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Two Recent Deaths in the Smartphone world. Long Live the Emperor.
Within the last couple of weeks two surprising deaths happened in the Smartphone world: Kin and Nexus One (direct from Google); both of whom I had blogged about before here and here. Similar to my predictions on tablets, the world has decided to make me look bad.
I can’t say either action is a real surprise, given the success – or lack thereof – of both products, but it begs the question of what the hell is so unique about Apple that makes them so successful? Both products were reasonably good and both came out with some marketing strength and high hopes, albeit none had Jobs sticking his turtleneck out for. In fact one can almost say they are truly cleverphones. Nexus One sold directly by Google lasted a few months but managed to sell more through the carriers than direct. Kin, on the other hand, didn’t even last enough to hear comments about it. Microsoft has decided to protect their channel by pulling it out of the market and allowing HTC, Dell, Samsung, and LG who will release Windows 7 Phone Series (gotta love Microsoft’s marketing) devices this year for the “holidays”.
What I think is really happening is that even strong players like these tend to underestimate the power of the wireless carriers. They own the customer since people buy phones in order to get a service, not the other way around. Smartphone OEMs have learned the game and have succumbed to the carriers’ will, quite successfully I might add. The market has turned into a selection of services where you pick a desirable phone for. In other words, I know I want AT&T, Verizon, Telus, Vodafone, etc. for whatever reason and then I select my phone. Nexus One tried to separate it out unsuccessfully, even given the fact that Google didn’t need to make money on the phone! People still bought the subsidized phone through the carrier in spite of a long term commitment.
Microsoft on the other hand didn’t try to sell direct, but attempted to bypass OEMs, where carriers buy more devices from. So it is easier for them to add a Windows 7 Phone from HTC to the portfolio they already buy from them. Besides, Kin was a succession of project “Pink” in which Microsoft had an agreement with Verizon to supply a device. This contractual agreement forced Microsoft to release Kin with an OS that was not quite Windows 7 Phone. In addition to that Verizon changed data plans and made the Kin less than attractive cost wise. Again, a wireless carrier took control of the market.
One can also blame Palm’s near demise (and HP’s gain) on carriers’ acceptance or choice.
Whatever the reasons are, wireless carriers will continue to dominate and control the market. Granted, both Google and Microsoft have a potentially great future with their mobile OS without their own branded phones as long as they follow the desire of the carriers they sell through.
The only exception so far is Apple. AT&T has gained millions upon millions of customers that wanted one and were willing to compromise their carrier selection for the privilege of carrying an iPhone. When Apple opens up to Verizon we’ll most likely see them run back and abandon AT&T. Apple will churn the base, Verizon will add users, and AT&T will lose them. Very few new iPhone users, but Apple will continue to sell them new ones. Will Jobs be open to have an unsubsidized dual system (AT&T and Verizon) iPhone to sell direct so users can declare him his loyalty? I can see it if AT&T and Verizon decide to create cheaper iPhone plans since they will not subsidize the phone anymore and create a price war. We’ll see.
But for the time being iPhone remains the only device requested by name and the carriers maintain control over everything else. For how long?
Enjoy.
Apple or Microsoft, which is cheaper?
It is all over the news that Apple (AAPL) surpassed Microsoft (MSFT) market capitalization last week becoming the largest tech company from that metric perspective. The question is which one is more expensive?
Assume you have $500 to invest and you are trying to decide which one is a better bet. Let’s see. On June 10th, Microsoft opened near $25 and Apple near $250. So you could buy 20 MSFT or 2 AAPL. So what are you really buying with your hard earned bucks? Based on the prior 12 months and latest financial statements these are the numbers (rounded):
AAPL: revenue $51B, Net Income $10.7B, Cash and Short term investments $23B, and a market cap of $227B (908 M outstanding shares).
MSFT: revenue $59B, Net Income $17.2B, Cash and ST investments $39B with a market cap of $218B (8720 M outstanding shares).
So if you buy 2 shares of Apple your $500 buy you $112 in revenue, $23.50 in NI, and $50.70 in cash. Microsoft’s 20 shares are $135.3 in revenue, $39.4 in NI, and $89.4 in cash. In other words, picking one metric, let’s say cash, Microsoft is trading at 5.6 times cash, Apple at 9.8 times cash. That is 1.76 times more expensive!
Now, let me throw Google (GOOG) into the mix, just for kicks: Google was trading at around $480 with a market cap of $115B (240M shares). Revenues of $25B, Net Income of $7.1B, Cash $26B. You can buy 1.04 GOOG, meaning $108 in revenue, $30.8 NI, and an impressive $113 in cash (4.44 times cash).
So you tell me which one is more expensive? I know, I know, this is based on past results and does not factor in growth potential, investor’s sentiment, cult followers, and other factors. But for the same reason it clearly paints a picture of which company is more favored by investors and which one is less.
Consider one last point: Microsoft hit an all time high of $58.37 on December 31, 1999, Google $724.80 on December 14, 2007, and Apple hit $272.40 on April 26, 2010. Investor’s favoritism has been shifting over time. What’s next for all these three? If I knew, I wouldn’t be blogging about it but it is definitely interesting behavior of 3 of the most traded stocks.
Quoting Scott Adams, the creator of Dilbert, “I remind you to ignore me”. By no means this is an endorsment to invest in any of these companies. You, my fellow reader (singular) make your own judgment.
Enjoy.
iDon’t Flash, say the Steves
To start off with a cliché, it is true that “the enemy of my enemy is my friend.” But to have the Steves ( Balmer -Microsoft’s CEO and Jobs – you know who he is) agree on bashing a competitor is unheard of, at least for this humble blogger. Apple has been criticized not only for not supporting Adobe Flash video player in the iPhone, iPod, and iPad (i’Ve had it with Apple’s naming) but for banning apps that have their roots on it. To make matters worse, Silicon Valley’s more revered deity sent out a letter saying that Flash sucks – battery, that is, as well as making devices crash and causing other problems. Balmer agrees. They both are in favor of the open standard video version called html5 video.
Hey, we’re all for standards, even better if they are open, but is it realistic to essentially ban all Flash designed websites from your mobile iProducts? Microsoft definitelly adds some muscle to the fight, but Shantanu Narayen (Adobe’s CEO) got there first. An estimated 70% of websites with video use Flash. It has a great advantage over html5: it exists today. It has also a huge installed base, works across browsers, and makes it easier for non-geek developers to use. The question is: will the the explosion of browsers (especially mobile) makes an open standard needed even more? Indeed, but it will not happen overnight, even with the Steves’ weight behind it.
Claiming that Flash crashed devices and drains battery is a bit too extreme, unrealistic, and quite frankly arrogant. Not that there’s anything wrong with that. But when you consider that the iPad has a 6000 mAh battery compared to the 1200 mAh battery in the iPhone 3GS sure, I’ll give you 10 hours of video too! Simply put, battery problems are solved with batteries. You want more battery life? put a bigger battery in. Granted, it drives the device’s weight, but so does the display. Palm Pre, RIM, Windows Mobile (and soon Android) devices that support Flash lite are roughly the same weight than the iPhone, and crash just as often. Reality is, Flash provides the programmer control over the video experience and that makes Jobs angry. He wants to control it all! As per Microsoft’s motive? Well, it just sounded like a good idea to blame computer crashes on somebody else’s software for a change.
Flash’s biggest limitation is the lack of mobile platform support. It is a heavy weight platform that so far only works well on “big” desktop OS’s. There is a Flash Lite out there but it is not 100% compatible with all Flash’s features. But that will have to change soon, if Narayen wants to stay on top. But then again, with more powerful processors and graphics coming to a mobile device near you will make this limitation a thing of the past. In any case, it is this bloggers opinion that html5 video will eventually take over video on the internet. The timing is the unknown. But I don’t think one should start to short Adobe (ADBE), at least not because of Flash. Au contraire mon fraire, this makes them a pricey acquisition target for cash rich software companies.
Enjoy.
Palm got a hand
Well apparently there is some hope for the nearly dead. One more time I’m wrong and someone did find enough value for Palm, unlike I had predicted before. Although in this blogger’s humble opinion $1.2B seems a little excessive. Sure, HPQ has the cash to spare, but a Webkit browser on top of Linux does not take that much money. Granted Palm has a good device or two, but in this environment it takes more than a good device to unseat the emperor. I guess they’d figure they’d offer a sign-on bonus to Palm employees ($5.70 / share is a bit too distant to the $17+ back in October 2009) since they would really struggle to assemble a team like that on their own.
Sure there’s some intellectual property and some innovation left in the inventor of the category. And it is the fastest growing and one of the most profitable markets in the industry but the world does not need that many mobile Operating Systems (OS) to choose from. I’m sorry. As I’ve pointed out before, to unseat the iPhone it will take more, a lot more than multitasking, a cool form factor, and a clever UI. I’m sure HP will make products people want to buy, but the question in my mind is will HP be able to create the ecosystem that will finally challenge Apple? I quite frankly doubt it. Not because it is impossible, or because HP doesn’t have the skills, it is because it is not in their DNA and Palm does not bring that to the table.
Other bloggers (the real ones) are talking about tablets and netbooks using WebOS. Now that is even crazier. If a stretched out iPhone makes little sense, a bloated Pre (will they call it HP-Pro or the Maxi?) doesn’t make much sense either. A clever-phone OS will make a tablet look like a dumb keyboardless PC (no offense Steve). Besides, with no app store, no cult to follow you, no content delivery, no store chain, no Steve (sorry Mark) things don’t look too promising. Besides, HP is a much more powerful brand than Palm, so it’s not that they’re bringing that to the table.
So, my dear follower (singular). Let’s just regret having covered our short a day too late and wait for their next move. An app delivery company? video distribution? or perhaps music delivery? We’ll see. But one thing is certain: there will be more of these moves (some may be really big). Microsoft, Dell, HTC, RIM, and others will be on the M&A news soon.
Enjoy.
Mobile OS Inflation
During this year’s Mobile World Congress in Barcelona, the world’s most important mobile trade show, everyone seemed to think that a new OS (Operating System) is the way to go. It is unclear to me what makes them think that.
First, I’m a bit tired of the overuse of the OS nomenclature. Few deserve this title since they are really adding proprietary layers on top of Linux. Actually most do, even the beloved Android and iPhone. They should all be called “platforms”. However that is not the cause of my outrage. No.
Second, who does the branding for these things? Symbian, Bada, MeeGo, Mobiln, MeeMo, LiMo, Else, and others in addition to the successful iPhone, RIM, and Android. My favorite name in a sarcastic kind of way will have to be “Windows 7 Phone Series”. Redmond finally got something that does not deserve bashing throughout the blogsphere – a la Vista – and decides to use it everywhere. I get it, kind of makes sense. But, my fellow follower (singular) Windows 7 has a nice ring to it. Windows 7 Phone Series does not, I’m sorry.
Third is that application developers have better things to do than to port their app to the “OS” of the day. And who is thinking about users? Thanks to this inflation you will have to scavenge the world to find the right app if you made the mistake to buy a platform that didn’t quite make it for whatever reason. Now that is an outrage, but not the point of my post. Suffice it to say that there will be plenty of casualties in these OS’s flood.
Amidst this Mobile OS inflation there is one that in my opinion deserves mention: MeeGo. Sure, the name sucks but I’ll have to give it some points for obscure geekyness. A shape-shifting 9000-year old alien from the planet Marmazon 4.0 has to attract the dormant or not so dormant geek in most smartphone users, from the Blackberry suits to the Android hoodys. Let’s just hope it doesn’t suffer the fate of the CBS sitcom who didn’t get the chance to finish a single season mostly because it wasn’t any good.
Anyway, MeeGo is worth mentioning not because of the fact that it is a joint venture between Nokia and Intel. MeeGo is a platform that promises to bring smartphones to the 2010′s by using an x86 architecture instead of the perpetual ARM. x86 architectures are ubiquitous in the PC world whereas ARM architectures have their humble roots in the embedded world (you know watches, sensors, WiFi radios, set top boxes, routers, cellphones – Ok, not so humble). ARM uses RISC – Reduced Instruction Set Computing – vs x86′s CISC – Complex Instruction Set Computing. This difference has allowed computers to run more complex software and algorithms so they can behave like, well, computers. ARM on the other hand is fundamentally more power efficient, which explains its huge presence in mobility.
Until now the lowest x86 has gone is Intel’s Atom family (which drove the netbook “revolution”). What is so new about the Atom family? Low power consumption in an x86 processor. At the same time, Qualcomm has been touting its Snapdragon 1 GHz+ Arm based systems – base for the reference design of my favorite name Windows 7 Phone Series – and now powering some “smartbooks” (again with the naming).
You see what’s happening under the hood? New product categories are being launched, OS inflation is flooding the mobile world but at its real core there is a tremendous collision happening. ARM getting more powerful while x86 is getting more efficient. This brings us back to why MeeGo is so significant for the industry.
x86 based phones are out there but none has really made a mark basically because they haven’t offered anything new. In this blogger’s very humble opinion if Nokia-Intel get it right (which is a big “if”) this could be the next revolution in mobility: the power of a real computer in the palm of your hand. With html 5, 4G networks, ubiquitous 802.11n WiFi, comparative shopping, location based services, “billions upon billions” of webpages, will now be available to complex software thanks to CISC based smartphones. By the middle of this starting decade we will all wonder what was the hype behind all these “clever-phones” that could barely browse the web. We will remember them as we now think of the first color Mac’s. Very cool but just a sign of what’s to come.
Enjoy.
Microsoft Getting Smart about Smartphones
Well, it was just a matter of time. PC World reported that Microsoft will announce its own smartphone in the World Mobile Congress in Barcelona this month. I guess the pandemic of iPhone envy is hitting everyone hard. This one promises to be interesting since it will allegedly be based on the Zune music player and the Windows 7 Phone platform. All good. Until now Microsoft’s strategy was OEM friendly. LG, Samsung, HTC, Motorola and others have introduced Microsoft based smartphones of varying success positioning Microsoft’s mobile OS as the 4th player (soon to be 5th thanks to Android) in the smartphone category (after RIM, Apple, and Symbian).
This strategy represents a hardware/software branded device from Microsoft in a sense competing with its own OEMs. All those companies however have not shown any loyalty to the Redmond folks since they have diversified or totally migrated to the Android platform. So I guess Balmer decided: Screw them I will go Google … sorry I will do like Apple … not really, I will do my own hardware and control my own destiny. Good move? We’ll see. But definitely not a bad one or a move that will damage any OEM relationships. The world is ready for a diversity in OSs and the smartphone category is the fastest growing category in the industry. Microsoft cannot afford to be the fifth.
The question is: Will this make a difference? Not likely.
Microsoft has by far the largest market share in the enterprise – with “big Windows”, not smartphones, that privilege belongs to RIM. It boasts millions upon millions of applications and it is the “standard” enterprise Operating System. These are not 99 cent apps, no! These represent real money for enterprises and Microsoft. A simple copy of Office may go for hundreds of dollars. Why? because it is the defacto standard (for now). The smartphone world behaves very different. With the exception of email and a couple of minor “connectors” to ERP systems there are very few apps for the enterprise. In fact Windows Mobile today has the largest number of enterprise ISVs (Independent Software Vendors) but they specialize in niche applications like inventory, supply chain, delivery, fleet management, etc. The devices these apps run on are not your typical HTC smartphone Fender edition but very specialized hardware made by Motorola and others.
The thing is: The Microsoft name, which carries a lot of weight in the enterprise, does not represent a mayority choice for the consumers as it does in PCs or in those niche applications. The perception of a “standard” OS with millions of applications does not exist in the Smarthphone world. There are millions of apps for several OSs, in fact lots of apps are available for most smartphone OSs (paradoxically Windows Phone is typically the last one to be developed). So my contention is that even if Microsoft comes up with a killer device it is an uphill battle to go after RIM, iPhone, Symbian, and Android. It may much better than OEM versions since Microsoft has intimate knowledge of hardware and software to make it so, but it will hardly take the world by storm as its competitors have.
Good luck Microsoft and thanks for giving us all something to write about and for another great opportunity for a clever Apple commercial. I’m sure there’s a map for that somewhere.
Enjoy.
Who needs a tablet?
Amidst some of the most spectacular speculation in the history of electronics (even for Apple) every manufacturer is launching some kind of a tablet device, a keyboardless computer with a big screen. This is not a new concept. I was recently playing around with a Compaq Concerto – that incidentally had a keyboard, a pen and a mouse, courtesy of a colleague, that was build 17 years ago. Since then the allure of using the most common way of written communication (a pen) has been just a promise. This year Steve Balmer, Microsoft CEO announced HP’s “slate” back in the Consumer Electronic Show in Las Vegas in a setting that looked more like the Mac commercials than a new category launch. Dell, Lenovo, and others will soon have one too. The big question is why?
Acording to ABI Research the world will consume a staggering 450 million laptops in 2012 and [gasp] 650 million smartphones. If you take into account replacement cycles, that is how fast people buy a new one the results are pretty revealing. A laptop, on average get replaced every 3 years, which means that roughly 1.35 billion people will buy one within 3 years. A smartphone, thanks in part to carrier subsidies, is replaced every 2 years, meaning 1.3 billion people will buy one. Of course, they are both the same people! The question is, are those 1.3 billion geeks (what an amazing number buy the way) ready for a 3rd device and all the annoyances (chargers, accessories, batteries, breakage, data plans, network connections, etc., etc.) that come with it? Not so much.
Unless: a) It substitutes a device you already carry. b) enhances a device you already carry, c) it changes the way you interact with technology or d) it is so damn amazing that you have to have it.
A) Substituting a device you already carry is kind of lame. In order to do that it has to do everything the old device did and more. Kind of what smartphones did for the cellphone. But it comes at a price. That is the approach Microsoft and partners in crime are taking with teh “convertible” laptop. Ever since the Concerto, that approach has failed miserably. The enhanced user experience that touch brings does not justify the extra cost.
B) This may be the key to the tablet success. What if you could share your smartphone’s dataplan but have access to a bigger screen when you need it? Charge it and use the same accessories and apps your smartphone or your laptop uses but the experience is so much better due to touch, weight, a better screen and better interaction with your media. In other words, your laptop becomes your “content creation” device and your tablet a “content consumption” alternative with much, much better experience. The question still remains, how much is that worth and will manufacturers and carriers make money?
C) Changing the way you interact with technology needs a huge amount of disruption. One approach, suggested here, is to just make it part your your life and go after the time people spend with media in a different way. That is all good, but IMHO, it will still limit the penetration. As I have suggested in previous posts, the internet is desigend for a screem, a keyboard, and a mouse. Last I checked, there are no plans to change that any time soon. Be that as it may, media convergence – your pics, videos, blogs, magazines, books, news “papers”, etc. – in a single point may make sense, but again , at what price?
D) Lastly, an amazing device will drive some crowds, especially from the Silicon Valley sweethart even if there is no use for it, like the Newton or Apple TV. This unfortunately is very nichy and I doubt Apple, Microsoft, HP, and others will be making such a splash for a niche.
One could argue that the Amazon Kindle, by far the most successful of these form factors (which by the way is expected to sell some 6 million this year, puting it in the category of niche for geeks), has it right. Mainly because it is designed to read books. Anyone that has played with it can see why. Great battery life, great form factor, light, and a brilliant eInk display that is the closest thing to paper that is powerd by a battery. But the key genius of Amazon is not that the device is brilliant, is the business model. Buy a book and voila, it gets delivered to your Kindle without having to worry about a data plan, a monthly bill, or extra charges. It is still a 3rd device, but it substitutes the book, magazines, and newspapers we used to carry around. THe lesson here is subsitute something you carry today and make it simpler, better, and cheaper (at least over the long run).
The question is what will the tablets strategy be? It is tough to say, but as geeky as I am, I will wait before I splurge for the $500 – $1000 tablet plus an extra data plan. For once, a “revolutionary” gadget does not excite me that much. Is it a sign of aging or just a sign of the times?
Enjoy.
Leadership is Execution
Although it may sound a bit cliche, the success of a company (or any enterprise for that matter) depends on its leadership. It not only depends on their ability to inspire action but also in the leaders’ ability to paint a picture that people can relate to. I recently bumped into a post by an ex colleague that clarifies the point very eloquently. He comments that leading visions must be clear, compelling, and credible for followers to act on them. I agree. However execution is a key element for any leader to succeed.
Continue …
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