Author Archives: windsorr

Google – Out front

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Google is extending its lead except in games.

  • Google regaled its fans with a three hour keynote that revealed updates and upgrades that push it further into the lead in the provision of Digital Life.

First the numbers:

  • 48bn applications have been installed and 900m devices have been activated.  
  • This is a huge number but I suspect it is cumulative in that users that have replaced one Android device with another have been double counted.
  • Adjusting for replacements, I calculate that the total number of Android users is currently around 750m and well on target to hit my forecast of 858m by year end.
  • If I also then adjust for the number of devices that are 1) Google compliant and 2) capable of delivering a decent user experience, I estimate that only 30% of Android devices are actually generating revenues for Google.
  • There are now 750m active users of the Chrome browser.
  • Chrome is now the No1 browser globally and promises to be much more if only people will buy the chrome books.
  • This still looks like a long shot but critically I don’t think Google cares.
  • As long as people use Chrome and Google can harvest data from the traffic then it will be happy.
  • Google + now has 190m active users, a long way adrift of Facebook, but Google is adding to functionality such as Hangouts to try and draw users into its environment.

Developers

  • The Android tools have improved making it much easier to develop in multiple languages and multiple screen sizes.
  • This is an important development because the quality of applications on Android is still substandard to that on iOS.
  • This is particularly the case when the applications run on screen sizes that they have not been designed for.
  • This should help application quality improve meaningfully and close the gap on iOS.

Maps

  • The user interface has had a big overhaul and will be available over the summer months.  
  • The focus here is to improve the user experience and make Google Maps even stickier than it already is.
  • Its decimation of the paltry Apple Maps is evidence enough of this.
  • I like what I have seen and the hill for Apple becomes even steeper. Nokia / Microsoft have work to do but they are hot on Google’s heels.  

Music

  • Google announced a music subscription service like Spotify but critically there is no free option.
  • This is unlike Google and I suspect that it balked at the cost of providing free service with no tangible revenues to put against the cost.
  • Without free starter package, I can’t see many users switching and so Spotify won’t be losing any sleep yet.

Games

  • Very little was announced which is surprising when you consider that smartphone users spend 32% of their time playing games.
  • New services (Google Play game services) have been launched that allow achievements, cloud saves and leader boards. These are all integrated into Google +.
  • I found this very disappointing.
  • In terms of capturing user eyeballs, this is a huge segment on mobile, and Google’s efforts here look perfunctory at best.
  • This is great news for Microsoft and Apple as their offerings are much more developed and Google’s unwillingness to properly address this segment of Digital Life leaves the door open for them.

Take Home Message

  • This was a good day for Google which was reflected with another all-time high on the share price.
  • I am concerned about its unwillingness to address gaming properly as this is the only piece of the Digital Life pie that it is missing.
  • Corporate governance also remains a concern but I think that that is accounted for in the fact that its valuation is still meaningfully below that of many of its rivals.
  • I would rather buy Nokia or Microsoft for the upside but I can’t argue against a happy holder of Google.

 

BlackBerry – Roll of the dice

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Making BBM available elsewhere is a very risky move.

  • The launch of the BlackBerry Q5, upgrades and extensions to BBM make it very clear how BlackBerry intends to regain its former glory.
  • The Q5 is an interesting looking device sporting two bright colours and a 3.5” touch screen as well as a full QWERTY keyboard.
  • However, BlackBerry has not said how much it is going to cost and in order to appeal to the target market, it is going to need to come in around the $200 mark.
  • This is because one of the main draws of BlackBerry is the BlackBerry Messenger (BBM) which will now be made available to users of Android and iOS.
  • While this substantially increases the scope for growth of the user base of BBM, it means that more and more, BlackBerry devices have to stand on their own merit.
  • A major reason to buy a BlackBerry device has now been removed meaning that the user experience and hardware specification must now win over users on their own.
  • This is an incredibly risky move as previously locked-in users may now abandon the platform while still being able to access BBM.
  • The functionality of BBM has also been expanded to include BBM Channels which is a little bit like following a group or community on Twitter or Facebook.
  • The Mercedes Petronas Fomula one team is the first brand to have its own channel on BlackBerry to which users can subscribe and contribute.
  • This is all about expanding the functionality of BBM into a more fully fledged ecosystem capable of offering users more scope to live their Digital Lives within BlackBerry.
  • If this works then RIM will be learning more about its users and will benefit from greater loyalty resulting in higher share, prices and margins but also from the potential to sell targeted advertising.
  • BlackBerry still has more than 70m subscribers of which more than 60m are BBM subscribers.
  • This puts the proposition on a knife edge in my view.
  • To be sustainable, BlackBerry must increase its subscriber number to over 100m but in order to do that it needs for its devices to be competitively priced.
  • It must now achieve this without the draw of DDM to BlackBerry devices.  
  • When it comes to counting users, I am not inclined to include those that start to use BBM on other platforms as they are not really part of the ecosystem proposition in the same way that users of BlackBerry device will be.
  • Most importantly of all, BlackBerry will be unable to make money from these users for a long time and so for the moment they should be excluded from any economic analysis of BlackBerry.
  • Looking at the price of the Z10 and Q10, I am not hopeful that the Q5 will end up being priced at a level that allows it to compete with low to mid-range Android or even Windows Phone 8.
  • BlackBerry is doing the right things but I need to see some market traction before I can have confidence in a recovery.
  • It’s a cheap stock but Nokia has a better chance of seeing a proper turnaround.

 

 

 

 

 

Google I/O – Full Circle

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Gaming will put Google out front in the Digital Life race.

  • Google is holding its annual developer event this week from Wednesday May 15th to Friday May 17th.
  • The focus will be on the developers and tools rather than new hardware, updates and features for the Android and Chrome OSs.
  • However there are a few features and updates that I think will be highly relevant to the outlook for the Google ecosystem.

Gaming

  • First and foremost is the launch of a game center, xBox Live lookalike that will facilitate multiplayer gaming as well as game rankings and achievements on Android.
  • I view this is as the last piece of the jigsaw puzzle because when I look at Digital Life, gaming is the one piece that Google does not have covered.
  • With addition of gaming, Google will have 100% of the Digital Life pie covered meaning that it will be able to collect data on all aspects of its users increasing the value of advertising that it can sell.
  • Furthermore, gaming is a crucial piece of Digital Life as users are still spending around 32% of all their time on a smartphone playing games.
  • Gaming is bigger than social networking (24% of time spent) and hence represents a significant data collection opportunity that Google must address.
  • Having 100% of Digital Life covered puts Google way out front of its competitors with Microsoft in second place with 76% of Digital Life covered.

Google Glass

  • I am also expecting a lot of noise around Google Glass.
  • The one thing that this wearable technology experiment needs is innovative applications.
  • As it exists today Google Glass is a clunky looking, slightly clumsy to use piece of technology that is too expensive for mass market appeal.
  • It feels exactly like smartphones did right before the iPhone showed everyone how cool and wonderful the proposition could be.
  • It is easy to scoff at wearable technology and Google Glass because no one has figured out how it can be both very useful and serious fun.
  • What it needs are innovations that take Google Glass and make it a must have for the mass market.
  • These could easily be third party killer applications that bring Google Glass alive.
  • Google is doing exactly the right thing by encouraging the developer community to write the software to push Google Glass from a geeky toy into a revolutionary innovation.
  • New Nexus tablets and upgrades to Android are frankly incidental events when it comes to strategies for Google to strengthen its grip on the Internet.

Intel – Killing the Monkey

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ARM is looking less and less threatening to Intel.

  • Thanks to the blunder that is Windows RT (Windows 8 on ARM), ARM has made no real impact in the PC space and the outlook for it to do so is fading fast.
  • On top of this, Intel is far from standing still and the more time that goes by the closer Intel gets and the less that the gap matters.
  • Last week, Intel revealed its latest chip core aimed at the mobile space called Silvermont.
  • This is the first chip for mobile that makes use of the trigate technology which adds further improvements on top of Intel’s process advantage.
  • The problem that Intel has faced over the last 6 years has been the inherent design of the x86 processor which, all other things being equal, will always consume more power than an ARM processor.
  • This has been the monkey on Intel’s back as it is unable to change the nature of the processor as it is the foundation upon which 30 years of success is built.
  • As more and more of its market becomes battery powered, this represents an obvious threat for Intel, which was really brought home by Windows 8 being made available for the ARM processor.
  • Fortunately for Intel, Windows RT is so limited that the devices have not sold in volume and manufacturers are pulling support for the platform.
  • Furthermore, it is going to be some considerable time before the Microsoft Windows OS is properly harmonised to run ARM as well as Intel.
  • In the meantime Intel continues to innovate and the new cores will shortly appear in real devices.
  • The first chipset is Bay-Trail which will be in tablets later this year and handsets in 2014.
  • Intel has already done a reasonable job at closing the gap with ARM and this development will take that one stage further.
  • I have already seen Intel powered smartphones that are sleek looking, competitive on specification and price and can go a full day on a single charge.
  • For me, this turns the tables.
  • For years, I have been concerned that Intel stood to lose share in its core markets of PCs and servers, but now I am starting to think the opposite.
  • As handheld devices need to be increasingly powerful, there is scope for Intel to even take market share from ARM as it is at last beginning to compete on a level playing field.
  • Intel is not expensive and seems to be showing results in mitigating the greatest threat that it has ever faced.
  • I am inclined to have a careful look at this one.

 

Nokia – Brutal for a bit

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Nokia’s new platform does everything right except address the horrors of low end Android.

  • Nokia has launched a big update to the Asha platform and the release of a new handset the Asha 501.
  • The new platform runs on software proprietary to Nokia and uses Java for applications development.
  • To date, Java has been awful in mobile phones but the Asha platform optimises Java to run more efficiently and Nokia has extended functionality to make the applications more appealing.
  • At the same time Nokia has made its Software Development Kit (SDK) and web tools available for designing and coding applications to run on these devices.
  • Also included in the package will be an in-App payment system to make it easy for developers to earn a return on their investment.
  • Developer support for the new Asha platform looks pretty encouraging ensuring that most of the core functions of digital life will be available to users.
  • The Asha 501 was also launched which sports a 3” screen, 3.2MP camera, WiFi but no 3G, full touch and a range of bright colours.
  • The device will sell for $99 and will ship in June.
  • I am a huge fan of Asha as I believe that it delivers fantastic functionality and quality for the price asked.
  • It also capitalises on Nokia’s core strengths of scale, logistics and platform.
  • Unfortunately smartphone buyers at the moment don’t seem care.
  • All they seem to care about at the moment is the largest screen for the lowest possible price.
  • Consequently the endless medley of Chinese and Indian smartphone makers are churning out devices to meet that demand.
  • A typical device will have almost all of the BOM invested in the display with a little left over to invest in the MediaTek baseband and applications processor.
  • During Q1 these devices did Nokia’s Asha series considerable damage in the $35-$100 price range and I can only hope that the Asha 501 and its successors can reverse the trend.
  • Nokia has invested in functionality but the majority of the demand in that segment at the moment is hardware only.
  • These users are often first time smartphone users and I suspect that as they become more sophisticated they will start to realise the drawbacks of a device where all the investment has gone into the display.
  • Until then, life is going to remain tough as Nokia is selling a proposition that the market may not be ready for.
  • In the longer term, Nokia has the right characteristics to be a dominant low end handset supplier and as long as it can hang on through the tough times, life should be much sweeter on the other side.
  • Asha is right answer for Nokia to address low-end Android, but the users need to realise the realities of the proposition first.

Facebook – Jack of one trade

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Home is a bad sign for the longer-term outlook.

  • The final verdict on Facebook Home was brutally handed down yesterday with AT&T slashing the price of the HTC First from $99 to $0.99.
  • With that one slash of the knife, AT&T has confirmed what everyone had already gathered; the Facebook phone is proving very unpopular.
  • If this was an isolated incident, then one could put it down to poor hardware, but installations and reviews of the software on other devices have also been poor.
  • This is a worrying development because as far as I am concerned the time is right for Facebook to try and spread its influence to other areas of digital life (see here for details).
  • Facebook is the undisputed master of social networking and has contemptuously brushed would be rivals aside.
  • Facebook is by far the most used application of any smartphone, accounting for 18% of all usage on its own.
  • With 1bn users it has, by far, the biggest active membership of any digital community putting it in an excellent position to expand its influence.
  • (My analysis says that Google will have 260m active users this year rather than the much-touted 1bn).
  • The problem is that Facebook’s 1bn+ users don’t seem to want to use it for anything other than social networking which will meaningfully dent its long term growth.
  • Social networking is a large parts of a user’s mobile life online but even then it only makes up 24% of all time spent on smartphones.
  • This basically means that unless Facebook can encourage users to use it for other things, then it will be limited to 24% of the opportunity to monetise internet usage.
  • Its rivals such as Google have much better coverage of digital life, meaning that their long-term growth prospects are significantly better.
  • Hence, Facebook must encourage users to do other things such as mail, search, content consumption and gaming within the Facebook environment.
  • The day for Facebook games seems to have come and gone with the rise and demise of Zynga.
  • Facebook Home looked to me like the right idea but its execution and design appears to be somewhat clumsy and the users simply do not like it.
  • The failure of Home is not a disaster; it just means that Facebook needs to try another way to engage users outside of social networking.
  • Something less invasive, more intuitive and above all, more fun seems to be the order of the day.

Yahoo! – Wrong villain

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Google is a bad choice. Apple would be a better fit.

  • Marissa Mayer seems to want to get out of the company’s agreement with Microsoft and go instead with Google.
  • It is not a big surprise that the relationship with Microsoft is not going well as the deal was frankly a messy alternative to acquisition.
  • However, getting into bed with Google is a worse idea.
  • In the short-term it might increase revenues as Google’s indexing is far better than Microsoft’s, but this looks very dangerous when one considers the bigger picture.  
  • Yahoo! has a good presence in the fixed internet world and badly needs to leverage that into mobile.
  • To effectively do that it needs to put together an experience from the assets it has and the assets it is acquiring.
  • It needs viable competitors to gmail, Google talk, Google+ and so on and so forth.
  • Great mobile services will keep users inside the Yahoo! ecosystem and there Yahoo! will be able to learn about those users and monetise them.
  • Google knows this and I can be sure that it does not want Yahoo! to make a success of that.
  • A dollar that Yahoo! earns from monetising mobile internet usage is a dollar lost to Google.
  • Hence, it is in Google’s interest to see Yahoo! fail in mobile and for that reason it is a bad idea to get into bed with Google on search.
  • Ironically, Yahoo! would be much better off staying with Microsoft for search and looking at a relationship with Apple.
  • Apple’s own services are very poor and recent events are adding to the pile of evidence suggesting that Apple is not good at innovating in this area.
  • Hence, some form of exclusive deal between Yahoo! and Apple would see Yahoo! get its services onto mobile devices and Apple would have something exclusive to it to make up for the weakness of its own services.
  • My suspicion is that Apple has decided to go for home grown exclusive services but Apple Maps shows that this is much harder than it sounds.
  • Furthermore, I suspect that Yahoo! does not want to limit itself to only being on iOS devices.
  • Hence, I think that any kind of relationship unlikely but it is a combination that makes more sense than teaming up with Google.
  • Therefore, I do not rule it out completely.
  • Yahoo! is my dark horse in the mobile ecosystem arena but there remains a very long way to go before I get really excited.

 

IPR – The Weakness of Essential (part iv)

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The latest EU ruling weakens the case for using SEPs for protection.

  • The strength of standard essential patents (SEP) has taken another hit as the EU has found that Motorola has been abusing its position as a SEP holder.
  • SEPs are patents that have been used to implement a technology standard such as 3G or LTE.
  • They reason they are so powerful is that they have to be infringed in order to implement a standard.
  • Hence, anyone who makes a LTE device will have infringed any patent that is standard essential to LTE.
  • Therefore it is very much easier to prove infringement of an SEP than it is for any other patent.
  • However, there is a catch.
  • When the standard is created, those that hold the patents agree to licence their technology on a fair, reasonable and non-discriminatory basis (FRAND).
  • The holders of these patents are also not supposed to seek injunctions but Germany is a territory that has historically allowed injunctions on SEPs.
  • This is why the vast majority of patent infringement lawsuits in Europe are tried in Germany as it is the most plaintiff friendly.
  • However, this may all change, as the EU finding is clearly frowning on the practice of seeking injunctions for SEP infringement.
  • This is going to make life difficult for anyone trying to defend themselves using SEPs.
  • This is basically everyone except Apple and Microsoft who have had considerable success in prosecuting non-essential patents.
  • With non-essential patents, there are no rules covering the terms under which they may be licenced making them much more powerful once infringement has been proved or admitted.
  • What most of the industry has done is to buy as many SEPs as they can get their hands on and then try and use those to defend themselves against the predations of Apple and Microsoft.
  • This ruling from the EU (albeit a preliminary one) is likely to set a precedent which could scupper attempts to seek injunctions as a remedy for SEP infringement.
  • This is a real problem as the threat of injunction is one of the few remedies that will get an opponent to cave in.
  • Hence, I suspect that days of usefulness of SEPs are numbered which is going to make life increasingly difficult for the Android community in particular.
  • The winners here are Microsoft and Apple both of whom offer good value for investors even if the shorter term outlook looks difficult.

 

 

 

 

 

 

Intel – Dull, but right

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The floundering challenge of ARM reduces pressure for Intel to do anything radical.

  • Intel has announced the appointment of Brian Krzanich as CEO of Intel following the retirement of Paul Otellini.
  • Mr Krzanich has been COO since January 2012 and is a 30 year veteran of Intel having started in 1982 as an engineer in the New Mexico Fab.
  • His speciality is chip manufacturing and he was mostly responsible for managing the move towards foundry business.
  • Mr Krzanich has been chosen over a raft of external candidates most interesting of which was Sanjay Jha, ex-CEO Motorola Mobility and ex-COO Qualcomm.
  • This choice speaks volumes about how things have changed in the last 12 months.
  • In the last year, the threat to Intel has diminished markedly and to me this is what makes an internal candidate a dull, but correct choice.
  • Firstly, ARM has made no meaningful impact into the computing market.
  • In fact, so bad is Windows RT, that I expect most manufacturers to pull their offerings any time now.
  • I think that the only hope for ARM in this space is complete harmonisation of Windows 8.
  • What I mean by that is that from a user perspective there should be no difference when it comes to buying a Windows 8 device.
  • It will take time for all the third party software to become compatible but there is no reason why the core of Windows 8 should be harmonised.
  • The user’s choice should be made on performance, battery life and price alone and he should not have to worry about a locked desktop etc etc.
  • The powers that be inform me that this will be very difficult to achieve, but until it is I firmly believe that ARM is going nowhere in this space.
  • Secondly, Intel has improved.
  • Its latest round of chips for mobile devices is actually pretty good.
  • There are Intel powered mobile devices that run Android at $400 that compete effectively at that price range.
  • While there is still a gap when it comes to power consumption, I think that Intel has gotten over the worst of its issues as its devices can now go from morning to night on a single charge.
  • This is a key criterion as almost all smartphones need to be charged while the user sleeps if they are not to run out of juice the next day.
  • Hence, I think that Intel is right to focus on manufacturing as its future as the pressure for a huge change in strategic direction has been lifted for the time being.
  • Intel has its best friend Microsoft largely to thank for that.

Apple vs. Samsung – Lessons in futility

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The only winners are the lawyers. 

  • Yet another round of tit for tat was launched this week with the date of yet another trial being set for November 12th 2013.
  • The purpose of this trial is to argue the value of the award that was set at the 2012 trial where Apple was awarded $1.049bn in damages, which was subsequently reduced to $598m.
  • By the time all this jumping and down is finished I would not be surprised to find that Samsung has spent more than the current award in legal fees.
  • At the height of its war with Nokia, Qualcomm was spending $300m a year and this was nearly 7 years ago.
  • The real problem here is that the life cycle of a mobile phone these days is shorter than the legal cycle.
  • This basically means that by the time one has succeeded in getting a product banned for patent infringement, it will no longer be shipping.
  • Hence the only recourse that one has is one of back royalties and punitive damages and these issues can be argued endlessly ending up in fights that go on for years.
  • This one is a classic example.
  • The heart of the matter is that it is rapidly becoming in Apple’s interest to settle this case.
  • That way it will at least receive some royalties and the cripplingly expensive legal expenses can be stopped.
  • The onus is on Apple because it is Apple that is losing out as a result of the Samsung Galaxy products shipping in huge numbers and at very healthy margins.
  • Unfortunately, the late Steve Jobs had a very pugnacious attitude when it came to seeking redress against those that he deemed to be copying his innovations and this still seems to be the order of the day.
  • The longer this carries on, the more pointless it all seems and the less scope there is for either side to end up winning anything meaningful.
  • Hence it is in the interest of both Samsung and Apple to settle their claims and get back to the business of making products.
  • I would like to believe that both of these companies have some degree of pragmatism and as a result I hope to see them settle their differences this year.
  • It is their job to enrich their shareholders not the legal profession and the sooner they remember that, the better.