All posts by Jan Dawson

Intel, M&A, TV, Verizon, Video

Verizon, Net Neutrality and Intel

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This past week has seen two major news items featuring Verizon: the defeat of the FCC’s net neutrality regulations in court, which was instigated by Verizon, and the acquisition by Verizon of Intel’s Cloud TV business. So far, I haven’t seen many articles drawing a connection between the two, but in reality they’re both part of the broader picture of Verizon’s video strategy.

FiOS has been the focal point of Verizon’s video strategy

That strategy was kicked off years ago, when Verizon launched its first video services over 3G and then over its FiOS networks. Over time, those two efforts were united to some extent as a more coherent video strategy emerged, and  it eventually became clear that FiOS was the focal point of Verizon’s video strategy, with mobile efforts merely appendages to that. The FiOS video offering has since grown to five million subscribers, representing just over a third of the homes where it is available. This business generates several billion dollars a year in revenue for Verizon, alongside FiOS broadband and voice services, and represents Verizon’s main video business today.

However, Verizon appears to recognize that this opportunity may be under threat from trends in the market. A recent interview with the guy who heads Verizon’s consumer and small business wireline operations, Bob Mudge, hints that the company sees the writing on the wall for traditional pay-TV services from cable and satellite companies and telcos:

The pay-TV market is shrinking. It’s a slow shrinkage…
Data connectivity is what you must have. That gives the customer more options, whether to get traditional video or to use that data pipe for over-the-top (OTT) video and other online applications.

The key point here is that Mudge recognizes that many consumers will not want to buy classic pay-TV services, and that many of their needs may be met by other options. I think he’s wrong about broadband being the key service (though it’s understandable why he’d make that argument given Verizon’s strength in this area). Consumers fundamentally want content, not connectivity. Connectivity is a means to an end, and if it’s the right combination of fast and good value, they won’t care who they get it from. The TV offering is going to be the key differentiator in the consumer space, not broadband.  Continue reading →

Apple, iWatch, Smartwatches, Wearables

Why Apple may not launch an iWatch anytime soon

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Everyone seems to assume that Apple is working on an iWatch, an entry in the emerging smartwatch market, and it’s likely that it is. But a secondary assumption has been that this launch must be imminent, because of the other entrants in the market, notably Samsung. However, the history of Apple’s entry into new markets shows that it bides its time, rarely entering right as a market begins, and often waiting until the combination of technologies required has evolved to the point where they’re ready for a truly compelling product. The chart below shows the timelines for Apple’s entry into three previous product categories, those which fueled much of its growth from 2000 to the present:

Apple product timelines Continue reading →

Adoption, Android, Android versions, data, Google

Thoughts on Google’s Android version charts

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Google regularly updates the data it provides to developers on Android versions in use, screen sizes and screen densities, and I’ve been diving into this data today for a report I’m working on. In the next few days, Google will update the data again and there will no doubt be the usual flurry of blog posts and news items about Android fragmentation. But I wanted to share some thoughts that occurred to me as I looked through this data that go beyond the usual rhetoric. Some of these are original, some of them likely aren’t.

Firstly, a fairly predictable pattern has emerged in the adoption of the versions of Android, as follows (and as illustrated by the chart below) 1:

Android Major Version Distribution Continue reading →

Notes:

  1. It’s worth noting that the methodology Google uses for all these numbers changed in April 2013, and now reflects only devices actively using the Google Play store, and not all devices as previously. From what I can tell, it hasn’t made an enormous difference, but has slightly increased the representation of newer versions while decreasing or eliminating the representation of older versions. ↩
Carriers, M&A, Sprint, T-Mobile

Why Sprint – T-Mobile makes sense

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There were rumors today – not for the first time – that Sprint might be interested in making a bid for T-Mobile. This is not all that surprising given recent remarks from T-Mobile execs and Dan Hesse that they would be open to a merger. But there’s been a predictable outcry about the possibility of the US’s three major carriers being whittled down to two, and especially about the presumed loss of T-Mobile’s recent disruptive approach to the industry.

There are several good reasons to take this view:

  • T-Mobile has indeed been disruptive, and has caused real change in the industry. Its shift away from 2-year contracts and towards easier, more frequent upgrades sparked the other major carriers to follow suit. It has won subscribers from Sprint and AT&T in particular as a result.
  • There’s an instinctive reaction to a reduction in the number of players in any industry, and it would follow years of consolidation in the US wireless market. It’s easy to argue that a market dominated by three players would be less competitive than one with four major players.
  • The US has a huge population, and it seems like it ought to be able to support four or more players without too many problems, given that there are other markets around the world with more players and much smaller populations.
  • The two carriers use incompatible network technologies. After Sprint has worked so hard to eliminate iDEN and WiMAX and focus on its core CDMA, EVDO and LTE networks, it would be a shame to complicate things by adding T-Mobile’s GSM-based networks to the mix. Given the focus on LTE this might be less complicated than it once was, but it’s still a non-trivial issue.

However, I think this knee-jerk reaction opposing any consolidation among the big four may be misguided, and here are the reasons. Continue reading →

BlackBerry, Earnings, Whole company analysis

What John Chen needs to tell customers (and investors)

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Earlier this week, BlackBerry’s CEO John Chen posted a letter to customers. While he provided some sense of his strategy going forward, he unfortunately continues the tradition started by his predecessors of failing to answer the most compelling questions customers (and investors) have:

Is there any reason to believe the atrocious trend in device sales will turn around? If so, what?

Device shipments have now dropped 75% from their peak in 2011, and although it’s possible we’ll see a small blip next quarter from steep discounts on the Z10, the trend is likely to continue downward. Chen needs to explain what, if anything, will cause these same poorly-selling devices to start selling better, or allow any future devices to be more appealing to users. As of right now, there’s no evidence of either of those things, and as such we have to assume shipments will continue dropping, and with them what has historically been the largest chunk of overall revenues.

In the absence of that, is there any reason to believe service revenues won’t follow suit very soon?

Service revenues make up most of the rest of BlackBerry’s overall revenues, which is why some people seem to think it’s the most promising avenue for BlackBerry going forward. But the reality is that these service revenues are directly tied to the installed base of BlackBerry devices, each one of which generates a few dollars every month for the company. But, if device shipments go down dramatically and existing BlackBerry users churn to other platforms, this service revenue will merely lag falling hardware revenues by a few quarters but generally follow the same path. BlackBerry has already stopped reporting subscriber numbers, which started falling late last year, and had dropped from 80 million to 72 million by the time BlackBerry closed the door on that metric.

Continue reading →

Ads, Advertising, Google, Instagram

Instagram’s advertising problem

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Companies participating in the consumer technology market have to generate revenue in one or a combination of these four ways:

  • Charging users for hardware
  • Charging users for services
  • Charging users for software
  • Charging advertisers for eyeballs.

If you don’t make hardware, then you’re limited to the other three options. The vast majority of companies that fall into that category are opting for the last option, because it lowers the barriers to entry for users, but perhaps also because it allows those seeking funding to avoid the difficult question of revenue generation until they have an audience.

The assumption seems to be that, as long as you have eyeballs, you can find a way to turn those into advertising dollars. And that’s true to a certain extent, but the ability of different consumer services companies to make money from advertising depends varies very greatly, in a way that is rarely talked about. This has come up a bit recently in the context of Spotify, because the ephemerality of the content is supposedly poorly suited to advertising. But there’s a much bigger problem that affects not just Snapchat but also many others in the current crop of messaging and photo sharing companies, which is that they know almost nothing about their users that’s relevant to advertisers. Continue reading →

Carriers, T-Mobile

The risks in T-Mobile’s Un-Carrier strategy

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Laptop Magazine just made T-Mobile one of their “Game Changers” for 2013 for its Un-Carrier campaign. I spoke with the author of the piece on T-Mobile and emphasized some of what I perceive as the risks around the campaign, but many of my thoughts didn’t make it into the piece, so I thought I’d share them here.

The concerns I have with T-Mobile’s Un-Carrier strategy are two-fold:

  • Though there are one or two truly disruptive things in T-Mobile’s new approach, much of what they’re doing boils down to discounting
  • Though some of their early moves took advantage of the flexibility in accounting afforded to owners of networks, the more recent ones are taking real risks with inflexible third-party costs.

I’ll take each of these in turn. Continue reading →

Big picture, Whole company analysis

Articles of Faith in tech

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Each of the key companies in the consumer tech market has its fans and its detractors – those who believe the company is destined for future success, and those who believe it’s doomed to fail. Some of these beliefs are founded in facts and figures, while others stem from gut feel, emotional investment in a company, or something else entirely. But ultimately backing any one of these companies requires faith that certain things are true.

This has been borne out to me by recent coverage of Amazon, which has focused on its supposed ability to ‘flip a switch’ to shift from breakeven to profitability at some future point. Some of the smarter commentary makes clear that the picture is a little more complex, but it also illustrates just what you have to believe in order to have faith that Amazon will eventually be able to pull off that sort of a transition.

The stories yesterday about Snapchat turning down a $3 billion cash acquisition offer from Facebook also highlighted divergent opinions about whether Evan Spiegel was right. Though most observers seemed to think Spiegel was nuts to turn down an offer, whether you believe that depends on whether you believe in Spiegel’s vision for how high Snapchat’s valuation could go. He – and presumably his investors – have faith that a certain series of events will play out in a certain way, ensuring Snapchat’s eventual profitability and thus an even higher valuation. 

Each company in this market has a similar story that it tells investors, and your view on these companies and their futures ultimately depends on your ability to have faith in those stories. Some of these stories are told explicitly, whereas others are secret (either because the companies are private and have no obligation to share their strategies with the world, or because of some perceived secret sauce they would rather keep to themselves). But ultimately, each tech company has what you might call articles of faith you’re required to sign up to if you want to believe in its long-term success:

Article of faith – n. something that people who support a particular religion or idea believe completely, although it has not been proved

– Macmillan English Dictionary

Let’s look at those articles of faith for some of the most important companies in this space: Continue reading →

Uncategorized

Google’s strategic decision around maps on iOS

Charles Arthur of the Guardian wrote a very well-circulated piece this week about Comscore’s latest numbers for Google Maps and Apple Maps. The title was “Apple Maps: how Google lost when everyone thought it had won” and I have two main objections to the piece. One is that I’m not sure everyone did think Google had “won” when Google was stripped of its role as the mapping data provider for iOS, and the second is that I’m suspicious of the Comscore data he cites to back up his point. Let’s take these one by one.

The removal of Google data from Apple Maps was a strategic decision – for both companies

Firstly, Google’s removal as the provider of map tiles and other data for the native Maps app on iOS was always on the face of it a loss rather than a win. It was obvious that it would lose many users on its platform (especially as a downloadable Google Maps app wouldn’t launch for three months after the launch of iOS 6, and that for a company that makes much of its trove of user data, this was a significant blow. However, there are two points worth bearing in mind here:

  • First, Google derives value from data, but revenue only from advertising, at least in the context of Maps. Thus, the value it gained from Maps was exclusively secondary in nature. That’s not to dismiss it entirely, but it is to make the point that Google was not fulfilling its primary objective 1 – revenue generation through advertising – through iOS’s native Maps app.
  • Secondly, it is not clear that Google had all that much choice in the matter. Yes, Apple has certainly positioned the shift to using its own mapping platform as a response to broken promises on Google’s part, but the fact is that it was imperative for Apple from a strategic perspective to shift to developing and using its own mapping assets and moving away from Google’s. It’s not clear to me that Google could have fulfilled any of its larger objectives while satisfying Apple’s demands.

As such, it was a strategic decision on Apple’s part to move away from using Google, and a strategic decision on Google’s part to go along with it. That decision involved a calculation on Google’s part that it would derive more value from being able to truly own the mapping experience from Google Maps users on iOS, even a smaller number of users, than it would from being having to play second fiddle to Apple. That calculation was risky for both parties – Apple must have known how hard it would be to provide a competitive mapping experience with no track record from day one (though perhaps even it was overwhelmed by the negative reaction), and Google knew what it was sacrificing and what it hoped to gain. Continue reading →

Notes:

  1. This distinction between primary and secondary value is something I hope to explore further in a future post – every company has both primary and secondary sources of value and necessarily treats them differently. ↩
Earnings, Microsoft, Office, Steve Ballmer, Structure, Whole company analysis, Windows

Microsoft’s intertwined consumer and enterprise businesses

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At the time Steve Ballmer’s retirement was announced, there were calls for Microsoft to be split up into two businesses, serving consumers and enterprises respectively. I believed then, and believe even more strongly now, that this is fundamentally flawed thinking, and the reason is that Microsoft’s consumer and enterprise businesses are deeply intertwined, to a great extent because Microsoft has wanted them to be.

Below is a slide from Microsoft’s 2013 Financial Analyst Day, which is intended to illustrate (in the diagram on the left) Microsoft’s three customer segments:

Microsoft's customer segments, from Financial Analyst Day 2013

Microsoft’s customer segments, from Financial Analyst Day 2013

The reality is that, while Microsoft does serve three audiences, they’re not the ones it shows in that chart, mostly because OEMs aren’t really customers, but channels to reaching either consumers or businesses. In reality, they are: