Quick Thoughts: on iPhone sizes

Now that it’s official that Apple will be holding an event on September 9th, speculation has turned once again to exactly what size the various iPhones Apple might launch will be. Much of the debate so far has focused on whether there will be one or two new sizes: 4.7 inches seems to be a universal certainty, but there’s some debate over whether or not we’ll see a 5.5-inch phablet-style iPhone. My Techpinions colleague Ben Bajarin has a great, skeptical, take on the prospects for such a device.

I’m not quite as skeptical as Ben, but I’m also not totally gung-ho about the phablet category. It’s particularly dangerous to extrapolate demand for iPhones at different screen sizes from Android purchasing behavior, for two main reasons:

  • iPhone and Android users behave very differently, in a whole variety of ways: Android users spend less on devices and apps, spend less time in apps, download fewer apps, are more likely to live in emerging markets and in Asia, and so on and so forth. They’re simply very different user bases, and there’s no particular reason to believe they’ll behave the same way when it comes to screen sizes when their behavior is so different in every other way.
  • Secondly, and perhaps more importantly, it’s very easy to reverse cause and effect with screen sizes in the Android world. Many people seem to assume that, because most premium Android devices are larger than 4.5 inches, that must be what people want. But the reality is that it’s almost impossible to buy a premium Android device with a screen smaller than 4.5 inches. So, the question becomes, are premium Android devices only made in sizes above 4.5 inches because that’s all anyone wants, or is that all anyone wants because that’s all that Android OEMs make? I’d argue that Android device makers have very deliberately targeted the larger size as a way to set themselves apart from the iPhone, but that doesn’t necessarily mean it was demand-driven.

For these reasons, I’m skeptical that we’ll see the same share of sales by screen size with the iPhone as we’ve seen with Android, even if Apple does release a 5.5″ phone. Apart from anything else, there are people who have very deliberately stayed with or switched to the iPhone precisely because it fits their hand better.

That raises another question few people seem to have tackled: will there still be a premium iPhone, i.e. one with the same specs as the 4.7″ and 5.5″ models, at 4 inches? In other words, will it be possible to buy the equivalent of the iPhone 5S at the same screen size in late September, or will the 4-inch screen be the lonely province of the 5C equivalent? And if that’s the case, does it mean that this screen size gets phased out altogether next year or the year after? I’d like to see the 4″ size stick around in the premium tier for at least another year, just to give customers a chance to vote with their feet. If no-one buys the 4″ device, Apple can jettison it next year. But I suspect there are people who like the 4 inch size and will find it difficult to abandon. Having said that, of course, if Apple stops making that size, where else will those customers go? The iPhone is already the only premium handset being made at that size.

The last question is how these three sizes might sell. My guess is that if all three sizes stick around, the 4.7″ model will sell best, followed by the 4″ model, and lastly the 5.5″ model. If the 4″ model doesn’t stick around, then the 4.7″ model will vastly outsell the 5.5″ model. If it’s just 4.7″ and 4″, it might be 70/30 in favor of 4.7″. Of course, a lot depends on the pricing. If it’s strictly tied to size, and each size bump triggers a big price increase, that’ll tip things significantly in favor of the smaller devices. I suspect Apple might give the larger devices more storage capacity too, as a way to bridge the gap, such that they start at 32GB instead of 16GB. Regardless, it’ll be fascinating to watch.

Techpinions post: potential acquisitions for Apple, Google and Microsoft

This week’s Techpinions column was prompted by a tweet from Alex Wilhelm of TechCrunch, who asked which companies Apple, Google and Microsoft should acquire next. I fired off a quick response, but decided that this would make an interesting post in its own right, and spent some more time drawing up a list. I also added Amazon to the list of potential acquirers just for fun. Here’s what I came up with:

  • Apple – Bose, Broadcom’s baseband business, Yelp
  • Google – Spotify, Jawbone/Fitbit/Withings, Pinterest
  • Microsoft – Here, Foursquare, Everpix/Picturelife
  • Amazon – Hulu, Pandora, Etsy/Shopify.

You can read the full post, which includes my rationale behind each of these choices, over on Techpinions.

Quick Thoughts: Uber competitive practices

I’ve been meaning to try something different on here for a while now. Most of my posts are pretty long and in-depth, but every now and then I have a thought that’s too long to express clearly on Twitter and too short for an in-depth post. Those tend to either go unpublished or crammed awkwardly into a tweet (some of which do go on to become blog posts later). So today’s post is the first in what I think will be a regular series of what I’m calling Quick Thoughts.

Uber is in the news today for some of its more extreme competitive practices. Casey Newton at the Verge published a story, which got a prebuttal from Uber once they knew the story was coming. I encourage you to read both. Most people seem inclined to believe Newton’s piece, though Uber denies some elements of it while almost boasting about others.

Here’s the thing, though: what I think Uber is suffering from here is not so much the specific reporting as the fact that its previous behavior has made it so believable. There are two basic ways to compete in a market: focus on creating the best possible products and promoting them effectively; or spend most of your time focused on your competitors, and tearing them down. Both are common in the consumer technology market, and if we’re honest most companies engage in both to some extent, though the balance between the two varies widely.

But my point here is this: when your whole philosophy is beating the competition at all costs rather than building the best possible product, you create a culture in which employees will always be tempted to cross the line between aggressive and immoral, and between immoral and illegal.

I’ve seen this in lots of environments, perhaps most especially in enterprise software sales. This descent into inappropriate conduct is especially likely if you’re competing in a category where you have relatively little differentiation and a winner-take-all market structure. Uber and Lyft are essentially offering the same product, and trying to use the same basic assets (car owners wanting to earn a little more money) to do it. Potential Uber drivers are also potential Lyft drivers, and vice versa, and the overall supply is limited. Both services benefit from having the largest possible number of drivers on their platform and the smallest possible number on the other platform. It’s a zero-sum game to a great extent, and neither company has significant advantages over the other from a product perspective.

I’ve been a somewhat regular Uber user when I travel on business, and I’ve found the service enormously useful. I like what Uber and Lyft are doing to the transport business. But I really dislike the way they’re choosing to compete, because it leads to the kind of shady business practices Casey Newton’s report highlighted today. Whether or not you believe the individual allegations (I’m inclined to believe them), none of us should be all that happy about the basis on which these two companies are competing. The problem is that it makes for great theater, and much of the tech crowd seems more prone to pull out the popcorn and watch rather than doing anything about it.

Why Amazon wants Twitch

After weeks of reporting that Google would acquire game-streaming site Twitch to bolster its YouTube empire, it appears those talks have fallen through and Amazon will now acquire the site. The YouTube logic was so obvious that it didn’t even require explaining, but Amazon’s acquisition is a bit more of a head-scratcher. I thought I’d look at the context for Amazon’s  acquisition to see why they might be doing this, and what it might mean. This analysis builds in part on several previous posts on Amazon, which you can see here. The first part of this post focuses on the context, which may be useful if you haven’t looked at Amazon’s media business in depth. If you just want to skip straight to the analysis of where Twitch might fit in, you can click here.

Media is the slowest-growing part of Amazon’s business

First, the obvious stuff. Amazon divides its business into three product segments for reporting purposes: Media, Electronics and other general merchandise, and Other. Other comprises mostly Amazon Web Services (AWS), advertising revenue and Amazon-branded credit cards, while Media includes both physical and digital media including books, music and video. The Electronics and other general merchandise category is basically the catchall for all other e-commerce revenue. When you look at year-on-year growth rates for these three segments, Media is clearly the slowest-growing of the bunch:

Amazon year on year growth by segmentThat’s not altogether surprising. Essentially all of Amazon’s business rests on the transfer of spending from legacy categories to categories it competes in, whether that’s e-commerce replacing bricks-and-mortar retail or digital content replacing physical content (or even cloud computing replacing premise-based computing). As such, Amazon’s addressable market is directly tied to three factors:

  • the size of the legacy markets it’s seeking to disrupt
  • the degree to which those markets are shifting into categories Amazon competes in
  • the market share Amazon is able to capture.

If we look at these three factors for Amazon in the Media category, the picture isn’t that great:

  • The overall size of the various Media markets (principally books, video and music) is small in comparison to the overall retail market (books is about $15 billion a year in the US, video is about $18 billion between sales and rentals, and music is about $7 billion per year, for a total of $40 billion, compared with total retail sales in the US of a trillion dollars per quarter, and e-commerce sales alone of $300 billion per year)
  • The switch to digital and online sales is well underway, with 41% of video revenues in the US in the last four quarters going through digital channels, for example
  • Amazon’s share in categories other than books is relatively low.

In addition, Media is the one category where Amazon enjoys a very significant share of the legacy as well as the new category, since it’s one of the biggest sellers of CDs, DVDs and physical books. As such, the ceiling is low, the transformation is well underway, and Amazon has such a large stake in the legacy business that even a rapid transition from physical to digital formats doesn’t benefit Amazon greatly (and may actually hurt it in categories where its digital share is lower than its physical share, including music and video). Continue reading

This week’s Techpinions column – Apple and Mobile Payments

My column for Techpinions this week is about Apple and mobile payments, and was prompted by the current heightened interest in Apple’s plans in this area, driven both by the prospect of new iPhones and wearables. I quote survey results from my recent report on smartwatches, but also highlight the vicious circle that plagues the mobile payments space:

The mobile payments vicious circle

Aside from the overall challenges facing any company in the payments space, I talk about the major technologies Apple might choose to use, including both NFC and Bluetooth LE (Apple has so far favored the latter). You can read the whole thing on the Techpinions site. All my Techpinions columns can be seen here.

Communications and content drive consumer tech

I have a chart I often use in my presentations to clients, which encapsulates my perspective on the consumer technology market:

Comms and ContentThe point of the diagram is that, although much of the money and almost all the attention in consumer technology is centered on devices, devices are just a means to an end. What really drives consumer purchasing in this market isn’t hardware for its own sake but the ability to engage in communications and consume (and to a lesser extent create and share) content 1.

Comscore today released an in-depth report featuring many of its statistics on the mobile app market, and it’s full of interesting charts and data points. But given the framework I outlined above, I was particularly intrigued by the charts showing the most used apps by age group, based on share of time spent on mobile apps. ComScore presents this in four separate charts, but I’ve compiled that data into one chart for an easier overview:

Comscore app time spentWhat’s striking to me is that virtually all of these apps can be described as either content or communications (I see Facebook as a blend of the two categories, and it’s therefore interesting that it comes out on top by some margin). The only possible exception is Google Maps, which is arguably a form of content but sits outside my usual categories. The apps that make up the list vary considerably by age group, but the broad categories are similar. Among 18-24 year olds, messaging apps are disproportionately used, with Snapchat and Kik making their only appearances in the top 10 in this group, while with older age groups Gmail and Yahoo Mail creep in. Interestingly, games make an appearance in the top 10 among the two older age groups but not the two younger ones. Other than gaming, however, the top content apps are the same in all four age groups: Pandora on top, followed by YouTube and Netflix, in that order (Netflix drops out of the top 10 in the oldest age group):

Comscore three major content apps

Another fascinating feature of the data is somewhat counter-intuitive: the older you get, the less concentrated your app usage is in the top 10 apps. Comscore refers to this briefly in its report, characterizing it as a greater emphasis on fun and entertainment among younger users, while older users spend more time on productivity tasks as well, but I’m not sure it’s that simple. Still, it’s a very clear trend:

Comscore top 10 apps as share of time spent in apps

The other fascinating thing to think about is that very few of the apps in the top lists are monetized directly from users. Users spend hundreds of dollars on the devices they use these apps on, but very few of them spend money on these apps. Netflix is the highest-paid app/service on the list, but essentially all the others at least offer a free tier and many of them are entirely free to users, funded by advertising. As such, even though communications and content drive purchasing in consumer technology, they don’t drive much of the consumer revenue in this space.


  1. To be clear, my definition of content includes video, music, gaming, news, weather, books and so on, and my definition of communications includes audio, text, video and other forms.

Twitter’s channel model is broken

Zach Seward has an interesting piece on Quartz today about how Twitter is like TV. Quoting from that piece:

What makes the service so compelling—and also, yes, maddening—is how linear it is. Twitter marches in a straight line with time, like a novel or cassette tape or, most similar of all, television. You can wade in and out of the stream as you might tune in and out of a TV channel. It’s always on and crackling with energy whether you are watching or not.

At a basic level, I agree that Twitter is like TV, but it’s not really like today’s TV at all. It’s like TV from forty years ago, but with a hundred million times as many channels. Think about all the advancements in TV since that time:

  • The rise of cable television, providing vastly more channels, many of them aligned to specific interests (sports, movies, home improvement, history etc.), and bundled into packages
  • VCRs, and then DVRs, allowing you to capture slices of linear television for replay later on and enabling the pausing, fast-forwarding and rewinding of content
  • Video on Demand, allowing you to select specific content aired earlier to watch after the fact.

Not only this, but Twitter is effectively an a la carte TV service with hundreds of millions of channels on offer. The burden is on the user to choose individual accounts to follow, which can be an overwhelming experience.

Individual accounts as channels is a broken model

For a segment of Twitter users (myself among them), which I might describe as power users, the individual account model works perfectly. They have enough incentive, for personal or work reasons, to go through the effort of carefully selecting and curating a specific list of accounts to follow, and this relationship is sacrosanct. These are the very users who are now blowing up on Twitter about the change the service introduced this week. However, these users are a minority of Twitter’s current user base, and if the company is to grow from 271 million MAUs to Facebook or Google scale at over a billion, the new users it needs to gain look a lot more like the rest of Twitter’s current user base than its power users.

For those other users, though, the individual accounts as channel model is fundamentally broken. Most of them simply won’t go through the effort of selecting individual accounts to follow to the extent that they’ll end up having a satisfying experience. Twitter has now overlaid an interest-based filter on the onboarding experience, but it’s merely a step along the way to selecting individual accounts to follow, and the filters are too broad. What Twitter really needs to do is create channels at a higher level, and abstract them from individual user accounts.

For example, I might say that I’m interested in baseball at a high level. Twitter would then scan all baseball-related tweets at any given moment for all those that are most newsworthy, and curate these into a baseball-related channel which I can follow. Alternatively, I might go a level deeper and say I’m interested in the Yankees specifically, and Twitter would then curate tweets specifically related to that team. The other advantage with this model is that it doesn’t necessarily have to be based on following at all: I could simply dip into and out of topics as I’m interested in them. If I’m at work, I could focus on the topics that are relevant to that, and when I get home I could switch to my Yankees, current affairs or Modern Family channel. This would also avoid the frequent incongruity of seeing a tweet about a plane crash next to one about a celebrity breakup or iPhone rumors.

To go back to Seward’s TV analogy, live TV only works because you just have to turn on the TV and something is there. If you don’t like it, you change the channel. But on Twitter today, there’s literally nothing on until you explicitly tell the service what you’re interested in, and if you don’t like it, it’s a lot of work to change channels, because you effectively have to create each channel yourself in a very manual and labor-intensive fashion. It works fine once you’ve created a channel you’re happy with, but I suspect many users never reach this point and thus don’t use the service often or abandon it altogether.

Favorited tweets in the timeline is a bandaid

Twitter’s move to include non-followed but favorited tweets in timelines is a bandaid that doesn’t do anything to solve the fundamental problem of Twitter for the vast majority of users. But Twitter has the potential to change the model in a way that won’t break it for power users, while creating a new and different experience both for new users and existing users. This week’s change makes me worry even more about the problem I posited a couple of weeks ago ahead of Twitter’s earnings: that in the search for growth, Twitter will end up breaking the core experience for the very users to drive much of its value. It doesn’t have to be this way.

New report and post on smartwatches

My firm, Jackdaw Research, has just published a report for subscription clients on the topic of smartwatches, entitled Smartwatches: Market Prospects. It features several consumer surveys which gauge demand for current and future smartwatch features, and evaluates the current offerings in the smartwatch market. I’m bearish on smartwatches as they currently stand – demand for the features they offer is weak, and that demand is currently being met by weak supply too, as all of the current offerings are flawed by virtue of the compromises they make between battery life, displays, performance and usability. The market is likely to remain small unless something changes – one of those, of course, being a disruptive entry to the market by Apple.

My Techpinions post today summarizes some of the key findings of the report. Here’s a quote:

Measured against these criteria, the current crop of smartwatches on sale does very poorly. I did my own ratings as part of my report, and I ended up with scores which were barely above 50% across these seven categories. Unlike most reviewers, I don’t see the Pebble as the clear leader in this market – in fact, all the devices ended up clustered around a very small range of unimpressive scores. If we’re really honest with ourselves, we should expect much more of these devices before we embrace them, and unless they do more we’re not likely to see them sell above current levels.

The UK’s Guardian newspaper also did an extensive write-up on the report, which you can find here.

There’s more information about the report, and an opportunity to buy it directly, on the Jackdaw Research website. The report is available as part of our subscription research service for clients, and is $500 for non-clients.

King’s downfall in charts

King Digital, maker of Candy Crush, reported its earnings for Q2 2014 on Tuesday, and they weren’t pretty. The market acted as if its results had suddenly soured from one quarter to another, but the reality is that most of the underlying trends have been worsening for about a year now, since well before its March IPO. See the charts below.

As a primer, two things to know about King and its financials. One is that Candy Crush, easily its most popular game, dominates its results. The other is that its main business model is in-app purchases, and that this model works on the basis that a small percentage of its users make them, but those that do make them spend enormous amounts of money on them. So bear those two facts in mind as you proceed.

First, gross average bookings per user, which King reports on a daily basis. You can see that these peaked a year ago, in Q2 2013, and have been falling since:

Gross bookings per userSo why is this number falling? Well, almost every component which goes to make up that number is in decline or at least slowing down. First, overall user numbers, which King measures three different ways (daily active users, monthly active users, and monthly unique users, all in millions): Continue reading

Analysis of Q2 2014 US wireless market

Last quarter, I provided an overview of trends among the major US wireless providers in Q1 2014, and I’m repeating that analysis here for Q2 2014. A short preview including some analysis has been available on FierceWireless for the past week. I’m now providing additional analysis (below) and a detailed set of slides on Slideshare (also embedded below). Last quarter’s analysis is here, and a recent post on Sprint and T-Mobile, which provides further analysis is here.

This analysis covers five providers: AT&T, Sprint, T-Mobile, Tracfone and Verizon Wireless. Four of these are the largest carriers in the US market, and Tracfone is the fifth-largest provider, though not a carrier but an MVNO. There are other MVNOs in the US market, but none of them comes close to Tracfone in scale, and that’s why it’s included in this analysis. It’s also the largest prepaid provider in the US by some margin. These five providers between them make up the vast majority of the US market, especially since the acquisitions of Leap Wireless and MetroPCS in the last couple of years by AT&T and T-Mobile.

A tale of two markets

In many ways, the US wireless market is in fact still two separate markets, with AT&T and Verizon in one half, and the other players operating in the other. This is evident in total subscribers and revenues, margins, churn rates and other metrics, with AT&T and Verizon either larger or performing significantly better than the rest of the players. Here, for example, is a chart showing total subscribers for the five players:Total wireless subscribersAnd here is a chart showing EBITDA margins:

Wireless EBITDA marginsThese carriers’ relative scale and profitability are related, as I’ve discussed previously, and most recently in last week’s post on Sprint and T-Mobile. This is perhaps the most important fact to understand about the US market, and one that isn’t likely to change anytime soon, as the gulf between the two largest players is far too great for any of the smaller players to bridge in the near future, at least organically. Continue reading