Opening Up iOS And Implications

In the 2016 WWDC Keynote, Apple showed how it was going to open up Siri, Messages and Maps. It also showed how it was going to allow VoIP apps to show incoming calls just like how the default Phone app does; using the full screen.

Now if this was just Messages, then we might think that this was in response to the popularity of messaging apps like WeChat which work as platforms. However, if you listen to the State of the Union presentation after the Keynote, then you learn that even Xcode has opened up. It then becomes apparent that this is not just a simple response to WeChat, but a deliberate iOS-wide and even Apple ecosystem-wide direction that Apple is coordinating with their extensions system.

This extension system is not something that is new. In fact, it is an extremely old idea that is more often referred to “plug-in”. It is the idea that allowed browsers to provide rich multimedia experiences before the advent of HTML5. It is the idea that allows programming editors like Eclipse to become very rich tools for a huge number of programming languages. It has already been proven that this mechanism allows programs to be used for occasions that were never envisioned by their original creators, and can be very useful and effective. Although it does tend to add a layer of complexity for the end user, it is undoubtedly a feature that can have widespread impact.

Given that the extensions are likely to be very popular, then it is worthwhile to try to predict how they will advantage Apple and/or dis-advantage its competitors.

  1. Let’s ponder whether Google would open up Maps for example. Would they let third party apps provide the restaurant and shop recommendations layered onto Google Maps? What would be the implications for their business model that depends on showing sponsored recommendations in a more prominent way?
  2. Would wireless carriers be happy with VoIP apps that can integrate into the iOS to behave in just the same way as the default Phone app?
  3. Would Amazon open up its store so that random online stores can integrate themselves in the categorical listings and search results?

Many of Apple’s competitors provide the app layer for free and monetise at the extension layer. Google Maps plans to monetise by providing advertisements relevant to your location, but the Apple Maps extensions will allow third parties to provide this instead of Apple. Similarly Amazon provides an online store website with good search, recommendations and reviews. It monetises when people actually make purchases, which is similar to the layer that Apple’s extensions live in.

What we see here is that Apple has created a powerful extensions mechanism ecosystem-wide, that is almost guaranteed to be popular, and which may conflict with the business models of Google, Amazon and many other competitors.

The implications will be interesting to watch.

Illustration Of Why India’s Market Is Difficult For Apple

I’ll just show some graphs that clearly illustrate the differences between the smartphone markets in China and India, and tell us that Apple still needs to do a lot of basic groundwork in India before it can expect iPhone sales to boom there.

The data is taken from StatCounter, and I have used mobile operating system (excluding tablets) web usage share statistics going back to June 2010.

China
StatCounter os CN monthly 201006 201507

India
StatCounter os IN monthly 201006 201507

  1. Web usage from iPhone in China was already above 10% in Jan. 2011. This is presumably mostly due to gray market phones or the second-hand market since Apple wasn’t selling nearly that much iPhones in China back then.
  2. This suggests that the Chinese market was already primed for a big jump in iPhone purchases, far before the iPhone became available on their largest carrier, China Mobile (2014).
  3. In the Indian market however, there is absolutely no priming of iPhone demand. Web usage from iPhone is very small.

It is clear that for iPhone to succeed in India in the mid-term, Apple has to be pretty aggressive. The situation is nowhere like how the Chinese market was.

Android No Longer Competes With iOS

The Google I/O keynote on May 28th 2015, confirmed a thought that I have had for a long while.

On April 3rd 2013, I wrote a post (in Japanese) titled “Predicting Android’s Change Of Direction: Thoughts from Andy Rubin’s Demotion” (「Androidの方向転換予想:Andy Rubin氏の降格を受けて」). In that post, I argued the following;

  1. Andy Rubin considered Android to be very valuable in and of itself. For him, it was important to make Android the best that it could be. This meant being better than iOS.
  2. Larry Page is not very interested in Android itself. His interest is in Google’s cloud services, and Android is only one of many initiatives to maximise their user base.
  3. Hence Android’s market share itself is not important, nor is controlling Android an imperative. Even if iOS, Firefox OS or Tizen expanded their market share, that would not be a problem as long as they used Google’s services.
  4. Android does not need to be the best smartphone OS.

From this, I predicted that Android would stop trying to copy iOS in the attempt to get iOS users to switch. Instead, Android would probably focus on the low-end in order to expand the use of smartphones in markets where iOS would not have a strong presence.

The 2015 Google I/O keynote strongly suggests that this indeed has been their strategy ever since. The signals that I observed were;

  1. Android M itself (excluding the cloud services that would also be available on iOS), no longer adds major features that would give it an advantage over iOS.
  2. The announced Photo service is also available on iOS from day one. Now on Tap which is not feasible on iOS which is why there isn’t an iOS version.
  3. The improvements on offline connectivity are geared towards countries where Internet connectivity is unreliable or expensive compared to the average income.

Google itself mentioned that Android M is mainly about fixing bugs and annoyances in Lollipop, and if that is to be believed, then the next version of Android coming out in 2016 should have many more features. However, since I am now more confident of my reading of Google’s strategic imperatives, I am pretty sure that this will not be the case. I predict that the 2016 version of Android will also not have any major new features.

In short, I am now sure that Google no longer intends to compete with iOS with Android. Essentially, they are giving up the high-end smartphone market to Apple and they are cool with that. Instead, Google sees Android as a vehicle to spread their services to market segments that iOS cannot penetrate.

How will this strategy fare in the future?

This strategy is sound if Google’s sole objective is to learn about what people are doing. However, from a financial standpoint, there are many risks. By far the largest risk is, what if Apple is successful in distancing itself from Google? What if Apple somehow succeeds in significantly reducing the number of Google searches performed on iOS?

There are several dark shadows on the horizon in this regard.

  1. Google search may no longer be the default search engine on Safari. (link)
  2. The vast majority (75%) of mobile search ad revenue comes from iOS (from Goldman Sachs)
  3. Apple has been working to reduce iOS’s search reliance on Google, and the ability to display Wikipedia search results in Spotlight have reduced Google clicks(9to5mac).

It seems that either these reports are false, are insignificant, or simply that Google’s management is oblivious to these threats.

Either way, Google’s strategy makes it financially vulnerable due to an over dependence on iOS. Since Google still lacks a strong alternative revenue source to search ads, anything that causes it to lose this revenue will significantly slow the company’s growth. The only way to mitigate this risk would have been to attempt to capture the high-end smartphone market in collaboration with Samsung. This is very much to opposite of what Google’s actions suggest.

In conclusion

I am now quite sure that Google’s management gave up on the high-end smartphone market at the time when Andy Rubin was demoted on March, 2013. The past two years has seen Google focus on the low-end smartphone market, while deemphasising high-end features, and even fighting with the vendor that dominates high-end Android phones.

2015 is the year when we might see this strategy backfire. There are multiple reports that suggest that Apple will more aggressively distance itself from Google, and that this will have a significant impact on Google’s growth.

Importantly, by neglecting the high-end smartphone market, Google has burnt the bridges and has no backup strategy if this is indeed what happens.

Content Creation on Smartphone, Tablets and Watches

It surprises me that some people still say that smartphones and tablets are only good for content consumption, and not content creation.

That is only true if you totally ignore all the status updates on Twitter, Facebook, Instagram, etc. and declare that content on these social networks is too trivial and unimportant to be considered content.

One has to understand that the meaning of “content” has changed a lot with the development of technology. The content that was inscribed on the walls of the pyramids, for example, is very different from the random BuzzFeed article about Justin Beiber. Similarly, the content in the mobile age will be very different from the long-form blog-ish content of the Web 2.0 era. It will be more short form, more photos, and more multimedia. And for this type of content, smartphones generally trump PCs as content creation devices.

This will also be true of smartwatches. Whether or not smartwatches will become content creation devices depends not so much on whether they are good for writing long emails or blogs, but more on how communication forms evolve. And we can make a sure bet that the communication forms will evolve towards the most popular devices, hence if smartwatches become popular, then content will evolve to be better suited for these, which means shorter and more textual or emoji. With the huge strides being made in speech recognition, it is very likely that smartwatches will easily gain the capability to create these kinds of content.

What is important is that one has to recognise that both sides of the coin will evolve in concert. Saying that smartphones and tablets are not good for content creation basically shows how outdated your view of content is.

Short Note on App Store vs. Google Play Revenue

As Benedict Evans wrote in his weekly newsletter, Apple reported its revenue from the app store in 2014.

Apple reported that app store revenue net of its 30% commission was $10bn in 2014. This is actually the same as the figure it gave at WWDC in the summer for the previous 12 months – I suspect there’s some rounding going on. Apple’s commissions on this would be about 2% of CY 2014 revenue.

Apple announcement link

Although we will not know exactly what the rounding error was, given the very strong growth of the app store in the past, it is quite difficult to believe that sales have suddenly flattened out. So to get a better picture, I decided to provide an update to my series of articles on the iOS App Store vs. Google Play (most recent one is here).

In that article, I lamented that App Annie was not giving out the actual growth of neither the App Store nor Google Play and as such, it was impossible to see whether the revenue gap was closing in absolute terms.

Since then, App Annie has reported its Portable Gaming Spotlight, 2Q14 report in conjunction with IDC. This report gives us a direct answer.

Screen Shot 2015 01 13 22 12 07

As you can clearly see, iOS App Store absolute revenue growth is larger than Google Play absolute growth. Although Google Play is doing remarkably well on a YoY percentage basis (>+100%) compared to iOS App Store (+70%), it is not closing the gap at all.

Also you have to keep in mind that Google Play revenue is increasingly games. In fact, App Annie notes in their Q3 2014 report that, “Games drive nearly all Google Play Revenue Growth”. This is presumably not the case with iOS which suggest that the gap between the App Store in Google Play revenue is wider and also growing if we include non-game apps.

Actually, my view is that the difference in non-game app category is more interesting than the total difference. It’s likely that by now, iOS has about 6-times more non-game revenue than Android. This means that apps like Byword, RunKeeper and others which are either paid-apps or in-app payment apps are struggling on Android.

Overhyping the Revenue Potential of the Emerging Countries

A beautiful infographic on the state of App Stores by App Annie.

Unfortunately, I can’t agree with the title “Mobilizing the Next 5 Billion”. If anything, this infographic tells us how dominant the “app store superpowers”, Japan, South Korea and the United States are. These superpowers are not only dominant in current revenue, but also have revenue growth that is equal to the emerging countries. This means that the emerging countries are not catching up; instead the lead of the superpowers is widening.

The infographic tells us that the superpowers will remain dominant in revenue for the foreseeable future. The next 5 billion is unlikely to contribute significantly to total revenue from app stores for quite a while.


Infographic GMIC 11182014 2

Will High-End Android be a Samsung Exclusive?

I have been very wary of Google’s efforts to build in the tools that Android requires to compete with Apple in the high-end smartphone market. My feeling has been that Google is no longer interested in the high-end smartphone market and is satisfied to let Apple have it. Instead, Google is focusing on the low-end market and on bringing low-cost smartphones to the emerging markets.

Recent announcements reinforce my thinking.

On Nov 13, 2014, Samsung and BlackBerry announced a partnership to build and market a tightly integrated, end-to-end secure solution aimed for enterprises. It is well known that Apple dominates corporate market share in smartphones and tablets, and security is one of the reasons why Android is struggling. The interesting thing is that Google seems very uninterested in developing a solution of their own for this quite lucrative market.

At the keynote of Samsung Developer Conference 2014, Samsung introduced Samsung Flow, which is basically their version of Apple’s Continuity features. The important thing to note is that Continuity is a feature that is only valuable for customers who can afford multiple devices. Again, why did Samsung and not Google develop this? Is it because Google is relatively uninterested in the customers who are wealthy enough?

Samsung recently announced its answer to Apple’s iBeacon feature, Proximity. This is a technology to enhance customer experience at stores, mall, stadiums, museums, etc. and also push you special offers and stuff. As stores embrace iBeacons, there was the possibility that some of the offers would end up being exclusive for iPhone users. Now it will be exclusive to iPhone and Samsung users. Why wasn’t Google interested?

If this continues, Samsung might create a rather formidable barrier-to-entry for the high-end Android market, blocking HTC, LG, Lenovo and others from competing.

Although I do suspect that the overall market for high-end Android devices might shrink, I do not doubt that Samsung will continue to dominate for the foreseeable future.

How Apple Has Actually Introduced New Category Products Every Few Years

There are several people who seem to have had difficulty applying Clayton Christensen’s Disruption Theory to the tech world, and have proposed that this theory itself does not apply to either the tech market or consumer goods. However Horace Dediu, who is now working for the Clayton Christensen Institute specifically for the task of applying Disruption Theory-based analysis to the tech market, has argued in a podcast with Ben Bajarin, that there is no reason why it cannot be done. Horace argues that the challenge lies in defining what constitutes the “jobs-to-be-done”, and a failure to do this successfully is why Disruption Theory sometimes seems to fail.

This point is very important and is worth reiterating. The reason why Disruption Theory occasionally fails to explain a certain situation is not because the theory itself is limited in its scope; it is because identifying the jobs-to-be-done is extremely difficult. In fact in the typical example of the jobs-to-be-done, the milkshake example, the jobs-to-be-done is so unintuitive that its unlikely that even an industry expert would have accurately predicted it. It is no wonder that Clayton Christensen himself failed to predict how Disruption Theory would affect Apple.

More often then not, the people who attempt to expand, supplant or even discredit Disruption Theory have simply neglected to carefully analyze the jobs-to-be-done.

To further complicate things, if you look at the brief history of personal computing, which has only been with us for four decades at most, you can also observe that the jobs-to-be-done has shifted extremely rapidly. At most, a certain jobs-to-be-done will be mainstream for only five years.

For example, the PC started out in the Apple I era as a hardware hobbyist’s kit. With the Apple II, the PC was now a platform for a hobbyist software programmer. Then with the advent of packaged software like VisiCalc, the PC became a business tool for performing large numbers of calculations. With the arrival of the Macintosh and the Laser Writer, the PC now became a tool for creative professionals, and then with the Internet, it became a tool for communication and collaboration. After the year 2000, the PC became a tool to manage digital photos, music and video.

With each shift in the jobs-to-be-done, the required hardware specifications to sufficiently perform the task increased. At the same time, the customer base continuously expanded to less tech-savvy users which required the user interface to improve. This meant that the PC rarely reached the good-enough threshold because the bar was constantly being raised.

The exact same thing can be said for smartphones. The original iPhone started out as a phone, an iPod and an Internet communicator. In a short amount of time, it quickly became your main camera, your gaming console, your map, your photo album, your fitness tracker, your newsreader, the pacifier for your kids, your TV and so much more. And now with Touch ID and Apple Pay, Apple is making your iPhone your ID and credit card. From its initial humble jobs-to-be-done, the smartphone is now the center of a huge portion of your life. The jobs-to-be-done of smartphones has exploded.

And as with PCs, each shift in the jobs-to-be-done has required new and better hardware. Being your main camera has demanded better optical and image processing hardware and software. Being your gaming console has demanded better 3D graphics performance which technologies like Metal and better embedded GPUs can provide. Being you fitness tracker has resulted in technologies like the M7 motion co-processor which can constantly track your movements with minimal battery drain. And of course Touch ID and Apple Pay required new biometric hardware.

By now it should be plainly obvious why Apple has avoided being disrupted; Apple has consistently been at the forefront of the shifts in the jobs-to-be-done in personal computing (except for the years when Apple was run by John Sculley and R&D was run by Jean-Louis Gassée). That is why new Apple hardware has constantly been in high demand and can still command a high premium.

On the other hand, the reason why Samsung is being disrupted at the low-end is because Android is not expanding the frontiers of smartphone jobs-to-be-done. Other than UI tweaks that work equally well on less capable devices, Android has recently failed to introduce compelling features that require new or better hardware. In fact, this might have been intentional on Google’s part as an initiative to reduce fragmentation. As a result, Android phones have become as good-enough as they can be, even on the hardware that can be bought for $200-300. The Android OS is holding Samsung back.

This also means that Apple products will be disrupted if they start failing to create new jobs-to-be-done. It also means that the resurgence of the Mac could be attributed to a new jobs-to-be-done that the Mac can uniquely satisfy. Strong integration with iPhones could obviously be one of these jobs-to-be-done which is not available on Windows PCs.

Actually, if you look at computing from a jobs-to-be-done standpoint, the idea of a “new category” device starts to look rather ridiculous. It becomes clear that the emphasis should be on whether or not a new jobs-to-be-done has emerged. Sometimes this might require a new device, but oftentimes, it simply requires new hardware on top of a preexisting device. This in itself is sufficient to transform the previous hardware into a new category device. For example, Touch ID has transformed the iPhone into a digital ID and wallet with unprecedented security and convenience, something that was hitherto impossible with a smartphone. Focussing solely on new category devices is completely missing the point.

In fact you could even argue that every few years, Apple has introduced a new category product in the guise of the iPhone or a new iOS version; a product that enables new jobs-to-be-done to emerge.

The Moment of Truth For High-End Android

AnandTech published their preliminary iPhone Plus and iPhone 6 Plus benchmark results yesterday.

The results are damning for Android.

Without going into detail, both the iPhone 6 and the iPhone 6 Plus posted solid but not incredible improvements compared to last year’s iPhone 5s.

The problem for Android is that none of the high-end Android phones that were released in the previous year (HTC One, Moto X, Galaxy S5, Xperia Z1s, LG G3, etc.) could even beat last year’s iPhone 5s. In browser based tests in particular, the iPhone 5s still managed to leave high-end Android devices in the dust; definitely an embarrassment for Google which continues to brag about their browser’s speed on the desktop.

The question is whether or not Android can catch up.

Android has two major cards that it can play to significantly improve performance.

One is to move to 64-bit hardware. Most Android devices, even the high-end ones are still on 32-bit. Apple managed to dramatically improve processing power as they moved to a 64-bit architecture and the hope is that Android might also see a good speed bump.

The other is Android RunTime (ART) which is the successor to Dalvik and will be introduced in Android L. Google has said that this can significantly boost performance.

Up till now, I have not seen any encouraging results. Benchmarks of Android L (on 32-bit hardware) have not shown performance improvements. On the other hand, a 64-bit Android phone (the HTC Desire 820) has been benchmarked (on the 32-bit KitKat OS), and the results are not impressive relative to high-end 32-bit Android phones.

I do not intend to draw conclusions from these preliminary benchmarks, none of which directly tell us whether 64-bit hardware on Android L will be significantly faster or not.

What I would like to say is that the next few months in which we can expect the official release of Android L and 64-bit hardware, will tell us whether or not Android will continue to lag behind iPhone or not.

If Android cannot match the iPhone 5s, let alone the iPhone 6, even with Android L and 64-bit hardware, then there we will have to accept a situation where Android can no longer compete in the high-end.

Can China Develop a Successful Operating System

Reuters reported that China is developing a homegrown operating system.

This is not the first time they have done this. However this time, they have a much better chance;

  1. China’s worries about the U.S. owning computing technology have largely been justified by the the revelations by Edward Snowden.
  2. China now is much more powerful in the computing scene. They manufacture most of the world’s smartphones.
  3. Chinese Internet companies have grown to the extent that they make a Google-less Internet a reality in China. Although they have yet to expand to other countries, China has demonstrated that they can develop viable alternatives to the most powerful Internet company.
  4. The dominance of Microsoft Windows has waned. In China, the majority of PCs ran Windows but only pirated versions of Windows XP. Now that Microsoft has ended support for Windows XP, China’s PC OS situation is up for grabs. This is even more so given that China has recently banned Windows 8 for government use.
  5. Although I don’t have hard data, it seems that the software industry in China is quite vibrant. There are many titles for both Android and iOS developed inside China. I suspect that there is quite a bit of software talent in China.

This time around, the Chinese OS seems to have a fair chance.

It’s obvious that this will be a Linux based system.