Did Apple Fail Us? Maybe. Did Apple Just Stab Microsoft In The Heart? Definitely.

Ambition is the last refuge of failure.
– Oscar Wilde

Apple held its much-anticipated iPhone launch event last week. The company offered up iOS 7, iPhone 5c, 5s, iTunes Radio, a “motion” chip, a 64-bit processor and several more goodies. The “one more thing,” however, turned out to be the reaction of the world. Neither awe, nor disappointment, really. Rather, a collective shrug of the shoulders.

It was plainly clear that the company missed the mark.

Except, this is not really true — at least, it’s not the full truth. The full truth is thus: we misread Apple at least as much as they misread us.

The Undiscovered Country

Anyone who labels the iPhone 5c as a “mid-tier” device does not understand the meaning of the term. The baseline version costs an incredulous $549 — not counting criminally high-margin bumpers. And this is the “low cost” iPhone we were all expecting?

Apple followers, Apple bloggers, and industry analysts were nearly universal in expecting a budget-priced iPhone. We were all wrong. Why?

Few companies plant and manage leaks as craftily as Apple. It was not “leaks” that caused us to expect a low-cost device. Indeed, that a few of the most well-connected Apple insiders started backtracking from this sentiment a week or so before launch was the leak.

The reason everyone was expecting a low-cost iPhone was because the entire world understands that now is the time for such a device. Great smartphones can be had for $200 – $400 all over the world. Apple’s competitors — Android, essentially —  offer a slew of great devices with good hardware, great apps, great camera and great screen for under $400.

There is no excuse for Apple to not offer us a similarly priced similarly great device. It’s not about margins or greed. The company literally has more money than it knows what to do with.

The reason the bloggers, followers and analysts were all wrong, however, stems from a rather profound misunderstanding of Apple.

Apple cannot go down-market.

Asking Apple to go down market is like asking Microsoft to no longer charge for software. It runs counter to their history, their strategy, their culture and skill set, their strengths, their leadership and how they recruit, reward and incentivize their staff.

To go down market would likely require Apple to alter device specs — which would badly upset much-needed developers. To go down market would require Apple to outsource more of its production. It would require more deals with more carriers and retail outlets, offering them more leeway on pricing. It might require using other’s processors, other’s batteries, ramping up global manufacturing and sales capacity. Apple has close to zero experience with these. You can’t simply magically alter who you are. It’s hard enough just to try and buy your way into transformation.

Think Mercedes’ disastrous acquisition of Chrysler.

The faithful may argue that Apple refuses to chase market share. Or that Apple refuses to make lesser-quality products. Fine. But the fact is now plainer than ever before. There are companies in this world that can — right now — make awesome smartphones for under $400. Apple is not one of them.

Apple failed to deliver the low-cost iPhone we all were certain was coming. Yes, they failed us. But, it was our failure to expect from them something they simply cannot do.

The Next Generation

What Apple can do, of course, is make amazing mobile computing devices — the very best in the world. The iPhone 5s may be the best smartphone anyone can buy at any price. Not that you should.

A week after launch and I simply cannot get over the fact that the iPhone 5s is, uncharacteristically for Apple, less than the sum of its parts.

Apple had the perfect opportunity to offer the world an iPhone that featured radical improvements in camera specs, radical improvements in Siri, radical improvements in iCloud, and at least significant improvements in battery life. Instead, Apple tossed in a 64-bit (A7) chip, a “motion co-processor,” and a fingerprint scanner. How does any of this help you, the paying customer, here and now?

While the A7 chip will almost certainly improve device responsiveness and should enhance operation of the camera, the full value of the iPhone 5s may not be realized for possibly a year or more, as developers and industry partners catch up. Why pay for the privilege of being a beta user?

By the time you have wearable devices that make the M7 relevant to you, and by the time most games and apps take full advantage of the A7, will you even own your iPhone 5s? Possibly not. For most users, a 1-2 year lifespan is all their smartphone ever achieves. Then it’s on to the newest device. This was a missed opportunity.

The Wrath of Jobs

Apple may not have given us what we wanted, not really, not now, but they have nonetheless created a device that puts Microsoft on notice. This cannot be overstated. Indeed, I contend the biggest story to come out of last week’s Apple launch, and which almost no one is discussing, is the breadth of the assault Apple is readying for the enterprise, Microsoft’s final stronghold.

  • Free iWork — with secure cloud included.
  • The very best smartphone (and tablet).
  • A secure ecosystem that welcomes enterprise-class apps.
  • Working fingerprint identification.
  • An M7 motion chip can both support and foster the healthcare, logistics and wearable computer industries.
  • “Desktop class architecture” inside mobile devices. Yes, Apple gleefully reiterated the world “desktop.”
  • True end-to-end ownership of the hardware and software, delivering the best reliability, customer support and security.
  • The premier software developer community and the very best, most accessible, most secure software distribution platform. Yes, these all belong to Apple.

The PC is a relic of the 20th century. The smartphone is the computer. No one, still, is even close to Apple in this regard.

The Final Frontier

Techpinions analyst, John Kirk, noted that “Apple is quietly putting together the foundation for the next five to ten years. People seldom pay attention when foundations are being laid.”

I agree. Despite periodic missteps, Apple is relentlessly marching forward. Sadly, most of the world will never know.

I’ve long contended that Apple’s end game is thus: Siri (voice) + TouchID (fingerprint) + iCloud makes every Apple screen everywhere instantly available to you and fully personalized for you. That is as awesome as it is audacious. I’ve long hoped, however, that Apple could make this a reality for every screen, every user. This is a pipe dream, I’m afraid, and that’s never been more obvious.

Apple is designed to create amazing computing devices — just not for the vast majority of the world. That’s not really a failure, but it is unfortunate.

Pondering Apple’s Big Day

As with all Apple events I have attended, which is every one going back to the launch of the iPod, there are many intriguing questions leading up to the event. Many have been speculating and analyzing every angle possible about what may or may not be announced tomorrow. I’d prefer to leave the speculating to others and focus my efforts on analyzing the impact at large of what does get announced once we have the whole story. That being said there is something in particular that I find interesting about tomorrow’s announcements. [pullquote]The interest doesn’t seem to be about something ground breaking but something ground gaining[/pullquote]

Apple’s Next Big Thing

What strikes me as fascinating is that everyone is making noise not about speculation of some new “innovation” but rather a less expensive and more affordable iPhone. The interest doesn’t seem to be about something ground breaking but something ground gaining. Apple’s next big thing is actually about Apple’s next big market.

I’ve been explaining to many in both our industry presentations and also in my writing that we can not get lost with where we are in the adoption cycle for products like smart phones and tablets. Moves companies make should be focused on driving adoption and addressing market needs. More often than not, the strategy behind this isn’t ground breaking innovation but practical evolution in order to address market needs. There is in fact, the danger of over innovating and thus over-serving the market with where we are at currently in the cycle.

That is not to say we won’t see some innovative things designed to move the market forward. I have speculated that I believe Apple to move the market forward and take a leadership position with regards to security. But whatever is released that is innovative, I doubt will over-serve the market needs. Apple has a tendency to be very calculated in the timing of the market development and readiness to adopt the innovations they bring to market.

Perhaps there will be a few surprises, but perhaps there will not. Whatever is announced should be analyzed within the scope of this question: does this move Apple’s smartphone business forward to address the needs of the global smartphone consumer market. The big deal about tomorrow will be about the ways Apple is addressing the big market.

So What About Big Phones?

I thought Samsung’s proclamation that they have sold 38 million Notes (I and II) in total worldwide was interesting timing. No leaks or real hard speculation has led anyone to think Apple will release a larger screen iPhone at tomorrow’s event. So it seems as though Samsung wants to get some press that hopefully sticks in people’s heads that Samsung has a large screen phone and is selling millions of them and Apple does not. Especially, in light of the fact that the overwhelming majority of those 38 million Note sales have been outside of the US. Large phones, some call them phablets, do well outside of the US but over the next 2-3 years it is doubtful that they ever get about 10% of the overall market in annual sales. What does have the largest part of the market are lower cost phones. Let’s keep that in mind.

So many interesting questions that I will enjoy analyzing post event. The Daily Tech.pinion will be delayed in so that we can focus on analyzing all the news from the day. There will also be a ton of extra content and analysis on Apple this week for Tech.pinions Insiders our subscription service for those who desire more weekly content and analysis from our team. I encourage you to check it out if you haven’t already. And of course follow the team on Twitter for live remarks of the event.

Ben Bajarin @benbajarin
Tim Bajarin @Bajarin
Steve Wildstrom @swildstrom

I Love The App Store. I Hate The App Store. I Love The App Store. I Hate The App Store.

Apple’s App Store is a bloated, visually appealing, industry-shifting revolution. Forget tales of Google Glass, the Internet of Things or talk of HTML5. The App Store — the home of the humble app — has only just begun to completely re-make computing, user interface and hardware design.

The App Store has permanently altered the fortunes of iPhone, which has permanently altered the fortunes of Apple, which has  upended the personal computing industry yet again. The App Store binds Apple products with one another and with every user.

I both love and hate it.

The App Revolution

I love the App Store, first and foremost, because I am so in awe of it. For those of us who lived through the dark times, when Microsoft ruled over all, it wasn’t even imaginable that it could ever be easier to have more and better and cheaper software available for Apple products than Microsoft products, no matter how far into the future we dared look.

Thanks to the unerring vision of Steve Jobs, we now barely give this once-unfathomable reality a second thought.

We have nearly a million apps to choose from: well-designed, tightly-focused, highly intuitive software programs constructed for all manner of activities, and offered at amazingly affordable prices. From my iPhone or iPad, with a few swipes of my finger, I find, review, buy, download. Takes maybe ten seconds.

Again, this is all once-unfathomable.

Apps that make my work more productive, my free moments more fun, my decisions better informed. Apps that connect me with my friends, my colleagues, and my self. I know with absolute confidence that every single app I purchase will work just fine on my iDevice. It just works.

But, damn, I can also hate the App Store.

Attention App Store Shoppers

More than half a decade in and Apple insists upon offering search options that wouldn’t pass muster on the world wide web in the 1990s. Given Apple’s loathing of Google, I fear a remotely workable solution may be years off. The “genius” service is a joke. Unless, of course, Apple actually believes that because I have purchased the Weather Channel app that I want half a dozen other weather apps on my phone.

There is no trial period, no money back option. Reviews are a jumbled mess, and I never know if an angry review is over the very latest release of an app, or from year’s past. If there are methods to filter an app quest – from the phone – I have yet to discover any. Nor are there any usable methods of ‘bookmarking’ an app for later reference, as Apple apparently believes that every app purchase is an impulse buy; now or never.

Plus, my God, forget the flat vs skeuomorphism debate. Who do we need to get fired so Apple will stop with the whole 99 cents nonsense?

And speaking of firing people, how is it even possible that there is still almost no social integration with the App Store? Whose app reviews should I most trust? Which of my friends have recently purchased what apps? I’m at a baseball game, which apps are most popular with this crowd? Which of the “hot” apps are just right for me? I will never know. Fact is, they are “hot” at this particular moment in time because Apple’s user base is downloading them right now, for inexplicable reasons. By this logic, my favorite cereal is the unbranded Cheerios sold at WalMart.

I am hopeful, however. As I wrote a few months ago, the upcoming iPhone (5+) AirDrop feature could enable one-to-one and one-to-group sharing of apps and other content. This would be a great way to trial an app, and a clever workaround to Apple’s failed search and recommendation functions.

Billions And Billions Served

The smartphone is how we connect to the world. The app is how we connect to the smartphone. Apple’s App Store leads the way, and has from the beginning. Yet for all the App Store has done, for all it has wrought, Apple can do better. Much, much better.

Apps are software and services, deconstructed. The App Store, however, is the reverse. This strikes me as a disaster waiting to happen.

For more than a generation, Windows dominated the personal computing landscape. It was an intensely popular, global standard — and a  hideous, ungainly mess. Until it became largely irrelevant. Windows worked for everyone yet was optimized for no one. Apple is now in a similar position with its App Store (and iTunes). The company has hundreds of millions of users, soon a billion, spread across iPhone 4, 4S, 5 and next, iPhone 5S, 5C and beyond. Plus, multiple iterations of iPad. Is it even possible to please — to delight — so large a user base? I’m not so sure.

Yes, Apple controls both hardware and software, unlike Microsoft. But, doing right by a billion people may simply be a hopeless endeavor, even for Apple. See also: Facebook.

The App Store helped Apple achieve what I once thought impossible. All I’m asking for now is that Apple do so again.

With Help From Silicon Valley, America To Dominate The 21st Century

America will dominate the 21st century – economically and culturally – thanks to our dominance in technology.

Mobile technologies, supplemented by social connectivity, integrated with real-time data, enhanced by location-aware services and all supported by infinitely scalable yet highly personalized digital platforms will determine our future. These meta-offerings, delivering growth-spurring anytime, anywhere connectivity to all people and things, are each led by uniquely American businesses.

Apple makes the very best mobile computing devices in the world. Facebook and Twitter connect us all. Google delivers timely, personalized, location-specific data to anyone, for free. The best business software, for companies of all sizes, is developed by Microsoft. There are many other examples, of course, and in virtually every case, an American company and American innovation has the lead. Second-place isn’t even close.

Nearly as important, funding for critical and continuous innovation, everything from Big Banks and crowdfunding, to venture capital, philanthropy and small business loans, are American strengths. America’s universities – public and private – are the best in the world. These centers are the catalysts of innovation.

No nation offers immigrants more opportunity for success. No nation is more secure. Our well runs deep.

Nearly Unlimited Potential

We do not rule all areas of technology, of course. America is just one of several leaders in biotech. That said, American-led businesses and research labs are aggressively targeting rather extraordinary opportunities to extend life, explore the mind, and re-construct severely damaged bodies. Expect America to be the premier leader in biotech very soon.

In the area of green technology, America is lacking. This despite the billions thrown at this potentially vital industry. On the plus side, however, given our massive reserves of oil, coal and natural gas, America’s own energy future is secure. There are extremely few developed economies that can say the same.

America’s strengths are so many and so vast, in fact, that it will be hard to not dominate the 21st century.

Unfortunately, there are two obvious, pressing issues that limit our nation’s future and impede individual joy and prosperity. They are our schools and our safety net, both of which are constructed for an America that no longer exists.

Failing Grades

Our public schools, those K12, government-run institutions nearly all of us attended, are in embarrassingly bad shape. In larger cities, especially, they are a near-invisible tragedy. I offer no magic bullet, merely an admonition: the current model of government-funded, union-led, community-based schools is clearly failing our children.

Given this, we should welcome as much change, innovation and disruption in K12 education as we do in Silicon Valley. Yes, this will likely significantly minimize the power of government-employed unions. If this matters to you, my only suggestion is that you think of the nation and the nation’s children first.

Opportunity Not Inequality

The other national failing is the very real potential of continuous technological change to leave many of our citizens in a semi-permanent economic prison. Understand: I am not speaking of inequality, but misery. Fighting to stop inequality is too often an angry, jealous battle to bring down those at the top. Forget that Larry Ellison owns an island or that Google’s founders have their own private jets to travel in – or that your neighbors are better off than you. Inequality is not the issue. Not providing adequate education, medical care and opportunities to positively contribute to society and achieve prosperity are the real failings we must address.

In retail, for example, America’s Amazon.com and WalMart are global leaders. Their innovations create numerous savings which puts money in our pockets everyday. They also place many out of work and force many more into jobs at barely livable wages. It is a national responsibility to correct this.

Again, I cannot divine any singular path toward resolving this. Therefore, I urge those who fear the power of the government to instead open themselves up to possible innovative solutions which are led partly or even exclusively by government. Yes, funded by taxpayers. This may be the only way to ensure health, education and opportunity for all.

Admittedly, government solutions too often transform into vampires, never dying, feeding off others, caring only about themselves. This is a risk I nonetheless think we should take.

The Silicon Valley – Washington, DC Nexus of Power

America will lead the 21st century, just as we did the 20th. We have the best and the most of the stuff required to retain our current lofty status, and build upon it. Our people and smarts and money and technology – led by Silicon Valley – will usher the world into a new age of abundance, connectivity, innovation and sharing.

Our attention must now focus on ensuring the benefits of each of these flow justly to all our citizens.

It is not surprising that a new nexus of power, linking Silicon Valley and Washington, DC is quickly forming. One has the money, the other has the power.

This new nexus will become as important, as integrated, as accepted and as fruitful as the ties that bound New York and Washington, DC in the prior century. Let us welcome this transformative shift in power and money and values.

Let us also keep vigilant. It’s okay to have more. It’s not okay to leave our fellow Americans behind.

Image courtesy of Flickr.

Tablets, Seasonality, and Adoption Cycles

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

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

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

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

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

Market Experimentation

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

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

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

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

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

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

So What Does it All Mean

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

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

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

Apple Is Playing Chicken With The Mobile Carriers

“The game of chicken, also known as the hawk-dove game or snow-drift game, is an influential model of conflict for two players in game theory. The principle of the game is that while each player prefers not to yield to the other, the worst possible outcome occurs when both players do not yield.” ~ Wikipedia

800 Android Carriers vs. 240 iPhone Carriers

“The narrative has been focused on the consumer demand, and the narrative needs to shift to the operator…” ~ Horace Dediu, former in-house analyst for Nokia

Android sells devices through almost all of the world’s 800 carriers while Apple sells the iPhone through only about 240. (Only about 500 of the world’s global operators have the network capabilities needed to handle the iPhone, but that number is quickly increasing.)

The reason for the discrepancy between the number of carriers supplying Android and the iPhone is that Apple prices their phones above $600 and places sales quotas and other requirements on the carriers before they are permitted to sell the iPhone. Potential partners must determine whether taking on these obligations is worth the benefit of offering the device.

Examples of holdouts are China Mobile Ltd., the world’s biggest phone company, and NTT DoCoMo Inc., Japan’s largest mobile carrier. On the other hand, other companies are succumbing to Apple’s demands. T-Mobile added the iPhone to its lineup in April and they announced that they have sold 500,000 iPhones in just under a month. And U.S. Cellular (USM), had long contended that the iPhone cost too much, yet last week they announced that they had agreed to sell $1.2 billion worth of handsets over three years, after conceding that their failure to carry the iPhone was costing them customers.

Are The Carriers In Control…

Adam Satariano of Bloomburg reviewed the current carrier impasse and concluded:

“Apple Inc. (AAPL) is missing out on a chance to court as many as 2.8 billion new smartphone customers, many of them in Asia, as wireless-service providers balk at conditions imposed by the iPhone maker and drag their heels in signing on as partners.”

“Carriers are starting to question Apple’s pricing strategy and are supporting multiple other platforms,” said Shah at Strategy Analytics. “They no longer need Apple.”

…Or Is Apple In Control?

The unasked question here is: If Apple is losing the opportunity to sell more iPhones because of their onerous conditions, then why does Apple continue to impose those conditions? The unstated answer should be – but apparently isn’t – obvious.

Clearly Apple – unlike the vast majority of tech pundits and Wall Street Analysts – does not see a pressing need to acquire additional operators at any cost. Of course Apple wants more customers, and that’s only going to happen if Apple expands its carrier base. However, unlike most of the rest of the world, Apple feels that they can patiently wait until the carriers come to them and meet their terms. Does that make Apple arrogant and out-of-touch with reality or does that make them master negotiators?

Four Realities That Favor Apple: Capacity, Real Growth, Retention and Profits

First, Apple was at their iPhone manufacturing capacity for much of the holiday quarter. It doesn’t make much sense for Apple to increase the number of addressable customers until and unless they have the capacity to provide those new customers with product.


Second, as you can see from the trajectory of the chart of the iPhone’s cumulative sales, above, Apple is still enjoying significant real growth in the sales of their phones. This truth is often obscured and overshadowed by market share numbers.

Third, as markets approach saturation in the U.S. and Europe, retention and churn become far bigger issues and when it comes to customer satisfaction and retention, Apple has it all over their competitors.

Notice how Apple started with only AT&T in the U.S., and then slowly and methodically ground down the opposition of the other carriers until Verizon, then Sprint, then T-Mobile, then U.S. Cellular and many other small carriers caved in as the churn caused by the iPhone crushed their sales and then caved in their profits.

Fourth, Apple takes in 57% of the profits in the mobile industry with only 8% of the sector’s market share. That is some serious leverage.

Apple is Enigmatic But Still Susceptible To Analysis

I contacted Apple to see what their actual negotiation strategy was but, oddly, they were not very forthcoming. Go figure. Tim Cook has failed to return my several calls (or even had the courtesy to lift the current restraining order against me) and my $605,000 attempt to have coffee with him failed when it was discovered that I had used a stolen credit card. C’est la vie.

So we’re going to have to use analysis (i.e., guesswork) instead. My best guess is that Apple’s strategy is to go after the whales and ignore the minnows. (The minnows will fall all over themselves to jump on board once the whales are lined up, anyway.) Apple only has so much capacity to manufacture phones as it is and they’d prefer to expand first in those markets that count and count the most.

Further, Apple is a damn patient negotiator. While the rest of the world is screaming at the top of their lungs that Apple has to “DO SOMETHING”, Apple is patiently waiting for the carriers to realize that they can’t compete without the iPhone in their mobile portfolio. And based upon the capitulation of Sprint, T-Mobile and U.S. Cellular, Apple may just be right.

So who will win this game of Chicken? Right now, Wall Street and a whole lot of investors are betting against Apple. But if you look at the history of Apple’s negotiations with the music labels, with AT&T and with all of Apple’s recent carrier acquisitions, you can see that Apple has played – and won – this game before.

Only time will tell us which side will blink first. But me – I’m not betting against Apple.

On the Impact of Paul Otellini’s CEO Years at Intel

Intel’s CEO Paul Otellini is retiring in May 2013. His 40-year career at Intel now ending, it’s a timely opportunity to look at his impact on Intel.

Intel As Otellini Took Over

In September 2004 when it was announced that Paul Otellini would take over as CEO, Intel was #46 on the Fortune 100 list, and had ramped production to 1 million Pentium 4’s a week (today over a million processors a day). The year ended with revenues of $34.2 billion. Otellini, who joined Intel with a new MBA in 1974, had 30 years of experience at Intel.

The immediate challenges the company faced fell into four areas: technology, growth, competition, and finance:

Technology: Intel processor architecture had pushed more transistors clocking faster, generating more heat. The solution was to use the benefits of Moore’s Law to put more cores on each chip and run them at controllable — and eventually much reduced — voltages.

Growth: The PC market was 80% desktops and 20% notebooks in 2004 with the North America and Europe markets already mature. Intel had chip-making plants (aka fabs) coming online that were scaled to a continuing 20%-plus volume growth rate. Intel needed new markets.

Competition: AMD was ascendant, and a growing menace.  As Otellini was taking over, a market research firm reported AMD had over 52% market share at U.S. retail, and Intel had fallen to #2. Clearly, Intel needed to win with better products.

Finance: Revenue in 2004 recovered to beat 2000, the Internet bubble peak. Margins were in the low 50% range — good but inadequate to fund both robust growth and high returns to shareholders.

Where Intel Evolved Under Paul Otellini

Addressing these challenges, Otellini changed the Intel culture, setting higher expectations, and moving in many new directions to take the company and the industry forward. Let’s look at major changes at Intel in the past eight years in the four areas: technology, growth, competition, and finance:


Design for Manufacturing: Intel’s process technology in 2004 was at 90nm. To reliably achieve a new process node and architecture every two years, Intel introduced the Tick-Tock model, where odd years deliver a new architecture and even years deliver a new, smaller process node. The engineering and manufacturing fab teams work together to design microprocessors that can be manufactured in high volume with few defects. Other key accomplishments include High-K Metal Gate transistors at 45nm, 32nm products, 3D tri-gate transistors at 22nm, and a 50% reduction in wafer production time.

Multi-core technology: The multi-core Intel PC was born in 2006 in the Core 2 Duo. Now, Intel uses Intel Architecture (IA) as a technology lever for computing across small and tiny (Atom), average (Core and Xeon), and massive (Phi) workloads. There is a deliberate continuum across computing needs, all supported by a common IA and an industry of IA-compatible software tools and applications.

Performance per Watt: Otellini led Intel’s transformational technology initiative to deliver 10X more power-efficient processors. Lower processor power requirements allow innovative form factors in tablets and notebooks and are a home run in the data center. The power-efficiency initiative comes to maturity with the launch of the fourth generation of Core processors, codename Haswell, later this quarter. Power efficiency is critical to growth in mobile, discussed below.


When Otellini took over, the company focused on the chips it made, leaving the rest of the PC business to its ecosystem partners. Recent unit growth in these mature markets comes from greater focus on a broader range of customer’s computing needs, and in bringing leading technology to market rapidly and consistently. In so doing, the company gained market share in all the PC and data center product categories.

The company shifted marketing emphasis from the mature North America and Europe to emerging geographies, notably the BRIC countries — Brazil, Russia, India, and China. That formula accounted for a significant fraction of revenue growth over the past five years.

Intel’s future growth requires developing new opportunities for microprocessors:

Mobile: The early Atom processors introduced in late 2008 were designed for low-cost netbooks and nettops, not phones and tablets. Mobile was a market where the company had to reorganize, dig in, and catch up. The energy-efficiency that benefits Haswell, the communications silicon from the 2010 Infineon acquisition, and the forthcoming 14nm process in 2014 will finally allow the company to stand toe-to-toe with competitors Qualcomm, nVidia, and Samsung using the Atom brand. Mobile is a huge growth opportunity.

Software: The company acquired Wind River Systems, a specialist in real-time software in 2009, and McAfee in 2010. These added to Intel’s own developer tools business. Software services business accelerates customer time to market with new, Intel-based products. The company stepped up efforts in consumer device software, optimizing the operating systems for Google (Android), Microsoft (Windows), and Samsung (Tizen). Why? Consumer devices sell best when an integrated hardware/software/ecosystem like Apple’s iPhone exists.

Intelligent Systems: Specialized Atom systems on a chip (SoCs) with Wind River software and Infineon mobile communications radios are increasingly being designed into medical devices, factory machines, automobiles, and new product categories such as digital signage. While the global “embedded systems” market lacks the pizzazz of mobile, it is well north of $20 billion in size.


AMD today is a considerably reduced competitive threat, and Intel has gained back #1 market share in PCs, notebooks, and data center.

Growth into the mobile markets is opening a new set of competitors which all use the ARM chip architecture. Intel’s first hero products for mobile arrive later this year, and the battle will be on.


Intel has delivered solid, improved financial results to stakeholders under Otellini. With ever more efficient fabs, the company has improved gross margins. Free cash flow supports a dividend above 4%, a $5B stock buyback program, and a multi-year capital expense program targeted at building industry-leading fabs.

The changes in financial results are summarized in the table below, showing the year before Otellini took over as CEO through the end of 2012.

GAAP 2004 2012 Change
Revenue 34.2B 53.3B 55.8%
Operating Income 10.1B 14.6B 44.6%
Net Income 7.5B 11B 46.7%
EPS $1.16 $2.13 83.6%


The Paul Otellini Legacy

There will be books written about Paul Otellini and his eight years at the helm of Intel. A leader should be measured by the institution he or she leaves behind. I conclude those books will describe Intel in 2013 as excelling in managed innovation, systematic growth, and shrewd risk-taking:

Managed Innovation: Intel and other tech companies always are innovative. But Intel manages innovation among the best, on a repeatable schedule and with very high quality. That’s uncommon and exceedingly difficult to do with consistency. For example, the Tick-Tock model is a business school case study: churning out ground-breaking transistor technology, processors, and high-quality leading-edge manufacturing at a predictable, steady pace of engineering to volume manufacturing. This repeatable process is Intel’s crown jewel, and is a national asset.

Systematic Growth: Under Otellini, Intel made multi-billion dollar investments in each of the mobile, software, and intelligent systems markets. Most of the payback growth will come in the future, and will be worth tens of billions in ROI.

The company looks at the Total Addressable Market (TAM) for digital processors, decides what segments are most profitable now and in the near future, and develops capacity and go-to-market plans to capture top-three market share. TAM models are very common in the tech industry. But Intel is the only company constantly looking at the entire global TAM for processors and related silicon. With an IA computing continuum of products in place, plans to achieve more growth in all segments are realistic.

Shrewd Risk-Taking: The company is investing $35 billion in capital expenses for new chip-making plants and equipment, creating manufacturing flexibility, foundry opportunities, and demonstrating a commitment to keep at the forefront of chip-making technology. By winning the battle for cheaper and faster transistors, Intel ensures itself a large share of a growing pie while keeping competitors playing catch-up.

History and not analysts will grade the legacy of Paul Otellini as CEO at Intel. I am comfortable in predicting he will be well regarded.

Android’s Leaky Bucket

John Paczkowski over at AllThingsD covered a report written by Carl Howe, VP of the Yankee Group. Carl makes a bold statement, indicating iPhone ownership in the US will exceed Android US ownership by 2015.

Carl has developed an analogy using the idea of a leaky bucket. In short, he proposes that if platforms are a thought of as a bucket and their buyers comprise the water that fills it. Therefore how "leaky" a bucket is refers to a consumer intent to buy something else. What Carl's consumer survey research shows is that the Android bucket is leaking faster than the iPhone bucket.

A couple of stats to highlight from the Yankee Group survey.

  • 91 percent of iPhone owners intend to buy another iPhone
  • 6 percent plan to switch to an Android device with their next purchase
  • 76 percent of Android owners intend to buy another Android phone
  • 24 percent of Android phone users plan to switch to another platform
  • of those professed (Android) switchers, 18 percent plan on buying iPhones.

While 76% plan on remaining faithful to Android, 91% plan on remaining faithful to the iPhone. Carl's point is that the Android bucket is leaking faster than the iPhone's.

So ultimately platform loyalty is the key indicator here from a sustainability standpoint. The key to Carl's theory, however, will be the decisions of the lower end and new smartphone buyers, not necessarily purely switchers.

I'd again argue that the anticipated behavior of both the lower end market, who probably bought a cheap or free Android devices as their first smartphone, along with smartphone intenders, favors Carl's theory. How many smartphones on the market will be able to compete with a $99 subsidized iPhone 5? Probably only the Galaxy S3, arguably.

I'm not sold on the idea that everyone in the US who wants an iPhone has one. However, I'm also not convinced that the category is fully mature from a consumer adoption standpoint. What I specifically mean when I say that is, i'm not sure the market has fully experimented with different devices, platforms, software, etc., in order to fully define their needs, wants, and desires. Once this happens we will truly see a much clearer picture of platform share and sustainability.

One thing our research continually shows, as does the Yankee Groups and a host of others, is that once consumers get into the Apple ecosystem, they rarely leave.

Which makes one single point perhaps the most significant. The key for Apple is not necessarily to get consumers to buy all their products at this very moment. Rather, to just get consumers to buy one, which acts as the gateway to their ecosystem.

* Caveat. Surveys are, of course, not always an exact indicator of future behavior. However, I have seen more than a few solid data points that support this data. Also, without knowing specific device plans of Apple or competitors the timing is also hard to predict. What Carl proposes could happen sooner or later. This is why I mentioned the market adoption cycles and experimentation still taking place.

Can Carriers Handle a Low-End iPhone?

There is a good discussion happening online at the comment that I want to comment on. Horace Dediu has written several good pieces on the job the iPhone is hired to do. In his latest installment he looks at the average revenue per user in numerous countries and distills that data to browser share on iOS and Android.


What the data highlights is the fact that right now the iPhone is the most valuable device for the networks that carry it. Carriers have been in a transition the last few years to move their value from voice to data. The key for carrier services going forward is to capitalize on the consumer consumption of their data services not their voice services. Therefore device which are excellent at consuming data services are highly valued. This, as Horace points out, is the reason the carriers are willing to pay the high price of the iPhone and subsidize it to their customers.

The key question remains to the other devices, like Android, which certainly don't generate the same ARPU as the iPhone (or specifically iOS). We know that Android devices are heavily skewed to the lower end of the market. This market certainly behaves differently and although they browse the web and consume data, the evidence shows the engagement is less than with iOS.

Android devices do not maintain the same ASP line as the iPhone and often drop in price and add promotions quickly, often within 3-6 months. The iPhone stands strong in its price and its value to the operators.

A key question here is that if the low-end of the market does indeed behave differently, and this part of the market is not as valuable to operators, then why should Apple cater to it? Either we believe that this market will always behave this way, or it is the device itself (meaning a lower-end, less capable device) that is causing them to behave this way. I've always found a fascinating question to be whether the low-end market behavior with engagement and data consumption would change if they used iOS.

The Job the iPhone is Hired to Do Part 1
The Job the iPhone is Hired to Do Part 2

Along these lines, Ben Thompson (@monkbent), on his site Stratechery, offered up more useful points to this discussion topic.

Ben brings out a point regarding the iPhone's role as a premium network device that I think is interesting.

"Take three quick examples: Verizon, NTT DoCoMo, and China Mobile. If the iPhone as “Premium Network Services Salesman” is the only explanatory factor,1 then all three should have been clamoring for the iPhone from Day One. Yet Verizon resisted for years, and NTT DoCoMo and China Mobile have yet to give in. In fact, the iPhone has generally launched on the 2nd or 3rd-place carrier in any given geography."

Why Do Carriers Subsidize the iPhone

This is true and a valid question. If the iPhone is a premium device driving ARPU and operator value/CapEx recoupment, then why are certain carriers holding out?

The answer, I believe, lies in the iPhones success being both a blessing and a curse. The device in its early days nearly took down AT&T regularly due to the network demands. Many of us remember how awful AT&T was here in the Silicon Valley for many years as a result of the network demands from the iPhone. Many networks, Verizon included, have quality of service demands in which I'm sure their concerns over their own network capacity are or were an issue. Verizon adopted the iPhone when they were ready and prepared (also after the AT&T exclusive was up obviously). I'm sure others will as well when they feel they are prepared.

There is no question that the iPhone drives value so I do not believe the lack of universal carrier support is completely or even largely a business model question. It is, in my opinion, an infrastructure question. The question is can the operator networks handle the iPhone?

In this theory and to my earlier question about the low-end. If Apple went low-cost and grew their market share substantially by catering to the low-end, bringing hundreds of millions of new iOS users onto the networks, I have a strong feeling it would put monumental stress on all current network infrastructure. Bottom line is, I’m not sure the carriers can handle a low-end iPhone.

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.

Touch Computing Is Touching Every Part Of Our Lives

We Live In Amazing Times

We live in amazing times. The modern smartphone (really, a portable pocket computer) is only 6 years old. The modern tablet is only 3 years old. Yet the combination of the internet, simplified touch computing, wireless data downloads and the availability of cheap, innumerable applications on demand, has wholly revolutionized what computing is and will become.

Affecting Our Lives

Touch computers are already a pervasive part of our lives:

49% of the entire U.S. population uses a smartphone. By 2017, the percent of smartphone users is expected to reach 68%.

Tablet ownership increased 177 percent over the past year.

Already, 23% of teens own a tablet.

Affecting Our Lifestyles

The effect on our lifestyles has been even greater:

Four out of five smartphone users check their phones within the first 15 minutes of waking up. 80% of those say it’s the first thing they do in the morning.

79% of smartphone users have their phone on or near them for all but two hours of their waking day; 63% keep it with them for all but one hour. A full quarter of of smartphone owners couldn’t recall a single time of the day when their phone wasn’t in the same room as them.

Mobile users can’t leave their phone alone for six minutes and check it up to 150 times a day.

25% of those aged 12-17 access the Internet “primarily” via a cell phone or smartphone. Among teens with a smartphone, however, 50% access the Internet primarily via the mobile device. Girls are more likely than boys to rely on their smartphone as their primary Internet access device.

More than 80 percent of consumers are multitasking while watching TV.

More people now watch TV and movies on tablets in their bedrooms than they watch them on TVs.

Dissolving The Digital Divide

Surprisingly – at least to me – black and hispanic teens are more likely to own a smartphone than their white counterparts. Some feel that the smartphone could be the tool that eradicates the digital divide. In any case, phones are now the new personal computers of our age, allowing the poor and the isolated to enjoy computing power that was formerly unavailable to them.

Multiple Screens

If, in 2006, you had predicted that individuals would own, not one, but three computers, you would have been laughed at. First, few needed three separate computing devices and second, even fewer could afford them. Yet today, twenty-six percent of consumers in the United States own a laptop, smartphone and tablet.

Let me re-remind you that the modern tablet has only been in existence for a mere THREE YEARS. If 26% of consumers in the United States already own the trio of smartphone, tablet and notebook, then the explosive growth of multiple screen computing ownership is only just beginning.

Touch Computing Is Only Just Beginning

Most technology observers look at phones, and even tablets, as maturing markets. I feel otherwise.

— Phones are just beginning to invade our lives. People who formerly didn’t need a phone – the young, the old, the technologically uninterested – are all adopting smartphones as their go-to computing device.

— People who formerly didn’t have any access to computers – the poor and citizens of third world countries – are also adopting smartphones as their first – and perhaps only – computing device.

— Where we used to own a single family computer, now every member of the family will want to possess their own personal tablet.

— Most people who own a tablet will own a smartphone too, and perhaps a notebook as well.

Our Lives Will Never Be The Same

Most technology observers seem to have a very poor grasp of economics and consumer behavior. They speak in terms of limited resources and assume that technological growth is limited. The truth is that we don’t buy what we need, we buy what we want. And a further truth is that when we want and value something highly enough, we shift our limited resources in order to find a way to obtain it.

In 2006, we only needed a single, cheap desktop or notebook computer. Today we expect and demand access to multiple mobile computing devices.

We don’t NEED tablets, but we WANT them and we’re going to find a way to buy and possess them. And smartphones are rapidly moving from the category of a WANT to something that we both WANT AND NEED in order to merely function in modern society.

Sales of mobile touch computers are about to explode and our lifestyles and our lives will never be the same.

The HTC One: Setting a New Bar for Android Phones


I’ve been using the HTC One for a few weeks now as my primary smartphone and I have to say it is an impressive device on many levels. The HTC One is undoubtedly the best Android device I have ever used.

Through the years, HTC has shown that they can create extremely well designed and unique hardware. The HTC One is the pinnacle of the companies efforts and rasies the bar for all Android, and Windows Phone devices for that matter, going forward. The HTC One is the first smartphone that even comes close to the iPhone in terms of hardware and in some respects it is superior.

From my experience with the HTC One there were three key things that stood out to me.

Speakers and Sound

The speakers on the HTC One are incredible. Hands down the best speakers I have ever encountered on a mobile device. At first, I was impressed at the sound quality but questioned how practical the feature was. After a day or so, I quickly changed my mind and realized the feature was incredibly valuable. I started listening to music in more locations, contexts, and situations than before. Although I own the Big Jambox by Jawbone, I don’t always have it with me. Even when my family and I go to the beach or the park, we always try to pack lightly. Bringing the Big Jambox is not always an option. But I always have my phone with me and with the HTC One it’s like having a boom box with you at all times.

HTC includes the Beats audio feature which is a hybrid software and hardware audio processing solution. This feature worked well on the phone but interestingly the Beats audio feature was applied to audio that was being streamed to other devices. I stream music from my phone to my cars speakers frequently and I noticed the audio coming through my cars speakers was benefitting from the Beats feature.

HTC positions the enahnced audio and speakers on the One by calling it BoomSound. I’ve used many portable audio solutions and the distortion at high to full volume on many devices makes them simply unusable in louder or outside environments. This was my primary knock on the smaller JamBox. So I decided to test the HTC against other devices and this is what I found.

The iPhone 5 has great speakers but its max volume is 65 db and at that volume has minor distortion. My Retina MacBook Pro at full volume hits 95 db with excellent audio clarity and no distortion. The HTC One’s max volume hit 85 db with excellent audio clarity and no distortion. Suffice it to say, impressive for a mobile device.

Those stats aside, whenever I gave a demo of the speakers to friends and family, they simply said “wow.”


I think we would all agree that the camera on our smartphones may be one of the most valuable features. Every generation smartphone manufactures look to integrate better optics, sensors, software, and capabilities to the camera function. The processor and the camera are the two features that annually get signicant performance bumps.

HTC has always been pushing the camera envelope, mostly around megapixels, but you won’t find megapixel claims much with the HTC One and for good reason. Megapixels no longer matter. What matters now is what you do with those megapixels. HTC has packed a number of relevant features into the One that are typically rerserved for high end point-and-shoot and mirrorless DSLR cameras. The result is the best low-light pictures of any smartphone I have used. Low-light images are the trickiest to shoot with a mobile device and I generally travel with a DSLR for this feature alone.

Bottom Line is that the HTC One will rival many mid-range point and shoot cameras. Impressive for a smartphone.


I’ve always appreciated HTC’s attempt to add value on top of Android. Their strategy with the Sense UI has been solid since the beginning. As Sense evolved, it got more refined and more polished. The hardcore tech community has generally bashed Sense in this regard because HTC is not targeting the hard core tech community with Sense. They are targeting your casual smartphone users who don’t want to fuss with their smartphone but favor ease of use over heavy customization and software tweaking.

Many of the UI changes HTC made helped Android get out of the way rather than get in the way. And for the masses that is a good thing. I have not been shy about my frustration with Android as a UI but HTC has done much to add elements of simplicity and convenience to the platform. HTC’s much simplified app launcher is a great example of this placing most recent apps, a search bar, and quick link to the Google Play store all near the top of the app drawer.

HTC has easily created the best Android phone to date for the mass market. Its uses for portable sound and image capture are best in breed of any smartphone. Considering how the masses use their phones, those two features alone will stand out.

The HTC One will distinguish istelf from the pack with the hardware alone. The key for HTC and the carriers that carry it is to market it appropriately. If they can do this, then I think HTC could have a winner on their hands.

My personal preference is still to iOS. Using the HTC One with its larger screen size and iPhone like design convinces me even more that I want iOS on a larger smartphone screen than 4-inches. In fact several times I remarked to people that I wanted iOS on the HTC hardware. Specifically the speakers and the camera.

I give many technology recommendations to friends and family alike. I recommend different devices depending on the type of consumer they are. However, If someone were to come up to me and ask my advice on which Android smartphone they should get. I would tell them without hesitation, the HTC One.

The Challenge for Smartphone Makers in 2013

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

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

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

Good Enough

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

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

The Burning Question

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

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

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

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

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

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

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

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

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

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

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

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

Android’s Penetration Vs. Apple’s Skimming Marketing Strategies

images-45Technology pundits and press, alike, seem obsessed with market share. But obtaining large market share is just one of many successful business strategies. Android follows a penetration pricing strategy. Apple uses a skimming strategy. Neither is inherently superior to the other. Like any strategy, each has advantages and disadvantages and their ultimate success often depends upon both circumstances and execution.

Penetration Pricing

Penetration pricing occurs when a company launches a low-priced product with the goal of securing market share. For example, a sponge manufacturer might use a penetration pricing strategy to lure customers from current competitors and to discourage new competitors from entering the industry. If the sponge’s price is low enough, consumers will flock to the new product. Competitors who can’t produce and promote sponges for such a small profit will avoid the market, freeing the sponge company to maximize brand recognition and goodwill. ~ Stan Mack, Demand Media

Price Skimming

A price skimming strategy focuses on maximizing profits by charging a high price for early adopters of a new product, then gradually lowering the price to attract thriftier consumers. For example, a cell phone company might launch a new product with an initial high price, capitalizing on some people’s willingness to pay a premium for cutting-edge technology. When sales to that group slow or competitors emerge, the company progressively lowers its price, skimming each layer of the market until the low price wins over even frugal buyers. ~ Stan Mack, Demand Media

Apple has added a twist to the skimming strategy. Rather than introducing their products at a high price and then lowering their prices later, Apple stakes out a price and then maintains and defends that price by significantly increasing the value of their products in future iterations.

For example, over the past six years, the average sales price of the iPhone has remained remarkably stable with the subsidized price remaining at ~$200 and the unsubsidized price hovering around $650.

Advantages and Disadvantages Of Price Skimming

Price skimming offers four major advantages…. It can offer insight into what consumers are willing to pay. It can create an aura of prestige around your product. If the initial price is too high, you can lower it easily. Finally, late adopters might be pleased to get your prestigious product at a bargain price, which creates goodwill for your company. A major disadvantage, however, is that large profits attract competitors, so this price strategy only works well for businesses that have a significant competitive advantage, such as proprietary technology.

The argument against Apple’s price skimming strategy is that the competition has caught up with the iPhone and Apple is no longer able to compete unless they lower their prices. But do the facts support this argument?

First, the iPhone has received 8 (EDIT: make that 9, as of March 21, 2013) straight J.D. Power and Associates awards for customer satisfaction and Apple reported that four times as many iPhone users switched from an Android phone than to an Android phone in the fourth quarter of 2012. Clearly Apple’s cachet is not on the wane, at least not in the minds of phone buying consumers.

Second, in 2012, Apple garnered 69% of all mobile phone profits. Further, they did it with only 8% of the total market share. That means that the remaining 92% of the market provided only 31% of the sector’s total profits. That’s price skimming at its finest.


The current meme is that Apple MUST abandon their skimming strategy and pursue a price penetration strategy instead. However, the facts simply do not support this contention. Apple could, of course, “buy” more market share simply by lowering their prices, but this has two major disadvantages. First, the market share that they would be buying is worth far less than the market share that they already own. Second, a lower price would lead to lower profits as well. It is obvious – or rather it SHOULD be obvious – that this could be counter-productive.

There’s nothing wrong with market share and I’m quite certain that Apple would be more than happy to expand their market share – but not at any price. For example, Apple has some 70% market share in iPods and around 50% market share in iPads. Yet they are doing this while still maintaining their price skimming strategy.

Price skimming is neither the only strategy nor is it the only superior strategy. It is just one of many marketing strategies. However, Apple is executing the strategy of price skimming brilliantly…even if Wall Street and the pundits stubbornly refuse to acknowledge it.

Why RIM Is Not Dead Yet

2013-01-18T161117Z_1_CBRE90H18YX00_RTROPTP_2_US-RIM-SHARESI wanted to share some of my thoughts regarding RIM prior to them having their press event next week. I know there are many who have the opinion that RIM has been circling the drain for some time now and have counted out any rebound chances the company has. While I agree that the hills they face are steep, I am not ready to write their obituary yet. These are my reasons why.

The Sheer Size of the Mobile Market

When I give our platforms and ecosystems presentations to industry executives, investors, and at other public forums, the most common question I get when I talk about other platforms than the current dominant ones, is how many platforms can the market sustain. This is an extremely valid question, but it is one that I believe is asked with a backward looking view and not a forward looking view.

If we are using the PC industry as our example, then this question makes the most sense. There was one dominant platform—Microsoft—who owned the vast majority of platform share. If we look at the size of the market as well as where it was during along both the consumer adoption path and market maturity cycle, then we can explain quite a bit about why Microsoft was dominant, but also why at a certain point in time the door was open to other players. But the most relevant point on this topic was that during Microsoft’s dominance the market was both maturing, using Windows and more relevantly the Internet as the standard, but also not that large on a global scale. The market for PCs is in the hundreds of millions (and potentially shrinking) where the market for smartphones is in the billions. With such a large market it is easy to believe that a number of platform players can and will thrive as they carve out specific segments of the market to focus on.

As we are constantly observing, the one size fits all model simply doesn’t stand up in such a large consumer market and personal preference will only become more personal and specific to the end consumer the further down the adoption and maturity process that both smartphones and tablets go.

You Never Forget Your First Love

Our mobile market intelligence data continually points out positive sentiment toward RIM and the BlackBerry devices in particular. For many mobile professionals today, and even more millennials than you would think, they cut their proverbial smartphone teeth on BlackBerry devices. I can’t tell you how many times during our smartphone interview sessions with consumers we hear the words “I sure loved my BlackBerry.” Granted much of this sentiment was founded in the love of the BB keyboard that so many used for heavy text input. I believe we are past the point of the physical keyboard being desirable for the bigger sections of the market and we are yet to see what RIM intends to do with their hardware in this area. That being said, the level of positive sentiment toward BlackBerry devices is one that I do not believe can be discounted as I have a feeling that at the very least it will lead these consumers who share this sentiment to strongly consider BlackBerry’s new devices.

A Focused Opportunity

The opportunity staring RIM in the face is not the general mass market consumer, rather it is the mobile professional. A number of my colleagues in the field of industry analysis disagree with me and think RIM should go after the low end but I disagree. I feel RIM’s potential is the higher end. Many millions of global industry professionals switched to the iPhone from RIMs devices but also many millions still use them today.

Whenever I talk with folks still using RIM devices today, they acknowledge the fact that they are not the most cutting edge devices, but also point out that they are embedded into their workflow. Something that by itself is a key understanding. Just like how many professionals and corporate workplaces have come to standardize, depend, and are extremely comfortable with Windows and Office in their productive workflow. So are many of these same professionals committed and comfortable to RIM. These devices have helped them be successful and many have not changed yet for that very reason. Even though the iPhone and iOS is penetrating the workforce in rapid numbers I still think there is an opportunity for a second platform player focusing on the mobile professional. Android has not caught on largely due to security and Windows Phone is practically non-existent from current CIO surveys I have seen.

If RIM can bring to market a more modern and competitive solution targeting these individuals, I believe they can have a successful business by focusing on value to the high end on the front of hardware, software and services. Keep in mind this market may not be massive like the mass consumer market but I do believe it is lucrative.

Competitive Hardware and Software

This is the big IF. As I stated above targeting the mobile professional is the key but this hardware has to also be appealing from a consumer standpoint because these mobile professionals are also consumers at heart. So the saying goes “if you want to compete in enterprise, you have to compete for the consumers.” Its the BYOD effect in full swing.

RIM must bring competitive hardware to market. This was the root of Palm’s downfall in my opinion. webOS was an extremely competitive platform from an OS standpoint but the hardware was years behind. If RIM makes this mistake they will certainly go the unfortunate way of Palm.

Secondly the software experience must also be competitive and I don’t just mean a plethora of apps. I am becoming increasingly convinced that a solid list of quality applications is more important than a massive quantity of applications. I find every single app store shopping experience today much too cluttered and difficult to make decisions on which app to install or buy. See my thoughts on the paradox of choice for a more clear idea of what happens when we are faced with too many choices.

I’d rather have a much more curated app experience around the core things I do or applications I care about. By focusing on the mobile professional, this becomes a bit easier. Even Apple has begun to do this and smart platforms will take notice. Apple has many app essentials or app starter kits broken out by genre. This can be games, photography, productivity, social networking, etc., but when you look at these genre specific hubs you don’t see hundreds of apps you see dozens. These are highly curated and that is the point.

I am not downplaying the value of long tail applications, but what I am pointing out is that most consumers at best use 10-12 key applications regularly. They may download way more than that but regular use is much lower. This is why I believe that other platforms can come in with a segmented play and get the couple thousand or so most popular apps but then also begin to curate quality genre specific ones to the market segment they are focused on.

Of course for RIM, or any new platform entrant, there is a chicken and the egg scenario. To attract those key applications and keep attracting quality top tier applications, you need to acquire a critical mass. There is no if you build it they will come motto here. There is only if you sell tens of millions they will come motto. This is where the channel comes in and we will certainly see how serious the network operators are about wanting more platform choice.

I look forward to RIM’s event next week and to see whether it will alter my opinion on their future.

Smartphones Become the New Hub of Our Digital Lifestyles

Screen Shot 2013-01-21 at 7.14.36 AMIn the winter of 2000, Steve Jobs took the stage at MacWorld and laid out what we now consider a very forward thinking idea. He said that the “Mac would become the center of our digital lifestyle.” We did not know it at the time, but he and his Apple team were secretly working on the iPod and a music store that used the Mac to side load downloaded music to the iPod. Jobs literally made the Mac a hub connected to a “spoke” or cable that was then connected to the iPod.

For most of the last decade, the idea of the Mac working as a hub that side loaded content to products like the iPod, iPhone and the iPad played itself out well and made it very easy for consumers to buy digital content and download it on these devices. Over the last few years, Apple has refined this vision and starting making the iCloud more of the hub and wirelessly connecting their online stores to download content directly to their iDevices via the cloud.

While making the cloud the hub in this scenario is still the best way to think about this idea, it became pretty clear to me while at CES last week that in many ways, smartphones are really emerging as the hub of our digital lifestyles. Yes, smartphones are still connected to the cloud in terms of accessing data and transmitting information and even digital commands, but it seems to me that the smartphone in many ways is becoming the one device that is sitting at the command and control center of our lives and is working more like a hub in its own way.

A good example of this is the role my smartphone plays in my connected car. My smartphone uses Bluetooth to connect to my car’s digital display, which has channels for music, data and of course voice. When a call comes in to me, the phone serves as the hub that connects to my cars screen and tells me who is calling and even allows me to use the cars screen to answer the call. My smartphone also is the hub that sends music to the cars audio. At CES, GM showed its Malibu Eco connected to a smartphone that actually started up the car remotely.

In smart homes, the smartphone in many ways serves as the remote control. We can now turn on and off the lights in our home even if we are thousands of miles from where we live. Thanks to the Nest Thermostat, we can use our smartphone or connected tablet or PC, to adjust our thermostat to a higher temp so the house is warmer when we get home. If a burglar trips a motion sensor, a person could be instantly alerted of the break in and immediately call the police. Comcast even has a system that puts cameras in homes and ties it to their network, which lets users see what is going on in the house on their smartphones while sitting at a restaurant or in the office.

Interestingly, CES could have been called the “sensor” show for the hundreds of devices shown that had sensors embedded in products that tied them to the Internet and apps downloaded to a smartphone to remotely control these senor based devices. This was especially evident in the special health exhibit on the CES show floor where 74 companies had various sensor-based health monitoring products tied to smartphones.

One health product that really interested me as a diabetic was iHealth’s wireless blood glucose meter called the Smart Glocometer. It lets diabetics determine their blood sugars and then sends that data to a smartphone app for reading and storing so that they can monitor their daily progress. This product is before the FDA for approval but could be on the market soon.

A small start up named AliveCor has created an iPhone case that, when grasped, records an electrocardiogram on the iPhone screen via its app. And the folks from Nike, Jawbone, Omron and FitBit, to name just a few, were in this smart health area showing off their various health monitoring devices which all have sensors for recording things like steps, sleep patterns, calories burned, etc.

When Jobs introduced the Mac as the hub of a digital lifestyle, I doubt that at the time he envisioned the cloud becoming the big hub in the sky or the role a smartphone could play in becoming a “hub” in our pocket. However, it is clear that Apple has played a major role in defining the concept of a digital hub and allowing other major players to learn from their original vision and expand on it exponentially.

Over the next two or three years, I believe we will see thousands of sensor-based products tied to apps on our smartphone that will make it even clearer that the real hub of our digital lifestyle may actually be our smartphone. It is the one device we have with us at all time and given its increasing power and capabilities, it could emerge as the command and control center of our digital activities and become even more indispensible than it is today.

Would I Buy A Phablet?

img_img01One of the more unique smartphone designs in the market are ones that sport a 5.3″ to 6.1″ screen and are called Phablets by some in the industry. We call them tweeners as they are a cross between a large smartphone and a small tablet but in a single package. Samsung popularized this form factor with its 5.3″ Galaxy Note that was released last winter and they sold about 10 million in 2012. Some analysts believe that Samsung is on track to sell around 20 million Galaxy Note 2’s in 2013. Up to now, the market for these Phablet’s has mainly been in Korea and other parts of Asia and while available in the US, the market for it over here is quite small compared to its demand in Asia. 

At CES, Huawei upped the ante in phablets with the introduction of their Ascend Phablet that sports a 6.1 inch screen, the largest screen used in products in this category. It seems that Huawei is trotting this out to see what the market response will be to it and once they determine if a smartphone this large might fit in the market. Depending on the market response, they could either back it big time or adjust the screen size downward if the sweet spot for Phablets is with screens more in the 5.3″ to 5.7′ range. Like Samsung, Huawei believes there is a market for Phablets and seems committed to building smartphones in this larger size going forward. 

To date, most smartphones have screens under 5 inches and we don’t see that changing anytime soon. Smartphones with smaller screen sizes will have the lions share of the market for many years to come. What is interesting to me is that when I actually held Huawei’s 6.1 inch smartphone in my hand at the Huawei booth at CES, I could actually see myself using it, but not as Huawei might expect. To me this was a small tablet that just happened to have a cell phone radio in it. I would never hold this up to my ear as a phone and if I had one, I would only use it with a Bluetooth headset (this is how I primarily use the iPhone now, paired with a BT headset).   

Since getting the iPad Mini, with its 7.9″ screen, it has become my go to tablet. While I still use my original iPad, it is with a Bluetooth keyboard and I use it more as a mini-laptop in this configuration. What I have learned though is that the iPad mini, or a smaller tablet, is ideal for content consumption but not as ideal for content creation or productivity. While I do appreciate the 7.9″ screen in my iPad Mini, I was just as comfortable with Huawei’s 6.1 Ascend if I used it mainly as a small tablet. 

Markets Driving Phablet Demand

There are two market dynamics emerging that could actually make these phablets important products in various markets. The first one is emerging markets. We in the west would be fooling ourselves if we think that masses of people in emerging markets could afford both a smartphone and a tablet. Even with grey market tablets going for cheap prices, the issue of carrying two devices with them all of the time is just not reasonable. Apparently, Samsung saw this trend early on and has taken aim at the emerging market with their phablets, hoping that the desire for a single device that serves as a smartphone and tablet resonates with them. Indeed, the reason for a forecast of 20 million Galaxy’s Note II’s in 2013 is that most of them will start finding their way into emerging markets and filling a real need, especially if Samsung gets the prices of this product into price ranges acceptable to this market. In these markets, one is better than two.

The second market developing has broader implications for us in the west. If you sit back and try and visualize our digital future, it is pretty easy to see that most of us will have many screens in our digital lifestyles. We will have a screen in our smartphone, tablets, PC’s, TV’s, Car, appliances, etc. If they are all connected to our digital stuff in the cloud, then the screen that is closest to us at our time of need is the one we will most likely use.

In most cases, the closest screen is our smartphones. However, when desiring to access our digital “stuff” or the Web, many of us who have tablets often to go to our tablets for one major reason, it has a bigger screen and is easier to use especially when surfing the Web or reading docs and email and getting other forms of content.

However, this implies that we now carry with us two devices at the very least, a smarpthone and a tablet. What if we could get both in a single device that is highly portable? It that were the case, perhaps a smartphone even with a 5.3-inch screen would be too small; but one with perhaps a very pocketable one at 6.1″ might be just right. I was easily able to put the Ascend 6.1 in my back pocket as I do now with any spare smartphone I happen to be testing at any given time.

One Size Doesn’t Fit All

One other thing we are learning from our research is that one size does not fit all. Based on individuals needs, they may actually need a larger screen on their smartphone because they would be easier to read due to age, eyesight problems, individual choice, etc. As a small tablet, this larger screen size also works well for the same reasons, along with its ultraportablity. We believe it will start to be pretty clear to all device makers that one size does not fit all and that they may need a range of screen sizes in the smartphone and tablets to meet new user demands in the next 12-18 months.

If both of these market trends play out as I suggest here, and the concept of a two-in-one device catches on in emerging markets and demands increase in mature markets, all smartphone vendors may have to seriously consider doing phablets of their own. As strange as this may seem to us western thinkers, there is a real possibility that a market for phablets could actually emerge and become quite important in multiple markets around the world. Yet if we take a step back and look at the vast array of sizes and forms of our current automobile market, then we understand the role personal preference and they need to have a lineup of products to cover a wide range of uses. So in fact vast variance in smartphones and tablets actually makes sense due to mature market characteristics.

Putting Together The Pieces of the Personal Computing Puzzle

images-34As I read other’s thoughts on personal computing, I am sometimes struck by the fact that we tend to view the world the way it was rather than the way it is. Not only are we not good at seeing the future of personal computing, we’re not even very good at seeing its present.

With that in mind, I thought I’d take a look at some of the new pieces of the personal computing puzzle – smartphones, tablets, hybrids and phablets – in order to speculate on how those pieces might be fitting together in new and changing configurations.

Zero Computers

Hard as it may be for us to believe, most of the world – residents of third world countries, children, seniors and those who simply have no interest in computing – still don’t own even a single computing device. (Believe it or not, my thirty-something next-door neighbors do not own a computer.) But this is all rapidly changing.

The smartphone is allowing millions upon millions of former non-users to put the power of the computer in their pocket. The smartphone is small, relatively inexpensive and more powerful than the computers that were used to land men on the moon. Further, the introduction of the touch user interface has made computing more accessible to the young, the old, the computer illiterate and the computer phobic.

“In the fourth quarter of 2012, mobile PC shipments decreased 11 percent while desktop PC shipments declined 6 percent year-on-year,” said Isabelle Durand, principal research analyst at Gartner.

We are inundated with stories of how computer sales are declining. But those are desktop and laptop sales. Sales of personal computing devices – phones and tablets – are booming.

Takeaway #1: Personal computing is growing and growing rapidly.

One Computer

Yesterday, if you only had one computer, that computer was likely to be a desktop. Or possibly a laptop.

Today, if you only have one computer, that computer is likely to be a smartphone. The power of the internet, email, texting, phoning, etc. – all in your pocket, all for a relatively reasonable price. People from the remotest portions of the globe are using smartphones to conduct business and enhance their personal lives.

Tomorrow, if you only have one computer, that computer may be a tablet. A tablet with a dumb phone (data free, no monthly payment) is a powerful combination. The tablet is less portable than the phone but its added battery life and screen size makes it a formidable stand-alone computer.

Takeaway #2: The first computer that most people will own is likely going to be a phone or a tablet, not a laptop or desktop.

Two Computers

In the past, many of us used to own both a desktop and a laptop computer. As laptops came down in price and increased in power and portability, most moved away from desktops and toward laptops as their one and only computing device.

Today, the laptop and smartphone combination is extremely popular – the laptop for our heavy duty computing and the smartphone for computing on the go.

In the future, the two-computer combination of choice will be the smartphone and the tablet. Both the phone and the tablet have the same touch operating system so the learning curve is almost nonexistent and data transfer is a breeze.

Hard as this may be for geeks like us to fathom, the tablet is all the high-end computer that most people need. Spreadsheets like Excel and heavy-duty word processing programs like Word might be de ri·gueur in the Enterprise, but they are anathema to the average computer user. Asking most computer users to buy a laptop or desktop is like asking a gardener to buy a backhoe in order to do their gardening. A backhoe is indispensable for professional construction workers – but most of us aren’t professional construction workers and most of us aren’t professional accountants, programmers or page layout designers either. We don’t need professional computers to do the work we most often do. We just need what works.

As an aside, I am intrigued by the idea of a computer watch and tablet combination. The watch would serve the purpose of making and taking calls, texts, short emails, etc, notifying us of incoming and upcoming events, allowing us to see small snippets of text, graphics and videos, allow us to use voice input when voice input is appropriate and allow us to rapidly reference programs that rely on geofencing and geolocation.

No one is even proposing such a device at this time. I only mention it because I can easily see how such a watch would take care of our low end, on-the-go, computing needs while our tablets would handle the rest of our computing tasks. Whatever the computer watch turns out to be, if anything, I’m sure that it will be as different from what I envision as the long-expected iPod phone differed from the iPhone that Apple finally provided us.

Takeaway #3: The phone and the tablet may be all the computing power that many will ever need.

Three Or More Computers

For those of us capable of purchasing three or more computing devices, the most obvious solution is some combination of smartphone, tablet and laptop or desktop.

If you had told me in 2005 that people would be buying three or more computing devices, each costing $500 and up, I would have argued against it. First, it would be cost prohibitive. Second, it would be counter-intuitive. People want convenience, not complexity. Why buy several devices when one will do?

Yet today we’re moving more and more toward a multi-screen world and – I would argue – more and more away from multi-purpose hybrids. We’re moving toward several computing tools that do specific things well rather than a single tool that tries to do everything well. How can this be?

As to cost, well, we pay for what we value. Smartphones and tablets do some tasks much, much better than laptops and desktops do. It’s not a question of paying for three computing devices. It’s a question of paying for three tools that excel at performing three very differing tasks.

A gardener buys both a shovel and a trowel because they perform very different tasks. He doesn’t regret the fact that he is buying two shovels — one large and one small. He focuses on what he is trying to accomplish, not on how he can use a shovel as a trowel or a trowel as a shovel.

As for convenience, well, it’s perfectly reasonable to think that we should have one computer perform all of our computing tasks. It’s perfectly reasonable – and perfectly inaccurate.

Notebooks and laptops, like shovels and trowels, do very different things. Trying to get one computer to perform both purposes provides us with a compromise, not an acceptable solution. Swiss Army knives are very useful on a camping trip. But when we’re not camping, we use spoons, forks, knives, corkscrews, etc., not a Swiss army knife. Similarly, a hybrid is useful if we’re in a situation where we’re forced to use only one device. Only most of us are never in that situation anymore.

“Tablets have dramatically changed the device landscape for PCs, not so much by ‘cannibalizing’ PC sales, but by causing PC users to shift consumption to tablets rather than replacing older PCs,” said Mikako Kitagawa, principal analyst at Gartner. “Whereas as once we imagined a world in which individual users would have both a PC and a tablet as personal devices, we increasingly suspect that most individuals will shift consumption activity to a personal tablet, and perform creative and administrative tasks on a shared PC. There will be some individuals who retain both, but we believe they will be exception and not the norm. Therefore, we hypothesize that buyers will not replace secondary PCs in the household, instead allowing them to age out and shifting consumption to a tablet.”

This is a fascinating observation. Today, most view laptops and desktops as the one and only possible computing solution. There are even vicious fights on the internet in which commentators passionately deny that tablets are even personal computers at all.

But what about tomorrow? Tomorrow we’ll live in a world where tablets are our 1-on-1 devices and laptops and desktops are shared because of their cost and limited uses.

Takeaway #4: Our computing devices are diverging, not converging. We’re not looking for one tool to do it all, we’re looking to use the tool that best fits the task at hand.


None of this may seem controversial to you…or ALL of this may seem controversial to you. To me, the things I’ve stated are so obvious as to border on the trite. Yet I recognize that many – and probably most – do not share my views. Today we have many new personal computing pieces. How these pieces fit together will determine the future of computing. It’ll be fun to see what this puzzle looks like when it’s finally put together.

Toward a More Informed Discussion on Android

There are a lot of things that bother me about the discussion among the pundits related to Android. John Kirk has done a great job looking at the business issues around Android from a business perspective so I am not going to rehash those points. You can read them all eloquently stated by John in his series which you can find here. Rather, I would like a take a deeper look at the platform truths related to Android.

Who Cares About Market Share?

The first thing I want to talk about briefly is the pundits and the media’s obsession with market share. There was a time when market share mattered and it was during the maturity cycle of the PC industry. The reason we cared about market share, and in this case Microsoft’s, was because the market was maturing and thus needed a standard to center around, build hardware around, build software and accessories around, etc., in order to mature it. Now that the market is mature, market share is less important than people think to the overall industry. Primarily because there will no longer be on single OS dominating the landscape but rather there will be many which together equal the whole pie. Many ecosystems and platforms can and will continue to co-exist. How many? As many as developers will support and write software for.

As long as developers can make a healthy living supporting a specific platform, no matter how large—or small—its market share, that platform will exist.

From what I can gather there are two groups to whom any bit of market share discussion is relevant to, developers and those who wish the demise of competing platforms. It is unwise and uninformed to be in the latter.

What Do We Mean When We Say Android?

This is the core of the issue that I think gets overlooked. Android is in no way shape or form the same as OS X, Windows, iOS, Windows Phone, or RIM’s Blackberry OS. When we speak of those operating systems we are speaking of a unified platform controlled by one company whose platform share represents the total addressable market, via single SDK, for developers. Should a developer want to develop for any of those platforms, all they need do is get the SDK for that single platform. Android, however, is an entirely different beast.

Because Android is open source, all the term Android refers to is the AOSP, or Android Open Source Project. Anyone can take this core code and create their own custom operating system using Android as the core. Google created and manages the AOSP but also has their own version of Android. Amazon does this and has their own version of Android. Barnes and Noble does this and has their own version of Android. I would not be shocked if new entrants as well take the Android platform and make it their own for their own needs as well. Android is not actually a platform, it is an enabling technology that allows companies to create platforms. A commenter gave the smart analogy a few weeks ago that Android is more like a BIOS.

All of this is fine and good and to be honest I am glad Android exists for the reasons that great companies can take it and build exciting hardware. Whether or not this is why Google released Android into the world is an entirely different discussion. What’s more to the point is that when we talk or read about Android market share, we need to understand that number only applies to Android as it relates to an underlying open source framework.

The reality is Android’s market share is broken up into the many different versions that exist, all with separate developer SDKs. So If I was to actually break the market into the computing platforms which exist for developers the list would look like this:

Proprietary Platforms
– OS X
– iOS
– Windows
– Windows Phone
– Blackberry OS

AOSP Platforms
– Amazon Kindle Fire platform
– Barnes and Noble Nook HD platform
– Google Android Platform
– Other

All of those platforms I just mentioned (including other which I will address in a moment) have their own app stores and/or their own developer SDKs.

So what is other? Other represents the incredibly complex and nuanced regions like China, India, and other emerging markets. These regions have a rapidly increasing number of Android devices in them, yet they have no unified app stores and no benefit to any of the players mentioned above with AOSP versions of Android, including Google.

Now when it comes to smartphones, for now it’s Google’s version of Android vs. other, since neither Amazon or Barnes and Noble make a phone—yet. So to dive deeper into a recent market share estimation that Android has 75% of the smartphone market, means we need to understand what percent of that is Google Android vs. other. Which would be a whole lot easier if Google would tell us, which they won’t.

The fascinating part of this is related to China. Consider this a first in a two part series, where in the next one, which will come next week, I will take a deeper dive to the complex environment that is the China market for smartphones and specifically what is happening with Android in China. China is the wild wild West at the moment and a fascinating market to study. Until then, however, I leave you with a few articles.

The first is by Ben Evans and his recent Forbes column entitled:
Android, China and Addressable Markets

The second is an article in TechAsia entitled:
Chinese apps are bypassing Google’s Play Store, giving Android apps straight to Users

I highly recommend those articles as a primer for what I will dive into next week.

Why The Wheels Are Falling Off Microsoft

This week, highly respected web and technolgy analyst, Mary Meeker, released her end of the year 2012 report on internet trends. The slide deck is 88 slides long and is highly recommended. You can view it here.

As I reviewed Ms. Meeker’s slides, some thoughts on Microsoft’s current prediciment and future prospects jumped out at me. I thought I would use the slides to help illustrate and examine those thoughts.

1. iPods, iPhones, iPads

Take a long hard look at the graph, above. That little green sliver you see represents the growth of the iPod. The very same iPod that powered Apple from near-bankruptcy to a genuine tech contender in less than five years.

Now take a good hard look at the much larger red portion of the graph. That represents the iPhone. The iPhone was the device that rocketed Apple from just one of many to the largest tech company, then the largest company, by market cap, in the free world. For context, that red portion of the graph, alone, is now worth more than all of Microsoft put together.

Now look at the much, much larger blue portion of the graph. Take a long, hard look. Now look at it again. That blue ramp represents the growth of the iPad. It’s growing at three times the rate of the iPhone. Three Times. If you are not awe-struck by the iPad’s rate of adoption, well, you should be.

If you want to know why Appe is rapidly expanding its influence in computing – and why Microsoft is scrambling to catch up – look no further. The above graph says it all.

2. Android And iPhone Adoption

Most people look at the above graph and conclude that the iPhone is in trouble. But you’ll notice that the iPhone is still growing in real terms.

Do you know who’s really in trouble? Anyone not named Samsung and Apple, that’s who. Apple is doing just fine, taking in most of the industry’s profits. Samsung is doing just fine. Google? Not so much. All that market share and little to no profit to show for it has to be worrisome. But this article isn’t about Google. This article is about Microsoft. And no matter how closely you scour the above graph you won’t find a Microsoft product on it anywhere.

(Chart via AllThingsD)

3. Microsoft’s Minuscule Phone Market Share

According to some reports, Microsoft’s phone market share may actually be falling. In the past six years, Microsoft has managed to take its 12% share of the mobile phone market, combine it with Nokia’s 30% share, and convertert it into Windows Phone’s current 2% market share. That’s reverse alchemy – like turning gold into lead.

Steve Ballmer recently claimed that Windows Phone was selling four times faster than it was a year ago. But four times very little is still very little. Microsoft sold 2.8 million Windows phones a year ago. In the same quarter, Apple sold 35 million phones and there were roughly 123 million Android phones sold. So yeah, Microsoft is selling more phones. But so is everyone else that matters.

4. Operating Systems

People think that Microsoft’s Windows is still a powerhouse because it runs 90% of the world’s personal computers. That’s nonsense. Take a look at the chart, above. When you combine phones and tablets and notebooks and desktops, Windows’s only runs on 35% of the world’s personal computers. Android already runs on more personal computers than Windows does and iOS is expected to pass Windows by the end of 2012.

Just as importantly, look at the direction in which Windows is trending. Windows runs almost exclusively on notebooks and desktops, which are a rapidly declining portion of the market. If Windows doesn’t escape its notebook and desktop base and spread to phones and tablets, it is rapidly headed for niche status.

5. Smartphones + Tablets > Notebooks + Desktops

I know that the above graph has a legend, but let me spell this out so that there’s no mistaking the significance of what you’re seeing. The orange portion of the graph represents desktop PCs. The blue portion of the graph represents notebook PCs. Look at how those two portions, combined, are shrinking while the green – representing smartphones – and the yellow – representing tablets – are rapidly growing.

If you look at the above chart, you can clearly see Microsoft’s dilemma. Even if Windows were to power each and every notebook (blue) and desktop (orange) computer made going forward – which they won’t – their share of the market would soon dwindle to near nothingness. Microsoft NEEDS to get their operating system onto phones and tablets and they NEED to do it now.

6. Microsoft Isn’t Even Trying

Here’s the thing. Microsoft isn’t even trying to break into the pure tablet (yellow) portion of the market. Instead, they’re trying to create a hybid device, a new category, a new color, if you will, on the chart above.

In July, I wrote an article entitled: “The PC is the Titanic and the Tablet is the Iceberg. Any Questions?” The purpose of that article was to demonstrate the multitude of tasks that could be done well by a tablet but poorly or not at all by a traditional notebook computer. Windows 8 tablets – with their 16:9 aspect ratio, their desktop mode and their reliance upon keyboards – fall far closer to the notebook than they do to the tablet. One can’t help but feel that, even now, Microsoft still doesn’t totally believe in the stand-alone tablet form factor. Windows 8 tablets are notebooks first – and tablets only in emergencies.

After failing to field a competitor to the iPad for two and a half years, Microsoft is now ceding the tablet market (yellow) to Apple and the rest of the industry – yet again.

7. Conclusion

Microsoft faces a host of problems in the the years to come. Their competitors are far ahead of them in phones and tablets. Their bastion of strength – the notebook and the desktop – is an ever shrinking island. And their strategy to compete in the tablet market is, in my opinion, fatally flawed because it doesn’t even attempt to create a true tablet competitor.

Take a look at that last graph again. The green and the yellow portions are the future of computing. And in that future, Microsoft is nowhere to be found.

Why Android Is Winning The Battles But Google Is Losing The War: Part 3

A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia

Series Schedule:

  • Mon: The Battle for the PC
  • Tue: The Battle for Mobile Phones Won
  • Wed: The War for Mobile Phones Lost
  • Thu: The Battle for Tablets
  • Fri: Picking Your Battles Is As Important as Winning Them
  • 3) The War For Mobile Phones Lost

    Mobile Search Is Not The Same As Desktop Search


    Google’s plan was to transport their highly successful desktop search strategy to the phone. This only made sense. Search worked on the desktop. Mobile was the future. Therefore, Google’s future would be search on mobile.


    Google’s problem is not a lack of market share. eMarketer notes that Google’s share of mobile ad revenue is 55% and it controls 95% of mobile search ads. No, Google’s problem is that search doesn’t work the same on mobile as it does on the PC. In fact, it barely works at all. On the PC, search rules. On the phone, apps rule and search is the court jester.


    When it comes to ads, size really do matter. One of Google’s strenghts when advertising on the desktop was that they would unobtrusively place relevant ads next to and above their search results. On a phone, this was not possible. There simply wasn’t enough screen real estate to display both search results and advertisments.

    “Size absolutely does matter,” says Christine Chen, director of communication strategy at Goodby Silverstein & Partners, an ad agency in San Francisco. “If you look at the real estate available on a smartphone, it’s really sad compared to not just banner ads on the Web, but also to TV, print and outdoor advertising.”

    “The evidence is telling: advertisers are willing to pay much more to reach a thousand pairs of eyes gazing upon a computer or tablet than a thousand pairs looking at a smartphone screen.


    Mobile ads are relegated to a tiny portion of the screen and are often invisible or ignored by consumers.

    It’s a double-edged sword that cuts against advertisers both ways. It the ads aren’t big, they’re invisible. If they’re bigger, they’re seen as intrusive.

    Phones are seen as very personal. Users to not want to be tracked. Interestingly, while 60 percent smartphone users do not allow themselves to be tracked only 7 percent of tablet users and 18 percent of PC users reject tracking on their devices.


    For both technical and privacy reasons, advertisers lost the ability to know who they were advertising to. On the desktop, cookies were the standard. On the phone, such technology was either unavailable or seen and intrusive or even offensive.

    “What makes Web ads so attractive to advertisers is the ability to track actions and optimize accordingly,” . Because a smartphone cannot use the same technology “your ability to track and optimize is much more blunt, or in some cases nonexistent.”

    This makes phone advertisments much less valuable that desktop advertisments. A banner ad on a Web page that costs $3 to $5 for every thousand impressions may cost only 75 cents or $1 for a thousand impressions on a smartphone.


    Context is important too. People surf the web for long periods of time on their tablets and on the desktop. They use their phones in bursts. Trying to promote ads when the user is attempting to grab a quick bite of information is annoying and counter-productive.


    Finally, the engagement levels for smartphone users are lower, reflecting the slower speeds and smaller screens on smartphones.

    Android Doesn’t Monetize Ads Well

    How much of a problem is all this for Google? Huge. Android is so bad at monetizing ads that a study done on Opera placed Android in third plce behind BlackBerry on value for the money.

    Let me say that again. Android’s ads were in third place. Behind Blackberry.

    Apps Rule

    Google didn’t know that search on the phone wasn’t going to work the same as search on the desktop. Another thing they didn’t know was how important a role apps would play in both search and advertising.

    Smartphones were made for apps. People love to use apps on their smartphones. If they want the time for the next train, they use an app to tell them rather than doing a search. If they want to find a restaurant, they might do a search but they’re even more likely to use an app.

    Google’s problem is that apps are not searchable by web crawlers. If Google can’t search it, they can’t sell ads against it. For Google, apps are like a large and ever expanding black hole in their advertising universe. And as that hole gets bigger and bigger Android’s advertising opportunities get smaller and smaller.

    Android App Apathy

    But Android has apps. 700,000 of them. As many or more than any other operating system. So why isn’t Google making money from the sale of apps and app advertising?

    Take the University Co-op Society, which sells University of Texas merchandise via stores, the web, an m-commerce site, an iPhone app and an Android app. When it comes to m-commerce, Apple rules.

    “IPhone app sales are about 25% of our total mobile business and Android app sales are less than 10%,” says Brian Jewell, vice president of marketing. “That leaves a big chunk of sales that come directly from the mobile site. People entering our address directly or coming to us via a search engine or also possibly clicking through from an e-mail blast.”

    And on the mobile site, Apple dominates. Today, 50% of mobile traffic to the University Co-op Society’s web site stems from iPhones, 25% from iPads, 20% from Android devices and 5% from devices running other mobile operating systems.

    Retailers of all stripes tell similar stories, which is why retailers building mobile apps invariably have started with an iPhone app. Android is an afterthought.

    “Android users do not buy. IPhone users buy,” says David Sasson, president and founder of overstockArt.com.

    Android advocates bristle when confronted with the suggestion that Android owners do not buy content or consume advertising on their mobile phones. They say it is insulting.

    First, I’m not insulting anyone. If anyone is insulting Android owners, it is the facts, not I.

    Second, Android owners are not required to buy aps and content or consume advertising. It doesn’t make them bad people. It just makes them bad customers.

    We can argue all day as to exactly why Android owners aren’t buying. There’s lots of theories. The one thing we can’t argue with is the facts. Android owners aren’t buying. And that single fact turns all the market share numbers and the arguments for Android’s dominance on its head.

    ‘Cause you see – and this is the key point missed by most pundits – developers, advertisers, retailers and others don’t follow unit sales – and they don’t follow customers – they follow the money. And until Android owners are induced to part with more of their money, their overwhelming market share numbers mean little.

    The Future

    The future of mobile advertising doesn’t look any brighter for Google either. Voice search poses a huge threat as voice activated searches, like Siri, simply bypass Google search altogether.

    And then there’s always the ultimate threat that Apple will simply purge Google from its system by making Bing or some other brand the default search engine. It is reported that Google pays Apple $1 billion to be its default search, and earns about $1.3B from searches on Apple mobile devices. In the near-term, it seems unlikely that Apple will remove Google search. But there’s no love lost between the two companies and the long-term remains uncertain. Apple made the difficult and painful decision to remove Google from their Map application. Changing the default search carrier sometime in the future seems like a very real possibility.

    It’s A Trap

    All of Android’s mobile activations don’t add up to a hill of beans if they can’t be monetized. And Android simply isn’t doing the job it was born to do.

    It’s a classic tech trap. Google provides a rapidly growing service that is popular with non-paying users while it constantly becoming less and less valuable to Google’s paying customers – the advertisers.

    The result is pernicious. More and more time, money, energy, attention and resources are devoted to Android while the return – a 15% decline in the price advertisers paid per click on a Google ad – continually becomes less and less.


    Android is struggling to monetize phones, but there is more to mobile than phones.

    Tomorrow: “The Battle for Tablets”

    Why Android Is Winning The Battles But Google Is Losing The War: Part 2

    A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia

    Series Schedule:

  • Mon: The Battle for the PC
  • Tue: The Battle for Mobile Phones Won
  • Wed: The War for Mobile Phones Lost
  • Thu: The Battle for Tablets
  • Fri: Picking Your Battles Is As Important as Winning Them
  • 2) The Battle For Mobile Phones

    The Battle Plan

    Tech insiders have been predicting that peak search would happen for some time, as people shifted from using websites – where search is a natural activity – to using mobile apps.

    Google was far from unprepared. They knew that mobile was the future of search and they carefully crafted a plan:

    Step 1: Create a (putatively) open source mobile operating system called Android.

    Step 2: Give the Android operating system away for free.

    Step 3: Sell mobile ads and other mobile services on those mobile devices running Android in much the same way that they were currently selling ads and services on the PC.

    A Glorious Tactical Success

    Parts 1 and 2 of Google’s plan worked to perfection. In fact, Android was more succesful than anyone, including Google, could have anticipated or even imagined. Internal Google documents revealed at the Oracle v. Google trial show that Android’s growth far exceeded even what Google had projected or expected.

    Just five years after its debut, Google‘s Android mobile operating software now claims 75% of smart phones shipped, according to a new report from market researcher IDC. A simply stunning overall achievment.

    A Glorious Public Relations Success

    And don’t think that Android’s spectacular rise has gone unnoticed:


    “Android’s ascension to glory has been incredible to behold.”

    Dan Lyons:

    “Look, when three out of four phones sold worldwide run your operating system, I think it’s safe to declare victory.”


    “Why Android has won”

    CEO Nathan Eagle

    “Why Android Has Already Won the Global Smartphone Race”

    Joe Wilcox

    “Android wins the smartphone wars”

    Chris Pirillo

    Android is the New Windows (I mean that in the most polite way, too)


    “As Android hits 75% market share, can anyone tell me why this is not Mac vs PC all over again?”

    An Inglorious Strategic Failure

    “Another such victory and I am undone.” ~ Pyrrhus

    Every report, every study shows that Google got it right. More and more ad revenue is moving to mobile. An analysis of the mobile traffic from a cross section of advertisers reveals up to 25-30% of all paid search traffic is now mobile. And more and more mobile phones are powered by the Android operating system. It’s only logical to assume that the more people buy and use Android phones, the more money Google will make from the sale of search, content and other services.

    Only that’s not happening. That’s not happening at all. Android appears to be an overwhelming success in every way. But it turns out that it is only an overwhelming success in one way – market share. In every way that matters – and especially in profits – Android has been a dismal failure.

    Unexpected, exponential user growth is usually accompanied by a dramatic positive improvement in the finances of a company and a higher return to shareholders. The curious aspect of Android’s success is that it has not had an impact on either. ~ Horace Dediu

    Yearning For Earnings

    During the Q3 2012 Earnings call, Google announced that it had a run rate of $8 billion from its mobile business consisting of revenue from ads, apps and content. That was contrasted with a $2.5 billion run rate of a year ago. CFO Patrick Pichette added “Ads continue to be the bulk of [the $8 billion], the vast majority of it.” Sounds like good news, right?

    The problem with the $8 billlion number is two-fold. First, the increased revenues appear to represent more of an reshuffling of assets than actual growth. Second, despite the presumably large increase in the run rate, Google declined to disclose Nexus 7 sales, app sales, content sales or ad sales and they stoutly refused to address mobile margins and profits.

    What we do know for sure is:

    — Cost-per-click (CPC) was down
    — Traffic Acquisition Costs (TAC) were up
    — Profit from Android was un-reported and possibly non-existant

    Upon revealing the numbers, Google’s stock tanked. With Google’s stock falling a shocking $68 or 9% in a matter of hours, Google was desperate for good news to give to its shareholders. If there was ever a time to reveal Android’s profits, that would have been the time. Instead, managment adamantly refused all requests for specifics on mobile sales, margins or profits.

    With their stock plummeting, you can bet your bottom dollar that if Google had garnered any profits from Android, they not only would have revealed them, they would trumpeted them as loudly as possible. After all, it’s not like Google doesn’t like to brag about Android. They tout their Android activation numbers all the time. The fact that Google did not reveal any good news regarding Android can mean only one thing – there was no good news to reveal.

    After all, there is simply no good reason NOT to reveal Android’s numbers and associated profits. You could argue that Google is being coy and hiding numbers for competitve advantage but what possible competitive advantage could there be?

    Further, there is every reason TO reveal profits. If the numbers are rising at an appreciable rate, that would be an exciting development that Google would want to reveal. It woud prove that their strategy was correct and that Android was winning. It would put to rest any lingering doubts, questions or suspicious that things with Android might not actuallly be as they seem. It would be a demoralizing blow to their competitors and a shot in the arm to their stockholders. And perhaps, best of all, it would be an incentive for their customers to increase their ad spending and hop on board the Android gravy train

    It is, in fact, almost a certainty that Android DOES make Google a profit. But that profit must be so embarrassingly small that it would be counter-productive for Google to announce it. Doing so would not help Google’s stock, it would hurt it as the revelation would expose exactly how little Android has actually accomplished.

    Pyrrhic Victory

    Android has overwhelmingly won the battle for marketshare. But the purpose of market share is to get more developers, more apps, more advertising eyeballs, more content, to deliver more revenue – and most importantly – more profit for all involved. Android isn’t delivering any of that.

    This is a classic Pyrrhic Victory. Android is winning the market share battles but Google is losing the profit war.

    The irony here is poignant. In a reversal of the famous Rolling Stones song, Android got what it wanted – market share – but not what it needed – profits.


    How could this be? How could there be such a disconnect between the number of Android users and their value to Google?

    Tomorrow: “The War for Mobile Phones Lost.”