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This week’s Tech.pinions podcast features Tim Bajarin and Bob O’Donnell discussing major developments in the semiconductor industry, including the announcement of NVidia’s Turing GPU architecture and the company’s quarterly earnings, the debut of ARM’s CPU roadmap for PCs, the impact of AMD’s new Threadripper CPU and their datacenter plans, and Intel’s new AI developments.
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
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This week Amazon and Microsoft announced the rollout of Alexa and Cortana integration. First discussed publicly one year ago, the collaboration represents an important step forward for smart assistants today and voice as an interface in the future. I’ve been using Alexa to connect to Cortana, and Cortana to connect to Alexa, and while it’s clearly still in the earliest stages of development, it generally works pretty well. The fact that these two companies are working together—and other notables in the category are not—could offer crucial clues about the ways this all plays out over time.
Cortana, Meet Alexa
Enabling the two assistants to talk to each other is straightforward assuming you’re already using both individually. You enable the Cortana skill in the Alexa app and sign into your Microsoft account. Next, you enable Alexa on Cortana and sign into your Amazon account. To engage the “visiting” assistant, you asked the resident one to open the other. So you ask Alexa to “open Cortana” and Cortana to “open Alexa.” In my limited time using the two, I found that accessing Cortana via Alexa on my Echo speaker seemed to work better than accessing Alexa via Cortana on my notebook. Your mileage may vary.
One of the biggest issues right now is that it gets quite cumbersome asking one assistant to open the other so that you can then ask that assistant to do something for you. One of the reasons Alexa has gained such a strong following—and is the dominant smart assistant in our home (four Dots, two Echos, and two Fire tablets and counting)—is because it typically just works. The reason it just works is that Amazon has done a fantastic job of training we Echo users to engage Alexa the right way. It’s done this by sending out weekly emails that detail updates to existing skills as well as introducing new ones. Alexa hasn’t so much learned how we humans want to interact with her. Instead, we’ve adapted to the way she needs us to interact with her.
The issue with accessing Alexa through Cortana is that we lose that simplicity. I found myself trying to remember how I needed to engage Alexa while talking to the microphone on my notebook (Cortana). The muscle memory I’ve built around using Alexa kept getting short-circuited when I tried to access it through Cortana. I suspect this will self-correct with increased usage, but it’s obviously an issue today.
That said, even at this early stage, the potential around this collaboration is clear and powerful.
Blurring of Work and Home
We all know that the lines between our work lives and home lives are less clear than ever before. Most of us use a combination of personal and work devices throughout the day, accessing throughout the day both commercial and consumer apps and services. But when it comes smart assistants, the lines between home and work have remained largely unblurred. As a result, today Amazon has a strong grip on the things I do at home, from setting timers to listening to music to accessing smart-home devices such as connected lightbulbs, thermostats, and security systems. But Alexa know very little about my work life. Here, I’d argue, Microsoft rules, as my company uses Office 365, and Cortana can tap into my Outlook email and calendar, Skype, and LinkedIn among other things.
During my testing, I did things such as ask Alexa to open Cortana and check my most recent Outlook emails, or to access my calendar and read off the meetings scheduled for the next day. Conversely, I asked Cortana to open Alexa and check the setting of my Ecobee smart thermostat and to turn on my Philips Hue lights.
Probably the biggest challenge around this collaboration, once we get past the speed bump of asking one assistant to open another, is the need to discern individual users and then address their privacy and security requirements when working across assistants. Now that I’ve personally linked Alexa and Cortana, anyone in my house can ask Alexa to open Cortana and read off the work emails that previously were accessible only through Cortana (on a password-secured notebook). That’s a security hole they need to fill, and soon. The most obvious way to do this is for each of these assistants to recognize when I am asking for something versus when other members of my household (or visitors) are doing it.
Will Apple, Google, and Samsung Follow?
It makes abundant sense for Amazon and Microsoft to be first into the pool on this level of collaboration. While the two companies obviously compete in many markets, Cortana and Alexa represent an area where I’d argue both sides win by working together. I look forward to seeing where the two take this integration over the next few years.
But what about the other big players? Among the other three serving primarily English-speaking markets, I could imagine Samsung seeing a strong reason to cooperate with others. It’s Bixby trails the others in terms of capabilities, but the company’s hardware installed base is substantial. At present, however, it seems less likely that either Apple with Siri or Google with Google Assistant would be interested in joining forces with others. With a strong position on the devices most people have with them day and night (smartphones), both undoubtedly see little reason to extend an olive branch to the competition. Near-term this might be the right decision from a business perspective. But longer term I’m concerned it will slow progress in the space and lead to high levels of frustration among users who would like to see all of these smart assistants working together.
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Google to Open Retail Store in Chicago
Google is planning a two-level store in Chicago’s Fulton Market district, its first known location for a retail flagship. The technology giant is close to finalizing a lease for almost 14,000 square feet on the first and second floors of several connected, two-story brick buildings between 845 and 853 W. Randolph St., according to sources.
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AMD started off a race of CPU core count when it released the first-generation Ryzen processor back in 2017, pushing out a product with 8 cores and 16 threads, doubling that of the equivalent platform from Intel. It followed that same year with Ryzen Threadripper, an aggressive name for an aggressive product for the high-end enthusiast market and the growing pro-sumer space that combines users looking to do both work and play on personal machines. Threadripper went up to 16 cores and 32 threads, going well above the 10-core designs that Intel offered in the same market space.
AMD was able to do this quickly and cost effectively by double dipping on the development cost of the EPYC server processor. It shared the same socket and processor package design with only a handful of modest modifications to make it usable by end-users and partners. It was putting the pressure on Intel once again, this time in a market that Intel was previously the dominant leader in AND that it had created to begin with. Thus continued the “year of AMD.”
Intel did respond, offering a revision to the Core X-series of processors that reached up to 18 cores and 36 threads, one-upping the AMD hardware in core count and performance. But it did so at a much higher cost; it seemed that Intel was not willing to under cut its own Xeon workstation line in order to return the pressure on AMD. But the battle had started: the war of processor performance and core count had begun.
This month, just a year after the release of the first Threadripper processor, AMD is launching the 2nd generation Threadripper. It utilizes the updated 12nm “Zen+” core design with better clock scaling capability, improved thermal and boost technologies, and lower memory latencies. This is the same core found in the Ryzen 2000-series of processors, but with two or four dies at work rather than a single.
But this time, AMD has divided Threadripper into two sub-categories, the X-series and the WX-series. The X-series peaks with the 2950X and targets the same users and workloads as the first-generation platform including enthusiasts, pro-sumer grade content creators, and even gamers. The core counts reach 16, again the same as the previous generation, but the addition of the “Zen+” design makes this noticeably faster in nearly every facet, with a lower starting price point.
The WX line is more unique. It is going directly after workstation users, as the “W” would imply, with as many as 32 cores and 64 threads on a single processor. Applications that can really utilize that much parallel horsepower are limited to extremely high-end content creation tools, CAD design, CPU-based rendering, and heavy multi-tasking. The WX-series is basically an EPYC processor with half the memory channels and consumer-class motherboards.
Performance on the 2990WX flagship part is getting a lot of attention; mostly positive but with some questions. It obviously cuts through any multi-threaded applications that properly utilize and propagate workloads but it also does well in single threaded tasks thanks to AMD’s Precision Boost 2 capability. There are some instances where applications, even those that had traditionally been known as multi-threaded tests, demonstrate performance hits.
In software where threads may bounce around from core to core, and from NUMA node to NUMA node, results are sometimes lower on the 2990WX than the 2950X even though the WX model has twice the available processing cores. Gaming is one such example – it isn’t heavy enough on the processor to saturate the cores and thus threads move between the four die and two memory controllers occasionally causing a perf hit. AMD has a software-enabled “game mode” for the 2990WX (and the 2950X) to disable one-half or three-quarters of the cores on the part, which alleviates the performance penalty, but adds an extra step of hassle to the process.
Despite the imperfection, the second-generation Threadripper processor has put Intel in a real bind.
If Intel executives were angry last year when the first Threadripper parts were released, taking away the performance crown from Intel even if for a modest amount of time, they are going to be exceptionally mad this time around. AMD now offers content creators and OEMs a 32-core processor in a platform that Intel only provides an 18-core solution and in applications where the horsepower is utilized AMD has a 60%+ performance advantage.
Intel is probably planning a release of its Xeon Scalable-class parts for this same market with a peak 28-core solution to address Threadripper, but this means another expensive branding exercise, new motherboards, a new socket, and more hassle. Intel demonstrated a 28-core processor on stage at Computex but received tremendous blowback for running in an overclocked state and apparently forgoing that information during the showcase.
While there might be a legitimate argument to be made about the usefulness of this many processor cores for a wide range of consumers, there is no doubt that AMD is pushing the market and the technology landscape forward with both this and the previous generation Threadripper launches. Intel is being forced to respond, sometimes quickly and without a lot of tact, but in the end, it means more options and more performance at a lower price than was previously available in the high-end computing space.
It’s good to have competition back once again.
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Over the last few months, I have often written about the idea that AR headsets could be the next big thing in mobile. In a column I wrote on July 16th, I pointed out that I believe Apple, Google and others will create what I call “light headsets” that receive all of its intelligence from a smartphone and the glasses themselves serve as an extension of a smartphone’s display but in a more visually mobile fashion.
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In early August, Tesla CEO, Elon Musk, announced that his company had developed a new AI chip for his Electric cars and claimed that it is ten times faster than the ones they use today from nVidia. When I was at NVIDIA’s spring developers conference, I went to a session on NVIDIA’S AI Xavier processor that is targeted for use in cars. In this session, I learned that at that time, it was the most powerful processor for AI available. When Musk made this statement about his own processor, I assumed he was comparing it to Xavier, and if it were ten times faster than this chip, he would have achieved quite a feat.
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Over the past few weeks, I have been asked a lot whether the prices of smartphones will continue to increase and if such an increase is justified. The success of the iPhone X took those who said people would never pay $1,000 for a phone by surprise. The iPhone X also gave hope to smartphone vendors that, while sales might be capping there is an opportunity to grow average selling price and possibly profits. Yet, the success of the iPhone X must be considered with some caution. Not everybody is prepared to pay that kind of money for a phone, and, even more importantly, not every brand can charge as much.
The Bill of Materials is growing
It should not come as a surprise that the cost of making phones is rising. Smartphones have come to offer as much as a PC does, sometimes even more. Storage, screen quality, more sensors, bigger batteries, premium materials, cameras, and a lot more software. While some of the technologies are well established, so their cost has come down, others are cutting edge and add a fair chunk to the bottom line. Think, for instance, at the different biometric solutions from iris scanning to fingerprint readers.
Let’s look at the two trend setters in the market to see what has been happening over the past year. According to the teardown analysis conducted by IHS Markit, Apple’s total cost to make the iPhone 8 Plus rose to $295.44, $17.78 higher than that of the iPhone 7 Plus. IHS Markit also estimated that the iPhone 8 bill of materials is $247.51, or $9.57 higher than the Phone 7 at the time of release. The Samsung Galaxy S9+ (64GB) carries a bill of materials (BOM) cost of $375.80, much higher than for previous versions of the company’s smartphones. The preliminary estimated total is $43.00 higher than costs for the Galaxy S8+. It is too early for a tear down of the Samsung Note 9 and we know nothing about the iPhone X successor but we know the 64 gigabytes iPhone X model carries a BOM of $370.25 and betting on a higher BOM wouldn’t be a bad idea.
The Return on Investment is High
We understand now why the cost of the phones at the high-end of the spectrum is going up. But why are consumers prepared to pay those rising prices? The answer is in the return users see in the phone they buy.
Smartphones have become a must-have for most. They have replaced other consumers electronics such as MP3 players, digital cameras, video cameras, portable navigation devices as well as some other things like watches, alarms, and wallets. We use them throughout the day, every day, whether we are at home, commuting, at school or at the office. Our dependence has grown so much that we have started to talk about addiction. Whether you are addicted or not, there is no question that a lot of value is given to this thing we carry in our pockets.
Adding to the practical side of what the phone does for us there is a more irrational value we see in these devices. The pictures we store, and for some even the music, offer a deep emotional connection to the piece of hardware. While your computer can store the same things, the phone has the huge advantage of being that thing in your pocket you always pull out, much like you used to do with those pictures in your wallet. Plus as much as your phone is the same as everybody else you feel you made it yours through your pictures, your apps…You now even start to feel that your phone knows you!
No Sticker Shock
The smartphone market is not that different from the car market where the price spectrum is more and more polarized. The higher end is getting more expensive while the lower end is getting cheaper and more reliable.
Moving from contracts to installment plans helped consumer appreciate that not all phones cost $199. But even then, consumers do not have to face the full price of a phone in one go. The biggest increase they see is on the initial payment which includes tax but that percentage on a $100 increase is negligible.
Buyers could object to the price more on principle. It is really, the idea of spending $1000 that seems ridiculous to some. This is precisely where the weight one puts on the usefulness of the device and that emotional connection I mentioned will determine if you are a “you must be kidding me” or a “where do I sign” buyer.
The Power of a Brand
There is also a final component that plays a big role at the high-end and that is brand. The brand is what turns the device into a status symbol, something some consumers are prepared to pay more for. And I am not talking about the technology, the design, the quality that goes into the devices made by these brands. I literally mean the name, the logo.
In the smartphone world, this is true for Apple and Samsung and possibly Google. Consumers see these brands as leaders and are willing to pay more for their products. Other brands, like Huawei or Xiaomi, while getting recognition for their technology advancements or design have not quite earned the right to grow their price tags as much.
How far prices can continue to grow is hard to say, but I do not see this formula of rational plus irrational value and brand change much over the next five years.
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In the business world, technology products and solutions have played an important role in some companies for several decades. In today’s era, however, it’s safe to say that technology plays a critical part in almost every company, regardless of its size. From key infrastructure systems that serve as the backbone of modern commerce to the enormous range of smart devices through which many of us perform our labors, technology’s role has been very impactful.
As a result of their evolution, commercial technology products provide everything from older “legacy” solutions (several of which still play surprisingly important roles in many organizations), to new platforms and solutions that are digitally transforming businesses of all types.
Of course, along with the growing influence and importance of technology in business has come a nearly crushing reliance on it. Obviously, it’s easy to see some major concerns that can stem from this near addiction, but the commercial dependence on technology has also led to an explosion of new ideas, new technologies, new companies, and new products all designed to ensure better, faster, easier, and more reliable access to the tools we need to get our jobs done.
Everything from cloud computing capabilities offered by companies such as Amazon, Microsoft, Google, IBM, SAP, Oracle, and others to ruggedized computing devices like Panasonic’s Toughbooks and Dell’s rugged PCs, there’s an amazing range of products and services designed to ensure that we can do computing however, whenever, and wherever we need to. In fact, there’s even a surprisingly diverse set of “services made up of services” offerings from managed service providers like Rackspace or system integrators like Atos or DXC to help companies that don’t have the expertise or don’t want to deal with the hassle of setting up things like hybrid cloud environments or building the custom applications necessary to keep their organizations competitive.
Part of the challenge for many organizations is figuring out how to deal with the enormous range of devices, platforms, applications, and services that companies of all sizes are now faced with. Gone are the days of limited choices, as device and platform heterogeneity now rule the day in most organizations. This creates challenges not only to manage and maintain the diverse set of devices that people now use for work, but also to provide a consistent set of applications and services that allow people to work together within a company, with partners, or with other related organizations.
The challenge is not just about the devices. The range of different infrastructure types has also grown dramatically. Internal corporate data centers are still an important part of many organizations, but numerous flavors of cloud computing, co-location services, and other interesting alternatives have created an equally varied set of centralized computing resources.
To bridge these worlds, companies are starting to look for solutions that can deliver a consistent set of data and applications to a wide variety of different devices from an equally wide set of infrastructure options. Companies like Citrix and VMWare are tackling this by offering “workspace” services that tie together a suite of applications—regardless of whether they’re simple Windows applications, cloud-based SaaS (Software as a Service) apps, HTML5-driven browser-based apps, or even Android or iOS platform-specific solutions.
These new integrated offerings allow organizations to deploy these environments across a wide range of devices and infrastructure architectures. Essentially, it’s the homogenization of very heterogenous environments. While that may not sound like much, it’s both incredibly difficult to do and incredibly valuable to leverage in the diverse IT environments that even today’s small and medium businesses find themselves in.
The newly released Citrix Workspace, in particular, offers a unified way to deliver applications and data to all employees in an organization, regardless of the unique device and platform combinations they happen to use, as well as the infrastructure environments they have in place. In practical terms, that means those who use everything from Windows PCs, Macbooks, Chromebooks, Android and iOS-based devices can get access to the applications and data they need to get their jobs done. Long-time Citrix users may recognize this as an advancement in the original Citrix Receiver offering, but there are significant security enhancements in Workspace, particularly around the integrated browser for SaaS and browser-based apps, that make it a more practical solution for today’s security-challenged environments.
The idea of bringing any application and any data to any device has been a dream of IT departments and other technology-focused individuals in businesses around the world for some time. The problem is, actually reaching that dream has been significantly harder and has taken significantly longer than most people (and companies) expected. Finally, however, we are at the point that both legacy systems and modern systems are starting to come together in a way that lets employees get access to whatever applications and data they need to get their jobs done on whatever environment(s) their company has chosen to deploy. It’s been a long time coming, but the practical, real-world benefits of a fully integrated computing environment should finally start to be felt very soon.
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I’m fortunate that Tim and Ben provide the opportunity to write about anything technology on this forum. In this column, I want to address two different subjects.
We’ve been convinced that online advertising provides some of the most effective means to sell products. Moreover, based on the success of Google, Facebook and others, we’ve all accepted that premise. We see ads hundreds of time a day as we read the news, visit websites, each tailored to our specific profile and interests based on our browsing habits and other online activities. However, based on my own experience and many of those I’ve talked with, whatever algorithms or rules are being used to figure what ads to show us, are seriously flawed and could be much better.
Two years ago, I visited Harry’s website to read about their razors and blades being sold online. I purchased a starter set and a few months later subscribed. I rarely ever returned other than to check on a shipment. Ever since – for two years running – I see Harry’s ads on my computer, phone, and tablet, morning noon and night. Dozens of times every day. I’ve frequently clicked on the corner of their Google ad where you can report or complain about the ad, and I consistently select “stop seeing this ad” then select the option “seen this ad multiple times,” and get the message from Google “we’ll try not to show this ad again.” However, it seems I only see it more often. I spoke with Harry’s, and their solution is to clear your caches and browsing history, but that hasn’t worked. I’ve also added ad blockers, but these ads are so pernicious, almost like weeds, that they still manage to show up.
If it were only Harry’s, I’d chock it up to some anomaly. However, it’s happened with a few other items as well. The reward I got for buying a pair of Allbirds shoes a year ago now are ads for every kind of shoes most everywhere I go on the web (in between the Harry’s ads). What’s strange is that I don’t see many other ads repeating, as if Google has typed me as someone that shaves and walks.
One of the significant issues in serving up ads that are based on interests is that Google doesn’t know when our interests have been satisfied, either with a purchase or a decision to move on. The exception, of course, is Amazon that knows the difference between looking and buying, and appropriately tailors their ads with that knowledge in mind.
I suppose numbers don’t lie, and Google can prove that their ads tailored for each of us are more effective, but they are also much more annoying than random ads. In fact, they’re creepy at times, messaging us that they know where we were online or what we were thinking about. That can be jarring and interrupts us from reading an article or doing other work online. They grab more attention than random ads, just as they are supposed to do. More effective and more annoying.
A Facebook Solution
Having followed and written about Facebook and the mess they’ve created, it’s very discouraging to see how little Zuckerberg is doing to protect us from interference from the Russians in our upcoming elections. The latest act of contempt is not replacing Alex Stamos, their respected chief of security who, apparently tangled with Zuckerberg and Sandberg about being more transparent and more aggressive in dealing with their problems. Instead, Facebook said, they are spreading the expertise into individual groups. Anyone that understand organizational behavior knows that’s a way of diffusing responsibility and accountability and makes it more difficult to hold executives accountable.
Even if Facebook did take these threats more seriously, it might just be that their basic model can never be adjusted to let in the well-intended advertisers while keeping out the bad players. That’s a terrible thought as we approach November. Perhaps there’s only one solution to prevent a tainted election, based on the long tradition of banning campaigning around voting locations during on election day.
We should consider having Facebook suspend operations 30 days before the mid-term election. Yes, it may sound outlandish. How can a private company be prevented from operating and no one has the authority to make this happen. However, how important is preserving our elections and our democracy? Moreover, does anyone have a better idea that would be equally effective?
Lastly, if there’s a common thread with this column on online ads and Facebook, it’s that it may be time for an Internet and Facebook that’s supported by paid subscription rather than advertising.
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Samsung Unpacked 2018
On Thursday, Samsung held its “unpacked 2018” event in Brooklyn where they announced the Note 9, the Galaxy Watch, a DeX dongle, and they teased the Galaxy Home. A lot was packed in a keynote of just over an hour including an update to Bixby. Rather than summarizing all the product details, I am sharing the links to the press releases and I get straight into my key takeaways for each product
- The Note 9 is an interesting iteration of this product family. The additional colors, the more curved design all point to a product that was initially designed for geeks to a product now trying to expand its reach into more mainstream early tech who value tech but also design. There is certainly more of a blend between the Note and the Galaxy family than there ever was before.
- Samsung regained its confidence and pushed the envelope when it came to battery capacity something that Note users always looked for in their device.
- Overall the Note 9 is a good step up from the previous generation although there is no real breakthrough technology it has a lot of offer to previous Note owners looking for an upgrade.
- As people look at the Note 9 to help Samsung turn its quarterly sales back to growth, it is worth to remember that the Note family has never been a big volume driver but it certainly does impact average ASP. As we see often with the Galaxy S launch and with iPhone, the price reduction on the previous model usually helps with volume. This is why I expect the Note 8, which was a well-received product last year, to play its part as carriers and retailers lower its price.
- There is no doubt that Samsung values the Note 9 users tremendously as DJ Koh highlighted in its open remarks at unpacked. This loyal and highly engaged group is not just important for the revenue it brings but for how it helps Samsung understand their users. Often early adopters are a window into the future of the larger user base, showing what could be tolerated, accepted or loved.
- DJ Koh closed the event with an interesting comment about how hard it is to innovate with an annual cadence and I think the Note 9 might have shown how sometimes technology innovation does not quite aligned with launch cycles. Some commentators pointed to the lack of the under-screen fingerprint reader and 5G both likely to come in time for the Galaxy S10 launch. Of course, the Note 9 is optimized for Advanced LTE which will be available in more markets than 5G will initially be, so from a consumer perspective a better technology to have.
- This cadence does, however, pose an interesting dilemma for Samsung going forward when it comes to keeping the Note line ahead of the Galaxy S line. I would argue the difference between the two products is less and less obvious because the user base is less differentiated. Think about the iPhone X and the iPhone 8/8 Plus buyers. iPhone X might have a slightly higher income and a desire to experiment with new tech but by and large, they are not that different from iPhone 8/8Plus buyers.
- Samsung also added a DeX Dongle to the lineup and rightly positioned Dex as a piece of software, not an accessory. It is the software running on the devices that allows you to connect a Samsung’s phone or tablet to an external monitor or a TV and run apps on the monitor while still having access to the phone or tablet indecently. The dongle form factor increases mobility even further and while one could use a regular HDMI dongle Samsung does not guarantee optimal performance.
- At last Samsung decided to abandon the Gear brand for its watch line! What might have been initially designed as an accessory to a phone is now a device in its own right and one that looks and functions very much like a watch so calling it what it is was the smart choice to make.
- I feel that with this product Samsung finally has a real Apple Watch competitor. The design has improved by getting thinner and less bulky overall and the features offered tick all the must-haves consumers want from a smartwatch: fitness, sleep tracking, stress management, notification and day planning.
- I do not see the fact that Samsung Watch is sticking with Tizen rather than embracing Android Wear as a problem. Most users, even in the Apple Watch pool do not use many apps outside of what comes with the watch. Given how slow Android Wear development has been going, sticking to Tizen has allowed Samsung to move faster and improve more. We will see if this remains the case as we know Qualcomm has an event planned for September 10th which will likely be tied to some Android Wear announcement.
- The Galaxy Watch added stress management with a breathing feature which is quite different from the Apple Watch Breathe App. The concept is quite similar both invite you to take time in your day to breath. While the Apple Watch Breathe App though is something you set as a break throughout the day, Samsung linked the prompts base on your heart rate and activity. I liked this because it shows that Samsung is thinking about software and AI more.
- Samsung is widening its accessory business with a wireless charging pad that can fit a phone and a Watch and adds a whole gamut of watch bands including a very comfortable silicone band. Galaxy Watch can fit a traditional watch strap but Samsung’s have a quick release mechanism that takes the pain of swapping them out.
Bixby and Galaxy Home
- Samsung showed a new and improved Bixby that graduated from a user interface to an assistant role. With improvements to natural language, personalization and usefulness Samsung also shared some of their partnerships with Google Maps, Uber, and other brands that Bixby will be able to access to perform her new assistant role to book a ride or a restaurant.
- The demo on stage worked well but many consumers who gave Bixby a try in the past and had been disappointed might be reluctant to try again. The good news for Samsung is that this new Bixby is rolling out first on the Note 9 and if there is an audience willing to cut Samsung some slack and try Bixby again is this one.
- For more details on how Samsung will be able to scale these partnerships without being left doing all the work we will have to wait for the Samsung’s Developer Conference in early November
- We did not get many details on the Galaxy Home but it should not be a surprise that Samsung is taking a similar approach to Apple putting sound quality first. After all, Samsung can leverage the Harman expertise and street cred in this space.
- Samsung announced a strategic partnership with Spotify that will allow users to link their Samsung’s account to their Spotify account right during setup. The deal extends to a wide range of devices from phones to Watch and TVs, and of course the new Galaxy Home. The account pairing will allow to seamlessly move from one device to another without having to interrupt the music.
- Spotify’s CEO also said on stage that support for Bixby will be added soon. It remains to be seen if data will be shared so that Bixby can get smarter by getting information from all the devices I am using to offer a truly seamless experience
- Of course, at least on paper, this offers Spotify an opportunity to grow its user base in the US, where Apple recently took the leadership position in paid subscription. The Street seemed excited about the prospects of the deal and Spotify’s shares rose nearly 5 percent Thursday, rising over 8 points to close at $187.38 per share.
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- At the start of the event, DJ Koh, who has been leading the Mobile Division since 2015 and became a co-CEO in 2017, thanked the Note Users but also highlighted Samsung’s vision of bringing all their devices together to provide a better experience for the users. We started hearing about this last year at the Samsung Developer Conference and then again at CES this year. What was interesting this time was that Mr. Koh talked about the competition and their desire to put their interest before those of their customers and that Samsung was going to engage in innovation that delivered value to its users. There was also a clear message on Privacy and Security, a message that echoed Apple but also a message that has very solid foundations in KnoX.
- This was the first time DJ Koh spoke about what the company stands for and what they want to focus on. It was a welcome change and I hope we will get to hear more.
- Samsung is in a fortunate and unfortunate position of not being an American company. Fortunate, as Samsung will not be dragged into the current trade war between China and US while Apple might be. Unfortunate, because DJ Koh and other executives do not have the ear of the press as much as Apple’s executives have – when they want to. This makes it harder to create more of a connection between users and brand.
I’ve been studying the Indian smartphone market for many years now, watching it closely as it grew into the worlds fastest smartphone market. It was only a matter of time until India became the second largest smartphone market since the size of the country is second only to China. However, these two markets could not be any more different.
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No stranger to creating evocative statements that generate headlines, Tesla founder and CEO Elon Musk said during the company’s quarterly earnings call that the future of its autonomous driving systems for Tesla vehicles would utilize in-house designed computing systems. This is the not the first time Elon has said the company was working on chips for AI processing but it does mark the first time more specific statements on capability have been made.
But maybe the most important question is one that went unasked from the financial analysts on the call: is this even something Tesla SHOULD be pursuing?
Let’s be very clear up front: building a processor is hard. Building one that can compete with the giants of the tech market like NVIDIA, Intel, AMD, and Qualcomm is even more difficult.
A trend of custom silicon
There has been a trend in the implementer space (companies that traditionally take computing solutions from vendors and implement them into their products) to create custom silicon. Apple is by far the most successful company to do this in recent history. It moved from buying all of the parts that make up the iPhone and iPad to designing almost every piece of computing silicon including the primary Arm processor, the graphics, and even the storage controller. (Interestingly the modem is still the one thing that eludes them, depending on Qualcomm and Intel for that.)
The other modern examples of this silicon transition are Google and Facebook. Google built the TPU for artificial intelligence processing and Facebook has publicly stated that it has research on-going for a similar project. Both of those companies are enormous with a substantial purse to back up the engineering feat that is creating a new product like this. Their financial future is not in doubt or dependent on the outcome of the AI chip process.
Tesla thrived on tech
Tesla is company that was born and lives off of the idea that it is more advanced than everyone else out there. I should know – I bought a Model S in 2015 with that exact mindset. Musk was brash, bucked the traditional automotive trends. He made promises like coast-to-coast autonomous drives by the end 2017 and AutoPilot seemed like magic when it was released.
Since then, we are more than half-way through 2018 without that autonomous drive taking place and AutoPilot has been surpassed by other driving assistance solutions from GM and others.
This might lead many to believe that Tesla NEEDS to develop its own AI hardware for autonomous driving in order to get back on track, no longer wanting to be beholden the companies that have provided previous generations of smart driving technology for its cars.
Mobileye was the first partner that Tesla brought on board, but the companies split because (as was widely rumored) Mobileye wasn’t comfortable with the expanding claims Tesla was making about its imaging and processing systems. NVIDIA hardware powered the infotainment and driving systems for some period of time and more recently Intel-based systems have found their way into the infotainment portion.
Clearly Tesla has experience working with the major players in the AI and automotive spaces.
On the call with analysts, Musk mentioned that these new processors Tesla was working on would have “10x” the performance of other chips. Obviously, no specifics were given but it seems reasonable he was talking about the NVIDIA platform in use on shipping cars today that is more than three years old, the Drive PX2. And even then, only half of the PX2 processing power was integrated on the vehicles.
Musk also brought up that the interconnect between the CPU and GPUs on current AI hardware systems was a “constraint” and a bottleneck on computational throughput.
These reasons for building custom hardware are mostly invalid as they are addressed by current and upcoming hardware from others including NVIDIA. The Drive Xavier system offers 10x the performance of PX2 and NVIDIA’s upcoming Drive Pegasus will be even faster. And these platforms integrate NVLink technology to provide a massive upgrade to the bandwidth between the CPU and GPU, addressing the second concern Musk voiced on the earnings call.
Deciding to design and build your own AI silicon has a lot of risks that come along for the ride. First and likely most important is the issue of safety. If Google’s TPU AI system doesn’t work correctly then we get a mis-matched facial recognition result for an uploaded image. If a self-driving car system malfunctions then we have a more dangerous situation. After the Uber autonomous driving accident that killed a pedestrian early this year, the safety and reliability of self-driving vehicles is more prominent and top-of-mind than ever before. There are years of regulation and debate coming over who shares or holds liability for these types of occurrences but you can be damn sure that the car manufacturer is already on the top of that list.
If Tesla happens build the car, design the AI hardware, write the AI system level software, and sell it direct to the consumer, there are very few questions as to where the fingers will point.
Financial risks exist for building in-house silicon too. Tesla is a small company relative to Google and Facebook, and even smaller if we focus on the teams involved in software and hardware development outside of the vehicle-manufacturing systems. The cost to build custom chips is usually amortized over years and millions of units shipped, justifying the added price compared to using off-the-shelf components. Tesla has sold just north of 350,000 cars in the last 6+ years and even if we double that in the next six, we have only 700,000 chips that will be needed for these autonomous vehicles.
Companies like NVIDIA that have leadership positions in the AI landscape build processors and platforms for hundreds of different usage models, from AI training to inference, and from smart cameras to autonomous cars. It has the engineering talent in place and experience to build the best chips that combine performance, efficiency, and pricing viability.
Intel and AMD will also likely make more noise in these spaces soon. Intel just finished a data center announcement that included specific deep learning and AI accelerated instructions for its updated processor family coming later this year.
Would a chip that is custom built and tuned for Tesla specific AI models and sensor systems be more power and performance efficient than a more general solution from NVIDA or Intel? Yes. But does that make it worth the time, money, and risk to get it done when there are so many other problems that Tesla could be addressing? I just don’t see it.
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In early June, after I came back from the industries premier display conference known as SID, I shared in my PC Mag column some of the significant developments I saw there in flexible displays. The two major players who were very vocal about their breakthrough flexible displays were Visionox and BOE.
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This week the Information published an article citing that only 2% of Echo owners have used Alexa to make a purchase in 2018. The numbers were shared by two people who had access to an internal Amazon document and revealed that of the people who did buy something using Alexa, about 90% didn’t try it again. More people, 20%, were said to have engaged more broadly with Alexa with commands like “What are my deals?” and “Where is my stuff?” to track orders.
I do not want to duel on these numbers given the vagueness of the source, but whether they are spot on or lowballing, I doubt the percentage of consumers using Echo devices in 2018 to regularly shop was that much higher. In 2017, we, at Creative Strategies, surveyed 1500 US consumers, among whom we found 40% were Echo owners. This was more of an early adopter panel which showed more encouraging results than this week’s article. We found that 29% of Echo owners had bought something through Amazon Prime at least once using Alexa, but only 3.7% did so on a weekly basis. More encouraging results, but, even with early tech adopters a clear sign that creating a habit around voice commerce is harder than people might have initially thought. The reason as to why this is the case is to be found a little bit in the tech but mostly in how and why we shop.
Why do We shop?
Well, to get stuff, I hear you say. Yes, by and large we shop to acquire and own something. Shopping, however, is often a more complicated affair than just buying an item. Usually, we take more pleasure in the process of shopping than in the article itself. Looking through different options, reading reviews, seeing what other people buy is almost more important than actually making the purchase.
Shopping used to have a considerable diversion and social component that dragged us into stores. As traffic and parking got worse in many cities and our lives transitioned to a more digital world so did our shopping. While still having a social component now fulfilled by chats and users reviews the diversion component remained strong. If you, like me, can spend hours browsing through sites to end up not buying anything at all, you know what I am talking about when I say diversion. The pleasure of bargain hunting has been a driver for many shoppers and it has transferred nicely from the real world to the digital one. The recent amount of sales generated by Amazon’s Prime Day is a testament to that!
Voice and Utilitarian Shopping
Shopping is not all about fun though. There is also a more utilitarian aspect of shopping that mostly entails groceries and other essential items. We generally get this shopping done as quickly and efficiently as possible.
This is where Voice Commerce has the lowest barrier to entry today. Repeat purchases, items that are straightforward to order, either because there are limited options or because those options are clear, like size, color, quantity and brand.
In many cases with utilitarian shopping we know precisely what we want so that our instructions to Alexa or Google Assistant are precise and to the point. The straightforward nature of these items increased our level of confidence that the digital assistant will get it right, making it more of a safe bet for us. There is a big difference between ordering washing up pods and a shirt, or a lamp or even a bedding set.
Screen Support and Better AI can help Voice Commerce
In the short term, I see the ability to marry screen and voice as a great combination to grow confidence. Being able to ask Alexa for an item and quickly view it on the screen of your Echo Show or TV before confirming the purchase is a great help. Google Assistant and Smart Displays can offer the same, making the process a little less of the gamble and certainly much less verbose than the assistant going through all the different options.
Artificial intelligence (AI) and machine learning (ML) could help a great deal too. The caveat with ML is that you need to use the assistant so it can learn and AI will need aggregated shoppers data to come up with recommendations based on demographic, shopping history, location, and so on. While this seems pretty straightforward, you just need to take a look at the recommendations you receive on Amazon.com to see that it might not be as easy as it looks. I am an avid Amazon.com shopper, and I am often amazed by how little customization is offers based on what I browse and what I bought in the past other than for items like books and movies.
Voice Shopping must be Different than Online Shopping
I do believe voice has a prominent role to play in commerce as long as it does not make the process more complex. Today there is still too much complexity to the process and considering that online shopping is not broken for many people there is really no incentive in trying.
Voice should take friction away not adding it, just like a good sales assistant should do in a store. For that to happen, however, we need to rethink shopping. Taking an online shopping experience and transitioning it to voice is bound to fail. Online shopping builds on the amount of information presented to us on the screen and digital assistants do not always have that luxury. So I think we need to think about voice commerce a bit more like in person shopping where I make an inquiry and the assistant narrows down what I might be looking for by asking questions and using context to add more info. This means that digital assistants might need the use of a screen and even a camera to get more information and that the interaction could be a mix of voice and touch.
I believe that right now there is such a pressure in making it all about voice, so we can call it a success or a failure. But we are missing the opportunity to use voice to enhance experiences consumers are already comfortable with. This could drive a more positive attitude towards voice and encourage consumers to experiment more. When it comes to voice commerce I strongly believe Amazon as well as Google should focus on the longer term opportunity of additional revenue and higher loyalty than the short term one of justifying the existence of digital assistants.
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Ever since Apple has gone all in developing custom silicon chips like their A-series processors as well as companion chips like connectivity modules, an image sensor, display modules, and several others they don’t talk about publicly, other companies have followed suit.
I often get asked why companies feel the need to start making their chips when there are often great options from companies like Qualcomm, Intel, NVIDIA, and AMD, and many other semiconductor companies who have deep expertise in this area. The short answer is more and more companies are going to want more control over specific experiences with their products and therefore will want to have control over how those experiences are differentiated.
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Even in a tech world seemingly dominated by AI, voice computing, and other intriguing new developments, there’s one thing that’s still hard to beat: a great-looking, large display. Being able to see the cinematographic nuance of a well-lit scene, the fine-grained details of a high-resolution photo, or just a razor-sharp image of whatever you happen to be viewing, there are few things as satisfying as taking in the glories of a beautiful 4K display—whether it’s on a TV or a PC. That’s particularly true if you can enjoy the enormous color range on an HDR (High Dynamic Range)-enabled screen, offering the billions of colors possible with 10-bit color instead of the traditional 16.7 million colors of 8-bit color.
In fact, US consumers seem to agree. As discussed on a recent Techpinions podcast (US Consumer Electronics Trends: PCs, TVs, Headphones, Smart Home and Wearables), the very mature TV industry is still one of the largest categories in all of consumer electronics, with sales expected to increase this year thanks in large part to the move to 4K TVs. Not only that, but the often-overlooked PC monitor market is also very robust. Admittedly, not all PC monitors offer 4K resolution, but many of the large monitors driving sales in the category do. Plus, others offer higher resolutions than we’ve been accustomed to, because consumers are hungry for larger (and finer) screen real estate.
In the world of TVs, the market activity is all about 4K and, for many, 4K HDR. There’s been an explosion of low-cost, large-screen (50”+) options offering this resolution from many different vendors, as well as continued refinement and enhancements for higher-end models.
Some of the latest offerings in the higher-end TV market come from Sony, which introduced its new Master Series line last week in New York. The A9F OLED-based model (available in both 55” and 65”) and the Z9F LCD-based device (available in both 65” and 75”) are top-of-the-line 4K HDR TVs that feature the company’s new X1 Ultimate processor—a Sony-designed piece of silicon that optimizes the image quality for the unique characteristics of the display panels integrated into these sets. Though not always recognized for its silicon expertise, Sony has actually been designing key semiconductor chips for integration into its devices for more than four decades. (Sony is also a leader in image sensors for smartphones, digital cameras, robots, IoT devices, and increasingly, autonomous cars.)
The X1 Ultimate, in particular, delivers on the full color range potential of HDR. Unlike fixed pixel counts, such as the 3,840 x 2,160 dimensions of any 4K TV, there are several ways to implement HDR. As a result, not all implementations of HDR are equivalent—even on TVs that use the same raw display panels. With the X1 Ultimate, Sony offers resolution and color enhancements dynamically on a per object (not just per scene) basis. The X1 Ultimate is also capable of leveraging the LED backlights used on the LCD-based model to deliver a higher contrast image and, on OLED panels, of manipulating what they called Pixel Booster technology for a broader range of colors.
In addition to their imaging enhancements, the new Sony Master series TVs also have a number of refinements related to calibration, both for location and content. Calibration is the process of ensuring that the detailed color and brightness settings are optimized for the physical environment in which the TV is located—accounting for local lighting, etc.—as well as the content being played. One particularly unique capability on the new Master Series is a Netflix Calibrated Mode—a Sony exclusive feature that optimizes the display for each piece of Netflix-originated content with appropriate metadata embedded in the signal. (Like most recent Sony TVs, the Master Series are smart TVs based on Google’s Android TV platform and feature a built-in Netflix app—as well as apps from many other over-the-top (OTT) content providers.) Basically, this mode ensures that you automatically view any Netflix-generated material exactly as its creators intended—a bit of geeky TV tech, but definitely cool if you want accurate color and brightness renditions.
Of course, as mentioned earlier, the benefits of 4K go well beyond TVs. I’ve recently been enjoying Dell’s new XPS15 2-in-1 notebook with a 4K resolution, 10-bit color display that’s powered by the unique Intel/AMD collaboration chip uncreatively titled the Intel 8th Generation Core Processor With AMD Radeon RX Vega M Graphics. In an industry first, the chip combines an Intel CPU with a discrete AMD Radeon GPU integrated into a single module and connected by a new high-speed bus called Embedded Multi-Die Interconnect Bridge, or EMIB. The net result is a powerful (though also power-hungry) notebook with extremely responsive graphics suited for the most demanding applications and games. HP also offers a version of their popular Spectre notebook line, the x360 15T, with this new Intel/AMD combo chip and a 4K display.
For standalone monitors attached to desktops, or functioning as additional displays for notebooks, there is a wide range of 4K HDR monitors from Dell, Samsung, LG, Asus, HP, Benq and others. Beware that not all graphics cards or notebooks offer the ability to drive a 4K HDR display, so you have to do your homework. However, if you have a PC that does support it, the visual results of a 4K HDR monitor are well worth it.
Looking ahead to the future of both entertainment and computing, there are certainly going to be other means of consuming content, interacting with our data, and manipulating applications than large, high-resolution displays. You’ll be hard-pressed, however, to find something quite as beautiful and compelling as a big 4K screen.
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Apple’s recent earnings call, where the company revealed its iPhone average selling price (ASP) for the second quarter grew to $724, stunned many industry watchers. And while it’s true that no other smartphone vendor is selling phones at near that price in the same volumes as Apple, the reality is that four of the top five smartphone vendors worldwide have seen their ASPs increase over the course of the last year. In addition, that top five is also consolidating share, reflecting the maturity of the market.
Samsung is the Exception
Looking at 2016 and 2017 smartphone data from IDC’s Mobile Phone Tracker, four of the top five vendors in 2017 have seen their ASPs increase. This includes Apple, Huawei, OPPO, and Xiaomi. Only Samsung’s ASPs declined during this period and based on the company’s most recent earnings call this trend seems to be continuing. As noted, nobody among this group is operating at the same level as Apple, but it’s very interesting to see the Chinese vendors successfully shifting their mix toward higher selling prices. For example, Huawei saw its ASP increase from $231 in 2016 to $255 in 2017. Both OPPO and Xiaomi increased ASPs, as well, although both started at lower price points. Meanwhile, Samsung’s dropped from $319 to $318, down from $344 in 2015. (Why Samsung’s ASPs are trending down is a subject for another column but suffice to say it’s a wide range of reasons, from marketing to product mix to stiff competition.)
We only have one-quarter of data for 2018, so it’s unclear whether these trends will continue in 2018, but the fact that many of these vendors are seeing their ASPs increase over time does fly in the face of conventional wisdom around the presumed eventuality of hardware commoditization. The other thing that’s important to note is during this same time the percentage of share the top five owned, relative to the rest of the market, increased from 56% in 2016 to 60% in 2017. In other words, the top five is gobbling up more of the market, and it’s doing so at higher ASPs year over year. A quick look at the next five vendors down (numbers 5-10) show that about half of this group has also managed to grow its ASPs in the last year, too. In fact, if we look at the entire category, the average selling price of a smartphone increased by about $30 between 2016 and 2017. And the trend looks to be continuing in 2018.
It’s also important to note the fact that in addition to its sky-high ASPs, Apple continues to grow the adjacent businesses that help increase lock-in the iPhone. This includes it wearables products—including Apple Watch, AirPods, and Beats—as well as services, including Apple Music, iCloud, Apple Pay, and more. These accessories and services make the high-priced iPhones even stickier, helping to ensure a high percentage of current buyers return when its time for a new phone. Others in the top five have attempted similar strategies, with varying degrees of success. Perhaps the most interesting in this regard is Xiaomi, which offers a wide range of products and services. The company says it has an installed base of about 190 million active users, with as small but growing group that owns multiple products from the company.
Desktop and Notebook ASPs
Smartphones aren’t the only major hardware category that is defying the drumbeat of conventional thought around commoditization. When I look at IDC’s Personal Computing Devices Tracker, I see that ASPs for both notebooks and desktops are also growing among the top five vendors. Across the board, HP Inc, Lenovo, Dell, Apple, and ASUS all saw their ASPs for notebooks increase from 2016 to 2017. The top five’s share of the market stayed about the same at 80% (up from 77% in 2015). Across the market, the increase from 2016 to 2017 was about $47. Desktops also saw ASPs increase from 2016 to 2017, with Lenovo, HP Inc, Dell, Acer, and Apple all seeing positive shifts. Here the top five grew its share to 61% in 2017, up from 59% in 2016 and 57% in 2015. Category-wide, the ASP increase was about $32. The still-small detachable category also grew its worldwide ASP during this period, by $16.
Only the slate tablet category has bucked this increasing ASP trend. This market, which as struggled overall, continues to see ASPs declining. This is true even for Apple, and I believe it reflects the unsettled nature of this market overall.
Time to Reconsider Conventional Wisdom?
So, except for slate tablets, all these hardware categories seem to be defying conventional wisdom about hardware commoditization. And that’s before you factor in the all the dollars associated with accessories and services, an area where Apple has clearly succeeded with consumers, and where other players—such as HP Inc, Lenovo, and Dell, and are finding increasing success with commercial buyers. (I’d suggest that Device as Service will play an increasingly important role here going forward.)
So here I’ll echo the sentiment of one of my fellow columnists in suggesting that perhaps it is time to reconsider the conventional wisdom around device markets. Clearly, consumers and commercial users know what they want and need, and many are willing and able to pay a bit more than they have in the past for the devices that they use every day. Quality design, new features, and integrated services matter. So perhaps it is time the world stops assuming every hardware category must eventually end in a highly commoditized state where ASPs are in perpetual decline.
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This week Ben Bajarin and Carolina Milanesi talk Apple’s latest earnings on the Tech.pinions podcast.
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In late 1996, while serving as an outside adviser to Apple and their executive committee, I was called in to meet with then CEO Gil Amelio. During this meeting, he asked me about the idea of acquiring NeXT and bringing Steve Jobs back to work with him as a consultant to this project. The idea was to use the NeXT OS core for the new Mac OS and build on this.
At this time, Apple was in severe financial trouble and Amelio and the board felt they needed a complete reset if they were to save Apple. When Gil asked me this question, I was positive about the role NeXT could play since I had followed the NeXT OS developments from afar. I knew it was a highly sophisticated OS and was extremely scalable and told him that this made sense.
However, I was not sure if the idea of bringing Steve Jobs back to Apple was a good one. In fact, I told Gil that once Steve was in the door, he would strive for more influence and leadership roles and could never be just an outside consultant. But Amelio and their board felt the risk was worth it and, in hindsight, it goes down as one of the more brilliant moves by any board in business history.
By MacWorld Boston in August in 1997, Steve Jobs was fully entrenched as what he called the iCEO ( the “i” stood for interim) and was very much serving as its top leader. I met with Jobs well before this on his second day back at Apple in his new leadership role and asked him how he was going to save Apple. Apple was still in real financial trouble, and he told me that the first thing he was going to do is to go back and meet the needs of their core customers-these included the graphics professionals, Desktop Publishers, engineering and people who needed a Mac for key professional needs. He then added that he would focus on Industrial Design. I remember leaving that meeting questioning the need to make Industrial design a strategic goal of a new Apple, but that clearly has become one of the more essential reasons why Apple is thriving today.
That Day in 1997
That MacWorld in Boston will go down as one of the most critical events in Apple’s history. Besides being the place where Jobs, in his new role back at Apple, delivered his first keynote since coming back to the company he co-founded, it also served as the place where a significant announcement was made that would give Apple a financial lifeline and a give Jobs and team some breathing room to try and drive Apple’s future.
During this keynote, Steve Jobs brought in by satellite feed, Bill Gates, who announced that Microsoft would invest $400 million in Apple. When Gates came onto the screen, many in the crowd booed which consisted of many Apple faithful as Bill Gates was considered the enemy. But had Microsoft not made that investment, Apple most likely would have had to declare bankruptcy six weeks later and would have had more trouble delivering a turn around faster than it took. Indeed by 1998, with the introduction of the candy-colored iMacs, Apple had its next hit and began moving forward again.
Although many of the Apple faithful booed when Gates was announced, I knew how vital this cash infusion would be for Apple’s recovery. While it was stated as a stock purchase, I already knew that part of the deal was to also give Microsoft a royalty-free license to the concept of a GUI that was legally part of Apple’s IP portfolio. This info was not was not public at the time, and I never commented on this aspect of the deal, but I knew how important that was for both Apple and Microsoft since it took away any potential legal action from Apple going after Microsoft on the GUI issue completely.
Strategically, this was smart for Microsoft as well. It has been well documented that Mac users were among the most profitable for Microsoft as the Mac Office group was one of the brighter stars from a profit perspective inside Microsoft. One could view Microsoft wanting to see Apple continue to serve their customer base, and even grow it, was good for Microsoft when it came to Office. Also, while Apple had only 2% market share in computers at the time, making sure Apple survived also helped alleviate any potential anti-trust issues Microsoft could have run into if they were the only computer OS on the market.
Fundamentals of the Journey
There are multiple reasons for Apple’s recovery. I have been covering Apple professionally as a business and tech analyst for 37 years and have watched them closely in their good times and bad. Here is my perspective on how Apple achieved this trillion dollar milestone. Apple’s real core competency and success come down to at least six fundamental cornerstones of their business model.
- Consistent vision to drive an entire ecosystem of hardware, software, and services across all devices and platforms. On many of my discussions with Jobs, he overemphasized that Apple is a software company and his big goal was to create great software that people love and will use. While he knew how vital hardware was and made industrial design a cornerstone in the creation of all of his devices, his laser focuses on software and giving the development tools needed to developers to create great apps and services was, and still is, at the heart of his vision and Apple’s ultimate success.
- They are a master of creating next-generation man-to-machine interfaces. With the Mac, Apple introduced the GUI, and mouse and created a new way to interact with a computer. At the time. Microsoft DOS and text UI’s dominated the market, but the Mac’s GUI revolutionized the man-to-machine interface and forever changed the PC market. Then with the iPod, Apple introduced the clickwheel for navigation and with the iPhone and iPad Apple introduced touch and more recently Voice with Siri. These interfaces are being extended across all devices except the Mac where Apple resists adding touch to this computer.
I predict their next UI hit will come through adding AR glasses to their hardware line that is powered by the iPhone and introduces gestures and relies heavily on gestures and voice for navigation when using this unique eyewear.
- Operational excellence. While Steve Jobs gets all the credit for vision and his role in championing Apple’s products, Tim Cook’s role while Chief Operating Officer where he built a world-class supply chain cannot be overestimated. And the framework from what Cook built starting around 2000 is still the foundation for Apple operational brilliance. Before Cook took over the supply chain, it was a mess. Interestingly, Cook’s role as COO has served him well as a CEO. He is one of the only CEOs in tech that understands firsthand the entire ecosystem of what it takes to build world-class products and still has makes his mark on their current operations and supply chain.
- Jobs’ decision to instill his vision and Apple’s cultural identity into his current leadership. One of the more masterful things Jobs did was to invest a great deal of time with key leaders to make sure Apple’s future would be prosperous after he was gone. He was first diagnosed with liver cancer around the 2002-2003 time frame and at that time was faced with his mortality. While he did seek treatment and even had a liver transplant, he knew his days could be numbered. From that point on, he doubled down in tutoring Cook, Schiller, and other top leaders to make sure his vision and the spirit of Apple would continue even if he could not be there to make it happen himself. I have dealt with people at Apple for 37 years, and some of them are still there. They all know the Apple way and what it takes to make Apple successful. That is due to the serious tutoring by Jobs himself in those leaders and is a fundamental reason why Apple has reached this significant milestone.
- Industrial Design. When Jobs told me that Industrial design would be essential to Apple’s future, I pretty much did not get it. At the time, Apple’s Macs looked more like PC’s, and I could not envision what Jobs could do to make a Mac much better. But once the new candy-colored iMacs came out in 1998, I began to get a glimpse of how industrial design could help Apple come back from the abyss. Indeed, under Jony Ive, Apple has created some of the most iconic tech products in the market and makes industrial design a critical element of Apple’s success.
- Adding Services as a Business Pillar. One of the problems hardware companies have is that once a product is sold, there are no additional sales to be made outside of any peripherals or perhaps cables needed to operate them. Early on, Apple understood the idea of creating a service model tied to their devices so they could get additional revenue even after they sold a particular hardware product. The services business brings in about $30 billion a quarter and would be a Fortune 100 company if it was ever spun out. Services are a crucial factor for Apple’s ongoing success and, while Steve Jobs helped drive the basic service model, Tim Cook and his team have evolved it into an earning powerhouse. More importantly, it serves as an additional way for Apple to earn big bucks and use any hardware they sell as a way to deliver additional services to the customers.
There are other factors involved with Apple’s overall success, but the six mentioned above are central to why Apple recovered from a near-death experience and has hit that trillion dollar valuation milestone this week.
While there are challenges ahead for Apple, given what Apple has created in the way of a great OS, great hardware designs, a deep services offering and a world-class team of leaders, I see no reason why Apple can’t continue to innovate and grow in the near future.
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Motorola 5G Mod
This week Motorola launched the new moto z3 and 5G moto mod™1. When paired with the mod, moto z3 is the world’s first smartphone with access to Verizon’s 5G Network. Motorola also partnered with Qualcomm to achieve this industry milestone utilizing the flagship Snapdragon X50 modem and millimeter wave components.
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Several months back during one of countless analyst calls that Qualcomm was hosting in the middle of the attempted hostile takeover from Broadcom, the company stated as part of a financial outlook that it was “zeroing out” incoming revenue (Qualcomm’s licensing division) from Apple, the company it was fighting in various legal arenas around royalties and IP. This was part of a multi-faceted move to appeal to investors, showing Qualcomm’s ability to remain profitable and growing without intervention from the takeover bid.
At the time most analysts believed that this “zeroing out” of Apple revenue was considered a worst-case scenario, giving the markets confidence in the prospects of Qualcomm’s licensing and chip groups even without one of its biggest customers.
On the conference call following the release of its most recent quarterly earnings, Qualcomm stated that would not be selling modems to Apple for its next-generation iPhones. This was confirmation that in fact, the “zeroing” of Apple income those months prior was less about presenting a hypothetical situation and instead a way to prepare the market and investors for a life without Apple at the purchasing table.
Qualcomm remains in a battle with Apple over royalties that the Cupertino-giant owes for currently shipping devices, and that will continue for the foreseeable future. And even though Apple is not buying modem hardware from Qualcomm, it (and in reality, its suppliers) will still owe QTL royalty fees for the technologies used in devices in the future. There is another story to be told about the current state of the Apple-Qualcomm legal dispute, but for now I’ll leave you with the knowledge that the “beginning of the end” will start later this fall as court decisions being to materialize.
A new paradigm for iPhone
Now that we know the upcoming iPhones will use Intel modems exclusively, moving from a carrier-by-carrier split between Intel and Qualcomm that existed for the last two generations, a new dynamic will be playing out in the smartphone market.
Flagship Android phones that utilize Qualcomm Snapdragon Mobile Platforms like the 845 will have one very specific, distinct, and important advantage that they could not claim previously. Wireless performance, both in straight line speed and at-the-edge reliability, is a feature that will become more important and prominent in 2019 and 2020.
Hardware vendors that compete with the iPhone should be leaning into this. We saw the first salvo come from Qualcomm directly by showcasing the independently gathered Ookla speed test results. In that data we found irrefutable evidence that the wireless capability of flagship Android phones using the Snapdragon 845 was dramatically more robust than iPhones using the Intel modem. It’s an interesting and expectedly aggressive first step in a marketing and messaging machine that is just at the beginning of its torque curve.
Why Gigabit and 5G matter
There are differing opinions on the value of the wireless system in place for smartphones and connected devices. Many have stated that Gigabit-class LTE speeds simply don’t matter for users or user experience. I disagree and believe that speed and latency of wireless connections will only increase in importance with advancement in streaming content, streaming apps, and even more upcoming wireless lifestyle changes.
That negative mentality also leans on top speed performance considerations solely, ignoring the arguably more important areas of edge-of-network performance and reliability. When the signal is at its weakest, when you are inside buildings or further away from a cell tower, a better cellular implementation means the difference between being able to stream video or not. In an extreme situation it could allow you to call for help in an emergency…or not.
The upcoming 5G networks will begin rolling out across the globe in 2019 and phone makers are already preparing devices to take advantage of them. Only Android-based phones that integrate Snapdragon modems will support 5G out of the gate. Intel is likely is a full year behind Qualcomm on having similar capabilities or form factors to support all bands of 5G currently planned. That means iPhones will be at least a full year behind the first wave of 5G flagship devices, and that could turn into two years if we look at Apple’s past history of cellular technology implementations. (Note that Huawei is also planning a 5G modem for its SoC.)
Every other smartphone vendor from Samsung to Oppo will have an advertising campaign essentially pre-built against Apple. In a time when consumers are more technology aware than ever before, the iPhone will be behind on cellular performance. As a result, these smartphone vendors need to hit back on Apple, and as a side effect Intel, with the goal of setting the standard higher, changing the story and value of wireless technology for consumers that utilize these devices every day.
You can be sure that carriers like Verizon and AT&T are going to spend money to promote the capabilities of their 5G networks after billions in infrastructure investment. And Apple will not be able to participate in any of that collateral, leaving windows of opportunity for everyone else in the fight.
If Google is paying attention, it will follow suit, creating a campaign talking up the benefits of an open ecosystem of partners that have the flexibility to create, build, and differentiate. Innovation advantages like this don’t happen often against a company with the resources of Apple, so all parties must participate.
Pressure on Intel
With the secret confirmed courtesy of Qualcomm, Intel is now under a significant amount of pressure. It will be the sole supplier of modem and cellular technology to one the world’s biggest companies and the largest mobile device supplier in any ecosystem or geography. Intel will need to step up its game for 4G LTE implementation to avoid more damaging testing and stories for the iPhone line while also accelerating advanced 5G integration to make sure Apple isn’t left behind in that important race.
Is Apple going to drop out of the smartphone race without 5G? Absolutely not. It’s install base, and fanatical community, will suffer through quite a lot to stay inside this ecosystem.
Apple has been able to convince consumers it offers the best of every facet of smartphone technology, from the camera to battery life, to accessories to performance. But with the entire wireless market and consumer base looking towards 5G on their smartphone, their car, their notebooks, factories, drones, and more, it cannot afford to take an extended backseat to competitors.
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Apple’s ASP defies the logic and assumptions so many have built up over the years. In fact, I could argue the smartphone, in general, is continuing to defy the logic of many but even within the smartphone market, the common sentiment (note I did not say common wisdom) was that the market would commoditize like all consumer electronics categories do as good enough products and low-priced products and vast competition in the lower price tiers would create a race to the bottom.
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There was a fascinating story in Politico this month that detailed the real severe threat to Silicon Valley from spies especially from Russia and China seeking to steal intellectual property. The Politico Piece is a long story that was well researched, and I encourage you to read it when you have time. Here are two excerpts from the piece that lays out what these spies do and the challenges Silicon Valley Faces in identifying and curbing this type of activity:
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On Tuesday, July 31st, Apple announced its 3Q18 financial results, an event that drove even more attention than usual given the headwind that some companies faced during this earnings cycle. In particular, analysts were trying to measure the health level of the whole smartphone industry based on what Apple reported for the iPhone.
Apple sold 41.3 million iPhones, slightly lower than expected but certainly a strong performance considering this is usually a softer quarter for Apple given the expected September launch cycle. The numbers look even better when one takes into account that Apple decreased inventory by 3.5 million units which means that sales to end users ended up at 44.8 million units. The iPhone X remained the most popular model driving ASP to $724. As markets saturate ASP growth is a much more positive signal than sales not only for the immediate impact on revenue but most importantly as a driver for further revenue growth coming from the latest technologies integrated into the hardware and the services they enable.
iPad had almost a reverse trend to the iPhone with stronger sales and weaker revenue. This reflects the state of the portfolio quite well, as the most recent iPad model has a lower price tag and the iPad Pro, which drives higher ASP is due for an update in the next couple of months. The expected update on the iPad Pro line is certainly stalling prospective buyers who would rather wait for the new models or see if they can take advantage of a price drop on the current ones. This point might also be true of enterprises as we did not hear Apple talk specifically about iPad uptake in this segment as they have done many times in the past.
It is also interesting to note the different installed base story for the iPhone and the iPad. The iPhone user base is more defined in number, but it is improving in capability as users in the base are upgrading to newer devices. With iPad, however, we are still in a growing phase of the installed base as Apple pointed out that 50% of iPad buyers in the quarter were new to the product.
On the Mac side, this is the first time in a very long time that Macs underperformed compared to the overall PC market. Cook linked the year over year decline to the different launch cycle, and it will be interesting to see the impact of the upgraded MacBook Pro next quarter. While rumor points to more Macs to come the back to school window is gone, and all will rest on the holiday quarter.
The Shining Stars: Wearables and Services
Wearables (Apple Watch, AirPods and Beats) had a great quarter, with revenue up over 60% year-over-year and growth accelerating quarter-over-quarter. Wearables produced over $10 billion in revenue over the past four quarters. While Apple Watch sales were reported to have grown by 40%, it is AirPods that in my view have been the clear dark horse of the category. Tim Cook compared AirPods to the iPod, and I could not agree more when you consider the appeal the product has. Like the iPod. AirPods transcend gender, income, age and tech savviness to deliver a clear value-add by doing what they are meant to do most straightforwardly.
The long-term opportunity that wearables offer is that they pave the way for whatever Apple is planning around AR and glasses. A loyal base of Watch + AirPods users will offer a great addressable market for glasses.
Paid subscriptions across Apple Services have now passed 300 million, an increase of more than 60% in the past year alone. For Apple Music specifically, paid subscriptions have now passed 43 million. There were two areas that Apple highlighted either directly or when prompted. One was the mention of the doubling in news articles read during the quarter. This datapoint bodes well for an upcoming paid news service as it proves that engagement is growing.
When asked about the deal Apple signed with Oprah, Tim Cook did not hold back his excitement about the collaboration and referred to original content being developed. With the limited ability that Apple TV has had to convince people they needed it for its apps and as a single sign-on portal for all our content, Apple is left with no choice than to differentiate through content. If you are skeptical about why Apple would enter this space consider the low level of penetration of Apple TV, you forget the many screens this content will be viewed on when you consider iPhones and iPads. I struggle to see Apple embarking on the very expensive endeavor of creating original content to limit viewing to Apple TV.
There was not much mention of the HomePod during the call other than an implication by an analyst that Apple is losing the home. Cook’s answer, reflected not only why Apple might not be worried but also why Apple has not been as aggressive in the home as some might want. The bottom line for Cook is that owning the home is not enough but owing the pocket (with the iPhone) is key, and of course Apple has done that, which grants them access to the home and beyond.
One data point during the call referred to Siri, and that was the number of requests put forward to the Apple’s digital assistant. An impressive number but one that does not really give us much visibility in the growing level of engagement and, most of all, satisfaction.
The Bigger Picture
Apple Pay has been growing steadily over the past few quarters but for Apple to be able to say that transactions were higher than PayPal Mobile and Square was certainly good this time around. Even more rewarding, I am sure, is being able to announce that CVS and 7-Eleven will add Apple Pay. CVS, in particular, must feel like a victory as CVS had originally opposed Apple Pay in favor of its own payment method called CVS Pay.
While politics was not an explicit topic on the call, Tim Cook did address a question about tariffs by wishing for calmer heads as tariffs always impact consumers. While calmer heads are certainly welcome, I find it useful to point out that in the past the impact of new tariffs on phones, in particular, has been shortlived. My proof points are South Korea and their increase in tax of a few years ago and Russia where there was a crackdown on import duties earlier in the 2010-2012 time frame. In both occasions, prices grew, and the market slowed down for a few quarters before picking back up.
Absent on the call were references to AI and Cloud, key areas for Apple’s big ecosystem competitors: Google, Microsoft, and Amazon. While these two are not key business drivers for Apple, not in the way where there is a direct revenue target associated with them, they are crucial ingredients of products and services, and I believe Apple should start to mention them more often in the role they play in empowering successful services and experiences.
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A few years ago, I wrote an article called “when the easy growth is over.” I slightly regret the title because no growth is easy and we should applaud companies who do tap into the current and scale their businesses because it is not easy. However, my article was more to the point about the industry S-curve growth cycles, and while we are in an S-curve of growth, it is the time companies can scale quickly and are faced with fewer obstacles once they tap into the growth current that happens during an S-curve.