The Samsung Galaxy Unpacked part one, back in February, was the last live event I attended. Hence, as we approached this week’s Unpacked, I was as curious about the products to be announced as I was to see how Samsung would pull off their first digital launch.
Overall, I thought Samsung did a good job mixing content videos, technical and informational videos and time on the virtual stage. Personally, I was not a fan of the virtual audience, but I think it did fit the feeling that the live venues over the past couple of times created, with the big floor to ceiling screens that displayed both content and the audience in the room.
I appreciated having the opportunity to see new faces from the engineering and design teams. I suppose it is the silver lining of having a digital event and recording in Korea. This setup also brought more women on stage, which is always a good thing!
There was a lot to cover product-wise, but Samsung kept a fast pace and, for the first time, brought all the products together, demonstrating the value of having more than one Samsung product. Samsung has been trying to paint that “better together” picture, but what was missing was the software portion that would bring the products together. This time, both thanks to Samsung’s software and a renewed partnership with Microsoft, that the dotted line between products was much more obvious and natural.
Products that Do More At a Time When We All Do More
With August-Unpacked being the Galaxy Note reveal show, we have been accustomed to focusing on the latest and greatest tech and so the very high-end of the Samsung portfolio. Over the past year, there have been some questions on whether the Note line continued to fulfill the initial promise of being the best of what Samsung has to offer in mobile, especially as the market moves into Foldables. I think the Galaxy Note20 Ultra took care of those concerns by embracing quite a few technology firsts from the 5G Snapdragon 865+ chipset to Gorilla Glass Victus and UWB.
What was interesting this year is that Samsung announced a whole portfolio of high-end devices around the Galaxy Note line. Galaxy Z Fold 2 teaser aside, we saw the Galaxy TabS7, the Galaxy Watch 3 and the Galaxy Buds Live. While it might seem strange to bring to market high-end products in the current economic environment, we need to consider that this is not Samsung’s only offering. Earlier in the summer, Samsung launched a whole range of mid-tier phones that added to its Galaxy S line to give smartphone buyers an ample choice of features, designs and price points.
Together with a lot of economic uncertainty, the pandemic also brought a stronger need for technology and reliable devices, whether it is for working from home, distance learning, keeping healthy, or just trying to stay sane. While being stuck at home might have increased the time we spend on larger screens, it has not taken away how much we rely on our phones. Phones also remain the tech device that you can more easily plan for financially thanks to installment plans that limit the impact that a one-off purchase would have.
Samsung’s strong carrier channel and 5G integration might also make the Galaxy TabS7 line to be as easy to purchase as a phone at a time when many consumers are re-evaluating their computing needs as well as their broadband constraints!
The one product that I find harder to justify, although it fits into the portfolio, is the Galaxy Watch 3, where the price point reflects more design choices than technology ones. I would have liked Samsung to double down on its Galaxy Watch Active line maybe with a new color variant to fit with the new Galaxy Buds Live. The good news is that many of the features and capabilities announced for the Watch 3 are software-driven, which might mean we will see them trickle down to the Watch Active line at some point.
The Galaxy Buds Live is possible the product with the smallest footprint and the biggest opportunity across everything that Samsung announced on stage. Having used them for a few days, I am convinced they will become the default for Android users and possibly win over some iOS users too because of their price point and fit. They are by far the most comfortable earbuds I have ever used with good sound and ok active noise canceling.
Samsung and Microsoft Better Together
Microsoft has been focusing on improving how users can move seamlessly from their Android phones to their PCs for quite some time. In the process, the relationship between Samsung and Microsoft got tighter to the advantage of both companies. For Microsoft, Samsung offers a fleet of mobile phones for their apps and services, especially in the enterprise. For Samsung, Microsoft offers apps and services that help them lessen their dependence on Google and offer differentiation within the Android ecosystem.
This week the relationship between the two companies deepened on the productivity side and expanded into the entertainment side.
On productivity, Microsoft’s Your Phone app and Link to Windows will allow Galaxy Note20 users to access and interact with their Android apps. Samsung updated its Samsung Notes app, which soon will be able to automatically synch with OneNote feed in Outlook on the web or OneNote as an image. Inking support for the Note20 was also extended to photos and Outlook brings the Play My Emails feature to Android.
On entertainment, Xbox Chief, Phil Spencer, announced that from September 15, Galaxy users would be able to download the Xbox Game Pass app from the Samsung Galaxy Store. This version will allow Xbox players to redeem tokens and make in-app purchases like buying skins or DLC items in the Xbox Store. The Xbox Game Pass on the Google Play Store will not offer these types of in-app purchases. Customers pre-ordering the Galaxy Note20 can select the Gaming Bundle at purchase and get three months of Xbox Game Pass Ultimate and PowerA’s MOGA XP5-X Plus, the controller used with xCloud. For xCloud to be successful, Microsoft must reach beyond console and PC gamers and rely on the army of Android users out there. Working with Samsung offers a way to bypass the Google Play Store for some offers as well as leverage Samsung’s market share in TVs, the next logical step where xCloud gaming has a natural fit. For Samsung, who stated two years ago at their developer conference, that it wanted its devices to the best gaming experience in the Android ecosystem, xCloud offers an alternative to Stadia and with it another differentiator against competitors.
A Peak at the Galaxy Z Fold 2
Understandably the Galaxy Z Fold 2 only appeared briefly on stage, most likely not to steal the moment that belongs to the Galaxy Note20. The time on stage, albeit limited, was very focused. True to its customer-focused nature, Samsung started the segment with an acknowledgment that the launch of the original Fold did not unfold as planned, sorry I could not resist the pun! From acknowledging we issue, Samsung moved on to show what has changed with the Galaxy Z Fold 2 from a design perspective to improve usability and increase confidence in durability. We saw the larger 6.2” external display, the front camera system that went down to a punch-hole from the previous design that took up a larger corner of the screen, creating a lopsided forehead. We were also shown a pretty detailed video on the new “sweeper” technology that Samsung created to limit the amount of debris that can affect the now even thinner gap along the hinge. Technology that apparently was inspired by the bristles used on vacuum cleaners.
We will have to wait till September 1 to know more about the Galaxy Z Fold 2, but from what we heard today, it is clear that there has been quite a bit of refinement from version one.
The Big Picture
For the first time at an Unpacked event, we had a Q&A where Samsung Mobile’s President and Head of Communications Business, TM Roh, shared his view on the business direction saying 5G and Foldables will be the cornerstones of Samsung’s future. He also shared that he understands the responsibility Samsung has to make a better world safeguarding privacy and security as well as the environment. While not quite the off the cuff conversation I would have liked, it seems that TM Roh wants to make more of an attempt at storytelling (see his blog Steering the Mobile Industry through the next normal), a skill that is certainly growing in importance among tech leaders.
Leading up to Unpacked, there were rumors that Samsung was in discussion with Google to embrace more of their services, but we heard nothing about that on stage. This is not surprising as Unpacked was really centered on the relationship between Samsung and Microsoft. Something we also did not hear much about, however, was Bixby, which to me, is where Samsung might move into more with Google and decide just to embrace Google Assistant. The currently added friction of using Google Assistant on Samsung’s devices is a limitation that will become more and more noticeable as users’ reliance on digital assistant grows and as Google Assistant is embedded in more services and applications and becomes a value add in the experience that products like the Galaxy Buds Live can deliver. The relationship with Google might be more center stage on September 1 when Samsung will provide more details on the Galaxy Z Fold 2, let’s see!
The last ten days sure feel like a whirlwind for the Samsung Galaxy Fold. We went through the excitement and trepidation of the “first look” reviews the morning on the 15th, to a handful of screen issues with early reviewers, ending with Samsung releasing a statement on Monday the 22nd saying the product availability will be delayed so they can run further testing and make adjustments to guarantee the best user experience to customers.
As I watched all of this unfold, I was fascinated by the side conversations that took place on social media from the inevitable Samsung vs. Apple comparisons, to questioning how reviewers do their job, to assuming Samsung just rushed the product to market.
Let’s start with the actual product.
My Unit Was Fine, but Does it Even Matter?
Putting things into context matters. There were a handful of reviewers who reported issues, but the conversation quickly became about “many reviewers” or “most reviewers.” I have not seen an official number from Samsung as to how many units were handed out, but some press mentioned it was under 100 units. The number matters not because it determines the course of action Samsung should have taken, but because it is a good context to have before one can talk about an intentional oversight by Samsung who would have pushed through with the release had the reporters not flagged the issue as some of the comments have done.
Even a single issue should be investigated when you are releasing a new product that is enabling a new category. This on top of the cost of the Galaxy Fold makes it paramount for Samsung to bring to market the best possible solution current technology permits. And this is what Samsung is doing by delaying the release of the Galaxy Fold and retrieving – not recalling – all units that were out on a short-term loan. I would expect that new devices, with an updated design and packaging, will be handed it out before the new release date.
As I mentioned, my unit did not give me any issues, and I used it with the same level of care, or lack thereof, I have for other phones. Following Samsung’s official statement on the now three reported incidents that were not linked to the removal of the screen protective layer, it seems that the phones suffered from damage caused by substances making their way under the protective screen layer. If this is correct it appears that Samsung will mostly address two aspects of the current design:
– Pushing the protective layer all the way to the bezel of the phone so it could not be removed
– Seal the current opening at the top and bottom of the hinge so that no substances can get under the screen.
While the product will look slightly different from what I tried over the past week, I do not expect the core of the experience to be different as the Galaxy Fold was a finished and well-thought-out first-generation product.
What Does the Delay Mean for Samsung?
I have been saying from the very first time the Galaxy Fold concept was introduced that the actual device would not be for everyone. The Galaxy Fold certainly is not for a consumer looking for a smartphone. Of course, you say, who would spend $2,000 for a phone? But looking at this product only in relation to price is not the right approach. If you are looking for a phone, the Galaxy Fold will over-serve you in a way that will make the device seem inadequate as a phone. It’s like buying a Ferrari to drive the kids to school in the morning when you live three blocks away. You will complain about the price, the insurance, the compromise you are making because ultimately it is not the right car for the job.
Some of the reviews and the comments I read looked at the Galaxy Fold like another smartphone when it is not. Yes, all the core functionalities of a phone are there, but the two screens have to be discovered and embraced to figure out how your day to day usage changes. In many ways, my experience reminded me of my first iPad when I was not quite sure how I would use it differently than my iPhone, but I knew I wanted one and I was willing to invest time in finding out what it could do for me.
I do believe this is a short delay and Samsung will likely do a relaunch of the Fold when it ships. From an availability, perspective timing might be impacted by the release of the Galaxy S10 5G in the US next month. Samsung might want to have one device at the time hitting the stores. As far as an impact on sales and financials, I was not expecting the Galaxy Fold to have a major impact on either given units sales will be limited. In that respect, the Galaxy S10 5G will have a much more significant role to play.
What Does the Delay Mean for the Category?
Starting a new category is always hard, and one can’t deny that the past week has not helped convince skeptics that foldable displays could take smartphones to a new level by changing the way we interact with them. Often with technology, first-generation products are not perfect; there are many we can point to over the years. When new tech brings about a new category of products things get more complicated as the appeal might be limited while consumers are figuring out whether or not the product is for them.
Reading those reviews that looked beyond the screen issues as the authors used the Galaxy Fold to discover what they could do differently with it, there was a feeling that the category is promising more than just a larger screen and users were curious to explore that further. Using the Galaxy Fold in public got me more attention than I wanted from people inside and outside tech in different age and gender brackets. This sense of curiosity will remain past this week, but I believe Samsung will have to tell a better story around both the device and the technology. Technology enables a category, but storytelling brings it to life. I truly believe this was missing from Samsung’s launch. More focus should have been put on how foldable screens are by nature less resilient than what we have grown accustomed to, but that is not a compromise; it is just a necessary step to move forward.
What Does the Conversation Say About Consumers and Tech?
As news hit the wires about the Galaxy Fold issues and the availability delay there were a few themes that transpired from the conversation on social media.
It is still very much a Samsung vs. iPhone world. Much of the conversation was dominated by iPhone users who assumed the Galaxy Fold was rushed to market and it is not a product anyone needs. Such rushed judgment ignores how many years Samsung has been developing display technology including flexible displays. I remember seeing my first prototype in Seoul over ten years ago. As far as consumers’ wants and needs I am sure many will remember one of Steve Jobs’ favorite quotes from Henry Ford: “If I’d asked customers what they wanted, they would have told me: a faster horse” and Jobs added “ People don’t know what they want until you show it to them.” On this very point is where storytelling comes in and where Apple is still way better than Samsung.
There is no more patience, or people forgot how we got to the latest version of whatever smartphone model they might be using. Saying Samsung should have waited for a glass solution for its display is like saying we should forget about Tesla Autopilot till we get to fully autonomous cars in ten years or so.
People seem to see the worse in tech with some even questioning the reviewers themselves and their own desire for new devices. It was interesting how many jumped to the conclusion that Samsung was aware of the design issue. Considering the improved QA process Samsung set in place after the Note 7 incident, it is unrealistic to think the company would jeopardize its reputation and a market growth opportunity by rushing a product to market. A more plausible theory could be that the testing process, as rigorous as it might have been, did not consider real-life scenarios because of the very nature of a lab environment. Not that different from a new keyboard design that is impacted by substances entering the mechanism.
Finally, there is an almost morbid fascination with failure over success, and I am pretty sure this is just the very nature of social media.
I look forward to the Galaxy Fold starting to ship and for other brands like Huawei, Motorola, and TCL to bring their take on this category reimagining our relationship with our most loved device.
I make no secret that I have been using an iPhone as my primary phone since 2007. As an analyst, I have to try different products in all kind of categories including phones, which means I have been using Android phones as well as what has come before from Windows Phone to PalmOS and every flavor of feature-phone before then. No matter what phone I tried, however, my trials end up with me going back to the iPhone. There are two main reasons for doing that: one is that I prefer the UX and the second is that the value in using devices across the Apple ecosystem is much more evident to me.
In February, I got the Samsung Galaxy 10+ to test, and I was expecting to follow a similar pattern to previous Samsung’s phones trials, which is that I love the design and the way they fit in my small hands, I like the camera, but ultimately I am overwhelmed by the UX. What ended up happening instead, is that I am still using the phone and I have seriously thought about making the switch. So here is what has changed and what is holding me back.
A Cloud World
Maybe it is the maturity of the smartphone market, which has led to app parity for the most part. Or perhaps it is the fact that even in a home like ours that has more Apple devices than any other brand we have happily let other ecosystems come in and take a slice of our time and money pie. Or maybe it is the combination of the two that helps consumers move from device to device more easily. Of course, there are hardware differences and some proprietary apps or features all across the various ecosystems and differences in how brands approach privacy, but the point, I think, is that with services and apps that go across devices thanks to the cloud moving across ecosystem is more comfortable than it has ever been.
Ultimately this is why I think Apple is doubling down on services. Yes, they will get an extra revenue source, but more importantly, they will create more stickiness to their ecosystem which will lead consumers to think twice before moving on. While using the Galaxy S10+, for instance, I was quite happy to move from CarPlay to Android Auto and have Google Assistant promptly bring up whatever song I wanted from Apple Music while I was driving, but unable to play my Playlists even when they are available in iCloud.
Two Things Are Holding Me Back
There were two things that I particularly missed when using the Galaxy S10+ and the Galaxy Watch Active, and both are not out of reach for Samsung.
The first thing I missed while using the Samsung Galaxy S10+ was iMessage. It is not about the green and blue bubble, nor it is about saving on text messages. What I missed was the ability to send a message from any device I was on as I usually do making iMessage a core part of how I communicate at work. Unfortunately, while Windows 10 has made some progress in supporting text messaging across Android the experience is just not as fluid. I hope that Samsung will spend some time creating a better-optimized app that goes across their phones, tablets and Windows PCs. I do wonder how many iPhone users will consider a move to Android if iMessage were available as a cross-platform app. While there are other apps that I use to talk to people iMessage is by far what I rely on every day.
The second thing I missed was the deep integration that comes from controlling all the pieces of the experience. The best example possibly being the vibration the Apple Watch gives out when you are using Apple Maps directions, and you should be taking a turn. I prefer Google Maps to Apple Maps, but as Google has given up on designing an Apple Watch app, I end up using Apple Maps when I drive. With the Galaxy Watch Active, which I see as the best alternative to Apple Watch in the market today, I missed that gentle tapping, a feature that might be hard to implement due to the combination of the watch running on Tizen and Samsung not controlling the experience on the Google Maps side.
As you can see, both my examples have little to do with Samsung’s hardware and a lot to do with the limitations Samsung is facing because they are not controlling all aspects of my experience.
More Confidence, not Technology Would Make Samsung’s Devices More Desirable
Aside from not being able to control the full experience, I also noticed that the options that are available on Samsung’s devices are just too many. Yes, there is such a thing as too many choices. Especially for consumers coming to Samsung from iOS, I think the available range of options can be overwhelming. In a way, consumers on iOS are used to Apple making decisions for them. When it comes to settings, users can, of course, change them but by and large, Apple is picking defaults that many users will never change mostly because of convenience or because they are not savvy enough to go and replace them. In most cases, Apple’s choice does not hinder user experience and simplifies things for the user.
It seems to me that Samsung has opted for the opposite and they believe there is value in giving users all the options there could be and let them figure it out. The new One UI helps by surfacing the most common use cases and settings, but you can easily find yourself three layers down in the options menu at any given turn. I am not sure if this broad set of options are the manifestation of a lack of confidence by Samsung, but I think that over the years their software implementation has improved and so is their understanding of what consumers want rather than what is technically possible so they could make those choices for their users. The camera UI is an excellent example of where Samsung has spent some time making decisions on default settings and leaving options to the more advanced users, but there is more room for simplifications in my view.
Making those decisions for consumers will also improve the cross-device experience that you will get from owning multiple Samsung devices. Samsung might be at a disadvantage because they are not controlling the underlying OS, but this disadvantage can turn to an advantage as consumers come to care more and more about an in-app experience and find best of breed products. In other words, if productivity is what I care about the most, I am likely to find a PC and phone combination that empowers me to be efficient, and this might mean that my two devices are not running on the same OS and are not part of the same ecosystem. The same can be said about gaming or media consumption. We have seen Samsung work with many partners to bring unique experiences to their products. I hope that such partnerships will extend to developers as well at the next SDC in the Fall. Pointing at the large installed base of devices that developers have access to is useful, but working with them to create better experiences is critical for developers and creates more stickiness for Samsung.
Samsung celebrates ten years of Galaxy S and technology is not the only thing that has evolved over this time period. The user base has evolved too. The Galaxy S started as a single product aimed at the higher end of the market. At the time Samsung had a portfolio that counted tens of products aimed at different price points and regions. Thanks to carrier subsidies the Galaxy S spread from early tech adopters to a much broader addressable market of users who wanted the latest and the best and could now afford it. Fast forward to today, and Samsung is faced having an installed base of Galaxy S users who are not as homogeneous as you think. In a way, this is not that different from the problem Apple is facing. The three new Galaxy S10 models introduced at #Unpacked2019 in San Francisco are aiming to address exactly this diversity in the user base.
Samsung had different flavors of Galaxy S since introducing the Galaxy S Edge, but there was limited differentiation in features beyond screen size and price. The Galaxy S10 S10+ and S10e are all addressing different technology needs and budgets without compromising on the high-end experience that a Galaxy S user is looking for. While some might see multiple products as confusing for buyers or as a lack of focus, I think of it differently. Once in a store, price, color, and tech specs will take buyers to their optimal product. As far as focus, considering how replacement cycles are lengthening and consumers are considering pricing more carefully offering choice is a plus, not a minus.
Throwing 5G in the Mix
Aside from the three main Galaxy S10 models, Samsung also announced the new Galaxy S10 5G powered by the Qualcomm Snapdragon 855 combines with the Snapdragon X50 modem. Jumping on 5G early in the cycle brings some challenges. First and for most is the fact that carriers more than brands are the ones picking launch schedules and availability. Samsung showed clear support from carriers in different regions, which of course was not a surprise, given Samsung’s position in the market. In the US the Galaxy S10 5G will launch with Verizon in Q2.
I really appreciated the way Samsung talked about the Galaxy S10 5G. The focus was on the experience the phone delivers thanks to a thoughtful choice of specifications and 5G. Connectivity per se has never sold, and it is no different for 5G. With the Galaxy S10 5G, Samsung is selling you a 5G experience, not a 5G connectivity. As nuanced as this might seem, it will make the difference between an aspirational product for users who are not tech savvy and one that would otherwise only appeal to those who care about speeds and feeds. The potential of seamless online gaming, AR experiences, video streaming and more come together through design choices, features, and connectivity.
The Promise of Foldable
The Galaxy Fold stole the show with the promise of what smartphones can be in a non-distant future – the launch date is set for April. Samsung was brilliant in positioning the Galaxy Fold as a luxury device for now. It was smart not because it reflects the $1980 price point, but because the Galaxy Fold is certainly not a device for the masses. There is a lot of technology packed into the device, including many firsts, which justifies the price but differentiated use cases are still to be defined. Furthermore, purposefully designed apps taking advantage of the two screens through app continuity still need to be built. Early tech adopters have a higher degree of patience in finding the quirks and learning what a new category can do, so they are a prime target. Consumers who want a device that delivers status will also be interested in the Galaxy Fold.
We will see if the Galaxy Fold is a one-off or the start of a new category and much of this will depend on what Android and app developers will make possible. We know there will be more foldable showcased at MWC in just a few days and what I am interested in seeing is the design approach vendors will take. Overall, I think foldable phones have a more significant opportunity than 2in1 had in the PC market. Phones, unlike PCs, are always with us and while I argued many times that consumers have little left to give to Android tablets – both in terms of time and money – they will still benefit from a tablet-like experience from the device that is always with them.
Has Samsung Done Enough?
This is the question I always get at the end of a launch event: has company X done enough? This time, the question is actually multifaceted so let’s break it down:
Has Samsung done enough to see sales growth year over year?
Possibly. I think overall this year’s Galaxy S10 portfolio has a broader and stronger appeal than the last two years. The different price points and the new designs around key features such as the Infinity O Display, the three-camera system, and the ultrasonic fingerprint scanner will undoubtedly capture the interest of early tech adopters as well as consumers who want their new purchase to stand out from the past models. Bundling the new Galaxy Buds in preorders for the Galaxy S10 and S10+ is a good incentive too but also a smart move to create more stickiness for valuable customers.
Has Samsung done enough to change the trajectory of the smartphone market?
Um, no and nobody else will. This is the new normal. The smartphone market will not see the kind of year over year growth we had been accustomed to. 5G could potentially help in a couple of years as price points lower, and availability expands, but even that might not see growth rates similar to the transition to 3G and 4G. This is not because 5G is not important, but because it is incremental when it comes to phones and it will be other devices that will deliver on experiences, we did not even think were possible. Consumers might end up, therefore, sharing their budget more than they did during the rise of smartphones. The 3G rollout also coincided with the start of the smartphone market and app stores while 4G coincided with smartphones becoming more affordable. In both cases you had two strong trends joining forces in creating a buzz for consumers.
Has Samsung done enough to hold on to its market leadership?
Early to say as this battle will not be won with a strong Galaxy S10 line up only. The Galaxy S10 models will certainly help in mature markets, but in emerging markets and the prepaid segment of mature markets, it will be the Galaxy A Series that will help Samsung hold or gain share. While it is possible for Huawei to get to the number one spot in the world without playing a meaningful role in the US smartphone market, I am not convinced the Chinese brand would be able to sustain that position long term. Being an early mover with 5G might help Samsung in China, a market where Samsung used to be number one but where the brand has lost traction among consumers who saw local household name being more responsive in addressing their specific needs.
I was encouraged by how Samsung continues to pay more and more attention to overall experiences rather than delivering a string of features. The partnership with Instagram for a camera mode and with Adobe for on-device video editing show not just the ability to bring other brands to the ecosystem but a higher degree of attention to make things easier for users. This, combined with more obvious examples of different devices working together to deliver more value is what will ultimately start to matter more and more to users. Apple owns this model and was able to build a loyal user base that invests across devices and services. Samsung has more work to do, but it is certainly showing more promise than Huawei, which will make a difference particularly in more mature markets. Huawei could, of course, embrace stock Android, but I am not sure they are quite ready to do that especially considering the current political climate and the risk that such a move might bring if they were suddenly shut off.
The PC industry isn’t getting any healthier. Both IDC’s and Gartner’s figures for PC shipments in the first quarter are out and both show the same direction of travel: down 11.5% to 60.6m units for IDC, down 9.6% to 64.8m units for Gartner.
There are some variations between what the two count as a “PC”: IDC doesn’t include Windows tablets, 2-in-1s such as the Lenovo Yoga, but does include Chromebooks; Gartner doesn’t include Chromebooks, but does include 2-in-1s and Windows tablets. (You might think comparing the two datasets would make it easy to spot who is doing well in Chromebooks, and who isn’t doing well in 2-in-1s or Windows tablets. Sadly, that turns out not to be true; but we can say Chromebooks account for only a few million sales per year and there aren’t any clear signs of that changing.)
At the moment, PC shipments have receded below the point they were at in 3Q 2006 (by IDC’s data); that’s nearly a decade of progress wiped out. It’s a category in retreat. The peak was in 3Q 2011, at 96.1m (IDC) or 95.4m (Gartner).
There are a few points to note in what’s going on.
The Long Slow Goodbye
First, Windows PCs are in serious long-term decline, more so than Apple. Once you subtract Apple’s contribution, you find Windows shipments have been in a year-on-year decline for 15 straight quarters. That’s nearly four years.
Something Happened
Second, the trigger for that decline is entirely unlike the trigger for previous declines in PC shipments. If you look at the long-term view, there are three points since 1999 when Windows PC shipments have shrunk: near the end of 2001 (during a worldwide recession), the end of 2008 (during the global financial crash), and towards the end of 2012.
What happened in 2012? Nothing external. Instead, the decline seems to have been prompted by the twin thrust of tablets and smartphones. Tablets became broadly available (the iPad 2 dropped in price) and smartphone screens grew larger (the first Samsung Galaxy Note, with a 5.3in screen, had been launched at the end of 2011, and the Note 2 was coming along).
Ben Thompson, writing at Stratechery ($subscription), suggests PCs are being disrupted. What we’re seeing is “less capable” and cheaper devices (tablets and smartphones) taking over the jobs that were being done by much more capable devices. But the users didn’t generally need that capability; browsing, email, writing text, organising and uploading photos and watching video, plus a few games, tended to fill the gamut of what most people need to do on a computer.
Certainly, all the signs are that Thompson is right. That 2012 decline points strongly to a change and, at Gartner, Mikako Kitagawa says, “The ongoing decline in US PC shipments showed that the installed base is still shrinking, a factor that played across developed economies.” A shrinking PC installed base? That must be quite a worry. But it’s what we’re seeing.
Linn Huang of IDC offers something of a hostage to fortune: “The PC market should experience a modest rebound in the coming months.”
The Others
Third, anyone in the “Other” category is probably getting pretty worried now. Even Acer has fallen out of the top five computer makers, displaced by Apple. (I continue to include it, estimating its volumes as slightly below Apple’s.)
If you take “Other” to be companies such as Toshiba, Samsung, Fujitsu, and a myriad of others, then both their share and absolute number of shipments is going in a bad direction:
• Toshiba is struggling with an accounting scandal, and its PC shipments in the US fell by at least 25% in the first quarter, from 0.94m to less than 0.71m. The “Lifestyle” division, which includes the PC business, has seen revenues nearly halved since the calendar first quarter of 2014, and made an operating loss for the past 15 quarters.
• Samsung has withdrawn from Europe’s PC business and is hard to see elsewhere; its PC business is rolled into its IM division, which also includes its mobile division, for accounting. In Q4 2015 (the latest quarter for which there are figures) those revenues were US$780m – which would translate to 1m PCs sold at an ASP of $780, or more possibly 1.5m sold at an ASP of $520, or 2m at $390. (To make the top five for Q4 required shipment volumes of at least 5m.)
• For the fourth quarter, Fujitsu says revenues from PCs fell; it’s been saying that for at least a year.
There’s also a squeeze on Asian sub-scale PC makers, because the dollar’s strength hits them hard when they have to source components from the US (Microsoft Windows, perhaps?). That eats into profitability while the bigger players corner more of the market.
All this is going to lead to further consolidation. There’s already talk that Toshiba or Fujitsu will sell their PC businesses. Smaller companies might just shut up shop or seek a buyer.
Apple: Doing Fine, Thanks
Fourth, Apple is still solid. The USB-C Macbook is a year old and doesn’t show any sign of having set the PC world on fire but since the end of 2004 (a period stretching 46 quarters), Windows PCs have only seen faster than Apple growth in two quarters. Even while Apple’s total shipments (according to IDC and Gartner, ahead of Apple’s formal results later this month) fell in the most recent quarter, it was still nothing like the overall fall for Windows PC makers. Only Dell managed to stay upright better on the slippery slope, falling by 2.0% against Apple’s 2.1% (IDC); Gartner reckons Apple did better, showing 1.0% growth, but was bested by Asus with a 1.5% rise – perhaps through Windows tablet or convertible shipments.
What neither shows is that Apple commands the highest average prices in the industry. Once the figures for this quarter are in I’ll return to the topic but, for now, here are the figures for average selling prices (calculated from company financials and IDC shipment figures) for the big six PC companies:
As you can see, Apple is miles above the rest there. That also means it can grab a healthy profit, which allows it to stay in business when others struggle.
Conclusion
For the longer term? PCs are contracting towards a core base of users who really want or need them. If people want to be able to plug in USB sticks or SD cards, there’s a PC there for them. But it turns out that lots of people don’t and they’re voting with their wallets. That’s creating a squeeze on the smaller players, but even the big players don’t have it easy – unless, like Apple, they can charge a premium.
The Samsung issues we are seeing has me thinking about something. It’s a conspiracy theory with zero evidence but something that strategically intrigues me. Tim Cook said in a recent interview with Charlie Rose that Apple could have made a bigger iPhone years ago. So the question is, why didn’t they? The writing was on the wall that larger screens were trending upwards. The pundits read this as Apple’s inability to see market demands and hailed Samsung as the rising star who will dominate forever and ever. Apple must have known that all they needed to do to shut everyone up and crush Samsung in the high end Android camp, where it would really hurt them and Google combined, was to release a larger iPhone. Well, my theory is they did know this and they let Samsung and perhaps even Google have their time in the sun intentionally. In the art of war, this tactic is referred to as a feigned retreat.
A feigned retreat is a military tactic whereby an army will pretend to withdraw or that they have been routed in order to lure an enemy into a position of vulnerability. Feigned retreats are one of the more difficult tactics for an army to undertake, and require well-disciplined soldiers. This is because if the enemy presses into it, undisciplined troops will lose coherence and the rout will become genuine.
Samsung knew the large screen iPhone poised the greatest threat. Yet Apple had no sense of urgency. I recall many conversations with Samsung execs who asked with genuine surprise, “What are they waiting for?” Over time, I heard them convince themselves Apple just must not be interested in larger phones. That the one handed operation conviction will trump where the market is going. All the while Apple was sitting back patiently waiting to employ their thermonuclear war that had less to do with the battlefield of the courts and more to do with the battlefield of the market. Knowing that, once they released larger phones, they would gain share in the premium smartphone segment mostly at the expense of Samsung. From every data point I see globally that is exactly what is happening. In fact, I just read a report from Baidu today in China that highlighted data from a survey they did. Over 40% of current high end Android buyers are planning on switching or strongly considering switching to the iPhone 6 Plus. 21% said they would absolutely plan on buying it and 21% said they would strongly consider buying it. All primarily because of the larger screen.
Obviously this is just a theory. I could poke many holes in it with counterpoints. Perhaps I’m giving Apple too much strategic credit. Nonetheless, I thought I would put it out there to spur some fun conversation.
Technology is breaking down barriers throughout the world. Conversely, a form of technological nationalism has taken hold, limiting tech’s rise. Expect such nationalist fervor to become more widespread, more virulent, probably more unfair.
Technology is the new oil. It’s vital to our lives, our economy, our personal wealth, our national interests. As such, governments believe it is right to be intimately intertwined in the development, use, purchase, promotion and spread of technology.
Government inquiries, embargoes, regulatory barriers and tax disputes with technology companies will become commonplace. Fighting (and/or championing) such affairs will become a standard course of business for tech firms, much like complying with accounting standards are today. VCs, start-ups and well established high tech companies will need to fundamentally reconstruct their focus. I say this all without judgment.
That most of the world’s largest, richest tech companies are American — Apple, Microsoft, Google, Facebook, Amazon, Cisco — makes this new world order that much more combustible.
Should Five Percent Appear Too Small
Big technology companies are sitting atop sizable piles of money. Many governments believe they are owed their rightful share of these piles. The European Union (EU) alleges Apple is concealing taxes duly owed on sales and profits generated throughout Europe. Their allegations rest almost entirely upon the obvious:
“Multinational corporations have a financial incentive when allocating profit to the different companies of the corporate group to allocate as much profit as possible to low tax jurisdictions and as little profit as possible to high tax jurisdictions.”
Examine Apple’s European org chart. What does it appear optimized for? If successful, the EU’s action could cost Apple billions. That is why, when Tim Cook told the US Senate “we pay all the taxes we owe — every single dollar,” he is no doubt being 100% accurate and equally irrelevant.
Tax battles are costly for tech firms, but just one fight of many. Regulatory barriers can similarly limit the full and beneficent spread of the world’s most liberating technologies. As famed tech investor Peter Thiel recently remarked:
“It probably would be better for Europe to find ways to be more innovative, rather than ways to regulate.”
This sentiment was echoed by uber-VC Marc Andreessen, an aggressive proponent of Bitcoin, a cryptocurrency that could, in theory, disrupt a core government function and major policy lever:
‘‘The problem with building a new product or service in the existing financial industry is that tens of thousands of pages of legislation and thousands of lobbyists are going to come down on you very quickly. We needed a new technology to have the wedge to be able to enter the market, to be able to justify all the work to rebuild the system.
With bitcoin, we now think we have that wedge.”
Neelie Kroes, the EU’s digital chief, has made it abundantly clear government is not so willing to rebuild its systems:
“I do wonder how many more Valley companies have to get slapped before the rest of them realize it’s time to start investing in better relations with the EU.”
Expect such “investments” to become commonplace. Likewise, add Amazon to that list of companies who apparently need to be “slapped”:
The European Commission is poised to launch a formal in-depth probe into its serious concerns over improper state aid, dragging Amazon into a multi-pronged clampdown on sweetheart tax deals that has already ensnared Apple in Ireland and Starbucks in the Netherlands.
To absolutely no one’s surprise, Amazon has declared it pays “all applicable taxes in every jurisdiction that it operates within.” As with Apple, the accuracy of this statement is borderline meaningless.
Prediction: numerous governments will alter their tax rules simply to prevent other governments from getting a larger share of any Big Tech monies available. To wit: Why let Europe get a (theoretical) cut of Apple’s bounty when that money could be put to better use in America? Or Brazil? Or China?
Here, There And Everywhere
Tax disputes are certainly not the only concern for tech companies. Just this year:
The Chinese government (blocked) virtually all access to Google websites, instead of just imposing 90-second delays when banned search terms were used. Experts initially interpreted the move as a security precaution ahead of the 25th anniversary of the Tiananmen Square crackdown on June 4. But the block has largely remained in place ever since.
This latest move and previous actions by China have significantly impacted Google’s long term potential inside the world’s largest Internet market. Not surprisingly, China’s own Baidu has a 90% share of search — and not because users prefer its results to Google’s.
Despite Baidu’s ubiquity, many users are finding it to be a poor replacement—especially students, academics, researchers, and technicians who need to rapidly find reliable information online.
It’s not only Google that faces such barriers. Twitter and Facebook are both “filtered” in China. Nor is the problem confined only to American technology companies.
Two popular messaging services owned by South Korean companies, Line and Kakao Talk, were abruptly blocked this summer (by China), as were other applications like Didi, Talk Box and Vower.
Nor is hardware spared. Despite its stellar reputation for security, China’s CCTV ran a report earlier this year suggesting Apple’s iPhone location tracking could put state secrets at risk. If true, China obviously has no choice but to take swift, decisive action.
Government entanglements can take many forms. For example, Apple was caught off guard last month when regulators did not provide the requisite approvals for the company to begin legally selling its new iPhones in China. This despite Tim Cook’s many visits to the country, Apple’s sizeable third party workforce there, and the fact Apple and its partners had readied a major advertising push, believing they had done everything necessary to satisfy the various interested parties. Not so, apparently.
Surprise! Regulators have now proffered their assent, in large part due to Apple’s latest assurances that the American government cannot “backdoor” access iPhone data and obtain any of those China state secrets as noted above.
Rules are rules. The costs required to successfully navigate such rules may not always fall the way prices of technology always seems to fall. Nor may such rules prove as leveling. As Bloomberg recently reported, myriad new government rules in China are likely to benefit local companies, such as Xiaomi.
Moreover, now that users in China can legally purchase iPhone 6, it may cost them more than anticipated. China’s government recently decreed that China Mobile, the world’s largest carrier, must reduce phone subsidies. The effect of such actions are obvious.
“High-end flagship phones will suffer the most from the regulation due to their prohibitive prices in the China market without subsidies.”
“Samsung and Apple, as the two major high-end flagship phone makers, have the most to lose.”
A Day In The Life
Brazil has demanded Apple delete the Secret app from iPhone. Russia recently seized Bitcoin mining equipment at its border with China. Several US states have taken legal action against Uber and Lyft. The EU wants Google, Facebook and Twitter to help it combat what they view as online extremism — and what others view as free speech. The lesson, once again: Tech company interactions with governments will become the norm. Simply put, because tech touches everything.
No matter what you think of Europol‘s veracity, when Europe’s cybercrime unit writes the following, it necessitates a reasoned, continued and very likely financial response from well-heeled technology companies eager to profit from the Internet of Things:
With more objects being connected to the Internet and the creation of new types of critical infrastructure, we can expect to see (more) targeted attacks on existing and emerging infrastructures, including new forms of blackmailing and extortion schemes (e.g. ransomware for smart cars or smart homes), data theft, physical injury and possible death, and new types of botnets.
Death and botnets are always scary. Fighting them is no doubt expensive.
Technology’s promise carries with it parallel strands of fear, always. Consider how smartphones and social media have deepened our understanding of events around the world, such as the recent protests in Hong Kong. Now consider not everyone is pleased by this.
Tim Cook has spoken publicly about civil liberties. Is it fair to ask him — and Apple Inc — to choose a side in this latest skirmish? Is it fair to ask the same of Twitter? Many will.
You Say You Want A Revolution
I suspect you want me to say these many government interventions are dubious, the product of terminally greedy tax collectors, frightened regulators, and entrenched forces hoping to kill off outland competition.
I won’t. Mostly because such sentiments are not relevant.
The many reasons for these many government actions will grow in number, kind and intensity as technology continues to destabilize and disrupt industry after industry. You must understand: There is no bigger industry than government.
Tech is money. Money is power. All three are quickly spreading around the world and most of us want, at minimum, our perceived fair share. Do understand, however, that what’s right and what’s wrong are just two sides to this proverbial Rubik’s Cube.
Freedom is not a zero sum game. Not all believe the same is true for money and power. This is true everywhere. The really big disruption won’t just be of the established order, but of human nature.
Schadenfreude |ˈSHädənˌfroidə | noun | pleasure derived by someone from another person’s misfortune. ORIGIN German Schadenfreude, from Schaden ‘harm’ + Freude ‘joy.’
Samsung has reported a 60% fall in quarterly profits. Just three years ago, Samsung rose from seemingly nowhere to dominate the global smartphone market. Today, Samsung is being pressured from above and below as Apple steals away its premium customers and Xiomi and others steal away customers from the low-end.
Keep in mind that these numbers come from BEFORE the introduction of the iPhone 6 and 6 Plus. The blood-letting has just begun.
Cheer up, the worst is yet to come. ~ Philander Johnson
The Church Of Market Share
Truth be told, I take no pleasure in Samsung’s distress. It is the pundits who preached the gospel of the Church Of Market share who grind my gears.
I don’t suffer fools, and I like to see fools suffer.~ Florence King
They jeered Apple’s premium business model, all the while cheering Samsung on and on — encouraging them to grow market share faster and faster…
…until the train that was Samsung went right off the rails.
Why Can’t Apple Be More Like Samsung?
Remember when the analysts were saying that Apple should be more like Samsung? Seems like only yesterday. Oh wait! It WAS only yesterday.
Thinking of all the pundits that wanted Apple to be like Samsung (low-end iPhone etc.). They aren’t saying that this morning. ~ Sammy the Walrus IV 10/7/14
Remember blogger turned @WSJ then @nytimes columnist recommending Apple cut prices and give free products to gain market share? ~ Rags Srinivasan (@rags)
Ah, good times. Good times.
Here’s a couple of additional Samsung/Apple predictions/recommendations from the archives just to remind us all of how long this nonsense has been going on for.
How royally stupid does that statement look, now that Samsung is the one that is getting crowned…if you take my meaning.
After spending the better part of yesterday digging deeply into Samsung’s analyst day materials, it has become clear to me that Apple, over the long haul, stands very little chance against the Samsung behemoth. ~ Ashraf Eassa, Seeking Alpha , 7 November 2013
Hmm. It seems to me that your digging created a hole, and you fell right into it.
If you find yourself in a hole, the first thing to do is stop diggin’. ~ Cowboy wisdom
Why Isn’t Apple Suffering The Same Fate As Samsung?
All this bad news for Samsung begs the question: If all these bad things are happening to Samsung, why aren’t they happening to Apple too? I could be all snarky and simply say it is because Apple doesn’t follow easily disprovable economic principles and business practices — and that would be true — but it would make this article way too short.
So, just for funsies, let’s do something that the High Priests of the Church of Marketshare never seem to do. Let’s stop and think.
Never be afraid to sit awhile and think. ~ Lorraine Hansberry
It is neither an accident, nor a surprise, that Samsung is struggling while Apple continues to thrive. Many astute observers predicted it long ago.
Logical consequences are the scarecrows of fools and the beacons of wise men. ~ Thomas Henry Huxley
Why then was this a shock to so many? And what lessons can we learn both from Samsung’s fall and Apple’s continued ascent?
Samsung, grab your sh*tty stylus and prepare to take f*ck*ng notes. ~ not Jony F*ck*ng Ive
Commoditization, Average Sales Price, And Margins
COMMODITIZATION
(T)he Apple brand has faltered … And it’s all because Samsung ignored the industry lock-in to constantly focusing on product, and instead changed the game on Apple. ~ Adam Hartung, Forbes, 4 April 2013
…it’s clear that Samsung will brute-force its way into taking more and more marketshare from Apple at the high end while at the same time will enjoy key structural advantages in the low end that Apple would – at least in its present form – not be able to match. ~ Ashraf Eassa, Seeking Alpha , 7 November 2013
This is the “Samsung-is-so-big-they-don’t-have-to-play-by-the-rules” theory of business. Samsung didn’t change the game. Pundits only thought they did because they didn’t understand the rules of the game.
Pundits have predicted, correctly, that hardware would inevitably become commoditized. This, they proclaimed with confidence, would cause Apple’s prices to fall while Samsung, with its good-enough and better-than-good-enough hardware and its lower prices, would usurp Apple’s market share, relegating Apple to niche status. Ironically, commoditization DOES apply to Samsung — the favorite of the Priests of Market Share — but it DOES NOT apply to their favorite whipping boy, Apple. Why? Differentiation.
From Ben Thompson:
Almost all industries have two tenable positions: the differentiated high-end, and the low-cost low-end. The iPhone faces little threat in the differentiated high-end of the market. Suggesting this market is limited in size is fair; counting the days until customers flee for cheap phones is silly. ~ Ben Thompson
What differentiates Samsung?
Hardware? Please. Xiaomi and others are taking a page out of the Samsung playbook by copying Samsung’s designs and making hardware that is more than good enough.
Software? Please. They’re all running the same Android operating system.
TouchWiz? Please. Stop before I die laughing!
Samsung actually DID have some differentiators like scale, time to market, marketing prowess and budget. But none of those is unique to Samsung, and none of them provided Samsung with sustainable differentiation. To put this in military terms, the Samsung army was able to take ground, but they were unable to hold it.
AVERAGE SALES PRICE
There is no doubt, in my mind, that the whole (smartphone) sector is hugely overstretched. The whole sector is priced as if the average player would sustain 25 per cent margin in eternity. It’s bordering on absurdity. This will end in tears. ~ Per Lindberg, MF Global Ltd, Feb 2009
Well, Samsung and the rest of the mobile hardware manufactures may be overstretched and left in tears, but Apple is doing just fine, thank you very much.
And here’s something else to chew upon. The iPhone 6 Plus is 100 dollars MORE than Apple’s previously highest priced phone model. While the rest of the industry is in a race to the bottom of the pricing barrel, Apple is preparing to INCREASE the average selling price of their phones.
ASP will rise significantly this quarter. ~ Horace Dediu (@asymco) 9/9/14
MARGINS
Here are Apple’s actual margins:
And here is how badly Apple’s critics mis-predicted Apple’s margins:
And even if the industry just continues as it has for the past few years, with companies like Samsung continuing to build phones that are as good as or better than the iPhone, it’s hard to see how Apple’s profit margin will continue to expand the way it has over the last several years. ~ Henry Blodget, Business Insider, 7 Sep 2012
Overall, the iPhone 5 is a good phone and will probably sell well, but in the long run Apple will have a hard time maintaining its extremely high margins because the iPhone is clearly no longer cut above the rest. Since Steve Jobs is gone, Apple should be honest with itself and begin to dramatically increase its R&D budget to stay in the game. Otherwise, the competition will leave it in the dust.” Alvin Gonzales, Motley Fool, 17 Sep 2012
Market Share
Apple’s critics obsess over the relatively high price of Apple’s products and insist that Apple must lower their price in order to gain market share.
I think they should invest more of it in the margin, in the business. Get lower-priced products out there. Stop going after just the premium piece. Get into the real growth engine of the smartphone market, which right now is Android, it’s low-priced phones in China and India, same thing on the tablets. ~ Henry Blodget, CNBC, 3 January 2013
I have been left disappointed by Apple’s decision not to release iPhone Lite as I thought this was the most important product for Apple to stop its marketshare decline. ~ Sneha Shah, Seeking Alpha, 25 October 2013
First, Apple DID NOT lower their prices and their market share has gone UP in important markets such as the United States And Japan.
It’s looking possible Apple will sell more iPhones than Samsung sells Androids this quarter. ~ Benedict Evans (@BenedictEvans)
Second, Samsung followed the pundits advice, lowered their prices…and lost market share anyway.
It appears that Samsung has been cutting prices in order to maintain market share but has lost market share anyway ~ via Charles Arthur, The Guardian
WINNING
The fetish with Market Share is bizarre. Market share times margins equals profits. Market share and margins are the means. Profit is the end. Market share doesn’t mean a thing if it doesn’t lead to more profits and a better platform.
For example, Sony recently announced that it has been improving its smartphone market share in Western Europe and Japan…and is projecting a £1.3 billion loss.
For what hath a man profited, if he shall gain a whole bunch of market share, and loseth his own shirt? ~ John 09:12
Bill Shamblin explains:
More than a 1-to-1 ratio of profit share to market share demonstrates a company’s ability to differentiate its products, provide more value than its competitors, command higher prices, charge a premium and enjoy pricing power.
—
Less than a 1-to-1 ratio of profit share to market share demonstrates that a company is buying market share; that the company has not been able to differentiate its product in the market and is likely competing primarily on price.
—
Pricing to gain market share simply for the sake of market share is a chump’s game. ~ Bill Shamblin
Market share is not the sine qua non of business — profit is. In football terms, market share is the yardage, profits are the points. In baseball terms, market share is the number of hits, profits are the number of runs. In hockey terms, market share is the number of shots on net, profits are the number of goals. Market share, like yardage, hits, and shots, are a necessary means but profits, like points, runs, and goals, are the end. Pretending otherwise for even one second borders on the inane. Continuing to stubbornly believe such rubbish borders on the insane.
To arrive at a contradiction is to confess an error in one’s thinking; to maintain a contradiction is to abdicate one’s mind and to evict oneself from the realm of reality. ~ Ayn Rand
Integration
HARDWARE
If I had to name just one thing that the pundits got wrong about about Samsung and Apple, it would be their myopic focus on hardware (sometimes called “innovation”) comparisons.
Samsung’s hardware was better, they said. Samsung was out innovating Apple, they said. Samsung was on the rise and Apple was all-but-dead, they said.
(T)he Galaxy S II is remarkably easy to summarize. It’s the best Android smartphone yet, but more importantly, it might well be the best smartphone, period. ~ Vlad Savov, Engadget, 28 April 2011
What [Samsung] are doing is they’re innovating faster. just the pace that they’re coming out with [products] is so much faster ~ Gene Munster, Piper Jaffray, 12 March 2013
The competition is increasing its lead over Apple. Samsung’s S5 seems to have enjoyed a strong launch, outstripping the iPhone 5S launch for which Apple bulls were prepared to declare a national holiday. ~ Michael Blair, Seeking Alpha, 4 May 2014
Samsung DOES make superb hardware. But how has all that supposed hardware superiority worked out for them?
SOFTWARE
By focusing on hardware alone, the pundits totally ignored software and — even more — they totally ignored hardware/software integration. Judging a smartphone by hardware alone is like judging a sailboat by the boat alone. The size, shape and design of the boat is important, but the sails make the boat go. Similarly, the size, shape and design of the phone is important, but it is the software that puts the “smart” in smartphone.
As Ben Thomson put it:
Software Matters – For years analysts treated all computers the same, regardless of operating system, and too many do the same thing for phones. … (Y)ou cannot do any serious sort of analysis about Apple specifically without appreciating how they use software to differentiate their hardware. … (M)any people buy iPhones (and Macs) because of the operating system that they run. … Not grokking this fact is at the root of almost all of the Apple-is-doomed narrative. … (And) for the high end buyer app quality matters as well, and here iOS remains far ahead of Android. ~ Ben Thompson
Here is a video (via Abdel Ibrahim (@abdophoto) of The Tech Block) of Steve Jobs explaining that the iPod is just software in a beautiful box.
AUTHOR’S NOTE: When I see a video link, I generally skip it. But I highly encourage you to follow the link and watch at least the first 90 seconds of the video. I think you’ll find it worth your while.
Some professional reviewers may have voted for the Samsung hardware while declaring Samsung more innovative, but the only reviewers that count — the buyers — voted with their dollars, and when it came to premium phones, they voted 3-to-1 in favor of the iPhone.
Platform
PLATFORM ECONOMICS IN BIZARRO WORLD
The real game changers in the S4 are Samsung’s pace of innovation and the platform it is creating to challenge Apple in this crucial area of innovation – platform economics. ~ Haydn Shaughnessy, Forbes, 18 March 2013
Samsung is innovating on ‘platform economics’? Wow. How wrong could one be? Samsung is currently suffering precisely because it has no platform to help differentiate its products. Samsung’s lack of platform makes it the polar opposite of Apple. Which reminds me of an awful, awful joke:
Samsung’s profits.
No, that THAT awful joke. This awful joke:
Question: Why couldn’t the polar bear get along with the penguin?
Answer: They were polar opposites.
THE NUMBERS LIE
There is an illusion that the current lopsided shipment market share is irrelevant. This idea is completely false. Losing market share is almost always never a good sign. Android is roasting Apple and if things keep going the way they are, Apple will be toast. ~ Alvin Gonzales, Motley Fool, 21 Dec 2012
That was written in 2012 and it got it exactly wrong. Android currently runs on two times as many devices as iOS. TWO TIMES. But it is Samsung, not Apple that is getting roasted.
Sooner or later that [market share discrepancy] ought to make a difference. ~ John Gaffney (@jfpgaffney)
And there it is. Your faith based argument:
“Sure, Apple’s App store is doing okay now — BUT JUST YOU WAIT! Once Android has more market share than iOS, the tide will turn.
Okay, okay, Android has more market share than iOS and the developers haven’t flocked to the Google Play store…yet. BUT JUST YOU WAIT. Once Android has a super-majority, iOS is doomed.
Okay, okay, Android now has twice as many handsets in the wild as does iOS and the Apple App store just keeps growing stronger every day. BUT JUST YOU WAIT! Sooner or later the weight of Android’s market share ought to make a difference.
JUST. YOU. WAIT!”
The bedrock theory upon which the Church of Marketshare is founded, is that the platform with the most market share wins. And that theory is demonstrably wrong.
The great tragedy…the slaying of a beautiful hypothesis by an ugly fact. ~ T.H. Huxley
ABSOLUTE NUMBERS
Absolute numbers matter more than share (percentages).
As of June (2014 there were 886,580,000 iOS devices sold. 1 Billion sold will happen well before this year is out. Horace Dediu (@asymco)
One billion units is hardly niche.
Absolute numbers matter more than percentages – While it’s natural to talk about market size as a percentage, the absolute size is just as important. In the case of Apple, for example, the fact they “only” had 15.5% percent of the market in 2013 is less important for understanding the iPhone’s viability than is the fact they sold 153.4 million iPhones. That is more than enough to support the iOS ecosystem, percentages be damned. ~ Ben Thompson
OPEN
The collective development opportunities made possible by the fact that Android is Open Source will see to that. (What will) matter to the mobile application developer (is that) there are eight or ten Android handsets shipped for every iPhone. Addressable market will again trump elegance. ~ Brian Prentice, Gartner, 21 September 2009
That’s flat out wrong. Always has been. Always will be.
Developers don’t care about people who spend time on the platform. They care about people who spend on the platform. Platforms aren’t a democracy. It’s not one vote per person. It’s one vote per dollar, and each person is free to vote as often as they can afford to do so.
METCALF’S LAW
Perhaps you’re thinking of Metcalf’s law. Metcalf’s law says that the more people you have on a network, the more valuable that network becomes.
Android and iOS are platforms. Nowadays, the internet is the network. Don’t conflate the two. iOS can remain closed and still communicate with the rest of the world via the internet.
There’s something problematic in the idea that platforms with 1.5 billion users and 100 billion+ 3rd party apps installed are ‘closed’. ~ Benedict Evans (@BenedictEvans) April, 2014
PREMIUM DEVELOPERS
There is a striking difference between the two companies though, Apple produces their own hardware and software, they collect all the money whereas Google licenses out the software and occasionally gets in on the manufacturing of a device. iOS is a closed system, Android is open-source and if history proves to be right time and time again then I’m sure that Android will end up winning the battle. ~ Ash Anderson, Motley Fool, 21 Dec 2012
Once Steve Jobs goes away, which is probably not far away, then Apple will have to make a strategic decision on whether to open up the platform. Ultimately a closed system just can’t go that far … If they continue to close it and let Android continue to creep up then it’s pretty difficult as I see it. ~ Patrick Lo, CEO, Netgear, 31 January 2011
That’s the theory of “Open”. These are the facts.
The Apple App Store has now paid out over 20 billion dollars to developers, half of that in the last 12 months.
The Apple App Store has paid out 10 billion dollars to developers in the past year. During that same time, Google has paid out 5 billion.
In other words, Apple has half the users that Android has but pays out twice as much to developers. That means that an Apple user is worth four times more than an Android user to developers or, conversely, that it takes four Android users to equal one Apple user.
A sobering thought: in order for Google to match Apple’s iOS revenue with Android, they would need 3.6 billion Android users. ~ Ari Najarian (@stickbyatlas) 6/27/14
Arguing that the Android market share is going to sink the iOS platform is like arguing that the Titanic is going to sink the iceberg.
PREMIUM CUSTOMERS
The difference in payout between iOS and Android is telling in a whole different way too. We used to think that Android engagement averages were much lower because there were so many more Android users. It was assumed that high-end Android users were worth as much to Android as high-end iOS users were worth to Apple. The numbers tell us that this is not so.
There are roughly the same number of high-end Android and iOS users. Yet the total payout over the past 12 months was 5 billion for Android and 10 billion for iOS. This means that Android engagement numbers are not lower because of all the low-end users. It means, instead, that high-end Android users act very differently than high-end iOS users.
Either the Apple App Store motivates the high-end user to spend more or the high-end user chooses the Android platform because they want to spend less. Neither bodes well for Android developers.
THE NEW PLATFORM PARADIGM
The Prophets of the Church Of Market Share have had it wrong all along. Market share does not draw developers to a platform. Dollars draw developers to a platform.
And the strength of a platform is not dependant upon the number of users. It is dependant upon the amount those users spend.
Premium
NICHE
Android now commands 80% of the smartphone O/S market and over 50% of the tablet O/S market. Apple, which pioneered the touch screen smartphones and tablets, finds itself increasingly becoming a niche premium player. ~ Sneha Shah, Seeking Alpha, 16 January 2014
Shah treats the role of the premium provider as though it were that of a vulgar street walker.
As the mobile phone market increasingly offers more quality phones at a range of price points, Apple now faces a difficult choice. Does it try to remain a premium product-premium price company, or does it dive into the commoditized lower priced arena? Neither choice is very appealing. ~ Bob Chandler, Motley Fool, 2 May 2013
Why does Chandler think that choosing between being a premium provider and a low-cost provider is difficult? If you can make the choice, premium is the obvious choice to make.
In the fourth quarter of 2013, Apple sold 64% of all the premium smartphones in the U.S. That number will grow in the the fourth quarter of 2014. Yet pundits seem to treat the premium sector as a ghetto that must be avoided at all costs.
Presuming all decisions are based on price is the easiest way to mispredict the future. ~ Ben Thompson (@monkbent)
The pundits seem wholly incapable of understanding two simple facts. First, Apple WANTS to be the premium provider. They are targeting that market. Second, Apple will not pursue additional market share if it endangers their position as the sector’s premium provider.
This is such heresy to the priests of the Church of Market Share that they simply cannot grok it.
The hardest thing to explain is the glaringly evident which everybody had decided not to see. ~ Ayn Rand
Yet it is the norm everywhere in every market! There isn’t a good or service that doesn’t have a premium and a low-end sector and, as a general rule, the premium sector is the place to be.
Brand
Samsung makes some truly lovely high-end phones, but by selling a million, bazillion, gazillion mid-tier and low-end phones too, their brand has become diluted.
If I’ve told you once, I’ve told you a thousand times: Resist hyperbole. ~ William Safire
No one mentions of “Samsung” and “premium” in the same breath.
Middle
High end buys iPhones. Low end cares only about price. No middle. There.~ Ben Thompson (@monkbent)
Samsung sells high, mid, and low-end phones — which is exactly what the pundits have been urging Apple to do — and Samsung is paying dearly for it. Samsung is losing the high-end to Apple. They are losing the low-end to Xiaomi and others. They’re trapped in the wholly undifferentiated and wholly indefensible middle.
Two Ways To Grow
There were two ways for Apple to broaden its ecosystem – take a chunk of the mid-range or take another chunk of the high-end. ~ Benedict Evans (@BenedictEvans) 9/11/14
Clearly, Apple has chosen the latter. Unlike Samsung, Apple doesn’t WANT to corner the phone market. They want to corner the PREMIUM phone market.
If you want to catch trout, don’t fish in a herring barrel. ~ Ann Landers
And they’re doing it, too. The new iPhone is a direct assault on that part of the premium market still being controlled by Samsung.
(W)ith the iPhone 6 and iOS 8, Apple has done its best to close off all the reasons to buy high-end Android beyond simple personal preference. You can get a bigger screen, you can change the keyboard, you can put widgets on the notification panel (if you insist) and so on. Pretty much all the external reasons to choose Android are addressed – what remains is personal taste. ~ Benedict Evans
Apple Is Doomed Anyway
“Apple is screwed” – 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014. ~ Sammy the Walrus IV (@SammyWalrusIV)
None of what I’ve said will deter the High Priests of The Church Of Market Share from continuing to predict Apple’s doom. If the facts disprove their theory in the here-and-now, they simply fall back upon irrefutable prophesies that will only occur in the here-in-after.
Faith is an oasis in the heart which will never be reached by the caravan of thinking. ~ Kahlil Gibran
Apple’s lack of market share will be their doom, they say. It is going to happen, they say. All we have to do is patiently wait for the day that is sure to come, they say.
CAPTION: Waiting and waiting and waiting and waiting and…
And what the hey, while we’re waiting, we can always have some fun by twisting every story into anti-Apple FUD:
Well, of course Samsung’s problems are bad news for Apple. All news is bad news for Apple…in accordance with the prophecy!
My only hope is that the pundits who told Apple to be more like Samsung, shorted Apple and invested heavily in Samsung. That would be some schadenfreude that I could really get behind.
The best way to convince a fool that he is wrong is to let him have his own way. ~ Josh Billings
In my continual analysis of Samsung for many in the industry, I have frequently pointed out the fundamental issues that have led to their current struggles. I had a friend remind me that, over two years ago, I gave a presentation to his VC firm where I pointed out Samsung would face struggles. He reminded me that, at the time, it sounded crazy but in the end I was right. Through our discussion, the topic came up on how to turn Samsung around. I decided I would write up my thoughts.
The Heart of the Matter
Ultimately, Samsung’s fall was fully predictable. In modular ecosystems (ones where you ship a core part of your product or experience which belongs to someone else) will always be susceptible to text book disruption. Samsung wanted to compete with Apple, and they did for a brief time, but ultimately Apple was never really their competition. Other players in the Android ecosystem were, and unfortunately for them, other vendors created good enough hardware that is continuing to eat into their market share.
I highlight this reality in my post on the regionalization of the smartphone market. If you recall that post and the charts that accompany it, you recall in every market but their own in South Korea, Samsung is losing share to the local player who has home field advantage. In China, it is Xiaomi and a host of other Chinese vendors. In India, it is Micromax, XOLO, Lava, and a few others. In the US, they have never led in quarterly sales.
The culprit is the Shenzen ecosystem. This is a radically efficient and rapidly scaling ecosystem of groups of manufacturers who can take a product from nothing to time to market in less than a month. A leading SoC provider from China told me they can get a new customer up and running and in the market with new smartphones and tablets in less than two weeks. Any company can enter this ecosystem, and build “good enough” products to be extremely disruptive.
As an aside, I had a colleague mention, as we spoke about the Shenzen ecosystem, that all this ecosystem needed was a good idea. Now they have Kickstarter for ideas. The key point is product coming out of this region is getting really good.
The Shenzen ecosystem is enabling local manufacturers to build high quality, good enough products and challenge the foreign brands. We are hearing about new smartphone companies coming out of China, Brazil, Vietnam, Europe and more. Local vendors’ home field advantage fueled by a Shenzen ecosystem is starting to rival Samsung with scale and is the thorn in their side.
So what can Samsung do? The obvious answer is chase the low end. However, I think a more interesting alternative may exist.
Procter and Gamble
Why am I bringing up Procter and Gamble in a tech article about Samsung? It is because, as we connect the planet with consumer electronics at extremely affordable prices, I believe we will see similar dynamics to consumer packaged goods come to the consumer electronics industry.
What makes Procter and Gamble successful in global markets is how they regionalize their products and brands. P&G spends a great deal of time researching local markets, understanding consumers needs in those markets, and then creating solutions that meet the unique needs of a region. Often, they use a brand unique to those regions and they market these products differently everywhere. Consumer packaged goods is both commodity but also a continual fight for differentiation. As smartphones reach $10, and as tablets reach $25 it seems inevitable nearly all the dynamics of regionally focused brands, products, and solutions found in consumer packaged goods will come to the tech landscape.
For Samsung, it is essential they get scale. They are oriented in a way many of their core business components depends on the product groups to move significant volume. For the last decade or so, Samsung has achieved their scale by employing a fast follower strategy and executing that strategy at scale. I’m not sure any tech company on the planet is capable of doing this the way Samsung can. This is why they are the most interesting to follow a model like Procter and Gamble’s.
Samsung can ultimately combat the regional brands, who are eating their lunch, by creating regionally focused brands, product, services, and marketing of their own. This would require some significantly different ways of thinking within Samsung to actually do what I suggest. Yet other than just chasing the low end, I’m not sure how else they can recover their former scale. Following Apple is no longer a viable option for growth.
Ultimately, it can be argued the best thing that could happen to Samsung is for Apple to do something truly innovative. The problem is, by being modular, anything they do will be copied and at much more aggressive prices. Apple’s monopoly on iOS allows them to sustain a premium strategy. Samsung doesn’t have such a luxury.
You want to talk about Apple. I understand. They are the biggest tech company in the world. Their products are used by hundreds of millions. Oh, and next week there’s — OMG! — a major Apple event, not at Moscone Center in San Francisco but at Flint Center in Cupertino, the very same location where the original Mac was introduced and where the phoenix-like (i)Mac was introduced, and this can only mean…
A new Mac?
How can that be?
We are all expecting an iWatch.
And a large, new iPhone.
Two!
Some of us are even expecting an iPad XL, complete with badly needed split-screen, multitasking function. Tim Cook has repeatedly promised us new products, after all. We are 14 years beyond Y2K. Macs are borderline inconsequential in our glorious new world. Apple can’t possibly be putting the Mac at center stage, can they?
Unlikely, but kudos for cleverly diverting our attention.
Oh, glorious Apple. Stoking the rumors, week after week. Divvying out the “leaks” bit by bit. Building our excitement. Inciting our lust until…shazam!
Something totally unexpected.
Fine. Two can play at that. Here’s my totally unexpected prediction: a 5.5-inch iRemote for the home.
Price? $299, including an Apple TV.
The $299 iRemote
Ben Bajarin says there will be no 5.5-inch iPhone “phablet.” I agree. Jony Ive resisted increasing the size of the original iPhone for years. Market demand forced his hand. The market now wants an even larger iPhone. Ive will once again be forced to capitulate.
A 4.7-inch iPhone should suffice.
An iPhone that size can retain most of Ive’s iconic design, support one handed use, at least for some, and have the additional benefit of offering a larger, longer lasting battery, which is sorely needed.
A 5.5-inch iPhone is nothing more than a twisted abomination of Ive’s design. I can’t believe this will happen. Unless the rumors of a 5.5-inch iPhone point instead to an entirely new device.
The Future Of The iPod
A remote control for the Apple-optimized home does not require one handed use. It needs only be light, mobile, affordable, possibly even unapologetically plastic.
Such a device can control your HomeKit-enabled appliances.
It replaces that wretched plastic Apple TV remote which has grown so useless even as Apple TV offers up so many more new content possibilities.
It’s the perfect size for tweeting while watching television. It encourages FaceTime calls.
Possibly, this device even supports multiple user accounts.
That Apple will finally offer “widgets,” which are optimized for both the small iWatch screen and glanceable CarPlay screens, may possibly work better on this new device as well.
The device also does not diminish iPhone sales, where Apple gets the bulk of its money from. Think of this as the future of the iPod, if that helps. Not quite an iPad, which is more personal, this new “iPod” belongs not to a person but to a home. It collects data, controls applications and commands other devices. Yes, even an Apple Television in time.
Instead of storing and presenting your music collection, this new iPod stores, presents and manipulates the collection of data from the family’s wearables, appliances, the Internet-connected thermostats, door cams, and lights. The iPod becomes the universal remote for the Apple optimized household.
Siri will be front-and center with this new iPod, encouraging you to tell her when to turn off the air conditioner, or for how long the oven temperature should be set. Plus, with iCloud, Apple suddenly becomes a leader not just in “machine learning” but more importantly, possesses a knowledge of people inside their homes that is truly unique.
Everywhere A Screen
I accept I may be completely wrong. Where a large iPhone ends, a small iPad begins, or how iPod evolves in a world with all of these is not as clear-cut as even Apple marketing would have us believe. My strength lies not in predicting new technologies but in understanding how existing technologies will re-make the world, the economy, learning, work, power, joy.
Yet, as computing spreads into all areas of our lives, and burrows its way into all of our things, we need new and better devices to help take full advantage of their combined potential.
This is a unique Apple strength.
Time and again, Apple shows us how all our many technologies are supposed to work — for people, not for corporations or things or business models or the established order.
This is why I am reasonably confident that, whether Apple reveals an entirely new device, a deconstruction of an old one, or something in between or far beyond, it will matter. If not right away, soon.
Next week, the very moment Apple releases a larger iPhone of any size, tech bloggers will giddily point their finger and exclaim: “J’accuse! Apple copied! The iPhone phablet is copying the Samsung Note!”
Mobile computing is barely into the Model T phase. Apple is helping to push us forward, mostly in positive ways — even when we think their latest product is just one more device in an already crowded market. We can’t know what we need till we have it, be it an iWatch, a phablet, an all new Mac, or, yes, a universal home remote.
We live in interesting times. They are about to get even more interesting.
I have been publicly doubting the existence of the 5.5 inch iPhone for some time. I promised many on Twitter I would share my overall thesis on the category so here it is.
Starting from the data points, we know several things. In the USA, phablet sales are quite small. Our estimates have the active installed base of all Galaxy Notes in the US at under 10m units. Phablets, or smartphones with screen sizes above 5.3″, have tended to not sell well at any price point in the US market. However, the US market is not the only one that matters.
Phablets are successful in some parts of Europe but much more so in Asia, so we will focus there. You could argue Apple needs to make a 5.5″ phone primarily to serve the Asian market and you may be right. But let’s focus on the data at hand.
As you can see, the vast majority of Android devices in use are not phablets. Now, it is entirely possible Google is not tracking or including China’s AOSP Android ecosystem in this chart. If they did, it could certainly bump the active use of phablets a bit higher but it would not be by much.
Another data point is IDC’s own projection of the phablet market which is, somewhat conveniently for my thesis, hot off the presses. This statement can be found in their latest press release.
The other widely discussed trend has been the shift towards large screen smartphones. IDC expects “phablets” (smartphones with 5.5″—7″ screens) to grow from 14.0% of the market in 2014 to 32.2% of the market in 2018. With the expected entry of Apple into this market segment, and the pent-up demand for a larger screen iPhone, Apple has the ability to drive replacement cycles in mature markets despite the slower growth seen in recent quarters.
IDC is stating 14% of smartphone shipments this year will be phablets, growing to 32% in 2018. In raw numbers, based on consensus of smartphone forecasts, that equates to approximately 165m phablets in 2014 and approximately 576m in 2018. In neither case are those small volumes. However, of the vast majority of phablets being sold in Asia, more than 80% cost less than $350. An interesting question is, where do premium phablets, like the Galaxy Note series, sell in volume in high prices points? The answer is South Korea. Good estimates of the Galaxy Note installed base in total is around 60 million. Nearly half of those can be found in South Korea. ((This estimate comes from network data I have on the region as well as some publicly stated numbers of Notes by Samsung. Notes appear to have the greatest concentration in South Korea. However, since Samsung uses shipment numbers not sell through numbers, it is entirely possible millions of Notes are sitting in a warehouse somewhere collecting dust. Perhaps if this is true it helps my thesis even more.))
What we know today is:
Phablets are not the majority of form factor sales.
The price points they do move at in volume are not price points Apple seemingly would want to play at with an iPhone.
Where phablets do sell at high price points, and where Apple would seemingly play, are in Samsung and LG’s home country of South Korea. A market Apple has very little share in today.
When I share my skepticism, it is due to the nature of what we see regarding phablets today. However, there are always other ways to look at this data.
Firstly, perhaps the large screen phones have not sold well in the US because Apple does not offer one? Possibly yes. However, if I had to place a bet on which of the two larger screen models Apple offered would do better in the US, I would bet the 4.7″ would be the better seller.
The real question to dig into around the necessity of an Apple 5.5″ iPhone is to address a market that may be choosing Android instead of the iPhone specifically due to that sized phone. Apple will address many people’s desire for a larger phone with the 4.7″ and, in many markets, particularly the US market, it will likely bring users back to the iPhone who may have left and bought a Samsung Galaxy S series because it had a larger screen. But ultimately, Apple already dominates the US market and has an extremely loyal customer base. I don’t believe the argument for a 5.5″ has anything to do with the US.
So — back to Asia. The affluent audience who purchases iPhones in that market due so because of the status that accompanies buying an iPhone. It is entirely possible there are more iPhones in active use in Asia than in the US thanks largely to the secondary market. A 4.7″ iPhone alone will be a huge hit in Asia and break sales records at whatever price. So why offer a 5.5″ also? Is there evidence that those in Asia who can afford a $650 iPhone (not the majority) are choosing to buy an Android phablet for $350 just because Apple doesn’t offer one in that screen size? I see no evidence of this and it is the primary source of my skepticism. The decision to release two new flagship models, at the same time, and possibly causing some difficulty deciding between the two by Apple’s core customers, has to be to appeal to new customers who don’t just want a bigger iPhone (the 4.7″ will do this already) but want one specifically at the increased size of 5.5.”
Bottom line, phablets move in volume at lower ASPs than iPhones in Asia. Those who can afford iPhones in Asia will buy whatever Apple makes due to status. I’m not convinced Apple is or would lose customers in Asia if they did not make a phablet. That being said, and looking at the data I have, there are always times to forget data and go with your gut. It will be exciting to see what Apple’s gut has told them to do.
I gave a brief overview of my thoughts on global web usage in the Tech.pinions Insider weekly newsletter that goes out each weekend. But I wanted to dive into a few more points I think are interesting.
When it comes to the business model of so many companies in the smartphone, tablet, and PC market, usage is an essential metric. For online companies like Google, Facebook, Amazon, app vendors, and more, web usage or the extent to which one gets on and uses the Internet is even more essential. What we are seeing is the early signs of the problems connecting the next billion customers for many companies. For a long time, iOS dominated Android as a whole in terms of web usage. Interestingly, an online metrics service I track points out this specifically in their FAQ on their site.
Android ships in larger quantities, but iOS dominates usage. Point number two is perhaps the most insightful. Not only are iPhones typically supplied with generous data plans but they are purchased by people who can afford to liberally use the web. Someone who can afford a $500 or higher phone in non-subsidesd markets can also afford a premium tier data plan. I’ve started using the term “data budget” to describe this. iPhone users have a higher data budget than the average Android user. Another point is broadband is not equal in many parts of the world. Many emerging markets have spotty and slow broadband. It makes the web challenging at times due to the lack of speed. These are part of the complexities I feel led to Android taking so long to pass iOS in terms of web usage, despite having more than double the usage base for quite a while.
While I recognize the disparity in methodologies of StatCounter and NetMarket Share, I still find them both useful. StatCounter, measures total usage of a user and will count the same user as a page view every time that person views a website they track. That is why StatCounter has Android ahead of iOS in web usage and says it has been for some time.
StatCounter’s data will favor the heavier of web users, thus their data will give us a broader picture of how active on the web each platform may be. But it is also skewed toward the top percentage of users who more liberally use the web. It leads us to the conclusion that the Android data collected by StatCounter is likely heavily influenced by those Android users who are more like iPhone users in terms of disposable income, data budget, quality of connectivity, etc. That point is well understood when we look at the device vendor breakdown of StatCounters data. We see Samsung users have been driving the bulk of Android’s global web browsing in their network of sites. Samsung’s premium and mid-tier devices would have similar users where usage would be impacted.
NetMarketShare presents a different picture and for different reasons. NetMarketShare only counts each user once per day on their network of sites, so we get a bit more holistic view of platform usage which is not skewed by the power users of either platform.
One thing to point out on this chart is it is measuring absolute share. iOS’ line is not going down because iOS is being used less, only because Android is growing as a percentage of overall web traffic on their network.
It was inevitable Android would pass iOS in terms of overall usage. What this brings up though is the striking point that usage is not equal between the two platforms per users. Meaning the average iOS consumer will still use dramatically more Internet services than your average Android user. Given the many points I’ve made before that Google’s Android already has the heaviest web users and the most profitable customers to their ecosystem as they are ever going to get, the longer term trend is problematic to their growth if it remains solely tied to usage of Internet services. The same is true of Facebook. In both cases the next billion will have a lower data budget, less reliable and likely slower connectivity and will have to prioritize that data budget accordingly. In short, this next billion will prioritize survival over entertainment. They will likely use a messaging service like WhatsApp because that is how their commerce or trade gets done. That is a worthwhile spend of data budget. Those needs will trump entertainment for the foreseeable future.
While looking at iOS vs Android web usage is helpful, it is really still only part of the story. I track a range of developer toolsets that show web usage by particular devices as well. Often many of these include app usage as well since most of these analytics services are for app developers. Here are a few select countries of interest because they are big but also because they qualify as those I consider with a stringent data budget.
All this does is emphasize in countries where the iPhone has a presence, even if only small, those users dominate the usage the landscape and often by a healthy margin.
Take Aways
What is becoming increasingly clear to me is at a platform level, the opportunity within iOS and Android for app developers, providers of web services or services in general, are simply different on each platform. You could make the argument the opportunity within iOS is very different than the opportunity within the Android ecosystem. Thus, each ecosystem may have an entirely different set of developers, services providers, and more.
I’m happy to announce that I am rolling up my podcast with Andreessen Horowitz partner Benedict Evans into the Tech.pinions podcast as well. We will shoot to release these discussions between us every few weeks, midweek.
Ben Bajarin and Benedict Evans discuss what a low-cost iPhone could mean for Apple and explore the global and regional differences of iOS an Android.
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.
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.
The iPhone is bigger than McDonald’s. That seems a useful demarcation for how we should view the iPhone in particular and Apple in general.
The iPhone is that once-in-a-generation product that alters daily reality for at least a century. The Model T production line, overnight shipping, indoor plumbing and the credit card are other such examples. I fully expect the iPhone will enable Apple to become the world’s first trillion dollar company.
There is a cost however, at least for we users. Almost certainly, iPhone will diminish Apple’s ability to create new game changing products.
Why? Because being irrational is hard, really hard. It’s rational to do everything in your power to maximize a product that has the legitimate potential to help you become a trillion dollar company. To do anything — anything at all — that might alter that path is irrational. Steve Jobs could be irrational at times. Tim Cook cannot. At least, I have witnessed no evidence of this. Apple is now iPhone. iPhone is now Apple. Just like Windows is Microsoft.
The Long March
No one ever got fired for buying Apple computers from IBM.
An iOS-based, touchscreen-enabled laptop, priced around $799, and sold by IBM to the enterprise seems an obvious product Apple should offer. It also seems like the kind of product that could destroy numerous existing giants.
For too long, iPhone users have not had their much desired iPhone “phablet.” A reason for this is because an iPhone phablet would gut iPad sales. Considering the iPad sales numbers for the past year, this is a fear Apple no longer possesses.
You will not give up your iPhone. You will not give up your Mac. You may give up your iPad. At this juncture, iPads are simply not must-have devices for nearly anyone. That’s the primary reason for the diminishing sales gains.
Easy prediction: We will almost certainly get an iPhone phablet this year and, likely by next year, a larger iPad.
I am regularly surprised at how bad Apple is at app discovery. That Facebook app ads are my current best source for app recommendations is a clear market failure. I hope the purchase of Beats, Swell and BookLamp signal that Apple is finally willing to get serious about content curation and recommendation.
I have no idea if Swift is a superior language. I am not a developer. I do know however, Apple is big enough to demand its use.
Despite the iPhone’s incredible array of features and functions, we mere mortals no doubt spend far too much time obsessing over which apps belong on the home screen.
Bugs And Features
The smartphone is the computer. Your app is your business model. Every business is impacted by iPhone. Know this or perish.
That Touch ID can’t read my thumbprint if there’s just a tiny bit of water on it seems more bug than feature.
It’s 2014, fourteen years since Y2K. Still, iPhone users can’t have their preferred calendar app list the date on the app icon. This is the equivalent of how the DOOR CLOSE button on any elevator never seems to work.
Samsung ads mocking iPhone users have been brutal and highly effective. Yes, I have had Android users (justly) mock me for having to scour an airport in search of an available outlet. The iPhone battery deserves its poor reputation. However, Samsung’s latest ad where they mock Apple users for not yet having a large display iPhone strikes me as desperation. Almost certainly, there will be a large display iPhone. What then, Samsung?
Amazing iPhone games are available for $5.99 yet millions refuse to pay such ‘outrageously high’ prices. There is much to celebrate and decry with this.
Using the same OS for the iPhone as for the iPad has some obvious limitations. On the small smartphone screen, getting into an app, grabbing the data, then exiting, a singular app occupying the entire screen makes obvious sense. Not so with the iPad. I want at least two windows open on my iPad almost always. Kindle and Twitter are the most common examples. Email and web browser are another. Even while gaming, I prefer two windows open. I can’t imagine buying an iPad until Apple offers this feature.
The Sincerest Forms Of Flattery
The almost laughable copying by Xiaomi of the iPhone and iOS 7 is all the evidence you need as to why Tim Cook must expend significant resources on building the luxury appeal and premium status of the iPhone; all those hard-to-define elements beyond actual quality, reliability and usability.
There are few people better at this, if any, than Angela Ahrendts.
Confession: it’s hard for me to watch the original Willy Wonka and the Chocolate Factory movie and not think of Steve Jobs and Apple.
Rumors Jony Ive was in a Flock of Seagulls cover band are completely unfounded.
Input method is now a more important consideration than processor, OS and software. No one seems to understand this more than Apple.
More Is Less
Lost in the bubbly talk of an Apple iWatch is the fact everything about it seems wrong. We do not need yet another thing. I want my iPhone — or any smartphone — to serve as my ID, car keys, credit cards, TV remote, glucose reader, everything. Apple should focus its genius on making the iPhone devour more of those things, not create new ones.
The newest version of PayPal appears to equal, possibly usurp, Apple’s Passbook vision: Payments, money transfers, loyalty cards, information on nearby shops, it’s all there. Apple certainly wants the iPhone to be used for payments, though maybe they have finally decided enabling payments and not powering them is the way forward. This may also explain the company’s recent decision to once again allow Bitcoin apps in the App Store.
I actually read app update notes. This recent update from Yelp made me laugh.
Jan Dawson made a strong case for why Apple should stagger launches of its major products. Commenters offered additional insights as to why Apple does not (or should not) heed his advice. Not stated, however, but which I think is at least worth considering, are the possible impacts of corruption. Nearly all assembly of nearly all Apple products takes place in China, where there is a less-than-transparent relationship between the government and business. It seems the implications of this should at least be examined.
I am surprised by how few iPhone users seem to ever use AirDrop to transfer files or data to one another. Perhaps personal iPhone-to-Mac AirDrop sharing is the superior use case.
I am unaware of the age, gender, race or LGBQT numbers at Apple Inc., Apple in Cupertino, or of those who work solely on the iPhone. But together, these people have created something positively impacting lives. And they keep making it better. I tip my hat to them all and hope in some way, my words can ever do the same.
Over the last five years, Samsung has become a behemoth in the tech marketplace. Their smartphones dominate the tech landscape and their profits have been relatively good until recently, considering the fact they still make most of their money on hardware. However, as we have seen in the PC market, a hardware only business model is not sustainable. Indeed, as smartphones become more and more commoditized, Samsung’s profits margins will soon be squeezed — especially by competitors like Xaomi who is eating their lunch in China.
While they are one of the most vertically integrated companies in the tech arena and can leverage this to help margins to some degree, I am convinced that, unless they take control of their entire destiny, they are just going to become like any of the PC companies who have been beholden to Microsoft and Windows and have seen their margins shrink consistently as PCs became commoditized. “Google and Android” replace “Microsoft and Windows” in this scenario and at the moment, Samsung is just a front end to deliver more and more customers to Google to get their ads, services and products via Samsung devices. Given the fact 50% of Android devices are Samsung branded, and Samsung’s cut of any related profits is the same as even tiny companies who also back Android, if I were Samsung I would be really pissed I’m making Google richer while at the same time, jeopardizing my future earnings potential if I continue to back Android.
To Android or Not to Android?
It is clear to me Samsung sees this and is rethinking their relationship with Google and their support for Android. At their recent developers conference, they showed off their own mobile OS that uses Tizen at its core and have even started paying developers to write apps for Tizen. At first glance it seems the focus on Tizen seems to be for the Asian market but don’t let that deceive you. I think there is something bigger in the works with Tizen.
Here is what Samsung is up against if they continue down an Android path as is.
First, they just make Google wealthier and continue to deliver customers to Google instead of to themselves. Yes, Android has served them well so far, but as long as Google owns the OS, Samsung is beholden to Google and is just a slave to them. Second, they drive revenue to Google, revenue that could be all theirs if they owned the customers. Third, they will continue to face margin pressure as hardware based profits shrink. As I mentioned above, our analysis suggests Samsung’s margins, even on their upper end products, could be reduced to around 10%-15% as even high end smartphones become more commoditized.
There is a reason Samsung copies and steals from Apple as the court in San Jose has already proven during the recent trials in California. They look at Apple’s ownership of their ecosystem and lust after it in a big way. Apple is mostly insulated from very low margin pressure since they not only make money from hardware but also from apps, products and services. They can do so since they own their OS and ecosystem and control their destiny across the board. Put more directly, Apple gets all of the profits from hardware, software, ads and services while, in Samsung’s case, Google gets most of the ad revenue, app sales profits and services sales.
The irony to all of this is Samsung is the one who has made Android successful — yet Google will not share the wealth with Samsung any more than they do with other Android licensees. Samsung has to be steaming at this predicament and looking for a way out. However, they have a dilemma and are boxed into a corner in the short term. While they can and will modify Android as far as they can without losing the store certification, the apps on Android that are both legitimate and illegitimate (the later being important in China) is too vast for them to abandon. Not being able to run android.apk apps would be suicide for anyone in the short term. Their developer environment is still based on Android so it seems they are trying to create a para-platform on top of Android that still uses the store but gets custom apps created for them in their ecosystem.
However, even in this scenario, where they can add some customization, they are still pouring money into Google’s coffers, leading them down a path where a hardware only play could hurt them big time in the future. Keep in mind, all OEMs backing Android are getting the same OS and, while hardware may differ, the OS is identical. It becomes harder and harder to differentiate with Google in control of the OS and related products and services. And Google’s new Android One program basically takes the cost out of the hardware and makes it possible for small companies to enter the market and go right after Samsung’s low end business in emerging markets.
So what could Samsung do to extricate themselves from the powerful hold Google has over them? Some industry folks I talk to think that Samsung could just fork Android the same way Amazon has done with their Fire OS. But even with Amazon’s clout, there are still not as many apps available on the Fire OS as there are in the Google Play Store and staying with Android even in a forked mode could be confusing for Samsung’s customers in the long run.
I think the real thing Samsung is working towards is to get away from Android completely sometime over the next three to five years and take complete control over their future. This is where I think their backing of Tizen becomes interesting and potentially important. Although Tizen has not attracted a lot of app support to date, if Samsung got behind it and was able to prove to the market they will continue to innovate around Tizen and keep delivering hundreds of millions of smartphones and tablets annually under their brand, they could attract serious software developers to the Tizen platform. Remember, they have 50% of the Android market today. If Samsung could show they would continue to be the #1 leader in smartphones even with Tizen, software developers would be crazy not to back Samsung’s Tizen strategy.
I don’t believe Google will let Samsung dump them without a battle. In fact, the recent fights between the two are becoming more public as it is becoming clear Samsung is no longer in love with Google.
I don’t think Google will adjust the revenue share for Samsung since, in doing, so they would probably have to have similar terms for other big Android vendors and that would really impact Google’s earning abilities. But they could be creative in trying to keep Samsung in the Android fold as well as putting a lot of pressure on them in ways we can’t even imagine at the moment. What Google wants, Google mostly gets.
In the long run, Android is a dead end for Samsung. As stated above, their relationship with Google is not that much different than what other PC OEMs have with Microsoft today and look what that has done to them in the commoditized age of PCs. I have no doubt even high end smartphones will become commoditized in a similar manner. If Samsung does not find ways to gain more control and deliver their own apps and services to enhance their overall profitability, they will, excuse the pun, become marginalized.
I have spent the past three weeks in Detroit, a city possessing a rich history and an unremitting present. The vagaries of Silicon Valley count for little here. When I heard a young man ask — for real — if the Samsung Galaxy S5 was an iPhone or an Android, I knew there was much to glean if I simply put my smartphone down and listened.
Here then are my thoughts, insights and observations from the past one score and one day…
There are no smartphone wars. Rather, just amazing, affordable and truly expansive opportunity. Android versus iPhone means nothing to nearly everyone I speak with.
It is hard to overstate just how much television will be disrupted by the combination of children, tablets and YouTube. Free, always accessible content uniquely tailored to their own self-driven interests, available from any location is now possible — and the young will accept nothing less.
Facebook, not smartphones, not telcos, not automobiles, not Disney or ESPN, is connecting the world. Facebook is the new oil. If there is any ‘next Steve Jobs,’ it is Mark Zuckerberg. For whatever confluence of reasons, Zuckerberg divined the power of social media from the start, just as Jobs did with computing. No matter how rich, no matter how many struggles, I expect Zuckerberg to devote the remainder of his life to Facebook and all it represents.
There is middling outrage over the Facebook ‘user emotion’ study. As for me, this represents little more than A/B testing. In fact, I’m more angry over the iPhone keyboard. It’s so terrible. Is this some sort of secret Apple study? I mean, what other possible reason could there be?
I am in the place where cars and mass production altered the course of humanity. Now, it is smartphones, social media, mapping, and code; these are re-making the planet as much as the automobile did in the 20th century. We are at the start of a new future. That’s just awesome.
I was often asked the best way to become a professional writer. It’s such an easy question to answer.
Marry well.
Oh, and should you be so fortunate to have an opportunity to write about what you love, for an organization with no concern for page views and provocation, as I am at Tech.pinions, then do not fritter away such a blessing.
I first learned about the SCiO from Techpinions. Point this device at a piece of fruit for example, and it will tell you what it is and even provide data on its composition, such as how much fat and carbs the item contains. Every single time I read more about this device, I think it is absolute magic. I told so many people about it that I now desperately hope it works as advertised.
I have nothing but good things to say about the Amazon Fire Phone. Yet, I can’t possibly recommend it to anyone. Why would I? In the US, at least, there is almost no reason to recommend any smartphone other than the iPhone or the Samsung Galaxy.
Microsoft’s Windows Phone faces a similar fate as Amazon’s Fire. Fair or not, can you imagine any outcome for Windows Phone other than failure? How does Microsoft start over? What amazing technologies, hardware and combination of services can they possibly deliver to make the world care about a device that is not iPhone or Android? I do not have the answers.
If I were in charge of Microsoft I would simply continue to make quality devices, offering great Nokia design, great Nokia imaging, incorporating Skype, OneDrive, HERE, Office and other Microsoft-owned products and services. Plodding along, hoping more and more Android vendors exit the business, picking up the scraps, all while leveraging my enterprise install base and security, identity and productivity tools, hoping users discover my superior value.
It won’t help. The smartphone market is lost to Microsoft.
The screen market, however, is barely in its infancy. Microsoft should forget smartphones and focus instead on screens. Screens will become like power outlets, we only notice them when they cannot be found.
Perhaps no company — not Apple, not even Google — possesses the breadth of services Microsoft offers. The problem, of course, is these services are not exposed for all the world to use. They are locked inside unwanted PCs, shoved inside tablet abominations, buried beneath the content we actually seek from our Xbox systems, sold mostly to IT directors, attached to products and platforms we do not need, and hidden behind an incomprehensible UI. Microsoft has built an anti-moat around its services, not locking us in but keeping everyone out.
The World Cup has introduced to millions the joys of live sports streamed to our smartphones and tablets. This is so in Detroit and around the country. It has never been more clear we all want to watch what we want to watch when we want to watch it where we want to watch it and on the device we want to watch it on. This is simple, obvious and unstoppable. It’s only a matter of time before we have a difficult time explaining to our progeny how it ever could have been anything else.
Last week, Apple CEO Tim Cook very happily took part in the San Francisco Pride Parade. Also, Hobby Lobby successfully won the right to provide only certain forms of contraception for its employees. What do these have in common?
Values equal profits.
Companies are publicly declaring their values, even going to court to defend and promote their values. This is only start. The technologies of Silicon Valley are breaking down barriers, bringing corporations to their knees and empowering individuals and groups around the world. With smartphones in hand, with continuous, real time, location-aware connectivity always available, we become our own corporations — with Uber, AirBnB and others merely pointing the way. We will work for ourselves and we will live by our values.
This is good. But it will be messy. Very messy.
Hype aside, can you envision a situation where you use Bitcoin over, say, your iPhone ‘wallet’ linked to your secure iTunes payment data? iPhone offers ease of use and peace of mind. That’s a powerful combination. Still worse for Bitcoin, is that it is essentially digital cash in a world addicted to easy credit. Learn about the blockchain. Bitcoin itself is merely a bystander.
Given Android’s headstart in wearables, it’s hard to see Apple winning any wearable app wars. Given the limitations of its market reach, it’s similarly difficult to see Apple winning the “smart home” market without buying its way in. Sonos would be a good start.
Smartphones are borderline magical. That said, the iPhone 5s battery and the HTC One (M8) camera are embarrassingly bad.
In the past week, I’ve rented two movies from iTunes. I failed to finish both in the first sitting and was not able to watch either until after 24 hours later. iTunes refused, insisting the rental period had expired. This was true, though did not mitigate my anger. I may abandon iTunes rentals altogether. The lure of non-legal downloading is strong.
How much of Yahoo’s Alibaba riches is Marissa Mayer prepared to spend to get us to visit Yahoo? I suspect all of it. Nowhere I go does Yahoo seem to matter.
Idle prediction: Apple will not kill off the iPhone 5/c/s form factor this year, nor will Apple offer three simultaneous iPhone form factors. Yes, that means I am predicting only one large-display iPhone.
Not a prediction, just a thought experiment: In 2024, when a chid is born, they will be assigned either an Android or an iPhone. This will control everything.
There will be over 1 billion (American) Android activations this year, and several hundred million (Chinese) Android (AOSP) activations. Android is a stunning success story. All those involved in Android have long since earned our respect. That said, some analysts, bloggers and even industry insiders still have not grasped the obvious: Smartphones are the first screen. Smartphones are the primary computer.
The CEO of Yahoo is female. The CEO of HP is female. The #2 at Facebook is female. A man runs Android, the world’s most popular OS. He is from India. The CEO of Microsoft is from India. The tech sector points the way forward not only with its products.
Perhaps I should have titled this “India Is The Future Of The Smartphone Wars”?
The appointment of the highly capable Satya Nadella to lead Microsoft only partly explains why I am thinking more about India and technology. The other reason is that it increasingly appears that the future of smartphones, and the winners and losers of the global smartphone wars, will be determined in large part by what happens in India. Great news for Google, possibly even for Microsoft and Nokia. Less good for Apple.
Despite the rather remarkable success of Indians in Silicon Valley, many of whom, like Nadella, are now leading tech companies, I still meet far too many analysts who remain disproportionately focused on what’s happening in China, or in Europe, while steadfastly ignoring the speedy, highly iterative tech landscape in the world’s second-largest nation.
There are over 1.2 billion people — that’s about 4 USA’s
The median age is 25 (China’s median age is 36 and the US is 37)
India is the world’s 11th largest economy — and still one of the world’s fastest-growing
Annual per capita income is a dismaying $4,000 (by comparison, China’s is $10,000 and in the US it is $53,000)
Populous, young, growing, eager for technology, eager for connectivity, albeit with relatively meager resources to spend. It seems to me that is the perfect mix for disruption. Likely, this disruption centers around what is now our most important tool, the smartphone.
There are already about 150 million total smartphone users in India. Despite that number, and despite the nation’s large population, India is the world’s fastest-growing smartphone market. The giant feature phone market is collapsing.
According to IDC, 44 million smartphones were sold in India in 2013. Phablets (smartphones between 5-6.99 inches) garnered at least 20% of the Indian smartphone market, though other sources place this number much higher.
Using IDC’s latest data, Samsung is the leading smartphone company in India, with India-based Micromax and Karbonn trailing. (Nokia, a leader in feature phones in India lags, though sales of its Lumia devices have steadily increased and the company now may have a 5% share of the market there.)
Given the size of the market, and its rapid growth, and the number of new users, current sales rankings may not matter much. As DNA India notes:
Tier one smartphone brands are ignoring the writing on the wall in the world’s fastest growing smartphone market in order to cater to a global market. This could be a dangerous thing to do especially at a time when the market is growing at a rate of over 150 percent and with 85 percent users still using feature phones. (emphasis added)
2014 could prove a watershed year, considering that:
225 million smartphones will be sold in India just in 2014 — compared to 89 million in the US
Of these 225 million devices, an amazing 207 million will be to first-time smartphone buyers — the largest proportion of new users to existing users anywhere in the world
More so than the spread of 3G/4G, and the rapid improvements in mobile-optimized services, it is the almost unbelievable low prices of new smartphones that are enabling the rapid jump to smartphones in India:
In fact, about 2/3 of all smartphones sold in India are priced under $200.
The derisively labelled “race to the bottom” is in truth, connecting India, and the world, and gifting us with unbelievably accessible technology.
Mozilla is seeking to create a $25 smartphone. Nokia’s X devices are all priced under $150. The new BlackBerry Z3 costs less than $200. This is amazing and laudable. Indeed, marketing firm Jana, has cleverly predicted that 2014 may be the year when a smartphone costs less than a carton of cigarettes.
The world will never be the same, and what’s happening in India offers us clues to our future.
As the Guardian notes, 2014 is when “the number of mobile internet users in the developing world will overtake those in the developed world.”
Connectivity is flowering in abundance. Equivalent access to everyone and to nearly every data resource will very soon be in the hands of the old and very young, male and female, rich and poor. This may be a first in human history.
We can’t know how this will change us, or change the world. But I suspect that watching what happens in India, and it’s happening so very fast, will provide us with many clues.
Predictions
Sorry. This market is too big, and moving much too fast for me to offer any reliable predictions. That doesn’t prevent me from sharing my thoughts, of course.
Apple
Meh.
Right now, Apple simply has nothing much to offer India. Offering the iPhone 4 for over $200 as they are again, when there are so many other amazing, new smartphones available for far less seems to me almost certain to fail. In fact, I think marketing very old devices against clearly superior ones, at the same price, only harms Apple’s brand. They shouldn’t even bother.
For example, India’s own Lava offers the following Android device for around the same price as the iPhone 4, but here’s what you get:
A sleek, sexy product running on stock Jelly Bean 4.2.1 with a magnesium alloy body, a 4.7-inch HD display, a MediaTek MT6589 chipset, 1GB of RAM, an 8MP camera in the back, a 3MP camera in the front, a panel that includes Sharp’s OGS solution, and Gorilla Glass from Corning.
Or, you can get a Moto G. Even the new Nokia X devices are all available for much less — and they carry the beloved Nokia brand name, look great, and include multiple popular Microsoft services.
In addition, India loves phablets — which pose a direct threat to iPads. Thus, even sales of iPad are hemmed in. Apple probably won’t have anything to offer India for years, in fact.
Will this harm the bottom line of the world’s largest tech giant?
Not so much, and certainly not in the near term. As long as Apple can peel off the world’s top 10% of buyers, they’ll be fine. It is a shame, however, that Apple and the world’s biggest democracy have so little a connection.
That said, Apple can certainly learn from the India market. For example, Indian handset makers are known for their ability to rapidly iterate, offer a host of new products, new models, all with the latest, most affordable hardware, and all at breakneck speed. Apple offers a minor iPhone upgrade about once a year, and a major upgrade about every 2 years. This has to change for success in the developing world — and it may already be underway. As the Wall Street Journal recently discovered, Apple is “hiring hundreds of new engineers and supply-chain managers in China and Taiwan as it attempts to speed up product development and launch a wider range of devices.”
Google
Android is the most popular (smartphone) OS in the world. This is especially true for India, where Google Android may make up 90% of the market. Google should do all it can to continue India’s love of Google Android.
Consider that nearly a third of “Android” smartphones shipped worldwide — that’s now over 70 million devices per quarter — come without Google apps and services installed. Blame, or thank, China, and don’t expect this to change soon. Chinese handset makers, Chinese app stores, Chinese web companies, and the Chinese government itself have little reason to embrace Google or to embed the company’s apps and services into their finished product. If Apple should ignore India for now, as I suggest, Google should similarly ignore China, which will continue to be unfriendly to the company, and instead embrace India.
Google should ensure that its very best tech, its latest services, its most amazingly affordable visions for computing devices all flourish in India, where value and accessibility are paramount. Efforts such as Project Ara, where Google hopes to offer a DIY smartphone for $50, should be heavily promoted and tended to in India, China’s manufacturing prowess notwithstanding.
Nokia
The widely mocked Nokia move to incorporate Android in its new Nokia X line could prove a rather bold, canny move. A feature phone stalwart in India, Nokia has to make an aggressive move to retain relevance in the country’s rapidly shifting phone market. Given the country’s speedy, almost wholesale adoption of Android, this may simply not be possible if Nokia remains fully wedded to Windows Phone.
Nokia’s new X phones will operate on Android, which is everywhere in India. However, they will carry the Nokia brand, retain the familiar Nokia design, keep the look and feel of Windows Phone Metro — and just might renew the company’s smartphone fortunes, all while potentially bringing millions more into the world of Microsoft services.
As Ben Bajarin states:
[Nokia X] is going to help Microsoft acquire customers at the low-end where all the growth is going to come from for the next few years. Every ecosystem needs entry points. Microsoft has a chance to acquire new customers getting their first smartphone and bringing them into the Microsoft ecosystem with a Microsoft ID.
Should the Nokia strategy fail, it’s hard to envision any other OS that is not Android finding any appreciable success in India, no matter the cost.
Where this might be wrong, although I think it unlikely, is if Chinese manufacturers such as the aggressively capable Xiaomi, successfully push out the top Indian mobile phone vendors (e.g. Lava, Karbonn), and thus effectively force them to offer something unique — Windows Phone, even Firefox OS, for example.
Understand, however, that India’s homegrown phone makers are formidable. I do not expect China’s own manufacturers, even such capable ones, to crush India’s leading vendors.
Not all aspects of India’s smartphone market will have a direct parallel elsewhere. The popularity of phablets may never be matched in the US and Europe. Features such as dual SIM are irrelevant in many parts of the world. Nonetheless, the smartphone skirmishes that take place in India will reverberate far beyond its borders. Analysts should pay more attention to this market and its users.
Anybody still recall when Apple’s chief competitors went about mocking the company for being, well, technology designed for older people? Those attacks came to an abrupt end in large part because Apple kept on printing money. I suspect, however, there is a second reason: iWatch.
iWatch may be the perfect personal computer for boomers, seniors and the elderly, yet Apple’s competitors, desperate to prove they are cool, have only now clued into the importance of this demographic. If at all.
Yes, the Apple iWatch does not exist. Rumors abound nonetheless, most insisting either that Apple iWatch will be the greatest computing revolution ever, or the latest batch of prognostication, an odd sort of tamping down of expectations, as if we should prepare ourselves to be disappointed.
Spoiler alert: neither of these groups knows.
We do know, however, that there is a massive, untapped market for an Apple iWatch: older people.
Consider that a device roughly as we imagine the iWatch to be, can at this very moment, serve as a tracking beacon, a camera, a heart monitor, an exercise monitor, pulse oximeter, a voice-based notification service – “time to take your pills” – a non-invasive glucose monitor, and a possibly a method of alerting the wearer to an impending heart attack.
All of which would be extremely valuable not simply to fitness freaks, but to baby boomers, seniors, elderly — certainly anyone over 60.
Bonus spoiler alert: there are a lot of older people. They positively abound in core Apple markets, including China, Japan and the United States.
The Bleeding Edge
Change comes fast to technology. The irony here is that the next insanely great market for computing tech, wearable devices, may reside within the demographic long considered furthest from the bleeding edge: older folks.
About time.
But first, a trip down memory lane.
“Apple is for old people.”
This glib statement has been a surprisingly persistent refrain from the media ever since the rapid mass market ascendency of the iPhone. Over the past 24 months, a “brand perception measurement” firm noted that Apple’s “biggest fans” hail from the older end of the spectrum. Bloomberg was happy to repeat this gospel: “Older people use iPhones, younger people use Samsungs.”
iPhones are not that cool anymore. We here are using iPhones, but our kids don’t find them that cool anymore.
Samsung famously mocked iPhone’s appeal to the older crowd in a series of blistering televised attacks:
Not wanting to feel left out, Microsoft joined in on the action, wondering if the mean old lady was nonetheless (wink wink) too young to have an iPhone:
As a way to limit Apple’s growth, this line of attack has simply not worked. Indeed, I think this mocking of Apple – and by extension, all their older users – will come back to haunt the perpetrators. As this Digital Trendsanalysis reminds us:
Older consumers tend to have more disposable income and be less price sensitive than young consumers.
In addition, older people, happy and content with their iPhones and iPads, may offer Apple a sly path into the enterprise:
Having a positive perception among older consumers can also have indirect benefits to Apple’s business, since older users are more likely to be able to influence purchasing and technology policies and purchasing at schools, businesses, and enterprises.
The technorati continue to miss the big picture: whether or not “old people” are a natural Apple customer, we keep making more of them. Lots more. Just in the US, we will have 55 million people age 65 and over by the end of the decade. China is already approaching 200 million people aged 60 and older. This number is growing — fast.
What’s Old Is New Again
Note the graphs below documenting the aging of Japan and China, in particular. These aging populations will require innovate support, services and technologies to meet their unique needs.
Breaks down like this: More older people, living longer, possibly living alone, and with a greater need for health (and health monitoring) services. Think of the massive potential of an iWatch or similar device for this group.
Thus, while Apple is aggressively pushing into China, I suspect there is far more at stake than sales of iPhone. As Bloomberg noted last year:
More than two decades of record economic growth turned the Chinese into the world’s top consumers of cars and smartphones.
Yes, yes, smartphones. And yet, that very same Bloomberg report noted:
As the almost 200 million population of over-60s more than doubles in the next 40 years…
Forget talk about Apple building a “phablet” because China consumers will demand it. I can’t help but think an iWatch is the most logical product for Apple to build for China (and beyond). An affordable tracking device that monitors pulse, breathing, glucose, offers reminders, its data instantly synched to the cloud, accessible by health authorities, shareable with children or caregivers, could prove invaluable.
Again, it’s not just in China.
The US is similarly gaining extraordinary numbers of older people, as this PBS report noted:
(Starting in 2011) the first of the estimated 79 million Americans born between 1946 and 1964 will turn 65 years old this year, at a rate of 10,000 a day. (emphasis added)
It gets better — if you’re Apple and if you’re working on an iWatch:
The number of people enrolled in Medicare will grow from 47 million in 2010 to roughly 80 million when the last of the baby boomers turns 65 in about two decades, while enrollment in Social Security is expected to rise from 44 million to some 73 million. At the same time, the ratio of workers paying taxes to support the programs to beneficiaries will drop.
Our healthcare industry, and our seniors, are going to be tasked to do more with less. Something like an iWatch, priced under $500, say, could prove a rather innovative means to save money on health testing, monitoring and possibly even visits to the doctor.
The Case For iWatch
It may seem like smartphones are everywhere, but even in the US the latest data shows that less than 20% of people over 65 have a smartphone. Likely, they find little need. But an iWatch, as imagined, could prove to be a near-necessity. Ask yourself: who is best equipped, anywhere in the world, to build a highly functional, reasonably affordable, startlingly intuitive, wearable personal computing device? My money’s on Apple.
Almost a year ago, CEO Tim Cook said “I think the wrist is interesting. I’m wearing this (Nike Fuelband) on my wrist…it’s somewhat natural. But as I said before, I think for something to work here, you first have to convince people it’s so incredible that they want to wear it.”
I do not know if Apple has reached that “incredible” stage yet, nor when they might. But a device that older people can legitimately operate and will use, offering valuable and personalized health data, could prove to be yet another massive market for the company.
I predict the iWatch will usher in a entirely new personal computing paradigm, flipping the early adopter/late adopter convention on its head. For the next phase of computing, build first for the old, that’s the bleeding edge, then let the technology drift out to the rest of the market in due time.
Business is a combination of war and sport. ~ André Maurois
The Long Summer Of The Microsoft Monopoly Olympics
Computing was pretty simple for the last 15 years: PC plus a browser. Both are splintering now. ~ Benedict Evans (@BenedictEvans)
Once upon a time — long, long ago in 2006 — the Personal Computing Olympics used to be oh-so-simple. First off, you weren’t even invited to the games unless you were bosom buddies with Microsoft. And almost everybody who attended got a medal (but Microsoft took home most of the Gold, if you know what I mean). It was the long summer of Microsoft and we thought that it would never end.
Then along came Mobile. Mobile changed the game as radically as if the Olympics had switched from Summer Games to Winter Games. The world of computing was turned on its head and it would never be the same. Oh, Microsoft tried to play in the new Mobile Winter Olympics, but they were ill prepared. Surprisingly in foresight, but unsurprisingly in hindsight, the new Winter games left them cold.
One Olympics, Two Champions
So much for the old Olympics and the former Olympian. Let’s turn our attention to the New Mobile Winter Olympics and the question of who won them. The answer? Well, it depends upon the question you ask.
It is not the answer that enlightens, but the question. ~ Eugene Ionesco
You see, the Tech Olympics — just like the real Olympics — are divided into two very different types of games:
1) Subjective Games that are judged by a panel of judges — like Ice Dancing and Half-Pipe; or
2) Objective Games that are determined by clocks, tape measurers and other quantifiable metrics — like Speed Skating, Downhill Slalom and Ski Jumping.
So who won the Tech Olympics — just like who won the real Olympics — depends on how you score the games. Are you judging based on how the market responded or how the press responded or are you judging based upon objective measurements? Two very different ways to measure. Two very different types of winners.
The Subjective Olympics
And the medalists in the Subjective Olympics are:
Gold: The Google and Android twins walked off with the Couples’ Gold Medal. The Judges raved about their mobile acumen and no one else even came close to matching their exquisite market share.
Silver: Samsung came in a very strong second for the Silver Medal. Some argued that they should have won it all, but Samsung was all strength, no subtlety; all power, no grace. Four years ago, no one even expected that Samsung would be at the games, so they should be grateful just to be standing on the (Android) platform.
Bronze: And the Bronze goes to Amazon, of course. True, Amazon did not have a particularly productive Olympics. They over-performed in revenue, but under-performed in profits. But none of that really mattered to the Judges. Amazon’s coach was brilliant, their business model dazzling and their potential awe-inspiring. The Judges awarded the Bronze to Amazon not on merit but because it was clear to them that Amazon was destined for greatness.
Off The Podium: Apple? As if! Pushed off the podium altogether. All sorts of glitzy performances, but they only entered a few, select events, they had the smallest team at the Olympic Village and they could muster only a paltry market share, to boot. On the whole, a most disappointing performance.
Oh, it was true enough that Apple had its fanatical, cult-like following, but Apple’s fan base was oh-so-tiny in comparison to the other contestants and it was full of pretentious baristas and other obnoxious types. Apple simply didn’t fit the Judge’s image of what it takes to make a champion.
The Objective Olympics
The medalists for the Objective Olympics were a different story altogether. Let’s do them in reverse order:
Disqualified of Did Not Finish: Sony, Panasonic, Sharp, BlackBerry, Palm, Dell, and far too many others to list. Some started too soon, some failed to finish, some did both.
Shut Out: Microsoft talked a big game, but they finished with no medals. However, they vowed to win the next Olympics, for whatever that’s worth.
Bronze: The Bronze? No winner. The podium remains empty.
Silver: Samsung of course, with a strong showing. 309 million units, which represented 39.5% of total Android shipments in 2013.
Gold: In a surprise to absolutely no one who was paying any attention and to absolutely everyone who wasn’t — the Gold went to Apple. And it wasn’t even close.
Scoring The Objective Olympics
[pullquote]I like long walks, especially when they are taken by people who annoy me. ~ Fred Allen[/pullquote]
“Apple!” cried the outraged Subjective Olympic judges. “Apple, the winner? And no medal for Google and Android? Impossible. Outrageous. Unheard of! The fix is in!
“Well, you see,” the Objective Judges calmly explained to their irate brethren over and over again, “in the Objective Olympics, we judge things by objective criteria and Apple walked away with them all — save one.
1) Apple gained mobile phone share. ((Gartner: Apple gained mobile phone share as smartphones overtook feature phone sales in 2013))
The Smartphone App Wars Are Over and Apple Won” Yep. If you care about have the best/newest. Ben Thompson (@monkbent)
3) Apple dominated profits. Their profits went UP from 78% to 87.4% in 2013. And just to give you an idea of how much Apple dominated, iTunes — which is their “loss leader” — grossed half as much ($17.5B) as all of Google combined. ((Mobile phone market hits ‘the great moderation’;
—
Including hardware, iTunes grossed about $175b in 2013))
Market share is the right metric for Android’s business model. Revenue is right for iOS’. The two aren’t mutually exclusive. ~ @mtabini ((via ArrAySee @ArrAySee))
Two Different Ways To Judge, Two Different Types Of Olympians
“What, what, what,” sputtered the flustered Subjective Judges. “If the facts favor Apple, then the facts must be Apple Fanbois!”
Yeah, they kinda are.
[pullquote]Android’s increased market share HAS NOT come at any cost to Apple’s iOS[/pullquote]
It’s been apparent for years that Apple was taking the high end of both phones and tablets and that Android was taking almost all of the rest. What HAS NOT been apparent to many is that Android’s increased market share HAS NOT come at any cost to Apple’s iOS. As noted, above, despite Android’s massive increase in market share, Apple’s numbers in platform, profits, Enterprise and customer loyalty all went UP.
Did you hear about the guy that lost his left arm and leg in a car crash? He’s all right now.
Did you hear about the company that lost all the profitless market share they weren’t ever competing for? They’re all right now too.
In Olympic terms, Apple didn’t enter the most events, Apple didn’t win the most medals, Apple didn’t win any medals in any event that they didn’t enter, Apple didn’t win any bronze or silver medals, but Apple kept its eyes on the prize and they took home the Gold in every event that they participated in.
Market share is the right metric for Android’s business model. Revenue is right for iOS’s. The two aren’t mutually exclusive. Not that hard. ~ Marco Tabini (@mtabini)
Using market share alone as the one and only measure for who won and who lost the Mobile Tech Olympics borders on the delusional.
[pullquote]Life’s hard. It’s even harder when you’re stupid. ~ John Wayne[/pullquote]
It’s like awarding the Gold Medal to the hockey team that had the most shots instead of the most goals;
It’s like awarding the Gold Medal to the speed skating team that had the most players instead of the fastest time;
It’s like awarding the Gold Medal to the curling team that threw the most stones instead of to the team with the stones closest to the center of the target.
Never underestimate our ability to ignore the obvious. ~ Po Bronson
The Next Olympics
So what happens at the next Olympics? Well, like former president George Bush, I have opinions.
I have opinions of my own, strong opinions, but I don’t always agree with them. ~ George W. Bush
I’ll save my analysis of the future of Blackberry, Apple, Chinese Android, Samsung Android, Nokia Android, Microsoft Windows Phone and Google for next time.
Time to fess up and see how badly I did in last year’s predictions. You can find them all here.
Criticism may not be agreeable, but it is necessary. It fulfills the same function as pain in the human body. It calls attention to an unhealthy state of things. ~ Winston Churchill
Prediction #1: There Is Little Room For A Category Between The Tablet And The Notebook.
This is still in dispute. Many still feel that a hybrid category between the tablet and the notebook will eventually emerge.
Not me. And it surely didn’t happen in 2013, so I’m chalking this one up as “correct”.
Here’s the thing: The touch user input (finger) is wholly incompatible with pixel specific forms of user input (mouse and stylus). And putting both side-by-side on a single device is not the solution, it’s the problem.
Why (my wife) hates Windows 8? In her words, “It doesn’t do what I’m telling it to do!” ~ Brad Reed (@bwreedbgr)
It’s anecdotal, but that’s about as damning a criticism as a product can receive.
In 1995, Cynthia Heimel wrote a book entitled: “If you leave me, can I come too?” I think that’s today’s de facto motto for Microsoft. Microsoft wants to have it both ways – sell you an all-in-one notebook AND tablet — and consumers are having none of it.
Prediction #2: Tablets Are Going To Be Even Bigger Than We Thought.
Worldwide the number of smartphones will surpass the number of PCs in the next 6 months. ~ Benedict Evans
Nailed it. 2 for 2.
Tablets were the biggest story in 2013. And they may well be the biggest story in 2014, too.
Prediction #3: Apple Will Create A New iPad Mini In The Spring.
Wrong, wrong wrong. I thought that Apple would target the tablet for the education market. But Apple has opted, instead, to move almost ALL product launches — iPod, iPhone, iPad – and maybe even Macs — to the holiday quarter.
2 for 3.
Prediction #4: iOS will become the premium model, Android will take the rest.
Sounds about right to me.
There a persistent misunderstanding of the Apple business model.
…Apple simply doesn’t care about market share. As a properly capitalist company it cares about the profits…
Apple has repeatedly said that it’s not interested in being a top Chinese or anywhere else smartphone player. It’s interested in being a top player at the top end of the smartphone market which is an entirely different thing. ~ Tim Worstall
No one seriously argues that Burberry should be more like Walmart ((Analogy borrowed from Brian S. Hall.)). Why ever does anyone think that Apple should be more like Samsung?
That makes me 3 for 4.
Prediction #5: Samsung Will Be Forced To Create Their Own Ecosystem.
Hmm. Lots and lots of talk about such a thing happening but almost zero action. Got that one definitely wrong.
Final score: 3 for 5.
Conclusion
I don’t really have much faith in my predictions anyway. I don’t pretend that I’m a seer who can peek into a future that no one else can see. As I often say, I prefer to predict the past — it’s safer. Easier too.
I more or less see my role as trying show people that the future they’re resisting is already here today — that the things that they are denying have already happened.
To most men, experience is like the stern lights of a ship, which illumine only the track it has passed. ~ Samuel Coleridge
Here’s a couple examples for 2014.
A) Microsoft is in more trouble than people seem to realize. Microsoft is making lots of money — which is good — but consumers are about to fire Microsoft from its current job and Microsoft doesn’t have any obvious prospects for obtaining future income — which is bad, bad, bad.
B) Phones and tablets are a thing. Notebooks and Desktops are a niche. Still getting lots of resistance to this fait accompli, and that resistance is warping the analysis of many.
C) Android is not the Windows of the 1990’s. Apple is not the Apple of the 1990’s. If you can’t see that today’s marketplace is entirely different from the computing marketplace of the 1990s, it’s because you refuse to see what is right before your eyes. The evidence is all around you.
There’s more, of course, but this isn’t a prediction article, it’s a mea culpa article. I was extremely conservative in my predictions and I still got 2 of 5 wrong. C’est la vie.
He is known simply as Charbax. You can find him on Twitter, on Youtube, and very often in the comments section of any post that trashes Android. He is in my opinion the biggest Android fanboy — fan, fanatic, believer, evangelist — in the world. His numerous first-hand, homebrew videos showcase the incredible innovation occurring across the Android ecosystem, be it in China, in Europe, or America.
What fuels his passion? Apple makes gorgeous physical products, easy to love. Android, by contrast, is a string of ones and zeros, cold, unfeeling code. There are many more questions, of course. If Android is “winning” then how does he explain Apple’s massive profits? Or the pre-eminence of iPad? Why care about an OS whose primary reason for being is not to get more people online but to capture more personal data to sell to advertisers? And what of Google’s continued moves to tighten control around this once aggressively marketed “open” platform?
Charbax arrived in San Francisco last week and did not shy away from any of my questions — though his numbers are often suspect.
Disclosure: I have followed Charbax online for at least three years. As that rare pundit who has gone on record stating that Android is, well, not very good, and almost certainly to be eclipsed by a far more functional and cohesive platform, I have faced his wrath many times over. Watch his videos, however, and you must admit that no person, no company — not even Google itself — has so well documented the stunningly rapid spread of Android throughout the globe, and into all manner of computing devices, be they phones, tablets, toys, cameras or sensors. If Android does come to rule our world, as Charbax absolutely believes it will — maybe already has — then history will lean heavily upon his work.
Author note: I have edited responses for the sake of brevity and clarity.
His real name is Nicolas Charbonnier. He is from Denmark. He tells me that he funds his work primarily through his well-trafficked pro-Android website and popular Youtube channel.
What explains the rapid global spread of Android?
Android is the first embedded Linux for smart devices platform that got enough investment to reach full usability.
What are some current examples of innovative development taking place with Android?
Android is reaching sub-$25 Phones this year and it’ll be in sub-$15 phones next year. Android has reached sub-$20 Desktop HDMI Sticks now and it’s going to reach sub-$10 desktop prices next year. Without Android, there would be nothing of interest going on in the tech world.
Android is enabling the next 5 Billion people access to smart technology. You can fly to China and buy an iPhone 5S copy on MediaTek MT6572 (dual-core ARM Cortex-A7, Android 4.2.2) for the same total price as buying a “real” iPhone 5S in America.
It seems as if only Samsung has profited from Android. What if they abandon the platform?
This is the dream of the same morons that sank Nokia and Blackberry. Samsung is hugely profitable only thanks to Android. Android subsidizes Samsung, Sony and LG’s HDTV business and other businesses. Companies make money on Android because it’s free, open source, and optimized for the most advanced consumer products.
Are you affiliated with Google?
Nope. If Google wants to give me a job, they are welcome to hire me.
Why are you an Android “evangelist”?
I’m basically an evangelist of technology. I think technology is the solution to all world’s problems and all the (latest) technology is powered by Android. I video-blog at 20 consumer electronics shows per year and 99% of what is happening there revolves around Android. Without Android, I would have nothing to video-blog about.
How do you support your globe-spanning work documenting Android? My Youtube channel passed 25 million views and I make money from ads. A few companies pay for my flights and hotels when they want me to video-blog at their conferences. I have some 300+ members paying me $20/year on my website. I also earn money by offering advice on sourcing devices out of China.
What do Apple users get wrong about Android?
The world is bigger than Cupertino. Most technological innovation is not happening in the USA and especially not in Cupertino!
Stop believing Apple invents stuff! Apple never invented anything! Even selling overpaid hardware pre-dates Apple by millenia. Apple is simply a cash machine. They invest money wisely in components at the right time for them and they make absurd amounts of profits selling those devices.
They convince consumers that it’s worth paying $2,500+ with a 2-year contract for a device that cost Apple less than $150 to manufacture by underpaid workers in China.
While you may stay in love with your Apple plastics if you want, there is much more happening out in the rest of the world. Android has 100 times more engineers and 100x more R&D being invested throughout the thousands of Android companies working on Android innovation right now.
Author note: I did not ask Charbax if he was referring to me with his “stay in love with your Apple plastics” remark or to Apple users in general.
What is the future of Android?
Android has about 90% market share today (where it matters, growth markets and non-US developped markets). It’ll be 98% in 2 years. It’ll power everything in the world.
But isn’t fragmentation a significant problem for Android?
With retail prices for Android devices ranging from $20 to $2000, you cannot expect everything to work on all those different types of devices. On the other hand, even without “official” support on perhaps 50% of the Android device output to date, most apps and most Android features work perfectly fine on 98% of the Android devices on the market.
Author note: Again, Charbax did not offer verifiable evidence for his assertions.
Android was very ingeniously designed since day 1 for both massive backwards compatibility and forwards compatibility. The Android apps SDK enables 99.9% of the 1 million Android apps to work perfectly fine on 99.9% of Android devices being used on the market right now. Even your 3-4 year old Android device will support above 99% of the 1 million Android apps today.
This is absolutely not true of Apple iOS. iPad apps don’t work right on iPhone. iPhone apps don’t work right on iPad. iPad (2) apps don’t work right on iPad Mini. iPad Mini apps don’t work right on iPad Mini Retina.
Android is built to accomodate for just about any screen size, pixel density and any optional hardware features. You do not need to design “tablet optimized” apps for Android for example as you must absolutely do so for iPad.
What else is better about Android than iOS or Windows Phone (or any other operating system)?
Android is 100% open source. This is the most important thing. Android is like the web. iOS and Windows are like proprietary competitors to the web. Android is 100% free.
What about claims that Android or Android makers infringe on other’s patents? All those patent lawsuits against Android are complete bullshit. Anyone who believes Microsoft or Apple have the right to sue Linux open source on smart devices is just out of his mind. Nobody must touch Linux, it’s free and open source. End of story. Nobody can patent any touch UI, any device shape, any essential user interaction idea, or anything that somebody else would have come up with.
Google appears to be transitioning away from the very open source view you espouse.
Admittedly, Android needs to be even more open source and even more free. That means open source GPU drivers, open source WiFi, Bluetooth, and other source drivers. It means perhaps 100% free alternatives to HDMI, USB, H264, Mp3, Dolby, as well as alternatives to whatever else other people are claiming licence fees against Android device makers for. That practice is just wrong and needs to stop.
Connectors, codecs, graphics engines, all those things need to be free to use for any device maker. Google needs to ramp up their involvement in providing 100% free alternatives to the market for these things so that device makers can in fact produce 100% free and open source Android devices worldwide.
But is this something Google should do? What about controlling the Android brand name, the use of Google apps, and controlling development of future releases?
(I suspect) Sundar Pichai‘s role overseeing Android may be to prepare Android 5.0+ to be totally open. Google should (and soon may) allow any third party developer access to see in real time all the future features of Android that Google is working on. Google should release dailies and accept way more third party patches and feature requests. Any improvements to Android that any third parties want to submit should get integrated in real-time.
You think Google will do this?
I think Google knows they are so far ahead of anyone else now that it really doesn’t benefit either Google or Google’s hardware partners to offer exclusive access to future Android development anymore. Give everyone equal, real-time access.
I also think Google will un-licence and un-restrict the use of their Android apps so that anyone will be allowed to ship Android with Google Play, Google Maps, Gmail, and whatever other apps Google offers, as much as they want, with no more need to ask for Google certification first.
Google should also count all Android activations in the future, and not only count certified Android devices. The 1.5 million Android activations per day are only certified Android devices being activated. That does not include the 500,000 – 1 million non-certified Android devices that are sold worldwide and activated each day.
Why are you visiting San Francisco?
I want to interview HP, Intel and others in the region. I will also be attending a Samsung developer conference. Before this, I was in Shenzhen, China and purchased some Android phones for $36, and Android-powered devices that copy both Windows Phone and iPhone.
Thank you.
Author note: below are some of my favorite Charbax videos:
Samsung, I believe is in a precarious position. I’ve felt this way for quite some time despite their continued growth in mobile over the past few years. But my reasoning comes from understanding how Samsung got to the position they are in with regard to mobile and concluding that the current strategy is not sustainable.
Firstly, you need to understand that the vast majority of Samsung’s huge sales come from outside the United States. Take a trip to China, India, and other quickly growing smartphone regions and you see a vastly disproportionate amount of Samsung devices per others in retail. Samsung’s growth in these regions is tied to form factor variety and price that is it.
Samsung’s premium line has been steady doing ok in the US but still less than 20% of all US smartphone sales of devices wholesale of $500 or more. In other parts of the world Samsung’s premium line has done better as it appears the Galaxy line is on track to ship 43-45m units this quarter. Still most of those outside of the US.
In this chart we see what the distribution of current market share estimates by sales from each vendor on a WW basis.
Apple dominates Samsung in premium devices sales in the US and to a degree in Western Europe. But when you look at the chart above you see that the rise of “others” is the source of Samsung’s precarious position. Growing strong regional brands like Xiaomi in China and MicroMax in India are rapidly eating into Samsung’s global sales of smartphones. And I don’t see this trend stopping.
MicroMax has done an amazing job managing their brand and going right at the core value proposition of Samsung in India. Similarly so has local Chinese brands like ZTE, Huawei and more important Xiaomi.
Many of these local and regional competitors are coming back and are employing strategies Samsung simply will have trouble competing with given their current strategy. What I mean specifically is that Samsung is not doing enough to create brand loyalty or ecosystem stickiness. Samsung is stuck in a continual cycle of competing for consumer choice. This is much more precarious position to be in because next year you must compete for the same customers as equally hard as you did this year.
I’d argue that this is not the case for Apple. They have loyalty that is un-parralled and upgrades from existing customers are practically an guarantee. Apple can focus on new customers, all the while satisfying existing in their ecosystem with new hardware, software, and services. Samsung does not have this luxury, they compete for new and existing customers every year.
Both Apple and Samsung, however, are going to be challenged by regional brands in areas like China and India where regional services are more relevant and more specifically proprietary. I’m convinced at this point that for Apple and Samsung to have a larger play in those regions they will need a much more regional centric strategy than they do today. I see what is happening in China and India as a problem for a global company deploying more global strategies than regional ones specific to those foreign growth areas.
Samsung understands its weak competitive position and it is the sole reason it is necessary for them to spend massive amounts of money on advertising.
To the ecosystem point, this is exactly the fascinating strategy Xiaomi is employing specifically related to China. Xiaomi, has the potential to create services and ecosystem lock in if they do their services right. Right now they run a heavily customized version of Android but it is tightly integrated into their core services which is a cloud messaging service, security service, and backup services. This is likely to expand to media, games, social networks, etc.
The key takeaway for Samsung’s position is simply the rise of the local brands in the areas where they have been the most successful to date. We will see how Samsung responds and if they are capable of building their own services framework on top of Android. This in my opinion is absolutely critical for Samsung to get right if they want to remain a major player in the future of computing.
To hear both Sundar Pinchai, head of Android and Chrome at Google, and Dennis Woodside, CEO of Motorola Mobility, tell it, Motorola is just another Android OEM despite being a wholly owned Google subsidiary. This may be technically true at the moment, but it cannot be true for the long run. And just what Google does with Motorola has huge implications for the future of Android.
Business realities alone say the current arrangement cannot last. Motorola is a hole of at least $10 billion (purchase price plus cumulative losses, less the gain from the sale of the set top box business) in Google’s balance sheet. Although there was speculation at the time of the acquisition that Google was really after Moto’s patents, the standards-essential patents ase subject to fair, reasonable, and non-discriminatory licensing worth much less than many believed. Sooner or later, Moto has to start paying its way.
Woodside himself suggested, perhaps without intending to, that the relationship has to change during an appearance at the D11 conference a couple of weeks ago. Competitors, he noted, are earning 50% margins on smartphones. ((Of course, the only profitable competitors are Apple and Samsung.)) “We don’t necessarily have the same constraints,” he said. “One of the areas that is open for Motorola is building high-quality low-cost devices. The price of a feature phone now is about $30 0n a worldwide basis. The price of a smartphone is about $650. That’s not going to persist.”
The difficulty is that Apple and Samsung, by virtue of their enormous volumes and tightly controlled supply chains, are already the low-cost producers. Motorola is not going to beat them on the cost side. So to underprice them, as Woodside is threatening to do, will require sacrificing gross margins, perhaps selling phones at a unit loss. For a business unit already losing money by the bucket, that would seem to be a suicidal course.
Unless, of course, someone is prepared to subsidize this raid on the business models of Apple and Samsung. And that someone would have to be Google, which certainly has the deep pockets needed for this fight. Taking on Apple, while difficult, doesn’t pose huge problems for Google. Over the past few years, the relationship of the companies has deteriorated from best buddies to frenemies to all-out competitors.
Samsung is a very different matter. The Korean giant is second only to Google itself in importance in the Android ecosystem. It is by far the largest seller of Android handsets, from the iPhone-challenging Galaxy S 4 to low-cost units for emerging markets. And it has to be watching the Google-Motorola relationship with an extremely wary eye.
For now, Google and Samsung are co-dependent. That fact is what lies behind Google’s much trumpeted arms-length relationship with Motorola. But the relationship will be severely tested if Motorola goes at the heart of Samsung’s Android business model. (Microsoft’s OEM partners were very unhappy when it went into hardware competition with the surface and surface Pro, but at least it did not try to undercut their pricing. And, for better or worse, poor Surface sales have largely spared it fallout from entering the competition.)
Samsung has options if it comes to view Google as a competitor in a way that makes the current Android arrangements untenable. It could fork Android, going forward with its own flavor of the operating system and its own services, home-grown or developed in partnership with other players, in place of Google’s. It could accelerate the development of Tizen, the Linux-based mobile operating system it has sponsored along with Intel. Or, far less likely, it could move to Windows Phone (unlikely, I believe, because while this might be the easiest course to execute, the fact that it is trading one gorilla dance partner for another will make it unattractive.)
The defection of Samsung from Android would put tremendous strain on Samsung, Google, and the Android world. Software has never been Samsung’s long suit. It can afford to buy a lot of talent, but changing a hardware company’s culture to support the software effort required is very difficult. Android would become largely a Google/Motorola business. The viability of all the profitless Android phone makers is dubious, let along their ability to provide leadership.
If all these hypothetical strategies succeed, we could see a very different phone market: Apple would continue to be Apple, mostly riding above the fray. Samsung would be slugging it out with Googlerola. And Microsoft and BlackBerry would be trying to squeeze out some gains from the confusion.
The hundred meter dash, archery, weightlifting and the long jump are four very different Olympic sports with four very different methods of keeping score. The hundred meter dash is scored on speed. Archery is scored on accuracy. Weightlifting is scored on strength. The long jump is scored on distance. You don’t judge the participants in the hundred yard dash by how much weight they can lift. That would be the wrong way to measure them.
“…looking at ‘smartphone share’ or ‘profit share’ or ‘platform share’ all tell you something about the industry, but all three metrics mislead you if you try to treat them as a way to see who’s ‘winning’, because ‘winning’ means different things for Apple, Samsung or Google. After all, Google may well still make more money from searches on iOS than it does from searches on Android.” ~ Ben Evans, On market share
Hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms are four very different business models and they have four very different methods of keeping score too.
You don’t take the metrics used to measure one business model and apply them to another business model. That would be the wrong way to measure them.
Each business model demands its own specific forms of scoring. The goal should be to devise, discover, or discern a form of measurement that properly and accurately reflects how a business is performing in the business model in which it is participating.
Biathlons, Triathlons and Decathlons are all unusual Olympic events in that they group together several disparate sports and then determine an overall winner. Think of Apple, Google, Samsung, and Amazon as Olympic teams that compete with one another in the four interrelated mobile business models – hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms – a sort of Quadrathlon. Each team has its strengths and its weaknesses, each team wants to win the events that they’re best at and maximize their score in the other events in order to win the overall Quadrathlon.
Let the games begin!
Hardware Manufacturing
Last week I tried to explain how using only market share to analyze mobile hardware manufacturing was not only the wrong way to keep score of that business model but that it was actually obscuring the real score.
“The truth is that focusing on market share as the primary metric is the only way to paint the iPhone as anything other than a roaring success.” ~ John Gruber
I suggested an alternative measurement known as the “Fair share profit analysis,” in order to generate some perspective but, truth be told, the only real way to accurately “score” who’s winning in hardware manufacturing is with net hardware profits. When it comes to selling mobile hardware, do Apple, Samsung, HTC, Motorola, etc. really care what their market share is? No they do not. That’s the top line, a means to an end. The only thing that matters when they are selling mobile hardware is profit. That’s the bottom line, the end for which the means were made. Market share is all well and good but only if it brings home the profits. Keep your eyes on the prize – and profits are the prize.
Awards Ceremony: Apple walks away with the Gold (both figuratively and almost literally), Samsung takes the Silver and no one else even medals. The Bronze podium stands empty.
Advertising
The only proper way to score advertising is net advertising profits retained. Market share and platform may be used to garner advertising revenue but they are only the means and they should never be confused with profit, which is the end.
Today, there are three great truths in mobile advertising:
1) Google is killing it in mobile advertising.
2) Google is killing it in mobile advertising…but mobile advertising is still relatively small; and
3) The vast majority of Google’s mobile advertising revenue is generated on the iOS platform, not the Android platform.
1) Google is killing it in mobile advertising.
Google dominates the mobile search market with 93% of US mobile search advertising dollars, according to eMarketer. Facebook is at No. 2.
2) Mobile advertising is still relatively small.
The mobile ad market alone stood at roughly $4.1 billion at the end of last year, up from $1.5 billion at the end of 2011. Google, currently has more than half the mobile ads market with annual revenues of around $2.2 billion.
Just to keep things in perspective, mobile ad revenue only accounted for 9% of all online ad revenue last year, although the percentage of mobile ads vis-a-vis other online ads is rapidly growing. And mobile ad revenues paled in comparison with mobile hardware sales. While it took an entire year for ALL mobile ad revenue to reach $4.1 billion, Apple alone, and in 90 days, and in what many considered a down quarter, brought in revenues of approximately $31.4 billion just from iPhone and iPad sales.
3) Google is making its advertising money on iOS, not Android
“(I)t’s Android’s large market share that is the winner for Google. The more Android devices being used, the more Google services with Google ads are being used.” – Virtual Pants
Actually, not so very much. Most of Google’s advertising dollars are generated by iOS’s relatively smaller market share, not by Android’s massive market share.
Take a good hard look at the chart, above. The iPhone ad spend doubles the ad spend share of ALL of Android. The iPad almost matches ALL of Android BY ITSELF. And even the lowly iPod has one-quarter of the ad spend that ALL of Android does. Market share is all that matters? I don’t think so. That’s like arguing that acreage is all that matters in real estate. The size of the lot does matter in real estate but location, location, location matters more, more, more. And market share does matter in mobile advertising but it is the location of the market share that matters even more.
“My belief, though, is that what Google is winning with Android is a booby prize — overwhelming majority share of the unprofitable segment of the market.” – John Gruber
When it comes to ad revenues and profits, we shouldn’t be counting Android as a single entity anyway. Ad revenues don’t help Android, the platform. They help specific digital stores. Ads going to Amazon, Google, and the various stores in China and elsewhere need to be broken out separately, not lumped together.
Awards Ceremony: Google wins the Gold and they win it going away. But they receive their Gold medal standing on the Apple iOS platform, not the Android platform.
Silver and Bronze? I’ll let you decide if it’s Facebook, Yahoo, Microsoft’s Bing or someone else. They’re all so far back that it doesn’t much matter now anyway. That may change over time but we’ll have to wait and see how this market develops.
“Razors-And-Blades” Content Sales
“(T)he razor and blades business model, is a business model wherein one item is sold at a low price (or given away for free) in order to increase sales of a complementary good, such as supplies…” ~ Wikipedia
The “razors-and-blades” business model is tricky to score.
— Hardware revenues and profits mean NOTHING in the “razors-and-blades” model. In fact, it’s not unusual to LOSE money from hardware (razor) sales.
— Market share means both nothing and everything in the “razors-and-blades” model. It means nothing because it doesn’t actually generate any profits but it means everything because it is a prerequisite to generating profits. In fact, the only reason you’re giving away your hardware in the first place is to acquire massive market share which, in turn, will hopefully lead to massive profits.
— Ultimately, the only way to measure the success of the “razors-and-blades” model is on the net profits generated by the sale of the complementary goods (razors). In mobile, the complementary goods are content such as music, video, books, etc. and apps. Amazon also has the added advantage of being able to sell everything from their sprawling retail catalog.
As I tried to explain in my tersely titled article: “Selling The Amazon Kindle Fire and Google Nexus 7 Is As Silly As Selling Razor Blades To Men Who Love Beards“, the “razors-and-blades” model makes no sense in this market space. At least it makes no sense to me. In the “razors-and-blades” model, the complementary sales – whether it be blades for razors, or ink for inkjet printers or games for gaming consoles – must be proprietary and must command a premium price. That’s the whole point. Give away the razor, make it back – and more – by selling the blades at a premium.
If you’re selling content, you want to be platform agnostic so that you can sell as much content as possible. This, in my opinion, should be Amazon’s strategy.
If you’re giving away hardware in order to sell content, then you want that content to be tied to your hardware product so that you can monopolize the sale of the complementary product and command a premium price.
In the mobile space, the complementary sales ARE NOT proprietary, they ARE subject to competition and they DO NOT command a premium price. Amazon and Google don’t sell content that is any different or superior to that being sold by Apple and other content providers and their content isn’t being sold at a premium. In fact, Amazon often sells their merchandise at a DISCOUNT which – in the “razors-and-blades” business model – is completely bat-manure crazy. ((Then again, we all know that Jeff Bezos is crazy like a fox.))
So who’s winning in the “razors-and-blades” business model? Why, surprisingly, it’s Apple and it’s Apple in a runaway.
Despite growing competition from other tablets, Apple’s iPad still accounts for a whopping 89.28 percent of e-commerce website traffic, and also rakes in more money on a per-user basis than any other platform. ~ Monetate
Distimo reports that iOS App Store revenues were 430% larger than Android during 2012. ~ Apple F2Q13 Earnings Call
“…iTunes inclusive of Apple’s own Software generates as much as 15% operating margin on gross revenues. That’s over $2 billion a year.” ~ Asymco, So long, break-even
Apple sells their content, not in order to make money but, in order to make their hardware more attractive so that they can sell ever more hardware and make ever more profits. With regard to tablets, Apple is playing the OPPOSITE game that the Amazon Fire and the Google Nexus are playing. While Amazon and Google subsidize their tablets (razors) in order to make money on the sale of their content (blades), Apple should be subsidizing the sale of their content (blades) in order to make money on the sale of their hardware (razors). But that’s not how Apple rolls. Instead, Apple sells their hardware at a premium AND they sell their content at a premium. That’s not supposed to happen but that’s just how good the Apple ecosystem is.
It’s like a walk-on winning the Olympic marathon while everyone else is stuck in the starting blocks.
You can say that it’s elitist or arrogant to argue that iOS users are better customers than Android users. But you can also say that it’s the truth. ~ John Gruber, Church of market share
One last thing. If Amazon and Google have an incentive to sell discounted hardware and premium content and Apple has an incentive to sell premium hardware and discounted content, one of those business models is going to fail and it’s going to fail hard. Since Apple is, so far, successfully selling premium hardware AND premium content, I’ll let you be the judge of how this is going to play out.
Awards Ceremony: I’m tempted to award all three medals to Apple just for having the sheer audacity to win a game that they didn’t even enter. But I guess Apple will have to console themselves with just winning the Gold.
And the Amazon Fire and the Google Nexus tablets? Disqualified for not understanding the rules of the game that they were playing.
Remember, Amazon and Google sell their hardware at cost. They don’t make a penny off those sales and they might even be taking a loss.
Market share? Yes, they have taken some minor market share…in a market where they are GIVING AWAY THEIR MERCHANDISE. And market share is not how you score in the “razors-and-blades” game. While the press and the pundits fawn over the market share of the Amazon Fire and the Google Nexus, what they’re entirely missing is that in the “razors-and-blades” business model, market share should be a GIVEN. I mean, honestly, if you can’t obtain overwhelming market share when you’re giving away your product at cost, then you should be ashamed, embarrassed, abashed, chagrined, humiliated and mortified ’cause you’re doing something terribly, terribly wrong.
You win the “razors-and-blades” game by scoring the most content profits. All those Amazon Fire and Google Nexus market share numbers that the analysts are always going gaga over? Meaningless. They should be removed from the count. They’re probably not hurting the sales of the other available tablets and they’re not helping the bottom lines of their makers either. There is zero proof that Amazon and Google’s hardware giveaways have led to increased retail sales which, after all, in the “razors-and-blades” model, IS the point.
And if you’re going to prophesy that market share alone gives Google data that will someday, somehow, be worth something to someone, then you need to go back and re-read how the “razor-and-blades” business model is scored.
What we desperately need in analyzing mobile computing is far more attention paid to profits and far less attention paid to prophets.
Next Time
Next time I will finish with the “mother” of all business models – platforms – and do the medal count.
The author would like to gratefully acknowledge the contributions of Ben Bajarin and Steve Wildstrom. All the great ideas, that you agree with, were theirs. All the bad ideas, that you disagree with, were mine.
