Google / Microsoft – Silly spat

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  • The silly spat has ended with a win / win.
  • Since the launch of Windows Phone 8, Google has been refusing to support the platform and so Microsoft took the APIs and made the You Tube app itself.
  • This became available this month and immediately caused consternation as the Microsoft’s implementation allows the videos to be downloaded and fails to include any in-app advertising.
  • This promoted a stern response from Google as; as far as it was concerned, Microsoft had violated its API terms of service.
  • Microsoft responded that it would have loved to include in-app advertising but could not as it did not have the API.
  • The end result was the two companies around the table with the end result being that Google would create a You Tube app. for Windows Phone itself.
  • This comes as no surprise to me at all as Google has nothing to lose and everything to gain by making its applications available on Windows Phone devices.
  • I suspect that Google has not supported the platform to date as it does not believe that the platform will ever reach volumes and is therefore not worthy of the expense to support it.
  • However, I suspect that a face to face with Microsoft convinced Google that Windows Phone is more than just a science project, making it realise that it has a lot to lose if the platform really takes off.
  • My feeling is that this is what Microsoft wanted all along and that now You Tube will be available, all of the other Google services will rapidly follow.
  • Controlling its own applications on Windows Phone enables Google to control the experience and to ensure that it can collect and monetise user traffic generated on the platform.
  • There is an opportunity for Microsoft to make money in this space too, but seeing as it collects a meaningful fee on every Windows device that ships, this is a secondary concern.
  • Hence, its aim is to ensure that the experience is as good as possible, which in reality means native support from Google for its own services.
  • This is a positive development for both Microsoft and Google, for at this point in the time the economics of these two companies are not in conflict.
  • Great Google services on Windows Phone will draw users to the platform (licence fee for MSFT) and Google will get to monetise the traffic, something that it was excluded from doing with the Microsoft app.
  • This is also a positive development for Nokia as when the Windows Phone experience improves so does the appeal of the fledgling Lumia series.
  • I do want to buy Nokia shares but at the moment I am struggling with the short-term volatility.

Future TV – Integrate or die.

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Over the top offerings will need to be integrated or they will perish.

  • TV over the internet is still a tiny fraction of the market (5% of US – see here for details) but it is the future and so everyone is starting to get their ducks in a row for when it finally takes off.
  • This nascent market is dominated by Apple which has shipped 13m (71% share) Apple TV devices to date and Roku (27% share) which claims to have shipped 5m.
  • Boxee is discontinued and will soon vanish.
  • Critically this analysis ignores the console vendors Microsoft with Xbox and Sony with PlayStation and it also ignores the TV vendors who are imbedding this functionality into their sets.
  • Volumes of consoles and TVs dwarf shipments of streaming dedicated devices and I suspect that this is where the market will go.
  • Less clutter, less wiring, easy install and set up are what the users want and hence a dedicated streaming box looks to be just a stop gap.
  • This is a major reason why Apple is toying with the idea of producing a TV set of its own with the Apple TV functionality embedded.
  • This also means that Roku needs to get itself imbedded into or sell itself to one of the major TV players or face being integrated out of business.
  • The market for TVs is slow but it is also rapidly concentrating towards the two Korean players.
  • No one else has the scale in panel manufacturing to match them in what has become a commoditised market.
  • Even with its 10G line, Sharp has floundered due to its inefficiency and high cost base.
  • For Roku, the first port of call must be Korea.
  • LGE and Samsung are fighting commoditisation by increasing the software and functionality of their televisions and the last thing they want is a great device turning their screens into dumb displays.
  • The content suppliers (Netflix etc.) are incentivised to make their content available on all platforms meaning that Roku will end up with very little with which to differentiate.
  • Furthermore, if the functionality is in the TV by default, why would a user spend money on another box he doesn’t need.
  • Apple TV has a bit more going for it thanks to iTunes and the existing Apple ecosystem, but it will also need to be integrated into the TV in some way.
  • Both Xbox and PlayStation have a reason to be underneath the TV (games) and I suspect that this will secure them a place in the world of delivering TV over the Internet.
  • This is going to be a while coming as Broadcast will resist for as long as it can, but even I have been surprised by the speed that this is gathering pace.

Smartphone usage – Meaningless data

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The latest data is meaningless without a demographic adjustment. 

  • Experian has produced an extensive survey looking at what users do with their smartphones.
  • The data includes normal telephony functions and reveals usage patterns that match most of the previous surveys.

Time spent on smartphones by activity (%)

% share of time

iOS

Android

Total

Talk

22%

28%

26%

Text

22%

16%

20%

Social Networking

16%

16%

16%

Visit Websites

12%

16%

13%

Email

10%

8%

8%

Games

8%

8%

8%

Other

10%

8%

9%

Total

100%

100%

100%

 

 

 

 

Source: Experian
  •  The data also shows that iOS users spend 75mins per day using their phones compared to only 49 mins for Android.
  • Doubtless, the Android detractors (of which I am often one) will jump on this data and use it as evidence of the poor user experience on Android.
  • I do believe that the experience on Android is inferior to both iOS and Windows Phone but this data does not show that.
  • If one takes the data and works out the actual minutes spent on each activity that fact is clear.

Time spent on smartphones by activity (daily minutes)

Time (mins)

iOS

Android

Total

Talk

16.5

13.7

15.1

Text

16.5

7.8

11.6

Social Networking

12.0

7.8

9.3

Visit Websites

9.0

7.8

7.5

Email

7.5

3.9

4.6

Games

6.0

3.9

4.6

Other

7.5

3.9

5.2

Total

75.0

49.0

58.0

Source: Experian, Radio Free Mobile
  •  iPhone users spend a lot more time per day making calls than Android users do.
  • This strongly implies that in this data sample, the iPhone users are solely a representation of a higher demographic than Android users.
  • This is because as one goes up through the demographic slices, mobile telephony increases.
  • In an apples to apples comparison one would expect that the telephony usage would be the same for both platforms as people have to make calls regardless of which ecosystem they belong to.
  • This makes sense as the ASP of the iPhone is substantially higher than the ASP of Android and the less affluent segments are predominantly using Android.
  • This is why I prefer to rely on data that has been adjusted for the demographic effect when comparing Android against iOS and drawing conclusions on loyalty. (see here)
  • Like for like data is still pointing to the fact that Android devices at the same price point as an iOS device are being used less and are consuming less data. (see here)
  • Hence, I still see Android as vulnerable when it comes to market share loss to better offering such as Windows Phone (assuming that Windows Phone can educate it potential users that is).

 

Mozilla – The promise

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Mozilla must live up to its promise to survive in mobile.  

  • Not content with just smartphones, it looks as if Mozilla is also moving into the cut throat tablet market.
  • June 3rd is the date for a joint press event between Mozilla and Foxconn where a new device seems certain to be announced.
  • The two companies are expected to formally announce a partnership and to jointly launch a tablet.
  • In all likelihood it will be in the 7inch category and will run the Firefox OS.
  • At this point it is unclear whether this product will be a reference product or whether Foxconn is about to launch a brand of its own and compete with its customers.
  • I suspect that the offering from Foxconn will be very like the Firefox OS phones currently made by Geeksphone.
  • It was these products that were shown at Mobile World Congress in February when the platform was launched.
  • These products are not intended for sale to consumers but for developers to aid them when they are building apps for the platform.
  • I suspect that the tablet will be similar in its intent and that Foxconn is not about to launch its own brand. Not yet anyway.
  • Whether Mozilla produces a tablet or a phone is irrelevant.
  •  All that matters is that the products live up to the promise that was made when the platform launched. (see here)
  • This promise is to deliver mid-high to high smartphone performance at a mid to high feature phone price.
  • In tablet terms this would be something like Galaxy-tab performance at an Amazon Kindle price point.
  • In the devices and demonstrations that I have seen to date, Mozilla is very far from delivering on this promise and I suspect that the tablet will fare little better.
  • Without an ecosystem of any meaningful size, Mozilla has to be better than Android and Windows Phone otherwise no one is going to notice.
  • It does not matter how many operators support the platform because if the users don’t want the devices, then they will simply gather dust on the shelves.
  • You can lead a horse to water but you can’t make it drink.
  • This is why Mozilla must deliver on the promise or else be relegated to the ranks of the also ran.

 

Hulu – Caveat emptor

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Buying Hulu is fraught with risk.

  • Hulu, the video site is up for sale once again but the price is unlikely to be better than the $2bn valuation at which Providence recently exited.
  • Hulu has 4m customers paying $7.99 a month and generated 2012 revenues of $695m.
  • As an over-the-top (OTT) provider of premium content, there is huge scope for growth of the subscriber base and of advertising revenues.
  • Hence, Hulu is a great place to start for anyone wanting to become a force is delivering video / content over the internet or for a company needing to broaden its coverage of Digital Life.
  • However, there is a catch: Hulu’s golden goose may soon vanish.
  • Hulu has exclusive rights to transmit over the internet content from 3 out of 4 of the major US networks but how long will this last?
  • Netflix has an audience of 30m implying that the networks could make a lot more money from their content on the internet if they were to make it more widely available.
  • Furthermore, I suspect that a large part of the 4m subscribers are paying Hulu because they can’t get the content elsewhere.
  • Should the exclusive be lost the impact on Hulu’s financials is unquantifiable.
  • This is why private equity firms are to be found among the bidders and why the mooted price is not much higher.
  • It seems inevitable to me that the exclusiveness will come to an end and then Hulu must stand on its own two feet.
  • To do that, Hulu needs to become part of a wider Digital Life offering or to become the internet offering of one of the major broadcast networks.
  • Hence, acquiring Hulu makes sense for Yahoo!, Facebook or even Microsoft at a stretch.
  • These three are non-existent or weak in the provision of video content as part of Digital Life and I can see a strategic fit. 
  • The other option is for Hulu to be taken by private equity, developed into a fully-fledged competitor to Netflix and then listed or sold.
  • This is an incredibly risky proposition and therefore I suspect that the likes of Yahoo!, Facebook and Microsoft will be willing to pay a higher price for Hulu than private equity.
  • Therefore I suspect that if Hulu is to be purchased, it will be an industry buyer that takes it.
  • Yahoo!, Facebook or Microsoft would be my lead contenders to take Hulu but at what price?
  • Looking at the inevitability of losing exclusive content, I would be expecting a sale price of around $1.5bn.

 

 

Windows 8 – Adoption by attrition

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Windows 8 will get there in the end.

  • At its London Analyst summit Intel bemoaned the lack of cool designs for the malaise of the PC market but as usual, this less than half the story.
  • There are multiple reasons why the PC market is struggling of which form factor is but one.
  • These are:
    • Users have no clue what the proposition of Windows 8 is because Microsoft and the PC makers have done an awful job on marketing. To be fair, Windows 8 is a much tougher sell, but endless rounds of “if you build it they will come” clearly does not work anymore.
    • The devices are too expensive. Intel and Microsoft are to blame for this. Their fat margins have sucked the PC industry dry for years meaning that there is very little scope for hardware makers to cut price to spur adoption.
    • Windows RT has confused and put users off the proposition. (see here)
    • The promise of a tablet that can become a fully-fledged PC has not quite been delivered. They exist, but cramming a PC into a tablet form factor is quite tricky and what is available at the moment is ugly, clunky and expensive. Here Haswell from Intel may help make a difference and I expect this proposition to get a lot better in H2 2013.
    • 25% of PC users are just as happy to use an iPad or smartphone instead. This loss of users combined with macroeconomic weakness has been a major factor in the weakness of the market.
  • To be frank, the biggest problem that the PC market currently faces is the fact that everyone knows that Windows 8 exists but no one has the first clue why they should buy it. (see here)
  • My biggest fear is that Microsoft does not care that much.
  • Apple as stopped making inroads into the PC market (in terms of share) and eventually the old clunkers will need to be upgraded.
  • Users will then be presented with Windows 8 by default, bringing adoption by attrition.
  • Once one has got to grips with Windows 8, the feedback is pretty good especially when one has a touch enabled device.
  • Hence, I think that Windows 8 will take off eventually even if Microsoft does nothing to fix how it educates the user.
  • The release of proper tablet / laptop hybrids plays directly to the strengths of Windows 8.
  • Hence I am hopeful the combination of Windows Blue and Haswell will breathe some life into the market in H2 2013.
  • ARM and Windows RT is unlikely to be factor anytime soon. (see here)
  • If only Microsoft and Intel could be nicer to their customers, the take-off could be even more rapid.

 

HPQ Q2 – The Meg diet

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Austerity buys time for a proper strategy to be formed.

  • HPQ posted good Q2 results and guided nicely as the cost cutting plan began to show results.
  • Q2 Revenues and EPS where $27.6bn / $0.87 compared to consensus at $28.0bn / $0.81.
  • Revenues from the PC segment where the real culprit for the top line falling 20% YoY to $7.58bn.
  • This was in part exacerbated by aggressive actions on the part of Dell to hang onto market share with inferior products.
  • HPQ declined to participate in a price war and so share was lost.
  • Dell caused problems this quarter but in reality the real danger is coming from Samsung, Asustek and Lenovo.
  • These vendors have a proper strategy in place and are much better positioned to thrive in the new market that the PC industry has become.
  • It is here that HPQ must focus its attention as Dell does not represent much of a threat to HPQ in the longer term.  
  • The real story was cost cutting where 29,000 positions are being eliminated to eradicate the inefficiency that has been endemic to this company for many years.
  • Consequently operating cash flow also grew by 42% YoY and due to a substantial reduction in capex, free cash flow grew 100% YoY.
  • Guidance was positive with Q3 EPS $0.84-$0.87 compared to consensus of $0.83
  • This combined with relief that the damage from the PC market and Dell’s predations were not worse, drove the shares up 14% in after-hours trading.
  • These results have all the hallmarks of a company teetering on the edge of long term decline.
  • To HPQ’s credit, it is showing good progress on fixing the company to face the very difficult environment it faces.
  • However, it is doing this by cutting investments and this raises concerns about a recovery to revenue growth in the longer term.
  • I suspect that HPQ cutting investments because it has not yet really decided what it wants to invest in for the long term.
  • HPQ is currently sitting at a strategic cross-roads and needs to decide what it wants to become and how it will show growth once again.
  • Meg is buying HPQ time through a stringent diet but there is still no clear picture as to what HPQ wants to become and how it intends to show sustainable growth.
  • The stock remains inexpensive and there is enough cash for a the formation and execution of a properly considered strategy but shareholders will not wait forever.

xBox One – TV Blooper

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TV lets xBox One down but it is not Microsoft’s fault.

  • The xBox One has been revealed with great fanfare and while it’s a winner in many areas, it falls over when it comes to the integration of TV.
  • To be fair to Microsoft, I suspect that this is not its fault and that the intransigence and desperation of the broadcast industry is to blame.
  • The specifications of the device look pretty much in line with expectations with an 8 core CPU, 8GB RAM, 500GB HDD, Gigabit Ethernet and so on.
  • Kinect has been integrated into the console and offers voice as well as gesture recognition for issuing commands.
  • The included webcam is 720p so how Skype will be provided at 1080p is a mystery.
  • The controller has been updated to make it more user friendly and with more haptic feedback.
  • The real action is on the software and here things have changed substantially.
  • A thin virtualisation layer sits on top of the hardware and this allows two other operating systems to run simultaneously and for the user to switch back and forth between the two.
  • One OS is the xBox OS for the games and the other is a optimised version of Windows for all of the other functions.
  • This is exactly the right choice to keep the gamers and developers happy and at the same time bring in the new functionality in a seamless way.
  • These have been stitched together and optimised so that the user will not really notice that there are two.
  • The idea here is to deliver all aspects of Digital Life to the user in one place in a way that’s fun and easy to use.
  • Against that criteria, the xBox One delivers in the demos but real life is not going to be quite as good.
  • The biggest problem is the integration of television.
  • From the user perspective, it would have been great to see the tuner, programming guide and DVR functionality integrated into xBox One but this has not happened.
  • What the user is left with is the ability to connect certain set top boxes to the device via HDMI which brings in audio-visual and sometimes the ability to change channel.
  • The vast majority of users are likely to find that they are reduced to controlling the TV set top box via an IR blaster.
  • This is not integration. 
  • It is just sticking the xBox One on top of the cable TV which has been already tried many times. It fails every time because the user experience is awful.
  • I am sure that Microsoft is more than aware of this problem and would have fixed it if it could.
  • I suspect that has done the rounds of all the major cable companies to inquire about integration and been shown the door every time.
  • I am pretty certain that Google suffered the same treatment when it was developing Google TV. 
  • Integrating TV functionality into the xBox One is one step closer to the doomsday scenario where all content is delivered over the internet and broadcast is completely cut out.
  • Hence, TV is very unlikely to be integrated into the over-the-top devices for many years to come.
  • xBox One has done a poor job of integrating TV but the good news is that no one else is going to fare any better.
  • Microsoft is not going to suffer by being hamstrung by the TV broadcast industry as everyone is in the same boat.
  • Hence, Xbox One looks to be the right device to continue Microsoft’s leadership in the console market and as a base to begin its conquest of the living room. 

Jolla – Half the story

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Jolla’s new handset is really only half of the story

  • Jolla has released the Jolla Phone with some interesting innovation, but the $520 price tag is going to bring tears to the eyes of many potential buyers.
  • The device is a sleek, buttonless touch device with a 4.5inch touch display, dual core processor and an 8MP camera.
  • What makes the device interesting are the interchangeable backs.
  • At the moment there is just a huge variety of colours and when these are attached to the device, the user interface adapts to match.
  • This is a cool, but useless gimmick but it serves to illustrate the possibilities.
  • Other features like more storage, NFC, input controls and so on could easily be added into the back and these would then become part of the device.
  • This is how a range of different devices could be produced off a single basic platform and it also allows third parties to create their own hardware customisations.
  • This idea has been tried before and has never really taken off but opening up hardware development for third parties is something that may just work.
  • The user experience is as promised and works smoothly and crisply on the hardware that was launched yesterday.
  • Android applications will run on the device thanks to the Alien emulator from Myriad.
  • Myriad have been working on this for a long time and I am hopeful that Android apps will work much better for Jolla than they do on BlackBerry’s awful z10 implementation.
  • The problem is price.
  • At $520, the device is going up against the biggest and the best smartphones in the business.
  • Jolla has no brand, no scale, no ecosystem and nothing like the financial clout required to make a dent against the larger players.
  • That being said, it does have a relationship with the biggest electronics retailer in China but you can’t force users to buy the phones.
  • There is certainly opportunity in developed markets as Android looks very vulnerable but to attack that market, but Jolla needs to rein the price in to be competitive.
  • In China it has a good partner but the price is so high that almost all of the foot traffic in the store will have already been priced out.
  • The end result is a device that is unlikely to sell in any real volume.
  • However, that may not matter as I suspect that the real business for Jolla is in licensing the software to third parties.
  • Once the proof of concept has been shown, there could be some interest from handset makers looking to get out from underneath Google’s and Microsoft’s shirt tails.
  • The business here would be one like Canonical.
  • The platform is free to license but then Jolla would build a version of it to the specification of the customers to take into account their requirements.
  • This is a viable proposition and would leave the horrible business of hardware competition to those that are better suited for it.
  • This is something that could have a future as I seriously doubt that Jolla is going to make it as a handset maker.

Yahoo! / Tumblr – Diamond in the rough

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Tumblr is exactly what Yahoo! needs to expand its coverage of Digital Life.

  • The wires are alive with the idea that Yahoo! will announce its $1.1bn acquisition of Tumblr today at its event in New York.
  • 10x 2013 revenues looks punchy but the usage stats point to a website where the traffic is substantially under- monetised.
  • Tumblr had 184m unique visitors and 12.1bn page views last month (Quantcast).
  • Given that the site is almost unusable without an account, I estimate that the number of unique visitors is roughly equivalent to the number of accounts that the site had.
  • 184m is a big number. 50% bigger than the number of accounts on Yahoo! itself and comfortably above Radio Free Mobile’s 100m watershed between viability and failure.
  • Furthermore Tumblr is doing reasonably well in mobile which is somewhere that Yahoo! needs to urgently address.
  • Most interesting of all is the social networking functionality that Tumblr enables.
  • Blogging is all well and good but it is not a major activity that users do on mobile devices.
  • Social Networking on the other hand is, with users spending 24% of all their time on smartphones using social networking functions.
  • This is where Tumblr offers Yahoo! the users, the page views, the usage and the functionality.
  • All it has to do is tweak it a bit and make it a more viable competitor to Facebook.
  • If Yahoo! can do this well, then users will be much more inclined to spend time on Yahoo! services.
  • This means that Yahoo! will learn more about its users and be in a much better position to monetise traffic flowing through its servers.
  • Yahoo! has a vile history with acquisitions (Flickr, Geocities etc.) but I think things at Yahoo! have changed since July 2012.
  • Hence, I am hopeful that Yahoo! will not make a mess of Tumblr and that the acquisition will see Yahoo! meaningfully expand its appeal to users.
  • This will bring Yahoo! further into contention as one of the major ecosystems in the mobile smartphone world.
  • Yahoo! remains my dark horse as an ecosystem contender and if it gets it right, there is much further to go on the share price.
  • However, if it gets it wrong, this will be another expensive diamond that ends up as a worthless piece of coal.