Swiss to Cheese: Apple Transforms Another Industry

Apple Watch VS Swiss Watch

Another Apple product I’m unlikely to purchase — a smartwatch. I don’t need more screens to look at frankly, but I doff my smartcap to the company for the way they’ve usurped an industry that already existed and then doubled it. This approach has some parallels to the AirPod strategy, which I looked at before : take a market that exists, wait until the technology works, have a couple of shots at it, dominate it and then expand it. Here are the latest numbers, courtesy of Strategy Analytics:

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In short, Apple has not only grown its shipments by more than a ⅓, it’s eaten a sizeable portion of the Swiss watch industry’s cheese lunch. As SA’s Steven Waltzer puts it: “Traditional Swiss watch makers, like Swatch and Tissot, are losing the smartwatch wars. Apple Watch is delivering a better product through deeper retail channels and appealing to younger consumers who increasingly want digital wristwear. The window for Swiss watch brands to make an impact in smartwatches is closing. Time may be running out for Swatch, Tissot, TAG Heuer, and others.” The full report can be purchased here.

So let’s put this in a slightly broader perspective. This is a tipping point in the evolution of the watch and a hammer blow to the Swiss watch industry. While the figures don’t quite tally with Strategy Analytics’, those from the Federation of the Swiss Watch Industry show just how effective Apple has not only created a market for itself, but also usurped another’s. For years the Swiss watch industry had been relatively settled, only to see Apple — and knee-jerk competitors like Huawei and Samsung, who have also carved a market for themselves on Apple’s coat-tails — gradually erode their business. Last year shows just how far it has gone:

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This is classic Apple in many ways. There were lots of ‘this is make or break for Apple’ type stories in the first year, and overblown predictions of 2015, and 2016, had to be revised. Indeed, while overall shipments of  smartwatches rose in 2016 (from 20.8 million to 21.1 million, according to Strategy Analytics, Apple’s shipments actually shrunk, while others rose. But these were teething problems: sensors needed to be more accurate, sales channels with telcos needed to be tweaked. By 2017 Apple had fixed most of this, and the trajectory is clear. Probably more importantly, consumers realised that if you were going to put a smartwatch on your wrist, it had to be a classy one. There was no ‘good enough’ syndrome for that bit of prime real estate. And, like the Air Pods, the device needs to have a seamless relationship with the parent device.

Lessons learned? I once again wasn’t convinced about the smart watch. I haven’t bought one, and don’t intend to. But I get it; Apple is currently making much from the stories of how these devices may have saved lives. This isn’t the reason people buy these things, but it’s a good argument to win over the spouse, or conscience, and it does point to how, eventually, medtech and consumer device will merge beyond the hobbyist and fitness fanatic. And it’s not hard to see how soon enough the ear piece and the wrist will eventually become The Device, and we can ditch the smartphone altogether.

Apple, Again, Creates a Market Out of Nothing. And It’s Massive

White AirPods

Having recently (finally) bought a pair of big chunky Bluetooth headphones, thinking they were so commonplace I wouldn’t get any weird looks, I now realise that once again I’m at the wrong end of a trend curve. People are staring at me — and not for my rugged visage. I’m the oddity: everyone else is sporting wireless earphones, the Apple AirPods variety (although I suspect quite a few of them are the cheap knockoffs which are indistinguishable in look and a tenth the price.)

Man wearing white AirPods.

Reality bites: what once looked a bit weird — massive headphones — looks weird again, and what looked even weirder — wireless earphones with little sticks dangling out of them — looks cool, and increasingly normal.

Man wearing a Bluetooth headphone
Man wearing a Bluetooth headset.

The data is surprising.  Canalys reports that what it calls “smart personal audio devices”– lumping together all the various wireless or semi-wireless buds, earphones and headphones — are this year set for strongest year in history, with real wireless earphones (true wireless stereo, or TWS) “the largest and fastest growing category.”

Indeed, it’s not only the fastest and largest growing category. It has leapfrogged the other two in the space of a year.

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That’s particularly interesting because the original AirPods were launched three years ago. It’s taken that long for them to conquer the market, and this is a product that cost anywhere between $140 and $250. Yes, I know people spent silly money on headphones but that’s a lot of dough for something so small you’re likely to lose it down the back of the couch or running to catch the bus. But it has become, in quite short order, a massive market when you consider how many smartphones there are. In terms of units, it’s a quarter the size of the smartphone market (see below) which, according to IDC was about 360 million units in Q3 2019. And that market is virtually static, while the ‘smart personal audio devices’ market has nearly tripled.

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This is all of Apple’s doing. They created the wireless earphone market singlehandedly. They were slow on headphones, and they never went for the wireless earpieces connected by cord, and their ordinary earphones have never really, in my view, stacked up, but it seems with the second version of the AirPod, and the AirPod Pro, they’ve taken the market they created and dominated it:

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You could argue that since they only work with Apple devices the data is skewed but you could also look at it the other way: the Samsungs, Huaweis and Xiaomis of this world have not risen to the challenge for the Android market, and are lagging woefully. Given that Samsung shipped 78 million devices in Q3, while Huawei shipped 67 million against Apple’s 47 million (IDC numbers again), it’s clear just how much of a market opportunity they’ve missed. Canalys’ numbers, meanwhile, suggest that Apple shipped 18.5 million AirPods that quarter, meaning that 40% of every iPhone sold was sold alongside, or nearby, an AirPod. That’s impressive stuff.

While Canalys focus on the ‘smartness’ of these devices — the control they allow, the possibility of sensors etc capturing health data and serving as payment devices — I think that’s not the point. The likes of Jabra have been trying to sell wireless earphones for swimmers, runners etc for years, and it’s remained a niche market. Apple have instead done what they do best — mastering the technology to make the experience of listening to stuff easy, seamless and, at least now, so cool it’s become de rigeur. The problem was always a simple one: wires. They got rid of the wires, and they made devices that sound good, fit snugly and well (at least with the Pros) and connect relatively painlessly.

That was the problem to solve, and hence the market unleashed.

Don’t overcomplicate it.

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.

Ending the Tyranny of the Telephone

How do we deal socially with the new technology around us? How do we come up with new norms, wrestle with the loss of privacy, deal with the way technology seems to force us to change the way we live, work and communicate,?

It’s not a new question, but I feel we need a new answer. We tend to focus on the intrusiveness of new technologies, and agonise over how they’re changing society, while failing to notice that the old technologies were just as intrusive. In fact, I’d argue that with each advance of communication technologies, they get less intrusive rather than more.  Our problem is that we have memories the size of hamster droppings.

Imagine a device that dominates every desk, every home, is on every street corner and train platform. Where we are so conditioned to answer its call we get upset when it’s left to ring. Even when we’re eating, praying, watching TV, asleep. Where we are expected to identify who we are, where we are to a disembodied voice at the other end, to run off searching for someone at its behest, jot down messages on its behalf.

Yes, of course I’m talking about the telephone. An awful device that intruded upon our conversations, our reverie, our concentration, our world. What is remarkable, then, is not how much we’ve submitted to technology but the speed with which we’ve embraced a different technology that better suits our world.

As quickly as technology allowed it, we have started ditching the idea of getting each other’s attention through voice. First we adopted the cellphone, but when users figured out they could use it to send messages by text or SMS instead, the telephone as a predominantly voice-driven device was doomed. It’s not that we don’t want to talk to people; it’s just that we want to ensure that the time and place are  convenient for both of us.,

The truth is that the telephone imposed its tyranny on us and dominated our lives so much that we still can’t let go of the idea. We still call our mobile devices ‘phones’ even when that’s no longer what they’re primarily designed to do. (I have a mobile phone that is as big as a croissant; this was not something that the ubiquitous ads touting its glories will ever show being held up  to the ear.)

Now, in 2012 most mobile phones are not used as phones primarily — if at all. Australians, for example, are making 12.5% fewer phone calls than five years ago. People have been giving up having a landline phone: South Africa’s Telkom, for example, has lost more than a quarter of its fixed line customers since 2000.  We have thrown off the shackles of a 140 year tyranny remarkably quickly, realising just how intrusive the telephone was.

Yes, we’ve replaced it with technology that can be antisocial. We download a lot of data over our device, and much of that data is personal, for our eyes only, or gaming with others not present. We ignore those we’re with, preferring the absorption of the small screen to the social complexity around us. But we’ll figure this out. First, we had to deal with the tyrant. Nowadays, in this mobile spring, look around you differently: listen for the absence of ringing phones. For once we have the technology — SMS, the instant message, the tweet, the email–to retrieve our lives.

My croissant sized phone, for example? It has a feature that, when I turn it over, mutes all incoming calls and sounds. Now that’s civilized.

In a Samsung Galaxy far, far away … will Android still rule?

A piece I wrote on potential roadbumps in Samsung’s ride to smartphone dominance. 

Samsung Electronics is the world’s largest smartphone manufacturer and biggest user of Google’s Android operating system.

And, for some, that’s the problem.

Samsung’s meteoric rise – in the first quarter of 2011 it shipped fewer smartphones than Apple, Nokia or Research in Motion, but is now market leader – has handed it a dilemma. Does it risk becoming a commodity manufacturer of hardware, squeezed like the PC makers of old between narrowing margins and those who control the software that makes their devices run, or does it try to break into other parts of the business – the so-called mobile ecosystem?

“It comes down to this sense of what it is they want to be,” said Tony Cripps, principal analyst at Ovum. “Do they really want to be one of the power players or are they happy enabling someone else’s ecosystem?”

To be sure, Samsung isn’t in any kind of trouble, and isn’t likely to be so any time soon. Later on Thursday, it will launch the Galaxy S3, the latest addition to its flagship range of smartphones. Juniper Research expects Samsung to remain the No.1 smartphone manufacturer this quarter. The next iPhone upgrade is expected around the third quarter.

“Android has done wonders for them,” says India-based Gartner analyst Anshul Gupta.

But still the company has its critics. They worry that Samsung has yet to address the central contradiction of it making devices that use someone else’s operating system. By licensing the free Android OS from Google, Samsung saves itself millions of dollars in software development costs and license fees, but leaves itself dependent on Google.

More at In a Samsung Galaxy far, far away … will Android still rule? | Reuters