Month: Apr 2014

What Next?

The dust on the iPad sales decline news has mostly settled, and at least the sensible analysts have converged on the view that the cause was the rise of the smartphone; that the smartphone became good enough for many of the computing needs that tablets were previously purchased for.

So now that we have a rather adequate idea of what happened, let’s try to go forward. Let’s try to see what will happen in the future.

Tablet sales vs. PC

Up till now, the rhetoric was that tablets will overtake the PC in sales quite soon. This assumed that tablet market will continue to grow while PCs will gradually decline.

First, it is possible that the overall tablet market (not only iPads) might also slow down. Hence tablets might not overtake PCs so soon.

Second, comparing tablet sales to PC sales may not be meaningful. Whereas many analysts previously thought that tablets were replacing PCs, that does not seem to be the case. In fact, it seems to be the smartphone that is replacing tablets and also PCs.

As a result, we don’t know right now what is going to happen to tablet vs. PC sales. We are also starting to think that this question is rather meaningless.

Absolute tablet sales

We know that the tablet market is rather complex. On the high-end, there is the iPad which is used for all kinds of tasks, including web-browsing, reading books, composing emails, drawing art, playing games, watching video and a lot more. On the low-end, there are media players which are not used for web-browsing but are used a lot for watching videos.

The price points are very different, as is the ecosystem, product quality etc. With this huge difference, it is questionable whether we can discuss these two segments together; it looks like there are two completely different markets.

For the iPad segment, it is reasonable to assume that the current trend will continue. Assuming that the flattening of iPad sales is a result of smartphones becoming more capable, we don’t see an immediate end to this trend. Investment continues to intensify in mobile applications and services. On the other hand, there are few compelling applications targeting the mass-market that require a tablet to enjoy. The exception here might be Microsoft Office. The ubiquity and importance of Microsoft Office could enable the iPad version to single-handedly reverse the downward trend of iPad sales.

For the other tablets, there is reason to believe that they will continue to expand. Prices are getting extremely affordable to the point that tablet hardware is now being bundled with subscription services, such as education. That is to say that these tablets are not longer a product in themselves, but an accessory to a service. They are single-purpose devices, much like the jug that comes with your coffee maker. They do not compete with other jugs. Since customers are not making an explicit purchasing decision when acquiring these tablets, competition with smartphones is irrelevant.

Unless a new consumer killer application emerges, the upside potential of the iPad segment lies mostly in businesses and education. As I mentioned, Microsoft Office may be a big boost to the corporate adoption of iPads. The problem is that corporate and education IT are slow-moving. We do not know when adoption will kick-in at the level that we need to see a visible reversal in iPad sales trends. It make take some more years, in which case we would see a continuation of the current downward trend for a while.

Long term

There is no question that the iPad is a magical device.

Whether laptop users will embrace it for their work as a PC replacement is actually kind of irrelevant. Replacing PCs doesn’t expand the possibilities of computing if the same people are using it for the same tasks. Instead, what is really important is how iPads allow children, old people and people with disabilities to use computers. Equally important is how it allows computing in situations where it was previously difficult, like when you are standing and do not have access to a desk.

Too many people thought of the tablet as a PC replacement (and found that tablets were actually being replaced by smartphones). That was the wrong approach. Tablets will never thrive if they can only find their niche in between two strong and ever-evolving products. Tablets will thrive if they can carve out their own niche and that niche grows.

That niche is a new market segment. It is a market that did not previously exist. The majority of potential customers are not yet aware of the possibilities, or there may be roadblocks which have not yet been sorted out. Sufficient budget may not yet have been allocated to these projects. It will take time.

In the long term, I am confident that the iPad will thrive. The current levels of iPad purchases and awareness are extremely high, and it is totally unlikely that many people will or have found exciting new niches. Unfortunately none of these have yet become truly mainstream, but it is inevitable that many of them eventually will.

iBooks Author

In this context, it is easy to see that iBooks Author, the software that you can use to create beautiful multimedia books for the iPad, is a long-term play. It is an attempt to improve the quality and quantity of e-books specifically for the iPad. It has to potential to grow the iPad education niche, but it will take time.

Mid term

In the mid-term, I expect iPad sales to continue to struggle. They may even significantly decline. Keep in mind that current iPad sales are extremely high, much higher than PC shipments from either Lenovo, HP or Dell so even a significant decline does not mean that iPads will lose relevance.

I have no idea how long this will continue, or if business/education sales will be large enough to ever sustain 20 million iPad units per quarter for example.

What we do know is that the iPad still does not have a direct competitor and that looks like this will continue to be so mid-term.

Risks

The risk that I do see to the iPad business is tablet bundling with services. It is possible that we will continue to see a proliferation of single-use tablets being offered for free or extremely cheaply with education services, business solutions, entertainment subscriptions etc. These markets rarely care about providing the best possible user experience and they could prevent the iPad from finding traction in these markets.

Apple’s solution to this problem is easily predictable. They will work on the ecosystem and developer tools so that better services and solutions are uniquely possible on the iPad. The race is on.

Confusion As Pundits Try To Explain iPad Sales Decline

Following the decline of iPad sales, pundits are trying to come up with theories to explain what they are seeing. Let’s take a look at some common ones.

Market saturation theory

The iPad was released in 2010, hence the market saturation theory is saying that market saturation was reached in a mere 4 years. That is rather incredible, although not completely unthinkable given the extremely rapid uptake of this product.

The problem with this theory is that sudden flattening is not what market saturation looks like. Horace Dediu has charted the rise and fall of platforms since 1975, and we can see that a sudden flattening of sales is not what happens on saturation. Saturation is gradual, like the PC curve. Abrupt changes like the flattening seen when Macintosh sales flattened, are the result of a new product superseding the old, not saturation. In this case Windows 95.

Another issue with this theory. Searching the web, current household penetration of tablets seems to be around 50% whereas for PCs, it’s about 90%. Saying that tablets have saturated is easy, but it doesn’t explain why they saturated so early. Unless there is a reasonable explanation, “saturation” is not a cause but merely an observation of the slope of the curve.

Update: Tim Cook mentioned that 2/3 of iPad purchases are from first-time users. This makes the market saturation theory even more incredible.

The iPad isn’t very useful

Arguments like “it isn’t a production device”, “it isn’t a must have”, “there are too many things that it can’t do that a laptop can”, “it’s only good for our children to play games on” fall into this category.

The problem with this argument is that it has been true all along. Although this argument somewhat explains why people are not buying iPads, it totally fails to explain why people rapidly bought them from 2010-12.

It’s difficult to explain a huge change based on something that has been the same from the beginning.

Long replacement cycles

I do not doubt that the replacement cycle for the iPad is longer than the iPhone. I do not think however that this could have been a reason for the iPad’s sales decline.

The slowing of iPad growth started at the beginning of 2013. If this was caused by long replacement cycles, then we have to assume that the sales of 2012 were already heavily driven by replacement (with replacement cycle about 2 years) and that these sales started to go away from 2013. This is a preposterous assumption given that the iPad first went on sale in 2010. There would hardly have been a single replacement cycle before the sales started to slowdown in 2013.

In fact, Tim Cook actually mentioned that 2/3 of Apple’s iPad buyers were new to iPad. The iPad does not seem to be strongly driven by replacement sales even in 2014.

Replacement cycles are very unlikely to be the culprit. We have to look at slowing sales to first-time users.

Phablets

Some people think that large screen phablets are eating into tablet sales and that this affected the iPad. These people are confusing the markets where phablets are selling well, with the markets that largely contribute to iPad sales.

It is well known that phablets are mostly popular in eastern Asia, and that they are much less popular elsewhere. On the other hand, iPads (premium-priced tablets) sell well in western countries whereas Asia (especially China) is flooded with cheap tablets, not iPads. Phablet sales and iPad sales owe to two different markets with limited interaction.

Moreover, one can assume that a very large percentage of iPad users also own iPhones because of the shared ecosystem and brand affinity (I haven’t been able to find direct data on this). iPad demographic studies also show that iPad users are similar to iPhone users, supporting this assumption. Since iPhones do not have large screens, the iPhone-owning segment of potential iPad users will not be affected by phablet trends at all. Therefore, if the phablet theory is true, phablet owners must be the sole contributors for the flattening of sales. Their contribution must be so large so as to completely mask the buying trends of iPhone-owning iPad buyers. Quite unthinkable.

I would love to have better data to back this up, but it seems unlikely that iPad purchases are being significantly affected by phablets.

Cheaper Android tablets

If cheap Android tablets are the reason for the iPads decline in sales, we should be seeing booming Android tablets sales. This is clearly not the case. IDC is forecasting significantly slower growth for tablets in 2014 (19.4%) compared to growth in 2013 (51.6%). IDC’s data includes the ultra-low cost tablets in China so it’s difficult to isolate what is happening in the market tier that the iPad is playing in. Nonetheless, it is evident that booming Android tablet sales aren’t what’s causing iPad sales to decline.

If you look at any metric for tablet usage, you will also see that Android tablets are not being used much. It is simply inconceivable that cheap Androids are winning customers from iPad.

There is a possibility though that Android tablets are diverting customers away from tablet usage altogether. Customers interested in tablets, but not of the techie type, might be swayed by a salesperson to buy an Android. On discovering that it’s pretty useless, they may be so fed up that they won’t consider buying a tablet (including iPads) ever again. I’m actually pretty worried about this, but I don’t think that it is sufficient as an explanation for iPad’s sales decline.

My theory: Mobile Software and the Mobile Web

The only theory listed above that makes sense is the “The iPad isn’t very useful” argument. The other theories fail because they don’t agree with either the data or common sense. In the case of the saturation theory which is hard to argue against, it’s simply an observation and not a cause-and-effect.

The only problem with the “The iPad isn’t very useful” argument is that it doesn’t explain why sales grew so fast up till 2012. If iPads weren’t useful, then people wouldn’t have bought them in the first place. Therefore we have to assume that, in the beginning while sales were booming, “The iPad was very useful”. At some point, probably in 2012, that ceased to be true and “The iPad isn’t very useful” became the more dominant situation.

How could that be? What could have changed so dramatically?

My theory is based on the observation that mobile applications and the mobile web improved tremendously so that using smartphones became comfortable enough. For example, when Steve Jobs demoed the iPad on stage in 2010, he browsed the New York Times website. At that time, the NYT website was not mobile aware, and you got the exact same layout as a PC when you accessed from a smartphone. You had to pinch and zoom your way around. They were one of the first publishers that offered an iPhone application, but the quality was quite poor. It also crashed a lot. As a result, viewing the NYT website was such a better experience on the iPad compared to the iPhone and that’s probably why Steve Jobs demoed it from the sofa on stage.

Today, the NYT website is so much better on an iPhone. Even without downloading the iPhone app, you get a layout that is optimized for mobile. It’s smooth, fast, and responsive. The font size is large enough to read without zooming, even on a 3.5-inch iPhone. The experience is so much better.

The same thing can be said of virtually every major website. Every major website now is optimized for smartphones down to iPhone sizes (remember that most web designers will be iPhone owners). There are also many more apps with much higher quality. There are very few occasions now where you need to have the screen size of a tablet to browse the web. This was not true even just a few years ago.

In fact, if you are a web developer, then you will know that what enabled this explosion of mobile websites is a technology known as “Responsive Web Design”. This is based on ideas described in A List Apart in May 2010. This was the watershed moment when the mobile web really started to get its act together. Previous mobile web design attempts were frankly quite clunky. If you want evidence of this history, note that the WordPress default theme for 2010 (twenty ten) was not optimized for mobile. In 2011, WordPress adopted a responsive default theme (twenty eleven) which fully adapted to mobile for the first time (You can check how these themes look on a smartphone using a desktop browser by simply narrowing the browser window). In other words, it took until 2011 till the world’s most popular web-publishing platform became fully mobile-friendly. 2010-11 was a pivotal moment for the mobile web.

What we see is that software and web innovation dramatically improved the usability of smartphones for common tasks like checking the morning’s news. This started in earnest after 2010 and really started to kick in a couple of years after that.

Back in 2010-2012, the old days, “The iPad was very useful” compared to a smartphone for things like viewing newspaper websites. In 2014, this is no longer the case. The iPad lost a key advantage over smartphones. As a result, the iPad had to justify its existence at the other end of the spectrum, against laptops. This enforced the “The iPad isn’t very useful” argument.

In summary, software has vastly improved the usability of smartphones and allowed them to replace tablets for casual computing. Tablets have been squeezed out of its niche. Tablets still dominate some niches which are not accessible to smartphones and could continue to find growth there in smaller quantities (Tim Cook explicitly mentioned education and business). However, it is unclear to me how tablets could grow in the mainstream consumer market in the mid-term (3-5 year span).

Update

While I do have doubts on iPad growth in the mainstream consumer market (by which I mean excluding education mandated purchases), I have no doubt that Microsoft Office will be a huge force in corporate adoption. This alone could turn around the fortunes for iPad.

Explain Flat

Benedict Evans tweeted the only tweet that really makes sense about the iPad sales.

スクリーンショット 2014 04 24 10 23 06

Anybody can give multiple reasons why iPad sales might have slowed down, and the numerous replies to Ben’s tweet show that. However, none of these answer his question adequately.

His question;

  1. It’s a great product.
  2. It has a good price (was alarmingly cheap on introduction)
  3. Has very wide acceptance
  4. Has very high user satisfaction
  5. And STILL has flat sales

I would also add;

  1. Had tremendous growth up till 2012

Any acceptable answer has to answer all of these. It’s not easy.

Flat or declining sales in tech is something that we associate with products like the iPod or the PC. In these markets, no matter how good the product, sales will not grow because the market itself is shrinking. We often attribute this to a replacement product; a product that is making the old one obsolete. So the question is, is the iPad market being obsoleted by some other product?

We also have to answer the growth until 2012 question. If we simply say that tablets aren’t very useful anyway, how do we explain growth until 2012. We can’t.

The easiest way to think about it is that the iPod or PC cycle (from boom to bust) came in fast-forward; the nature of the market changed.

iPad Sales Decline

As reported in Apple’s Q2 2014 conference call, iPad sales significantly declined compared to the year ago quarter. A year ago, they sold 19.48 million units. This year, only 16.35 million. That’s a pretty big decline.

It’s not something that was totally unexpected. As early as August 2013, I noted that iPad sales and tablets sales in general were losing steam and this could be a longer-term trend. I wrote many times how the idea that tablets are replacing PCs is a fallacy, and that the iPad was actually carving out a new market, not replacing an existing one (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13).

A summary of the current situation can be found in one of my posts that I wrote in Jan. 8th, 2014 (“What the Tablet Market Isn’t”).

So what I sense is the possibility that tablets (as computing devices) may have hit a roadblock in adoption, and this is due to the potential market being actually much smaller than envisioned. Much smaller than the PC market.

If this is the case, then what should be done about it? Or even, is it worth trying? Are we trying to artificially enlarge a market that is actually rather small?

These are questions that may be answered in the next iteration of iPads from Apple. Remember that “low-end disruptions” are at first not very capable, but they eventually move up-market through innovations that enable them to compete with high-end products but retain their simplicity. I strongly doubt that huge tablets or 2-in-1s qualify as this kind of innovation. Apple (and most likely only Apple) may have the answer in one of its labs.

If we look into the smaller details of Apple’s Q2 2014 earnings call, we see evidence of this.

“Thousands” of iPads being used at delivery company FedEx every day.

U.S. Department of Veterans Affairs is planning to deploy 11,000 iPads to change how doctors and patients interact. Will allow quick access to real-time secure medical information.

iPad has over 95 percent share of U.S. education market.

These are all markets where PCs couldn’t previously satisfy the “jobs-to-be-done”. In these markets, the iPad is not a replacement for PCs; it is allowing computing to happen in occasions where it was not previously feasible and creating a new market.

Cook said Apple has to focus on iPad penetration in both education and enterprise markets to drive further sales.

Creating a new market is generally much harder and a slower process then entering a pre-established market, especially if you are targeting government and enterprise. You have to consider the budgeting cycle and the internal decision process is longer and more complex. It is hard to prove benefit when there aren’t many examples to draw from. We all know that government and enterprise tend to be laggards in technology adoption due to the time they take in careful consideration.

It’s going to take a bit more time.

Mobile Addicts

Flurry released a report on how many times people launch applications in a day. The data is quite interesting.

  1. People launch applications 10 times per day on average with a significant proportion opening apps more than 60 times per day (the addicts).
  2. Women are more likely to be addicts then men.
  3. In addition to people under 24-years of age, middle-aged parents were also more likely to be addicts.

In the report, Flurry touches on wearables;

Mobile Addicts launch apps over 60 times per day, making them consumers that are effectively wearing their devices. This analysis of the Mobile Addict should give us a sneak preview into the make-up of early-adopters of Wearables, and what types of apps and experiences will resonate with them. To date, many applications for Wearables have focused on fitness and health, but thinking about what’s next, developers should think about the other experiences that will delight the people who need to be connected all the time. This includes Teens, College Students and Middle-Aged parents who are interested gaming, autos, sports and shopping, and who may have a constant need to entertain or educate their children. After all, the people who we consider “Mobile Addicts” are already essentially wearing their devices 24/7/365.

While I agree with the general conclusion on wearables, I think we can go a bit deeper into discussion. My feelings are the following;

  1. Addicts are launching apps over 60 times per day. If we assume that launching means more than simply being notified, then it is likely that notification-type smartwatches are not enough for the addicts. Addicts aren’t satisfied with being notified; they want to do more.
  2. If smartwatches are going to replace the time that you spend on your smartphone, it has to be a better experience for the key task which addicts do 60 times per day. As long as smartwatches focus on notifications, they will never be a better experience, because that is only a small part of the jobs-to-be-done.
  3. Flurry suggests that wearables focus on what the addicts do. I do not agree. Addicts are obviously quite satisfied with their smartphones and have high demands. It would be difficult for a wearable to sufficiently replace them. Replacing a high-end product with a low-end one won’t work.
  4. Instead, wearables should focus on other things; things that do not require constant user interaction. Wearables should focus on being a new-market disruption.
  5. I am very interested in what role the form-factor plays in the constant-interaction shown by addicts. Obviously, if the phone is going to be accessed more than 60 times a day, it has to be in a very convenient location and has to be easy to pull out. It is obviously better for the device to be small enough to carry close by. Although there is a trend towards large smartphones, I’m doubtful if those phones allow this kind of constant-interaction, especially for women.

Data Usage Statistics

There are quite a few companies that provide insight into browser (web) usage statistics. Both StatCounter and NetMarketShare provide reports that you can just point your browser to. Chitika provides detailed analysis of topics-of-interest.

One criticism of these data when applied to mobile platform analysis is that they do not include app usage. Hence data usage from the native Facebook, Twitter or WhatsApp applications are not included. With PCs, most people use web browsers to access online resources so this is not an issue. However on mobile, we know that a lot, if not most of Internet access is actually through these native applications and not through browsers. Therefore the data from StatCounter, NetMarketShare and Chitika is less relevant for understanding user behavior.

Data usage on carrier networks is separate statistic that provides information from a different angle. This counts traffic from both native applications and web browsers. However it only includes usage on the carrier networks and does not include WiFi usage. Let’s compare this data.

First web usage data from StatCounter for Europe, Oct 2013 (only mobile data excluding tablets). This data shows that Android is a little bit ahead of iOS in web usage. Compared to the US, Android usage is higher in Europe. A common explanation is the lack of attractive subsidies for the iPhone in Europe, which make the iPhone much more expensive to own than an Android phone.

StatCounter os eu monthly 201310 201310 bar

Asymco recently tweeted data usage on network carriers in Europe for the same period (source Amdocs). We immediately notice that iOS (iPhone) usage is much higher compared to web usage.

BlzKOleIQAA7ZVK png large

These two sets of data are not directly comparable, and care should be taken in their interpretation. Regardless, considering other evidence, I think it is safe to say that iPhone users seem to use Apps much more than Android users. This is why Android beat iPhone in web usage, but lost in total data usage.

This is unlikely to be a simple App ecosystem issue. Although developers still tend to target iOS first and Android second, for the apps that most people use, these are already available cross platform. These cross-platform apps (Facebook, WhatsApp) probably constitute the vast majority of data usage and it is difficult to image that iOS only apps make a huge difference.

I don’t know the answer to this. You could say that it has something to do with engagement, but it’s a pretty broad term and I’ve never seen information that tells me how user behaviors change with engagement levels.

Non-Google Play Evolution Outside of China

An interesting trend in Android is how they are removing features from the core operating system (which is open-sourced) and adding them to Google Play Services which is closed source and requires a restrictive license from Google to install.

This is a way to solve the fragmentation problem that Android faces. More insidiously however, it is also a way for Google to pressure OEMs and exert strict control of Android.

The problem is, Google is incapable of imposing this restriction in the largest smartphone market in the world. In China, more than 70% of smartphones do not have Google Play services, which means that applications that require Google Play will fail to work for Chinese users.

This is a huge issue of itself. However, the future implications are even larger.

Because Google has removed core applications from open-source Android (AOSP), this creates an ecological niche for third-party developers. Chinese developers are free to create app stores, maps, calendars, chats systems, digital content distribution stores, payment systems, video apps, search apps, location services and a lot more without competition from Google. This is certainly what is happening right now in China. There is a thriving ecosystem with lots of competition in these areas, whereas in other parts of the world, Google tends to crush other players creating a much less vibrant market.

Within the vibrant ecosystem, competition will encourage players to innovate and improve their services faster than a single company, even if that single company is Google. These Chinese services will eventually rise to a level that is of higher quality than Google.

The next issue is whether these services will transfer to countries outside of Google. The Google Play Service licensing restrictions explicitly prevent OEMs from removing the Google search widget from a prominent location. This makes it difficult for Chinese services to replace Google Play on licensed phones. For the Chinese services to be emphasized higher than Google Play, OEMs will have to forgo Google Play altogether.

Is this possible? What would be the economic incentives to do so.

Although this scenario is at least a year into the future and anything may happen till that time, it is important to note that a free OS strategy (Android) is not substantially different from a cost for license strategy (Microsoft Windows). The fact that Android is free does not make it easier or harder for the Chinese alternatives to go to market.

For example, in the Windows PC world, PCs came bundled with all kinds of unnecessary and unwanted “crap ware”, because “crap ware” companies paid the OEMs to load it onto their products. In the future, some Chinese companies could pay Android OEMs to remove Google Play from their devices and instead preload their own offerings. In fact, that is probably what is happening in the Chinese market right now. I would be very surprised if the Chinese service providers did not try this as they launch in other countries.

In conclusion, the following in how I feel about Google’s strategy.

  1. It is understandable for Google to move desirable features out of Android open-source, and to move them into closed source so that they can exert more control.
  2. However in the long-term, it allows alternative services to thrive in certain niches. In the case of China, this niche is happens to be huge and vibrant.
  3. In a few years, these alternative services could mature to the point that they can challenge Google in markets outside their current niche.
  4. Instead of mostly ignoring China, which this Google Play strategy is doing, Google should think of ways to undermine the companies that are enjoying the Google-free void. The threat of these companies challenging Google could actually be larger than US companies like Microsoft or Yahoo.

iPad Sales Decline?

Philip Elmer-DeWitt has compiled analyst estimates for Q2 2014 iPad sales, and the consensus estimate is a 0.7% decline. We will have to wait until the earnings report to get the actual numbers, but given the recent trend in sales, I think that this is a very likely situation.

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The question is, what has happened?

To understand this, you have to realize that the iPad is a “middle” product sitting in between smartphones and laptops. Hence the segment is susceptible to forces from both below and above, which potentially makes the dynamics of the market rather volatile. To illustrate, here are some of the things that could happen outside of the tablet market itself, that exert strong affects on sales.

From smartphones

  1. Smartphones could increase in performance, reducing the performance advantage of tablets.
  2. Smartphones could gain larger screens, reducing the large screen advantage of tablets.
  3. Mobile applications and web sites could become more abundant and better in quality, making it just as comfortable to read with a small screen as with a tablet-sized one.

From laptops

  1. Laptops could become thinner and lighter, reducing the portability benefit of tablets.
  2. Laptops could gain better battery life, resembling tablet battery life.

If you look at what is actually happening in the market, you see all of these forces in play. All the forces that would make a tablet unnecessary or less appealing.

Before and when Steve Jobs announced the iPad, he repeatedly spoke of the challenges of targeting a market that sat between a smartphone and a PC. He said that a tablet had to be significantly better than smartphones and PC at some key tasks, if it was to succeed. Recent improvements in both of these categories have raised the bar even higher. The narrow wedge in which the iPad managed to carve a market is getting narrower. This has been a gradual process that has been ongoing since the first iPhone and the Macbook Air was introduced. Nothing new has happened.

For the iPad to continue its success, it has to find a way out of being squeezed from the top and bottom. The most obvious direction is up; replacing the PC. There are other possibilities however.

Update

There is some discussion as to whether the increasing size of smartphones may have allowed smartphones to entrench on the tablet market. That is to say that larger smartphones are more tablet-ish and that owners of large smartphones will not see a use for tablets, hence lower iPad sales.

This discussion is a result of the analysts confusing customers on Android and iOS ecosystems.

iPad users are disproportionately iPhone users. They share the same ecosystem so you can use the apps that you bought on your iPhone on your iPad and vice versa. In terms of price, iPad users are not the bargain hunters that buy cheap Android phones, but are the people who value quality and also tend to buy iPhones. This is true if you look at countries. iPads are used a lot in high-income countries, which also use a lot of iPhones. Although I do not have the data to back it up, this assumption is rather obvious.

On the other hand, Android users are more likely to use Android tablets because they have the same ecosystem and because they either have less income are or more price-sensitive.

Hence the stagnant sales of the iPad is predominately a result of iPhone users’ purchasing patterns. There are far more iPhone users purchasing or with an intent to purchase iPads compared to Samsung users. If we look at phablet users in China and Korea, the difference is probably more extreme.

Then, if the people who are not purchasing iPads are using iPhones, then their purchase decisions are not being influenced by large-screen phones. This slowdown in iPad sales is not in any major way, a result of large screen phones. It is independent of phone screen size.

Hints on Apple’s Wearable Strategy From Nike

According to CNET, Nike plans to exit Fuelband hardware, their wearable technology for tracking exercise throughout the day.

What does this suggest?

  1. Apple CEO Tim Cook sits on Nike’s board. It is likely that there is a secret collaboration between Nike and Apple that led to this decision.
  2. This decision would make sense if Apple is planning to release a wearable which makes the Fuelband obsolete. Such a device should be both cheaper, smaller and more wearable than the Fuelband. Otherwise, it is simply not a better fitness tracker.

Key points;

  1. Nike is not abandoning fitness tracking. Instead it is focusing on software.
  2. Nike is releasing a public API for Nike+ so third party trackers can plug into it.

Some thoughts;

  1. Although smartphones, especially the iPhone 5s with the M7 chip, are getting better at tracking movement throughout the day, not everybody carries the device on their body at all times. Phablets for example, are often carried around in purses in Asia, even by men. This limits their usage as fitness trackers.
  2. Carrying your expensive smartphone with you when you exercise is not the best experience.
  3. If we want to make our smartphones better fitness trackers, we would want a smaller device, not a larger one.
  4. I doubt that Nike is abandoning the Fuelband in favor of devices that people are less likely to use while exercising.
  5. Nike obviously thinks that third parties can create better fitness tracking hardware then what they are currently capable of. What product do they have in mind? Is it the Jawbone? Is it the Samsung Gear? Is it Android Wear? I don’t think that they are too compelling and think that Nike is looking more at future devices.
  6. Keep in mind that Nike has not released Fuelband software for Android devices. Their Fuelband app is iOS only.
  7. The Nike brand is totally capable of selling at premium prices without being drawn into a price war. Their main business is selling shoes at high prices. Cheap rivals are not likely their main concern.

Quick Notes On Google Play Revenue Growth vs. Apple App Store Growth

App Annie recently released their report for Q1 2014. I have commented on these numbers several times before in this blog. Here I want to jot down some quick notes;

Absolute growth vs. relative size

App Annie only sporadically reports total growth for each store.
They mention;

The iOS App Store remains comfortably ahead in worldwide revenue, generating about 85% more revenue than Google Play. This gap narrowed over the last quarter though, as Google Play revenue increased markedly in the United States and United Kingdom.

However, it is difficult to understand whether the gap is really closing, or is actually widening. To illustrate my point, let’s take a look at a graph from another App Annie report.

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In 4Q13 of this graph, we see that the relative size of iOS App Store and Google Play is closer in 4Q13 than 3Q13. However, in terms of absolute revenue gap, it is actually widening.

Unless App Annie gives us enough data to draw a graph similar to the one shown above, we cannot conclude whether the gap between the iOS App Store and the Google Play Store widened or narrowed. It is totally possible that the gap is widening in absolute terms.

South Korea

A year ago, South Korea was second in both downloads and revenue for Google Play according to App Annie data. A year later, South Korea is third in downloads behind the US, and fourth in downloads. What has happened?

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With the limit data that App Annie has released, we cannot conclude whether the decline in rankings is driven by increases in other countries, stagnation in the South Korean market or a combination of both. However, given that Distimo gave South Korea a very strong lead over the US in July 2013, it is reasonable to assume that stagnation must have occurred.

If South Korea stagnated, then it is also reasonable to infer that Japan, which also has a disproportionate level of app spending, might also be stagnating. This is even more likely since the largest carrier in Japan, DoCoMo, just recently started selling iPhones, resulting in a decline of Android market share.