According to a report from Endeavour Partners, "more than half of U.S. consumers who have owned a modern activity tracker no longer use it and a third stopped using the device within six months of receiving it". This trend is symptomatic of a larger problem -- the job that a wearable device does is still unclear to most consumers. This is the crux of the problem I see with wearables, as they exist today.
Maybe we can look to the original wearable device, the watch, for some insight. The watch became popular with consumers because it met a ubiquitous need. The job of the watch was to give instant access to information (time), which users could then put in context (answer to the question "so what?") with their schedule, travel, etc. Consider this example:
I've gone back and forth on the prospects for Amazon's smartphone, and yesterday's launch of the Fire Phone hasn't really helped me make up my mind. Apart from the heavily rumored 3D interface, most of what Amazon announced was a surprise to me. It's difficult to ignore the fact that Amazon holds some distinct advantages, but there are also certain areas where they seem to be fighting an uphill battle.
Amazon's Challenges: Pricing and Dynamic Perspective
This week, Microsoft unveiled the Surface Pro 3 with a larger, 12 inch display and surprised some by holding off on a "Surface Mini". While Microsoft continued to harp on their "best of both worlds" mantra, it was very clear that this device was focused on productivity use cases and enterprise users. Does this signal a new era in tablet computing or is this simply a niche product?
I recently downgraded my tablet sales estimate because tablets haven't encroached upon productivity use cases as quickly as "phablets" have encroached on consumption use cases. So wouldn't the Surface Pro 3 fit with my definition of upmarket movement? Not quite. The challenge for tablets is to move upmarket into productivity use cases without compromising on their advantages over PCs -- 1) ease of use, and 2) lower price points. With the Windows 8 operating system and a price tag starting at $930 (incl. the keyboard cover), the Surface Pro 3 misses on both points.
This weekend, I came across an interesting post by Benedict Evans on "unfair but relevant" comparisons. While I agreed with everything he said, his focus was entirely on the hardware side of the equation. It may be just as relevant to compare today's hot mobile services to online service start-ups from the PC era.
The chart above compares the growth of Facebook's user base, since inception, to that of KakaoTalk and LINE. One disadvantage here is that we can only compare registered users for messaging apps to active users for Facebook. According to one estimate, 61 percent of LINE's registered users are active. If this proves roughly accurate for major messaging apps, KakaoTalk and LINE would still overshadow Facebook's user growth by a considerable margin. This is because PC-era start-ups like Facebook and Google operated in a much smaller playground as compared to today's mobile start-ups. But the "scale of mobile" has already been beaten to death. Does that necessarily mean that these companies also make more money?
23 percent -- That figure alone explains Amazon's goal for Fire TV. In 2013, it was estimated that the Kindle ecosystem was responsible for 11 percent of Amazon's revenue, but 23 percent of its operating profit. However, the revenue numbers also include $4.5 billion in Kindle device sales (6 percent of Amazon's revenue) which were sold at breakeven. This means that 23 percent of Amazon's operating profit came from a business that accounted for just 5 percent of its annual revenue.
Given the figures above, it is no surprise to see Amazon double down on its "razors and blades" strategy. By selling a low-cost ($99) box to consumers, Amazon gains access to a distribution channel for high-margin content sales. Amazon seems to have realized that this box would only appeal to consumers if it also provides access to third-party services like Netflix, Hulu, etc. (much like Kindle Fire tablets and third party apps). But more importantly, it also seems to be expanding its presence in the digital content business via Amazon Game Studios.
With Google's stock price hovering near all-time highs, the risks to its business model have become a hot button topic among industry observers. The dramatic shift to mobile computing has the potential to upend every single company and industry. However, few seem to understand Google's business model well enough to gauge its risks. Let's take a look at some oft-repeated arguments and compare them to the real risks facing Google.
Let's begin by explaining Google's business model -- the best explanation I've seen comes from VisionMobile:
Earlier this week, Nokia announced a line of Android-based smartphones with a combination of Nokia/Microsoft services replacing Google services. While some industry observers were quick to praise this move, there are many unknowns about the goal of this strategy.
In my opinion, Microsoft is following one or more of four possible game plans.
Yesterday, Nokia posted its final financial results before the Microsoft deal closes. Unfortunately, the part of Nokia being sold to Microsoft doesn't seem to be in great shape. Nokia's recent traction with the Lumia range seems to have stalled as it announced a 7 percent sequential decline in unit sales. Let's take a brief look at the causes of the decline and what Microsoft is really buying.
The chart above shows Lumia shipments and ASPs for the past eight quarters. As we can see the Lumia's ASP (Average Selling Price) has continued to decline as shipments grew. This reinforces the fact that the Lumia sales mix was dominated by low-end variants -- primarily the Lumia 520. We need to keep this in mind while examining the cause of the Q4 decline in shipments.
Yesterday, Verizon reported that it activated 8.8 million smartphones in Q4 2013, a 10 percent decline from the 9.8 million it activated in Q4 2012. While it declined to break out iPhone activations, we do have some data that could help us gauge the iPhone's sales performance in the US market.
The reason for the decline in Verizon's smartphone activations should be clear enough to regular readers. As smartphones have "good enough", replacement cycles have become longer. At the same time, the basis of competition in the market has shifted towards affordability and flexibility, which explains the popularity of T-Mobile's unsubsidized plans. Now, let's make an attempt to gauge how this decline affected iPhone sales at Verizon.
I have previously explained the concept of tablet market tiers and the pattern of upmarket competition among Android vendors as they continue to fight for reasonable hardware margins.
Recent tablet install base data from ABI research seems to support this hypothesis and describes the same pattern we saw in the smartphone market. This also helps explains why Apple needs an iPad Pro.
Today, Apple and China Mobile finally announce a distribution partnership that had been heavily rumored for months. While the deal to sell iPhones through China Mobile isn't surprising, the wild variation in analyst estimates is. Let's take a look at a few wrinkles that may be playing havoc with these estimates.
The easiest numbers to find on Chinese carriers are usually subscriber details. The chart above shows the 2G/3G subscriber mix on the three major Chinese carriers. Therefore, the details that analysts typically use to base sales estimates are -- subscriber base, 3G subscriber base and number of unlocked iPhones (2G) on the network. For China Mobile, these figures are 759 million, 176 million and 45 million respectively. Bernstein Research's survey also shows that some China Mobile subscribers use smaller carriers for data service, so these subscribers may have been excluded from these estimates. Analysts are also aware that China Mobile does not offer mobile number portability -- given the status granted by specific blocks of numbers, some analysts may have assumed a major sales impact.
Today, Microsoft finds itself in a curious predicament -- the Company is in search of a new CEO even as it remains in the midst of an company-wide reorganization towards a "devices & services" strategy.
While I will refrain from speculating on the identity of this mystery CEO, it would seem that his job will be to effectively execute this strategy, instead of undertaking a strategic review. This may seem like a handicap, but is there more than just one way to execute this strategy.
Over the past week, both BlackBerry and Nokia were in the news for very different reasons. BlackBerry abruptly abandoned its auction process and opted to raise $1 billion in debt to attempt a turnaround. Meanwhile, as the Microsoft deal awaits closing, Nokia announced that Lumia shipments hit an all-time high in the most recent quarter.
Let's take a deeper look at the prospects of each company.
IDC recently announced its tablet shipment estimates for Q3 2013 that showed a 6 percent growth over the previous quarter. This growth was entirely driven by large, branded Android tablet vendors as iPad demand declined ahead of the product refresh. This left the Android platform with a 65 percent share of the overall market. Let's take a deeper look at these figures in context of tablet market tiers.
As I had explained previously, the tablet market can broadly be categorized into multiple tiers, based on usage patterns. Here's a look at IDC's data in context of market tiers:
Apple's long-awaited iPad refresh is finally a reality. Apple's new full-size iPad, rebranded as the "iPad Air", starts at the usual $499 price. Apple also unveiled an iPad mini with retina display, with a higher starting price of $399 and retained the original iPad mini at $299. Finally, the aging iPad 2 was also retained with the price unchanged at $399. This essentially proves my theory that Apple's pricing strategy has nothing to do with a "price umbrella" and everything to do with margins.
Apple's primary business model is selling high-margin hardware, so this should come as no surprise. While many like to draw comparisons to the iPod, the limited set of "jobs to be done" allowed Apple to aggressively slash BOM costs, thereby allowing lower prices at higher margins. This approach is no longer viable for the iPhone/iPad because of broader use cases and competition from modular vendors. Based on this, let's take a look at the iPad product portfolio and gauge its impact on Apple's holiday quarter.