billion more pieces of proof to support that claim.

“…we built an ecosystem that is the best in customer experience on the planet. In addition, it’s fueling an incredible economic gain for developers. We’ve paid over $8 billion to developers.”

For those of you who are keeping score at home, that’s a jump of $1 billion in payments to developers in just one month.

Here’s a rule for us all to live by: When our theory conflicts with reality, we should create an alternative theory, not an alternative reality.

(As an aside, if Apple has 72% of the mobile phone profit share with only 7.8% of the market share, then with about 50% market share in tablets, what do you suppose their profit share is?)

Apple’s Achilles Heel

“If you look at skills, Apple is in a unique and unrivaled position. Apple has skills in software, in hardware, and in services. The model of the PC industry, that model’s not working for what consumers want today. Consumers want an elegant experience where the technology flows to the background. The real magic happens at the intersection of these, and Apple has the ability on all three of these spheres to innovate like crazy and really cause magic.”

One of the keys to the Macintosh was its hardware and software integration. One of the keys to the iPod was its integration with iTunes. One of the keys to the iPhone and the iPad was their integration with the App store.

Tim Cook correctly identifies one of the keys to Apple’s future – the integration of hardware, software and services. And he’s right when he suggests that the model of the PC industry is not working for what consumers want today. This is evidenced by the fact that many companies are moving toward a more integrated approach.

However, while Cook states Apple’s integration as a fait accompli, it is, at best, a work in progress. Apple has proven its competency in integrating hardware and software but with services like iCloud, maps, game center, etc., the jury is still out.

It is good that Tim Cook is talking about the integration of hardware, software and services. But whether Apple can deliver on the promise of his words is still an open question. And the future success of the company may well rest on the answer that Apple – and its newly revamped administrative team – provides over the next two years.

Spectrum: Multiplication Beats Addition

Dark Side of the Moon album cover

Martin Cooper recalls the days of mobile radio-telephones before cellular service:

You’d have one station in a city and you could conduct in that city 12 phone calls at one time. During the busy hour, the probability of connecting, of getting a dial tone, was about 10%. Of course, the reason was a city with 12 channels could support perhaps 50 people with reasonable service. They put 1,000 people on it. So the service was abominable.

The solution had been developing for a long time before Cooper made the first cellular call in 1973. Back in 1947, engineers at Bell Labs came up with a scheme for using relatively low-powered transmitters to serve hexagonal cells. With some care and cleverness in assigning channels, the same spectrum could be reused, provided the cells were far enough apart. Over time, AT&T developed the technology that allowed a call to stay connected as a mobile phone moved from one cell to another and Motorola created the mobile handsets. An industry and a new way of life was born.

The sort of subdivision that made the cell phone possible will also enable a vast expansions of the amount of data that wireless networks can carry without a commensurate increase in wireless spectrum. Get ready for heterogeneous networks, or hetnets, that will use a variety of techniques to chop up spectrum and space into smaller chunks that will allow for greater reuse.Get ready for heterogeneous networks, or hetnets, that will use a variety of technologies to boost data capacity.

Wi-Fi handoff will be a key part of the hetnet. It’s being used that way today, albeit in a somewhat random and uncoordinated way. Nearly all Wi-Fi-capable mobile devices are designed to switch to Wi-Fi for data whenever it is available. One big problem, is that the device has only a vague idea of what available means. This works fine when I come home and my devices automatically connect to the network, whose password is in memory. My iPhone connects automatically to AT&T hotspots and my iPad does the same for Verizon.

Many other networks, however, require a login. Sometimes it’s a password that you can enter and it will be remembered from then on. Sometimes its a popup page that just wants you to agree to terms and conditions. And sometimes it’s a page that require a username, a password, and often a credit card number for payment. While these methods vary int he annoyance they cause, all are a serious impediment to a seamless handoff. Even worse, is that your device will try to use a Wi-Fi network to which you haven’t connected, either because you lack a password or don’t care to pay. Sometimes you have to manually turn Wi-Fi off to get your phone or tablet to work properly.

Change is coming, through a technology known as Passpoint or Access Point 2.0. This will allow truly seamless handoffs between cellular and Wi-Fi (and perhaps, in the future, white space) networks, which the device itself providing authentication. The standards are nearing final ratification, Once that happens, says Doug Lodder, vice president for business development of hotpot provider Boingo, “the carriers will run it through their labs and will negotiate roaming agreements. It’s starting to roll out, but we won’t see widespread availability until 2014.”

Small cells. Traditional cell antennas, mounted on towers or other structures, typically serve a radius of from several kilometers to several hundred meters, depending mostly on the height of the tower. Small cells, also known as microcells, picocells, and femtocells, serve ranges from a couple hundred meters down to a few tens of meters. Home femtocells are designed to provide connectivity to otherwise unserved places and connect to the network through a residential broadband connection. But other small cells are a fully managed part of a cellular network, intended to multiply the use of spectrum by chopping areas into very small cells.

You can’t just plop small cells down in areas already covered by standard cell service, at least not using the same frequencies. The Federal Communications commission is proposing that the shared 3500megahertz band be dedicated to small-cell use. Higher frequency signals have shorter range and less ability to penetrate obstructions than the 700 to 2100 megahertz signals typically used for wireless data, making them well suited to small cells.

Small cells, and a related technology known as distributed antenna systems (DAS) have the advantage of making it much easier to provide good coverage inside buildings. As Cooper says, “It’s kind of an anomaly that if you think about it, most of our cellular conversations are in buildings and in offices, because that’s where we spend most of our time. But all the stations that provide services, almost all of them are outside. It’s kind of backwards.” Whereas small cells use multiple miniature access points, not unlike a Wi-Fi network, DAS splits the signal of a single base station among multiple antennas, each serving a small region. “You have smaller pipes, but fewer people attached to each pipe,” says Boingo’s Lodder. A single DAS array can also carry signals for several cellular networks.

Smart antennas. Cellular communication is a broadcast service. A single cell antenna covers, typically a 120° sector of its cell. But smart antenna technology makes it possible to focus that beam and steer the signal to a recipient, allowing closer reuse of spectrum. There has been a lot of research on smart antennas, but limited deployment in the field. A versions, called multi-input, multi-output (MIMO) is used with Wi-Fi and LTE, but the purpose has been more to extend range than to increase spectrum reuse. Smart antennas are one more tool in the engineering toolbox that can allow us to move a lot more data on the spectrum we have.

More wireless data spectrum is always welcome and the growth of demand for bandwidth probably cannot be met entirely within existing spectrum allocations, But new spectrum is getting harder and harder to find and the politics of prying it loose are exhausting and not terribly productive. Our best hope for meeting demand is to do more with what we have. And, fortunately, there is a great deal more that can be done.

Will Gen 3 Chromebooks Finally Hit the Mark?

Now on their third generation, Chromebooks have taken a deserved perceptual and business beating samsungover the last few years. Generation one and two were flawed in many basic ways, with high prices, sluggish performance, and lack of robust off-line capabilities. This makes Lenovo’s and HP’s latest entry into the category all that puzzling. Is their entry into the market an indication that the third generation of Chromebooks will be a success?

When Google introduced the Cr-48 Chromebook prototype in late 2010, hopes were high that the industry would see a viable alternative to the PC notebook. In 2010, most notebooks sold were thick, heavy, with around three hours battery life, and were sold between $499 and 599. The Cr-48 prototype got 9 hours battery life, weighed 3.8 lbs, was less than an inch thick, and came with integrated 3G. Chromebooks promised an inexpensive, enjoyable and simple, connected experience with very fast start times. That’s not exactly what was delivered.

What was delivered was way short of delivering on the value proposition. Prices were as high as a PC at $499, performance was sluggish, had limited storage, limited battery life, and didn’t operate well or at all offline. As expected, the first two generations were only embraced by Samsung and Acer, and only a few consumers actually bought them.

The third generation Chromebook experience is a positive step forward. Compared to the promise, here is how it stacks up.

  • Instant on: almost immediate
  • Google offline capabilities: Drive, Mail, Calendar, Docs, and Slides
  • Prices: between $429 and $199
  • Battery life: between 4 and 6.5 hours
  • Storage: 16GB SSD to 320GB HDD
  • Weight: as low as 2.5 pounds
  • Thickness: as low as .8 inches high

The “feel” is hard to characterize, but generally, with simple apps like Docs in one windows, the experience felt very snappy. Get on a complex web site with lots of J-script, videos and ads, and the experience starts to get very sluggish. It gets even worse as more tabs are added to the experience. Oddly, SD videos purchased off Google Play were very choppy on the Samsung Series 3 but HD YouTube videos were fine. Keyboards have remained solid and some models have even added the caps lock key. I wish there were a delete key, though. With 95% of the world on Windows PC’s this make a lot of sense.

Will all these improvements turn the tides for the Chromebook? No.

The challenge for Chromebooks as a category is that as they are improving their value prop, so are tablets and PCs and the “feel” is compared to a phone. The biggest of these issues is that PCs are improving.

For nearly the same price, consumers can buy a Windows 8 PC that’s nearly as thin, with mores storage, and similar battery life that can run millions of apps. No, you don’t get the crapware or malware, but consumers don’t think like that. Tablets are an issue, too. If a Chromebook cannot replace the PC then it is an add-on to the experience, which then becomes a question of tablet versus Chromebook. Chromebooks are too much like a PC form factor and consumers will choose the tablet.

Chromebooks have improved their value proposition over the three generations but it won’t be enough to significantly provide the boost that it needs to become a credible category. Chromebooks need to make a much more significant jump in utility or a lower price to do that. By adding better performing processors and graphics combined with more offline capability, it could do that, but that’s for the future.

 

Should Apple Make A Larger iPhone?

iphone_bigThere has been chatter of late around Apple’s plans for the iPhone. Some suggest they need to make a more affordable version of the iPhone. Notice I didn’t say cheap. The logic for a more affordable iPhone is that it will open the door to new customers, especially in emerging markets, who can’t afford the high price of an unsubsidized iPhone. There is a lot of merit to this argument and if done right it can be a healthy addition to the iPhone product line.

The other speculation as of late is that Apple could make an even larger iPhone than the current 4” iPhone 5. This would fall into the larger phone category (some call it Phablets) and would give Apple a competitive iPhone for those who desire larger screens in the 4.7-5.5” range. Apple making a larger iPhone is a newer element to the discussion but one that is worth some thought for those of us who analyze competitive trends.

No matter how you slice it, I believe the time has come for Apple to expand the current iPhone line. This would mean releasing two or three current generation devices in the same year each targeted at different audiences. Apple does this now with the Mac line where they have 11”, 13”, and 15” products in their lineup. Arguably they also do this with the iPad line offering both the 4th generation larger screen iPad and the iPad Mini. I believe it is time this same thinking comes to the iPhone.

Although I think the idea of a more affordable iPhone is compelling, if I had to choose the strategy for either the more affordable iPhone or a larger screen size version for the first product to expand the lineup, I would choose the larger iPhone.

My reason for this logic is the ecosystem. As we have learned from Android phones, focusing on the low-end lowers engagement and ecosystem investment. Those who have cost constraints simply don’t spend as much in an ecosystem. A large question looms as to whether iOS would lead those in the cost conscious category to higher engagement or ecosystem investment. But the evidence we have so far is that the lower end of the market uses these devices very different than the tiers above them. And not in ways that lead to loyalty or deeper ecosystem investment.

Ecosystem investment is important to Apple. Horace Deidu and analyst at Asymco tweeted out the following data yesterday:

Also in a tweet earlier than that one Horace estimated that gross margin for iTunes is now 15%-17%. This is why for the current growth trend and competitive strategy for Apple, focusing the iPhone lines on segments who can and will invest in the ecosystem is important.

An expanded current generation iPhone line not only gives more customers a path to Apple’s door, it gives more customers an opportunity to invest in Apple’s ecosystem.

Now turning our attention to the topic of Apple making a larger iPhone. I wrote on Friday about my experience thus far with the Galaxy Note II. I made many conclusions in that article and the primary being that larger phones, those above 5” are actually more tablet like than phone like. Yet the value of a pocketable phone/tablet is apparent. The question that needs answering is whether or not the market for larger phones (Phablets) is big enough for a company looking for mass market products—like Apple— to care about. I believe the answer to that question is yes.

Is The Market Large Enough for Large Phones?

The Galaxy Note I sold about 10 million devices world wide in 2012. They will most likely sell at least 20 million this year and most well reasoned analysis I have seen project a steady growth trend for these larger size smart phones. The reasons are simple.

For many markets people can’t afford a smart phone and a tablet. For many markets, especially emerging ones, a product that can merge the benefits of a phone and a tablet is a compelling value proposition. We all know that the phone capabilities of any device is simply just an app, but the portability or pocket-ability is important for a device that is with us 24/7. This is what makes the larger phones a legitimate category. Just how big a percentage of the overall smartphone market large phones are, is a project I am still undergoing. I believe it is larger than 10% but how much larger I am not yet sure. Even if it is only 10% of the overall growing smartphone base of the next few years, it would be in the hundreds of millions.

For more analysis on the value this form factor brings to market read my column on the Galaxy Note II.

Room to Innovate For Larger Devices

Using the Note II, and for that matter the iPad Mini, has led me to think about those form factors as unique sizes to solve challenges for one-handed operation. 5-7” devices, whether phone or tablet, are still manageable to hold and do some operation with one hand. Samsung included some software around the keyboard and keypad to make one-handed operation easy but the device is still to large for full ease of one-handed operation. I genuinely believe this form factor presents some unique opportunities for innovation.

One way could be by using voice, and in Apple’s case Siri. Our research has continually returned many of the primary use cases for Siri not just being search but also automation. Set reminder, add a calendar event, post to Facebook, send a tweet, set an alarm, etc., are all examples of common automation tasks from heavy Siri users. One simple way to address some of the issues with one-handed operation on larger screen devices will be around voice.

Another is sensors. As sensor technology evolves we will be able to embed these sensors into the bezel of the larger devices. The Galaxy Note II was almost impossible for me to reach the back button with just one hand. The back button is a key function of Android and is needed throughout much of its UI. A sensor solution could allow me to have a back button function by simply taping the side of the device. Scrolling was feasible but not ideal on the Note II. This is also a use case I found was capable with the iPad Mini but not as much with the iPad. Sensors could be embed into the sides of the device and allow a slide of the finger down the side to act as the scroll function. There are many more opportunities for sensor control than I can get into here, but I believe this is an area for innovation and improvement. By Apple innovating to solve some one-handed operation problems for a larger iPhone, they can leverage those innovations for iPad as well.

In a market the size of smartphones, staying competitive will mean offering a range of devices. The smartphone market is mature enough that it has begun to segment. An iPhone designed to serve the market that wants a larger screen, which can add to more productive and more media rich experiences in a pocketable form factor, is a good move in my opinion. One that Apple could do right and again put them years ahead of the competition.

Sony’s decline: Have they eaten the poison Apple?

Sony-and-Apple“Those who cannot remember the past are condemned to repeat it.” – George Santayana, 1905

For today’s history lesson, we’re going to look at two of the biggest names in the tech industry that have risen and fallen in complimentary distribution with one another since the 1980’s. As one company climbed to the top, the other plummeted but now the tides have changed.

I’m talking of course about Sony and Apple, two companies with storied histories that bear some key similarities to each other. In the successes and failures of each company, the brilliance and blunders seem to be passed back and forth. In order to move forward towards the future, we must look back at the past; so let’s take it from the top.

The 1980’s were a strange time in America; MTV, big hair, and the Brat Pack are some of the first things that come to mind when I think of that decade. Of course, the 1980’s also ushered in a new era of technology, and Apple and Sony were at the forefront. In the beginning of the 1980’s, Apple came out strong with a record breaking IPO and the Macintosh computer. Things quickly went south for the computer giant, as infighting and a decline in sales ultimately saw Steve Jobs leave the company in 1985; beginning what many would refer to as “the dark years” at Apple. During that same time, Sony had started the 1980’s with dismal profits during a global recession that saw a drop in electronics sales.

One of the things that saved Sony was its creativity and drive to pioneer new technologies. While it lost the “format wars” between VHS and Betamax, it was able to move past and eventually develop technologies such as the Compact Disc and Walkman. Similarly, it branched out beyond consumer electronics and got into the music and movie publishing industries; creating a revenue stream that would allow it to profit several times over from single products. Its latest demise, however, came from the company aggressively expanding into new businesses and technologies with little communication or collaboration between the departments. The question now is “Will they bounce back?”

Apple was able to bounce back from those “dark years” when Steve Jobs came back. Under his leadership, the company was able to re-focus and re-establish its brand. They were able to focus on creating great products from top to bottom, coupled with a user experience that was second to none. If Sony wishes to recover in the same way Apple did, then perhaps they’ll do the same. Sony’s reach is a bit broader than Apple’s so in order to do that, they’ll need to increase the communication and support between departments. They have all the parts they need to return to the top, they just have to deliver what the customers want. Apple delivered things that consumers wanted before they even knew that they wanted them. Sony’s approach as of late has been more stagnant, where they wait for something to come out and find a way to replicate it.

The sting of a few hard blows to a company can send it reeling and certainly bruise some egos. Sony needs to take a whiff of the smelling salts and come out of the corner swinging. Once they return to their roots of innovation, creativity, and quality they’ll be sure to see success once again.

 

Why I Love My Mac

iMac photo (Apple)My aging 27″ iMac, the system I use most for work, had been acting cranky lately but I was busy and ignored the symptoms–until I couldn’t anymore. On Wednesday evening, I tried to reboot it and it just sat there, twiddling endlessly. With enough patience, I finally got it to boot.  I ran Disk First Aid verify, and when that failed, repair. Still no happiness. But, as you can guess from the headline, this story has a happy ending.

So first thing yesterday, I decided to make a clean backup before heading off for the Mac emergency room, a/k/a the Bethesda Row Apple Store. I had to postpone   my Genius Bar appointment a couple of times because the backup took longer than I expected. When I finally got it in, the young woman at the Genius Bar ran diagnostics and told me that while the drive passed hardware tests and would probably be fixed by reformatting, it was covered by a free replacement policy Apple had put in place for a batch of flaky 1 TB Seagate drives that turned up in iMacs.

The Mac was ready to come home a few hours later, with a new hard drive loaded with OS X Mountain Lion. I went through the preliminary setup, plugged in my Time Machine drive and let the restore run overnight. I had to jump through a few additional hoops, such as reactivating Microsoft Office 2011*, but this morning, it was back to its old happy self.

This experience is the major reason why I continue to use Macs and to recommend them to others. Over the past 20-something years, I have suffered through the failure of many Windows systems and in  every case, getting them fixed and rebuilt was a monumental time-suck of a do-it-yourself job. Even if you back up conscientiously, restoring from a Windows backup is a complicated job that requires both time and skill. At best, you might have a fairly recent system image that will allow restoration of the disk with applications and a more recent incremental backup to restore data.

And, of course, there is nothing like the Apple Store for Windows. Even if I had a convenient Microsoft Store–there’s no full-service store in the state of Maryland–they do not offer the range of services that Apple does. I probably would have spent a day and a half fixing the machine myself had it been a Windows box.

The Apple Store is a huge part of the reason that Macs (and iPhones and iPads) provide a vastly superior customer experience. If you doubt that, head for the Samsung Store or the Google Store the next time you have a problem with your Galaxy S or Nexus 7.

——

*–Reactivating Office could have been a real pain, because it required a product key, something that is becoming an increasingly serious issue as software is downloaded rather than purchased in a box that makes retaining the key easier. Fortunately (and unlike just about any consumer) I was able to retrieve a key from my Microsoft Technet account. Of course, this problem is caused by Microsoft, not Apple. I was pleasantly surprised to discover that  my Adobe Creative Cloud CS 6 applications fired up without licensing glitches.

Opinion Cast: Are Phablet’s For Real? Should Apple Make One?

This week Shawn and Ben discuss Ben’s column about the Galaxy Note 2. Ben goes in to more depth on his thoughts on Phablet’s and what they bring to the table in terms of an experience. We also explore whether or not Apple should get into the large phone market. We tried to stay short and sweet and kept this one to about 15 minutes.

For more context as well read Ben’s article on the Galaxy Note 2.

You can also subscribe to our opinion cast in iTunes here.