Facebook & Microsoft – Hand in glove.

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I think Facebook could buy some or all of Microsoft’s consumer assets.

  • Microsoft and Facebook are jointly building an undersea cable highlighting the increasing computability between these two companies.
  • The MAREA cable will be 6,600km long extending from Virginia Beach, USA to Bilbao, Spain and will be capable of carrying 160Tbps.
  • The cable will be managed by Telxius and will have an “open” design meaning that the equipment that sits on each end can be supplied by any vendor and can be more easily upgraded.
  • This is yet another statement of intent by the ecosystem providers to reduce the cost of the Internet in order to increase the accessibility of their services globally.
  • This was most forcibly declared by Facebook at its developer conference where it announced that it would release designs for network equipment and software for anyone to access for free (see here).
  • This will have the effect of further commoditising network equipment and is very bad news for Ericsson, Huawei, Nokia, Cisco and so on.
  • Both Facebook and Microsoft have nothing to lose and much to gain from ensuring that the price to provide Internet access continues to decline.
  • The cable will enable Facebook and Microsoft services to work with greater reliability and lower latency which is exactly what they need to make them increasingly sticky and more valuable to users.
  • Microsoft still owns a 1.6% stake in Facebook which combined with this new project highlights how compatible these two companies have become.
  • 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 or acquiring that expertise would move Facebook meaningfully forward.
  • 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.
  • While the rationale for Facebook to take some of Microsoft’s consumer assets is good, to make it really work will require flawless execution.
  • These assets would have to be fully integrated with each other as well as into Facebook’s existing offering for the real value to be created.
  • This is something that has eluded Microsoft for many years, and for me, this would represent the key risk of Facebook taking on some or all of Microsoft’s consumer assets. .
  • Microsoft is adamant that it remains committed to its consumer ecosystem but all the evidence is pointing to the contrary as I see the company increasingly focused on the prosumer and the enterprise (see here).
  • I suspect that this issue is uppermost in Microsoft’s mind as it plans for its next fiscal year (beginning July) and I think that the timing from Facebook’s perspective is also right.
  • I suspect that in the short term, Microsoft shares would rise and Facebook’s would fall from such a transaction, but I think Facebook is in a much better position to derive far more value from these assets than Microsoft is.
  • I continue to like Microsoft and Samsung for the short-term and Apple for long-term, income based investors.
  • I am still worried about expectations for Facebook being too high in H2 2016, but once that is out of the way, Facebook could represent a very interesting opportunity.

Oracle vs. Google – The merry-go-round pt. II.

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It might have been better for Google if it had lost.

  • The jury has found that Google’s use of Oracle’s APIs fitted the definition of fair use meaning that it will not have to pay Oracle anything for copyright infringement.
  • Oracle will now appeal but in order to get this verdict overturned it will have to convince the appeals court that the judge’s instructions to the jury were biased and unfair.
  • Given the history of the judge in question and what the appeals court said about him last time around, this will be less difficult than one would expect given the precedent.
  • Oracle went into this case with a significant advantage (see here), but now the shoe is on the other foot meaning that Google is off the hook for now.
  • However, considering the bigger picture, I think that a heavy loss and a massive punitive fine might have worked in Google’s favour in the long term.
  • This is because at the root of all Google’s most pressing problems is the fact $11bn of its fastest growing mobile revenues is supported by open source software.
  • Open source has shown to be very effective in the fixed world as when the code branches, the less effective branches die off leaving a single master code line.
  • In mobile, the branches don’t die but continue to grow and multiply meaning that there are thousands of different implementations of Android running smartphones today.
  • This results in the endemic fragmentation that hampers the user experience on Android, creates havoc with security and makes life very difficult for developers.
  • I think that this is the major reason (demographics is a factor but less so) why Google generates less than half the revenue per user from an Android device compared to a user on iOS.
  • This lower usage also erodes loyalty and the loss of high end users to iOS following the launch of the iPhone 6 is evidence of how little loyalty users have to Android.
  • To make matters worse, Google is also unable to update the Android software on almost every Android device that runs its services meaning that its R&D is benefitting the competition more than itself.
  • This is because when Google releases Android innovations at I/O, its competition can copy them and update their devices years before Google can.
  • These issues hamper the appeal of any ecosystem based on Android unless its owner creates its own closed, forked version like Amazon, Alibaba and Tencent have done.
  • I have long believed that Google will have to do the same thing and I am currently expecting this to begin happening in earnest in 2017.
  • However, it is easier said than done as Google has long been an advocate for open source software and the backlash it will receive from developers when it moves in this direction will be severe.
  • Consequently, I think that if it can point the finger at Oracle as the architect of its woes (see here) forcing it to close Android down, things will be much easier.
  • Even if Oracle had won everything it was after, it still would have cost Alphabet only 4 months cash flow, which is probably cheap compared to what it will lose in the long run if it does not bring Android under control.
  • My preferences remain with Microsoft and Samsung for the immediate term, Facebook once it has corrected in H2 2016, and Apple for long term income investors.

Microsoft – Mission Impossible pt. II.

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The digital consumer ecosystem is looking increasingly impossible.

  • Microsoft is taking the knife to phones again which casts further doubts over its commitment to the digital consumer ecosystem.
  • Another 1,850 positions are to go of which 1,350 are in Finland which will result in a $950m charge of which $200m is severance payments.
  • This reduces the existing headcount by another 40% which will leave 2,820 people in the smartphone business which is just 11% of what it was when Microsoft acquired it.
  • With the sale of the feature phone business to Foxconn, another 4,500 positions go as these will transfer to Foxconn and HMD Global Oy.
  • Microsoft’s market share in smartphones is now 0.9% putting it behind HTC which I have long believed has no sustainable business in smartphones (see here).
  • It is clear to me that the remaining 2,820 positions in phones will be focused on creating devices that dovetail into the successful and profitable Surface business.
  • With the Surface Pro, Microsoft has opened up a segment that has the potential to replace every laptop in the market with a device that offers a far superior experience that is both more ergonomic and much better for user’s health (see here).
  • The idea here is to offer such a good Digital Work experience that the user chooses to live his Digital Life with Microsoft as well via a Surface phone.
  • The problem is that this is not the way the market works.
  • Users bring their Digital Lives with them into the workplace not the other way around.
  • Consequently, while the Surface phone might be a great product, it is unlikely to appeal to the market beyond a small professionally oriented niche.
  • The big issue here is not the mobile phone business but what this signals for the Microsoft consumer ecosystem assets.
  • Microsoft has a range of consumer assets such as Xbox, Bing, MSN, Skype and Minecraft whose relevance becomes highly questionable within a company solely focused on the Digital Work ecosystem.
  • The problem here is that users make the choice about where to live their Digital Lives based on their experience on a smartphone or a tablet.
  • With no device, the route to market suddenly becomes much more difficult.
  • Microsoft will now have to compete with its Digital Life services on iOS and Android where it will severely hampered because those platforms are controlled by Apple and Google.
  • Competing services will be installed on the majority of devices by default meaning that Microsoft will have to market its wares more intensely and more effectively than it has in the past.
  • Marketing is not one of Microsoft’s strengths and I can see the outlook for these assets deteriorating as a result of being less and less relevant on the key consumer devices.
  • Consequently, the question as to whether Microsoft should be in the Digital Life services at all needs to be asked.
  • Xbox is a valuable asset but with its lack of traction in mobile at Microsoft, Xbox could more valuable to someone else than it is to Microsoft.
  • I think that the same could easily be true for the other digital consumer businesses meaning that unless something changes, further divestments are on the cards.
  • Fortunately, the investment case for Microsoft is predicated solely upon its continued dominance of the Digital Work ecosystem and in this instance, Microsoft is going from strength to strength (see here).
  • However, the optionality of a turnaround in the consumer is looking less and less likely which puts a crimp into any blue sky hopes.
  • Consumer is increasingly looking like one mission too far.

 

Xiaomi – Broken engagement.

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Flat revenue is the least of Xiaomi’s problems.

  • Xiaomi has finally admitted that it ran out of growth in 2015, but unsurprisingly was very tight lipped about the much larger problems it faces in 2016.
  • Revenues in 2015 increased 5% to RMB78bn ($12.5bn) which, with 70.7m units shipped, gives an ASP of around $176 per phone shipped.
  • I think that the best case for Xiaomi was that it earned 20% gross margins and 3% EBIT margins on those revenues, giving EBIT and cash flow of $375m or RMB2.3bn.
  • This in isolation is not a problem because as long as the company generates some cash it will never come close to going out of business.
  • However there are two other big problems.
    • First. 2016 is shaping up to be a much tougher year and, for the last two quarters, it has lost market share.
    • This is in the face of a resurgent Huawei and Oppo both of whom look better equipped financially to fight for market share.
    • Consequently, I think that there is real risk that in Xiaomi’s 2016 units decline YoY on the back of a much softer market and much tougher competition.
    • The edge that Xiaomi carved out for itself did not last long and I see it having to cut prices in order to minimise market share losses.
    • Hence, it is not difficult to see revenues declining by 10% or more in 2016.
    • In this instance, Xiaomi will have to act quickly and trim its operations back in order to avoid a loss both at the EBIT level and in terms of cash flow.
    • Second. RFM research is indicating that there has been a huge decline in the engagement of users with the Xiaomi ecosystem.
    • Tough times at Xunlei (see here) were one indication that engagement had weakened considerably but now also the rankings of its core services.
    • Xiaomi’s main offerings in Digital Life are Media Consumption, Instant Messaging and an app store.
    • There was a time when Xiaomi devices registered more usage than iPhones on the back of the Media Consumption service but in terms of popularity it is now nowhere to be seen.
    • Baidu and Alibaba dominate this segment of the Chinese Digital Life pie and Xiaomi’s app store now rates second behind Baidu’s and just ahead of Huawei.
    • Consequently, it appears that users don’t really care about the Xiaomi ecosystem and even when they have Xiaomi devices they prefer to use the Digital Life services of Baidu, Tencent and Alibaba.
  • The prospect of declining revenues, combined with very little engagement, means that Xiaomi’s strategy to become an ecosystem is failing and failing badly.
  • To pour salt into the wound, Xiaomi does not even have the resources to compete with its rivals as I think that it has around $1bn in the bank and no cash flow.
  • This is but a fraction of what its rivals generate every quarter meaning that it will be outbid for every asset and out invested for every service.
  • The end result is that while Xiaomi was first to really understand the importance of the ecosystem, it appears to have very little chance making a good return from it.
  • This is why I am valuing Xiaomi at around $5bn some 89% below the level at which it last raised money.
  • I think that an alliance with one of the big three ecosystems is the best outcome for Xiaomi.
  • Baidu looks to me like to the most appealing as all of the others are already working on their own versions of Android, while Baidu has closed its down.
  • I very much doubt that Baidu will pay anything like $45bn for control of Xiaomi, meaning that even with this outcome there is huge downside for Xiaomi’s current owners.
  • I think the current investors should be looking to exit at almost any price.

Project Ara – The Holy Grail Pt II.

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Different game but the rules stay the same.

  • Google has scaled back the ambitious objectives of Project Ara (see here) to something more realistic, but to succeed it will still have to obey the four rules of the road (see here).
  • Prior to its reorganisation, Project Ara aimed to provide a device where every major component was modularised and could be swapped with a different specification.
  • This creates three enormous challenges:
    • First. Each module requires an individual case and a connector. These take up space, making the resulting device bulkier and less sleek-looking than a normal device.
    • Second. Each swappable component has to remain distinct from all the others. Integrating components together is a tried and tested method of cost and size reduction meaning that a modular device has always been more expensive to make.
    • Third. Every swappable component has to be tested with every other in every possible configuration to ensure that they all work together properly. This means that testing and certification is much more onerous, meaningfully increasing development costs.
  • These challenges made it almost impossible for Google to produce a modular device that was both ergonomic and competitive in terms of price.
  • In the last 12 months, Google appears to have realised this and has scaled back its ambitions such that the guts of the device remain the same and just the peripheral components can be swapped out.
  • Examples of these are cameras, storage, speakers, sensors, batteries and so on.
  • The idea now is for the user to be able to mix and match features that users are unable to get anywhere else and thereby provide something different.
  • This change substantially reduces the three challenges above but does not obviate the device from having to be both ergonomic and economic in order to succeed (see here).
  • This means that the device must be no bigger than a competing, non-modular device of the same specification and it must come at the same price.
  • The problem is that even with these changes, the current prototype looks weird and is bulkier than other devices with the same specification.
  • From the videos that Google put up at I/O, I think that it intends to market the device by making its funky form factor a selling point in a sea of sameness thereby addressing the ergonomic issue.
  • Google has plenty of cash on the balance sheet to absorb losses from selling the product at a competitive price, but with the new age of fiscal discipline that has been ushered in, it may not be willing to do so.
  • Furthermore, LG already has a similar device in the market and while its modularity is far less, it has done a much better job in terms of ergonomics and form factor.
  • Consequently, while Google’s task is now undoubtedly easier, Project Ara must still obey the four rules of the road which remain:
    1. It must be the same size and weight as competing products.
    2. It must make no compromises in terms of styling,
    3. It must offer the same functionality as competing products.
    4. It must come at the same price point.
  • If all four of these can be fulfilled then there is a real chance of success as the user is being offered something new without having to make any compromises.
  • Even with the changes that have been made, I think that Project Ara is still some way adrift of meeting these rules but it is certainly closer than it was 12 months ago.
  • The short-term outlook for Alphabet remains healthy but the fact that this is more than reflected in the valuation leads me to continue to prefer Microsoft and Samsung for the short-term and Apple for the long term.

 

Facebook & HTC – Collateral Damage.

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It makes no sense for Facebook to deliberately lock HTC out.

  • Facebook has updated the firmware for the Oculus Rift that has prevented the HTC Vive from running the Oculus Rift apps.
  • The new firmware now performs a platform integrity check to ensure that the Oculus Rift hardware is present before it will allow apps to run.
  • This is a pretty standard copyright mechanism used by many platforms to try and fight piracy.
  • This test is not trivial to circumvent (and it is illegal to circumvent copy protection in US) meaning that the Vive is now very unlikely to able to run Oculus Vive apps.
  • Prior to this an un-official tool called Revive was allowing Rift apps run on the Vive by tricking them into thinking that the Rift hardware was present.
  • However, in version 1.4, this test has become more robust and the check is now performed by the Oculus Rift DRM meaning that Revive no longer works.
  • For once, I think that this is not a deliberate ploy to lock HTC out of the Oculus Rift platform because strategically it makes no sense.
  • I don’t think that HTC is in a very strong position with the Vive because RFM research indicates that HTC does not own the IP for this device and furthermore that it’s licence with Steam is non-exclusive.
  • Hence, while HTC has a lead in terms of controllers and the user being able to move around, I don’t think that this will last long nor will it be exclusive to HTC.
  • From Facebook’s perspective, HTC is not the competition.
  • Steam, Microsoft, Google, Meta Vision, Atheer Labs and Magic Leap are, as these are the platform owners.
  • Consequently, the more devices that Facebook can get running Oculus, the better chance it will have at emerging as the dominant force in VR.
  • At the end of the day, I don’t think that Facebook is very interested in hardware as a profit centre.
  • I think Facebook is much more interested in the data that Oculus generates and how Oculus could be used to migrate the fledging Facebook ecosystem into the all-important gaming segment.
  • Hence, it makes complete sense for Facebook to work with the creators of Revive and get it running again on HTC’s VR.
  • This is why I think that HTC & revive are collateral damage as a result of this update and I would not be surprised to see revive up and running again sometime soon.
  • Neither Facebook nor HTC (see here) shares are in my short-term good books but once Facebook has navigated the heavy expectations the market is placing on it for H2 2016 (see here), there could be real long term upside.

Tencent Q1 16A – Search for happiness.

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Tencent needs to do a little better to keep everyone happy.

  • Tencent reported very healthy Q1 16A results as business continued to benefit from user growth in China that is now substantially outstripping a stagnant device market.
  • Q1 16A revenues / adj-EPS were RMB32.0bn / RMB1.06 nicely ahead of consensus at RMB30.3bn / RMB1.02.
  • Tencent’s mobile based ecosystem grew to 762m users well ahead of RFM’s estimate of 718m which sets the company up well to continue its path of revenue growth.
  • Despite the excellent results, the inevitable impact of the slower Chinese macro environment weighed on sentiment as management was quite cautious about the outlook.
  • Furthermore, Tencent was at pains to point out that there is a limit to the degree which news feeds, games, chat and video can be loaded up with advertising before the user experience suffers materially.
  • This put a crimp on some of the markets hopes for 2016 performance which combined with the shares’ already high valuation has triggered a small correction.
  • There is no doubt that Tencent is extremely well positioned in the Chinese market.
  • It has very good coverage of the Digital Life pie and dominates Instant Messaging which is one of the most important segments.
  • However, the vast majority of its revenues come from selling content which I think will be limited when it comes to long-term growth.
  • This means that Tencent needs to really focus on monetising the traffic, usage and data that it accumulates which is where it needs to do a lot of work.
  • This is where Tencent really needs to understand the principles behind building a thriving ecosystem and I think there is still work to do here.
  • Success in the ecosystem will show in the online advertising business which grew nicely in Q1 16A but given the scale of its Digital Life coverage and the valuation of the shares, it should have grown faster.
  • The outlook for 2016 is good but relative to what commentators are hoping for and what investors are paying for it needs to do a little bit better.

 

Google I/O – Brains not brawn.

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Google touts its brains but once again ignores the elephant.

  • Google launched some interesting innovations at its developer conference, but once again declined to address the elephantine problems that it has with software fragmentation and software distribution.
  • Many of the announcements were merely bringing Google into line with competition, but what I liked was the promise that the Google versions would be much better.
    • Google Assistant. This is effectively an update to Google Now but with some key differences.
    • First. Google Assistant will be everywhere across all devices and services and will be the lynch pin that keeps the experience consistent no matter where the user is or what he is doing.
    • Second. It will be backed up by Google’s best in class AI (see here) which promises to offer a far more intuitive, contextual and useful experience than the competition.
    • It was clear even from the demonstrations, how much ground the competition have to make up just to get close to what Google is offering.
    • If I was building a bot to help with communicating to my customers, I would choose Google’s AI without any hesitation.
    • Google Home is Google’s answer to Amazon’s Echo and is powered by the same AI that runs assistant.
    • It is also able to control other compatible devices such as Chromecast, Nest, light switches and so on.
    • Echo is also capable of doing this but not in a seamless and easy to use way.
    • It remains to be seen how good the user experience is, but my initial impression is that this will be far better than Echo (see here).
    • Chat apps. Google returned to messaging with two new apps that compete directly with WhatsApp (Allo) and Skype / Facetime (Duo) with some funky bells and whistles aimed at getting users in.
    • Google is very late to the messaging game and I think that almost all of its ecosystem users are already using Messenger or WhatsApp.
    • Consequently, I think that Google will have to use its AI to provide a superior experience and attempt to draw users in that way.
    • Even with great AI, this is going to be a tough sell.
    • Google has started to get serious with virtual reality offering software on phones to make them able to run VR as well as a reference design for others to build a headset and a controller.
    • Google has also extended Google Play such that users can buy and download apps directly to the unit.
    • Android Wear 2.0 was launched which looked very much like a housekeeping update but did show signs of much improved sharing of data between services to the benefit of the user.
  • It is clear from these announcements that Google has played its trump card when it comes to enticing users to spend more time with its services.
  • Furthermore, just from the launches it is clear that Google has fully embraced the importance of data sharing (RFM Law of Robotics No. 5) and data integration (Law of Robotics No. 6).
  • In my opinion this puts Google even further ahead in terms of evolving its ecosystem to offer the deeper and richer experiences to its users to keep them out of Facebook’s clutches.
  • As far as I am concerned, the biggest threat to Google currently is Facebook because if Facebook is able to fulfil its ambitions and grow into a $40bn revenue company, a lot of that will come from Google’s pocket.
  • When it comes to AI, Facebook ranks dead last (see here) and by setting a gold standard for how intelligent these services need to be, Google can make Facebook’s new services look very dim indeed.
  • This is the key challenge for Facebook in my mind, and so far I have not seen any sign that it is really stepping up to really address this issue.
  • While Google did well to push its AI into everything that it does, it failed to address the endemic fragmentation of Android, it inability to update Google Ecosystem devices and its attempts to address security where perfunctory at best.
  • I still think that Google will have to take complete control of Android in order to fix these problems and I think we may see this begin to happen at I/O 2017.
  • Until then, Google’s innovations in Android such as its security updates will be irrelevant as it will be four years before they make it into the hands of the majority of its ecosystem users.
  • Google is trading around fair value making me fairly indifferent to the shares where I would prefer Microsoft, Samsung or Apple.

Artificial Intelligence – Men and boys.

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The difference between men and boys will be the brains of their toys.

  • Developer conference season is well underway and the central theme that is emerging is a focus on making Digital Life services smarter and more intuitive.
  • This has implications for both services to consumers created by the ecosystem itself but also the possibility to make it much easier for businesses to communicate and service their clients.
  • The customer service industry has been aware for some time with regards to the effectiveness of chat, but the possibility to automate a large part of it offers another leg up in terms of efficiency.
  • I think that this combined with the ability to make personal digital assistants and other Digital Life services more engaging, fun and useful will be a big driver of the ecosystems over the next few years.
  • The problem is that to make these services intuitive is very difficult requiring a first class artificial intelligence and machine learning infrastructure driving the service.
  • This singular system has the potential to power everything within an ecosystem including search algorithms, personal assistants, chat bots, autonomous cars, game opponents and so on.
  • This is why all of the ecosystems are engaged on developing their AI offerings and I see them at very different levels of development.
  • Top of the heap is Google which has been working on this for years and I think has a large head start on everyone else.
  • The substantially superior performance of Google Now compared to the other digital assistants, Siri, Cortana, Alexa, Facebook M and so on is a testament to that fact.
  • This is Google’s bread and butter and if its dominance is to continue it will have to maintain this lead.
  • Next comes Apple, Microsoft, Sony and Baidu all of whom have been working on this for a while but have a long way to go to catch up with Google.
  • Sony is the dark horse here as although it has made a mess of much of its consumer electronics businesses, it has been working on AI for many years and may be able to pull a rabbit out of the hat.
  • Behind this group is Amazon.
  • RFM’s assessment of Alexa leads me to believe that Amazon is in the race but has some catching up to do to match Apple, Microsoft and Baidu.
  • Right at the back is Facebook, whose beta launches have revealed bots that are far too stupid to offer a half decent user experience.
  • Even though I see Facebook as the biggest potential emerging ecosystem with the most long-term upside, this is its Achilles heel.
  • Facebook has the resources to invest or acquire in this area but it needs to get a move on as the others are not standing still.
  • Furthermore, I suspect that its ability to really develop into a fully-fledged ecosystem with 80% Digital Life coverage (compared to 35% today) will be dependent on fixing this short coming.
  • I still see a lot of long-term upside in Facebook but remain concerned that short-term expectations may not live up to reality in H2 2016 (see here).
  • Hence I prefer Microsoft or Samsung for the short-term and also Apple for those income investors with long time horizons.

MCX and Ecosystems – The white flag.

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MCX serves as a lesson to all in the ecosystem.

  • Merchant Customer Exchange (MCX) has paid a heavy price for ignoring the fundamentals that govern whether or not Digital Live services and ecosystems will be successful.
  • MCX is an attempt by the retail industry to break Visa and Mastercard’s stranglehold on payments with a mobile-based payment system.
  • In theory this makes a lot of sense as retailers operate by making wafer thin margins on huge volumes meaning that it hurts when card companies take even a small slice of the transaction.
  • Unfortunately, MCX assumed that because it had the support of the biggest retailers in USA, that the user experience did not matter.
  • Consequently, what emerged was a clunky, difficult to use payment system using multiple QR codes that has also proved to be somewhat insecure resulting in a couple of security breaches.
  • The result has been that both its retailers and their customers have refused to adopt the system and former partners now working to ensure that their offerings are compatible with market leader Apple Pay.
  • This is why MCX has “postponed” the nationwide roll out of the app, fired 30 of its staff and will now concentrate on partnering with banks.
  • To heap further humiliation upon MCX, this coincides with Walmart (once its biggest backer) launching its own payment system in 600 stores across Texas and Arkansas.
  • It seems that Walmart has learned something from its hapless partner as its system is much less cumbersome than MCX despite still being based on QR codes.
  • However, even in this form, it has little hope of competing against Apple Pay which uses the iPhone’s NFC chip and a compatible terminal to offer a best in class user experience.
  • The simplest and most important rule for any user oriented Digital Life service or ecosystem is ease and fun of use (RFM Law of Robotics No. 1).
  • Smartphone users now have so many options to choose from that anything that it is not intuitive, quick to learn and easy to use will, in all likelihood, fall by the wayside no matter how good the technology is.
  • Without a reasonable score on ease of use, RFM’s other 6 Laws of Robotics do not really matter as the users are likely to drop the service or ecosystem very quickly.
  • This problem is most often encountered by technology companies that let the engineers who build the technology also design the user experience. .
  • What the user inevitably ends up with is a bare bones offering that is unappealing to look at and painful to use.
  • Sony’s user experience that runs the PlayStation 4 is a great example of this and I think that Sony is lucky that in this generation, Microsoft got it very badly wrong at launch and is still paying the price for it.
  • This is why user experience design is so important in the current environment and those that ignore it are likely to fail no matter how good their innovation is.
  • Apple, Google and increasingly Facebook and Microsoft have a pretty good grasp of this concept but this is something that Samsung, Sony and many other Asian companies really struggle with.
  • With the exception of China, which is a law unto itself, there is no change to the current outlook where the big ecosystems of today look set to dominate the markets of tomorrow.