Apple vs. Spotify – Vital message.

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Spotify has to make sure everyone knows that it has a better proposition.

  • The war of words is as hot as ever in the emerging world of music streaming, but whatever the realities are, I suspect that it remains a two horse race.
  • The latest shots to be fired come from Apple which admits that it still has some work to do but that 79% of the 11m trial users it has are still using the service.
  • An independent survey by Music Watch found that only 52% of the users it surveyed were still using the service.
  • However, the Music Watch data is highly contradictory with 66% saying they would pay for the service at the end of the trail period and 61% saying that they had already turned off the auto-renewal option.
  • In light if the contradictory data, I think that all of the data from Music Watch is to be treated with caution and at the end of the day only Apple really knows what the real figures are.
  • The feedback on Apple’s service and Apple’s own omission clearly shows that it needs a lot of work before it can compete with Spotify in terms of functionality and quality.
  • Spotify’s biggest problem is that only its users really know how good the service is.
  • Spotify has much more data than Apple and importantly it has the machine learning and the experience to know what to do with it.
  • This combined with some innovative functions and services make it a far better proposition for $9.99 a month.
  • However, the problem is that Apple Music is now installed on at least 100m devices and all users have to do to try it is push a button.
  • This means that an iOS user who is considering a music streaming service for the first time is much more likely to end up using Apple Music than Spotify.
  • This is why I believe that it is incredibly important for Spotify to step-up its marketing and let users know the how and why its service is better than Apple’s.
  • Apple has a mighty brand meaning that any user that does not know anything about Spotify is more likely to choose Apple.
  • On Android it will be a more level playing field but again Apple’s brand will count for something.
  • I very much doubt that Spotify will lose any of its free or paying user base to Apple but the problem will come in new subscriber acquisition.
  • This is why the net add figures over the next two quarters are so important and Spotify needs to maintain its current momentum.
  • Spotify clearly has the leading music streaming offering in the market at the moment and Apple, by its own admission, is playing catch-up.
  • Hence, Spotify must make sure that everyone is aware of this fact and that it offers better value and functionality for $9.99 a month.
  • This advantage might not last forever and the time establish itself as the runaway leader is now.

Sony – Plethora of pixels.

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4K is a pointless gimmick but could help to sell some phones.

  • Sony has updated its Xperia line of devices headlining with the Xperia Z5 Premium, a smartphone with a 5.5inch 4K screen.
  • The IFA trade show in Berlin has seen Sony release 3 new devices in the Xperia line.
    • First. The Xperia Z5 is a high end smartphone featuring a 5.2 inch screen and a 23MP camera with rapid autofocus. The power button has been upgraded with a fingerprint sensor and the level of dust and waterproofing from its successor has been maintained.
    • Second. The Xperia Z5 Compact which uses the same new camera module as the Z5, but in a smaller package and presumably price. This device has a 4.6” display and comes in a wider range of colours.
    • Third. The Xperia Z5 Premium. This device sports a 5.5inch 4K screen with a resolution of 3840 x 2160 and a chart busting pixel density of 806 pixels per inch. Outside of the screen this device is very similar to the Xperia Z5.
  • The Z5 Premium is clearly a halo device designed to generate interest and excitement around the Sony Xperia brand while the real volumes are expected to come from the other two devices.
  • This is because the 4K is screen is, in my opinion, fairly useless for a number of reasons.
    • First. In order to see the difference between this screen and a 1080p device the user will have to hold the device between 5-8 inches from his eyes.
    • The viewing distance of most smartphones is around 9-12 inches meaning that in most use cases, users will not be able to tell the difference.
    • Second. There is no content available for it meaning that everything has to be up-scaled by a graphics processor to display correctly on the screen.
    • Historically, the Japanese companies have been by far the best at upscaling technologies, but there is still a significant risk that most content and apps will not display optimally.
    • Third. Even compressed using VP9 or H.265, 4K video takes up far more space than 1080p and requires up to 4x the bandwidth to be transmitted.
    • Consequently, users will be able to store less content on their devices and incur up to 4 x the cost and 4 x the wait to view content that in most cases will look no better than 1080p.
  • However, despite the practical limitations of a 4K smartphone, it is well known that pointless gimmicks sell phones.
  • Samsung’s Galaxy s6 edge is but the latest example.
  • Consequently, I expect that the real volume will remain in the Xperia Z5 and Z5 compact but I don’t see them lifting Sony Mobile out of break-even profitability.
  • This is because Sony mobile devices are primarily Google ecosystem devices with a few Sony services tacked onto the side.
  • This means that users that purchase these devices will put more importance in the Google ecosystem than any of the Sony services.
  • Consequently, Sony will have to price its devices aggressively because the Google ecosystem that users value is available at an equal level of quality on the devices of all of its competitors.
  • Hence, until Sony creates an experience on its devices that can not be had elsewhere, it will struggle to lift its device margins above 2-4%.
  • Sony has the assets through PlayStation and its content rights to have the makings of an ecosystem with which to compete against Google, but I am not convinced that management has the will power.
  • Hence, I expect that Sony will continue to be driven by the selfie craze, PlayStation and Sony Financial Services (see here) meaning that sustainable growth for the long term remains questionable.
  • I still think that Sony is the only Japanese company with a chance of making it in digital consumer electronics, but its failure to address the ecosystem puts a big dent in my enthusiasm.
  • I prefer Microsoft, which at the very least, is addressing this issue with everything it has.

Android Wear – One sided game

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As usual the only beneficiary from changes to Android is Google.

  • Google has launched a new app. on iOS that will allow devices that run Android wear to synchronise and integrate with the iPhone.
  • Many of the core Google Digital Life services that run on iOS will now be available through a paired Android Wear device along with the usual data and fitness functions.
  • Older Android Wear devices will not be supported but LG, Motorola and Huawei devices are already up and running and all future devices will have this capability.
  • From Google’s perspective, this makes complete sense as Google still generates around 50% of its mobile advertising revenues from iOS devices.
  • Hence it is in its interest to ensure that on iOS, its services work seamlessly and offer users as much functionality as possible.
  • However, from a hardware maker’s perspective this added functionality offers very little, if any benefit.
  • One of the only areas left to an Android hardware maker to differentiate is through a cross-device strategy.
  • The idea here is to ensure that all of its devices work as seamlessly as possible with the other device types that it makes.
  • The hope here is that this will encourage a user of one device to have a preference in another device category for the same manufacturer.
  • If user preference can be created then there is scope to increase prices somewhat and make more than a commodity margin.
  • This is one of Samsung’s strategies to keep its margins high after ceding the entirety of the ecosystem to Google (see here).
  • However, by making Android Wear work well with iOS, Google is undermining that strategy and making it even harder for the long suffering device makers to be anything other than commodities.
  • Hence, I think the current outlook of 2-4% EBIT margins for Android devices remains intact and may even come under further pressure as the smartphone market continues to slow down.
  • Samsung is the one exception but I think that its margins (10% – 12%) are driven almost entirely by scale as it outsells its nearest competitor by more than 2 to 1.
  • The net result is that the only real beneficiary from Android remains Google and I fully expect it to continue operating in its own best interests to the detriment of its hardware partners who have nowhere else to go.
  • Google still has huge problems to solve with Android (see here) but even without fixing these issues, Android remains a huge revenue and profit generator for Google.
  • Google has dropped back below what I consider to be fair value but at $618, there is very little upside for shareholders.
  • I would consider Microsoft as a much better place to look.

Netflix – Rollercoaster

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Netflix will become even higher risk in the future.

  • Netflix’s failure to renew its streaming deal with Epix (Lionsgate and MGM) is a clear sign that Netflix intends to move up the value chain to become a purveyor of exclusive content.
  • This is a far riskier proposition than being a distributor of content that is easy and fun to access and use but I think that Netflix has little choice. .
  • This is because without exclusive content, Netflix will become commoditised as content creators have now realised that it is not that difficult to allow subscribers to stream content directly from them.
  • Hence, Netflix now prioritises proprietary content while Epix is interested in getting its content onto as many platforms as possible.
  • This impasse is what I suspect led to the deal not being renewed.
  • This will leave Netflix’s catalogue with a significant dent in it come September and Epix’s content will be moving to Hulu.
  • I suspect that a number of Netflix’s customers will not be happy that content that was previously included in their subscription will have to be paid for again with a subscription to another vendor.
  • This is where the strength of Netflix’s own content becomes of critical importance.
  • It must continually provide its users with compelling and exclusive content such that they remain willing to pay the monthly fee.
  • The problem with this is that the movie and TV production business is really hit and miss.
  • Content that is expected to be wildly successful often bombs and content that is considered to be of limited interest occasionally does far better than expected.
  • In order to counter these swings the content creator must have a wide stable of content to catch the outliers as well as very deep pockets to finance the troughs.
  • Netflix has two big hits on its hands (House of Cards and Orange is the New Black) but it also has a long list of content that not many users have ever heard of.
  • This is why once attention turns from subscriber growth to profitability, investors are going to realise just how risky this business had become.
  • To be fair to Netflix, this is the only direction that it could reasonably have moved towards as its starting proposition as a content distributor is already showing signs of commoditisation.
  • Furthermore as content creators realise that they can distribute their content over the Internet, the need to have Netflix in the middle will vanish.
  • Consequently, I think that in the long term investors need to look at Netflix as a film and TV producer with the rollercoaster financial performance that goes along with it.

Facebook – Dial M.

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Facebook is making the right moves to become an ecosystem.

  • Facebook’s intentions to become a fully-fledged ecosystem have come into sharper relief with the launch of its own personal digital assistant, Facebook M.
  • Facebook M will appear inside Messenger as a contact that is permanently on line and is there to fulfil requests and answer queries.
  • The main difference between Facebook M and Google Now, Siri and Cortana is that it is part artificial intelligence and part human.
  • This makes Facebook M a cross between the established digital assistants and concierge services like Taskrabbit which use humans to fulfil the requests.
  • The problem with humans is that while they can ensure that any request is fulfilled, it is an expensive service to provide.
  • Facebook’s aim is to move as much of this as possible into artificial intelligence but even with humans on board I think that it is facing an uphill battle for three reasons:
    • First: Machine learning. Facebook is a personal data and communication company and while it does employ a degree of machine learning it is not in Google’s class.
    • Consequently, it is unlikely to be able to provide better responses to queries and know what it is that the user is really after than Google Now.
    • I suspect that both Apple and Cortana will show better machine learning sitting behind them than Facebook M.
    • Second: integration. Facebook relies on the platforms of others to deliver its service and experience to users.
    • This means that it will not have the same kind of access to other apps and services that will be required to make the service best in class.
    • For example, because Microsoft and Google own many more Digital Life services, they can ensure that their assistants have better access to those services than competitors.
    • Hence, it is quite possible that without its own services (outside of social networking) that Facebook will struggle to keep up with others.
    • Third: Ease of access. Facebook M will, for now, only exist inside the messenger client.
    • This means that the user will have to unlock the device, click on Messenger, click the M user and then put in his query or request.
    • Siri, Cortana and Google Now can all be accessed simply by talking to a locked device on standby.
    • This access is again possible because the companies behind these services all have complete or significant control of the platforms upon which the service is offered.
    • Ease of access has long been known to be a key factor in how much an app or service gets used.
  • The net result is that in this current form, Facebook M still needs a lot of work, greater automation and integration into the ecosystem if it is to really take on the other three.
  • However, this is yet another sign that Facebook has grasped how important it is for its long term outlook to have a wider range of Digital Life services beyond just social networking.
  • Facebook M joins gaming (see here) as new services that break Facebook out from just being an app and usher it into the world of the ecosystem.
  • This move further distances Facebook from Twitter which is still wondering it needs to do to break free of the stagnation that now besets it.
  • I would choose Facebook over Twitter without hesitation and am even warming up to Facebook despite its lofty valuation.

Amazon – Digital Phoenix

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Amazon App store and Silk could have great value for those in need.

  • Signals coming from Silicon Valley and Seattle indicate that the brutal device market may have claimed yet another victim.
  • For the first time in its 11 year history, Lab 126 (Amazon’s hardware division) appears to shedding engineers.
  • The extent of the cutbacks is not clear but I expect that Amazon has decided to cut back on both the Kindle Fire and Fire phone product lines.
  • This makes sense because the Fire phone was an unmitigated disaster and shipments of Kindle Fire tablets are now well below 1m per quarter.
  • The Kindle Fire is a product sold at cost so that Amazon can make money on the content sold through the device.
  • However, it appears that neither volumes of the device nor sales of content through the device have been large enough to make this strategy economically viable.
  • The result was inevitable and I suspect that we have seen the last of the tablet and the phone.
  • However, I believe that the Echo will live on as this is a different proposition, sits in the home and leverages off Amazon’s world leading position as a cloud computing provider.
  • Taking this with its other home products, it looks as if the Amazon hardware is evolving towards the home but there still remains a substantial opportunity in the ecosystem.
  • The main reason for this is the Amazon app. store which in my opinion is by far the best alternative to Google Play for those that do not want to be forced to play by Google’s rules.
  • In order to have Google Play on a device, the handset maker must also provide front and centre access to all of Google’s other Digital Life services.
  • Furthermore, Google is slowly tightening the noose and I am certain that it will end up taking complete control of the software leaving the device maker doing nothing except hardware.
  • On RFM’s equivalency measure, the Amazon app store offers 74% of the experience available on iOS making it a very viable alternative to Google Play.
  • Furthermore, Amazon also has the Silk browser which is based on open source Chromium but has been optimised for mobile devices.
  • These assets combined with Amazon’s content consumption assets through Amazon Prime, make up the beginnings of an ecosystem.
  • With the retrenchment of Lab 126 into the home, most of these assets may be put out to pasture to wither and die.
  • However, there is an opportunity for anyone seeking to develop an ecosystem to make use of these assets in conjunction with Amazon.
  • Using the Amazon app store will pretty much fix one of the biggest problems of not going with Google while the other assets could be tailored to get an ecosystem up and running much more quickly than starting from scratch.
  • I have long been of the opinion that the Amazon ecosystem is one that would have a greater chance of success sitting on the devices of others (see here).
  • The likes of HTC, LG, Lenovo, Huawei, ZTE, Sony and so on all need to escape from Google’s iron grip and a tie up with Amazon to utilise these assets looks like a viable way to achieve that end.
  • Staying with Google means being a commodity with all of the value accruing to Google rather than to the device manufacturer.
  • As I result, I think that one has to ship around double the volume of the next competitor to make more than 2-4% EBIT margins, which is something that only Samsung is currently able to do.
  • There is very little hope for the Android handset makers and this is one of the few outs that they have left.
  • I would be on the first plane to Seattle.

Apple Auto – Silly season

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The car makers can still win the battle for the digital car.

  • The seasonal news vacuum has left space for speculation as to whether Apple will manufacture a car to surface once again.
  • This time it has been driven by the news that a senior engineer from Tesla has jumped ship to join Apple.
  • This follows a number of other recent hires from the automotive industry for Project Titan.
  • This has triggered speculation that Apple is working on building a car but I still believe that this makes no sense and that Apple is really only looking at producing a head unit or infotainment system.
  • There are two reasons for this.
    • First. The engineers that Apple has hired are mostly those that specialise in autonomous driving, advanced R&D and quality control.
    • These functions and AI that drives them is very likely to end up sitting in the infotainment unit rather than anywhere else in the auto.
    • Second. Apple typically makes around 40% gross margins on the hardware that it sells and to start making cars would probably have a devastating effect on its gross margins.
    • This is because the auto industry is just not that profitable and in many cases car companies make far more money on the financing surrounding a car purchase than from the vehicle itself.
    • Consequently, I think that it will prove impossible for Apple to make 40% gross margins on engines, brake pads and wheels.
  • However, making an infotainment unit comes with a big risk.
  • The next generation of infotainment going into a car will require full integration into the car’s systems so that advanced monitoring and even autonomous driving will be possible.
  • This will require the co-operation of the automakers as all of the critical interfaces are completely proprietary.
  • Without their co-operation, any infotainment unit produced by Apple will be little more than an iPad glued to a dashboard.
  • This is where the automakers have to tread very carefully.
  • They must allow users to bring the Digital Life services that they know and love on their smartphones into the car with them in an easy to fun use way but at the same time they must maintain control over the infotainment unit.
  • If they leave a hole in the dashboard to plug an Apple unit into, then they will have lost what will become one of the biggest differentiators going forward.
  • In this instance they will become more like the long suffering Android handset makers.
  • Furthermore, the automakers must also show solidarity in keeping Apple out of their systems because if one of them lets Apple in and the users love it, then the game will very likely already have been lost.
  • One only has to look at how Apple has decimated the brands of the US mobile operators for evidence of that.
  • I suspect that Apple is still quite far away from having something ready to launch but the automakers are going to have to move quickly and in an area that is way outside of their comfort zone: software.
  • It is time they study history so that its repetition can be avoided.

Digital Assistants – Intelligence community.

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Google out front but hampered with its issues.

  • Google and Microsoft are lining up with Apple for the battle of the digital personal assistants but even in its current predicament, Google has a massive advantage.
  • Microsoft has just launched a beta version of its assistant, Cortana, for Android while Google is aiming to get its new service Now on Tap (see here) onto devices as soon as it can.
  • iOS 9 will see improvements to Siri to make it more intelligent and better able to correctly respond to questions and requests.
  • The ideal digital assistant is one that can anticipate what it is that one needs and present it without being asked.
  • It should also be able to understand the context of every question that the user asks and return the right information or carry out simple tasks.
  • These ideals are very far from becoming even close to a reality but I am certain that the solution lies in advanced machine learning.
  • When it comes to machine learning, Google is far ahead of both of its competitors and this shows through clearly when all three are asked a series of questions and gauged on which provided complete answers. (see here).
  • Not surprisingly Google Now fared meaningfully better (88% complete answers) than either Siri (53%) or Cortana (40%).
  • There is far more to a great digital assistant than just answering questions, but when it comes to the other aspects of these products, machine learning is still at its heart keeping Google way out front.
  • Unfortunately, Google is struggling with a number of issues that will limit its ability to keep Google Now far ahead of its competitors unless it moves fast.
    • First. Its latest innovation Now on Tap (see here) which has the potential to meaningfully improve Google’s data collection, requires Android M to work.
    • Google’s inability to update the software on its devices means that it could be 2017 or 2018 before Android M will be mainstream (see here).
    • Second. Many of the core team who developed Google Now have left the company after their creation was folded into the core search business against their wishes.
    • Their stock options going sideways for a year also did not help.
  • These two issues are likely to delay Google’s roll out of improvements to Google Now to users, giving Cortana and Siri time to catch up.
  • Cortana on Android is another move by Microsoft to make its ecosystem operating system agnostic, aiming instead to encourage users to like and spend time with its services.
  • This is exactly the right strategy for Microsoft to become an ecosystem company but critically it must make its Digital Life services, fun, intelligent, easy to use, useful and integrated.
  • Many of them are very far from this ideal today, indicating that there is still and awful lot of work ahead.
  • Both Microsoft and Apple have a chance to catch Google while it gets its house in order but they will have to act now.
  • I still prefer Microsoft over both Google or Apple in the ecosystem as the market is expecting much less from it meaning that there is significant upside should it succeed.
  • Success in the ecosystem is already table stakes for an investment in both Google and Apple.

China Ecosystem – All is fair in love and war

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Fight over taxis shows how the Chinese ecosystem war will be fought.

  • Since the merger of Didi Dache and Kuaidi Dache, (Didi Kuaidi) the Chinese online taxi hailing market has been a two horse race.
  • Furthermore, the degree to which these services are already being used is a strong indication of how important the Chinese market is in this segment.
  • Although Didi Kuaidi now controls 78% of the market, Chinese cities account for 5 out of 10 of Uber’s busiest cities globally when considering bookings made.
  • This strongly demonstrates how important the Chinese market already is and why almost every digital company in the world wants a piece of it.
  • However, it is pretty clear that the Chinese clearly would prefer the Chinese market to consist of Chinese services provided by Chinese companies for Chinese users.
  • With around 900m smartphone users by the end of the next year, the Chinese market is easily big enough to be completely self-contained with no real foreign presence.
  • The one exception is Apple and although the Chinese are trying to replicate its success through Xiaomi or LeTV, Apple’s popularity in China is yet to take a hit.
  • The opposite is true for Digital Life services.
  • Here, Chinese companies have successfully reproduced everything that has been successful elsewhere.
  • They have also added localisation making them more appealing to the domestic users.
  • Furthermore, the decks are further stacked against foreign companies as they often depend to some degree on local companies to reach users.
  • Uber is no exception as it has been relying heavily on Tencent’s WeChat’s to offer its service to 600m users.
  • WeChat started as a chat app. but is now used to access a whole range of services including taxis.
  • Since the creation of Didi Kuaidi, Uber’s access to WeChat has been curtailed via a series of policy violations and technical glitches meaning that Uber is now effectively blocked from WeChat.
  • This means that Uber will have to reach the users directly which is why I suspect that it intends to spend $1bn in China this year.
  • This is a clear demonstration of how important the ecosystem is and how important it is to ensure that users want to spend their Digital Lives within one’s own ecosystem.
  • This is how I expect that battle for Chinese ecosystem to be played out across every sector.
  • Those that already have a large and engaged ecosystem will be in pole position to push new services to their users with a good chance that they will see rapid uptake.
  • Those without an ecosystem will have to start from scratch, meaning price cuts to draw users, heavy marketing and probably, huge losses in the early stages.
  • This is why I do not see the fragile alliance between Alibaba and Tencent in taxis spreading to other aspects of Digital Life as I suspect that this alliance was created to combat the very real threat of Uber in the Chinese market.
  • Outside of that, I see Alibaba, Tencent, Baidu, Xiaomi and potentially China Mobile as rivals all vying to entice users to spend more and more of their Digital Lives with them.
  • This means that they will attempt to include only their own Digital Life services and apps within their ecosystems shutting the rest out just as they appear to have done with Uber.
  • The Chinese market is big enough for 3 to be very successful meaning that there is likely to be failure and consolidation for those that don’t make it.
  • Xiaomi is currently in a strong position at home but I think that its lack of cash flow will mean that it will not have the resources to really take on its much more cash generative competitors.
  • Uber also has a fight on its hands but its easy access to capital will make continuing the struggle easier.

 

Xiaomi – Toys and eye candy

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MIUI 7 launch demonstrates limitations outside of China.

  • Xiaomi has launched the next version of its user experience MIUI but the lack of discussion around its ecosystem reinforces the view that it has very little outside of China.
  • New Delhi was the location of the launch which meant that all of the announcements had to be relevant to English speaking users.
  • This is why I suspect that Xiaomi’s Digital Life services and ecosystem ambitions were nowhere to be seen.
  • This is the clearest sign yet that Xiaomi’s ecosystem is only relevant in the Chinese market raising the question of how it intends to compete in the rest of the world.
  • The launch of MIUI 7 made it very clear that, for the moment, Xiaomi intends to do this by competing in the user interface as this is where the focus of the upgrade has clearly been placed.
  • There has also been a heavy focus on India as Xiaomi is very much driven by its community of which 65% of the English speaking part originates from India.
  • The main new features of MIUI 7 are:
    • A series of new themes that have been very carefully designed with matching colours and textures.
    • The ability to select simple games that can be run on the lock screen.
    • Daily lock screen. This is a collection of photos that Xiaomi has licenced exclusively and automatically appear on the lock screen each day.
    • App start time has been optimised to make it faster but the difference was so small that a slow motion camera had to be used to demonstrate the difference.
    • Battery life has been improved but in the demonstration, the capacities of the batteries in the competing devices were 5% and 10% less, rendering the test meaningless.
    • Child Mode to prevent children from deleting apps or accidently running up huge bills.
    • Showtime which is a really fun feature that allows a user to record a video and then when a contact is called, the receiver sees that video on the lock screen.
    • Specifically for non-Chinese users (India):
      • Visual IVR. This shows automated telephone system menus on the screen to allow selection of the options without having to wait for the audio prompt. 50 Indian companies signed up.
      • Data Saver. This is a function that channels all the device’s data through Opera Max resulting in up to a 50% saving on data usage.
      • Incremental improvements to SMS messaging to deal with the handling of system messages and one-time passwords.
  • Overall MIUI 7 offers incremental upgrades that both bring it into line with competitors as well as adds some frivolous innovations designed to appeal to users in emerging markets.
  • This will help with differentiation outside of China which is one of the biggest challenges that the company faces.
  • Its Chinese ecosystem has little relevance to users who are not Chinese, which is why for devices outside of China, it has been forced to use the Google ecosystem.
  • This means that Xiaomi users will be using Google’s Digital Life services resulting in users being part of Google’s ecosystem rather than Xiaomi’s.
  • The profitability of Apple and Google clearly indicates that it is the ecosystem where the money is being made these days, raising the question of how Xiaomi will manage that outside of China.
  • Consequently, I remain concerned that the UI tweaks shown in MIUI 7 will not be enough to really drive user preference when it comes to purchasing a Xiaomi device leaving Xiaomi as a commodity outside of China.
  • To justify a $45bn valuation, Xiaomi needs to be earning decent margins on its devices which is far from the case today.
  • Inside China it also has a fight on its hands as Baidu, Tencent, Alibaba and China Mobile are also all vying to be ecosystem players in a market that I think is big enough for three to be successful.
  • Xiaomi has first mover advantage, but its recent loss of momentum needs to be reversed if it is to overcome its potent opposition it in its home market.
  • I suspect it will be a very long time before Xiaomi goes public.