Google Enterprise – No G man.

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G Suite and Chromebook upgrades are too little too late.

  • Functionality upgrades to the mobile version of G Suite (Office-like apps) and enhancements the Chromebook proposition are not likely to alter the downward trajectory that I see for Google in the enterprise.
  • Google has announced upgrades to the iOS and Android versions of Docs and Sheets that include more advanced editing and formatting.
  • It has also moved forward with its intention to enable Android apps on Chromebooks by stating that all Chromebooks launched in 2017 will be able to run Android apps (although not all of them will be able to do so right away).
  • In theory both of these moves could help to enhance the appeal of using Google for Digital Work as well as Digital Life but I see a number of problems.
    • First: Ever since Microsoft released free Office 365 apps for iOS and Android, I feel that Google has been losing the Digital Work game.
    • I think that this is because Office 365 with basic editing being free on iOS and Android obviates the reason to use G Suite at all.
    • I think that the same goes for the other Office alternatives such as Libra Office and so on.
    • Office is by far the leader when it comes to functionality and compatibility and now that it is free in simple user cases, it makes very little sense to use anything else.
    • Second: I do not think that adding Android apps to Chromebooks will do very much to enhance their appeal.
    • This is because the vast majority of Android apps are designed to be used with a device that uses touch as its input mechanism rather than a keyboard and mouse.
    • It is also worth noting that enabling Android apps on Chromebooks will have the side effect of bringing Office 365 onto the platform.
    • Consequently, I think that the user experience of Android apps on Chromebooks will be substandard, pushing users back to their smartphones and tablets to use them.
    • Furthermore, I think that the keyboard and mouse input system is increasingly the domain of the content creator with content consumers overwhelmingly finding touch based devices cheaper and easier to fulfil their requirements.
  • Consequently, I do not see either of these actions improving the appeal of Chromebooks nor increasing the use of Google Docs by content creator users.
  • I see content creators preferring Windows or Mac OSX with a keyboard and mouse and content consumers sticking to iOS and Android on a touch based device.
  • I think that the combination of Office 365’s superior functionality and the free basic functions have obviated the reason to use anything else which will lead to a long-term decline in G Suite.
  • One area where Google has a chance with the enterprise is in the cloud, but there it is already very far behind both Amazon and Microsoft and will also have to contend with Alibaba’s clear intention to take AliCloud international.
  • The net result is that I continue to see almost all of Google’s growth remaining in consumer where mobile and YouTube are still growing very nicely.
  • Finally, I think that this growth is already fully priced into the shares leaving me still preferring Microsoft, Baidu or Tencent over Alphabet.

Samsung – Good mileage.

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Samsung’s cycle still has some distance to run. 

  • Although Samsung appears to have recovered its mojo, I think that it is merely enjoying a product cycle which at some point will come to an end.
  • This mojo was underscored by a successful launch event for the Galaxy Note 7 that went hand in hand with an improved Gear VR and a sales promotion that should help consumers to swallow the blistering $850 price tag.
  • The most notable upgrade was the inclusion of an iris scanner that makes unlocking the device very simple and fun.
  • This successful event comes on the back of two excellent quarters where margins in handsets have rallied to 16.3% in Q2 16A from 10.9% in Q2 15A and a 20% rally in the share price so far this year.
  • However, the big question is where does it go from here.
  • The good news is that I think that current cycle has some distance to run but the bad news is that all cycles come to an end.
  • I am convinced that there is nothing special (other than its price) about the Galaxy s7 that has made it a success.
  • Instead a confluence of events and good management by Samsung have meant that the Galaxy s7 is doing far better than Samsung could have hoped.
  • I do not think that iPhone users are switching to Android.
  • Instead those who currently own an S4 or an S5 are taking advantage of attractive pricing on a great product to replace their devices sooner than they normally would have done.
  • This results in a classic product cycle where sales rally for a period of 6-12 months while users upgrade and then return to baseline.
  • This is exactly happened to Apple with the iPhone 6 and is now happening to Samsung with the s7, albeit to a lesser degree.
  • This cycle has led to Samsung shipping large numbers of the s7 which has also had the effect of consolidating unit volumes into fewer numbers of models.
  • This always leads to better margins because components can be acquired in greater volumes and development only has to be done once.
  • Samsung has also been very efficient at cutting its cost base and is being far more cautious with costs than when Galaxy ruled the Android world.
  • Hence, I think that Samsung’s handset margins will stay strong for the balance of 2016 and then return to 9-11% which is I think is sustainable long term.
  • However, analysts like straight lines and I suspect that many will now be forecasting that 16% is the new normal for Samsung.
  • As a result, I suspect that by the end of this year 2017 estimates will be much too high.
  • Consequently, I see disappointment in Q2 17 next year but until then, I think Samsung’s rally can continue.
  • Even including a 20% discount for inferior corporate governance, I can still comfortably value Samsung at KTW1.9m some 23% higher than the shares are today.
  • Hence Samsung remains with Baidu and Microsoft in my top 3 for 2016.

Research Update – Mobile Ecosystems – Money Talks – Update

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16 03 Mobile Ecosystems







February 21st 2016:  Radio Free Mobile updates its ecosystem monetisation model with a new slide deck.

RFM research subscribers will receive their copy directly by email. 

Thanks to price erosion, the value of the smartphone and tablet markets are likely to decline this year. This will place even more emphasis on monetising ecosystems through advertising and subscription as revenue growth using these methods is based on subscriber numbers which are still growing nicely. This means that the fundamentals of Google, Facebook, Yahoo, Twitter, Amazon and increasingly Microsoft, will perform better than those of Apple, HTC, Samsung, LG and so on. However to access that growth, execution in growing the scope of the ecosystem has to be first class and here there are huge differences between the different players.

  • Money Talks. Rapid growth in the past has been driven by ecosystems monetising their assets more and more efficiently. Once the existing assets are fully monetised, growth returns to baseline unless either coverage of the Digital Life Pie is expanded or more users are added. This is difficult to achieve and many ecosystems are likely to see growth fall before their new strategies are in place drive the next leg up. Twitter is a great example of this problem.
  • Google’s long-term ability to control Android looks increasingly doubtful. This is because Google Play is no longer heads and shoulders better than anything else at emulating what the Apple App Store has to offer. To counter this, and to fix the chronic fragmentation within its ecosystem, RFM thinks that Google will take complete control of Android and turn it into a vertically integrated proprietary OS like iOS or Windows 10.
  • Facebook has almost completely monetised the opportunity open to it with its current assets. This is why RFM sees Facebook engaged on expanding its coverage to include gaming, media consumption and search. With these in place Facebook has a chance to become by far the largest ecosystem with a revenue line to match. This will take some time to come to fruition and there is scope for a slowdown before this kicks in. Facebook is now Google’s biggest threat.
  • Twitter has no respite in sight. It is attempting to develop a live video offering in order to expand into the media consumption segment. Unfortunately, Facebook and Google are already there with their own offerings. Twitter continues to lack a bold strategy to return the company to growth which RFM thinks is exacerbated by having a part time CEO.
  • Yahoo has given a knee jerk response to its problems by cutting staff and assets. Yahoo Games and (RFM assumes) Maps are to be closed bringing Yahoo’s coverage down to 41%. Even with 41% coverage of Digital Life, Yahoo’s underperformance of its potential is startling with 88% of the opportunity being missed every quarter.
  • Apple and Microsoft serve as the do and do not of monetisation via hardware. Apple generates 5-10x the amount of “ecosystem revenue” via hardware than it could if it used advertising. By contrast Microsoft generates no “ecosystem revenue” raising questions about the viability of its consumer ecosystem.