Podcast: Microsoft Surface, LeEco, Lenovo, Huawei

on May 27, 2017
Reading Time: 1 minute

This week’s Tech.pinions podcast features Carolina Milanesi, Jan Dawson and Bob O’Donnell discussing numerous events and companies related to China, including Microsoft’s Surface Pro launch in China, Le Eco’s US restructuring, earnings and smartphone shipments from Lenovo, and new PC announcements from Huawei.

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Is Google waiting for Apple to Popularize Mobile AR?

Google search
on May 26, 2017
Reading Time: 3 minutes

Google’s I/O developer conference is interesting because the company covers a lot of ground and talks about a lot of things in the keynotes. As a result, not everything that merits mainstage discussion one year is still top-of-mind for executives a year later. Still, I was somewhat surprised to see how little stage time Tango—Google’s mobile augmented reality technology—got at this year’s event. This despite the fact augmented reality has been a key focus of other recent developer conferences, including Facebook’s F8 and Microsoft’s Build. I can’t help but wonder: Is Google struggling to find progress with Tango or is it just waiting for Apple and its developers to validate the mobile AR market?

Two to Tango
Nearly a year ago, I wrote about Google’s decision to turn Project Tango into a full-fledged initiative at the company. Tango utilizes three cameras and various sensors to create a mobile augmented reality experience you view on the phone screen. By tracking the space around the phone and the device’s movement through that space, Tango lets developers drop objects into the real world. In January, I wrote about my experiences with the first Tango phone from Lenovo and noted that a second phone, from ASUS, was also on the way. More than five months later, Google executives said on stage at I/O that there are still only two announced Tango phones. Worse yet, much of the discussion around the technology was a rehash of previous Tango talking points and the one seemingly new demo failed to work on stage. In fact, aside from a video about using Tango in schools (Expedition AR), Tango’s biggest win at I/O seemed to be the fact Google is using a piece of the technology, dubbed WorldSense, to drive future Daydream virtual reality products.

My experience with Tango back in January showed the technology still had a long way to go, with the device heating up and apps crashing on a regular basis. But it also showed the potential of mobile AR. The fact is, developers can drive a pretty rudimentary mobile AR experience on most any modern smartphone, as the short-lived hype around Pokémon Go proved. But for a great experience, you need the right hardware and you need the right apps. That Google hasn’t seemed to make much progress in either, at least publicly, is surprising, as it would seem to be an area where the company has a substantial head start on Apple’s iOS and iPhone.

Waiting for Apple?
One of the biggest predictions around Apple’s next iPhone is that it will offer some sort of mobile AR experience as a key feature. Apple hasn’t said it will but CEO Tim Cook’s frequent comments about AR, and the company’s string of AR-related acquisitions, certainly point in that direction. Which has me wondering if maybe Google has slowed down on Tango because it needs Apple (and its marketing muscle) to convince consumers they want mobile AR. Or perhaps, more importantly, mobile developers should embrace the technology and create new apps.

Apple will likely ship the next version of the iPhone in September or October of this year. But the company’s Worldwide Developers Conference is happening in just a few weeks. So the question becomes: Does Apple begin to talk about augmented reality experiences on the iPhone now or later? If now, does that mean the company will support AR on existing iPhones or will only the new iPhone support the technology? As I noted last September, the addition of a second camera to the iPhone 7 Plus makes it a reasonable candidate for some AR features.

Chances are, if Apple is planning a big augmented reality push for iPhone, it already has key developers working on apps under non-disclosure agreements. But to drive big momentum, the company will need to get a significant percentage of its existing developer base to support it, too. It will be interesting to see if and what Apple discloses during the big keynote on June 5th. If Apple does put its full weight behind such an initiative, it can move the market. Such a move might jumpstart adjacent interest in Tango.

As for Google in the near-term, Daydream VR is clearly a bigger priority, as the company is working with HTC and Lenovo to bring to market standalone headset products and executives noted that more phones would soon support the technology, including Samsung’s flagship Galaxy S8 and S8+. In fact, Google predicted that, by years’ end, there would be tens of millions of Daydream-capable phones in the market. That’s the kind of scale Google likes and the kind of scale Tango can’t hope to achieve. Yet.

Demographic Changes in TV Consumption

on May 25, 2017
Reading Time: 3 minutes

The shift in how consumers consume entertainment content has been top of mind for us from a research perspective for some years. The fundamental questions and behavioral shifts we have been watching are how consumers are shifting time from live TV experiences to more on-demand ones and what technology/devices are they consuming the different types of content with.

The Battle for Smartphone Growth in the US

on May 25, 2017
Reading Time: 3 minutes

The US smartphone market is maturing rapidly, with the vast majority of US phone users now using smart rather than feature phones. As a result, growth is slowing dramatically. That, in turn, means the vast majority of market share gains will now come from customers switching behavior between vendors and platforms rather than from new users and sales growth will come almost exclusively from switching and upgrades.

Smartphone Base and Sales Growth both Slowing

Growth in the US smartphone base and sales of smartphones are both slowing. The first chart below shows year on year growth in the smartphone base in the US across the five largest operators:

As you can see just over two years ago, we saw 28 million new smartphone users in the base year on year, but that number has now fallen to less than half at just 13 million in the past year. That slower growth itself would already be having an impact on smartphone sales by the carriers, but we’re also seeing a lengthening of the upgrade cycle as people hold onto their phones for longer, both because their phones are becoming better and more reliable and because new payment structures incentivize that behavior. As such, carrier smartphone sales have been falling for several quarters:

That decline really began to kick in after the iPhone 6 bump was over, in Q4 2015, which was the first decline ever in annualized smartphone sales in the US market. But it has continued since then. That’s the result both of the smaller number of new smartphone customers in the market, as seen in the first chart, and the slower upgrade cycles I mentioned.

Upgraders and Switchers Make Up over 90% of Smartphone Sales

What’s even more interesting is if you compare the numbers shown in the two charts to derive the percentage of smartphone sales that go to new buyers versus those upgrading an existing smartphone or switching to a different brand of smartphone. The latter category made up 70% of postpaid smartphone sales in Q3 2013 but over 90% for two of the last three quarters:

In other words, nine out of ten postpaid smartphone sales are now going to people who are replacing an existing smartphone, which means the emphasis for all smartphone vendors in the US should be on two things:

  • Convincing people who have one of your smartphones already to replace it with a newer version
  • Convincing people who own a competing smartphone to switch to one of yours.

It’s no coincidence, therefore, that Tim Cook has mentioned upgrade and switching behavior repeatedly on the last few Apple earnings calls – these two behaviors will make up the bulk of iPhone sales in many markets around the world.

The Value of Driving Faster Upgrades

It also helps to explain why we saw Apple this week launch a new section of its website specifically targeted at switchers from Android. This is where many of Apple’s customers will come from in the future, especially in the US but also in many other markets. It also means smartphone vendors in the US and other mature markets are going to have to make the upgrade argument more explicitly. Given the relatively high loyalty rates for some leading brands, switching is going to make up a minority of total sales and many sales will come from within the base.

In the past, the carriers’ pricing and upgrade policies around smartphones drove people towards a two-year cycle and though that was never the universal pattern, it held true for many people. But now, under the new installment and leasing plans, that default two-year upgrade has gone away and been replaced by an average closer to three years. As such, there’s an enormous amount of additional smartphone sales to be driven by making the case for people to go back to a two-year cycle and for a smaller number to adopt a one-year upgrade cycle.

The value here is obvious – on a base of 100 million phones sold over the last three years, a three-year upgrade cycle suggests 33 million phones sold a year, whereas shortening it by six months to 30 months drives 40 million sales a year. Shortening it by a full year to 24 months would drive 50 million a year. As such, there’s a massive incentive for vendors to drive upgrades and we’re going to see an increasing emphasis on that factor in the coming years across the board.

Arguably, some Android vendors are already trying to drive faster upgrade behavior with poor operating system upgrade support after the first eighteen months or so, while Apple has introduced the iPhone Upgrade Program to drive one-year cycles for at least a portion of its base. Leasing or “device-as-a-service” models like these are going to grow in popularity and they’re increasingly going to be driven by the smartphone makers themselves rather than just the carriers. That also fits with a broader push towards subscription models for nearly everything in our digital lives. We should expect those programs to increasingly layer on other elements including insurance plans for devices, content services, additional devices like wearables, and so on.

Interest in VR is Minimal

on May 24, 2017
Reading Time: 3 minutes

Although I am a big fan of VR and more specifically, its potential for both business and consumers, my belief is that VR as an immersive experience is in its very early stages. I don’t expect VR to be significant outside of key verticals and gaming for at least five to seven years. While I do see VR-based entertainment experiences happening sooner, since Sony and other Hollywood studios hope to create VR theaters and deliver VR movies by 2018, the costs of these headsets and their need for a powerful PC of some type to drive it will keep this out of the hands of mainstream consumers for the foreseeable future.

Millennials will Drive the Digital Transformation of the Workplace

on May 24, 2017
Reading Time: 4 minutes

If you ask ten different organizations what digital transformation is, you will likely get ten different answers. As is often the case, the answer depends on where each organization is in the process of integrating technology into their workflow. Many believe digital transformation means to get rid of paper, which of course is an oversimplification and not entirely the point. Others believe it is about using technology to do the same things we have always done. In other words, much of the focus is on digital and not so much on transformation.

Mobile was a Test Run

Let’s be honest, enterprise did not see mobile coming. Sure, they saw mobile phones but the impact smartphones would have on their IT department and business was never clearly understood until it was upon them. Smartphones were the start of employees’ empowerment. Carrier subsidies took away the cost barrier for the latest technology, making it accessible to the masses and those masses wanted to use that technology at work, not just at home.

“Bring Your Own Device” (BYOD) could have never been a trend when technology was so expensive only a few could afford it. We went from wanting to take home the PC we used at work to bring to work the smartphone we used at home. Smartphones were apps’ Trojan horse. Once we had our phones with us in the office, we wanted to continue to use the same applications and services we used at home. So, to BYOD we added BYOA (“Bring Your Own App”) as it was about the overall experience new mobile platforms such as iOS and Android were delivering.

Most organizations went through three phases: denial, resistance, and acceptance. Denial lasted a few years as devices came through the back door, then came a few years of resistance trying to impose mobile device management tools to limit what users could do, all in the name of security. Finally, we got acceptance with iOS now present in most Fortune 500 organizations recording a satisfaction rate of 96%.

The Rise of Millennials in the Workforce

What played to enterprise’s favor, at least a little, was the fact not everyone in their organizations, especially their C-suites, was quick to adopt these new devices and apps. That digital divide is going away faster and faster as new graduates get hired and younger managers move up the corporate ladders.

According to the U.S Census Bureau, millennials surpassed Generation X as the largest part of the American workforce back in 2015. Projections put millennials as comprising more than one of three adults in America by 2020 and 75% of the workforce by 2025.

It goes without saying millennials are very tech savvy. But the differences with baby boomers do not end there. Research has shown boomers identify their strengths as hardworking, optimistic, and used to navigating in organizations with large corporate hierarchies, rather than flat management structures and teamwork-based job roles. Millennials are quite drastically different: well educated, self-confident, multi-taskers who prefer to work in teams rather than as an individual and have a good work/life balance.

A recent study by Merrill Edge showed millennials have very different priorities in life compared to boomers. With the focus on personal achievements, millennials want to work at their dream job (42% vs. 23%) and travel the world (37% vs. 21%).

What is a Millennial’s Dream Job?

At Creative Strategies, we asked over 1,400 18 to 24 years old in the US what would make them not choose a company to work for after they were offered a job. While 35% were just happy to get a job, 46% would see not being able to work flexible hours as a dealbreaker. 21% would walk away from a job that did not let them use a smartphone for work in conjunction with their laptop or desktop, while another 17% could not tolerate an IT department that restricts what can be done with a smartphone. Finally, 14% could not be in a job that did not offer collaboration practices that fit their desired workflow, such as using apps like Google Docs or Slack, as well as video conference support.

Workflow is different for millennials. Aside from prioritizing collaboration, 65% said their preferred method to communicate is messaging apps. When it comes to collaboration, Google reigns supreme with 81% of US millennials regularly using Google Docs, 62% Google search, 59% Google Mail. Outside of Google, Apple iMessage scored the highest, with 57% of millennials saying they regularly rely on it, followed by Microsoft Word with 51%.

When it comes to devices, given a choice of laptop brands by their employer, there are only two brands that seem to matter: 62% would pick an Apple Mac and 14% would choose a Microsoft Surface Pro. Mobility is also no longer a “nice to have”. 34% of millennials say it is extremely important that the software, services and business processes they use for work are available on mobile as well as on a laptop. Finally, when coming into a job, 46% would prefer to be able to choose what laptop is given to them.

Digital Transformation to Attract and Retain

Transforming your business by embracing technology and the innovation technology empowers when it comes to business models and workflows, is necessary to attract talented employees. If that was not enough of a driver for companies, they should think about where the big spenders will come from. If 75% of the workforce by 2025 will be made up of millennials, where do you think the largest source of revenue will come from for businesses around the US? Where will the buying power be if not with millennials? Businesses will need to embrace digital transformation to deliver what their future customers will want.

The Future of TV: Close but not Here Yet

on May 23, 2017
Reading Time: 5 minutes

I’ve lived an interesting experiment the past two weeks. I signed up for DirecTV Now, Hulu, YouTubeTV, and SlingTV to see what they offered and how it was different from my Dish TV service. For many, cordcutting is possible but, for the masses, I would argue it is not. There are still holes as well as trade-offs many still don’t quite realize. In the end, there are only a few companies I think can win as the service providers of the future and I’ll explain why. Let’s start with how these compare to a traditional TV service from the likes of Comcast, Dish, or DirecTV.

The Digital Car

on May 23, 2017
Reading Time: 4 minutes

The evolution of the modern automobile is arguably one of the most exciting and most important developments in the tech world today. In fact, it’s probably one of the most important business and societal stories we’ve seen in some time.

The leadership at no less venerable a player than Ford Motor Co. obviously felt the same way and just replaced their CEO, despite his long-term tenure with the company, and the record-setting profits he helped drive during his 3-year leadership there. The reason? Not enough progress on advancing the company’s cars forward in the technology domain, particularly with regard to electric vehicles, autonomous driving, and new types of transportation service-focused business models.

As has been noted by many, these three capabilities—electrification, autonomy, and cars as a service—are considered the key trends driving the auto market today and into the future, at least as far as Wall Street is concerned. In reality, the picture isn’t nearly that simple, but it is clear that tech industry-driven initiatives are driving the agenda for today’s carmakers. And it’s pushing many of them into uncomfortable positions.

It turns out, however, that in spite of the importance of this critical evolution of automobiles, this is one of those issues that’s a lot harder to overcome than it first appears.

Part of the problem is that as cars have advanced, and various technologies have been integrated into them, they’ve evolved into these enormously complex machines. Today’s automobiles have as many as 150 programmable computing elements (often called ECUs or Electronic Control Units), surprisingly large (and heavy) amounts of wiring, numerous different types of electronic signaling and interconnect buses, and up to 100 millions of lines of software, in addition to the thousands of mechanical parts required to run a car. Frankly, it’s somewhat of a miracle that modern cars run as well as they do, although reports of technical glitches and other problems in newer cars do seem to be on the rise.

In addition to the mechanical and computer architecture complexity of the cars themselves, the organizational and business model complexity of today’s car companies and the entire auto supply chain also contribute to the problem. Having evolved over the 100+ year history of the automotive industry, the system of multiple Tier 1 suppliers, such as Harman, Delphi, Bosch and others, buying components from Tier 2 and 3 suppliers down the chain and car brand OEMs (such as Ford) piecing together multiple sub-systems from different combinations of Tier 1s to build their cars is notoriously complex.

But toss in the fact that there are often groups within the car maker that are specifically responsible for a given ECU (such as, say, heating, a/c and other “comfort” controls) and whose jobs may be at risk if someone suggests that the company changes to a simpler architecture in which they combined the functionality of multiple ECUs into a smaller, more manageable number and, well, you get the picture.

If ever there was an industry ripe for disruption, and if ever there was an industry in need of a tech overhaul, the automotive industry is it. That’s why many traditional carmakers are concerned, and why many tech companies are salivating at a chance to get a piece of the multi-trillion (yes, with a “t”) dollar global automotive industry.

It’s also why companies like Tesla have made such a splash. Despite their very modest sales, they’re seen as a credible attempt to drive the kind of technological and organizational disruption that many people believe is necessary to transform the automotive industry. In truth, however, because of the inherent and ingrained nature of the auto supply chain, even Tesla has to follow many of the conventions of multiple Tier 1 suppliers, etc., that its rivals use. The problem is that deeply embedded.

But even as those issues get addressed, they are really just a prelude to yet more innovations and opportunities for disruption. Like many modern computing devices—and, to be clear, that’s what today’s cars have become—the technological and business model for autos is slowly but surely moving towards a software and services-focused approach. In other words, we’re moving towards the software-defined “digital car.”

In order for that to happen, several key challenges need to be addressed. Most importantly, major enhancements in automotive security—both through architectural changes and software-driven advances—have to occur. The potential for life-threatening problems if either standard or autonomous cars get hacked should make this point painfully obvious.

Connectivity options, speed and reliability also have to be improved and that’s where industry-wide efforts like 5G, and specific products from vendors like Qualcomm and Intel can make a difference.

Finally, car companies and critical suppliers need to figure out the kinds of services that consumers will be willing to pay for and deliver platforms and architectures that can enable them. Like many other types of hardware devices, profit margins on cars are not very large, and with the increasing amount of technology they’re going to require, they could even start to shrink. As a result, car companies need to think through different ways of generating income.

Thankfully, a number of both tech startups and established vendors, such as Harman, are working on creating cloud-based platform delivery systems for automotive services that are expected to start bringing these capabilities to life over the next several years.

As with any major transition, the move to a digital car model won’t be easy, fast, or bump-free, but it’s bound to be an interesting ride.

The Case for a Siri Speaker

on May 22, 2017
Reading Time: 3 minutes

Rumors have been circulating Apple will join Amazon and Google and make their own version of a smart speaker to compete with the Echo and Home speakers. Observing the commentary surrounding this rumor has certainly revealed many opinions on the matter, both in favor and against it. I even sense a debate inside Apple on whether a smart speaker is a fad or if it has staying power. I lean in the direction of Apple entering this market and competing with Google and Amazon and would like to make the case this product should exist.

Whole Room Audio
The sales of Bluetooth speakers over the past few years did not get much attention even though it was a growing trend. These small and affordable units hit a pain point for many consumers in that they did not have ample speakers in many places where they wanted to consume their music. Contrary to popular opinions, as these products were starting to gain popularity, most of them rarely left the house and were simply used in rooms where a sound system did not exist (which is most rooms in the average consumer home).

The home environment is very different than the public one. Those who express their pessimism over the smart speaker solutions often misunderstand the average consumer home dynamic. In common rooms like the living room, kitchen, patio, family room, etc., access to music is either very limited or non-existent. Bluetooth speakers filled this void and validated the desire of consumers to have access to music in more rooms of the house.

From the value proposition of whole room audio alone, this would be a smart play for Apple and adding the smarts of Siri opens up a rich ecosystem as well. Apple Music is an example of something that would benefit from this hardware significantly. As every available bit of data we have proves, hardware for Apple drives their services. Hardware built to uniquely take advantage of those services will drive it even further. It is not a stretch to say, if Apple sold a smart speaker, subscriptions to Apple Music would increase significantly due to Apple’s ability to tightly integrate hardware, software, and services.

Siri is always with You and Can always Hear You
One of the arguments against a Siri speaker is you always have your iPhone with you, making the iPhone the proper place for you to always access Siri. The flaw in this argument is, while your iPhone may always be with you, or not far from you, can it always hear you? The answer is no. When my iPhone is in my pocket, accessing Siri doesn’t work. When my iPhone is in the living room and I’m in the kitchen cooking, Siri can’t hear me. The counter-argument posits that Apple Watch or AirPods fill this hole since Apple Watch is always on my wrist or AirPods are in my ear. The reality, however, is not every iPhone owner will own one of those products in the foreseeable future. even if this argument is correct, the question remains: where does my music play?

This is where the home dynamic challenges Apple’s traditional and very individualized view of technology. The home is a shared a common environment, so to say everyone should just listen to their iPhone with headphones or AirPods on while walking around the house is a distorted view of what goes on in the home.

Here again is why the music experience and value of whole room audio alone makes a strong case for a Siri speaker to exist. But the challenge of putting Siri into something that can always hear you remains. A smart speaker can be purpose built to be a better listening device than your smartphone, watch or even earphones can be. This is one reason why the Amazon Echo is perceived as having better natural language processing than Siri. In a quiet, close range environment, Siri understands me as well as the Echo. However, the Echo hears me better in the normal dynamics of the home, thanks to how the microphones are built and tuned.

The Battle for the Smarthome
What smart speakers are showing us is the growing battle for the smart home platform. Voice control has hit its stride as the most convenient way to interact with your smarthome. I’d also add, voice is on the cusp of becoming the mechanism to eliminate the remote with our TV experience.

The battle for the smartphone will be one fought by the number of endpoints in your home which you can interact with in some way. Amazon wants to get an Echo in every room and so does Google. Using the assistant on your phone makes sense in many contexts, however. In the home, having other ways to interact with your smart assistant beyond just your smartphone, smartwatch, or earphones, only increases the potential chances to engage with a smart assistant service.

The goal of companies battling for smart assistant domination should not limit potential chances to engage but extend their assistants far and wide in order to make sure the consumer always has a convenient way to engage. If they don’t, they risk losing key experiences to their competition.

Checking in on China’s Internet Giants

on May 22, 2017
Reading Time: 3 minutes

Three companies dominate Chinese internet life to the extent they have their own acronym – BAT – for Baidu, Alibaba, and Tencent. They’ve also often been compared to US-based equivalents – Google, Amazon/eBay and, to some extent, Facebook respectively. However, in the last couple of years, the massive growth that has characterized each of these companies in the past has been less consistent across the three and it’s worth checking in to see just what’s going on with each of them.

Podcast: Google I/O, IoT World

on May 20, 2017
Reading Time: 1 minute

This week’s Tech.pinions podcast features Ben Bajarin, Carolina Milanesi and Bob O’Donnell discussing Google’s IO event, including details on Google Assistant, Google Home, Android, and AR and VR platforms, along with some brief comments on the recent IoT World conference.

Thanks again to our sponsor, Small.Chat.

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Smallchat harnesses the power of Slack’s customizable notifications and mobile apps to keep you connecting with your customers from any device.

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Data Consumption Continues to Grow. Why Are Network Equipment Makers Struggling?

on May 19, 2017
Reading Time: 4 minutes

Data consumption continues to skyrocket, growing at about 50% per year. Average usage in mobile now exceeds 4GB per month in the US, with video an ever increasing percentage of that. Fixed broadband isn’t standing still either, with the typical Netflixing household consuming north of 200GB per month.

You would think these would be boom times for the major suppliers of network equipment to the operators. This is a market where three players — Ericsson, Nokia, and Huawei — split about $125 billion in annual global mobile network capex. But in reality, Ericsson and Nokia have been struggling of late and the forecast isn’t all that favorable. Ericsson’s mobile network business declined 10%+ in 2016 and they forecast a decline of 2-6% for 2017, indicating in their annual report that the addressable market for networks is flat to down 2% in the 2016-2018 period. Nokia’s numbers are a bit better, in part because 2016 was the first year of full reporting post the Lucent acquisition, but they nevertheless project flat-ish sales for networks this year. Cisco has had a rough time of it as well, announcing a cut of 1,100 workers this week, on top of a 7% workforce reduction in 2016. By contrast, Huawei’s revenues from network operators grew 24% in 2016, although nearly 60% of that business comes from Asia-Pacific (40% China).

Given the continued robust growth in data consumption, why is the network business so crummy and will the picture get any brighter? It is difficult to find any one reason for the relatively flat market. Our analysis boils it down to six broad factors.

1. The global nature of the business. The major suppliers do business in 100+ countries and with hundreds of operators. There are some parts of the world where network spend has gone way off. In Europe, for example, much of the 4G LTE buildout is complete but follow-on work, related to increases in network capacity, has not been as robust as anticipated. Additionally, the macroeconomic environment in certain regions, such as the Middle East and Latin/South America, has been challenging. There has also been operator consolidation in large markets, such as India, which has affected the addressable market.

2. Their share in growth markets under-indexes. The major 4G LTE buildouts in markets where Ericsson and Nokia are strongest, such as North America and Western Europe, have peaked, and those markets are now driven more by harder to project capacity enhancements and small cell deployments. Huawei’s share is stronger in geographies where there is still a large 3G/4G buildout.

3. Network operator revenues have flattened. The U.S. market is symptomatic. Although there is continued growth in data consumption, prices have declined and mobile revenues are not growing. This is playing out similarly in numerous geographies, putting put pressure on capex spend, with operators pushing their vendors harder on price.

4. The Huawei factor. We don’t see this in the US market because Huawei has been largely kept out of the network equipment business here but Huawei has taken significant share from Ericsson and Nokia and has also been very aggressive on price. Huawei now leads the global market, with 30% share, compared to 28% for Ericsson and 24% for Nokia, according to Dell’Oro Group.

5. Not capturing fair share of the fixed broadband market. Although mobile capex is flat to down in some markets, fixed line (broadband) capex is seeing an uptick, driven by fiber deployments, DOCSIS 3.1 upgrades and, in some geographies, spending on G.fast and PON. Ericsson and Nokia’s share in fixed under-index that of mobile. Nokia’s recent acquisition of Gainspeed is a signal of its efforts to grow that market segment.

6. Cost structure has not kept up with network transformation. We are in the early innings of a major transformation in networks from a hardware to a software-driven model. This impacts the equipment suppliers in three ways: they need to lower their cost structure, evolve the skill set of their workforce, and recognize that the competitive playing field will expand.

Even though the picture is currently mixed, with Ericsson especially under some pressure, I am bullish on the long-term prospects. I’ve spent time with senior level executives at the major equipment suppliers in recent months and they all recognize the business will be fundamentally different in five years than it is today.

In some ways, we’re in a bit of a ‘pause period’ before the next big wave of opportunity. First is IoT and the ability to connect the billions of devices that are projected. This market is materializing but growing more slowly and more unevenly than thought. So it’s a long game. Second, the transformation from hardware to software. The suppliers will have to keep in lockstep with their customers, the operators, on this one, and capture their fair share of this market going forward, which will undoubtedly feature a larger and more competitive playing field. There is still lots of work to be done to determine how to price for a software/cloud/network slice world. Third, a lot of resources are starting to be devoted to 5G, but it will be a couple of years before 5G-related spending begins in earnest. Finally, with much of the growth in traffic coming from video, equipment suppliers will need new technologies and offers to capture their fair share of this opportunity.

This transformation will also involve a new suite of potential customers, partners, and competitors. The Ericssons and Nokias of the world will need to do more business with major ‘webscale’ companies, such as Google, Facebook, and Amazon. A more open, software-centric network environment means there will be more competitors and lower barriers to entry but also the opportunity to partner with best of breed firms. Ericsson and Cisco are still, for example, in the early innings of their partnership. Another example is managed services and the broader world of OSS/BSS, where the network equipment suppliers will have to take share from (or work with) firms such as Amdocs, IBM, Accenture, and Oracle.

The future of the network equipment market won’t be one where three firms carve up some 80%+ of the revenues. But there’s plenty of market opportunity, as long as they capture their fair share.

Google’s Fading Focus on Android

on May 18, 2017
Reading Time: 4 minutes

Google is holding its I/O developer conference this week and Wednesday morning saw the opening day keynote where it has traditionally announced all the big news for the event. What was notable about this year’s event, though, was what short shrift Android – arguably its major developer platform – received at the keynote and that feels indicative of a shift in Google’s strategy.

Android – The First to Two Billion

One of the first things Google CEO Sundar Pichai did when he got up on stage to welcome attendees was run through a list of numbers relating to the usage of the company’s major services. He reiterated Google has seven properties with over a billion monthly active users but also said several others are rapidly growing, including Google Drive with over 800 million and Got Photos with over 500 million. But the biggest number of all was the number of active Android devices, which passed two billion earlier this week. Now, that isn’t the same as saying it has two billion monthly active users, since some of those devices will belong to the same users as others (e.g. tablets and smartphones), while others may be powering corporate or unmanned devices. But Android is a massive platform for Google and arguably the property with the broadest reach.

Cross-platform Apps and Tools at the Forefront

Yet, Android was given only a secondary role in the keynote, a pattern that arguably began last year. Part of the reason is Google has been releasing new versions of Android earlier in the year than before, giving developers a preview weeks before I/O and then fleshing out details for both developers and users at the event, rather than revealing lots of brand new information. But another big reason is a concession to two realities that have become increasingly apparent over time. First, Google recognizes it’s lost control over the smartphone version of Android, as OEMs and carriers continue to overlay their own apps and services but also slow the spread of new versions. It takes almost two years for new versions of Android to reach half the base. Second, Google also recognizes its ad business can’t depend merely on Android users because a large portion of the total and a majority of the most attractive and valuable users are on other platforms, mostly iOS.

Together, those realities have driven Google to de-emphasize its own mobile operating system as a source of value and competitive differentiation and, instead, to focus on apps and services that exist independently of it. As such, the first hour of Google’s I/O keynote this year was entirely focused on things disconnected from Android, such as the company’s broad investment in AI and machine learning, but also specific applications like the Google Assistant and Google Photos. No transcript is available at the time I’m writing this, but I would wager one of the most frequently repeated phrases during that first hour was “available on Android and iOS” because that felt like the mantra of the morning: broadly available services, not the advantage of using Android. As Carolina pointed out in her piece yesterday, that’s not a stance unique to Google – it was a big theme for Microsoft last week too.

Short Shrift for Android

But for developers who came wanting to hear what’s new with Android, the platform the vast majority of them actually develop for, it must have made for an interesting first 75 minutes or so before Google finally got around to talking about its mobile OS and, even then, not until after talking about YouTube, which has almost zero developer relevance. When it did, Android still got very little attention, with under ten minutes spent on the core smartphone version. Android lead Dave Burke rattled through recent advances in the non-smartphone versions of Android first, including partner adoption of the Wear, Auto, TV, and Things variants, and one brief mention of Chromebooks and ChromeOS.

The user-facing features of Android O feel very much more like catch up than true competitive advantages. In most cases, they’re matching features already available elsewhere or offsetting some of the disadvantages Android has always labored under by being an “open” OS, including better memory management required by its multitasking approach or improved security required by its open approach to apps. From a developer perspective, there were some strong improvements, including better tools for figuring out how apps are performing and how to improve that, support for the Kotlin programming language, and neural network functionality.

A New Emerging Markets Push

Perhaps the most interesting part of the Android presentation was the segment focused on emerging markets, where Android is the dominant platform due to its affordability and in spite of its performance rather than because of it. The reality is Android at this point, stripped of much of its role as a competitive differentiator for Google, has fallen back into the role of expanding the addressable market for Google services. That means optimization for emerging markets.

Android One was a previous effort aimed at both serving those markets better and locking down Android more tightly but it arguably failed in both respects. It’s now having another go with what’s currently called Android Go. This approach seems far more likely to be successful, mostly because it’s truly optimized for these markets and will emphasize not only Google and its OEMs’ roles but those of developers too. That last group is critical for ensuring Android serves emerging market users well and Google is giving them both the incentives and the tools to do better. I love its Building for Billions tagline, which fits with the real purpose of building both devices and apps for the next several billion users, almost all of which will be in these markets.

Google’s Machine Learning Backbone

on May 18, 2017
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Last year at Google I/O, the term AI was thrown around frequently. This year, Google didn’t use AI as much during their opening keynote but they did use the term machine learning much more. It was a subtle but important shift, which speaks to how Google is orienting themselves around their mission statement to “organize the world’s data”.

How to Think about Windows 10 S

on May 17, 2017
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A few weeks ago, I went to NYC to be at the Windows 10 S launch. Leading up to the event, there had been many rumors floating around about a potential new OS from Microsoft on the horizon aimed at education that would take on Google’s Chrome OS. Various rumors suggested it would be called Windows Cloud or be a “skinny” version of Windows.

Everybody Wants a Bite of iOS, Apple remains Mostly Self-Contained

on May 17, 2017
Reading Time: 4 minutes

A few hours after publishing this column, Google could be announcing that Google Assistant is going to iOS. Last week, Microsoft announced several new features for Windows 10 Fall Creator Edition, such as Pick Up Where You Left Off and OneDrive Files on Demand, will be available on iOS.

Everybody wants a piece of iOS or better, everybody wants to get to the most valuable consumers out there. You’ve heard this before — Apple customers are very valuable. You only have to look at what they spend on hardware and the growing revenue they drive at the App Store and subscription services to get an idea as to why other ecosystem owners might want to get to them.

Not Having a Horse in the Race makes You Free

When your main source of revenue is not hardware to be device, and, to some extent, platform agnostic, becomes so much easier. For Microsoft and Google, the core business revolves around cloud and advertizing respectively and, while they sell their own devices as well as monetize from their operating systems, they have made the decision to engage with consumers on iOS.

For Microsoft having Office, OneDrive and Cortana available on iOS and partly on Android allows them to reach more users than they would through their PCs alone. Of course, Microsoft has nothing to lose in mobile, as Windows Phone has never been able to get more than single digit market share in the US. Yet, this tactic is not limited to phones. These apps and services are also available on iPad and Mac, segments where Microsoft and its Windows partners have a very strong interest.

Microsoft’s long-term play was described very well at their Build Conference Keynote with the slogan “Windows 10 PCs heart all devices.” I would have gone a step further and said, “Windows 10 heart all devices” but that would not have been very politically correct towards their partners. Whichever slogan you prefer, the idea behind it is spot on. Let users pick what phone they want to use (or tablet, or wearable) but make sure that, if they have one Windows 10 device, their experience across devices is the best one they could have. By getting the best experience as a consumer, you want to continue to stay engaged and you choose services and apps delivered by Microsoft over what comes pre-installed on the phone.

Google has always had a pretty agnostic platform approach when it came to its apps and services. The experience is often better on Android but it does not mean consumers do not get benefits from using apps and services on other platforms and devices. Google Maps and Chrome might be the best example thus far but soon it might well be Google Assistant. While other platforms might limit how deep of an integration assistants such as Google and Cortana might have, they are still delivering some value to the user and they collect valuable information for the provider.

As we move from a mobile-first to a cloud-first and AI-first world, knowing your users so you can better serve them will be key. Google hoped to do that with Android but, unfortunately, despite million and millions of users owning Android-based devices, it did not provide the return Google was hoping for. Users of Android simply do not equate to users of Google services. So, making sure to get to the valuable users is key for this next phase, especially as the bond with the user will be so much tighter than any hardware or single service has been able to provide before.

Hardware as a Means to an End

Selling hardware can be a great source of revenue, as Apple can tell you. For Amazon, Google and, to some extent Microsoft, however, hardware is more a means to an end than a source of revenue any of these companies will ever be able to depend on.

Being able to personify or, in this case, objectify, the vision they have for their services and apps is key. Whether it is a home for Alexa and Google Assistant or a TV for Prime Video or an in-car experience for Google Maps, it is important users experience the best implementation of that end to end vision.

Yet, if your business stability does not depend on it, you are not spending marketing dollars to convince buyers to switch their devices or upgrade them. You are instead focusing on delivering the best value wherever you can. As you move to other hardware, however, you take value away. When there is no value left, the hardware itself will look much less appealing to the most demanding users, increasing the risk of churn. Ben Thomson recently made this very point about Apple in China where iPhone users are so engaged with services from local players the value of Apple is reduced compared to what we could experience here in the US where we might subscribe to Apple Music, use Apple Pay and so on.

Follow the Money

So where does this leave Apple and its hardware-centric business model? Well, if you have been paying attention to recent earnings calls, this leaves Apple pivoting from hardware to services, with revenues reaching their highest value yet at $7 billion. App Store revenue is growing 40% year over year with an installed base of subscribers at 165 million customers and Apple Pay transactions are up 450% over 2016.

For now, it does not look like Apple has much to worry about. Not only are the most valuable customers on iOS and macOS but they are engaged with the services and apps on offer. As the offensive from other players intensifies, however, Apple should look at playing a similar game, even if this means opening up some of its services and apps to other platforms.

Microsoft proudly announced last week that iTunes will be coming to the Windows 10 Store. Many were quick to point out that nobody really uses iTunes anymore but that seems to me a very iOS-centric view. There are still many PC users that use iTunes and they represent an untapped opportunity for Apple Music, a service they might not consider using on their phones but, as part of iTunes on their PC, could look very appealing.

There are stickier services like iMessage or Apple Pay and Siri that could drive engagement through other devices. Think about the ability to iMessage on a PC instead of using Skype. Or the option to create an Apple Pay account that works in other browsers. Or Siri that speaks to you through your appliances.

Finding the right balance between too closed or too open is not easy. We know how open can hurt interoperability but we also know how closed can limit growth. This is not about defending. That can be done by making sure to deliver a superior experience on Apple hardware so that, no matter what other apps and services are available, users will never consider anything but what is pre-installed. It’s rather about making sure no opportunity is left untapped which means to go and get the money to be had.

Questions for Google at I/O

on May 16, 2017
Reading Time: 3 minutes

Google is holding its annual I/O developer conference this week in Mountain View, California. Some news of what’s going to be announced is already leaking out but there’s likely quite a bit more to come. With that in mind, here are some questions I’m hoping Google answers at the event, along with a brief explanation of each.

Digital Assistants Drive New Meta-Platform Battle

on May 16, 2017
Reading Time: 3 minutes

In case you hadn’t noticed, the OS platform battle is over.

Oh, and nobody really won, because basically, all the big players did, depending on your perspective. Google has the largest number of people using Android, Apple generates the most income via iOS, and Windows still commands the workplace for Microsoft.

But the stakes are getting much higher for the next looming battle in the tech world. This one will be based around digital assistants, such as Amazon’s Alexa, Apple’s Siri, Microsoft’s Cortana and Google’s Assistant, among others.

While much of the initial focus is, rightfully, around the voice-based computing capabilities of these assistants, I believe we’re going to see these assistants expand into text-driven chatbots, AI-driven autonomous software helpers and, most importantly, de facto digital gateways that end up tieing together a wide range of smart and connected devices.

From smart homes to smart cars, as well as smartphones, PCs and wearables that span both our personal and professional lives, these digital assistants will (ideally) provide the consistent glue that brings together computing, services and much more across many disparate OS platforms. In short, they should be able to make our lives better organized, and our devices and services much easier to use. That’s why these assistants are so strategically important, and why so many other companies—from Facebook to Samsung—are working on their own variations.

Another fascinating aspect of these digital assistants is that they have the potential to completely devalue the underlying platforms on which they run. To put it succinctly, if I can use, say, Alexa across an iPhone, a Windows PC, my smart home components and a future connected car, where does the unique value of iOS or Windows 10 go? Out the door….

This overarching importance and distancing from different platforms is why I refer to these assistants as the pre-eminent example of a “meta-platform”: something that provides the potential for expansion, via both APIs for new software development, and the connectivity of a regular platform, but at a layer “above” a traditional OS.

With that thought in mind, it’s interesting to look at recent data TECHnalysis Research collected as part of a nearly 1,000-person survey of US consumers on usage of digital assistants on smartphones, PCs and, the hottest new entrant, smart speakers such as Amazon’s Alexa and Google Home.

As mentioned earlier, in their present incarnations, these digital assistants are primarily focused on voice-based computing and the kinds of applications that are best-suited for simple voice-driven queries. So, to get a better sense of how these assistants are used, respondents were asked in separate questions how often (or even if) they used digital assistants on smart speakers (such as Amazon Echo), smartphones and PCs. The results were combined into the chart below.

What’s fascinating is that, even though the smart speaker category is relatively new (the Echo is less than 2 years old) and Siri, the first smartphone-based digital assistant, arrived in 2011, it’s clear that people with access to a smart speaker like Echo (around 14% of US households according to the survey results) are using digital assistants significantly more than those with smart phones.

While it’s tempting to suggest that this may be due to the perceived accuracy of the different assistants, in a separate question about accuracy, the rankings for Alexa, Siri and Google’s Assistant were nearly identical, meaning there was no one clear favorite. Instead, these results suggest that a dedicated function device placed in a central location within a home simply invites more usage. Translation: if you want to be relevant in these early stages of the digital assistant battle, you need to have a dedicated smart speaker offering.

Of course, the other challenge is that most people are now increasingly exposed to and use multiple digital assistants from multiple players. In fact, 56% of the respondents acknowledged that they at least occasionally (and some frequently) used multiple assistants, with differing degrees of comfort in making the switch between them. The largest single group, 26%, said they were loyal to and consistently used one assistant and ignored the others, but as competition in this area heats up, those loyalties are likely to be tested.

Digital assistant technology has a long way to go, and their current usage patterns only provide some degree of insight into what their long-term capabilities will be. Nevertheless, it’s clear that the meta-platform battle for digital assistants is going to have a significantly broader and longer-lasting impact than the OS platform battles of yore. That, by itself, will make them essential to watch and understand.

(If you’re interested in learning more about the complete study, please feel free to contact me at bob@technalysisresearch.com.)

The Rich Media Generation

on May 15, 2017
Reading Time: 3 minutes

Studying generations under 30 provides a unique challenge. One of the demographic patterns we observe, around technology in particular, is how habits change with specific life-stages. From a purely anthropologic standpoint this seems obvious. Your habits during your youth/formative years are different than those in the middle of your life and both of those stages are different than the end of your life. What we have to dig into, are the things that become ingrained at a young age and remain constant throughout all life stages.

Wearables and Preventative Health

on May 15, 2017
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When the idea of health and fitness wearables starting hitting the market, I was a critic of the health side. Mostly because I understood the health angle to be more focused on the value proposition of health monitoring for people who knew they had health issues. This is still the case for many people today.

My father, for example, has Type 2 Diabetes and uses his Apple Watch to monitor his blood sugar in real-time. He has written extensively about it and how he uses Apple Watch as a health monitoring tool. Even in our own research of the market, we noticed the trend of people speaking with their doctors and being recommended a Fitbit or Apple Watch to monitor heart rate for irregularities, to make sure they were getting enough exercise to assist in lowering blood pressure or help to strengthen heart health due to a condition. Overall health monitoring is a key part of a wearable’s value today, if you happen to have a condition in need of monitoring.

This was the root of my initial criticism. For myself, mid-thirties and not having any health issues, I didn’t see the value in health monitoring. However, where things start to get really interesting for those of us without health problems is as wearables begin to play a role in preventative health.

A report came out recently from an app called Cardiogram, which is said to predict an irregular heartbeat with up to 97% accuracy. Which becomes interesting if you had not been previously diagnosed with an irregular heartbeat. Having such an app on your Apple Watch can aid in discovering health problems before the person has any symptoms and thus help lead to treatment which can prevent further problems. This is just the tip of the iceberg for how a wearable can aid in preventative health.

I recently went in for my regular checkup with my doctor and she realized my blood pressure was starting to tip toward the hypertension range. This is the kind of thing I learned you don’t want to let go on for too long as it can create heart problems in the future. So I ordered a Bluetooth-connected blood pressure monitor to track my blood pressure throughout the day, something I’ve never done before but I was intent on getting my blood pressure lower and to avoid medication. Fascinatingly, through a process of elimination, I learned that gluten is a key culprit in not just raising my blood pressure but keeping it high. The simple process of eliminating gluten got my blood pressure back down below 120/80. This was something I would have never found out or discovered had I not been monitoring my blood pressure and analyzing what was causing it get and stay high. It was an eye-opening experience in using technology for preventative health.

The next logical step is to embed all these tools to check and monitor our vital signs (heart rate, blood pressure, blood sugar, and more), equip software to do deeper analysis of our data, and machine learning/AI to be proactive about finding things which may be damaging our bodies and organs then notify us so we can make changes to prevent any real damage. Oftentimes, diet is a key factor in disease but many people have no idea what the food they eat is doing to their bodies. Being able to monitor and check our vital signs in real time can lead to those insights and ultimately help humans make lifestyle decisions which can keep them healthier longer and spot diseases which could be prevented if detected early.

We are getting closer to having the technology which can do this. Rumors have been circling that both Apple and Google have been stepping up their initiatives to bring glucose/blood sugar monitoring to their wearable platforms. Friends in the health tech and health sciences have been saying there are promising technological breakthroughs which have happened that can pave the way to bringing blood pressure monitoring to things like Apple Watch in the short-term future as well. As interesting, and valuable, as the Apple Watch and other wearable platforms are today, their ultimate upside will be as they transition from health monitoring to preventative health.

Podcast: Microsoft Build 2017

on May 13, 2017
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This week’s Tech.pinions podcast features Carolina Milanesi, Ben Bajarin and Bob O’Donnell discussing Microsoft’s Build 2017 event and the implications it has on platforms and key technologies like AR and VR.

If you happen to use a podcast aggregator or want to add it to iTunes manually the feed to our podcast is: techpinions.com/feed/podcast

The Windows Opportunity for Qualcomm

on May 12, 2017
Reading Time: 4 minutes

With both Microsoft and Qualcomm publicly discussing the re-emergence of mobile processors from Qualcomm running the Windows consumer desktop operating system, it seems as good a time as any to dissect what this might mean for the industry and the major players involved. Windows 10 running on Qualcomm processor platforms in tablets and notebook form factors brings with it some incredible opportunities for all involved, including the consumers they are targeting, with a focus on areas the Windows+Intel relationship has neglected for some time. But with that comes substantial risk and many avenues of potential conflict when these systems begin to hit the market the end of this year.

The Opportunity
Let’s start with the positive outlook and dive into why the Qualcomm and Windows 10 story makes sense and how both the market and consumers will benefit from this new arrangement. Differentiation is the key to success and Qualcomm is well aware this move into the notebook consumer and enterprise markets requires more than just creating another line item on a CDW quote sheet. Even though the first thought for many analysts will be to measure the effective benefit of power consumption and battery life, for me the most important aspect of Qualcomm’s venture is in connectivity. Each and every mobile platform built with Qualcomm processors, starting with the Snapdragon 835, will ship with a Gigabit-class LTE X16 modem. While a very small and niche market of enterprise users have WAN connectivity today, to the general consumer a cellular-connected notebook is a first.

Depending on how Qualcomm, Microsoft, the partner OEMs and the carriers work this all out, messaging around LTE connectivity at Gigabit-class speeds is a considerable advantage. Not worrying about Wi-Fi hotspots in airports, restaurants, classrooms and offices and instead relying on the same service and capability as your smartphone without the hassle of hotspots will bring about a revolution in the connected notebook. How cell phones changed our expectations of mobile communication, so will the always-connected capability of a Windows 10 machine to business and consumer users.

Battery life advantages should not be overlooked though. The Snapdragon SoC has the potential to draw much less power than the competing Intel Core m3 series of processors if configured correctly while still offering enough performance to alleviate concerns in the Windows environment. Battery life is a key driver of notebook innovation, along with form factor and design, and though details are sparse today, Qualcomm should be able to bring an improvement here.

Though as much of a challenge as an opportunity, Qualcomm has the ability to spurn the Windows RT fiasco with this launch and put products out, with OEM partners, that are seen as high quality. This means good displays, solidly constructed bodies, high-performance I/O, and trackpads that rival the best in the space. All of this is going to be necessary to pull in customers used to the standards of machines like the Dell XPS 13, Microsoft Surface or HP Spectre. Working with partners to avoid low-cost, flimsy feeling hardware re-opens the premise that Qualcomm and ARM-based platforms are viable work machines.

The combination of Gigabit-class LTE connectivity and longer battery life, coupled with Windows 10 (and universal application support) opens a door for Qualcomm to walk thorough and take a seat at the table.

Potential Problems
As much as the connectivity story of Qualcomm and the X16 modem could be the driving force behind adoption based on the reaction and integration with carriers, it could also be a hindrance to consumers. In a space with limited capacity data plans and speeds that get throttled based on usage, not to mention the potential conflicts pending from net neutrality governmental debates, if the data package isn’t sold fairly and easily, consumers could balk. An always-connected device is useless if you have to jump through hoops to get it connected or if the cost is overly prohibitive for any non-executive class buyer.

Even with the leveling off of performance for the Windows notebook market, Qualcomm and Microsoft are going to need to address the question of performance on this hardware. Does the Snapdragon platform have enough horsepower to drive the operating system and its native Windows Store applications? And how does the binary translation/emulation layer affect the user experience for the non-AWP programs? Qualcomm doesn’t have to win in this area, just be close enough to get the job done. The bar will be set at different levels for different target demographics – education, business, casual consumer – but overcoming the previous Windows RT performance stigma should be at the top of Qualcomm’s list.

Another big problem comes from the primary competition here: Intel. Intel has had the notebook space to itself for a very long time but that does not mean it has become complacent. Even though Qualcomm was able to prove to be the better design and architecture for mobile devices, it is moving into Intel’s home turf now. Though the 10nm advantage Qualcomm has with Snapdragon means something, the tight integration of Intel and its in-house manufacturing give it an ability to adapt that few companies in this world can. Taking physical and architectural capability out of the discussion, Intel also has considerable financial and channel advantages over Qualcomm. Marketing funds and inventory balancing are subtle tools utilized throughout the PC market and Qualcomm hasn’t proven it has the ability or desire to engage in the same way.

Ironically, many of my expectations for the Qualcomm and Windows partnership in 2017 will depend on outside forces at work. With the recent announcement of Windows 10 S, a free version of Microsoft’s OS that targets not only low-cost Chromebook competitors but even ~$1000 notebooks for consumers, Qualcomm may feel the need to address the $600+ range of machines with Snapdragon and the sub-$400 market to take advantage of Microsoft’s re-engagement with the education community. Attempting to cover too many areas on initial launch could be a huge drain on resources and I would expect Qualcomm to instead sell a product with premium, and unique, feature sets.

Which leads me to another prediction around carriers. Though nothing has been announced yet, increased competition between all the US and international cellular providers, and the marketing desire to push the value of a Gigabit-class network, should result in multiple players coming in and adopting aggressive pricing and bandwidth strategies for notebook users. If this happens, and Qualcomm and Microsoft can make the purchasing/activation process of LTE-connected Windows 10 notebooks a straightforward and simple process, it could mean the beginning of an entirely new category of productivity hardware.

Microsoft’s Symbolic Shift from Windows to Cloud

on May 11, 2017
Reading Time: 4 minutes

I’m attending Microsoft’s Build developer conference this week and one of the most striking things is the way in which Microsoft has reversed the order of its daily keynotes from past years. Whereas the first-day keynote in the past has focused on Windows and devices, those topics have now been pushed to day two, while cloud and AI dominated Wednesday’s first-day keynote. That’s an administrative shift but an important one symbolically. It represents the broader shift in Microsoft’s business away from its legacy focus on Windows and Office software and towards a cloud- and services-based future.

From Mobile and Cloud First to Intelligent Cloud and Edge

When Satya Nadella took over as CEO of Microsoft, he replaced Steve Ballmer’s Devices and Services mantra with a focus on “mobile first, cloud first“. That was an important strategic shift for a company which had invested, under Ballmer, in building and buying device businesses, and was on the cusp of a big shift to services, but which still largely favored its own devices and platforms over a platform-agnostic approach to those services. Nadella’s new focus said the first priority was making sure Microsoft’s products and services were optimized for mobile (most of which was dominated by Google and Apple from an operating system perspective) and cloud (where Amazon and other companies played major roles and Microsoft’s business was again a minority of the market). That enabled the more aggressive expansion of the Office family to third party devices like iOS and Android, more open sourcing of functionality, the expansion of Azure and AI across platforms, and so on.

Now Nadella is pursuing a new vision, which is about Intelligent Cloud paired with Intelligent Edge. That’s a little less intuitive than the old mobile- and cloud-first vision, so it’s worth exploring a bit. There are several components to this shift. First, mobile is gone, not because it’s no longer relevant but because it’s no longer distinct from the market as a whole: building for mobile is now a given and no longer needs to be explicitly called out, at least in theory. Second, the focus on cloud remains and now expands to the totality of the vision but the cloud component now has two parts to it. First is the classic cloud core – all the servers in data centers around the world, with heavy infrastructure driving massive processing and computer power but the second part is the new and important element. Doing cloud-style processing using traditionally cloud-based processing in edge devices, whether that’s PCs, mobile devices, or tiny low-powered IoT devices like Raspberry Pi.

The benefit of that approach is that “cloud” tasks now no longer need to take place remotely from the devices and services they serve, which can reduce latency, reduce the amount of data that needs to traverse networks, and enable businesses and their processes to be nimbler. On stage at Build, Microsoft demoed an example of this approach centered on a Scandinavian manufacturing machinery company. But it has lots of applications which will start in industrial settings but could eventually spread to other enterprise and even consumer scenarios.

That’s a somewhat unique vision for cloud, with many competitors still largely focused on the large core applications and putting more power into data centers. Apple and Google have, to some extent, been experimenting with doing more machine learning and AI tasks on device in the past year but they’re doing that mostly in their device and OS businesses rather than their cloud businesses. In other words, those efforts are largely separate from their cloud businesses rather than integrated into them. The promise of what Microsoft is doing is a consistent and integrated cloud business that seamlessly works across core and edge elements. To be clear, that’s still the theory rather than the practice at this point even for Microsoft, but it’s a distinct vision.

Cloud as an Enabler of AI

One of the phrases from the analyst meetings Microsoft held ahead of Build earlier this week that stood out to me the most was “Cloud is a warmup act for AI”. The point was that cloud, together with other big architectural and structural shifts in IT, have been enormous and have enabled many things but perhaps most importantly, they have enabled AI to flourish and become truly useful and critical to future innovations. So AI itself was a key second theme from the first-day keynote at Build and one which had some important themes in its own right. Among those were:

  • Democratizing AI – although I don’t think I heard this phrase uttered explicitly on stage, it’s been a consistent theme for Satya Nadella lately. What it really represents is the enablement of AI and machine learning for developers in such a way they don’t need their own expertise in the field to make use of it. That definitely was a theme in the keynote and continues to be an important element of what Microsoft is doing with AI beyond its own use in first-party products like Office
  • Custom Features – another theme of the keynote was enabling customization of image and text recognition for developers so they can train AI and machine learning with their own unique and obscure data sets, again in such a way they don’t need to understand the tasks themselves
  • Automation and Cognitive Skills – one last theme I’ll mention is the combination of steady improvement in core cognitive skills like image and text recognition, language processing, translation, and so on. Microsoft is getting very good at each of these individually but it’s also getting better at putting them together and then providing automated functions like real-time translation, something Microsoft demoed on stage in impressive ways.

Microsoft is certainly one of the leaders currently in AI and especially in the field of enabling generalist developers with AI and machine learning capabilities. I’m always wary of declaring winners in such a complex and broad field but it’s certainly up there with other broad-based leaders like Google and Facebook, while still others like Apple use AI more quietly and in more focused ways to improve their own products.

More to come on Windows and Devices

Microsoft, like Facebook and Google, has two keynotes during its developer events, which is indicative of just how broad its business is at this point and, although Windows and devices have been pushed to day two this year, there will be plenty to talk about in terms of moving Windows 10 forward through the next update later this year, Windows Mixed Reality and HoloLens, and so on. Microsoft isn’t leaving this stuff behind by any stretch of the imagination. But it’s the cloud, AI, and this other cross-platform stuff that’s driving the majority of Microsoft’s growth today, while Windows and devices represent a more flat to declining business financially. Cloud and AI are the future and they’ll enable new functions and features of Windows and devices as we’ll see in the day-two keynote too. The order of those things is perhaps the biggest shift in Microsoft’s business and we’re really starting to see that play out now.

Computing Platforms and Value Creation

on May 11, 2017
Reading Time: 4 minutes

One of the more powerful indicators of an ecosystem that has not only staying power but one that can ward off disruption as well is when a platform creates value for more than just the company that owns it. Perhaps the best modern example of this is Apple’s iOS platform and Microsoft Windows. Each has succeeded a creating a deep and intricate value chain for partners and customers of the platform. Both have an exhaustive list of software and services which are worth the time of the developers and services providers to invest resources into because they provide value back to those investing in the platform.

Should Facebook come under FCC Regulatory Rules in the US for Live Broadcasting?

on May 10, 2017
Reading Time: 3 minutes

Last week, Facebook announced they would hire up to 3,000 people to monitor and scrutinize Facebook Live content and other posts that use Facebook to share or broadcast heinous crimes such as the recent live streaming of a murder and a couple of suicides. Facebook has also been a place where people have posted taped incidents of crimes committed and these live editors would be tasked with catching them and making sure they never see the light of day on Facebook.