There Are No Muggles. We Are All Wizards Now.

I read the first three Harry Potter novels to my son. It’s a fond memory strengthened by the fact the books were quite good. In each, the young Harry Potter straddles two very distinct worlds, the magical world of wizards and the familiar world of non-magical folk, Muggles. Us. Except, this is not true, not anymore.

There are no Muggles. We are all wizards.

I realized this while texting my son baseball playoff updates — as I was flying across the country, 30,000 feet above the ground.

Think of it. Nearly 2 billion of us carry wands. We call them smartphones. These semi-magical devices enable us to connect with nearly anyone at any time from any place. We can instantly access the world’s knowledge. Always in hand, always at the ready, we use these “wands” for work, for play, to protect us, to make our lives better. They know us, know where we’ve been, what we like, answer to our voice.

Point your smartphone at the sky and learn what planes are flying overhead, even what satellites are circling the globe.

Hear a sound and your smartphone will tell you the song — using the appropriately named Shazam app. Point your smartphone at a complex math equation and it supplies the answer. This is magical.


Want to use your smartphone-wand to put out the lights, turn on the television, fill your surroundings with music? Done. This is magical.

Magic is now commonplace, like air, or water.

In the later Harry Potter books, we learn of “horcruxes,” small objects, like a medallion, that literally contain bits of a person’s soul. Horcruxes are obviously real. Think of the Apple Watch, loaded with sensors, embedded with an entire — and entirely swappable — computer on a chip. This tiny object, placed upon your skin, knows where you are, where you’ve been, your heart rate, maybe your blood pressure, your voice, your history. This deeply personal information may last forever, reflecting you to whomever possesses the object.

I cannot be the only person who feels wizard-like powerful when I literally pause live sporting events on my television.

Look. You will soon have your very own invisibility cloak.


According to the scientist-wizards at University of Rochester, “this is the first cloaking device that provides three-dimensional, continuously multidirectional cloaking.” How? By using readily available technology that almost certainly will radically drop in price and availability:

“With four lenses arranged in exactly the right way, The Rochester cloak creates a space in which anything that exists in between these lenses are hidden from sight. Unlike most other invisibility cloaks currently being worked on, the object being hidden here is able to remain hidden even when looking at it from multiple angles.”

Catch that? Yes, there’s more than one invisibility cloak under development.

It’s time to acknowledge we are all wizards and possess the tools of wizards. It’s not through magic, but brainpower, ingenuity, relentless effort, access to knowledge and high risk capital that made this magical world possible.

  • 3D printing is transfiguration, transforming one object into another.
  • Algorithms are our sorting hat.
  • Google Now is a remembrall.
  • Neural networks, like Inception, are the branch of magic known as Occlumency. More about ourselves is known then we know about ourself.
  • Social media is the Pensieve, storing our memories forever. Or, perhaps, our very own Mirror of Erised, revealing the “deepest, most desperate desire of our hearts.”
  • Direct brain-to-brain interface is in development. This doesn’t even exist in Harry Potter’s world.
  • Ray Kurzweil is no doubt hard at work on a resurrection stone. 
  • That scar, there on Harry’s forehead? Haptics. Touch it, and it reveals what’s inside. 

Snitches are real.


Last week, Amazon announced the Echo. This small device sits in your home and answers to your voice. It will play music, tell you the weather, read the morning’s news to you. Oh, and it learns. What magic trick can do better?

As our magical tools learn still more about all of us, about the world around us, and as “virtual” reality continues to progress, we might, yes, literally, live in a world where ghosts are common. Friends, family members, colleagues — and the departed — all (virtually, visibly) available, wherever we are, whenever we need them. In fact, it seems to me this will be so by no later than 10-20 years from today. Ghosts before driverless cars.

Oh, the Marauder’s Map? That’s Waze. No big deal.


Wizard Or Squib?

Now what? What do we do with all this magic swirling about us, accessible with the touch of a finger or the sound of our voice?

First, embrace our powers, but remember to use them always for good.

Second, and while I am not suggesting we send our children off to wizarding schools, certainly our 20th century Muggle school infrastructure must be demolished. Let’s not make squibs of our own children.

Third, embrace the magic. It is ours, it is who we are. For our sons and daughters, it is the world they are born into.

What magical devices do you use? What new magic awaits us all?

Apple and mobile payments

In last week’s column, I talked about the current state of smartwatches. I described weak demand met by weak supply, and the resulting poor sales of the offerings in the market today. I also talked about what it might take for a new product in this category to stimulate demand. One of the potential use cases for a smartwatch or other wearable is payments, and I’ve been asked by several reporters over the last few weeks whether the iPhone 6 will have an NFC chip, potentially for payments. Today I want to explore that particular opportunity a little more.

The current state of mobile payments in mature markets in the West

It’s important to be clear what we’re talking about. Firstly, I’m not talking about m-commerce – i.e. buying things from e-commerce providers through a web browser or even an app. What I am talking about is using a mobile phone to buy real world items in a retail location. It’s also important to note the current state and uptake of mobile payments is radically different between certain emerging markets (e.g. Kenya) and different mature markets, such as the US and Europe, which behave fairly similarly, and Asian markets such as Japan, where mobile payments are more established. I’m going to focus mostly on mature markets such as Europe and the US, where mobile payments have still not taken off to any great extent.

Let’s quantify current uptake for mobile payments in  these markets. Here’s some data from a recent survey among US adults I conducted as part of my smartwatch report:

Mobile Payments Survey responses

As you can see, take-up is very limited so far, with around two thirds of US adults never having used any form of mobile payments. Even if you exclude those and focus on those who’ve tried mobile payments at least once, only about a quarter use it regularly, half use it occasionally and another quarter gave up after their first experience.

The mobile payments vicious circle

So why is this? The reasons are fairly obvious:

  • Current offerings typically depend on NFC chips in phones combined with an app or service that can make use of it. Only around half of smartphones in the US have NFC embedded (the iPhone, notably, doesn’t have NFC)
  • Google Wallet, the pioneer in this space, has become harder and harder to use on smartphones, as certain carriers have blocked it and Google has restricted use to phones running relatively new versions of Android (about 21% of Android devices globally)
  • Isis, the effort from several of the big US carriers (soon to be rebranded), has only been in trials in certain markets for much of its history, and is only now beginning to roll out more broadly.

But the biggest reason of all is there is a chicken-and-egg problem with terminals and devices, as shown in the diagram below:

The mobile payments vicious circle

As long as few people have devices capable of making payments, there will be little reason for store owners to install terminals to work with them. And as long as there are few places where mobile payments can be made, users will see little reason to either buy devices that can make them or set up an account to make use of them. Whether the underlying technology is NFC, a barcode scanner, Bluetooth LE or something else, store terminals need to be able to communicate with the smartphone to create a secure transaction. I live in one of the test markets for Isis, but even here there are relatively few locations where Isis payments are accepted, and the availability in much of the rest of the country is far lower.

Breaking the vicious circle

There are two possible ways to break this vicious circle, as shown in this diagram:

Breaking the mobile payments vicious circle

You have to break the cycle either on the terminal side or the end user side. Breaking it on the terminal side would mean subsidizing the terminals on behalf of retailers, which wouldn’t be cheap. As Tim Bajarin wrote in his great piece on the Disney MagicBand, Disney spent $1 billion just to install the MagicBand infrastructure in its theme parks. Now extrapolate that cost to all the retail locations in the United States and you have a good sense of the size of the investment needed. Any player willing to subsidize that would have to have very deep pockets indeed.

The other way to break the cycle is to create massive end user demand, something the mobile payments products in the market today haven’t been able to do. For Google Wallet, the challenge has been the split between three parties that need to come together to make it work but haven’t: Google, Android OEMs and carriers. For Isis, the problem is somewhat different: consumers don’t necessarily look to the carriers as payment providers, and Isis has been poorly marketed, leading to low awareness and demand. What would happen if Apple were to enter the market by introducing some kind of payments technology as a built-in feature of the next iPhone or a wearable device? Millions of consumers in the US would suddenly have a tightly-integrated solution built into their devices. One that carriers couldn’t block and which would no doubt receive heavy promotion from Apple and the tech press.

Were Apple to introduce such a device or devices though, it would still suffer – at least at first – from the same problem of a lack of terminals which could accept payments. Wide availability of a mass market payments solution could potentially boost sales, but it would take time. As such, this would arguably be the first time Apple would introduce a major feature which wasn’t that useful at launch. Poor initial experiences for would-be users of its payments products could sour them on the product, which would be bad for ongoing interest. Yet this is the sort of thing which would be impossible for Apple to solve ahead of a launch announcement without a massive risk of leaks. I’ve written separately about how Apple might break its usual launch pattern for wearables, but this is one factor working in the opposite direction: Apple might need to give retailers, not developers, a head start.

Technology choices – to NFC or not to NFC?

I think it’s far from guaranteed Apple will launch a payments service, even though it has many of the pieces in place to do so at this point, and it could be an interesting new angle on the wearables space. But if it does, the question remains how it might be implemented from a technology perspective. The path trodden by the two major existing US providers is NFC, a technology Apple has stubbornly resisted adopting so far. It’s an established technology and, as such, would be relatively straightforward for Apple to add to its devices. So it’s a good option in some respects.

But even as Apple has resisted embracing NFC, it has more wholeheartedly adopted other technologies which could form the basis of a payments service, notably Bluetooth LE. Where other services have used NFC for pairing, Apple has used Bluetooth LE. Where other services have used NFC for quick data exchange between devices, Apple has used Bluetooth and WiFi. With the launch of iBeacon functionality, Apple has also sparked extensive interest among retailers in installing Bluetooth LE hardware in stores to track users and push promotions. So Bluetooth LE, which is also capable of very accurate proximity sensing, could become the technological basis for a payments service, especially given the existing investment by retailers in iBeacons.

For these reasons, and despite the obvious appeal of NFC, I’m still not convinced Apple will use it in any payments service it offers. At the same time, I think it’s interesting to think about the role of Touch ID on either an iPhone or a wearable device as a form of authentication, which would dramatically reduce the friction compared with opening an app and keying in a PIN. That could potentially work with either Bluetooth LE or NFC.

Huge barriers remain

For all the potential associated with an Apple entry into the payments space, the vicious circle described in this post remains a formidable obstacle to any player in the mobile payments market, including Apple. Unless Apple is willing to make a major investment in subsidizing terminals, it risks launching a payments product which will have limited appeal at first. The one solution is to give retailers a head start by pre-announcing a product which won’t be available for several months, to provide the infrastructure ahead of time. But even that might have a limited impact before devices are in consumers’ hands. In this arena, as with smartwatches, there is potential for Apple to come in with a disruptive offering, but so much will come down to the execution.

Margins: Apple, Samsung, and Consumer Electronics

Some recent media has come out stating we need to acknowledge Apple knows what it’s doing as a company and with their strategy. I don’t know any analysts worth their reputation, either on the financial or industry side, who ever doubted Apple knew what it was doing. Part of the quibble with Apple from said media is the belief Apple was leaving money on the table by not changing their established and successful business model of focusing on the high end, more profitable segment of the market. Many called for Apple to make a lower cost iPhone in order to capture more “hardware” sales. But what many of us knew is just selling a lower cost phone doesn’t necessarily mean more money. And, in fact, it could have consequences on the higher margin products. Luckily, Benedict Evans shared a post recently that broke down exactly what I and many others have been saying around the implications of a lower cost iPhone.

What Benedict wrote is something he and I have spoken about on past episodes of our podcast. The thesis was always that a lower cost iPhone would certainly help raise sales of iPhones but would not raise revenues. Selling a lower cost and lower margin product means you need to sell substantially more product to equal similar revenues to selling less of a higher margin good. But as Benedict points out, this does not necessarily mean Apple should not release a lower cost phone — only that it would not necessarily be for the hardware revenue but for the potential value to the ecosystem, in terms of revenue capture beyond hardware, like apps, subscription services, etc. Benedict rightly points out Apple has more options than ever and I would add few companies are in full control of their destiny than Apple.

Back to Apple knowing what it’s doing. This relates entirely to a margins discussion. Several days ago Jan Dawson posted on his blog some thoughts on Samsung. I asked Jan to add Apple and Samsung to a particular chart on margins and it is below.

Screenshot 2014-08-07 09.46.57

If any chart shows Apple knows exactly what it is doing, it should be the chart above. Apple remains the anomaly of all consumer electronics companies when it comes to operating margins. Apple has not and does not have to chase the lower margin commodity products thanks to their vertically integrated advantage. Granted, no one is arguing Apple chase the uber-low end. That’s unwise for any branded OEM. But rather, there is a healthy and growing middle of the market. What we are discovering in many markets like China and even pockets of India and Brazil, are more mature customers who started off buying lower cost entry level smartphones are moving upstream and being willing to spend more on their next smartphone. I believe this trend will continue as a large percentage of smartphone users move off basic devices and become willing to spend more on devices in mid-range price tiers.

Whatever strategy Apple decides, given their approach, they have a limit on their total potential customer base. We simply have no idea what the size of that number is. Employing this strategy means Apple will need to foster opportunities for their customer base to spend more in their ecosystem thus incrusting their average revenue per customer beyond the hardware. The point remains — Apple is in control of their destiny.

Samsung, on the other hand, is a giant question mark. What does Samsung do? They have built a business that requires scale. Their strategy has been to fast follow companies and products which have scale then leverage their vertical components businesses to sell products to each other as they scale. Each group benefits, revenues rise, and they are able to slightly buck the low margin fate that faces so many companies. Samsung has always been Samsung’s best customer in components. But the main point is their business requires scale. So what does Samsung do to maintain scale? They are losing in premium to Apple, and they are losing in the lower and mid-tiers regional players in the regionalization of the smartphone market.

What is even more interesting about Samsung’s struggles is they are actually price competitive with some products in many of these markets with the same vendors they are losing out to. So the question is why? Why not Samsung in these markets where they are price competitive? I do believe it has something to do with the fact they are a foreign brand in markets increasingly favoring brands from their home country. Therefore, to assume Samsung should just compete on the low end to get scale back does not necessarily solve the problem. Nor does doing so help their margins, or the inter-departmental sales approach their components business sell within the country. Samsung, like Jan’s chart shows, is stuck in the middle. Their margin line is unlikely to go up toward Apple’s and unfortunately if it is to go down toward the others, it’s a huge, company wide issue for a vertical component company who requires scale.

What I keep landing on is increasingly hardware, for all vendors including Apple and Samsung, is going to have to play a role as a mechanism to other revenue. Xiaomi is a great example of this, using hardware as an entry point to increased revenue of proprietary services. Amazon also, to a degree, employs this model. However, it is foolish for many to believe Apple can’t do this and that their future depends only on hardware sales. The challenge for others, like Samsung, will be to differentiate on more than hardware. The role of the OEM is changing, and will continue to change.

Deconstructing Satya

Last week, Microsoft CEO Satya Nadella laid bare his vision for the tech giant. It is borderline revolutionary.

From its early days, Microsoft has focused on using software and computing to empower people and businesses around the world. Nadella still clings to this laudable vision. However, he has now fundamentally flipped the seat of power, even as he fears to let go of all Microsoft has amassed over the decades.

Just as America’s Constitution enumerated inalienable rights all its people are endowed with, forever empowering even a single individual against the full force of the government, in a similar manner Nadella has positioned the user above all else.

This is radical. For Microsoft, it’s nearly unthinkable.

Nadella does not simply place emphasis on users instead of PCs, on productivity instead of Windows. He changes the equation of the software behemoth going forward.  This could set Microsoft apart from all others.

The most user-friendly tech company in the world, Apple, emphasizes ecosystem over device, lock-in over empowerment. Google takes from its own users when they are not looking. Amazon confounds its customers with Prime service, making it nearly impossible to ever fully know the actual price — or value — of any single item.

Nadella is positioning Microsoft on the side of the user. Security, privacy, productivity, empowerment. I believe this will have a profound and lasting impact on the company and its customers forever. This call to great and permanent and never ending change is buried inside Nadella’s 3,500 word memo to Microsoft staff. I understand if you choose not to read (any/all of) it.

My analysis of his manifesto is below, in bold italic.

Nadella word cloud


From: Satya Nadella

To: All Employees

Date: July 10, 2014 at 6:00 a.m. PT

Subject: Starting FY15 – Bold Ambition & Our Core

As we start FY15, I want to thank you for all of your contributions this past year. I’m proud of what we collectively achieved even as we drove significant changes in our business and organization. It’s energizing to feel the momentum and enthusiasm building.

This is all wrong. Platitudes, corporate management speak and 3,500 words are absolutely the wrong way to begin a discussion about “significant changes” and “enthusiasm building.” That within the first paragraph we are twice reminded FY15 has commenced, all I can think is Nadella is too steeped in the pre-existing conditions of Microsoft to achieve anything great, let alone revolutionary. 

The day I took on my new role I said that our industry does not respect tradition – it only respects innovation. I also said that in order to accelerate our innovation, we must rediscover our soul – our unique core. We must all understand and embrace what only Microsoft can contribute to the world and how we can once again change the world. I consider the job before us to be bolder and more ambitious than anything we have ever done.

“What only Microsoft” can do should be plastered across every meeting room in Redmond. Nadella mimics Tim Cook’s penchant for “change the world” pablum but to be fair, very few companies really can. Microsoft is one. Kudos to Nadella for not shying away from this. 

We’ll use the month of July to have a dialogue about this bold ambition and our core focus.

The very corporate nonsense-speak that turned me into a freelancer.

Today I want to synthesize the strategic direction and massive opportunity I’ve been discussing for the past few months and the fundamental cultural changes required to deliver on it.

Means nothing.

On July 22, we’ll announce our earnings results for the past quarter and I’ll say more then on what we are doing in FY15 to focus on our core. Over the course of July, the Senior Leadership Team and I will share more on the engineering and organization changes we believe are needed. Then, at MGX and //oneweek, we’ll come together to build on all of this, learn from each other and put our ideas into action.

Rigid, bureaucratic and enslaved to artificial dates. 

We live in a mobile-first and cloud-first world. Computing is ubiquitous and experiences span devices and exhibit ambient intelligence. Billions of sensors, screens and devices – in conference rooms, living rooms, cities, cars, phones, PCs – are forming a vast network and streams of data that simply disappear into the background of our lives. This computing power will digitize nearly everything around us and will derive insights from all of the data being generated by interactions among people and between people and machines. We are moving from a world where computing power was scarce to a place where it now is almost limitless, and where the true scarce commodity is increasingly human attention.

This is brilliant. Better, it launches the long, painful slog of fully re-positioning Microsoft away from PCs, away from Windows, away from Office, away from its past, which now binds it, and onto a future of screens, data and insight.

The only company at present that can challenge a fully engaged Microsoft in this is Google. 

In this new world, there will soon be more than 3 billion people with Internet-connected devices – from a farmer in a remote part of the world with a smartphone, to a professional power user with multiple devices powered by cloud service-based apps spanning work and life.

Microsoft will be the anti-Apple, delivering services and value to all, not just the world’s 10%. 

The combination of many devices and cloud services used for generating and consuming data creates a unique opportunity for us. Our customers and society expect us to maximize the value of technology while also preserving the values that are timeless.

Means nothing. Wasting employee’s time.

We will create more natural human-computing interfaces that empower all individuals. We will develop and deploy secure platforms and infrastructure that enable all industries. And we will strike the right balance between using data to create intelligent, personal experiences, while maintaining security and privacy. By doing all of this, we will have the broadest impact. 

Preach! Only Google can challenge Microsoft in delivering services to all. But, only Microsoft can deliver these services and effectively protect individual privacy. 

Mobile First Cloud First

Microsoft was founded on the belief that technology creates opportunities for people and organizations to express and achieve their dreams by putting a PC on every desk and in every home.

Microsoft’s business practices rightly angered many of us. But their efforts also helped deliver us directly to this future. We should be thankful for that. 

More recently, we have described ourselves as a “devices and services” company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy.

I am not Steve Ballmer.

At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.

Wow. This is a truly revolutionary message and within Microsoft’s skill set to make happen. I will be happy if Microsoft simply comes close to this vision, as it is glorious: “empower every person and every organization on the planet to do more and achieve more.” 

We think about productivity for people, teams and the business processes of entire organizations as one interconnected digital substrate. We also think about interconnected platforms for individuals, IT and developers. This comprehensive view enables us to solve the more complex, nuanced and real-world day-to-day challenges in an increasingly digital world. It also opens the door to massive growth opportunity – technology spend as a total percentage of GDP will grow with the digitization of nearly everything in life and work.

I think this is wrong. Backwards, in fact. It’s not about an “interconnected digital substrate,” a nonsense phrase, but about building a product that truly empowers that one person. If it empowers one, it will empower millions. Apple has taught us this. Microsoft has yet to learn this. 

We have a rich heritage and a unique capability around building productivity experiences and platforms. We help people get stuff done. Stuff like term papers, recipes and budgets. Stuff like chatting with friends and family across the world. Stuff like painting, writing poetry and expressing ideas. Stuff like running a Formula 1 racing team or keeping an entire city running. Stuff like building a game with a spark of your imagination and remixing it with the world. And stuff like helping build a vaccine for HIV, and giving a voice to the voiceless. This is an incredible foundation from which to grow. 

Nice reminder for the troops and the public. 

At our core, Microsoft is the productivity and platform company for the mobile-first and cloud-first world. We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more.

Repeating this is not productive.

Microsoft has a unique ability to harmonize the world’s devices, apps, docs, data and social networks in digital work and life experiences so that people are at the center and are empowered to do more and achieve more with what is becoming an increasingly scarce commodity – time!

It took far too much time to get here, but Nadella has shrewdly set in motion not only Microsoft’s mission, but its marketing message as well, which is almost as important.

Microsoft will save us time. 

Productivity for us goes well beyond documents, spreadsheets and slides. We will reinvent productivity for people who are swimming in a growing sea of devices, apps, data and social networks. We will build the solutions that address the productivity needs of groups and entire organizations as well as individuals by putting them at the center of their computing experiences. We will shift the meaning of productivity beyond solely producing something to include empowering people with new insights. We will build tools to be more predictive, personal and helpful.

The deconstruction of Word, Excel et al shall commence starting now. 

We will enable organizations to move from automated business processes to intelligent business processes. Every experience Microsoft builds will understand the rich context of an individual at work and in life to help them organize and accomplish things with ease.

This will be tricky. Even in a data driven, always-on world, people vigilantly maintain different lives: work, home, and those known only between the person and her browser history. Nadella wants to create a whole where I believe people want to maintain separate, if porous, fiefdoms. 

Productive people and organizations are the primary drivers of individual fulfilment and economic growth and we need to do everything to make the experiences and platforms that enable this ubiquitous.

I love how Nadella and Microsoft are the anti-Apple. Steve Jobs was famous for talking about computers and creativity whereas Microsoft is now focused on computers and productivity. Both are worthy visions: Apple is more likely to garner passionate adherents, Microsoft is more likely to lift up all boats. 

Users Not Consumers

We will think of every user as a potential “dual user” – people who will use technology for their work or school and also deeply use it in their personal digital life. They strive to get stuff done with technology, demanding new cloud-powered applications, extensively using time and calendar management, advanced expression, collaboration, meeting, search and research services, all with better security and privacy control.

Privacy, privacy, security.

Wise of Microsoft to attack Google’s Achilles Heel. Obviously, we embrace the many benefits that accrue as our data, all of it, flows between many clouds and many screens.

We will want to know, however, that some data will remain forever cordoned off to all but exactly whom we wish and when. Only Microsoft can deliver this — Google’s business model is almost in direct opposition to it and Apple refuses to embrace Microsoft scale.

Warning, Mr. Nadella: do not abdicate user privacy. Do not screw this up. 

Microsoft will push into all corners of the globe to empower every individual as a dual user – starting with the soon to be 3 billion people with Internet-connected devices. And we will do so with a platform mindset. Developers and partners will thrive by creatively extending Microsoft experiences for every individual and business on the planet.

None of this sounds even remotely appealing. Platforms empower the maker, not the user. That’s why every company in tech talks platforms.

“Microsoft experiences” sounds no better than, say, a visit to the dentist. 

Across Microsoft, we will obsess over reinventing productivity and platforms. We will relentlessly focus on and build great digital work and life experiences with specific focus on dual use.

Nadella has hitched his future to a belief in “dual use.” That is, our work and home lives meld into one interconnected digital sphere. I think this is wrong and will be his undoing.

Microsoft Everywhere

Our cloud OS infrastructure, device OS and first-party hardware will all build around this core focus and enable broad ecosystems. Microsoft will light up digital work and life experiences in the most personal, intelligent, open and empowering ways.

Key words: “first-party hardware.” Surface, Lumia, Xbox — these are only the start of Nadella’s hardware ambitions. Ballmer must be pleased. 

Developers and partners will thrive by creatively extending Microsoft experiences for every individual and business on the planet.

Requisite acknowledgement of developers and partners now out of the way… 

We will deliver digital work and life experiences that are reinvented for the mobile-first and cloud-first world. First and foremost, these experiences will shine for productivity. As a result, people will meet and collaborate more easily and effectively. They will express ideas in new ways. They will experience the magic of ambient intelligence with Delve and Cortana.

This is the future we expect and I am looking forward to Microsoft’s implementation of “ambient intelligence.”

It’s easy to believe Microsoft will be unable to match Google Now and other iterations of Google’s ambient intelligence capabilities. It’s nearly as easy to believe Microsoft won’t be able to deliver a service as simple to use as Apple’s Siri. These are legitimate concerns. That said, Bing, Yammer, Office, Exchange, Skype, Lumia, and the reach of Microsoft’s cloud infrastructure are critical resources to be tapped, and will help guide users in all facets of their digital life. 

Moreover, for the shareholders, ambient intelligence will be a business revolution, and in this, Microsoft is far ahead of the pack. 

They will ask questions naturally and have them answered with insight from Power Q&A. They will conquer language barriers and change the world with Skype translator. Apps will be designed as dual use with the intelligence to partition data between work and life and with the respect for each person’s privacy choices. All of these apps will be explicitly engineered so anybody can find, try and then buy them in friction-free ways.  They will be built for other ecosystems so as people move from device to device, so will their content and the richness of their services – it’s one way we keep people, not devices, at the center.

I hope you succeed at this. Right now, these remain mere words.

This transformation is well underway as we moved Office from the desktop to a service with Office 365 and our solutions from individual productivity to group productivity tools – both to the delight of our customers.

Please ban the use of the word ‘delight’.

We’ll push forward and evolve the world-class productivity, collaboration and business process tools people know and love today, including Skype, OneDrive, OneNote, Outlook, Word, Excel, PowerPoint, Bing and Dynamics. 

The next revolution will be in the office, not in the home. In this, new Microsoft still acts like old Microsoft. 

Increasingly, all of these experiences will become more connected to each other, more contextual and more personal. For example, today the Cortana app on my Windows Phone merges data from highway sensors and my own calendar and simply reminds me to leave work to make it to my daughter’s recital on time. In the future, it will be even more intelligent as a personal assistant who takes notes, books meetings and understands if my question about the weather is to determine my clothes for the day or is intended to start a complex task like booking a family vacation. Microsoft experiences will be unique as they will reason over information from work and life and keep a user in control of their privacy.

Dear tech bloggers: the ‘Microsoft is doomed’ stories are just stupid. 

The Cloud Everywhere

Our cloud OS represents the largest opportunity given we are working from a position of strength. With Azure, we are one of very few cloud vendors that runs at hyper-scale. The combination of Azure and Windows Server makes us the only company with a public, private and hybrid cloud platform that can power modern business. We will transform the return on IT investment by enabling enterprises to combine their existing datacenters and our public cloud into one cohesive infrastructure backplane. We will enable our customers to use our Cloud OS to accelerate their businesses and power all of their data and application needs. 

The cloud will be where nearly all our data and all the intelligence connected to that data resides. But not all. We will use our mobile devices to store and share data and content which we dare not send via the cloud.

That said, the cloud will be paramount, and Mr. Nadella is wise to focus so much attention upon Microsoft’s capabilities here.

His statement also reminds us Nadella is a techie and he understands how to fully leverage the breadth of Microsoft’s infrastructure. I wish his statement, however, wasn’t so buried underneath enterprise-speak. How will this cloud benefit me — not me at work, not me doing work. Simply, me. 

Beyond back-end cloud infrastructure, our cloud will also enable richer employee experiences. For example, with our new Enterprise Mobility Suite, we now enable IT organizations to manage and secure the Windows, iOS and Android devices that their employees use, while keeping their companies secure. We are also making it easy for organizations to securely adopt SaaS applications (both our own and third-party apps) and seamlessly integrate them with their existing security and management infrastructure. We will continue to innovate with higher level services like identity and directory services, rich data storage and analytics services, machine learning services, media services, web and mobile backend services, developer productivity services, and many more.

Nadella may talk of “dual use” and of the merging of work and home. Microsoft remains, however, a work company.  

Our cloud OS will also run all of Microsoft’s digital work and life experiences, and we will continue to grow our datacenter footprint globally. Every Microsoft digital work and life experience will also provide third-party extensibility and enable a rich developer ecosystem around our cloud OS. This will enable customers and partners to further customize and extend our solutions, achieving even more value.

Cloud “APIs,” essentially, could revolutionize how we create, manipulate and benefit from data. Microsoft should be a leader in this, and it will propel tremendous business value. 

Hardware Everywhere

Our Windows device OS and first-party hardware will set the bar for productivity experiences.

Again, that phrase “first-party hardware.”

Microsoft is (now) a hardware company. But a good one? Can an applications, services and infrastructure company also do great hardware? I have my doubts. I welcome being proven wrong. 

Windows will deliver the most rich and consistent user experience for digital work and life scenarios on screens of all sizes – from phones, tablets and laptops to TVs and giant 82 inch PPI boards.

Does anyone believe this will ever be so?

We will invest so that Windows is the most secure, manageable and capable OS for the needs of a modern workforce and IT.

Nadella will not cede one organization to Google Docs and not allow a single corporation to let iPhone, iPad or BYOD to loosen its grip on the enterprise. This will be a bloody fight. I can’t wait.  

Windows will create a broad developer opportunity by enabling Universal Windows Applications to run across all device targets. Windows will evolve to include new input/output methods like speech, pen and gesture and ultimately power more personal computing experiences. 

Multi-mode inputs will absolutely create more personal computing experiences. The burden of proof that these should — or even can — be offered by Microsoft is quite high, however.

Very, very few humans use speech, pen or gestures to interact with Microsoft products or applications. Microsoft has repeatedly failed to lead the world in this. 

Our first-party devices will light up digital work and life. Surface Pro 3 is a great example – it is the world’s best productivity tablet.


In addition, we will build first-party hardware to stimulate more demand for the entire Windows ecosystem. That means at times we’ll develop new categories like we did with Surface. It also means we will responsibly make the market for Windows Phone, which is our goal with the Nokia devices and services acquisition.

Being deliberately inexplicable is not productive, Mr. Nadella. What exactly is “responsibly make the market?” You intend to be a hardware company, in direct competition with many of your very best partners. Say so. 

I also want to share some additional thoughts on Xbox and its importance to Microsoft. As a large company, I think it’s critical to define the core, but it’s important to make smart choices on other businesses in which we can have fundamental impact and success. The single biggest digital life category, measured in both time and money spent, in a mobile-first world is gaming. We are fortunate to have Xbox in our family to go after this opportunity with unique and bold innovation. Microsoft will continue to vigorously innovate and delight gamers with Xbox. Xbox is one of the most-revered consumer brands, with a growing online community and service, and a raving fan base. We also benefit from many technologies flowing from our gaming efforts into our productivity efforts – core graphics and NUI in Windows, speech recognition in Skype, camera technology in Kinect for Windows, Azure cloud enhancements for GPU simulation and many more. Bottom line, we will continue to innovate and grow our fan base with Xbox while also creating additive business value for Microsoft.

Brilliant. Nadella has scuttled all rumors about Microsoft abandoning Xbox. He has reminded analysts gaming is a primary driver behind mobile and while Microsoft lags in mobile it is a leader in gaming. Nadella also reminds us in our new age of data, collaboration and ideas, “gaming” will become a crucial component of productivity.

While today many people define mobile by devices, Microsoft defines it by experiences. We’re really in the infant stages of the mobile-first world. In the next few years we will see many more new categories evolve and experiences emerge that span a variety of devices of all screen sizes. Microsoft will be on the forefront of this innovation with a particular focus on dual users and their needs across work and life.
 Microsoft will continue to vigorously innovate and delight gamers with Xbox.

My take: Microsoft to acquire Zynga. That’s just for starters. 

Our ambitions are bold and so must be our desire to change and evolve our culture.
I truly believe that we spend far too much time at work for it not to drive personal meaning and satisfaction. Together we have the opportunity to create technology that impacts the planet.

Good, lord, this memo is just ridiculously long. 

I’ve Seen All Good People

Nothing is off the table in how we think about shifting our culture to deliver on this core strategy. Organizations will change. Mergers and acquisitions will occur. Job responsibilities will evolve. New partnerships will be formed. Tired traditions will be questioned. Our priorities will be adjusted. New skills will be built. New ideas will be heard. New hires will be made. Processes will be simplified. And if you want to thrive at Microsoft and make a world impact, you and your team must add numerous more changes to this list that you will be enthusiastic about driving.

If you are not a star, I strongly advise you to get to work on your resume. 

I am committed to making Microsoft the best place for smart, curious, ambitious people to do their best work.

If you are a star, I strongly advise you to get to work on your resume. 

First, we will obsess over our customers. Obsessing over our customers is everybody’s job. I’m looking to the engineering teams to build the experiences our customers love. I’m looking to the sales and marketing organizations to showcase our unique value propositions and drive customer usage first and foremost.
 In order to deliver the experiences our customers need for the mobile-first and cloud-first world, we will modernize our engineering processes to be customer-obsessed, data-driven, speed-oriented and quality-focused. We will be more effective in predicting and understanding what our customers need and more nimble in adjusting to information we get from the market. We will streamline the engineering process and reduce the amount of time and energy it takes to get things done. You can expect to have fewer processes but more focused and measurable outcomes. You will see fewer people get involved in decisions and more emphasis on accountability. Further, you will see investments in two new or combined functions: Data and Applied Science and Software Engineering. Each engineering group will have Data and Applied Science resources that will focus on measurable outcomes for our products and predictive analysis of market trends, which will allow us to innovate more effectively. Software Engineering will evolve so that information can travel more quickly, with fewer breakpoints between the envisioning of a product or service and a quality delivery to customers. In making these changes we are getting closer to the customer and pushing more accountability throughout the organization.

We should not be surprised when thousands of Microsoft staff are shown the door.

Second, we know the changes above will bring on the need for new training, learning and experimentation.

That’s you, old, middle management gatekeepers.

Over the next six months you will see new investments in our workforce, such as enhanced training and development and more opportunities to test new ideas and incubate new projects.

Big layoffs by Christmas.

I have also heard from many of you that changing jobs is challenging. We will change the process and mindset so you can more seamlessly move around the company to roles where you can have the most impact and personal growth. All of this, too, comes with accountability and the need to deliver great work for customers, but it is clear that investing in future learning and growth has great benefit for everyone.  

I suspect Microsoft will soon become the GE of personal computing. Massive, always in flux, possessing an agile bureaucracy, driven less by product or business model and more by shrewdly financing initiatives which it can dominate.  

I am committed to making Microsoft the best place for smart, curious, ambitious people to do their best work.

Why hasn’t it been?



every team across Microsoft must find ways to simplify and move faster, more efficiently. We will increase the fluidity of information and ideas by taking actions to flatten the organization and develop leaner business processes.

See note above re: resumes.

Culture change means we will do things differently. Often people think that means everyone other than them. In reality, it means all of us taking a new approach and working together to make Microsoft better. To this end, I’ve asked each member of the Senior Leadership Team to evaluate opportunities to advance their innovation processes and simplify their operations and how they work. We will share more on this throughout July.

Big layoffs by Thanksgiving.

A few months ago on a call with investors I quoted Nietzsche and said that we must have “courage in the face of reality.” Even more important, we must have courage in the face of opportunity.

+1 for quoting Nietzsche. -2 for quoting Nietzsche 3,000 words in. 

We have clarity in purpose to empower every individual and organization to do more and achieve more. We have the right capabilities to reinvent productivity and platforms for the mobile-first and cloud-first world. Now, we must build the right culture to take advantage of our huge opportunity. And culture change starts with one individual at a time.

Validate why you, ye lowly programmer, should continue to be employed by Microsoft. 

Rainer Maria Rilke’s words say it best: “The future enters into us, in order to transform itself in us, long before it happens.”

Want to get on Nadella’s good side? He obviously has a penchant for early 20th century German writers.

We must each have the courage to transform as individuals. We must ask ourselves, what idea can I bring to life? What insight can I illuminate? What individual life could I change? What customer can I delight? What new skill could I learn? What team could I help build? What orthodoxy should I question?

Big layoffs by Labor Day. 

With the courage to transform individually, we will collectively transform this company and seize the great opportunity ahead.

I wish you well, Mr. Nadella, and all of you (still) at Microsoft. 

Decoding Page And Brin

I have noticed successful CEOs share an uncanny ability to lay bare a company’s strategy while simultaneously leading you down a false path. Steve Jobs was a master at this. I learned from watching Jobs it was always best to remove my expectations, toss aside my biases, and focus strictly on what he was saying and what he was showing. Only then was it possible to divine his intentions.

The same skills are required to decode the words of Google co-founders Larry Page and Sergey Brin. This recent joint interview tells us a great deal about each man and the direction of Google.

Expect still more big, bold bets, more run-ins with the law, more jarringly bad incursions upon our privacy, more encroachments upon everything tech, possibly upon everything man made. That’s how audacious Page and Brin are. Indeed, it’s audacity mixed with a belief in fate, I suspect. Page and Brin appear to embrace the notion it is right and just and good they have so many billions, so many smart employees and a company of such immense, transformative power — only they can rightly and profoundly change our world.

Of course it’s hubris. They are billionaire techies, after all, highly successful since at least their dorm room days, and worth more money than they could spend in multiple lifetimes. But it’s also daring, inspiring, the kind of stuff that enables Silicon Valley to lead America and which enables America to lead the world.

Page And Brin On Record

Google founders Larry Page and Sergey Brin were interviewed recently by venture capitalist Vinod Khosla. The interview is relaxed, even clubby, but quickly becomes revelatory. We learn, for example, Excite nearly purchased the Google tech back in 1999. For $350,000.

We learn Page, who sounds awful, is clearly interested in healthcare as well as healthcare regulations. I would not be surprised if Page secretly believes his billions and Google’s work on life extension, artificial intelligence and computer-enabled consciousness will enable him to achieve near-immortality.

This will fail, of course, though many will likely benefit from Google’s work. Which is a theme in this interview, from Page, especially. He is committed to using Google’s money, brainpower and computing brute force to make a better world.

Some insights based on my analysis of the interview [direct video link]:

  • Page does not seem to particularly care what Brin has to say.
  • Page is obviously committed to Google — the corporation — but also to Googlers, the employees.
  • Google is undefinable, even for Page, the CEO. Google is search, obviously, and those elements clearly linked to search, such as location. But Google is much more than that, even if Page fails to fully distill this into words. Google is artificial intelligence, machine learning, a gift to the world, a transformative engine of innovation.
  • Page intends to remain at Google indefinitely.
  • Brin may not be at Google quite as long. It’s clear Page is in charge of Google Inc. and equally clear the Google X skunkworks efforts captivate Brin. It may be best for everyone if he takes his work outside Google.

Google Now

Did you watch? It’s quite useful if you are interested in Google. Here is my take on the important bits:

0:50 Forget the laughter, Brin is still peeved that “PageRank” was not called “BrinRank.” I am not sure hyper-competitive people have any idea how hyper-competitive they are — about everything.

1:48 I realize Sergey Brin is not wearing a wedding ring.

2:20 Brin re-tells the origin story of Google and how it was nearly sold to Excite. This is thoroughly discussed, I suspect, because Google believes it is destined to do great — insanely great — and tales of how it nearly died merely reaffirm their manifest destiny. (At 4:15, Page joins in this discussion)

5:00 Page’s throat muscles appear stressed, damaged. I cannot stop myself from speculating on his health.

6:05 Page states most companies are “short term focused” and clearly is pleased that Google thinks bigger, longer. At 6:50, Page notes most companies are measured quarterly and most CEOs have no better than a four year tenure. He states solving “big problems” are easy when the leader has a 20 year horizon. Bottom line: Expect Page to helm Google well into the next decade at least.

8:00 Brin states Google has no “critical” opportunities to focus on as a “critical” opportunity would suggest an inherent vulnerability. The implication, of course, is Google can only be un-done by the future, but that won’t happen as Google intends to build the future. This sentiment is especially telling because Google has repeatedly missed opportunities, including social, text messaging, apps, streaming and more. It would be interesting to peer inside their minds to understand how they reconcile their manifest destiny visions with the incessant disruptions percolating from 7 billion humans.

8:50 Brin is clearly excited about the potential for the autonomous cars — a “big bet.”

9:40 Page finally and briefly mentions Android, which he believes is important to Google over the next few years. This is the sole statement regarding Android. Indeed, the interview is surprising for how little the two mention any actual Google products.

10:05 Page offers important insight about search, access to content, navigation, and the expanding notion of what “search” means, which includes knowing the question before the user asks it.

11:05 Page decries the current “bad” state of today’s computers — desktops and smartphones — which require far too much effort and deliver far too little benefit. I start to wonder what amazing gadgetry he has inside his home.

12:20 Brin leads several minutes of animated discussion on Google’s current and long range “machine learning” efforts. He believes Google, unlike all those in the past, can make artificial intelligence — thinking machines — a reality.

14:20 It requires a question from Khosla to force the two to consider how these machine learning efforts will impact jobs, labor, equality, economy and people. Sadly, this mostly leads to joking and a discussion on America’s agricultural past. It’s never been more clear than now just how removed Page and Brin are from the daily realities of nearly the entire world.

16:10 Page states the basic needs of the world can and should be easily provided. Ours is a world of abundance, he tells us. We should focus not on jobs per se, but on abundance and leisure time. Again, Page seems wildly out of touch here, despite any positive intentions. At 18:25, Brin interrupts Page, who then quickly interrupts Brin and it’s now crystal clear the two men have different views on the near term economic and social harm of technology. This is the first clear break between the two. Regrettably, neither possesses the answers to solve these problems.

21:20 Khosla appears to realize Page and Brin have no real answers for current issues re: work, employment and inequality. He leaps to a speculative question “forty years” into the future.

24:15 Brin speculates on who will make the company’s self-driving cars, Google or “partners.” The only thing we learn is the implication the self-driving car market is many, many years off.

25:25 “My view about this has changed quite a bit over the years.” That’s what Page states about Google being involved in too many projects. Page says he used to discuss this idea with Steve Jobs, who insisted Google did too much. Page, however, says much of what Google does is interrelated. He also notes the various projects give employees an opportunity to grow and be creative.

26:45 “Sergey can do that and I don’t have to talk to him.” “That has almost nothing to do with our current business.” This is what Page says about Google’s driverless car efforts — which Brin is responsible for.

27:40 Brin discusses Google X. He reveals X is focused on “atoms, not bits,” an insight I had not previously considered. Cars, internet balloons, Glass, etc. are all hardware first, software second (at best). Unfortunately, Brin does not state exactly why he chose to focus on atoms, not bits. I suspect it is because then Page would keep his distance.

29:00 A discussion on Google’s interests in health services begins. At 29:50, however, Brin states healthcare is so “heavily regulated” that such efforts, at least for now, are not a priority. Page agrees with Brin’s assessment.

30:45 Page, again revealing his tone-deafnesses over current social norms, discusses the potential of using data to improve health. He notes allowing “medical researchers” to search your medical data is a big win for society and likely the individual. Except, Page remarks “maybe” your name is removed from the research. This is shocking. Page seems genuinely focused on leveraging Google’s capabilities to make the world a better place. That said, time and again he seems literally unaware — or simply uncaring — of how actual human users may be harmed or frightened.

34:20 The co-founders dodge the question of whether or not they have ever “fundamentally disagreed” on an issue.

37:15 Page is displeased with how government is “illogical” and how its complexity increases over time.

38:30 Page says he was talking recently with the president of South Korea. Might there be more expansive tie-ins with Samsung?

40:00 Page provides sage advice to entrepreneurs regarding who to hire.

VCs On The Wrong Side In The Smartphone Wars

Think of how much better your life is now you have an iPhone or one of its many virtuous progeny…iPad, Android, apps, mobile-optimized games, content and services. Do you want to go back to before smartphones, before tablets? Unlikely. Yet many VCs do. Hence their self-interested handwringing over the alleged slow death of the mobile web.

Do not be fooled. The web is thriving.

The real issue? VCs fear the easy money days of amassing their fortunes atop publicly financed, freely available platforms is long gone. Now they are faced with the daunting prospect of either building their investments inside the thriving iOS or Android ecosystems, both of which demand their fair share of any booty, or figuring out ways to route around these two clever giants.  

This is very unlikely to happen. 

iPhone, Android, native apps and today’s infinitely scalable private platforms continue to deliver benefit after benefit to users around the world.

A Tax On Venture Capitalists

Chris Dixon of Andreessen Horowitz (A16Z) bemoaned the declining state of the “web” last week, squarely blaming iPhone, App Store and all it has wrought.

What wins mobile, wins the Internet. Right now, apps are winning and the web is losing. Moreover, there are signs that it will only get worse.

Worse for whom? Not me. Likely, not you. Worse, perhaps for a venture capitalist. Just like the original incarnation of the web was worse for music companies and newspapers.

Dixon continues:

Resources are going to app development over web development. As the mobile web UX further deteriorates, the momentum toward apps will only increase.

Resources following users is not a problem. Moreover, Dixon appears to hold a rather limited view of the web. As John Gruber noted last week:

We shouldn’t think of “the web” as only what renders in web browsers. We should think of the web as anything transmitted using HTTP and HTTPS. Apps and websites are peers, not competitors. They’re all just clients to the same services.

The fact is, the “mobile web UX” has not deteriorated. Instead, the web has evolved, as it always has, and new platforms have constructed a thriving business that, for now, better support the needs of the billions of mobile web users. This should be lauded! Indeed, omit the nebulous term ‘app’ and the fact is web services, software and computing functions have never been more robust, more capable, more discrete, more accessible, more affordable. These are all good. I’m surprised any venture capitalist would bemoan this state of affairs.

Let’s not reduce the web to only those parts that VCs can exploit for maximum gain.

More money is presently flowing to Apple’s iOS ecosystem and Google’s Android ecosystem because that’s where the users are. That these two great private companies have their own platforms, their own gateways — and demand payment for access — has actually helped extend the power of the web.

My suspicion, of course, is VCs do not fear a deteriorating web UX, but are instead upset today’s brave new web limits their potential gains. Don’t believe me? More from Dixon’s post:

Google and Apple control what apps are allowed to exist, how apps are built, what apps get promoted, and charge a 30% tax on revenues.

Ponder that. A venture capitalist is decrying a sustainable business as little more than a “tax” on revenues. Again, whose revenues? Apple and Google have each created a marketplace that only a few years ago did not exist. These now serve billions of people. This is a net good, even if it’s not ideal for today’s web VCs.

Shortly after Dixon’s column, venture capitalist Fred Wilson similarly lamented the “mobile downturn”:

It has gotten harder, not easier, to innovate on the Internet with the smartphone emerging as the platform of choice vs the desktop browser.

Wrong! Innovation has never been easier, never been faster, cheaper, more accessible. Time for VCs to accept this new world.

Before the iPhone, before the App Store, the ‘open web’ offered a massive resource VCs happily plundered: the public switched telephone network. The costs of this public infrastructure was borne by carriers, the government and each of us. VCs piggybacked their investments upon this infrastructure, which carried them to unfathomable wealth.

Those days are gone. They will not return, no matter how hard VCs press for a change.

A Boon For Users

If the VCs really want to alter today’s mobile reality, they are welcome to risk their sizable funds toward technologies and services that improve the non-app web or completely disrupt the current state of affairs. After all, despite their assertions, the web has not been shut down or corralled. It’s still there, availing itself to all.

Build something better. That’s my challenge to them.

Do they have it in them? Consider this final lament from Fred Wilson’s post:

So (VC) Brian (Watson) pulled out his iPhone and I pulled out my Android and we took at trip through the top 200 apps on our respective app stores. And there were mighty few venture backed businesses that were started in the past three years on those lists.

This matters not one whit for users.

It just may be, thanks to the iPhone, Android and the new mobile web, the future big money in tech will have to be earned the old fashioned way: brick by brick; through building an actual sustainable profit-generating business, from scratch. Now that would be disruptive. 

Multi-Device, Multi-Platform, Companion Apps

The heart and soul of any good piece of application software—regardless of the device on which it runs—is its ability to allow you to achieve a task, find a piece of information or essentially get something done. Well-written software is built from a solid awareness of the steps that go into achieving a particular outcome and provides the features and functions that an end user needs and/or wants to follow those steps and attain their desired goal—whether that’s creating a digital work of art, chasing dragons, or finding directions to your favorite restaurant.

Most applications are, understandably, designed to achieve all of those tasks on their own—that is, all the functions necessary to complete the desired goal lives within the software itself—although it may access external data sources—and runs on the device for which the application was written. One notable exception to this rule is software plug-ins, which can provide additional functionality to a “host” application environment: for example, image filtering tools for Adobe Photoshop or audio processing add-ons for digital audio workstation software like Cakewalk’s Sonar or Apple’s Logic. Plug-ins, however, run within the same environment and on the same device as the home program.

A more important trend that is starting to emerge is the arrival of multi-device, multi-platform companion applications. These are apps that run on devices other than the host, yet work hand-in-hand with the host application, allowing the separate devices to more easily or more fully achieve a task than either device could do on its own. These types of apps represent a potentially huge new opportunity for app developers on all types of platforms that, I believe, could transform the world of mobile—and PC—software. For one thing, they allow applications—and individuals—to easily cross the gap between different platforms and devices. Want an Android or iOS app that truly works with your Windows PC? No problem—at least conceptually.

In fact, because companion apps acknowledge and embrace the multi-device, multi-platform reality that we virtually all now live with every day, they represent an exciting path for the future. Plus, they avoid the all too common problem of trying to adapt a popular application on one device to another by just building a cut-down—or beefed up—version of the app for the new device. A well-conceived, well-written companion application takes advantage of the unique capabilities, input characteristics and other functions of each platform, and yet lets you more fully achieve or enjoy the task at hand with your set of devices. (Plus, it doesn’t worry about the tedious process of porting or trying to duplicate functionality on another device that isn’t ideally suited for it.) In a word, it makes these often disjointed set of devices and experiences work as a system.

For example, as a musician who writes and arranges songs for my band, I’ve been using MakeMusic’s Finale application on a Windows PC for literally decades. But about a year-and-a-half ago, the company introduced Finale SongBook for the iPad, which takes the music notation files created on a PC and lets you view them digitally on an iPad—turning that iOS-based device into an easily searchable, highly readable digital music library and music stand. It’s a great example of achieving a higher level of capability by extending the functionality of a core application across devices and platforms. A completely different example is DreamWorks’ new Dragons Adventure game for Nokia’s new Windows RT-based Lumia tablets. The game features a clever integration of Nokia’s navigation data into the environment, but even more importantly, DreamWorks also created a Windows Phone-based application that parents can use to build environments or tweak other settings that can be sent over to the game running on the tablet. It’s a simple, yet highly effective way to get the devices—and the people using those devices—working together.

Now, you could argue that companion applications aren’t a completely new idea—but I will counter that mobile-focused, cross-platform, functionality-optimized apps are a relatively recent phenomena and one that I believe will have some exciting and important new entrants in 2014.

Tablets and the Decline of TVs

Not long after the iPad came out I began to wonder just how much of an impact the iPad would have on the PC market. For 15 years, much of our research at Creative Strategies has looked closely at what we call the “screens of the digital lifestyle.” In the 1990’s it became clear that the two major screens for most people were the TV and their PC’s. With the introduction of the Blackberry in 1997, for some a 3rd screen was added to their mix and when the iPod came out many added this screen to their lifestyles too. Of course, once the iPhone hit the market the smartphone revolution was on and for billions of people today, the full feature phone or smartphone has become the most ubiquitous screen in our lifestyles next to the TV.

But since the iPad has come out it has become clear that this versatile screen has had a major impact on one of the major screens in our digital lifestyles, that of the PC or laptop. In 2010, the year the first iPad shipped, we were selling about 390 million PC’s a year world wide. When we end 2013, we will be lucky if we sell 300 million. Most analysts attribute this decline in PC and laptop sales to the role tablets have played in replacing the need for a PC or laptop for many people.

There is another market that it has disrupted too. I recently received a very interesting press release from IHS that gives their forecast for TV sales. Here is their perspective and numbers on the decline of TV sales.


TV Market Declines Again in 2013 as Sales in both Developed and Emerging Regions Decrease

Following a dismal third quarter, the outlook for global TV shipments appears even dimmer in 2013, with shipments now forecast to fall by 5 percent, marking the second consecutive year of decline.

Global shipments of televisions are set to slide to 226.7 million units in 2013, down from 238.2 million in the previous year, according to the latest Worldwide TV Tracker from IHS Inc. Every type of television will suffer a decline, including the major categories of liquid-crystal display (LCD), plasma TV, cathode-ray tube (CRT) and rear projection.

This follows a 7 percent decline in 2012, when shipments fell from 255.2 million in 2011, TV Systems Intelligence Service.

Screen Shot 2013-11-07 at 4.46.17 PM

Shipments previously were expected to decline by 2 percent this year.

“A wide range of factors are conspiring to undermine television shipments in 2013, from economic weakness and market saturation of flat-panel TVs in mature regions, to plunging CRT sales in developing countries,” said Jusy Hong, senior analyst for consumer electronics & technology at IHS. “This is all adding up to a second consecutive year of decline for the television market.”

The dominant LCD TV segment will see shipments decline by 1 percent. The smaller plasma segment will suffer a sharp 27 percent decline.

The moribund CRT segment will decline by 40 percent. Meanwhile, the already infinitesimally minute rear-projection TV segment will dwindle to nothing this year.

The third quarter’s not the charm

Shipments in the third quarter of 2013 declined by 7 percent compared to the same period in 2012. While shipments rose 12 percent compared to the second quarter, this came during a time when TV set shipments normally grow as the Christmas season approaches.

With shipments also having declined on a year-over-year basis in the first and second quarters, the third quarter decrease ensured the global TV market would drop again for the full year of 2013.

Mature markets slow down

The biggest reason behind the shipment decline this year is the continuing global economic recession and maturity of the TV market in advanced regions.

The Western European and Japanese TV markets have been declining for three consecutive years since 2010. The North American market has been shrinking as well, dating back to 2011.

Emerging markets are underwater

Meanwhile, the TV markets in Asia-Pacific, Eastern Europe, and the Middle East and Africa, which are regarded as emerging regions, have also been contracting since 2011—but for different reasons than the mature countries.

In the emerging regions, CRT TVs are disappearing from the market, causing overall shipment to decrease. Because CRT sets are the cheapest option, this disappearance is having a major impact on overall sales. Low-income consumers in these regions often cannot afford more expensive LCD TV sets.

Television vendors are increasingly reluctant to sell unprofitable, cheap sets, such as CRTs, or LCDs that use the older cold-cathode fluorescent tube (CCFL) backlighting technology. This is narrowing the choices for cheaper televisions among consumers in emerging economies. As a result, consumers in these regions are holding off on television purchases until pricing for other types of television sets decline to affordable levels.


I am sure that their perspectives on the decline of TV sales is accurate. However, I would suggest that there is another reason too. I think the impact of the iPad and tablets as portable media players–and in some cases when using something like a Slingbox as an actual TV–that the iPad and tablets have played a role in the lower demand for TVs as well as PCs. We are hearing that for many who would perhaps buy a TV for their bedroom or even a kids room, an iPad or tablet is actually preferred.

People can lay in bed or sit in a chair and watch their favorite show via Netflix, Hulu, etc. And with more and more TV networks directly streaming their programs over the Internet or through dedicated tablet apps, these tablets will become more TV like in the future.

Homes used to have two or three TV’s. But more and more we are seeing a single large flat screen TV bought for the living room and the iPad or tablets are becoming the extra viewing screens for many that can be used anywhere in the house instead of putting another TV set in a dedicated room.

As for emerging markets, as the above report points out, vendors are pulling back on making cheap CRT’s in these markets and these folks can’t afford the flat screens TVs. So for many a tablet will serve as their PC and TV, something that has not really been factored into most PC and TV decline models yet.

Within six months of the iPad hitting the market, it became clear to many of us that it had the potential to disrupt the PC market and over three years this has proven itself out. I don’t think any of us saw its potential in disrupting the TV market back then, but if you look closely at the declines in demand for TV’s, it is hard not to consider the fact that the iPad and tablets are just as disruptive to this market.

Smartphones Are Transforming Retail Not With Technology But With Messy Humanity

I believe a profound transformation in retail is now underway, one set to equal the changes in buying and selling formed during the modern industrial age. Only, it’s not what you think.

It started with Apple, which launched the smartphone wars. With smartphone in hand, we can now assess competitor price, global availability, level of service, and overall quality of any product anywhere on the globe, even while browsing inside a small store on the very edge of the farthest reaches of our planet.

For today’s retailers, it gets worse.

Amazon has constructed a platform that enables it to sell virtually any item at a lesser price than any competitor anywhere, with all necessary adjustments on price and availability made in real-time.

With Google, we can know everything around us and can locate exactly what we want, whether down the street or on another continent. There are no boundaries, no safe places.

With social media, we are always in contact with family, friends, followers and all manner of experts. Meaning, we need never pay more than the absolute best price available. We never need to choose the wrong product for our unique needs — nor be persuaded by crafty or misleading sales entreaties.

Thanks to smartphone payments apps we have our requisite coupons and loyalty points always at the ready. We can also now instantly send (digital) cash to another person’s mobile device, bypassing all manner of legal and non-legal intermediaries.

Retail — the entire shopping, buying, paying, servicing, researching, promoting ecosystem — is being de-constructed by smartphones, social media, location data and the cloud, with power flowing outward to every potential buyer.

This is only the beginning.

[pullquote]Values equal profits.[/pullquote]

The more profound change, and one that industry analysts seem utterly blind to, is that the very same technologies which enable shoppers to receive the best price, the best service, the best value, will similarly guarantee that their money itself generates maximum impact.

For every $100 you spend, would you prefer that most of it, if possible, stayed within your community? If you could choose between having your next $100 go to retailers that support your child’s school, your neighborhood, your political and social views versus to a faceless corporation of undetermined origin and values, would you? I suspect the answer is a resounding yes and I believe our technologies are rapidly leading us toward this new reality.

When able to easily determine and demand the very best price and the very best product, what comes next is to make sure we spend our (limited) dollars in a manner that fosters and extends our political, social and community goals to optimum levels. Retailers will have to adjust to this new world. Their new reality is thus:

Values equal profits.

We can now get anything, anytime, anywhere and at the very best price available. How then to choose? Simple. We choose Brand X and Retailer Y because the product’s origin, its composition, the people who make it, those who sell it, those who service it, all support a world and a future that most closely aligns with our own.

Seen in this light, smartphones and the mobile web are not merely upending retail and relationships, fostering new services and business models, they are transforming the very notion of retail. No longer will it be about profits first. Rather, values first, then profits.

We can already see the beginnings of this change, of course. Fair trade coffee, handmade crafts, and restaurants that emphasize “local” as much as the food itself. These are merely brief flashes of what’s to come. I predict that within a decade, maybe less, values will be a primary driver behind most consumer sales in the developed world.

Note: I do not mean “values” as practiced in the traditional (20th century) marketing sense. Apple, for example, does a masterful job promoting their values — aspiration, liberation, creation. These are, however, feel-good values designed to please everyone. This will no longer be sufficient. In a world when we can easily find equivalents and get them at the absolute best price, values will become the prime differentiator. No doubt, the values of some retailers will be highly offensive to many. This will not slow this new reality down.

Indeed, with so much information readily available, it may soon no longer even be  possible to make a purchase decision without knowing the values of a product or the political leanings of its sellers. With instant price comparisons, location-aware search, real-time data streams, constant connectivity to friends, family, followers, spiritual advisors, political leaders and product experts, the act of purchasing based on values becomes not just possible but commonplace, probably even expected. In the near future, you don’t merely check in to a place to tell your friends where you are, you check in to make a declaration of who you are — and you can do so with every purchase.

Retail will become less about profit and more about a larger social purpose. To promote particular religious or social views, gun rights, a greener planet, transgender equality, Christian fundamentalist practices, polygamy, animal welfare; the options are as expansive as humanity itself.

Yes, it can get messy. It will get messy. Humanity is messy. Despite such messiness, I believe this trend is inevitable — and ultimately far more liberating. I also expect this new reality, in fits and starts, to be absolutely embraced. Very soon we will have a difficult time comprehending 20th century retail.

We have spent our whole lives focused on price, quality and convenience. We won that war. Anything, anywhere, at anytime and at the best price is now the base level expectation. Deeply personal, values-based shopping comes next, enabled, ironically so, by mass market computing technologies and globe-spanning social media platforms.

We are only now entering a era where we can search and find shops that match our values for whatever we want. We are only now able to instantly declare our purchases to all our friends and followers, telling them and the entire world in semi-permanent digital ink who we are and what we believe in with the very money we spend.

Values will drive sales. Values will drive profits. Values cannot be matched by Amazon, Google or any global conglomerate.

Image courtesy of The Guardian 

The State of Tablets

On the eve of Apple’s event–where we expect new iPad’s to be unveiled–I thought I would provide a high level view of the current state of the tablet market. While it may not be terribly obvious to many, the holiday quarter for tablets will easily be the most competitive yet. Amazon’s Kindle Fire HDX tablets have hit their stride and are viable choices. Samsung has been steadily gaining in market share with their onslaught of screen size choices and aggressive pricing. And even though many discount Microsoft’s Surface and the other similar 2-1 PC form factors from vendors like Dell, HP, Lenovo and others, they still represent a force in the market place that some consumers will need to evaluate. While we can debate the legitimacy of all these choices, the fact remains, there will be a plethora of choice in the tablet category this holiday season.

Defining a Tablet

This is easily the most controversial element of this discussion. When those of us who count and segment these categories discuss this point I often feel like it is the ultimate philosophical and post-modern question: what is a tablet?

Early on in the tablet lifecycle many were keen to keep a clean line between tablets and traditional PCs like desktops and notebooks. However, now more than three years later we know the line is blurred.

We have overwhelming data that now suggests that consumers themselves view tablets as PCs. For the mass market consumer there is no division. Many things they used to do on the traditional PC they owned or had access to they can now do on a more friendly form factor with a natural touch interface.

Tablets are the new PC and there is just no way around this. Notebooks and desktops will go through a role shift and have limited appeal and annual growth. When it comes to computing devices, which tablets are, they are the one growth spot. Although, the tablet may come in many different form factors and appeal to different segments accordingly, it is the device for which the PC industry needs to focus on.

Forecasting Growth

We have to take forecasts with a grain of salt in their accuracy. Things change and forecasts need to be considered more liquid than firm. But they do provide a framework to show what segments are growing and which are not. Therefore, looking at what seems realistic in current forecasts is helpful frame the discussion and the category. For my firms estimates I took a number of forecast data we had and used them to create what I feel fits in line with the regional trends we see. Screen Shot 2013-10-21 at 8.42.17 AM

At one time trend data suggested more aggressive growth. It seems as though the trend data in key regions suggests more modest growth to be expected. Perhaps larger screen phones have played a role in slowing tablet growth. One can only speculate but as I point out we must consider forecasts to be fluid. Regardless of conservative or aggressive estimates tablets are a growth segment.

Few Vendors Finding Success

The other key observation when looking at tablet market share breakdown by vendor is that only a few are finding success. Apple, Samsung, and Amazon are the big brands that have the most market share with tablets. And interestingly all of them are coming from a mobile posture not a desktop or notebook posture. Here are the estimates I feel are most accurate of tablet sell through by vendor contrasted with PC sales. ((This chart is using Apple’s quarterly timeline where Q1 is the holiday quarter and Q4 for most others.))

Screen Shot 2013-10-21 at 9.06.38 AM

As we can see, Apple is still the dominant tablet vendor by volume. Samsung is growing and Amazon is managing consistency.

Tablet OS Browser Share

Understanding how consumers use tablets is important. We know that iPad leads in browser usage share, which suggests at the very least that the iPad is an internet traffic machine. Browsing the web isn’t the only usage metric that matters but it is the best one we have. Web browsing share is a demonstration of overall device usage. If a tablet is just used for movies is it a tablet or a portable DVD player? If a tablet is just used for games is it a tablet or a portable gaming device? Tablets are best of breed mobile computers capable of web browsing, games, video, productivity and more. A true tablet platform should be about possibilities not limitations. Right now, in all the metrics we can count, it seems the iPad is the best example of a true tablet. ((By stats I mean commerce driven (iPad averages just over $130 per quarter by US consumers), app breadth and depth, developer monetization, etc.))

Here is a chart to grasp web browsing share of major platforms in several key regions.


As we track this information in real time it will be interesting to note any key changes. Right now the iPad dominates every category checked that matters from a market, business, and economics standpoint. The gap between an Android tablet–for someone who wants to use it as a tablet not something else–is minimal from a price standpoint for the value gained. If Apple closes that price gap with iPad pricing options then it is logical that Apple will gain ground in many of the key categories.

Microsoft and their ecosystem partners are the ones to watch to see if ground is gained in any significant areas for tablet intenders. The competition for first time tablet buyers will be fierce. Understanding what consumers want, expect, and desire to do with tablets will be the key in defining who wins and loses in this segment.

Bringing Technology to the Masses

Whenever I speak or give a presentation for the first time to a new audience, I start off with a slide where I explain where we are in the transition from the analog world to the digital world.

This transition is a journey and we are roughly halfway through it. The first 25 years of this transition were about bringing digital technologies to the business customer. The next 25 years and beyond will be about bringing those digital technologies to the masses.

Adoption Cycles vs. Innovation Cycles

Often it seems like pundits misunderstand where we are when it comes to industry cycles. Any direct call or critique of a company that they are not innovating enough, or that the products they released aren’t innovative enough to get attention from the market, simply has no fundamental understanding of adoption cycles.

To fully understand adoption cycles, I find Everett Rogers Diffusion of Innovations philosophy to be apt.


Classifying the buying mentality of consumers is key to the diffusion of innovations. Geoffrey Moore extended Rogers’ explanation of how innovations get adopted and famously explained that there is a large chasm and most products rarely cross the chasm from enthusiasts to mainstream consumers. [pullquote]Early adopters want cool the mass market wants useful.[/pullquote]

The fundamental understanding is to recognize what is required of a product in order to get it to cross the chasm and move through the adoption curve. When you understand what the latter parts of the market require to adopt, you realize that it is not innovation but evolution. The initial innovation either creates or re-creates the category. The early adopters bend toward innovation, the later and substantially larger parts of the market exhibit patience. Companies work out all the technology kinks with the early adopters and then the mass market accepts them as they are refined and perfected through more evolutionary innovations. Early adopters want cool the mass market wants useful.

Smartphones and Tablets

To put this into perspective for smartphones, for example, Horace Dediu has put the current US smartphone adoption into the diffusion of innovation curve to see where we are.


What is fascinating about this is that smartphones started gaining steam in 2009 and we are not even halfway into its global adoption cycle. It is estimated that smartphones have yet to penetrate past 30% of the global population. And if history is our guide, what got the smartphone this far is not what will drive it to global saturation.

Tablets are also rapidly climbing the curve and are now bleeding into the mass market. There are many opinions to the size of the total addressable markets for tablets but one thing is becoming clear — it is big.

The smartphone had nearly a four year lead but the tablet is growing fast and has already become the fastest CE device of all time to reach 100 units and is on pace to sell 500 million annually by 2015. The tablet is on pace to become the fastest technology to reach 10% penetration as it is estimated to be around 6-7% today. However, the tablet reached this level of penetration two years faster than the smartphone.

Smartphones and tablets have jumped the chasm and are well on their way through the adoption curve. Evolutionary innovations will be key to drive these products to saturation of their respective addressable markets.

Smart Watches and Wearables

Using the foundation I outlined above, I am personally yet to see a smart watch that has any hope of crossing the chasm. They will have appeal to the predictable enthusiast segment but have a long way to go if they have any shot of appealing to mass market consumers.

I’m more optimistic on health and fitness wearables for the foreseeable future. Health and fitness wearables have a much more clear and simple value proposition. This is why we already see many consumers in the adoption curve using these products already. What is fascinating about this point is that health and fitness wearables are not viewed by the mass market as ‘technology’ even though they are. Rather, they are viewed as a solution or more importantly as an experience. For technology to cross the chasm it must get out of the way and let the experience take center stage.

The Next 25 Years

I have no idea how many new technology categories will be created over the next 25 years. Yet more categories have been created in the past 10 years then in the first 30 of the PC/CE industries life. Because of that I can say with confidence that the next 25 years are going to be some of the most exciting technologically we have ever witnessed.

How the Paradox of Choice Will Impact Holiday Tech Sales

The concept of buyer’s remorse in the world of technology is not new. For decades companies have rolled out new TVs, stereos, PCs, laptops and more recently tablets and smartphones and as soon as a person bought one a new model or something better came onto the market.  One of the reasons Steve Jobs moved his product launches to a full year apart was because of this issue. When he updated products every six months, he got highly negative feedback from customers who were mad that the product they just bought would be obsolete so quickly.  PC and CE vendors still hear this lament all the time as the world of technology has become so competitive they feel compelled to update their products often, thus creating some buyer’s remorse within their user community. 

I suspect we are about to enter a period where the number of choices in laptops, laptop convertibles, 2 in 1’s and tablets will offer so much with new models coming out almost monthly, we may have perpetual buyer’s remorse for at least the next six months if not longer. For the first time in my memory, when a user goes out to buy a laptop or a tablet, the amount of products they will have to choose from will be enormous. I believe it will make the decision even harder for consumers to figure out what to buy during this heavy tech buying season and cause a lot of buying confusion.

In the past, if a person were going to buy a laptop, the key criteria would be screen size, processor speeds, hard disk space and price.  Except for Apple laptops, brand loyalty was low on the buyers list as they all pretty much looked alike. It was a clamshell with screen and keyboard and not much more. But this year users will also have a plethora of products called convertibles or 2 in 1’s to choose from. These are products in which the laptop screen can either be folded under or used as a tablet or it will be a clamshell design where the screen pops off the keyboard base and can be used as a stand-alone tablet. 

At the same time users will have access to new lower priced Ultrabooks which are laptops that are very slim and lightweight. Also up this year will be products called Ultra-lights, which are similar to Ultrabooks but are much cheaper and not as high powered. And, consumers will now have non-Windows based laptops called Chromebooks to pick from. Bottom line is that there will be dozens of new designs to choose from when buying a new laptop. 

It gets even more interesting if you want to buy a tablet. The 7″ tablets will be as low as $79 but the bulk of the really good ones will be $139 to $249. Some will be WiFi only while others will have 4G wireless radios in them. Some will have screens with medium resolution, others with very high HD resolution. And the 9-10″ models will be more powerful than ever, something that suggests they could be used more as an alternative to a laptop or PC. In fact, one thing we see happening with a lot of families is that the tablet in most cases has now become their primary computer in the home and the laptop is relegated to being used less often usually just for tasks like paying bills, long emails, document creation, media management and long form writing.

There is a great book on the market called the Paradox of Choice-Why More is less Written by Barry Schwartz. In the book’s description it says:

“We assume that more choice means better options and greater satisfaction. But beware of excessive choice: choice overload can make you question the decisions you make before you even make them, it can set you up for unrealistically high expectations, and it can make you blame yourself for any and all failures. In the long run, this can lead to decision-making paralysis, anxiety, and perpetual stress.”

In the tech world, it could mean perpetual buyer’s remorse as the product a person buys may not actually meet their needs. It may also be a new, updated version could come out just weeks after they buy it. I have talked to a lot of people who need to upgrade their laptops but are actually dreading going out and buying one given the amount of choices they face and the fear they will buy the wrong thing.

We are also seeing concern from folks about how they use these products in their work/home lifestyles. At work they can’t get away from using a PC. But at home they can now do about 80% of what they used to do on a laptop on their tablet. So the question that comes up is “should I buy a better tablet and a cheap laptop, or even consider one of the new convertibles or 2 in 1’s that will be out this holiday?” On the other hand, consumers are weighing another scenario in which they buy a cheap tablet and an updated but cheap laptop or Chromebook.

What I see happening this holiday season is a lot of consumer perplexity when it comes to what to buy. While price is always an issue with consumers, how they use the products in their lifestyles is becoming equally important. What I suspect might happen is that consumers will have a lot of choices, which may cause some confusion in the buying process and we could see the highest return rates of original purchases of PC’s we have ever seen.

What could happen in some cases is for people will get whatever they buy home and quickly realize it does not meet their need. They then take it back and try something else until they find the exact product that fits their digital lifestyle. While this may happen with a only a minority of buyers, it still could be a real problem for all PC vendors since any amount of returns for any reason is a big headache to them and their retailers and hits their bottom line.

While tech products will be high on consumers shopping lists this holiday, this is the first time they will have to consider a huge amount of products coming out in a whole host of shapes and sizes with new features and functions rather than in the past just having to figure out what the best laptop, iPad or basic Android tablet was to buy. I see the paradox of choice being a huge issue this holiday season, something that could especially impact PC/laptop sales while cheap and mid-priced tablets will probably be the big winners in this next quarter.

Leadership Matters More Than Market Share

A leader is one who sees more than others see, who sees farther than others see, and who sees before others see.
– Leroy Eimes

In studying the technology industry, the markets that encapsulate it, and the consumers who drive it, I am less interested in how much money a company is making, or how many devices they sell, or what a platforms market share is. Those are all interesting data points. What matters, in my opinion, is whether or not companies playing in this arena are advancing computing.

Apple’s Demise

It seems as though the popular “Apple is doomed” narrative will never go away. While this is a deeply naive statement filled with flawed pre-conceived notions, it is often thrown around publicly by those with an agenda other than genuine truth.

For some illogical reason, many are just waiting for Apple’s dominant reign to end. This line of thinking forgets that the only market Apple has dominated for a length of time was the MP3 player market. Apple may never secure a decade plus of device or category dominance like they did with iPod again but that does not mean that they do not have a healthy and profitable business that will last decades. Yet all too often ebbs and flows of markets, cyclical innovation patterns, and global adoption cycles, seem to fool people into missing the big picture.

I hear a subtle tone frequently whispered among analyst peers that Apple has had their day and it is time for someone else. That time may certainly come, but it is not today. I hold this view confidently because I am yet to see the emergence of a new leader. I see platforms gaining market share leadership. We may see devices become sales leaders, but without question Apple is still the envy of the industry. ((Being the first with a spec or some technological gimmicks does not qualify as leadership))

The Secret to Growth

“The real act of discovery consists not in finding new lands but in seeing with new eyes.” – Marcel Proust

We can debate until we are blue in the face whether the biggest growth opportunities like smartphones and tablets are saturated. But whether this point is true or not both markets will inevitably become saturated at some point. Growth will someday peak and only disruption can restart the cycle.

The key for a companies growth lies in new opportunities. Sometimes you have to create those opportunities and other times you can capitalize on opportunities others have created. But in either case vision and leadership are key.

Perhaps the next growth area is wearable computing, or the digital home and car. Perhaps it is something we have not thought about yet. This is what makes this industry exciting. The point remains, who leads these new opportunities is the key thing to watch.

Leading also means you often take some arrows in the back. It is hard and not all can handle the scrutiny. As I stated earlier, I am not naive in thinking that Apple will always be in a leadership position. But I’m yet to see another holistic leader in computing emerge.

Tablets, Seasonality, and Adoption Cycles

There is an interesting shift happening in the hardware release cycle of the computing industry. When the PC was the only game in town bi-annual release schedules were the norm. Now with the increased growth in smartphone and tablets, it looks as though the industry may be shifting to a much more seasonal release schedule. In consumer markets seasonal purchasing has always been the norm. But in enterprise markets the bi-annual release schedules allowed flexibility to purchase new hardware to meet demands throughout the calendar year.

The entire industry appears to be shifting away from that bi-annual schedule and to a more consumer friendly seasonal emphasis. This is evidenced by the slowing growth of both smartphones and tablets on a quarter-over-quarter basis according to some of the latest device shipment data. My conviction is not that we are seeing saturation but seasonality. There are other factors at play which I will get into.

This does not necessarily mean that the tablet category is slowing. Rather, what it suggests is that the buying cycles for tablets are shifting to be more seasonal at large. This was always the case for smartphones at large, but it appears the end of the year is now also the hot cycle for tablets and traditional PCs.

What this means is that we are lining up to have a very loaded holiday quarter with new smartphones, tablets, and PCs competing for consumer dollars. This by itself brings with it ramifications for consumers and enterprises alike.

For the consumer market the challenge is going to be for OEMs to cut above the noise in what is going to be an extremely competitive holiday season. Retail placement, promotions, and online / offline marketing are going to be keys to success.

Market Experimentation

Earlier this week I wrote for my TIME column a piece titled “Why I’m Not Switching from the iPhone.” My overall point of the column was to paint the picture of a mature smartphone consumer. Someone who, through experience, has vetted the options and defined specifically needs, and wants.

This has always been at the base of our adoption cycle market methodology. When we research consumer markets and try to get the pulse of the consumer in our interview and observational research, much of our goal is in understanding how mature they are in understanding what they want and why. This was also why I wrote the article on our site here called “I need a PC and I know it.” Again emphasizing a self-awareness of technological needs.

We do not have this with tablets. Where I point out in my TIME column that most mass market consumers at a global level are only on their first or second smartphones, tablet owners are largely on their first tablet and the market for non-tablet owners, or tablet intenders is massive. [pullquote]When we are in a position to get our first car we will take it any way we can acquire it.[/pullquote]

We have gathered quite a bit of research suggesting a high level of buyers remorse for low-cost tablets. This backs up our points of where we are at with adoption cycles of these devices. I liken what is happening with low-cost devices for places like emerging markets or first time owners to our first cars. When we are in a position to get our first car we will take it any way we can acquire it. Then after time, generally speaking, more options will emerge and the choice and preference will become more refined.

For many first time tablet owners who just wanted to get in on the hype they wanted to see what the tablet buzz was all about. So they got one any way they could and for a portion of the market they went with cheaper devices. What our research is suggesting is that they learned their lesson, liked the form factor and the upside, weren’t happy with their choice and are looking to spend up on the next one. This data comes from all markets including emerging (like China) as well.

This point about buyers remorse feeds nicely into the data we see about why iPad usage remains so dominant compared to the competition.

So What Does it All Mean

It means that competing for the mind of the consumer is becoming harder and harder. Consumers are going to be faced with an overwhelming plethora of choices. For the masses who still may be defining and refining their needs and wants, as they look to spend up it will favor certain brands they trust or perceive as the market leader. This is why I have no doubt the iPad will sell marvelously this holiday season and why both the iPhone and Samsung phones are still the dominant global players.

Seasonality is going to change things in my opinion. Marketing for one is going to get much more tricky when we have the kind of loaded and confusing holiday quarter I think we are in for the next few years at least. How companies market and position their products to cut above the noise and gain consumer mindshare will be key.

One thing that our data and even the recent research we have compiled continually emphasizes is that as the adoption cycle moves from immature to mature, cheap goes off the table and the masses begin looking for value. This is why I’ll argue until I am blue in the face that a race to the bottom is not actually what consumers want. It may be necessary in some regions, but over time, even in emerging markets, I believe value is what we will be demanded.

Why Apple Should Not Create a Low-End iPhone

For a while now Wall Street backers of Apple have wanted them to create a low priced iPhone and use it to gain more marketshare. They seem to think that market share will drive up profits and expand their reach. A Tech.pinions colleague has done a great jobs dealing with the issue of marketshare vs profits so I won’t go into that here and suggest you read his series on this since it lays out a very good argument that profits are much more important than marketshare.

But if Wall Streeter’s really want to understand why this is a bad idea, all they have to do is look back at Apple’s history and see that Apple tried that once before and it nearly destroyed them. Not long after John Sculley was pushed out of Apple, Michael Spindler was brought in as CEO to try and make Apple more competitive. At the time the Mac had become a niche product, mostly used for desktop publishing, graphics, and engineering. On the other hand, the PC was outselling Macs at least 20 to 1 and pressure from Wall Street pushed Spindler to try and do things to help the Mac gain market share.

So what did he do? First, he made the Mac Look like a PC in design. Second, breaking major tradition, he licensed the OS to a special group with the idea that if there were more companies offering the Mac, it would sell more. And, Apple and the licensee lowered the prices and tried to compete with the PC head on. There was only one problem. The PC clones had access to tens of thousands more apps then was available for the Mac and IT and consumers took the safe route and stayed with PCs. Even the lower prices could not help Apple gain any ground in the PC market.

During this side trip to try and be all things to all people, Apple lost a lot of money and was in the red to the tune of almost a billion dollars when Spindler was forced out. They then brought in Gil Amelio who tried to stem the losses but by that time, it was too late to save Apple. That is when Jobs came back and took it back to its roots of selling the best product they could to their core customers. As he told me in a meeting with him the second day he had come back to Apple, he would lean on industrial design and innovation to try and grow the company again.

If you look at the low-end of the smartphone market, it is becoming a wasteland. First, as long as a smartphone has an OS, some memory and access to apps it is called a smartphone. However, low-end smartphones are now around $99 in China and well over 50% of the smartphones selling in China are white box phones that are sold off the street, in cell phone flea markets and through channels we as market researchers can’t even track. But nobody in that price range is making any money.

The same goes for other markets where these phones cost $99-$139. BOM costs alone make it very difficult for them to have any margins when they sell these products and at these price ranges, profits are slim or next to none. For Apple to try and do a low-end phone for the emerging market might help market share but at the cost of any serious profit. I trust they have learned the lessons from the last time they low balled products for the market and never go after this side of the business.

On the other hand, there is precedence from the past for mid-range priced smartphones. While the Mac for the graphics, DTO and engineering worlds became premium products in their line, Steve Jobs introduced the innovative, candy colored iMacs at prices well below their upper-end Macs. To this day Apple still sells a lot of premium priced Macs but the bulk of their sales comes from mid range priced iMacs and MacBook’s selling well under their premium lines. But what they have not done is chase the low-end of the PC market and with the is strategy they still have solid profits in their Mac Line.

There are rumors that Apple will soon introduce lower priced iPhones, but don’t expect them to priced to compete at the really low-end of the market or be aggressive with pricing in emerging markets. From History, Apple knows that they can still make some good profits with mid ranged priced products and if these rumors are true, Apple new iPhones would be following a proven formula that has continued to help them stay one of the most profitable companies in the world today.

Why Softbank buying Sprint is a big deal

Last week, the FCC gave their blessing on the Softbank purchase of Sprint. I consider this a very big deal and one that could have dramatic ramifications for the Wireless industry in the future. The leader of Softbank is a brilliant thinker and is never lacking in vision.

I have had the privilege of interacting with their founder and CEO, Masayoshi Son on numerous occasions and in fact did Fireside chats with him at two conferences in the late 1990’s. At that time, he became prominent because he bought Comdex, the largest PC show in the world in those days, and for his statement that he had a 300 year business plan for Softbank.

I got a chance to understand a bit about his business acumen and tenacity during one of our fireside chats. It took place at the Phoenix Technologies Conference at Spanish Bay in Monterey. Mr Son explained that in Japan, the telecom industry, which was basically controlled by the Japanese Govt. needed shaking up. It was controlled by NTT and the Japanese Govt dragged their feet when it came to open competition. This led to very low bandwidth Internet connections as well as a wireless infrastructure that, in his mind, was going nowhere.

So he approached the telecom Minister of the Japanese Govt, which regulated the telecom industry, and kept pushing him to present a plan that would open up the their telecom laws for more competition. He went to see this person at least 4 times and each time he was either rebuffed or was told he would look into it but nothing happened. So, on his 5th visit, he barged into this telecom Minister’s office with a full can of gasoline in tow. He told the Minister that if he did not agree to take his proposal to their ruling body that he would pour the gasoline over himself and light it on fire.The telecom Minister got the message and agreed to start the process of discussing opening up their telecom industry to competition. Because of that push by Mr. Son, Japan’s broadband and wireless industry began to explode. Softbank was the first to give users 50+ megs of download speed and I hear his goal is to get them to 1 gbps in the very near future. Softbank is now the #2 wireless company in Japan.

When I first heard that Mr. Son and Softbank had bid for Sprint, I had a vision of him walking into the offices of the FCC with his gas can in hand. However, given his success in Japan, everyone I talked to about this took his bid for Sprint very serious and knew that he would be tenacious in his desire to own this American Wireless company. However, his ownership of Sprint has to be watched very closely. He is not content with the status quo. One thing he could do is try and bump Sprint to 5G sooner than later and leapfrog ATT and Verizon. He could also utilize these assists, which includes Clearwire’s wireless spectrum, to create some type of mesh networks that blend wired and wireless in some areas to boost speeds for their customers.

Bottom line is that Mr. Son will not be a conventional wireless CEO. He is likely to be a firebrand within the wireless industry and do things that will irk and frustrate the competition. He wants to win, not just be a bit player in the US wireless market. Look for him to shake things up at the govt and industry level and perhaps surpass the competition and delight his customers along the way.

Why ICAHN is a Bad Fit for Dell

I have had the privilege of following Dell from its inception. I became a PC industry analyst in 1981 and have tracked the PC industry from its beginning. In the process I have had the privilege of interacting with every one of the PC and CE companies at the highest levels for 32 years. Those who have followed my current writings in TIME’s online Tech section, PC Magazine and our own publication called here as well as my commentary on all of the major TV and radio networks and business publications know that I have been chronicling the tech market for decades.

I have watched PC companies come and go and understand well how the industry developed and what it will take to compete in the future. I have seen the market for PCs grow exponentially and become the heart of Information Age. Although the role of PCs has changed over these decades, it is still a key component of any business and consumer’s life, even if some of those computers are now called tablets and smartphones.

I have been watching closely the competing bids to take Dell private and am quite concerned about any outside plan that would not guarantee that Dell remain whole and execute as a single company with all divisions contributing to its success. While I have respect for Mr. Icahn, I am not convinced he really understands the dynamics of the tech market and what it takes to compete in this fast changing marketplace. The tech industry is not like the oil and gas industry where things change slowly. I believe that for Dell to compete and grow it must be run as a single unified company where all divisions work together to achieve their vision and goals. But if history is our guide, keeping Dell intact is probably not in the plans of Mr. Icahn and his team.

One Company, One Vision

A few months back, Dell held its annual industry analyst days in Austin. Like all of my colleagues at the event, we went to the conference to see first hand how Dell saw the market, what role it would continue to play in a technology world that is rapidly changing and how they planned to grow as a company in light of the increased competition and shifting demands from business users and consumers alike.

I sat through two days of speeches and dedicated divisional information sessions and in the end, came away with a picture of a company that was much more in control of its future than I had suspected. I found that they had diligently laid out the necessary building blocks that, when tied together, could give them the ability to weather the changing dynamics of the tech market today and had a solid vision that can drive it forward in the future. One that includes being a hardware, software, and services company offering the whole package for many key growth segments.

One very important thing that I came to understand from these meetings is that in order for Dell to navigate these choppy industry waters, it needs to be able to execute this vision in a measured and strategic way, which will take time. It is clear to me now that this is the main reason Michael Dell wants to take the company private. Trying to rush these things would be difficult given the need to make these changes to Dell’s future business models so that it can be done properly and executed without the pressure of always having to keep the investor community happy each quarter.

The building blocks of powerful server hardware, software and services, world class security, expanded IT services and even their PC business that, as we were told, drove 50% of all of their enterprise sales, are key components that when woven together as a single unit gives Dell the opportunity to remain a major player in the world of technology. We were also told about new tablets and other mobile products in the works that, when they come to market later this year, will make Dell very competitive with Lenovo and HP as well as other PC and CE vendors that are all targeting the same business and consumer customers.

I have one key observation that is quite important to this discussion. When I look at Dell, its building blocks and its competitive challenge ahead, I am convinced that they can only remain a powerful player in the tech market if the company competes as a whole, with all of these building blocks they have put into place working in harmony. Every one of their divisions needs to be connected and walking in lock step if Dell is going to succeed.

Servers, PCs and mobile devices need security. IT needs servers, software and mobile device management tools all working together to meet the needs of their mobile users. The future of software distribution is in the cloud and all of Dell’s divisions deliver key parts of a cloud solution that can work together seamlessly if executed properly. Consumers want a company that delivers solid products that they stand by and look to as PCs, tablets and smartphones become more engrained into their digital lifestyles. From what I saw while at the analysts meeting, Dell finally has all of the pieces in place that, when working together, will sustain the company and help it grow if executed well in the face of a tech marketplace that is constantly changing.

I cannot stress how important I feel that Dell operate as a unified entity in order to compete and grow. I have spent many years understanding the machinations of a successful tech company and monitored the shifting winds of business and consumers whose needs and wants constantly change. I can tell you without a doubt that for a company like Dell, HP and Lenovo, all of their divisions and executives have to be on the same page, working and collaborating closely together to provide all of the key components of hardware, software and services if they are to succeed given the current and future market conditions I see ahead.

For the record, I don’t own any Dell stock. I am an independent market researcher with 32 years of experience examining the tech market and this perspective comes from decades of studying how this industry works. In my opinion, if there was ever a time when a company needs to operate as a unified force, it is now.

Providing powerful technologies across hardware, software and services that are all interrelated and interconnected is the key to success in this globalized tech market where vision, order and collaborative leadership is vital to a PC company’s ability to remain competitive and thrive. Any attempt to break up that kind of synergy will only lead to failure.

Apple, Diversity, and Why It Succeeds

Quite possibly, the single most important action undertaken by Tim Cook as CEO of Apple was when he fired Scott Forstall – so often referred to as “the next Steve Jobs.” There were likely many reasons for Cook’s move, but the overarching one is well-documented: Cook demands collaboration and Forstall was not known to share the glory nor the information. Cook would have none of it. He wants the company free of politics, fully focused on its mission, everyone working together.

Apple shows us again and again that to do the very best work, to make the very best products, to create something out of  nothing that magically appeals to everyone requires great people with a singular cause, a focused leadership, and unwavering faith in what they are doing.

Does this make Apple anti-diversity?

Absolutely not.

Tim Cook has said that the only pictures in his office are of Robert F. Kennedy,  a man who preached the benefits of diversity, and Dr. Martin Luther King – a man who helped change America’s views on so much, including how we value people who are different from ourselves.

Nonetheless, it seems current efforts to promote diversity within tech companies are doomed to failure. The companies that succeed in Silicon Valley are typically highly focused, comprised of people of highly similar backgrounds and educations – all focused on a singular mission.

The last great Silicon Valley success story, Facebook, came straight out of a Harvard dorm – chock full of well-to-do white males. It’s nearly impossible to be less representative of American society than that. Yet Facebook has a billion users around the world.

There are good reasons why so many of us believe there are societal benefits to diversity and inclusion, of course. Everyone of us benefits – culturally and economically – when everyone’s talents, creativity and dreams are afforded the opportunities to be fully realized.

But such larger social benefits fail to pass the results test when it comes to individual company success. Making Apple more “diverse” will not make it better. Walk into any Apple Store right now and see young and old, black and white, male and female all testing, using – coveting – the company’s many amazing devices. Apple’s success proves that mission and focus – not diversity – are what drives corporate greatness.

No, this does not mean we should not have nor promote diversity. Rather, we must acknowledge that change needs to come from outside. Efforts to promote computer programming for girls, for example, or to bring more people of color into STEM fields – these are worthy. Trying to enforce diversity policies inside a company is simply not the way to go.

Could Apple really do better if the picture below looked more representative of American society? That is a difficult case to make.

Apple Executive Leadership Team
Apple Executive Leadership Team

Apple is the world’s richest tech company. It has amassed the most cash. It makes the very best smartphone, tablet and laptop in the world. It is the global leader in personal computing. The company has over half a billion users and is growing, particularly in developing markets.

Would it be any more so if Apple’s leadership was, say, half women and/or 25% people of color? Would their products be any better? More appealing?

If you want a diverse workforce in Silicon Valley, and no doubt many of us do, then complaining about VCs not funding enough women, for example, of fretting that big tech companies aren’t hiring enough people of color will likely continue to fall on deaf ears.

Silicon Valley can absolutely adapt to change. That change, however, needs to come from the outside – and be data-driven.

We need to make more of those men and women who can propel Apple and Silicon Valley to continued greatness. That will – of necessity – demand a more diverse hiring pool to choose from. It’s simply wrong, however, to look to Apple HR, for example, or Sand Hill Road, to construct this path. That is not their mission.

Re-thinking Winners and Losers In Tech

There are narratives that circle the technology industry that are wearing out their welcome. The primary one, and the one where I wish more intelligent heads would prevail, is the narrative that there can only be one winner in this industry. Namely that for Google’s ecosystem to win, means that all the others must fail. Or that for Microsoft’s ecosystem to win it means that Apple’s and Google’s needs to lose. And of course that for Apple to win, Google and Microsoft need to lose.

As far as I can tell these narratives are rooted not only a limited view of the technology industy’s history but also a very short-sighted one. It seems as though since Microsoft’s Windows platform dominated much of computing for several decades, that it must mean that it is inevitable that this domination repeat itself. It seems the expectation from many is that we are simply waiting to see which platform wins. More specifically, which platform will dominate computing market share the way Microsoft did in the past. Let me explain why this is not going to happen.

Big Consumer Markets

The reason I say the one platform to rule them all narrative is deeply flawed is because when Microsoft dominated computing, the market was very small from a global standpoint. The market for PCs was so very small compared to the market for smartphones for example. Small markets favor fewer players who typically dominate the segment.

The global consumer market for technology is massive. Massive global consumer markets can sustain many players, competing for segments of markets, and all making money. Look at how many automobile companies the global consumer market can sustain. Look at how many clothing companies, types of aspirin, types of cereal, etc., the market can sustain. Believing that for Google to win Apple has to lose–or vice-versa–is like believing that for Pepsi to win Coca-Cola has to lose, for Burger King to win McDonald’s has to lose, or for BMW to win Mercedes-Benz has to lose. We all know how silly that sounds and that is the point.

Interestingly, even though a few major conglomerates own many of the underlying products that make up the variety I mention, its success often transcends the product, or company, itself but is wrapped into a larger experience. This larger experience is bound to something central which is key to that companies sustainability in the global consumer market–their brand.

Brands Rule the World

When you look at the global consumer market, you simply will not find a company succeeding and competing on the basis of a product who does not have a strong brand. A strong brand stands out. It is recognizable. It leads to continually high customer satisfaction, loyalty and trust. A strong brand continually re-creates an enjoyable and memorable experience for its customers.

When a company builds a brand that the global consumer market considers valuable, it puts itself in lasting position. Nike, BMW, Mercedes-Benz, Coke and Pepsi, McDonald’s, etc., are not in danger of going out of business any time soon. To predict their demise, is as ridiculous as predicting the demise of the strong global consumer brands in the technology industry.

A strong brand is not just sustainable it is also versatile. Brands compete well in the markets they play but a strong brand also allows a company the ability to compete in new markets with new products. A strong brand is one of the strongest, most defensible assets any company has. It is one of the foundational things that often gets overlooked in many analysis.

Its time to re-think winners and losers in the technology industry. Its time to take a more holistic look at who is well positioned to still exist in 20-30-50 or even 100 years. A strong brand today means a strong brand tomorrow. Products come and go, but brands can stand the test of time.

The PC Industry of the Past Is Not the PC Industry of the Future

We are, without question, an industry in transition. The 500 lb. gorillas who once dominated the technology industry are experiencing and undergoing major transitions and a new type of growing pain. And for many, this is extremley painful. These titans will rise or fall based solely on their ability to manage this transition and these new types of growing pains. So what is growing exactly? The opportunity.

From Business to Consumer

For the past 30 years, the computing industry only appealed to a small group of people–namely the business community. Many companies from Microsoft, IBM, Dell, HP, Intel, RIM, etc., got their start bycreating products and solving problems for a business user. What many of these companies are learning is that business users are as different as night and day than ordinary consumers. In fact, I specifically peg Apple’s turnaround to this observation. Apple has and always will be a consumer company. They simply struggled until there was a true consumer market. Now they find success where others have not simply because they have always had a vision of creating products for ordinary folk. Apple simply had to wait more than two decades for their true market to emerge. Now, emerge it has and it is billions strong.

A key point signaling this shift was the recent news about the PCs decline in Q1 sales. Who usually bought PCs in bulk in the first half of the year? It wasn’t consumers. It was businesses. In years past the bulk purchases of enterprise and business buyers helped offset the lack of consumer spending for PCs in this buying cycle. With business shifting to BYOD, it’s doubtful the first half of the year will yield the volumes it once did. What we are witnessing in clamshell PC sales is not really massive declines. It is simply the new normal.

The consumer market will dwarf the business/pro market by magnitudes. The PC industry of the past, is not the PC industry of the future. The opportunity has shifted from business to consumer and it is growing faster than many anticipated. Many were not prepared and the pain of this reality has been life changing for all PC vendors.

From Stationary to Mobile

We were not meant to sit at desks. Yet that is exactly the paradigm that desktops and notebooks brought. Innovations around mobile devices are among the most important innovations for the PC industry of the future. When we first learn to ride a bike we don’t just sit on it and not move. We take it out and explore the world. Smartphones and tablets deliver on a truly mobile computing vision and we are barely scratching the surface of mobile computing. There is still massive software innovation ahead and we still don’t have devices that truly know anything about us. Anyone who believes innovation is dead is wrong and lacks vision. We still have billions of new customers to bring into the digital age and they want innovative products, Many that have not even been invented yet.

At the moment, we are in an adoption cycle phase, not an innovation phase. Why should we expect revolutionary new smartphones, for example, when half the planet doesn’t even have their first smartphone? Do we expect revolutionary new cars every year or even every few? Until the advancements of hybrid technology the industry had hardly changed in decades. People don’t freak out and scream about the collapse of Toyota because they don’t release a revolutionary new car every few years. It’s not a perfect analogy, I admit, but I do believe the consumer market for automobiles brings out applicable insights for the PC industry of the future.

The companies I am not worried about and the ones who will be in the PC industry of the future understand mobilility and understand consumer markets. Right now that is a very short list.

This is also the crux for many who are experiencing growing pains. They have the wrong definition of mobile computing. Couple that with a lack of understanding of consumer markets and it is bad news for the traditional PC vendors unless they really get the mobile religion and deliver mobile products that meet the needs of all their current and future customers.

The New Era of “Good Enough” Computing

good enough phrase in wood typeA few weeks back I was one of the first to write about Windows Blue and in this column I discussed how Windows Blue could be used on tablets in the 7” to 10” range as well as in clamshell’s up to 11.6 inches.

We are now hearing that this particular version of Windows Blue will be priced aggressively to OEMs and could go to them for about $30 compared to the $75-$125 OEMs pay for Windows 8 on mainstream PCs.

But to use this low cost version of Windows Blue, we understand there are some important caveats that go with it. For this pricing, it can only be used on Intel’s Atom or AMD’s low-voltage processors. These chips were designed especially for use in tablets and as I pointed out in the article I mentioned above, this would give Microsoft a real opportunity to get Windows 8 tablets into the market that could go head-to-head with Apple’s iPad Mini and most mid level 7”-8” Android tablets as well.

Netbook 2.0?

As for clamshells, they too need to use these processors from Intel and AMD to get this pricing for Windows 8 (Blue). What’s interesting about these clamshells is that we understand that they will be fully touched based laptops with very aggressive pricing. In some ways, these clamshells with these lower end processors could be looked at as Netbook 2.0, but for all intent and purposes, these will be full Windows 8 touch laptops only with processors that are not as powerful as the ones using Intel’s core i3, i5 or i7 chips or similar ones from AMD. They will also be thin and light and could easily be categorized as Ultrabooks as well.

Windows 8 Blue is one way to get Windows 8 into more products and make it the defacto Windows OS standard across all types of devices, especially the 7” to 8” tablet segment that we predict will be as much as 65% of all tablets sold by 2014. We also hear that Windows Blue RT version will also take aim at 7”-8” tablets, which means that the ARM camp will have a play in this market as well. However, its use in an x86 clamshell could have a dramatic impact on the laptop market and have unintended consequences for OEMs and chip companies as well.

The ramifications could come from a major trend in which tablets are becoming the primary digital tool for most users. The smaller tablets are used more for consumption but the 10” versions can handle both consumption and productivity in many cases. This translates into the fact that tablets are now handling about 80% of the tasks people use to do on a laptop or PC. That means that traditional laptops or PCs now only handle only 20% of the needs of these users, which are mostly used now for media management, handling personal finances, writing long documents or long emails.

New Price Segments

When we ask consumers that have tablets about their future laptop or PC purchases we are told that for many, if the laptop is only used for 20% of their digital needs, then they will either keep what they have longer or if they do buy a new laptop or PC, it will be a relatively cheap one. Consumers, who are not interested in Macs, tell us that the top amount they want to spend on these products is $599. This suggests two key things for the PC industry that could be quite disruptive. The first is that there would be a bifurcation of the laptop and PC market into distinct sectors. One focused on the consumer where all PC products have to be under $599. The other is what we call the premium market for laptops and PCs which are willing to pay $999-$1499 for their computing tools because of more advanced computing needs. This premium segment is mostly tied to enterprise and the upper end of the SMB market. In fact, the price for PC products in this upper premium price range has proven to be quite resilient.

The second key thing means that the mid level priced laptops and PCs could end up in a no mans’ land. PC products in the $699-$899 could take a pretty big hit while demand for products $599 and under could skyrocket. We believe that this trend would usher in an era we call “Good Enough” computing; a term we became intimately acquainted with during the first Netbook phase. To some degree, the robust sales of Chromebooks already suggest this era has already started. But it would pick up if users could get full touch-based clamshells that look like Ultrabooks and are priced well under $599. We are actually hearing that when these come out in time for back to school they will be priced from $499-$549 and the target price would be to get them around $399 by early next year.

At Creative Strategies we are in the early stages of analyzing the potential impact of these Windows Blue low-cost clamshells but our early take is that they could be huge hits and have a serious impact on demand for laptops or PCs in the mid range, which has been a very important segment for the OEMs and CPU companies in the past. If this happens, the OEMs would need to bulk up on their premium products since these have solid margins and actually bring them significant profit. It also means they need to be creative and innovative in products under $599 and find ways to squeeze profit out of these types of laptops as well.

This does not mean that OEMs will stop offering value notebooks that are bulkier and in some cases use processors more powerful then Atom or low-volt chip from AMD. However, if their Netbook 2.0 like clamshells are thin, light and touch enabled, it could even cause demand for these low end bulkier laptops to dry up too. It will be very important to watch the development of this market over the next 6 months. If our assessment is correct, we could see a rather significant bifurcation of the PC market this fall, something that could have a real impact on all the players in the PC world.

The Best Innovations are Still Ahead

I enjoy technology industry history. After the dot come bubble burst, I had a conversation with the then-CEO of National Semiconductor, Brian Halla. He’s also a tech history connoisseur and he explained to me what is called the Boom Bust Build-out Theory. The theory, in short, details how every major industry during the industrial revolution until now went through an initial boom, followed by a bust, followed by a market build-out.

The “boom” period is a period of euphoria where entrepreneurs, investors and early adopters rally around the new product or industry; followed by a relatively short “bust” where tough economic realities are faced; followed by an extraordinary “build-out.”

During the boom, an industry first gains traction and investment money floods the market. The result is that the supply outpaces the demand of the current market state. This is because the early interest is driven by early adopters, which is not a large market. The over-flooding of capital, combined with an immature market, leads to the bust. The bust, however, causes a drop in price of essential market components, which leads to innovation.

In an example with the railroad industry, the “bust” led to such cost declines in essential components that it made it possible for enterprising entrepreneurs to create the frozen car, thus spurring the meat packing industry. The two-year railroad bust, however, was followed by a global build-out that lasted a century. That build-out occurred all around the world and forever changed transportation and commerce.

A similar cycle of boom and bust in the automobile industry led to the creation of the V8 engine, power steering, electric indicators and safety glass.

Looking over the history of the personal computing industry, we can spot many similarities with mega industries of the past. The technology industry was not immune to the boom, bust, build-out cycle and if the signs are true, we are right at the beginning of the build-out stage.

Much of the innovation we are seeing today around smart phones, tablets and new PC form factors is the beginning of this build-out. Just look around at the innovative PCs, desktops, smart phones and tablets, all coming to market with things that seemed impossible just a few short years ago, and all at mass market prices.

The devices we use are going to get smarter, thinner, faster and more. The internet in five years will look and feel nothing like it does today. The build-out that we are at the very beginning of will drive new businesses, new markets, new technologies, and new opportunities.

One of the more interesting elements to what I am point out here is the hardware renaissance happening in the tech industry. Hardware startups are popping up everywhere these days making things from wearable health monitors, automotive intelligence, smart home solutions, computerized toys, and more. The industry bust led to such a drop in critical components that it made feasible for entrepreneurs to very easily and inexpensively start creating hardware solutions to solve every day problems.

Where we are today is both an opportunity and a threat for non-nimble industry incumbents. New innovative startups can come out of no where and disrupt legacy business or established companies can enter new markets effectively.

When a companies growth slows, or begins to slow due to market saturation of a specific category the two key ways to drive new growth is to enter new markets, or create new markets. The cycle that we are in allows innovative companies opportunities like we have never seen before technologically.

Take the iPad for example. For Apple this was a new market creation strategy. They packaged a product together in ways that have never or could never have been done before at mass market prices and completely created a new category in which to compete.

When I look at the cycle the technology industry is in today, it gives me great confidence that our best and most innovative years are ahead of us. Who will dominate these years ahead will be the continual storyline. But without doubt some of our most exciting innovations are still to come.

The Challenge for Smartphone Makers in 2013

Finding the solution of mazeI believe we are in new territory for smartphone manufacturers. Although its true that there are still many people on the planet who do not yet have a smartphone, the reality is that the most mature markets are reaching the saturation point where most consumers–who want and value smartphones–have one. Which means that the battle for the bulk of mature market consumers are now for up-graders and no longer intenders. This changes things quite a bit.

This would explain the concerns over smartphone growth slowing in 2013. For several years the smartphone market was growing at over 50% a year. This year the growth is estimated to be around 30%. I think a better way to look at the growth is to look at the rate specific smartphone price ranges will grow. I think parts of the market may grow more than 30% this year. However, I am not convinced it will be the flagship top-tier devices that grow at faster paces this year but the more second tier devices. Of course this would seem logical given the growth in emerging market but I think this will even be the case in markets like the US and Europe.

If true this brings up an important observation about devices like the Galaxy S4, the next iPhone, and any other flagship device. And that observation leads me to the title of this column.

Good Enough

I think we are getting extremely close to a good enough sentiment by mass market consumers toward their current devices. The quality of most flagship phones and even many tier two phones has been continually raising to the point where they are lasting longer and meeting the simple needs for the mass market.

We have been living in a good enough paradigm in the PC industry for years now and consumers are consistently holding onto PCs longer because they meet their needs and they do not feel an urgency to upgrade their notebooks. I think the smartphone market may be in a similar situation.

The Burning Question

At an absolute fundamental level the biggest challenge smartphone makers face in 2013 is convincing consumers they need to upgrade their smartphones this year. The biggest part of the consumer market is not the early adopters but the early and late majority. These groups think very different about technology and what percentage of this market will routinely upgrade every year or even every two years is a big question mark.

When we talk with consumers and gather our market insights into this specific question, we continually get a sense that consumers are happy with even their later generation devices and don’t necessarily feel the need to rush out and upgrade their devices even if they are eligible. It appears that a growing majority believes their current devices are good enough. It doesn’t mean they won’t upgrade, just that there is no sense of urgency.

This brings up interesting implications for companies like Samsung and Apple. Both companies have garnered a large install base for their devices over the past few years. There will certainly be a significant number of customers who will be eligible in 2013 for upgrades but will they be compelled to upgrade at all? This, I think, is an interesting question.

With regards to the S4 I have my doubts. Samsung will no doubt sell a ton of these devices but will it sell better than the S3? I’m not convinced, and I am not convinced for one primary reason. The S4 runs the dangerous risk of over serving the market needs with the key innovations and features they added.

Horace Dediu tweeted out something I thought was very interesting last week.

Market over-service is a far more dangerous mistake than under-serving it.

Overserving the market means adding features and functions the mass market does not have a perceived need for or is not ready for. Often times when an offering is complex, it is hard to understand. This goes back to the point of what is good enough in today’s market and what is overkill. These are questions to wrestle with.

The S4 has some cool features. Once people get their hands on them we will see if they are just cool or actually useful. Cool and useful are often two very different things. What Samsung doesn’t need with the S4 is consumers hearing the pitch and wondering “why do I need that?” What if the S3 is good enough?

The S4’s biggest challenge will be to address the question in the minds of consumers as to “why should I upgrade?”

Of course Apple will face this question as well. We have seen Samsung’s flagship device and we are yet to see Apple’s. I think this is an interesting year for Apple. I’m not sure Apple has ever found themselves in a position in the past decade with such a strong competitor as Samsung, who is willing to spend more money than them on marketing to convince the world to buy into the Samsung brand.

This is perhaps the first year where I think Apple needs to do more with the next iPhone than the traditional strategy. For the primary reason that the iPhone 5 in its current form is good enough for the masses. If the next iteration of the iPhone does not offer either some entirely new innovation or feature not found on the iPhone 5 that provides an answer to the upgrade question, then I fear consumers who are in the market and eligible for the upgrade may just end up buying the iPhone 5 at a discounted price. Even if that happens it still means healthy sales for Apple but it begs the question about the necessity of a new flagship device it isn’t going to make a compelling upgrade case.

The question will be what features are worth a $100 premium in the good enough market that we find ourselves in. There are fascinating dynamics at play in the market right now from my viewpoint. I do believe that every smartphone maker is now entering uncharted waters due to the saturation and maturity of the smartphone market. It will be exciting to see how these new waters are navigated. I’m glad I have a seat to watch the show.

Will Android Tablets Pass iPad in 2013?

The technical answer is yes. Android AOSP (Android open source project) meaning Android code that can be freely taken and used will be installed on more tablets than iPads in 2013. But the story isn’t that simple or clean cut. Data requires perspective and that is what I hope to provide around IDC’s latest press release and chart predicting that Android will be on more tablets than iOS in 2013 and beyond.

Here is the original IDC chart.

Screen Shot 2013-03-12 at 2.20.17 PM

Now at first glance we look at that chart and mistakingly assume that the red part, which signifies Android, means a flavor of Android with universal value to both Google and developers. If I was a developer, I would look at that chart and think that Android tablets must be where I should focus my resources because it is clearly the OS market share leader starting in 2013 and beyond. However, if I thought that I would be wrong.

To clearly understand the Android picture we need to better understand the flavors of the OS and in particular which ones have the Google Play store and which ones do not. Because what really matters if we are interested in a clear industry picture of OS platform share is the distribution mechanisms for applications on each platform. If iOS represents a certain amount of market share then I can be confident that Apple’s app store is on that percentage of devices and install base.

The problem when we talk about Android market share in both smartphones and tablets, is that we are not talking about market share in which a universal app store medium exists. This is because Android can be taken and forked, to the chagrin of Google, and used for the sole agenda of others thus not benefiting Google or the Play Store developers. This is the problem we have when we look at the Android growth in tablets. The greatest percentage of it is coming from Amazon with their Kindle fire, and the Chinese market. The Kindle Fire runs a forked version of Android and developers must use Amazon’s SDK and proprietary app store. 90% of Chinese Android devices sold do not come with the Goolge Play store installed but rather have ties to dozens of local app store from local service providers. Therefore to get an accurate picture of the Android market, it is more helpful to break out market share by devices which have the Play store and the ones that do not. If we did, then IDC’s, chart would look more like this.


Chart Caveat: Two things about this chart. First I’m making a point not a series of forecasts. I will let my friends at IDC and other firms do the forecasting. Second, the size of the tablet market in 2017 could likely be over 600 million.

This is a more helpful way to look at the data and understand the market share. If I am a developer and I look at this data, then I may be more inclined to say that I should focus on Amazon’s platform vs. Google’s version of Android when it comes to tablets. More importantly I would understand that iOS and Apple’s App store still offers me the greatest total addressable market. China is the wild wild west as I point out and only local devs have a shot there at figuring out their app store mess.

Since Android is not actually a platform, but an enabling technology that allows companies to create platforms, it’s helpful to look at the data in a way that shows the picture as it is. Stating generically “Android market share” does not give an accurate picture to the market which needs the data to make educated decisions.

My goal here is not to be overly negative on Android, but simply to paint a more accurate industry picture.

The History and Role of Analysts


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

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

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

The Early Days of Computing

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

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

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

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

The Analysts Role

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

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

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

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

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