Unpacked for Friday, July 15th, 2016

Apple’s iPhone users are not defecting to Samsung – by Carolina Milanesi

On Wednesday Kantar Wolrdpanel (KWP) ComTech published its Quarterly Smartphone OB Barometer for the three months ending in May 2016, confirming what we have been saying for a while: Samsung’s current success has nothing to do with stealing users from Apple. As a matter of fact, Apple’s sales are more impacted by users that churn from Samsung to the iPhone than vice versa.

“Starting with the US, in the three months ending May 2016, Samsung accounted for 37% of smartphone sales and Apple 29%. However, sales of their respective flagship models reveal a much closer competition, with the Galaxy S7/S7 Edge accounting for 16% of sales and the iPhone 6s/6s Plus at 14.6%. What’s more, when we look at where these purchases are coming from, just 5% of Samsung purchases came from those switching away from Apple, while 14% of Apple purchasers came from those switching away from Samsung.”

As both Ben and I have been saying, Samsung is benefitting from the large base that decided to sit out the Galaxy S6 update. Despite a considerable improvement in the look and feel, the Galaxy S6 did not bring enough new features to justify an upgrade for many users. For others, the lack of removable storage and the relatively poor battery performance were a showstopper. The Galaxy S7, built on the look and feel of its predecessor, addressed those primary complaints. However, as the majority of sales are coming from upgrades, it would be wrong to assume the current success could be sustained with the next flagship as the upgrade pool will be smaller and Samsung is not capturing from Apple. Considering that KWP ComTech’s data shows 88% of current Apple users and 86% of current Samsung users intend to stay loyal, there is little reason to believe the situation will change.

KWP ComTech also said in the three months ending in May in the US, the Galaxy S7 outsold the iPhone 6s. This point got some Samsung’s fans very excited but we should remember when the two devices were launched: March 2016 vs September 2015. Aside from the new vs old argument, we are also a couple of months away from the launch of the next iPhone, which has traditionally been in September. This is certainly delaying some purchases especially of the current flagship — users know it will likely be discounted as soon as the new model is announced.

Outside the US, Samsung has been feeling the pressure. Huawei and local smaller players in Europe, China and India are impacting volumes – still accounting for the majority of sales – that come from the non-Galaxy S products. This, coupled with the smaller upgrade pull will make for a challenging 2017 when Samsung will certainly try and take advantage of its early move into VR.

Facebook and Twitter live video strategies go in opposite directions – Jan Dawson

The last couple of weeks have highlighted major differences in the strategies and uses of Twitter and Facebook’s live video platforms. Facebook Live Video has demonstrated its usefulness and reach as a platform for sharing raw footage in the moment by ordinary users in recent days as not one but several shootings were captured using the technology. That’s ironic because it was Twitter that first launched a live video platform for its users through its Periscope acquisition. Meanwhile, Twitter is focusing on doing deals for professionally produced TV-style content, having apparently de-emphasized Periscope.

Facebook has seen a variety of unconventional videos bring attention to its platform over recent months, from Buzzfeed’s watermelon experiment to “Chewbacca Mom” to the recent shootings. Some of that attention has been positive, while the shootings have been more problematic and it seems Facebook has been of two minds about hosting some of this content, though it has eventually come down on the side of openness. This role in sharing videos is a double-edged sword – on the one hand, it’s a fantastic advertisement for the platform and Facebook’s massive audience is the perfect tool for making the content go viral. On the other, such dramatic videos could give the impression Facebook’s Live Video isn’t designed for the simpler, more humdrum moments ordinary users might otherwise share. Facebook has to walk a careful line and must also be careful not to be seen trying to benefit from tragic events.

In doing all this, Facebook appears to have usurped Twitter’s original plan for live video and Periscope but Twitter has moved on. With its recent deals to broadcast Wimbledon, live stream content from the political conventions, and its Bloomberg deal, Twitter has clearly pivoted its live video strategy in a significant way. This is a fairly low-risk strategy for Twitter, as the content it’s secured is all non-exclusive and therefore comes cheap. Any ads Twitter is able to sell will provide some upside but I suspect the strategy is more about driving usage than it is about direct monetization. The big question is whether it will drive user growth or merely increase engagement of existing users (or neither). But given the low risk, it’s likely worth the gamble. What is clear is Twitter’s interface for live video requires work – the tweets that appeared under the Wimbledon video were a mess and significantly more curation is required to make that a better experience. Twitter has a few months to tweak the interface before its big NFL debut later this year.

Apple’s Content Strategy – Ben Bajarin
Whenever Apple execs talk publicly, I like to try and read between the lines. That is why, when the Hollywood Reporter ran this interview with Eddie Cue, a few things about Apple’s strategy stood out.

Just how deep Apple wants to own content has been a key discussion. Beats was an interesting deal and a bit out of character for Apple. So the question has been if that is a template to watch or just a one off activity. From this interview with Cue, I get the sense it was a one off.

Apple seems content to continue to play the platform game. Make their hardware and software platforms the best place for services companies to meet the needs of their customers. Telling was Cue’s response the question of if Apple is building their own TV subscription service (AKA “skinny bundle”). Here is his answer:

Whether we’re providing it or somebody else is, it really doesn’t matter to us. What we’re trying to do is build the platform that allows anybody to get content to consumers. If a Time Warner [Cable] or a DirecTV wants to offer a bundle themselves, they should do it through Apple TV and iPad and iPhone. As a matter of fact, I’m not a big fan of the skinny bundle.

Now, this answer doesn’t entirely leave out the idea Apple would still create this service but it does enforce the platform concept Apple seems content to pursue. Let others create value on top of what they have built in all vectors of software and services.

Cue addressed what they do with first party experiences vs. letting others create value by what fits with Apple’s core values. This is why they are so focused on first party music services since they feel it is ingrained into the Apple experience and culture. Perhaps the same is not as true of movies and TV. Cue basically said they don’t intend to compete with Netflix.

I think this is the right move for Apple to focus on the platform and not go vertical in media services or services in general. The challenge, however, is this tactic allows others to creep into the core engagement with Apple’s customers. For example, if I fully bought into a third party services world from Spotify, Google Drive/cloud, Netflix, Comcast’s bundle, etc., then all I need Apple for is hardware. That, again, is not the worst thing in the world but my concern is it could be limiting.

What Apple risks in the platform-only approach is other companies grabbing the bulk of engagement and developing deeper relationships with their customers. Theoretically, in a cloud-based world, hardware could become commoditized and less valuable. I don’t fully think it plays out this way but it is something to keep in mind.

US PC Market Shows Improvement – by Bob O’Donnell

After years of bad news and sales declines, PC shipment growth in the US finally turned positive in second calendar quarter, as both Gartner and IDC reported modest increases in US PC shipments. Worldwide shipments were still down for the quarter in the 4.5% range, primarily because of ongoing challenges in many emerging markets, but the return to positive growth in the US is highly welcome news for the often maligned PC business. Credit has been given to strong Chromebook shipments to the US education markets as a key factor, but I believe we’re also starting to see the impact of Windows 10-driven PC upgrades for commercial PC customers. Many organizations (and consumers) chose to do in-place, software only upgrades to Windows 10—a phenomena that never really happened with previous Windows releases—and that muted the originally higher expectations for the new OS. However, Microsoft’s free upgrade policy for Win10, combined with essentially no new hardware requirements from either Windows 7 or Windows 8-based PCs, made it much easier to do than before. Nevertheless, many commercial organizations who want to take advantage of Windows Hello’s biometric authentication support, as well as other traditional speeds-and-feeds hardware improvements, are now starting to make the kinds of large-scale fleet upgrades that many in the industry had expected (or at least hoped) would happen earlier.

The good news is, this provides credibility to the thought that PCs would bottom out and then turn around, unlike their tablet brethren, which continue to decline. Worldwide sales improvement is still elusive, primarily due to the economic challenges that many nations are still facing, but at least there now seems to be both hope and light at the end of the PC sales tunnel.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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