Android, Android Auto, Apple, CarPlay, Connected car

Updated Android Auto and CarPlay support

This week, Apple updated its website with regard to auto makers’ support for CarPlay, and I’ve taken the time to update my charts and tables on support for both CarPlay and Android Auto (my previous post was here, and has much more analysis than this post, which mostly updates details).

Here’s the new master list:

CarPlay and Android Auto March 2015

The big changes are mostly on the CarPlay side, with Renault and the Volkswagen group (including VW, Skoda and SEAT) coming on board. Android added Opel in the interim, but I couldn’t see any others. This backs up Tim Cook’s assertion from the Spring Forward event this past Monday that all the major groups are now onboard. Interestingly, the main brands missing are still some of the high-end luxury sub-brands and specialty makers, including Tesla (which was the subject of questions and remarks from Tim Cook at the shareholder event this week). Apple Insider points out that the major Chinese manufacturers are also missing.

Here’s the summary by group, which hasn’t changed much.Car groups March 2015Finally, we still don’t know exactly which models and cars will have CarPlay in the near future – Tim Cook mentioned 40 models by end of 2015, but that’s not a ton in the grand scheme of things. I’m going to be heading to the New York Auto Show later this month, and keeping a close eye out for signs that CarPlay and Android Auto are showing up in more cars – both were conspicuously absent at CES.

Apple, Apple TV, Apple Watch, Mac, Smartwatches

Thoughts on Apple’s Spring Forward event

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I had the opportunity to attend Apple’s Spring Forward event yesterday, and wanted to give my quick take on both the event and the brief hands-on I had with both the Apple Watch and the new MacBook. I’ve already written about Apple’s ResearchKit announcement over on Techpinions (for Insiders), and put out a brief comment for reporters yesterday too.

A surprising order

Apple often starts its keynotes with a minor update on retail and other statistics, and this one was no different in that respect. However, it then normally focuses on the main event, followed by one or more additional items – the legendary “one more thing” Steven Jobs was so fond of. What was so interesting to me here was that the Apple Watch was the focus of all the pre-event speculation, and yet it was held for last, almost an hour into the event, and was given only just over 30 minutes of its own. Much of that first hour was taken up with several other announcements: ResearchKit, the new MacBook, the Apple TV price drop and the HBO Now exclusive. I think the reason for this order was likely that Apple had already covered the basics of the Apple Watch in September, with little new information to be announced yesterday other than price and availability.

ResearchKit

See my Techpinions piece for a deeper dive into what I think ResearchKit means and represents for Apple, but in some ways this was the announcement I was most excited about. It suggests various things about Apple and its potential, not least its ability to marshall its considerable resources and its installed base not just in the service of selling more product, but also in the service of doing good in the world. I see this is as a first move beyond the hobbyist self-tracking that’s usually associated with health and fitness trackers and into something that’s truly meaningful in the field of medicine.

New MacBook

The new MacBook is interesting for three key reasons: the naming and positioning, the switch to USB-C, and the technological advances involved. Taking the last first, this is clearly an example of the way in which Apple can, when it wants to, move to extend its lead in key product categories through the use of focused, meaningful innovation. Just as the MacBook Air was a huge leap forward, and has arguably maintained a lead over the competition for several years, this new device is likely to set Apple’s computers apart for the foreseeable future. It’s both a great step forward in portability and a bet on the future – a wireless future which seems more and more possible all the time, and which is being held back at this point mostly by the poor performance of wireless charging. I’ve no doubt that at some point Apple will embrace that too, but for now it’s betting instead on making battery life so long that charging is an occasional rather than a constant concern on these devices.

The switch to USB-C, and the removal of almost all other ports, is the biggest visible representation of this bet on the future, and like the removal of CD/DVD drives and Ethernet ports, will cause some consternation and complaining about the need for various adapters and such. In a scenario where someone wants to power their deice while carrying on a Skype call using an external mic and display, a MacBook user will need to plug three different items into that one port, something Apple has clearly envisaged with its various adapters. But Apple has also been laying the groundwork for this move with a variety of wireless technologies including AirPlay and AirDrop, and various standardized technologies such as Bluetooth and WiFi obviously play a role too.

Naming and positioning was the last interesting aspect, in that this device obviously looked a lot like a MacBook Air from the moment it appeared on screen, but was never referred to as such and indeed fills the MacBook slot rather than the MacBook Air slot. My sense is that the MacBook Air filled a temporary role in Apple’s product portfolio, necessary as long as the technologies involved commanded a significant premium over the base level, but soon to disappear as the key attributes (thinness, lightness, massive battery life) make their way into the MacBook line. Over time, Apple is likely to go back to the 2×2 matrix Jobs trumpeted when he returned to Apple – pro and consumer laptops, in two flavors rather than three.

I had an opportunity to use the MacBook for a few minutes at the event, and it’s truly impressive in terms of the thinness and lightness combined with the amazing screen. The absence of a fan is a plus in some ways, but it’ll be worth watching the reviews for the tradeoffs in terms of performance. Others have pointed out that the specs and performance may be more on a par with Macs from several years ago than any of recent vintage, but I’m curious to see how real-world performance is. Talk of taptic feedback in the keynote had me concerned – I’ve never been a fan of haptics in devices – but the instantiation in the MacBook trackpad feels nothing like any haptic technology I’ve ever experienced before. It’s basically used to provide a second-layer clicking feeling for the “force click” even as the new trackpad doesn’t actually travel. It’s another one of those things that has to be experienced in person to be understood, but it’s very effective, along with the new on-screen functionality associated with that force click. The keyboard keys are different enough that they were tricky to use at first, with quite a few typos, at least partly because the keys are wider than in the past. But I’m guessing it’s the kind of thing you’d quickly get used to.

Apple TV and HBO

The Apple TV and HBO Now announcements are interesting partly for what was announced on Monday but at least partly also because of what they signal about the future. HBO Now has some potential, and as I’ve said elsewhere I think a big part of the success will depend on how effectively HBO can get people who currently use someone else’s HBO password for HBO Go to switch to paying $15 per month for their own service. At least part of that will be about making the first real efforts to discourage sharing of passwords, and I’m curious to see how they accomplish that. The price cut on the Apple TV is clearly a concession to the much-lower price of the various streaming sticks such as Chromecast – the new price is now 2x the Chromecast price, whereas it was previously around 3x the price.

But the more interesting thing is what trends these two moves presage. A shift to a cheaper Apple TV suggests either that a new device might be coming or that Apple’s focus going forward might be less about making money on the hardware an more about seeding a base of devices that can in future subscribe to a TV service from Apple (or perhaps a range of services from various providers). I’ve written on Techpinions about what I think it would take for Apple to really turn the Apple TV into something other than a hobby, and it’s really about providing a fully-fledged subscription TV service on the device (and of course on other Apple devices). Apple is no doubt taking a cut of the HBO Now revenues, and is handling billing and so on for the service. App Store revenue sharing would suggest at 30% cut, but I’ve no idea if that’s accurate. I do think this makes it more likely that we see some sort of TV service from Apple, or more deals like the HBO one that allow Apple to act as the aggregator of a loosely-bundled pay TV replacement, and I’ll probably write more about this.

Apple Watch

Lastly, then, we come to what was to have been the main focus of the event according to all the preview coverage, but what ended up being just the last act of a multi-act performance. The key new details were the pricing and availability details. These confirmed to me several things: the Watch Edition is important in terms of positioning and in terms of Apple’s foray into true luxury (and beyond simply affordable luxury, its past focus). But ultimately, it’ll be a marginal story, available only in few places and in small numbers, and sold at a price to make it affordable for very few people. It’s an interesting story, but essentially all the action will happen between $349 and $1100, in the two other categories. Interestingly, that might well make for an ASP very much in line with the iPhone and iPad, somewhere between $500 and $700 per unit.

I had a chance to wear the Watch (the stainless steel version) and play with it some at the event, and the first thing you notice is how much functionality is there. In my five-minute demo we barely scratched the surface of what the Watch does, and I think that’s illustrative of the challenge and the opportunity for the Watch. The use cases for different people will be at least as diverse as they are for the iPad, with third-party apps making up much of the value proposition. Apple talked about three broad things the Apple Watch does: timekeeping, intimate communication, and health and fitness tracking. And there will be some number of people for whom each of these is perhaps the main focus. But there will be many more who will end up using the Watch for a combination of things that doesn’t fit neatly into any of these three categories, but rather combines both pre-installed and third-party apps in a way that creates a mosaic of useful experiences. That makes it challenging to market, but as I’ve said before I think the early adopters who buy the Watch right off the bat will be a big part of how the device reaches the next wave of people, as they discover its usefulness and communicate it to others.

Edit: I’ve been asked by a Twitter follower to add a little more on my experience with the device. It fit well on my wrist, was comfortable and felt very much like the analog watch I normally wear. It instantly felt better than pretty much any of the other smartwatches I’ve worn, at least in part because of the quality and fit of the band. The materials looked great on the one I tried and the others. The screen was responsive and easy to use. The best way to think about the buttons is that pushing the digital crown is like pushing the home button on an iOS device – it always takes you back to the main screen. The other button, meanwhile, is the communication button, which is an interesting departure for Apple – a dedicated button on a personal device for a specific set of functions. There’s lots of swiping involved too, whether to get to Glances, to swipe between Glances, to navigate on the main apps screen, to select emoji and so on and so forth. Then the digital crown is also used for scrolling and zooming, in some cases with the digital crown offering vertical scrolling and swiping on the screen controlling horizontal scrolling. I’m not going to go into any more detail just because I think it’s worth waiting for a thorough review.

I’ll no doubt write more about all of this going forward, and I’ll have at least one other piece on Techpinions later this week (Thursday is my regular day for my public column), but would love to hear your thoughts in the comments, as always.

Advertising, Apple, iAd

Quick Thoughts: Apple and advertising

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I wrote a piece almost a year ago on Techpinions on the subject of Apple and its advertising products. Today, Jay Yarow posted a piece on a similar subject, but reached a different conclusion, at least in the headline. My piece was actually about the inherent conflict at Apple surrounding ads, and I think Jay’s piece largely has the same theme. I wanted to post a quick update here following some discussion on Twitter on this topic earlier in the day.

Jay’s key point is this:

For 0.3% of Apple’s revenue, Apple’s ad business cuts against what Tim Cook calls one of his company’s “core values.” That makes no sense. Apple should shut down iAd.

I’ve actually made a similar point about Microsoft here, and advertising is actually a bigger revenue stream for Microsoft than it is for Apple, so why don’t I agree with Jay’s conclusion?

The biggest single reason is the role that advertising plays in the TV market, a market that Apple seems very interested in and one it is likely to enter at some point. The chart below shows the contribution of ads as a percentage of revenue for three categories of US TV-related businesses based on a sampling of companies that report this split:Ads as percent of revenue TVAs you can see, for each of these sets of companies, ads are over 50% of revenues, and although there’s been a slight drop at the TV stations due to the rise of retransmission fees, it’s still an enormous portion of overall revenue. Now, there are, of course, two prominent video businesses in the US which don’t make any money from ads: HBO and Netflix. But both of them rely heavily on catalog content, mostly movies, with a handful of original series at any given point in time. Neither is a comprehensive replacement for a pay TV service, and both are used largely as complements to, not replacements for, the traditional cable TV bundle. If Apple is serious about getting into video subscription services, it has to offer live, linear programming, and that means ads will be a big part of the business model.

The challenge for Apple is how to embrace this model without compromising its principled stand on advertising. Given the increased focus on targeted advertising, that’s going to get more complicated, but the answer may lie in allowing brands to bring their own consumer data and match it with Apple users, in the way Apple is apparently planning to do with iAd. That way, the targeting is all done by the third party, with Apple only offering to match a user ID with a profile from the third party. This takes all the unpleasant profiling and targeting out of Apple’s hands, while still making its platform useful and attractive to advertisers. That’s a subtle distinction, but it may be a critical one if Apple is serious about TV.

Apple, Apple Watch, Notifications, Quick Thoughts, Smartwatches

Quick Thoughts: Apple Watch and notifications

My thanks to Gregg Keizer of Computerworld, for sparking these ideas in a conversation we had earlier today ahead of Monday’s event.

I wrote a piece for Techpinions earlier in the week about the concept of intimacy as it relates to Apple Watch. In that piece, I wrote:

What I think intimacy in computing really means is going a level deeper on the personal side, and perhaps also stripping away some of the non-personal elements of the smartphone. The Apple Watch, then, becomes the truly personal device our smartphones have never quite been. Notifications come in noiselessly, communication with our Apple Watch-wearing significant other can be both more private and more individualized, the tasks we do on the Apple Watch can be limited just to those that are meaningful to us, leaving others for the smartphone, and so on.

I highlighted one phrase in bold there, because I think it’s critical both to the success of the Apple Watch specifically and to smartwatches in general. One of the criticisms of some of the other watches out there is that notifications are something of an all-or-nothing phenomenon: either you get utterly bombarded with notifications or you get none, but it’s been tough to get granular control. With the Apple Watch, this problem has the potential to get worse: with both traditional notifications and apps running on the Watch itself, there’s potential for even more of this. So it becomes all the more important that Apple get this right on the Watch. The ability to manage notifications and other activity on the Watch so that you only get notified for the things you really care about is a key value proposition. There have been a couple of pieces today about how the Apple Watch will handle notifications, but neither of them is clear enough to answer conclusively the question of how well the Watch deals with this issue.

I think there’s an analogy here to the early smartphones, which acted as task-specific extensions of our PCs. PCs were general purpose devices, on which we did essentially all our work. Early smartphones, and especially those made by BlackBerry, majored on email above all else, and allowed us to perform triage on this central form of communication on a dedicated device, leaving the rest for when we got back to our desks. I see the Watch performing a similar role in relation to smartphones, which have now become in some ways general purpose devices in a similar way to early PCs. If the Watch is to succeed, it will do so by allowing us to focus on those tasks that are most important to us, stripping away the rest of the stuff we’ll leave for our smartphones. And for many of us it will do this for our personal lives in much the way early smartphones did it for our work lives.

Google, MVNOs, Project Fi, Sprint, T-Mobile, Wireless

Google’s MVNO ambitions

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This is a post I had intended to write a few weeks back, when the Google MVNO rumors first started circulating, but never got around to. With Sundar Pichai’s remarks at Mobile World Congress this week rekindling the topic, I thought I’d finally set down by thoughts on this story. I haven’t been completely silent on this topic – I’ve tweeted about it quite a bit, talked to a few reporters, and discussed it on the Techpinions podcast (skip to 21:35). But I wanted to pull my thoughts together here in a coherent fashion. I’m pasting a transcript of my remarks on the podcast at the bottom of this post, because it sums this up pretty neatly, but I’ll expand a bit on the detail here.

The two rules of MVNOs

If you don’t know much about MVNOs, I’ll give you a quick primer. The first thing to know is that an MVNO is a mobile virtual network operator, which means these companies don’t own their own networks, but instead buy “airtime” (minutes, data etc) on a wholesale basis from those who do. In some markets such wholesale arrangements are mandated and regulated, but in others (including the US), both the arrangements themselves and the pricing are left to individual operators.

All this gives rise to what I like to think of as the two rules of MVNOs:

  • You can never be truly disruptive to the company whose network you’re using, because it always has the power to shut your business down
  • Wireless carriers will never support you as an MVNO unless they believe you can reach a niche or segment they can’t reach as effectively directly, rather than competing directly with them.

Partly as a result of these rules, despite the success of MVNOs in certain other markets, they’ve largely failed in the US, with many going out of business or being acquired by their host network operators. The one exception is Tracfone, which uses several major operators’ networks and targets largely low-end prepaid subscribers most of the carriers don’t want to own directly.

What this means for Google

All of which brings us to Google’s reported ambitions in the MVNO space, which are allegedly based on some sort of cooperation with T-Mobile and Sprint. In addition to the two rules above, the third thing worth bearing in mind here is most carriers’ view of Google. Google is one of the two companies that already has the most leverage over the carriers today, along with Apple. While Apple has arguably been more disruptive to most carriers with its refusal to pre-install carrier software, its direct retail and customer service relationships with many customers, its FaceTime and iMessage offerings which compete with carrier voice and text messaging and so on, Google has already demonstrated that it’s perfectly willing to disrupt carriers’ businesses too. Google Fiber, Hangouts, Google Voice, Google Wallet, Android Pay, Google Maps and other products either have already disrupted or have the potential to disrupt services offered by carriers. With both Apple and Google, carriers are already looking for ways to reduce their dependence on them and to temper their influence and power with end users.

Taking the two MVNO rules and these opinions about Google together, then, we can easily see that whatever Google wanted to do in mobile, the carriers wouldn’t support it unless it:

  • Would be complementary to their businesses
  • Would be relatively small in scale
  • Would not compete directly in any meaningful way with their existing offerings
  • Would not compete directly on price.

Three possible business models

Given all this, ideas about full-blown wireless services from Google make little sense. What makes much more sense is something that’s narrowly defined, targeted and relatively small in the grand scheme of things. Three possibilities I’ve floated are:

  • Wireless connectivity for Nexus devices, the only wireless devices Google sells directly to consumers through the Play store, such that this connectivity would be built in with the purchase, and the customer would only ever deal with Google. This would overcome some of Google’s challenges with getting carriers to carry Nexus devices directly, and fits with the new direction Google is taking with Nexus devices, moving away from the developer focus and towards a broader consumer appeal
  • Wireless connectivity for non-phone devices, such as a successor to the Chromebook Pixel, Android tablets (perhaps Nexus ones only, in keeping with the previous bullet), etc. This could potentially also include Android Wear devices with their own cellular connectivity.
  • Wireless connectivity for smart home, connected car or other non-device applications. With Google’s Nest business, Android Auto, self-driving cars and so on, Google has several non-device businesses which could benefit from direct cellular connectivity as they expand and evolve.

None of these would be hugely disruptive or competitive with carriers’ existing businesses, either because they’re too small or mostly additive to their existing activities. As such, I think each of these is entirely possible as a future for Google’s MVNO. And of course all this fits with what Sundar Pichai said at MWC this week (I’m quoting TechCrunch here in the absence of a formal transcript):

The core of Android and everything we do is to take an ecosystem approach and [a network would have] the same attributes. We have always tried to push the boundary with the innovations in hardware and software,” he said. “We want to experiment along those lines. We don’t intend to be a network operator at scale. We are actually working with carrier partners. Will announce something in the coming months.

This very much appears to confirm the idea that it’s going to be working with devices and software it owns and controls, rather than a more open approach. It also confirms that it’s not a large-scale initiative but rather a focused one. I’m curious to see exactly what it ends up being (it could easily end up being all three of the things I described and more) but hopefully we’ll stop seeing the sort of thing we’ve been reading about Google upending the wireless industry.

Here’s that podcast transcript:

The fundamental challenge of being an MVNO is that you’re buying airtime from the very companies you’re competing with, who dictate the prices and will always structure it and sell it to you in such a way that you can’t eat their lunch… They only do it where they feel the potential MVNO can fill a gap they otherwise can’t fill directly. So in other words they’re expanding the addressable market and not competing with them directly. And this is the biggest question I’ve had about Google: what could they do, that Sprint and/or T-Mobile would be willing to support, that would not go head to head and compete directly against them? That makes me think it’s somehow a niche that they’re going after, and there are a couple of possible options around that: one is that it’s for Nexus devices, so that when they sell Nexus devices through the Google Play store it comes with bundled connectivity with some interesting structure, features and services associated with it… The other is that the Chromebook Pixel was sold with Verizon connectivity, so that’s another angle, that some of their non-phone devices that are data-only devices that would have some combination of WiFi footprint that they could take advantage of plus LTE as needed for them to fall back onto… I just cannot see Google becoming a broad-based mobile operator in the US. It just doesn’t make sense, and it doesn’t make sense that Sprint and T-Mobile would support that either.

Facebook, Google, Vessel, Video, YouTube

YouTube and its alternatives

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Eric Blattberg at Digiday has been doing some great work reporting on both some of the newer video initiatives at Facebook and Vessel as well as developments at the current industry powerhouse, YouTube. Eric’s latest piece today is about YouTube’s new effort to clamp down on sponsorships and advertising which bypasses its official ad products, and it’s this that I wanted to cover briefly today. I have two things I want to talk about: firstly, the potential of the newer video platforms; secondly, what Google’s YouTube moves suggest about the company as a whole.

Potential for newer platforms

I’ve been broadly skeptical of some of the newer video initiatives out there – YouTube’s lead has seemed so enormous, its position as the de facto standard for online video so entrenched, that it was hard to see how others could make a dent. Several things are starting to change my mind about this.

Firstly, Facebook’s embrace of video, and especially auto-playing video, has leveraged its massive audience into a very strong position as a video player. I’ve written elsewhere recently about the fact that every major sharing platform slowly migrates from text-based to photo-based to video sharing, but none has pursued this transformation quite as effectively as Facebook. From last month’s earnings call:

Five years ago, most of the content shared on Facebook was text and some photos. Today, it’s primarily photos with some text and video. Over the next five years, we want to keep developing new products and features to help people share the way they want.

Two things have allowed Facebook to make this leap to prominence as a video provider: the massive base of users, an the fact that Facebook is a destination, somewhere users go to spend time, rather than get something specific done. In the process, Facebook has become a massive destination for video, but almost all the video is actually hosted on other platforms. That obviously has cost advantages for Facebook, but it means that it doesn’t own the content, and therefore can’t monetize it effectively. It also means that engagement around videos on Facebook is fragmented, with popular YouTube videos attracting millions of comments scattered across hundreds of thousands of different user shares of the same video. This is starting to change, with ABC News, The Young Turks and others launching videos directly to Facebook rather than exlusively through YouTube. I think Facebook is finally in a position to be the first really large-scale platform to seriously challenge YouTube for dominance in video. The biggest challenge will be how to incorporate advertising into videos when they auto-play – pre-roll clearly isn’t the answer, but what is?

The other thing is that YouTube, with moves such as those Digiday covered today, is actually making it tougher for content creators to monetize on YouTube in the way they see fit. Videos on YouTube generate tiny amounts of money per view for content creators, and one of the ways they’ve overcome this challenge is through sponsorships. That’ll now be banned under YouTube’s new terms of service regarding advertising. At the same time, Vessel, AOL and others are targeting YouTube content creators with an emphasis on better monetization of their viewership. I’ve been skeptical of these efforts, but YouTube is playing right into their hands with some of these moves, which makes me more open to the idea that it might actually start to suffer as a result of competitive inroads from Facebook but also these smaller platforms.

What all this says about Google

Which brings us on to what this all says about Google. YouTube’s management must understand the risks associated with these moves, so why are they doing this? The only thing I can think of is that YouTube’s revenue growth has become so critical to Google’s overall performance that they have to keep squeezing harder and harder to get more money out, despite the longer-term strategic costs. Because Google doesn’t break out performance by business, we have essentially zero visibility into YouTube’s performance, but it’s been one of the strongest growth drivers for the company for years, and as the other parts of the business face increasing headwinds, it’s all the more important that YouTube continue to deliver strong growth.

On the positive side, YouTube’s management under Susan Wojicki is clearly thinking about how best to monetize much of the usage on the site that currently goes unmonetized or under-monetized. That includes YouTube Music Key and the work YouTube is apparently doing on building subscription models for content creators. The challenge is that almost all the moves YouTube is making are either content-creator-friendly at the cost of being user friendly (charging for content users have been receiving for free) or hostile to content creators. There’s very little that YouTube is doing which seems likely to please both users and content creators. I’m curious to see what else we see from YouTube in the coming months, but my worry is that Wojicki has been sent in to crank the handle on revenue in the short term and that this will have long-term strategic costs as other video platforms snatch away both viewership and content creators.

Android, AOSP, Cyanogen, Microsoft, Samsung, Smartphones

Samsung’s Microsoft deal and Cyanogen

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SamMobile reported last night that Samsung was planning to pre-install a number of Microsoft applications on the Galaxy S6, which is to be announced in a few weeks at Mobile World Congress. I think this is a huge boost for Microsoft’s Android apps and for the services behind them – far bigger than the applications that come pre-installed with Microsoft’s own devices, obviously. To get on Samsung’s flagship device (presumably others will follow) is a huge coup for Microsoft. But it’s also a big deal for Samsung, which has until now been pre-installing ersatz versions of Microsoft apps on its devices for productivity.

But what I really wanted to talk about here was what this says about Microsoft’s broader strategy, and what it might mean for the rumored investment Microsoft is making in Cyanogen. Nokia, of course, forked Android itself using AOSP when it created the Nokia X line of smartphones shortly before the Microsoft acquisition was announced, but it was killed off right after Microsoft took control. So rumors of an investment in yet another Android fork seem funny – was Microsoft hedging its bets on Windows Phone and preparing another Android-based device line?

I think the much more likely explanation is that Cyanogen and Microsoft are planning something rather different, something much more along the lines of that Samsung deal. Cyanogen’s biggest weakness is that it’s missing all the Google apps and services that you sacrifice when you use AOSP. The challenge for any company doing this outside of China has always been what to replace them with. Inside China, it’s simple, because Google’s own services are largely irrelevant and local alternatives are actually better. But outside China, Amazon and others have struggled to provide really compelling replacements. The two companies that have comprehensive sets of services and applications that can replace Google’s today are, of course, Apple and Microsoft. Apple’s are (today) unique to its own products and platforms, but Microsoft is increasingly pursuing a cross-device strategy. Hence its investment in Cyanogen.

I wouldn’t be at all surprised if at least some flavor of Cyanogen devices in future come with Microsoft apps and services where the Google ones would normally be. We won’t see Microsoft launching another Android-based line of devices, but rather an Android-based line of devices that puts Microsoft’s services and apps front and center. That, after all, is the real goal here: getting Microsoft’s services in front of as many customers as possible, integrated into the platform in a way that makes them the default options for key tasks, and which provides benefits across the platform. Windows Phone has been the only platform where that’s been true, but Cyanogen could easily become a second. Quite what Cyanogen’s current customer base would make of that is unclear, but then Cyanogen’s future depends on broadening its appeal way beyond the hackers and tinkerers who flash alternative ROMs on their Android devices, and Microsoft could be a great fit there.

Both these deals – Samsung and Cyanogen – are good for both parties. Samsung and Cyanogen both need compelling apps to set their platforms apart, while Microsoft badly needs the broader exposure it will get from being pre-installed on these devices.

Earnings, Q4 2014, Twitter

Thoughts on Twitter’s Q4 2014 earnings

I’ve just sent my Twitter deck to subscribers (screenshot at the bottom of this post). This analysis picks a few of the key charts from that deck. As always, you may want to read my previous posts on Twitter, as a lot of the themes here are ones I’ve touched on before.

As I’ve talked about before in relation to both Twitter and Facebook, there are three main growth drivers for these companies: user growth, increased engagement, and better monetization of that engagement. Twitter’s problem continues to be that only one of these three is going in the right direction:

Twitter growth driversUser growth has been slowing significantly over the past two years, and especially over the last few quarters. This quarter the company added just 4 million MAUs (or 8 if you’re charitable and give them back the 4 million additional MAUs they claim they lost to an iOS 8 bug). Even at 8 million, that’s by far the slowest growth in several years. Engagement, meanwhile, as measured by timeline views per MAU, has also been stagnant or falling for several quarters. The only metric moving in the right direction is monetization, and boy is it moving in the right direction! Here’s that chart broken out by itself, with the numbers:

Twitter monetizationAs you can see, the number has risen from 60 cents to almost $2.40 in the last three years, and it’s rising rapidly. In the US, this number is now almost $6 on a quarterly basis. The challenge with this number, though is that it’s unique to Twitter and therefore not comparable to anyone else’s metrics. However, since we know total ad revenue and we also know the number of MAUs, we can do a rough calculation for ad revenue per MAU for Twitter, and then compare it with the equivalent figure for Facebook:Facebook and Twitter ARPUWhat you can see is that the two lines are following a very similar trajectory, with Facebook quite a bit ahead of Twitter. I think what investors were so heartened about today was that Twitter demonstrated this ability to grow revenues significantly without growing users much at all, which suggests there’s still significant headroom on this ARPU measure. That means that, even if the other two growth drivers are underperforming, Twitter can still get good growth through the one lever that’s performing well. If it can get MAU growth going again as it promised to on today’s call, that will simply have a multiplier effect on that ARPU number, which will be so much the better.

The problem is, of course, that there is a ceiling here at some point – we just don’t know how high it is yet. Google generates between $30 and $50 per user annually in ad revenue from its own properties, so that could be a ceiling. But that’s based largely on one very effective form of advertising: search. There’s no guarantee that Twitter will ever be able to achieve that level of spend. Which brings us back to the question of the logged-out user. What was heartening both on today’s earnings call and in the last couple of weeks of news is that Twitter is finally really making some progress in telling the story of how it will grow this number. Though it refused to spell out the details of the Google agreement, it’s clear that Twitter hopes to drive significantly more traffic to Twitter.com in this way, for example. And then there’s the logged-out homepage it demoed this past week.

Despite all this, my two big questions for Twitter remain the same:

  • How will it monetize all this activity from logged-out users? It’s said very little about this, even on today’s call, and all this usage has to be monetized for it ultimately to do Twitter any good.
  • What are the new metrics by which we should measure Twitter’s progress on its new goals? It hasn’t established a consistent metric for measuring logged-out user activity (the 500m visitor number mentioned on today’s call was unchanged from three months ago). It’s abandoning its timeline views metric for engagement but won’t give us a different one. And ad revenue per 1000 timeline views only measures monetization of logged-in users, so how should we measure progress on monetizing the logged-out user? Twitter continues to try to steer everyone away from the metrics it does provide, but won’t supply metrics that support the new story it’s trying to tell.

Here’s a screenshot of the Twitter deck that went to subscribers earlier this evening:

Twitter deck screenshot

Earnings, Lenovo, Motorola, Q4 2014, Smartphones

Motorola’s impact on Lenovo

Note: this is part of a series on major tech companies’ earnings in Q4 2014 (click here for previous posts). In this post as elsewhere, I’m using calendar quarters (e.g. Q4 2014) to designate reporting periods, even though Lenovo and certain other companies have fiscal years which use different designations. Q4 2014 in this post and elsewhere refers to the quarter ending December 2014.

Lenovo reported its results yesterday, and although I have not traditionally covered Lenovo in depth here, I wanted to examine something specific: that is, the impact of the Motorola acquisition on Lenovo’s reported numbers. As such, I’m going to highlight a handful of charts here, but I’m also sending a deck on Lenovo with quite a few more charts to subscribers (if you’d like more information or to sign up, click here).

One quick note: the acquisition of Motorola closed in October, but Lenovo also acquired IBM’s server business around the same time. As such, not all the impacts described below are entirely due to the Motorola acquisition, though several are, and I’d estimate the Motorola acquisition had a significantly greater impact than the server business did. Lenovo reported a full quarter of System X (server) results in its reporting, and two months of Motorola results.

Smartphone shipments

The most obvious impact of the Motorola acquisition was a dramatic rise in smartphone shipments reported by Motorola. The chart below shows the trend line, with a very clear bump in Q4:

Lenovo smartphone shipmentsIt’s worth noting, however, that shipments have been growing at Lenovo even before the Motorola acquisition. In my mind, the company has been one of the more successful and stable players in this space over recent years. However, that success has come largely in China, which has dominated shipments in the past. So another impact from the Motorola acquisition is the change in that mix:

Lenovo smartphone shipments China and RoWHopefully you’ll notice two things here. First, and perhaps most obvious, is the spike in rest-of-world shipments in Q4, which rose from under 4 million a quarter to over 14 million. Motorola shipped 10.6 million devices in Q4 alone, so it accounts for the majority of those rest of world shipments. Secondly, you may notice that China shipments actually fell year on year and quarter on quarter. Shipments rose from Q3 to Q4 in 2013, and this dip is fairly significant. It’s quite likely that Lenovo, like Xiaomi, suffered from the impact of Apple’s new iPhones in China in Q4. What’s worth watching is whether this recovers in Q1.

Mobile as a contribution to revenues

Until Q3 2014, Lenovo’s business was dominated by revenues from PCs. PCs contributed nearly 90% of Lenovo’s revenues two years ago, and it’s always stayed above 75%. That business, too, has performed well over recent years, despite the difficulties in the overall market, and so this dominance happened despite the growth in Lenovo’s smartphone and tablet businesses. But with the acquisition of Motorola, Mobile Devices suddenly went from around 15% of its revenues to almost a quarter:Lenovo mobile as percent of revenueThis is helpful for Lenovo particularly because of the overall headwinds in the PC space. PCs have continued to grow for Lenovo, but lessening its dependence on this business while exposing itself to the upside in smartphones is critical for Lenovo’s future growth, and the Motorola acquisition helps significantly with the balance of these two businesses.

Regional impact

We’ve already looked at the impact of Motorola on smartphone shipments outside the US, but the other big impact from this is the share of revenues from different regions. Motorola’s revenue contribution is essentially recorded in the Americas segment, and you can see the impact in this next chart:

Lenovo revenue by regionNote the dramatic growth in the size of that Americas block in Q4 2014 (again, the Motorola acquisition wasn’t the only contributor, as the IBM server business is also US-based). EMEA also grew a little, while China and AP remained fairly steady.

Margin impact

The impact of the two acquisitions can perhaps be most clearly seen in the regional segment margins Lenovo reports. The chart below shows these:

Lenovo margins by regionMargins in China and AP were essentially unaffected by the acquisitions, with AP rapidly catching up with China’s margin levels. But Americas margins dipped into the red for the first time in a long time in Q4, and EMEA margins also dipped somewhat. This is the downside to adding both the new businesses: neither was profitable under its previous owner. With the significant growth in smartphones year on year at Motorola, and efforts to get the Motorola brand back into China, together with various synergies, Lenovo expects Motorola to become profitable within about 18 months of the close of the deal. But in the meantime, Motorola’s results will be something of a drag on overall results.

I’m generally very bullish on Lenovo and the Motorola acquisition. I wrote more about it on Techpinions recently.

Below, I’ve pasted a screenshot of the Lenovo deck which will be going to subscribers shortly.

Lenovo deck overview

Advertising, Twitter

Twitter’s new ad product won’t help

I’m making this part of by earnings series, even though Twitter hasn’t actually reported yet, because it hits one of the key points I expect to come up in Twitter’s earnings this week and gets at one of the fundamental concerns I have about Twitter’s growth going forward.

Today, Twitter announced that it would start offering advertisers the ability to serve their promoted tweets off the Twitter platform itself. This is an important step for Twitter because its key growth challenge has been that the number of monthly active users on the platform itself isn’t growing rapidly, and it sees its biggest opportunity in serving what it terms “logged out users,” or those who see tweets without being explicitly logged in to Twitter or one of its apps. This is something I’ve talked about quite a bit here over the last few months, notably here and here. The challenge as I’ve seen it has been that (a) Twitter hadn’t articulated how exactly it would monetize that usage and (b) Twitter can’t use any of the data it has about its users in these third-party contexts, so the advertising would be only minimally targeted.

Today’s announcement gets at the first of these problems, in that it’s the first meaningful articulation of how Twitter can play outside of the core Twitter experience. But it doesn’t solve the second problem. In fact, the way Twitter has chosen to implement the promoted tweet product is a great illustration of how steep a hill Twitter has to climb here. I’m reposting below a chart I’ve used several times here in relation to the effectiveness of advertising:

Advertising relevance vs timelinessWhat this chart attempts to demonstrate is that there are two characteristics to effective advertising: relevance and timeliness. What makes search advertising so effective is that it hits both of these – i.e. an ad next to search results is relevant now to that user. Most other forms of advertising can at best produce relevance without timeliness, and in some cases neither. The problem with Twitter’s new ad product is that it looks an awful lot like a classic display ad, with little or no connection to the context and with no use of Twitter’s demographic data about the user. It’s likely that these ads will use some targeting from the property on which they appear, assuming those properties have that information, but Twitter itself brings nothing to the table here but the format.

Twitter makes the argument with regard to Flipboard specifically that the app already shows normal (non-promoted) tweets, so these promoted tweets won’t seem too out of place, but it’s a far cry from seeing a promoted tweet in the midst of a stream of regular tweets in the Twitter app or on Twitter.com. This is at best very loosely native advertising. And very few other properties show enough tweets in native format that these ads won’t look just like another sort of banner ad.

It seems investors don’t mind, at least in the early reactions: the stock is up 6% today. But to my mind nothing about today’s announcement really gets at solving the fundamental problems solving Twitter. We’ll see how this is presented on the earnings call this week, but given this and recent comments from Twitter founders Ev Williams and Jack Dorsey (ironically, in a tweet storm I can’t easily link to because he didn’t post it right), I’m wondering whether this is a pre-emptive strike ahead of another set of poor user growth numbers. Both Williams and Dorsey seem to be saying that we need to be looking beyond Twitter’s actual numbers at the societal impact it has, which seems like a strange thing to say if the numbers are actually going to be any good.