Essential Products – Not essential.

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Andy Rubin still works for Google. 

  • Essential Products Inc has launched a series of products aimed at creating an ecosystem but none of them do anything or enable anything that is desperately new.
  • Consequently, the real beneficiary from another nice looking, easy to use phone will be Google whose ecosystem will be front and centre of the flagship device.
  • Essential Products Inc. was founded by Android creator Andy Rubin and has launched two devices and two accessories in a bid to stitch together the fragmented smart home space.

Phone

  • The Phone is similar to the Galaxy s8 although its screen is lower resolution, not waterproof and the battery has a slightly lower capacity.
  • Its one major area of differentiation is that the chassis is made from injected Titanium and has a ceramic back, potentially making it much more resistant to being dropped and scratched.
  • When it comes to screen protection, both are using Gorilla Glass 5 meaning that resistance to screen smashing should be about the same.
  • It also has two pins on the back (much like the Moto Mods concept) to which accessories can be attached.
  • The API for the accessory pins will be made available to developers to create their own devices to attach to the phone.
  • However, it has the price to match at $699 compared to $750 for the Galaxy s8 which is where I think the trouble will begin.
  • Phone is nice looking but I can’t see how it does anything that is not already available and outside of chassis resistance, Samsung gives more hardware bang for the buck.

Home

  • Essential products has also launched a voice activated home controller that aims to bring the smart home together in one place.
  • This is something that the smart home badly needs as the Alexa user experience is dire and hardly any products and services work with Google Home.
  • This product is different for two main reasons:
    • First: it is not designed to play music unlike other offerings although it does has a small speaker like the Echo Dot.
    • Instead, it is aimed at bringing all of the home’s devices together into a single place to manage them in an easy and fun to use way.
    • This device is also able to integrate these products such that smart devices can work together in new, fun and potentially very useful ways.
    • For example, when the timer goes off, the room’s lights can be flashed on and off rather than the generic alarm bell sound that everyone else uses.
    • Second: Home has a small screen on the top that is designed to enhance communication and interaction with the user.
    • RFM research (see here) has found that voice communication with machines is very far from being good enough to work effectively without a screen for output.
    • Consequently, this configuration makes a lot of sense.
  • The device runs its own OS called Ambient OS but Essential intends to open this up completely such that anyone can write functionality for the product.
  • This device takes a massive risk because 70% of the usage of devices in this category is as a Bluetooth speaker.
  • Consequently, there is a sizeable risk that this device will not appeal to the majority of users looking to buy something in this category.
  • Another big issue is the source of the AI that will be running Home as this will be the heart and soul of this product and the AI in Ambient OS currently looks as dubious as Bixby (see here).

Accessories.

  • Essential products has launched a charging plate for the Phone that connects through the two pins as well as a 360 degree camera.
  • I think that the charging plate is pretty useless as wireless charging is starting to come of age and inclusion of one of the standards in the device would have enabled a good user experience with products already present in the market and in users’ hands.
  • For example, because the Galaxy S8 supports Qi charging it will work with any compatible pad.

Take Home Message.

  • When I originally wrote on Essential Products (see here), my view was that it needed to produce must have devices and in that regard, I think it has failed.
  • The Phone is a Google Ecosystem device with a few nice features but less bells and whistles than the Samsung Galaxy S8 for almost the same price.
  • The Home has the most potential but it is taking an awful risk in that it is not addressing by far the biggest use case and has dubious AI.
  • It will also be dependent on third party developers meaning that it will need volume but even in its best case it is not going to out-ship Google Assistant or Amazon Alexa.
  • Consequently, I remain unconvinced with regards to what is special and different about Essential Products and suspect that many consumer electronics buyers will feel the same way.
  • Differentiation in hardware is extremely difficult meaning that Andy Rubin needs to have some software tricks up his sleeve that he is yet to show.
  • Failing that, it seems that this company will end up enriching Google more than itself.

Google DeepMind – Pebble hanging.

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AlphaGo’s retirement shows that humans are still needed. 

  • AlphaGo is hanging up its pebbles after emphatically demonstrating that from here on, machines will be better Go players than humans.
  • This move also indicates that despite being one of the most advanced AI’s developed, it will still consume a huge amount of human resources to keep it running.
  • Last week AlphaGo crushed the world’s best player Ke Jie 3 to 0 in a convincing display that has left little doubt that human rule of this game is now over.
  • DeepMind, the Google owned developer of the AlphaGo, has decided to retire the algorithm and focus on more useful areas such as health, material sciences or clean energy.
  • This makes complete sense as DeepMind has proved its point with regards to its AI prowess but also since it published its methodology for AlphaGo, it has already been copied.
  • For example, Tencent is very keen to show the it has a strong presence in AI and recently its AI Go player called Jueyi was able to play to a very high standard.
  • However, on inspection it appears that Jueyi is little more than a carbon copy of AlphaGo, leading me to completely discount Jueyi as an example of Tencent’s prowess in AI (see here).
  • This is possible because AI is a co-operative field and DeepMind has published most of its methodology and results for the creation of AlphaGo in the scientific magazine Nature.
  • Most importantly, I think that the retirement of AlphaGo indicates that to keep it going would still require a lot of human time and effort.
  • AIs need to be constantly evolved to keep up with how the task for which they have been created is changing.
  • Although, AlphaGo was touted as an AIs that could do a lot of learning by itself, the reality was that much of its crucial learning was human supervised thereby consuming resources.
  • One of RFM three goals of AI (see here) is the creation of AIs that can build their own models and while there is plenty of evidence that researchers are working hard in this problem, results have been pretty scant to date.
  • If AlphaGo could be left to its own devices, there would have been little reason to retire it, but seeing as it will consume resources that can be productively deployed elsewhere, it makes no sense to keep it going.
  • This is yet another sign of how nascent AI really is as I think that many of the capabilities which the big ecosystem companies would have us believe are just around the corner, are actually years away.
  • I think translators, executive assistants, personal trainers and so on have plenty of time to find other lines of business.

Microsoft – Empty harbour.

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I think the video game streaming ship has sailed.  

  • Microsoft is showing no signs of giving up on gaming but it will have to do something really special with Mixer if it wants to make any dent at all in Twitch.
  • Microsoft has renamed the video streaming service that it acquired in 2016, Mixer, and relaunched it with a host of new features in order to compete with Twitch.
  • Twitch is the gorilla in the video game streaming business that Amazon acquired in 2014 for around $1bn (see here).
  • At the time of acquisition Twitch had 55m users but the engagement that it generated was quite staggering with 7m logging in every day with an average watch time of 2 hours.
  • In the last 2 and a half years these numbers have continued to grow with now than more than 100m MaUs of which around 10m login every day.
  • Even more surprising is that engagement has further increased with nearly half of all its users spending 20 hours per week using the service.
  • When compared to the other players (YouTube Gaming, Mixer and Hitbox), I think that Twitch is more than 10x the size of its nearest rival.
  • Twitch is a network based business where sellers (game streamers) and buyers (viewers) are put together with Twitch sharing the revenue with its content creators.
  • Twitch is the standout go to place for streaming video games and given its size advantage, I think there is almost nothing that Microsoft or anyone else can do about it.
  • Mixer is launching with some pretty cool new interactive features that takes sharing videos to a new level, but I am far from convinced that it can ever gain the critical mass needed to put even a ding in Twitch.
  • For example, in April 2016 Mixer had just 100,000 users and even its big launch event today has only around 600 users watching it.
  • Furthermore, if every Xbox Live user was to start using Mixer, it would still be less than half the size of Twitch.
  • This issue is exacerbated by the fact that Mixer is not available on PlayStation which is a much bigger community than Xbox.
  • Consequently, I think that Mixer will end up as a niche offering that has a very small, but loyal following.
  • Whether that is enough to cover the cost of the service remains to be seen.
  • Microsoft recently made a robust defence of its presence in gaming at its financial analyst briefing at the BUILD conference (see here) with which I do not necessarily disagree.
  • However, both Microsoft and Sony have made a horrible mess of trying to leverage their gaming communities into mobile and I do not buy the argument that these communities are not applicable on mobile.
  • These users almost all have smartphones upon which they will play games albeit different from those that they play on consoles and PCs.
  • Twitch is big but there are billions of users playing games on mobile devices and gaming is by far the biggest revenue generating segment for developers.
  • This is why I think that if these communities were properly leveraged into the mobile, they would be orders of magnitude more valuable than they are today.
  • Furthermore, in developed markets, this space is vacant with the only really big player (Tencent) being only present in China.
  • This is why I think that someone with the ability to do with Xbox what Microsoft cannot would be willing to pay more for the asset than it is worth to Microsoft.
  • It is under these circumstances that I have advocated for its sale as it would generate more value for shareholders than remaining inside Microsoft.
  • As it stands today, I think Xbox can generate some value for Microsoft but far more for someone else.

DJI – Brains not brawn

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The spark at DJI is in its software prowess.

  • DJI has launched a new drone which I think clearly demonstrates this company’s unique ability to take on its US rivals and come up with a better product.
  • DJI has launched the Spark which is a palm sized drone that looks to be so easy to fly that the controller is an optional accessory.
  • The Spark is equipped with a 1080p 12MP camera and is controllable with a smartphone app but most importantly it sports a level of autonomy that makes it easy for anyone to fly.
  • Its chief rival in this space is the Dobby drone from Xerotech, which is pretty easy to fly using a smartphone but does not offer the level of sophistication that the Spark does.
  • Specifically, I am referring to the ability to completely control the drone using hand gestures and a series of autonomous modes that are aimed at still and video selfies.
  • This level of autonomy has been under development for quite sometime and DJI continues to demonstrate that it is ahead of all its competitors, including those based in US.
  • This is extremely rare for a Shenzhen-based hardware company which tend to turn out very cheap copy-cat devices and have no understanding of software at all.
  • The difference between Chinese designed devices and the much more expensive versions sold by US companies tends to be found in software functionality and reliability.
  • This is why the US versions still sell well in developed markets as consumers can recognise and are willing to pay up for quality products.
  • DJI completely bucks this trend as it is turning out better products than all its competitors making it a worthy leader of the still small, but growing drone market.
  • What is unusual about DJI is that its differentiation is now rapidly becoming based on its software which offers the best level of autonomy currently available.
  • This has really come to light in its two most recent products, the Mavic Pro and now the Spark.
  • The Spark is DJI’s first attempt at the consumer market as the device is priced at $499 compared to all of its other products that are above $1,000.
  • For its more expensive products it is not so important for them to have a high level of autonomy as they tend to be purchased by users who are either professionals or experienced flyers.
  • This is aimed at those that have never picked up a drone before and as long as it lives up to its billing it should be very easy and great fun to fly.
  • Most of all, the autonomy should allow selfies to be taken where the “pilot” is participating in the scene rather than flying the drone.
  • DJI is continuing to stay ahead of its competitors and is the first Chinese company to lead a segment of consumer electronics rather than be a fast copier.
  • If it was listed, I would be looking at DJI with great interest.

Microsoft – Breathing space

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Microsoft gives the PC makers room to breathe.

  • Microsoft updated its Surface Pro at an event in Shanghai but left plenty of space for its partners to innovate within the fledgling tablet-PC category.
  • Microsoft has followed Apple in dropping the version number from the name and the new product makes incremental improvements which include:
    • Battery: Microsoft claims that despite looking very similar, the new product has 50% more battery life than the Surface Pro 4, clocking in at 13.5 hours under optimal conditions.
    • This will be well received by road warriors who spend a lot of time in airports and coffee shops looking for power sockets.
    • Fan-less: The new Surface Pro is fan-less in the m3 and i5 versions which is a meaningful saving both in terms of power and noise.
    • Microsoft is very late to fan-less computing and I see it as behind the curve as there are other devices (see here) available that run the same processors but are fan-less across the whole range.
    • I am assuming that as the i7 version also runs Intel Iris Plus Graphics 640, more heat may be generated under heavy load than the i5, necessitating the presence of a physical fan.
    • Going fan-less is a good opportunity to reduce thickness and weight but again Microsoft does not appear to have taken this route as it is keeping the same chassis for all versions.
    • Instead it is leaving this to other companies like Samsung, Huawei, Eve Tech and HP which has clearly been doing some work on its form factors.
    • Hinge: A new hinge has been created to enable what Microsoft calls studio mode.
    • This is where the device is almost horizontal but is slanted at the same angle as the workspace of an architect or illustrator.
    • This is very similar to the use case provided by the popular but expensive all-in-one PC Microsoft launched last year called Surface Studio.
  • Outside of these upgrades, the new Surface Pro is an incremental upgrade which leaves plenty of room for others to address this space.
  • I don’t think that it has ever been Microsoft’s intention to take market share away from its partners but more to show them the way forward
  • Historically, PC makers have really been starved of form factor innovation, having outsourced almost all of its to the ODMs.
  • However, there are signs of this coming back.
  • A good example is HP which as seen huge improvements its form factors with the Envy line of laptops finally living up to its name.
  • Most PC makers now offer a Surface Pro-like product which if marketed properly, still has the potential to change the nature of PC market.
  • A tablet PC with a separate keyboard and mouse offers a more productive, healthier and more ergonomic computing experience which I still think renders the laptop form factor obsolete.
  • However, PC makers and the marketing departments of Intel and Microsoft have been selling laptops for 40 years which has become a very difficult habit to break (see here).
  • I still believe that this has the potential to kick the PC market back to growth as old laptops are quickly replaced, but given that this is just a product cycle, it would only last for a few years.
  • This rising tide would float all boats but I would prefer to be aboard either Microsoft or Lenovo for this ride.

LeEco – Le-trenchment

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LeEco looks to return to its roots at home.

  • LeEco’s foray into the United States looks like it is coming to an end which combined with a major restructuring at home, probably brings to an end any realistic hope of becoming a digital ecosystem.
  • I understand that LeEco is about to lay off all of its employees in the US that are involved in developing, building and selling the devices and ecosystem that LeEco is offering.
  • Those that remain are thought to be staying to look after existing customers but I suspect that most that remain will be the ones that are working on the automotive ambitions of Faraday Future.
  • On top of this, Jia Yueting, the mercurial founder of LeEco, is also stepping back from his position as CEO of Leshi Internet Information & Technology Corp. (LeEco’s parent) although he will remain chairman.
  • He will be replaced by Liang Jun who has been running the content business since joining from Lenovo in 2012.
  • LeEco’s CFO has also been replaced with the CFO of the China business.
  • Furthermore, it looks like all of the content related businesses will be merged into Leshi while the automotive business is spun out as a separate unit.
  • All of this points towards a big retrenchment where LeEco will once again become a Chinese digital content company with a shareholding in an electric car company.
  • I think that this means that all LeEco’s activities in the US will be focused on Faraday Future which is trying to build an electric vehicle at a yet-to-be-completed factory in Nevada.
  • At the end of the day, I think LeEco tried to do things much too quickly and did not pay enough attention to the fundamentals of creating an ecosystem.
  • If I take LeEco’s ecosystem as it is today it has weak coverage of the RFM Digital Life Pie as it really only covers Media Consumption.
  • It also gets a poor score against RFM’s 8 Laws of Robotics mostly due to the fact that it has not paid enough attention to detail when it comes to the user experience.
  • I get the impression that the software was simply ported over from the Chinese version and not enough time has been taken to adapt the user experience for the US consumer.
  • The devices themselves offer great value compared to competitors with an 85 inch 4K TV for $5,499 being the best deal available by quite some margin.
  • However, it all falls to pieces when it comes to software and this is where LeEco was hoping to make its money.
  • I have long held the opinion that LeEco did not have the resources to create both a digital ecosystem and an electric vehicle and that it should close its automotive operation and focus on its core business (see here).
  • However, it appears to have gone one step further in closing its ecosystem ambitions and spinning out automotive where I suspect it will be seeking participation from other investors.
  • I suspect that Leshi will now return to competing in the Chinese market which is heating up with increasing levels of investment in content coming from the BATmen.
  • Consequently, the outlook is pretty bleak as Leshi’s ability to out invest the BATmen is highly questionable especially given the troubles that it has had with expanding into the US.
  • I would pick Tencent as my favourite Chinese ecosystem for investment.

 

SoftBank Vision Fund – UB40

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Pressure to employ capital is the biggest risk.

  • SoftBank has announced that the first round of its $100bn Vision fund has closed with $93bn in committed capital but the problem now is going to be how to quickly put this huge amount of money to work.
  • At $93bn, the SoftBank Vision Fund ranks as the third largest private equity fund globally, behind KKR with $98bn and Blackstone which has $311bn in assets under management.
  • The investment strategy will be wide with the fund looking to target long-term investments in both private and public companies right the way across the technology sector.
  • The one exception appears to be semiconductors but the fund will have some exposure there if it takes up its option to take a 25% stake in ARM.
  • The fund is clearly intending on having a significant influence on the activities of the companies in which it invests as the aim is to supply growth capital and accelerate the development of disruptive technologies.
  • I am pretty sure that this will also involve turn-around situations as most disruptive technology and requirement for growth capital is to be found in small companies.
  • With the Vision fund’s lowest investment size at $100m, start-ups and small companies are clearly off the table
  • The main investors are SoftBank ($28bn), the Public Investment Fund (PIF) of the Kingdom of Saudi Arabia ($45bn estimate) and Mubadala from United Arab Emirates ($15bn estimate).
  • I estimate that between them they make up 95% of the funds committed.
  • Apple, Qualcomm, Sharp and Foxconn Technology Group make up the other 5%.
  • The fund will shave the option to acquire a 25% stake in ARM ($8.2bn) as well as some or all of SoftBank’s investments in Guardian Health, Intelsat, NVIDIA, OneWeb and SoFi.
  • It is worthy of note that SoftBank’s investments in Alibaba or Flipkart which fit the criteria for the Vision Fund do not appear to be included as potential contributions.
  • If the fund decides to take these investments, they will be offset against SoftBank’s $28bn commitment to the fund.
  • I suspect that the biggest issue that the fund will face will be pressure to find good investments.
  • Rivals such as KKR, Blackstone etc. have grown their asset base over time but here the Vision Fund has $93bn at its disposal from day 1.
  • Consequently, its main shareholders will be wanting to see their money quickly put to work opening the door to making rapid but sub-optimal investments.
  • I hope that SoftBank’s recent (on ongoing) experience in India will be heeded as an example of what happens when too much capital chases too little paper on a wave of hype and optimism.
  • Common sense indicates that the shareholders will not be putting up all of the capital on day 1 but as the investment opportunities arise, they will contribute their share as per the commitments that they have made.
  • This is made all the more likely as I understand that PIF will be raising the money from other investments that it is holding and Mubadala did not have $15bn of spare cash on its balance sheet at the end of 2016.
  • Although the Vision Fund is the third largest private equity fund globally, it is the largest that is dedicated to technology and consequently, it should be a major player in sector going forward.

Alibaba FQ4 17 – Intuitive integration

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Signs that Alibaba is moving to make the most of its ecosystem.

  • Alibaba reported another excellent set of results which was marred by the normalisation of the tax rate following the ending of a tax break gained by investing in its distribution partner Suning.
  • Alibaba has also begun to demonstrate the kind of traits that lead me to think that it has really figured out what it needs to do to become a fully-fledged ecosystem across all aspects of its users’ digital lives.
  • FQ4 17 revenues / Adj-EPS were RMB38.6bn / RMB4.35 nicely ahead of consensus estimates of RMB35.9bn / RMB4.86.
  • The main driver of the results was Alibaba’s core e-commerce business which posted FQ4 17 revenue growth of 47% to RMB31.6bn.
  • This was underpinned by 11% growth in the number of active buyers as well as each user spending significantly more with Alibaba than they have in the past.
  • This is how Alibaba has managed to defy my expectations that growth would slow this year.
  • Cloud computing and digital media and entertainment each posted triple digit growth albeit from a much lower base.
  • The excellent results were marred by an increase in the tax rate which increased to 23% up from 14% in FQ4 16 where it will stay from here.
  • The most notable aspect of management’s commentary was the increasing focus on integration of its digital assets.
  • This has almost been completed for the digital media assets, giving Alibaba the ability to understand usage patterns across all of its media assets.
  • The same thing is going on in its e-commerce assets and it is already beginning to reap the benefits from this by offering this intelligence back to the merchants on its sites.
  • This kind of intelligence is what could also allow Alibaba have a big impact in offline retail which still makes up the vast majority of Chinese retail spending.
  • The final step should end up being the integration of all of this data into a single repository.
  • If Alibaba can to this effectively, it will be able to monetise its traffic far more effectively than it does today as well as have the insight into its services to make them richer and better than those of its competitors: Tencent and Baidu.
  • I still struggle with the valuation of Alibaba but it’s moves towards really making the most of the assets it has makes me willing to have another look.

Google i/o 2017 – Brain game

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Superior brains being used to make its services the best.

  • Google held the first day of its annual developer conference and in its keynote, it highlighted the features and improvements that it is making to its ecosystem to keep users engaged while gathering and categorising as much data as it can.
  • Artificial Intelligence headlined the event with Google’s leading expertise now being implemented in everything that it does.
  • These included:
    • First, Google Lens. This is machine vision similar to what many others have also announced but in Google’s case I suspect it will work properly.
    • This can be used to identify items which combined with search to bring up relevant information about it.
    • This stretches from the history and background of a place to the ratings users have given to restaurants and shops.
    • Others fall short in the ability to identify items as well as in the digging up of relevant information about the item.
    • This is because the AI they are using to power the service is not nearly as advanced as Google’s.
    • This functionality is being rolled across all of Google’s properties to enhance everything Google does such as the Photos app, Maps, Daydream and so on.
    • Second, AutoML. This is a research project within the Google.ai initiative.
    • It is neural network that is capable selecting the best from a large group neural networks that are all being trained for a specific task
    • While few details were disclosed, Google said that the results achieved to date were encouraging.
    • This is a hugely important development as it marks a step forward in the quest to enable the machines to build their own AI models.
    • Building models today is still a massively time and processor intensive task which is mostly done manually and is very expensive.
    • If machines can build and train their own models, a whole new range of possibilities is opened-up in terms of speed of development as well as the scope tasks that AI can be asked to perform.
    • RFM has highlighted automated model building as one of the major challenges (see here) of AI and if Google is starting to make progress here, it represents a further distancing of Google from its competitors when it comes to AI.
  • Google also gave updates on all the current products and services including the next version of Android: Android O.
  • Most relevant updates included:
    • First, Android. There are now over 2bn active Android devices in the market but I suspect that there is meaningful multiple device ownership.
    • For example in Brazil there are more mobile phone connections than there are people, highlighting that multiple devices are owned by a large number of people.
    • This is a trend that is mirrored in many other emerging markets.
    • Every Google Android device has a Google sign-in and for the other Google services, the figures are closer to 1bn which also includes those that have iOS devices.
    • Hence, in terms of real unique users rather than devices, I think the numbers are much lower.
    • This is important because it is unique users that generate the revenue for Google and hence they are a better measure of the real penetration of Android across the globe.
    • Second, Android Go. This is the relaunch of the failed Android One project which aimed to put smartphones in the hands of more users which obviously, requires much lower cost.
    • Android Go is like a mini-mode of Android O which runs in an optimised way on devices with memory down to 512MB of RAM.
    • Google’s apps have also been optimised to run in this highly constrained environment.
    • Importantly, functionality has been added that focuses on saving data usage as well as offering complete control of data usage from the device.
    • For the lower income users, data has become almost like a currency and this gives them much better control of their “spending”.
    • This looks like a much better proposition than Android One which was highly restrictive to the handset makers.
    • However if they start tinkering with Android Go (as they always do), there is a good chance that all of these good improvement will vanish into thin air.
  • While this is not the most exciting i/o event in terms of new announcements, it is what is going on with AI that has the most implications for Google’s outlook.
  • AI is now embedded in everything and because Google is clearly the global leader it has the scope to make its services richer and more intuitive than anyone else’s.
  • This is critical because this is how Google will win over more users to its services, generate more traffic and therefore more revenue.
  • However, I think that much of this is already embedded in the share price and I continue to prefer Baidu, Tencent and Microsoft.

 

Android Project Treble – Yellow brick road

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Yellow brick road that leads to a fully proprietary Android OS.

  • The launch of Project Treble sees Google finally moving to address the Android updating problem but it also quietly paves the way for Google to take full control of the Android software.
  • It could also cost the handset makers more of the precious little differentiation they have left.
  • I have long believed that the inability to update Android OS is one of the biggest problems that Google faces with its ecosystem on Android (see here).
  • This has meant that whenever Google makes an innovation that requires any changes to be made to the OS, it takes around 4 years to arrive on the majority of Google ecosystem Android devices.
  • In contrast iOS takes a matter of weeks to update almost everybody.
  • For example, as of today, despite being available for over 6 months, less than 7% of all Google ecosystem Android devices are running the latest version (7.0 Nougat).
  • This is because Google has no control over the updating process for all of its devices (except Pixel and Nexis) and must rely on handset makers and operators to do it.
  • The problem here is that handset makers have little incentive to make their devices updatable and most of the time are quite content just to sell a new handset instead.
  • Project Treble aims to fix this by abstracting the hardware vendor’s modifications from the underlying OS such that the OS can be updated independently.
  • The way it works today is that Google passes the code to semiconductor companies who modify the code to ensure it works with their chips and release it to the handset makers in the form of a board support package (BSP).
  • The handset makers take the BSP and then modify it to meet their own requirements such as functionality or new hardware.
  • It is at this point that their modifications must pass the compatibility test suite (CTS) in order to able to deploy Google’s App store: Google Play.
  • Problems begin when Google updates Android OS as the manufacturer has to ensure that all of the modifications it has made will work before distributing the new Android code to its devices in the hands of users.
  • This process can be so arduous that many handset makers simply do not have the resources or the incentive to redo their modifications meaning that the update stays on the shelf.
  • Project Treble aims to fix this by adding in an abstraction layer between the Android OS and the vendor modifications such that the underlying Android OS can be updated without the manufacturer losing compatibility.
  • This is being referred to at the Vendor Test Suite (VTS) and while it looks like a great idea, it will have a number of problems.
    • First, differentiation: Most Android handset makers differentiate themselves through hardware innovation.
    • For example, Samsung’s iris scanner and HTC’s edge sensors on the U11.
    • This sort of differentiation may require the handset maker to put changes into the Android OS that go beyond the VTS interface that Google has defined.
    • Modifications beyond the interface obviate the whole point of the VTS and so Google updates would be back to square 1.
    • Second, control: The VTS will be like the computability test suite (CTS) which is a series of tests that the software must pass in order to ensure that apps from Google Play will run properly.
    • Modifications made beyond the interface are likely to result in a failure to pass the VTS test.
    • Hence, in effect, the VTS is another level of control as I suspect that handset makers that don’t pass the VTS will not be able to use Google Play or Google services.
  • Hence, the VTS could further limit the small amount of differentiation that the handset makers have left, further increasing their commoditisation.
  • However, for Google its all good as handset makers will no longer have any excuse not to update the Android OS, thereby ensuring that Google’s innovations in the OS come to market much more quickly.
  • However, this does nothing to address the fact that a large number of handsets are not updateable which has been discussed here.
  • This also paves the way for Google to:
    • First: take control of updating the Android OS separately from any modifications that the handset makers have made.
    • Second: move the remaining parts of Android OS out of open source and into Google Mobile Services (GMS).
  • It has long been my opinion (see here) that this is what Google must do to fix the inherent problems of fragmentation and software updating that continue to plague the platform to this day.
  • An easier to use and more consistent platform would most likely increase traffic generation and therefore Google’s revenues which on Android remain half of that generated on iOS.
  • I continue to think that Alphabet remains fair value and I would continue to steer clear of the handset makers whose differentiation looks like it may take yet another hit.