Behind the iPad’s sluggish sales

Sameer Singh offers some possible reasons for the fall in iPad sales: 

Pocketable vs. Tablet Computing | Tech-Thoughts by Sameer Singh: “With this background, the sudden decline in iPad sales may have been caused by a combination of the following factors:

  • Most high-end consumers who need iPads already own them (and as some analysts have pointed out, replacement cycles are long) 
  • Large screen smartphones have made media tablets somewhat redundant, i.e. the iPad is no longer a ‘necessary’ purchase for ‘phablet’ owners 
  • The iPad is priced out of the market segment that still finds media tablets ‘necessary’ 
  • Upmarket movement is limited because tablet use cases still haven’t evolved to cannibalize more productivity-related computing tasks (I may have overestimated the pace at which this would occur)”

To which I’d add: 

The iPad is in some ways closer to a PC than a phone in its utility vs luxury ratio. People upgrade their phones because they’re visible accessories, something that says something about the person holding it. Computers have barely hit that bar, and maybe iPads — especially since users usually cloak them in a stand/cover — don’t quite make it either. So unless there’s a really compelling performance/spec reason to upgrade, most don’t bother.

I’ve not seen data on this, but anecdotally most people I know get an iPad and then settle, rather than upgrading when the next one comes out. Of course the lack of telco subsidy for most iPad purchases adds to this. 

It’s not that iPad isn’t a great idea, but it turns out that the smarter move in a way has been to increase the size of the phone (phablet) rather than shrink the size of the computer (the iPad), at least in terms of getting people to upgrade. 

Software as Silo

Software is a funny thing. How important is it?

Apple has just announced it’s giving most of its away for free — effectively costing it some $900 million in the short term. Samsung has just convened its first developer conference in the hope of persuading more people to write software for its devices. Microsoft, known for its Office and Windows software, has just bought a phone manufacturer — Nokia — and promises a new raft of its lacklustre Surface tablets. Google, known for the money it makes off its software, has promised more Glasses, and owns a cellphone maker, Motorola. Amazon, which sells stuff, also makes tablets and e-readers, and is rumoured to be getting into a phone.

What companies are increasingly recognising is that software is everything but not on its own. To succeed in this new world of ubiquitous devices, you need to own as much as possible of what is loosely referred to as the ecosystem. That means hardware, software, and the services that make both hardware and software come to life.
Think a phone where you can take videos, edit them into a short movie at literally the push of a button, and then share them with friends with another push. Or a tablet that lets you and control see your company’s inventory or fleet of trucks in real time.

But this isn’t easy. It requires expertise in very different areas — areas that until recently were regarded as best considered separate industries. Focus on what you’re good at, the mantra used to be. Now, it’s more like: you’ve got to be good at all these things, or you’ll die. Think HTC, which makes great devices but hasn’t succeeded in building the software and services that makes those devices stand out.

Some companies can be good at all three, but it’s a fast-moving game. Think BlackBerry, which was good at both hardware, software and services for a while, with its email service, its own operating system and its keyboard-bound devices. But the world moved on, and BlackBerry didn’t move quickly enough.

So now it looks like Apple is heading the pack. But it too, is vulnerable. The world has been captivated by the phones and tablets it creates, but some detect a sense the company, without Steve Jobs, quite understanding where to go next. It’s likely to be an Apple TV, which should be interesting.

Samsung is late to the game, dangerously so. It dominates the world of phones, but has been slow to build software and services to bridge those devices to its other products — computers, TVs, fridges, etc. Only this week has it really embraced developers and tried to make it easy for them to do this. Samsung’s future hinges in being able to rid itself of its dependence on Google’s Android operating system — either by building an operating system of its own, or a suite of apps that run on top of it that make a Samsung device so much more valuable than one from LG, Sony, HTC or Huawei.

Then there’s Microsoft. By making its operating system and much of its software free, Apple has thrown down the gauntlet to its old rival. It’s not saying these products have no value: it’s saying that software is what makes hardware compelling, and so we’re effectively making the two one single product. For Microsoft, still largely a software player, that’s quite scary. No wonder the company is betting heavily on building its own hardware.

In some ways this is good for the consumer, in some ways not. On the one hand we’re already seeing the hardware basically controlling the software — automatically updating itself, optimizing itself for the user. On the other, the goal here is clear: bind the user to a single stack of hardware, software and services, increasingly isolated from each other. A Samsung phone may be a great device to control your TV with, layering little apps atop the screen, but don’t expect it to work with your LG smart TV. And don’t bother trying to use Apple’s AirDrop feature to send a file to your Samsung phone.

The bottom line is that these companies are being hugely innovative, moving the puck at impressive speed. But in their efforts to escape becoming commodities, they’re pushing us into silos. Nice silos, very nice silos, but silos that make me think more of the past than the future.

Cuckoonomics

Here’s a piece I wrote for the BBC which went out today. (They often air some time after I’ve recorded them.) 

It’s very hard to be in the technology business these days because you don’t know when someone is going to be a cuckoo, A cuckoo, in case you are not an ornithologist, are what are called brood parasites, which means they lay their eggs in another bird’s nest — effectively outsourcing the whole brooding process.

Technology players have been playing this game for a while. The problem is that no one is quite sure who is the cuckoo, who is the sucker and what’s the nest. I call it cuckoonomics.

Take the recent spat between Apple and Google. Google was quite happy to have its Maps software on an iPhone — after all, it makes more money from an iPhone than it does from a phone running its own Android software — but it didn’t want to give away the farm. So it wouldn’t allow a feature which allowed users to navigate turn by turn. So Apple ditched the whole thing and went, somewhat disastrously, with its own version of maps.

Google in this case thought it was being a cuckoo, and the iPhone was the nest. But it didn’t want iPhone users enjoying the product so much that its own users jumped ship. 

In the old days technology was about hardware. Simple. You make something, put a sticker on it, and sell it. That’s all changed. Now it’s about software, about services, about experience. I may run an expensive telecommunications network but I can’t control what goes on it. Cuckoos offering video, games, messaging etc flock onto it, parking their eggs and reaping the benefits.

It happens in more subtle ways, though the implications may be just as drastic. Microsoft is about to launch a new version of its operating system called Windows 8. It’s quite quite different from before and a major gamble; not surprising, because Microsoft’s once cushy nest is being dismantled by Macs, mobiles and tablets.

It’s a brave attempt by Microsoft, but what’s interesting to me is how they’ve aimed their sights not at Apple but at Google. Microsoft have baked search so far into their new operating system they hope it will be where we do most of our stuff. From one place we can search all our apps, the web, our contact list, our saved notes and documents.

Of course this isn’t new. You can do this on a Mac, on an iPad, on an Android phone, even on a Windows PC. But it’s not been quite as well done before.

I’ll wager if Windows 8 catches on this will be one of its biggest features, and Google as a result will take a hit. Which is ironic because it’s been Google who have used cuckoonomics against Microsoft for more than a decade, gradually building a library of services around search that have ended up taking over Microsoft’s nest. Think Gmail taking over Outlook and Hotmail; Docs taking over Office, and then eventually the Chrome browser taking over Internet Explorer. 

What’s intriguing is that Microsoft is also trying to the same trick with Facebook. Windows 8 dovetails quite nicely with your Facebook stuff but at no point does it look like Facebook. I couldn’t find a Facebook app for Windows 8 but it didn’t seem to matter; instead all my Facebook friends, updates, photos and messages all appeared within Windows 8 — with rarely a Facebook logo in sight. 

Which cuckoo is going to win? 

Forks in the Road Ahead?

Two interesting pieces in the past 24 hours that, almost in passing, look at a growing conundrum for Google: how to cope with the fact that Android is largely a profit center for Samsung and nobody else.

Horace Dediu at Asymco (From bad to worse and from good to great) looks mainly at how the mobile world’s value is mostly going to Apple. Samsung is the only other one making any money out of the whole thing:

In absolute terms the iPhone franchise created $244 billion in value while Samsung created $83 billion. The others destroyed $37 billion.

Elsewhere Horace has looked at Android economics (The Android Income Statement among others) and concludes that “Google’s benefit from the platform is modest. He concludes:

In contrast, Samsung, and Samsung alone, is benefitting greatly. It could even be said that today Samsung is the only Android profit engine.

This seems to be the case. Which prompts several questions, some of them addressed in the comments. Is Samsung likely to continue merely taking another person’s operating system, free though it is, and adding a skin or two? How does Samsung feel about sharing a brand — Nexus — with competitors like Asus?

Jean-Louis Gassée in his weekly column for the Monday Note takes a look at this (Business Model Dances). Google, he argues, have not necessarily followed Microsoft by extending vertically with the Nexus 7, but he does believe that “the gentle folks at Samsung are not going to take this with a smile and a quick genuflection.”

If they’re not cowed by Apple, they certainly aren’t going to let Google eat into their tablet business. As for phones, there’s Google’s $12.5B subsidiary, Motorola Mobility, another irritant for Samsung and other Android smartphone makers.

It’s interesting to consider whether Samsung think that the Nexus 7 is a challenger. I tend to think they’re more worried about what’s behind it: lots of content.

As Jean-Louis says, it’s going to be interesting.

On the ropes, Apple’s China nemesis still dreams

Here’s a piece I wrote with Lee Chyen Yee about the man and company behind the iPad trademark battle in China.

(Reuters) – Yang Long-san, Apple’s nemesis in a battle over the iPad trademark in China, once strutted the expo halls with dreams of market dominance. His company, Proview, may now be in ruins and his most valuable asset a disputed trademark, but those dreams remain intact.
“My biggest wish is to resolve all these frustrating problems and put them behind me,” Yang said in a recent telephone interview. “If we can resolve all the problems we have now and I have a chance to make a comeback, I’d still want to overtake my old competitors.”
Much of that will depend on whether he wins a long-running dispute over ownership of the trademark in China – Apple’s second-biggest market by revenue. Although a recent decision by the Shanghai district court to reject Proview’s demands that Apple stop selling the iPad was a setback for Proview, the case is still to be heard in the higher court in the southern Chinese province of Guangdong Wednesday.
A decision against Apple there would set a precedent that would create an uphill battle in other cases in lower courts around China. Local media have said Proview is seeking up to 10 billion yuan ($1.6 billion) in compensation.
Proview’s fortunes may currently be the polar opposite of Apple – one has creditors at the door and the other is the world’s most valuable listed company – but both illustrate how the fickle world of technology can make or break a company.
Yang and Proview rode the first wave, when every home and office desk had to have a computer, and a screen. For Apple, the last decade has seen it ride the crest of a new wave where the computer moved from a commoditized, clunky desktop to a fashionable mobile consumer device.
Proview may now be a shadow of a company, trying to convert its last major asset into cash, but it was not always so. “They definitely existed,” says IDC analyst Rhoda Alexander, who covered them for a while. “They were a significant manufacturer and a major player.”

The full story can be found at reuters.com

The Browser Doesn’t Matter So Long As It Goes to Google

The whole Google/Firefox issue is an interesting one: Google is the default search engine in Firefox because it pays to be there. The three-year deal expired in November 2011. Would they renew? Some thought no. They were wrong.

Not only has Google renewed the deal whereby it effectively bankrolls Firefox, but it’s the first time that it’s continued the deal after launching its own browser, and the first time it’s done so after Chrome is actually has as many users, according to some measures, as Firefox.

On top of that, there are reports from AllThingsD that the deal is worth $300 million a year, more than three times what they were paying under the previous arrangement. What gives?

Several theories:

We’re Partners

The official version is that Google and Firefox are buddies, after the same thing: the betterment of the web [ReadWriteWeb].

Bidding War

One is that Microsoft and possibly Yahoo! were after the deal. Makes sense: Microsoft is desperate to gain market share for bing, while Yahoo! is, well, desperate.

Eyeballs

Another theory has it that Google is basically after eyeballs, and doesn’t care how it gets them. Paying for them by getting to be the default search brings oodles of traffic. This is definitely true. I reckon that Firefox had as many as 500 million users in 2010. If 90% of those users don’t switch their default search that’s worth a lot of money to Google, and as ExtremeTech has pointed out, makes Firefox the biggest single source of traffic to Google (I calculate they paid 20 cents per user, whether or not they actually use Google.)

Antitrust

There are other theories. One is that Google is worried about antitrust issues [David Ulevitch, Twitter feed, via paris lemon] and therefore wants there to be a competitor about. This argument has some merit: expect Google Chrome/Chrome OS and Android to converge more and more, which is bound to attract the attention of regulators.

There’s no question that Google benefits any which way this goes.

  • It’s clear that Microsoft has failed to dislodge Google as the search engine of choice: While its market share in the U.S. is around 15% [WinRumors, quoting comScore] globally it’s tiny: less than 4% on desktop browsers, 1% on mobile devices [both from NetMarketShare]. In other words, Google doesn’t need to worry that Internet Explorer shifting traffic to bing. While in decline IE is still the most popular browser at about 40% [StatCounter].
  • Google doesn’t really care what browser people use. It would prefer they use Chrome, but as long as the browser points to Google, who cares (as Deng Xiao Ping said, who cares what colour the cat is, as long as it catches mice?). Which is why Google are just as happy to do a deal with Apple (6%) and with Opera (2%). In fact, the only browser that doesn’t have Google as its default search engine is IE. (Apple talked about cutting a deal with Microsoft last year [Daring Fireball], but it was probably a negotiating tactic. DF says he reckons the Google/Safari deal was worth $2 million a month.

Finally, then, if the new figures are true–that Google is now paying $300 million a year for the Firefox traffic–is that money well spent? Well, it’s not easy to calculate. But let’s assume that Firefox traffic continues to fall at its present rate. So in 2012 it accounts for only 21% of the market. Likely number of Internet users in 2012? Anyone’s guess, but probably about 2.4 billion? (It was 2.1 billion in March 2011, according to Internet World Stats.)

So Firefox potentially should be able to bring at least 440 million users to the table. So that’s $0.68 per user. Quite a bit more than what it’s currently shelling out–but less than what it’s paying Opera, according to my very rough calculations. Opera said it received $41 in ‘Desktop revenue’, the bulk of which it says comes from ‘search and commerce’. Assuming all of that, for the sake of argument, is money from Google for search, then using their official figure of 51 million desktop users in 2010, Opera was getting $0.80 per user from Google. (I realise that might be inflated given the ‘commerce’ component.)

That would seem to suggest that actually Google was getting users from Firefox pretty cheaply. Even if my calculations for Opera are a tad high, the new deal with Google, valuing a user at about 65 cents, doesn’t seem overly expensive. We don’t know how much Google pays Apple, but the $2 million a month means they’re the cheapest on the block, costing $0.15 per user according to back of the envelope calculations.

Indeed, these are all just back of the envelope calculations, but I reckon they offer a bit of insight into the economics of this part of the game. Remember Google made $9.72 billion in the last quarter [Google corporate pages], and paid out $383 million to “certain distribution partners and others who direct traffic to our website” in that quarter. That’s close to $1.6 billion over a year, putting the $300 million it’s reputed to be committed to paying Firefox every year in perspective.)

A good account of the economics of all this can be found at ExtremeTech.