Unpacked for Friday, October 14th, 2016

Amazon Demonstrates Its Pragmatism with Physical Retail for Groceries – by Jan Dawson

The Wall Street Journal reported this week that Amazon is planning to build convenience stores and curbside pickup locations for groceries, in an expansion of its existing grocery delivery business. The convenience stores would sell basic items, while the pickup locations might make use of clever technologies to automate and speed pickups.

This investment, assuming the reporting is accurate, is a great demonstration of Amazon’s pragmatism when it comes to expanding its business. Yes, its retail business is almost entirely about online ordering and delivery but it’s not religious about either of these things. Ultimately, what Amazon is building is an online-first and not an online-only business. That gives it the flexibility it needs to dip its toe into physical retail when it makes sense, as it has already done with its first brick-and-mortar bookstore in Seattle.

Why groceries? Well, this is easily one of the largest retail categories and doing well here would boost overall spending on Amazon considerably. However, it’s not one that lends itself well to traditional e-commerce – it often involves last-minute purchases as well as heavy, bulky, and perishable items which are not well-suited to traditional shipping. First-party delivery can solve some of these problems but still runs into issues with people not being home, traffic, and so on. Shifting to a physical retail model turns this from a customer delivery model into a store logistics model, something that eliminates many of the challenges associated with selling groceries. The convenience stores also support the impulse buy on the way home, which Amazon.com can’t manage for most purchases.

Amazon, of course, isn’t the only online company dabbling in physical retail. Google has announced it will have a pop-up store in New York in the coming months to support sales of its new hardware products. These companies are learning that, when it comes to certain product categories, online retail just doesn’t cut it, while third-party retail also has its downsides. It’s interesting, though, that all this is happening in the context of a very challenging overall market for physical retailers, with many closing stores in the face of higher e-commerce sales driven by – among others – Amazon.

The big benefit for these online-first retailers, however, is they can be very strategic and selective about their physical retail presence, creating new categories of stores rather than following traditional models, and thereby avoiding some of the pitfalls their offline-first competitors are struggling with. In addition, because these stores are complements to, rather than competitors for, online retail they don’t have to offer everything – just those categories of products that make sense in a store. These stores, then, are best seen, not as a standalone strategy for Amazon, but as part of a continuum of options for both ordering and receiving goods which will likely to continue to evolve over time.

Of course, for those of us that don’t live in the major coastal cities, this will be yet another example of a service that exists only in theory, as Amazon tends to invest ever more heavily in additional shopping and delivery options in the most densely-populated areas first. Citizens of New York and other such cities already enjoy one-hour delivery and other perks the rest of us can only read about online.

Sony PlayStation VR Brings Virtual Reality to the Masses – by Bob O’Donnell

The buzz and hype around virtual reality has been extremely high for the last few years but the real-world impact has been fairly muted. Sure, there’s been some interesting experiments with Google Cardboard, Samsung’s Gear VR and other mobile-driven VR headsets, but most people acknowledge those products can’t really compete with more powerful PC-driven options from Oculus and HTC when it comes to a truly immersive VR experience.

Sony, however, is looking to take a different tack with its new $399 PlayStation VR headset, which works along with the 40 million+ PS4 game consoles already in people’s living rooms. Essentially, they’re bringing what many reviewers are saying is a VR quality of experience similar to those higher-end headsets but at a more affordable price. Even more importantly, they’re providing it as an accessory to a device people already own.

The result is an opportunity to really bring virtual reality to the masses in a way no previous offering from other vendors has. Plus, because much of the early compelling content for VR is gaming and entertainment-focused, it’s a great match from both a product and a customer perspective. Anyone who has invested in a PS4 is clearly interested in gaming and the PlayStation VR promises to bring a new, higher-level of gaming immersion than most have ever experienced.

This is an important point to remember because the vast majority of consumers have still had very little or no experience with VR. For many of them, PlayStation VR will be their introduction to virtual reality. As a result, I think is likely going to get some of the benefits that come from being first to market—it’s bound to create a lot of buzz and excitement around the product and the Sony brand. Given how long it’s been since Sony has had a truly groundbreaking product, it’s likely going to provide a much needed boost.

Though it’s still early, initial reaction from Japan suggests the company could have a big hit on its hands. Customers travelled long distances and formed lines outside of retailers in an Apple-like way to purchase or place an order for a PlayStation VR—that’s something we haven’t seen for a Sony product in quite some time.

Moving forward, Sony is also hoping to expand beyond gaming and possibly even bring new customers to the PS4 and forthcoming PS4 Pro updated gaming console by providing entertainment-related “experiences” tied to Sony-owned media content, as well as educational and virtual travel type offerings.

It’s still early days for VR, but I have a feeling Sony is making a strong debut.

PC Market Shows Little Sign of Improvement – by Carolina Milanesi

It is that time in the quarter when IDC and Gartner publish their PC market share and, while the numbers differ slightly due to methodology (Gartner does not include Chromebooks and iPads), the sentiment is similar. IDC is calling for a 3.9% decline while Gartner puts the year on year decline at 5.7%. The US market was practically flat for Gartner while IDC recorded a second quarter of positive growth.

In their commentary, both companies cited slower replacement rates in the consumer market and lack of upgrades generated by Windows 10 in the enterprise. Nothing new really. Back in April, we ran a study in the US market to understand intention to purchase and the picture was not encouraging. Of the 550 consumers we interviewed in the US, only 12% had upgraded their PC in 2015 and 26% had a PC that was five years old or older. When asked about intention to upgrade, 62% said they were not upgrading over the next 12 months. When asked why, 70% of owners of a five years old or older PC said their current PC works fine and they do not see the need for a new one. Only 9% said they could not afford it. Looking at usage paints the entire picture. Users of newer PCs are more engaged and use their PCs for a wider variety of tasks. Most users with PCs 5-6 years old say they do social networking (28%) and manage files (22%). In comparison, only 10% of owners of PCs 1/2-year-old use their PC to manage files.

Vendors need to re-engage consumers with the PCs by making them appreciate the rich experience a PC can deliver compared to a smartphone and a tablet. When mobility is not the priority, consumers need to perceive the added benefit of a PC experience. Clearly, price is not an issue as that only comes up with less than 10% of consumers who are not intending to purchase a new device. They are clearly saving that money or using it on something else. With more devices being pitched as smart, consumers no longer see the PC as the only device with brains. The biggest problem I see in the Windows ecosystem remains the lack of applications which would bring some of the most used features and experiences people love on their phone to the PC.

If vendors can crack this “added value” point with consumers, they could see an increase in ASP even though sales might not return to growth quite yet. Times remain tough, as shown by the recent news from HP that they will lay off 3,000 to 4,000 employees over the next three years in an attempt to save $200 to $300 million per year beginning in fiscal 2020. Earlier in the year, HP had already announced they will be laying off 3,000 employees by the end of December. HP is currently number two in the market ranking very close to leader Lenovo.

Apple Increases Its GPU Talent Acquisition – by Ben Bajarin

Business Insider broke some news that Apple is increasing its talent in the GPU department by hiring key folks from Imagination Technologies. Apple uses a GPU license from Imagination and does some customization to the IP but it is unclear how much. It has been rumored Apple was looking to design its own GPU. However, I’m not sure starting from scratch is the likely way they would accomplish this.

The GPU is increasingly becoming one of the most important parts of our computing devices. When it comes to computer vision, AI, AR/VR, and anything related to the visual and graphic elements, the GPU is involved. Knowing Apple likes to own and control the full stack when it comes to the critical components of computers, it seems inevitable this will continue to spread to the GPU given how critical it is for future computing experiences. This is a matter of when not if.

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Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc, a market intelligence and strategy consulting firm based in Silicon Valley and recognized as one of the premier sources of quantitative and qualitative research and insights in tech. At Creative Strategies, Carolina focuses on consumer tech across the board. From hardware to services, she analyzes today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech, she drove thought leadership research by marrying her deep understanding of global market dynamics with the wealth of data coming from ComTech’s longitudinal studies on smartphones and tablets. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role, she led the forecast and market share teams on smartphones, tablets, and PCs. She spent most of her time advising clients from VC firms, to technology providers, to traditional enterprise clients. Carolina is often quoted as an industry expert and commentator in publications such as The Financial Times, Bloomberg, The New York Times and The Wall Street Journal. She regularly appears on BBC, Bloomberg TV, Fox, NBC News and other networks. Her Twitter account was recently listed in the “101 accounts to follow to make Twitter more interesting” by Wired Italy.

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