Reply to this post
February 23rd 2016: Radio Free Mobile launches a new product category looking at shorter topics relevant to the ecosystem. Issue No.1 deals with the usage of voice in digital ecosystems.
RFM research subscribers will receive their copy directly by email.
Voice is where much excitement and hype is to be found. Every ecosystem is developing a voice controlled digital assistant with which it hopes to enrich Digital Life and control the homes of its users. However, RFM finds that voice suffers from significant limitations meaning that the user experience and functionality that it can offer is way behind that that can be achieved using a visual device. This combined with the fact that the intelligence of voice based systems remains rudimentary at best means that voice is unlikely to replace screens any time soon.
- Three stages of understanding. RFM defines three stages in a machine’s development to be able to understand voice commands. These are: 1) High word accuracy, 2) understanding of the request in multiple word orders and formats and 3) understanding of context and circumstance. RFM thinks that it is not until machine understanding reaches stage 3 that voice can have any hope of challenging the established man machine interfaces of screen, touch, keyboard, haptics and mouse.
- Defining voice. Despite these limitations, voice usage in ecosystems is growing very rapidly. RFM research indicates that voice usage is really growing only as an alternative to typing a request rather than as a rich two-way voice interaction with the ecosystem. Hence it is important to separate the two types of voice usage to understand voice’s place in the Digital Lives of users. RFM has termed these as one-way voice and two-way voice.
- One-way voice is where voice is used as an alternative to using a keyboard. Most ecosystems have reached stage 1 making this use case viable. While, input is voice based, the response is delivered through the usual visual method. RFM thinks that the vast majority of voice requests in digital ecosystems use this method which will have no effect on the monetisation methods currently used by Google, Facebook etc.
- Two-way voice is where voice is used as both input and output. It remains almost exclusively the realm of home speakers such as Amazon Echo and Google Home. RFM finds that the rudimentary AI of digital assistants combined with the limited amount of information that voice can convey, often has these systems falling back on displaying results on a screen.
- Voice in ecosystems. Digital assistants and voice based interfaces are driven entirely by the artificial intelligence that powers them. Although the search engines are leading the development of AI, all systems are far too rudimentary to replace visual based devices for the foreseeable future. Facebook is still the laggard when it comes to advances being made in AI.
Reply to this post
Flipkart likely to buy Snapdeal.
- The latest in a series of woes that has hit the Indian e-commerce market reinforces my view that in network based businesses, there really is only space for one player to do well.
- This time around it is Snapdeal which is cutting costs by laying of 800 people, cutting the salaries of its founders to zero and exploring the sale of its mobile wallet FreeCharge at a big discount to what it paid for it in 2015 ($400m).
- The founders of Snapdeal admit to spreading themselves too thin and not executing optimally, but I think that the real issue here is much more fundamental.
- Snapdeal and Flipkart like Alibaba and to a lesser degree Amazon are market places which bring together merchants and buyers in one easy to use location and from which they can take a small cut.
- In effect, they are network businesses just like Uber, Alibaba, AirBnB, Craigslist and so on and consequently, they are bound by the same rules.
- 18 months ago I proposed a rule of thumb that states: A company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making profit (see here).
- This, in a nutshell, is the problem faced by both Flipkart and Snapdeal in India.
- Flipkart is bigger than Snapdeal and so it is in a slightly better position but it is not double the size of its nearest rival.
- Furthermore, both have to contend with Amazon which is determined not to make the same mess of India that it made in China when it went up against Alibaba and lost.
- Amazon is not the largest in India, but it has the backing of the mothership meaning that it can lose money for far longer than either of the other two.
- Flipkart has the best chance of reaching this hallowed status as it is the largest in India with around 35% of monthly active users but it will need to reach at least 50% before it is double the size of Amazon (7Park Data).
- This is why I think it could end up acquiring Snapdeal, because adding Snapdeal’s users to its own would get it pretty close to achieving that milestone.
- Without this combination, we are likely to be left with 2 unprofitable donkeys that are slowly ground out of existence by the vastly more powerful foreign player.
- This uncertainty keeps me from recommending investments in either of the Indian e-commerce companies even at the discounts now being offered but if I had to go for one, it would be Flipkart.
Reply to this post
It is still the long-term damage that I fear.
- While Samsung appears to have contained the disaster that was the Note 7, I remain concerned that the reputational damage could have an impact in market share in developed markets and especially at the high-end.
- Samsung has taken a massive $5.4bn hit to profits, apologized profusely for the recall and admitted shortcomings in its quality and assurance process but I don’t think that the full effects of this issue have fully hit home.
- This is because there is also the potential for market share and pricing pressure to materialise from the weakening of its brand and its reputation as a vendor of high quality consumer electronics.
- The first sign of this is in with a survey from Harris Poll which shows that Samsung reputation has fallen from No 7 in USA to No. 42, just one position above the US Postal Service.
- Apple and Google have remained pretty steady at no. 5 and 8 respectively but Samsung is now thought to be less reputable than Hewlett-Packard, GE and Sony, which are competitors that do date, Samsung has had no trouble in defeating.
- What concerns me is that when the Galaxy s8 and s8 edge are available, users in developed markets are likely to think a little bit harder before purchasing and may go so far as to consider something from LG, Google, Sony or Huawei.
- Hence, I think that Samsung will have to price the Galaxy s8 and s8 edge quite carefully as well as go on a major charm offensive to calm user fears that these products will suddenly burst into flames.
- I am certain that these products will be the safest that Samsung has ever made but that is not how the mindset of the average smartphone buyer operates.
- Both of these charm offensives will cost money in terms of pricing and marketing spend.
- The high-end devices that Samsung makes generate the majority of its handset profits and I am somewhat concerned that profits could suffer as the aftershocks of this disaster make themselves felt.
- This is why I have been cautious on Samsung since the problem with the Note 7 surfaced, and why I would be thinking of taking some profits following the recent excellent performance in the share price.
Reply to this post
Alibaba is going guns blazing for offline.
- Alibaba appears to be moving into offline retail much more quickly than I had anticipated as it is complimenting its $2.6bn bid for Intime Retail Group with a partnership with Shanghai Bailian Group which owns 4,700 stores in 200 cities in China.
- This is a huge step forward from its bid to acquire Intime retail group which operates 29 department stores and 17 malls predominantly in the eastern province of Zhejiang where Alibaba’s home town of Hangzhou is to be found.
- The idea of this partnership is to bring Alibaba much further into the physical world where $4.5tn of sales are still transacted every year as well as improve the offline experience that users have in Bailian stores.
- Chinese retail is a fragmented and frustrating experience where decent service and information with regards to inventory, product lines and so on is routinely not available.
- Consequently, when an online offering appears where this information is clear and one is able to easily purchase goods and know when they will be delivered, shoppers quickly adapt.
- It is the terrible offline experience with regards to almost everything that has allowed so many other goods, services and activities in China to rapidly migrate from offline to mobile.
- It these problems that Bailian hopes to fix via its partnership with Alibaba which will provide its technology, its understanding of logistics and its processing systems to modernise Bailian.
- In return Alibaba will get a large physical presence, access to shopper data and the first big launch for Alipay into the physical world.
- There are two large mobile payment systems in China.
- One is Alipay which utterly dominates B2C e-commerce and the other is WeChat Pay which dominates peer to peer as well as payments to shops, restaurants and service providers.
- This move will bring Alipay into direct competition with WeChat Pay for the first time.
- I think this partnership will be similar to the potential deal with Intime but on a much larger scale.
- I have previously viewed (see here) the potential deal with Intime as an experiment in retail which would then be rolled out more widely once it had been proven to work but it looks like Alibaba is going national regardless.
- Fortunately, as this is a partnership, there will not be much downside risk if it goes wrong which leads me to believe that for Alibaba, this is really about data and pushing Alipay into a new domain.
- If Alibaba can have a deeper understanding of, and relationship with Chinese shoppers then it will be able to more accurately predict their shopping patterns resulting in better purchasing rates and the ability to charge a higher percentage of GMV to its merchants.
- This will translate into better revenue and profit growth as was the case in 2016 where increasing monetisation underpinned a large part of the company’s outperformance.
- I think this expansion will be much slower in 2017, and so I remain cautious on Alibaba preferring Tencent or Baidu in China.
Reply to this post
This could be a repeat of VHS vs. Betamax.
- Google is adding functionality to allow Google Assistant to compete more directly with Amazon’s Alexa, but what it really needs is to offer love and support to developers of smart home products.
- Google’s failure to do this was visible on every stand at CES where a smart home product was to be found as they all will work with Amazon Alexa
- Only a very tiny fraction will work with Google Assistant.
- Google’s shopping functionality has involved singing a up a series of retailers such as Costco, PetSmart and Target to link their online ordering systems with Google Home such that a similar (to Amazon) shopping experience can be offered through the device.
- Measuring up to Amazon in this category is going to be tough because Amazon has one system through which millions of products are available globally, whereas Google will have to sign up lots of retailers in every locality where it aims to have this service available.
- However, when it comes to almost all of the other features, Google Assistant is capable of offering a vastly superior user performance than Amazon Alexa.
- This is because the AI that powers Google Assistant is top of the class while Alexa’s is second rate at best.
- Furthermore, the Google Home speaker is $50 cheaper than the Amazon Echo and in my opinion, a nicer looking product.
- However, where Google falls over is home automation and here Amazon is currently ruling the roost.
- RFM research has found that device developers receive plenty of love and support from Amazon which combined with the fact that there are now 8m devices in the hands of users drives them to make their products work with Alexa right from launch.
- This is despite the fact that using many of these products with Amazon Alexa is a frustrating and fragmented experience.
- A good example of this is Plex, which recently enabled an Alexa skill so that the user could control the Plex player using Alexa.
- However, because Alexa lacks the brains to make service intuitive, the user experience is so bad that one tries to control Plex with Alexa once and quickly returns to the remote control.
- In contrast to Amazon, many developers find that Google is difficult to work with and some did not even know who to at Google to call to enable Google Home with their product.
- This is the opportunity for Google Home even though it only has around 0.5m devices in the market today.
- I think Google needs to ramp up its love and support for developers immediately and thinking that they will just turn up at Google i/o is not nearly good enough.
- There is a whole segment (home) of the digital ecosystem up for grabs right now and I still maintain that this is Google’s to lose.
- However, at the moment it is Amazon that is blazing the trail and if Alexa makes it into the majority of households before Google pulls its finger out then the game will, in all probability, already be lost.
- This will not be the first time that an inferior product will have won the day and I think there are valuable lessons that Google can learn from studying this history.
- From an investment perspective, I continue to not really like either Alphabet or Amazon preferring Baidu, Tencent and Microsoft.
Reply to this post
I think Huawei would be better off doing a deal with Baidu.
- It looks like Huawei has decided to build its own Chinese language digital assistant to cement its recent gains at home but no matter how many bodies it throws at this task, its lack of the core raw materials (data and history) is going to cause problems.
- The digital assistant is the first real Digital Life service that is entirely dependent on artificial intelligence for its functionality which creates a huge challenge.
- Furthermore, in order to evolve, all digital assistants need to generate usage data which can then be used to improve the algorithms that power the user experience.
- Even the best assistants out there today are hugely limited in terms of what they can understand and what they can achieve.
- For example, to accurately answer questions around exchange rates, the assistant has to be taught what these are, how they work and in what form the questions are likely to be asked.
- For example, asking Amazon Alexa how many US Dollars there are to the GB Pound provides the correct answer but ask for UAE Dirhams to the Pound or Dollar and Alexa falls silent.
- Only Google Assistant was able to provide the right answer due to the combination of the best search system and the best AI available.
- In effect RFM research has found that Alexa, Cortana and Siri have been programmed with a fairly narrow set of capabilities and the AI and data set is simply not there to support the service when something unexpected is requested.
- Fortunately for Huawei, Google is not present in China but at home it will be facing an opponent that is almost as good: Baidu.
- Baidu dominates the search market in China and has been working on its AI algorithms for nearly 20 years.
- Furthermore, Baidu has already launched its own digital assistant called Duer which I suspect will be significantly better than anything that Huawei is likely to produce in the medium term.
- However in China, none of the ecosystems are preinstalled devices meaning that Baidu will be unable to install Duer on the device and set it as default.
- RFM research (see here) has found that this could confer a substantial advantage to any ecosystem as strategy is virtually absent in the Chinese market outside of the app stores.
- Huawei as a handset maker will have this advantage and so I can see a scenario where users try its digital assistant but unless it is superb they will quickly switch to Duer.
- This is where I think Huawei will have difficulties as even though it has 100 engineers working on this product, it is starting from scratch and building decent AI takes years and requires vast quantities of data.
- Hence, I think it unlikely that Huawei will ever come up with a product as good as Baidu’s.
- This is where I think Huawei and Baidu could help each other as Baidu has the product and Huawei a mechanism for distributing it.
- A deal where Huawei installs Duer at the factory and sets it by default in return for being paid TAC (traffic acquisition cost) makes more sense to me than paying 100 engineers to come up with an inferior product.
- This will not help Huawei’s ambitions to develop an ecosystem and generate better profitability, but TAC revenue from Baidu would certainly help improve margins.
- Given its recent market share gains at home, the time to negotiate this deal is now rather than when its own assistant has tried and failed.
- Although Baidu looks like it may be backing out of its ecosystem, the short-term improvement in its financials that cost cuts could generate could give the shares a lift (see here).
- This is why it is still on my preferred list along with Tencent and Microsoft.
Reply to this post
Focusing on video first makes complete sense.
- I think that Facebook is making the right choice in targeting video first as it already has traction and video-based services tend to have the lowest requirements for artificial intelligence to make them easy, fun and useful.
- With the launch of a TV app being just the latest move Facebook has made in video, it is increasingly clear that Media Consumption is Facebook’s number 1 priority for 2017.
- The TV app that is being launched is very simple in that it makes it easy for a user that does not have time to watch videos on Facebook during the day to easily to so at night on a larger screen.
- This should enable a better video experience and begin to spread engagement across other devices but it will come with the added complication of multiple resolutions and bit rates.
- On a mobile device the screen is small which means that lower resolution videos and bit rates are acceptable, but once these are played on a larger screen, their shortcomings quickly become obvious.
- This move into TV comes hot on the heels of the addition of a tab at the bottom of the Facebook app which links to the top trending videos as well as videos that Facebook thinks that the user might like.
- The TV app will initially be available on Amazon TV and Apple TV but I expect that it will quickly spread to Xbox, PlayStation and the other streaming TV devices that are available.
- The one place I don’t expect to find it is Chromecast as Facebook’s video aspirations are clearly a challenge to YouTube.
- Of the three new areas of Digital Life (Gaming, Media Consumption and Search) that I see Facebook targeting (see here), going for video first makes complete sense.
- This is because Facebook already has a lot of traction in this space and also because it is the least demanding in terms of requiring intelligent automation.
- The total number of video items that are present is very low compared to other things like music or searches and knowing who posted the video is a good indicator of its content and who will like it.
- I continue to see Facebook as the laggard in AI (see here) and targeting video is sensible as it gives it more time to improve its AI before having to apply it to more difficult tasks.
- Furthermore, the fact that video is a fast growing, but likely soon to mature, medium for digital advertising also means that the time to really address it is now.
- I see the app on the TV as just the beginning and would not be surprised to see this being followed up with premium content taking it into the realm of Netflix, Hulu, YouTube and Amazon Prime.
- That being said, I don’t think that Facebook’s offering in Media Consumption is anything like mature and so I think it will be some time yet before it becomes a real destination like YouTube.
- Consequently, I still see a slow period of revenue expansion while its new strategies mature before revenues take off again.
- As this reality sinks in, I think the valuation could unwind somewhat providing a better opportunity than now to invest for the long-term.
Reply to this post
Baidu may be giving up on its ecosystem.
- There is little doubt that Baidu’s investments outside of its core search offering have proven expensive, but it appears that Baidu may be losing the stomach to endure the heavy losses required to build an ecosystem.
- The three assets in particular are Nuomi, its e-commerce offering, iQiyi, its video streaming service and its on-demand food delivery service.
- Nuomi and iQiyi have been the real areas of investment and in recent quarters have between them consumed over 50% of the operating profit generated by the core businesses.
- This combined with its problems with low quality advertising and its higher tax rate, have put it under much greater pressure to deliver better profitability.
- This has been further exacerbated by the fact that of the three BATmen, Baidu is by far the weakest both in terms of cash flow generated each quarter and cash reserves on the balance sheet.
- This is why I suspect that Baidu has been forced to look at these investments to find ways of reducing their drain on the financial performance of the Baidu Group.
- I understand that outside investment as well as trade sales have been considered but it looks like the most likely outcome will be heavy cost cuts.
- This will limit both Nuomi and iQiyi’s ability to compete against Alibaba’s T-Mall, JD.com and Alibaba’s Youku Tudou leaving them as niche services rather than national leaders.
- On the Chinese Digital Life pie (see here) Media Consumption and Shopping make up 29% of the total meaning that if Baidu was to abandon or sell these activities its coverage would drop to 24% (Search, Browsing and Mapping).
- Consequently, I think that it would spell the end of Baidu’s ambitions to become a leading ecosystem in the Chinese market leaving it as a dominant player in just a few segments.
- Search, Mapping and Artificial Intelligence are extremely important segments and I think that Baidu will be able to make a good living from them, but its real long-term upside will have been curtailed by this retrenchment.
- The net result in the short-term will be a substantial improvement in its financials making the current valuation look cheap and so I suspect that news of this move will have a quite positive, but short-term, impact on the shares.
- This is why I am happy to keep Baidu on my preferred list along with Tencent and Microsoft despite the possibility that its long-term upside may now evaporate.
Reply to this post
Technology is there but size is miles off.
- While I do believe that Magic Leap is capable of producing an augmented reality experience (AR) that far outstrips anything its peers are offering, I think it is years away from fitting that technology into anything that a consumer will tolerate.
- The latest leak (see here) from Magic Leap shows a unit that is clearly a development board in a clear plastic box powered with an external battery pack and a fairly large head unit.
- This has been reported to be the latest prototype called PEQ (product equivalent) that the company will be presenting to its board and investors this week.
- This group are all looking for results from the $1.39bn raised so far.
- Magic Leap CEO, Rony Abovitz, has been quick to identify the device as a R&D test rig used for data collection that helps with the creation of surfaces and textures in AR.
- This follows a number of data points that RFM research has collected over the last month that include:
- There appear to be problems with the core fibre optic technology that has led to the company having to redesign elements of its offering (see here) to make it smaller.
- Suppliers have described conversations with Magic Leap engineers that strongly imply that some parts of the system are not even past the concept stage.
- Silicon Valley chatter also highlights the possibility of infighting between the Silicon Valley operations and the mothership in Florida as well as some high-level departures and very short senior tenures.
- I think that the key to understanding what is happening at Magic Leap comes from Rony Abovitz himself who describes his prototypes (see here) as being in “agile build cycles”.
- To me this means that the hardware and software design and specification of the PEQ product, that Magic Leap intends to launch, are far from being locked down.
- Consequently, there is no point whatsoever is spending a fortune in trying to miniaturise the hardware as all that investment would be wasted if something has to be changed.
- I also suspect that Magic Leap has been forced by the pressure to start generating revenues into producing a compromised product.
- RFM research indicates that the older, far bulkier prototype uses all of the Magic Leap technology and produces a great user experience but remains far too bulky to wear.
- Consequently, it appears that to make it wearable, Magic Leap has been forced to make compromises in the user experience.
- These would include features like field of view, resolution and refresh rate.
- This would explain why the feedback generated by the few who have experienced the technology appears to have gone from “wow!” to “ho-hum”.
- Hence, I think that Magic Leap is very far away from producing the kind of product with which it could take the AR market by storm.
- I don’t think that this is a problem as almost all of its competitors are looking to sell their units to enterprises where the user experience is much less important (see here).
- Magic Leap is aiming for the consumer and given how poor the general AR experience is today, I can’t see anyone producing a successful consumer device for 2-3 years at least.
- This gives Magic Leap time in terms of the market it is aiming at but the real question is what time frame did it promise its investors and will they be willing to pour a lot more money into this company?
- One thing I am pretty sure of is that Magic Leap is going to need it.