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Note

The following is a post that I drafted on 9-Jan 2017, more than a year ago. Given the reported excitement over Alexa at CES 2018, I thought it would be a good idea to publish it and to see how things have changed in a year. I am actually a bit surprised at how relevant my observations remain today. I have left it as I did a year ago, and hence there are parts that are obviously unfinished.

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One of the more interesting things in tech this month was the presence of Alexa enabled products at CES. Although this seems to have taken quite a few people by surprise, it’s actually quite easy to see how this happened, and why other aspects of an AI enabled interface (answering via Google Graph or voice control of your smartphone etc.) have not seen excitement anywhere near. One critical caveat though is that at this point, we have only seen excitement from home appliance vendors and not from the consumers; at this point, we have not yet seen real demand.

The following is a summary of my thoughts on this.

Who has the capability for a voice UI?

1. More than a year ago, I wrote a comment on Techpinions that “Amazon, by offering Echo voice to other companies, is essentially making it the new AWS. This could result in even small startups using sophisticated voice technology”. This is essentially what we are seeing at CES. We are seeing many startups and non-tech companies integrate with Alexa to provide a voice UI to their products.
2. Essentially, nobody needs in-house voice recognition technology anymore to provide a voice UI to control their product. Anybody can do it. Importantly, since it will probably be difficult to significantly differentiate on voice, voice UI itself will become a commodity.

Who needs a voice UI?

1. One huge problem with AI, and new category products in general, is that very few people need them. Impressive as Google Now may be, people have not yet shown much excitement over an assistant that peeks into your email and notifies you of the few events and appointments that it has managed to decipher correctly. There has been little need for assistants that try to learn everything about you and predict what you may want.
2. It turns out that the people who wanted a voice UI the most weren’t end-customers. The ones that had the most use for a voice UI were vendors; they have always wanted something new and shiny to lure consumers to buy a new TV, a new refrigerator, a new microwave, etc. The perfect example would be TVs with 3D and 4K, devices that were previous darlings of CES a few years ago, but ended up being duds.
3. What Amazon has provided is a promising (but yet unproved) solution. It provides hope for the eternal question; how do you get customers to spend a few more dollars on your commodity product? Home appliance vendors have forever been adding small incremental features to lure consumers into replacing their 5-year old device, and to get them to buy higher priced ones rather then their low-end offerings. Wider TVs, 3D, 4K, Internet connectivity, lower energy consumption, SD slots to view photos, etc. Despite being a dud in the consumer market, features like 3D and 4K were actually big topics at previous CESs.

How it adds up

1. Amazon has basically provided a way to add a voice controlled interface to otherwise mundane devices, with very little effort and investment. Alexa-enabled devices can now tout headline grabbing titles like “AI-powered washing machine” and pretend to be something that’s genuinely useful and innovative.
2. Importantly, we have to remember that the consumer is completely absent from the argument. The need for thes AI-powered devices comes from the vendors, not the end users. Like 3D/4K TVs, the excitement could be very short lived.
3. Therefore, we have to keep in mind that this excitement is completely independent of how well Alexa’s AI performs.
4. More than anything, this tells me how quick adoption of a product can be if you have hit a clear need. Conversely, it shows how hard it is to get the mainstream to share enthusiasm for a product without one. Here, we must keep in mind that AI is not the key because the existence of a need for it has not been demonstrated. The key is the ability to be buzzword compliant with minimum effort.

The implications

1. One point of discussion is whether Amazon has managed to get a head start that is significant, of whether Google or Apple would easily catch up if and when they open up their ecosystems. As mentioned above, the motive for the home appliance vendors to be HomeKit/Siri or Google Home compatible is very strong. As long as Apple or Google provide an easy way to be compatible, then vendors will most likely rush in just like they have done for Amazon. Keep in mind that making your appliance compatible is probably much easier than developing an independent app, something that the vendors still do.
2. Regarding the above, it’s also important to note that the replacement cycle for home appliances is very long, hence early leads are unlikely to translate to large share of installed base.
3. The smart home has hardly taken off, and some pundits have attributed this to the lack of a central control. If this is truly the case, then we might see a surge in smart home appliance adoption, due to Alexa. However, we must also be aware that Alexa compatible device adoption alone is unlikely to be a reliable measure of smart home adoption, unless there is a clear price difference (with 3D TV adoption, even people who did not 3D bought them). We must be careful in how we interpret the numbers.
4. The broad question here is what AI is really good for, and does the popularity of Alexa at CES give us a hint? Why would people want AI at all, and what level of AI would be necessary to solve the job. Although far from decisive, if the main job of Alexa ends up controlling home appliances through voice, without necessarily inferring or predicting your needs by peeking into your daily habits, email and calendar events, then that would suggest that a glorified, voice controlled macro library is what people want and need. That is, unless the task is complex, humans can tell computers what they need, and their isn’t a clear need for computers to be clever. If this is indeed the case, then Google’s Knowledge Graph and huge repositories of users’ private information may not be as useful as one may think.
5. AI is already used to determine the best washing conditions for your specific laundry, and current AI may not significantly contribute to that.

AI does not have a job nor does it solve a need. Therefore it cannot be a product. It is only a technology.

Alexa at CES shows how it might be a product, or rather what AI might be useful for. Of course, ultimately the user will decide.

Alexa is something that will help drive sales of high-end commodity products.

Although cheap kitchen timers can be as cheap as just a few dollars, a premium one that you can use hands free might justify a $50 price tag. That was the only remotely useful use-case that I could find in this article, but maybe that’s enough.

The larger question would be, out of the tens of millions of people who purchased a smart speaker, how many people hooked it up to a smart home device e.g. smart light bulbs, smart locks? Assuming that this is what is going to be hot at CES, I wonder how large the addressable market actually is, which I expect is probably much much smaller than the total number of devices sold.

In a recent tweet, Benedict Evans brings up the point that business models are important for understanding the nascent smart speaker market. This is particularly important given a Reuter’s report that both Amazon and Google likely lost money on these devices during the holiday shopping season.

This brings up the question, what business models are these smart speakers really suited for, and have Google and Amazon exhausted the possibilities? Are there other companies with different business models that might enter the smart speaker market, and be even more aggressive or successful?

Nowadays, if you want to search for perspective, it is a good idea to look to China to see what the Chinese are doing (other East Asian countries are also illuminating). According to a report by Activate, there are quite a few interesting developments. In the chart below, Activate shows that in addition to Baidu and Alibaba which can be considered as counterparts to Google and Amazon respectively, we see the Asian messaging giants – Tencent (WeChat), LINE and Kakao getting into the game. What’s interesting is that these messaging apps are not just for messaging, but are actually portals to a whole variety of services spanning ride-hailing, deliveries, music streaming, digital payments and more. This means that without plugging in third party apps like how Amazon is doing with their “Skills”, WeChat, LINE and Kakao may be able to provide a battery of useful services that could be better integrated into the voice UI. They would also be in a better position to monetise directly from a variety of services compared to Amazon which only monetises through shopping or Google which doesn’t yet have a clear monetisation strategy yet.

Therefore, it seems that the East Asian tech companies have a better business model for Smart Speakers than any of their US-based counterparts. US customers are reported to use Smart Speakers only for very basic tasks, but is it possible that East Asian users will soon adopt more complex use-cases, simply because the better matching business models will encourage the services to be much better, more varied and more integrated. Who knows? If Smart Speakers turn out to be really successful, they might turn out to be the vehicle on which Chinese companies will finally penetrate the US market (although there might be significant national security issues with having Chinese ambient microphones in US households).

A few thoughts on Maps, in particular Google Maps and Apple Maps.

Google Maps was not the first digital maps solution nor even the first cloud maps solution. However, they have continuously refined the product adding information that they have gathered using high resolution satellite images, cars that roam the streets, and also local business information that they acquired through either partnering, web scraping, user-generated content and other means. Furthermore, based on the assumption that self-driving cars of the future will rely on maps that vastly more information intensive than the ones that we typically use today, having such high-quality maps is predicted by many to be a huge advantage when such technology becomes mainstream.

There are some problems with this approach though. One is sponsorship. Given that Google generates the vast majority of its revenues though advertising, it is highly probable that they will try to more aggressively monetise Maps in the not-so-distance future. This will most likely be through their integration of local business information, and by preferentially suggesting their sponsors’ businesses to their users, instead of simply listing in order of relevance and proximity. This may negatively impact the user experience in a way that has parallels to how Google has modified their Search results to preferentially show either their own services or sponsored products, relegating the more relevant organic search results to less convenient positions near the bottom of the page. It may also spark anti-trust concerns (and indeed already has) as this activity can be seen as an abuse of their dominant position on Maps to promote their own local business services.

Another is that the assumption that high-resolution maps are essential for autonomous driving will not last forever. If and when autonomous systems become as intelligent as human drivers, then they will no longer need such detail. They should be able to drive themselves based on the abstract and rudimentary maps that human drivers have relied on for decades. Therefore when AI becomes sufficiently sophisticated, these high-resolution maps will become mostly unnecessary and an overkill. The advantage of high-resolution maps will only last while autonomous systems are still much dumber than humans, and after that, their high costs of maintenance will make them more of a liability than an asset.

I point this out because there are apparently some who think that the current superiority of Google Maps compared to say Apple Maps provides an insurmountable moat for the future. While this may be true from a pure data volume and accuracy perspective, one should keep in mind that the disruptions that we have seen in the past decades are often those where the incumbent maintained an advantage in performance or sophistication, but nonetheless lost because the difference no longer mattered.

Two and a half years since its introduction, Apple Watch is seeing increased momentum as market analysts suggest both rising market share and significant growth in sales. Android Wear on the other hand has not been so fortunate with decreased attention from both Google and their hardware partners.

It is one thing to say that Apple has won this first round of the wearables battle. However, it is still very very early in the game. The larger question is what will the landscape look like when wearables reach say 50 percent market penetration, because it is only until then that the winners will become so consolidated, entrenched and seemingly invincible. Before that, markets tend to remain a battle among many where anybody could win the next day.

We know that Apple has continued to refine the Apple Watch. Notable progress has been made in both performance and battery life. Recently, it has become possible to fit LTE connectivity without making the device unmanageably huge. On the marketing and value proposition side, Apple has shifted away from luxury and has moved towards fitness and health. On top of this, they are increasingly using AI to surface relevant information on the small screen, and making small but significant UI tweaks. As a result, we are quickly approaching the point where the value of a wearable would become easy to understand and widely recognised.

On the other hand, Apple still refuses to link the Apple Watch to Android smartphones. The only way to enjoy the Apple Watch remains to own an iPhone. This will create a gap in the market where Android users will increasingly want to own a good smartwatch, but cannot find anything that is compatible with their phone. This gap will only widen in 2018, as the Apple Watch enjoys further success.

OEMs will rush in to fill in this gap. With the lacklustre progress in VR headsets, drones and other gadgets that distracted them for the last couple of years, they will come back to the device that Apple has demonstrated a market exists for. I predict that in at least the later half of 2018, we will see hardware OEMs come back to smartphones.

Google’s attention is a bit more difficult to predict. They are preoccupied with AI and following Amazon’s lead in smart speakers. If so, we might see improved Android Wear hardware, but very little progress in the OS.

From my point of view, it is inevitable that Android users will start to want to have an Apple Watch equivalent. What I’m not sure about is whether their needs will be satisfied by Android Wear or by Samsung’s Tizen, but the fact remains that a significant chunk of the 80% of total smartphone users who don’t have an iPhone, will want a nice smartwatch too.

DuckDuckGo has this to say.

Let’s think about what this means for a second.

1. If DuckDuckGo can make enough money to turn a profit, then imagine what Google could earn even if they did the same as DuckDuckGo. Given Google’s vastly larger resources, reach, brand and advertiser relations, they might even be earning as much as they do now.
2. Personal information collection is most useful in the cases where the user has not explicitly expressed intent. For example, personal information can be used to choose which ads to show a user in a banner ad or a feed. Since the user will already have provided intent in a search, the additional benefit of personal information is actually quite small, as demonstrated by the solidness of DuckDuckGo’s revenues.
3. Google makes money most off search. Their display ads (AdSense) are barely growing and only a small fraction of total ad revenue.

Apparently, Google could be almost as profitable as it is now even without personal data collection.

Then why do they do it? What would happen if certain regulations like the GPDR come in effect and outlaw rampant data collection? What would happen if Apple continued to improve its privacy protecting features and prevented Google from collecting this?

DuckDuckGo shows us that Google’s revenues might not be harmed at all.

It has been reported by IDC that Google’s Pixel phones sold only about 2.8 million devices since launch a year ago, which is less than 1% of the total market, and totally unfitting for a company of Google’s wealth, dominant position and brand recognition.

It was not the appeal of the phone, the hardware, the software, nor the integration of the two that caused mediocre sales. Indeed, the Pixel phone was met with rave reviews and was sold out at least during the early launch period in the places where it was sold. Instead most people believe that it was the meagre supply and the dearth of distribution channels that made it very difficult for people to get hold of them.

If this is true, then what Google needs to do is to fix this bottleneck. It needs to fix manufacturing, component procurement, distribution and marketing and not the design of the phone. It needs to make sure that people can purchase them without undue difficulty. If Google can manufacture tens of millions of phones and make them available through the regular channels, then they will have a winner.

In short, instead of purchasing the hardware design division of HTC which will probably not help the supply and distribution issues at all, Google should hire people like Tim Cook, Phil Schiller and Eddy Cue.

Apple reported its 2017Q2 (Q3 by Apple’s calendar) results yesterday, and many analysts were surprised by the very strong iPad sales which were 14% YoY by shipments.

However, this was pretty close to a prediction that I had made in December last year, even before the new, cheaper iPad and the 10.5 inch iPad Pro had been announced. I had said

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.

This is very much in line with the results that were announced, although the positive results came in a quarter early, most likely due to the cheaper iPad which I did not know of when I made the prediction.

As for reasons behind the sales increase, Apple put enterprise sales first and education sales second. Although they did not give any quantitative contribution data from each market segment, this aligns with my prediction that the revival of sales will be “productivity” driven.

With this successful prediction under my belt, I am quite confident giving predictions for the next two quarters. 2017Q3 will also be very strong YoY with growth possibly in the 20% range. Again, “productivity” will be what drives the growth. As for 2017Q4, there will still likely be good growth but not as significant as the preceding two quarters. I expect single digit or low double digit growth for this quarter. This is driven by the large “entertainment” iPad sales during the holidays, which I expect are still decreasing YoY and which will dampen the growth from the “productivity” sector.

Overall, my thesis that we are witnessing a long term revival of the iPad has been strongly enforced. Some analysts seem to think that the strong sales for this quarter are a one-time effect due to the introduction of the lower cost iPad. However, I expect strong growth to continue, proving these explanations to be false.

Yesterday, Apple announced that it had discontinued the iPod Nano and Shuffle, and that the new iPod line-up would now simply consist of only two iPod Touch devices.

Back when the iPod was introduced into this world (2001), Steve Jobs unveiled the "Digital Hub" strategy in which the PC would be in the centre of you digital life, connecting and managing all the content that you either acquired through your devices (still cameras or camcorders) or purchased (via iTunes or via physical CDs). This was also an assertion that despite the negativity surrounding the future of PCs at that time, the Mac would actually continue to thrive through successful execution of this strategy. Fast forward to 2011, Steve Jobs announces iCloud, which essentially replaces the central position of the PC in the "Digital Hub" with cloud-based services. PCs, iPhones and iPads will be equal citizens and will sync to the cloud; PCs will no longer be the Hub that connects everything together.

Apple has diligently executed on this strategy. For example, managing your photos no longer requires a PC, and even the ones that you only have on a memory card can be transferred to your iOS device (via a card reader) and synced to the cloud. For your music, you can purchase and listen to it from your iOS devices as well as your PCs.

The only devices that still required a PC, the holdouts from the Digital Hub era, were the iPod Nano and the Shuffle. Therefore, Apple's decision to discontinue these projects is symbolic not only of the decreased role of audio only devices, but also of the diminished role of PCs for consumers.

In fact, when you consider the newly announced HomePod which is very much an audio-only device, the argument that this is just about audio-only devices being obsoleted by smartphones no longer holds water. Apple clearly thinks that audio-only devices even without adequate touch screens have an important role. The difference between the HomePod and the iPod Nano and Shuffle, and the reason why one is being newly introduced while the other is being discontinued, is more about being connected to the Internet and being able to directly download/stream content. It is also about being able to use Siri, which again requires an Internet connection (at least today).

This suggests that maybe in the near future, we might see an iPod Shuffle-like device again. This time however, it will use Siri as its main user interface, and it will connect directly to your iTunes library in the cloud or download songs from Apple Music. It might actually be worn on your wrist.