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.

Google i/o 2017 – Brain game

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Superior brains being used to make its services the best.

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

 

Android Project Treble – Yellow brick road

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

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

 

Google – From Russia with love pt. III

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Google escapes to fight another day.

  • Google has settled its dispute with the Russian regulator but I suspect that Google has managed to avoid having to give away its crown jewel: Google Play.
  • According to the FAS Russia (see here), Google has agreed to:
    • First: Google will no longer prevent the pre-installation of competing search engines or apps on Russian GMS-compliant Android devices or their presence on the home screen.
    • There is no mention of which services will be set as default when the user turns on the phone for the first time.
    • Second: Google will no longer enforce the parts of the previously signed agreements that contradict the terms of the settlement.
    • As the terms of the settlement have not been made public, it is not clear exactly what this entails but I suspect that it refers primarily to point 1 above.
    • Third: Google will ensure that users of Android devices already present in the market will be given the option to change their default search provider via a software update and pop up.
    • Fourth: Google will pay a fine of $7.8m which I calculate is equivalent to around 100 minutes of Alphabet’s cash flow and consequently, is completely irrelevant.
  • This settlement ensures that competing apps can be on the home screen but it appears to do nothing about the requirement to bundle the Google Apps with Google Play nor the fact that they are set by default, albeit, now changeable.
  • The settlement was proposed by Google and accepted by the FAS which admitted that it was under some pressure to have this two-year dispute resolved.
  • This is why I believe that this crucial element was left out if the agreement as I think that it is the unbundling of Google Play from Google’s Digital Life services that could do the real damage.
  • This is because it is widely accepted that in most markets outside of China, it is almost impossible to sell an Android Device that does not have Google Play installed because this is what users demand.
  • This gives Google the power to force handset makers and operators to install the services from which it makes almost all of its Android mobile revenues front and centre on the device and to set them as default.
  • Research has shown many times that installation at the factory and being set as default are big drivers of usage, even if the service in question is considered to be inferior (Apple Maps).
  • This is why I have long believed that Google Play is so important to Google’s Android revenues and that unbundling Google Play could be highly detrimental to its long-term outlook.
  • The good news for Google is that it has now set a precedent with which it may be able to more easily settle its outstanding dispute with the EU.
  • The net result is that I think that while Google has given up a little ground, the fortress of Google Play remains intact and with it its ability to continue dominating the Android landscape.
  • However, this dominance is not enough to make me think that the shares are attractive and I continue to prefer the shares of Baidu, Tencent and Microsoft.

Google – Cookie crumbles

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I see no solution to Google’s problems in Android O.

  • Google has released a developer preview of the upcoming Android Oreo (Android 8.0) software, but I can’t see anything here that will help solve either the endemic fragmentation or Google’s chronic inability to update its own ecosystem devices (non-Pixel).
  • The preview of Android O headlines with a series of tweaks that provide incremental improvements to the user experience as well as API upgrades to enable developers to write better apps.
  • A few of these upgrades include:
    • Notifications: tweaks to make notifications easier and more consistent to manage.
    • Autofill framework: includes browser like autofill for commonly used data such as name and email.
    • Picture in Picture mode which is already available on Android TV will now be available to phones as well.
    • Adaptive Icons which can change their appearance depending upon which device they are being displayed.
  • These are all well and good and represent steady improvements in the user experience, but they do nothing to solve the two big issues that continue to hamper the Android user experience thereby keeping usage lower and users less loyal when compared to iOS.
  • These are:
    • First endemic fragmentation: There are thousands of different implementations of Android which behave differently and result in variations in the user experience.
    • RFM research indicates that this variation creates user frustration, lower usage and lower loyalty.
    • Second software distribution: Google has no control over the updates that are applied to the devices that run its ecosystem on Android.
    • This means that it takes up to four years for new software to fully penetrate its user base.
    • This gives rivals plenty of time to copy Google’s innovations and put them into their devices long before Google’s own innovations reach the hands of users.
  • I have long believed that both of these problems are largely responsible (more than demographics) for the much lower usage experienced by Android devices in general.
  • Google’s Android revenues are dependent on usage and I think that these issues are substantially limiting Google’s monetisation potential on Android.
  • This is why I have long held the opinion that Google must take Android fully proprietary to fix these problems and begin to realise its full potential when it comes to monetisation (see here)
  • I am still hopeful that we will see announcements that quietly take Android in this direction at Google i/o this year but the indication from this preview is that i/o 2017 could be yet another year of ignoring the elephant in the room.
  • I remain pretty cautious on Google, preferring instead Microsoft, Baidu and Tencent.

Android Security – Swiss cheese pt. V.

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Leaks look dated but still push Google towards proprietary Android.

  • Even if Google could quickly fix the vulnerabilities in Android that are being exploited by state sponsored hacking, it would be around 4 years before the majority of Google Android users were protected.
  • WikiLeaks has released 8,000 pages of documents that supposedly reveal all the tricks and hacks used by UK and US security services to turn ordinary consumer electronics products into surveillance devices.
  • iPhones, Android smartphones and Samsung TVs appear to be most specifically targeted but I have a feeling that this data is not comprehensive and may actually be considerably dated.
  • This is for two reasons:
    • First: there is no evidence in the leaked documents that any of the Android exploits apply to any version later than 4.4 (KitKat) meaning that 65.5% of Android devices may be unaffected by any of these revelations.
    • This leads me to think that these documents might in fact be very dated as I find it very hard to believe that vulnerabilities in Android suddenly went to zero with the release of version 5.0 (Lollipop) in 2014.
    • Whether these exploits were already known and have already been patched or whether these are new vulnerabilities is unclear at this time.
    • Second: Experts that have looked at the leaked iPhone vulnerabilities have stated that almost all of the leaked vulnerabilities are known and have in all likelihood already been patched.
    • Consequently, it seems likely that anyone running iOS10+ is already immune to these exploits.
    • Again, I find it difficult to believe that the occurrence of vulnerabilities has ceased and that these leaks could relate to pretty old data.
  • Mobile security firm Check Point is of the opinion that this leak may be snapshot of exploits used in early 2016, but I think the Android data indicates a much earlier point in time.
  • To make matters more difficult, assuming there are new exploits in this leak, no code has been released meaning that Google will have to search through millions of lines of code to find the exploits referred to before they can be patched.
  • Furthermore, even when Google has found these vulnerabilities and fixed them, it will then take around 4 years for these fixes to make into the hands of all Google Android device users.
  • This is for two reasons:
    • First: Most Android devices are not updatable.
    • Android is a commoditised, brutally competitive market meaning that in the mid-range, every cent of cost matters.
    • Making a device updateable means that extra resources have to be added to the device which are never reflected in the price.
    • Consequently, the vast majority of Android devices are not updateable to later versions of Android as there is no incentive for the device maker to add this capability.
    • Second: Google has no control over the update process for any of the devices that run its services.
    • It can update Google Mobile Services (GMS) from Google Play but lower level system updates (Android) are controlled by either the maker of the device or the mobile operator.
    • Google has no power compel these entities to update their devices and only has control of updates for its own, Pixel and Nexus devices.
  • It seems possible that this data leak represents some of the oldest and least relevant tools used by state sponsored hackers which is going to put even greater pressure on Apple, Google, Samsung to ensure that their software is watertight.
  • I think that this represents yet another reason for Google to take Android proprietary as having complete control over the code will enable it to quickly fix and distribute any vulnerabilities it identifies.
  • It will also enable Google take greater control of the user experience resulting in a more consistent, fun and easy to use experience for its ecosystem users.
  • I continue to hope to see signs of this at Google i/o in May this year.
  • I still think that Google is more than fairly valued and prefer Microsoft, Baidu and Tencent with Apple for long-term, income based investors.

Jolla – Safe(-ish) anchorage

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Sailfish finds a life line with the Russian government. 

  • The hardy sailors at Jolla have had a pretty stormy couple of years but their ship may have found safe-ish anchorage in Moscow.
  • At the end of 2015, Jolla joined the stagger of zombies (see here) when it ran out of money and had to pause its operations.
  • However, in May this year it secured $12m in funding and has recently won a battle with Samsung’s Tizen to be selected by Russia’s Ministry of Communications as its mobile platform of choice for Russia.
  • Sailfish has benefitted from the increasingly frosty relationship between Russia and the US where the fact that Sailfish has nothing whatsoever to do with any of the US-based platforms was a major plus.
  • Local search player, Yandex does not have the advantage that the BATmen do in China where there is a firewall to keep foreign services from being present in the local market.
  • Hence, Yandex is up against Google and has a big incentive to see devices in the market where Google services are absent.
  • This is because Google’s commercial agreements make it very difficult for competing services to be the default option on the device when it reaches the user.
  • Sailfish was also able to beat out Yun OS which is Alibaba’s proprietary fork of Android because, although the OS is secure, the SDK for developers still comes directly from Google.
  • Sailfish also has the advantage of being able to run Android apps using an emulator called Alien from Myriad Group
  • However, because it is an emulator, there are issues with the performance of those apps and games in particular.
  • While Jolla has done well to secure the backing of the Russian government, it is no guarantee that it will see any success in the market.
  • The key will be how well Sailfish can work with services from Yandex which is the local leader in search and has a series of Digital Life services that are applicable to the local market.
  • To make this work effectively, Yandex services will need to be ported to Sailfish which is where a start-up. funded by the head of ESN Energy, called Open Mobile comes into play.
  • This start-up has adopted Sailfish and aims to integrate Russian specific services onto Sailfish to increase its appeal locally.
  • The key to the success or failure of this venture will be how well a Sailfish device can cover the Russian Digital Life pie and how well it fares against RFM’s 7 Laws of Robotics.
  • To date Sailfish has scored poorly on these measures as there has been no real ecosystem available, just an operating system.
  • Furthermore, I think that the backing of Yandex and the local operators will be of crucial importance as the platform will need a big marketing push to raise its awareness with Russian users.
  • Jolla is still running on financial fumes but it now has a chance to see some income should it gain some traction in the local market.
  • In that regard its fate lies in the hands of the Russian operators and Yandex.

Android Security – Swiss cheese pt. IV

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Another horrible hack that Google is powerless to address. 

  • The worst part of this latest breach is that the hackers are targeting vulnerabilities in Android that have been well known for some time which no-one appears capable of fixing.
  • This only serves to reinforce my view that Google’s only way out of the nasty mess of Android fragmentation where virtually no phones can be properly updated remains to take Android fully proprietary.
  • 3m Google users appear to have had their accounts stolen which are now being used to generate $320,000 per month in fraudulent advertising scams.
  • The Gooligan exploit is a variant of Ghost Push which came to light in September 2015 some 14 months ago meaning that there has been plenty of time to issue a fix.
  • The problem with Android is not that it has any particular flaws that make it less safe than iOS or Windows but that none of the fixes for these problems ever make it onto the affected devices.
  • There remain two reasons for this:
    • First: The infrastructure for updating Android devices is horribly fragmented with each manufacturer or operator having control if its updates.
    • With all the different variations and add-ons, extensive testing is required to ensure that the variations and add-ons don’t break when the phone is updated.
    • Furthermore, because none of these players own the end relationship with the customer they have no incentive to improve it.
    • I think that this is Google’s most pressing problem (see here).
    • Second: Most Android handsets cannot be updated.
    • Android is a commoditised, brutally competitive market meaning that in the mid-range, every cent of cost matters.
    • Making a device updateable means that extra storage and memory must be added to the device which are never reflected in the price.
    • Hence, the vast majority of Android devices are not updateable to later versions of Android as there is no incentive for the device maker to add this capability.
  • The net result is that there is very little prospect for owners of these devices ever to be free from this problem or any of the others that have emerged for Android without buying a new device.
  • This is far beyond the means of most Android users meaning that they will constantly be exposed to any new threat that emerges with little prospect of it ever being fixed.
  • This is just another reason why usage of Android devices is likely to continue trailing that of iOS and why these devices are likely to yield a much lower return for the ecosystems that run upon them.
  • For example, RFM estimates that Google can earn $31.6 per user per year from an iOS device whereas its own Android devices can only generate $14.0 per user per year on average.
  • Part of this is due to the differences in demographics between the two ecosystems but I am certain that most of it is due to the fact that Android devices are more difficult to use, less secure and as a result generate much less traffic.
  • Consequently, I think that Google has to take control of Android because in its current state, it is very unsecure where very little is likely to change.
  • I continue to believe that this may happen in 2017 as Oracle has provided Google with the perfect excuse to do so (see here).
  • I remain pretty cautious on Alphabet preferring instead Tencent, Baidu and Microsoft.

Google – Pilgrim’s progress.

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Google advances further towards full control of Android.

  • It appears that mobile operators ranging the Pixel and Pixel XL will not be customising the devices in any meaningful way as well as relinquishing control of software updates.
  • This will allow Google to move one step closer to full proprietary control of the software that runs its ecosystem.
  • Ever since the launch of the Pixel there have been fears that mobile operators would fill Pixel with “bloatware” that would degrade both the experience and the performance of the device.
  • Many mobile operators have spent over 10 years trying to generate differentiation for themselves through this route but they have all failed as the services that they have offered have not delighted users in any way.
  • The services’ software has also almost always required substantial modification with every revision of Android meaning that operators often take months to update the devices in their networks, if ever.
  • Furthermore, because many of these services were installed as part of the factory software build, users could not uninstall them.
  • However, with the Pixel devices, Verizon (and I suspect Telstra and everyone else) will be updating the devices at exactly the same time that Google does.
  • This leads me to believe that mobile operators carrying the Pixel have, handed over control of updates to Google with their own modifications being no more than services that users can get from Google Play.
  • With the issue of liability should a Google update kill the device, I suspect that Google has taken liability for the Pixel updates.
  • I see this as another significant step by Google in taking the Android code that runs its ecosystem devices proprietary like iOS or Windows Phone.
  • This will fix the two most pressing problems that it has in Android which are:
    • First: endemic fragmentation which hampers the user experience.
    • Second: inability to update the vast majority of its ecosystem devices.
  • I suspect that in return for ceding complete control to Google and providing marketing support for Pixel, operators have no liability for the device and receive a share (TAC) of revenue that Google generates from the device.
  • This should help them offset the pricing pressure that they are feeling from being little more than commoditised packet pushers as well as the pressure being felt in roaming rates.
  • I have long believed that the shortcomings of Android are largely responsible for the fact that Google generates less than half the revenues from an Android user than it does an Apple user.
  • By taking complete control of Android, Google should be able to put these issues to bed and thereby increase the revenues that it can generate per Android user.
  • This could be a source of meaningful extra growth for Google which should help offset the impact of falling growth in its total user count.
  • Unfortunately, in the grand scheme of things Pixel is likely to be only a tiny proportion of Google ecosystem devices meaning that Google has to extend its control across the rest of the platform.
  • All the signs are that this will begin in earnest in 2017 where Google has a perfect opportunity to blame Oracle (see here) when developers complain about the loss of open source code.
  • I think that at $784 Alphabet shares are already reflecting success at driving greater revenues per Android device and are not reflecting any long lasting damage from the EU investigation.
  • This is why I see more downside than upside in Alphabet and continue to prefer Baidu and Microsoft.