News You might have missed: Week of April 20, 2017

ZTE’s Very Bad Week

The U.S. Commerce Department on Monday banned U.S. companies from providing components, software, and other technology to ZTEfor seven years as punishment for violating agreements reached with the US Department of Commerce after ZTE illegally sold phones and equipment to Iran and North Korea. After admitting to busting the sanctions in 2017 and being fined $US1.2 billion, ZTE agreed to take action against employees but failed to do so. The US ban could affect the company’s ability to build smartphones and other equipment because it relies on American processors and Google’s apps.

On Thursday, Jamie Court, president of Los Angeles-based advocacy group Consumer Watchdog, called on ZTE, Google and carriers to tell consumers how the ban will impact their ability to service the Chinese company’s phones. Court also urged consumers not to purchase any ZTE phones until it is clear if they could be updated going forward.

Via Reuters 

  • First, I think it is important to underline the differences between the situation Huawei and ZTE are in. US consumers have been advised not to use Huawei’s products due to security concerns coming from the FBI and the CIA. ZTE has been banned for seven years to be sold any components made in the US including software. This, of course, raises questions about what will happen to current products on the market that are running Android.
  • I do believe the current tension between US and China on trade plays a role in both decisions. It has been interesting to see that the Chinese press started to talk about ZTE relying too much on Western technology.
  • Consumers’ concern with these two vendors should be very different too. There are no allegations on security which impact ZTE. As a current owner or potential buyer, your concern will be having access to future Android software updates. Ideologically, you might also decide you do not want to support a brand that has infringed on an agreement not to provide US technology to Iran and North Korea.
  • ZTE has been doing quite well in the US market in the prepaid and lower end part of the marker and not being able to sell in the US would, of course, hit their revenue numbers.
  • From a chipset perspective, ZTE could turn more to Mediatek but there is no real solution to replace Android on the phones. This would not only impact ZTE in the US market but across all markets with the exception of China
  • From a carrier and retailer perspective, there should be clarity in what they want to do going forward. A clarity that is not there today, at least not on record.
  • When it comes to the US market, ZTE’s weakness should be Motorola’s strength, a brand that is still independent of its Chinese owner and remains very much an American brand.

Amazon’s 100 million Prime Members

Prime – 13 years post-launch, we have exceeded 100 million paid Prime members globally. In 2017 Amazon shipped more than five billion items with Prime worldwide, and more new members joined Prime than in any previous year – both worldwide and in the U.S. Members in the U.S. now receive unlimited free two-day shipping on over 100 million different items. We expanded Prime to Mexico, Singapore, the Netherlands, and Luxembourg, and introduced Business Prime Shipping in the U.S. and Germany. We keep making Prime shipping faster as well, with Prime Free Same-Day and Prime Free One-Day delivery now in more than 8,000 cities and towns. Prime Now is available in more than 50 cities worldwide across nine countries. Prime Day 2017 was our biggest global shopping event ever (until surpassed by Cyber Monday), with more new Prime members joining Prime than any other day in our history.

Via Amazon and SEC 

  • This is the first time that Amazon shares its Prime numbers and people started comparing them to other subscription services across the world:
    • HBO, 142 million
    • Netflix, 125 million
    • Spotify, 71 million
    • Apple Music, 40 million
    • Hulu, 17 million
  • The comparison to Netflix and Apple were the two I found most interesting just because I struggle to see all three delivering the same value and being built on the same premise.
  • The 100 million Prime subscribers on top of delivering revenue through their membership drive considerable revenue for Amazon. According to market-research group Consumer Intelligence Research Partners LLC, Prime members in the US spend $1,00 a year with Amazon, while non-Prime members spend about $700.
  • With Netflix, like for most content company the revenue generated starts and end with the content consumed.
  • Apple is still very much growing its services revenue which remains negligible compared to hardware. What I find interesting is the different role hardware plays when it comes to adding value to the services and the other way around. Take HomePod and iPhone for instance. In my mind, HomePod brings value to Apple Music. In a way, HomePod increases the ARPU or every Apple music subscriber using it. With iPhone, Apple Music, iCloud, iMessage, News all add value to the iPhone.
  • I also feel the perceived return on investment most consumers get from these companies is quite different. My guess would put Amazon on top, then Apple, and lastly Netflix. I think that Netflix is trying to grow that ROI by creating more original content as it knows that content will never be a monopoly but if you create that blockbuster you will have consumers hooked for a long time.
  • As Apple is rumored to be working on a paid news subscription, one has to wonder how far Apple can push. Of course, Apple has all these direct relationships with our credit cards but how far are we prepared to keep on adding to our monthly charges. Will users be happy to see their charges for iCloud, Apple Music, News all spelled out- and realize how much they pay to Apple every month – or would they prefer one charge for all their services?

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Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc, a market intelligence and strategy consulting firm based in Silicon Valley and recognized as one of the premier sources of quantitative and qualitative research and insights in tech. At Creative Strategies, Carolina focuses on consumer tech across the board. From hardware to services, she analyzes today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech, she drove thought leadership research by marrying her deep understanding of global market dynamics with the wealth of data coming from ComTech’s longitudinal studies on smartphones and tablets. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role, she led the forecast and market share teams on smartphones, tablets, and PCs. She spent most of her time advising clients from VC firms, to technology providers, to traditional enterprise clients. Carolina is often quoted as an industry expert and commentator in publications such as The Financial Times, Bloomberg, The New York Times and The Wall Street Journal. She regularly appears on BBC, Bloomberg TV, Fox, NBC News and other networks. Her Twitter account was recently listed in the “101 accounts to follow to make Twitter more interesting” by Wired Italy.

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