Why slowing iPad sales didn’t surprise Apple and shouldn’t surprise you

Gigaom wrote about slowing iPad sales.

Expecting iPad sales growth to mirror that of the iPhone, which is still on a relatively stronger upward direction, is unreasonable for a number of reasons. First: phones are far more a communications necessity than tablets are, at least for now. That’s why 2013 saw nearly one billion smartphones sold with expectations of another 1.2 billion more in 2014. By comparison, last year the tablet market only topped 195.3 million units, per Gartner.

Different upgrade cycles:

Give someone 18 months or so with a phone: They’re ready to upgrade and a carrier is very likely to help them do so with financial incentives. However, tablets in this regard are more like traditional computers: They’re going to last longer for most people. For one thing, they’re typically not subsidized so an iPad buyer is looking at an up-front investment of $499 or so (less for an iPad mini or older iPad, of course). Add a cellular radio and that investment jumps by $130, making the base iPad Air 26 percent more expensive. That’s no small price to pay and it’s one that makes it more likely that a consumer would keep the device just a little longer instead of buying the next shiny tablet that comes along.

Deconstructing Satya

Brian S Hall of Techpinions dissected the Satya Nadella internal memo.

Nadella’s willingness to act fast, to re-make Microsoft, hack away at the extraneous and transform the company into “the productivity and platform company for the mobile-first and cloud-first world” appears to be exactly what the company needs.

But when you gut a $7.2 billion acquisition, which the company only closed on this past April, and fire 18,000 people, then you haven’t leapt from a burning platform, you’ve set the platform ablaze. There is no going back, no do-overs for Mr. Nadella. He is about to set the company on a ten year course, possibly longer, and though Microsoft possesses a rather stunning array of assets, what’s most stunning is the company still has virtually zero response to the iPhone, the iPad and Android. In 2014.

So much for mobile-first and cloud first.

In his “bold ambition” email to employees, only days before this, Nadella stated “first party hardware” would form part of the core Microsoft vision. He said this four times!

  • Our cloud OS infrastructure, device OS and first-party hardware will all build around this core focus and enable broad ecosystems.
  • Our Windows device OS and first-party hardware will set the bar for productivity experiences.
  • Our first-party devices will light up digital work and life.
  • We will build first-party hardware to stimulate more demand for the entire Windows ecosystem.

Now, days later, he guts Nokia, kills off the very popular Asha hybrid phone line and halts development of the AOSP-led Nokia X.
I suspect Mr. Nadella believes the smartphone wars are lost, despite whatever else the company may tell us. They are no longer worth fighting for.

Nadella went on to emphasise transparency:

My promise to you is that we will go through this process in the most thoughtful and transparent way possible.

Hall: “Your own email appears poorly thought out and lacking transparency!”

Second, we are working to integrate the Nokia Devices and Services teams into Microsoft. We will realize the synergies to which we committed when we announced the acquisition last September. The first-party phone portfolio will align to Microsoft’s strategic direction. To win in the higher price tiers, we will focus on breakthrough innovation that expresses and enlivens Microsoft’s digital work and digital life experiences. In addition, we plan to shift select Nokia X product designs to become Lumia products running Windows. This builds on our success in the affordable smartphone space and aligns with our focus on Windows Universal Apps.

Hall: “We can’t possibly divine what these words mean because Nadella does not know the way forward in mobile. That’s a problem.”

It is one thing to draw up a revolutionary vision for the company, but actions speak louder than words. And Nadella’s action is in contradiction of the grand scheme he talked up.

Verizon’s Accidental Mea Culpa

Level 3 wrote about Verizon’s accidental admission that it is deliberately constraining capacity from Netflix network providers.

And in fact, Verizon admits as much because they conveniently show one direction across our network with a peak utilization of 34%; almost exactly what I explained in my last blog post. I can confirm once again that all of those thousands of links on the Level 3 network are managed carefully so that the peak utilizations look very similar to those Verizon show for their own network – IN BOTH DIRECTIONS.

That means Verizon is only using 34% of its full capacity, but there is congestion for some reason.

In comparison, other ISPs and content providers only have an average of 44% utilization, with no issues of congestion:

But, here’s the other interesting thing also shown in the Verizon diagram. This congestion only takes place between Verizon and network providers chosen by Netflix. The providers that Netflix does not use do not experience the same problem. Why is that? Could it be that Verizon does not want its customers to actually use the higher-speed services it sells to them? Could it be that Verizon wants to extract a pound of flesh from its competitors, using the monopoly it has over the only connection to its end-users to raise its competitors’ costs?

Comcast customer retention

John Gruber made a very good point about Comcast customer retention.

Comcast COO Dave Watson:

I know these Retention calls are tough, and I have tremendous admiration for our Retention professionals, who make it easy for customers to choose to stay with Comcast.

Gruber:

That is literally just another way of saying that their job is to make it difficult to leave Comcast. It’s somehow more obnoxious though, that he phrases it so euphemistically.

Apple’s $7.7 billion record quarterly profit

Apple reported its third quarter results.

The Company posted quarterly revenue of $37.4 billion and quarterly net profit of $7.7 billion, or $1.28 per diluted share. These results compare to revenue of $35.3 billion and net profit of $6.9 billion, or $1.07 per diluted share, in the year-ago quarter.

So much for the predicted doom and gloom:

Trip Chowdhry, Global Equities: Quick Take. “We are skeptical about the timing of the deal, which makes us wonder if IBM, and may be even AAPL are going to miss their revenue expectations.

As several sites pointed out, Apple spent noticeably more in research and development, leading to speculations that new product lines are being worked on.

Unlocking your phone with a digital tattoo

Engadget reported about the new NFC skin tag from Motorola that lets you unlock your phone by tapping on the tattoo.

VivaLnk is asking $10 for packs of 10 tattoos, or enough to last 50 days — you’ll have to spend $80 to get through a whole year.

How is this going to be more intuitive than using your finger to unlock the phone?

Stephen Elop’s Nokia

Om Malik on Stephen Elop being allowed to stay on.

The very fact that a middling executive could be brought on for a turnaround of Nokia, and compete with the iPhone/Android onslaught with absolutely zero turnaround experience was one of those decisions that has confounded me and I continue to blame the Nokia board for shooting itself in the head. On his watch, Nokia essentially eviscerated. Android might have been a better decision, but he went with Windows Mobile. The stock tanked, market share shrank and like proverbial Lord Mountbatten he was part of the last days of the Nokia Raj.

And Nokia, the once haloed and peerless brand when it came to phones was sold to Microsoft for relative pittance. Elop heads up Microsoft’s Devices Group. Think of it this way — since Elop took over as Nokia CEO, the company has cut over 50,000 jobs (if you include today’s announcement.) That is just mind boggling. That bumbling strategy which was the hallmark of Elop’s Nokia tenure still continues — in other words, Microsoft doesn’t really have a Nokia strategy. From Elop’s memo today: “In the near term, we plan to drive Windows Phone volume by targeting the more affordable smartphone segments, which are the fastest growing segments of the market, with Lumia.”

Looks by Dr Dre

Khoi Vinh wrote about what Beats bring to Apple.

On the design variations for a Beats headphone:

These aren’t just four colorways, or simple variants on coloring the same materials. These are four distinctly different combinations of plastics types and manufacturing methods, some distinguished by color, others by texture, and one by some kind of screen-printed graphic.

What’s more, these are just four options. The site’s headphones page lists—just for this product category alone—some sixty different color and style combinations across five or so different models. (All of which, by the way, sell for at least $179; not bad considering earbuds are given away free as a matter of course with smartphones.)

How that can apply to Apple wearables:

This reminded me immediately of what I wrote wrote last month about “Wearables, Fashion and iWatch”: iWatch, if it exists, will need to be more of a fashionable good than Apple has ever created before; fashionable goods depend in part on variability in order to satisfy individualized consumer expression; and creating variability at scale is the key economic challenge of wearables. It’s very difficult to successfully produce and deliver truly variable technology goods; that’s why iPods have never come in more than four or five colors and why Apple had such a hard time creating a white iPhone on its first time trying.

The difference in the Apple and Beats approach:

If you take a look at Beats’ headphones product catalog, it looks a lot closer to, say, the Nixon watches catalog than any catalog of technology products. Beats’ headphones, like Nixon’s watches, are oriented such that the primary selection criteria are looks and style; you’ve got to wade through those before you decide which model you want. By contrast, on Apple’s site, you’ve got to choose your model before you can choose your style — or, put another way, you choose what you want it do, first, and then you get to choose what you want it to look like.

These differences reflect fundamentally distinct ways of thinking about products, or more importantly, fundamentally distinct ways of thinking about what customers want. One path leads to a company that makes technology that (they hope) consumers will find to be fashionable; the other path leads to a company that makes fashionable goods powered by technology. Apple acquired Beats because it hopes that its future will look more like the latter than the former.

The power struggle between Google’s Android and Samsung’s Tizen

AppleInsider wrote about the escalating hostilities between Google and Samsung.

Disagreement over tablets:

Back in 2010, Google similarly tried to stop Samsung from using Android 2.x to build a tablet clone of Apple’s iPad, insisting that its Android licensees wait until it could release Android 3.0 Honeycomb with features that promoted Google’s own vision for tablets.

Samsung pushed ahead with its Galaxy Tab anyway, distracting attention away from Google’s Honeycomb project while also creating a bad experience for early Android tablet adopters. Google had also warned Samsung that its tablet products were too obviously similar to Apple’s iPad.

Samsung’s shift to Tizen:

Samsung initially used a heavily-modified Android to power its first Galaxy Gear watch. However, fights between the two companies concerning Samsung’s copying of the Google Play store and muscling into other services (including advertising) that Google expected to keep for itself have since contributed to Samsung’s efforts to develop new watch models based on its own Tizen.

The threat of Tizen to Google:

Were Samsung able to migrate its Galaxy customers from Android to Tizen, Google’s market share numbers of devices using Android code would collapse in half. Fortunately for Google, Samsung hasn’t been very successful with Tizen so far.

Google wants more control over Android phones:

At the beginning of this year, Google’s head of Android Sundar Pichai demanded Samsung drop its new “Magazine UX” tablet interface, with The Information later reporting that Pichai was “prepared to forbid” Samsung from using Google’s ostensibly open Android operating system unless Samsung surrendered more control to Google.

The illusion of Android “openness”:

Ironically, Google’s original premise for Android was that it would allow companies to “openly” innovate and experiment with different designs while also allowing hackers and hobbyists to fully access all parts of the operating system, ideas that Google contrasted against Apple’s plans for uniform, secure iPhones limited to running approved, encryption-signed apps.

However, Google’s current plan for Android imposes increasingly strict rules over Android licensees and introduces locked down security features similar to iOS, in an effort to dump hobbyists and pick up enterprise customers and other higher end customers who are willing to pay a premium for secure devices.

Google wants Samsung to put and end to Tizen smartwatches:

Having crushed Samsung’s aspirations for original phone and tablet software, Google is now demanding that Samsung stop developing its own Tizen-powered watches and instead fall in line to support Android Wear, which is only represented on one of the four smartwatch models Samsung currently sells.

Who would have more to lose here? Can Google live without Samsung making Android devices? Or can Samsung be able to deliver hardware and software on its own?

Microsoft leadership

Ben Brooks wrote about Microsoft’s mobile strategy.

My criticism isn’t the easy play that they are firing 12,500 Nokia employees after claiming to be mobile first — it’s that they made these announcements too close together without laying out their strategy going forward clear enough. 1

And that is a problem of the worst kind: it is a leadership problem. A lot of people are liking Nadella, but I’ve never been fond of him being CEO and I think this moment is the most crucial for him. So far, he is not handling it well.