Juicero – Cautionary tale.

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A cautionary tale for budding entrepreneurs.

  • While Juicero is no Theranos, it has got itself into a life-threatening mess that I suspect has come about solely because it got its business model wrong.
  • Juicero is a Silicon Valley company that claims to offer the kind of juice purchased in a store but prepared freshly at home and is totally mess-free.
  • This works through a cold press that can deliver up to 4 tons of force to squeeze the liquid from pre-prepared pouches of fruits and vegetables that the company also sells.
  • The press can only make juice from the pouches which combined with an app and a database, is able to keep track of the produce the user has, when it will expire and send alerts and so on.
  • The juicer is priced at a pretty punchy $400 (reduced from an eyewatering $700) with each pouch selling for $5-$8 meaning that each glass of juice is going to cost somewhere in the region of $7-$8 depending on how long the machine lasts.
  • With each pouch delivering about 9oz of juice, this adds up to $0.83 per ounce which is broadly in line with the top-of-the-line juice companies in Silicon Valley (see here) which charge around $0.86 per oz.
  • I think that the business model is based around breaking even on the pouches and the service with most of the margin coming from the machine.
  • This explains why the company will only sell the pouches to owners of the machine as without it, the business model would collapse.
  • This is where the problems really begin because it turns out that it is possible to produce a perfectly good glass of juice using nothing but bare hands (see here).
  • A female reporter was able to extract 8.5oz of juice from one of the pouches faster than the machine could produce 9.0oz
  • NASA has measured that the human hands of the average male are capable of producing around 90Kg of force (see here).
  • This means that the other 3.5 tons of force that the machine can produce only increases production by 6% demonstrating that Juicero is massively over specified for the task for which it has been designed.
  • Furthermore, if there is a power cut or the Internet is down, no juice is produced whereas hands work all the time and can even offer juicing on the move with limitless battery life.
  • This is where I think the company has gotten its business model wrong.
  • I think it should have followed the tried and tested printer and cartridge model where the printer is sold at break even or a loss and the money is made on the cartridges.
  • I suspect Juicero could have designed the press to deliver 200Kg of force rather than 4 tons with no perceptible difference in performance other than a much cheaper price.
  • If the company had then sold the device for $50 rather than its starting price of $700, I doubt whether anyone would have even bothered to try and squeeze the pouches by hand.
  • This way the company could have hoped to have achieved much greater volume and in doing so it would have been able to get better prices from its suppliers and make good margins on the pouches.
  • The problem now is that everybody knows that the Juicero machine is surplus to requirements for everyone who can read an expiry date.
  • Hence, a change in strategy is urgently required.
  • Juicero offers convenience and in that regard it may have a future as a subscription service for very high quality juice that one prepares at home.
  • However, it will have to confess its shortcomings, ditch the expensive machine and reorient itself around the printer / cartridge model with something much cheaper.
  • On its current trajectory, it is likely to be squeezed out of existence.

 

Amazon vs. Google – Homefront pt. II.

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Amazon is pre-emptively moving to keep Google out.

  • Amazon is pulling out all of the stops to ensure that it is Alexa, rather than Google Assistant, that ends up becoming the nerve centre for controlling the smart home.
  • In its latest move, Amazon is offering credits for AWS that are likely to ensure that connecting one’s smart home device to Alexa remains free in almost every circumstance.
  • As the scope of Alexa improves and users can do more with Alexa, it is likely that creators of smart home devices will require more space on AWS that will require them to start paying Amazon.
  • Most device developers are small start-ups with very limited funds meaning that this will be a big incentive to do more with Alexa.
  • At the moment, the free tier gives developers 1m AWS Lamda requests and 750 hours of EC2 compute time per month.
  • Beyond that, developers end up incurring a monthly charge which is something that Amazon is wisely keen to avoid.
  • With this new program, Amazon is offering a one-time credit of $100 as well as $100 per month towards any charges that they incur as a result of usage of their devices.
  • This is likely to ensure that almost all developers of smart home devices will not have to pay anything to Amazon until they are generating so much usage that they are making plenty of money themselves.
  • I think that this is a very shrewd move as it encourages more developers to sign up to make their devices work with Alexa and also encourages them to make the skills deeper and more intuitive.
  • Currently, most skills are very basic and as a result they suffer from usability problems which in most cases makes it easier to turn the device on manually rather than using Alexa.
  • This looks like a pre-emptive move to keep Google at bay as I see Google making rapid moves to improve its Google Home developer program after being all but wiped out at CES 2017.
  • Even though Amazon has close to 10m devices installed in the houses of users compared to Google at 0.5m – 1m, the Google Home experience is so superior to Alexa that I still see a risk of Amazon losing this race (see here).
  • This is why I see Amazon doing everything that it can to show developers love and support which is something that to date, Google has badly neglected.
  • The result is that very few of the smart home device developers are making sure that their devices works with Google Home giving many users more reason go with Amazon’s Echo devices rather than Google.
  • Amazon is also very fortunate that the market’s view of Alexa is so positive as a side by side test of the Amazon Echo against Google Home shows how inferior Amazon is compared to Google.
  • This is why it is still Google’s battle to lose but Amazon is clearly doing everything that it can to ensure that it is Alexa rather than Google that dominates the potentially extremely lucrative market for intelligent home automation.
  • From an investment perspective, neither of these two companies are desperately appealing leaving me preferring Baidu, Microsoft and Tencent with Apple for long-term income based investors.

 

Smart Home – Back to front.

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Apple is losing badly despite offering the best user experience.

  • Apple has redesigned its HomeKit website (see here) in order to generate interest around its smart home offering but despite having the best experience, it remains a very distant third in developed markets.
  • HomeKit enables smart home devices to be controlled with Siri as well as the Apple’s own Home app that appeared with iOS10.
  • I think that Apple has three main problems with its offering for smart home:
    • First: Hardware. device makers need to install a piece of Apple hardware to enable them to work with HomeKit.
    • This adds a level of complexity and cost for device makers who in many instances are small companies with only a few employees and very limited resources.
    • Consequently, most have ignored HomeKit completely and simply written their own app for iOS devices that talks to the device directly over WiFi or Bluetooth.
    • Second: Data. Just like Digital Life services, HomeKit brings together multiple devices and enables them to work together.
    • The device makers get access to the data that their devices generate, but it is only Apple that gets to see the whole picture.
    • RFM research has found on multiple occasions that understanding the bigger picture is far more useful and offers a much greater monetisation opportunity than looking at data sets individually.
    • I think that this is why device makers who understand this concept generally decline to make their devices work with HomeKit or HealthKit.
    • Third: Device. Apple has no device within which Siri can reside within the home.
    • Usage of both Alexa and Google Home show that over 60% of all usage is generated when the user’s hands are busy with another task.
    • This makes the use case of Siri on a device that needs to be removed from the pocket not as easy or as intuitive as Alexa or Google Home.
    • Furthermore, both Alexa and Google Home can hear the user from a distance which also improves the use case within the home.
    • Hence I think it quite likely that Apple will launch a home speaker device of its own or enable third parties to embed Siri in their products.
  • The irony of the current situation is that Apple has by far the best smart home user experience.
  • This is because Apple has understood the importance of integrating these devices together into single commands and use cases like going to bed, leaving the house or arriving home.
  • This makes it easy to turn off all the lights, lock up, turn down the heating and so on with a single button press which is something that neither of the other two have come close to offering.
  • Furthermore, I suspect that HomeKit will end up being far more secure than the other two but at this point in time, no one seems to care.
  • Amazon has both first mover advantage and has done the best job of showing developers love and support.
  • The net result is that there now over 10,000 skills available for Alexa which continues to grow rapidly despite the awful user experience offered by most of these skills.
  • Consequently, I still think that this is Google’s race to lose as its product is by far the best, and its decimation by Amazon at CES seems to have shocked it into getting its developer activities up to scratch.
  • Of the three, I would continue to prefer Apple but overall I still like Baidu, Microsoft and Tencent.