iPad Installed Base

A lot of pundits are bemoaning over the flat sales of the iPad, declining sales of tablets overall, and the absence of radical improvements to the iPad lineup that would spark replacement sales.

Flat sales would be a large issue if it was caused by less users using and enjoying the product. It would however not be an issue if people were holding on to their old product longer, but still actively using and enjoying it. That is to say, what matters is not the number of units sold per quarter. What matters is how many people are using it.

One way to understand how many people are using iPads is to look at web usage data. Although web usage data is only a crude proxy, I believe that it can give us a good idea of the trends if we are take sufficient care. Here, I have taken web usage data from StatCounter.

USA
StatCounter os US monthly 201102 201409

United Kingdom
StatCounter os GB monthly 201102 201409

Europe
StatCounter os eu monthly 201102 201409

What we see is that iPad web usage (we are only looking at Desktop & Tablet devices so iOS is equal to iPad) has steadily risen since its introduction in 2011. In the USA data, we see usage stagnating in 2013. However this has recovered in 2014. We also do not see a similar slowdown in neither UK nor Europe data, so we don’t think that the USA stagnation is something to seriously contemplate.

This strongly suggests that despite a slowdown in sales since 2013, iPad usage has risen steadily since introduction. The longevity of old devices like the iPad2 has definitely contributed to this. In fact, the iPad 2 is still the most used iPad model.

Of course, this is not without its problems. If old devices stick around too long, it can slow down progress in the ecosystem since developers will have to support older and less capable devices. Although this is an issue that Apple definitely has to address, this is a totally different issue from the tablet category losing appeal.

So to summarize, despite a slowdown in sales, more and more people are actively using iPads and enjoying them. Although it would be ideal if sales were rising, it is more important for Apple to ensure that more and more people start using iPads and continue to love them. Apple seems to be doing this quite successfully. However, Apple will have an issue in the future with fragmentation because old devices will stay in use for longer.

Misguided Expectations for Replacements Cycles

Many people have blamed the slowdown of iPad sales on the fact that the replacement cycle of iPads is quite slow. In fact, we don’t really know what the replacement cycle is yet because the device is still very new (even the first replacement cycle hasn’t yet kicked in) and the second generation device, the iPad 2 (introduced March, 2011) is still used quite a lot.

NewImage

My question is, is the replacement cycle too long and should we be blaming Apple (as quite a few analysts are) for the lack of reasons to upgrade? Should we blame Apple for not introducing compelling improvements to the iPad that would drive users to buy new devices? Should we blame Apple for mismanaging the App Store to the effect that not enough exciting titles are being released for iPad?

This hinges on what the natural replacement cycle for a tablet device should look like. If the natural cycle should be something like two years, then yes we can blame Apple. If it is however something like 4 years, then we cannot conclude that Apple is doing a bad job.

Therefore, I think we should give some thought on to what the natural replacement cycle for a tablet device should actually look like.

Smartphones

The replacement cycle for the phone market varies from less than 2 years to over 10 years (interestingly, Android phones seem to have a much faster cycle).

Screen Shot 2014 10 18 23 08 44

Recon Analytics sums up the reason for differences in replacement cycles as follows;

Based on the data and analysis outlined in the report, it is conclusive that over the last four years, handset subsidization is the dominant factor influencing the handset replacement cycle. The percentage of subscribers on postpaid and prepaid plans, as well as the relative income level in the countries, had a negligible impact on the handset replacement cycle.

Considering that the majority of iPads are WiFi-only and that these are not subsidized, we can expect iPad replacement cycles to be significantly longer that phones. There is very little reason to expect iPad replacements every two years.

PCs

The replacement cycle for business PCs in the US was a bit longer than 3 years. Why do they replace them so often?

  1. Increased productivity: If the old PC is much slower than the most recent models, then a new one would increase productivity.
  2. Escalating support costs: If the old PC tends to break down a lot, then buying a new computer may become cheaper than the maintenance costs.
  3. Software requirements: If the old PC cannot run new software, then it’s time to upgrade to a new PC.

Now how much of this would apply to tablets?

The amazing thing about the iPad, even the original model, is how fast it was on the limited hardware. Apple went to great lengths to achieve this, even sacrificing features that have been found on PCs since 2000 like multitasking in the background. Apple has kept third party software under strict restrictions, and this has helped keep software from bogging down the system. Apple itself has worked hard not to make iOS bloated.

As a result, the iPad 2 from 2011 still has enough performance to run the most recent iOS (iOS 8) with OK speed. Hence “increased productivity” does not apply very much to iPads and neither do “software requirements”. We also have to understand that iPads are mostly used by consumers, and so less emphasis is places on “increased productivity”.

Another amazing thing about the iPad is how durable it is. Without almost any moving parts, not even a keyboard, there is very little that can break. The build quality of the device was also superb from the onset. Also, unlike phones which you carry about you all day, you are much less likely to drop and shatter an iPad on concrete. Simply put, the cost of maintenance for an iPad is remarkable low.

Since none of the reasons for a 3 year PC replacement cycle apply to iPads, there is no justification for expecting similar cycles for iPads. It is very possible that the replacement cycle for an iPad is much longer than 3 years.

The one thing to note is that the iOS 8 is bearable on iPad 2, but stutters quite a bit. This is probably due to the fact that it only has 512 Mbytes of RAM and I think that it is unlikely that the next iOS version will support it. If so, then “software requirements” will demand a replacement next year.

Other consumer electronics devices

For most consumer electronics devices, we generally only replace them if they break down or our family gets larger (and we need a larger refrigerator or washing machine). Unless you buy them from a manufacturer that is seriously skimping on important components, they should last at least 5 years.

Summary

As we can see, the 2 year replacement cycle that many analysts were initially expecting for tablets was completely misguided, and hence we cannot blame Apple for a cycle that may be 3 years or longer.

We could even argue that having compelling new features is only rarely a reason why people ever upgrade their devices. This is for the most part irrelevant to the upgrade cycle. In fact, the main pain points cited for upgrading PCs are mitigated by stricter control of third-partly applications, better hardware build quality and simpler hardware design on iPads.

Why No Retina MacBook Airs

There were no MacBook Airs with Retina Display announced today on Apple’s special event.

The reason is pretty clear looking at what Apple had to do to develop the iMac with Retina Display. From Apple’s website;

A more advanced timing controller.

The timing controller, or “TCON,” is the brains of the display — it tells each pixel what to do and when to do it. Because iMac with Retina 5K display has four times as many pixels as the standard 27-inch iMac display, the TCON had to be able to handle more information than ever. But even the most powerful timing controllers available couldn’t manage this number of pixels, so we had to create a new one with four times the bandwidth of the previous-generation 27-inch iMac — up to 40 Gbps. Now a single supercharged chip beautifully orchestrates the symphony of all 14.7 million pixels.

To develop Retina Display hardware that has at least comparable performance to their non-retina products, Apple has to develop new hardware down to the semiconductor level. This hardware has to have processing power that is multiple times faster than previously available.

This takes time and effort. And as is obvious from the use cases, the iMac has much higher priority for Retina Displays than the MacBook Air.

For a bit more information on how pixel-density can adversely affect performance, here’s an article describing the poor performance of brand new Android devices with high-res screens.

“Adreno-powered Nexus 6, Galaxy Note 4 deliver poor graphics performance vs. iPhone 6 Plus”

Some Chromebooks have high-res displays but they have it easy. Nobody expects high-end graphics performance from Chromebooks, and there are no apps that take advantage of the performance even if it existed.

Luxury versus Premium In Tech

Why aren’t iPhones being disrupted by low-end Androids?

Apple’s iPhones have retained their value (high selling price) and sales despite a large number of low-cost Android devices entering the market. The quality of these low-cost Android devices has also improved significantly, and as a result, many people have claimed that the performance difference between these and the iPhones no longer justify the premium prices. That is to say, low-cost Android phones are “good enough” in the terminology used in “The Innovators Dilemma” by Clayton Christensen.

If the low-cost Android phones are “good enough”, then Christensen’s theory suggests that the high-end iPhones could be disrupted. However, market performance of the iPhones suggest that this is not happening. New iPhones break sales records every year whilst the selling price has not come down appreciably. Interestingly, Samsung, which dominates high-end Android, has had a hard time selling its most recent flagship device this year compared to last year. If anything, what we are seeing is high-end Androids being disrupted by low-end ones, whereas the iPhone is somehow immune.

One big question is, why aren’t iPhones being disrupted by low-end Androids? Why isn’t Apple facing the same problems that Samsung is? Many people give many different explanations for this.

Differentiation alone is not the answer

A common theme is that Apple controls the whole experience while Samsung only controls the hardware. Hence Samsung has more difficulty differentiating itself from the cheap OEMs. While this is no doubt true, differentiation only matters if the unique features that you provide are useful. To illustrate this, imagine if iOS and Android were absolutely equal in utility. Then the differentiation that iOS provides would not provide a competitive advantage for Apple; it would only make them different. And being different alone will not increase your sales.

This becomes clearer if we go back to the mid 1990’s, when Apple was in dire straits. Even at that time, Apple had control of both software and hardware whereas DELL and Compaq did not. However, this did not help Apple at all. Because the classic Mac OS was no longer significantly better than the competition, differentiation was no longer positive; it was actually negative.

Although I do not dispute the importance of differentiation, it is only positive if you have a superior product. If you have an equal or worse product, then differentiation is actually toxic. Differentiation can be positive or it can be negative. Hence the key attribute that we should be looking at is not differentiation, but whether or not the product is significantly superior or not.

iPhones as a luxury

Another common explanation is that the Apple brand has now attained luxury status, and that this has made iPhones immune from feature and price comparisons. This means that iPhones can command high prices despite features being on parity with cheaper Android phones.

It also suggests that iPhones will be immune from low-end disruption as described in “The Innovator’s Dilemma”. Low-end disruption happens when technology improves the functionality of a product up to the point where it overshoots the needs of the majority of the public. Therefore, for low-end disruption to happen at all, the product must improve over time. Since luxury status is often not a function of technical progress, this makes luxury immune to “The Innovator’s Dilemma”.

I have huge issues with how the word “luxury” is used in these contexts. The way many people use “luxury” is to explain a how a high-priced product sells well despite the absence of any perceivable (at least to them) desirable functionality. They are not saying that the iPhone is luxury because it shares certain attributes with other luxury products; instead they are calling it a luxury because all other explanations have failed.

Regardless of whether the iPhone is truly a luxury or not, this is not how we should be using this word if we are serious about understanding the truth. Instead, we should strive to understand consumer behavior towards luxury products and see how the iPhone fits in.

Luxury vs. Premium

If you look up “luxury vs premium” on Google, you can see that this topic is quite often discussed.

James D. Roumeliotis sums up a long blog post with the following;

Luxury is not premium – and premium is not luxury. They are two dissimilar categories catering to different market segments.

A luxury brand is more about prestige and appearance – it’s about pedigree and social stratification. As objects of desire, they stand out as aspirational to all but a few souls. These crucial elements keep these products exclusive on purpose. Premium, on the other hand, stands for performance, value added, state-of-the-art, craftsmanship, and timeless design.

Mark Whiting conducted a market research study on luxury brands which is summarized in a blog post;

The criteria used to classify Luxury brands

Although putting a brand in the luxury or premium category is the result of a personal opinion, our Luxury Detectives agreed on seven criteria defining luxury brands.

  • Uniqueness: Irreplaceable objects, produced in small quantities, handcrafted. Can only be made in a specific place or country. Exclusive distribution: strategy of rarity, waiting lists, few stores. For one of our Luxury Detectives based in Los Angeles, Villebrequin perfectly captured the spirit of Southern France.
  • Timelessness: Products that will last that will never go out of fashion and will be passed on to the next generation.
    Excellence: They will be made by skilled artisans and the finest fabrics and fabrication will be used. Culture of connoisseurship. The best customer service will apply.
  • Iconic Communication: A very sophisticated and codified visual universe built on dreams, desires and fantasies .
    Sensual Aesthetic: Refined aesthetic that conveys sensuality, indulgence with a hint of extravaganza and it appeals to the 5 senses.
  • Brand Soul: Builds its identity around a creator, the history of the house, and has its roots in history.
  • Innovation: Brands that dare to push boundaries and surprise. They stay faithful to their roots, but modernize and adapt style to present time to express coolness

And finally, Seth Godin says the following;

Luxury goods are needlessly expensive. By needlessly, I mean that the price is not related to performance. The price is related to scarcity, brand and storytelling. Luxury goods are organized waste. They say, “I can afford to spend money without regard for intrinsic value.”

That doesn’t mean they are senseless expenditures. Sending a signal is valuable if that signal is important to you.

Premium goods, on the other hand, are expensive variants of commodity goods. Pay more, get more. Figure skates made from kangaroo hide, for example, are premium. The spectators don’t know what they’re made out of, but some skaters believe they get better performance. They’re happy to pay more because they believe they get more.

The iPhone attributes which are related to premium are;

  1. State-of-the-art performance: Despite having lower specs on paper, iPhones have had much smoother animations and scrolling than even the top Android devices. Benchmarks, particularly on web browsing performance have also consistently shown iPhones to be faster than Android.
  2. Craftsmanship and timeless designs: It has been widely recognized that the craftsmanship and design of iPhones are superior to Androids.

The iPhone attributes which are related to luxury are;

  1. Brand Soul: The history of the Apple brand and the association with innovation and the life of Steve Jobs is very strong and unique.
  2. Innovation: The history of the Apple brand has been around innovation. Many people perceive Apple to be the most innovative smartphone manufacturer.

On the other hand, some attributes that are important for luxury products, but are lacking on the iPhone;

  1. Uniqueness: Even in unsubsidized countries, iPhones have a least double digit sales share. This easily disqualifies iPhones from being unique in developed countries.
  2. Needlessly expensiveness: Although iPhones are more expensive then their Android counterparts, the price is not too different from Android flagships. You cannot say iPhones are needlessly expensive.
  3. Iconic communication: Commercials for iPhones always feature ordinary looking people doing ordinary things. They do not use iconic figures going to an extravagant location in a luxury car. Apple is not sending a luxury marketing message.

We can see that although Apple does have luxury brand appeal, their product, marketing and pricing strategies are very strongly non-luxury. Instead they are squarely aimed at the premium market.

It would be very wrong to classify iPhones as luxury.

Consequences

Premium means being a high-quality product with superior performance and design/craftsmanship. Advances in technology will allow new market entrants to easily attain a premium position in the performance aspect. Also, since manufacturing of Apple products is outsourced to China, design and craftsmanship are not too difficult to copy either (as proven by Xiaomi). Hence being a mainly premium supplier means that you will feel the forces of low-end disruption, and you are in no way immune.

Premium suppliers have to make sure that their products are always state-of-the-art with the best designs and craftsmanship. In the tech world where innovation (driven by Moore’s law) is so fast that any technology risks being overridden by “The Innovator’s Dilemma” in a matter of years (witness the flat-panel TV story), this is extremely difficult. What happens is that you may be state-of-the-art, but your technical expertise overshoots customer needs and becomes irrelevant very rapidly.

It is not constructive and even misleading to categorize iPhone as luxury. As with Samsung, Apple is subject to the forces of low-end disruption and has to ensure that the iPhone is premium by making sure that it is significantly better than cheaper Androids in both performance and design/craftsmanship.

Apple has been better at making their products premium. Samsung has failed. It’s that simple.

My Thoughts on Uber

Tim Bajarin wrote a post on Techpinions about some problems with Uber from an ethical point of view towards their workers and customers.

I wrote the following comment on that article which sums up my position on Uber. I’ll put it in here also for the record.

I have always felt that Uber was not a product but a feature. Sooner or later, cab companies will adopt the cab hailing technology that makes Uber so convenient. Even regarding rates, electronic payment technologies will make variable pricing easier for traditional cabs.

For example, LINE (the extremely popular messaging service) has just introduced LINE Taxi, a Uber-like taxi hailing service. The interesting thing is that LINE will team up with Nihon Kotsu, the largest taxi company in Japan (3,300 taxis in Tokyo). This is an example of local taxi companies incorporating Uber-like hailing as a feature.

The reason why taxi companies could not create this technology themselves is rather evident, at least in Japan. Simply, the taxi industry is fragmented and is not profitable enough to develop, introduce and market the technology (the bottleneck is probably marketing). They don’t have access to the huge venture capital that Uber was able to obtain. Teaming up with LINE solves this problem.

As for the variable pricing that Uber offers, we have seen some of this happen in Japan in highway tolls and railway fares. It is reasonable to assume that as the technology becomes available to traditional taxis, they will also introduce similar flexible pricing schemes.

We also have to remember the effect the economy has on the taxi business. At least in Japan, the number of applicants for taxi drivers increase when the economy is bad and they have been laid-off from their previous job. My feeling is that the global recession was a large reason why Uber was able expand rapidly, and that if the economy recovers (maybe it won’t), they will have significant difficulty hiring drivers.

In fact, if you look beyond taxis and into other sharing apps, the sluggish economy is very likely a major driver of their popularity.

Apple’s Public Relations Push For the Apple Watch

I have mentioned in this blog that we can expect a very strong public relations and marketing push from Apple in order to jump start the sales of the Apple Watch.

In my first post on the Apple Watch (14th, Sept.) I said;

The question should simply be, “what is Apple’s initial marketing push going to be based on?”. “Does Apple have a good strategy for that push?”

From what I’ve seen, Apple’s initial marketing strategy is plainly obvious. It is going to be based less on technical or functional merits and more on the fashion aspect. It will be about creating brand awareness. It will be about creating a buzz, not necessarily in the Internet community, but in the more conventional media. This is probably based on the realization that explaining the functional merits of the Apple Watch is going to take time to win the general public, too much time to sustain the excitement of developers.

Well, from what we’ve seen, the conventional media is making quite a buzz. So much so that it will make an editorial debut on Vogue China. This suggests that for Apple, their PR strategy is going according to plan.

Of course, Apple has been doing quite a lot of PR work even after the September 9th unveiling event at the Flint Center. In particular, Johnny Ive has been taking quite a few interviews with the fashion media. We are clearly seeing Apple focus on PR towards the fashion media pre-launch and this seems to be generating the desired results.

If my guess at Apple’s strategy is correct, Apple should also be working quite hard with major developers to ensure that a large number of apps would be available at launch. This of course will be less public.

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Pear Shaped Android

From an IDC press release;

In fact, AndroidOne will go further and effectively create a bipolar “pear shaped” environment where the high end will be dominated by the likes of Apple and Samsung with their iPhone and Galaxy flagship devices; and the low end will increasingly converge around the $100 Average Selling Price (ASP) benchmark.

Note that the high-end Android market depends on Samsung.

Without Samsung, Android might be low-end ($100 ASP) only.

That’s a pretty bad situation. I think Google should be treating Samsung better.

Will Google Reduce Commission on Google Play Revenue?

Although unconfirmed, I think this report is potentially very interesting;

Google is also reportedly playing hardball with device manufacturers who previously got a cut of Google Play revenue from phones and tablets they sold. Some partners have seen their commission reduced from 25 percent to 15 percent, with one partner’s cut being eliminated entirely, apparently because “Google wasn’t generating enough money from Google Play.”

It suggests two things;

  1. Google Play is not generating enough revenue.
  2. Google is playing hardball with OEMs.

None of these is a surprise.

In this blog, I have constantly mentioned that Google Play revenue is actually having a hard time, despite favorable comments from both Google itself and App Annie. It is also very well known that Google is playing hardball with OEMs.

What I do find interesting is how this might adversely affect high-end Android OEMs but not affect the low-end. As I have mentioned in my past posts, Google Play revenue is highly skewed towards Japan, South Korea and the US. These are the same countries which mainly purchase high-end Android phones from Samsung, HTC and LG (and some local manufacturers in the case of Japan). This commission reduction is going to hurt these OEMs and these OEMs only.

If this report is true, this will only affect high-end manufacturers. None of the new cheap Android entrants like Micromax will be significantly affected, because owners of these devices don’t buy much from Google Play to begin with.

Google seems to be trying really hard to make Android unattractive to high-end smartphone manufacturers, while making it look better for low-end OEMs. I am baffled as to why they might want to do that.

Nokia HERE Maps for Android

Nokia has just announced a beta for their HERE Maps for Android. Interestingly, the beta is only available for Galaxy Phones and can only be downloaded from the Samsung Apps Store, but they will apparently target the general Android user base in a following release.

The main feature of this app seems to be offline capabilities. It also seems to be quite good with the basics;

Nokia has built up an extensive database of geographical information in 196 countries, including indoor maps for more than 90,000 buildings around the world. It supports turn-by-turn navigation for driving or walking as well. But the biggest advantage is the offline capabilities of HERE Maps. Google Maps has offline support as well, but it’s fairly limited by comparison: You get very little information about the points of interest and search functions won’t work.

The question is of course, will this be able to successfully compete against the pre-installed Google Maps that comes with Google Play Services licensed Android devices?

I would like to put down some notes related to this;

  1. The Opera mini browser was quite popular in developing countries, apparently even on Android devices. This was because it used a technology that reduced data usage, making it very useful for people with very limited data plans.
  2. Nokia HERE Maps will also appeal most to users who have limited data plans, many of whom are in developing countries.
  3. For users with generous data plans, the appeal of Nokia HERE Maps will be limited.
  4. Hence Nokia HERE Maps will probably see the greatest penetration in developing countries.

MS-Office in the Workplace

Just for the record.

I’m working with a company that made headlines in 2012 with the announcement that it will be moving close to a hundred thousand employees to Google Apps.

Guess what format they send stuff to me in now.

Pure MS-Word and MS-Excel.

It’s not even in .docx or .xlsx but in the classical .doc or .xls formats which Google Apps no longer supports.

I suppose that even as they moved to Google Apps, they kept MS-Office around to communicate with the outside world.