Category: Innovation

Thoughts on Premium

A lot of people use the work “Premium” to explain Apples iPhone strategy, and/or their strategy in general. Apple’s products tend to be priced at the high-end of the market. On the other hand, Apple tends not to sell products priced at the lowest-end of the market. This tendency is strongest for the iPhone lineup, which constitutes only of phones in the high-end; Apple does not introduce new models targeted at the lower-end, although they do sell previous-year’s models at lower prices.

Some people have suggested that Apple has a broader product range for their iPods and their Macs, and hence they are not idealistically opposed to selling products at a range of price points, going from maybe the mid-range to the high-range. My opinion is that this is not the case. My understanding is that Apple produces the absolute best product they can for a specific customer, and only provides some minor configuration options (like RAM, HDD).

Take the iMac and the PowerMac for example. It is tempting to say that the PowerMac is the high-end model whereas the iMac is the mid-range model. However, this is not the case. For the vast majority of people who buy iMacs, the PowerMac is not only an overkill. It is actually less suited for the required jobs-to-be-done. The PowerMac is designed for creative professionals who require the very best in computing power, and who will also add extra hardware to the core PowerMac. The iMac is for normal people who do not need so much power, but instead value convenience of setup and ease-of-use. The iMac and the PowerMac are not high-end and mid-range models; they are two different products targeted towards two different markets with very different needs. Hence this is not an example of Apple selling a premium product.

The same goes for the MacBook product line up. The current retina display MacBook Pro is great for creative professionals but sacrifices portability. For people who want to carry their laptops with them, the MacBook Pro is actually a worse fit than a MacBook Air. Hence the MacBook Air is not a lower-end model of the MacBook Pro, but a different product for a different segment of the market.

The exact same goes for the iPod lineup. There was never two products in the iPod line-up that targeted the same use-case with one being the premium product and the other being an entry level one. The only “premium”-ness of a product in the lineup were products with maxed-out storage.

Now let’s apply this to the iPhone. Smartphones tend to have the same jobs-to-be-done for almost every person (except those who use smartphones as a feature phone replacement). Smartphones are used for communication, taking photos, playing some games, viewing maps and sometimes watching movies or listening to music. There is no segment like the creative professionals using PCs, who use their smartphones for very different purposes that require much higher processing power and/or expandability. On the other hand, there are no smartphone users who would be content with a device without a display, like the iPod shuffle. It’s even very difficult to make the argument that the variation between the MacBook Pro and MacBook Air is necessary for smartphones, because everybody highly values portability and because retina displays are necessity even for mid-range phones.

Regarding the iPhone, the only segmentation that would make any sense is a small variation in screen size. This would be similar to the 11-inch and 13-inch MacBook Airs. The current 11-inch an 13-inch model only have $100 price difference and choosing either is more about personal preference than premium/mid-range targeting.

Looking at what Apple actually sells and the markets that it’s targeting, selling a mid-range iPhone and a premium iPhone in parallel appears to be very uncharacteristic of Apple, and I doubt that it will ever happen. I sense that Apple doesn’t ever segment markets by “low-end”, “mid-range” or “premium”. More likely, they simply segment by “junk” and “best”. Any product variation in their lineup is a result of simply targeting different jobs-to-be-done.

If you believe that this is how Apple thinks, then the evolution of the iPhone lineup is pretty obvious. They may introduce a slightly larger (or maybe slightly smaller) iPhone in the same way that they have 11-inch and 13-inch MacBook Air models. That is, specs other than the screen size will remain mostly the same. The price difference would be small and choosing either would be totally a matter of personal preference.

For the lower-end, selling previous-year’s models at discounted prices seems to be a working in developing countries.

In fact, it’s a shame that there are very few companies that take the same approach as Apple. That is, market segmentation by “junk” and “best”.

Chromebook Disruption Revisited

Although some people consider Chromebooks to be a low-end disruption to traditional laptop PCs, I have been skeptical of this for quite a while (“Why the Chromebook is not a Low-End Disruption”). In January 2013, I even outlined why Chromebooks will ultimately follow the fate of Netbooks.

The flattening of iPad sales (1, 2, 3) strengthens my conviction.

Simply said, low-end disruption is much harder than many people believe. iPads have failed to replace laptop PCs in the low-end disruption fashion; Apple is now focussing on new-market disruption as is clearly demonstrated in the new “Your Verse” marketing theme.

Even with low-end disruption, there has to be a significant new-market disruption element. Low-end disruption is more than a few hundred dollars saved or a small bit of convenience. There has to be a clear and hugely significant improvement that broadens the use-cases, thereby allowing computing to happen in situations where it was not previously feasible. The “Your Verse” campaign is trying to tell us that the iPad does exactly this.

It follows that if iPads failed to disrupt laptop PCs, the chances of Chromebooks doing the same is close to zero.

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.

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.

NewImage

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.

Why Are Smartwatches Focusing on Notifications?

It is very interesting to see the new smartwatches focusing on notifications as their main feature. This begs the question; why are notifications so important?

Are notifications so important that many people are willing to purchase a several hundred dollar device and wear it wherever they go?

I don’t think so. I think that the only reason why smartwatches are offering notifications is because it was relatively easy to do. Smartwatches are small so you can’t display a lot of information on them. You can’t provide a good UI that can be used to enter information. The only use-case that was left was notifications. The focus on notifications was not because notifications are important; it was because there was nothing else that Samsung, Google could think of putting on the device.

So the issue remains. Smartwatches are a form-factor in search of a use-case. This is not innovation.

Innovation in wearables lies in understanding what problem they can uniquely solve. How can a device that will be with you at all times enrich your life?

Of course, there may not be a market for wearables after all. Unlike smartphones, wearables are not a replacement for a device that people were already carrying around with them. Wearables are asking the public to carry a second device in addition to their smartphone, which overlaps a lot in functionality. Whether or not there is a market for such a device is very unclear. Even if it existed, it is easy to imagine that it would take a huge amount of time to spread. It is a speculative market.

Innovation is rarely about a technology searching for a market. It’s more often about making a complex product simpler and easier to use, thereby both increasing the number of people who use it and the occasions in which it is used. Notifications simply don’t qualify for this.

Will Google Use Humans to Fix Google Now?

I have never used Google Now, but I was always skeptical. The use cases that were being reported on the web always were extremely limited, and it seemed that they were simply telling us about the things that worked but not about the things that didn’t.

A couple of days ago, Janko Roettgers wrote on GigaOM about how Google Now actually fails, even in the limited tasks it’s supposed to be good at.

We often assume that because Google is collecting huge amounts of information about their users, they are able to understand a lot about who we are and what we want to do. Yes, Google does know where you live and it knows exactly what keywords you used on your searches yesterday. It knows exactly where you are right now. This is all very creepy, especially if you are an Android user. The problem is, there is no guarantee that this information will let Google know your current intentions with any accuracy.

Google has been described as a “decade-old machine learning project”. There are two products from Google which have shown how this can actually be turned into something useful. They are Google AdSense and Google Maps.

Google search basically selects the ads (AdWords) to be displayed based on the keywords that were entered in the search field. Although the information that Google holds about the user is also used to tweak the results, this is not the main driver of the AdWord ads to be displayed. With AdWords, the user has directly expressed their intent through the search keywords and Google does not try to second-guess it. This intent is what drives the ads and this is why I don’t include it in the current discussion.

AdSense is more “intelligent” than AdWords because it tries to guess user intent. It analyses the content of the page the user currently is browsing. It uses knowledge of what pages the user has visited recently. It uses location data. It combines all of these to determine which ad the user is most likely to click on. In reality, AdSense fails most of the time. It does not correctly estimate the user’s current intent. But that’s OK. The click-through rate (CTR) of AdSense is at most a few percent and the vast majority of people aren’t interested in what is shown in an online ad. It’s completely acceptable for AdSense to get it wrong most of the time. Therefore, the “intelligent” guesses of AdSense are successful even if they are completely wrong most of the time. AdSense will still be immensely successful when the majority of users are pissed-off by the ads. It only takes a small percentage of correct answers to succeed.

Google Maps is a totally different kind of “intelligence”. Google Maps has to be accurate for the vast majority of the time. It has to be something like 99.999% accurate or more. Otherwise, we would constantly get reports that some poor drivers drove themselves into a desert. How can Google Maps be so accurate when AsSense is so sloppy? The secret lies in humans. To quote an article by Alexis Madrigal on The Atlantic.

I came away convinced that the geographic data Google has assembled is not likely to be matched by any other company. The secret to this success isn’t, as you might expect, Google’s facility with data, but rather its willingness to commit humans to combining and cleaning data about the physical world. Google’s map offerings build in the human intelligence on the front end, and that’s what allows its computers to tell you the best route from San Francisco to Boston.

Even though Google gets vast amounts of information from satellites and street-view cars, it has to combine these with an army of human beings to gain accuracy. Without these human beings, they cannot get the error rate to an acceptable level. The kind of “intelligence” in Google Maps can only be attained with a huge number of people who manually curate the information.

Now let’s get back to Google Now. Which kind of “intelligence” do we need? Do we want a personal assistant that thinks it is acceptable to guess correctly only a few percent of the time? Or do we want a personal assistant that truly knows what we want to do next?

If we want the latter, we may have to be content with an army of human beings plowing through your most personal information, helping Google’s not-so-accurate machine learning algorithms to make sense of your daily routines.

Internet Explorer 8, 9 usage decline is quite slow

With the support for Windows XP ending in three weeks, we as web developers would hope that usage of Internet Explorer (the newest version of IE to run on Windows XP) to rapidly approach zero.

Support for Windows XP is ending

Unfortunately, this doesn’t seem to be the case. Looking at statistics from StatCounter, it appears that IE8 usage is still 7-8% in the USA and Japan. Encouragingly, the pace of usage decline seems to be accelerating and we might reach almost zero within the year 2015.

StatCounter browser version partially combined US monthly 201302 201402

StatCounter browser version partially combined JP monthly 201302 201402

What is more troublesome is IE9 data. IE9 usage is declining and is already quite low at 5-7%. However the pace of usage decline is quite slow and it looks like it will be with us at least as long as IE8. This is probably due to corporations blocking automatic updating of Internet Explorer.

Analyzing StatCounter data at per-day resolution, we can see that before IE10 debuted, IE9 was used a lot during weekends. However, after IE10 was introduced and most of the consumer users shifted to IE10, corporate users remained on IE9. As a result, IE9 usage became more pronounced during week days.

StatCounter browser version partially combined US daily 20120201 20140231

StatCounter browser version partially combined JP daily 20120201 20140231

In summary, despite Windows XP not being supported after April this year, it looks like IE8 will still be with us, at least till the end of this year. IE9 also looks quite stubborn and since it’s on Windows Vista and 7, it’s unlikely that we will see it go away. We web developers will still have to support these legacy browsers for another year.

64-bit Android

In September, 2013, just after the iPhone 5s was announced, I wrote that we would be able to gauge Google’s commitment to the high-end based on when the 64-bit version of Android would be released. I commented that Google might not prioritize 64-bit, mainly because their focus has shifted to the low-end with the departure of Andy Rubin.

Until now, I had not heard any credible reports on when a 64-bit version of Android would be available. Now, on March 11th, ABI Research reports that “the first 64-bit version of Android OS is expected in the second half of the year”.

At this point, there is no way of knowing how accurate ABI Research’s prediction is. There is also no way of knowing if Android and ARM’s 64-bit implementation will deliver a significant performance improvement like Apple’s A7 chip did, or whether the gain will be rather insignificant as most industry pundits claimed when the A7 was announced.

All I can say is that we don’t know yet.