Naofumi Kagami

Questions About Google Becoming an MVNO

Some quick questions that I have following the reports that Google is striking deals with Sprint and T-Mobile to become an MVNO;

What will the larger carriers, Version and AT&T think about this? Unlike Android OEMs who had to rely on Android in spite of how Google provoked them with Nexus phones and Motorola, carriers do have a choice. If they decide that they don’t want to do business with a competitor, they can more heavily promote iPhone or Windows Phone, and de-emphasize their efforts selling Android phones.
Will Google have access to the data that flows through the wireless network? I think this is unlikely because MVNOs don’t own the wireless communications infrastructure, but I don’t know much about the system so I can’t really say. I’m sure Google would like the data, but if they really did, they could simply monitor everything that happens on Android phones. Maybe eavesdropping on the network is more acceptable than on the phone.
Is this a Nexus? As I recall it, the purpose of the Nexus project was to create good hardware and sell them at low prices, hopefully encouraging their OEM to follow suit. Is the purpose of the current deal to do this. Since MVNOs are completely reliant on their partner for the network, Google has no control over the quality of the network. The only thing they can control is price. They might try hard to lower prices, that’s all that they can do.
Is Google just dipping its toes into the water? Maybe their ambition is to eventually become a full scale carrier. Becoming a carrier would give them data and the ability to improve on quality.
Maybe Google just wants the money. Despite all the businesses that Google is getting into, money generation is almost all from their old search advertising business. As the Internet and even smartphones are starting to saturate the market, it is likely that Google will start to see its revenue growth slow down. Google is certainly looking for other ways to earn money. Maybe becoming an MVNO is simply part of this plan. Maybe they are simply looking for profitable businesses in adjacent markets. I doubt that MVNOs make much profits, but Google has to start somewhere.

64-bit Android Is Starting To Hurt

Ever since the iPhone 5s was announced with a 64-bit processor, I have been watching when Android will move to 64-bit. My concern is that if Android does not move to 64-bit soon, the performance gap between Android and iOS may widen to a point where it becomes ridiculous to talk about “High-End Android”.

I initially thought that it would be a software issue; that Google would not commit itself to the high-end and would not be aggressive in moving the OS and applications to 64-bit. This has been true to a certain point. However, AppleInsider reports that the CPU hardware might be having an even harder time moving to 64-bit.

Following up on rumors in December that described “hard to solve” issues that Qualcomm was experiencing as it works to deliver its first mainstream 64-bit mobile chip, Bloomberg has now reported that Samsung “will use its own microprocessors in the next version of the Galaxy S smartphone.”

Citing “people with direct knowledge of the matter,” the new report said Samsung tested Qualcomm’s Snapdragon 810 but “decided not to use it.” Both companies have declined to address the issue publicly.

Two weeks ago, a research note by JP Morgan described the same overheating issue, explaining, “For the Snapdragon 810, a flagship chip for use in high-end models, we believe the issues are related to the implementation of new 64-bit ARM cores (A57), which is causing overheating when accelerating above 1.2-1.4 GHz frequencies, which is a major limitation for a flagship phone.”

This is starting to look very bad. It is starting to look like high-end Android will truly end up being a Samsung exlclusive.

Apple Watch Pricing Revisited

Following a tweet that I read yesterday, I’ll give an update on my thoughts (1, 2) on the price of the Apple Watch.

Abdel IbrahimさんはTwitterを使っています gruber Touché I say that because so far every girl I ve asked would like Edition but when I suggest at least 2K they re turned off

Full thread on twitter

Abdel’s point is very valid, and I think its something that Apple has deeply thought about. The thing is, and I mentioned this before, unlike watches in general, the Apple Watch will live and die by its ecosystem. Apple has to ensure that the ecosystem will be vibrant and profitable for developers, and the way to do that is to maximize the number of users who are willing to spend a dollar or so for an app. If the price of the Edition is so high and the design of the Watch not appealing enough for women, then the Apple Watch as a whole may not attract enough female users.

I’m certain that this is not what Apple wants, and they would push hard to make the Edition affordable, at least for the majority of women in developed countries.

Then the question is, how low can Apple possibly go?

This depends on how much gold is used in the watch. In my first article, I quoted a teardown of a Rolex gold watch;

Case ring weights 18.5 grams. Contains 13.875 grams of pure gold. It has a value of $178.43.

Case back weighs 7.21 grams. Contains 5.41 grams of pure gold. It has a value of $69.57.

Bezel weighs 5.30 grams. Contains 3.98 grams of pure gold. It has a value of $51.18.

The bracelet weighs 68.85 grams. Contains 51.64 grams of pure gold. It has the most value at $664.09.

The total value of the pure 24kt. gold in this Rolex President is $963.27.

There’s actually a better page here which shows you what each part looks like.

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Comparing the Rolex watch to the Apple Watch, we can see that the Apple Watch does not have a gold case back or bracelet or a bezel to hold the glass in place; it only has the case ring. Also, although hard to be certain from just the photos, it’s likely that the gold in the case ring is also much less than a Rolex because the face of an Apple Watch is almost entirely the screen

It looks like the Apple Watch would only use a very small fraction of the gold in a Rolex. I suspect that Apple is purposely using as little gold as they can without sacrificing the design, which is in direct opposition to the Rolex which is trying to stuff in as much gold as possible. I would guess that Apple is only using at maximum, 15 grams. Maybe much less. The fact that people who actually wore the watch found it to be very light, might be a hint in this direction.

This would suggest that, at today’s gold prices (~40,000 USD/kg), the price of using gold will be something like 600 USD. Therefore, I think that it’s quite possible that Apple could make the Edition less than 1,500 USD.

I actually expect Apple to try even harder to further reduce prices because I think that it is a strategic imperative.

Slow Adoption Of Android 5.0 Lollipop

It seems that three months since its release, the adoption of Android 5.0 Lollipop seems to be unprecedentedly slow.

Still, as can be observed from the graph below, three months into its existence KitKat somewhere around 2% was already present in a significantly higher number of devices than Lollipop currently is.

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Compared to previous major upgrades of Android, Lollipop is quite big. It renews the UI design (Material Design) from Holo which has been in use since Android 3.0 (2011), it features a new ART runtime that replaces Dalvik which has been in use since, the beginning and it also has support for 64-bit devices. Lollipop is brand new in many ways, and I thought that Google would try very hard to drive quick adoption.

This clearly hasn’t been the case. I strongly doubt that this was intentional.

A bit worrisome.

Office 365 Adoption

Very interesting statistic from Okta regarding adoption of Office 365 relative to other cloud services. This is for businesses.

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In particular;

Office 365 is used across companies of all sizes. Workday, Clorox, Seton Hall University and DocuSign – all very different organizations in terms of age, size and industry – connect their Okta tenants to Office 365.

Banking, food & beverage and manufacturing favor Office 365 over Google Apps.

Consulting and law firms, as well as general technology companies, are more divided with pretty even adoption of Office 365 and Google Apps.

Google Apps is the clear choice among advertising firms, educational institutions and software companies.

Short Note on App Store vs. Google Play Revenue

As Benedict Evans wrote in his weekly newsletter, Apple reported its revenue from the app store in 2014.

Apple reported that app store revenue net of its 30% commission was $10bn in 2014. This is actually the same as the figure it gave at WWDC in the summer for the previous 12 months – I suspect there’s some rounding going on. Apple’s commissions on this would be about 2% of CY 2014 revenue.

Apple announcement link

Although we will not know exactly what the rounding error was, given the very strong growth of the app store in the past, it is quite difficult to believe that sales have suddenly flattened out. So to get a better picture, I decided to provide an update to my series of articles on the iOS App Store vs. Google Play (most recent one is here).

In that article, I lamented that App Annie was not giving out the actual growth of neither the App Store nor Google Play and as such, it was impossible to see whether the revenue gap was closing in absolute terms.

Since then, App Annie has reported its Portable Gaming Spotlight, 2Q14 report in conjunction with IDC. This report gives us a direct answer.

Screen Shot 2015 01 13 22 12 07

As you can clearly see, iOS App Store absolute revenue growth is larger than Google Play absolute growth. Although Google Play is doing remarkably well on a YoY percentage basis (>+100%) compared to iOS App Store (+70%), it is not closing the gap at all.

Also you have to keep in mind that Google Play revenue is increasingly games. In fact, App Annie notes in their Q3 2014 report that, “Games drive nearly all Google Play Revenue Growth”. This is presumably not the case with iOS which suggest that the gap between the App Store in Google Play revenue is wider and also growing if we include non-game apps.

Actually, my view is that the difference in non-game app category is more interesting than the total difference. It’s likely that by now, iOS has about 6-times more non-game revenue than Android. This means that apps like Byword, RunKeeper and others which are either paid-apps or in-app payment apps are struggling on Android.

Overhyping the Revenue Potential of the Emerging Countries

A beautiful infographic on the state of App Stores by App Annie.

Unfortunately, I can’t agree with the title “Mobilizing the Next 5 Billion”. If anything, this infographic tells us how dominant the “app store superpowers”, Japan, South Korea and the United States are. These superpowers are not only dominant in current revenue, but also have revenue growth that is equal to the emerging countries. This means that the emerging countries are not catching up; instead the lead of the superpowers is widening.

The infographic tells us that the superpowers will remain dominant in revenue for the foreseeable future. The next 5 billion is unlikely to contribute significantly to total revenue from app stores for quite a while.

Material Design and Opaqueness

I’ve been playing around with Material Design for a few days, and the most striking thing for me is the opaqueness. This is in stark contrast to iOS 7 and iOS 8.

Since iOS 7, Apple has gone to significant lengths to make the toolbars at the top and bottom of the screen translucent. To do this without decreasing the legibility of the frontmost element, Apple uses a frosted glass effect which is apparently quite computationally expensive and is not used in less powerful devices (for example, the iPad 2 reverts to simple transparency for some elements). Apple has mentioned that the goal was to make the underlying content stand out and to minimize distraction from the control UI elements. You also see a lot of iOS apps using gray toolbars, which also helps to emphasize content instead of the app.

On Material Design however, they do not use translucency anywhere. Everything is an opaque surface, just as paper is opaque. Although Material Design emphasized depth and the z-axis, this is conveyed solely through the use of shadows.

The feeling of opaqueness is further fortified by the use of bold colors for UI controls. Whereas iOS apps often use only a humble gray color as the background for the UI controls, Material Design encourages bold colors. The effect is that the toolbar and buttons make a very strong impression and feel omnipresent, a sense of opaqueness.

The new iOS design and Material Design feel very different. iOS feels very light. Material Design looks a bit heavy on the top.

Although opaqueness itself is neither good nor bad, in terms of the history of computer UI design, it does feel a bit backward. It feels like going back to the Windows XP days since every PC-OS since then has used translucent elements. The bold colors of Material Design are also reminiscent of the vivid toolbars of that OS, which fell out of fashion since. Similarly, iOS moved from an opaque design to a translucent design. I am wondering if the absence of translucency in Material Design is a result of having to make it work well on cheap devices which don’t have good GPUs.

iOS WWDC 2014 app

Note the translucency on the leftmost image, on the bottom toolbar.

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Google I/O 2014 app

Running on KitKat but using Material Design.

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Ad Spend Versus Time Spent on Mobile

Flurry Analytics released a report titled “Apps Solidify Leadership Six Years into the Mobile Revolution” back in April 1st of this year which I hadn’t analyzed in detail. Looking back, I certainly should have; It is a trove of information.

Here, I would like to look at the final graph that they show.

Here the assumption is that “time-spent is the timeless currency”, an old saying in the world of advertising that means that advertising revenue distribution follows time-spent distributions. If this holds true, then the above graph suggests that ad revenue share for Google will trend downwards while ad revenue share for other apps will rise.

This is a bold suggestion and I would certainly like to see some more information related to this. The current study is still too crude to draw a definitive conclusion, some of the reasons for which I will outline below;

Of the 18% Time Spent on Google, 14% is actually the total of time spent inside a browser. Flurry is attributing 100% of the time spent in a browser (including Safari on iOS) to time spent on Google. This is an understandable approximation because a large proportion of ads on the web are from Google, but still quite extreme.
Of the 65% Time Spent on Other Apps, a large proportion will be showing apps from AdMob, Google’s mobile advertising network which they acquired in 2009. Hence much of this 65% could be attributed to Time Spent on Google.
Although Google has very strong market positions in both search ads (AdWords) and display ads (AdSense), search ad revenue is growing much faster. It is also the majority of their revenue. It is very possible that search-related ads can earn a disproportionate amount of money that cannot be inferred from time-spent alone.

On the desktop, Google worked hard to provide free solutions for the activities that people did on their PCs. They created Gmail and Google Docs because email and productivity applications were the activities that people did. They acquired Blogger because a lot of the content that people were reading on the web were blogs. They created their own RSS reader because that was how many people read content.

Google was not content with simply supplying ads to websites and webapps; they created or helped create the websites/webapps themselves, or they tried to provide tools to read the content more effectively. They tried to be much more involved than a simple advertising agency.

On mobile, it does seem that Google is struggling to do this. They have failed to create an engaging social network, and they aren’t involved in the creation of games. YouTube, although significant at 4% of total time, is still quite small compared to games and Facebook. They don’t have a direct presence inside the dominant mobile activities.

It will be interesting to see whether Google will push harder to be more than an advertising agency on mobile, or whether it will be content with pushing ads through search and AdMob.

Will High-End Android be a Samsung Exclusive?

I have been very wary of Google’s efforts to build in the tools that Android requires to compete with Apple in the high-end smartphone market. My feeling has been that Google is no longer interested in the high-end smartphone market and is satisfied to let Apple have it. Instead, Google is focusing on the low-end market and on bringing low-cost smartphones to the emerging markets.

Recent announcements reinforce my thinking.

On Nov 13, 2014, Samsung and BlackBerry announced a partnership to build and market a tightly integrated, end-to-end secure solution aimed for enterprises. It is well known that Apple dominates corporate market share in smartphones and tablets, and security is one of the reasons why Android is struggling. The interesting thing is that Google seems very uninterested in developing a solution of their own for this quite lucrative market.

At the keynote of Samsung Developer Conference 2014, Samsung introduced Samsung Flow, which is basically their version of Apple’s Continuity features. The important thing to note is that Continuity is a feature that is only valuable for customers who can afford multiple devices. Again, why did Samsung and not Google develop this? Is it because Google is relatively uninterested in the customers who are wealthy enough?

Samsung recently announced its answer to Apple’s iBeacon feature, Proximity. This is a technology to enhance customer experience at stores, mall, stadiums, museums, etc. and also push you special offers and stuff. As stores embrace iBeacons, there was the possibility that some of the offers would end up being exclusive for iPhone users. Now it will be exclusive to iPhone and Samsung users. Why wasn’t Google interested?

If this continues, Samsung might create a rather formidable barrier-to-entry for the high-end Android market, blocking HTC, LG, Lenovo and others from competing.

Although I do suspect that the overall market for high-end Android devices might shrink, I do not doubt that Samsung will continue to dominate for the foreseeable future.