Apple M1 and Parallels / VMware

The initial excitement surrounding the Apple M1 chip announced just a few days ago is understandably about how well they will run apps for the Mac. Will they be faster at running FinalCut Pro, for example, compared to Intel Macs. Given what we know at this point,  it is already almost certain that the Apple M1 will allow Mac users to enjoy the combination of much improved performance and significantly longer battery life.

One other aspect that is not yet widely discussed, is how this compares to Microsoft’s attempts to run Windows on ARM devices, such as the Surface Pro X. The SQ2 silicon that they designed together with Qualcomm for this device does not perform nearly as well in benchmarks as the Apple A14, let alone the Apple M1. Combine this with the lack of emulation for 64-bit Windows apps that is hopefully coming soon at last, Windows on ARM has been a failure.

Compared to this, Apple is claiming that the vast majority of Intel apps will run on Apple M1 hardware through the Rosetta 2 technology. Given their track record with the initial Rosetta software that allowed a seamless transition from PowerPC to Intel chips, I am inclined to fully believe this. Performance on Rosetta 2 should be good with some emulated apps running faster than when on native Intel hardware. Again, if my memory serves me right, I hardly noticed slowness during the PowerPC to Intel transition so even this claim does not sound outlandish.

There is an additional twist this time. In previous transitions, Apple was playing catch-up with the rest of the PC industry. Previous transitions happened when the CPU architectures that Apple was using were falling behind what was available on Wintel. This was true for the Motorola 68K to PowerPC transition, and it was true for the PowerPC to Intel one as well. This time, Apple is transitioning from the industry standard towards silicon will not be available for the rest of the market.

Given this situation, one thing that I am eagerly looking forward to is the performance when running virtualization software such as Parallels or VMware. Both have announced support for Apple silicon with Parallels demoing a version during the Apple annoucement, and VMware tweeting that they are not too far behind. Given that these are virtualisation software, they would potentially run Windows for ARM on Apple silicon Macs. Even though there will be a performance hit compared to running directly on the hardware, given the performance difference between Microsoft’s SQ2 chip and Apple’s M1, it is very likely that Windows on ARM will perform better on Apple’s M1 even on a virtualisation layer.

Let’s fast forward a few months to when Parallels on Apple M1 is ready. It could possibly be that Parallels on a MacBook Air running ARM Windows (with 64-bit application support) is actually faster than competing ultralight Wintel notebooks and also has significantly improved battery life. If this is the case, then anyone in the market for a good Wintel notebook might actually think that the MacBook Air with M1 might be the best choice — It will run Windows apps just as fast or even faster. The addition benefit is that there will be better integration with an iPhone or an iPad which they might own.

I would say that there is a reasonably high probability that this might turn out to be the case. It would be very interesting to see how this would introduce change the PC landscape. We might see significant efforts from chip designers/manufacturers like Qualcomm, Samsung, MediaTek, etc. to create ARM chips that rival the A1 in performance. We might see Microsoft making significant investments in their SQ chips. One thing is certain, and was even very evident when Android changed course and pivoted to copying the iPhone — once somebody does what was previously unthinkable, then it doesn’t take too much time for the rest to catch up. Now that everybody knows that the ARM architecture can rival and surpass Intel on PCs, other chip vendors will significanly increase their investments and focus on designing their own chips that do the same.

AI Doesn’t Solve Everything

Serenity Cladwell reviewing Apple’s HomePod, Sonos One, Amazon Echo and Google Home Max.

The Google Home Max is an embarrassment of a speaker for its cost

So it appears either that

  1. Google’s AI prowess does not extend to audio, although it worked for cameras. Maybe they didn’t have an advantage in data, and in order to get the data, you may need to have special acoustic facilities designed by real experts in the field.
  2. For Google’s AI to deliver top notch performance, it needs to be on more or less an equal playing ground in regards to hardware. For image processing, both Apple and the Pixel probably source the hardware from the same vendor (Sony) so Google had an easy path to high quality hardware. Not so with audio.
  3. Google rushed it and released an inferior product but priced it high anyway.

Without further information, I would say all are plausible at this point. It does suggest however that there are certain important pre-requisites that are not always under Google’s control, which would be required for their AI to produce top notch results.

iPad Turnaround on Track

In Apple’s latest earnings call for the 2017 October to December quarter, the iPad was reported to see an increase of 1% in Units and 6% in revenue year-on-year. Given that the quarter was for 13-weeks versus 14-weeks a year ago, the growth in units per week would be something line 8-9%.

This is very much in line with a prediction that I gave in 2-Aug 2017 in which I said that 2017Q3 (Jul-Sep) would show strong growth YoY (actual 11% growth in units), whereas 2017Q4 (Oct-Dec) would decelerate (8-9% growth in units). I attributed this to holiday sales being mainly driven by the “entertainment” segment, which is still declining, whereas the “productivity” segment is showing steady growth irrespective of seasonality. Here I would like to illustrate my point further.

I would like to use the excellent charts prepared by Macstories (shown below). Here we see the historic iPad unit sales in green, and we notice that the seasonal spike in Apple’s fiscal Q1 (Oct-Dec) is decreasing almost to the point where it is no longer noticeable. Instead of looking like the extremely seasonal traces for the iPhone or the iPod, the iPad is looking more like the smooth, non-seasonal line for the Mac. In fact, when we look at what drove the decline in iPad sales, it is mainly the Oct-Dec spike that was decreasing while the base sales were not suffering so much.

This clearly illustrates that the iPad is becoming more of a PC-like productivity device which is necessary for work or study (and hence purchased around the year whenever needed), rather than an iPod-like entertainment or iPhone-like social network/communication device the purchase of which can be held-back till the holidays. Going forward, we can expect the seasonal spike for iPad to almost totally diminish, and the unit sales trend to lose most of its seasonality.

Importantly, the iPad sales growth that we saw in 2017 came strong in the Apr-Jun and Jul-Sep quarters suggesting that the base sales – the “productivity” segment is gaining momentum. We can therefore make the following prediction for iPad sales in 2018.

  1. For the quarters from Jan to Sep 2018, we can expect strong double digit growth in units YoY similar to what we saw in mid-2017. This will be the base sales from the “productivity” segment. Like PCs, “productivity” also includes education and so we might start to see “back to school” surges in the Jul-Sep quarter like we see for Macs.
  2. For the Oct to Dec 2018 quarter, I expect YoY growth to be somewhat dampened but still close to 10%. At this point, even in the holiday season, very few people will be buying iPads for “entertainment”. “Entertainment”, that is watching movies/TV or playing games, is something that can be done comfortably on smartphones, and is not something that people will go and buy a tablet for.

All in all, I see the state of the iPad to be very healthy. Apple has been pushing the productivity of the iPad in recent years, and the market has been responding to this. Apple’s efforts into collaborating with enterprise-oriented partners like IBM, improving the multitasking and inter-app sharing of iOS, and just marketing in general, have borne fruit. Although many pundits dismiss the iPad as now just being flat in terms of growth, I see the current quarter as strong proof that we will see very good growth and excitement over the iPad in 2018.

Smart Speakers and Clocks

Traditionally, most rooms in a house have not had information devices in them. Some rooms may have a TV and some may have a radio. However other than that, most rooms do not have any installed equipment that enables the residents to quickly get information.

There is one exception however, and that is clocks. Many rooms have clocks either hanging on the wall or sitting on a mantelpiece. Clocks provide information that is vital for modern life (“what time is it?”) with a mere glance, and they are so useful that people put them in their bedrooms, living rooms, kitchens, home offices, and sometimes even in their toilets.

I wonder if the best way to think about Smart Speakers and the utility that they may bring to the home, is to compare them to these clocks. Can Smart Speakers provide the same benefit that we get from clocks around the house? Is the information that Smart Speakers may provide as important as telling the time? Why do we still need wall clocks when we can easily wear wrist watches instead? Does the UI need to be distilled to a simple glance instead of a voice UI?

If you adopt this viewpoint, then I think you can naturally arrive at the following conclusions.

  1. People generally don’t need too much information in the house. The time is a rare case of something that we often need to know in multiple rooms.
  2. If the information is important and frequently needed, then people will want to put devices in multiple rooms instead of relying on a watch or a smartphone that they carry around with them.
  3. People will prefer to get the information through a simple glance. A voice UI may be too inconvenient. For example, instead of a smart speaker that can tell you the weather when asked, a wall clock with a display showing this will probably end up being more useful.

Amazon’s Echo Strategy

I have read over the Internet that some pundits are estimating that Amazon sold tens of millions of Echo devices – much more than their closest rival, Google’s Home.

Impressive as this may sound, it is not the first time that Amazon has used a strategy of dumping a cheap/subsidised device onto the market with the goal of winning market share early on in the game. The original Kindle Fire tablet that was introduced in 2011 shared the same strategy and was also a hit during the holiday shopping season, topping Amazon’s best seller charts as well. The Kindle Fire never became dominant though.

The lesson that I would learn from this is that flooding the market early on with cheap devices will not win you a strong position for the future. The tech market constantly evolves and products reliably get better and better each year, almost like clockwork. Even though smart speakers may look completely cloud-dependent with very few requirements for local hardware, I can reliably predict that in the next few years, this will no longer be the case. If the market for smart speakers persists (which is by no means a given), they will for example at least evolve to incorporate some local AI features to allow them to become smarter while maintaining a certain level of privacy. Cheap devices that are a few year’s old and do not have these improvements will not provide any kind of significant moat, and customers will be eager to switch to the new ones.

Thoughts on AR and Smartphones

Apple’s recent announcement at WWDC 2017 of ARKit has suddenly sparked a new interest in AR, and just a few days ago, Google responded with their ARCore API which does basically the same things. These APIs promise to bring sophisticated AR to all owners of compatible smartphone, dramatically enlarging the addressable market. This has excited pundits and developers alike, and it is now very likely that we will see AR breaking out of the early adopter market and into the early majority.

I would like to jot down my thoughts on this, regarding how innovation tends to happen, and also regarding how this affects the smartphone market as a whole.

The innovation trajectory

Innovation usually starts out as basic research or a new invention somewhere in a lab setting, with specialised and extremely expensive equipment. Then it becomes a specialised instrument that is somewhat cheaper, but still  very hard to use, catering only to the enthusiasts. Finally, it becomes cheap and easy enough to use for the majority of the market, leading to an explosion of usage.

If you look at the PC market for example, it started out when computers like the ENIAC were first invented. Then after revolutions in semiconductors, the computer became cheap enough for enthusiasts to own and tinker with, but still the people who used them were tinkerers. This was the era of the Apple II, Commodore and Amiga. Then as the IBM PC and clones came out, the price came down whilst performance improved dramatically and application software became available, making the PC both useful and affordable thus bringing it into the mainstream.

What we are seeing with ARKit very much mirrors this. We started out with work that was done in the labs, and we recently started to see implementations that require special headsets and powerful PCs connected to them. It was clear at this point that these devices would not go to the mainstream, and the developer community in general did not yet think that it was a market worth pursuing. With ARKit, we are likely to see an IBM PC moment where AR goes mainstream on devices that are affordable and where the developers are also excited to reach large audiences.

One interesting thing to observe is, although the innovation in the lab tends to follow a steady path, the introduction into the mainstream can feel very abrupt, caused by new products being introduced into the market. ARKit is one of these examples. Windows 95 is another. So is the iPhone of course. Sometimes the company introducing the product if far ahead in technology, but this is not necessarily the case. Looking at Windows 95, one could argue that you could be technically behind, but still make a huge and abrupt impact to the market. Judging by how quick Google was to introduce ARCore, it would be fair to say that Apple’s ARKit team was not also necessarily ahead of Google’s, but simply had the right marketing priorities in place.

Implication for smartphone sales

Until very recently, the general narrative was that innovation in smartphones had winded down, and that there was increasingly little to differentiate the new high-end flagships from the models from previous years, or those from mid-tier vendors. However if ARKit and ARCore become mainstream and are adopted by major developers, this changes the whole game. Apple’s ARKit reportedly only works with A9 chips and above, which means that any models prior to the iPhone 6s are not eligible. The iPhone 6 which was introduced in 2014 will not be able to run ARKit apps and neither will the iPad Air 2 (also introduced in 2014). The situation on the Android side is even more dire (as usual) with only the Pixel (introduced in late 2016) and the Samsung Galaxy S8 (introduced in 2017) being eligible to date. Therefore these two platforms may become a strong differentiator for the newest and greatest models, and drive customers who would have otherwise have been content with an old or midrange model to look upmarket.

This has quite a few implications.

  1. Since we know that the high-end smartphone market is generally dominated by Apple and Samsung, this trend will strongly favour these two companies.
  2. Regarding the iOS vs. Android balance, in the high-end (dependent on country) this often is tipped towards iOS. Therefore, we might see a rise of iOS market share.
  3. The interesting thing is that since ARCore currently only supports the Pixel and the Galaxy S8, and since sales of the Pixel are minuscule to date, in reality the vast bulk of ARCore capable smartphones will be Samsung models. As a result, depending on how Samsung plays its cards, it may be possible for Samsung to exert a huge amount of power over Google. Samsung might customise or add proprietary features and APIs to ARCore that would take advantage of the specific hardware on their devices (which might be Samsung silicon), and since the bulk of the market will be Samsung devices anyway, the developers might bite this time. Samsung has been flexing its muscles looking for a chance to break away from Google’s control for quite some time (Tizen, Samsung Pay, security features, etc.), so it would be interesting to see how they plan to take advantage of this situation.

According to Clayton Christensen’s theories on integration and modularity, markets where customers are still looking for innovation should generally favour integration due to the capabilities that this makes possible, and in the smartphone market, the integrated players are Apple and Samsung (Sony is also interesting in that it is integrated around the hardware that matters most – the imaging sensors). It will be interesting to see how this all plays out.

Do Targeted Digital Ads Work Better?

In a previous post, I predicted that Google's double digit growth will come to an end most likely before 2020. I argued that this was due to the fact that advertising spend has been pegged at about 1% of GDP for a century, and that this hard ceiling would make it challenging for Google to continue fast growth amidst increasing competition from Facebook and other social networks.

Recently it was reported that P&G slashed 140 million USD from its digital ad spending, but saw sales rise for 2017Q2. The article also mentions that

Over five years, P&G is aiming for $2 billion in marketing cuts, including media, with a heavy emphasis on cleaning up the digital supply chain.

Despite high double digit growth for the current quarter, it is clear that there are clouds in the horizon for Google.

The ceiling for ad spending

The Bloomberg article mentioned in my previous post presented the following chart showing just how constant ad spending has been as a percentage of GDP. The earliest data point in this chart goes back to 1926, which is very much the beginning of advertising as we know it today. This is when corporations started to take advantage of the government propaganda techniques that had been employed during World War I, in a massive effort to get young men to enlist in the military forces.

We can see that even as the advertising media shifted from street posters to radio to television and finally the mobile Internet, nothing has significantly grown the advertising market relative to GDP. The fact that ad spending has not significantly grown since the era when all we had were street posters is remarkable when you think about it. Ads used to only be on the streets but radio allowed private time with families to be targeted as well. Even then, ad spending remained constant. Importantly in the context of digital advertising, the advent of highly targeted digital ads which collect all sorts of private information about virtually person on the Internet have not detectably increased total ad spending.

The ceiling for ad spending is very robust indeed.

Sophisticated analytics in digital ads

A lot has been made about the highly sophisticated analytics that digital advertising makes possible (often at the expense of privacy, of course). By use of tracking across multiple websites, it is possible to see whether customers who saw banner ads actually came to an e-commence site to make the purchase. All sorts of techniques have been devised to even connect online behaviour to purchases at physical stores. All this should make it possible for the advertisers to see whether their online ads were useful or not. At the very least, there should be an improvement compared to the classical dilemma; "Half the money I spend on advertising is wasted; the trouble is I don't know which half."

The P&G example above suggests however that the improvement may have been illusional. Despite all the analytics that suggested otherwise, 140 million USD of their digital advertising budget apparently belonged to the wasted half. Maybe all the analytics that sacrifices user privacy does not provide any value after all.

The truth of targeting

Targeting means showing your ads to the people who are most likely to respond positively. Targeting is also purportedly beneficial to the end-user who will end up seeing more "useful" advertisements. Because of these benefits, argue the ad companies, collecting all your personal information is a reasonable compromise. However, despite their best efforts, P&G's CFO Jon Moeller did not have kind words to say.

Clearly we don't need to be spending money that is seen by a bot and not a person. Clearly we don't need to be spending money on ads that are placed in inappropriate places, and that's why you see a significant reduction.

The targeting capabilities that we have today apparently are not very good at distinguishing between a bot and a real human being with a profile that matches what P&G desired. From this, it is reasonable to assume that our current targeting algorithms are even worse at spotting the difference between two humans with different profiles.

Again, collecting all that personal information seems to have been in vain.

Future developments to watch

P&G is not the only company cutting back on digital advertising. Unilever is reportedly doing the same. As a result, in the next few quarters, we should get a better picture as to whether these companies will continue to see strong sales growth despite cutting back, or whether they will see negative impacts and eventually come re-invest in digital. We will also be able to discern whether or not there will be a ripple effect as other companies reconsider their ad portfolios.

If P&G and others do not observe a negative impact despite a continued cut-back on digital spending, then this will significantly blunt the growth of digital advertising. Although I expect this to slow down considerably within the next few years anyway, this may come earlier than I previously though. In the short term however, this will actually benefit Google because they are most likely to be able to maintain advertiser trust by implementing measures to counter the bot issues. In aggregate, I would expect a short term boost followed by an earlier slowdown for Google and Facebook , and an much more imminent downfall for other digital advertising companies.

One possible change that I would very much welcome, is a better understanding of how valuable our personal data really is. Television and magazine advertisements do not collect your personal information, but are nonetheless targeted to a certain degree based on the programme or genre that you are viewing. Targeting itself does not necessarily need personal information as long as the ad placement itself is intelligent, and targeting does not need to stalk your whole Internet browsing habits. Digital advertising might not necessarily need to stalk you. By understanding the true value of these privacy intrusions, our society should be in a much better position to discuss whether we have to make these concessions or not.

Can advertising grow beyond the 1% ceiling?

Given that a large number of Internet companies rely on advertising as their main revenue source, the presence of a hard ceiling should worry venture capitalists who are pouring ever increasing amounts of money into them. If tech is to continue to grow as a whole by high double digits, then tech needs to find a way to either break out of this, or to develop new business models with a more direct revenue.

However, as I have argued, I consider it unlikely that digital advertising is more revolutionary than radio or television advertising, and I strongly doubt that the 1% ceiling will be broken. As digital advertising saturates the ad market as a whole, this market will become a zero-sum game and will not contribute to the growth of overall tech.

Therefore, my belief is that tech needs to stop relying on advertising and that this is starting to be an urgent issue. As the tech advertising space saturates, the current incumbents will become stronger and stronger albeit with slower growth rates. On the flip side, it will be harder and harder for new entrants with an advertising business model to make it. Advertising will quickly cease to be a viable revenue strategy for start ups.

How Can Android Wear Succeed?

I know I’m very late to the party, but I recently noticed this post via a comment on “The Overspill” newsletter by Charles Arthur.

“Until we have an Apple Watch of our own, no one is going to take Android Wear seriously (opinion)” link

Essentially, this article calls on Google to create their own Android Wear watch instead of leaving this to their partners.

If Google is serious about Android Wear, it should be serious about building Android Wear watches – full stop. Only Google has the long-term motivation to keep the platform alive, and only Google can afford for its hardware business to be a zero-sum game in the name of building up an ecosystem. Without our own “Apple Watch” to act as a guidepost, as proof that a better smartwatch can be made, Android Wear seems doomed to continue on in stagnation and obscurity.

Of course, the problem with this argument is that it does not align with how Android nor Windows became popular. Google did not have to build its own phone for Android to gain steam. Similarly, Microsoft did not have to make its own PC to make Windows popular. In both cases, the respective companies followed a strict OEM partnership strategy. Essentially, this argument suggests a lack of understanding on why Android and Windows became popular in the first place.

  1. Both Windows and Android gained popularity on the back of the success of the Macintosh and iPhone respectively.
  2. Both Windows and Android were low-end alternatives to the Macintosh and iPhone. They did not necessarily bring something new, and in fact they started out being downright inferior. They were however cheaper.
  3. Due to the success of the Macintosh and the iPhone, customers were already aware that a GUI and a touch-based smartphone were very good ideas and that they would be useful. Apple had already educated customers to the benefits, and had primed the market. All that Google and Microsoft had to do was to make the same benefits accessible to the rest of the market.

So applying this to the state of smartwatches, we can foresee the following scenario that would take us to the success of Android Wear.

  1. Apple will continue to work hard to educate customers on the benefits of a smartwatch. Apple will explore what features resonate, and what a smartwatch would actually be useful for (something that is still quite ambiguous).
  2. Once the Apple Watch starts selling something like 20-30 million units per year, then a) customers will be fully aware of the benefits of a smartwatch and b) Google will know what to make.
  3. Then all that Google needs to do next is to collaborate with their partners to develop such a smartwatch that is half the price of an Apple Watch, and to bring the benefits to Android users. Importantly, it is OK for this smart watch to be downright inferior. Since Android users are currently >80% of the smartphone market, there is a potential for Android Wear watches to exceed Apple Watch sales someday.

My point is, Google does not need to make its own smartwatch. Doing so would not move the needle one bit. Instead, what Google needs to do is to keep their OEMs cosy until Apple Watch goes mainstream, and make sure that their team can pounce then. The risk here is that Samsung is going their own way with Tizen OS, and will not be with Google when the moment arrives. Google has to make sure that Sony, LG and others will not follow suite, and this is indeed the only meaningful thing they can do.

The funny thing is even among the huge tech giants, it is only Apple that can predictably make a new category product go mainstream. All the rest can do is follow.

Uber The Colonist

It seems that Silicon Valley is at last waking up to what Uber really is.

  1. “Monopoly as the Uber Business Model”
  2. “Understanding That Unregulated Monopoly Was Always Uber’s Central Objective”

I am a bit disappointed that it took this long for Silicon Valley to see this, but I suppose better late than never.

Over a year ago, I wrote this;

The question is will Uber be a sustainable business? Will it raise prices after venture capital runs out and there is no competition left? If they are forced to employ their drivers as employees and if they have to also pay for their driver’s cars, which is quite possible long term, can they still maintain current prices? If Uber becomes a monopoly, will they be any better than the regulated monopolies before them for both the drivers and the customers? I have serious doubts on this, and unless Uber discloses the sustainability of its business, commits to future low prices and the welfare of its drivers, I think that strictly regulating Uber makes a lot of sense. The last thing that you want is for Uber to kill your local taxi industry, and replace it with one which is just as expensive (potentially more) and where all the profits are funnelled to a Silicon Valley company far away. This is why we have anti-trust laws, for example, and this is why we regulate industries (like the public transport, mail, health and food industries) that directly affect the welfare of our citizens.

The point that I want to emphasise is that if the US is killing itself as a result of its relaxed views on anti-trust and disdain for regulation, then so be it. I do not mind the world’s largest superpower shooting itself in the foot.

I am however not OK with how the US is exporting this to other countries. If Uber is killing local taxi industries in developing nations, preventing the deployment of public transport by providing an artificially cheap option, and in general making these countries dependent on the US for basic needs, then I see this as a new form of colonialism. This is what Gandhi fought against with the Swadeshi movement.

And we should also note that this is not restricted to Uber. One could argue that the stagnation of tech in developed countries has caused Silicon Valley giants to search for growth in the developing nations, and their huge resources are allowing them to use predatory, money-losing tactics. It’s just that since the US is inherently an inwards-looking country and nowhere near being truly cosmopolitan, they don’t realise how much damage they’re causing.

Just see how much China’s Internet has prospered by shutting out Silicon Valley.

If Silicon Valley wants to earn money in developing nations, I see no problem in doing so. However, they must compete on equal terms. They must earn profits. For example Apple is OK because even in developing countries, they charge the same price (which turns out to be super-premium in these places). Apple does not drive out local competitors, but encourages them to copy and provide the same features at lower prices (again, look at China). Local cheap competitors thrive because of Apple.

Predictions For 2017: iPad Sales Growth

This is the second in my series of posts where I make predictions for 2017. The first one was about Autonomous Driving.

iPad sales growth

2016 was the year when we started to see revenue growth (but not unit growth) in the iPad. Many were quick to say that this was due to the introduction of the iPad Pro, but I think this misses the fundamental dynamic of what is happening in the tablet market. In fact, I have said in this blog multiple times, that most tech pundits have not understood the dynamic of the tablet market from the very beginning. The people who attribute revenue growth squarely on the iPad Pro inevitably expect a very slow growth going forward, since they do not see continuous growth drivers. My prediction is different in that I expect accelerated growth that will be in the high single digits.

Here I will illustrate my thesis and show why we should expect strong growth in 2017.

名称未設定 numbers

The above chart shows my hypothesis for what has been happening in the iPad market from the beginning; why we saw a very strong introduction, followed by a decline, and then a plateau.

  1. First of all, I separate the iPad market into two distinct segments. The first is the “Entertainment” segment which includes gaming, video watching, etc. The second is “Productivity” which includes writing, drawing, video/audio production, etc.
  2. In the initial phase of the market, we saw a huge uptake of usage in the first “Entertainment” segment. Even though the iPad was a new category device, looking at its gaming and video capabilities, it was a clear and obvious replacement for mobile game consoles like the Play Station Portable and the Nintendo 3DS. It was also a simple replacement for secondary TV screens. Since consumers could easily see the benefits and how it would work, the initial adoption was very rapid. That is, there was no need for an early adopter phase where only a fraction of the population would understand the merits of the device.
  3. However, as smartphones gained processing power and larger screens, they also started to satisfy the “Entertainment” segment. Hence the later decline in sales for this segment which started to happen in 2013-14.
  4. All this while, the “Productivity” segment of the market was going through a regular adoption curve of new category products. That is in the first few years, only the brave early adopters used iPads for “Productivity”. However, the number of these users has slowly but steadily been rising. In many cases, this has been happening more in the corporate market than in consumer markets because frankly, “productivity” is more important for our work than for leisure. It is important to note that whereas larger screen smartphones are adequate for playing games and watching videos, it is really torture editing a spreadsheet on smartphones. The benefits of a larger screen tend to be more pronounces in the “productivity” segment.
  5. Therefore, looking at the sum of both segments, we will see something like the yellow curve where a period of decline will be followed by steady growth.

Although I have made the “productivity” segment to show linear growth in the above chart, in reality, it is more likely to be sigmoidal. Therefore, when the “productivity” segment gains steam, we are likely to see quite steeper growth.

From my thesis, I can predict the following;

  1. We will see strong growth of the iPad in 2017 onwards. 2017 will start slow, but growth will accelerate.
  2. Since growth will come from “productivity” segments, the seasonality of iPad sales will become less severe.
  3. We will continue to see strong sales coming from corporations, but sales to consumers may continue to be weak.

Since 2017 is still the early phase of “productivity” segment adoption, it might yet be a bit early to see a strong impact in 2017Q1 and Q2. However, I do expect 2017Q3 to show a significant effect. 2017Q4 will be less impressive due to the “entertainment” segment dominating during the holiday season.