YouTube announced its first-ever subscription service last week, YouTube Red, with the usual set of (uninteresting) "premium" features -- ad-free videos and offline/background playback. The only interesting tidbit was that YouTube Red would also house "original" movies and TV shows starring well-known YouTube personalities. While it may seem mundane, this move has the potential to present a true disruption to the TV industry.
For years, industry observers have talked about the looming threat of cord-cutting -- consumers were expected to drop expensive cable subscriptions in favor of on-demand streaming services like Netflix. But while Netflix has seen exceptional growth, we are yet to see a tipping point in cord-cutting behavior.
I have long been a critic of the "Peak Google" argument because it is based on a flawed premise -- that deep engagement and consequently "brand advertising" are somehow a threat to Google's model of transactional engagement. While I strongly disagree with that line of reasoning, there are other threats that Google faces within the transactional realm.
Search advertising drives the vast majority of Google's revenue and the most profitable searches are frequently those that are made with the intent to purchase. These purchase-oriented searches are hardly monolithic but can broadly be categorized into B2B and C2B searches. C2B searches can be broken down further into products and services. Looking at taxonomy of transactional opportunities makes it clear that the threat from "deep engagement" is vastly overstated. Facebook is a great place to generate awareness but it's hardly a way to reach customers looking for something specific. Also, breaking down the gamut of transactional opportunities makes it easier to identify threats.
After months of speculation, Apple finally released some vague numbers related to the Apple Watch. As a part of their fiscal Q3 2015 earnings release, Apple announced that revenue from "Other Products" including the Apple Watch, iPod, Apple TV and other accessories totaled $2.64 billion during the quarter. This compares to roughly $1.69 billion in fiscal Q2 2015, before Apple Watch sales began. Combined with some comments from Tim Cook, this should help us get to a rough estimate of Apple Watch shipments (if not sales) for the quarter. We can then also compare this estimate with the third party data sources I highlighted in my last post.
Apple's CFO Luca Maestri mentioned during the earnings call that the Apple Watch was responsible for more than 100% of the sequential revenue growth of "Other Products" because of a decline in revenues from non-Apple Watch products like the iPod, Apple TV and other accessories. If we assume a 15% sequential decline in revenue from those products, we can attribute roughly $1.2 billion in revenue to the Apple Watch.
Google's implementation of the PageRank algorithm was a transformational moment for the desktop web. In the pre-PageRank era, scouring search directories for relevant websites and manually typing long URLs into a browser's address bar was common. Google's use of links as a "voting" system for discovering websites changed online discovery forever. The app interaction and discovery model prevalent today bears many similarities with the pre-PageRank era of the web, with apps listed under numerous app store categories. Google's Now on Tap may usher in the very "PageRank for Apps" era we have been waiting for.
Before diving into the importance of Now on Tap, let's take a look at how Google describes the service:
On the first day of the F8 developer conference, Facebook finally pulled the trigger on something we had expected for months. Facebook messenger is now a platform along the lines of WeChat and other Asian messaging apps. While this isn't necessarily "novel", it tells us something about Facebook's vision for mobile.
Facebook announced the SDK for messenger along with the fact that 40 apps, including ESPN, Dubsmash, and Talking Tom and Giphy had already signed up for the program. Their willingness is simple to explain -- app stores have fixed the app distribution problem, but have consequently made app discovery far more difficult. Easy app distribution and low entry barriers have created a deluge of app developers with more than a million apps and counting. But with these numbers, app developers have found it increasingly difficult to reach consumers through all the noise. This is where Facebook Messenger comes in:
I have been a bit of a wearables skeptic ever since Android Wear was unveiled at Google I/O last year. Following that, Apple's original announcement of the Apple Watch just added to my list of questions about the category. Hoping to find some answers, I watched yesterday's Apple Watch keynote with great interest. Curiously, what I found were more questions.
Before jumping in, I have to say that I really enjoyed the recent debate around the Apple Watch (for completely non-analytical reasons). The certainty with which some have predicted the imminent success or failure of the product has been very amusing. Unfortunately, my powers of clairvoyance aren't nearly as evolved, so all I have are questions. That said, it could be worth studying some of the arguments put forward in these debates.
The change in Google's narrative over the past few months has been very interesting to watch. The recent "Peak Google" proclamations remind me of Facebook's post-IPO narrative in 2012. Conventional wisdom back then was that Facebook's decline was imminent as mobile was not a meaningful part of their revenue. Of course, Facebook's app install ads and other mobile initiatives disproved that narrative in short order.
Some observers even make it seem as though Google's growth has seen a major slowdown in 2014. Interestingly, both Google's revenue and operating profit growth accelerated in 2014. This isn't to say that mobile does not pose a challenge to Google. It does, but it is important to understand exactly what those challenges are and the way forward. By looking at Google's financial reports, their biggest challenge is a decline in operating margins. This has been triggered by increase in search advertising on mobile, which delivers lower CPCs. While consumers used search on PCs for more involved research on products/services, the interaction window for mobile search is shorter. Lower ad engagement led to fewer bids on keywords and consequently, lower CPCs and margins.
A few months ago, I wrote a post comparing the early sales of smartwatches to those of tablets and modern smartphones (early iPhone and Android models). As I expected, the numbers didn't bode well for smartwatches. Now that we have another year's worth of data to play with (from Canalys this time), we have an opportunity to test the validity of my previous analysis.
The chart above plots smartwatch shipments against smartphone and tablet shipments for two years after the point when each category was meaningfully conceived. Data on smartwatch shipments has been combined from multiple sources including Canalys, Strategy Analytics and ABI Research. Now compare this updated chart with my previous observations.
Microsoft made some long expected announcements today -- the return of the start menu, one version of Windows 10 across all devices and an attempt to make Windows apps work across those same devices. Unfortunately, the limited overlap between Windows PC developers and mobile developers makes the latter a weak proposition. On the other hand, Microsoft's HoloLens headset may have some potential.
I have long been a believer in the long-term potential of "field of vision" devices (AR and VR) for one simple reason -- despite their downsides, their potential benefits cannot be matched by existing computing platforms. In my opinion, this is a necessary (but not sufficient) condition for triggering a new market disruption. While we are still in the early stages of the technology (think first mobile phone, not first smartphone), I believe we could see increasing consumer interest in this category over the next five years.
Benedict Evans recently wrote an insightful piece exploring new questions for the mobile industry. Among the five questions he brought up, I believe that the evolution of interaction models and messaging will end up being the most important.
I don't have anything to add there as think Benedict's analysis here was excellent. However, I do think that three of his questions could benefit from deeper analysis. I also think that he may have missed a crucial question brought on by the scale of the mobile industry.
Yesterday, Apple announced a minor refresh to their iPad portfolio, with improvements mostly focused on Touch ID and a thinner footprint. In many ways, this did feel like this was a "placeholder" upgrade. The new iPads would certainly appeal to loyalists, but they don't seem to target the primary reasons behind the recent slowdown.
The slowdown in iPad sales (or high-end tablet sales, in general) was caused by three factors -- 1) Increasing overlap in use cases of large screen smartphones (or phablets) and tablets, 2) Inability to move downmarket, despite lower iPad Mini prices, because of competitive reasons highlighted in the chart above, and 3) Limited upmarket mobility because of a lack of developer focus around productivity.
This week, Microsoft unveiled a long-awaited update to its operating system -- officially dubbed, Windows 10. Microsoft says that Windows 10 is an attempt to create a single operating system that works across phones, tablets and PCs, without the compromises that were visible in Windows 8. This is certainly a much needed update that should help them retain their core customer base, but it also doesn't do much to cover up their biggest weaknesses.
First, let's point out the obvious. Microsoft's decision to skip a version number is curious. While Microsoft claims it was because Windows 10 was a "leap" forward, it is clearly an attempt to clear away the hostility faced by Windows 8, especially among enterprise users -- Microsoft's most important customers.
With the arrival of the iPhone 6 (and 6 Plus), this may be a good time to review smartphone market share and usage share trends around the world. As these data points reflect the tail end of the iPhone's product cycle, we should expect a market share bounce over the coming months. On the other hand, movements in usage share are unlikely to be as sharp.
This is a topic I've briefly discussed on Twitter and then again on Bernard Leong's podcast, but I think it deserves a deeper look. Many are excited about the potential of Uber integrating with self-driving cars. But in my opinion, self-driving cars could be disruptive to Uber's current business model. Let's take a look at a few facets of Uber's business model and gauge the potential impact of Google's self-driving cars.
As I've mentioned previously, Uber is a platform that connects transportation providers (or drivers) with potential customers. Self-driving cars completely remove drivers from this equation and could force Uber to own and manage their own fleet. With their current model, Uber operates with "zero capex" and their marginal cost for adding supply is effectively zero. But by owning self-driving cars, this marginal cost becomes a meaningful amount, i.e. the cost of each vehicle. With this revised cost structure, the value of Uber's business model changes completely.
Snapchat's valuation has soared from about $2 billion last year, when it reportedly declined an acquisition offer from Facebook, to $10 billion in its latest round of funding. Let's compare Snapchat's valuation and engagement metrics to those of other social networks/apps and attempt to understand the rationale behind this valuation.
While Snapchat is still a pre-revenue company, they are preparing to roll out their first monetization attempt this November. The service, called Snapchat Discovery, will allow users to view publications or video clips from advertisers. At this point, Snapchat may successfully monetize their user base before Whatsapp does. Of course, there are various monetization models available to both, that have already been validated by Asian messaging apps.