Tag: featured

AMD Reenters High-end Markets with Threadripper and Vega

The high-end of the consumer market, often paralleled with the idea of prosumers and enthusiasts, if often overlooked as a segment with little import on the overall sales and profitability of technology companies. Though unit sales in this window are smaller than either the mobile or mainstream consumer space, the ASPs (average selling prices) skew high, resulting in much better profit margins than in lower segments. Not only do companies that successfully address the needs of the prosumer and enthusiast enjoy the ability to sell at lower financial risk, but there are also fringe benefits of being the market share and mindshare leader in these spaces.

The “halo effect” is one in which a flagship product that dominates headlines and performance metrics in the enthusiast markets sees benefits waterfall down into the more modestly priced hardware. Samsung softens a beneficiary of this idea, selling the Note and S-series of smartphones at high prices that convince those with smaller budgets to buy similar looking and feeling Samsung products once they enter the store. Influencers that do buy into the flagship product series will tout the superior benefits of these products to friends, family, and social groups. This gives confidence to system integrators, corporate buyers, and other consumers that the product they CAN afford will be similarly excellent.

In the PC field, prosumer and high-end segments will frequently reuse technology from workstation or data center class products. This saves on development time and costs, adding more to the profit margin of the already inflated segment.

For these reasons and more, it has been a weight around AMD’s ankle that it has not been competitive in either high-end desktop GPUs (graphics processors) or high-end desktop CPUs (central processors) for years. On the graphics front, the last high-end desktop (HEDT) product released was the Radeon Fury X, in June of 2015. Even at the time of launch, the product was moderately successful, bringing attention to AMD and the Radeon brand, but also difficulties in product reviews and quality control. In the span of the next 3-4 months, NVIDIA and its GeForce product family had completely retaken the leadership position with the never-challenged GTX 980 Ti product. Then in May of 2016, NVIDIA increased its leadership position with another GTX family launch. This happened again in March of 2017 when it thought AMD might be on the verge of releasing a competitive solution. It never showed.

The newly released Radeon RX Vega product line brings AMD back into the high-end prosumer and enthusiast picture, offering competitive pricing and performance against the NVIDIA lineup. It utilizes the same graphics architecture found in the workstation family Radeon Pro cards and the enterprise-class high-performance compute Instinct family. Though there are early reports of stock and availability problems that AMD is working through in the coming days, RX Vega gives AMD an opportunity to take back some amount of market in this influential space. The profit margin of RX Vega is questionable, with known cost concerns around the graphics processor and chosen memory solution.
In the CPU space, AMD has never been in the HEDT segment that was created by Intel in 2008. In fact, AMD has been absent from the majority of competitive processor segments for more than a decade, depending on the integrated graphics portion of its designs to keep it afloat in trying times. With the release of Ryzen 7 in March of 2017, AMD started making waves once again. August sees the launch of the new Threadripper family, a high-performance processor that directly targets content creators, developers, engineers, and enthusiasts. Prices on these parts range from $799 to $999 and because of heavy repurposing of server design, chip organization, and infrastructure will likely have exceedingly high-profit margins.

Threadripper doesn’t just make AMD competitive in a space that has previously been 100% dominated by Intel; it puts it in a leadership position that is turning heads. Performance in workloads for video creation, 3D rendering, ray tracing, and more are running better on the 16-core implementation that AMD offers compared to the 10-core designs that Intel is presently limited to.

While there are no guarantees of market share improvements or profitability, every unit sold of RX Vega, and Ryzen Threadripper mean improvements for AMD over Intel and NVIDIA. Intel product managers and executives, already awoken from slumber with Ryzen 7 in March have perked up, seeing the threat of mindshare, if nothing else. The company is wary of threats to its perceived dominance and will react with lower prices and higher performance options this year.

RX Vega is in a tougher spot, unable to come out as a clear winner in the field, even for a short while. NVIDIA has been sitting on a growing armory of designs and product, waiting to see how the competition would shake out to measure the need to release it. For now, NVIDIA doesn’t appear to be overly concerned about the impact Vega will have in the high-end consumer spaces.

No product portfolio is perfect, but the CEO Lisa Su and the executive team at AMD must be pleased with the recent shift in the company’s perception in the flagship markets for consumers. The Radeon group can finally point to RX Vega as being a reasonable option against all but the top-most GeForce offerings and managing to gain a performance to dollar advantage in part of it. For the processor division, Threadripper is a marvelous use of existing technology to address a market that has nothing but room to grow. The marketing and partnership opportunities have and continue to flow for AMD here, and Intel will be spinning for a bit to regain its footing.
There are significant hurdles ahead (continued graphics innovation, competing in the mobile processor space) but AMD is surging upward.

The Myth of General Purpose Wearables

Understanding one’s true role and purpose is one of life’s greatest challenges. But it’s not supposed to be that way for devices. If they are to be successful, tech gadgets need to have a clear purpose, function, and set of capabilities that people can easily understand and appreciate. If not, well…there is a large and growing bin of technological castoffs.

Part of the reason that the wearable market hasn’t lived up to its early expectations is directly related to this existential crisis. Even now, several years after their debut, it’s still hard for most people to figure out exactly what these devices are, and for which uses they’re best suited.

Of course, wearables are far from a true failure. The Apple Watch, for example, has fared reasonably well. In fact, revenues from the Apple Watch turned the tech juggernaut into one of the top two highest grossing watchmakers in the world—though I’m starting to think that says a lot more about the watch industry than it necessarily does about smartwatches or wearables in general.

The problem is that we were led to believe that wearables—particularly smartwatches like the Apple Watch—were going to be general purpose computing and communication devices capable of all kinds of different applications. Clearly, that has not happened, though some seem to hold out hope that the possibility still exists.

Those hopes were particularly strong over the last few days with rumors about both a potential LTE modem-equipped version of the Apple Watch coming this fall and a potential deal between Apple and CIGNA to provide Apple Watches to their health insurance customers. Some have even argued that an LTE-equipped Apple Watch is a game-changer that can bring dramatic new life to the smartwatch and overall wearable industry.

The argument essentially is that by finally freeing a smartwatch from the tyranny of its smartphone connection, the smartwatch can finally evolve into the general-purpose tool it was always intended to be. Applications that depend on a network connection can run on their own, duplicative efforts on the watch and the phone can be eliminated, and who knows, maybe we can finally get the Dick Tracy videophone watch we’ve always dreamt of.

Color me skeptical. Sure, it would be nice to be able to, say, use Spotify or other streaming apps to get dynamic playlists as you exercise, or get texts and other phone-related notifications while you’re away from your phone. Industry-changing and market moving, however, it is not—especially when you factor in the additional costs for both the modem and the service plan you’re going to have to sign up for as well.

Plus, let’s not forget that several vendors (notably Samsung and LG) have already released modem-equipped smartwatches, and they haven’t exactly stormed up the device sales charts. This is due, in part, to the same basic physics challenge that Apple will also have to face: add a modem to a device and it will reduce battery life. Given that many people are frustrated with the battery life on their existing smartwatches, having to dramatically (or even minimally) increase the size of the device in order to accommodate a larger battery, seems like a strong challenge—even for the device wizards at Apple.

The potential of crafting a more healthcare friendly smartwatch, on the other hand, seems much more appealing to me and the alleged tie-up with CIGNA could be a very interesting move. Apple was rumored to have some very sophisticated sensors in the works when the Apple Watch was first announced—such as a non-invasive blood glucose monitoring component, and a pulse oximeter—and with every new release there’s increased expectations for those components to finally arrive. If (or when) they do, the healthcare benefits could prove to be significant for people who choose to use the device. Of course, the need to report all that data back to your insurance company on a regular basis—as a connection with a healthcare company certainly implies—will undoubtedly raise a number of privacy and security-related concerns as well.

Even if those new sensors do appear on the next generation Apple Watch, however, they will further cement the growing sentiment that wearables are actually specialty-purpose devices that are really optimized for a few specific tasks. Not that that’s a bad thing—it’s just a different reality than many people envisioned.

In the end, though, dispelling the myth that wearables can or should be general purpose devices could, ironically, be the very thing that helps them finally reach the wider audience that many originally thought they could.

Three Insights from The US Wireless Market in Q2 2017

One of the markets I track closely is the US wireless industry, and especially the five largest providers: AT&T, Sprint, T-Mobile, TracFone, and Verizon Wireless. All of these companies recently reported their financial results for Q2 2017, and as a result we now have a good picture of what happened in the quarter. Here are three key insights from those results.

Smartphone Growth Continues to Slow

This trend has been in evidence for a while, but continued in Q2 2017: smartphone growth continues to slow significantly. The chart below shows year on year growth in the postpaid smartphone base as reported by the major carriers. Whereas in 2014 the industry added nearly 19 million new postpaid smartphone customers, in the past four quarters, the same carriers added just half that, at 8.5 million. That’s an inevitable result of the increased penetration of smartphones, which now averages around 92% across the four carriers’ postpaid bases.

Worse still, the postpaid device upgrade grade also continues to fall for most of the carriers, though all but AT&T saw a little upward blip in Q2 itself. Overall, though, the average in Q2 2017 was 5.9% of the base upgrading, compared to 7.5% two years ago. That means people are holding onto phones longer as devices last better and as installment plans incentive customers to keep devices after they’re paid off. All of this, in turn, means that smartphone sales are falling – postpaid smartphone sales this quarter were likely around 2 million fewer than a year ago.

Cellular Tablets are in Decline

What’s more, one of the big categories of retail connected devices outside of phones, tablets, is also in decline following years of growth. That decline was precipitated by moves two to three years ago to sell heavily discounted or even free tablets with 2-year service contracts, especially at Verizon and Sprint. As those customers have reached the two-year anniversary of their original purchase, many of them have been churning off the associated service plans, and in the last two quarters the four big carriers as a whole have lost subscribers, as shown in the chart below.

That’s a blow to the carriers at a time when they need more than ever to find new sources of postpaid growth as the phone market slows down and smartphone penetration reaches saturation levels. Smartwatches were thought by some carriers to be a promising new opportunity when they debuted, but in practice few connected devices have been sold so far. If Apple introduces an LTE-enabled Watch next month, as has been reported recently, that could change things, though it will still likely sell in the hundreds of thousands rather than the millions.

Customers are Sticking With Their Provider Longer

Other than the elevated churn levels being seen in tablets at present, the industry is actually doing a better job holding onto its subscribers. Three of the four carriers saw very low postpaid phone churn in Q2 2017, with Sprint the only exception, as shown in the chart below.

Verizon, which has always had the most loyal customers overall, generally hasn’t reported precise numbers for its postpaid phone churn, but did so in Q2 and was below even AT&T’s record low number. But T-Mobile has also seen significant improvements over time, and got a nice boost over the past few quarters from selling some of its low-end subscribers to Wal-Mart, improving the average churn of those that remained. Percentage rates may not mean much on the surface, but a 1% monthly churn rate (roughly between AT&T and T-Mobile’s rates in Q2) translates into a roughly eight year average customer lifecycle. So for all the fuss in the industry about competition and the way in which T-Mobile is gaining subscribers at the expense of the others, the vast majority of subscribers stay put with their carrier every month, and over 85% stay put every year. The reality is that the differences in network performance and other factors between the carriers have shrunk over time, and the plans they offer make it relatively difficult to compare prices directly, which makes most people reasonably content to stay where they are.

The one trigger for switching is often a device upgrade, which as we’ve already seen is happening less frequently recently. But that’s not to say that major events can’t shake things up – this fall’s iPhone launch is expected to be a big seller, and we’ll see lots of efforts by the carriers to lock in iPhone upgraders with discounts and promotions when the device is released. We’ll likely see strong smartphone sales (perhaps the strongest since 2014) and higher switching in Q4 as a result, with some of that bleeding over into Q1, traditionally a relatively quiet quarter for switching.

The Evolution of Autos and Transportation

This post was originally published for subscribers of the Tech.pinion Think.tank. To learn more about our subscription service and exclusive analysis click here.

As of late, I’ve been wondering if we are thinking about the evolution of automobiles, transportation, commuting, etc., completely backward. I’ve been reading dozens of reports, and research from component and supply chain vendors on electric vehicles and it is clear a big trend to move to electric powertrains is upon up. However, everyone assumes for the moment, the future autonomous vehicles and commuter transportation systems will look similar to the cars we know today. I believe a form factor shift will take place as well at some point.

There is no doubt we will first convert existing cars into electric as the first step in evolving how cars are made, function, and reach full level five autonomy. In case you have never seen the chart explaining the levels of autonomy, and where we are today, here is a useful diagram.

As you can see from the chart, we are only at the level 2 stage of autonomous technology. Looking over how the other levels were defined, it is likely it will take many years still to reach full autonomy where no interaction from the passenger is ever needed.

Before autonomous cars become a reality, we need to transition to electric vehicles. Most reports on the automotive industry indicated electric cars would be cost competitive with gasoline cars around 2020-2021. This is a big first step to get consumers to make a move to electric vehicles and then over time autonomous driving features.

The timeframe from 2020-2030 is what most experts estimate will be the decade where electric cars gain traction and start moving toward true level 5 autonomy. It may take until 2025 or so before we see level 5 reached and approved by regulators.

Massive change in automotive manufacturing is being implemented at the moment as nearly all auto brands are in the process of shifting to electric vehicle production and working on their autonomous driving strategy. But part of me wonders if level 5 autonomy won’t be reached and go mainstream in things that look like cars today but a different form factor.

Through a range of conversations I’ve had with investors, and other experts, it seems there is a chance the technology that will someday scale and become pervasive may evolve more from electric bicycle technology than car technology. If in the future, we simply become passengers and not drivers, then there is no need for these large, cumbersome vehicles on the road. There are already very small single and double passenger “pods” on the road today, and they are a much more efficient use of space to store and on the road. I can imagine our full autonomous future being made up of these much smaller pods transporting passengers than large cars.

The promise of full autonomy has always been that cars will be able to talk to each other and therefore can be packed in much closer together on the road. Nearly all simulations of the future you see simply have a highway packed with full size or compact cars all within a few feet from each other. This is so more people can fit on the road. But flip the equation and imagine we are all in smaller pods where four could fit on the road in the same space a mid-size car fits in today, and you technically can fit four times as many people on the road.

There will no doubt be a mix of sizes since some families will need larger vehicles and we will still have buses and trucks on the road, but I have a strong sense the vast majority of commuter vehicles will be small pods vs. larger cars like we have today.

This scenario makes sense as it requires less battery, smaller drivetrain, fewer sensors, etc. What got me started thinking about this was my own experimentation and testing of a range of electric bicycles. I tested bikes with drivetrains as low as 250 watts and as high as 1000 watts. Even on a 250-watt drivetrain, my 160-pound body could clear 25 MPH. And on bikes with 1000 W drivetrain I could get over 40 mph. The batter is a small canister that charges fast and lasts for 25 miles in full electric mode. While not quite the range of a fully electric car, the point is if the future design of passenger vehicles looks like pods they will be cheaper, need less battery size and capacity, use smaller drivetrains, and overall be more efficient.

The entire industry is moving to a manufacturing process to bring electric cars and add full autonomy to a form factor that I don’t believe will be as common on the road in the future, especially in urban areas. But all that investment and RND in manufacturing infrastructure for big cars will only pave the way for cheaper, more efficient smaller ones once shift from drivers to passengers fully takes place.

Podcast: Microsoft Surface and Consumer Reports, NVIDIA Earnings, Google Diversity Memo

This week’s Tech.pinions podcast features Tim Bajarin and Bob O’Donnell chatting on Consumer Reports decision to no longer recommend Microsoft Surface devices, analyzing NVIDIA’s earnings, and discussing Google’s controversial diversity memo and the issues it has raised for Silicon Valley.

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

News You might have missed: Week of August 11th, 2017

Consumer Reports pulls recommendation for Microsoft Surface laptops

Consumer Reports based its decision on the results of an annual subscriber survey about the products such people own and use. It estimates Microsoft’s laptops and tablets will experience breakage rates of 25% within two years of ownership, loosely defined as any issue that comes up that prevents the computer from working as the owner expects. As a result, Consumer Reports added that it couldn’t currently recommend any other Microsoft laptops or tablets, including the latest Surface Pro model that was introduced in June.

Via USA Today

  • The methodology of this report leaves a few questions unanswered starting with how large the sample of actual Surface users was.
  • Given the sample is based on consumers I would have to assume the numbers are quite small.
  • Considering the question focused on the specific period of “within 2 years” one would assume that the devices used for reference here are older than a Surface Pro 4 and probably not including many Surface Books.
  • If I am correct in my assumptions of which models are part of the sample and I look at the most aggressively priced Surfaces, Surface RT and Surface 3 could make up a large proportion of this sample.
  • While the assessment of those specific products might be correct it is certainly not a reflection of Surface current line up.

YouTube CEO Susan Wojicicki has the perfect response to the Googler memo

Ms. Woijicicki had to answer a difficult question from her daughter: “Mom, is it true that there are biological reasons why there are fewer women in tech and leadership? And she said: “I thought about all of this, looked at my daughter and answered simply. No, it’s not true.”

Via Fortune 

  • I found this short but pointed article perfectly spot on. A great summary of what many women face in the workplace both in Silicon Valley and outside.
  • Freedom of expression does not mean that a company should ignore stances that perpetuate negative stereotypes on any group of people based on their gender, race, religion or sexual orientation.
  • Freedom of speech means that YouTube CEO can express her opinion on the memo while her company airs Damore’s first interview granted to alt-right YouTube personality Stefan Molyneux.

Snap Q2 earnings

Snaps revenue hit $181.7 million vs. $ 189 million that was expected and 173 million daily active users vs. 175 million expected. The number of daily Snap users only increased by 7 million from the first quarter but analysts’ expectations were for 10 million. Average revenue per user for the quarter grew to $1.05 from $0.50 year on year. Around 81% of Snap’s second-quarter revenue came from North America. Spectacles sales dropped.

Via Snap

  • Snap seems to be suffering from a slower than expected growth in international markets coupled with increased competition in its largest market, North America.
  • Spectacles sales were down over Q1 raising questions about their long term relevance. While they do a great job for holidays and special occasions they are something you need to remember to carry with you. I am certainly not the right demographic, but, I found that I have been leaving them home more and more as the novelty wears off.
  • CEO Evan Spiegel gave a shout out to “Our dancing hot dog is likely the world’s first augmented reality superstar.” My big question is whether Snap will be able to keep up with the pace of innovation large companies like Apple and Google will put behind AR.

Uber new in-app chat

Uber is rolling out in-app messaging to allow drivers and riders to communicate without exchanging phone numbers. If you want to contact the driver you select “contact” and then “chat.” This is to avoid exchanging phone numbers when calling. Uber already uses an anonymizing technology to mask phone numbers when you call or text outside the app, so it shows up as a random number. But while that technology is used in the US, it isn’t available in some emerging markets.

Via THE VERGE

  • Considering the many negative stories on Uber as of late and I am referring more to leasing faulty cars rather than the CEO vs. Board saga, I feel that anything to increase the sense of security is a good step.
  • While the idea of chatting without having to share phone numbers is a great one I do wonder how effective that will be in a real life situation. Most of the times when you are contacting the driver is to explain your location and that might not be as easily done via texting.
  • Aside from ease of use the other concern would be the speed of the actual chat client within the app. I am sure I am not alone to have experienced poor refresh and connectivity within the app just when tracking the car or even receiving the final score card at the end of the trip.

Disney Streaming Service

As part of its announcement on Tuesday, Disney said that it would spend heavily on original programming for its entertainment streaming service and pull future Disney and Pixar movies from Netflix. Disney has not yet decided whether to pull its Marvel or “Star Wars” movies from Netflix. The streaming plans start with the introduction early next year of a subscription service to be built around ESPN’s sports programming. It will be powered by BamTech, a technology company that handles direct-to-consumer video for baseball teams and HBO, among others. Disney paid $1 billion a year ago for a 33 percent stake in BamTech.

Via New York Times 

  • Netflix seemed the biggest loser in this announcement, however, even with Disney pulling all its content the value proposition for the kids’ audience remains strong as the Disney content is a small portion of the Netflix offering.
  • In order to appeal to a broad audience, Disney will have to invest a lot in original content in my view. What Disney will distribute through cable and what they will distribute via their streaming service will require a delicate balance. While cable revenue might be in decline it still represents a sizable chunk that cannot be jeopardized before the alternative source is solid.
  • I am curious to see if Disney is entertaining the possibility of distributing early on their streaming service some of the movies available in cinemas. This is an idea that Apple was toying which but an idea that faced a lot of negative feedback from cinemas due to the potential loss of revenue from concessions. Disney might have better luck with it.

What Wireless Bands Will the New iPhone Support?

As we approach September and the anticipated announcement of the next iPhone(s), speculation is running high about what game-changing new features will be offered — glass body, wireless charging, high quality screen, AR, and so on. But an under-addressed question is whether the Apple’s next phone will support all the new wireless spectrum that is being deployed. There has been a lot of action on the spectrum front: recently completed 600 MHz auctions; operators’ launch of new LTE bands; rollout of LTE Unlicensed; and the awarding of FirstNet. Not surprisingly, Apple and the operators have been mum on the wireless specs of the new device. Lots of ‘no comments’ in response to inquiries. But there are 3-4 important bands which the iPhone 8 (which we’ll call it for the sake of this column) will need to support in order to be competitive with the current state-of-the-art, and keep up with what the operators are planning to launch over the next year on the LTE and LTE Advanced roadmap.

Big question #1 is whether the iPhone 8 will support Band 66, also known as AWS-3 (2100 MHz). This was the big piece missing from the iPhone 7, and Apple received quite a bit of criticism for that omission. This is an important capacity band for AT&T and T-Mobile, especially (DISH also has spectrum here). Most competing flagship phones, such as the Galaxy S8 and LG G6 support this band. It would be a huge gapper if Apple didn’t support this, so I’d give this a 95% likelihood.

Next up is Band 71, and this one is likely to land in the ‘no’ category for the iPhone 8. Band 71 is 600 MHz spectrum band from the recently completed incentive auction. T-Mobile and AT&T were the big winners here, with DISH and Comcast also picking up healthy chunks of spectrum. Because of its dearth of low-band spectrum, T-Mobile is especially eager to deploy services in the 600 MHz band. The company has said it plans to have commercial operations in the 600 MHz band later this year, which is “when new 600 MHz smartphones from leading smartphone manufacturers are anticipated to arrive”, the carrier said in a June press release. We do expect some flagship devices supporting Band 71 to be made available by the end of the year, but I’m not betting on the iPhone 8. In part, that’s because Apple does not tend to support bands that have not been widely deployed. Additionally, Apple’s tilt toward Intel (and/or the use of multiple modem suppliers) would reduce the likelihood of 600 MHz support, since Intel’s latest chip does not support Band 71. So that would be a bit unfortunate for T-Mobile, especially since 600 MHz is a key part of its strategy to narrow the coverage gap with AT&T and Verizon, especially outside cities.

The next big question pertains to LTE Unlicensed. LTE-U provides additional speed and capacity using carrier aggregation in the 5 GHz (Wi-Fi) band, as part of LTE Advanced. T-Mobile announced LTE-U support in six cities in June, with more planned in the coming months. Verizon is also planning to launch LTE-U in 2017. LTE-U utilizes Bands 252/255. The Samsung Galaxy S8 is the one flagship phone currently available that supports LTE-U. To me, it’s a toss-up as to whether the iPhone 8 will support this band, since it’s still in the relatively early stages of deployment. Given that some current and planned competing phones support LTE-U, I’d put the likelihood at 50% or better.

Finally, there’s FirstNet, which is the LTE-based Public Safety Broadband Network in Band 14 of the 700 MHz spectrum. AT&T was awarded the contract for FirstNet earlier this year, and will likely start building the network in earnest in 2018. In addition to deploying 20 MHz for public safety agencies, AT&T will also have the ability to use 40 MHz of spectrum for commercial cellular services. The first group of devices to support FirstNet are likely to be more ruggedized, purpose-built phones, such as the currently available Lex F10 from Motorola. I’m not optimistic that the iPhone 8 will support this band.

The ability of the latest devices to take full advantage of cellular networks’ improved coverage, greater capacity, and faster speeds are as important as all the whiz-bang features promised with the current and anticipated crop of flagship phones. For example, T-Mobile has extolled the Samsung Galaxy S8 as one of the first phones capable of supporting so-called ‘Gigabit LTE’ phones, which is achieved through a combination of carrier aggregation, 4×4 MIMO, and 256 QAM. So for all those having all sorts AR and AI dreams about the next iPhone, let’s also hope that Apple will continue to support the state-of-the-art in cellular.

Apple’s AI Chip

Reports from Bloomberg suggest Apple is working on designing a new piece of silicon specifically for AI or more likely Machine Learning. Anyone tracking semiconductor trends could predict this since nearly every company working on AI/ML is using or designing a companion chip like a dedicated ASIC or FPGA for their AI efforts. At a fundamental level, these dedicated companion processors that are programmed for specific tasks are better suited for a range of tasks and AI is one of them.

Most companies are using these companion processors for inference, which is what happens after the computer is trained and you ask it a question. The trend in machine learning is to use the CPU/GPU to teach the system and then use a dedicated co-processor to handle the inference. Nearly all benchmarks I’ve seen confirm this process speeds up the computers ability to answer a question dramatically. A practical example of something like computer vision is once you have trained a system (using the CPU/GPU) to recognize a dog the dedicated AI chip for inference is what is doing the work to identify the image is a dog. Experts in the AI/ML industry as well as some of the best silicon architects I know have concluded this heterogeneous architecture is the right path forward.

This is why it makes all the sense in the world for Apple, a company who looks to design every piece of silicon it can that will give their products a superior and differentiated experience, to develop a dedicated chip for their AI efforts. I suggested this very thing last year when we discovered the iPhone 7/7 Plus had an FPGA in it for the first time. This FPGA was being used for sensor fusion (to manage a number of the sensors more efficiently, but it signaled Apple understood these specially designed co-processors were optimal for efficiency and performance.

So What Might This New AI Chip Do?
A high-level point I’ll make is here is much of Apple’s machine learning applications are hiding in plain sight, and you wouldn’t recognize them if you didn’t know what you are looking for. For example, when you are at your office, or any location not your house, and you pick up your iPhone, and it says it will take you X number of minutes to get home. That is Apple’s machine learning at work looking at your location, looking up the traffic/routes, and letting you know its estimate of your time to get home. Or when a get a phone call from a number you don’t recognize, and under the number, there is text saying “maybe John Smith.” This is Apple’s machine learning at work looking on your device for this phone number in case it is associated with this contact (like in an email) even if you didn’t add the number to your contacts. Or when you pull up Apple Maps to look for directions and start searching for an address for an upcoming meeting, and below the search box the address pops up automatically because it saw this address in your email. That is Apple’s machine learning working indexing address data in your email and date/time information, and it anticipated you might look for this address at some point. All of this happens behind the scenes and it is a complex series of algorithms which accomplish these feats, and they are all tactics in machine learning.

One of the things a casual iPhone owners may not recognize is that iOS is always learning about them, and to a degree, becoming customized uniquely for them. iOS is a learning operating system that conforms to its owner. While this is still very early in how it is done, this is essentially how Apple is designing their operating systems and apps, and this AI chip will likely move this ambition forward in leaps and bounds.

Another way we may see the benefits of this chip right off the bat is with Apple’s rumored new facial recognition system. This solution will undoubtedly have extremely sophisticated software working behind the scenes for what is being called FaceID. The system will need to recognize your face in the dark, from all angles, be secure and not fooled by a picture of you so will require 3D mapping, as a few examples. But some new recent leaks even suggest the front facing camera sensors may indeed gain some intelligence as well. This feature in particular, suggested the iPhone will know when you are looking at it and add some intelligent context to things like notifications in this case.

Given computer vision is one of the most computationally intense use cases out there, I suspect a range of intelligent features to come to the iPhone camera app as well. This can expand beyond simple effects to even identifying people in real time, not taking a picture if everyone is not smiling, and even using Siri more specifically for things like a selfie. While I appreciate Apple’s Siri promos with the Rock when you ask Siri to take a selfie all it does is launch the camera but not take a selfie. I hope this evolves so when I say “hey Siri take a selfie” the app opens and Siri then says “let me know when you are ready.” Then I say “ready, ” and it waits until I’m smiling and the picture is the best it can then take the picture. Just one example of others I can think up.

The bottom line is, a dedicated and specifically designed piece of silicon from Apple’s world class design team makes all the sense in the world. Apple is uniquely positioned to do this and provide a superior AI experience at the core of their learning operating system. The competition will try, but it will be extremely difficult to match the on device learning from Apple.

There is a quote that has been bounced around, with some debate to who said it, that says “a computer should not ask you a question it knows the answer to.” This has been a notoriously difficult but I suspect Apple’s custom effots in silicon and tuning that software specifically toward more intelligence and adaptive OS/apps we will start to get closer to this vision. We have talked about Apple designing an anticipation engine and I’m certain this AI chip will help greatly in this effort.

The Risks of Facebook’s Video Pivot

Facebook on Wednesday afternoon unveiled its Watch tab, which will be the new home for video viewing on Facebook and serve as a showcase for existing as well as new and exclusive video within the app. This effort follows several months’ availability of Facebook’s apps for various TV platforms, which have served as a test of sorts for the new in-app video tab. Facebook is clearly hoping that its big video push makes it more competitive against YouTube and allows it to both increase time spent in its apps and generate higher ad revenue, but there are significant risks to this pivot.

The Evolution of Facebook’s Video Strategy

Facebook’s strategy around video has evolved over the last few years in much the same way as its mobile strategy had to evolve around the time of its IPO. Back in early 2014, Facebook talked about video mostly in a passive way, discussing the rise of sharing of video on its service by users, and its expectations that this sharing would grow as smartphones became more capable and widespread. A year later, Facebook was actively talking about proactively building a platform for video, and in 2016 Mark Zuckerberg began talking about video as a third phase in a shift that had already seen the majority of Facebook content go from being text-based to image-based.

The last couple of years have seen an active investment by Facebook in not just tools for creators but in content itself, first around live video and more recently around produced video which would eventually end up in the Watch tab it announced this week. It has primed the pump by subsidizing the creation of content to populate that tab and increase the amount of high-quality content available on Facebook, while also creating new ways for video creators to monetize on its platform, starting with mid-roll ads. Now we’re seeing the creation of a place within the mobile app where the vast majority of users engage with Facebook which is explicitly devoted to video.

The Theory and the Risks

Facebook’s strategy here is fairly transparent: as consumption of content on Facebook has shifted from text to images to video, the content consumed has gone from being hosted on Facebook to being hosted elsewhere, notably YouTube. That, in turn, has meant that any ad revenue generated directly from the viewing of those videos has gone into Google’s coffers rather than Facebook’s. As such, it wants to shift that viewing and the associated ad revenue from YouTube to its own platform, much as its Instant Articles initiative has done that for news articles. In the process, it clearly hopes to increase time spent on content hosted on Facebook servers, and generate the higher CPMs that video ads command. That’s the theory.

However, there are a number of risks associated with this strategy, at least some of which stem from the decision to autoplay videos in the News Feed with the sound off. That, in turn, meant that ads could never run before videos as they do on YouTube, and mid-roll advertising was therefore the only viable option to monetize video on the platform. We’ve seen a push in that direction over recent months, and it’s the anecdotal evidence I’m seeing from that push that has me worried here. The chart below illustrates both the theory and the risks associated with this new video pivot:

As shown in the chart, the theory from the Facebook side is that total time spent will go up, and that the ads people see while watching video will generate higher CPMs. The risks are as follows:

  • The time people do spend will shift from the News Feed to the Watch tab
  • The nature of ads they will see will go from being native and non-interruptive to being non-native and extremely interruptive
  • Facebook will go from ad formats where it keeps essentially all the revenue to models where it has to pass along much of the revenue to content owners and therefore generate lower margins, as Mark Zuckerberg confirmed on the company’s recent earnings call.

All told, there’s a significant risk here that instead of people spending more time on Facebook, people try spending some time in the new Watch tab, which Facebook will no doubt promote heavily as it has with the Marketplace and other recently added tabs, and then be put off by the mid-roll ads which will run in the videos they see there. The few ads that people do see, meanwhile, will generate less margin for Facebook than the highly profitable ads they currently see in the News Feed. Instead of increasing time spent and ad revenue generated, Facebook could actually turn people off and end up with less revenue.

Autoplay Will Turn Out to be a Costly Unforced Error

I return here to the decision to run videos in an autoplay mode without sound, which massively increased engagement with videos and therefore served that purpose well, but made it impossible for Facebook and its content partners to monetize those videos in the way that other ad-supported online video is monetized. People simply aren’t used to watching video on either Facebook or YouTube which breaks partway through and shows ads, and Facebook only has itself to blame for limiting its options now that it’s ready to turn on monetization for video. The great irony is that Facebook is now turning sound on by default for these autoplay videos, eliminating arguably the most effective aspect of the format and in the process neutralizing any benefits it might have gained from it in the first place.

It’s still possible that Facebook may be able to work its way through what at this point looks like a really costly unforced error. Perhaps the new content available on Facebook will end up being so compelling that the digital natives who’ve grown up on YouTube videos will sit through the ads anyway, but a generation trained on pre-roll ads on YouTube and no ads at all on Netflix is likely to have a tough time with random ads in the middle of very YouTube-like videos on Facebook. And that may make the hard pivot towards video Facebook is about to embark on really tough.

Why Face and Eye Scanning Will Replace Passwords

Apple’s upcoming iPhone 8, or whatever they will call it, has been in the news a lot lately. Reports suggest that the company has had trouble getting Touch ID on the glass screen to work and instead may be moving to using the camera for ID and eye scans to replace the using a fingerprint for Touch ID.

I hope this is true because this is by far the easiest and, what I consider the best way, to authenticate a person when accessing their iPhone. Samsung has this feature on the new Samsung 8S, and it is a dream to use instead of the fingerprint reader on the back that is very awkward.

I have recently been using the newest version of Windows 10’s Hello feature that gives a person the option of using face scanning technology to open their PC’s or laptops or a numerical code instead.
While I have entered a numerical code as a back up for access, I authorized it to scan my face and use face recognition as the primary means to allow me to secure access to the three Windows laptops I use at any given time. What is interesting to me is how seamless and fast this type of access delivers and reminds me of the days when I opened up a laptop to start working albeit without any form of access security.

That is the real objective of using face scanning as a password and makes the process so easy that a person hardly even knows they are on a protected device. While using a thumbprint or even a password is not a big obstacle in accessing a secure device, it still adds at least one or two steps to the sign in process as opposed to what is delivered by a secure face or eye scan.

Historically I go back to the earliest days when fingerprint readers were being evaluated for use in PC’s and especially laptops. Over time many of the PC vendors, especially Lenovo, added the fingerprint scanner/reader to some of their laptops and it became a design feature that all laptop makers either considered or implemented in at least some models. However, the uptake or use of these fingerprint readers were slow to be adopted, and even today, less than 50% of people even use them for secure access and defer to log in passwords or numerical codes instead.

But I see Face recognition and eye scanning for secure login as being the next really big technology that will adopt en masse and should Apple add this feature to the newest iPhone models, its adoption rate across all devices will accelerate.

In fact, Interest in eye and face scanning for secure login is on the rise from many of the big companies. EyeVerify, whose investors include Sprint and Wells Fargo that participated in a $6 million round, suggests that eye authentication is now of real interest to both telcos and banks. EyeVerify was recently acquired for reportedly $100M in cash by Alibaba’s payments arm, Ant Financial, to increase user trust and safety in financial transactions.

But Face recognition and eye scanning have much broader uses as well. Walmart is testing facial recognition technology in its stores, aimed at improving the customer experience (CX) by better understanding and responding to in-store customer sentiment. And if you are a fan of CSI or many of the spy thrillers in the movie theaters you know that eye scanning is used all the time to let people get into highly secure areas.

Although Samsung and Microsoft have been using eye scanning for secure access for some time, Apple doing so would move this into the much broader mainstream market. Given Apple’s customer reach and impact, it would make eye scanning a much more important means for people to use to open their secure iPhones and perhaps some day very soon, the iPads and Mac’s too.

Samsung’s Users are Ready for the Galaxy Note8 and so is Samsung!

Last week I was in Korea to experience a new direct-lit LED Cinema Screen recently launched at a Lotte Cinema in Seoul. While I was there I had the chance to sit down with the President of Samsung Electronics Mobile Communications,  D.J. Koh, and CMO Younghee Lee to talk broadly about Samsung’s future. The focus was on what they learned from the Galaxy Note7 (Note7) issues and how committed they are in regaining the trust of the millions of Samsung users out there.

What Happened Since the Galaxy Note7 Recall

Back in January, Samsung held a press conference in Korea detailing what caused the Note7 incidents as well as what steps Samsung was taking in making sure there would be no risks for the future.  During the press conference, Mr. Koh and executives from UL, Exponent and TUV Rheinland, who lead an independent investigation into various aspects of the Note7 incidents explained that in both cases the short circuit was caused by a damage to the separator that keeps the positive and negative electrodes from meeting with the jellyroll. In the case of battery A, the tip of the negative electrode was incorrectly located in the curve of the device. In the case of battery B, the high-welding burrs 0n the positive electrode resulted in the penetration of the insulation tape causing direct contact of the positive tab with the negative electrode.

Since then, Samsung implemented multi-layer Safety Measures that improved safety standards for the materials in battery design, added brackets around battery protection and improved algorithms that regulate battery charging.

Samsung also collaborated with the MIT Technology Review on a white paper that was published last week. The report shared more insights into the new 8-Point Battery Safety Check Samsung started implementing with the Galaxy S8 and S8+.

There is no doubt that Samsung went far and beyond the call of duty with this new process, with a goal of sharing its finding with the broader industry. While initial communication around the recall could be faulted, the rigor of the investigation and the follow-up steps taken cannot. Samsung has tried to be very transparent about how it can work to avoid another incident and also how to be better prepared in case something might happen again. Catching the issue at production is almost as important as avoiding the issue in the first place.

Samsung Smartphone Owners are Ready for the Note8

No matter what Samsung says and does though, at the end of the day, what really matters is neither the reports reassuring everything is under control nor the press articles still referring to the Note7 explosions. What will make a difference to Samsung Galaxy Note8 sales rests in the confidence consumers still have in the brand.

This week, SurveyMonkey Audience released the results of a study they conducted among 1000 US consumers to gather their interest in the upcoming smartphone as well as their view of the Samsung brand.

I will focus my analysis on Samsung current owners vs. overall smartphones owners because the Note family has not been a mainstream device. Its large screen size and pen input were not for everyone and certainly not a device than in the past generated a lot of churn from iPhone.

So, how do current Samsung owners feel about the brand?

Brand loyalty remains strong, as current owners are either extremely likely (47%) or very likely (34%) to consider Samsung when it is time to replace their current device.

Awareness of the upcoming Note8 release is good across all smartphone users interviewed with only 38% saying they have not heard about it. As you would expect, awareness among Samsung current owners is much higher with 25% saying they like to keep up with the latest news relating to Samsung devices and another 46% saying they heard about the Note8 but they don’t know much about it.

When it comes to the most interesting features rumored to be coming with the new model, 70% of Samsung current owners are most interested in the phone being waterproof, 35% in the dual camera and another 35% in the Fingerprint scanner.

For current Samsung owners, the top three most appealing reasons they would consider a Note8 are Features (52%), Reliability (50%), and Large Screen Size (38%). These data points underline that the Note as a device family has been seen by Samsung users as the flagship product. The Note7, in particular, with its strong feature set really helped to broaden the appeal to a wider audience outside of the large screen lovers. Reliability, as the second most wanted feature, does not seem to signal much concern that what happened with the Note7 might repeat with its successor.

If this were not enough of an indicator, when current Samsung smartphone owners were asked if they would consider buying a Note8 in the aftermath of last year’s recall, 45% said yes and 37% says maybe leaving only 18% saying no. Among the rejecters, the strongest reasons for lack of consideration is the high cost (31%) while the issues with the Note7 impact intention for another 28%.

Interestingly, most concerns seem to vanish when cost is not an issue. When current Samsung smartphone owners who said they would not consider buying the Note8 were asked if they would use a Note8 if it were free, 66% said they would and another 27% said maybe while only 7% said they would not.

Note Owners are Samsung’s Fiercest Fans

When you look at some of the data I just shared, but narrow it down to Note7 owners, the loyalty to the Samsung brand and the passion for the product comes across very strongly. Although the base size in the sample is more limited compared to the other cohorts, I think this data gives a good indication of how this segment behaves.

Note7 owners still think very highly of Samsung with 37% saying they find the brand extremely reliable and another 43% saying it is very reliable. When it comes to their next phone 43% are extremely likely to consider a Samsung device and another 30% are very likely.

It will come as no surprise to see that only 20% of the current Note7 owners have not heard about the Note8. What is very interesting is to see that 63% of Note7 owners would consider buying a Note8 and another 24 would maybe consider it.

The Note7 recall did, however, shake its owners’ loyalty somewhat, as you would expect with all the publicity the incidents drew. When it comes to the three most appealing reasons for considering a Note8, features comes first at 52% and a better camera comes second at 59% followed by a large screen size at 43%. Reliability, that came second among overall Samsung owners, drops to fourth place at 33% among Note7 owners. This to me shows a somewhat coy stand on the Note brand but one that does not reflect on the overall brand and certainly not on the overall benefits users see with this device.

Ultimately sales will tell if Samsung is really over the Note7 incident but the signs leading up to the launch and the performance of the Galaxy S8 thus far seem to indicate that it is the case.

A Thesis for Augmented Reality

We are on the cusp of watching something we have been talking about for a while go mainstream in a big way. That thing is Augmented Reality. With Apple’s ARKit and from what I’m hearing a Google ARKit competitor for Android coming soon, these new tools will usher in a new wave of app development and innovation. I’ve stated my point that AR will go mainstream through the smartphone and eventually to other displays. It is the topic of what those other displays may be I want to address today.

Over the weekend, rumors went wild about Apple’s supposed working on multiple form factors for AR glasses. This should come as no shock to anyone since Apple R&D labs likely have prototypes of nearly anything we can dream up. When thinking about the future of augmented reality, everyone seems to assume glasses. It’s possible that is the case. However, I’m willing to bet a plethora of screens in our life will rely heavily on AR, not just one.

One of the initial challenges we will have with AR is the limitations of the human eye to begin with. This became evident when I tried Google Glasses and many others I tried a few months ago at an Augmented Reality conference I attended. In nearly every example, the display presented quite a bit of information on the lenses, which required me to change my eyes focus to the lens in front of me and away from what I was looking at visually. This requires a tremendous amount of energy and the result is I entirely lose my peripheral vision. I’ve seen this as well in some futuristic automobile demonstrations where the windshield in front of you simply displays you information like any screen today instead of overlaying that information onto an object you are looking at like a street sign. There is a huge difference between these two approaches and the latter is key to my thesis on Augmented Reality.

Luke Wroblewski designed a great series on things that make sense to overlay digital information on in an augmented sense. Here are a few images but check out his whole series.


Luke makes clear at the beginning of his post he is making an assumption that AR tech will have eye tracking. Eye tracking is non-existent in every demo today because the technology is not yet militarizable enough to show up in glasses or compact headset. Eye tracking is technology where sensors that are pointed at your eyes can tell what you are looking at with precision. I’ve done a number of eye tracking demo’s in a few R&D labs where a mouse/curser has been modified to point exactly where my eyes go on a display. It is pretty scary how well and precise this works. Once my AR headset knows exactly what I’m looking at it will make it easier to overlay information on the object. This is key in having a user experience that makes sense for AR. As I mentioned, if the display just pops up information and causes me to change my focus it will distract me from the real world vs. enhance it which is the ultimate promise of AR.

In exploring other commercial applications in existence I found this trend applied as well. A few friends of mine in the Air Force confirmed their heads up displays in their helmets never cause them to change their focus on what they are looking at yet overlays the information they need on their target or map, etc. There is also mounting scientific research that displaying information to close to the eye puts significant strain on the eye and can lead early eyesight issues. This is the danger we face if augmented reality displays are treated simply as a display instead of just overlaying information on objects we are looking at in the world.

Beyond Glasses
Part of my thesis on AR goes beyond glasses as well. Glasses may be a key part of the experience since they are the one form factor which will have precise eye tracking, however, during this transition I think transparent displays will play a key role in maturing AR. It is entirely possible our smartphones will have a transparent display before humans embrace glasses as the primary display in their life.

Much science fiction captures this well. If you look at any major science fiction show or movie in the last decade, you will notice all their personal communications devices have transparent displays. They even often hold those displays over an object and use it to gain more information on what they are seeing.

Thanks to AR changing the behavioral paradigm with our smartphones, we will observe humans using this out in the world. We will watch in cities, stores, malls, parks, etc., as people hold their phones up and look through them at something. The upside for glasses is how this new behavior will highlight a pain point of having to hold your phone up in front of your eyes for long periods of time. Glasses will relieve this burden and likely become an attractive solution at some point in the distant future.

Like all new things, this technology is going to take time to go mainstream. Humans do not change behavior quickly, and they adopt new technologies very slowly. When I told someone I thought the adoption timeline would be more like ten years between the tech maturing, prices dropping, and humans embracing new behaviors they were shocked at how long the time line seemed. But I reminded them that HDTV took ten years to become fully adopted by the masses. To my knowledge, there have been few more technologically and visually compelling things in the last 15 years than HDTV to the masses, and it still took 10 years. So my timeline could actually be aggressive rather than conservative.

IoT Connections Made Easy

For long-time tech industry observers, many of the primary concepts behind business-focused Internet of Things (IoT) feel kind of old. After all, people have been connecting PCs and other computing devices to industrial, manufacturing, and process equipment for decades.

But there are two key developments that give IoT a critically important new role: real-time analysis of sensor-based data, sometimes called “edge” computing, and the communication and transfer of that data up the computing value chain.

In fact, enterprise IoT (and even some consumer-focused applications) are bringing new relevance and vigor to the concept of distributed computing, where several types of workloads are spread throughout a connected chain of computing devices, from the endpoint, to the edge, to the data center, and, most typically, to the cloud. Some people have started referring to this type of effort as “fog computing.”

Critical to that entire process are the communications links between the various elements. Early on, and even now, many of those connections are still based on good-old wired Ethernet, but an increasing number are moving wireless. Within organizations, WiFi has grown to play a key role, but because many IoT applications are geographically dispersed, the most important link is proving to be wide-area wireless, such as cellular.

A few proprietary standards such as Sigfox and Lora, that leverage unlicensed radio spectrum (that is, unmanaged frequencies that any commercial or non-commercial entity can use without requiring a license) have arisen to address some specific needs and IoT applications. However, it turns out traditional cellular and LTE networks are well-suited to many IoT applications for several reasons, many of which are not well-known or understood.

First, in the often slower-moving world of industrial computing, there are still many live implementations of, along with relatively large usage of, 2G networks. Yes, 2G. The reason is that many IoT applications generate tiny amounts of data and aren’t particularly time-sensitive, so the older, slower, cheaper networks still work.

Many telcos, however, are in the midst of upgrading their networks for faster versions of 4G LTE and preparing for 5G. As part of that process, many are shutting down their 2G networks so that they can reclaim the radio frequencies previously used for 2G in their faster 4G and 5G networks. Being able to transition from those 2G to later cellular technologies, however, is a practical, real-world requirement.

Second, there’s been a great deal of focus by larger operators and technology providers, such as Ericsson and Qualcomm, on creating low-cost and, most importantly, low power wide area networks that can address the connectivity and data requirements of IoT applications, such as smart metering, connected wearables, asset tracking and industrial sensors, but within a modern network environment.

The two most well-known efforts are LTE Cat M1 (sometimes also called eMTC) and LTE Cat NB1 (sometimes also called NB-IoT or Narrowband IoT), both of which were codified by telecom industry association 3GPP (3rd Generation Partnership Project) as part of what they call their Release 13 set of specifications. Cat M1 and NB1 are collectively referred to as LTE IoT.

Essentially, LTE IoT is part of the well-known and widely deployed LTE network standard (part of the 4G spec—if you’re keeping track) and provide two different speeds and power requirements for different types of IoT applications. Cat M1 demands more power, but also supports basic voice calls and data transfer rates up to 1 Mbps, versus no voice and 250 kbps for NB1. On the power side, despite the different requirements, both Cat M1 and NB1 devices can run on a single battery for up to 10 years—a critical capability for IoT applications that leverage sensors in remote locations.

Even better, these two can be deployed alongside existing 4G networks with some software-based upgrades of existing cellular infrastructure. This is critically important for carriers, because it significantly reduces the cost of adding these technologies to their networks, making it much more likely they will do so. In the U.S., both AT&T and Verizon already offer nationwide LTE Cat M1 coverage, while T-Mobile recently completed NB1 tests on a live commercial network. Worldwide, the list is growing quickly with over 20 operators committed to LTE IoT.

In fact, it turns out both M1 and NB1 variants of LTE IoT can be run at the same time on existing cellular networks. In addition, if carriers choose to, they can start by deploying just one of the technologies and then either add or transition to the other. This point hasn’t been very clear to many in the industry because several major telcos have publicly spoken about deploying one technology or the other for IoT applications, implying that they chose one over the other. The truth is, the two network types are complementary and many operators can and will use both.

Of course, to take advantage of that flexibility, organizations also require devices that can connect to these various networks and, in some cases, be upgraded to move from one type of network connection to another. Though not widely known, Qualcomm recently introduced a global multimode modem specifically for IoT devices called the MDM9206 that not only supports both Cat M1 and Cat NB1, but even eGPRS connections for 2G networks. Plus, it includes the ability to be remotely upgraded or switched as IoT applications and network infrastructures evolve.

Like many core technologies, the world of communications between the billions of devices that are eventually expected to be part of the Internet of Things can be extremely complicated. Nevertheless, it’s important to clear up potential confusions over what kind of networks we can expect to see used across our range of connected devices. It turns out, those connections may be a bit easier than we thought.

The Big Six in Q2 2017

Every quarter, one of the decks I put together as part of my Jackdaw Research Quarterly Decks Service is a comparison of financial and operating metrics for the “big six” consumer tech companies – Alphabet, Amazon, Apple, Facebook, Microsoft, and Samsung. As I’ve done for several previous quarters, I’m also doing a quick run-through here of some of the highlights from this quarter’s deck. And you’ll find the full deck embedded at the bottom of this post. You can learn more about the Jackdaw Research Quarterly Decks Service here.

Some Context

Before we dive into individual charts, it’s worth noting some trends and themes that will provide useful context for this quarter’s comparisons:

  • Samsung had its best quarter ever, with record revenues and profits, driven largely by its semiconductor business, but also to an extent by the slightly later than usual launch of its new flagship smartphones
  • Microsoft closed its acquisition of LinkedIn in Q4 2016, and the employees and revenues associated with that business now show up in its reported results
  • Facebook has been warning of a slowdown in ad revenue in 2017 since late last year, due to the saturation of ad load within the News Feed, where most of its ads show up, but there’s so far little sign of it, though it says it should show up in H2 2017. Meanwhile, it’s begun investing more heavily in video content and is driving a shift to video advertising, which will have lower margins than its traditional advertising
  • Amazon appears to be entering another phase of higher investment in pursuit of growth in its e-commerce, AWS, and even advertising businesses, hiring rapidly and raising capital expenditures significantly over the past year, and that is now flowing through to lower profits
  • Apple is in the middle of a return to growth, after three quarters of decline, and that growth appears to be accelerating a little ahead of this fall’s widely reported launch of its first dramatically different iPhones in years
  • Alphabet is in some ways the most stable of these businesses, providing fairly predictable revenue growth and margins, though it’s also undergoing a big push around enterprise cloud services while reducing capital expenditures and cutting costs in its Other Bets business.

With that out of the way, let’s get on to some of the key comparisons.

Revenues and Revenue Growth

As it did last year, Samsung came out on top in terms of revenue in Q2, beating out Apple in its lowest quarter of the year, thanks to its strong semiconductor and to a lesser extent smartphone growth. On an annualized basis, though, Samsung remains far behind Apple, where it’s been ever since its fall from its peak in 2014. Meanwhile, Amazon continues to rapidly close the gap with the top two on an annualized basis, and had by far the strongest dollar growth year on year of any of the six companies, a position it’s held ever since Apple began to come down from the massive growth cycle it experienced in 2015 thanks to the iPhone 6. Facebook, meanwhile, remains by far the smallest of the six in revenue terms, though its year on year dollar growth matches that of Samsung, and its percentage growth rate year on year outstrips all the others by a considerable margin. All of these results are shown in the charts below, which you can magnify by clicking on them.

Profitability

When it comes to net profits, Samsung came out top this quarter, for the first time since its earlier peak in 2013, with Apple out in front in the interim. However, it’s worth noting that this doesn’t make Samsung “the most profitable tech company” as I’ve seen numerous headlines suggest: as with revenue, on an annual basis Apple remains far out ahead, and this quarter’s result was a quirk of a particularly strong quarter from Samsung in what’s seasonally Apple’s lowest quarter. Meanwhile, Facebook continues to close the gap with Microsoft and Alphabet in dollar terms, reaching nearly $4 billion of net profit in the quarter, and it closed the gap significantly in operating profit dollars. On net margin, Facebook remains way out ahead, with what has been a largely unbroken rise over the last couple of years to over 40% net margins. Microsoft came in second in margins this quarter off the back of a tax gain, while it and Alphabet were essentially tied in dollar terms. Amazon, meanwhile, saw a dip to its lowest net margin in two years.

Investment: Capex, R&D, and People

We’ll look lastly at three measures of investment: capital expenditures, research and development spending, and hiring. On the capex side, Samsung has dramatically increased its investment recently, with much of the investment going into its semiconductor business to support capacity increases to meet recent high demand. Samsung’s overall capital intensity is now nearly 20%, but in its semiconductor business it was over 40% in Q2, a level almost unheard of in such a mature business. Samsung is now ahead of the pack in both dollar spending, by quite some distance, and in capital intensity as well. Facebook, too, spends highly as a percentage of revenue on capex, investing heavily in data centers in particular. Apple’s capex continues to fluctuate widely from quarter to quarter based on the timing of specific investments across the year, and tends to manage its capex budget on an annual rather than quarterly basis as a result.

When it comes to R&D spending, the picture looks rather different. There, it’s Alphabet that’s out ahead in dollar terms, with a rapid rise over the last few years, despite a brief slowdown in late 2016. Much of Alphabet’s Other Bets segment is in areas where there’s high R&D spend and little revenue to show yet, so this likely contributes significantly to overall R&D spending, but it also spends heavily in its core business. Samsung and Microsoft spend at very similar levels, with Apple just a little behind in dollar terms, and Facebook spends by far the least, though its spending is also rising rapidly. On a percentage basis, however, it’s again Facebook that leads the pack, spending over 20% of its revenue on R&D, with much of that spending driven by high stock based compensation costs in some of its acquired businesses like Oculus. Apple, meanwhile, has increased its share of revenue that goes to R&D from 2.5% to 5% over the past few years, but still lags considerably behind almost all the others in percentage spend due to its sheer size.

Lastly, when it comes to hiring, Amazon continues to be in a league of it own, and now employs nearly 400,000 people globally, with over 100,000 of those added in the past year (with the increase roughly equivalent to either Apple or Microsoft’s total headcount a year ago). And of course the composition of these companies’ workforces is very different, with many of those Amazon employees being warehouse and fulfillment center workers, while most of those at its competitors work in engineering roles, with the exception of Apple’s large retail workforce.

That has implications for revenue per employee, where Amazon continues to be the lowest, and Apple remains just in front of Facebook. However, Amazon said on its most recent earnings call that an increasing proportion of those it’s hired lately have been sales people for its AWS and advertising businesses, with the latter a fast-growing but often overlooked part of Amazon’s overall operation. Facebook managed to hire more people than Alphabet this past quarter as it accelerates its own investment in sales and other parts of its workforce, and both of those companies are predicting a rapid rise in the second half. Apple, meanwhile, slowed hiring as its revenues fell, and although there have been some signals of a rise recently, we’ll have to wait for its 10-K for formal confirmation. Microsoft, meanwhile, added roughly 10,000 employees when it acquired LinkedIn, but has also made layoffs in its sales organization twice in the past year or so, and continues to shrink its manufacturing headcount following the decline of its phone hardware business.

 

Why Tech Execs are Eyeing a Run for Political Office

There have been many stories written recently about Facebook’s CEO Mark Zuckerberg doing a tour of America to try and find out what people all over the US are thinking and are concerned with these days. He called it a fact finding trip and stated it had no political focus. But according to an article in Politico, Zuckerberg recently “hired a Democratic pollster, Joel Benenson, a former top adviser to President Barack Obama and the chief strategist for Hillary Clinton’s failed 2016 presidential campaign, as a consultant, according to a person familiar with the hire. Benenson’s company, Benenson Strategy Group, will be conducting research for the Chan Zuckerberg Initiative, the couple’s philanthropy.”

While Zuckerberg denies political ambition, the belief here in Silicon Valley is that he is thinking more seriously of some type of political run or campaign that he could launch in the near future or at least understand how he can be more influential in guiding US policy when it comes to the potential impact that technology will play in America’s future over the next 30 years.

There is some interesting history of this type of Silicon Valley political activity and I wrote about this for Fast Company last fall.
Here is a passage that explains the Valley’s early interest and influence on Washington:

“During my 35 years of covering the technology industry, I have seen firsthand how companies have tried to keep an arm’s-length relationship with the government. With some rare exceptions—the Pentagon’s cooperation and collaboration with industry brought us the internet—Silicon Valley has generally tried to avoid federal and state bureaucrats. After all, the less the government knew about what tech companies were doing, the fewer legal and legislative issues the industry would have to deal with. This dynamic no longer works.

In the mid 1990s, a group of technology heavyweights led by Cisco’s then-CEO, John Chambers, and Kleiner Perkins venture capital firm partner John Doerr, along with various other tech leaders, began to realize the Valley would need the partnership of government and politicians for their vision of the future to be realized to the fullest.

Chambers and Doerr et al also foresaw the dramatic impact that the internet and mobile technologies would have on the U.S. and the world. Already back then, Chambers was percolating his ideas of connected cities and the Internet of Things (IoT).

These executives began evangelizing these concepts within the Clinton administration and at the federal agency level. They made an effort to educate elected officials on how technology would impact every level of government, and how it would transform our cities, businesses, and system of education.

To their credit, Clinton and Vice President Al Gore understood what Chambers and Doerr were saying. Clinton and Gore opened lots of doors for the tech leaders in Washington, giving them a chance to share their vision of the future.

At the end of the Clinton era, when Al Gore battled George W. Bush for the presidency, Chambers, Doerr, and other Silicon Valley leaders wisely kept up their efforts to influence both candidates. It became clear that whoever became president would follow President Clinton’s lead and allow Silicon Valley leaders to continue pushing the tech agenda.”

The heart of this recent interest in the tech world getting more involved in politics by either running for office or finding new ways to influence our politicians is the even greater understanding today of the impact of tech on our worlds future and how it could dramatically change American education, jobs, businesses and our personal lives over the next 30+ years.

In a separate piece I did for Time Magazine before the last election entitled “Why Our President needs to take Tech Seriously” I wrote the the following:

“With 5G, it will begin connecting people to devices, and devices to other devices. The latter is called the Internet of Things, and it’s primed to profoundly change our lives, much the way the regular Internet has. It’s also a potentially huge source of growth — Cisco estimates IoT gear and software will become a $14 trillion market over the next decade.

5G isn’t the only innovation on the horizon. Connected and autonomous cars will hit the streets in the next decade. In combination with the IoT, they’ll “speak” to one another and to public infrastructure, helping us build smarter cities. Tech companies will roll out new ways to track our health, connecting us to our doctors to help us stay healthy. Artificial intelligence will be applied to just about everything that technology already touches. Digital security will become an even more vital issue, as businesses and individuals will be increasingly targeted by hackers. The very nature of computers will change, too, as virtual and augmented reality will be established as the new interface of computing, delivering new forms of utility and entertainment.”

I also add to this AR, VR, Machine Learning, Robotics in manufacturing and new advances in medical science and you see that technology is on course to disrupt just about everything that is around us today and well into our future.

“However, for all these innovations to thrive — and deliver potentially huge economic benefits — they will need the help of our elected officials. Lawmakers need to understand these technologies, as they will be called upon to craft new laws and regulations to bring these technologies about smartly and safely.

Therein lies a problem. If you look at our lawmakers across the country, I would venture to guess that most are not very technologically savvy. For our country to truly enjoy the benefits of these new technologies, we’ll need politicians and officials who understand how these innovations work, and how they stand to change our lives.”

Tech execs who understand the role of technology on our future as well as its impact on things like education, the future of manufacturing, world of finance, etc look at our current president and some members of congress and see almost no understanding or vision of what a crucial time we are in our history. When it comes to the role technology will play in impacting every aspect of our business and personal lives and our culture going forward, their lack of tech savviness that will keep America from advancing and allow countries like China, Canada and France and others, who’s leaders embrace technology rather then dismiss it, from potentially leaving us in the dust. Even worse, some of congressional leaders sees tech and science as a detriment to their political goals and have become obstructors instead of visionary backers.

That is why some high powered tech leaders are thinking the unthinkable these days. Many tech execs that I know hate and do not trust our government but are starting to come to the conclusion that a President, Senator and Congressmen and Congresswomen needs to have a greater grasp of how technology will shape our world and country and be tech savvy enough to keep America moving forward now. I am told behind the scenes that some very high powered, forward thinking tech execs who really understand how technology is going to drive so many major things tied to America’s growth and world position are starting to contemplate running for office in many states around America. Their goal would be to gain a stronger position of influence when it comes to the role government must play in guiding how technology is applied and integrated into all of our business and personal lives fairly and equally.

I have no clue whether Zuckerberg will or will not eventually move into politics but I am willing to bet that as more and more tech execs understand the magnitude of what has to be called the great tech revolution of this century, we will see some of them trying to find a greater way to influence our current politicians and even see some begin to run for office in order to influence our government from within as much as possible.

Podcast: SIGGRAPH AMD and nVIDIA, Apple and Tesla Earnings

This week’s Tech.pinions podcast features Ben Bajarin, Jan Dawson and Bob O’Donnell discussing graphics and AI-related announcements from AMD and nVIDIA made at the SIGGRAPH convention, and the earnings reports from Apple and Tesla.

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

What You might have missed: Week of August 4th, 2017

Tablet 2Q17 Sales see Strong Huawei Growth

According to a report published this week by Strategy Analytics, global tablet shipments dropped 7% year-on-year reaching 43.8 million units.

Huawei showed the strongest growth with shipments reaching 3.2 million units up 42% over the same period last year. While these are very encouraging numbers they are also sales into the channel which means that they are not necessarily sold to final customers yet. As Huawei is still building a presence in the channel I would not be surprised to see some of this volume being inventory. The star of Huawei’s portfolio is the MediaPad 3 focused on music and millennials, it is priced very aggressively. It will be interesting to see how Huawei will balance the desire for volume that this kind of product can bring vs. the new line of PCs running Windows that the Chinese manufacturer has been focusing on of late. Other players such as Lenovo have already shifted their focus more to 2in1s running Windows as the Android opportunity was turning into a race to the bottom for both prices and profits.

The other success story during the quarter was Apple. iPad shipments grew 15%. During Apple’s earnings call on Tuesday, Tim Cook specifically mentioned education as a segment that helped iPad sales.  He called out Saint Paul Public Schools district in Minnesota, which deployed 40,000 iPads for its 1:1 program and the Shawnee Mission School District outside Kansas City, which bought 19,000 iPads.

Cook also added that the new Swift Playground app and the coding tools available are getting students excited. He said: “We’re thrilled that over 1.2 million students of all ages are now using iPad and Swift Playgrounds to learn the fundamentals of coding, and over 1,000 K-12 schools across the United States plan to use Apple’s ‘Everyone Can Code’ in their curricula this fall.”

While some pointed out that the new cheaper 9.7” iPad was largely to thank for the growth in sales, the average selling price tells a different story. Average ASP remained, in fact, was flat at $435. This would indicate that even if the new 9.7” model was popular, Apple sold enough of the new 10.5” and 12” iPad Pro models to favorably impact pricing.

Back to school will be a very interesting time to check if iPad Pro models can replace the MacBook Air for college students. The competition will be particularly hot this year as Microsoft added Surface Laptop to its lineup.

Amazon’s Fire sales continue to suffer from the lack of international appeal and I do not see this changing any time soon. “Others” is also in decline, as Android is no longer seen as a viable option. Like in the wearable market, Android is a race to the bottom, a game most PC vendors are just not interested in playing.

Surface Plus

This week, Microsoft announced Surface Plus and Surface Plus for Business, a new leasing program to open the opportunity to own a Surface to a larger audience. Surface Plus is available in the US only either through Microsoft.com or at the Microsoft Stores and it comes just in time for back to school.

Surface Plus offers:

  • Low monthly payments: Customers can purchase a Surface device with an easy, 24-month payment plan at 0% APR.1
  • Device upgrades: Customers can upgrade to the latest Surface after just 18 months.2
  • Dedicated Service & Support: Surface Plus offers best in class service and support from Microsoft Stores. Customers also have the option to add the Microsoft Complete extended service plan.
  • Microsoft Store benefits: All customers who shop at Microsoft Store enjoy access to benefits like a 30-day hassle free return policy, a Surface training and health check as well as a year of free in-store support and technical assistance.

PC as a service is certainly not new, but other PC manufacturers have mostly focused on businesses, not consumers. I mentioned in my Wednesday column that more could be done to drive buzz around the stores to show off the Surface portfolio. While I do not think price has been the key hurdle for Surface, the leasing option will certainly help especially with the 18-month upgrade. This move in the consumer market is perfectly timed as more and more smartphone buyers are choosing leasing options with regular upgrades. Their level of confidence, therefore, in leasing vs buying technology is growing. This is not of course for consumers who have been hanging on to their five-year-old PC but for consumers who want to future-proof their computing experience. I see this targeting the early mainstream segment. A segment that we see as tech savvy users with some disposable income limitations is a sizable chunk, representing between 15 to 20 percent of the overall CE consumer market.

For small and medium enterprises, Surface Plus for Business replaces the Surface membership and offers:

  • Multiple Surface models: Customers can add as many devices as they want into a single agreement and can have a mix of models across the Surface portfolio. This includes the Surface Studio, Surface Hub, and Surface Laptop
  • The latest devices: Previously unavailable, customers can now finance a 55” Surface Hub in addition to the new Surface Pro, Surface Laptop, Surface Book, and Surface Studio to unlock the power of the group in their businesses.
  • Office 365 for Business:. For an additional $8.25 per user per month, businesses can enjoy the ultimate productivity experience on Surface.
  • Flexible Terms3. Businesses can choose flexible 18, 24 or 30 month periods, with the ability to upgrade devices after just 12 months on the 18-month term (or after 18 months on the 24-month term). Businesses can also expand or reduce their device fleet mid-term.*
  • Device Protection: Surface Plus for Business offers peace of mind with the Microsoft Complete for Business extended service plan with accidental damage protection.

This is available for customers in the U.S. via a store or online

Strengthening their PC as a service offering adds, even more, credibility to Microsoft as an enterprise supplier. I see the addition of Surface Hub, in particular, to be very appealing to enterprises especially as millennials and their highly collaborative working practices move into the workplace.

The Burgeoning Commercial VR Opportunity

Consumer uptake of virtual reality might be taking longer than some pundits expected, but the technology is finding robust traction on the commercial side of things. In fact, IDC recently published a Worldwide AR/VR Spending Guide report that predicts commercial spending on hardware, software, and services related to virtual reality will surpass consumer spending on the technology this year. What makes this particularly interesting is that this commercial growth is taking off despite the dearth of commercial-focused hardware in the market.

Strong Uptake Across Numerous Verticals
May of the challenges faces VR in the consumer market, such as the high cost of hardware, the complexity of setup, and the lack of mainstream content, aren’t major issues when it comes to commercial deployments of the technology. And across many different verticals and use cases, the benefits are obvious, and the potential return on investment is clear. IDC’s research on the topic to date has explored VR in 12 different industries and across 26 different use cases. And remember: it is still early days.

Some of the most compelling industry use cases include:

  • Retail: Perhaps the most-cited use case for VR is in high-end automobile showrooms, where potential buyers can view a much wider range of car interiors and options in VR than any dealer could ever stock on the lot. In the future, you can imagine moving beyond simply kicking the tires to being able to drive the car on a virtual track. Retail use cases will expand across all types of products, and may well become one of the ways traditional brick and mortar retailers find to compete with online stores.

  • Education/Knowledge Transfer: From training firefighter to soldiers to educating engineers and school kids, VR is going to drive dramatic shifts in how people learn in the future. In the first scenario, people receive training in situations too dangerous and expensive to simulate in the real world. In the second, students gain access to brand new ways of interacting and absorbing information that is less passive and more active.

  • Manufacturing: VR is already taking off in both process and discrete manufacturing. The use cases are as varied as the collaborative, iterative process of creating products, to the training of engineers and others on how to run massive and complex manufacturing lines. The potential for VR disrupt age-old manufacturing processes—especially when combined with 3D printing—is massive.

  • Healthcare: VR will impact both the practitioners of medical care and those receiving it. On the practicing side, VR will help new doctors learn, and existing doctors see issues in new ways, pre-visualize complex procedures, and gather second opinions from remote colleagues. For patients, VR will offer the ability to better understand what’s going on in their bodies, as well as a wide range of treatment options for mental health issues.
  • Construction: VR is already in use in major construction projects around the world. From initial designs to construction, project pitches to project management, VR is enabling companies to make better buildings and to do it faster. And by pre-visualizing the exterior and interior of a building, the construction company can cut down on costly mistakes, while also allowing the building’s owner to make tweaks during construction, and not after. Eliminating skylights, changing finishes, and moving doors are much less costly if such changes are made before installation and not after.

Growth Despite Key Challenges
IDC has forecast robust growth in all the above areas, as well as a long list of others. And this growth is occurring even though a great deal of the early work here is happening on the consumer-grade hardware that’s available in the market today. Suffice to say, products designed for use by consumers aren’t rugged enough for long-term deployments in commercial settings. This lack of commercial-focused VR hardware is a clear market need the industry has failed to address so far.
Later this year I expect the launch of standalone VR products—based on reference designs from Intel and Qualcomm—to gain more traction in commercial than in consumer. While most consumers have limited need of a VR-only device, companies looking to deploy VR will find the simplicity quite appealing, especially after vendors start building robust, commercial-grade versions.

As the number of hardware options increase and more commercial-centric designs hit the market, the software and services associated with the technology will improve, too. We should also start to see the emergence of more VR standards, which will be key for long-term growth. And in the span of a few short years VR will be quite well entrenched in many of these vertical markets. This represents a large opportunity for the technology companies that service these markets, and an outsized threat to those industry verticals that fail to embrace the technology in a timely manner.

Tech Dominance Begets More Dominance

As we’re nearing the end of earnings season, one of the things that’s become increasingly clear is that the big companies have mostly performed consistently with their past performance, delivering strong growth and profits. Meanwhile, smaller companies have struggled to find growth and profitability, often losing share to their bigger competitors. The recurring theme for me has been that the dominant become ever more dominant, while the smaller players continue to struggle to break in and cross over to the other side of what’s increasingly looking like a chasm.

The Big Get Bigger

On the big side, we have the giants of the consumer tech industry, as measured by revenue or by influence, all of which have now reported their results:

  • Alphabet reported 21% revenue growth and a 24% net margin
  • Amazon reported 25% revenue growth and, an exception among this group, a 0.5% net margin
  • Apple reported 7% revenue growth and a 21% net margin
  • Facebook reported 45% revenue growth and a 39% net margin
  • Microsoft reported 13% revenue growth (aided somewhat by LinkedIn) and a 24% net margin
  • Samsung reported 20% revenue growth and a 14% net margin, with its strongest quarter for both revenues and profits ever.

With one exception, these are highly profitable companies, and with one exception again, they grew by double digits year on year. Beyond the mere financials, though, these companies individually or in pairs or trios dominate key markets:

  • Amazon is increasingly dominant in e-commerce, not taking majority share of spend, but certainly eating up the vast majority of growth in the market
  • Alphabet’s Google and Apple carve up the smartphone operating system market between them
  • Facebook dominates social networking, with no viable competitors on a global basis
  • Amazon, Google, and Microsoft dominate cloud computing
  • Samsung and Apple remain the top two players in the smartphone market, and the only ones to make more than minimal profits in the market
  • Microsoft continues to dominate the PC OS market, with Apple and Google rounding out the rest
  • Facebook and Google dominate online advertising, and especially mobile advertising, and as with Amazon soak up much of the annual growth in the market in the US
  • Amazon and Google dominate the home speaker market between them, with Amazon having the lion’s share
  • Apple dominates the premium smartphone and tablet markets.

I could go on, but you get the picture: these big, successful companies are only becoming bigger and more successful, and more dominant in the various markets where they compete.

The Small Continue to Struggle

Not all of the smaller consumer tech companies have reported yet, but we have enough of a picture from those that have, and from past earnings from those that haven’t, to know what we’ll end up with:

  • Twitter’s revenue declined for the second straight quarter, down 5% year on year, and continues to lose buckets of money, with a negative net margin of 15% in Q2
  • Fitbit saw continued rapid declines year on year in its shipments and revenue, and also saw significant losses
  • GoPro will be reporting on Thursday, and my guess based on last quarter’s results is that losses and revenue declines are on the cards there too
  • Snap reports next week, and although it’s seen decent growth driven by rising ARPU, its user growth continues to struggle and it’s also losing lots of money
  • Smartphone vendors from LG to HTC to Lenovo either have reported or will likely report losses and shrinkage, with few exceptions.

Now, some of this is down to company lifecycles, with both Twitter and Snap still to generate any profits at all in any quarter, while Fitbit and GoPro have been profitable and high-growth companies in the past but have run into trouble. The lower-tier smartphone vendors, meanwhile, have always struggled in markets that offer little differentiation and intense competition and which heavily reward scale and premium offerings.

Barriers to Independent Success Remain High

In an earlier piece, I wrote about the danger of being a one-trick pony in the tech industry, with both Fitbit and GoPro among the examples I cited. And that remains a key issue for these companies, many of which are single-product companies and have failed to build broader platforms and ecosystems that can attract consumers and differentiate against powerful competitors.

But the barriers to success go well beyond that. Many of the largest players in the industry enjoy significant network effects and scale which enable them to quickly ramp up new products and services by selling them to massive installed bases of devices or regular users. I wrote about the power of Amazon’s Prime in this regard last week, but Facebook is another great example. If Facebook feels threatened by a new app or feature offered by a rival, all it has to do is copy it and make it available to its own massive user base of 2 billion monthly active users or the smaller but still substantial WhatsApp, Messenger, and Instagram user bases. The rise of Instagram Stories to 250 million daily active users over the past year, eclipsing Snapchat’s 166 million daily active users as of the end of Q1 2017, is perhaps the perfect example of this.

On the rare occasions when companies and products do manage to break through these barriers and create real differentiated value, they’re often simply acquired by the bigger players. WhatsApp, Instagram, LinkedIn, DeepMind, and others are among the list of companies which had created interesting businesses  or technologies outside of the big tech companies and yet have now ended up being absorbed by them.

For all these reasons, it’s almost impossible to cite an example of a consumer technology company that’s emerged in the last few years and achieved real financial success independently of and despite the dominance of the big tech companies. Of those that have tried, the vast majority have run up against the power of ecosystems, been cloned and eclipsed by the big companies, created markets which ended up dominated by larger players, or been acquired.

I’m far from convinced, as some are, that this means regulators should start looking at these companies on antitrust grounds, mostly because I don’t think they’re doing anything illegal. But we are going to see calls for regulatory intervention, especially in Europe and other markets outside the US, and we’re going to see an increasing backlash against these dominant players from consumer groups, would-be competitors, and politicians. Dealing effectively with these complaints and threats is going to be an important skill for these companies over the coming years, even as they begin to feel more and more invincible.

Apple Watch, Fitbit, and Everyone Else

By my estimates, Fitbit and Apple Watch combined for nearly 50% of all wearable shipments in the June quarter of 2017. The market is a duopoly, and major questions about Fitbit remain. Fitbit’s ASP was just over $100 for the quarter while the Apple Watch was just over $300 in our model. However, Fitbit and Apple Watch are on two very different trajectories.

Apple Watch continues to slowly gain traction. In 2017, the Watch is already off to a great start and much better than the start it had in 2016. Since Apple Watch was announced I predicted it would be a slow growth path. We estimated around 20 million Apple Watches sold in its first year and the consensus number from a range of third party sources was around 15 million. So while we were not far off, some firms were predicting a range of 30-40 million in year one. I knew it would be a slow growth pattern because of the newness of the category and lack of familiarity with what a smartwatch was in general. Now, nearly three years later, consumers are starting to catch on.

I’m predicting Apple Watch to be on a growth trajectory in 2016 selling more than any year prior, and having an even better 2018. Apple’s marketing, and consumers spreading the word, as well as just starting to see them out in the world more often helps validate the product and generate interest. This simply took time and is playing out just as we suspected.

While Apple Watch is slowly becoming a thing, a major question for Fitbit is whether their smartwatch can follow suit. It is possible the growing success of Apple Watch will only help Fitbit’s efforts as Apple has helped mature the category. Fitbit’s CEO James Park seems confident.

Consumers will decide if Park is right. This is a very bold statement, however, and one that may not age well. At least he knows what is necessary for his company to survive. If Fitbit can keep customers from leaving their ecosystem and joining Apple’s, then Fitbit can still grow. In Fitbit’s latest earnings they stated 68% of consumers who purchased a Fitbit in the quarter were first-time buyers. This is a big number, and I have to imagine most of Fitbit’s sales the past few quarters have also been to first-time buyers. Fitbit has to help these customers go upstream and choose their smartwatch over Apple’s when and if they are ready.

While I believe Fitbit can make a decent looking smartwatch, that runs a capable OS, I’m not as convinced they can create the platform that is necessary to compete with the Apple Watch. When I say platform in this case, I mean more than apps. We know apps are still not a major factor on Apple Watch yet, however, Apple is growing the ecosystem around the Apple Watch by integrating with fitness machines at the gym, health and wellness programs, some insurance programs, etc. All of this helps in building momentum as consumers become more aware of all the things in their life Apple Watch can integrate with. Perhaps a more poignant observation here is how long it has taken, and even the slow head of steam, Apple itself has faced while trying to build an ecosystem/platform around Apple Watch. If it has been a challenge for Apple with Watch how can we expect Fitbit to fare any better any faster?

Last few points on Fitbit vs. Apple Watch. Perhaps the biggest challenge Fitbit faces in both hardware and as a platform is the large amount of overlap Fitbit has with iPhone owners. Data from our firm and others confirm a more than 50% overlap of iPhone owners who own or purchased a Fitbit. As Apple can out integrate Fitbit with current and new features around iOS, it makes it even that harder for Fitbit to stay attractive if their customer is now interested in moving from a basic fitness tracker to a more capable smart watch. It is with this overlap with the reverse point can be made that the Fitbit smart watch can benefit from Apple helping mature the category. With the bulk of Fitbit’s being sold were to new customers, you can argue Fitbit is helping Apple by getting customers familiar with the benefits of basic health and fitness tracking, and a good chunk of those customers may graduate to Apple Watch. This has been mine and a good chunk of Wall. Street’s thesis from the start that Fitbit will serve as a feeder to Apple Watch for many consumers.

What About Everyone Else?
In January of 2015, I wrote this post highlighting what I saw as the two most likely scenarios for the smart watch market. I encourage you to read the post, and download the report I wrote in 2015 for the full take but here is what I outlined as the first scenario, which is still the one playing out today.

Scenario #1
Apple will easily strongly influence the smart watch category in 2015 and 2016. It is hard to argue against Apple’s vertical advantage and tight control of their entire ecosystem. This advantage undoubtedly will give them dominance in the early stages of a category. If some things play out, we can see them command the category for the long term.

Apple had a near monopoly on the iPod/MP3 market. We can see a similar scenario playing out where Apple effectively “iPods” the smart watch category, maintaining dominant share over the next five to seven years. While the early success of the iPod was driven by Apple releasing iTunes for Windows, we don’t see the need for Apple to support other platforms to hold sway over the smart watch category. Apple’s existing iPhone customer base is large enough to keep it the foremost smart watch vendor and their smart watch platform as the reigning one in the smart watch category.

Apple is blessed by their developers and always has been. Developers for the Apple Watch will make or break the product. To dominate the category, Apple’s developers will tightly integrate the Apple Watch experiences with their apps and drive compelling use cases into the mass market. Apple’s developers are a large part of their competitive advantage for iOS, and this extends to the Apple Watch making it very difficult for other smart watch platforms to commit and attract developers or build an ecosystem. I believe, for the smart watch to go mainstream, it will take an ecosystem and Apple has history in their corner when it comes to building for a category.

This is still the scenario playing out and feeling most likely. My last point on developers is still the one lacking, but that can change quickly. By my estimates, Apple Watch owned 61% of smart watch market sales this last quarter. No single vendor or brand is even remotely challenging Apple in smart watch sales.

So what about scenario #2 around Android Wear? Most technology brands have given up on Android Wear, and the only group somewhat focused on it are fashion brands. Name brands like Fossil, Michael Kors, Boss, Movado, and more are dabbling with Android Wear smart watches. This move has done little to help Android Wear as a platform. However, it is a small victory for Google for now.

In reading some watch market industry reports, the early results from fashion brands sales of Android Wear devices is not promising. A number of brands who had been selling Android Wear smart watches were not pleased with the results nor were the retailers and are concluding it was not worth their time and investment. We will see if this new batch fares any different. The disadvantage many of these brands have is the channel since if it does not sell well retailers won’t carry the product. Apple with their own channel has been able to be patient and the constant presence in Apple stores is paying off for the Apple Watch.

One last point. China is and has always been a major contributor the Watch industry, and the Swiss watch industry in particular. I found this interesting point from an analyst note on Swatch.

Consumer spend running above wholesale orders, a positive signal for growth
Evidence from Chinese retailers, soft luxury, and our Global Blue tourist data indicates that Chinese retail demand has picked up since H2 16. With this nationality making up ~50% of Swatch’s sales we expect this recovery to benefit wholesale orders (70% of Swatch’s business) through 2017 and help allay bear concerns around wearables, high group inventory and Chinese demand for watches. Our conviction is reinforced by our view that the middle-class Chinese consumer will be the structural driver of the industry going forward. This benefits Swatch given its broad price offer. We believe organic growth is inflecting now: we see 2% in H1 17E, 7% in H2E, and 7% in 2018E.

There are positive signs all around in China with regards to the Watch market, and none of these reports have considered how those positive signs may help Apple. Apple Watch has had little success in China to date, as has the smartwatch category in general with only 9% of mainland Chinese consumers stating they own a smartwatch of any kind. It will be interesting to see if the same positive growth signs the Swiss watch industry is looking at in China pays off for Apple over the next year. It seems likely, but right now it is only a hunch.

AI, Machine Learning and the Anticipation Engine

Two of the big buzzwords in tech these days are Artificial Intelligence and Machine Learning. Those who understand these technologies know that together they will have a dramatic impact on pretty much everything it is applied to in the future.
But for consumers, AI and ML are still a real mystery. Because of various movies that highlight AI like characters who are mostly villains, the broad consumer top-of-mind paints AI in a very negative light. And with Elon Musk and Bill Gates warning us that AI could be very dangerous in the future, you can see why consumers are confused and even scared of this type of technology today.

I am not an expert in AI or machine learning by any means but I have worked on various projects that use AI and ML and understand why these technologies are important and how, when used properly, the will be transformational to every industry and every individual in the future.

Perhaps the most important application that AI and ML are being applied to today is in the field of medical research. Late last year I was at an Intel event on AI, and they shared how they were partnering with multiple cancer research centers to use AI and ML to search through billions of data related to cancer research in the quest to find a cure for cancer. And in talking with multiple people in the field of medical research lately, they too are using AI and ML in their quest to find better ways to treat diseases like diabetes, MS, blindness just to name a few.

AI and ML will also be critical when it comes to delivering on the promise of self-driving cars. These technologies will be used for crash avoidance, predictive analysis of road and weather conditions and a whole host of other functions that will be needed for an autonomous vehicle to operate properly and safely.

I could spend a lot of time detailing AI and ML’s use in industry and business, but as a consumer, I am highly interested in what AI and ML can do for me today and in the future. This is where the concept of an ‘anticipation engine’ comes in and helps me explain how AI and ML can be used in practical ways today and in the future.

One of the simplest examples of AI and ML comes in the way my calendar and mapping software work together now. When I put an appointment in my calendar and add a location address, as soon as I get in the car and start to go to that appointment, it tells me how long it will take and then displays the directions on my in car mapping system. This AI function is anticipating where I am going and automatically feeding me the details relevant to my driving to that meeting.

The Nest Thermostat uses AI to anticipate the proper temperature settings based on your schedule. It can keep the temperature at a set neutral range when not at home and then if it knows the time you get home, either raise or lower the temperature so that it either is warmer or cooler depending on the outside temperature.

In fact, most of the smart home controls are moving to use AI and ML too, over time, learn a person’s needs and preferences and apply their function ahead of a person needing it. Amazon and Netflix use AI and ML to make recommendations on what to by or what to watch in each of their services.

Using this anticipation engine concept, you can imagine a lot of interesting and very helpful consumer applications. For example, one app I would like would be if I put into the calendar a restaurant name and location and before I even head off to that meeting I get an alert that gives me reviews on that restaurant and suggests alternatives should I find the reviews of that chosen restaurant not to my liking.

Or if I had been searching for a new car (which I am doing now) it could collate all of my searches I have done so far and brought back to me a report on the best vs. worst options I would have based on the models I have been looking at.

These consumer examples are relatively basic but when I use these examples to explain AI and ML to friends they can see that AI and ML can be much more relevant to them than they had thought or considered.

But as I stated initially, AI and ML will be highly transformational, and one of the more interesting speeches on AI comes from a Kevin Kelly Ted Talk entitled “How AI can bring on a second industrial revolution.” There have been many who have postulated on the concept of the next industrial revolution, but Mr. Kelly’s presentation on the role AI will play is both a critical consideration on this topic as well as fascinating in its scope.

The Ted Intro describes Kevin Kelly’s Ted Talk this way:

“The actual path of a raindrop as it goes down the valley is unpredictable, but the general direction is inevitable,” says digital visionary Kevin Kelly — and technology is much the same, driven by patterns that are surprising but inevitable. Over the next 20 years, he says, our penchant for making things smarter and smarter will have a profound impact on nearly everything we do. Kelly explores three trends in AI we need to understand to embrace it and steer its development. “The most popular AI product 20 years from now that everyone uses has not been invented yet,” Kelly says. “That means that you’re not late.”

If you want to get a better handle on AI and its transformational value, watch this Ted Talk.I believe it will help put AI in a new light and make it even more relevant to business and consumers.

Microsoft Stores are a Big Missed Opportunity

The latest Microsoft earnings results were a stark reminder that the consumer market makes only a marginal contribution to the overall revenue. Many believe consumers are not a priority for Microsoft and struggle therefore to understand the role of the Microsoft stores. Microsoft should admit they were an experiment. An experiment that failed and that it’s time to close them.

I believe it would be a mistake.

I also believe Microsoft does care about consumers; it just struggles to show it, especially when it comes to apps and services.

Microsoft is the exact opposite of Apple in the balance between enterprise and consumer. Apple goes out of its way not to come across as an enterprise company while Microsoft goes out of its way to always put enterprises first. In reality, both companies care about both markets and, more importantly, both companies need both markets!

When it comes to their retail presence, the two companies share similar goals. While it is not something Microsoft would admit to, creating an Apple store experience was the goal when they first opened their stores. Any tech company looking to have a retail presence should have Apple as a benchmark.

Aside from the short period when John Browett ran Apple’s retail business, Apple’s stores have always been about using great customer care to enhance brand loyalty. Apple stores are without a doubt one of Apple’s strong marketing assets aside from a solid revenue generator. People go into the stores to experience new devices, seek help with the ones they own and learn how to get the most out of them. Exchanges that I have often witnessed in stores, both in the US and in the UK where I lived, have been of customers met with knowledgeable and invested employees who made each customer feel they cared.

Microsoft has failed thus far to create an in store experience that is helping its brand. Calling it quit now, however, would be the wrong thing to do. Microsoft has never had this much to offer to consumers from an end to end experience. This need to experience – not try before you buy but truly experience – will grow with ambient computing, making a store presence even more valuable.

A Showcase for the Surface Portfolio and Microsoft Apps

Microsoft now has a full portfolio of Surface products that can be experienced in store. On display are not just the products but the vision that Microsoft has of modern computing. From Surface Pro to Surface Book, to Surface Laptop and the more aspirational Surface Studio and Surface Hub all help to tell that story. I was in a store with my daughter recently for a coding camp and seeing how the kids were drawn to the Hub made me wonder why there were not more people in the store doing just that. I am sure there are differences in locations as far as how busy the stores are, but more of a push around devices and experiences could certainly create more buzz.

Back in 2015, Microsoft CEO Satya Nadella said: “we want people to love Windows 10 not just use it.” The same should be said about all Microsoft products including the stores.

Activities in stores have been growing. I have seen more emphasis around STEM as part of the recent education push including Minecraft coding. Yet, more could be done around new apps like Story Remix, or People, or Paint 3D. Stores should have classes to learn how to use these apps, have people in stores using them as customers come in and have them try. This kind of activities will help create a different atmosphere in the store and educate potential customers. It would also help consumers to think more broadly about Microsoft.

Discoverability of new Windows 10 features remains an issue, especially for those consumers who upgraded to it on their old computers. Seeing what is possible might generate an upgrade opportunity and one that will benefit Surface. Surface Pro sales have been growing steadily in the enterprise market but not as much as they could in the consumer one. While many point to cost as an inhibitor, the real issue is the lack of visibility. Many other PC manufacturers have devices at similar price points, and of course Apple does too, so, clearly, there is a consumer market for Surface as well if mass market consumers knew more about it.

A Look to the Future to build Love for the Brand Today

Microsoft is no longer limited to Windows on PCs, and while Cloud and Office365 might be the biggest revenue generators, there are other products that will define the future of computing.

HoloLens stands out.

Enterprises are very interested in HoloLens as there are many applications that can save cost, increase productivity and enrich experiences. Yet, HoloLens has many consumers applications too which could generate reinvigorate the in-store experience. Think about Holographic Minecraft or a walk on Mars. I realize this is still a device that has limited availability and Microsoft might have concerns about dumbing down the experience making it feel like a VR park. Yet, there are opportunities to offer targeted events, limited in numbers that consumers could sign up to.

Microsoft effort to democratize 3D could be another area of focus with classes targeted on developing an object with Paint 3D and then printing it. Again, I realize the delicate balance between creating a buzz and creating a circus, but right now stores have very little buzz.

The big point about Apple stores is that they are first and foremost great experience centers. Microsoft stores feel more like a cross between an IT support center and a Best Buy where I go to buy as a last resort. I go in and get out as quickly as I can. My experience is that Microsoft stores staff is there to sell not to guide me and facilitate my discovery of what Microsoft has to offer.

Creativity is the new productivity is a great slogan for Windows and Microsoft should really look at becoming more creative when it comes to the stores.

Microsoft must deliver a consistent experience across stores focused on a shift from serving customers in a transactional exchange to facilitating customers’ experiences. This might require a change in how stores are evaluated and rewarded. Revenue should not be the short term focus but rather brand awareness and advocacy which in turn will bring increased revenues over time.

NVIDIA Uses AI to Bolster Professional Graphics

NVIDIA continues to bolster its position in the market with an emphasis on machine learning and artificial intelligence in addition to its leadership positions in graphics for mobile, consumer, and professional segments. At SIGGRAPH this week in Los Angeles, NVIDIA announced several new projects that aim to implement an AI angle to graphics specific tasks and workloads, showing the value of AI across a wide spectrum of workflows as well as the company’s leadership position for it.

The most exciting AI announcement came in the form of an update to the OptiX SDK that implements a denoising capability accelerated by AI with a ray tracing engine. Ray tracing has the capability to create highly realistic imagery but comes a high computational cost that forces renders to take minutes or even hours to create complex scenes in their entirety. When these images are in a partially computed state, they can appear to be noisy photographs, with speckled artifacts similar to what you see with photos taken in extremely low light.

NVIDIA and university researchers use deep learning and GPU computing to predict the final output images from those partly finished results in a fraction of the time. The AI model is created using many “known good images” that require time up front but then allow creators and artists the ability to move around the world, changing view angles and framing the shot, at nearly one tenth the speed. The result is a near real-time interactive capability with a high-quality ray traced the image to accelerate the artist’s capability and vision.

Facial animation is one the most difficult areas of graphics production. NVIDIA has found a way to utilize deep learning neural networks to improve the efficiency and quality of facial animations while saving creators hours of time. Instead of manually touching up live-action actors’ footage in a labor-intensive task, researchers were able to train the network for facial animations using only the actors’ footage in a matter of five minutes.

NVIDIA also implemented the ability to generate realistic facial animation from the resulting data with only audio. This tool will allow game creators to implement more characters and NPCs with realistic avatars in multiple languages. Remedy Entertainment, makers of the game Quantum Break, helped NVIDIA with the implementation and claim it can cut down on as much as 80% of the work required for large scale projects.

Anti-aliasing is a very common graphics technique to reduce the jagged edges on polygon models. NVIDIA researchers have also found a way to utilize a deep neural network to recognize the artifacts and replace them with smooth, color correct pixels.

Finally, NVIDIA adapted ray tracing with AI as well, using a reinforced learning technique to adjust the ray paths to those that are considered “useful.” Traces that are more likely to connect lights to virtual cameras (the view port) are given priority as they will contribute to the final image. Wasted traces that go to portions of the geometry that are blocked or unseen by the camera can be removed before the computation is done, lessening the workload and improving performance.

These four examples of AI being used to accelerate graphics workloads show us that the same GPUs used to render games to your screen can be harnessed uniquely to accelerate game and film creators. Requiring fewer man hours and resources for any part of the creation pipeline means developers can spend more time building richer environments and experiences for the audience. These examples are indicative of the impact that AI and deep learning will have on any number of markets and workflows, touching on much more than typical machine learning scenarios. NVIDIA paved the way to GPU computing with CUDA, and it continues to show why its investment in artificial intelligence will pay off.

Apple’s iPad Surprise and Other Interesting Earnings Bits

Apple’s Fiscal Q3 earnings were a bit more interesting than I thought. Much of this interest came from extensive commentary from Tim Cook on a range of things from iPad to Apple Watch, to autonomous systems, and the iPhone in emerging markets like India. First, let’s start with the iPad.

iPad
iPad unit shipments were up 14% YoY. I suspect this had a lot to do with the new aggressively priced iPad Apple launched earlier in the year as well as some regional help in China and enterprise/EDU. iPad ASP was down, which does suggest the $329 iPad drove a good volume of sales. This is not surprising as there was still a large base of iPad two still in use and it made sense it was time for some upgrades. Half of iPad sales in China were also to new customers to iPad. For quite some time we have been watching the iPad slowly grow its base and lure in China, and this trend continued in the June 2017 quarter.

Apple’s main mission with iPad remains to reposition it as an entirely new type of computer. This is the goal of their ads, and it may be slowly working. We need to see how the fall plays out with iOS 11 and iPad, but according to a poll, we ran 36% of our respondents had not yet seen Apple’s new iPad commercials. 24% indicated these commercials had still not increased their consideration to buying iPad over a new PC or Mac. 16% said they are still happy with the PC or Mac they have, but they may consider switching to iPad when their current notebook/desktop needs to be replaced. Only 5% of respondents had already made the switch from PC/Mac to iPad. I remain convinced there is a lot of upside for iPad. However, there is still work for Apple to do.

Apple Watch
Apple Watch is quietly off to a strong 2017. It appears both the March and June quarters of 2017 were up approximately 50% YoY. In each quarter Apple shipped approximately 2.3-2.6 million Apple Watches. This is not as strong 2015 quarters but much better than 2016. As of now, I’m relatively confident 2017 will be Apple Watch’s best sales year yet.

By most research estimates, Apple is the second largest watch brand to Rolex in revenue, and regarding end, customer sales Apple sells more watches each year than all Swiss watch brands. Note this interesting snippet from a Wall St. note on the European luxury market.

The other thing to consider about the Watch is the data collection platform it is becoming. With an installed base nearing 30 million people, Apple is getting more health, fitness, and overall activity data than any company out there. Even as Apple is anonymizing that data for user privacy, they are still benefitting from learning the data trends which overall helps make better products and more personal services over time for the end customer.

Autonomous Systems
The most interesting part of Tim Cook’s commentary on autonomous systems was not his affirmation that they are interested in autonomous systems/vehicles but that the applications for autonomy go beyond vehicles. He said you are all thinking about this too small! It seems many have lost the forest for the trees by just looking at autonomous systems through a vehicle lens. Apparently, Apple has much larger ideas in mind. So what can that be?

Robots, for one, may be an interesting angle here. If perhaps, we are heading toward a future where we have personal robot assistants then Apple is certainly well positioned for that future. Autonomy can also benefit Apple’s assembly factories helping them further cut manufacturing costs. It was Tim Cook’s coy comments about autonomy being more than just for cars/vehicles I found the most intriguing and worthy of deeper thought.

The iPhone just getting Started in Emerging Markets
Apple remains bullish on emerging markets like India, and even lower tier areas of China. This lines up with our data that suggests consumers are moving up the price chain not downwards even in price sensitive markets. So long as Apple has competitive price products, that are not too much more expensive than the competition, then I agree they have some ground to gain in markets like India, lower tier China, and SE Asia.

Continued investments in these regions in store fronts, developer ecosystems, local services, manufacturing, etc., are all necessary for Apple to grow their installed base in these regions. Apple is playing the long game here, and we can’t forget it is a long game.

Set up for a Big Year
The last thing I want to call out was the confidence coming from Apple management. I don’t read this as being cocky but more just sensing the winds are trending in their favor for the next 12-18 months. Honestly, I’ve been scouring reports and data we have, and I can’t find much evidence to counter Apple’s confidence. Nearly every Wall St primary research study indicates a huge number of iPhone customers waiting for the iPhone 8. Upgrades have been delayed, and consumers have engaged in what I now call the great wait for the iPhone 8. I know it rhymes.

Apple is not just poised for a big second half but a big 2018. With developers jumping on ARKit as fast as any new toolset Apple has released, there is going to be a new developer app boom around AR which will be exclusive to iOS. This will also be a very public display of innovation. AR is going to demo very well, and iPhone customers will be more than happy to show off all the cool features of AR which will only help in driving consideration of their Android owning friends to switch.

As I mentioned here, AR will also help drive exclusive experiences and new app innovation in China that will generate even more interest to iOS from Chinese Android owners.

Apple’s ecosystem as a whole is getting bigger and more powerful. I’m fond of saying platforms broker trust, and that trust only deepens over time and becomes attractive and hard to leave. Apple is creating value for third parties not just themselves and this again contributes to the rich value of the ecosystem.

Disruption Theory in the Consumer Experience Era

I mentioned earlier in the year that I was helping researchers at the Clay Christensen Institute as they work to make some revisions to disruption theory for an upcoming book Clay is writing. In the conversations since it has become clear that disruption theory will face more and more challenges in the consumer era. There are key areas where the theory and overall framework are applicable, and there are other areas where they are not.

It is also important to understand disruption theory is a multifaceted theory. Most people gravitate to one particular angle of the theory around low-end disruption. The basic premise with low-end disruption has everything to do with the price of a product or service. It is a framework to understand how low-end competitors can displace high-end premium competitors and take the lions share of the market from them. In this scenario, the high-end competitors entrench and go even more premium to protect their margins but in doing only maintain a small share of the pie.

What stands out to me when you look at much of the framework for disruption theory is that it tends to work best when we talk about products which are, or will become commodities. Commodity products seem to be the ones most impacted by the low-end disruption. This is the fault many made when they assumed the iPhone would be disrupted (this is a long and complicated debate). The assumption was that smartphones would become a commodity and in that scenario, those with the lowest prices would win. This assumption missed how indispensable smartphones would become to their owners and even in markets where consumers are price sensitive, and economically disadvantaged, we still observe consumers move upstream and spend more with their smartphone purchases not going cheaper each time they buy a new one. The reason this bucked conventional wisdom was because the smartphone was and is not a commodity.

However, there is a bigger trend emerging that I think will pressure this theory even more. When we look at how retail is changing, computing is changing, travel and leisure are changing, etc., we observe consumers are developing an insatiable appetite for experiences. They want unique, differentiated, one of a kind experience and are seeking out products, brands, and anything which provides this for them. At a high level, it appears that consumers are raising their expectations annually and this may challenge some traditional thinking around disruption theory.

It doesn’t matter what business you are in, the consumer experience is going to matter more and more each year. Consumers will become harder to please, and expect more and the result will pressure the need to innovate significantly.

We see this happening in pockets but most visibly in travel, leisure, and food. I’m certain it will spill over to tech as well if it hasn’t already. Interestingly, a contributing factor to the high demands of consumers on experiences is social media. The pressure from the crowd to “one up” your friends and share your unique experience on social media is mounting. Everyone wants to get a selfie of themselves doing something no one else in their group has, or show off the amazing experience they had. Fascinatingly, in a recent poll I conducted with 300 mainstream consumers indicated that 58% of them had willingly put themselves in what they consider a dangerous situation just to get a selfie. Over half of the group put themselves in a dangerous situation just to capture a unique experience or moment. The idea of this poll hit me when I saw some teenagers take a selfie with a wild bear not too far off in the distance. No I didn’t encourage it, and yes I wish it was me that did it ;).

At a high level, what I’m proposing is that in the consumer experience era there will be fewer areas for commoditization and more opportunity for specialization which consumers will gladly pay for thanks to the vastly improved customer experience. This shift benefits those companies and brand who focus more on consumer experience over being the lowest cost competitor. The truth of consumer markets is it is not a winner take all market. There is room for many to play, and when that is the case it is better to not try and compete on price but on quality and overall customer experience.