Apple and the smart home

The FT reported yesterday that Apple will be announcing some sort of smart home ecosystem next week at WWDC. Interestingly, I’d written about Apple’s potential to do something interesting in the smart home space a couple of months ago on Techpinions, as part of a longer piece about how Apple has the potential to de-fragment various industry sectors, including wearables, payments and the smart home. Monday’s report got me thinking about some of those themes a bit more, and triggered several more thoughts, some of which I shared with Tim Bradshaw of the FT (who broke this news as well as the Apple-Beats news) for his follow-up piece on the subject. I thought I’d write up some of them here in more detail too.

Current state of the smart home market

In a word, fragmented. This market is characterized by a wide range of players with their own approaches to knitting together the various components of what might make up a smart home. No-one does everything end to end, so you’re either stuck with various islands that can’t talk to each other, or reliant on trying to find devices that participate in one of several ecosystems which are emerging. Qualcomm has AllJoyn/AllSeen, the UPnP forum is extending its work with UPnP and DLNA into this area, SmartThings, Staples, AT&T and others are creating their own proprietary ecosystems and so on. But it’s a messy business and no-one really owns it today. If you’ve bought products from several vendors, chances are you’d have to go into your Nest, Belkin and Phillips apps separately to turn your thermostat, home audio system and lights on separately. That’s not exactly user friendly.

But the point here is that the smartphone is the obvious controller for all these various devices, and yet none of the players currently playing in this market has a direct stake in the smartphone market, at either the hardware or OS layer. Qualcomm perhaps comes closest, but is two steps removed from the end user and as such has little direct influence over user behavior. The players in the strongest position here are those who craft smartphone hardware and software.

Apple’s smart home solution likely has several parts

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Surface Pro 3, like every other device, is a compromise

Microsoft today announced the Surface Pro 3, its latest Windows 8-based tablet, with the tagline “The tablet that can replace your laptop”. That sounds great in principle, and it’s a great slogan, but the reality is that the Surface Pro 3, like any other device – be it smartphone, tablet, laptop or whatever – is a compromise. Microsoft’s biggest mistake in marketing the Surface – and Windows 8 – is its repeated claims that there is no compromise, or that the Surface can somehow meet needs normally served by a combination of tablets and laptops or desktops.

Satya Nadella provided the setup for the launch with talk about “dreaming the impossible” and creating a device which (I’m paraphrasing based on my notes) “enables any individual to be able to read, create and write. Allows you to watch a movie and make a movie. To enjoy art and create art.” To me, that sounded just like the reality of the iPad. There was nothing unique in this vision, nothing impossible about it – it’s a reality we’ve had with us for the last four years. But the point is, Apple has never claimed that professional moviemakers should be using the iPad camera for shooting movies or iPad apps to edit them. Apple knows better than anyone that professionals want professional-grade equipment and software (including Apple’s own Mac Pro and Final Cut Pro products) to make movies. And the same goes for many other professions. The iPad offers great benefits – smaller, lighter, longer battery life, more personal and interactive – over laptops and desktops. But the tradeoff is that it lacks the power, the large screen, the peripherals and so on of a larger device. Apple will happily sell you a device from five different major product lines: the iPhone, the iPad, the MacBook Air, the MacBook Pro and the Mac Pro – because it knows no single device meets all needs, and doesn’t try to convince consumers that it can.

The problem for Microsoft is that it only makes one device, the Surface, itself. And so its mission from the start has been to turn that device into the holy grail – the single device that can meet all your needs, replacing both other tablets and laptops. It has good strategic reasons for wanting to do this, which I’ve covered elsewhere. But the result is that it has to constantly claim that its single device can replace two devices from any other vendor, notably the MacBook Air and iPad shown repeatedly at today’s launch event. But it fails to acknowledge the compromises such an approach entails. Though Panos Panay repeatedly compared the Surface Pro 3 to the 13″ MacBook Air, he never compared it to the iPad Air or even the 11″ MacBook Air, which has a much more comparable size. Here’s why:

SP3 to iPad and MBA comparison

It’s because Microsoft recognizes that this isn’t really a tablet that can replace your laptop: it’s a laptop that happens to have a detachable keyboard. It’s priced like a premium laptop, and it weighs the same as a premium laptop.Start comparing it to the best tablet on the market, though, and it starts to look much less attractive: the iPad Air and iPad Mini cost substantially less (even if you add a good third party keyboard for $100), and weigh much less. They’re much easier to hold in the hand and they come with a far greater number of tablet-optimized apps.

The biggest change in Microsoft’s Surface strategy over the last several years has been the locus of the compromise it’s still inevitably making. The first Surfaces were intended to be good tablets first and good laptops second (and ended up being neither). But with the Surface Pro 3, Microsoft has created a competitive laptop first, and a compromised tablet second. But it’s still pretending that there’s no compromise, and that is why the Surface line will continue to perform poorly. At some point, Microsoft has to stop pretending that a single device can meet all needs and start optimizing for different use cases with different devices, just like every other manufacturer. If it isn’t willing to do that, it should probably just cede the market to its OEMs.

“No-one I know voted for Nixon” in tech

There’s a famous quote attributed to Pauline Kael, the movie critic, which is usually paraphrased as “How did Nixon win? I don’t know anyone who voted for him” but which actually goes like this:

“I live in a rather special world. I only know one person who voted for Nixon. Where they are I don’t know. They’re outside my ken. But sometimes when I’m in a theater I can feel them.”

The point was, Nixon had just won the US presidential election, and yet Pauline Kael lived in a world where almost no-one had voted for him. How was this possible? Who were these mysterious people who voted for Nixon, and what made them tick?

I fear that the people who spend all day thinking and writing about technology often suffer from the same myopia about the behavior and mentality of the vast majority of everyday users of technology. We are nothing like them in many respects – we know far more about the technology than they do, we use a far greater variety of devices and services than they do, we read far more about it than they do, and we inhabit the same sort of bubble as Pauline Kael did, where we’re often shut off from how regular people think about technology. Sure, we use our spouses, our parents, our non-techy friends and siblings as proxies and convince ourselves we get it. But I fear we’re often fooling ourselves. And it’s dangerous, because we often get things really wrong as a result.

This was in evidence this past week with regard to the rumored Apple/Beats acquisition. There was a sneering condescension about the Beats product and its users on the part of the tech media, and a collective “I don’t get it” about the value of the Beats product and brand 1. And that’s because the tech press is largely not the target market for Beats products, and it’s insulated from the segment that is. But the same thing applies to tech bloggers’ obsession with stock Android and many other things regular users just don’t care about. Those things loom much larger in the minds of the expert class than they do in ordinary people’s minds, and it distorts judgments about what really matters in the market.

As a result of these distortions, coverage of major products and companies is often skewed to deem new products, tweaks to existing products or other news as much more important than they really are. Most people are much less prone to change, much less well informed, much more influenced by casual conversations and friends’ recommendations than we think. Just consider the fact that AOL still has almost 2.5 million dial-up subscribers, or that the churn rates at Verizon Wireless and AT&T mean that the average subscriber stays with them for about 8-10 years. Apathy is a huge factor in technology choices, coupled with feelings of safety and simplicity that drive behavior that might seem baffling to the experts.

This is a self-reinforcing problem – much of the tech media writes for the obsessives, those who care about the topic as much as we do. We’re not writing for the normals, because they simply don’t care, and definitely don’t read our stuff. With the exception of the personal tech columnists at major newspapers, the vast majority of us are writing for a very unrepresentative sample of the population as a whole. But that means all our engagement comes from commenters and forum posters who are unrepresentative too, reinforcing our removedness from the general population and further distorting our perceptions of reality.

I don’t know how we solve this problem, but we all have a responsibility to try, because it’s hurting us, and hurting our ability to do our jobs properly.


  1. I’m not saying the Apple/Beats acquisition is a shoo-in either – I wrote about it here and I’m still on the fence about its merits. I’m talking about the Beats headphones specifically

Thoughts on Sony’s Q1 2014 earnings

This will probably be the last in my series of posts about big tech companies’ Q1 2014 earnings. There was lots of press coverage of Sony’s earnings over the last several weeks, most of it for the wrong reasons – guidance revised downward, forecasting a loss for the next financial year and so on. There are plenty of pundits saying that if Sony was an American company, there would have been calls for Kaz Hirai’s resignation by now. But I wanted to take a minute and review some of the latest numbers, and highlight some of the positive trends in Sony’s business.

Sony has a reputation as a dysfunctional company (and I’ve said as much myself), with a combination of assets that seem like they could be really powerful but with cultural, structural and political divisions between business units that have so far prevented that enormous potential from turning into real achievement. Its glory days are long since behind it, and it’s struggled both to generate a profit and to demonstrate that it can again become the powerhouse it once was.

One quick note: Sony’s financials as reported have benefited from the weakness of the Yen relative to other currencies, and so some of the revenue growth it’s seen is unrelated to the performance of its own business, so I’ll try to use other metrics in addition to revenue growth wherever possible below.

A business in many parts

The most striking thing about Sony’s business is that it has so many parts to it – this is a company with its fingers in a lot of pies. Just look at the split of revenues shown in the pie chart below (I’ve taken some of the top-level segments and further divided them into their constituent parts because some of the sub-segments are actually quite different as well):

Sony segment revenue split

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Analysis of Q1 2014 cable, satellite and telco numbers

I’ve been gathering data on the major US cable, satellite and telecoms providers for the last few weeks, as they’ve been reporting earnings. This post compares their consumer financials – revenues, profits, ARPU, as well as their subscriber growth (shrinkage), and draws conclusions about the state of the market and prospects of individual players. It also provides some analysis of the likely impact of the announced merger between Comcast and Time Warner Cable and the rumored merger between AT&T and DirecTV.

A full set of diagrams and charts in addition to analysis is available in this slide deck on SlideShare (which is also embedded below).

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Apple & Beats

In what must be an enormously frustrating development for Apple PR, rumors of Apple acquiring Beats for around $3.2 billion broke last night on the Financial Times website. I say frustrating, because if there’s one company that likes to control the message on a new announcement, it’s Apple. And it’s so hard to evaluate this deal without all the details – to my mind, we’re missing three crucial bits of information (besides official confirmation that a deal has been done): the actual price, and the currency (i.e. cash, stock etc), Beats’ financials (helping to know whether the valuation is reasonable) and the strategic rationale. The rumor is that the price is $3.2 billion, but there are no details on the currency. There have been rumors about Beats’ financials, but nothing official from the company itself. And it’s the last point – the strategic rationale – that has everyone scratching their heads.

I don’t have any inside information on any of these three questions, but I thought I’d share a few data points by way of illustrating possible reasons for the deal.

Digital content sales are declining

Firstly, what’s been happening to Apple’s digital content business over the last couple of years. I’ve excerpted the relevant sentence(s) from the company’s SEC filings, and there’s a clear trend emerging:

Apple digital content remarks from SEC filings Continue reading

Beehive Startups podcast

I had the pleasure of joining the regulars on the Beehive Startups podcast last week for their latest episode. Beehive Startups is a local effort to profile and cover startups here in Utah, and it was fun to do this one in person rather than by Skype. Clint Betts and Mike Templeman talk about the broader tech industry as well as Utah-specific topics on the podcast, so it’s a good mix. A full description of the episode is on the episode page, but among other things we talked about:

  • Vurb – a search engine startup
  • Automattic – creators of WordPress
  • The Samsung/Apple court case
  • Fred Wilson’s recent comments on Apple in 2020

The episode is well worth a listen, and at 28 minutes mercifully short. And if you’re into the tech scene in Utah, you should subscribe. I’m looking forward to joining them again soon.

Techpinions Podcast Episode 2

I had the pleasure of recording the second episode of the new Techpinions podcast with Bob O’Donnell and Ben Bajarin on Friday, and the podcast went up on Saturday May 3rd. The podcast focused mostly on Amazon’s potential entry into the smartphone market, and we mentioned a few things on the podcast which I thought would be worth linking to.

  • First off, Ben’s post from this week on Amazon’s smartphone potential
  • Bob referred to this chart I shared earlier this week about the upgrade rate for smartphones among the major US carriers – it’s the second one from the bottom on this piece (more analysis on some of these numbers here)
  • My earlier Techpinions post on the potential impact of changing device subsidy models and how it might hurt carriers on the one hand, and help certain OEMs on the other
  • A tweet from a week or two ago about Amazon’s testing of installment plans for Kindles
  • You can see the number of apps on the Amazon Appstore for Android which are tablet vs. phone optimized about one scroll down in the left sidebar

I’m excited about the Techpinions podcast, because it will give the varied group of people that write for Techpinions an interesting new channel for sharing their views and insight. I’m looking forward to doing future episodes from time to time too.

US Wireless market analysis Q1 2014

This analysis is based on the data from US wireless operators’ earnings for Q1 2014. You can see a set of data published previously here, or a fuller set of data on Slideshare here. The deck is also embedded below:


The US wireless market continues to be a game of four sets of players: AT&T and Verizon, Sprint and T-Mobile, Tracfone, and everyone else. The “everyone else” set is thinning out rapidly as more and more of the smaller regional carriers are snapped up by the bigger carriers, including Leap and MetroPCS in the last few months. Tracfone is included in the analysis here because it’s significant in scale, with as many prepaid subscribers as T-Mobile has postpaid subscribers, but of course its business model is entirely different as an MVNO. It is therefore excluded from a number of the comparisons below, either because they’re not meaningful or because Tracfone provides only limited data, as a subsidiary of America Movil. The revenues and total subscribers charts below are good illustrations of the scale differences between the three groups we’ll look at: Continue reading