Tag: Android

Google-Motorola Confusion

I’ve been trying unsuccessfully to find any indication of how the Moto G, the low-cost smartphone from Motorola is selling. I’m interested in how well their strategy, that is selling mid-spec smartphones at low-end prices by foregoing profits, is working. I strongly suspect that it is not, but I need data to verify that.

In the meantime, I found this funny article by Rolfe Winker for the Wall Street Journal. It describes very well the almost comical confusion and utter lack of coherent strategy at Google-Motorola. I’ve quoted some parts of it below.

The price cut on the Moto X extends a strategy laid out by Motorola Chief Executive Dennis Woodside to undercut rivals. Motorola’s lower-end Moto G phone, released in November, starts at $179 without a contract in the U.S., compared with $250 for a comparable Samsung device at Verizon. VZ -0.48%

OK. So the strategy is to undercut rivals on price.

Analysts say that low off-contract pricing is likely to have a bigger impact outside the U.S., where a larger share of smartphone users buy their phones directly, rather than by signing wireless contracts.

Now such a strategy will work best outside of the U.S. It won’t make much difference in the U.S.

The Moto X is sold only in North and South America, and the new lower price is only available in the U.S. for now.

Uh oh. But the lower price is only going to be available for the U.S.

Nice.

P.S.
In the last part of this article, there is a quote from an analyst;

Brand, distribution and product breadth are critical to sales volumes, and here Moto falls desperately behind [Samsung] still.

If this is true and I suspect that it is, we can also expect the sales of the Moto G to also be rather insignificant, adding to the long list of Google branded products that saw major hype, but failed to sell well.

PC and Tablets Sales to U.S. K-12

The Wall Street Journal published an article titled “Chromebooks Take Other Mobile PCs to School” which cited estimates of laptop and tablet sales to U.S. K-12 schools.

This compares to data that was released from the NPD group late last year. The NPD group data was for PC (desktop and laptop) and tablet sales through “U.S. commercial channels” (sales through VAR that are mostly targeted towards education, government and corporations). I have previously commented on the NPD data on this blog (1, 2, 3).

The NPD Group data and following discussions pointed to the following;

  1. Chromebooks are mostly selling to education.
  2. Chromebooks are competing with iPads or expanding the market. They are not taking the market from Windows.
  3. The NPD data is for computers sold to schools through VARs, not to students. The computers are strictly the property of the schools and hence purchase is not an end-user decision. In Steve Jobs’ words, these are sales through “orifices”.

Here I would like to take a look at the FutureSource data that the WSJ cites to better understand the picture.

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The FutureSource data seems to confirm the following;

  1. Chromebooks are indeed selling well to education.
  2. iPads are currently extremely strong in education. Much more so than Windows. It is understandable that the main battleground is iPad vs. Chromebooks and not Windows vs. Chromebooks.

Additionally, it seems that Android tablets are non-existent in schools.

As for the comments in the WSJ article that are in favor of the Chromebooks, they are interestingly from the school IT departments: the “orifices”.

One fan is Kyle Laauser, the information technology director at Saint Joseph Academy,
…
Explaining the purchase, Mr. Laauser pointed to the devices’ low price, $279 each including a $30 setup fee paid to Google, as well as the ease with which he could set them up for the entire student body.

All in all, the WSJ article seems to be in good agreement with the NPD data and the ensuing discussions.

Why Distribution Channels Matter

Distribution channels matter a lot in selling most kind of products.

This is why Google Nexus products fail to sell well, Samsung is so strong in Android smartphones, and why the Moto G is doomed to failure.

Micheal Fisher wrote a great article a while ago about this.

“Should I Trust My Phone Salesman?”

in the United States, manufacturer brands succeed or fail on the backs of the salespeople. And a salesperson who knows nothing about a platform isn’t going to recommend it.

In the US, at least, a phone lives or dies by the retail staff in the carrier stores. Nothing else matters. Not price. Not features. Not apps. If the retail staff doesn’t like you… you die.

I think people are worried that the iPhone is getting ‘sold against’ in stores – that we’re talking people out of the iPhone. And that is true.

Brands that are Strong in Developing Countries

In some previous posts (1, 2 in Japanese), I argued that it is very unlikely that the low-price Moto G smartphone will succeed in developing countries, despite being priced below $200 and having relatively high specs.

My argument was based on basic marketing principles, the 4Ps of the marketing mix. In essence, successfully selling a product requires the following to be considered;

  1. Product: Does the product satisfy the demands of the customer?
  2. Price: Is the price right?
  3. Promotion: Is promotion sufficient? Are customers aware of the product?
  4. Distribution (Place): Is the product available at convenient locations?

The Moto G has the Product and Price right. Although the price is a little bit on the high end for developing countries, the high specifications should be able to offset that. The problem lies in Promotion and Distribution. My understanding was that the Motorola brand and the distribution channel was weak in developing countries due to historically having put little effort in these regions.

A recent report by Jana (“Watch out Android: Windows Phone could become the world’s 2nd most popular OS”), although focused on Windows phone, also confirms that Motorola’s brand is weak in developing countries.

スクリーンショット 2014 01 25 14 55 09

With this in mind, I continue to believe that the Moto G will struggle in developing countries.

Some analysts comment that the low price of the Moto G phone, [made possible only by Google’s willingness to forego profit in exchange for unit sales](http://online.wsj.com/news/articles/SB10001424052702303497804579242511374858016), will put pressure on Samsung to lower its margins. I expect that this will not be the case, and the Moto G will be a non-issue.

Interestingly, Nokia continues to be very strong which is a good sign for Windows Phone.

What Android Tablets are Being Used

It has often been mentioned that although Android tablets seem to be selling rather well, they aren’t being used much. Apple’s Tim Cook uses Chitika’s data in his presentations, the most recent showing that iPad usage share was 81% in North America.

What always intrigued me about this data was how many Samsung Galaxy tablets were being used relative to the Google Nexus tablets. There were many reviews that praised both the specifications and the low price of the Google Nexus 7 tablet, whereas not so many praised the Samsung Galaxy tablets. However, if you look at the usage statistics from Chitika, Galaxy tablet usage is many times more than Nexus tablets.

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So the question that I had was what are the Galaxy tablets that are selling. Are they the large size ~10-inch tablets or are they the 7-inch ones? Are they WiFi models or are they Galaxy Notes with 3G connectivity?

Until now, I didn’t know of a source where I could get the data to answer this. However, I recently learned that Mixpanel provides this data.

スクリーンショット 2014 01 23 18 20 39

Looking at this data, it is evident that the answer is the Galaxy Note series. Although the Mixpanel data does not tell us which Galaxy Note models are included in the data, I strongly suspect that the phablet models are. If phablets are included, it explains why Galaxy Notes are being used so much. Otherwise, it’s hard to see why Galaxy tablets are selling whereas Nexus tablets are not.

So my tentative understanding is the following;

  1. Chitika’s 81% usage share iPad most likely includes phablets. Otherwise, it contradicts with Mixpanel’s data.
  2. If we exclude phablets from tablet web usage statistics (for both Chitika and Mixpanel data), iPad’s usage share is even higher than 81%.

P.S.
Looking at Mixpanel’s data, the Nexus 10 is really, really small. It’s quite clear that 10-inch Anroid tablets are hardly being used for web browsing.

Market Leader Mentality vs. Follower Mentality

When comparing market leaders and followers, I often notice large differences in how they view the market and future innovation. These have large implications on their respective strategies and what products they introduce.

Market leaders look for ways to expand the market. They notice new applications that will bring in new customers. They simplify the product so that it becomes accessible to a wider audience. They often redefine the market to look for more room to grow.

Followers look for ways to take customers away from the leader. Instead of expanding the market, they try to attract customers with higher specs and lower costs. They tend to be oblivious to whether the specs are truly useful or not and are more focused on specs that attract the attention of prospective customers.

By market leaders, I am not referring to the companies with the largest market share. I am using this term to identify the companies that define the market and how it will evolve. These are often the companies that initially created the market and are also the companies that have a strong brand. Sometimes a market will no longer have a leader. Sometimes a market leader will not have the largest market share. If a leader is present however, that is the company in which the vast majority of innovation will be found.

What is interesting is that market leaders in a certain industry segment are also often leaders in another. For example, IBM was the undisputed leader in mainframe computing. It also continued to be the leader in personal computing. Even though it found its market share eroded by Compaq and other IBM-clone vendors, it still was the leader in laptop computers with the ThinkPad line. The ThinkPad brand was strong, not because they had the laptops with the highest specifications or because the laptops were the thinnest and the lightest. People bought ThinkPads because they trusted IBM to make the decisions that meant most to people in business. Decisions around the keyboard, pointing device, durability and all the things that do not make sexy specifications. IBM knew what business people really needed and made decisions that really counted for getting work done.

In comparison, IBM-clones were more focused on low-price and high specifications. Decisions were made to bump up the specifications while keeping prices low. The actual usability of the keyboard or pointing device was often neglected, because they don’t add to the specs. IBM-clone vendors had little regard for actual business needs.

When discussing Apple and trying to figure out what their next move will be, it is important to understand that there are these two completely different mentalities in the market.

Apple obviously has the market leader mentality. They have continuously expanded the personal computer market, first the the Apple II, then the Macintosh. After Steve Jobs’ return, the iPhone and then the iPad. All of these products brought new customers and completely new applications to personal computing.

Looking at the smartphone and tablet market, all the other vendors, including Google appear to have the follower mentality. Google copied Apple’s touch user interface and then attempted to gain market share by providing it for free. Google also copied Apple’s AppStore concept which allowed users to download and purchase software easily and cheaply. Samsung copied Apple’s designs and created phones that had very powerful CPUs and large screens; sexy specifications. Both Google’s and Samsung’s penchant for being a follower actually goes back before Android. In fact the original prototypes for Androids were Blackberry clones. Also if you look at the designs for Google Docs, you can easily identify the similarities with Microsoft Office. Google Docs is an attempted clone of Microsoft Office that is free to use.

It has been discussed that Apple should and will offer a larger size screen for the iPhone. This is typical follower mentality. Large screen phones are succeeding in the market and maybe eating away at Apple’s market share, hence Apple needs a large screen phone. This conclusion may or may not be true, but this is not really the point. The point is that because Apple has market leader mentality, it does not really care about specs. What market leaders often care about is whether or not large screens will allow new applications and expand the market as a whole. I doubt large phones will.

When we realize that Apple is more concerned about expanding the market rather than fending of Samsung, then we can make very different predictions. First of all, expanding the market means much more than selling iPhones in China. It means making iPhones and other iOS devices a larger part of our lives. It means truly integrating with cars and many more devices. Importantly, I suspect that it means iPhones should be smaller and lighter so that we can take them along even when we are not wearing baggy jeans or carrying a purse; for example, when we go jogging.

Going further, it is possible that Apple is not thinking of smartphones in the same way as they did in 2007. Steve Jobs introduced the iPhone as a “Phone, an iPod and an Internet communicator”. I suspect that Apple might have gone beyond this definition and moved towards something different. The clue is that they included the M7 chip inside the iPhone 5s. The M7 chip is something that most people would expect to find in a wearable device. It is therefore possible that they now define the iPhone itself as the wearable device that everybody is clamoring about. If so, the direction would be to make the iPhone as small as possible.

Smartphone Screen Size and The Reason To Exist

There are speculations that Apple may introduce a larger iPhone in 2014. The reasoning is that high-end Android smartphone users generally tend towards large displays and therefore the iPhone has to have a larger screen to compete.

I think that this line of logic forgets that fact that smartphones are no longer just phones or even Internet communication devices. Smartphones are general purpose computing devices that you can carry around with you, almost all the time. This should be the new definition of what smartphones are.

Why is this important?

If you consider smartphones to be primarily Internet communication devices, then yes, a larger screen size may be preferable (this is actually debatable because mobile websites are becoming better and better, making a smaller screen more comfortable for web browsing, but that’s another discussion).

However if you use a smartphone as a fitness tracker, then smartphones should get smaller. When you are running, you are probably not wearing baggy jeans nor are you carrying a purse. You will put your phone on your regular size pocket or strap it to your arm or something.

Apple integrated the M7 chip on the new iPhone 5s, strongly suggesting that Apple wants users to carry around the iPhone all the time. Obvious applications are fitness, but I expect more than just that. This suggests that the direction Apple is heading is not larger phones, but rather phones that are even smaller and lighter.

You have to remember that Apple seriously thinks about why certain products exist. Products have to fulfill a meaningful use-case, and have to fulfill it better than any other product. If you create smartphones that are larger, then they basically become half-sized tablets. There remains little reason why a large smartphone and small tablet (like the iPad mini) should co-exist.

My guess is that Apple is positioning iPhones as devices that you carry with you all the time almost like a wearable. Hence iPhones will evolve to make you more likely to keep in your pocket, not less.

Reiterating my point, I don’t necessarily doubt that a larger iPhone would make financial sense, at least in the short term. It is very possible that such a product would boost iPhone sales. I just don’t think that that is a priority for Apple. I sense that their priority is the long term evolution of smartphones into something more.

Network Usage Between Devices and Carrier Networks

An article by Stephen Shankland summarized data from Actix that examined communications between mobile devices and carrier’ mobile networks.

Compare to web-usage statistics based on analytics data from a subset of websites (StatCounter and NetMarketShare), this analysis is likely to be more representative of usage. This is because it counts activity from apps (not just browsers) and because websites that install StatCounter and NetMarketShare analytics software are not necessarily representative of the web as a whole.

NewImage

Several things that caught my eye;

  1. iPhones are really, really strong. People love using their iPhones.
  2. Old iPhones (which happen to even run iOS 7, the most recent iOS) are still going strong.
  3. Non-Samsung Android smartphones are really, really, really scarce.

What the Tablet Market isn’t

The common narrative on tablets is that they are replacing PCs. Tablets indeed look like a typical “low-end disruption” as discussed in “The Innovator’s Dilemma” by Clayton Christensen. “Low-end disruption” frequently involves products that are less powerful then the mainstream but simpler to use. Price is often cheaper as well.

Tablets fit this description almost perfectly. They are not as powerful as PCs and are difficult to use for many of the complicated tasks that power users regularly perform. On the other hand, they are inexpensive and easy to use. Even kindergarten children can use them quite effectively.

Looking at shipment data from places like Garner and IDC, it seems clear that tablets are replacing PCs as the former sales rise and the later sales are tanking.

The story however, is not so simple. If you take a look under the hood, as Ben Bajarin has been doing in his excellent Techpinions website, there is data that does not fit a “low-end disruption” trajectory.

Here, I would like to take a look at his article “The State of Tablets in 2013” ( It is behind a paywall, but if you frequently search the web for tech information, then the price is well worth it. A lot of the information that you get cannot be found on the “free” web. )

In this article, Ben Bajarin give us some interesting data points;

  1. The vast majority of tablet sales are to existing PC owners.
  2. People who bought “cheap” tablets have buyers’ remorse and intend to spend more on their next purchase.
  3. The majority of “branded” Android tablets are being sold by Samsung. Nexus 7 (Asus) sales are weak. Amazon Kindles are only selling well during the holidays. Samsung tablet sales may be mainly due to these being offered cheaply or as a gift together with a purchase of a Samsung smartphone.
  4. A lot of the cheap tablets aren’t being used. Even usage statistics for the “branded” tablets from Samsung are disproportionately low.

Compare the situation with what we would normally expect from a “low-end disruption”;

  1. “Low-end disruption” succeeds when the pre-existing product is too powerful, and a less powerful product would satisfy most customers’ needs. The “low-end” product enables those who would otherwise have been non-consumers to make a purchase, thereby increasing the addressable market. These non-consumers would be satisfied with their purchase because the alternative would be no purchase at all. Since tablets are selling to existing PC owners, and they seem to regret their purchase, this does not seem to be the case. (iPad users seem to be satisfied with their purchase, so iPads actually qualify in this aspect.)
  2. “Low-end disruption” products should be cheaper than pre-existing products. However, low prices should be attained by virtue of the product being simpler to produce and support. They should not be cheap because the vendor is willing to reduce margins, or to lose money. That is not a “low-end disruption” but instead it simply is a price war; a vain attempt to gain market-share in a strategic market. (iPads have a reasonable margin, so they uniquely qualify here again.)
  3. “Low-end disruption” products subsequently improve in quality, performance and features so that they can more fully replace the pre-existing product. If innovation is simply being used to lower prices rather than improve capabilities, then the disruption will not work its way up the ladder.

I see the current situation more resembling a “new market disruption”. In a “new market disruption”, the new product fits a market that is not being served by pre-existing products. Ben Bajarin’s report in combination with other reports I have seen, seem to indicate the following market.

  1. The market for kids’ computers.
  2. The market for portable video players, which importantly are capable of playing pirated content.
  3. The market for computers that you want to use on the sofa or in bed or standing up.

You may well ask, “well what’s the difference between a low-end disruption and a new-market disruption”. My answer is that if tablets are a “low-end disruption” of PCs, then we can predict that the market (counted in units) will be larger than that of current PCs. On the other hand, if it is a “new-market disruption”, then we can’t accurately predict the size of the market. It may be much smaller.

Let’s take a look at the adoption curve of tablets to see if it the growth trajectory can give us a clue about the potential market size. We’ll first look at web usage statistics from StatCounter.

StatCounter comparison US quarterly 20121 20141

In my eyes, the growth trajectory of tablet Internet usage is extremely gradual. This is also mirrored in other statistics. Horace Dediu of Asymco attributes the slowing tablet growth to the lack of new iPad introductions. I am however unconvinced. I think there is a strong possibility that the addressable market of the current tablets is actually quite small.

Just to clarify, when we are talking about tablet sales, we have to be careful to exclude the tablets that are being sold and used as portable video players. Most of the unbranded Android tablets that are unactivated are likely to be in this category. It is also likely that a significant portion of branded Android tablets are included, although it is difficult to determine how many. For example, Panasonic, a huge Japanese consumer electronics company is selling a “Home Smartphone VS-HSP200S” which is actually a 7-inch tablet-ish device running Android 2.3 and which is WiFi only but connects to Google Play. It is mainly marketed as a Skype and electronic Fax machine as is evident from the product name. Also Toshiba in Japan is selling their tablets under the REGZA brand (their TV brand), not their Dynabook (laptop) brand.

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.