BlackBerry earnings: progress on several fronts

Having not written about BlackBerry for months, I’m now doing two posts in one week! Normal service will resume shortly. But I did want to quickly cover BlackBerry’s earnings today, because as usual many of the people covering them are misunderstanding what’s happening and focusing on the headlines instead of the underlying trends.

First off, BlackBerry’s results look horrible on the face of them. It’s losing money, it’s shrinking, it’s hardly selling any devices, and so on and so forth. If you compare them to almost any other handset vendor out there, they come off looking pretty bad. But looking at BlackBerry as just another handset vendor is making the very mistake I warned against in my post earlier in the week. BlackBerry’s future involves devices, to be sure, but it goes well beyond them. So here’s a quick take on what I see by way of underlying trends at BlackBerry.

Device shipments

Since so many people are fixated on device shipments, let’s start there. The headline here is that shipments fell significantly year on year, which is usually the best comparison to make to avoid focusing on seasonal trends. However, when a company is in turnaround mode, it’s worth looking at quarter on quarter trends too. In addition, the real number to focus on is sell through and not shipments, because that reflects what the company is actually selling without the effect of reductions in inventory. The chart below shows three key metrics related to the company’s device sales for the last few quarters:

BlackBerry device salesTaking each of those lines in turn: Continue reading

BlackBerry’s unhappy valley

Today, BlackBerry officially launched its latest handset, the BlackBerry Passport. I attended the launch event, because I was keen to see the new, John Chen-led BlackBerry up close and hear what they had to say first hand. So many of the people who read my work are entirely focused on the devices business, and have long since written BlackBerry off as a company because of the performance of its handset business. But my own view is more nuanced. I’ve written about BlackBerry extensively in the past, mostly while with my former employer, Ovum, although one of my earliest posts on this blog was about BlackBerry. But it’s been quite a while, so I thought I’d give an update on my thoughts on the company, using today’s event as a jumping-off point.

BlackBerry was never just about devices

There’s no doubt that BlackBerry has fallen a long way from its peak.  Beating up on the company on this point is fruitless – it’s a fact that it’s a shadow of its former self when it comes to its handset sales, which formed the core of the company’s business for many years. Revenue from devices made up the majority of the company’s revenues very consistently from 2003 to 2013, and for much of that time it made up well over 70% (and sometimes over 80%) of the company’s revenues. Thus, in many people’s minds, BlackBerry is first and foremost a handset company, and given the decline in its fortunes in that area, they assume that it’s done for. The company’s device revenues peaked at around $16.5 billion annually in 2013 but have fallen to under $2 billion annually.

Were BlackBerry to have been simply a handset sales company like HTC or Kyocera, this decline would have been terminal (no pun intended). But BlackBerry has always been more than just a devices company. Even when its revenues were dominated by handsets, it derived a significant proportion from service fees associated with BlackBerry subscriptions. Those were directly tied to the number of BlackBerry devices sold, in that both revenue streams derived from the same source. So, to the extent that the number of BlackBerry devices has plummeted, its service revenues have fallen too, from a peak of over $4 billion per year to under $2.5 billion – not quite as dramatic, but still a fairly sharp decline. However, that business, and BlackBerry’s broader foothold in the enterprise, has been its salvation even as device sales have fallen off a cliff. Continue reading

Quick Thoughts: Apple and shutting down Beats

There are reports today that Apple is planning to “shutter” the Beats Music service, which seem to be causing consternation, surprise, and comparisons to Google’s acquisition and subsequent dumping of Motorola. As I see it, there are a couple of different ways of interpreting the news, and although one of them would indeed be shocking, the other is entirely predictable, and that’s the way we should be interpreting this.

Two ways to interpret the news – one is clearly wrong

The first way to interpret this is that Apple is shuttering the Beats Music service as it currently exists in order to replace it with an Apple and/or iTunes-branded replacement using Apple’s delivery technology, label relationships and so on rather than those developed by Beats. This was an entirely predictable development and one which everyone should have been expecting from the beginning. Why would Apple acquire a product like this and simply let it continue as it is without either wrapping it into the Apple fold, slapping an Apple brand on it and integrating it with the broader Apple ecosystem? Especially when Beats Music wasn’t a massive hit with consumers in its current form? The Beats Music service only makes sense as an acquisition in the context of the broader iTunes service, which lacks an on-demand subscription option without it.

The second way to interpret this news is that Apple is shutting down the service entirely without any plans to replace or integrate it into iTunes, and that seems to be how many people are interpreting it. The reports from Re/code and others seem to be refuting this interpretation, though without much detail behind the refutation. But under this interpretation of events you’d see the Beats Music service shuttered at midnight one night, never to be seen again, and with no replacement lined up from Apple. That’s patently incredibly unlikely, especially given Apple’s assurances at the time of the acquisition.

What does the Beats replacement look like?

What, then, is likely to replace Beats when it is wound down and/or wrapped into iTunes proper? I see several elements:

  • it fills the on-demand subscription service hole in iTunes, possibly with subscription and ad-supported elements (though I think the latter is unlikely given both Apple and Iovine’s insistence that music command a proper price)
  • it incorporates some recommendation and curation elements from Beats Music
  • it introduces a new format, as alluded to in U2’s recent interviews, which adds more to the classic album format than just the music.

There will almost certainly be some sort of migration path and/or grandfathering in of the smallish number of existing Beats Music customers.

Timing – “one more thing” in October?

When might we see this new service make its debut? I’d argue pretty soon, especially given today’s reports. It might make a good “one more thing” at Apple’s October event, if that happens. It would also nicely reintroduce a music theme to Apple’s fall events which has been missing since the iPod began playing second fiddle to the iPhone and iPad.

Beats was never about one thing

As I wrote in my original Apple/Beats post, the Beats acquisition was never about just one thing. Rather, it combined the headphones business, the music subscription business and the relationships and expertise of Jimmy Iovine and Dr Dre in one package. As such, the comparison to Google’s acquisition of Motorola may perhaps be apt in that Google got significantly more than just Motorola’s handset business when it bought it (including patents and the set-top-box business sold shortly after the acquisition). The Beats Music service in its broadest sense – the customers, the service, the technology and expertise behind it – was just one part of that acquisition. Of that, only the service as it currently stands, arguably the least-valuable part of that package, will go away. All the rest – inasmuch as it’s valuable – will be incorporated into what Apple ends up launching off the back of it. And then there’s the headphone business, which is both a lucrative business in its own right and potentially a jumping-off point for new products from Apple under both the Beats and Apple brands. As such, these reports – even if true – are the furthest thing from an admission of failure of the Beats acquisition imaginable.

Quick Thoughts – Apple’s different audiences

I’ve already written three posts about Apple’s announcements from last week, but there was one topic I had intended to squeeze into one of the others but which never actually made it in. So here it is, in brief.

I originally planned to title this post “Who Apple keynotes are for” as an echo of my piece on what the Apple Watch is for, but in the last couple of days we’ve seen more news that turns this into a broader theme. Specifically, Apple launched a new section on its site about privacy, with a letter from Tim Cook to Apple customers about how Apple treats their data, and more broadly Apple’s attitude towards data collection. On top of all the discussion about the keynote last week, this has got me thinking about the different audiences Apple addresses in different ways with different communications:

  • Launch events: these are watched by at least three separate audiences: the press, the Apple faithful and gadget lovers more broadly. Apple has different objectives for each of these three groups.
  • Website communications, such as the privacy letter: the letter is linked to from the front page of, but only down in the bottom right corner, where many users visiting the site to learn about or order a new iPhone won’t even notice it. Those visiting the Apple site are going to be people with some interest in Apple products, many of them already customers.
  • Advertising: this is the only Apple communication that really gets broad play among the population as a whole, including those with no existing interest in Apple. TV ads, billboards, bus shelter posters and the like all generate broader awareness of and interest in Apple products, and its TV ads are particularly crucial.

Of those three sets of communications, only the third is mass-market in nature. Apple doesn’t typically say how many people watch its keynotes, but I would guess it’s 10 million or fewer in most cases. Even if it was double that, it’s a tiny fraction of its customer base (which numbers in the hundreds of millions) let alone the total addressable market. Website communications are likely read by far fewer people, though they also get some pickup in the press, as Tim Cook’s letter has this week. But advertising is where Apple not only talks to the total addressable market, but also where it provides specific triggers to buy, rather than just generating interest. Launch events are held before products are even on sale, and in the case of the original iPhone, iPad and Watch events, well before customers could even place a pre-order. Website communications like the privacy letter are about educating both existing customers and potential switchers, but again aren’t a call to action. Only advertising is a call to action: a specific invitation to buy an Apple product.

As such, the nature of these communications will be different. Just as the emphasis, tone and content of the iPhone introduction event was different from those of the ads that followed when the product went on sale, so I would expect the Apple Watch commercials to be very different in their tone and focus from the launch event. The launch event was about seeding interest and intrigue (with a significant element of mystery, especially around pricing), while the commercials will be far more specific, focused and with a specific aim in mind: getting people to buy one.

Techpinions post: Google and Microsoft’s platform problems

My post on Techpinions today is about Google and Microsoft’s platform challenges, which appear very different on the face of it, but actually have a lot in common. Microsoft increasingly wants its third-party services to succeed on platforms owned by (arguably) its two main competitors, Google and Apple. While Google is struggling to compete on a platform it theoretically owns (Android), which has been increasingly co-opted by both official Android licensees and users of the AOSP version of Android such as Chinese OEMs and Amazon. Microsoft’s challenges are particularly stark, and stem in part from the business models it and its competitors employ for key services:

Microsoft competing against freeHead over to Techpinions to read the full post.


Motorola’s lessons for Samsung

I’ve been testing three of Motorola’s new devices for the last several days: the new Moto X and Moto G smartphones, and the Moto 360 smartwatch. I don’t do traditional reviews – there are plenty of sites out there that do those well – but I thought I’d share some of my thoughts about these devices, briefly, but also about what they can teach us more broadly, and tech Samsung specifically.

Moto X

Last year’s version of the Moto X was already a very good device in a number of ways, and this year’s version fixes several problems: the price/performance ratio feels a lot better, the materials and build make for a more premium experience, and the camera is a lot more competitive. I’ve been using the Moto X as my main phone for the last few days, and I’ve really enjoyed it. The camera still isn’t as good as the iPhone camera, or arguably the Galaxy S5 camera, especially in low light. And the digital shutter mechanism still frustrates me by taking pictures when I’m trying to change the focus point. But it’s an awful lot better, and I’ve taken some nice pictures with it, including this one:

IMG_20140914_162715In short, the Moto X is much better on the things it was bad at. But it’s also got even better at the things its predecessor was good at – namely the little software customizations that added significantly to the stock Android experience without taking it over, adding huge numbers of visual customizations and tweaks, or overloading the device with gimmicks and widgets. What Motorola has done really well in these devices is creating in its software elements that significantly add value to Android without feeling like they’re trying to replace it. They’re done in such a way that they feel like they are – or should be – part of the core OS, both visually and in terms of their functionality and integration into the OS itself. Unless you’ve used stock Android, it would be hard to see where Android itself ends and Motorola’s enhancements to it begin.

In many respects, this is just the sort of thing Samsung should have been working on over the last few years, to set its handsets apart against the flood of other Android phones. Instead, it’s focused on gimmicks – features that are eye-catching and make for good demos, but that don’t really make life easier or improve upon the core Android experience. If Google were keeping Motorola, I would say these features should slowly work their way back into the core Android experience as Motorola invents new ones. Under Lenovo, I wonder to what extent these innovations will continue and to what extent Lenovo will embrace them at a corporate level and build them into its other devices too. If it’s smart, it will realize what it’s getting here and fully embrace it.  Continue reading

What the Apple Watch is for

This is my third post on Apple’s announcements last week – my first, on the new iPhones, is here, and my second, on how the Apple Watch might change the smartwatch market, is here (on Techpinions). I had planned to do my next Apple post on Apple Pay, to complete the triumvirate, but my thoughts on that are still percolating, and in the meantime I’ve done more thinking about the Watch, and specifically what it’s for. Benedict Evans and Ben Thompson have both addressed this point, and yet my feelings are somewhat different, and I wanted to share them here. You should absolutely read both of their posts too (Ben T’s are elaborated on in a podcast as well), as they have lots of great insights.

Apple has defined new products in relation to existing ones

Apple has an interesting history of introducing new products, right back to the original Apple computers. I think it makes most sense to think about this visually, and as such I’ve created the video below to illustrate it, but by way of introduction. By way of context, Apple has essentially always introduced new products in one of the following ways:

  • They do the same things as an old product, but in a new form factor (laptops)
  • They replace existing devices in the category (iPods)
  • They combine existing categories (iPhone)
  • They sit in-between existing categories (iPad).

(There is a YouTube video below – if you’re reading this in an RSS reader or your email, it may not show up.)

Continue reading

Microsoft and Mojang: where’s the strategic rationale?

Microsoft finally announced today its intention to acquire Mojang, the maker of the Minecraft game, after days of rumors. Throughout the last few days, I’ve been wondering why Microsoft would want to buy Mojang, and now that the news is official, and we have commentary from Microsoft, I’m none the wiser. This is a somewhat baffling acquisition, unless it’s been made purely as a financial investment, and there are much better uses for that money in building Microsoft’s business and ecosystem.

One-hit wonders abound, but Minecraft is different

There are lots of one-hit wonders in the mobile gaming market in particular – King, Zynga, Supercell and others have had one huge hit and have thereafter struggled mightily to repeat the success of that one game with subsequent releases. Mojang is also a one-hit wonder, but Minecraft is very different from FarmVille, Clash of Clans or Candy Crush Saga, in several ways:

  • It’s not just a mobile game, though it’s one of the highest-grossing in that category. It’s also available on PCs and consoles
  • It’s not a flash in the pan like some of those other games – Minecraft appears to have real longevity, having launched in 2009 and showing little sign of slowing down yet
  • It has a totally different monetization model from those other games, booking essentially all its revenue from a customer up front with a high-ticket one-off purchase, rather than in-app purchases or advertising
  • Its customer base likely skews significantly younger than most popular mobile games (and perhaps games in general), in that it is very popular among kids of all ages as well as adults
  • Minecraft is to a far greater extent than other games an ecosystem rather than just a game, with hundreds of books and digital material helping players to learn how to use it effectively.

So, this acquisition isn’t the same as buying one of those big mobile game makers – Microsoft clearly isn’t buying into a one-hit wonder and hoping to replicate its success. And it’s a good thing, too, since the founders are all moving on with the acquisition. But what is Microsoft after?

Bringing content in-house has rarely worked out well

There’s a long history of platform owners bringing certain content in-house, for a variety of reasons:

  • Generating exclusivity around the content for the owned platform, which is in fact what Microsoft did with the Halo franchise. That’s clearly not the intention here, however.
  • Bringing content to an owned platform the current owner won’t bring it to. For example, bringing Minecraft to Windows Phone. However, this is an enormously expensive way to achieve that objective, and Microsoft could easily have covered the costs of porting and maintaining Minecraft on Windows Phone for far less.
  • Wanting to capture more of the revenue opportunity associated with popular content, rather than splitting or even handing over all the revenue to the content owner.

None of these really make a great deal of sense in the context of the Mojang acquisition, except possibly the last one. But that’s hardly a strategic rationale – rather, a simple financial transaction. Perhaps Microsoft heard that Minecraft might be for sale, and didn’t want it to end up in the hands of major competitors who might withhold it from the PC or Xbox platforms. But that seems a little far-fetched, and none of the other reasons really make a lot of sense. Continue reading

Techpinions post: Apple Watch impact on smartwatch market

This week’s Techpinions post is a follow-up to my post from a few weeks ago about market prospects for smartwatches, off the back of my smartwatches report. I revisit my conclusions both from that report and from the previous post in light of Apple’s forthcoming Watch. As you may recall, I’ve been extremely bearish about the smartwatch market absent some major catalyst, and Apple’s entry into the market always had the potential to be that catalyst.

The concluding paragraph from the piece is below:

For all these reasons, the Apple Watch will be just the kind of catalyst I talked about in the conclusion to my report. It won’t drive majority adoption of smartwatches any time soon, but it promises to fix several of the key demand- and supply-side barriers to smartwatch adoption, and will be a huge hit for Apple. At the same time, it will provide a boost to other vendors, who will have to compete largely around the Android opportunity and the lower end of the market. Exactly how big the boost to the market will be is hard to estimate until we know more about the watch as we approach its release. But we could easily go from single digit millions of shipments per year to tens of millions in the wake of its launch.

You can read the whole piece, including the reasoning behind that conclusion, here.

Apple closes another window for competitors

This is the first of what will likely be several pieces from me over the course of this week on Apple’s big announcements, both here and in my weekly Techpinions column. This one focuses on the iPhone specifically.

Apple has always provided windows of opportunity for competitors

In the in-depth Apple profile I wrote for clients a couple of months ago, I said the following:

Apple competes very effectively in the market segments it targets, but deliberately limits the segments of the markets it competes in.

As a corollary to that, one of my first recommendations to Apple’s competitors was:

Play where Apple isn’t. The easiest approach to take is to play where Apple chooses not to. Early in this report, we discuss Apple’s focused approach and the ways in which it limits its own addressable market through its focus on premium devices, a small number of devices, and a relatively controlled approach to customization. Competitors should play up their differences and focus on those markets where Apple doesn’t play, or doesn’t play effectively. Very few companies can go up against Apple in its target markets and win.

What’s been fascinating about Apple’s history with the iPhone is the ways in which it has deliberately held back features or functionality in either hardware or software which competitors offer. In the process, it’s provided a series of windows of opportunity for competitors to differentiate on that basis, and to hammer Apple for it in their advertising. The chart below shows a number of these features and the windows of opportunity Apple has allowed competitors to offer them without competition. In each case, the starting point is when major competitors began to offer the feature, and the ending point is when Apple began offering it, either in iPhone hardware or in iOS. (To be sure, some of these were far more useful and meaningful differentiators than others).Apple windows of opportunityIn some cases, the window has been very small, lasting just a year or so. Such was the case with the initial iPhone’s lack of 3G, push email and third party apps. But other windows have lasted much longer, such as the absence of widgets. But in all these cases, Apple has been content to allow competitors free rein in these areas while it either didn’t consider the feature important or wanted to wait until it could get it right. Continue reading