Analyst: Samsung sets Apple up for easy victory this fall

AppleInsider reported on Samsung’s ‘rushed,’ ‘half-baked’ announcements.

Analyst Brian White:

“In our view, this strategy was ill-advised because we found the event ‘half baked’ with no details around the price points, launch dates a bit fuzzy, limited technical specifications, and ‘gimmicky’ features,” White said in his note, a copy of which was provided to AppleInsider. “With the potential threat of this event now out of the way, we believe this just made Apple’s ‘Fab Fall’ launch a lot easier because the company’s #1 competitor does not appear well prepared to take on Apple’s new iPhones this fall.”

The point of rushing their announcements before Apple’s event is to steal the limelight and put a dent on Apple’s new products. Either they are ill-prepared or they are waiting for Apple’s move before they innovate on the features and match the prices.

Samsung’s cutting edge innovation

The Verge reported on the Galaxy Note Edge.

It’s an odd idea, turning this vertical rail into essentially an always-on secondary display. Is it best-suited as a ticker? A notification center? A quick-launch taskbar? Samsung doesn’t seem entirely sure, and in a few minutes of using the Galaxy Note Edge it was clear that while well-implemented and useful the whole idea isn’t necessarily fully formed.

It seems like the plan is to throw gimmicks and see if they stick. Successful ones are touted as a feature while those that are panned will quietly be canned.

Samsung’s sixth smartwatch

Android Central reported on the Samsung Gear S.

So here we are with Samsung’s sixth — yes, a full half-dozen — smartwatch in a little more than the space of a year. To wit: The Samsung Galaxy Gear, Gear 2, Gear 2 Neo, Gear Fit, Gear Live and, now, the Gear S. That’s a whole lot of Gear.

Instead of trying to be first in the market after picking up rumours of an Apple wearable, I believe Samsung would have packed a bigger punch if it took the time to refine their smartwatch before launching it.

They are punishing early adopters and also dissuading potential buyers from getting a smartwatch. With Samsung very likely to release yet another smartwatch in a few months time, would you want to spend your money on it?

I wrote about Samsung executive David Eun commenting on the Galaxy Gear:

“What we’re dealing with is small green tomatoes,” he said of the Gear’s first-generation growing pains. “And what we want to do is take care of them and work with them so they become big, red ripe tomatoes. And what you want to be sure of is that you don’t pluck the green tomato too early and you want to make sure that you don’t criticize a small green tomato for not being a big, red ripe tomato.”

Samsung is doing exactly what he says they shouldn’t. They are plucking their green tomatoes and pushing them to the consumers.

Amazon wrongly cites George Orwell

The New York Times wrote about Amazon’s letter to readers in its Readers United campaign.

Amazon wrote that George Orwell was against paperback format:

The famous author George Orwell came out publicly and said about the new paperback format, if ‘publishers had any sense, they would combine against them and suppress them.’ Yes, George Orwell was suggesting collusion.

What he actually said:

Here is what the writer said in the New English Weekly on March 5, 1936: “The Penguin Books are splendid value for sixpence, so splendid that if the other publishers had any sense they would combine against them and suppress them.

But wait, what he said back then actually argues against the model that Amazon is pursuing:

But Orwell then went on to undermine Amazon’s argument much more effectively than Hachette ever has. “It is of course a great mistake to imagine that cheap books are good for the book trade,” he wrote. “Actually it is just the other way about … The cheaper books become, the less money is spent on books.”

Instead of buying two expensive books, he says, the consumer will buy two cheap books and then use the rest of his money to go to the movies. “This is an advantage from the reader’s point of view and doesn’t hurt trade as a whole, but for the publisher, the compositor, the author and the bookseller, it is a disaster,” Orwell wrote.

Amazon’s argument on Readers United is flawed.

Moreover, e-books are highly price elastic. This means that when the price goes down, customers buy much more. We’ve quantified the price elasticity of e-books from repeated measurements across many titles. For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99. So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000. The important thing to note here is that the lower price is good for all parties involved: the customer is paying 33% less and the author is getting a royalty check 16% larger and being read by an audience that’s 74% larger. The pie is simply bigger.

Emphasis by Amazon. Notice how it emphasised the conclusion that it jumped to.

Amazon said that for each ebook sold at $14.99, it would sell 1.74 copies at $9.99. Where did that figure come from? Magic. Amazon could have had studies or market research that backed up its claim but for some reasons they choose not to cite any references.

Let’s assume that the price had no impact on the demand for ebooks:

  • 100,000 copies at $9.99 would bring in $999,000.
  • 100,000 copies at $14.99 would bring in $1,499,000.

By selling at $9.99 instead of $14.99, the author would see a 33% decrease in royalties paid.

It seems that George Orwells agree that price has no impact on demand:

“If our book consumption remains as low as it has been,” he wrote, “at least let us admit that it is because reading is a less exciting pastime than going to the dogs, the pictures or the pub, and not because books, whether bought or borrowed, are too expensive.”

Microsoft’s loss of $1.7 billion on Surface

CITEworld wrote about Microsoft losing $1.7 billion on Surface so far.

total loss for FY2014 was then $680 million ($2.192 in revenue minus $2.872 in cost of that revenue).

But that was small potatoes compared to what Microsoft lost on the Surface the previous fiscal year. Using Microsoft’s stated revenue of $853 million and some arithmetic to backtrack to the FY2013 cost of revenue, Computerworld concluded that the cost of revenue for the 12 months starting July 1, 2012, was $1.902 billion.

The total loss for FY2013 was thus $1.049 billion ($853 million minus $1.902 billion in cost of revenue and adjustments).

Since Microsoft started selling the Surface nearly two years ago, it has lost $1.7 billion on the line. (Microsoft, SEC filings.)

Viability of a cheap iPhone

Benedict Evans discussed about how cheap iPhones would fare.

The narrative generally splits the market into four rough segments:

  • $50-100 smartphones: currently these are dominated by companies you’ve never heard of using off-the-shelf chips from Mediatek, Spreadtrum and others, and though they run Android and have 3G they often have only 256 meg of RAM, which makes for a pretty poor experience. And the build quality and screens are not great.
  • $100 to (say) $200 – this is where the branded companies start playing. At this price devices like the Lumia 520, the Xiaomi Hongmi and the Motorola X provide an experience that you would not, actually, be unhappy with. I describe these phones as like driving a Toyota or a VW: you know you’re not in a BMW (or a Bentley), but there’s nothing wrong with them at all and some of them are pretty cool.
  • Then, $200-450 (or thereabouts) counts as mid-range, and
  • $450-500 and up counts as premium. Arguably there’s a super-premium segment further up.

So what is the cheap iPhone that people like to talk about?

When people talk about whether Apple should do a ‘cheap phone’, it’s important to be clear about which of these segments you’re really talking about. When people say ‘Apple is missing out on the next x billion people’ – that is, the portion of the market that’s still on feature phones – they’re actually talking about the first category. Even Samsung doesn’t really play here, nor Xiaomi. This is is the land of the $200 PC – very low margin commodities with a poor user experience.

Where a cheap iPhone might come in:

However, the second and third categories are rather more interesting. Apple says, over and over, that the objective is not to sell the most phones, but to make phones that it can be proud of. In 2007 the iPhone was an MVP lacking industry standards like 3G and a decent camera, yet it still needed to be $600 or more to deliver the vision. Today Apple could perfectly well make a phone it could be proud of at $300. Indeed, there’s nothing that it would be ashamed of in the Lumia or Xiaomi at $150 and below.

Yes, if you were wondering, the existing iPhones are in the fourth segment.

The reliablity of IDC & Gartner data

AppleInsider reported on how Apple’s double digit growth contradicts estimates by IDC and Gartner that Mac sales fell.

Earlier this month, IDC (above) reported that Apple’s U.S. Mac unit sales in Q2 (Apple’s fiscal Q3, the quarter ending in June) fell by 1.7 percent, while Gartner (below) reported a drop in Mac unit sales of 1.3 percent.

Globally, Apple reported that Mac sales jumped from 3.75 million to 4.41 million year-over-year for its fiscal Q3, a unit increase of 18 percent and a new June quarter record.

18 percent increase is a big difference compared to a drop of 1.7 percent.

Shocking? Not if you’re aware of how these analysts portray data:

IDC, Gartner and Strategy Analytics have a long history of presenting carefully contrived data in press releases clearly designed to flatter their clients and denigrate their clients’ competitors, with Apple being a common target.

In addition to excluding iPads from their PC sales (while counting Windows tablets and including every other new form of PC device), IDC has also (like Strategy Analytics) radically revised its tablet figures after the fact, inventing, for example, Samsung tablet shipments that retroactively disappeared in the next year’s figures.

At the same time, IDC inflated its year ago estimates of the number of tablets attributed to unnamed “other” vendors by nearly ten million units, creating unflattering market share numbers for Apple in 2012, followed by unflattering market share growth figures for Apple in 2013, all coaxed from shifting numbers presented without any verifiable source. Apart from Apple, no other significant tablet vendor reports its unit sales.

IDC has also obscured the reality of Apple’s iPad sales by comparing them to kids tablets and toys, in order to water down Apple’s “market share” and imply that iPads are falling out of fashion—while distracting all attention away from the fact that nobody is selling premium tablets in volumes like Apple with margins like Apple.

Earlier this year, IDC was found to have added Windows 8.1 “2 in 1” PC notebooks into its reports of tablet shipments, another effort to portray Apple’s “share” of the “market” as diminishing, and a direct reversal of IDC’s staunch policy of not counting iPads as PCs, ostensibly because they are completely different product categories with no perceivable market impact on each other.

A former IDC researcher spoke to Fortune:

So, the mantra became, preserve the growth rates; to hell with the actual numbers. Even the growth rates are fiction. The fudge is in the “others” category, which is used as a plug to make the numbers work out. In fairness, we did do survey work, calling around, and attending white box conferences and venues to try to get a feel for that market, but in the end, the process was political. I used to tell customers which parts of the data they could trust, essentially the major vendors by form factor and region. The rest was garbage.

Microsoft’s Samsung action

Microsoft made a statement regarding its filing of legal action against Samsung.

We don’t take lightly filing a legal action, especially against a company with which we’ve enjoyed a long and productive partnership. Unfortunately, even partners sometimes disagree. After spending months trying to resolve our disagreement, Samsung has made clear in a series of letters and discussions that we have a fundamental disagreement as to the meaning of our contract.

Samsung and Microsoft are both large and sophisticated companies. In 2011, after months of painstaking negotiation, Samsung voluntarily entered into a legally binding contract with Microsoft to cross-license IP – an agreement which has been extremely beneficial for both parties. Samsung had been complying with the contract and paying to use Microsoft’s IP.

So what changed? Since Samsung entered into the agreement, its smartphone sales have quadrupled and it is now the leading worldwide player in the smartphone market. Consider this: when Samsung entered into the agreement in 2011, it shipped 82 million Android smartphones. Just three years later, it shipped 314 million Android smartphones. [Source: IDC, WW Quarterly Mobile Phone Tracker – 2014 Q1, Published: May 2014] Samsung predicted it would be successful, but no one imagined their Android smartphone sales would increase this much.

After becoming the leading player in the worldwide smartphone market, Samsung decided late last year to stop complying with its agreement with Microsoft.

How much is at stake? Microsoft reportedly makes $2 billion from Android patents.

Xiaomi steals photos to pass off as images taken by its phone cameras

John Gruber wrote about Xiaomi blatantly stealing copyrighted photos taken with DSLRs and passing them off as photos from its phone cameras.

They have updated the page to remove the photos after their theft has been exposed. Here’s a link to a screenshot of the original page.

New Android ‘Fake ID’ flaw empowers stealthy new class of super-malware

AppleInsider reported on a new Android flaw that allows malware to gain extensive control over a user’s device.

This is particularly serious because Google has granted a variety of trusted apps in Android broad permissions; by pretending to be one of these trusted apps, malware can can fool users into thinking that they are installing an app that doesn’t need any special permissions, then trick the system into giving it essentially full control of the device, with access to the user’s financial data, contacts and other private information, even data stored in the cloud.

Here are some possible apps for malwares to spoof.

Adobe Flash:

While Google eventually gave up on Flash for Android, an Adobe Flash plugin privilege escalation flaw remained embedded in Android’s webview—the browser component that gets embedded into third party apps that present web content—until the release of Android 4.4 KitKat last fall.

With Flash so deeply integrated into Android’s webview component, any malware using Fake ID to pretend to be Flash can subsequently escape Android’s app sandbox and take control of other apps, including Salesforce and Microsoft OneDrive, grab data from those apps, sniff out all those apps’ network traffic and gain any additional privileges held by those apps.

The solution is simple: upgrade to Android 4.4 KitKat. However, not every Android user can upgrade even if they want to.

NFC:

Using Fake ID, a malware app that asks the user for no special permissions at installation can subsequently pretend to be the Google Wallet app; Android will then provide the rogue app with all the permissions it gave its own NFC infrastructure, which includes users’ financial data.

Because Wallet, 3LM and other apps do not depend on the Flash / Android webview flaw, these other vectors of attack weren’t fixed in KitKat. That means Fake ID affects all versions of Android, including the latest Android 4.4.4 and the upcoming “Android L” (aka Android 5.0 beta).

This happens because Android apps are signed but not verified, unlike iOS apps.

However, Bluebox discovered that “the Android package installer makes no attempt to verify the authenticity of a certificate chain; in other words, an identity can claim to be issued by another identity, and the Android cryptographic code will not verify the claim (normally done by verifying the issuer signature of the child certificate against the public certificate of the issuer).

“For example, an attacker can create a new digital identity certificate, forge a claim that the identity certificate was issued by Adobe Systems, and sign an application with a certificate chain that contains a malicious identity certificate and the Adobe Systems certificate.

“Upon installation, the Android package installer will not verify the claim of the malicious identity certificate, and create a package signature that contains the both certificates. This, in turn, tricks the certificate-checking code in the webview plugin manager (who explicitly checks the chain for the Adobe certificate) and allows the application to be granted the special webview plugin privilege given to Adobe Systems – leading to a sandbox escape and insertion of malicious code, in the form of a webview plugin, into other applications.”

It is hard for you to know if you have been infected.

On the other hand, Fake ID requires no user involvement, and can be used by malware posing as an innocent app or game that requests no special permissions. Once installed, the app can take over without the user having any knowledge of being infected.

This underlines the shocking state of Android security.

“The Android malware ecosystem is beginning to resemble to that which surrounds Windows,” the firm observed. By September, Duo Security stated that “more than half of Android devices are vulnerable to at least one of the known Android security flaws.”