Apple vs. Samsung – Strategy of weariness

 

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The US judiciary seem bent on forcing Apple and Samsung to settle. 

  • Apple and Samsung remain locked in a legal war which is showing no signs of ending.
  • The latest turn of the screw is Judge Grewal’s refusal to allow Apple to add the Samsung Galaxy S4 to its current lawsuit for patent infringement against Samsung.
  • If Apple wants to assert its patents against this device it will have to file yet another complaint and proceed to yet another trial.
  • This is a problem for Apple because by the time it has filed, tried and won a case against this device, the hot seller will be the Galaxy S5 or S6 making any remedy much less effective.
  • The reason given for this denial seems to be centred around the amount of court time and resources this fight has been taking up.
  • To me, this looks like a pretty poor excuse.
  • Judge Lucy Koh, who tried the first case, has tried to get the parties to settle several times with no success.
  • My guess is that the judges involved can see the futility of this endless tit for tat and want the parties to sit down and come to an arrangement.
  • Asking nicely did not work and so the judiciary seems to be making life as difficult and as expensive as possible for both parties to wear down their stubborn resistance to a settlement.
  • I am pretty sure that any settlement would involve a net royalty being paid by Samsung to Apple but the problem is that Apple doesn’t want it.
  • Apple wants Samsung to stop using its technology and given that it is not prosecuting any standard essential IPR, it has every right to demand that.
  • Unfortunately with the patent system the way that it is, this is just not practical and I believe that Apple is worse off without a settlement than it is with one.
  • I also believe that the net royalties that Samsung would end up paying to Apple would be less than the legal fees that it is currently paying continue the fight across the world.
  • At the height of its fight with Nokia, Qualcomm was spending $300m a year on legal fees.
  • Hence it is also in Samsung’s interest to settle this case.
  • I am still optimistic that the case will be settled sometime this year but for a little while yet this absurd and ludicrously expensive tit for tat is likely to continue.
  • The only ones smiling here are the lawyers.

Microsoft – Built it, but they still don’t come.

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On its own, Windows 8.1 is not going to solve the problem. 

  • Microsoft has launched the public preview of Windows 8 at its annual developer Build event.
  • Windows 8.1 addresses some of the user issues around Windows 8 but does not solve the big ones.
    • Most users know what Windows 8 exists but have no clue why they should buy it.
    • Windows RT very limited in terms of what it can offer and confuses users with regard to what Windows 8 can, and cant do for them.
  • Windows 8.1 offers the return of the start button as well as the ability to boot to the desktop.
  • These are cosmetic but the integration of SkyDrive and Bing Search deeper into the user experience, is a more important step forward.
  • Windows 8 is beginning to offer things that Apple does not and because SkyDrive is far more mature than iCloud, the overall experience is much better and richer.
  • However, Apple is not the problem.
  • The problem is that users don’t care and they don’t care because they have no clue of what Windows 8 can do for them.
  • In this regard Microsoft remains completely at sea.
  • It seems to have no clue how to tell potential users how great its new user experience is and is blissfully unaware that there is a problem.
  • The shine has come off Apple’s brand a little bit with it being much less cool than it was but the Apple stores are still full and Microsoft’s empty.
  • Something needs to change to engage the users and a series of excellent new functions is not going to cut it.
  • This is because the vast majority of users will have no clue that these features exist until Microsoft gets out there and shows them.
  • Furthermore, the mess and confusion that is Windows RT needs to be sorted out.
  • It needs to be properly folded into Windows 8 such that the only choice that a user has to make is based on performance, battery life and price.
  • Unfortunately, I am reliably informed that this will be very difficult to achieve and so I can see ARM making no headway in the PC market whatsoever.
  • For an organisation with the size and power of Microsoft, there is very little that’s impossible to achieve and so I am hopeful that the coming shakeup of management might bring in a change of thinking.

Samsung PCs – Silly season.

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The desktop PC has its place in the ecosystem. 

  • The silly season is starting early this year with the notion that Samsung is about to close its PCs business doing the rounds thanks to the Korea Times.
  • What Samsung actually said was, “Demand for conventional desktop PCs is going down. We will allocate our resources to popular connected and portable devices”.
  • This basically means that Samsung will prioritise its resources towards those devices which have the highest demand.
  • It does not mean that Samsung will stop making desktop PCs and in fact it would be very foolish to do so.
  • There are three reasons for this:
  • First. Desktop PCs are declining but they still represent significant volumes.
  • This means that there are significant volume discounts to be had when it comes to buying components that are common to all PC types.
  • Second. Samsung has stated that it intends to become a top 3 vendor of PCs by the end of 2015.
  • Samsung will not achieve this without having a position in desktop PCs which are likely to remain dominant in the enterprise market.
  • Enterprise still makes up 50% of all PCs shipped.
  • Third. Everything is becoming more and more digitised meaning that users are increasingly living their lives within a digital domain.
  • Digital Life extends all the way from the desktop at the office to computing at home and on into tablets, consoles, TVs and smartphones.
  • It is becoming increasingly clear that the winning offerings will be the ones that are able to encompass all use cases for Digital Life.
  • Hence it makes no sense at all for Samsung to stop making desktop PCs but I would not expect it to focus much R&D or marketing in that direction.
  • Samsung has everything in place to become a top three PC vendor over the next few years and this is a dream that I expect it to achieve.
  • The losers here are likely to be HPQ and Dell who are still without a strategy to properly address the changing PC landscape.
  • Samsung is one of the cheapest stocks in the technology universe at the moment making it worthy of consideration for those who can look beyond the next quarter’s shipments of Galaxy S4s.

 

WinDroid – All about apps.

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Desperation makes strange bedfellows. 

  • The advent of hybrid devices running both Windows 8 and Android is a painful reminder of what OEMs think of both Windows RT and Windows 8 as tablet OSs.
  • Two of the major PC vendors have now released hybrid devices that run Android in tablet mode and Windows 8 in laptop mode.
  • This takes Windroid from what looks like a silly experiment and changes it into an earnest attempt to address some of the shortcomings of Windows 8.
  • The ability to pin Android apps. onto the Windows 8 start screen is a clear sign that the real problem with Windows 8 is the availability of apps. for metro mode.
  • Microsoft will proudly tout a number in the region of 100,000 this week at its Build conference but the cool, new and cutting edge apps never seem to be available.
  • This problem could also have been solved by running an Android emulator on the device and so the choice of a full Android implementation points to other issues in addition to app availability.
  • It strongly implies that the OEMs also do not see Windows 8 as a good user experience for a tablet which is a huge problem for Microsoft.
  • The whole point of Windows 8 is its flexibility and ability to provide a great user experience in both modes but if no one is interested then one may as well stick with the excellent Windows 7.
  • In desktop mode there is not much to separate the Windows7 and Windows 8 experiences.
  • I have long held the opinion that Microsoft has done an incredibly bad job at telling users why they should buy Windows 8.
  • I am not expecting much traction as hybrid OS devices have been tried before and have been show to be very niche with low volumes.
  • Furthermore, the devices are very heavy for tablets and the inability to share data between the two modes is likely to substantially limit their appeal.
  • These devices (and the new ATIV Tab 3) are also a damning indictment of Windows RT where manufacturer support has dropped to virtually zero.
  • The best that I can hope from Windows RT is that it is folded into Windows 8 and devices on ARM begin to appear where the only choice the user has to make is based on performance, battery life and price.
  • Its persistence as a shadow of Windows 8 confuses users and makes them less willing to join the Windows 8 ecosystem.
  • If Microsoft can make strides towards informing users how they can live their Digital Lives with Microsoft and solve the confusion around Windows RT then it becomes a very compelling proposition.
  • However, while its biggest OEM partners feel that they have to include Android to make a viable hybrid device, one can tell that something is seriously wrong.

Samsung – Barely a murmur

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There was a huge, but deadly silent crowd at today’s launches. 

  • There were lights. There were stars. There were some great products but no one seemed to be that excited by them.
  • There was nothing revolutionary about Samsung’s product launches but I am hopeful we are getting towards the kind of products that play to the strengths of Windows 8.
  • First up was Galaxy. Samsung has expanded the range of Galaxy S4 devices to cater to different sub-categories of smartphone user.
  • The Galaxy S4 Active (Robust and water resistant), Galaxy S4 Mini (small form factor) and Galaxy S4 Zoom (optimised for imaging) were all formally launched.
  • This is a good move by Samsung to more closely address the different demographics of the market but it is a worrying sign for profitability.
  • If the number of devices needed to fully address the market increases then the number of devices shipped per model or SKU will fall.
  • For Samsung this is bad news.
  • It has no real platform strategy and a part of its profitability has been predicated on the iPhone-driven concentration of the smartphone market to huge volumes of just a few models.
  • When a handset maker has shipped more than several million of a smartphone the marginal profitability becomes very attractive indeed and this has been a part of Samsung’s recent rise to glory.
  • If this trend continues and the market continues to fragment, Samsung will need to put its Galaxy products onto a single platform from which it can efficiently make large numbers of variants.
  • This is not a problem yet, but I can rapidly seeing it becoming one as the smartphone market matures and fragments and the number of devices shipped per SKU starts to fall.
  • Launches of new ATIV products were much more interesting with the ATIV Q and the ATIV Tab 3 being launched.
  • Of Windows Phone there was no sign which is a clear indication of what Samsung thinks of the outlook for this platform.
  • This is negative for Nokia but should Windows Phone actually see some traction, then Samsung will be far enough behind to give Nokia a good run before the Koreans catch up.
  • The ATIV Q copies Asustek in launching a dual Windows 8 / Android product.
  • The idea here is to have the benefits of Windows 8 without having to sacrifice app. availability.
  • This device is an interesting form factor and allows Android apps to be pinned to the Windows 8 metro user interface.
  • I suspect that this device is running Windows RT and as a result is unlikely to do much in the way of volume. (see here)
  • Far more exiting is the Samsung ATIV Tab 3. This is a thin and light tablet that runs a full version of Windows 8.
  • It is using Intel’s Haswell.
  • This allows the device to be 8.2mm thick and weighing in at 550g (less than an iPad 3) while still having reasonable battery life.
  • Stick on a nice keyboard dock and there are the makings of a proper hybrid device without having to make a compromise in terms of use.
  • This is exactly the kind of device that could give Windows 8 a badly needed boost and I hope that it is just the first of many.
  • This gives me hope that Windows 8 can see some signs of life towards the end of this year but it is a market that will be clearly dominated by Samsung and Asustek.
  • This was not the pop-up extravaganza promised but a steady evolution that should ensure that Samsung stays on top for a while yet.

Microsoft – Damage control

 

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Microsoft’s climb down is a very encouraging sign. 

  • In response to general clamour, Microsoft has changed its policies with respect to the Xbox One on both online use and used games.
  • The only remaining difference between PS4 and Xbox One now remains the price and I expect that too, will fall into line prior to launch.
  • The online requirement has now been reduced to one time system setup when the device is powered up for the first time.
  • Limitations on the sale, sharing and trading of games have also been lifted.
  • Microsoft was at pains to state that disc-based games would function on the Xbox One exactly as they do on the Xbox 360.
  • Here is the catch: Disc-based games.
  • Microsoft says nothing about how games that have been downloaded to the console will work.
  • For the smaller games this is irrelevant.
  • It is where the big $60 games have been downloaded where this will make a difference.
  • I suspect that the vast majority of these games will be available on disc as well as download meaning that the console logically should treat them equally.
  • If it does not, no one will buy the games online which will be a major blow to Microsoft’s ambition to get people buying stuff through its Xbox Live service.
  • It makes no sense for Microsoft to program the console to treat the big games differently depending on how they have been purchased.
  • Hence, I do not think that this is a sleight of hand.
  • I think that this is a change of direction by Microsoft in response to intense criticism and the very real risk of losing market share in the living room.
  • This is particularly encouraging because of the strategic importance of Xbox to Microsoft’s overall strategy to be a part of the user’s digital life.
  • The games get the device under the television but it’s the other things it can do around video, communication and so on that will really make a long-term difference.
  • I am have been long concerned with the “ivory towers” syndrome at Microsoft where each business unit exists in glorious isolation and acts solely in its own interest.
  • It is excellent that Don Mattrick has taken one for the team.
  • This embarrassing climb down does little for his business, but is incredibly important for Microsoft as a whole.
  • It gives me hope that that Microsoft can overcome its legacy and become so much more than the sum of its parts.
  • It is belief in this outcome that makes the shares interesting.

 

Android vs. iOS – No Progress

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The latest data indicates that there is still a big gap between iOS and Android.

  • Chitika Insights (see here) has published some more data surrounding the use of Android and iOS in North America.
  • The data was collected between May 1st 2013 and May 8th 2013 and consists of around 300m web page impressions.
  • The chart that really matters is figure 1 which shows the web traffic generated by iOS and Android devices over a 24-hour period.
  • It is important to note that this data includes data use by tablets, which need to be excluded to reach a conclusion about smartphones.
  • In the morning, iOS device traffic is about 1.5x that of Android which then increases to more than 2x in the peak evening period.
  • Other studies have shown that tablet use is far heavier in the evening and I suspect that it is iPad that is pushing the usage up at that time of day.
  • In the morning, tablets are less used as people are not so close to WiFi and are not in the best environment for tablet use.
  • Hence I suspect that the measurement taken in the morning of around 1.5x is mostly due to iPhone vs. Android phones.
  • This is in line with data that I have seen from the US operators earlier this year and leads me to believe that Android is still not closing the gap on iOS.
  • An element of this difference will be due to the fact that the iPhone has most of the affluent, high usage subscribers but it can’t explain it all.
  • Previous data has shown that the iPhone generates more traffic than an equivalent Android device at the same price point.
  • If this were no longer valid, I would have expected Android to have closed some of the usage gap overall but it has not.
  • Hence I see no reason to change my view that Android devices are used less because they are less easy and less fun to use than the iPhone.
  • This is critical because history has shown that this is a key measure of loyalty.
  • The less a user uses his device, the less likely he is to be loyal to that device.
  • This means that he will be more open to changing ecosystems when it comes time to change his device.
  • It is this lack of loyalty that I believe keeps the door open for Windows Phone and for a mid-range iPhone product should one be launched.
  • This combined with Android’s erratic performance, lower application quality and difficulties in getting it all set up and working as one wishes is what continues to support my caution around long term market share.
  • The door is open; the competition just has to walk through it.
  • Nokia and Microsoft are in pole position but if a lower priced iPhone is launched, this will cause some consternation across the board.
  • Samsung is likely to least affected as it could easily gain in Windows Phone what it loses in Android but this could be very damaging for the likes of Sony Mobile, LGE and HTC.

Android 5.0 – Low: the place to go

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By focusing on the low-end Google is aiming to increase its addressable mobile market by 60% or more.

  • An update to Android was missing in action at Google I/O in May but it looks like this will be forthcoming this autumn.
  • One of the biggest problems that Android 4 faces at the moment is its ability to be downscaled into the low end.
  • The software requires at least dual core hardware and around 1GB of RAM to run properly which remains way above many low-end specifications today.
  • The result is that 36.5% of all Android devices that access Google services are being made with Gingerbread (Android 2.3) (see here) rather than the latest and greatest software.
  • Those wanting to make cheap devices have little option but to use this very old software which gives a substantially worse user experience than more recent versions.
  • This is why Gingerbread is not disappearing despite newer and better software being available for over 18 months.
  • These numbers do not take into account devices that are not compliant with Google (China and other software forks) and including these I suspect the number would be even higher.
  • It is in Google’s interest to get low end users onto a later version of Android so the user experience can be improved and more users can get proper access to the Google ecosystem.
  • Without this upgrade, I estimate that of the 892m Android phones in the hands of users at the end of this year, Google will have access to only 288m (32%). (see here)
  • This is why I suspect that the focus of Android 5.0 (Key Lime Pie) will be to remove the hardware restrictions and allow low-end devices to get access to the latest Google services.
  • Google will continue to headline with the 1bn user figure but in reality it is only has access to, and is making money from 288m.
  • Hence, it has a strong incentive to enable low-end users to have decent access to Google services, as it looks to me like its penetration of services into its own OS remains very poor.
  • This is why the update is likely to focus on the low-end and will not be packed with fancy new features.
  • I suspect that this will be perceived by most commentators as a deadly dull update and not worthy of much attention but it could have the effect of increasing the number of users to which Google has a proper offering by 68%.
  • If I assume that all Android 2.3 devices are replaced with Android 5.0 devices then Google’s addressable market increases from 288m at the end of 2013 to 484m (an increase of 68%).
  • This is why Android 5.0, while perceived as deadly dull, could be the most important update we have seen for some time.
  • There is no sign of improvements or changes to the user experience, which means that the issues of usability and loyalty (see here) will remain unchanged.
  • Hence, Android’s competitors still have a chance to attack it on its usability but they need to act soon as Android’s appeal may soon improve markedly at the low end.

Intel TV – Crux not fixed.

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Intel has nothing to make a splash in over-the-top (OTT) internet TV.

  • Intel has already confirmed that it is working on an internet television platform with the aim to provide broadcast TV, catch-up TV and on-demand video.
  • This is all well and good but at the moment only 5% of US households have “cut the cable” despite a fairly sizeable number of offerings to choose from.
  • This strongly implies that internet TV is not yet have the depth (programming) or the reach (fast enough internet) to present a viable challenge to the existing broadcast industry.
  • The ideal solution will be one where a subscriber can access to everything he wants through a single electronic programming guide be it live sports, broadcast TV, catch-up TV or on-demand programming.
  • Live sports and broadcast TV are currently closely controlled by a few companies that will do everything in their power to ensure that TV over the Internet does not take-off.
  • TV over the internet is the single greatest challenge that the broadcast industry has ever faced and one, if ignored, that will quietly put it out of business.
  • This is why I think that when Google, Microsoft and others banged on the door to discuss integrating broadcast TV into their hardware, they were met with a flat refusal.
  • Turkeys do not vote for Christmas (or Thanksgiving) and allowing the OTT players any space at all will simply hasten the demise of broadcast.
  • Intel is still optimistic but I suspect this is because it has not yet tried to negotiate with broadcast.
  • When it does, it will be met with the same response and so yet another offering will far short of what it needs to take-off anytime soon.
  • There is no doubt in my mind that TV over the internet is the future but until the penetration levels hit around 25% or so it will be a long and hard road.
  • Hence, I see no reason why Intel’s offering will be any different to anyone else’s and as it does not have the draw of games, it is likely to languish.
  • PS4, Xbox, Apple TV and Roku dominate this market and there is no reason for anyone to suddenly to switch to Intel.
  • If Intel can bring broadcast into its offering then it will have something, but for now it will be an also ran.

 

Line – The young contender.

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Line is making its bid for the big time.

  • Line is a competitor to WhatsApp and other IM applications that differentiates itself by allowing users to exchange cutsie cartoon images.
  • Line was developed in Japan and Korea where the cutsie cartoons are an integral part of everyday life.
  • Line has recently expanded into Western countries and incredibly has met with substantial success.
  • The last time I wrote about Line, I assumed that what had happened in the past with Asian exports would happen once again but I got this one wrong.
  • History is littered with the corpses of Asian internet and mobile services that have tried to expand outside their regions but something about Line is appealing to users in the West.
  • Line is now taking the next step and expanding its application to cover other activities in Digital Life.
  • Instant Messaging is a popular activity but users only spend 5% of their time on smartphone engaging in this activity.
  • Furthermore, instant messaging is now a crowded space meaning that revenues and profits will be increasingly difficult to find.
  • To counteract this Line has added a browser inside the application itself.
  • Now when one shares a link the webpage opens as part of the Line experience rather than going to Safari, Chrome or Firefox.
  • Users spend 13% of their time on smartphones browsing the web meaning that Line has just increased its addressable market from 5% of user time to 18%.
  • In my view, expanding coverage of user activity on smartphones is a critical step to achieve growth and success.
  • The better one covers Digital Life, the more one knows about one’s user and the more valuable will be the targeted advertising.
  • Furthermore, the more time a user spends using one’s service, the more opportunities one has to target that user with advertising.
  • Hence increasing coverage of Digital Life is good for both pricing and volume.
  • This is why coverage of Digital Life is an essential piece of Radio Free Mobile’s analysis of mobile ecosystems. (see here)
  • At this time it is impossible to know whether the browsing experience is any good but this is a strong signal of what Line intends to accomplish in the long-term.
  • This is a very long way from becoming a fully-fledged eco-system, but if it can successfully offer its users other services there is potential for it to gain momentum.
  • The big players will probably fail to even notice Line’s move, but the likes of FaceBook and Twitter, who need to expand their offering beyond their respective niches, should pay attention.
  • I underestimated Line once. I am not about to repeat that mistake.