Samsung

Android’s Market Share Is Literally A Joke

This is the first of three articles looking at how we measure – and mis-measure – who is “winning” in the mobile sector. Article one focuses on market share and was inspired by an article written by Bill Shamblin, entitled: “Chasing Smartphone Market Share Is A Chump’s Game.” Article two will focus on the proper way to measure or “score” mobile hardware manufacturing, mobile advertising and the “razors-and-blades” content models. Article three will focus on the role that market share plays in the network effect and will examine the proper way to measure or “score” how well a platform is doing.

The Joke

Have you heard this one?

Two farmers bought a truckload of watermelons, paying five dollars apiece for them. Then they drove to the market and sold all their watermelons for four dollars each. After counting their money at the end of the day, they realized that they’d ended up with less money than they’d started with.

“See!” said the one farmer to the other. “I told you we shoulda got a bigger truck.”

Or how about this one?

Android is winning because they got a bigger truck.

The Joke Is On Us

Both “jokes” are based upon the old saw that one can lose money on every sale but make it up in volume. Unfortunately, the joke is on us because this is exactly the kind of nonsensical analysis that is being doled out by tech pundits and lapped up by the press and investors. You think I’m exaggerating? Take a gander at some of these recent tech headlines:

— Android is crushing Apple and Microsoft in the mobile device market
— Android looks like it’s winning
— CHART OF THE DAY: The iPhone’s Market Share Is Dead In The Water
— Despite its upmarket history, Apple needs to compete on price
— Gartner: Apple falls below 20% in smartphone market share
— Harvard Liquidates Apple Stake After IPhone Sales Lose Steam
— How Apple Is Losing Mobile
— IDC: Apple’s share of worldwide tablet market drops under 40%
— iPhone growth stalls as Android continues to nip away at Apple’s market share
— iPhone Market Share Stuck At 18%
— Nearly 75% Of All Smartphones Sold In Q1 Were Android
— Sharp to seek Samsung edge for survival as Apple sales lose steam
— Why Android Is Winning The Tablet Wars

I could link to a dozen more headlines just like them. These headlines – or their underlying articles – all have two things in common:

1) They contend that Android is winning and Apple’s iPhone is in deep, deep trouble; and
2) They point to market share as the sole or primary basis for their conclusion.

TechCrunch sums up the thoughts of many this way:

“The latest numbers are in: Android is on top, followed by iOS in a distant second. There is no denying Android’s dominance anymore. There is no way even the most rabid Apple fanboy can deny that iOS is in second place now. Android is winning.”

ReadWrite takes it one, final step further, stating:

“The Mobile Battle Is Over – And Google Won.”

In other words, pundits think that Android has won because they “have a bigger truck” (i.e. more market share) – regardless of how much – or how little – profit Android manufacturers make. Android, the pundits opine without a hint of irony, is not making much, if any, money but that’s okay because they’re making it up in volume.

But is that really how market share works? Can you tell how well a company or an operating system is doing solely by measuring its market share?

No, of course not.

Quiz #1: Market Share Alone

Question: Company A has 25% market share. Company Z has 75% market share. Which company is doing better?

Answer: With market share alone, there’s simply no way to know or tell. Company A might be bringing in all the profits and company Z might be going bankrupt.

The Wrong Way To Calculate Who’s Winning

(T)he primary problem with using market share as a measure of business health is it provides no insight into the profitability of the product being sold. ~ Bill Shamblin

Scoring by market share alone and ignoring profit is like saying that a baseball team won because it had more hits when the other team scored more runs. Scoring by market share alone and ignoring profit is like saying that a football team won because it gained more yards when the other team scored more points. Scoring by market share alone and ignoring profit is like saying that a hockey team won because it had more shots on goal when the other team had more goals.

Market share without context is not only useless, it is worse than useless because it is likely to be misinterpreted.

First, market share without context assumes that each percentage of market share is equal to another – that every Android activation is equal to an iOS sale. Nothing could be further from the truth. You can’t simply total up market share and determine a winner any more than you could count up coins or poker chips without knowing the underlying value of those coins or chips. A penny does not have the same value as a quarter and only a small child would rather have more coins than fewer coins but more money.

Second, market share without context implies that market share is a zero sum game – that market share gains for one always result in a loss to another. But in a rapidly growing market, a company can actually LOSE market share yet have both positive unit sales and profit growth. Not growing as fast as another company is not nearly the same as “losing”, especially if the growth is coming in a more desirable portion of the market.

For example, despite a decline in Q1 market share, iPhone sales actually increased based on year over year comparisons. (iPhone sales were not declining,they were growing slower than the overall market.)

The same was true of tablet sales. Last quarter, Apple LOST tablet market share, but because the entire market was rapidly growing, they GREW unit sales by 65%.

Source: Apple 2.0, “Pie charts of the day: Tablet sales grew 140% year over year”

The “Fair-Share” Way To Calculate Who’s “Winning”

What matters is not only market share and not only profit share but the ratio between them. This is called Fair share profit analysis. Fair Share Profit Analysis contends that 1 point of market share should deliver 1 or more points of profit share.

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.

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.

Quiz #2: Market Share or Profit Share

Question: Company A has 25% market share and 75% profit share. Company Z has 75% market share and 25% profit share. Which company is doing better?

Answer: If you said anything other than company A, then you are dumber than a doorknob. Any intelligent person would take company A’s profit share over that of company Z’s market share.

No one would be confused if Apple had 50 percent market share and 50 percent of the profits. But apparently it’s very confusing to some that Apple has only 5 percent of the market share and well over 50 percent of the profits. ~ John Gruber, The church of market share

Imagine, for example, that Apple were a hamburger chain who made more money than McDonalds, Burger King, and Wendys combined, but only sold 5% of the total hamburgers. Would anyone seriously contend that Apple was “losing” the hamburger wars?

Apparently so. For example, take this analysis from Matt Asay of ReadWrite (please!):

For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market.

It turns out it’s a really big deal to maintain market share, and not simply profits. Profit share follows market share.

Profit share follows market share? Are you kidding me? Show me a business sector where profits have a 1-to-1 correlation with market share and I’ll show you the exception that proves the rule. The reason market share doesn’t necessarily correlate to profit share is because profits are made up of both market share and margins. And market share alone tells us nothing about margins, therefore market share and profit share are almost always going to be unbalanced.

Source: Asymco, Escaping PCs

Take, for example, the Apple Mac. As the pie chart above demonstrates, the Mac has 45% profit share with only 8% of the market share. That means that Apple pulls in an awesome 5.63% of the sector’s profits for each and every 1% of its market share.

Profit share always follows market share? Not hardly.

The truth is, anyone can get market share if they want it badly enough. All they need to do is sell their product at cost, give it away for free or, better yet, subsidize (pay their customers) to take the product off their hands. This is called “buying” market share, but it always comes at the cost of profits.

Pricing to gain market share simply for the sake of market share is a chump’s game. ~ Bill Shamblin

The problem is, you can “cheat” and buy market share, but you can’t do the reverse and “cheat” to buy profits. You have to EARN profits. Buying market share is a downhill race to the bottom but gaining profits is an tortuous uphill climb and it can only be made if the manufacturer is able to produce highly valued and differentiated products. The company that buys market share must inevitably go out of business or reverse its course and fight its way back up to profitability. The company with the value and the profits, on the other hand, has the advantage of holding the high ground and can choose to take market share at will.

Quiz #3: Less Market Share Can Be Better Than More

Question: Company A has 25% market share and 50% profit share. Company Z has 75% market share and 50% profit share. Which company is doing better?

Answer: Anyone with any business sense would say company A.

Company A is commanding 3 times the price of Company Z. The formula is 50% profit share divided by 25% market share (50/25 = 2). This means that for every one percent of market share, company A has two percent of the profit share. Company Z’s position is reversed. For every one percent of market share, they command only 0.5% profit share (50/75 = 0.66). Company Z would have to work three times as hard and sell 3 times as much product just to match the profits of a single sale by company A.

Grading The Contestants

Android accounts for approximately 70% of global smartphone shipments and 29% of global profits. This means that the average Android manufacturer creates just .41% of profit for each point of market share (0.29/0.70 = .414). In other words, the average Android manufacturer needs to capture 2.4 points of market share just to increase their market profit by 1%.

Such a low fair share profit index may indicate that Android manufacturers are:

— Having difficulty differentiating their product;
— Sacrificing profits in order to buy market share (the “race to the bottom”);
— Unable to reach economies of scale in the manufacturing process.

(Profit data, source: Canaccord, Market share, source: IDC)

Samsung is doing far, far better than the average Android manufacturer. Samsung’s 2013 Q1 market share was 33% and its profit share was 43%. This means that Samsung reels in 1.3% of the profits for every 1% of the market share it owns (0.43/0.33 = 1.30). Samsung, unlike all other Android manufacturers, is earning, rather than “buying”, market share.

(Profit data, source: Canaccord, Market share, source: IDC)

Apple’s iPhone 2013 Q1 market share was 18% with 57% profit share. This means that Apple’s iPhone took in a lavish 3.12% ((0.57/0.18) of all profits for each 1% percent of market share it controls.

If Android manufacturers needed to sell 2.4 phones just to gain 1% profit share, they would need to sell a staggering 7.5 units just to match the profits that Apple garnered from the sale of a single iPhone.

As Daniel Eran Dilger puts it:

“… Apple could simply have blown through much of its $13.1 billion quarterly profit to “beat” Samsung in market share, rather than allowing Samsung to do that while earning $4.8 billion less than Apple.”

Further, in 2012 Q1, Apple held 23% market share and 74% profit share. This means that each 1% of market share was equal to 3.22% (0.74/0.23) of the sector’s profit share. Apple’s market share to profit share ratio remains almost identical, which means that Apple has maintained its pricing power. Not only that, by focusing on just a few smartphone models, Apple has become the low-cost manufacturer in smartphones as well.

Source: Ben Evans, Mobile is eating the world

Take a good hard look at the chart, above, then go back and re-read the headlines I listed at the start of this article. What each and every one of those headlines is contending is that Android is winning and Apple is losing because Apple doesn’t control the green portion of the chart, above.

I mean, honest to goodness, take a look at the total units sold compared to the paltry profits obtained from those green sales. Who in their right mind would even WANT that market share?

Price Elasticity

What we’re really talking about here is the economic concept of price elasticity. “Price elasticity” seems to be way beyond the pay grade of most pundits and analysts who follow the mobile sector, but what it essentially means is that when the price of something goes down, sales almost always go up, but the rate of that sales increase depends upon the price elasticity of the product. In other words, dropping prices may increase sales but the increased sales may result in disproportionately larger or smaller profits.

Unless we truly understand the price elasticity of the iPhone, we really shouldn’t be calling for Apple to drop its iPhone prices.

Summation

It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so. – Will Rogers

Not only do the high priests of market share have it wrong, they have it exactly backwards. The company with the lower market share and the higher profits has all of the leverage. The goal is to INCREASE, not decrease, the ratio of profits to market share. Increasing market share at the cost of profits is a recipe for disaster, not a formula for success.

Apple may or may not do well in the future but right now, and contrary to popular belief, they are winning the smartphone wars and winning them handily.

RATIO OF PROFITS TO MARKET SHARE
3.12% Apple
1.30% Samsung
0.41% All Android

Not only is market share not the best way to evaluate the relative positions of competitors but, without context, it is one of the worst. Assuming that market share will always bring you success is like assuming that a bigger truck will always bring you bigger profits. It’s literally a joke.

Next, I’ll talk about how market share affects hardware manufacturing, advertising and the “razors-and-blades” content models. The series will conclude with a discussion of platforms and the network effect.

Read Part Two of John’s column entitled: 4 Mobile Business Models, 4 Ways to Keep Score.

Read Part Three of John’s column entitled: Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

The Definitive Answer Guide to Which Smartphone You Should Buy

Forget all the rumors of an Apple iWatch. Ignore the surprisingly good reviews of Google Glass. Neither of these will come close to replacing your smartphone. Not for many, many years; probably never. The question is not whether you will buy a smartphone – you will. The question is: which smartphone should you buy?

I am here to help. Don’t worry, I promise this will be painless.

I’ve traversed two decades in the telecommunications industry and have spent ridiculous amounts of time over the years testing and sampling various smartphones across just about every single platform, price point and form factor. If it means anything to you, I even own a MeeGo. Looks great, but unfortunately it works about as well as your four-year-old netbook.

Let’s begin.

Dear Brian…

Which smartphone should I buy?

The iPhone 4S.

Perfectly designed, flawless to operate, affordable. Apple offers the best, most robust, most pleasing ecosystem of apps, games, content, payments, customer support, product integration and accessories. I cannot say exactly how many billions Microsoft, Google and others have spent over the years attempting to equal the iPhone’s operating system – iOS – but I can say that none have yet met the challenge.

Apple’s iPhone repeatedly tops the competition in customer satisfaction ratings. iPhone users are much more likely to stick with iPhone compared to Android users. That should tell you all you need to know.

Done! That was easy.

What? You have more questions? My singular advice simply not enough? Fine. What else?

Why not iPhone 5?

There is a reason why the iPhone 4S continues to sell so well around the globe: on form and function, ecosystem and compatibility, the 4S offers the best bang for the buck of any smartphone on the market, bar none.

Yes, the iPhone 5 is a great device. It has superior hardware specs to the 4S. In my opinion, however, it feels too delicate. It’s design is not perfect. iPhone 5 is too long and narrow. For many people, particularly women, they can’t control the entire screen with a single swipe of the thumb.

I hate Apple!

No, you do not. Besides, Apple, just like Nokia, Google, Samsung et al is a giant, for-profit corporation unaware of your existence. This is not about them, this is about you – and the best smartphone for you. Get the iPhone 4S.

Don’t care. I refuse to buy an iPhone!

Fine. Buy an HTC One, it’s a good phone.

You’re saying the HTC One is better than the Samsung Galaxy S4?

No. I think the S4 is slightly better. But if you buy the S4 all your friends will think you did so only because of all those Samsung commercials.

Not a Droid or LG?

No.

Shouldn’t I just wait for the latest model?

I cannot recommend that which does not exist.

I read that Android has surpassed iPhone. True?

After years of slavishly copying iPhone, the Android UI inexplicably remains almost willfully confusing. This is compounded by the greed and short-sightedness of carriers and handset makers. However, Google nearly makes up for this with great search, maps, Google Now notifications and other services optimized for Android. Plus, many handset makers like Samsung put amazing hardware into their devices. If you simply cannot bring yourself to get iPhone, an Android is a suitable alternative.

What about all the “phablets” I keep hearing about? Should I get one of those?

No.

But…

Do not be swayed by that big screen – even if you can hold the device in one hand comfortably. Smartphones are not televisions. You take your smartphone with you everywhere. You use it constantly. A phablet is almost certainly not right for you. Form is a primal factor in choosing the right smartphone and the phablet form is an evolutionary dead-end. The one thing it does well – offer a very large display – simply cannot overcome all that it does bad. Phablets are too big, too wide, too heavy and not optimized for the role they attempt to fill: a multi-purpose, always-on, fully mobile personal computer.

I’m going to buy a phablet anyway. I like the big screen.

If you insist, then I recommend you get the new Samsung Galaxy Note II. You will regret this.

You obviously hate Windows Phone.

How Nokia could have blown through two plus years of development and delivered only the Lumia 920 and the 928 (soon), is beyond my comprehension. Windows Phone deserves a far better flagship device.

But I do not hate Windows Phone – the operating system. It’s a beautiful, reasonably intuitive, highly customizable UI that delivers real-time updates probably better than any other platform. The problem, though, is that Microsoft simply made the wrong UI choice. I suspect they will never recover from it. Singular, static apps really do work better for smartphones – as iPhone has proven repeatedly – than the “live tiles” format that Windows Phone adopted.

My daughter loves Facebook. Should I get her one of those HTC Facebook Phones?

No.

But she really loves Facebook.

Get her any other (non-Windows Phone) phone listed here. I promise you, she will be fine.

I think you’re wrong about the iPhone 5.

The iPhone 5 was a very clever attempt by Apple to build a device with a larger display – as the market demanded – while maintaining all the benefits of their app ecosystem. Apple can and will do better.

I cannot afford any of these devices.

Whatever smartphone you choose, assume you will have it for between 1-3 years. The cost of the device itself will almost certainly be less than the cost for voice, data and texting services. Plus, you will buy apps, music and other content, and accessories – such as a car charger, stereo speaker and case – for your smartphone. Factor all of these costs into your decision.

If you still decide to go with a low-priced device, get last year’s top-of-the-line Samsung: the Galaxy S III. If you can get a refurbished model, this is a truly great buy. If you cannot afford this, I would encourage you to not buy a smartphone at all. Get a quality feature phone with a physical QWERTY keyboard. There are many options available.

My company doesn’t allow me to use iPhone or Android.

Delta doesn’t allow me to have my smartphone running during take-off. That’s never stopped me.

I can’t possibly type on that touchscreen. I need a real keyboard.

You will learn.

I refuse.

Then, wait. Very soon you can have a BlackBerry Q10. I think you will be impressed. (Note: do not get the BlackBerry Z10)

Which carrier should I go with?

That I cannot help you with. They all have their own unique set of faults.

Samsung’s Real Threat to Apple

When the iPhone was introduced, a Sr. Apple exec put the iPhone on a table in front of me and asked me what I saw? I replied by saying that I saw a black piece of glass on the table. He pointed out that what I saw was correct and then added that the real magic of the iPhone was the software. Over the last five years, smartphone vendors have continued to increase the size of the glass, put more physical bells and whistles on the hardware in areas such as audio, cameras, etc., and tried to make the hardware the real gem of their new smartphones.

If you look at the iPhone, the physical design has pretty much stayed the same. In fact, some could say its design is minimalist compared to the newer smartphones hitting the market today. Of course, that is not true. Apple has made it sleeker, put faster processors and higher resolution screens and better cameras and audio in every next generation of the iPhone. But as far as I am concerned, its crown jewels are iOS and the total ecosystem behind it that makes the iPhone sing and dance.

All of Apple’s competitors understand this but most are saddled with a core mobile OS like Android that, while getting better, is the same OS that all Android licensees have access to as well. While that is good for most, to really be competitive against Apple, vendors also know that differentiating around hardware, software, and services is what will ultimately make them competitive.

Separating From the Pack

HTC was one of the first to add its own UI layer on top of Android. Amazon and Barnes and Noble also use specialized UIs on top of their Android OS in order to make them easier to use with their own software and services. While basic Android is the same to all, one key thing that Google does allow is their partners ability to add their own UI on top of Android to enhance their devices and differentiate them from other Android vendors. This is one of big mistakes Microsoft has made with Windows Phone. All vendors can only use the Microsoft Windows Mobile UI and so all of their partners devices look and work the same (this is true of Windows 8 as well). [pullquote]While hardware may differ, the magic is in the software and from the start Microsoft gives their partners a real disadvantage when it comes to allowing them to differentiate in the area that counts the most–with software.[/pullquote]

It’s no wonder that Apple has 57% of all of the smartphone profits and Samsung 43% of smartphone + feature phone profits for the quarter. Incredible, really, when you think about it.

I have been watching Samsung very closely for many years. In fact, from 1990-1998 I consulted with them on their US retail strategy and always saw them as a major player in tech, even through their PC business in the US struggled. One of the things I understood, even back then, was their vertical integration. This means that for the most part, they make their own components that go into their devices. This gives them a real advantage over other vendors who have to outsource all or most of their components for their products. This is one area that continues to be a threat to Apple as Samsung’s vertical integration gives them quite an edge.

However, when it came to software and services I saw that this was an area that they were very weak at. This remained true until about three years ago, about the time they started going to school on Apple’s successful model. Like all of Apple’s competitors, they now know that for them to succeed they have to deliver very competitive hardware, software, AND services. To Samsung’s credit they have really taken the software challenge to heart and have been expanding their skill set and expertise in software design and development in a big way. In fact, we hear that a big part of Samsung’s facility expansions in San Jose, CA will be focused on software development.

This is really evident in the new Samsung S4 smartphone. I have been testing one for the last week and am very impressed with their software prowess. It is clear to me that while Apple’s software skills, expertise, and ecosystem is still much stronger then Samsung currently, in my opinion, I have no doubt that Samsung is serious about software innovation and is building up the team to give them the skills needed to compete with Apple head-on at the software level. They are still weak and tied to Google when it comes to services, but even here there is a chance Samsung could enhance their service position in the future.

Going Down Their Own Path

Two features really stick out among the dozens of new UI enhancements in the S4. The first is called Air View, which allows you to hover your finger over an email or message and the first 5 lines with the subject and email or message pops up so you can see the gist of the email without opening it. The other feature is called Air Gesture, which allows you to just wave your hand to answer a call or turn a page. Both of these new features tell me that Samsung understands the need to innovate at the software level and that they racing forward to do it. Regardless of how you feel about these features or whether they are gimmicky, strong hardware + software chops were required to execute.

On a side note, Samsung’s recent decision to integrate their own OS called Bada, into Tizen, an open source mobile OS backed by Intel, is also strategic. For Samsung to be successful over the long-haul they must control their own destiny. By using Google’s Android as a core OS, they are still beholden to Google for their OS directions. I personally think that over time they will eventually migrate completely to Tizen but only time will tell if this will actually happen.

Although reviews of the Galaxy S4 have been mixed, I believe that this phone starts a new chapter in Samsung’s strategy in which software is now seen as the crown jewel and for Apple and all of Samsung’s competitors, this becomes an area to watch closely as they try to use it to really set them apart from Apple and the rest of the Android vendors they compete with.

The biggest threat Samsung poses to Apple, and others for that matter, is their goal of further becoming a software company. Only time will tell if they can forget their own software path but regardless they are going to try.

iPhone 5 Versus Galaxy S4 A War Of Less Versus More

Last week, within the span of 24 hours, the two dominant players in the global smartphone wars released…not new smartphones, but new commercials. Both were very well done. They are also very different. Both ads reveal the core differences between Samsung and Apple, and possibly between Android and iPhone users.

First up, Samsung.

Now, the latest iPhone commercial from Apple.

Corporate Values Revealed

Apple’s latest iPhone ad is sixty seconds of creamy, delicious awesomeness. The commercial spurns crass marketing appeals. Rather, it uplifts us, revealing that life is spread over an infinite number of sparkling moments which may occur at any time, at any place, and all ready to be captured forever, thanks to Apple.

The images are so powerful, so palpably iconic – and so emotionally directed – that words only get in the way. Indeed, there are almost no words spoken or presented until the very end: “Every day, more photos are taken with the iPhone than any other camera.”

Contrast Apple’s focused, less is more approach with Samsung’s newest commercial. It starts loud and bold, the music of Vivaldi framed with brash, confident slogans. The Samsung ad shows off the device’s camera, the screen, the speakers, bludgeoning the viewer with an audio and visual assault clearly meant to match the power and functionality of the device itself.

The Galaxy S4, the ad suggests, is all about…more. More display. More sound. More features. More of everything.

For Apple, less is more. Emotion trumps function. Not so with Samsung – and by default, Android. More is more, and function – not emotion – matter most. More is better. More is bigger, bolder, louder, crisper, more functional. More is more.

Less Versus More

Which ad is best? Standing on their own, that’s easy: Apple’s ad is great while Samsung’s is only good. Yet on the more important question – how will each new ad help its respective company win the smartphone wars – well, that’s harder to answer. After all, design, innovation, product focus, global supply chain, carrier relationships, retail footprint, content, apps and services are all extremely vital to the two combatants, no matter how good or bad the advertising.

However, on the values level – emotion versus function, less versus more – I suspect this is a war without end.

For Apple, there must always be that deep emotional connection between the user and the product. The product should uplift, possibly ennoble the user. Apple products, as their commercials reveal, strip everything away until the end result is (near) perfection. Less is more.

Score one for Apple.

But this value, while it resonates with many, will not convince everyone. The global smartphone market is big. Really big. It’s already over 1 billion strong and growing. Smartphones are now outselling feature phones. It’s wise to assume that before this decade is out at least 2 billion and potentially 5 billion people will possess a smartphone. That is a staggering number, nearly unparalleled in product history.

Do five billion people on this planet consume wheat? Corn? Meat? The scope of the smartphone market is nearly incalculable.

These devices, then, like cars, like the PC that sat on our desk for years, like food, must serve a purpose – many purposes, in fact. I already use my smartphone to write blog posts, monitor my finances, track my fitness, edit presentations and outline my next book. Soon, I will use it as my car key, house key, credit card, debit card, glucose monitor. What next? I can’t say but I know my next device must offer more.

Score one for Samsung.

The Smartphone Wars Continues

It seems unlikely that any rival or any new technology, Google Glass, for example, is going to unseat Samsung or Apple anytime soon. Expect these two companies to remain the dominant “personal computing” companies through at least this decade. They will battle it out in the marketplace and in the courts. They will fight over suppliers and content licensing. They will seek to win on pixel counts, integration, UI, features, price and innovation.

But I suspect the biggest difference between the two will remain just as it has been revealed in their latest commercials: Apple will remain focused emotional appeal, a less is more approach, and on what the product means to you. Samsung will stay focused on adding new features, increasing old specs, and promoting what their product can do for you.

These are core values, deeply held, and unlikely to change. Which side you choose likely reveals far more about you than simply which platform you prefer, iOS or Android.

The Next Evolution In User Interfaces

With the introduction of the iPhone, Apple introduced the touch UI and literally changed the way people interact with their smartphones. When they extended the touch UI to the iPad, it set in motion an industry stampede to create PCs, laptops, tablets, and smartphones with touch based interfaces. In the world of technology, this was a real milestone. For decades the way we navigated through our PCs was through a keyboard, mouse or Trackpad. While Apple was not the first to bring touch to tablets or smartphones, they clearly get credit for commercializing it and making it the defacto standard for next generation user interfaces.

But there were two products released recently that I have tested that I believe gives us an early glimpse at the next evolution of user interfaces. These, perhaps, will be just as ground breaking as the graphical user interface and touch UIs in the market today.

Touch Freedom

The first is a couple of gesture features that are in the new Samsung Galaxy S4 smartphone. The first is called Air View. If you are in the email application on the S4, you can just “hover” your finger over the email you are looking at and the subject line and first 2 or 3 lines of the email pops up. It hovers over the actual email line so you can see what the email is about at a glance and decide if you need to read it or just move onto the next to check it out. The Air View gesture only works on the email app now but the software community will likely get the tools to be able to use it on other apps shortly. This gesture alone is a game changer in that it takes limited information on a small screen and blows it up in context so-to-speak so you can gain more info on the item you are looking at.

The second feature is just as cool. It is called Air Gesture. Have you ever been working in the kitchen with a recipe and gotten your hands dirty yet needed to go to the second page of the recipe to get the rest of the details? Well with Air Gesture, all you do is wave your hand in front of the tablet and it moves to the next page without ever touching the screen. I often take my tablet with me to restaurants when I am alone on the road and catch up on the days news, or even read a magazine or book while chowing down. Often my hands are full with knife and fork and today I actually use my knuckle to touch the screen to open a page or turn it.

To be fair, Microsoft has had gesture based user interfaces on the Xbox for almost two years, but to date it has only been designed for game consoles and has not transferred over to PCs or mobile devices yet. Both of these features on the Galaxy S4 smartphone represent the first major shift to making gestures an integral part of a mobile UI. While these two gestures are only on the S4 today, I’m sure it will eventually find its way to Samsung’s Galaxy tablets perhaps later this year.

The other gesture-based technology introduced recently comes from Leap Motion. This pad like device is used on a PC and sits in front of the monitor and between the keyboard and turns Windows into gesture based UI for supporting software. It can also be used with a laptop via a USB dongle with the device sitting in front of a laptop keyboard. Leap Motion has seeded over 10,000 developers with SDKs to make their apps work with their Leap Motion Controller. After it ships this summer, we should start to see a good amount of leap motion enabled apps later this year. HP has considered this so important that they did a major deal with Leap Motion recently and HP has committed to using it in their products in the future.

Similarly with Kinect, what is appealing about Leap Motion is the way you can interact with a game in 3D. Just use your hands as the controller, or use it to add hand controls to manipulating 3D objects. However, with support from the software community you can imagine eventually being able to just wave your hand and turn Web pages or use your hands to mold pottery on the screen, etc. The key thing here is that the Leap Motion technology is an enabler and once the software community gets behind it, it could become the next major step in making a user interface more friendly and even easier to use then it is today.

The reality is that Apple, Microsoft, Intel and others are all working on gesture based UI technology and believe that gestures represent the next significant evolution in computing interfaces. In fact, Intel has a human factors project around gestures and while not much is known about it, I would not be surprised to see the controller for gesture UIs even part of the SOC in the future.

While many had hoped voice would be the next big thing in user interfaces, there is still a lot of work in this space to be done to bring it into mainstream computing. I have no doubt that voice commands, such as the one HAL used in 2001: A Space Odyssey will eventually be the main way we interact with computers. However, for now, the next evolution will be gesture based. The technology used in Samsung’s Galaxy S4 smartphone and Leap Motion will most likely help define how gestures may soon become a major part of the interface we have on all of our computing devices.

Samsung is Stepping Into the Spotlight

Something very interesting is happening and I will be very interested to see how it plays out. Samsung is stepping into the spotlight and arguably taking it from Apple. Apple for the past 10 years, or more, has been the unparalleled focus of the mainstream media and for good reason. In 2010 when I started helping on the business side of things at the tech blog SlashGear, I got to have great conversations with nearly all the major bloggers. Throughout my conversations with them one common thread emerged. Every site remarked about how writing about Apple was page view gold. And in a business where page views generate more advertising dollars, over-covering Apple from every angle was–and still is–a business strategy.

As of late, many of the same conversations I have had with media influences and editors is revealing a new thread. Writing about Samsung is now quickly also becoming page view gold. As you could see, there was more content than necessary leading up to the Galaxy S4 event and then even more harsh content and scrutiny of the event itself. Maybe Samsung is getting what they want by being in the spotlight but it comes with a price.

Being under the microscope and managing the burden that comes with it is something few companies have had to do. It is now one that Samsung must do. It will be fascinating to watch how their management handles it. The media and Wall St. can be extremely and almost universally unfair to companies in the spotlight and under the microscope. Being a leader almost always means you also get arrows in your back. I’m assuming Samsung was hoping to get more attention but I’m not sure they are fully ready for the hostility that comes with the spotlight.

Are They Ready For It?

This is the real question. Executives, folks in PR—both internal and the external firm—those in investor relations, board members, etc., will all learn the unique place of being in the spotlight. This may be particularly tough on the PR folks and those at the external agency. Those folks jobs are often judged on the quality of not just press coverage but quality press associated with the company or a product. When you are under the microscope it may often feel like everyone is out to get you and for a company that has never dealt with what seems like media hostility, it may be hard to handle.

Samsung is also an Asian company, and as is the case in Asian culture, often times criticism is taken very personally. Not taking extremely harsh criticism from Wall St. and the media personally is going to be a challenge for them.

Passion and Personal Computing

If Samsung does their job right with both their brand and their products, they will create a sense of passion around their brand. This is also something few companies in personal computing have accomplished. It is something that is necessary if you want to create a sustainable brand yielding loyal consumers. With it, however, comes the possibility of a polarizing effect. I can think of no more polarizing brand in computing than Apple and as we can see it yields loyalty but also hostility. Samsung may also be heading in that direction. If they are not careful they may create the astronomical expectations that can never me satisfied by the media.

Is it Good for Apple?

This is also a very interesting question. In my 13 years as an industry analyst I have observed how the media has covered Apple. There has been many positives but it led to a hype machine that got completely out of control. This led to the external reality distortion field which I have referred to as of late. Even though my sense is that the Apple hype machine has been lessened, and Samsung taking some of the spotlight may be part of that, it still seems as though nothing Apple does is good enough. Perhaps Samsung taking more of the spotlight will work more in Apple’s favor from a media standpoint than many think. Primarily because it will give the media another target other than Apple.

I actually believe this is good for Apple and having two companies compete for mindshare is actually very good for the industry. The media has an insatiable appetite but by them having more story lines than just Apple to focus on may help bring some needed balance.

The spotlight can only focus on a few but the fact that it is focusing on more than just one is a good thing. From what I can gather, managing being in the spotlight can be very rough. Apple has learned to manage it marvelously and we will now see if Samsung can.

Apple: Time To Come Out Swinging

The dominant picture of Apple in the media today is of a company on the ropes: out of ideas, falling behind the competition, stock price battered, doomed. It’s reached the point where the CEO of BlackBerry, of all people, is criticizing the iPhone as stale.

The reality is a company enjoying record sales and earnings, dominant in its most important markets, with products continuing to be the envy of customers and competitors alike.

How did a company that spent so many years successfully managing and polishing its image reach this point? And how does it change a growing perceptions of failure in the face of actual success? These questions matter because over time, perceptions have a way of infiltrating reality, making the negativity surrounding Apple a long-term threat to the company.

Apple has succeeded by figuring out what consumers want before they knew they wanted it and by making superior products. But a little bit of magic has surrounded Apple products for the past 15 years or so and that helped make iPods and MacBooks and iPhones objects of desire. Today, every major Apple product is the top seller in its category, often by a wide margin. But without the perception of magic, that becomes harder to sustain.

This is where Apple misses Steve Jobs. Today’s Apple is run by a highly competent crew of executives. But Jobs was the magician and no one can replace him. A Tim Cook keynote can be interesting and informative, but it will never be the sort of cosmic event that Jobs presided over two or three times a year. This loss is irreplaceable.

But something else has changed. For the first time in many years, and certainly for the first time since the incredible iPhone run began in 2007, Apple has a competitor that truly matters. When Apple entered the phone market in 2007, it gained about 100% of the mindshare before shipping a product. Once the iPhone was a reality, and especially after the iPhone 3G and the App Store debuted a year later, Apple brushed away the incumbent smartphone makers without them putting up much of a fight.

Samsung is different. The company is nowhere close to Apple’s seamless integration from components to software and the dog’s breakfast that was the Galaxy S 4 launch shows it still has a ways to go in its presentation skills. But it is making first-rate products that are more and more Samsung and less and less Android, and backing them with a lot of money behind an effective marketing campaign. If Samsung ever learns how to overcome Google’s tablet cluelessness, it could be a formidable competitor to the iPad too.[pullquote]If Samsung ever learns how to overcome Google’s tablet cluelessness, it could be a formidable competitor to the iPad too.[/pullquote]

With Samsung on the prowl and Apple, fairly or unfairly, getting beaten up daily by both the tech and financial media, the company can no longer afford its long-time strategy of floating serenely about the noise of the tech and financial worlds. Apple never responded to rumors or much of anything else. Routine inquires to PR staff received polite no comments or, often as not, no response at all. Apple was the honey badger of tech companies. That strategy has served it well for more than a decade, but it clearly is not working very well anymore.

One thing Apple should strongly consider is giving the world some sense of its direction. Rampant speculation about Apple products while Cupertino sat in stony silence used to work in Apple’s favor, but now its being interpreted as having a lack of anything to say. Critics will say Jobs would never have considered even giving hints about products in development, but Jobs was against many things–including Apple making a phone–until he found a good reason to be for them. “What would Steve do?” is not a good guide for Apple today. The company should let the world know that it is still on top of its game.

Apple also needs to throw a bone the the financial markets. With a cash hoard is more than $150 billion and growing, Apple is beginning to look a bit like a bond fund with a consumer electronics company attached. It successfully fought off an effort by investor David Einhorn to give a good chunk of the money back to shareholders, but it has given no indication of what it plans to do, but there’s a good argument to be made that all that cash sitting around is doing investors no good whatever. It could, as Brian S. Hall suggested here the other day, set up an endowment for future product development. More realistically, it could pay a much larger dividend or use the cash to buy back its own stock. It could find something worth acquiring (maybe it’s saving up to buy Samsung, but it needs about another $100 billion.) But one way or another, it owes investors some explanation of its intentions if it hopes to win their confidence back.

There are some signs that Apple understands it is in a new environment. It has come up with a new section of its web site, going after the competition saying: “There’s iPhone. And then there’s everything else.” Marking chief Phil Schiller took on Samsung in an interview on the eve of the Galaxy S 4 launch (though he diluted its impact with an incorrect claim that the phone used a year-old version of Android.) Such steps are a good start, but Apple will have to do more. It’s a difference, and much more competitive world out there.

Comparing The Profits of The Five Titans Of Tech

Introduction

Today’s five Titans of personal computing are Google, Microsoft, Apple, Samsung and Amazon. Horace Dediu of ASYMCO has created a side-by-side comparison of their respective revenues and profits.

Google

Google is a money making machine, but I think that many overestimate its profitability. As the graph clearly shows, Google doesn’t make nearly as much profit as does Microsoft, Apple or Samsung.

Further, we know that the vast majority of Google’s profits are still derived from its desktop advertising business. Android, for all its success in the marketplace, has not yet proven to be profitable to Google.

In a reversal of Microsoft’s business model over the past twenty years, all of the Android profits currently reside with the hardware makers rather than the software provider. Perhaps this is why Google is moving more and more towards making their own hardware. (Google currently owns Motorola and makes Nexus phones, Nexus tablets, Chromebooks and the newly minted Google Chromebook Pixel.)

Microsoft

Microsoft has been making ungodly profits for almost two decades. Microsoft’s problem isn’t profitability, it’s growth. Despite making money hand over fist, Microsoft has been unable to grow its base for much of the past ten years.

And Microsoft is facing serious challenges to even maintain the profits that it now has. In the above graph, the red portion of Microsoft’s profits come from Microsoft Office and the blue portion comes from Microsoft Windows. Both currently reside primarily on desktop and notebook machines. With those devices declining in sales and with phones and tablets rapidly growing in sales, Microsoft needs to make the transition to mobile and they need to make it fast or their two cash cows are going to be isolated and start to dry up.

Apple

As you can see from looking at the graph, Apple’s profits are not just good, they’re spectacular. They far outdistance the other four titans of tech. At yesterday’s shareholder meeting, Tim Cook reputedly said that Apple grew revenue by about $48 billion, more than Google, Microsoft, Dell, HP, RIM, and Nokia combined.

Apple’s problem is the perception that they are the next Microsoft – that they will continue to make great profits but that their growth will stagnate. The graph, above, does not seem to support that view, but past performance is not a guarantee of future profitability.

Samsung is an amazing story in oh so many ways. By all rights, Samsung shouldn’t even be on this list of Tech Titans. For the past two decades, the PC manufacturers – the Dells, HPs, Lenovos, Samsungs, etc – were at the bottom of the tech totem pole. Always trapped in a race to the bottom, Microsoft and Intel took all the profits while the hardware manufacturers were relegated to fighting for the scraps.

No more. Samsung has turned that business model on its head. Android – like all licensed operating systems – was supposed to encourage a wide variety of hardware providers. But Samsung has swallowed the Android market share and the Android profit share whole.

Amazon

What can one saying about the amazing Amazon. Their revenues go up but their profits do not. And the less profit they make, the more successful they are perceived to be.

John Gruber once described Amazon as the crazy guy at the poker game. You simply don’t know how to play your cards against Amazon because they don’t play by any of the known rules. And you sure as shooting don’t want Amazon to come after you because they will sacrifice profits in order to win your market. And they are relentless.

Summary

So long as Apple is profitable and their ecosystem healthy, they’re not going anywhere. Microsoft is in it for the long run too. They have the money to sustain their efforts and they well know that they need to be in mobile or they will be locked out of the future of computing. Amazon appears determined to be part of the mix too.

The two titans that seem the most unstable to me are Google and Samsung. Google controls the Android operating system and the ecosystem but they make little profit from either. Samsung makes almost all the profit from Android, but they have little control over the operating system and they make little to no money from the sale of advertising, apps or content sales. That seems like an unsustainable relationship to me. Something has got to give and it’s clear that each side is weighing their options. Google is moving more and more towards making their own hardware and Samsung is flirting with a variety of different operating systems. The future is always uncertain but it seems clear that the relationship between Google and Samsung is certain to change.

Opinion Cast: Are Phablet’s For Real? Should Apple Make One?

This week Shawn and Ben discuss Ben’s column about the Galaxy Note 2. Ben goes in to more depth on his thoughts on Phablet’s and what they bring to the table in terms of an experience. We also explore whether or not Apple should get into the large phone market. We tried to stay short and sweet and kept this one to about 15 minutes.

For more context as well read Ben’s article on the Galaxy Note 2.

You can also subscribe to our opinion cast in iTunes here.

The Galaxy Note 2: One Giant Step for Android Phones

If you have read much of what I have written here or at TIME, then you may be surprised at some of the conclusions my analysis of the Samsung Galaxy Note 2 have yielded. I have not been shy about my affection for the iPhone. The iPhone is by far the most elegant, the most simple, and the most sophisticated mobile phone I have ever used. However, to keep a keen eye on the mobile landscape, I try and use all the flagship Android phones for a period of time as my primary smart phone. Up until the Note 2, I have never felt that Android, or larger phones for that matter, every really presented any significant value to me over the iPhone. That is until the Note 2.

I wrote a somewhat detailed analysis of Apple’s 4” iPhone vs. Android 4.7” phones last year. My conclusion from that analysis was that an Android phone in the 4.5-4.7” range did not present enough value for the tradeoff of one handed navigation. My conclusion is different since using the Note 2.

In that analysis I did with the 4” iPhone vs. a 4.7” Android phone I looked mostly at how information was presented. I looked at the web, email, twitter, FB, etc., and found that in most cases the amount of information displayed between the two OSes and screen sizes was roughly the same. The only major difference was that on the 4.7” screen the information was slightly larger. Again my takeaway was that although most information was larger, I didn’t see the value in the tradeoff of one handed navigation and or the robustness of iOS. It simply wasn’t a big enough difference in my opinion. That analysis led me to the conclusion that Android devices between the range of 4.5-4.7 inches were not worth the trade-off of one handed navigation.

Size Does Matter

This realization became clear to me in comparing the Samsung Galaxy GSIII to the iPhone. I used the GSIII for a few weeks but had the same feeling as I did when I compared the iPhone 5 to the Galaxy Nexus. Conclusion being the value of the larger 4.7″ screen was lost on me and it wasn’t worth the trade-offs. However, the Galaxy Note 2 is a different story.

After a few days of using the Note 2, I was struck by how good the experience of Android was on a phone over 5 inches. Oddly enough, it was a similar feeling to how I felt with the Nexus 7. Then these two experiences collided in my mind and I made a realization. I genuinely dislike Android on devices smaller than 5-inches and larger than 10-inches. Yet I like it a great deal on it on devices between 5-7 inches. It is an anomaly I know but that is exactly how I feel. It is almost if Android’s clearest differentiated value over the competition is in the 5-7 range. Both size ranges where iOS is not. Granted the iPad Mini comes close to the Nexus 7 in size, and the iPad Mini is significantly better than the Nexus 7 in my opinion, but I can see why people like and choose the Nexus 7. It is a good value and good experience for the price. Not the best, but for the price, good enough.

The Note 2 size range, however, feels to me like the area where Android really has a clear and distinct differentiated advantage. Again, part of this has to do with the fact that Apple does not offer an iOS device in this range so it is hard to compare. But its still a significant point from a competitive analysis standpoint.

The One Handed Mode Tradeoff

The strongest argument against these size phones is the one-handed operational trade-off and it is a very strong point. If one handed operation is important to you then stay away from devices 4.5-inches and above unless you have Lebron James size hands. But the key conclusion I made is that the trade-off of one-handed operation feels like less of a trade-off with the Note 2 than with any other 4.5-4.7” Android phone I have used. Any phone larger than 4.5” is going to require a trade-off of one-handed operation anyway so why not just go larger and get more value.

Interestingly, I had discussions with folks who owned the Note 2 and specifically many women. They told me that since they have smaller hands, most phones were already hard to use with one hand and therefore they simply wanted the biggest screen possible because they found that valuable. Many were overwhelmingly pleased with the Note 2. This makes my point that if one handed navigation is not that important to you then the value of the screen size experience of the Note 2 is significant.

Although much of my analysis of the 4.7” screen holds true with the Note 2 about information displayed, it is with the Note 2’s size range where bigger actually does feel better. Take Facebook for example. Comparing the Facebook app experience on the iPhone 5 vs. a 4.7” Android phone yields only slightly larger photos and media making the size difference moot in my opinion. However comparing the Facebook experience on the iPhone 5 vs. the Galaxy Note 2 yields much larger photos and media which resulted in quite a different experience. An experience that was definitely more tablet like than phone like.

Web browsing is another good example. I pointed out in my screen size analysis the web experience was nearly moot with the iPhone 5 and other Android 4.5-4.7” devices. However, with the Note 2 the difference in web browsing was significant. Not only were mobile sites larger and easier to read but so were full desktop sites. In fact with the Note 2, I set it to always bring up the desktop site. Never before have I done this on any non-iOS devices. Here is a side-by-side screen shot to scale of the Note 2 and the iPhone 5.

It was examples like these where the bigger screen truly brought value. What really struck me is that the experience with the Galaxy Note 2 is more tablet like than phone like. This is probably a key point in why I think this form factor is so interesting. It is also one that makes it very hard, for the first time, to actually compare an Android phone with the iPhone.

Samsung has also done some interesting things in software to enable more ease of one hand use which led me to the conclusion that larger phones present the most opportunity for new hardware and software innovation.

Conclusion

In all the cases where I found the value of the Note 2 clearly differentiated was with regards to media. Photos, videos, games, social media apps, and other places were media was a key part of the experience. This is a key point because the use cases I identified where value is clear in a giant phone are exactly the ones that matter the most to the mass market.

My personal conviction is that the value of the 5” plus phones are worth some of the trade-offs of one handed navigation where 4.5-4.7″ devices are not. The primary point being that for devices where one-hand navigation is already difficult like ones above 4.5”, consumers are better off going larger in my opinion.

5″ smart phones are an are where a lot of innovation in hardware and software exists. Perhaps more so than any other smart phone form factor. Particularly around voice automation, smart sensors, gestures, and software.

So am I leaving the iPhone? No, for reasons I finally believe I can articulate and will share in a column soon. However, after using the Note 2, I can honestly say it is the best Android phone I have ever used and the only one I could identify tangible differentiated value.

For some deeper audio context to this column, click the play button below to listen to my interview on the Galaxy Note 2 and whether Apple should make a larger phone.

4 Technology Trends, 5 Technology Predictions

Prediction is very difficult, especially about the future. ~ Niels Bohr, Danish physicist (1885 – 1962)

Trend #1: Two Seperate And Incompatible Types Of User Interfaces

Personal computing will be divided into two types of user interfaces:

1) Touch; and
2) Pixel-specific (surface-required)

Touch will require the use of only a finger for user input and will work best on the go. Pixel-specific will require the use of a mouse or trackpad which, in turn, will require the use of a flat surface. These two user inputs are inherently incompatible with one another – and that has consequences.

Prediction #1: There Is Little Room For A Category Between The Tablet And The Notebook

I do not think that there is room between the touch-only tablet and the mouse/trackpad-only notebook for the new category of computer that Microsoft is trying to create with Windows 8 tablets. Tablets are becoming more capable. Notebooks are becoming ever thinner and lighter. There is little room for the hybrid. Hybrids will survive as a niche – but they will not thrive as a category.

Many disagree with this opinion, including some who write for Tech.Pinions and everyone who works for Microsoft. That’s the beauty of free speech and free markets. Time – and sales numbers – will tell the tale.

Prediction #2: Tablets Are Going To Be Even Bigger Than We Thought

Tablets are the future and in a much bigger way than even I had imagined.

They are not just becoming an equal to the pixel-input, surface-only devices, they will soon be the default, go-to device of choice. We’ll use our tablets whenever we can, our phones whenever we’re traveling and our surface bound devices only when we absolutely have to.

Pixel input personal computing devices will become like land line phones. They will persevere but with an ever shrinking base and and ever decreasing significance to our lives.

Prediction #3: Apple Will Create A New iPad Mini In The Spring

This is really a sub-set of prediction number two, above.

I believe that tablets are going to be huge in education. Last year, many school districts tested the waters with tablets. This year, many are going to move from trial programs to initiating programs designed to eventually put a tablet in the hands of every single student. This is a profound computing shift which will have a profound effect on education. By 2014 and beyond, the flood gates will have opened and tablets in schools and colleges will be accepted as the new norm.

Apple knows that they currently have an in with the education market. Educational institutions make most of their buying decisions in the Spring. In my opinion, Apple is not going to let the Spring go by without refreshing the iPad Mini.

Trend #2: Two Phone Operating Systems

In the Ninties, there were only two personal computer operating systems that mattered – Windows and whatever Apple was running on the Mac. Windows dominated, but the Mac survived and, in terms of profits, thrived.

Simiarly, there are going to be two operating systems that matter to smartphones. But this will be a duopoly with a difference. Google is not a strong and domineering operating system shepard the way Microsoft was. iOS has 500 million users and is self-sustaining. This time, iOS will be the premium operating system while Android will be the majority operating system.

Prediction #4: iOS will become the premium model, Android will take the rest

iOS will appeal most to businesses, government and education. (The irony of predicting Apple as the preferred operating system for business is not lost on me.) Android will take the rest.

Both operating systems will unhappily co-exist with developers flocking to iOS and cost-concious buyers flocking to Android. The dollars will continue to flow to Apple and the market share will continute to flow to Android and both sides will continue to insist that the other side doomed.

In the meantime, RIM and Nokia will continue to fade and Microsoft’s Windows Phone 8 will stubbornly cling to third place. But a licensed operating system does not fare well as a minority player.

Trend #3: Freemium v. Premium

The chief divide between tablets will not be their size, but their business models. Amazon and Google follow the freemium model. Samsung and Apple follow the premium model. The Freemium’s give away their hardware at or near cost and seek to make money on the sale of content and services. Apple’s premium model seeks to sell their hardware at a profit and encourage those sales through the use of both content and services.

Prediction #5: Samsung Will Be Forced To Create Their Own Ecosystem

In a world where your operating system provider (Google) is undercutting you by selling hardware at cost and taking in all the content and service dollars, there is simply no other choice — Samsung needs to create their own content and services ecosystem. Samsung has been preparing for this moment for quite some time. And we’ll see the fruits of their labor in 2013.

Trend #4: Multiple Screens

I think the biggest trend that is receiving the least attention is that of multiple screens. In 2001, we had one computer screen and it sat on our desktop. In 2006, we had, at best, two computer screens – our desktop and our notebook. In 2013, we have 4 computer screens – our phones, tablets, notebooks/desktops and TVs. And the when and why we use those screens is going to help to shape the future of computing.

I’m going to cop out here and not make any predictions other than to predict that this trend is going to change everything. People are already using two screens – a television and a phone or tablet – to watch TV. And the way we rapidly switch from phone to tablet to notebook and back again is already baffling that way pundits think about categorizing and pigeonholing our computing buying and using habits. Multiple screens deserve not just a simple prediction on our part but ongoing examination and analysis. It is not an emerging trend but an existing trend. It is the consequences that we haven’t yet fully fathomed. Expect to see us talk a lot more about the effects of multiple screen computing in 2013 and beyond.

Patents: That Word Does Not Mean What You Think It Means

Yesterday, the internet was abuzz with reports that the U.S. Patent and Trademark Office had “rejected” another Apple iPhone patent. Many commentators jumped to the conclusion that, since this patent figured heavily in Apple’s recent legal victory in a case claiming infringement by Samsung, Apple had been dealt a heavy legal blow. But, it turns out, not so fast. Patent law speaks its own language in which you have to forget about the plain English meaning of words.

What are we to make of a statement like this, in the USPTO finding?

No rejection of the claims, as presently written, are made in this Office action based on the Hill and Ullmann references because the teachings of those references are essentially cumulative to the teachings cited in the rejections below. However, in order for claims to be found patentable and/or confirmed in this ex parte reexamination proceeding, the claims must be patentable over every prior art patent and printed publication cited in the order granting the request.

I think I know what all those words mean, but the passage as a whole reads like something from a nightmare version of a reading comprehension test. I am not a patent expert, and I count on folks like the Verge’s Nilay Patel and Matt Macari, intellectual property lawyers by training, to illuminate the dark ways of patent law. And, as Macari pointed out with regard to a similar USPTO ruling on another Apple patent, the rejection of claims following a request from reexamination, also known as a “first Office action,” is the first step in a very long process.

In this case, the challenge was filed by Samsung and, as is the normal practice, its challenge was considered without any response from Apple (that’s what ex parte means.) Macari cites USPTO statistics that such request are granted over 90% of the time. Apple now gets to come in an defend its patent before the UYSPTO–Samsung isn’t actually a party to the case. In a bit under 70% of such cases, some of the claims of the original patent are invalidated in reexamination while the rest are upheld; the patent in question contains 21 claims. About 11% of the time, all claims are rejected, leaving the patent invalid.

Although the USPTO reconsideration order came to light because Samsung filed it as part of its attempt to change or overturn the recent judgment in favor of Apple, the action is not light to have any impact on that case, at least not any time soon. Under U.S. law, a patent is presumed valid until the USPTO says otherwise. At least for now, the reexamination order should not change anything.

A Deep Dive Into The Morgan Stanley Holiday Quarter Survey

On December 16, 2012, Morgan Stanley issued the results of a consumer survey.

We surveyed 1,010 US adults between November 26 and December 3 2012. The sample is representative of US individuals (18+) by gender, age, income and geographic regions. Conclusions based on total sample have a maximum margin of error of +/- 2.5% at 90% confidence level.

(NOTE: All quotations are sourced from the Morgan Stanley report.)

1) TABLETS

The first and most obvious result of the survey was that tablets, as a whole, were going to be clear winners of the 2012 holiday quarter.

One-third of respondents own tablets today, compared to only 8% a year ago.

While this can come as no a surprise to anyone following the tech industry, it is important to note that, in terms of gift giving for this holiday quarter, the growth of the tablet has come at the expense of notebooks, desktops and especially e-readers.

2) E-READERS

Among consumer electronic gifts, tablets are the most popular, followed by smartphones, while e-readers experienced the largest decline.

— Tablets (50% in 2012 vs. 31% in 2011)
— Smartphones (26% in 2012 vs. 17%)
— E-readers (9% in 2012 vs. 31%)”

Tablets are the number one gift idea in consumer electronics this year, while it was a tie between tablets and e-readers last year.

iSuppli seems to concur with this sentiment, indicating that general purpose tablets are harming e-reader sales.

It appears that they e-readers may well be relegated to niche status as general purpose tablets – which also serve as e-readers – become lighter, smaller and lower-priced.

3) AMAZON KINDLE FIRE

While the Kindle Fire is not strictly an e-reader, it too seems to be suffering this holiday season.

Kindle Fire appeal seems to be waning as 16% of potential tablet buyers would pick the device vs. 21% in last year’s survey

Lower end tablets may be suffering from the effects of increased competition. While the Amazon Kindle Fire was the a hot holiday gift in the fourth quarter of 2011, it now has to compete with the Nexus 7, Windows 8 tablets and the iPad Mini. As a result, Kindle retention numbers dropped from an already low 40% to and even lower 36%.

If these numbers bear out, this has to be terribly dissapointing for Amazon. Last year, there was a burst of enthusiasm for the Kindle Fire line during the holiday quarter but that enthusiasm seemed to all but evaporate as soon as the quarter ended. This year, Amazon introduced several new lines of tablets and vastly improved the quality of their hardware offerings. Surely they anticipated increased, rather than decreased, enthusiasm for their products.

It is too early to tell for sure, but it is possible that we’re seeing a trend away from single purpose tablets and a trend towards higher quality, general purpose tablets instead.

4) SAMSUNG

Samsung phones made an impressive leap in rate of retention from 37% to 63%. (Note, however, that this still does not match the iPhone’s stellar 83% rate of retention.)

While Apple’s retention rate is by far the highest, iPhone users who plan to buy a Samsung device increased slightly from 3% to 8%, though this share came entirely from other Android vendors who saw less interest from current Apple users compared to a year ago. This reflects Samsung’s dominating position in the Android ecosystem and success in marketing itself as an iPhone alternative.

You simply have to be amazed at what Samsung has accomplished and in such a short time. But ironically, Samsung’s growth is not only coming at the expense of competitor’s like RIM and Nokia, but it is also coming at the expense of other Android manufacturer’s as well.

One of the strengths of a licensed operating system like Android is supposed to be diversity of hardware manufacturers. That simply hasn’t happened. While Microsoft distributed its software licences to thousands of hardware manufacturers, Samsung has become the one and only hardware manufacturer that matters to Android. We’ll have to save the discussion of the consequences of this unexpected development for another day.

5) MICROSOFT

The survey contains two interesting points regarding Microsoft’s recent tablet efforts.

First, Microsoft Surface is preferred by 12% of those planning to buy a tablet.

Second, while 81% of iPad users plan to stay with Apple, 8% plan to purchase Microsoft’s surface.

Additionally, a different survey indicates that Windows 8 is a very distant third, to iOS and Android, when it comes to developer’s platform preferences.

I think these results have to be terribly dissapointing to Microsoft. Some pundits were expecting a flood of defections from the iPad once Microsoft debuted its tablet offerings. That clearly is not happening.

Further, I had anticipated an initial burst of enthusiasm for Windows 8 tablets. The real question, in my mind, was whether Microsoft would maintain that initial enthusiasm. Instead, sales of Windows 8 tablets has been tepid, at best. Having 12% of consumers intending to buy your products is far better than having 0% able to buy your products, but I believe that it is far, far less than Microsoft was hoping for or expecting.

6) APPLE

It seems as though the bad press for Apple has been endless of late, but that negative view is not supported by the Morgan Stanley survey. They point to at least four reasons why Apple can be optimistic about sales this holiday quarter.

First, more survey respondents want to buy the iPhone 5 today than the iPhone 4S a year ago.

34% of consumers plan to buy an iPhone in the next 6 months, compared to 30% in last year’s survey

If I recollect, the iPhone 4S was pretty popular last year. And one would assume that even more enthusiasm for the iPhone 5 should lead to even more sales this holiday quarter.

Second, analysts keep opining that Apple needs to sell a cheaper phone but customers keep disagreeing.

More respondents plan to buy the newest iPhone model today than a year ago (86% vs, 82%), likely due to key hardware improvements in the iPhone 5: LTE, brighter screen, and lighter and thinner phone.

Third, the iPad Mini does not appear to be cannibalizing the larger iPad but it does appear to be bringing new customers into the Apple ecosystem.

We believe iPad Mini’s cannibalization risk to iPad 9.7” is manageable. 47% of iPad mini purchasers are new to Apple, according to our survey. This is only slightly lower than 56% for the larger iPad 9.7”, suggesting the smaller iPad is attracting new users to the platform in addition to some incremental or replacement purchases from the existing 9.7” iPads.

Fourth, Apple actually INCREASED its already industry leading retention rate.

Apple’s iPhone retention rate improved 10 points over the last year, and 83% of iPhone users today plan to buy another iPhone.

I find it hard to believe that Apple’s sales are going to suffer this quarter when both purchasing enthusiasm and retention rates are going up.

7) CONCLUSION

There is definitely going to be a shake-out in the mobile sector. There are just too many entrants with too little differentiation.

In phones, not only are Samsung and Apple rapidly increasing their sales numbers but their RETENTION numbers are also rapidly rising. This bodes ill for the likes of RIM and Windows 8 contenders like Nokia and HTC.

In tablets, Apple seems to be maintaining its grip on half the market while Amazon, Google, Microsoft and Samsung battle it out for the other half. Again, in the long run, retention numbers may be what matters most but it is too soon to measure retention for newly minted products like the Google Nexus 7 and the Microsoft Surface.

We’ll know far more in January when (some of) the numbers come out. But until then, the Morgan Stanley survey may give us a peek at what we should expect.

Upside Down Analysis

These thoughts via Business Insider:

According to estimates from Canaccord Genuity, Samsung has shot further ahead of the pack as the world’s largest smartphone manufacturer, shipping 56.3 million units in the third quarter.

Apple’s consolation is that it still takes a larger share of industry profits, despite shipping approximately half as many units as Samsung.

Today’s analysis of the mobile industry makes my head hurt because it is analysis turned on its head. In business, profits are not the consolation prize. Profits are the ONLY prize.

Sheesh.

Will Apple Survive without Steve Jobs? Apple’s Laughing Straight to the Bank…

Just a few days ago, we quietly watched as the first anniversary of the death of Steve Jobs passed by. As an Apple insider and alum, I always have an ear to the ground for what’s going on in their world. The big question of whether Apple would continue its meteoric rise (the greatest turn around in history) seems to be answered.

The past few months, for Apple, have been almost as eventful as the company’s first big success back in the late 70’s – early 80’s. With a landmark legal victory over Samsung for copyright infringement, the company not only gets awarded $1.05 billion in damages (which Samsung is appealing, of course), but they will also exclusive rights over certain design and software ideas on which they own patents.

While some have slammed Apple’s case as being too broad or overzealous, the decision will surely shape the mobile software and hardware markets from this point on. For the consumer it means two things: First, Apple’s patented designs and features will most likely be cross-licensed for quite a pretty penny to competing developers and manufacturers. Second, this means that in order to competitively price their technology, companies will have to become innovative once again, rather than copy an already successful formula. So you’ll either see iPhone and iOS-esque features on high-end electronics, or innovative new designs may become the way of the future. That chapter has yet to be written.

With so much focus and attention on these two battling giants, what better time for Amazon to announce its new reader / tablet offering, the Kindle Fire. Strategically placed in the same realm as the competing iPad, Nexus, and Galaxy tablets, the Kindle Fire looks to open the floodgates of revenue for its content delivery platform. The three-way race between Apple, Amazon, and Google’s media stores appears well separated for now, but the competition is certainly heating up as the markets and technology change so rapidly. And the solid winner in ALL of this is the pro-sumer.

One would think that the competitive innovation to come from the lawsuit against Samsung, along with the introduction of the rival Kindle Fire would be cause for concern at the Apple HQ here in Cupertino, but that couldn’t be farther from the truth.

On September 12^th, Apple announced the iPhone 5 in grandiose Apple fashion, after the project had been shrouded in secrecy for almost a year. (An issue I cover at length in my recent bestseller, “The Magic and Moxie of Apple – An Insider’s View”.) Thinner, lighter, faster, and overall cooler than its predecessor, the iPhone 4s; the iPhone 5 also boasts a number of new features, such as a new charging interface and new operating system (iOS 6).

Consumers are certainly on board for the new and improved iPhone, as evidenced by the 2 million+ pre-orders within the first 24 hours of its announcement. As a result, the cost of Apple’s stock has risen to over $700 for the first time in company history.

So while rival tech giants are out there trying to copy Apple products or create competitive alternatives in hopes of dethroning them, Apple is simply laughing it’s way straight to the bank.

Kelli Richards, President and CEO
The All Access Group

Battle Of The Tablet Business Models: Lessons Learned And A Look Ahead

RECAP

We’ve been looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we wrap up the series by seeing what lessons we have learned and by asking ourselves what the various business models can tell us about the future of tablet computing.

Lessons Learned

Lesson #1: Subsidized tablet business models are a niche

The subsidized business models of the Amazon Kindle Fire and the Google Nexus 7 are very limiting. They can only be sold where their content is sold, they can only be sold to consumers who readily pay for content or consume relevant advertising and they will have little appeal to business, government or education. Even if they are fantastically successful within their confined market space, their markets will have little overlap with the tablets that focus primarily on the importance of apps.

Lesson #2: Subsidized tablet business models need to be measured differently and judged appropriately

We tend to judge all things tech by the number of units sold or by overall market share. We should, of course, be focusing on profit instead. Profit is the goal and profit is the standard by which tablet business models should be measured.

The subsidized tablets of the Amazon Kindle Fire and the Google Nexus 7 need to be judged, not by sales, not by market share, but by the profits generated by the sale of content and advertising. In a subsidized business model, nothing else matters.

Lesson #3: Conflicting business models are a sign of weakness

With the Nexus 7 and the Surface tablet, both Google and Microsoft have reversed their licensing models and embraced an integrated approach. There is nothing wrong with adjusting one’s business model to fit the times. There’s a lot wrong with having two conflicting business models.

Lesson #4: Platform Matters

Apple has the strongest tablet platform, by far, and it shows in their sales and in their profits.

Amazon seems to understand platform. However, subsidized business models seem geared more toward content than apps. The Kindle Fire is only a year old. We will have to wait and see how the Amazon platform develops.

Google doesn’t seem to get platform, even now. Their weak platform has not hurt them in phone sales (yet) but it’s crippled their tablet efforts. And with the introduction of the Google Nexus 7, Google has made it clear that they think that content, not apps, is what matters most.

Samsung almost certainly understands platform, but they have no control over the Android operating system nor do they control the way Android content and apps are sold. Their only choice is to suffer or get out.

Microsoft gets platform all too well but they are so very late to the game. The Windows Phone 7 platform went nowhere and Microsoft has to be terribly concerned that the Windows RT and Windows 8 tablets may share the same fate.

Lesson #5: Skate to where the puck is going to be

When the market is underserved, products move toward integration. When the market is over served, products move towards modularization. It seems to me that part of the problem with most of the current tablet business models is that their respective companies have misidentified where the market is over served and where it is underserved.

Apple: In my opinion, Apple is on the right path. Tablet hardware, software, and content distribution are becoming “good enough” and are in danger of being commoditized. Apps and ecosystem are still under serving the market and have a lot of room for growth. Apple is adding value and differentiating itself from its competitors by integrating hardware, software, content and apps into a single, cohesive ecosystem.

Apple’s problem is that they have traditionally not been very good at internet services. Look at MobileMe, Ping, Siri, Maps, etc. And internet services are the key to the future of mobile computing ecosystems.

Jonathan Ive is a genius who can design Apple’s hardware but he can’t design a database system that will work with iCloud. Tim Cook’s supply chain prowess turned Apple from a very good company into a great company. What Apple may need to thrive in the future is a Tim Cook for internet services.

Amazon and Google: I think that both the Amazon and Google subsidized strategies are fundamentally flawed. They are creating an integrated hardware and software product designed to add value via the sale of content. But content distribution has already been commoditized. It makes no sense to subsidize hardware sales in order to enhance content sales if the margins on content are de minimis.

Samsung: The problem with the current Samsung tablet model is two-fold. First, their hardware is only one part of the value chain. They do not control the software, content, apps or overall ecosystem. Second, the area where they add value – hardware – is rapidly moving towards “good enough” and commoditization.

Microsoft: In my opinion, Microsoft’s business model is focused on the wrong part of the value chain or stack. Windows RT and Windows 8 is all about creating a superior operating system. But the operating systems currently available from Google’s Android and Apple’s iOS are already more than good enough for most consumers. Microsoft is pouring all of its efforts into an area where consumers are already satisfied or over served. Windows 8 may or may not be a better mobile operating system than either Android or iOS but it is not so much better that it will compel the bulk of consumers to switch to it.

The Future

We obsess over tiny diferences between the hardware and operating systems of the various competitors but it is business models that dictate success or failure. Until those business models change, Apple has, and will retain, the lead in tablets. Both Amazon and Google have chosen to ghettoize their tablets. Their inability to generate substantial profits will be obscured by irrelevant sales numbers. Samsung tablets are nowhere and they have nowhere to go.

Microsoft is trickier. It first has to overcome the hurdle of creating a virtuous platform cycle. If developers can’t attract customers – if customers can’t attract developers – then nothing else matters because the platform will go nowhere. However, if Microsoft can overcome this initial, all-important hurdle, then they have a chance to be relevant. We should be able to gauge just how relevant they’ll be by this time next year.

Conclusion

The future of tablets will be determined by their respective business models. Yet most of the current business models are not even directed towards that future.

Battle Of The Tablet Business Models: Samsung Galaxy Tab

RECAP

We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on the Samsung Galaxy Tab.

4.0 Samsung Galaxy Tab

4.1 WHERE DOES THE SAMSUNG GALAXY TAB MAKE ITS MONEY?

When introducing the new Amazon tablets, Jeff Bezos said:

“We want to make money when people use our devices, not when they buy our devices.”

Samsung licenses its software for free from Google and, like Apple, they make their money when people buy their tablets. Unlike Amazon and Google, Samsung makes little or no money from the sale of content or apps. Unlike Microsoft, Samsung makes no money from the licensing of an operating system.

4.2 WHERE DOES THE SAMSUNG GALAXY TAB PROVIDE VALUE?

Samsung tablets provide value in (at least) three ways.

First, their hardware is generally very good. It may or may not be of the quality of Apple but it is certainly more than good enough.

Second, since Samsung gets their operating system software from Google for free, and since Samsung is an extremely efficient manufacturer, they can often offer their tablets for lower or comparable prices.

The above advantages are somewhat mitigated by the fact that Samsung has to pay Microsoft a licensing fee for the use of Android. Also, Apple’s supply chain prowess has allowed Apple to order supplies in such great quantities that they’ve been able to keep their prices quite low. Still, on the whole, Samsung tablets are almost always available at equal or lower prices than that of the competition.

Third, Samsung has excellent distribution. This should not be underestimated. The greatest device in the world is of no value to the consumer if it’s not sold in their country or if it’s priced out of their financial reach.

Samsung’s tablets provide value because they are well made, inexpensive (but not cheap) and available most everytwhere.

4.3 SAMSUNG GALAXY TAB BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

Despite Samsung’s many strengths, their business model for tablets is a disaster and it must frustrate the life out of them. Samsung’s hardware, prices and distribution are excellent but it just doesn’t matter.

First, Samsung gets their Android operating system software from Google for free, and while Android has proven to be an excellent smartphone operating system it is not optimal for tablets. There is a fundamental difference between an app designed for a smaller (3.5 to 5 inch) screen and an app designed for a larger (9.5 to 11 inch) tablet screen. Google’s stubborn refusal to optimize their software in order take advantage of the tablet’s larger screen size has crippled the larger screened Android tablets. For more on this, please see my article entitled: “With Apps, Size Matters.”

Second, while Apple, Amazon and Google make money from the sale of content and apps, Samsung does not.

Third, since Google supplies the Android operating system to Samsung, Samsung has no control over the store and no control over the platform. Samsung can do nothing to make the store more attractive for their customers or make the platform more attractive for developers. Samsung is wholly reliant upon, and wholly at the mercy of, Google. This is even more unfortunate for Samsung because Google has proven to be an indifferent steward of the Android store and platform.

Fourth and finally, with the introduction of the Google Nexus 7, Google – the licensor of the Android operating system software – is now a direct competitor to Samsung. And since Google has decided to subsidize the price of their product, they’ve completly undercut Samsung’s tablet business model. Unlike Google, Samsung can’t make up lost sales revenues with the subsequent sales of content and apps. With Google selling the Nexus 7 for $200, Google has made it all but impossible for Samsung to sell their $400 to $500 tablets.

Summation

Samsung is a proud and powerful company but I don’t know how much longer they can continue to compete in the tablet market. They are being attacked from above by Apple, below by Amazon and Google and soon Microsoft will be entering the fray. And Samsung has no competitive advantages. They can compete against Apple on hardware and software but not on ecosystem. They can compete against Amazon and Google on hardware and software but not on price. And the things that Samsung needs to change in order to be competitive – content, apps, ecosystem – are entirely out of their control.

Samsung is simply in a no-win situation.

NEXT

We’ve now looked at the Apple, Amazon, Google and Samsung tablet business models. Next week, we look at Microsoft’s Surface tablet and wrap up the series.

The Purpose of Design Patents

Much of the initial reaction to the Apple v. Samsung trial was based more on emotion than critical thought in my opinion. The discussion over whether it is good or bad for consumers was interesting but again I felt mostly emotional. In all reality how is a challenge to uniquely innovate bad for anyone? As interesting as that element of the discussion was I thought the debate around design patents was a bit more interesting.

As a part of our market analysis I keep a keen eye on what specific companies do to differentiate themselves in what I like to call the sea of sameness. To get a more holistic understanding on how differentiation may happen in the sea of sameness, I like to study how its done in other industries. Particularly ones that have been around for longer than the computer industry and also ones that are highly saturated and mature. We can make some interesting observation from industries like automotive and consumer packaged goods. It is observations from those industries that help us understand the importance of design patents and more importantly design consistency.

You Can’t Patent Rounded Corners

One of the least thought through elements of the whole trial was the part about rounded corners on specific products. In a post trial statement representatives from Samsung stated:

“It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners,”

It seems as though there is a fundamental lack of understanding of the purpose of design patents. To explore this thought I think it would be helpful to look at a company with an interesting iconic design in Coca-Cola.

It is not just Coke’s logo which stands out but also the design of both their glass and plastic bottles. Coke owned a patent on the design of their glass bottle design in 1915 and the designs of their bottles have evolved but remained consistent in overall look and feel. It is this specific and unique design of the Coca-Cola bottle that helps it stand out in the sea of sameness.

If you went into a grocery store and looked at a wall of beverage containers, all without the labels, you can easily pick out the one which is a Coke bottle and that is the point. It is iconic, consistent, and easily identifiable.

Round Corners As a Design Philosophy

Now perhaps those engaging in the you can’t patent round corners debate have either no appreciation for consistent design philosophy or never taken a step back and looked at all of Apple’s products. Because when one does take a look at all of Apple’s products you will see that every piece of hardware follows the four perfectly asymmetrical rounded corners design.

This design philosophy has been in place for quite some time. One could argue that the rounded corners on a screen started with the first colored iMac’s. From that point on the four asymmetrical rounded corners began to become a consistent theme of all Apple hardware.

apple_evolution_1976_till_2009 — Image Credit TechChunks

The goal again of these “rounded corners” is to maintain a unique, consistent, iconic, and easily identifiable Apple product. To carry on my point about the Coke Bottle, if you were to look at a table full of notebooks, all without logos, Picking out the one that is Apple’s would be easy. This is not something I can confidently say with regards to any other PC OEM with the exception of Lenovo.

Most other vendors who make hardware change their design theme from year to year based on what the trends are. Because of that often they change so drastically from year to year that is it clear no overall design theme is being employed. In fact I would contend that for the average consumer no designed personal computer hardware is more easily identified than Apple’s.

This is true in the smart phone and tablet space as well. That I feel is what Apple was trying to protect with their claims that Samsung’s 10.1 tablet had corners that were rounded identically to the corners on all other Apple products. Apple is deploying a design philosophy that is consistent and intentional. Samsung, with regards to tablets, is not, and that was the point.

Understanding the design philosophy from Apple becomes interesting as we think about future products. The only reason you would defend a design philosophy or design patent for that matter, is if you intend to stick to it for the foreseeable future.

This is clearly one way Apple intends to help its products stand out in the sea of sameness–at least from a design perspective. Sticking to this design philosophy and maintaining the consistency of size, shape, and colors, will continue to make Apple’s products not only be objects of desire but also easily recognized year after year by consumers. Which is all part of the strategy.

A Smartphone Patent Pool: A Way Out of the Litigation Thicket

Photo of Gene Quinn from IP Watchdog — Gene Quinn

One major misconception arising from Apple’s legal victory over Samsung is that Apple now has some sort of monopoly over critical components of smartphone touch screen interfaces. Patent lawyer Gene Quinn of IP Watchdog explains the problem with this view in considerable detail, but a quick and dirty way to look at it is that patents almost never are issued for broad, sweeping ideas. Instead, as is the case with the Apple claims in dispute, most patents cover small, incremental improvements in existing ideas. The design of smartphones is covered by hundreds if not thousands of such patents, distributed over a large number of patent holders.

The parties could spend an inconceivable amount of time and money trying to litigate their way out of what Quinn calls a “patent thicket.” Or they could turn to a solution that has resolved such messes in the past, a patent pool. The idea of a patent pool is simple: Each player with a relevant patent contributes it into the pool. Anyone who wished to use any of the patents buys a license. And the royalties are divided among the contributors by formula. Anyone who needs the patented technology can use it and everyone who owns patents gets paid.

Pools have been used with considerable benefit in the tech industry. For example, the development of digital entertainment media was greatly facilitated by patent pools covering CDs, DVDs, and MPEG, among other technologies. People grumbled about paying for the licenses, but development proceeded with little litigation.

Of course, a patent pool for smart phones is more easily talked about than created, especially when many of the players are at each others’ throats. Coming up with an equitable licensing arrangement is a challenge and agreeing on a formula for distribution of the proceeds is a bigger one. The fact that Apple and Microsoft are likely to be the biggest winners, at least regarding touch interface patents, will not sit well with many.

But pieces of such an arrangement are already in place. Microsoft and Apple have an intellectual property nonaggression pact dating back to 1997, when they agreed to end their numerous IP disputes with a broad cross-licensing agreement. And most Android phone and tablet makers have already agreed to license Microsoft’s patents.

But hard though it may be, establishing a pool serves everyone’s long term interests better than the present litigation free-for-all. Says Quinn: “Eventually a patent pool is almost certainly how this will resolve. If you look at the history of so-called patent thickets, the players fight and fight for a while and then, as more and more innovation occurs, they enter into a patent sharing arrangement of one kind or another. Patent thickets lead to a tremendous growth in innovation. We will see that in the years to come. Likely not too far off if you ask me.”

Pinch-to-Zoom and Rounded Rectangles: What the Jury Didn’t Say [Updated]

As the Apple v. Samsung trial neared completion last week, I worried about how a jury of nine ordinary folks were going to make sense of hours of highly technical testimony, more than a hundred pages of jury instructions, and a 20 page verdict form. I needn’t have worried. Whatever happens on appeal, I think the jury did an admirable job making sense of the case they were given. They certainly did better than much of the tech media, which have made a complete mess of the verdict.

Pinch and stretch drawing — Drawing: Microsoft Developer Network

For example, this by Craig Timberg and Haley Tsukayama in the August 29 Washington Post: “Friday’s $1 billion court ruling for Apple, which upheld patents for what manufacturers call ‘pinch to zoom,’ among other popular features, has clouded the future of the gesture for anyone inclined to buy mobile devices from other companies. Apple made clear its determination to press its advantage Monday, announcing plans to seek preliminary injunctions on eight phones made by Samsung, the loser in the case.”

There’s one serious problem with the first sentence, which was repeated dozens of times in stories in print and on the Web. Apple only has a limited patent (US 7,812,826) on the pinch to shrink, stretch to zoom gesture that is a core element of touch interfaces. And the ‘826 patent wasn’t in dispute in the Samsung case because Apple never asserted it. In fact, this particular patent does not seem to be in dispute in any litigation.

I wanted to make sure I wasn’t imagining this, so I checked with The Verge’s Nilay Patel, an intellectual property lawyer by training and a consistent source of solid reporting on patents and other IP issues:

The actual issues in the Samsung case involved several patents covering the overall design and “trade dress” of the iPhone and iPad and three Apple “utility” patents that cover specific software behaviors. One covers the bounceback behavior of screen objects when you try to scroll beyond the edge of the display. A second concerns how the device differentiates between a one-finger scroll gesture and a two-finger move gesture. The third covers tap-to-zoom, which expands objects in the display centered on the point of the tap (think Maps).

Equally strange was the treatment of the notorious “rounded rectangles” argument. Michael Hiltzik wrote for The Los Angeles Times: “The illogic of the patent system is what generates nonsensical verdicts like last week’s jury award. Apple’s allegation that Samsung copied the iPhone with its phones is virtually identical to its allegation that Samsung copied the iPad with its Galaxy tablet computer. In its briefs, Apple describes both of its devices as ‘a rectangular product with four evenly rounded corners, a flat clear face covering the front of the product, a large display screen under the clear surface … and a matrix of colorful square icons with evenly rounded corners,’ etc., and alleges that Samsung copied these ‘distinctive’ features.”

Samsung contributed greatly to this with a post-trial statement that said: ““It is unfortunate that patent law can be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies.” It’s more unfortunate that the claim was a gross exaggeration that was swallowed whole by many writers.

Apple claimed that Samsung infringed on four design patents. The D’677 patent covers the overall design of the iPhone while D’305 covers the layout of icons. These claims were upheld. But the jury rejected infringement claims based on patent D’889, which covers the iPad, and rejected eight of 13 claims under D’087 and which deals specifically with the rectangles-with-rounded-corners design of the iPhone (see the relevant sections of the jury verdict form below.) Corrected–see note at end.

How did so many get this so wrong? I fear it betrays something ugly about the way tech reporting works–and doesn’t work–these days. Depth, expertise, and reflection are all lacking. So is serious research. If you are going to write about a patent case, it’s a good idea to read the patents in dispute. Reading patents is not a particularly pleasant business. The language is tedious, legalistic, and often deliberately obfuscatory; you want to give the Patent Office the required information while giving away as little as possible to your competitors. But reading the claims, the critical section of the patent, isn’t all that difficult. There are a total of 101 claims for the three patents and they fill about five printed pages. Yet I suspect very few of the people who wrote about the trial actually made the effort. If they had, they would have known that the range of gestures covered was much narrower than has generally been reported.

I’m not sure where the idea that pinch and stretch was at stake originated. It seems to have crept into the trial coverage at some point and become part of the folklore of the case. And when the jury announced that it had found infringement by Samsung on all three utility patents, a large number of writers seemingly assumed that one of those covered the gesture. In the case of rounded rectangles, Samsung’s obfuscation certainly contributed. So did a general hostility toward the entire patent system in the tech community, including tech writers, which created a readiness to believe in the most absurd interpretation of the outcome.

I’m not minimizing the significance of Apple’s victory in the case (and again, we’ll have to wait for appeals, likely several years’ worth considering the languid pace of the Circuit Court of Appeals for the Federal Circuit, before the matter is settled once and for all.) But while the multitouch gestures covered by the Apple patents are important, there is nothing as critical as pinch-to-zoom and nothing that would prevent an innovative designer from coming up with non-infringing alternatives.

Note: The original version of this post said the jury had rejected all claims regarding the rounded-corner design. The jury in fact rejected all claims only regarding willful infringement. On the simple question of infringement, the jury rejected a majority of claims, but did accept five regarding the iPhone. The corrected version appears above.

What if Samsung Was a Band?

I’ve been reading a lot of articles the last few days all on the degree in which Apple’s success in a US court over Samsung is good or bad for the industry. In the midst of all of what I am reading I feel a significant point is being missed. There is already an industry that forces and rewards originality. The music industry.

If we were to put our thinking caps on and objectively look at the situation I would think that IP law, specifically around this case, is similar to copyright law.

If we started a band today and recorded a song using some degree of lyrics, beats, rhythm, etc., from the current number one hit on the radio we would be sued out of existence. We could of course cover the song or use parts of the copyrighted content but we would have to pay the original author.

The music industry forces original work and in fact rewards originality. This is not to say that artists can not be influenced by another band, artist, song writer, etc., but they must create their own original work.

This forcing of originality in the creative arts is what makes it exciting. Not everyone succeeds but if it was all the same it would be extremely boring. It is the emphasis on originality that makes the music industry diverse and exciting.

I’m sure there are flaws in this analogy, as there are in nearly every analogy, but the point remains that Copyright law exists to promote originality. We should look at IP and Patent law the same way.

Patents: Who Has a Portfolio With Clout

One thing that put Samsung at a serious disadvantage in its patent fight with Apple was the weakness of its own portfolio of relevant patents. Conflicts between companies with roughly comparable portfolios almost always end in a cross-licensing agreement. A fight to the death only makes sense when one company thinks it has a clear advantage.

A look at Apple’s scroll-and-zoom patent (US 7,844,915), one of the software patents Samsung was found to have infringed, sheds some light on who had clout and who didn’t around the time the patent was filed in early 2007 (it was granted in 2010.) A total of 50 other patents are cited in the application.

Seventeen of these are apparently the work of individual inventors or researchers; they are not assigned to any corporation. Five others are Apple’s own, one going back to 1993. Microsoft accounted for the largest number, 10, including some patents clearly related to the Microsoft Research project that produced the Surface touch table. IBM came in with three and Philips two. The application cited single patents from Autodesk, Cygnus Systems, Design Intelligence, Elan Microelectronics, Ericsson, Hewlett-Packard, Laszlo Systems, Magnifi Group, Nokia, Picsel, Sony, Synaptics, and Tatung.

Who is missing from this list? Samsung, of course. And, Google, including its new Motorola subsidiary. Being there matters.

Apple vs. Samsung: What Doesn’t Compute

I’m not a lawyer, but I am an analyst who unfortunately has participated in some of the largest corporate legal battles, has two immediate family members who are IP lawyers, and has had to decide on industrial design for consumer electronics. None of this qualifies me to give legal advice, but I am able to spot some very interesting things in technology lawsuits. The Apple-Samsung lawsuit was no different, as it was full of opportunity and oddities, and I wanted to share just a few observations.

The first thing I want to be clear on is that it is apparent to me that based upon the evidence and common sense, I believe Samsung infringed on at least few of Apple’s patents. Just looking at the Samsung phones before and after and hearing about the need to be like Apple was enough for anyone would to arrive at that conclusion that some phones were made to look like Apple’s. What I am not saying here is that I agree with everything that the jury came back with either; I don’t. I am not a lawyer and I did not see every shred of evidence that the jurors saw.

With that off my chest, let’s dive into some of these things that I found unique or odd about the trial.

I’ve Seen That “Aligned Grid” Before

Two of the patents under scrutiny dealt with the way iOS icons are set in a grid with a lower bar situated at the bottom for apps. Specifically, these were patents USD604,305 and US 3,470,983. It was funny, the first thing I thought of was my Windows desktop where I have icons aligned in a gird with my most used icons pinned to my taskbar. I remember old versions of Windows where it would “Align to Grid”, too. So really, what is so unique or special about this patent? Is it the fact that I am using it on a PC and the patent is on a phone? I find this one odd.

I’ve Seen That “Pinch and Zoom” Before

I remember getting an early preview of Microsoft’s original Surface table, now called PixelSense. It could recognize over 50 simultaneous touch points as it was designed for more than one person and entire hands. One of Surface’s special features was to pinch and zoom in on photographs…. almost exactly like the iPhone. Apple’s two finger pinch and zoom is covered under US 7,844,915. I am certain that Microsoft and Apple are dealing with this in one way or another behind closed doors, and I speculate that based upon Microsoft Research budget and amount of years they had been working on Surface, they have the upper hand. Remember, Apple was not the juggernaut it is today with more cash and market cap than anyone, therefore putting Microsoft in a better position to patent pinch and zoom.

I’ve Seen Those Curves Before

One of the other key patents Apple was fighting in court was related to the rounded corners. Apple had two design patents related to the corners. The two patents, USD504,889 and USD593,087 were both patents related to many physical elements combined, including rounded corners. Those curves are specifically 90 degree curves related to the same curvature in Apple’s legacy icons which date back over 20 years. I ask, does it make sense that someone can patent a curve? It does to the USPO, but in other designs like cars, you see related curves all the time, yes? I mean, really, do curves seem like something that is patentable? On the top is the Compaq T1100 sold in 2003 and on the bottom is Apple’s patent filed in 2004.

compaq tc1100 tablet — Compaq TC1100 (2003)

Would You Confuse an Apple and Samsung Phone?

One very prominent scene inside the courtroom was when Apple icon designer Susan Kare testified even she confused the Galaxy for the iPhone. I’ll give Mrs. Kare the benefit of the doubt, as maybe she was just looking at the icons, but I doubt anyone else on earth would confuse the two phones. Every Galaxy S has a “SAMSUNG” and “AT&T” logo on the front of the phone and you certainly wouldn’t make the mistake of buying the wrong phone as the carton is clearly labeled Samsung. So if consumers wouldn’t confuse the two and wouldn’t mistakenly buy the wrong phone, how damaging is the similarity, really? Have you ever heard even a rumor of someone mistakenly buying a Samsung phone and thought it was an iPhone? If you have, please let me know in the comments below.

So What?

So I have brought up some possible inconsistencies or “horse sense” that may go against what the jury said and potentially even against patent law, so what? I think if we cannot look at ourselves in the mirror, be honest with each other on what violates a patent or if there even is a patent to violate, the U.S. patent system itself will lose credibility and is doomed. If reasonable intelligent people can’t even make sense of it, then what does that say about the problems we will face in a few years as companies become even more litigious as they file patent after patent just so they don’t get burned down the road? I hope more good than harm comes out of this patent spat. The big picture is really about continued innovation. We should all pay heed to what Ben said so well yesterday, “The key to the future will be to seek out new opportunities with fresh thinking and innovative ideas. To those that think innovation is dead I pose this question: Have all the problems of the present and the future been solved? Until the answer is yes, there will always be room for innovation.” Let’s not let the patent system stifle that innovation and let’s use some common sense as we approach it.

Of Apple, Samsung, and Obviousness (Updated)

Calimni's patentent drawing — Calimani’s patent drawings (Galla Coffee)

In 1929, an Italian named Attillo Calimani received a patent for a French press coffee maker. The French press is an extremely simple design: a glass beaker, a metal mesh filter attached to a push rod, and a gasket to form a seal between the filter and the glass. Calimani’s coffeepot looks remarkably like the Bodum press I use every morning. Its design follows its function so elegantly that it doesn’t seem like something that needed inventing. Yet it wasn’t until coffee had been around for hundreds of years that the imagination and manufacturing technology combined to make the French press a practical device.

This, in fact, is a characteristic of the very best in design and invention. Once you see it, it seems inevitable, as though it should always have existed. But that simplicity often takes a a tremendous amount of effort to achieve.

And that is what is wrong with the arguments of Samsung and its supporters that Apple’s iPhone patents were invalid because the key design features were obvious. U.S. patent law imposes a threefold test for patentability: An invention must be novel, useful, and non-obvious. The much-maligned U.S. Patent & Trademark Office found that Apple met that test for various features of the iPhone and the jury, the the extent it could consider the validity of the patents, agreed.

Now it’s true that there is nothing completely new under the sun. According to the history of the French press on the Galla Coffee web site, two French inventors came up with the French press idea nearly a century before Calimani. But their design lacked the gasket around the filter, leaving a lot of coffee grounds behind when the plunger was pushed, In other words, they had the right idea but it it didn’t quite work. Success requires that you both have an idea and find a way to make it practical.

It’s useful to reflect on just what Apple invented with the iPhone that did not exist in 2007. Apple did not invent the multitouch capacitive display, but was the first to use it in a phone. (Microsoft, by contrast released a version of its Windows Mobile software in late 2009 with no support for multitouch displays.) Apple designers realized that a multitouch screen made both an on-screen keyboard and the elimination of virtually all physical buttons practical. (Large-screen Symbian phones existed before the iPhone, but they lacked multitouch and designers felt compelled to add physical keyboards or at least dialpads.) Despite the handicap of slow network connections–the original iPhone did not offer 3G wireless–Apple realized there was real value in web browsing on a phone and even originally thought that the web was a viable alternative to native apps.

It’s interesting that the most successful competitor to the iPhone is the one that has stuck most closely to the Apple formula, Android. Research in Motion, which thrived for a long time partly because of another obvious, non-obvious invention–a practical miniature keyboard–lost its way by ignoring the Apple assault until too late. Palm offered a real alternative with webOS, but lacked the financial resources to give it a fair chance (I’m not going to go into the Hewlett-Packard fiasco again.) And Microsoft has had a very tough time gaining traction for its distinctive approach, but it’s way to early too count them out.

There are legitimate fears that the decision in Apple v. Samsung will stifle innovation, but I am optimistic that the result will be the opposite: Forced to compete rather than copy, Apple’s competitors will find their way to true competition.

And as for the claim that Apple really didn’t come up with anything strikingly original in the iPhone design, that anyone could have done it, I’ll paraphrase what Aaron Sorkin’s “Mark Zuckerberg” famously said in The Social Network: If you guys were the inventors of the iPhone, you would have invented the iPhone.

UPDATED: At TechCrunch, Leonid Kravets, an actual patent lawyer, weighs in on the issue of obviousness and the Apple-Samsung verdict. The conclusions are similar, but I bet he had less fun writing it.

The Apple Verdict and the Challenge of Innovation

I spent some time on the weekend digesting the results and implications of the verdict between the Apple and Samsung patent trial. I watched my Twitter stream flow continuously with many remarking on the negatives of the verdict and many remarking on the positives. I am yet to see a convincing analysis one way or another as to whether the win for Apple is good or bad, which leaves me thinking that only time will reveal the answer.

So rather than dive too deep on whether the verdict is good or bad for the industry, I would rather make a different observation.

It is Easier to Follow Than Lead

The one thing that I think is interesting about Apple as a company is that under the vision of Steve Jobs in particular, their culture and their products have ALWAYS had a unique identity. Even if a particular concept or idea was “borrowed” it was done so in a way uniquely and freshly with a specific vision in mind.

Historically, in fact, Apple sacrificed success to stick with a unique approach to personal computing. Steve Jobs and Apple as a company had a vision for the best way to make computing products and that determination to not compromise that vision cost them success in key markets in the past. One example of many would be the decision to not license out the operating system at a key junction in the adoption cycle. The fear of losing the quality of hardware in which their software ran is a key reason why I believe this decision was made. None the less it was not popular and probably cost Apple market share in the early days of computing.

Although, that is not the case today where Apple is the market leader in several key categories; the above observation uncovers a key truth and it relates to the challenge of innovation.

Creating something new or unique is not terribly difficult. I’ve got great ideas for all kinds of unique products that no one wants but me. Creating something new, unique, different, and innovative that garners mass market success is EXTREMELY difficult and more interestingly EXTREMELY rare. The fundamental challenge and to a degree fear around innovation is that you create something the market does not want. This at its core is the reason why it is easier to follow the leader than blaze a new trail.

As a wise sage once said:

“Trying is the first step toward failure” – Homer Simpson

A little longer than five years after the iPhone and we already entirely take for granted things that were not common place in the market before the first iPhone. All touch screens and virtual keyboards, screens that know when we are looking at them or by our ear, a full home screen of glossy icons, app stores, etc. We can argue the degree of these in terms of innovation but the bottom line is Apple made many features the industry standard.

Of course many of the things which became the standard in terms of look and design were not patentable and were simply the result of a new standard emerging. But this case was more about setting a presidence more than it was about money. The message has been sent loud and clear that following the leader too closely is not a good idea. Some degree of trailblazing will be necessary in the future. Although, this is difficult and risky, I strongly believe that in the long run those who do invest and take risk and blaze their own trails will be rewarded.

There are some very cool FEATURES Samsung, HTC, Nokia and others have added to their smart devices that are distinct. That is without question; but the bottom line is a template for success has been established by Apple.

In this regard I must give Microsoft a tremendous amount of credit. Microsoft, rightly or wrongly, blazed a new trail and we are on the cusp of seeing whether or not the market accepts what they developed or not. Microsoft is blazing a new trail with their new UI and emphasis on touch for all hardware. We will see if this trail leads to success or failure. Regardless, Microsoft deserves credit for taking the risk, and giving their best effort to do something fresh.

Blazing new trails on the frontier of personal computing may take its toll on many companies. I stand by a conviction I have shared many times publicly. I fully expect the landscape for personal computing to look very different in the future. The personal computing companies of today, particularly those in hardware, may not be the personal computing companies of the future.

When I think about the things that led to Apple’s success in many key categories, as well as what may be the underlying theme for success for many in the future, I think about a quote that I am rather fond of–which is:

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

The key to the future will be to seek out new opportunities with fresh thinking and innovative ideas. To those that think innovation is dead I pose this question:

Have all the problems of the present and the future been solved? Until the answer is yes, there will always be room for innovation.