Apple’s Hidden Privacy Agenda

Is Apple being reckless?

One observation that some Apple pundits like throwing around is that Apple tends to add features with a broader future implementation in mind. For example, Apple added TouchID initially for unlocking your phone only. Then after a year or two, they added Apple Pay.

Although I think it would be wrong to expect Apple to be doing this for every feature, I do consider it very helpful to keep this in mind. That is, do not dismiss their actions unless you have throughly considered the possibility of a hidden agenda that will only reveal itself a few years into the future.

Apple’s stance on privacy is one of these actions.

  1. Most people have commented that Apple’s focus on privacy will strongly hinder, maybe even cripple their artificial intelligence efforts. This is very dangerous for Apple’s future because it is predicted that artificial intelligence will be a huge part of future personal computing.
  2. The plus side of a privacy focus is that it becomes a selling point for their products. However, we also know that today’s consumers do not care too much about privacy; at least, they seem to be happy to post photos on Facebook and search on Google.

Taking the two points above, it would seem reckless for any tech company to take the privacy position that Apple is holding today. The demerits are huge while the merits look benign. It looks like a totally irrational move for Apple that maybe enforced only because of Tim Cook’s personal beliefs in human rights. It does not make any sense, that is unless Apple has a larger agenda for the future; an agenda in which privacy plays an essential role.

Looking at Apple’s future markets

As I have mentioned previously, Apple cannot grow significantly larger than it is today without expanding into markets outside of tech. The market that tech can directly address, the market to which Apple can sell its current devices, is limited by the size of the economies in the countries which it sells to, and the amount of money each household is willing to spend on communications and entertainment. Apple has to move into different household buckets of spending. Furthermore, these buckets have to be large enough to drive revenue that can significantly contribute to Apple’s huge earnings.

Looking at what households actually spend their money on, one obvious contender is health. US households spend a huge proportion of their income on health, and for the countries which have an adequate healthcare system in place, health is a huge proportion of their government expenditure. There is a lot of money in health, and as populations in both developed and developing countries age, it is only going to get larger.

Apple is already actively involved in health. Not only does Apple have HealthKit, it also has ResearchKit which allows researchers to easily conduct large studies on patients and CareKit which allows patients to track and manage their own medical conditions. Importantly, privacy of health information is taken very seriously (unlike web history or location tracking data), and although I am no expert, it seems that there are rules and laws even in the USA for this.

For any company that seriously wants to get into health, data privacy is a hugely important issue. In particular, IT giants like Google or Apple will be held to higher standards, and expected to develop the necessary technologies if not yet available. They will be scrutinised by not only the authorities, but also by the regular press. If Apple wants to go further into health, prove the value of their services, and to extract revenue from this huge market, then they have to get the privacy issues sorted out first, and apply leading edge technology to protect patient privacy. This will be the prerequisite.

This is where I find Apple’s hidden privacy agenda. Apple does not need to have strict privacy to compete in the tech world against Google and Amazon. In fact, its privacy stance is detrimental for cutting edge artificial intelligence since server hardware will always be much more powerful than tiny smartphones for machine learning, and differential privacy will always negatively impact what patterns can be observed. However, to impact some key non-tech markets that Apple needs to venture into, privacy will be important and essential. Apple’s stance on privacy should be viewed not by which markets they are selling now, but on which markets they intend to sell to in the future.

Material Design and Opaqueness

I’ve been playing around with Material Design for a few days, and the most striking thing for me is the opaqueness. This is in stark contrast to iOS 7 and iOS 8.

Since iOS 7, Apple has gone to significant lengths to make the toolbars at the top and bottom of the screen translucent. To do this without decreasing the legibility of the frontmost element, Apple uses a frosted glass effect which is apparently quite computationally expensive and is not used in less powerful devices (for example, the iPad 2 reverts to simple transparency for some elements). Apple has mentioned that the goal was to make the underlying content stand out and to minimize distraction from the control UI elements. You also see a lot of iOS apps using gray toolbars, which also helps to emphasize content instead of the app.

On Material Design however, they do not use translucency anywhere. Everything is an opaque surface, just as paper is opaque. Although Material Design emphasized depth and the z-axis, this is conveyed solely through the use of shadows.

The feeling of opaqueness is further fortified by the use of bold colors for UI controls. Whereas iOS apps often use only a humble gray color as the background for the UI controls, Material Design encourages bold colors. The effect is that the toolbar and buttons make a very strong impression and feel omnipresent, a sense of opaqueness.

The new iOS design and Material Design feel very different. iOS feels very light. Material Design looks a bit heavy on the top.

Although opaqueness itself is neither good nor bad, in terms of the history of computer UI design, it does feel a bit backward. It feels like going back to the Windows XP days since every PC-OS since then has used translucent elements. The bold colors of Material Design are also reminiscent of the vivid toolbars of that OS, which fell out of fashion since. Similarly, iOS moved from an opaque design to a translucent design. I am wondering if the absence of translucency in Material Design is a result of having to make it work well on cheap devices which don’t have good GPUs.

iOS WWDC 2014 app

Note the translucency on the leftmost image, on the bottom toolbar.

NewImage

Google I/O 2014 app

Running on KitKat but using Material Design.

NewImage

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.

Apple Watch Pricing Strategy Thoughts

There has been speculation that the price of the 18K gold Apple Watches may be several thousands of dollars higher than the stainless steel versions. John Gruber has written a blog post on how he came to this guess. John Gruber guesses that the 18K Apple Watch Edition will start from $4,999.

To arrive at this number, John Gruber analysed the prices of 18K gold Rolex watches. He found that they are priced at over $30,000 and so in fact, the $4,999 figure that he arrives at is much much lower that luxury Swiss watches. I think he was trying to find a sweet spot between luxury Swiss watches and the price of current Apple products.

This is definitely one pricing strategy that Apple may follow.

However, pricing is a very very difficult topic. There is no single correct pricing strategy. In fact, as you can see on Wikipedia, there are many pricing strategies that are in use (and this article only lists the general ones). John Gruber’s analysis is absolutely correct, but only if Apple’s pricing strategy is “Market-oriented pricing”.

Let’s see what would happen if Apple chose to use a different pricing strategy.

Cost-based pricing

This is the practice of basing the price on the cost-of-goods. In the Wikipedia article, strategies like Absorption pricing and Contribution margin-based pricing are cost-based price strategies.

If Apple were to follow this strategy, the price differential of a stainless steel/sapphire glass Apple Watch and a 18K gold/sapphire glass Apple Watch Edition would be roughly equal to the cost differential of stainless steel and 18K gold.

What would this price be? What is the cost different between stainless steel and 18K gold?

To understand this, we need to know how much 18K gold is contained in an Apple Watch. We don’t know the answer to this, but I found an article on the Internet that measured how much gold was used in an 18K gold Rolex watch. This will give us a rough idea of how much gold may be used in an Apple Watch Edition.

“How Much Gold Is Really In A Rolex Watch?”

NewImage

This article tears down a Men’s Rolex President (photo) to find how much gold is used. The results are as follows;

Case ring weights 18.5 grams. Contains 13.875 grams of pure gold. It has a value of $178.43.

Case back weighs 7.21 grams. Contains 5.41 grams of pure gold. It has a value of $69.57.

Bezel weighs 5.30 grams. Contains 3.98 grams of pure gold. It has a value of $51.18.

The bracelet weighs 68.85 grams. Contains 51.64 grams of pure gold. It has the most value at $664.09.

The total value of the pure 24kt. gold in this Rolex President is $963.27.

Since the Apple Watch Edition does not come with a solid gold bracelet, the total value of the pure 24kt. gold in watch would be

$963.27 - $664.09 = $299.18

That’s actually not very much.

Furthermore, the case back of the Apple Watch Edition does not have much gold because the heart rate sensor takes up a lot of space. For the Apple Watch Edition, I would estimate something like $230.

Gold prices have risen very significantly (2-3 times) since this teardown article was written in 2006 (probably due to the excessive quantitative easing by the Fed in response to the global financial crisis), so we might actually be looking at a total value of something like $500 – $1,000.

This suggests that if Apple follows a pure cost-based pricing strategy, the price difference between an Apple Watch (stainless steel) and an Apple Watch Edition (18K gold) will only be about $1,000 at maximum.

Developers

In PCs, smartphones and the Apple Watch, developers play a very important role. This is likely to strongly affect any pricing decisions that Apple will make.

To understand this, take a look at the video of Steve Jobs and Bill Gates at All Things D5 from (15:52). They talk about their collaboration on the original Macintosh on which, not only Apple but Microsoft had bet their future on. Bill Gates mentions that when Steve first came, he had mentioned that the price of the Mac would be much lower than it eventually turned out to be at $2,495. In fact, Steve Jobs fought for the Mac to be prices $500 lower, but lost out to John Sculley.

Why would Steve aim for low price? Because a low price would mean more units would sell, which would mean that Microsoft and other software developers would be able to sell more software and make more money. This would invite more and more developers to write software for the Mac and create a vibrant and healthy ecosystem.

Coming back to the Apple Watch, Apple has to entice developers to write software for it. They have to create a vibrant ecosystem around the watch. This means that they need to sell a lot of units. Maybe not as many as iPhones or iPads, but at least enough to make developers excited about it.

Keep in mind that while Apple may rake in a lot of money from a luxury watch, app developers will not be able to charge a premium for wealthy customers. A billionaire and a person on the street both pay the same few dollars for the very same app.

A luxury watch that will cost more than $4,999 and will only sell to a relatively small number of wealthy customers will not contribute much to the ecosystem.

Tentative conclusion

My guess is that Apple will price the Apple Watch Edition 18K gold models using a cost-based pricing strategy. That is to say that the price difference between the stainless steel model and the 18K gold model will be between $500 to $1,000 at current raw gold prices.

The basis of my guess is that Apple does not have to employ the same pricing strategy as the Swiss luxury watch makers. In fact, doing so will harm the developer ecosystem that Apple wants to build up.

The priority for Apple should not be about maximizing short-term profit. It should be about selling large numbers of watches and building the ecosystem for long-term gain. And I’m sure that Apple is fully aware of this because of the near-fatal mistakes during the Sculley, Gassee years.

Update

  • I reduced the cost analysis for the Apple Watch Edition after realizing that the back case doesn’t use gold.
  • I have written some further thoughts on this topic.

HTML5 Is Not Yet Good-Enough

Another company is moving away from HTML5 and into native app development for mobile.

“Gree admits failure with browser-based mobile gaming, shifts half of workforce to make native games for iOS and Android”

This trend is not new and ever since Facebook (a huge HTML5 proponent) admitted that HTML5 was a huge mistake, HTML5 development has been on the defensive.

What we saw and still continue to see is, whenever the user experience is an important feature, native app development is the better approach.

This doesn’t mean that every developer must ditch HTML5 and go native. There are many cases where user experience is not the priority. In these cases, it might be still more practical to chose HTMl5.

Rather than debating HTML5 vs. native app development, it is more worthwhile to try to understand what this continuing trend means for the evolution of smartphones. My view is that this trend suggests the following;

  1. The user experience of HTML5 is still not good enough. That is to say that users value the smoothness, responsiveness and beauty of native apps. Users notice the difference.
  2. This would also suggest that the smoothness of the iOS user interface in comparison to Android, is still highly valued.

What’s interesting is that PC users never really demanded smoothness or responsiveness, and were more or less content with Web interfaces. I wonder why.

iOS App Store Revenue Growth is Outpacing Google Play Revenue Growth

App Annie has just released their report for Q2 2014. In their accompanying blog, they emphasize large growth in Google Play’s downloads in Brazil, Thailand and India. However, in contrast to the most recent report where they noted marked growth in Google Play revenue, this time they do not mention revenue at all in the blog.

This suggests that Google Play revenue was not too good. Here, I will try to reverse engineer the data that App Annie disclosed. I will try to figure out how Google Play revenue grew in relation to iOS App Store revenue growth.

What App Annie’s report reveals

Regarding revenue growth, App Annie’s report (the one that you can download for free here) only provides us with the following information;

iOS retained a strong lead in app store revenue over Google Play. In Q2 2014, the iOS App Store provided around 80% more revenue than Google Play. Mobile powerhouses China and Japan were the primary drivers of iOS revenue for Q2 2014. Up-and-coming countries Taiwan, Kuwait, and Turkey also contributed significantly to iOS revenue, each growing more than 30% quarter-over-quarter.

An accompanying press release actually has more details;

In Q2 2014, the iOS App Store provided around 80 percent more revenue than Google Play, down from 85% the previous quarter. Mobile powerhouses China and Japan were the primary drivers of iOS revenue for Q2 2014. Taiwan, Kuwait, and Turkey also contributed significantly to iOS revenue, each growing more than 30 percent quarter-over-quarter.

So in Q1 2014

  [iOS App Store revenue] / [Google Play revenue] = 1.85 (approximate)

and in Q2 2014

  [iOS App Store revenue] / [Google Play revenue] = 1.80 (approximate)

This alone isn’t enough to get a good picture. We need to know how iOS App Store or Google Play grew in revenue from Q1 to Q2. Since I couldn’t find this data, we assumed it to be in the range of 2% to 20% and analyzed the results for each assumption.

Absolute iOS App Store revenue growth exceeds Google Play if growth > 4%

If we assume that iOS App Store grew 10% from 1Q to 2Q and combine the App Store / Google Play ratios, we can derive the following table;

スクリーンショット 2014 07 17 20 48 26

Here we see that Google Play would grow 13% while iOS App Store would only grow 10%. However, since iOS App Store is much bigger, iOS App Store actually grows more in absolute terms compared to Google Play (18.5 vs. 13.1). This means that iOS App Store is widening its lead.

The above table assumes 10% growth for iOS App Store, but we don’t have any information to tell us if this is true or not. App Annie does not tell us what the growth was. Therefore, we tested various scenarios for iOS App Store growth, resulting in the following graph.

スクリーンショット 2014 07 17 20 45 57

Here we see that for any iOS App Store growth above 4%, iOS App Store growth in absolute terms will be larger than Google Play absolute growth.

App Annie previously provided us a chart for iOS App Store and Google Play game growth. Since the game category constitutes 75% of total iOS App Store revenue, this chart should give us an idea of what the growth of the total iOS App Store revenue should be like. From this graph, it is reasonable to estimate 10-20% quarterly growth for 2Q14.

Looking at our various scenarios, this indicates that iOS App Store absolute growth was 40-60% higher than Google Play. This means that the revenue gap between iOS App Store is widening quite rapidly.

Since the App Annie narrative for Google Play growth has consistently been that Google is catching up with the iOS App Store, it is understandable that App Annie is shying away from highlighting these numbers.

Android L Screenshots

Uzair Ghani has put up screenshots comparing Android “L” preview to Android KitKat and iOS 8 beta.

A few notes;

  1. Android L is definitely not yet finished. Even the calendar app uses the old Holo theme. Compared to where iOS 7 was when it was announced at WWDC, there still seems to be a lot to do. Maybe Google is planning to gradually update the Google Play apps; they may not yet be updated at the Android L release.
  2. Android L does not seem to use the “frosted-glass” effect that iOS 7 has had (and iOS 8 also). On the iPhone 4, iOS does not use “frosted-glass” either. Maybe the GPUs are not yet powerful enough on most Android phones. This is a bit interesting because a lot of the UI effects on Android L look like they would depend on a good GPU.
  3. The settings screen is no longer white letters on dark background. This is an important improvement in my opinion, as it sheds the final traces of Android’s geek-oriented history. It makes the setting panel much more approachable.
  4. I’ve always been concerned about the general disregard for consistency in Android user interfaces, even in the Apps that Google itself designs. Unfortunately, we can already see this in the few screenshots. Specifically, in the L phone app, we see the action overflow menu on the upper left. It should be on the right. The action overflow has always been abused in Android, starting life as a hardware key. It has always been a UI control with low discoverability. It would be sad if it is still not getting the respect it deserves.

Mobile Money

Leo Mirani recently reported on how mobile money transactions are becoming popular in emerging markets. It’s an old story, but it is increasingly relevant as Google falters with Google Wallet and Apple is rumored to enter payments using Touch ID fingerprint scanning.

I’ll just list a few of my observations and thoughts.

  1. The technology for mobile money in emerging countries is very low tech. In fact, it is based on simple text messages.
  2. The US in particular is very slow to adopt mobile money, instead relying on credit cards (and sometimes paper checks).
  3. Although not as spectacular as countries like Kenya and Tanzania, Japan also has quite popular payment systems that are reliant on mobile.
  4. What we are witnessing is a general phenomenon. Countries acquire habits as they grow their economy and these habits persist as they mature. The technical and cultural environment during the growth period strongly affects these habits, and they can be difficult to change later even after environments change.

Africa is growing its economy in an age where almost everybody has a mobile phone. That’s why mobile payments are popular. On the other hand, the US credit card system emerged when magnetic cards were still high-tech (remember the days when we passed credit cards through a carbon copy roller?). Although almost everybody in the US now has a mobile phone, it’s difficult for the US to change its habits despite the benefits that it would bring.

Japan, happily enough, is one of few countries where you could carry large amounts of cash without worrying about being mugged. Because carrying cash was not a concern, credit card adoption was slow and was incomplete. Hence it was possible for mobile payments to thrive in certain niches.

It’s really simple to understand how each country is the way it is. However, it’s very difficult to change.

What this means is that each country has very different requirements for mobile payments. A one-size-fits-all approach is destined to fail. Working with local partners and customizing for the local situation is essential.

Returning to the question of how Google and Apple should approach mobile payments, it’s very clear that trying to be the payment system will only work for a certain market segment. It is more important to empower the system that each country already has through APIs or maybe something like HealthKit. Helping others to succeed on your platform and benefiting indirectly should be the way to go.

Gmail with Material Design

I was just thinking about Material Design within Google’s own apps, and it occurred to me that at least in my case, the Gmail app would never look like the screenshots on the web.

For example, the screenshot below was taken from CNET and it surely looks nice (Material Design on right, current design on left).

NewImage

However, my Gmail account on my Android phone actually looks like this (yes, I only use my Gmail account to sign up for newsletters and mailing lists. I never use it for communicating with someone I know, but you get the idea);

Screenshot 2014 07 02 20 13 05

When the current Gmail cannot find a photo, it uses the first letter of the sender’s name instead. This is totally ugly, and what’s more, completely useless.

I wonder how Material Design solves this…

Or maybe it’s a setting deep in the menus…

I think we have to keep in mind that when we communicate with close friends, we tend not to use email anymore; we use messaging services, Twitter or Facebook. For these accounts, we often have photos. Emails are for work, mailing lists, notifications, etc. We normally don’t have photos for these. At least, I don’t.

To come to a good design, designers have to understand how the product will be used, in what context and with whom. At least, I think that is how good designers are supposed to approach problems.

Chinese Android Larger Than Google’s Android

Chinese Android, that is the Android that is based on Android Open-Source (AOSP) and is independent of Google’s services and restrictions, seems to be already significantly larger than Google’s Android (the one that relies on Google services, and comes with Google’s restrictions).

At least that seems to be the case if we look at app download statistics.

According to Analysys International, App downloads in China were 23.4 billion for 2014Q1 alone. In comparison, Google Play downloads were probably in the 15 billion range for 2014Q2 (Estimated from 1 & 2). That’s quite a big difference.

Revenue-wise, I don’t have any data. However, given that Google Play revenue is dependent on mature developed nations (Japan, US, South Korea), it is very possible that revenue is growing much faster in China. Furthermore, iOS App Store revenue has been pretty high in China, suggesting that the Chinese have a rather high propensity to spend money on Apps. I would not be surprised if Chinese Android app revenue is similar to or has already surpassed Google Play app revenue.

Of course this discussion hinges on the “23.4 billion for 2014Q1 alone” report being true. Hopefully, we will get verification soon.

Obviously, the implications of this are huge for the Android ecosystem.