Category: Personal Computers and Mobile

Why Do Companies Outsource?

Last week, news broke out of Apple’s “McQueen” project; a plan to move Apple’s iCloud data away from Amazon’s AWS, Microsoft’s Azure, etc. and into its own data centres.

This isn’t really a surprise or an insidious plan by Apple to damage its competitors. It’s obvious if you think about what the benefit of outsourcing is for any company.

Companies outsource if;
1. The technology is not a core strength of the company.
2. The technology will not be a key differentiator going forward.
3. There are cost benefits (mostly due to scale) of outsourcing.

In the case of Apple, cloud infrastructure was not a core strength of the company so it made sense to outsource at the onset. However, it became clear that the cloud would be a key differentiator going forward. Additionally, the scale of Apple’s cloud operations became huge, and hence the cost benefits of outsourcing became negative.

The only thing that was surprising to me was the fact that Apple was outsourcing at all. I would have thought that Apple had had everything in house years ago.

The Outdated iPhone 6/6 plus

Going into 2016, I think it is prudent to remind ourselves of a couple of new additions to the iPhone product line that Apple made in Fall 2015, and which could significantly affect their ability to target the mid-range market. These are, the outdated iPhone 6 and 6 plus.

As they have been doing for quite a few years now, Apple has reduced the prices for their year-old models, and is selling them in parallel to their current ones. In the United States, the iPhone 5s starts at $450, the iPhone 6 at $549 and the current iPhone 6s is at $649. The iPhone 6 plus is $649 and the iPhone 6s plus is $749. While not yet in the budget phone range, these models significantly expand the iPhone product range for the more budget conscious customers.

Second hand iPhones are also quite popular in some developing countries. With the new iPhone 6s/6s plus models, we can expect a large number of iPhone 6/6 plus models to enter the used phone market.

This is significant because a) the larger size iPhones sold extremely well in 2015 and they should also sell well to budget conscious customers, b) developing markets tend to favour larger screens. As a result, we can expect the demand for the price-reduced or used iPhones to significantly exceed that of previous years. Although the effect on Apple’s short-term financial results is likely to be small, it could strongly impact Apple’s future prospects in developing countries.

This is something that was completely foreseeable, and I discussed this in Fall 2014 when the iPhone 6/6 plus was first announced. The year 2016 is when we will see the actual effects. I think we should remind ourselves that this year, we might see Apple making significant inroads into budget conscious countries (namely some European ones) and developing countries.

iPhones, Battery Cases, Battery Life and Samsung Galaxy S6

With the release of Apple’s new Smart Battery Case for the iPhone 6/6s, some pundits are proclaiming that this is proof that Apple has been putting form over function, and that this product is an admission that the iPhone’s battery life is not enough.

Of course, the more careful journalists like Joanna Stern do not forget to mention that the people who find the iPhone lacking in battery life are heavy users.

You know who I blame for my battery anxiety disorder? Obviously not me, and my excessive checking of email and social media. I point the finger at Apple, and its insistence on compromising battery life for phone slimness.

On Tuesday, the company finally admitted that heavy iPhone 6 or 6s users like me could use more power

Some are less so and make very careless comments (Phil Baker writing for Techpinions).

The thinness tradeoff most likely was driven by their passion for ID winning over usability. Apple’s design of nearly every product for years has been about thinness, from the Air to the iPads, to the phones. Each new generation is thinner than the last. Apparently, there was no one strong enough to push back. I bet at least 80% of iPhone 6 users would have preferred more battery life in exchange for a phone that’s 1 or 2 mm thicker.

Now I am totally aware that in survey after survey of smartphone users, battery life is the major concern. However, the percentage of customers who are complaining is in the 30-40% range, and it is also unclear whether they are suffering enough to chose a phone that has more stamina, but is also heavier and bulkier.

Lacking any good publicly available survey results, we could look at the market-wide product trends for clues.

The hugely respected Anandtech website conducted battery tests for a variety of devices, and concluded the the iPhone 6s/6s Plus have very good battery life compared to other smartphones. If the iPhone battery life was so inadequate, and 80% of customers would really put up with a few extra millimetres of thickness for a larger battery, then why haven’t the competition opted for better battery life then the iPhone?

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The Samsung Galaxy S6 is also reported as to having a smaller battery than its predecessor. Why would Samsung do this if most customers valued battery life over thinness?

Personally, I know I often run out of battery life and I bought the Smart Battery Case. I have my own opinions, but I am also aware that they do not represent the bulk of the market. That is why data is important and why personal opinions are mostly worthless, unless you are writing reviews for a audience that is just like you.

Piece Of The Puzzle : Chromebooks In The U.S. And The Rest Of The World

I just found a very interesting pair of reports by Puneet Sikka on Market Realist/Yahoo Finance.

  1. “Why Apple Devices are Losing Share to Chromebooks in Schools”
  2. “Microsoft Gained Presence in the International Education Market”

The former article describes how Chromebooks are now more than half of all devices sold to US Schools (3Q15). The latter one tells us that in the international market, Chromebooks only have a 3% market share. In particular, it tells us that Chromebooks have a tiny 1% share in Brazil, Mexico and India, all markets where cheap Google/Android phones are doing exceedingly well due to high price sensitivity.

In fact, if you look at the chart below, it clearly shows that Chromebook market share is much higher for developed countries than for emerging ones. Although one might presume that cheaper Chromebooks are more suited for low-income countries, the reality is that the inverse is true; low-income countries prefer Windows.

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The reason is clearly stated in the article;

The main issue with these countries is that they do not have the required broadband infrastructure to support the cloud-based storage requirements of Chromebooks.

We often only look at the flashy devices that we use, made by the most powerful tech companies in the world; Google, Microsoft and Apple. We often forget that to make these devices work, we need a lot of infrastructure. We also forget that WiFi can be very, very expensive when you want to deploy a network capable of handling hundreds of simultaneous connections. We forget the infrastructure because unless you have to dealt with it directly, it is invisible.

This is something to keep in mind.

  1. Google exists only because broadband Internet access is cheap. Its business model and its data collection relies on the infrastructure of vast network of Internet equipment that most people in developed countries now take for granted.
  2. Amazon exists only because of a highly developed and inexpensive network of deliveries to your doorstep. This was not common 30 years ago in Japan, and I assume, most other countries.
  3. Microsoft and Apple built their businesses before this infrastructure. They have business models that work without it.

One could ask the question; what infrastructure enables Uber? What recent changes have occurred to it? Or they could ask, what infrastructure enables self-driving cars? Then they should look at other countries to see if the infrastructure is there.

I strongly believe that to understand the underlying current flowing through technology and innovation, one has to understand the gradual changes of the infrastructure. The tech that we see are often just the rocks that are being pushed downstream. The Chromebook example is a strong reminder of what we should keep our eyes on.

How Will iPad Sales Rebound?

With all the talk surrounding Apple’s new iPad Pro and its predicted assault into the corporate workplace, replacing legacy PCs, you would be forgiven for thinking that all is well in iPad/tablet land, and that sales are growing healthily.

Except that it’s not. iPad sales have been flat/declining since 2013 and up till the last earning report from Apple, there has been no sign that it has even hit the bottom.

Therefore, any analysis of what iPads future prospects are has to balance and ideally encompass two opposing trends. You need a holistic discussion.

The following are a few things that we might consider;

  1. The majority of iPad use to date has not been at work. Usage data by hour-of-the-day clearly indicates that iPads are used during leisure hours, and that work hour usage is much less.
  2. Smartphone hardware and software have improved to the point that a very large proportion of tasks can be performed on phones. It is questionable if there remains any common home computing task which definitely needs larger devices.
  3. As far as I know, corporate deployment of iPads has mostly been limited to special tasks for which PCs are ill-suited. Tablets have not yet replaced PCs in corporates in any significant degree, and we haven’t even seen any clues that this is imminent. Common reasons are the lack of support for legacy systems and software (which includes MS-Office).
  4. It has been commonly accepted that long replacement cycles are a major factor in the lack of growth in iPad sales. Well do you know what? Even the latest iOS 9 supports the iPad 2, introduced in March 2011. The only news coming out from Apple that might spark upgrades is the iPad Pro, but given its much increased price, we can safely assume that most current iPad owners will not upgrade their devices to the Pro.
  5. The iPad Pro with the new Pencil and software from Adobe make a compelling case for a device that graphic professionals would love. But we also know that this is a small market. Adobe Creative Cloud, for example, is aiming for a total of 6 million subscribers by the end of 2015. In comparison, it’s likely that the iPad installed base is several hundreds of millions.

Considering the above points, the following is what I’m thinking;

  1. Discussions about whether or not tablets will replace household PCs is totally irrelevant. The household PC market is probably shrinking rapidly, especially in usage hours, as people find that they can browse the web, download music, manage photos, reply to emails very comfortably from their smartphones. Discussing who will prevail in this market isn’t very forward thinking, and as time passes, the relevance of household PC replacements will diminish to the level of insignificance. It is questionable whether replacing household PCs will significantly contribute to increased iPad sales, even if it happened at a large scale.
  2. Selling to creative professionals will not significantly affect iPad sales. The iPad Pro is a great device, but the Pencil will not lift iPad sales.
  3. The iPad Pro is unlikely to mass accelerate the iPad replacement cycle.

It is blindingly apparent that what we have seen with the iPad Pro alone will not revive iPad sales. The answer will have to come from elsewhere. It will have to come from non-consumption of computing; i.e. the conversion of non-computing tasks into computing tasks.

Exhibit. 1: Diminishing role of PCs in household use.

StatCounter comparison US daily 20120816 20151001

This graph (from StatCounter) shows daily web usage by device type. The spikes in the data indicate weekend usage. In the blue line (desktop PCs), weekends show reduced usage. In the green (mobile/smartphone) and purple lines, weekends show increased usage. This shows how desktop PC usage skews to workdays and smartphone/tablet usage skews to weekends. Interestingly, as smartphone usage increases, desktop PC spikes get deeper. This suggests that mobile usage is taking away home PC usage, but not so much of work PC usage.

Google’s Response to Accidental Clicks

Google recently described on their blog, some of the ways that they have been trying to rectify the “accidental click” problem, which some 3rd party studies have estimated to amount to 50% of ad clicks.

This is obviously a welcome move from the advertisers which have ultimately pay for these accidental clicks, but it also raises the question of a) is this enough from the advertiser’s point of view, and b) how much will this impact Google’s revenues.

To understand this, we have to carefully look a the constraints that are carefully worded into this article.

  1. This only applies to AdSense: This article carefully mentions that all remedies and conversion rate improvements apply to display ads only. This does not apply to AdWords ads, the ads that show up on Google search result pages. Now the vast majority of Google’s revenue comes from AdWords. Google’s AdSense business is much smaller and hardly growing in revenue. Therefore we can conclude that Google’s remedies only apply to a small portion of their overall business, and it is a business that is decreasing in importance.
  2. AdSense text ads are not affected: AdSense is comprised of a image ads and text ads. It is unclear which of these is a larger business. However, since banner blindness is well documented and users have learnt to not click on anything that looks like a banner ad, it is possible that text ads actually attract the bulk of clicks for AdSense. This article again carefully makes it clear that the enhancements only apply to the image-containing banner ads.

It appears that Google has restricted the improvements for click quality to the segments of ads which will impact Google’s revenue the least. This is completely understandable given that Google, as any other company, wants to increase revenue and profit, but it is also important that the current efforts will only fix a minor segment of accidental clicks. This means that going forward, there will still remain a significant number of accidental clicks, and that Google may again be pressured by advertisers to reduce these in the not-too-distant future. Although not necessarily a likely possibility, it would be particularly damaging if Google was forced to modify its search ad format (AdWords) to prevent accidental clicks from users who did not recognise that the links were actually advertisements.

Thinking Of Xiaomi, And What Services Are Profitable

One common narrative is that the profits in tech are not in hardware nor even in software, but in services. The poster example for this trend is Xiaomi, a company that is supposedly subsidising the cost of its smartphones, and making it up with profits from services.

I have always had a problem with this logic. My problem resides in the fact that not all services, even the very successful ones, are profitable. Another problem is that the most profitable tech company in the world, Apple, is making its money, not because it has the best services in the world, but because it has the best devices (which are a combination of hardware, software and services). It doesn’t seem to be as simple as services = high profits, hardware = low profits.

In this light, I think it’s important to look at exactly what kind of services Xiaomi is offering. This Wall Street Journal article is a good place to start.

Mr. Lei expects big growth in services built around the smartphone ecosystem. Each day, Xiaomi’s 130 million users use their phones 115 times for a total of 4.5 hours on average, he said. The company has set up a marketplace for online commerce and services, including things as diverse as video, news, financial services, television sets, air purifiers and luggage. “We’re a huge content platform,” he said. “All our [traffic] numbers are astronomical.”

The services described here are all quite commonplace. There are many companies doing video and online commerce, and technically it is very straightforward to do. Online financial services are also provided by many companies, and there is little reason to believe that Xiaomi’s offerings are significantly better than average. The selling of branded television sets, air purifiers and luggage is really low-tech, and in many ways what we would consider a commodity. If these are the services that are profitable for Xiaomi, then we have to rethink what it means to be profitable in services.

It would seem that profitability in services is not directly tied to the innovation provided. At least Xiaomi doesn’t believe so. Instead, Xiaomi seems to be selling mediocre services and products to its loyal fan-base, and it appears to believe that this is how to make profits.

The way I see it is this;

Android smartphones are unprofitable because of hyper-competition. The promise of high-growth lures companies into this market, despite very low short-term profits. On the other hand, commodities like air purifiers. luggage, online financial services etc. have a proven business model that is at the very least, more profitable than smartphones, partially because competition is less fierce. Therefore, one business model is to gain the trust and loyalty of customers by selling good smartphones at cheap prices, to the extent that you become a lifestyle brand. Then sell mediocre but profitable lifestyle products with your branding to these customers.

In a nutshell, gain customer loyalty through high-tech, but earn profits from low-tech.

And “services” is the low-tech part. Which also means that it’s relatively easy to copy.

Update

Just to extend this argument and make it more interesting.

Imagine if Google decided that it needed another business model outside of advertising. Imagine if they adopted the Xiaomi model. What might we see?

I could imagine;

  1. Google branded bicycles, apparel, furniture.
  2. Google banking and insurance services.
  3. Google virtual shopping malls.

Mind you, none of these need innovative tech inside them. Just do what everybody else is doing but leverage the power of your brand to earn higher-than-average margins.

iPhone: “Good Enough” is Nowhere In Sight

A central tenet of disruption theory is that the threat of disruption occurs when products start to overshoot the market. Back in 2012, Horace Dediu posted “Is the iPhone good enough?” and offered a way to measure whether or not the iPhone has reached this point.

Horace suggested measuring sales of the newest model against the year-old versions that Apple sells in parallel at discounted prices. I am not currently aware of any data for this, but there are other ways (although not quantitative) to see whether this is the case. For example, you could look and see if the excitement over new products is high or not. You could see if the average selling price is increasing or decreasing. You could look at whether the new features are being used by the general public (and not just a few enthusiasts).

Judging from the record launch weekend sales of the iPhone 6s/6s plus which were just announced by Apple and from the glowing reviews of the new 3D touch feature, it seems that the iPhone has managed to escape becoming “good enough”. That is, they have discovered new features that customers truly want, and more importantly, their customers still trust Apple to deliver significantly better experiences with each new release. Of course we are only looking at the launch weekend, when sales are mostly supply constrained, so what we have right now is not a very good indicator of consumer attitude. It still seems very positive though.

Contrast this with the situation on Android where average selling price is falling, and each new Samsung Galaxy S release is getting less attention with each coming year. This is what you would expect from a market that has reached “good enough”, and sure enough, we are seeing Samsung being disrupted by low-end entrants. There is a stark difference here.

So back to Apple. Many pundits were worried that Apple would not be able to deliver a phone that would excite customers over new features, after picking the low-hanging fruit that was larger displays for the iPhone 6/6 plus. This does not seem to be the case. It seems that the innovation engine inside Apple is still running very strong, and that they still have ideas for new features that customers will be eager to upgrade for. That is to say, although pundits may declare smartphones to be “good enough”, Apple has stuff in the labs that will raise the bar when introduced. As long as these features keep rolling out and capturing the imaginations of consumers, “good enough” won’t come to the iPhone.

This also means that if Samsung (or any other Android OEM that aims to sell phones profitably) successfully copies the iPhone’s new features, then they will too manage to escape the “good enough” trap. That is the challenge though. Without controlling the software, Samsung will have difficulty getting traction with something like 3D touch.

オリンピックエンブレム原案が捏造されている可能性について考える

佐野研二郎氏がデザインした東京2020オリンピックエンブレムの原案が公開された。これを公開した記者会見では、大会組織委員会はエンブレム制作と修正のプロセスを公開することで、リエージュ劇場のロゴを真似たわけではないことを主張した。そのことはある程度成功しているようだ。真似たことを疑う報道やインターネットでの書き込みはかなり減ったように感じる。

しかし私はまだ納得できないでいる。この原案と修正案がどうもおかしいのだ。8月5日に佐野件二郎氏がコンセプトを説明してから20日以上がたっているが、この間につじつまが合う説明を考え、それを裏付ける証拠を捏造していたのではないかと私は疑っていた。ここまでひどいことをするとは本当は考えたくないのだが、問題の大きさを考えるとそこまで検討に入れなければならないと私は考えていた。そして残念ながら今回公開された原案は、その捏造の可能性をより強く感じさせるものだと感じている。以下に私がそのように感じる理由を紹介したい。

原案
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修正案
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最終案
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  1. 原案が非常にダサい: これはインターネットを見ても、多くの人が感じているようだ。私は最初にエンブレムを見たときも非常に違和感があり、このエンブレムはオリンピックには向いていないと感じていた。オリンピックにはふさわしくはないものの、デザインそのものとしてのまとまり、完成度、重厚さは優れていると認めていた。しかし原案は完成度、重厚さすらない。バランスに欠け、色合いもただただ軽率な感じで、何よりも安直な感じが強い。これが審査を勝ち抜くのは、到底考えにくい。
  2. 赤い丸が下にあることの違和感: 最終案ではこの赤い丸は鼓動する心臓を表していると佐野氏は解説していたが、同時に日の丸を意識しているのは誰の目にも明らかであった。国旗である日の丸を一番下、地面に配置するのか？日が昇るというイメージではなく、日が沈むというイメージにするのか？「日」「太陽」のイメージとして、それはさすがに理解に苦しむ。
  3. 以前のコンセプトとの不一致: 以前の佐野氏の解説では、真ん中に大きな丸を意識していた点、さらにDidot, Bodoniのフォントの中に日の丸をイメージした点などを述べている。しかし原案を見ると、円形になっているのは赤い丸だけであり、それ以外には曲線は一切なくなっている。佐野氏が解説したコンセプトとは全く合わなくなっている。したがって原案のコンセプトとして全く別のコンセプトが存在していたと考えざるを得ず、修正過程でコンセプトをまるっきり変更したということになる。本当にそんなことをしたのか、強く疑問を持つ。

むしろリエージュ劇場の訴訟をそらすために、あえて中心の大きい円形をなくし、直線中心のデザインに変更し、右下のグレーの箇所を上に移動させ、行き場所を失った赤い丸を下に移動させたのではないか。あえて訴えられないような原案を捏造したのではないか。そう考えたほうが以上の疑問点をうまく解説できる。もちろん普通だったらここまでの捏造はしないだろうと常識的に思う。しかし今回の問題が非常に大きいことに加え、選考過程が非常に閉鎖的であり、20日をかけたこと、そしてなおかつ佐野氏には盗作の前科がある。捏造を疑うのに十分な理由は揃っている。

さて、捏造を疑っただけでは物事は進まない。本当に捏造があったかどうかは証拠を集めないといけないし、そのためには第三者委員会に調査してもらったり、裁判で証拠との提出を要求されたりする必要がある。もちろん佐野氏に盗作の前科があるし、また著作権を軽く考えているという発言もあったので、状況証拠には事欠かないものの、決定的な証拠がない。捏造があったとしても、それが表面化するのはかなり可能性が低いかもしれない。

その一方でやはり誰しもが思うことは、原案として公開されたデザインがあまりにもダサいこと。これは佐野氏のデザイン力をはじめ、審査委員会の公平性を疑うには十分すぎる。今回の記者会見で、法律的には盗作ではないという主張はしやすくなった。しかし一般市民がオリンピックエンブレムを尊敬できなくなる理由はむしろ増えた可能性がある。

また今回の記者会見程度でリエージュ劇場側が裁判を取り下げることは考えにくい。IOCは依然としてこのエンブレムを使い続けようとするでしょうし、そうである限りはリエージュ劇場側は法廷で戦うつもりでいるだろう。

何れにしてもどっちの方向にも決定打が出ていないのが現状ではないかと思う。このまま収束してくれるような気もしないので、次の展開が待たれる。

Google Now And The Priorities At Google

Mark Bergen (@mhbergen) wrote an interesting story on Google on how most of the original Google Now team has left the company, mainly due to a lack of prioritisation.

Although we need further reports to confirm this and to get a picture of what the consequences may be, I found this very interesting because it aligns with some predictions I had made previously.

  1. Predicting Android’s Change Of Direction: Thoughts from Andy Rubin’s Demotion (Apr. 2013, in Japanese)
  2. Who Is To Blame For Samsung’s Bad Fortune? (Nov. 2014)
  3. Android No Longer Competes With iOS (May. 2015)

Mark Bergen’s article in essence says;
1. Google Now was born within Android.
2. Larry Page heavily prioritised it, but then became too busy with moonshots.
3. Sundar Pichai de-prioritised Google Now as an independent intelligent assistant, and moved it from Android to Search.

My argument was that whereas Andy Rubin wanted Android to be the best mobile operating system in and of itself, Larry Page (and consequently Sundar Pichai) thought of it as a gateway to their Search cash cow. Hence priorities are determined based on potential contribution to the Search business, and not on the merits of Android itself. It seems to match Mark Bergen’s discussion, with the exception of heavy support from Larry Page, which I didn’t expect because of how he removed Andy Rubin.

At this point, it is difficult to say whether Google Now should be a priority for Google or not. I suspect that Android is more focused on emerging countries than developed ones, and if so, then de-prioritising Now makes sense. It’s also unclear whether Google Now will really provide good advertising opportunities. Despite theoretically being attractive for ads, I do not know of any mechanism provided by Google for purchasing ad space, and it is possible that it isn’t really very good. Sundar Pichai may be fully aware of the consequences of what he is doing, and that he is convinced that it is better for Google long-term. Google’s multiple projects were always in conflict in one way or another, and it’s possible that Sundar is simply clearing the mess up.

What I do worry about is the fate of Android OEMs. Android, if it is to compete with iOS at all, needs to have features that are unique to it. Tight integration of Google Now seemed to be a great opportunity. Without it, Android will struggle even more in the high-end. As a result, profits for Android OEMs will get even worse.