Samsung, LG, and Sony Smartphone Roundup

For some reason, Samsung, LG, and Sony all ended up releasing their earnings this morning Asian time. As such, I spent some time earlier today updating all my models and charts, and tweeted out a few of them. There’s a full Samsung deck as part of the Jackdaw Research Quarterly Decks Service, which subscribers have already received, but I thought I’d do a quick roundup of key charts and the trends they represent as they relate to their respective smartphone businesses especially.

Samsung – recovery back on track

At Samsung, the mobile recovery appeared to falter a little last quarter, but is back on track this quarter, in large part thanks to the Galaxy S7 launch. Here are three key charts for Samsung.

First off, year on year growth in the mobile business unit, which turned positive again after briefly dipping below zero last quarter:Screenshot 2016-04-28 11.34.49When it comes to margins, the IT and Mobile business unit did considerably better this quarter as well, with the best margins in almost two years:Screenshot 2016-04-28 11.35.22 And thanks to a combination of that increase at the IM unit as well as slightly weaker operating margins in semiconductors, IM became the biggest contributor to profits again for the first time in two years:Screenshot 2016-04-28 11.35.46To what should we attribute all this? These were the bullet points from Samsung’s management for the quarter as relates to mobile:

Earnings increased QoQ led by improved product mix with S7, and improved profitability of mid to low-end through streamlined line-up

Strong sales of S7 due to enhanced practical features as well as early introduction

Global sales expansion of 2016 A/J series.

The Galaxy S7 was both introduced earlier than the S6 last year, bringing the boost to revenues and margins forward, but it seems so far to be selling better, as it fixed some of the missteps with last year’s model. A pretty decent quarter for Samsung in smartphones overall, albeit still not close to its past glory days.

LG – Challenges Typical to Android Vendors

LG looked for a period in 2013 and 2014 as if it was finally figuring out smartphones – shipments were up, margins were briefly positive, and reviews of its flagship devices were too. But then things started to fall apart, and the trend since then hasn’t been so good:Screenshot 2016-04-28 11.40.32It’s harder to tell what’s going on there with the smartphone shipments line than the margin line, but over time it’s trending consistently downwards, as you can see in this trailing 4-quarter smartphone shipment chart:Screenshot 2016-04-28 11.42.21LG appears to be suffering from much the same malaise as the other mid-tier Android smartphone vendors:

  • Increasingly strong competition at the high end from Apple and from Samsung’s resurgence as the dominant premium Android vendor
  • Significant pressure from Chinese vendors producing increasingly good Android smartphones for far less
  • A hollowing out of the mid-market by the introduction installment plans and the availability of both older flagship devices and budget premium devices from others.

There’s no real end in sight here – LG is failing to turn itself around as Samsung has, and the threat from Chinese vendors is only getting stronger. It needs a new strategy to fix things.

Sony: Fewer, More Expensive, Phones

Speaking of new strategies, Sony’s was evident in its reporting this quarter. Its strategy is now to focus on the premium market only, which will see it sell far fewer phones at a far higher ASP. The chart below shows what’s happened to shipments lately, with both a quarterly and annualized perspective:Screenshot 2016-04-28 11.46.01As you can see, the strategy to sell fewer phones is clearly working – sales dropped off a cliff from Q4 to Q1, and the company hasn’t sold so few phones in many years. What about the other side of the strategy? Well, that seems to be working too – revenue per device sold is up:Screenshot 2016-04-28 11.48.02The problem, though, as you can also see from that chart, is that the higher ASPs aren’t – yet – leading to higher margins. In fact, margins fell this quarter, and that means an even bigger loss per device, given what happened to shipment numbers. It’s likely that the problem here is that it’s very hard to scale down the operation that produces smartphones as quickly as the number of smartphones sold scales down. Certainly, cost of sales should come down fairly rapidly, but all the other general costs of running a smartphone business aren’t as easy to cut, at least not quickly. It remains to be seen whether that other side of the strategy can fall in line too. If not, Sony will have just cut its business in half without seeing any of the margin benefits it should see from focusing on premium devices. It’s also not clear whether anyone can make money selling just 3 million smartphones a quarter.

Apple Earnings: Bad News and Good News

Apple’s earnings for its fiscal second quarter (which I will refer to from here out as Q1 2016, as is my custom) were rocky. As Tim Cook said, it was a challenging quarter. There was bad news not just in iPhone, where Apple had already suggested there would be, but in other areas too. It’s worth enumerating exactly what those sources of bad news are to understand what’s going on at Apple. But there was also some good news in the earnings, which is particularly important when looking at the longer term. This post outlines both, starting with the bad news.

All three major product lines shrinking

Yes, iPhone shipments and revenues dipped year on year for the first time, and that was a major cause of the overall problems. But what compounded it was that Apple’s other two major product lines were shrinking too in the quarter:Year on year growth by product lineThe iPhone decline was new, but the trend line in Mac sales has been worsening consistently over the past year, and has now been below zero for the past two quarters. That’s significant, because for a time the Mac was offsetting shrinkage from the iPad, such that combined revenues from the two were rising or steady. Now that this aggregate number is also in the red, the declining iPhone sales just exacerbate the problem.

iPhone ASPs falling

Besides the stellar growth in iPhone sales the iPhone 6 prompted, it (and the iPhone 6s) also helped drive significantly higher average selling prices. The chart below shows ASPs on a cyclical basis, so you can see the trend over the past several years and where Q1 2016 should have landed, and where it did land:iPhone ASPs As you can see, at the end of 2014 ASPs dramatically increased as a result of larger, more expensive phones, and higher storage tiers. The 2015 ASPs were above 2014 ASPs for the entire year, but Q1 2016 saw ASPs dip, below the previous year’s number (and below even 2011, which was next highest for Q1). All of this suggests a combination of mix shift toward lower-tier and older iPhones, as well as possible discounting in some markets. Since ASPs have a direct impact on margins, that’s not good news. Worse still, Apple is projecting even lower ASPs in Q2 driven by a combination of inventory changes and sales of the iPhone SE.

Softness in China

China has been a major driver of Apple’s growth over the past couple of years. The relationship with China Mobile, expansion of better cellular networks in China combined with expansion in Apple’s distribution, and then the launch of larger phones all contributed to outsized growth there. Over the last couple of quarters, though, things have changed dramatically:Revenue growth by regionWhereas China accounted for half or more of the company’s revenue growth for several quarters, it’s now accounting for half its year on year shrinkage. One of Apple’s biggest drivers of growth has become a driver of decline. Again, the biggest culprit is iPhone sales and the massive iPhone 6 year, and the underlying decline in Mainland China is much less dramatic than reported results for the Greater China region, which includes Hong Kong. But for the time being, this is more bad news.

What you have overall, between the three major declining product lines, falling iPhone ASPs, and softness in Greater China, is a perfect storm of sorts that’s driving the current problems for Apple. What, then, is the good news in all this?

iPhone decline is temporary and cyclical

As I wrote earlier this week, the most important thing to understand about iPhone growth is that it’s temporary and cyclical. That is, the massive growth Apple experienced over the last 18 months or so was entirely down to the introduction of larger phones, and demand is now simply returning to its prior trajectory. The iPhone shipments number Apple reported was bang on with the projections I shared earlier this week and therefore also absolutely in line with the pre-iPhone 6 trend. That suggests (and Apple’s guidance for next quarter confirms) that iPhone growth should be back on track later this year, at high single digits or low double digits. The iPhone SE will depress margins, especially because it’s going to sell best during the annual trough in high-end sales, but for the same reasons, ASPs should recover by the end of the year when a new flagship phone launches. In the meantime, it should help fill that usual trough in sales a little, boosting sales above where they would otherwise be.

The other thing to bear in mind is that, though the iPhone 6 upgrade cycle was itself something of a one-off, all those who bought phones during that cycle will want to upgrade at some point. What was notable about this down quarter in iPhone sales was that Tim Cook said the last six months were the highest ever for Android switching. That implies that what fell short during that period was upgrades. That, in turn, suggests that when this base of iPhone 6 buyers finally does upgrade in large numbers – likely between 2-3 years from their purchase – we could see another big bump in sales, an aftershock of sorts. The biggest impact would hit in a roughly eighteen month period from this September through the following March, which provides more reason for optimism about longer term iPhone growth.

Signs of iPad recovery

It’s easy to focus on the decline in iPad sales, which has been problematic for Apple over the last several years, especially as the Mac has stopped growing. But the reality is that there are signs of recovery in iPad, albeit not growth just yet. But the rate of year on year decline has been slowing steadily, and on the earnings call Apple took the unusual step of signaling where it thinks they’ll come in next quarter, at least directionally. Here’s the trend line for the past couple of years:iPad year on year growthThat rate of decline has improved for three of the last four quarters. Apple’s guidance for Q2 2016 was that this would be the best year on year compare in two years. That suggests a shrinkage of less than 14% (since Q3 2014 was the previous low within that period, at 14% – I’m assuming the 8% it achieved in Q2 2014 is out of the 2-year window). (Update: I’m told by Jason Snell that it was “over two years” and the transcript confirms that, so the 8% might well be within the window after all). That’s obviously not stellar, but it continues and even improves the trend over the past year or so of slowing declines. As this decline slows, that puts Apple in less of a hole that it has to dig out of.

Reasons to believe the Mac will recover

There isn’t anything in the recent Mac results that provides reasons for optimism – as I said above, the results show a steadily worsening trend in the case of the Mac. However, I believe at least part of the reason for the decline is that as of the end of the quarter, Apple hadn’t updated most of its Mac lineup in a long time. The Macrumors Buyer’s Guide listed the whole lineup as “don’t buy” because of the length of time since the last upgrade. Obviously, the MacBook has since been updated, but the rest of the lineup hasn’t. As with iPhones, the evidence is that new customers aren’t the problem here – Cook made much of the high “new to Mac” numbers this quarter. The issue is once again upgrades, and there we should see better numbers later this year as Apple upgrades the product line with new Intel Skylake chips. The timing of that change is hard to predict, but it should help the Mac revenue growth line turn positive again, helping to offset the smaller iPad decline.

Other new products driving growth

The Apple Watch isn’t broken out in Apple’s results explicitly, but it has contributed meaningfully to the overall revenue line over the past twelve months. The Other Products line where it sits includes both the iPod and accessories, which had been declining fairly significantly, but that segment’s revenues have been growing year on year since the Apple Watch launch. In the first part of this year, that growth is likely to be modest, but once again come the fall things should look better as Apple updates the hardware and drives new sales.

Another interesting new product that’s driving growth is Apple Music, which now has 13 million paying customers. That’s good for a run-rate of a little over $1.5 billion on an annualized basis, and the growth rate (around 25-30k new subscribers per day) should see Apple get close to 20 million by the end of the year, which in turn would drive annualized revenue of $2.3 billion. Given that iTunes Music generated around $4 billion at its peak, and is now generating much less, this new service is on track to begin driving meaningful growth for Apple in the music category again. More broadly, Services continues to be one of the drivers of growth at Apple, driven not just by Apple Music but to a great extent by the App Store too. The good thing about that growth is that it is driven by the growing base rather than sales of new devices, so to the extent that Apple is still adding new iPhone customers, it should continue to grow even as iPhone shipments slow down for a period.

All signs point to a return to growth in the fall

All of this taken together points to another couple of tough quarters for Apple as the perfect storm of declines across its three major product areas, its second most important region, and iPhone ASPs hits home. But it also points to reasons for optimism come the fall, when the iPhone should start to rebound, Mac sales should be stronger, a new Watch should drive sales there, and iPad shrinkage will be lower. The narrative Apple needs to be spinning is less about Services, though those are an important component of future growth, and more about the fact that the current dip in revenues is temporary. There were some references to that in the earnings call yesterday – Tim Cook used the phrase “pause in our growth,” suggesting that he believes this. But of course Apple doesn’t provide guidance beyond a single quarter. That may need to change if it wants to get investors back on board.

The iPhone 6 Blip

On Tuesday, Apple is due to report its results for the March 2016 quarter (Q1 2016 according to the consistent calendar labeling I use for these things on this blog). A major focal point in the earnings report will be iPhone sales, which Apple has already guided will be down year on year. I’ve been contacted by quite a few reporters to ask – in various ways – whether this is bad news for Apple. The thought I’ve tried to articulate in response is that the current quarter is best seen in the context of what you might call the iPhone 6 blip.

What I mean by this is that, if you look at iPhone sales growth over the several years before the introduction of the iPhone 6, there was a fairly clear pattern emerging – one of slowing year on year growth. Growth declined from an average of around 100% in 2011 to around 50% in 2012 to just 15% in 2013, and over the three quarters before the iPhone 6 was introduced, growth rates slowed by roughly 1 to 1.5% quarter on quarter, for an average of 15%. All of this was a sign of the increasing maturity of both the overall smartphone market and the iPhone in particular. Following a rapid expansion into new markets over the years from 2007-2011, Apple was approaching saturation of the available distribution channels, and many of those already in the smartphone market who could afford to buy an iPhone had one or one of its high-end Android competitors. Absent significant switching from Android to iPhone driven by a major change in the addressable market, that’s how things would have likely progressed.

Of course, what happened in late 2014 was that Apple introduced the iPhone 6 and 6 Plus, which did dramatically increase the addressable market for iPhones and drive significant Android switching. The result? A massive increase in the iPhone growth rate, to 46% in Q4 2014, 40% in Q1 2015, and 35% in Q2 2015. For some, this was the new normal for Apple, driving sky-high growth rates in a product that had appeared headed for only modest growth in a saturating smartphone market. Now that the iPhone 6 year is past, however, we’ve seen the first flat year-on-year quarter for the iPhone, and are about to witness the first year on year decline. Hence all the calls from reporters about whether we’re witnessing some sort of crisis.

The reality is that the iPhone 6 line really just caused a blip in the long-term trajectory of the iPhone. It’s impossible to know what iPhone sales would have done absent the introduction of the iPhone 6, but we can at least have a go at projecting sales on the basis of the prior trajectory. Given that growth rates were slowing by roughly 1-1.5% per quarter before the iPhone 6 launch, that provides a good starting point for such an exercise. The chart below shows the actual year on year growth rate (using 51m as a consensus from the professional Apple analysts) and the two projected rates based on 1% and 1.5% quarter on quarter slowing in growth. You can see the blip extremely clearly here:iPhone growth rates actual and projectedNow, if you apply those growth rates to iPhone sales to project what would have happened if Apple had continued as before without the massive bump from the larger iPhone 6 phones, you get this second chart. It shows actual sales (in blue), as well as projected sales using those slowing growth rates in gray and yellow:iPhone sales actual and projectedIt’s a bit hard to tell exactly what’s going on in a chart with so much history, but I’ll zoom in a little bit in the next version, so you can see the last few quarters better:Zoomed actual and forecast iPhone salesIn this chart, you can hopefully see that that consensus point of 51 million falls right between the two projected data points for Q1 2016. In other words, it’s very much in keeping with the long-term trajectory in iPhone sales. The iPhone 6 blip is over, but if iPhone sales land roughly where the analysts expect them to, they’ll be right back on track with where they were headed before the iPhone 6 launched. That’s a big “if” – sales could come in above or below that number, which would suggest either that underlying growth had slowed more dramatically in the past, or that Apple has successfully pushed to a slightly higher long-term growth rate off the back of the iPhone 6 and 6S.

The other big question is what happens in the next few quarters, and whether Apple is able to stay on or above that long-term trend line. Remember that the trend line calls for a 1-1.5% reduction in year on year growth per quarter – on that basis, growth would slow to 6%, 5%, and 4% over the remaining quarters of 2016 with 1% shrinkage, or drop as low as a 1% decline by the end of the year. This is obviously far too precise for a real-world projection, but it gives you some sense of that trajectory if it does continue. It’ll be very interesting to see Apple’s guidance for the June quarter – on the basis of the trajectory, Apple would sell between 39 and 41 million iPhones next quarter. But of course, it’s just launched the iPhone SE, which could change things. Anything below 40 million iPhones (or $40 billion in revenue guidance) is a sign that Apple is dropping below its long-term trajectory, and would be bad news. Anything above that is cause for optimism, at least in the short term.

This, then, is the real answer to the question those reporters have been asking, in the form of another question: Does iPhone growth revert to its long-term trajectory, dip below it, or bounce back above it, in the reported numbers for Q1 and guidance for Q2? The answer to that question tells you what you need to know – at least in the short term – about how you should feel about iPhone sales.

EU Android follow-up

I wanted to post a quick update to my post earlier in the week about the EU’s Android antitrust action, to cover a specific topic in a bit more depth, namely the issue of the EU’s narrow definition of the relevant market. We also discussed the EU’s action against Google in depth this week on the Beyond Devices podcast.

As I said in that earlier piece:

The key to the EU’s finding that Google has dominant market share is a narrow definition of the relevant market here. Instead of treating mobile operating systems as a whole (or even smartphone operating systems) as the relevant market, the Commission has chosen to use “licensable operating systems” as the basis for its determination that Google has dominant market share.

The basis for the EU’s action is that it has to determine three things:

  • the definition of the market in which Android operates
  • a determination that Google’s share of that market is dominant
  • a finding that Google seeks to abuse that dominant position.

The definition of the market is therefore the first item on the list, and an important one. As I mentioned earlier in the week, the EU deliberately narrowed that definition so as to make Google seem more dominant. To illustrate this, the chart below shows Android’s market share as it is normally measured (as a share of smartphone sales) and as the EU would measure it (as a share of sales of devices based on licensed operating systems) in the five major European markets, as estimated by Kantar Worldpanel:Kantar Android market shareAs you can see, by eliminating iOS (and to a far smaller extent BlackBerry and other operating systems) from the equation, the EU quickly raises majority but not dominant market shares into market shares close to or above 90%, which is the figure it cites in its documents this week. In the UK, the difference between the two numbers is enormous – traditional market share is just over half, but share of licensable operating systems is 85%. There’s a certain logic to the EU’s actions given its focus on the relationship between Google and its OEMs, but it’s also very convenient for reaching the conclusion it wants to.

Two Weeks with the iPad Pro

When the new 9.7″ iPad Pro was released a few weeks ago, Apple was kind enough to send me a review unit, which I’ve been testing since. I thought I’d share some of my thoughts on using this device for the past couple of weeks.

Update: I added a little something on the Apple Pencil – I initially left it out because I simply haven’t used it much, but it’s worth noting that fact in and of itself. The addition is near the end of the review.

Initial impressions

My first experiment was to try a day of working solely with the 9.7″ iPad Pro, and I got through a whole day of fairly varied work without needing to use any other computing device. That surprised me to some extent – other than on the occasional business trip, I hadn’t really ever tried to use an iPad as my sole computer, and I really wasn’t sure how well it would go. That first day turned into several days and eventually two weeks, but even after that first day I immediately knew I also wanted to test the larger iPad Pro, and so I purchased one from the local Apple Store (I’ve since returned it), along with a Surface Pro 4 I acquired for testing too. During that period, I used one or other of the iPads virtually exclusively, with a couple of brief exceptions, and found this barely limited my ability to get done what I wanted to.

The first thing I noticed was that the device felt more intimate and personal – instead of staring at a screen sitting a couple of feet away and using peripheral keyboard and mouse that felt very disconnected from the computer, I was engaging entirely with this screen that was immediately in front of me, including touching it occasionally. That felt very different from my usual computing experience in subtle ways. Obviously you get some of the same feeling from using a laptop, but with the iPad it felt subtly different, and I think part of that is because I’m used to thinking of iPads as devices that you hold. Although a lot of my work was done with the iPad resting on the keyboard case, throughout the day I also picked it up from time to time without the case and used it for catching up on Twitter or reading things, and in the evenings it had the flexibility to be used that way too.

For this reason, I love the new modular approach to cases and covers Apple now has – it used to be that you either had a case that included a cover, just a cover, or some sort of keyboard case. But the new modular cases from Apple allow you to have a case permanently attached to protect the body, and then to swap out the plain cover and the Smart Keyboard case at will. This feels a lot more flexible and means you just always use whatever you need at any particular point in time, whether that’s just the case when you’re reading something, the case and standard cover when moving around, or the Smart Keyboard cover and case when you know you’ll need to type. This flexibility is one of the biggest things that sets the iPad Pro apart from the Surface Pro too – the Surface always feels more like a computer than a more personal device like a tablet, whereas the iPad Pro makes that transition seamlessly without feeling either awkward or as though it’s missing an important appendage.

The other big difference I noticed in switching between the iPad and Surface was that the default state on the Surface is an empty screen – the desktop. You have to actively go looking for something to do in the Start Menu, where there’s little consistency in how items are presented with all the different sizes of live tiles. Apps you install don’t even show up there by default and it takes hunting around and then replacing default apps with the ones you choose to get them accessible. By contrast, on the iPad (as on any iOS device) you’re always presented with a screen full of possibilities in the form of a set of app icons. You can, of course, rearrange these icons and swipe through several pages of them to find the one you want, but ultimately the default state is being presented with lots of things you could do next. This, too, makes the iPad feel like a more personal device than the Surface.


I found the keyboards on both sizes of iPad very usable. I’m typing this review on the smaller of the two keyboards, and I’m able to type more or less as fast as on my Mac or MacBook Air keyboards. I don’t find the lack of key travel a problem at all, and I like the fabric on the surface of the keyboard. The smaller of the two is definitely more space constrained, but I find that I can adjust very quickly when switching between devices, and the fact that the keys are raised and nicely separated is very helpful. My one niggle with the keyboards is that the globe icon key for switching between virtual keyboards (e.g. invoking the emoji keyboard) is at the bottom left corner and as such the other keys are shifted over to the right a little from other Apple keyboards. That has meant I’m often either hitting that key by mistake or hitting the control key when I mean to hit the option key, for example. I’m a big user of keyboard shortcuts on the Mac and I found most of them translated easily to the Smart Keyboard, but this one change has caused more errors than anything else in the keyboard. My other frustration with keyboard shortcuts has been that option-deleting hasn’t worked the same was as in OS X, in that instead of deleting whole words at a time, it only deletes single letters as if the option key weren’t depressed. That’s one of those muscle memory things that’s been hard to adjust to on the iPad, and should be easily fixable through a software update.


For the tasks I undertook on the iPad Pros, there was never a performance issue that felt related to hardware. The devices are snappy for all sorts of activities, app switching happens quickly and without glitches, and on the few occasions where you do encounter bugs they feel like they’ll be resolved soon. I loved being able to use the familiar command-tab shortcut for app switching, and it even implements in a clever way when you’re in split-screen multitasking mode. My one big frustration about multitasking and split screen use is the way you have to scroll through an endless list of apps to find the one you want to have show up on the right side. Some sort of search function here is critical for anyone with a large number of supported apps installed. The work that MacStories has published this week on iOS 10 includes a much better interface for this scenario, and Apple would do well to implement something like it.

I found that many of the apps I use on a regular basis already support split-screen multitasking, and that interface works particularly well on the larger iPad Pro, where the apps get to run more or less full size from a 9.7″ iPad perspective side by side. I did find that some interfaces looked squashed on the 9.7″ iPad Pro, especially web interfaces that are designed to run full screen on such a device, but many others worked very well, and it made comparisons and copying and pasting between apps very easy. I had to find a workaround for working with two web pages at once, which involved installing the Chrome browser for the second screen – as others have pointed out, it would be nice to have the ability to put two Safari tabs side by side in the split screen view.

Limits to productivity

I mentioned earlier that I was able to accomplish more than I expected on the iPad Pro. But there were a few tasks that I found either too cumbersome, too risky, or simply impossible on the iPad, and for which I switched back to a Mac. I also found that a key element of my workflow was impossible to replicate on the iPad, and this was ultimately the biggest issue for me:

  • Recording and editing podcasts – this is something I do at least twice a week in the case of recording and once a week in the case of editing, and it’s essential that it work well. There are ways now to hook up even powered microphones to the iPad Pro, but you can’t feed two apps at once with that microphone, so it doesn’t work for talking on Skype and recording podcast audio at the same time, as others have mentioned. When it came to editing, the iOS version of GarageBand simply doesn’t supporting importing multiple audio tracks and editing them together, even though I use GarageBand on the Mac usually. For all these reasons, I recorded and edited all podcasts on the Mac during my two-week experiment. I mentioned some of this on Twitter, and was pointed to Ferrite as a possible solution for editing podcasts on the iPad Pro, so there may be workarounds for all this, but it was too much work and too risky to test for a critical podcast recording.
  • Document editing workflow – as I’ve written about elsewhere, my workflow involves using the iWork suite to create and edit files, whether spreadsheets, presentations, or documents. But I use Dropbox for storing and syncing those files across computers and making them available on mobile devices. This works fine on the Mac, which has full support for Dropbox at a system level, but it breaks down on iOS. The problem is that Dropbox isn’t available as a source of files to open within the iWork apps on iOS. You can open files from within the Dropbox app, but this process creates a copy, so you’re not modifying the original in real time, and have to export it back to Dropbox when you’re done editing if you want to update the original. There are several possible solutions to this – use Office instead of iWork because Office has proper Dropbox integration, or use iCloud instead of Dropbox because it’s supported natively in the iWork apps. But I prefer iWork for its ease of use and look and feel, and don’t yet fully trust iCloud for syncing really important documents. So I’m sort of stuck when it comes to my current workflow. If I knew I’d be committing fully to an iPad as my only device, I might feel differently, but for now it means it’s tough to carry over my workflow from other devices, which is something many iPad Pro users are likely to need to do. In addition, there are still detailed functions within iWork which simply aren’t available in the iOS versions, even though feature parity is pretty extensive. I found that a little frustrating too.
  • Working with Apple News – I’ve recently started publishing this blog and our podcast to Apple News, something which comes with its fair share of pros and cons no matter which device you’re using (something we talked about on the podcast recently). But on iOS, the Apple News Publisher online interface at doesn’t work. If you visit on any iOS device (even the larger iPad Pro) you get redirected to the mobile site, which is mostly a holding page, but if you request the desktop site through Safari, you get the full site. However, even then, the Apple News Publisher site clearly isn’t meant to work on iOS, and frequently crashes and has other issues. This means if you want to use Apple News Publisher, you have to find some other way to do it than through the WYSIWYG editor online. It’s a new platform, and so maybe better support for iOS devices will come soon.

The iWork feature parity issue and this Apple News problem are indicative of one of the biggest issues I encountered productivity on the iPad Pro – for all that Apple wants to sell these devices as fully-fledged productivity machines, it’s Apple’s own services and apps that continue to hold it back. It’s frustrating that there are a number of Apple’s own apps which don’t support split-screen multitasking yet either. Ironically, you’d be better off in some ways using the Office suite than iWork on these iPads, and that raises an interesting possibility – that the future of mobile productivity marries Apple devices with Microsoft (or other third party) software.

Quick thoughts on the Apple Pencil

My review unit came with an Apple Pencil, and I was particularly keen to try it out. The reality is, however, that there’s very little that I have ever used a stylus for in the past, and that has less to do with the quality of the styli available and more to do with the way I work. I type much more quickly (and legibly and searchably) than I write by hand, and so I always type when I possibly can. I did take notes for a few hours using the Pencil and iPad in place of a pen and notebook, and found it a really solid experience. I was using Microsoft’s OneNote app, which was mostly fine but frustratingly doesn’t explicitly support the Pencil or the associated palm rejection. I tried using the Surface with its pen later for the same task, and found the tactile feel and the resulting handwriting significantly inferior to the Pencil. That’s a bit surprising given how much longer Microsoft has been doing Surface pens, but the difference was undeniable to my mind.

However, I’m not an artist either, and other than for the novelty value, and the occasional bit of doodling in Pigment just for fun, I find myself using the Pencil very little. I think it makes perfect sense that it’s an optional accessory rather than a bundled feature of the iPad Pro – many users aren’t going to need it. I used it enough to be convinced that it would work well should I need it, but I’m fairly certain that I’ll continue to use it only infrequently. My one frustration was charging – it’s not really practical either to charge the Pencil in the standard way (i.e. plugging it into the iPad) while using the iPad or while charging the iPad. Several times, I wanted to charge both devices at night but couldn’t without using the specialized adapter for the Pencil with its own charging cable. That feels like a mistake (and I’m convinced I’d lose the adapter and/or the Pencil’s cap pretty quickly if I were using it more regularly).


After using the iPad Pro(s) more or less exclusively for two weeks, I can say that (with very few exceptions) I’d be happy to do so again in future. I do like the flexibility of my usual Mac Pro setup, but I got a great deal out of using an iPad instead for  a while, not least a greater sense of focus on the task at hand and that sense of intimacy I mentioned earlier. Were I to find myself in a situation where I had to commit to one of these devices full-time, I’d definitely pick the larger iPad Pro – the increased screen real estate allows multitasking and other features to really thrive, and its similarity to the size of a standard laptop helps too.

The reality is, though, that these devices don’t have to fill that role for me. I have other computers available to me, and for a variety of reasons they’ll continue to be my main ones. As such, the smaller iPad Pro feels like a great fit as more of an occasional device – one to use in the evenings, or when I need to go out for a while but stay productive, or when I’m traveling. I’d almost always resisted only taking an iPad with me on business trips in the past, but could see myself relying solely on an iPad Pro for at least short business trips in future.

The EU’s Android Mistake

The European Commission announced this morning that its preliminary finding in its investigation of alleged anti-competitive practices by Google in relation to its Android operating system is that Google is indeed breaching EU rules. The action from the EU is misguided and unnecessary, but it will likely be disruptive to Google and have several unintended consequences anyway.

A quick primer

Note: I’m including links to three relevant Commission documents at the end of this piece, in case you want to read the sources.

As a brief primer on the basis for the Commission’s action here, having a dominant market share is not itself grounds for intervention, but abusing that dominant position is. The argument here is that Google is indeed abusing that dominant position by leveraging its high market share in mobile operating systems to force OEMs to pre-install Google services on their devices in return for being able to use the package of Google mobile services including the Play store, search, and so on. Specifically, the Commission has three objections here:

  • That Google forces OEMs who wish to license Android with the standard Google apps to pre-install the Google Search and Chrome apps and set Google search as the default
  • That Google won’t allow OEMs to sell phones using this flavor of Android as well as flavors based on AOSP
  • That Google pays OEMs to exclusively pre-install the Google Search app.

The key to the EU’s finding that Google has dominant market share is a narrow definition of the relevant market here. Instead of treating mobile operating systems as a whole (or even smartphone operating systems) as the relevant market, the Commission has chosen to use “licensable operating systems” as the basis for its determination that Google has dominant market share. In other words, this isn’t about Google’s dominance of consumer mobile operating systems, but about its dominance of the market for operating systems that can be licensed by OEMs. That’s a really important distinction, because it leads to a finding of much higher market share than were the Commission to consider this from a consumer perspective. Specifically, the Commission says that Google has over 90% share on this basis, whereas its consumer market share in the EU is well under that threshold in most markets, including the five largest markets.

This narrow definition also means that the main class of companies the Commission is seeking to protect here is not consumers but OEMs and alternative providers of search and browsers for mobile devices. Clearly, the Commission has some belief that it would be protecting consumers indirectly as well through such action, but it’s important to note the Commission’s primary focus here.

OEM choice

If the Commission’s main focus is on OEMs rather than consumers, it’s worth evaluating that a little. The reality is that OEMs clearly want to license the GMS version of Android, because that’s the version consumers want to buy. As Amazon has demonstrated, versions of Android without Google apps have some appeal, but far less than those versions that enable Google search, Gmail, Google Maps, and so on. Vestager’s statement alludes to a desire by at least some OEMs to use an alternative version of Android based on AOSP (presumably Cyanogen), but doesn’t go into specifics. Are there really many OEMs who would like to use both forms of Android in significant numbers, or is their complaining to the Commission just a way to push back on some of the other aspects of Android licensing they don’t like?

It’s certainly the case that OEMs and Android have a somewhat contentious relationship and Google has exerted more power in those relationships over the last recent years, but the main reason for the change in leverage is that Android OEMs have been so unsuccessful in differentiating their devices and hence making money from Android. Inviting the Commission to take action may be a roundabout way to change the balance of power in that relationship, but it’s not the solution to OEMs’ real problems.

Consumer choice

Here’s the critical point: this initial finding is just the first step – the ultimate outcome (assuming the Commission doesn’t materially change its findings) is that the EU will impose fines and/or force changes to the way Google licenses Android. Specifically, it would likely require the unbundling of the GMS package and the forced pre-installation of Chrome and search, much as Microsoft was forced in the past to provide a version of Windows without Windows Media Player bundled in and later to provide a “ballot box” option for consumers to install the browser of their choice.

The big question here is, of course, whether this would make much of a difference in a world where consumers are already free to install alternatives and set them as defaults if they choose to. There are several competing search engines and browsers in the Play Store today. Of these, the three most prominent search engines (Bing, Yahoo, and DuckDuckGo) each have 1-5 million downloads, while alternative browsers have been more popular:

  • Firefox – 100-500 million installs
  • CM Browser – 10-50 million
  • Opera – 100-500 million
  • Opera Mini – 50-100 million
  • Dolphin – 50-100 million.

On the one hand, then, there seems to be very little demand for alternative search engines on Android smartphones downloaded through the Play Store. And that shouldn’t surprise us, given that the Commission documents also tell us Google search has over 90% market share in the EU. As is the case elsewhere in the world, Google search is the gold standard, and there’s very little reason for most consumers to install an alternative. However, the small number of consumers who want to can do so today.

When it comes to browsers, it’s clear that there is more interest in alternatives, although in fairness many of those downloads of alternative browsers likely happened before Google introduced Chrome to Android and made it broadly available through OEMs. But, again, it’s clear that many consumers have already taken the opportunity to download alternative browsers under the current system. Would materially more consumers install these alternatives under a forced unbundling arrangement, and would the benefits to consumers and/or the browser makers outweigh the damage done to Google’s business through such action?

The Microsoft history

It’s inevitable that there will be comparisons between this case and the EU’s earlier cases against Microsoft. The Windows Media Player case took three years from the formal start to its preliminary decision (although the investigation started well before that), and by the time the process worked itself all the way through the outcome was essentially irrelevant. The market had moved on in such a way that the focus of the case was entirely misguided, and the effect on the market minimal. There’s a danger that the same thing happens here – the case takes years to complete, and by the time it’s completed the competitive dynamics have changed to an extent that things have either sorted themselves out or competitive worries have moved to an entirely different sphere.

One of the reasons for this is that competition and market forces in general had largely taken care of the issue in the interim, and that’s the key here – these markets are so fast moving that any regulatory intervention is likely to take longer and be less effective than simply allowing market forces to take their course. It’s hard to avoid the sense that the EU case is an outgrowth of European antipathy towards big American tech companies rather than a measured response to real abuses of dominance.

The irony of AOSP

One last quick point before I close. The great irony in all this is that Google is being hammered in part because it has always open sourced Android. The existence of AOSP is the crux of the Commission’s second objection to Google’s behavior with regard to Android. Google’s claim to openness is being used as a stick to beat it with. In this sense, being less open would have exposed Google to less criticism from the EU for being anticompetitive. That irony can’t be lost on Google, which could potentially resolve this concern by simply discontinuing the licensing of AOSP. That certainly isn’t the outcome the Commission wants (indeed, it seems to smile on the AOSP project in some of its comments today), but it’s an example of the kind of unintended consequences such action can have.

Links to relevant documents

The Commission has this morning published three separate documents in relation to this proceeding – here are links if you want to read the source material:

Facebook’s Sharing Problem

Last week, Amir Efrati at The Information wrote about the decline in “original sharing” at Facebook. That’s a reference to the more personal type of posts that people might share using the status box on the service, as opposed to sharing links or other less personal information or status messages. The data shared in the article suggests that this original sharing was down 21% year over year in mid-2015, and down around 15% year on year more recently.

The interesting question here is whether this matters, and why. The article suggests that this is the most important type of sharing on Facebook, because these personal posts bring the most engagement. That’s likely true, and I think there’s also an element of FOMO (fear of missing out) associated with knowing what friends are really up to which drives Facebook usage. To the extent that friends are no longer sharing this personal information on Facebook, that reason for using its apps starts to go away.

However, what’s increasingly clear is that Facebook has evolved from a social network to a content hub over the last several years. Yes, it’s a content hub where the content you see is largely driven by what those you’ve deemed “friends” (whether they really are such or not). But increasingly the driver of which specific things you actually see is Facebook’s algorithm, which is driven a lot more by your interests than by your friends per se. And much of the content you’re consuming is likely not those personal videos but articles (perhaps increasingly hosted on Facebook itself), videos (including the recently introduced live videos), and other forms of content which aren’t personal in nature.

That evolution from a social network to a content hub has coincided with a growth in many other forms of more personal communication, most notably messaging. Facebook clearly saw this trend coming several years ago, and acquired Instagram and WhatsApp while also turning Messenger into a standalone product. But it also failed to acquire Snapchat, and faces competition from a number of other products in this area. To the extent that more personal communication is happening outside of the News Feed, Facebook remains a participant in several ways.

But I also wonder if we’re seeing something of a maturing of the Facebook experience. I always come back to a really insightful post written by venture capitalist Fred Wilson back in 2011. In the context of Twitter, he wrote:

“Let’s remember one of the cardinal rules of social media. Out of 100 people, 1% will create the content, 10% will curate the content, and the other 90% will simply consume it.”

In some ways, what’s important about Facebook isn’t that it is seeing lower sharing, but that it ever had such high sharing in the first place. Even at the lower rates of sharing Facebook is seeing today, the Information article says “57% of Facebook users who used the app every week posted something in a given week, the confidential data show. But only 39% of weekly active users posted original content in a given week”. That’s much higher than the numbers cited by Wilson, even if it’s come down a bit recently. I’d also argue that, to the extent that users are sharing URLs or videos rather than personal content, they’re simply shifting into that curation category, and that still benefits Facebook.

The article talks about live video as one of Facebook’s responses to the sharing problem, but I’d argue that Facebook is working on lots of other stuff that can be seen as a response too. I’ve written elsewhere that the Notify app Facebook launched a while back is an example of this. The new Videos tab Facebook is introducing is another example. It’s clear that Facebook has been planning to deal with this issue for some time now.

This gets back to another thing I’ve written about previously, which is the role Facebook plays in our daily lives. From a jobs-to-be-done perspective, I’ve argued that the problem Facebook really solves is killing time. At some point, I suspect Facebook will truly embrace its new status as a content hub and start serving up content that wasn’t even shared by your friends. At that point, the personal sharing will matter less, and what will matter the most is that you care about the content being shared and engage with it.

Tesla’s Dodgy Claim

Tesla is now claiming that its Model 3 preorder process is breaking records – here’s the text from the claim Tesla is making:

“In the first 24 hours Model 3 received over 180,000 reservations, setting the record for the highest single-day sales of any product of any kind ever in world history.”

That is, of course, pure hyperbole, and there are two specific reasons why. The first is that the preorder process doesn’t represent sales at all. On Tesla’s own site, the process is referred to as reservations and not sales, and that’s all the $1,000 deposit represents – a place in a long line to have the right to buy a car 18 months or longer from now. Those who made a reservation in this way have no specific timeframe for delivery of their purchase, haven’t committed to any specific purchase, and have the right to a refund of their money at any time between now and whenever their car might finally be available. There is no sense in which this is a sale in any sort of traditional sense.

But even if you concede that the $1,000 represents a sale of some kind, the total revenue implied by that still falls far short of single-day sales for the most recent iPhone, for example, which likely does hold the record for largest single-day sales of any product. At just $180 million, Tesla’s Model 3 revenue is around 6% of single-day iPhone 6s sales. The only way the claim makes any sense at all is if you do what Elon Musk did in a tweet at the end of the first day of preorders, and apply some sort of anticipated average selling price to the 180,000 preorders. That’s even more disingenuous than the claim that these are sales at all, but it does lead to a far higher number. The comparison between these two different Tesla Model 3 numbers and assumed single-day sales for iPhone 6s is shown in the chart below:


Again,though, no-one has committed to actually buy a car from Tesla at this point, the process is entirely refundable, and Tesla won’t see even the majority of that revenue for a couple of years at least. This isn’t, in reality, any kind of sales record at all.

The stupid thing here is that the Model 3 preorder process is still a phenomenally impressive achievement. That so many of those placing reservations had never even seen the car is a testament to the power of Tesla’s brand and what it has achieved, and this likely is a record in the auto industry. But the hyperbole attached to the claim on Tesla’s site just detracts from all of that without having any real basis in fact.  Tesla already has the world’s admiration and respect – engaging in this kind of behavior detracts from rather than adds to that mystique.

The NFL’s Twitter Gamble

Earlier today, I published a post titled “Twitter’s NFL Gamble“. The post illustrates perfectly the danger of jumping on breaking news too quickly, in that a major piece of information emerged after I hit “Publish” on the post, which totally changed the dynamic of the story. So here I am with a second post in the same day on the same topic, from quite a different perspective. A good deal of the material in the initial piece still holds, but the key point from the title no longer makes as much sense.

The key piece of information was reported by Recode, and concerns two important elements – the price Twitter paid, and the nature of the content it will carry, specifically as it relates to ads. Here are the two key paragraphs from that piece:

“While the NFL and Twitter haven’t disclosed the price for the package, people familiar with the bidding said Twitter paid less than $10 million for the entire 10-game package, while rival bids topped $15 million. Those numbers are a fraction of the $450 million CBS and NBC collectively paid for the rights to broadcast the Thursday games. (A note from Twitter’s Investor Relations Twitter account notes that the company had already baked the cost of the deal into their 2016 guidance.)

One big reason for the disparity is that CBS and NBC have their own digital rights, and they will own most of the digital ad inventory in their games, people familiar with the deal say. So Twitter will be rebroadcasting the CBS and NBC feeds of the games, and will have the rights to sell a small portion of the ads associated with each game.”

With this as context, it becomes clear that this is far less of a gamble for Twitter than I originally understood, and actually far more of a gamble for the NFL. Splitting the broadcast and digital rights for the Thursday night games was a great innovation, and one I actually wrote up pretty positively in a post for Techpinions. But it now appears that the NFL has chosen not to be as disruptive as it might have been. Rather than license these rights to a new online video player, with all the advertising rights packaged in, the NFL has chosen to forego a big new revenue opportunity from the digital world and instead hand the ad revenue opportunity mostly to CBS and NBC, while Twitter merely gets the benefit of increased traffic from broadcasting games almost entirely packaged up by others.

That represents a big gamble on the NFL’s part, that it’s better off giving most of the rights to traditional players rather than opening up a new opportunity with a major video player from the online world. The Recode reporting certainly suggests that the NFL even chose to go with Twitter despite the fact that its offer was lower than others. The NFL may appear to be doing the opposite of gambling here, but the risk is that it’s setting up these online rights as something much less than what they could be. Over the next few years, these online rights could be really lucrative, and this Thursday night package was a great way to really test that market, but the NFL is putting all its eggs in the broadcast basket instead.

Twitter’s NFL gamble

Bloomberg broke the news this morning that Twitter is the winner of the digital rights package of Thursday night games the NFL has been auctioning off recently. Twitter came out of left field (if that’s not the wrong metaphor for this particular sport), and it’s worth thinking about both why Twitter would want this deal, and what the implications might be.

Update: some significant new details have emerged since I wrote the first version of this post, notably that Twitter has likely paid far less for these rights than previous rights owners, in part because it will sell very few ads itself and will largely carry the broadcast and ads provided by the network broadcasters. As such, the size of the gamble is significantly smaller, and the comments about guidance also make more sense. I subsequently wrote a second piece which covers the later news.

Firstly, we know now that Jack Dorsey really is serious about making live – and live video specifically – a focus in 2016! So far, Twitter has been used almost entirely for people to talk about live events being broadcast on other platforms, which has meant it hasn’t been able to benefit as directly as some other players from those live events, even if massive numbers of tweets were sent and even shown on television. Last night’s NCAA Championship basketball game is a great example of this. This deal suddenly gets Twitter directly into the business of showing these games and tapping into some of the additional associated revenue opportunities. It also significantly ups Twitter’s live video game from short, grainy videos to professionally produced content.

One of the most interesting things is going to be seeing how this fits into the Twitter product – with all the other bidders, there were obvious existing platforms for broadcasting NFL games, but with Twitter they’ll have to create a completely new home for this kind of thing. It’s possible they might use Periscope, but given the poor quality of most Periscope videos until now, I would think the NFL might have qualms about having their high-quality content appear there. Now that the news is out from the NFL, with comment from Twitter, we know that Twitter is describing the experience as being “right on Twitter,” but I’m curious to see the exact implementation.

The other big questions is how Twitter will do selling ads against this content – it’s obviously a very different type of advertising from what they’ve sold before, but it gives them their first real opportunity to cross-sell these different types of ads and break into television advertising for the first time. It may also be a first real opportunity to make really good money from the “logged-out users” Twitter has been talking up for so long, but who are so hard to advertise to effectively.

And then there’s the question of how much Twitter paid for the rights here. It’s hard to guess at because this package of rights is very different from any other similar package sold before – non-exclusive in the US, but exclusive internationally. But almost no matter what the exact number, it’s likely to be a meaningful fraction of Twitter’s overall revenue. That’s one of the reasons Twitter is such a surprising bidder (and winner) – it’s a much smaller company than most of the other names that were bidding, with just over $2 billion in revenue last year. If the rights costs in the hundreds of millions of dollars, which seems likely, then they may well cost 10-20% of revenue. That’s a huge gamble, and we all know the gamble didn’t pay off for Yahoo. The strangest thing is that the Twitter Investor Relations account tweeted this morning that all expenses associated with the rights are already baked into its guidance for the year. That seems particularly odd given that Twitter likely didn’t know whether they’d won the rights yet when they announced their guidance, and it’s a material amount of money.

Hopefully we’ll get more detail on all of this either later today or over the coming weeks, but it’s a fascinating illustration of the sheer breadth of the companies getting involved in the live video business at this point, coming from a diverse set of starting points within the broader industry.