E3 2017 – Glaring omission

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Very little interest in mobile gaming at E3.

  • E3 is the biggest trade show for the computer games industry but it still seems to be ignoring one of its most important segments: gaming on mobile devices.
  • Mobile gaming is radically different from gaming on PCs and consoles in three ways:
    • First: PC and console games are much more expensive and more complex.
    • Second: They require high-end PCs or dedicated hardware to run optimally compared to mobile games which run well on most smartphones.
    • Third: They are played for long periods of time whereas mobile games are played for a series of short periods.
  • This means that the software and hardware required to address this segment is completely different but that does not mean that there is no opportunity for the PC and console players in mobile.
  • This is because, I think that the hundreds of millions of users who play PC and console games also play games on their mobile phones.
  • These are different games, played in a different way with a different monetisation system but because the players are the same I see no reason why the big game communities should not be leveraged into mobile.
  • Sony, Microsoft and Valve have all spectacularly failed to leverage the multiplayer communities that they have on PCs and consoles onto mobile phones.
  • I believe that this is why the Digital Life segment of Gaming in mobile remains almost completely unoccupied.
  • This is very different to China where mobile gaming is dominated by Tencent with NetEase coming a distant second.
  • Hence, because Gaming is the single largest segment of Digital Life (30%), I think there is a big opportunity being left on the table.
  • This is the rationale for why I think Microsoft should be prepared to sell Xbox if the right offer comes along.
  • Someone with the ability to do with Xbox what Microsoft cannot should 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 (see here).
  • The same could be said for PlayStation but because it is such an important part of Sony, I seriously doubt that it would sell under any circumstances.
  • I can’t say the same for Microsoft which is continuing to do very well in dominating the Digital Work ecosystem but is letting its consumer ecosystem fade away.
  • Activision Blizzard looked to be making move on mobile gaming with its acquisition of King Digital but unfortunately, the mobile user numbers for King Digital have fallen by around 35% since the acquisition.
  • Hence, I think that this segment remains wide open creating a big opportunity for someone who has the skill and determination to do in mobile what Microsoft and Sony clearly do not.

Essential Products – Domestic bliss.

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Home is where the heart is

  • While I am not a fan of Essential Products’ phone (see here), I think that the strategy around the smart home is bang on I think it has created the right product.
  • I don’t like the phone simply because it does not do anything particularly special in a brutal commodity market and given the company’s overall strategy, I see no real need why it can’t make use of the phones of others.
  • However, the Home product is something else, and although it may not succeed, I think that it has a good chance.
  • This is because, I think Home has been designed to explicitly address the two biggest problems with home automation that exist today.
  • These are:
    • Firstly, voice control: 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.
    • The issue is that even the best machines are not yet intelligent enough to provide a useful experience using voice only and often have to fall back to a screen.
    • In Google Assistant’s and Alexa’s case this means using the screen of the phone which is not an optimal experience especially as most voice usage is when the hands are busy doing something else.
    • Essential Home has already taken this into consideration and the small device has an attractive looking screen on the top.
    • This looks much better than hideous Amazon Show which seems to have been designed to be a jack of all trades.
    • I think that Essential has hit the nail on the head and its product should optimally fix the single biggest current problem with human machine voice interaction.
    • Second, fragmentation: Despite Amazon Alexa being able to talk to almost everything, the experience remains horribly fragmented.
    • The real use case for the smart home is where all elements of the home are aware of each other and can be controlled together.
    • For example, the use should be able to say “I am going to bed” resulting in the doors locking, blinds drawn, heating turned down and so on.
    • Instead each separate device has to be manually operated and adjusted.
    • The experience on Alexa is so bad that it is quicker and more convenient to make these adjustments by hand.
    • Apple HomeKit also addresses this problem effectively but I see little traction among the smaller, more innovative smart home device creators.
    • Furthermore by being limited to Apple products only, 85%+ of the market is not being addressed.
    • This is the problem that Essential has recognised and is trying to address this by making its Home APIs and Ambient OS as open as possible.
  • I like the potential of this product as it is both differentiated from its competition and has been designed to explicitly solve the biggest problems with home automation.
  • There has been no word as to what assistant will be resident in the device, but if Essential is smart, it will ensure that the user can use any assistant he chooses.
  • The problem is going to be getting the device into the hands of users in volume.
  • This will be critical because volume deployments will be needed to get developers to make their products work on Ambient OS.
  • This is the old chicken and egg problem which is very difficult to crack but once it is solved creates real momentum for a platform.
  • This is the problem that Amazon cracked earlier this year and now every developer of any smart product will make it work with Alexa.
  • This will be the key to getting the Home product to succeed but it is going to be an uphill battle even for a start-up as well financed as Essential Products Inc.

Amazon – A song of ice and fire.

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Project ice has nothing to do with phones.

  • After racking up nearly $1bn in losses from its last foray into handsets, one would think that Amazon would have had enough but it appears that it is at it again but for a totally different reason: India.
  • Project ice appears to be the development of another Android device but this time at the other end of the price spectrum.
  • One of the devices in the pipeline features a 5” to 5.5” screen with 2GB RAM, 16GB of storage, Snapdragon 435 and a cracking price to match at around $93.
  • The device is fully Google compliant with its ecosystem installed and set by default but I am pretty sure that at least Amazon’s core e-commerce apps will also be installed.
  • Amazon’s last set of results (see here) showed a big dent in profitability in its overseas operations that I think can be largely put down to its determination not to lose India as it lost China.
  • Alibaba wiped the floor with Amazon (and Walmart) in China and with developed markets maturing, Amazon’s long-term growth is at least partially dependent on history not repeating itself in India.
  • In the Indian market, Amazon is the underdog with around 23% market share compared to Flipkart on 35% and Snapdeal on 15%.
  • However, it is by far the best financed and if it comes to last-man-standing battle, it is likely to win.
  • However, Softbank, the backer of Flipkart is keen for it to merge with Snapdeal which if perfectly executed, would give the combined entity 50% share (see here).
  • According to RFM’s rule that to become the go to place to transact, a marketplace must have at least 60% market share or be at least double the size of its nearest rival (see here).
  • The combination could be enough to see off Amazon but never to back down from a fight, Amazon has a trick up its sleeve.
  • I have long believed that the internet in India has very little to do with fixed (like developed markets) and everything to do with mobile (like China).
  • Consequently, the ice device portfolio could serve as a way to encourage users to do their online shopping with Amazon rather than Flipkart & co.
  • Google has no e-commerce offering to speak of and so Amazon can produce Google ecosystem devices (which Indian users demand) and at the same time install its shopping apps, optimise them and set them by default.
  • Studies have shown time and again that having apps preinstalled leads to them working better and being used more, even if they are not as good as other apps that need to be downloaded (e.g. Apple Maps).
  • Hence, I can see Amazon selling ice devices at 0% gross margins in order to win over more affluent Indian users to its shopping proposition at the expense of Flipkart & co.
  • This is exactly the strategy that it uses with Fire tablets and Kindle with the money being made on the content sold over the device.
  • This example looks no different except that the strategy here is to gain share in e-commerce before Flipkart can reach an unassailable position through consolidation.
  • This is why Flipkart has to act promptly to consolidate Snapdeal as the longer it delays, the more share Amazon is likely to gain and the harder it will be to become twice Amazon’s size.
  • Amazon’s strategy to control the primary device, from which Indians will do their online shopping, only increases the urgency for it to act and act fast.
  • Winter is coming.

WWDC 2017 – Catch-up gems.

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Mostly catch up but studded with a few gems.

  • While Apple spent most its time catching up with innovations made by other ecosystems, there were a few areas where its announcements put it ahead of the pack.
  • Machine Learning
    • Apple is weaving machine learning into all of its services.
    • This combined with increasing integration of Apple’s own apps and services promises to enhance the user experience.
    • This includes new predictive faces (like Google Now) on the Apple Watch and photo recognition and organisation and smart responses predicted from the user’s history in other apps.
    • The demos were slick and effective but how well this will work in the field and with a user that does not use all of Apple’s Digital Life services remains to be seen.
    • Apple is working hard on AI but I think it still remains way behind Google, Baidu, Yandex and even Microsoft.
  • iOS 11
    • For the iPhone, iOS11 is an incremental update but one that focuses most attention on iMessage and the App Store.
    • Apple, is following Tencent in allowing users to do more and more with iMessage including the enablement of peer to peer payments using Apple Pay.
    • iMessage and Photos are the only two services that really got some attention this year leading me to think that these are the two areas where Apple is really trying to create stickiness.
    • This is particularly relevant as I observed yesterday (see here) that leaving iOS for Android was particularly easy as I don’t use iMessage.
    • The network effect can be particularly strong leading me to think that iMessage is now one of the most important services that Apple has.
    • I think that it is much more important than photos as Google Photos is just as good and makes it easy to move photos off iOS.
    • The App Store update aims to address the problem created by its own success which is that discovery of new apps and services is now pretty difficult.
    • New tabs aimed that highlight the new and cool stuff as well as give tips on existing apps is curated through the user’s history and aims to drive more purchases.
    • The aim is clearly to further distance itself from the humdrum experience of Google Play.
    • App Store is an area where Apple is extending its lead.
  • iOS 11 for iPad
    • However, it was for the iPad that the new iOS software really shines.
    • In conjunction with a solid update to the line, iOS 11 enables new functionality that takes the iPad even closer to the laptop.
    • The iPad now has a file system which combined with enhancements to multitasking and window management take its usefulness to a new level.
    • This includes the ability to drag and drop links, pictures and files from one place to another and to share them in multiple ways more easily.
    • This takes the iPad (particularly the pro) closer to a laptop in terms of functionality but it does still fall short.
    • Without support for a mouse and full fat office, the iPad cannot replace a laptop for most content creators although it is getting closer all the time.
  • Hardware
    • In addition to the iPad Pro, the iMac and MacBook Pro all received incremental updates that keeps them in line with the high end of the PC market.
    • Apple also launched a super high end iMac Pro all in one aimed at the professional who needs to spend more than $5000 on a computer.
  • HomePod
    • Apple also gave a sneak peak of a home speaker that aims to replace expensive WiFi Speakers but also has the functionality of Amazon Echo and Google Home.
    • This is a high-end speaker that sports features that are designed to produce excellent sound quality and functionality potentially rendering Sonos obsolete.
    • At the same time the HomePod has Siri embedded meaning that it can answer questions and control the smart home through HomeKit.
    • Apple has positioned this as something that the user buys for a high-quality audio experience with Siri coming as an added bonus.
    • This is a smart move because Siri is not that bright and is easily out performed by Google Assistant while being on a par with Amazon’s Alexa.
    • HomePod shows no sign of being open to developers other than through HomeKit and I was disappointed that Spotify and other music services have not been enabled on the device.
    • Hence, this a device for the Apple Music subscribers of which there are now 27m and not really for anyone else.
  • The net result is that while I think there are some very interesting moves being made around the productivity elements on the iPad, Apple is mostly keeping step with the competition.
  • The good news is that its edge as the best distributor of apps and services of third partied has yet to be matched by Google, giving it time to re-invent its hardware differentiation.
  • The valuation case in Apple is not nearly as strong as it was 6 months ago leaving me still preferring Microsoft, Baidu and Tencent.

Samsung Bixby – Failure to launch

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Bixby is not fit for purpose.

  • Samsung has once again delayed the roll out of the voice component of its digital assistant Bixby further reinforcing my opinion that Samsung can really only compete in hardware.
  • This, combined with the poor performance already offered by Bixby services on the Galaxy s8, leaves me unsurprised that a method to rewire the Bixby hard key to Google Assistant has already been published.
  • Bixby was launched with much fanfare at the unveiling of the Galaxy s8 and promised the following:
    • First, completeness: This promises to give users complete control of enabled apps rather than the few tasks offered by other assistants.
    • Second contextual awareness: Samsung is promising that Bixby will be aware of the context within which it has been triggered, making it more relevant and useful.
    • Third natural language recognition: Bixby should be able to understand complex, multi-part questions as well as prompt the user to clarify the pieces that it does not understand.
  • I have been testing Bixby extensively and so far, the experience bears no resemblance whatsoever to these promises.
  • Instead Bixby offers a series of suggestions of videos to watch and articles to read that bear little relevance to any of my interests or my history.
  • The one thing that Bixby can get right is to highlight which apps I use most but the functionality of suggesting which app I am likely to want to use next based on the time of day or my circumstance is nowhere to be seen.
  • These features are very similar to those promised by Viv, the artificial intelligence company that Samsung purchased in October 2016 which is clearly the source of this product.
  • However, It appears that Bixby as it exists today has nothing to do with Viv which partly explains the poor functionality but also makes me wonder why Samsung acquired it in the first place.
  • This is a sure indicator of just how far behind Samsung is compared to everyone else when it comes to developing intelligent services.
  • RFM research (see here) has identified three stages of voice recognition of which the first and by far the most simple is the accurate conversion of voice to text.
  • Almost everyone, even Facebook, has pretty much cleared this hurdle but it appears that Bixby still has not.
  • Furthermore, Bixby vision is also way behind the curve as it is unable to properly identify objects.
  • Instead what it does is search Pinterest for other pictures with similar pixel patterns.
  • It does not identify objects nor offer any real functionality beyond finding similar pictures rendering it useless.
  • Even Facebook, which I have long identified as being behind in AI, is demonstrating reasonably good machine vision which leads me to put Samsung far behind even Facebook.
  • This leaves Samsung exactly where I left it as a manufacturer of excellent but commoditised hardware that outsells it nearest competitor by more than 2 to 1.
  • As long as it can maintain that edge, I have no fear for its handset margins but Huawei is trying very hard to close the gap.
  • Huawei’s disappointing handset performance in 2016 has led it to be more focused on profitability this year meaning that it will not be trying to turn the screws on Samsung with quite the same vigour.
  • Hence, I think that Samsung is set up to have a good 2017 but the rally in the share price has more than taken this into account.
  • Hence I continue to prefer Microsoft, Tencent and Baidu.

ARM vs. Intel – Silver bullet pt. II

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Implementation and performance will be everything.

  • The second lap of trying to get Windows to work on ARM processors is in full swing but the key to success will be the performance of the devices.
  • At the Computex trade show in Taipei, ASUS, Lenovo and HP have all announced that they will be producing Windows 10 devices that are powered by Qualcomm’s Snapdragon 835.
  • This is the final piece of the puzzle to get devices into the hands of users after Qualcomm and Microsoft announced that they would be giving Windows on ARM another try (see here).
  • ASUS, Lenovo and HP will be using Qualcomm’s Snapdragon 835 to provide both the horsepower to run the device as well connectivity to ensure and always on experience.
  • With its first attempt, Microsoft modified Windows 8 such that it would work on an ARM processor and in the process killed flexibility and backwards compatibility to legacy software.
  • The result was a platform that was shunned by both developers and users, completely killing any hope that ARM would gain penetration in Intel’s home turf of PCs.
  • This time the approach is completely different as Qualcomm and Microsoft have produced an x86 emulator that fools the software into thinking that there is an x86 chip present.
  • The net result is that any Win32 and Universal Windows Apps (UWP) will run on the device with no modifications being required by the developer.
  • I understand that UWP apps will run natively on the Snapdragon 835 but the emulator will be required for everything else.
  • This is where the success or failure of this venture will be determined.
  • The computing devices will lightweight, low cost with a long battery life making them ideal candidates to run Windows 10S (see here).
  • This device category is ideally suited for schools but for students who have their own devices, the appeal is less clear.
  • This is because the majority of the kind of apps that I think students will want on their PCs are not available as UWPs.
  • Students tend not to have a lot of spare cash and therefore will rely heavily on free software which if they are using Windows 10S needs to be on the store.
  • Taking the top free PC software as recommended by TechRadar, I found that 3 apps were available as UWPs compared to 10 that were not but of which, for 2 or 3 there was something similar.
  • Google Chrome, iTunes, Google Drive or any BitTorrent clients are available as UWPs, all which I suspect are pretty important for cash strapped students.
  • Therefore, the performance of the emulator will be critical as I think it will be heavily used in these devices.
  • On bench tests, the Snapdragon 835 is perfectly capable of running Windows 10, but there is a huge difference between performance in the lab and performance in the hands of real world consumer.
  • Furthermore, emulators always incur a performance overhead meaning that apps running via the emulator can never perform as well as those running natively.
  • The key questions are:
    • First: How well will Windows 10 be implemented on the ASUS, HP and Lenovo hardware to ensure the Snapdragon 835 can perform to the best of its ability.
    • Second: How much performance drag will the emulator incur?
  • The answers to these questions will only be apparent once the devices are available but I think it is quite easy to draw a line in the sand.
  • To succeed, I think these devices must perform at least as well as an Intel powered device at the same price point and have better battery life.
  • I think that this is the minimum requirement as without this, there is no incentive for a user or an institution to purchase the device.
  • I also think that always on connectivity is not a requirement for a Windows 10 device because all of the Digital Life activities that require this kind of connectivity have long since moved to smartphones.
  • Hence, I do not consider it to be a valid selling point of the devices.
  • The launch of these devices is obviously a negative for Intel but it is worth remembering that every attempt to dislodge Intel to date has been a miserable failure.

 

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.

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.