Android for Enterprise – What elephant?

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Google continues to dodge the elephant.

  • Google is having another go at cleaning up Android’s act in the enterprise, but while it continues to ignore the elephant in the room, it is unlikely to make any progress.
  • Android’s position in the enterprise almost the exact opposite of what it has in consumer where 80% of all smartphones globally use the Android operating system.
  • 4 billion data points from Egnyte, indicated that 82% of all enterprise mobile activities were carried out on iOS devices with only 18% being on Android.
  • To counteract this, Google has released an enterprise device recommendation program that lists a series of requirements to ensure the best enterprise experience as well as a list of devices.
  • This list contains mostly Android handset makers that make the least modifications from stock Google Android which makes the devices much easier manage as the differences between them are consequently much less.
  • This is why Samsung is excluded from this list as it does more tinkering with Android and preloads more software than almost anyone else prior to sale.
  • Samsung’s absence will further hurt this cause as a substantial percentage of all Android phones in the hands of users today are made by Samsung.
  • To make matters worse, this number is even higher at the top end of the range which is where one will find all of the enterprise devices.
  • However, I think that all of this is irrelevant as while Google ignores the elephant in the room, its enterprise push is likely to go nowhere.
  • This elephant remains the endemic fragmentation that exists within the Google Android ecosystem and Google’s inability to quickly patch its devices when flaws are found.
  • This results in an inconsistent experience for users but most importantly, it means that Android devices remain very insecure.
  • This is something that no enterprise can tolerate which is the main reason why Android is so badly represented in the enterprise.
  • Surprisingly, it is quite a simple process to make an Android device secure by completely locking the phone down allowing no modifications, upgrades or downloads.
  • However, in an age where most users bring their own devices into the enterprise, this is not an acceptable solution which has led to most enterprise users choosing iOS.
  • I have long believed that the only option for Google to solve its Android problems both in consumer and in the enterprise is to take Android fully proprietary like iOS.
  • Then it can create a consistent, secure user experience that will work well for both enterprises and their users.
  • Google’s progress in this direction has been glacial and it continues to make a habit of avoiding tackling this issue head on.
  • Unfortunately, the only victim of this dithering is Google itself as its usage, loyalty and penetration in the enterprise will continue to suffer until this issue is addressed.
  • The real winners here are Apple which looks set to maintain its dominance in the mobile enterprise and Microsoft which will have an easier time seeing off Google’s incursions into its patch while Android remains irrelevant in the enterprise.

 

Google & Microsoft – Worlds apart

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Google and Microsoft go their separate ways.

  • With every quarter that passes, Google and Microsoft move further and further apart to the point where I don’t really seem them as competitors any more. (Google drive and docs excepted).
  • The contrast between the two companies is now so stark that they are able to schedule their developer conferences at the same time and not worry about double booking developers.
  • Microsoft Build 2018 will run from Monday 7th May to Wednesday 9th May while Google i/o 2018 will run from Tuesday 8th May to Thursday 10th
  • With 2 out of 3 days overlapping, it will be almost impossible for a developer to attend both meaning that it is either one or the other.
  • Historically, all of the big digital ecosystem have been at pains to ensure no overlap in order to be able to draw the maximum number of developers.
  • The conflict this year is a first and underlines even further Microsoft’s ongoing shift away from the consumer towards the enterprise.
  • However, the conflict no longer matters as enterprise developers will be heading to Seattle while consumer developers will turn up in Mountain View.
  • There have been signs of this drift everywhere but this was brought into laser focus at the last set of results where Microsoft’s enterprise products handsomely beat expectations while consumer chugged along almost as an afterthought (see here).
  • With the exception of Bing and Xbox (including Minecraft), which also have very little to do with each other, Microsoft’s consumer assets are in structural decline and I find it not difficult to make a case as to why Microsoft should divest Xbox.
  • This would leave Bing which, although far weaker than Google, does have the added advantage of providing a search graph for Cortana as well as data which can be used to train Microsoft’s AI algorithms.
  • From Google’s perspective its main rivals are now Facebook (video, chat and media consumption), Amazon (gaming, shopping, digital assistants and media consumption) and, over the next few years, possibly Tencent.
  • This also explains the signs I have been seeing of Facebook and Microsoft creeping quietly closer and closer together.
  • There is very little overlap between the two and I can see their current areas of co-operation expanding into AI which is an area where Microsoft is not the best (see here) but it is far, far better than Facebook.
  • This would alleviate Microsoft of the need to own Bing as Facebook is the global No. 3 in terms of data generation even if it has very little clue of what any of its data is or what it means.
  • The need for another highly entertaining Scroogled campaign have long since passed.

Microsoft & Facebook – 2 good runs.

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2 good runs could come to an end in 2018.

Microsoft FQ2 18.

  • Microsoft reported good FQ2 18 results, but the shares have been so strong recently that all the good news for the current year looks already priced into the shares.
  • FQ2 18 revenues / adj-EPS were $28.9bn / $0.96 nicely ahead of expectations at $28.4bn / $0.86.
  • Azure was once again the star of the show putting in 98% YoY growth with Office365 recording a very healthy 41% YoY.
  • This was supported by steady performance in its server infrastructure products which also saw double digit revenue performance.
  • This offset by Microsoft’s consumer facing businesses where gaming grew by 8% YoY and Surface hardware was flat.
  • This has been the tone for some time with enterprise going great guns and consumer underperforming the average.
  • The outlook for the rest of the year is more of same and consequently, Microsoft increased its revenue and profit forecasts for the full year.
  • However, the shares failed to react to the continuing good news giving me the distinct impression that its 15% rally in Q4 17 has already taken this into account.
  • Microsoft’s PER ratio is now above 25x, a level it has not seen since 2004, and well above its 10-year average.
  • I am comfortable that this is a different company and one deserving of a much better multiple than at the end of the Balmer era but expanding much beyond current levels looks challenging.
  • Consequently, I think that the multiple-expansion contribution to price performance is now in the rear-view mirror leading to a more pedestrian outlook from here.
  • Microsoft has been a favourite of mine since 2014 but it could be time to start thinking about taking some profits on what has been a fantastic run.

Facebook Q4 17.

  • Facebook reported good Q4 17 results as the planned changes have yet to meaningfully impact financial performance meaning that the outlook for 2018 is likely to be one of underperformance relative to its peers.
  • Q4 17A revenues / adj-EPS was $13.0bn / $2.21 comfortably ahead of expectations of $12.6bn / $1.95.
  • This was driven by continued growth of usage on mobile devices as the measures to increase the quality of engagement (see here) have not yet been in force for a full quarter.
  • This move to put its users ahead of its shareholder’s is not born from altruism, but instead reflects the need to maintain user loyalty as it transitions to becoming a fully-fledged ecosystem.
  • Consequently, I expect that Sheryl Sandberg’s cash register will be able to fully monetise this increased loyalty in due time, resulting in a pause rather than a curtailment of Facebook’s long-term prospects.
  • However, in the short-term the outlook remains difficult as Facebook is curtailing revenue growth while at the same time continuing to ramp up both OPEX and Capex.
  • Consequently, I think that in 2018 revenues could grow somewhere between 10% – 20% while OPEX has been guided to grow 45%-60%.
  • This is going to have a meaningful and deleterious impact on financial performance that I not convinced the market has fully digested with a PER 2018 ratio of 34x.
  • This is largely a result of Facebook’s weak position in AI.
  • I have long held the view that Facebook’s AI is not good enough to spot offensive content before it has been widely seen and as a result it is hiring 10,000 humans to do the machines’ job.
  • I also hold the view that humans are not fast enough to spot offensive content in time and as a result, I think that the improvement that Facebook is looking for will not be as good as expected.
  • The net result is likely to be continued problems with content on its service as well as a steep decline in profitability this year.
  • RFM research has shown that progress in AI is much slower than people in the field will have us believe and hence, I think it will be a long time before Facebook sees real improvements in AI impacting its bottom line.
  • This, combined with the fact that its ecosystem remains a work in progress, leads me to think that there is space for a lot of profit taking.
  • I would prefer Tencent or Baidu.

Microsoft – S for school pt. II.

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Price still likely to be the biggest decider.

  • Microsoft, in conjunction with Lenovo and JP, has launched some hardware that is more appropriate for the Windows 10 S initiative (than the nosebleed surface laptop) but it needs to bring the price even lower to really take on Google and Chromebooks.
  • Four new devices have been launched starting at $189 and going up to $299 that are squarely aimed at attacking Google’s position in the education market both at home and overseas.
  • The main difference between the price points is support for key functionalities such as pen-based input, touch, battery life as well as 3D.
  • However, one of the JP devices has implemented Windows Hello which I think is a pointless innovation for education.
  • Affordability is key to the education market and with most Chromebooks priced at $200 or under, every dollar is going to matter.
  • Windows Hello is a convenience for identification, but I don’t think that it adds anything to further the education of students and so in this context, it represents added cost for no tangible benefit.
  • Lenovo has been much more prudent and has included functionality which arguably improves education process and hence is more likely to be paid for by schools.
  • I suspect that all devices that ship to schools will be running Windows 10 S which is more lightweight and easier to manage from and policies and app perspective.
  • The app limitations of Windows 10 S (see here) mean that Windows 10 S can run effectively on devices that compete with Chromebooks but this still clearly needs some work.
  • This is because there is still not yet pricing parity between Chromebooks and Windows 10 S devices.
  • Chromebooks are mostly priced below $200 whereas the cheapest of the Windows 10 S devices starts at $189.
  • Consequently, this is likely to mean that there is a large enough price disparity between Chromebooks and Windows 10 S devices to make an establishment think twice when buying several hundred devices.
  • That being said, Microsoft has seen some market share gain in education establishments, albeit most of it has been in higher price categories.
  • Microsoft also has made big concessions to students with Microsoft Education 365 which offers Office functionality at very low cost.
  • This is far from altruistic and in my opinion, represents a great investment as these students will grow up knowing and preferring Office.
  • This combined with increasing support from book publishers and bringing AR and Minecraft into the education sphere helps Microsoft’s offering albeit at the higher end of the price range.
  • I think that this recent set of announcements helps push Microsoft deeper into education but to really take Google head-on, its devices need to be closer to the pricing of Chromebooks.
  • The added tools like pen and touch help but money is so tight these days that price is still likely to be the overriding factor in the majority of cases.
  • Hence, I see Microsoft making some steady gains in education but it needs to do more to really take a bite out of Google.

RFM 2018 – Top 5 at CES.

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RFM’s top 5 issues likely to prevail at CES and 2018.

Artificial Intelligence

  • I expect Artificial Intelligence to get top billing again this year as the both the hype and the flow of capital show no sign of abating.
  • Consequently, 2018 is likely to be a year of more feverish investment and hype making it more important than ever to separate real AI from those that are simply using statistics.
  • The three big AI problems remain mainly unsolved (see here) and RFM has concluded that progress in 2017 was very slow despite plenty of noise being made to the contrary.
  • I have no doubt that AI will become crucial for ecosystems trying to differentiate their Digital Life services from one another and the gap between the haves and the have nots is widening.
  • Google has distanced itself further from its competitors and in my opinion remains by far the leader in this field.

Google vs. Amazon

  • The battle of the digital assistants is likely to heat up this year and Google is clearly determined not to repeat the own goals of 2017 that allowed Amazon to dominate the market with an inferior product.
  • Signs of this are everywhere at CES with the Las Vegas Conference Center and the casino monorail fully decked out with entreaties to use Google Assistant.
  • Last year Google was nowhere to be seen at CES but this year I am hoping to see the results of its H2 2017 efforts through the inclusion of Google Assistant support by smaller developers in their smart home products and services.
  • Although, Amazon dominates the market for devices it is capturing only a tiny fraction of the voice requests as 91% of users that interact via voice use a smartphone compared to 17% that use smart speakers (see here).
  • Data is the life blood of AI and the data strongly suggests that Google is collecting far more than Amazon thereby ensuring that Google Assistant will continue to distance itself from Amazon Alexa in terms of ability.
  • If Google manages to close the gap in smart home this year, I think that this will put Amazon on the back foot and on a trajectory towards losing the smart home to Google.

Smartphones – Bezels, folds and the race to the bottom.

  • Bezel-less screens have become table stakes at the high end of the smartphone market meaning that 2018 will see this feature increasingly moving into the mid-range.
  • Samsung created the bezel-less market just like it did for large screens and now it must now look for something else.
  • The issue is that the Android user experience suffers from serious shortcomings compared to iOS meaning that it must offer othe features to compete at the iPhone price point.
  • Samsung has had foldable screens for some considerable time but poor yield and a lack of interest has meant that they have never been launched.
  • I have long seen the potential for foldable screens as a tablet form factor that can be folded away and slid into a pocket has the capacity to fundamentally alter both the tablet and laptop markets.
  • 2018 may be the year that Samsung feels ready to finally launch this as its options in terms of maintaining differentiation in an increasingly crowded bezel-less market are looking thin.

Automotive

  • The theme of digitisation in the automobile is in full swing but 2018 is likely to be another year where hopes and dreams substantially outstrip reality.
  • RFM’s analysis has shown (see here) that OEMs and tier 1s have not really digested the degree of change that is required for them to remain major players in their own industry.
  • For example, by locking the development cycle of the infotainment unit to the rest of the vehicle, the industry has ensured that units for which users pay thousands of dollars for, are four to five years out of date and hopelessly outclassed by $150 smartphones.
  • This combined with the almost universally awful user experience offered by automotive infotainment units puts the OEMs at risk of becoming also-rans in their own industry.
  • It also leaves the door wide open for ambitious new-comers like Byton which has launched an EV and Digital Life experience which shows some signs of having been given a lot of thought to the experience issues plaguing the vehicle.

VR/AR/Wearables.

  • With the exception of AR, very little is likely to change for both virtual reality and wearables in 2018 as the issues that hold them back remain unresolved.
  • Wearables are still a solution looking for a problem while the health use case continues to be limited by the quality and reliability of the sensors that they use.
  • Hence wearables will still be a recreational health and fitness market where users soon tire of their devices and consign them to cluttered junk drawers.
  • I would still be placing all of my attention on the companies that are working on making medical grade sensors that are both cheap and reliable to wake this segment from its slumbers.
  • I still see no real use case for VR beyond high-end gaming and events as the technical issues of cables, nausea and so on are still being worked on.
  • This leaves AR which I think is going to have a good year in the enterprise.
  • In the enterprise, the user experience matters less and the productivity use cases for AR in particular functions are numerous and demonstrable.
  • This is why many AR companies have pivoted towards the enterprise leaving Magic Leap as one of the few that is left struggling along in consumer AR.

Amazon – Size 12s

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Amazon is stomping on Microsoft’s patch.  

  • With the launch of Alexa for Business, Amazon is stomping with its size 12s all over the territory of its supposed new best friend, Microsoft and its digital assistant, Cortana.
  • Alexa for Business is expected to be launched next week at the AWS reinvent conference and will allow businesses to build their own skills for the digital assistant that can be used in a work context.
  • It will also feature all of the normal functionality such as enquiries and smart office and is expected to feature partners like Concur and WeWork at launch.
  • This has the scope to both generate more skills and applications for the Alexa digital assistant but also to generate increasing loyalty to AWS.
  • Some of these skills are likely to include integration with Office functionality such as calendar management, meeting room scheduling and so on.
  • If this takes off, there is no reason why this should not spread to the desktop and deeper into Microsoft’s core asset Office.
  • The issue here is that Microsoft already has a digital assistant called Cortana, and with Microsoft’s increasingly dominant position in the enterprise, this would seem to be an obvious opportunity for Cortana.
  • However, Cortana is struggling because it was originally designed to run on Windows Phone meaning that many of the skills that it has been taught are not relevant with the assistant sitting on the desktop.
  • Furthermore, Amazon and Microsoft recently announced a partnership where users will be able to ask Alexa to ask Cortana to do something and vice-a-versa.
  • Given Microsoft’s focus on the enterprise, I have been under the impression that the future for Cortana would be in the enterprise where it can be deeply integrated into Microsoft’s market leading apps.
  • At the same time, I assumed that the partnership would offer Amazon a way to use Alexa on the PC and in the enterprise.
  • However, it seems that Amazon is short-cutting its partner by going for the enterprise completely independently of its partnership with Microsoft.
  • The one area where Microsoft has a more relevant product than Amazon is in AI, where RFM has estimated that Microsoft is ahead of Amazon.
  • Consequently, I can see an eventual collaboration where Microsoft’s AI is used to drive Alexa’s services in the enterprise.
  • The only problem here is that this could result in cross over between Microsoft and Amazon Web Services who are fierce competitors in the cloud.
  • Hence, a deepening of this collaboration looks increasingly unlikely as this move puts Amazon against Microsoft in a new area in addition to the cloud.
  • Although Amazon appears to be getting the better of Microsoft, I still cannot stomach the valuation leaving me with a strong preference for Microsoft’s shares.

VR / AR – State of the nation.

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VR & AR still miles from being properly ready.

  • Facebook has launched a wireless VR headset that appears to be very similar to Oculus Gear which addresses a gap in its portfolio but does nothing to alleviate the issues that keep VR a niche segment.
  • At the same time Apple has admitted that real AR is years away, explaining its (and almost everyone else’s) focus on offering AR using the camera and screen of a smartphone.

Virtual Reality

  • Facebook has launched the Oculus Go which is a self-contained VR unit that sports better resolution (2560×1440) than the original Rift and a “fast-switch” LCD display which I assume aims to increase the refresh rate to improve image quality.
  • Facebook did not announce which processor is being used but I am almost certain (see below) that it is a smartphone processor with some commentators speculating that it is the Snapdragon 821.
  • The price is right at $199 and the fact that the Go has binary compatibility with the Gear implies that this device probably has the guts of a smartphone.
  • This makes sense as the Android supply chain has huge volumes which would have been very useful in designing the device to have a reasonable specification and yet meet the price point of $199.
  • It also means that there is already a range of apps and services available which removes the problem of there being no content available for the device at launch.
  • While the Oculus Go plugs an important gap in its portfolio, it does not do much to solve the real issues that plague VR which remain:
    • Price: Many of the devices cost several hundreds of dollars and also require a PC to run, further increasing the cost.
    • To be fair, the Oculus Go does address this issue but it does so at the expense of raw performance.
    • Clunky: VR and AR units are still large, clunky and uncomfortable to wear.
    • In many cases they also make the user feel foolish when wearing one.
    • Comfort and security: VR cuts the user off from almost all sensory inputs from his immediate environment, severely limiting the situations in which the user would feel comfortable using one.
    • Many units also cause feelings of nausea due to an imperfect replication of the real world compared to what the brain is expecting.
    • Cable: Many units require an HDMI cable which prevents the user from moving and also increases the risk of a fall should the user trip over the cable.
    • Again, the Go addresses this issue but does so at the expense of performance.
  • To bring VR to the mainstream, I think that these issues need to be solved with no compromises being made with regard to the user experience.
  • Of this there is still little sign leaving me very cautious on the outlook for the immediate term.

Augmented Reality

  • The requirements I see for AR to really come of age remain far more challenging and include:
    • First: a head unit that is no more intrusive to wear than a regular pair of spectacles (also applies to VR).
    • Second: a full field view of the virtual world as it is superimposed upon the real world.
    • This is proving to be so difficult that all the solutions available today are letterboxed (limited field of view) with no real time-line as for when this problem will be solved.
    • I have doubts that Magic Leap will be able to solve it an time soon.
    • Third: there will need to a vibrant ecosystem of developers to ensure that the experience offered is both broad and deep.
    • Developers will also be needed to ensure that the experience is easy to use and fun and to push the boundaries of what the device can be used for.
  • AR is even further away from meeting these ideals in my opinion but it is finding an initial lease of life in the enterprise.
  • This is because when users are paid to have the experience, tolerance of clunky head units and a bad user experience is much higher.
  • When this is combined with a good improvement in productivity there is enough benefit to see some traction.
  • However in consumer, the challenges remain enormous which is why the consumer ecosystems are pushing AR on smartphones as a stop gap.
  • I think that the experience offered there is pretty weak meaning that investments here are really about being prepared for when the above issues can be fixed rather than driving uptake of a new use case for smartphones.

Take Home Message

  • The net result is that I see nothing on the horizon that is going to change the current situation in either VR or AR.
  • Hence, I think that they will remain ancillary to the propositions offered by the big ecosystems and incapable of influencing a user’s purchase decision on where to live his digital life.
  • The result will be relatively low volumes and disappointment compared to the hype that regularly surrounds product demonstrations.
  • I continue to believe that investors in this space need to have a very long-time horizon.

Microsoft FQ4 17 – Head in the clouds.

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Not a cloud in the sky.

  • A strong finish to the fiscal year cements Microsoft’s positions as the main alternative to Amazon Web Services and as the preeminent provider of a Digital Work ecosystem.
  • FQ4 17 revenues / Adj-EPS were $24.7bn / $0.75 nicely ahead of consensus at $24.3bn / $0.71.
  • Outperformance was primarily driven by Azure which grew by 97% YoY and Office 365 which showed continued to show healthy progress in both the enterprise and with prosumers.
  • Gross margins improved slightly as favourable product mix was able to offset the impact of the increasing share of revenues coming from the cloud which has much lower gross margin than licence sales.
  • This is entirely normal and RFM research has shown that in Microsoft’s case in the long-run, it is better to have recurring revenues at lower gross margins than one off sales at much higher levels.
  • This is because the one-off sales do not occur frequently enough to generate more profit than subscription revenues at much lower margins.
  • Consequently, gross margins are going to remain under pressure in future albeit at a lower rate as cloud gross margins are rapidly expanding as the businesses continue to scale.
  • Guidance for FQ1 18E was a little light with revenues / EBIT of $24.0bn / $7.1bn forecast compared to consensus at $24.2bn / $7.4bn.
  • Guidance for FY18E remains unchanged with the priorities being placed upon increasing cloud gross margins and cautious growth in OPEX.
  • While the Digital Work ecosystem is going from strength to strength, the consumer ecosystem continues to wither away.
  • The one exception is gaming where the Xbox live community is still growing nicely and Microsoft remains the only real challenger to Sony in console gaming.
  • Despite this, I still think that Xbox Live is a massively under-utilised asset is it has completely failed to get any real traction in mobile gaming.
  • This is why I still think that there may be a party out there that is willing to pay more for Xbox than it is worth to Microsoft.
  • In that instance, Microsoft should sell Xbox in the best interest of its shareholders.
  • Microsoft is not the most exciting company in my universe but it has been one of the steadiest over the last 2 years and there is every sign that this will continue into FQY 18E.
  • Microsoft remains along with Baidu and Tencent, my two top picks.

Microsoft & Facebook – BFF

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I see Microsoft and Facebook creeping quietly together. 

  • I continue to think that Facebook and Microsoft make very good partners and I see them doing more and more together over the long-term.
  • In addition to building an undersea cable together (see here), Facebook and Microsoft have a long history of collaboration and when I look at their assets and the directions they are taking, it continues to be an excellent fit.
  • The latest place where they have appeared together is Section F which is a huge start-up campus in Paris with space for 1,000 start-ups.
  • Both companies are involved with Microsoft lending support to build is AI program and Facebook also being a major launch partner.
  • Facebook and Microsoft have often worked well together in the past and I can see this collaboration deepening going forward.
  • This is because Microsoft and Facebook are now going in very different directions meaning that there is almost nowhere where they directly compete with one another.
  • Facebook has the intention to become by far the biggest consumer ecosystem of them all while Microsoft appears to be edging away from the consumer and is increasingly dominating the enterprise.
  • If I look at their respective Digital Life pies there is also a good fit as Facebook is very strong in Social Networking and Instant Messaging while Microsoft has good assets in Gaming, Search and Browsing.
  • Consequently, I think that should Microsoft decide to bite the bullet on consumer, Facebook would represent a natural place for many of those assets to find a home.
  • While Microsoft is not the best in AI, it is far better than Facebook, and sharing that expertise would move Facebook meaningfully forward.
  • This could also benefit Microsoft as it really is only able to generate data using Bing but if it had access to some of the data being generated by Facebook, this could help it to both improve the diversity of algorithms it creates as well as the speed of development.
  • Even in Gaming where Facebook is already present with Oculus, the fit as good and it has already been announced that the VR headset will be able to be powered by the Xbox.
  • I don’t think that Facebook and Microsoft will merge but there are many areas in which collaboration is mutually beneficial and there is a remote possibility that Facebook will buy some of Microsoft’s consumer assets.
  • In the short-term I prefer Microsoft as its increasing strength in enterprise still gives plenty of support to its current valuation.
  • However, over the long term, I suspect that Facebook’s growth into new Digital Life segments will provide greater upside potential once it has overcome the short-term slowdown in growth (see here).

 

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.