Sunday, 26 May 2013

Half-Price Heroes: Why Nokia's Lumia 520 is a Game-Changing Device

Last month’s most significant phone launch was...

The Galaxy SIV has landed.

What struck me about last year’s Galaxy SIII launch wasn’t the phone itself (Plastic: meh. Big screen: meh. Touchwiz skin: ugh). It was the marketing blitz. Samsung basically conducted a shock-and-awe campaign, carpet-bombing every major operator in some style. Most notable was its success in getting US carriers to stock a (virtually) stock version of the hardware – a far cry from the silliness of custom devices like the “Verizon Droid Galaxy Ninja Turtle III”. No one, not even Apple, had pulled that trick simultaneously across every US carrier.

So with this year’s Galaxy SIV being bigger, brasher and badder in every respect, you’d expect this to be April’s most significant phone launch.

But I would disagree.

I think the most significant phone launched in April wasn’t the identikit SIV (or even the gorgeous, aluminium-tastic HTC One).

It’s a Nokia.

Half-price heroes

The Nokia Lumia 520 is a beautiful little device. Its sculpted matte back has a slight cast-iron finish which harks back to the N9’s classic unibody. Its 4” screen is the goldilocks size for everyday use (not to big, not too small). Its tapered edges mean the xxmm thickness feels svelte in the hand. It feels like a damn sight classier than the shiny, plasticky Galaxy SIV.

But there’s the rub. Because this is a phone that costs £109 no-strings-attached (£99 on O2 PAYG + £10 top-up; NB apart from iPhones, Carphonewarehouse devices are usually carrier-unlocked). That's an astonishing price for a brand-new, dual-core, carrier-unlocked smartphone.

While the mighty SIV is most definitely more of the same (Samsung has clearly gotten so bored of copycatting Apple that it has started copycatting itself!), the Lumia is a device that takes Windows Phone to entirely new price points.

It’s what I call a “Half-Price Hero”.

The legendary San Francisco
You see, there are certain phones which offer so much at such an insanely low price point that they cannot be ignored. The canonical example was the ZTE Blade (launched in the UK as the Orange San Francisco), which offered a top-notch AMOLED screen, a fast processor and a svelte form-factor for the princely sum of £99. At the time it effectively gave you 75% of the flagship Nexus One for less than 25% of the price. Last year’s Nexus 4 was another example – giving you pretty much the same spec as the £600 Galaxy SIII for a mere £240.

These are the half-price heroes – low cost smartphones which give back twice what you pay for them.

How do handset vendors make money from these products? Well the answer is they don’t – they are usually “strategic” products sold at low or low margins to gain share. In effect the vendor is paying you to use their product – and you’re getting a smartphone you’d have gone and bought anyway into the bargain. The Blade was a result of ZTE’s desperation to get a foothold in the smartphone market. The Nexus 4 was Google’s attempt to subsidise its way into a leading smartphone position.

The Lumia 520 is the result of a similar dilemma. Nokia  - facing smartphone extinction – has basically decided to trade gross margin for market share. Not a sustainable strategy I’d give you, but one which suits Joe Public to a tee.

Thankfully they’ve also picked a cracking device to do it with.

The Lumia 520: Thoroughly Reviewed


The cast-finish is a nice touch. It scrubs up well vs. the
cheap glossy plastic on the Android competition...
What immediately sets this phone apart from its direct competitors is the design. Or rather the fact there is one: Normally the £100 price point gets you a rattle-tin low-end Android device with shiny plastic and fake-chrome accents (The Register politely calls them “Landfill Android”). Yes the 520 is plastic but its gently curved back definitely feels a lot more premium – there are clear design hints from its iconic N9 / Lumia 800 here.

And thank heaven they’ve opted for a matte finish. Rather than a glossy fingerprint magnet you get a slightly rough surface which feels like gently cast iron. It actually looks good when smudged with oily hands. Colour-wise it’s available in what are fast becoming Nokia’s signature shares – cyan, red, yellow and white (as well as black). At this price point it’s a good a chunk of polycarbonate plastic (let's call a spade a spade...) as you’re likely to find.


Screen: Good enough.
The screen is a 4” LCD. 800p so nowhere near the pixel density of an HD display, but better than the 480p resolution you generally find at this price. Also the Windows Phone Metro interface uses a lot of straight lines and right angles, which are equally sharp whatever the resolution. Colour, brightness and contrast aren’t as good as more expensive displays and it lacks the Clearblack polarising filter found on the next model up. However in day-to-day use it’s more than adequate (the brightness auto-adjust is particularly responsive). One downer – the lack of Gorilla Glass (or other alumina-silicate) means that it scratches fairly easily – be advised.

A final bonus – the display is one of the new-fangled ultra-sensitive ones (cf Galaxy SIV) which works when with gloves. Limited usefulness in target markets such as India, but at least it gets round Nokia’s “how do we use a phone in -20c Finnish winters” problem (which I suspect was one reason why they stuck with horrible resistive touch screens for so long - N900 I’m looking at you!).


The guts of the phone are where it really shines. You basically get the exact same platform as the more expensive 620, 720 or HTC 8S – a dual core Snapdragon (albeit at slightly lower clocks). That’s one advantage of bargain-basement shopping on Windows – vendors aren’t allowed to cut back on the internals due to Window’s rigid hardware requirements. There’s also a microSD slot (works nicely with my SanDisk 64GB microSD) and a removable battery.

NB Initially the device didn't recognise the 64GB (or any) microSD out of the box - although it did after a quick factory reset. New users please bear this in mind!

The Lumia 520 and the iconic N9: The difference is that one
phone launches at 20% the price of the other one...
One point to note – memory. The good news first – like all of Nokia’s current line-up the 520 packs a full 8GB of internal storage. This is important for Windows Phone 8 as the OS doesn’t let you save apps to SD card, only data. Many low/mid WP8 devices (notably the Huawei W1 and the HTC 8S) only have 4GB of RAM which can be a big issue, particularly as there is the System will typically grab 1.9GB and “other” app data another 1.5GB leaving scant room for apps. Bottom line: do not by a Windows Phone 8 device with 4GB of memory.

Now the bad news – like most low-end WP8 devices the 520 only has 512MB of RAM. This isn’t a disaster – in day-to-day use the phone is just as snappy as 1GB devices. However a few of the higher end games (Temple Run, Modern Combat 4) require 1GB to run. Not a deal-breaker but it means the phone is less future-proof than 1GB models.

Two more omissions: No NFC (the chocolate teapot of the wireless technology world) and no LTE. Then again for £109 you can always bin it and buy another phone when that finally starts to matter…

Battery life, camera

Battery life has always been a key issue for me – if you’re on the road for business you can't have your smartphone die on you after lunch. Thankfully the Lumia 520 has a removable battery for us road-warriors which clocks in at 1430 mAH. Interestingly that's 10% bigger than the battery on the higher-end Lumia 620 (same internals but a smaller screen). Anyhow the bottom line is that the battery life is adequate – it will get you through a day and is pretty durable on standby, although the phone’s no RAZR MAXX HD.

The camera is a 5MP shooter; Nokia economise by including no flash.. It does the job – pics are sharper than on my previous Android device. Can’t ask for more at the price.
Camera (raw photos): Perfectly adequate for close-ups and long-shots.
(FYI The pork buns are the Momofuku rip-offs from from Yum Bum near London's Old Street)

Oh and before you ask it makes phone calls perfectly well. Not that people use phones to make phonecalls anymore!


The Metro home screen and the WP8 Ecosystem:
More than good enough.
I think Windows Phone 8 is (finally) ready for prime time. Even on limited hardware the OS runs incredibly smoothly – none of the uncomfortable pauses you get with low end Android phones. The main menu with its Live Tiles strikes a great balance between the cacophony of Android’s uber-customisable homescreen and the regimented grid of iOS. The tiles themselves keep it looking fresh and individualistic. If the de-Forstallisation of iOS7 does take it to a flat, Metro style that will be the ultimate compliment.

And after a month of using it as my daily driver I can honestly say that Windows Phone feels feature-complete. What really stands out is the deep integration of online services like Twitter, Facebook and Linkedin natively into the OS (nb how Facebook Home apes this). That’s one area where the silo-ed iOS still feels some way behind. For both Windows 8 and WP8 Microsoft have done a great job integrating online services into the fabric of their OS, a stark contrast to both OSX and iOS. Google finally have serious competition in providing online services.

The one bugbear is multi-tasking. Apps often have to restart when you switch back into them rather than just picking up. There’s a small pause here while it reloads (not as big a deal as people make out actually), but it means you might lose what you were doing at the time (mainly games or media playback). On the positive side the ruthless app-killing means that even with 512MB RAM there’s never a lag when you have lots of apps loaded up (or not loaded up as it seems) – a perennial problem with low-end Android.

Much has been made about Google’s attempts to make it harder to integrate its Calendar/Email services. I take this as a back-handed complement – the fact that Google is going after Microsoft’s online services much more aggressively than it has done against iOS is an acknowledgement of how good they are getting as competitive offering. But in practice I had little problem setting up my Gmail and multiple calendars. I suspect this is a situation which will only get easier.

App ecosystem: The two big challenges

Obviously the app ecosystem lags iOS and Android, but unlike many commentators I think the Windows Phone 8 ecosystem is now good enough. That might be a controversial judgement for some, so let me flesh this out.

I think there are two big challenges for any non-iOS/Android ecosystem. The first is cutting edge apps which tend to come up on iOS first – things like Summly or Mailbox which are incredibly cool and innovative. These apps will remain with iOS for the foreseeable future. But do bear in mind, these apps are often too bleeding edge for everyday use; IMHO Summly was more a tech demo than a service.

The second challenge area is when you have one crucial app you can’t live without (think Spotify, Hulu). That is the biggest weakness of the WP8 ecosystem, but I would say though that support for big-name apps is decent and improving. Marquee programs like Evernote, Spotify, Bloomberg or Linkedin are all available. Also Microsoft and Nokia have a good range of own-label offerings to help fill the gaps. Microsoft is been particularly good at pushing high-end gaming offerings – from the incredibly cute mobile Office and MSFT’s game offerings to a bunch of Nokia exclusives like Here maps, Photobeamer and Mix Radio.

When I think back to where the Android store was at this stage in its cycle (say, 2010 when it was filled with plant-growing games and lots of random Russian porn apps), WP8’s offering is in much ruder health (albeit in a much competitive market). Back in the day the app selection on Android was really, really horrendous, but fast forward to present and it’s just not an issue. Soon I don’t think it will be an issue with Windows Phone either.

App ecosystem: The 95/5 rule

Another point is that even if you have 50+ miscellaneous games loaded up on your iPhone the reality is that 95% of the time you won’t be using them. For me what are the killer apps? A browser, a music app, a couple of social media feeds and a random killing-time-on-the-subway game. If I have these covered that’s 95% of my use-cases. I think most users are similar – and if that’s your hurdle then Windows Phone is more than enough.

In terms of games particularly the 80/20 (or 95/5 rule) is definitely at work here. How many of us have bought a flashy Gameloft 3D shooter, installed it and realised three months later we never actually played the damn thing (too slow to load, no time to play). Although I see a lot of uber-premium driving or 3D shooters on the front page of the iOS App Store, I rarely see them being used on the tube. Instead it’s wall-to-wall Angry Birds.

The reason is that the dominant model on mobile is freemium which is based on getting a simple app which hits as wide an audience as possible and then relying on 1-2% of that vast base to get addicted and pay for top-ups. That is a model where a) iOS’s hardware advantages are less relevant and b) developers are incentivised to get their apps onto as many devices as possible – including WP8. Now it’s not there yet (Temple Run 2 would be nice), but if the dev-tools really are as easy to use as Microsoft say there seems to be little reason we won’t see an increasing number of ports coming to Microsoft.

A landmark low-end device

The Lumia 520 is a top-notch device, which offers excellent hardware design and a rich and compelling software experience. Yes there are gaps – multitasking, memory (perhaps), but not, IMHO, the app store selection (I think this is probably the first Windows Phone review in history which has made that statement!!).

But the point is for a sticker price of £109 the phone doesn’t have to be great. It doesn’t even have to be good (although it is). It just needs to spank the wave of Galaxy ace/ Alcatel / crapware “landfill smartphones”. And that it does in style.

The Lumia 520 is a half-price hero.

What this means for  the smartphone war

What does this device mean for the smartphone industry? Two points:

1) The next war will be fought at the low end

The real competition: Huawei's Ascend G10. Dual core, more
polycarbonate than a Lego convention and yours for £130.
Source: Eurodroid
The smartphone market is bifurcating between ultra-high and low end. And the low end is where the growth is.

At the high-end we have the Apple vs. Samsung slug-fest we all know and love. This is now a war of attrition – as Apple’s slowing growth shows the high end is becoming saturated and devices like the Galaxy S IV (and likely the iPhone 5S) show that evolution, not revolution, is now the order of the day. Highly profitable but not especially growing.

The mid-market (phones with an unsubsidised price of £200-400) is where things get squeezed. With the increasing quality of low-end devices (the Lumia 520 spanks most £200 android handsets for quality) the bottom falls out of this market, and if Google continues its aggressive Nexus push that hits the upper-mid hard. The Nexus 4 is effectively a high-end phone at a mid-market price point – and that’s had an impact. It’s the first Nexus phone I regularly see people using on my commute into work.

But the low-end is where the action is. Not only the Lumia 520 but the Xiaomi phone in China (with its excellent MiHome launcher - the only manufacturer skin people voluntarily install on their devices). In the US Blu are bringing low-cost Chinese platforms to the developed markets. Over here in the UK Aussie vendor Kogan (which has an interesting pre-sell-it-first-then-design-it model) has launched a £130 big-screen device in the UK (dual-SIM, no less!).

What we are seeing is a Cambrian explosion of competition at the lower end of the market. Let’s be clear it’s not going to be pretty and the margins aren’t going to be great, at least until competition dies down.  But to me this is where the action is. This is something the commetariat seems to have largely missed; while endless ink has been spilt about why you should (or shouldn’t) get the GIV, I can count the number of Lumia 520 reviews on the fingers of my hand.

It will be interesting to see where the low-end Apple phone fits into this. Of course Apple’s “low-end” is everybody else’s “upper-mid”, so don’t expect too much. The question is whether their new device will reinvigorate the squeezed middle, or be swallowed by it. Their challenge is the (true) <£150 low-end is a market where Apple (which pays the bills with hardware gross) simply cannot go (as opposed to Nokia, which is desperate,  or Google/Amazon, who don’t make money on hardware).

Early traction in the Indian market.
In contrast Nokia seem particularly well set-up to compete at the low end. Now bear in mind they are as threatened as anyone by the explosion of low-end no-name competition. But they still have significant advantages – in particular a strong brand in emerging markets (which they have been nursing with their Asha feature phone range), and the advantages of direct distribution in China and India.

You can see this in the early traction in the Indian market, which has taken significant share out of the gate (see chart to right). Now success in a low-ASP market like India isn’t going to save their bacon, but a full quarter of 520 availability is undoubted going to give a boost to their Q2 Lumia numbers.

2) The market underestimates how competitive Windows Phone has become

It’s interesting if you look at broker forecasts for Windows. Despite the rapid rise of WP8 from a zero base they universally show its share inexplicably flat-lining at current levels. The fundamental issue for analysts is if they can’t forecast it, they just hold it flat. Better to be slightly wrong than either completely right or completely wrong.

Except I’m pretty sure that’s the last thing that’s going to happen. If there’s one thing we’ve learned from the smartphone market over the last five years it’s that it never stands still. In 36 months’ time Windows Phone will either be zero percent or twenty percent of the market.

At the moment my bet is on twenty percent. As I’ve said I think the OS is a lot credible, and a damn sight better app selection than Android was at this stage in its evolution (and market share). For Microsoft failure is not an option – as mobile devices become primary devices, the mobile OS will become your primary OS. This is an existential threat for Ballmer & co.

This is the next war, and it will be fought at the low end.

Thursday, 28 March 2013

Android in Pieces? Why Fragmentation WON'T Hurt Android

Apple’s weapon of choice

THAT'S a phone?

It was interesting that when Phil Schiller decided to start taking pot shots at Android he lighted on the same old argument.


“We are hearing this week that the Samsung Galaxy S4 is being rumored to ship with an OS that is nearly a year old” he said (turned out that actually he was wrong – although the competing HTC One will be shipping on 4.1).

My suspicion, though, is that Samsung will be having the last laugh. While the Galaxy S IV is a pretty ugly, utilitarian chunk of plastic. Dieter Rams would, no doubt, be turning in his grave. But backed by a marketing budget the size of Wales, I would put good money on it being the bestselling phone this year full stop. If the 2013 iPhone is just a 5S, I think Apple’s market share is in for another spanking.

(With apologies to Crocodile Dundee)
Which, come to think of it, is a bit weird. Because if Phil was right wasn't fragmentation supposed to have killed Android?

Why fragmentation will (supposedly) kill Android

The bear case on Android fragmentation is one we've heard again and again. At its heart its very simple:
  1. Android’s open hardware ecosystem and customisable source code would lead to fragmentation into an an unsupportable mishmash of OS versions, hardware vendors and screen sizes.
  2. As Android sold all its units into mid/low end users spent far less money on Android than on iOS.
  3. Faced with unaffordable app complexity and low revenue customers, developers would be unwilling / unable to build Android apps.
This all contrasts with Apple where there were only a handful of SKUs, almost all running the latest version of iOS (and owned by high-end, big-spending users). Faced with the need to support a plethora of OS versions, hardware vendors and form factors, Android developers would retreat to the comfort of Apple's walled garden.  And with Apps being, literally, the Killer App for smartphones, this would be a fatal blow to the success of the Android platform.

Except it hasn't quite happened like that:

And as Google Play store approaches the million-app mark, it starts to overtake the iTunes App Store in terms of size (yes I know appstore quantity is no guide to quality… but you get the point).

In short: The fragmentation threat has been consistently overstated by commentators and analysts. It hasn't held back Android growth. It hasn’t stopped big-name apps from being available on Google Play. And, in my experience, it hasn’t really affected the end user.

Three myths about Android fragmentation

Myth 1 - The Android base is hopelessly fragmented

  • Remember the law of large numbers: The chart above left shows how Android version fragmentation is most frequently presented. It looks pretty bleak. Slow adoption of each successive Android version keeps the base in a state of continual fragmentation.  BUT, if you rebase it in absolute terms (chart above right) the picture is actually far less bleak. Six months in, Android 4.1 may still only be 10% of the market, but that represents 60m devices. In contrast at this stage in its cycle Android 2.0/2.1 30% market share… but that was only 4m devices. Remember - it isn’t the relative fragmentation which drives app developer economics – it’s the absolute size of the addressable market. While this market might not be as big as the iOS market (yet), its certainly more than worth the effort.
  • As the platform matures, change (and fragmentation) slows: Also as Android matures the differences between different versions become less and less. While the UI skin changes and services get added on, the rate of fundamental change starts to slow down, lessening the burdens for developers. It’s interesting to note that people tend to lump ICS and Jelly Bean together when they talk about the Android installed base. It’s not just version number semantics – 4.2 was definitely more of an evolutionary change. 

Myth 2 - Developing on Android is an insurmountable technical challenge

Actually this is partially correct. Because you have to test against a number of different devices, Android is harder to develop for – even big mobile houses like as Gameloft will admit this. It’s no surprise that cool new apps such as Recce or Flipperdiet (a cute attempt by an ex- competitor of mine to gamify your snacking urges) come out first on iOS and often stay on iOS. Particularly given that iOS users spend so much more on apps per head. However once you start to get to larger scale apps that logic starts to fall apart:
  • The Android burden becomes a hygiene factor for bigger devs: If you look at the top-ten lists on the iTunes and Google app stores they are dominated by the same old names. Zyngha, Gameloft, EA, Rovio et al. For these guys the hassle of developing Android isn’t really a barrier – given their resources its more of a hygiene factor. And it actually becomes a competitive advantage to develop on Android given smaller startup competitors will struggle to get their apps to work on the platform.
  • Better tools help: As the Android development market matures we are also seeing increasingly better software tools. Cross-platform development tools will only get better, and more importantly we are seeing increasingly sophisticated testing tools to address the device compatibility issue. For example Keynote’s Deviceanywhere package gives you a virtual sandbox which allows you to test against virtual devices – its not as if you literally need to have dozens of handset lying around your office to do your testing.
  • Samsung and Mediatek provide consistent platforms: As the Android market matures it is consolidating. This also helps fragmentation. At the high end the rise of Samsung means that its Galaxy phones are the dominant platform – ensure compatibility with Samsung’s top half-dozen platforms and you will have the vast majority of the wallet-share sewn up. At the low-end Mediatek solutions are powering hundreds of low end (and sometimes less low-end devices. Again while technically there is massive device proliferation – actually the guts of these will be increasingly similar and easier to test against.
  • Screen size frag is overrated: Also note that concerns around screen size fragmentation have always been overblown. From the start Android has pushed developers towards resolution-independent scaling. I’ve used Android devices with screen sizes of 2.5”, 3.0”, 3.7” and 4.0” and you know what? Temple Run scales nicely across all of them. (Side note: iOS has also always had similar capabilities, but as iOS screen sizes much less fragmented the functionality was much less used by devs. I suspect this has been one of the factors holding them back from moving to larger portrait form-factors; the iPhone 5’s stretched widescreen on the iPhone 5 feels like a kludge designed to ensure backward compatibility with a non-scalable legacy apps base.)
  • The move to webapps gets around many of these issues: I’m not going to labour this point – HTML5 webapps have so far flattered to deceive. But if webapps (or websites repackaged as apps) do ever up their game this circumvents much of the burden of native app development. 

Myth 3 - There is no money in the Android ecosystem

Again there is a lot of truth to this argument. Spending per user for Android remains stubbornly low. Can’t be much money to be made there.

However if you believe that then I think you are wrong:

  • The economics change for larger developers: Once you get to scale the arithmetic around Android users spending is less of a barrier. Remember the economics become different as you scale on a fixed cost base. Remember if you are a start-up developer then whether you’re 100 paying customers give you ten bucks or one buck matters. If you have a 100,000 users and you’ve covered your fixed cost base, then an additional Android users is equally as profitable as an additional iOS user; sure on a per-user basis they’re not as profitable but the marginal profitability is the same. Sure if the sales & marketing spend on Android and iOS users is segmented this would impact profitability, but my suspicion is at the mass-market level the S&M overhead blurs into one.
  • The rise of freemium changes the game: Closely related to the large dev issue is the rise of the freemium model for apps, particularly games (most notably the recent Real Racing 3). Remember the freemium model works by blooting out the largest possible install base, and relying on a very small proportion of them to convert to paying customers. If its customer volume’s you are chasing, then the Android market is one you cannot ignore. Remember, in the freemium world every penny counts…
  • Vertu's Android launch shows iPhone users aren't the only
    people with more money than sense...
  • Barbell economics: For a start, mix ignores the profitable (and growing) high-end segment). Yes the average spend per Android user is low – this is due largely to the mix being skewed towards he low-end and emerging markets. However the success (and dare I say it, increasing dominance) of the Galaxy S devices means that there is also a significant – and growing – high end installed base who have just as much disposable income as an iPhone user. In short I suspect the Android installed base looks like a barbell in economic terms – on average the average spend looks bad but there’s actually a lot of wallet-share to go for in the top-20% (which are largely concentrated on a small number of devices – viz consolidation/testing point above).
  • Profitability is a backward-looking indicator: The big-walleted iPhone/small walleted Android argument is also making an implicit point: That we should assess the future prospects of an ecosystem via its profitability (iOS 70% profit share good: Android (or shall we say Samsung) 30% profit share bad). In reality, profitability gives a good view of the current situation in the market but is a terrible guide to its future profitability. After all Nokia remained the dominant player by profit share for years after its decline was apparent.

To conclude, I’m not saying fragmentation doesn’t exist. And I’m not denying it’s a PITA for all those app devs out there. What I am saying is that, contrary to what the commentariat think, it hasn’t held back Android in the past, and I doubt it will in the future.

Postscript: Two (better) arguments why fragmentation will remain an issue

As I hope I’ve shown, the empirical evidence shows the fragmentation problem has been significantly overstated, and the situation is only likely to improve. Does this mean we stop talking about fragmentation? I suspect not, and think there are two (better) reasons why fragmentation will remain on people’s minds, even if it isn’t the killer issue:

Fragmentation is a weapon Google can use against Android forks

The biggest threat to the survival of Android isn’t actually iOS. Its Android itself. As vendors such as Amazon, Baidu (or maybe one day Samsung…) fork the OS, they can take advantage of the massive app ecosystem, but cut out Google’s online services (and ad dollars). One obvious tool to combat this is by adding new features to Android which break backward compatibility with older forked versions. This doesn’t kill the competition, but it slows it down (e.g. the Kindle Fire tends to be based on a version of Android which is roughly a year old).

Fragmentation means security holes remain unpatched

The biggest issue with fragmentation isn’t actually app compatibility, it’s system security. Outside of Google’s flagship Nexus devices, system updates tend to be relatively slow in coming which means critical security vulnerabilities remain unpatched. As more and more personal data is loaded onto mobile devices this is an increasing weakness versus iOS, where Apple can roll out patches across the majority of the installed base relatively quickly. Stuxnet for legacy Android devices anyone?
Disclaimer: The views, opinions, projections and / or forecasts expressed in this blog are personal to the author and do not necessarily represent the views, opinions, projections or forecasts of any organisation the author is working for or associated with.

Monday, 25 February 2013

iWatch - Magic Bullet or Red Herring?

Is it leaking outside?

It's started.

For those unfamiliar with Apple's media-seeding strategy, it goes something like this: Persons familiar with the situation (but who cannot be named) (but who know a bloke called Tim) (who's last name rhymes with Book) ring up selected journalists. Said journalists can be trusted (to know which way the bread is buttered) (and not to reveal their sources). Lo and behold stories appear in trusted East Coast broadsheets and the Google Trends start to spike.

Feel like you're being manipulated? Yeah, I know. But it allows Apple to build a bit of buzz, prep the market for the big reveal and (if it all goes tits up) kill the project and claim it was never there in the first place.

Anyhow here we go again. Those persons familiar with the situation have been out in force at the NY Times, WSJ and good old Bloomberg (who also were recently consecrated with a multi-page interview with a bloke called Tim who's name rhymes with Book. Coincidence?).

Why an iWatch is likely

So it sounds more likely than not we'll see an iWatch trot along, either this year or next. The alternative theory is that this is just an elaborate conspiracy to spike Samsung's wheels. Personally I've always been a fan of Occam's Razor and Sherlock Holmes. A few things occur to me:
  1. Creative Nomad Jukebox: What
    the iPod saved us from
    It's Apple's style to disrupt the pioneers:
     Its very much Apple's style to allow lesser powers (Pebble; Nike) to pioneer a new form factor before crashing the party with something altogether better. Before the iPod there was the Creative Nomad Jukebox. Before the iPhone there was the Sony Ericsson P800. Before the iPad there was the netbook (hey don't knock it; my Dell Mini 9 is still doing sterling service dual booting into Snow Leopard and Windows 7).
    1. Carrying on where the Nano left off: As people noted last year, it was curious that they respun last year's Nano back towards a mini-iPhone form factor, just as the wearable Nano/smartwatch/Pebble hype was just taking off. In the same way Apple ran with it when jailbroken apps on the original iPhone took off, you'd have thought they'd run with obvious user interest in an iPod Watch. Either Apple had completely lost track of what people want (possible. 4.7 inch AMOLED anyone?) Or they had something better up their sleeve.
    2. Plays to Apple' strengths in the war against Samsung: Finally I think an iWatch is a smart tactical move in the war against Samsung. This is because aesthetics matter a lot more for a watch than a phone. A smartphone spends most of the day either in your pocket or in use (where it looks like like every other rectangular screen). In contrast a watch actually has to hang out there on your wrist all day doing little else apart from looking cool and watch-like. That plays to Apple's strengths because Apple digs aesthetics (check out the jewel-like chamfering on the white iPhone 5 is you disagree) whilst Samsung's designs, frankly, suck.
    But even if (or when) the iWatch lands I'm not convinced its the answer to Apples woes (I say "woes" of course in a relative sense. $21bn of quarterly post-capex free cashflow generation is a problem I'd certainly like to have!). As I see it there are pack of challenges facing iWatch the device and Apple the stock which the laudatory blogistas haven't properly thought through.

    I divide this challenges into two categories: the Ergonomic and the Economic.

    The Ergonomic Hurdles: What do you do with a moving postage stamp?

    1) Screen size is a real usability challenge
    Screen real estate is an obvious challenge with a watch. One thing I've noticed - below a certain screen size touchscreen devices don't work properly. A good example is my Xperia x10 Mini. I bought it on a whim precisely because of the extreme cuteness of a fully fledged Android device with a teeny 2.5 inch screen (despite the fact it shipped on Android 1.6 ugh). But in practice that screen size just isn't practical to handle fat fingers and leave room to see what's going on. 3"+ was the way to go.

    The Streetpilot i2 - where's that
    turn meant to be again???
    Similarly in the early days of the satnav revolution vendors played around with a bunch of different screensizes. One potential game-changer was the Garmin Streetpilot i2 which came in at the fabulously low MSRP of $321 (don't laugh. Satnavs were expensive in those days!). The catch was that it packed a minuscule 2.5 inch screen. But while satnavs with 3" screens went like hotcakes, the poor i2 just didn't sell. Of course a satnav isn't a watch, but the lesson was consumer had a very big usability issue once you went below the 3" form factor.

    Going back to the 2010 iPod Nano (the one that looks like
     a postage stamp) you see that screen limits usability. After a promising start (fitness apps! cool watch faces!) little was heard of its potential since that. Sure Apple's energy was devoted on pushing the iOS platform, but you couldn't help but feel they sort of ran out of thinks to do with that 240x240 screen.

    Now you could argue these devices are all slightly different form factors and use cases from an iWatch, but the fundamental issue that there is a massive limitation on utility when you get to what is basically a moving postage stamp.

    2) Touch input is a bottleneck

    This is compounded if you make it a touch screen. Stick a fat finger on top and the viewable space of the postage stamp is basically wiped out. Think about the geometry of the piece - Apple's standard UI guidelines defines a landing spot of 44 by 44 points - roughly 6.9mm square on a iPhone 5. But while you have over 84 possible points of interaction on an iPhone (and over 588 on an iPad) you only have 25 on an 1.5" square watch face.

    The fundamental issue is that the screen becomes a bottleneck for both input and output.

    3) And I'm not convinced voice (or its users) are ready to pick up the slack

    Now you can try to address this with speech-based input but again I think you have a pretty fundamental barrier that people just do not feel comfortable with voice control. It may be a cultural thing but talk out loud to nothingness feels just… weird (how many times have you smirked at the guy in the suit having a concall via Blackberry in the middle of the street?). And that’s before you get into the raft of other issues around background noise, on-device voice processing, foreign languages, regional accents and suchlike.

    I suspect – as with the Pebble – simple buttons are the correct input mechanism – but with a corresponding decrease in utility (unless Apple can convince everyone to learn Morse Code?).

    4) Horsepower and battery life

    With any device there is a trade-off between physical size, compute power and battery life. Normally you can have any one being great, any two being okay or all three being mediocre. The problem is a smartwatch needs both physical size (teeny) and battery life (how often are you used to changing your watch battery?) to be in the "Great" category. With the current state of technology its hard to fit all of that and decent horsepower into the iWatch form factor. Maybe this may change in the future when we get octo-core Cortex A-5s running on 10nm, but that's still some way off.

    The likely solutions is that the iWatch will be tightly integrated into your existing iPhone or iPad (likely be low-power Bluetooth), so will shift a lot of the processing horsepower over to the paired device. But that still leaves you with something of a battery challenge if you're benchmarking against current watch tech, and it also opens up a pack of other issues around your addressible market (see Constrained Market chat below).

    To sum up the ergonomic hurdles: If the iWatch is going to be anything more than a glorified Bluetooth headset, its facing some pretty fundamental physical constraints. Maybe the geniuses at Cupertino can invent their way round these ones, but it’s a tough ask.

    The Economic Hurdles: The Law of Large Numbers

    Then there are the economic considerations. In short – the iWatch is not going to save Apple’s share price.

    Apple's share price vs. LTM EPS - the shares have been driven by earnings upgrades, not multiple expansion
    Let’s rewind a bit. AAPL has always been driven earnings momentum. Even in its glory years it never traded on the heady earnings multiple of, say, a Low teens ex-cash P/E at best. What really drove the shares were constant earnings upgrades. The company sold more stuff than people thought it would; its shares became worth more than people thought they were. Not rocket science.

    Revenue growth and the law of large numbers...
    Of course now Apple is a victim of its own success. As the revenue line gets bigger and bigger,  Apple must find more and more new revenue to keep the growth rate standing still. Inevitably the law of large numbers starts to take hold, at the expense of the growth rate.

    So as Apple gets bigger the next big product cycle needs to have a correspondingly greater revenue contribution to drive earnings (and the share price). Apple not only needs to find the next big thing every 2-3 years - the next big thing also needs to be bigger than the last big thing.

    Astute and highly educated observers will note that none of this is rocket science. I'll tell you a secret - with these sort of stocks it rarely is.

    1) An iWatch is Deflationary

    The problem is that recent product launches have been deflationary, not inflationary.

    An iPhone starts at $649 (lets not kid ourselves with the subsidies – you’re paying full whack for it either upfront or over the next twenty months).
    An iPad starts at $399
    An iPad Mini at $329

    But how much would you pay for a watch?

    My bet is it won’t be $649, or even $329 (not it you want it to sell in volumes). The sweet spot for something like a smartwatch is more like $99 or what Logitech used to call the “don’t need to ask your spouse price point”. Nike SportWatches go for $149 and Garmin's Forerunners for $130 - nothing like what you'd even get for an iPad Mini.

    So an iWatch is likely to be deflationary. But there’s more.

    2) An iWatch is selling into a Declining market

    There's an App for that.
    How many people actually use a watch nowadays? A lot less than a few years ago I think. Now there may be aesthetic reasons to buy a watch, particularly at the high end. But for the majority of use cases a watch feels like a classic case of an obsolete appliance.

    Its original purpose in life was to be a device you kept on you all the time which could tell you the time and had an alarm on. Well that’s pretty much covered by any dumbphone you care to mention. Okay you can’t attach your phone to your wrist, but I’ve gotten by without a watch for a decade and a half now, and it doesn’t seem to have done me any harm.

    It strikes me that if you’re going to launch a new product, you launch it into a market that’s growing, not one that’s structurally declining. Again note Apple need to sell a lot of these (especially given the lower price point) to fill the growth hole left by the maturing iPhone/iPad cycle. (Side note: Perhaps I am making a category error here as an iWatch isn’t a classic watch as in “wrist-mounted time and alarm appliance”).

    3) An iWatch is selling into a Constrained market

    The last problem is that if feels like to get the most from an iWatch it would need to be closely paired with a corresponding iOS device (see commentary about ergonomics above). That’s all well and good, apart from the fact that the majority of smartphone users aren’t on iOS devices - they’re on Android. And that gap will only widen going forward.

    Anyone who's tried to use the train-wreck that is the iTunes Windows client will know that if there's one thing Apple hate's its playing ball with rival ecosystems! Chances of you accessing the full functionality of an iWatch from a Nexus device? Somewhere between zero and nil.

    But the flip-side of this is that Apple is likely to be constrained its target market to existing iOS users. In itself that’s fine. I’m sure they will get a great product and a great services (and iOS users have big wallest). But again, remember the law of large numbers and the need to fill that revenue hole - limiting your target market really doesn't help.

    To sum up the economic hurdles: If you’re selling a deflationary device in a declining category into an externally-constrained target market, that’s going to be a tough ask.

    What Apple really needs

    Of course as I mentioned above, much of this is something of a red herring. The issue isn’t whether Apple can do a watch per se (it could as easily be a Smart Glasses, Smart Sweatband or Smart Bumbag, so long as you can get the screen bendy enough).

    The issue is whether Apple can/should do a wearable computing device, and whether they can succeed.

    That is much more interesting debate

    I was having a conversation this week about what the USP of wearable computing really is. To me it comes down to one thing: Context.
    • Walking into a meeting room and meeting a strange new client isn’t useful. Walking into a meeting room and seeing his Linkedin profile along with college and job history pop up on your smartwatch/glass/sweatband is.
    • Walking past a shop and seeing it sells stuff isn’t useful. Walking past a shop and seeing a wiki pop up saying it has a world class reputation for crispy cooked pork products is (to me) massively enticing.
    • Checking out the bus stop across the street and seeing no buses isn’t useful. Checking out the bus-stop and hearing a voice in your ear that a bus which takes you home will pop up in two minutes is.

    For more its worth checking out the hands-on with Google Glass which The Verge put up last week. Google have clearly been grappling with many of the ergonomic issues I've touched on is this post, but come to a radically better (and better-designed) solution.

    To me the value of any wearable compute device isn’t the device itself, it’s the ability to supply context to the physical world around you – this is the true value-add of wearable compute. As a professional analyst, data on its own is meaningless. But data with context is valuable beyond price.

    To me Google Now feels like the service making the most (baby) steps in that direction. Given Apple’s lamentable record in connected services I think they still have plenty of catching up to do. As I highlighted in my last post, they are really suffering from relying on third parties for connected services rather than doing this in-house. To me an iWatch will do nothing to plug the gaping hole in Apple's arsenal. They can do better than this.

    Disclaimer: The views, opinions, projections and / or forecasts expressed in this blog are personal to the author and do not necessarily represent the views, opinions, projections or forecasts of any organisation the author is working for or associated with.

    Sunday, 3 February 2013

    Opening new Windows: Revisiting the Consumer Stack Wars

    Opening new windows

    I took the plunge last weekend, and upgraded my two home machines (homebrew desktop and Alienware m11x to Windows 8). They've had three months now to iron out driver support and the imminent expiry of the £25 upgrade offer was a great incentive to take the plunge.

    Very impressive.

    Once you get your head round the idea that "Start Menu" has become "Start Screen", the big change in UI isn't that big a deal. Okay the parallel worlds of Desktop and Metro are a bit jarring, but given I flit daily between Android phone, iPad*, Windoze Desktop and Sony PS3 (and its BBC iPlayer client), I doubt one more UX paradigm will make my head explode. And yes irony of an OS called Windows doing its best to do away with windows hasn't been lost on me.

    To me the biggest change though was Microsoft move from being a software vendor to a service provider.

    What I mean is this: In the past Windows was what you called a "hygiene factor". You had to endure it to get anything done (Warren Buffet called it a “royalty on communication”) but once you'd fired up Word/Quark/Photoshop it did the best to get out of the way (save for a few cruddy DDE/OLE links). Most people used Windows in spite of the OS, not because of it.

    In contrast while Windows 8 still does all that, what really stands out is the deep integration with Microsoft's array of online services... from Dropbox to Hotmail/Outlook to Bing Search and Bing Maps. And while these don't Google's level of pervasive awesomeness, you know what? They ain't bad.

    What the OS becomes is a platform which helps plug these services into your day-to-day workflow. This means you use Windows because of the services.

    Now that's not new. As I said, Google have long pioneered online services, and Apple has been increasingly weaving services like iCloud (and Facebook) into iOS and OSX. But I don't think anyone's managed to combine the two in a consistent desktop (and don't forget mobile) experience like Windows 8 does. Take the guy behind it and give him a medal folks.

    Ulp, that would be Steve Sinofsky then. Oh well! :-x

    Stack Wars - Consumer Edition

    Now that all got me thinking about the current state of the consumer ecosystems. One thing that's struck me over the last year or so is how much the big consumer giants - Apple, Google, Microsoft, Facebook and Amazon are converging from different directions. They each aspire to offer a consistent stack of applications and services which we use to run (or as a cynic say, which run) our lives. They are coming at it from different directions - Apple from a hardware world, Google by way of online services, Amazon from online retailing for example. But they are all getting to much the same place.

    This reminds me a lot of how enterprise IT has evolved over the past ten years, with a fragmented landscape coalescing into a series of Oracle/ SAP / IBM -owned vertical stacks. Something I highlighted in this chart:

    I wondered if you couldn't do the same exercise for consumer-land. Now as I’ve written about in the past, there are many differences between enterprise and consumer IT. The product offerings are far more fluid - whole categories can vanish overnight (HELLO FLIP VIDEO), something unlikely to happen in the hidebound world of the enterprise stack. Nonetheless I thought it would be a fun exercise.

    Here's what I came up with (click on chart to zoom in):

    This chart shows the consumer offerings of the big tech giants side-by-side:
    • Blue shows products developed in-house by the big guys.
    • Red are independently-owned solutions (in a separate bucket to the side, or  in the stack if a vendor has co-opted them into their ecosystem.
    • Darker shading show what I consider are the stronger or market-leading products (let's be clear this is a subjective ranking!). Lighter shading denotes weaker or nascent products.
    • I only use existing product categories (no social-media-enabled-context-aware-internet-fridges for example!), preferably ones where at least two of the stack giants have credible offerings.
    • I've probably missed out a bunch of stuff. And it'll be outdated by tomorrow I have no doubt.
    • One fault - gives equal weighting to all categories (for the truly nerdy there’s an even more comprehensive version here which lists some of the more obscure categories like RSS readers and ticketing apps). Underlying file is at this link.

    How the Chips Fall

    Anyhow despite the obvious deficiencies I think it’s quite a fun analysis (and one I haven’t seen in this form elsewhere). Here’s a few thoughts on how the biggies stack up.

    APPLE have the strongest basic hardware/OS stack and only Amazon can match them in the range of Content Consumption offers they provide. However if you look at the middle category – mobile services – there is a yawning gap. Again and again they are depending on partners (TomTom, Facebook, Twitter, Wolfram Alpha) to fill gaps in their portfolio. In-house offerings like iMessage, Facetime and iAds suffer from being tied to Apple’s walled garden (the point of a mobile service is that you can access it anywhere, not just on a certain brand of silvery aluminium boxes).

    Apple’s greatest Achilles heel, in my mind, is its reliance on the sale of hardware to monitise its products. This is particularly apparent now as its core hardware business comes under threat from fast-followers such as Samsung. As this revenue stream comes under threat it needs to up its game in services. But being reliant on partners restricts its ability to integrate and its flexibility to bring news offerings to market.

    PS for a quick anecdote on how sucky Apple's cloud services really are see the footnote at the end of this article.

    MICROSOFT in contrast surprised me by how strong they are in the online services layer. As I mentioned at the beginning the greatest strength of Windows 8 is how well it integrates online services throughout the OS (as opposed to Apple kludging Twitter and Facebook into ?Mountain Lion). For sure the hardware (at least on the mobile side) is incredibly weak (convertible-back-flipping-Windows-8-multi-touch detachable tablet anyone?) and the Content Consumption offerings remain underdeveloped (their Xbox Music Spotify clone is interesting though).

    But the point is that for the last few years Microsoft have quietly been getting everything right in online services. If you want any more evidence of this, then Google’s recent (dare I say it, Slightly Evil) attempts to kill ActiveSync support and lack of Metro apps show how seriously they are taking this threat. Make no mistake, MSFT’s moves to herd Windows 8 / Office 2013 users into a / Skydrive driven online garden is the biggest challenge out there to Google’s online bear-hug.

    GOOGLE still remain, of course, the one to beat in online services. I’ve writing this on Blogger having drafted early versions on my Android phone (a keyboard-equipped Xperia Mini Pro, thank goodness) and shuffled the Consumer Stack Chart in and out Google Drive and Google Docs for several weeks. Android is now the dominant hardware platform (as I wrote last year, Google are winning the battle for installed base war by a country mile).

    However where they falter is in the Content Consumption market. Youtube is an everyday essential but other than that their music and video offerings come a poor third to the juggernauts of iTunes and Amazon. Their heart just doesn’t feel in it.

    Not a charge that could be levelled at AMAZON of course. Jeff Bezos’ incredibly focus on Selling You Stuff shows in their incredibly strong position with music, video and e-books. But look further down the chart and you see there is a gaping hole on the online services side. Sure the whole point of the Kindle Fire is not to distract users from the essential job of Buying Stuff From Jeff, but my suspicion is that as the e-reader/media device evolves from an Appliance to a General Compute Device, this gap will become more and more evident.

    FACEBOOK is the mirror image of Amazon (Hey! Let’s play Fantasy M&A! Wouldn’t it be a good idea of FB and AMZN merged? :-p). They are excellent at online services (as long as it’s within their walled garden) but sorely lacking must-buy content and utterly dependent any everyone else’s hardware platforms. Despite their much-hyped ventures into Graph Search and Open Graph, their app platform remains sorely underdeveloped.

    To finish up a few more general/random points:

    • The basic app platform is the most competitive area: The area where most vendors have (or at least try to have) competitive offerings is the basic app platform – the OS and the shared services and APIs around them. Remember – the holy grail of any technology vendor is to own the platform; the current state of affairs reflects that. Of course, that’s bad news for anyone trying to break into the platform game – particularly if you don’t have the other bits of the ecosystem. Blackberry 10 springs to mind.
    • Disruptions – new categories: As I said I only use existing categories, so the current state of play is vulnerable to a new game-changing category (or one of the minor categories suddenly exploding). Obvious Smart TVs and Wearable Computing are the examples which fall into the latter bucket.
    • Disruptions – taking over existing categories: The other way the chart could be extended is if these stacks branch out into adjacent categories (as opposed to creating new, high growth ones). The area that obviously springs to mind is infrastructure – either data networks (Google Fiber) or physical fulfilment/logistics. They day any of these guys figure out same-day fulfilment of online orders is going to be a black day for the High Street.
    • M&A: The other thing this chart highlights is where are the gaps that need to be filled. Looking at the original enterprise stack the startling thing is the number of independent vendors who got bought out over the years. Looking at the consumer stack several areas stand out. Online movies is an area where Netflix looks like a valuable asset to anyone but Amazon (give or take whether studios will still licence content to it under new ownership). Mapping and location-based services are where Apple and to a lesser degree Amazon and Facebook need to up their game – I’ve already highlighted TomTom as a potential target. Location-based content – either imagery or listings – is another area where everyone apart from Google is playing catch-up. Part of Apple’s Maps problem is that they are relying on (unreliable) third parties for data.

    Footnote: #Applecloudfail

    My jailbroken, subtly reskinned and
    crapware free iPad desktop...

    * For anyone like me still stuck on the original iPad (or with a depreciated one lying around), I thoroughly recommend you take the plunge and jailbreak it. Given it no longer gets new versions of iOS there will no longer be an OS update which cuts off the jailbreak, and the ability to get rid of Apple's homescreen crapware (errr, empty Magazines folder anyone?) is worth the price of admission alone.

    Interesting getting this screenshot off of my iPad onto my PC/Blogger was an epic in itself:
    1. Take screengrab.
    2. Go to iOS Photos App.
    3. Try to share via email. Email client doesn't load. Maybe this is cos I don't have my email set up on the (crappy) iOS Mail app and prefer to use the (excellent) GMail app instead.
    4. Try to copy and paste photo from iOS Photo App to iOS GMail app to email it. Email comes through blank.
    5. Try to sync to Photostream - go to PC. Run iCloud client. Wait for photo to sync to PC Photostream folder. Nothing happens.
    6. After a quick bit of Google realise that iCloud does not let you access photos on your photostream via the iCloud (or any other) website.
    7. After about twenty minutes of fruitless mucking around I resorted to Tweeting a (lower res) version of the screenshot and picking it up from the Twitter website at the other end.
    Sorry, what sort of "cloud" service doesn't allow for web access??? Overall a massive #applecloudservicesfail and a great example of why Google are spanking them in the critical middle area of the stack.

    (Now I appreciate there is probably a perfectly easy solution that I've missed, but the whole point is a good consumer offering should be so intuitive you don't "miss" the obvious steps. I thought that making things stupidly easy to work was supposed to be one of Apple's fortes?)

    Maybe they should hire Steve Sinofsky! :-p

    Disclaimer: The views, opinions, projections and / or forecasts expressed in this blog are personal to the author and do not necessarily represent the views, opinions, projections or forecasts of any organisation the author is working for or associated with.