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.

Who Is To Blame For Samsung’s Bad Fortune?

As the profits plunged on Samsung’s smartphone business, the web has been awash with reasons.

Ben Bajarin has shown very nicely that the largest problem that Samsung faces is the decline of the high-end business, which is also mentioned by a Samsung executive in the Guardian article.

The high-end of the business has been dominated by Samsung and Apple and still is. This means that there are two possibilities.

  1. Apple took away Samsung’s sales in the high-end. That is to say, users of high-end Android phones (who were mostly using Samsung devices) switched to the iPhone.
  2. The high-end market for Android smartphones saw a sudden shrinking. That is to say, mid-range smartphones were perceived as good enough and hence there was no need for customers to purchase high-end Galaxy devices anymore.

I suspect that both of these happened but I want to analyze them in isolation because it makes the situation easier to understand. Although these two look similar, they are actually very different. The first means that Apple was able to steal market share away from Samsung. The second means that vendors of mid-range smartphones (including Samsung of course) captured the customers who previously bought high-end phones. We will look at each separately.

Apple is stealing away the high-end

This is obviously happening. All reports point to Apple selling huge numbers of iPhones and it has been suggested that a lot of these are switchers who have abandoned Android phones.

The important thing is why. Of course the triggering event is the increased screen size of the iPhone 6. However, what is more important is why couldn’t Samsung match the iPhone 6 before Apple threw down the gauntlet. Why was Samsung left clinging to screen size as the only feature that could keep it competitive in the high-end.

Although design and/or Apple’s brand could well be a factor, it is also as likely that iOS and its app ecosystem could have been perceived to be superior than Android. If this was the case, then the blame would have to be put onto Google. Google failed to create an operating system and ecosystem that was competitive against iOS. The only reason that the high-end Android market existed at all was because Samsung had large screens while Apple did not.

If it was design or branding, then it would be harder to place the blame on either Samsung and Google simply because Apple is so good at these. Either way though, the result is that the high-end Android market cannot exist anymore.

The high-end Android market is shrinking

This is a completely different dynamic. If this were the case, then we should be seeing customers who previously owned the flagship Galaxy devices either downgrade to mid-range Android devices or to extend their replacement cycle. I have not yet seen a statistic that suggests that this is happening, but it is plausible.

This can only happen if Android smartphone hardware is starting to be considered as good enough, even by previous high-end purchasers. This also has to happen while at the same time, on the Apple side of the fence, Apple customers are not considering iOS hardware to be good enough. There must be something very different happening to Android customers and iOS customers.

The good enough of hardware is determined by software. If the software can take advantage of new hardware and create a true benefit for the customer, then old hardware will not be good enough. On the other hand, if the software does not have any compelling features that require new hardware, then old hardware will be good enough. No matter how much the hardware improves, whether customers will demand it depends on software.

In the case of iOS, the OS made full use of the 64-bit hardware to enable much faster processing of photos and movies. The OS made use of the TouchID sensor, which is also now being used by the Apple Pay service. Apple has given each piece of new hardware a significant reason for existing, and that is why customers want new devices.

On the Android side, that has not been the case. Google has not moved quickly to 64-bit, it has not worked hard on corporate level security, and it has not introduced software support for biometric sensor technology. Instead, Google has introduced a lot of software technologies that enable low-powered devices to smoothly run the latest operating system. Instead of adding new features that would take advantage of new high-end hardware, they focused on making sure that the mid-range and low-end hardware would be able to run the latest operating system and to take advantage of all of its features. In summary, Google actively designed their new operating system so that Samsung would have a hard time differentiating itself.

Although I’m not sure whether Google did this intentionally, it has made it very difficult for high-end Android smartphones to compete with mid-range ones. This is not only a challenge for Samsung, but it will also be a challenge for any OEM that plans to move upmarket. It will mean that companies like Huawei, Lenovo and Xiaomi will not be able to move up-market unless they gain significant control of the OS.

So what should we blame?

I think that Google was targeting the low-end from the start, but Andy Rubin was not. I genuinely think that Andy Rubin was much more focused on the high-end and he didn’t seriously consider making Android work better on low-end devices. I think he wanted to make Android as good as or even better than iOS. The fact that his reign coincided with when Samsung was strongest is no coincidence.

When Andy Rubin was removed and Sundar Pichai took over, it became rather clear that instead of fighting with iOS, Android would focus on the low-end. In fact, most products that Google creates (many of which were under the supervision of Sundar) aim at the very low-end where prices are normally zero. Google Docs is a prime example of this, as is Chrome OS. Google’s strategy is to commoditize all markets except for search and advertising, by providing a good enough product for free.

Samsung could have tried harder to take control of Android so that they could create software that took advantage of high-end software. In fact, they tried. Considering that Samsung was mainly a hardware company, I don’t think that they ever misunderstood that they needed good software; it was just that they didn’t have the resources or the culture to create great software. It’s hard to blame their strategic thinking for this.

Google could have tried harder to preserve the high-end. However, it’s priorities were clearly in the low-end. It’s hard to focus on both.

I would say that the only strategy that we could actually blame was Samsung’s decision to team up with Android. Samsung should have seen that Google would ultimately aim to commoditize their own OS and all hardware vendors using their platform. Samsung should not have helped Android to gain market share, and instead waited for a contender whose priorities aligned better with Samsung’s goals. Of course, that is what Nokia did.

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).

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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.

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.

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.

Is Apple Going After Google?

On The Charlie Rose Show, Tim Cook was uncharacteristically harsh on Google, or so it seemed to my eyes.

Some quotes;

Our business is not based on having information about you. You’re not our product.

I think everyone has to ask, how do companies make their money? Follow the money. And if they are making money mainly by collecting gobs of personal data, I think you have a right to be worried, and you should really understand what’s happening with that data, and the companies I think should be very transparent about this.

I’m offended by lots of it.

Tim Cook also mentioned prior to this quite strongly that Apple’s competition is not Samsung but Google. (32min 20sec on this video)

I find this very interesting. Steve Jobs tended to divert attention when asked about his feelings towards Google, although we know for a fact that he was mad at them copying the iPhone with Android. As far as I know, Tim Cook’s words are the most critical I have heard from an Apple executive.

With the launch of iOS8 and iPhone 6, many analysts have observed that the advantages that Android (and Samsung) had over Apple are mostly diminished. Hence at least in the United States, it is very likely that iPhone will take market share away from Android. Apple has also improved its Maps application, and it seems that iOS users are mainly using it over Google Maps. It is also common understanding that Google is paying Apple to keep Google as the default search engine on mobile safari. It looks like Google is quite reliant on Apple as a partner, but that Apple is increasingly gaining a stronger bargaining position.

On the other hand, Apple’s attempts to keep Android at bay through patent litigation has proved to be for the most part unsuccessfull. In some cases the courts have found that Samsung has infringed on Apple patents, and as a result, some features have been removed. This hasn’t however prevented Android from gaining in popularity and market share around the world.

My hunch is that Apple has changed its strategy from simply trying to block Android through litigation, to a strategy where Apple will try to damage Google’s core business and revenue source, that is collecting user data and using it for advertising.

The motivation of such a strategy is quite simple. Outside of its core business of search and advertising, Google consistently tries to undermine a successful business by giving away a similar product for free. This is what they did to Microsoft Office with Google Docs and to the iPhone with Android. They are also aiming to do the same with Chrome OS. As Apple introduces the Apple Watch, Google will inevitably modify Android Wear and give that away for free, which may cause headaches for Apple. Google can do this because it makes so much money from advertising. They use this money to fund unprofitable businesses with the goal of commoditizing that market.

Apple has found that they cannot directly block the free products that Google creates. The patent litigation process takes too much time for it to be effective in the fast changing tech landscape. Instead, Apple might be thinking that preventing Google from earning so much money from search is the better approach.

If this is the case, we may see much more public relations efforts from Apple (and even maybe in concert with Microsoft) to educate the public that Google is collecting and using customer information for advertising purposes, and that we should be concerned. We can also expect Apple to move more aggressively with Spotlight in iOS so as to all but eliminate the need to search on the Internet. It looks like this is going to be done quite forcefully.

It will be fascinating to watch.

Update

On Sept. 18th, soon after the Charlie Rose Show aired, Apple posted a letter from Tim Cook on its web site. It reiterated what Tim Cook said on the show about piracy and about the practices of Google (without mentioning the name). It’s actually not a single letter, but a new privacy section of their website with a few more pages detailing how Apple handles privacy. It is now evident that Tim Cook’s comments on the show were not spontaneous, but was an initiative that Apple had planned for a while.

“A message from Tim Cook about Apple’s commitment to your privacy.”

A few years ago, users of Internet services began to realize that when an online service is free, you’re not the customer. You’re the product. But at Apple, we believe a great customer experience shouldn’t come at the expense of your privacy.

I expect we will be seeing much more comments like this coming out of Tim Cook and Cupertino this year. It will be very interesting if they can take it to the point where Google starts feeling like retaliating.

Lessons From the IPhone 5c (part 2)

Despite the speculation surrounding the next iPhone launch and a possible cheaper version, there is little discussion about the iPhone 5c and what Apple might have learned from it.

I mentioned this recently on my blog. In particular;

The sales of the iPhone 5c seems to have improved later in the product cycle. That is, the ratio of iPhone 5c as a percentage of total iPhone sales has risen. I have also anecdotally observed this in the super-subsidized Japanese market. Hence I suspect that the recent rise in popularity of the iPhone 5c is not directly related to price. It is possible that some consumers simply want a product that displays their individuality, like a fashion item.

A recent comScore survey supports this idea.

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We see the iPhone 5c being popular among teenagers and young adults. They are particular popular among women in this age group. This supports the idea of the iPhone 5c being popular among fashion conscious groups. This is definitely a demographic that Apple would be interested in targeting.

Also, comScore mentions that there were 15 million iPhone 5s users in the USA compared to 6.4 million iPhone 5c users. These is a large difference, but the iPhone 5c is still undoubtedly a very popular phone.

This suggests that Apple would continue to carry an iPhone 5c-ish product line. In fact, it is not unreasonable to predict that, instead of using last-year’s technology in their plastic-adorned products, Apple could decide to use the same flagship technology.

Since I have absolutely no inside information, I can only say that this is a possibility. It will be however interesting to see what Apple does with the iPhone 5c.

The Low Cost iPhone

A very interesting article on Bloomberg today by Bianca Vázquez Toness.

“Indians Flaunt 4-Year-Old IPhones as Apple Builds Appeal”

“You flaunt an iPhone, but you don’t flaunt an Android,” said Punit Mathur, a 42-year-old vice president of a digital media company who switched to a new iPhone 4s from a Nexus 4. An iPhone 5s that would cost 53,500 rupees ($874) is too expensive, “but the 4s is still an upgrade,” he said.

Gives you a great idea of the strength of the Apple brand. It’s also amazing that moving from a Nexus 4 to an iPhone 4s is an “upgrade”.

The article also describes Apple’s strategy in India which is composed of a) using old or refurbished phones to get customers into their ecosystem and b) installment plans which break down the cost of an iPhone into 24 payments.

The important thing is that Apples 2Q2014 showed strong sales in Brazil, Russia, India and China. This proved to the world that Apple actually has a working strategy for the more cost sensitive markets. If Apple is to introduce a low-cost iPhone this year, the strategic reasoning will undoubtedly be rooted in the success they’ve already having.

As for the iPhone 4s being an upgrade for the Nexus 4, consider the following;

スクリーンショット 2014 08 08 20 52 07

I think that the key to understanding Apple’s low-cost iPhone strategy is being able to explain why the iPhone in this table can be considered an upgrade.

Lessons From The iPhone 5c

If the rumors are to be believed, Apple’s new iPhone will be unveiled in about a month. Most rumors point to a larger screen being used, but it is still unknown whether their will be a model that is significantly cheaper than the flagship. That is, will there be a model that will be priced in the $2-300 range, which is the average for mid-range Android smartphones.

I really don’t have much to say about this, except for the fact that it is a very complex issue (as Benedict Evans has pointed out), and that I think we should try to learn harder from the iPhone 5c.

What I have observed from the iPhone 5c is;

  1. A 100 USD price differential will not cause customers to abandon the flagship model and swarm to the lower cost one. In fact, cannibalization seems to be minimal. It is possible that if the price differential is increased to 200 USD or even 300 USD, then customers will move to the lower-priced model in droves. That is however unproven and the magnitude is highly speculative. It is feasible that a 300 USD will still result in minimal cannibalization.
  2. The sales of the iPhone 5c seems to have improved later in the product cycle. That is, the ratio of iPhone 5c as a percentage of total iPhone sales has risen. I have also anecdotally observed this in the super-subsidized Japanese market. Hence I suspect that the recent rise in popularity of the iPhone 5c is not directly related to price. It is possible that some consumers simply want a product that displays their individuality, like a fashion item.
  3. Sales of the iPhone 5c have been substantial despite it using the previous year’s technology. Hardware technology does not seem to be the driving issue.

My thoughts;

  1. Apple could sell a much lower cost model without worrying about cannibalization of the flagship.
  2. Apple could sell large volumes without going down to the regular mid-range price.
  3. The lower cost model will not sell just on price. It will need to have a fashion element that differentiates it from the flagship.
  4. For the technology inside the lower cost model, it is sensible for Apple to continue their current strategy. That is to use the former year’s flagship technology. Technology progress is not as rapid in the core CPU and RAM functions as it used to be, and the iPhone 5c is sufficiently fast. Having said that, it is important for Apple to invest in new hardware technology that can not be copied in a single year. For example, 64-bit and Touch-ID have given Apple more than a year’s head start. Sapphire will also be hard to copy given the supply chain situation.