Google, Amazon and Apple – Battle for the smart home pt. VII

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Google’s race to lose.

  • Google appears to be catching Amazon more quickly than I expected when it comes to smart speaker share and I think that rapid commoditisation of answering simple questions will increasingly pass the advantage further to Google.
  • Recent research by Edison research and NPR (discussed here) found that Google had increased its share of smart speakers to 25% in Q4 17 from almost nothing a year ago.
  • In 2017, I was cautious on the Google Assistant because of its inability to really connect into the smart home but after its humiliation at CES in 2017, Google’s renewed efforts in this direction are starting to pay off.
  • Almost all smart device manufacturers are now supporting the Google Assistant or have it on their immediate roadmap and the same cannot be said for HomeKit.
  • This combined with the fact that Google Assistant generates far more traffic than Alexa, led me to reverse my position and forecast that this market will end up being dominated by Google.
  • I am no longer the only person who appears to have this view as Loup Ventures are forecasting that Google will gain share again in 2018 to 32% and will become the market leader by 2022.
  • By 2022, I think that neither Google or Amazon will be making the speakers, but that it will be the more traditional speaker manufacturers that are making the hardware while Google and Amazon supply the brains.
  • I also see that the simple answering of questions, which to date has been a good measure of a digital assistant, will rapidly become a commodity.
  • Recent tests across a range of categories with 781 questions revealed Google in the lead at 81% correct, Alexa in second place with 64%, Cortana third at 57% with Siri in last place on 52%.
  • In this instance, Siri was tested on the HomePod which runs a separate and distinct version of Siri which reviewers have found to be far less capable than the one resident on the iPhone.
  • This is just one example of the disadvantages of having Siri resident on the device which I have discussed in more detail here.
  • Hence, I think that this test is unfairly penalising Siri which and my own tests, I have found it to be broadly inline with Alexa.
  • Either way, I think that the simple answering of questions will soon become an obsolete way to test a digital assistant.
  • This is because although Google Assistant can get 81% of the questions right, it is still frustratingly stupid when it comes to getting stuff done.
  • This is why it is increasingly important for these assistants to understand more than just the words but to be able to get a sense of what the user is actually asking for.
  • Combining this with the ability to understand context and circumstance should enable a deeper, richer and more intuitive experience where the assistant saves time and is useful.
  • In all but the most simple use cases it is simpler, quicker and easier for the user to complete the action himself.
  • This is a very tricky AI problem to solve meaning that those with the best AI and the most data are likely to come out on top.
  • This leads straight to Google and Baidu who remain my No. 1 and No.2 globally, when it comes to excellence in AI.
  • In terms of investment, Baidu is just getting back on its feet after a very difficult 18 months and offers and attractive entry point into the AI theme although it is China only.

Supercell – Look east.

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Supercell looks like it is out of ideas.

  • Supercell has had a difficult 2017 driven by its failure to release a new game but also by a shift in spending in Western markets away from gaming towards media consumption.
  • During 2017, Supercell suffered a 14% drop in revenues to EUR1.8bn and a 21% drop in EBITDA to EUR729m.
  • The cause is the fall is obvious as Supercell did not release a new game in 2017 and its long-standing winner Clash of Clans is starting to show signs of ageing.
  • Supercell’s games are all pretty similar in that they involve strategic warfare for control of the board.
  • Supercell has four of these including Clash Royale, Boom Beach and Hay Day in addition to its long-standing showrunner Clash of Clans.
  • The games are free to play but rely on in-app purchases that accelerate the user’s progress through the game or provide upgrades.
  • Clash of Clans is clearly showing its age as it has slipped to No. 7 in the App Annie top grossing charts on iOS from No. 2 in 2016 and Supercell’s other titles are also falling.
  • The last 12 months have also seen a shift in spending as 2016 was dominated by games but now the money is being mostly generated by paid media streaming services such as Netflix, Pandora Music, YouTube, HBO Now and Hulu which are all now in the top 10.
  • This is a sign that the market appeal of this genre of games may be flagging and that Supercell needs to do much more than just release a fresh new game in its historically successful category.
  • Of this there is no sign.
  • However, the same is not true in China, South Korea, Singapore and Japan where the iOS top grossing charts continue to be dominated by gaming.
  • This is why I suspect that Supercell has said that it is focusing on Asia to restore growth in 2018 which should be greatly aided by the fact that it is majority owned by Tencent.
  • While, this may help Supercell to restore growth, its declining relevance in Western markets (especially USA) will make it more difficult for Supercell to become the lynchpin in Tencent’s strategy to expand beyond China.
  • While Tencent dominates at home, its content is not relevant overseas which is why it has been taking stakes in a range of digital assets such as Supercell, Snapchat and Spotify.
  • This could help Tencent to stitch together a portfolio of digital assets into a digital ecosystem offering for developed markets.
  • However, progress to date has been very slow and I begin to wonder whether Tencent is beginning to miss the window of opportunity for this strategy.
  • Tencent remains my favourite digital ecosystem globally but the time is approaching for this position to be reconsidered.

Baidu & Uber – Time to pivot

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Both need to change to fare well.

Baidu

  • Baidu reported good Q4 17 results as it has put the tribulations of the 18 months squarely behind it and is now focused on becoming the preeminent supplier of AI in China.
  • Q4 17 revenues / EPS were RMB23.6bn ($3.74bn) / RMB15 ahead of consensus estimates at RMB23.1bn / RMB13.
  • With its new, more selective ad system in place, advertisers have returned to Baidu pushing mobile revenues to 76% of total revenues, an all time high.
  • 2017 has been a difficult year for Baidu and its strategy is now shifting away from being a fully fledged digital ecosystem to focusing on products and services that are entirely driven by AI.
  • This is why the loss making iQIYI has now filed for an IPO and I suspect that 2018 will see some movement around the ownership of its other loss-making e-commerce venture; Nuomi.
  • Baidu’s main AI assets are Apollo (autonomous cars) and Duer OS (digital assistant) and in both of these, it is far and away the leader in China.
  • How these will be directly monetised is less clear at this stage, but it is clear that:
    • First: AI will have a major impact on the ability of ecosystems to differentiate their digital life services over the next 10 years.
    • Second: Baidu is the undisputed leader in China with both Tencent and Alibaba miles adrift despite protestations to the contrary.
    • This puts Baidu in a very strong position to partner or licence to the have nots in Chinese AI (which I think is almost everyone).
  • Hence, with the core business now looking to be back on an even keel, I think Baidu represents a cheap entrance to what its likely to be the biggest investment theme of the next decade.

Uber

  • Uber reported headline figures for Q4 17 that showed some progress but, in my opinion, not nearly enough given its precarious position in the US market.
  • Q4 17 revenues and adj-net income were $2.2bn / LOSS $1.1bn compared to $2.01bn / LOSS $1.46bn in Q3 17.
  • This is good progress but given the sizes of the losses in Q3 17 and the fact that they increased meaningfully from Q2 17, I suspect that there was a lot of low hanging fruit.
  • Revenue growth remains strong at 66% YoY but all of the momentum at the moment remains with Lyft which I see as being on the cusp of causing Uber real problems.
  • Uber is still dominant in its home market (USA) with 66% share but this is substantially down from the 80% that it held at the beginning of 2017.
  • Ride hailing businesses are marketplaces and as such are subject to the rule of thumb that I described over two years ago which still seems to be holding firm.
  • This rule of thumb states that a company that relies on the network must have at least 60% market share or be at least double the size of its nearest rivals to begin really making profit (see here).
  • Hence, I see 2018 as the time when Uber needs to begin looking at making some money and at the same time ensuring that Lyft bleeds badly just to stay in contention.
  • Uber needs to neuter Lyft now because when it comes to autonomous driving, Lyft is a long way ahead via its relationship with Waymo.
  • Should things stay the way they are, then Uber could be in real trouble once autonomous vehicles start making a real appearance in the market.
  • Fortunately, this is still some way off but the threat is there and 2018 needs to be a year where Uber re-establishes its dominance in the home market especially after embarrassing loss of both China and Russia.

Alibaba – Offline grab pt. II

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Alibaba adds an offline vertical and cleans house

  • Alibaba is yet again increasing its assault on the offline portion of the Chinese retail market with more investments that will help it to become the dominant player in retail both online and offline.
  • Alibaba is buying 15% investment in Beijing Easyhome Furnishing for $865m and 38% holding in Shiji Retail Information Technology Company for $486m.
  • Beijing Easyhome Furnishing has 239 stores in 29 provinces and, as the name suggests, is a player in furniture, DIY, building materials as well as home refurbishment design services.
  • This will expand Alibaba’s offline retail presence into a new retail vertical alongside hypermarkets, mall operators and electronics.
  • Offline retail in China is stalling, but still massive at $4.5tn per year.
  • This is despite the rapid expansion of e-commerce and it remains a great example of why online and mobile have been so successful in the Chinese market.
  • Chinese offline retail is a fragmented and frustrating experience where decent service and information with regards to inventory, product lines and so on is routinely not available.
  • Consequently, when an online offering appears where information is clear and one is able to easily purchase goods and know when they will be delivered, shoppers quickly adapt.
  • It is the terrible offline experience with regards to almost everything that has allowed so many other goods, services and activities in China to rapidly migrate from offline to mobile.
  • I think that Alibaba’s strategy with its offline retail investments is all about turning them into a high quality and efficient retailers using the technologies and logistics expertise that it has gained with the development of its e-commerce business.
  • This is why the investment in Shiji Retail Information Technology makes complete sense as this could become the backbone of the infrastructure that allows Alibaba to make the necessary improvements.
  • It is also highly relevant that this investment will take Alibaba over 50% and majority control as its Taobao subsidiary purchased at 15% stake in 2014.
  • However, it is worth noting that in 2014 Alibaba paid $446m for a 15% stake giving a valuation of $2.97bn whereas now it is paying $486m for a 38% stake giving an implied valuation of $1.28bn some 57% below where it was four years ago.
  • Hence, I suspect that Shiji has got itself into trouble along with the rest of offline retail in China, which has enabled Alibaba to take control at a greatly reduced valuation.
  • I suspect that Shiji’s technology will be rapidly migrated to Alibaba Cloud giving Alibaba the infrastructure to leverage its online knowledge into its offline investments.
  • Given that Chinese retail is such a vast market, steady market share gains here has the scope to keep growth going at Alibaba (albeit at lower margins) once e-commerce begins to slow down.
  • It also offers Alibaba the opportunity to move into other sectors of off line retail once it has licked its current holdings into shape.
  • Hence, I think this move makes complete sense for Alibaba as there is a very clear opportunity for it in China which is completely different to that being followed by Amazon.
  • I am warming up to Alibaba as it is beginning to understand the importance and opportunity presented by the data its digital assets generate.
  • While it is behind Tencent in Digital Life coverage, I am increasingly of the opinion that it is moving more quickly to understand the opportunity offered by the digital ecosystem.
  • Hence, when Tencent runs out of steam, I will be considering this one very carefully as a possible switch.

Didi & OEMs– Bikes to cars

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Data will be the key to differentiation.

  • If Didi does to automobiles what it has done to bikes, then the outlook for the car makers in their new alliance with Didi is grim indeed.
  • Didi, the dominant Chinese ride-hailing company has announced a broad alliance with 12 car makers to create a China-wide electric car sharing network.
  • The main partners are the Renault-Nissan-Mitsubishi alliance, Geely Auto and BAIC.
  • The initial plan is to create a car rental network where drivers can rent an EV for any amount of time directly through the Didi app.
  • I presume that as autonomy becomes a reality, that this will end up merging with Didi’s core business of ride-hailing as the two services will become indistinguishable from one another.
  • The alliance would be a combination of Didi buying a number of vehicles from the 12 car makers as well as allowing the car makers themselves to make their own rental schemes available through the Didi app.
  • This is where it gets very murky, as the details of how this service will work is likely to determine whether the vehicle makers retain some brand or are commoditised into metal-box-on-wheels-manufacturers.
  • Car makers today have 4 points of differentiation which are:
    • First: Performance which relates to the power and quality of the engine and drivetrain.
    • In an electric vehicle, all the IP and differentiation the vehicle makers has in this area becomes virtually irrelevant.
    • Second: Form factor which is the look at feel of the vehicle as well as the design and luxury of the interior.
    • When it comes to renting vehicles, this is also unimportant as vehicles are rented in categories where form factor differences within a category are not very relevant.
    • Third: Brand which is almost always about ownership of a vehicle and is therefore much less relevant in rental.
    • Fourth: the Digital Sensor Pie which refers to the data that the car generates.
    • RFM research has found this data offers a substantial potential revenue opportunity (see here).
    • This will require the car maker to maintain complete control over the data that their vehicles generate as well as have a direct relationship with the driver of that vehicle.
  • In an electric vehicle rental system managed by Didi, it is quite possible that each one of these four points of differentiation will no longer apply, leaving the car makers as pure commodities.
  • This is exactly what Didi has done to the bike sharing start-ups Ofo and Bluegogo (see here) and should Didi manage the service entirely under its own brand (as it does with bikes), then there will be nothing to distinguish one vehicle from another.
  • Didi already has a very strong grasp of the value of data and so I suspect that it will be pushing to retain the data generated by the driver and vehicle.
  • Hence it will be Didi that sells any subsequent services or follow-on products to its users renting vehicles from its app rather than the car makers.
  • I continue to think that the future looks pretty bleak for the car makers unless they can figure out how to entice users of their vehicles to engage with their digital services.
  • Time is fast running out as the digital ecosystems are also keen to engage car users and so far, have a far better idea of how to achieve that despite still being completely locked out of the data the vehicles generate.
  • This is the one ace that the car makers have, and it needs to be aggressively played if they wish to retain a seat at the table in their industry as it rapidly digitises.

Tencent – Age of empires.

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The WeChat empire spreads its wings.

  • Not content with its dominance of the 3rd party app stores in China, Tencent has doubled down on WeChat with the intention to entice users to spend more than just the Instant Messaging portion of their Digital Lives within WeChat.
  • At an event for developers on January 15th, Tencent announced that it within WeChat there are already 580,000 3rd party apps and services with more than 1m developers and businesses actively engaging with the platform.
  • It is important to note that these are not fully-fledged apps (called mini programs) but more like extensions to WeChat that enable some extra functionality.
  • This can be taken as far as basic games (like Facebook has also done) but not much further.
  • Tencent also announced that it had reached 980m MaUs on WeChat but this figure had already been announced at the Q3 17 results and so it is less relevant here (see here).
  • This is way ahead of what Facebook has achieved which has focused mostly on bots of which there around 200,000.
  • However, given Facebook’s weakness in AI (see here) and my own cursory tests, I suspect that the usefulness of these bots is extremely limited and does very little to enhance the usefulness of the Messenger platform.
  • Tencent on the other hand has encouraged the development of a large range of varied services that include:
    • First, e-commerce: Many retailers have added apps that allow the user to scan a QR code and avoid the queue at the till.
    • User experience is a major issue for offline retailers (see here) and any simple app that enhances the experience even slightly is likely to be well received.
    • Many brands and content providers are also using WeChat to provide loyalty and discovery for their products and services.
    • Second, lifestyle: Many restaurants and services such as bike sharing schemes offer their services within WeChat making access much easier.
    • Furthermore, because these are much simpler apps, they are easier to write, reducing the barriers to entry for smaller businesses.
    • Third, government: Some government entities are also present making things like paying traffic fines much simpler and easier for users.
    • Fourth, games: This is Tencent’s bread and butter and simple multiplayer games make a lot of sense in a chat app.
    • This is something that many of the other chat providers like LINE and KakaoTalk already do and given the size of Tencent’s network, this makes a lot of sense to drive further engagement.
  • Tencent is miles ahead of its competitors in this area as its peers are still slugging out in the brutal app store space and do not have the network with which to attract developers and service providers.
  • This is yet another sign that Tencent is increasingly the strongest ecosystem in China as neither Alibaba or Baidu have the breadth of dominant consumer services that Tencent has.
  • This is why Tencent remains my top choice both in China and globally.
  • However, it has had a very good run and it is worthy noting that RFM ranks Baidu the global No. 2 in AI and by far the No. 1 in China.
  • With all of the hype and high valuations surrounding AI these days, it is surprising that Baidu has not recovered more.

Huawei – Really Convincing Story, Not.

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RCS unlikely to lift Huawei from its commodity margins.

  • One has to give credit to Huawei for realising that it has a problem but so far, its attempts to drive its differentiation beyond hardware are not bearing any fruit.
  • Its latest attempt in this direction is to join together with Google in supporting Google’s RCS based Android Messaging platform in its mobile devices and I presume in its infrastructure.
  • RCS or Rich Communication Services is the telecom industry’s attempt to maintain a grip on messaging once it became clear that messaging was going to move to data rather than the 2G control channel.
  • Although the technology has been around for 10 years, it has never been able to compete with the ease and ubiquity of the OTT apps and so it has never gained any significant traction.
  • The result has been is that messaging is now dominated by WhatsApp, WeChat, iMessage and so on with RCS gaining virtually no traction at all.
  • Even when Google threw its weight behind it and managed to get a several mobile operators on board, the ship had already sailed as everyone had pretty much already switched.
  • The one exception is Scandinavia where SMS is still widely used and this represents an opportunity for Scandinavian operators to migrate their users as they are yet to try something else.
  • However, in the rest of the world I am pretty sure that RCS will remain an oddity that will eventually be forgotten.
  • The problem with messaging is that it has a very strong network effect where to communicate, both terminals need to support the system being used.
  • This is why SMS was so successful as everyone who had a digital mobile phone had it already included as a single interoperable standard.
  • Huawei’s intention to include RCS in its devices is born from the hope that if RCS messaging takes off, it will work best on Huawei’s devices because it has designed it in from the factory.
  • There is nothing wrong with this strategy per se its just that it looks like the messaging networks have pretty much already formed meaning that getting people to switch to RCS will be almost impossible.
  • Unfortunately, this means that this feature, like its AI assistant, AI chip and its now commoditised imaging offering will be unable to generate any differentiation for Huawei in its devices.
  • This leaves it exactly the same boat as all of the other Android handset makers who differentiate purely on the basis of hardware.
  • With the Google ecosystem dominating these devices this means virtually no software differentiation at all resulting in the widely observed race to the bottom in terms of pricing and wafer thin margins.
  • The one exception is Samsung which makes good margins on Android devices, but I have long believed that this is because it outsells its nearest competitor by a factor of more than 2 to 1.
  • Huawei is showing very little sign of passing or even catching Samsung meaning that commodity margins are going to remain a way of life.
  • Huawei will need to do a little better than that if it ever wants to IPO.

Didi – In the saddle.

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Didi can crush the bike sharing upstarts.

  • In China where the bicycle is an integral part of daily transport, Didi has leveraged its shareholdings to ensure that user loyalty accrues to Didi rather than to its partners Ofo or Bluegogo.
  • If successful, I think this will reduce both Ofo and Bluegogo, and even Mobike to commodities thereby preventing them from making money, resulting in their eventual absorption by Didi.
  • Didi is the dominant ride hailing service in China which is now virtually unopposed since Uber was unceremoniously ejected from the Chinese market (see here).
  • From a vehicle perspective this has left Didi in a great position in China but as is so common, government intervention to protect the taxi industry has caused real problems.
  • In order to drive for Didi in Shanghai or Beijing, a driver has to prove that he lives in the city within which he drives.
  • This may not sound like a big deal until one looks at the demographics of the urbanised workforce in China.
  • Around 40% of the workforce of both of these cities reside outside of the city and in the younger, lower-paid part of the workforce, that number is much higher due to the high cost of housing.
  • For example, prior to the enactment of this regulation, less than 3% of Didi’s Shanghai drivers had the necessary residential registration to qualify as drivers.
  • I suspect that that Didi’s Beijing drivers showed similar characteristics and that other major Chinese cities also have a large migrant workforce.
  • The net result is that supply of rides has been drastically reduced meaning that the price of those rides will inevitably increase while the quality (wait time) will decrease.
  • Rising prices and lower reliability is likely to drive many users back into the arms of the taxi industry thereby achieving exactly the result for which the rules were created.
  • Furthermore, Didi has also been under assault from cycling services competing against the shorter rides that it offers.
  • Within the cities, bad traffic and a culture of cycling has meant that short journeys are often best taken by bike creating pressure on demand.
  • This explains Didi’s interest in bike sharing and it has just launched an update that includes the bike sharing systems of both Ofo and Bluegogo as an option within its app with no branding.
  • As far as users are concerned, this appears as a Didi service and Didi has been able to do this through its significant shareholding in Ofo and the fact that it rescued Bluegogo from bankruptcy at the end of 2017.
  • This means that Didi users will have no reason to use either the Ofo or Bluegogo app and because Didi will do them both, there will be more supply available in a single place.
  • It is quite possible that Didi will also have more supply than Mobike, meaning that even as a hold out, it will also feel the pressure from this move.
  • Consequently, it from a user perspective the Didi app should be able to offer a better user experience which will obviously commoditise Bluegogo and Ofo even more (see here).
  • The combination of its 400m+ ride hailing users and the scale of putting the services of Ofo and Bluegogo together may even allow it to overcome Mobike.
  • The net result is that Didi is well positioned to do to the nascent bike sharing industry what it did to Uber in China.
  • The caveat of course is the user experience but as long as Didi is at least as good as Ofo or Bluegogo individually, then I see no reason why it should not end up as the dominant shares transport provider in China.
  • Mobike will need to act quickly and bring something special to its service in order to avoid real pressure.

Google – One armed bandit pt. III.

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Google has very little chance in China.

  • Google has made its first return to the Chinese market since 2010 but I think its new map offering is going to struggle against the better equipped and far more entrenched local rivals.
  • Following its investment in the Chushou, a Chinese version of Twitch for mobile phone gaming, Google has returned Google Maps to the Chinese market.
  • In order to do this, Google has created a Chinese version of its map that I am certain is completely separate to the rest of its maps and resides solely on a server in China.
  • It has also created an app specific for Chinese smartphones which will almost certainly work with this map only and nothing else.
  • Google is using Alibaba’s AutoNavi for the map and is unable to provide directions as the request redirects the user to the AutoNavi app itself.
  • This is a very far cry from the excellent Google Maps which offers best in class integration with Google Search, transport and other services.
  • It is these add-ons rather than the quality of the map that makes it compelling, as in many areas Google’s maps are inferior to those of its arch-rival HERE.
  • To make life harder the competition it is going to be up against is already very strong as:
    • First: RFM estimates that Baidu Maps is already comfortably north of 500m users on smartphones.
    • Second: NavInfo and HERE already have a co-operation in place to provide HERE with maps in China and Baidu is using HERE maps for its international aspirations.
  • None of these competitors are subject to the same restrictions as Google and so my view that Google will be competing with one arm tied behind its back remains the same as it was 20 months ago (see here).
  • Consequently, I don’t think that this mapping service is likely to gain any meaningful traction nor does it represent a threat to the existing local players.
  • However, it is the first concrete signal in a while that Google intends to return to the Chinese market in some form or other.
  • Google’s ecosystem is strong outside China as a result of its world leading search service, best in class AI, and the complete integration of all its services and data (RFM Law of Robotics No. 6).
  • However, if the maps service is anything to go by, none of these strengths will be applicable to any of its Chinese offerings.
  • Furthermore, China is already a highly developed Internet services market where most users have already chosen where and with whom they want to live their digital lives.
  • Consequently, I still think that Google’s services will be uncompetitive in China and will remain widely shunned by the vast majority of the population.
  • Visitors may be able to benefit from these services but even at around 55m per year, their short visit times mean that they are unlikely to be able to make a dent.
  • I continue to think that China will remain a market for Chinese Digital Life services provided to Chinese users by Chinese companies leaving no space for Google.
  • In China I think that Google represents no threat to the BATmen of whom Tencent remains my favourite.

CES Day 1 – From hard to soft.

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Samsung and GoPro suffer from software shortages.

 Samsung

  • The best news for Samsung at CES was the failure by Huawei to close its deal with AT&T that would have seen its handsets sold by a major US operator for the first time.
  • Huawei’s absence from the US market is a major boon to Samsung and undoubtedly has been helping its market share as well as its pricing.
  • AT&T appears to have pulled its deal with Huawei after members of congress raised concerns to the FCC with regard to the security of Chinese manufactured devices running on US networks.
  • This has been a bugbear that Huawei has been unable to shake for many years and it looks like 2018 will be no different.
  • This good news was tempered with disappointment as Samsung’s guidance for Q4 17 missed expectations on both the top and bottom lines.
  • I suspect that most of this has been due to the very strong Korean Won which appreciated by 7% in Q4 17 against the USD.
  • Samsung’ agenda for 2018 is to bring intelligence into all of its devices such that they offer a deeper and richer user experience.
  • Unfortunately, this means Bixby which offers very little intelligence and is most kindly described as a voice control system for an electronic device.
  • Hence, I do not see this a mechanism of differentiation for Samsung and it’s position in consumer electronics is likely to continue being good profitability predicated on selling commodity devices in huge volumes.

GoPro.

  • The best time to announce bad news is when the cycle is jammed packed and I suspect that for many attendees at CES, GoPro’s surrender will have gone unnoticed.
  • GoPro has announced that it will exit the drone business effectively putting an end to the remote hope that it would be able to find a recovery in another consumer electronics segment.
  • The problem is that its chief competitor, DJI, has a better product at a competitive price with greater volumes and market share.
  • I have long believed that the battery issue that the Karma Drone suffered right after launch killed its chances of ever catching DJI meaning that an ignominious exit was inevitable.
  • GoPro may also have put itself up for sale which makes complete sense as I have long believed that acquisition was the most likely end game (see here).
  • This is a result of GoPro’s failure to develop software and services around its core proposition which should have created the desperately needed differentiation to fend off Chinese copycats.
  • As it is, Yi Technology and others now make cameras that are practically as good as GoPro’s but for half the price.
  • This combined with a flattish market spells real trouble for GoPro in 2018.I still think that both GoPro and Fitbit (see here) will make reasonable tuck in acquisitions (see here) for the larger ecosystems looking to extend their services or market position into new digital devices.I suspect that GoPro shares will continue to be weak but the timing looks right for potential buyers to take a serious look.I doubt that GoPro will exit 2018 as an independent entity.