The Network Garden - Mark Sigal's Blog

Apple Q3, 2014 Earnings Call: It's About Continuity and Gratification

"Friends say he has a gift for delaying gratification."

Facebook CEO Mark Zuckerberg once attributed a chunk of his success to delaying gratification. Where he could have monetized Facebook sooner - at the cost of building a bigger audience - he resisted the temptation.

Where he could have sold the company, and cashed out, he kept pursuing the "BHAG" (big, hairy audacious goal) of building the next Google, Apple or Microsoft.

Such was the narrative playing in my head, listening to the Apple's Third Quarter Earnings Call.

While others may see a company that can't possibly keep selling more devices, quarter after quarter after quarter, I see a company that has continually avoided the gratification of going for market share and sales at all costs (i.e., at the price of margins, profits and cashflow).

This is no small task when one considers that investors, the media and virtually every pundit in the blogosphere is not so adept at delaying gratification.

Give them a beautiful suit, and they'll see only a loose thread. 

Failure to seize a market - margins be damned - and the company gets dinged.

Unwillingness to be all things to all people - Amazon, Google and Facebook all rolled into one - and the company gets dinged.

Apple CEO Tim Cook is simultaneously unwilling to be his own man, and guilty of doing things that Steve would never do ("This would have never happened if Steve Jobs was still around).

But Apple in the iOS Era has always been about playing the long game. How else do you create a massive ecosystem of 800M devices that fit the lifestyle, daily flows and physical spaces of people at home, work, school and on the go? 

How else to catalyze an explosion of Apps, Accessories and Services, that are not only immense in scale, not only deliver a superior user experience, not only drive unparalled loyalty, but unfathomable sales margins.

How many multi-billion dollar lines of business can one company create before they inevitably, unquestionably go out of business?

But, there must be an end-game, right?

Ultimately, all of this delaying of gratification, of withholding the child-like joy of chasing every market, usurping every partner, and competing with any and all who enter its universe - read: Amazon, Google, Facebook - has to come at a price, right?

Isn't it written in the Torah somewhere that Apple ALWAYS loses because they fail to be a commodity, as God, Jesus and Mohammed demand?

Well, the end is near, and it's called Continuity.

Continuity is the idea that from Mac to Mobile to Tablet to Home to Health to Car to the Enterprise, there is a unity of experience, that is contiguous; it flows. 

Driving in your car? CarPlay kicks in. Walk into your living room, and HomeKit kicks in. Going for a jog, or visiting the doctor, and HealthKit kicks in. Walk into a Costco, and WalletKit kicks in (or whatever eWallet strategy Apple will set loose soon).

My point is this. UIltimately, the payoff of Post PC is that the devices get embedded to the point of invisibility...wait for it...because they just WORK. All the time.

Some believe that that renders the device moot, so Apple must lose.

I hold to the belief that the devices must be terrific, and the edge must be smart, specifically so we don't have to blindly trust a cloud to watch over us; to surveil us; and separate us from our data when things go haywire.

That's not to say that the Cloud doesn't matter, or that there aren't multitudes of problems that can't be solved when you intelligently bridge smart devices with a smarter cloud.

That's the big idea behind Continuity after all. 

But, it's the not so subtle distinction between the notion - captured in every Apple Ad and Apple Store experience - that the INDIVIDUAL is at the center of the universe, that the consumer is the centerpiece; and an alternate vision that we are destined to all be PAWNS in some sentient, faceless borg that calculates, decides and dictates on our behalf.

It's no coincidence then that along with a runaway successful device business, that the App Store (and the iTunes Software and Services business line that underlies it), is the fastest growing segment of Apple's business, and the linchpin of a Continuity play that has been baking for seven years, since iOS was announced.

It's the notion that Ecosystems matter, that the Consumer, the Developer, the Accessory Partner, the Corporate Customer, the Book Publisher, the Car Maker and the Enterprise are all motivated by their own need to not only survive, but to individuate.

And that's a good thing.

Related

1. iPhone: The first 'personal' computer
2. Apple's segmentation strategy, and the folly of conventional wisdom
3. No good deed goes unpunished at the iPhone company

Two Thoughts on 'The Hardware Revolution Is Upon Us And Why It Matters'

Jon Callaghan of True Ventures has written an excellent article where he argues that a new hardware revolution is upon us, and that it is destined to be a game-changer. It's a great piece, and well worth a read. 

Here is an excerpt:

Almost exactly six years ago, Apple launched the first iPhone. It was a small device that many dismissed as a toy. In reality Steve put a supercomputer in our pocket — we just didn’t know it. And like super computers before, it came with immense capabilities and brought about an opportunity to rethink, reimagine and reinvent how we live, work, create and consume. Today, smartphones (and tablet devices) sell by the hundreds of millions.

Cheap processors, cheaper memory, and even cheaper sensors means it’s a great time for people who like to tinker with hardware to tinker. Platforms like Kickstarter and Quirky de-risk production, identify features and customers, and do so before the first tool is made. Wireless broadband is ubiquitous, and military grade technology is available at RadioShack. The manufacture and design of products and devices has changed forever. Building factories is no longer a prerequisite for building products. Add to the mix emergent technologies such as 3D printing and inexpensive laser cutters that put prototyping capabilities onto a kitchen table, and we suddenly are facing an extraordinary revolution in hardware-based innovation.

I wholeheartedly agree with his assertions, but I do want to put a bow around one of Jon's most salient points; namely, that building hardware is hard. Make that HARD with capital letters.

Specifically, there are two key 'gotchas' about the hardware business that most aspiring entrepreneurs get blindsided by.

Before I get into them, let me establish my "hardware chops." In my career, I have:

• Hand-built my own hardware systems (CafeNet: Internet access terminals)
• Worked in the network hardware business (Tribe Communications: Internet infrastructure)
• Invested in hardware startups (Whistle Communications: Internet appliances)
• Advised hardware startups (Square Connect: Universal remote control gateways)
• Founded a hardware device management software company (Rapid Logic: unified device management tools)
• Built a cross-platform system for creating native mobile apps (Unicorn Labs) 

In other words, my take is based upon a 360-degree perspective on the hardware business, and it's lifecycle from a make, bake and take to market perspective. 

So why hardware is so...HARD?

One is the simple truth that hardware guys speak a different language and come from a different planet than software guys, and vice versa.

This generally translates into each party trying to abstract out the other, which often leads to lowest common denominator solutions, or worse, products where the target user credulously wonders, "Were these things designed to work TOGETHER, or just to irritate the user?"

The next wave implies developers having a sense of there being one composite whole (hardware, software, service, tools, manageability), and the team, culture and ecosystem being oriented accordingly. One can see this dynamic at work in Apple's iOS vs. Google's Android.

Two is that specifically because you are dealing with physical devices (as opposed to the wholly digital 1s and 0s of software), the question of channels for discovery, selling, distribution and support are inordinately more complex, with many more points of failure, than with software alone.

This underscores an indelible truth about indirect channels (like retail, amazon, etc.) that many fail to grok; namely, that the channel can NOT solve your selling and support challenges until YOU figure them out first. It's like trying to tell the blind how to see when you can't see yourself.

Food for thought.

Related:

1. Three Takeaways from the WWDC Keynote: How Apple Got its Groove Back
2. Six Takeaways from the Google IO Keynote
3. Ruminations on The Mobile Native Cloud: An Extensible Computing Model for Post - PC
4. Innovation, Inevitability and Why R&D is So Hard

 

Meta-Thesis: How Google vs. Apple is like a great NBA playoff battle (GigaOM)

"Talent wins games, but teamwork and intelligence wins championships." - Michael Jordan

Watching Google announce Chromecast (their assault on Apple TV), Nexus 7, gen 2 (their assault on iPad) and Android 4.3 (their assault on iOS) literally the day after Apple announced their quarterly earnings, I was left with a sense of wonder.

What is the right metaphor for understanding the game that Google and Apple are playing to emerge as the kings of the Post PC era? Is it the “Shock and Awe” of war? Is it “Microsoft vs. Apple”? Is it “The Moat”? Is it “Vertical Integration”?

Sure, it’s all of these things, but after ruminating on this a bit, I have a meta-thesis on the game that Google and Apple are playing.

It's professional sports, specifically the NBA Playoffs. 

In the NBA Playoffs, each team has a style that they want to play, that leverages their unfair advantages, and exploits the competition's weaknesses, and there are a multitude of 'games within the game,' and adjustments over the course of the series.

So much of winning vs. losing is enforcing your desired style of play on the competition, thereby forcing them to forsake their competitive advantage.

We can argue whether "Open" is better than "Integrated Experience," or whether "Subsidized Pricing" (via Ads or Adjunct Business Models) is Preferred to "Direct Pricing" (i.e., Pricing is a Direct Reflection of the Product).

But, what is absolutely fascinating to watch is one team (Google) trying to **force** the other team (Apple) to abandon or water down their strategy, so as to play Google's game. 

Read the rest of the piece HERE.

Related:

1. Five reasons iPhone vs Android isn't Mac vs Windows
2. Apple vs. Google: Lessons from Bill Gates’ playbook
3. You say you want a revolution? It's called post-PC computing

Ruminations on The Mobile Native Cloud: An Extensible Computing Model for Post - PC

 

The Mobile Native Cloud (via slideshare)

Each wave of computing changes not only how applications are MADE, and the economics behind them, but our very concept of what the medium can BE. 

Consider the Post - PC computing era. It is defined by the rise of 10B mobile devices, which are converging in a globally connected cloud that is social, service oriented and massively scalable.

It's every bit the sea change for computing that the Web was to the PC, and the PC was to the Mainframe and Minicomputer that came before it.

Simply put, Post - PC computing opens the door to new forms of native experiences that are dynamic, data-driven and media rich. 

This presentation above looks at the ramifications of this wave, including key industry trends and a real-world case study of a series of applications built upon this model.

I'd love your thoughts on whether you agree with the assertions in the presentation, if there are specific use cases particularly resonant for you, any 'gotchas' that you see, or areas where clarification is needed.

UPDATE: Paul Adams has written an excellent article called 'Why cards are the future of the web' that is highly complimentary to the concepts espoused in my SlideShare, and worth a read. The always-excellent Benedict Evans has also written on the topic.

Related:

1. You say you want a revolution? It's called post-PC computing
2. The Middleband Project: Re-Thinking Mobile Native Content
3. 3 Takeaways from the WWDC Keynote: How Apple Got its Groove Back
4. 6 Takeaways from the Google IO Keynote

3 Takeaways from the WWDC Keynote: How Apple Got its Groove Back

“If you guys were the inventors of Facebook, you'd have invented Facebook.” – Mark Zuckerberg, The Social Network

Early in Apple’s WWDC Keynote, it began. Proving that fanboi-ism is not a uniquely Apple dynamic, the Android acolytes erupted on Twitter:

“Watched a little #WWDC on a break. Excited for iOS users to have some of the things we've had on Android for years,” chimed in one. “iOS 7 looks like Jelly Bean,” snarked another. “Feel like iOS 7 has taken many many design queues from what Google's apps have been doing over the past year," griped yet another.

Because we seem incapable of parsing nuance; and because paradoxical truths are apparently more blinding to the human eye than the sun itself, the Post-PC wars have always been presented as a zero-sum, winner-take-all narrative.

I mean, come on, remember Windows versus Mac?

It ALWAYS ends with one dominant winner, and a bunch of losers.

That is, unless of course, you have paid attention to the web, where Google’s stranglehold on search and ads has not bothered Amazon one bit; where Facebook remains uniquely different from Apple, Amazon and Google; where Twitter and LinkedIn just seem to be hitting stride.

Meanwhile, in smartphones and tablets, is Google’s Android really killing anyone, other than its own hardware partners?

And who's winning in the Android camp anyway, save for Samsung and ‘forkers,’ like Amazon?

Having now sat through both the Google IO and Apple WWDC Keynotes in the past few weeks, I am left with a sense. While we can argue about what winning **looks** like, in the battle for Post-PC dominance, the two bellwethers – Apple and Google – are rightfully judged as much by what they have in common as by where they diverge.

With that in mind, these three items stood out for me in today’s keynote:

1. Composition and Unity: Apple’s strength has always been about the power of making a choice, and how that instructs a myriad of other decisions, from design and workflow, to delight, and critically, what you don’t do. Heretofore there was a sense that within the body Apple, was a company fighting a low-simmering battle between its various selves across hardware, software and service layers. With Jony Ive taking charge of all design following the unceremonious putsch of Scott Forstall, that feels like its changed for the better. Beyond the not-so-subtle digs at Forstall's skeumorphic design sensibilities, the unveiling of iOS 7 is reflective of a company operating with a sense of their being one composite whole, trending towards system-wide symmetry and lightness. Sure, the obvious takeaways are on the flatness of the icons and how much simpler much of the user interface appears. But, design is less about how something looks, and far more about what it does. I expect that in the days and weeks ahead, the consensus will be that iOS 7 powered devices remain the most beloved, most deeply engaging and most perpetually used devices out there. In other words, while Android can legitimately tout market share numbers, Apple will continue to be able to tout their share of heart, mind, pocketbook and profits. The videos that Apple created around their vision of the experience of a product, how it makes users feel; the delight it inures; and why that instructs the company to embrace very few ideas, is great brand advertising. I hope to see the company attack this idea just as fervently as Google wraps itself in geekiness, choice and fearlessness -- both companies SHOULD play to their core strengths.
2. Lies, Damned Lies and Statistics: Google boldly, and ridiculously, once proclaimed that open always wins, sidestepping the gray truth that even within Google, sometimes closed is the rule of the land. They railed against forcing users to choose, born of a fervent sense that breadth and diversity is better. That is, until it came time to anoint the Nexus device class; or create Glass, for that matter. Similarly, Apple has mocked and litigated against the Android ‘imitators,’ but there is legitimate truth that in iOS 7, Android’s influences can be seen far and wide. I reference this point to underscore the fact that both Apple and Google are winning in their own way, but not in completely different ways. Google can credibly tout the importance of 900 million Android devices, but how much better is that than the 600 million iOS devices, especially knowing that the iOS base is qualitatively and quantitatively ranked number one in areas like raw usage, web usage, mobile-based commerce, loyalty and overall satisfaction? Similarly, what is the power of a platform when only 33% of the devices are using the latest version (in the case of Android Jelly Bean) vs. 93% for Apple (in the case of iOS 6)? As a developer, I can tell you that dealing with a bunch of form-factors fragmented across a number of OS variants is the proverbial death by a thousand cuts. And don’t even get me started on the goodness of knowing that the vast majority of Apple’s 575 million iTunes account holders are backed by a credit card and one-click purchasing. In the case of Android?  Not so much. It’s one reason that Apple has paid $10 billion to developers -- $5 billion in the past year alone – a full 3X the amount of all of the other platforms combined. Then again, Google is not only betting on Android. They have a dominant play on the web, and an equally strong footing on iOS. 
3. Embrace, Integrate and Improve: The best line of the keynote was when Phil Schiller, in announcing the new Mac Pro quipped, “Can’t innovate anymore, my ass.” Indeed, Apple showed real innovative fervor in the new Mac OSX Mavericks, which was bolstered by both a new Mac Book Pro (super cool - targeted at designer and developers) and a revamped MacBook Air. But, of course, the main entree was a complete re-design of iOS -- the largest re-think of iOS since iPhone. In so many ways, big and small, iOS changes the way that an iOS device works and the way it looks, while managing the balancing act of not breaking familiarity for users. I was struck repeatedly with a sense of coherence and consistency of structure and flow. One simple example is the new Maps app in Mac OS X where in a click, you can push a map to your iOS device. This is a very holistic way of thinking about synchronized flows from desktop to mobile. Similarly, Apple’s new iTunes Radio service, is positioned first and foremost as a music discovery tool. Towards that end, it generates 'breadcrumbs' to full histories and song buying. It factors logical tie-ins with iTunes Match (the service is ad-free for iTunes Match customers; ad-supported for everyone else; and yes, Pandora just crapped themselves). An initiative called iOS in the Car extends the goodness of hands free integration of phone and music to messaging and directions. In the process, it usurps one of the primary use cases for Google’s Glass. A complete rethink of the camera embraces the goodness of Instagram while autonomously adding intelligent contexts. Plus, the ability to shift in natural touch flow from video to standard camera, square shot and pan view screams delight. Think of this as the "more than the sum of the parts" release.

Conclusion: This was the first post-Steve Jobs Apple event that felt unapologetically like the new, new Apple. One can imagine that somewhere out there, Steve is smiling proudly, knowing in his heart of hearts that his baby just got its groove back.

UPDATE 1: Daring Fireball's John Gruber has some excellent thoughts on iOS 7. Well worth a read.

UPDATE 2: Craig Hockenberry (Twitterrific) has written a perspective piece that is terrific, no pun intended.

Related:

1. 6 Takeaways from the Google IO Keynote
2. You say you want a revolution? It's called post-PC computing
3. Apple's segmentation strategy, and the folly of conventional wisdom
4. Google Glass will soon be invisible – and the new normal

 

Google Glass will soon be invisible – and the new normal (New Post @GigaOM)

“There are three sides to every story: Your side, my side, and the truth. And no one is lying.” 
– Robert Evans (“The Kid Stays in the Picture”)

I recently met up with my friend and one-time business partner, Steve Lee, who is product director on the Google Glass project, and before that, ran product management on Google Maps for Mobile.

Other than a quick tour of the device, Steve basically let me dive in, so as to experience Glass with a beginner’s mind. I won’t bother reviewing the basic capabilities and specs, which have been covered exhaustively already.

Instead I want to focus on some of the points that are in debate, and whether I believe that Glass is destined to succeed.

Glass is translucent; designed to be invisible

In “Waves of Power,” David Moschella shows how new disruptive industries begin as verticals, since the complete product solution requires one provider to deliver the whole enchilada.

The new industry continues on this path until the solutions finally reach the “good enough” stage, when the larger trend becomes horizontal orientation, so as to achieve ubiquity, commoditization and the broadest possible ecosystem. (In passing, one can see the battle between Apple’s iOS and Google’s Android in this light.) The endgame, so to speak, is that the technology becomes persistent, embedded and ever-present to the point of being “invisible.”

It’s a paradoxical concept to be sure. On the one hand, the technology is everywhere; how can it be invisible? On the other, it’s because it’s everywhere that we no longer think about it as exceptional – and, equally, grand solutions can anticipate and incorporate its ever-presence.

Read the full post HERE.

UPDATE: This piece has obviously struck a chord with the rank and file at GigaOM, based upon the storm of comments. Check it out.

UPDATE 2: Google just announced a bunch of third-party apps coming to the platform, including Facebook, Twitter, Tumblr, CNN, Elle and Evernote. 

Related:

1. You say you want a revolution? It's called post-PC computing
2. Apple's segmentation strategy, and the folly of conventional wisdom
3. Horizontal, Vertical and the Google Path to Riches

 

Reading the Tea Leaves of Apple's Q2, 2013 Earnings Call -- Four Takeaways

"It's not real, you know, the fame thing."- Anna Scott (Notting Hill)

The hardest thing for the beleaguered Apple investor to wrap their head around is the fact that Apple exists on a schizophrenic plane like no other.

On the one hand, there is 'THE STOCK' -- i.e., the broken stock price.

It rests in the same Bargain Bin as Dell Computer, a company selling undifferentiated offerings in a commoditized segment that quite literally shrinks by the day.

On the other, there is 'THE REAL COMPANY,' an innovating, selling, marketing, leverage and cash-generating machine that has now dropped almost $100 billion dollars in revenues and $22 billion dollars of profits in just the first two quarters of Apple's fiscal year.

That this engine has fattened the company's coffers to the tune of $145 billion dollars (another $12.5 billion added this quarter) does not satisfy.

That this harvest comes from six different multi-billion dollar product lines (iPhone, iPad, Mac, iPad, iTunes & Services, Accessories) manages little more than an acknowledging shrug.

That the company has repeatedly proven its ability to create massive new markets in a quasi-predictable, highly-levered fashion (now known simply as the iOS platform), yields but a yawn.

"Where's my divvy," bitch the disappointed investors, seemingly ignorant to the fact that not only have spirtual peers, Google and Amazon, never offered up a dividend, but they've never even let the topic so much as brush the top of the table. 

"Apple has an identity crisis," utter the dumbest of the dumb media, blind to the power of Apple's unique position in the market as an integrated hardware, software, services, media, tools and marketplace solution provider.

Ever clear on their North Star - i.e., delivering great consumer experiences that change people's lives - Apple has neither changed their identity, nor lost their focus, as evidenced by the best customer satisfaction and customer loyalty ratings, and consistently, the industry's highest profit margins.

Know this. If it was even remotely easy to approximate the 'Apple Way,' we'd be talking about the multiple multi-billion dollar product lines that Apple's competitors have created; we'd be talking about the breakout success of the Apple Retail Store copycats; and we'd be talking about the multitudes of developer success stories that have dropped out of the Google, RIM or Microsoft mobile ecosystems.

We aren't, and it's not (easy).

It's with this fundamental schism between THE REAL COMPANY and The STOCK that I attempted to make sense of the takeaways from Apple's earnings call.

There are four conclusions that stood out to me:

1. Tim Cook wants Apple to be Liked by Investors in a way that Steve Jobs never did: In the call, Cook had an almost apologetic tone with respect to how Apple has failed to beat the guidance, growth and margins expected by analysts and media. In increasing the dividend and upping buybacks, the tone was more akin to "we're trying harder" than "get on the bus or get left in the dust." By contrast, even when Apple's stock was cratering into the $80's following the crush of the 2008 financial crisis, Jobs embodied a healthy irritation for the capriciousness of investors, and the ignorance of many analysts and the media. The truth here is that no good deed goes unpunished, and far from appreciating Apple's olive branch to investors, the narrative is likely to be spun as Cook's Apple is trying to buy time, and is in defensive mode. Me personally, I wanted a bit more "F-U," and a bit less, "we're sorry."
2. Margins will Remain Contracted for the Foreseeable Future: If there are two product-related narratives that stood out for me, they are: 1) iPad mini unleashed an absolute torrent of first-time tablet device buyers (personally, it's their best tablet device), and if the sacrifice is lower margins (relative to the larger iPad), it's worth the trade-off. If the tablet is the replacement device for many a 'job' that users previously hired PCs for -- as I believe it is -- then any way that Apple can capture this market share is a zero-sum type of win that they must secure. Here, Cook and Apple CFO Peter Oppenheimer were quite clear that Apple executed a similar strategy in winning the media player market with iPod, so what's past is prologue; and 2) iPhone 4/4S is the smartphone device that Apple is counting on to capture market share outside of the US with first-time smartphone buyers. Unsurprisingly, these devices may be where the highest volume comes from on iPhone (especially, until the next iPhone comes out), eroding margins in the process. The alternative is to give that ground to Android based devices, a calculus between market share, revenue, user experience and the bottom line that the company has repeatedly shown the acumen to manage through. Honestly, I am not even remotely concerned that they will find the right balance here.
3. The New Product Pipeline will Likely Remain Dry until Fall at the earliest: Given the extreme secrecy by which the company launches new products, and manages expectations around same, Cook spoke with a metaphorical bull-horn in flatly stating that new product **categories** and new services are not expected until this Fall and throughout 2014. Needless to say, the absence of new products combined with the absence of seasonal catalysts, explains why Apple's outlook for Q3 was a flat quarter, and why the quarter behind that may not be much better.
4. iOS Usage Rates are Staggering in their Differential relative to Competing Platforms: If the downside of the current Apple story is absence of true catalysts to carry it aloft to new heights, the upside is that iOS stands alone in generating 75 cents of every dollar of ecosystem commerce in the mobile universe. Simply put, Apple is paying developers $1 billion dollars in revenue share every quarter, iTunes is on a $16 billion dollar run rate, and the actual usage of these devices in terms of web traffic is of a different degree than the competition. Keep that in mind next time Google touts generic Android unit count numbers. Again, that's not to say that there aren't clear scenarios where Apple gets attacked on the margins, but their core differentators, and the depth of engagement and loyalty with users is unlikely to be threatened any time soon. That's the bottom line.

So, netting it out, should you Buy, Sell, or Do Nothing? And what will Apple stock do in the intervening months ahead?

This, unfortunately is a riddle without a clear answer, a stark reminder of the famous quote that the market can stay irrational far longer than most investors can remain solvent.

Related Posts:

1. Cry Babies: The Strange, Confusing Path of the Apple 
2. Apple's North Star: Four Takeaways from Apple's Q4 Earnings Call
3. OMG, WTF is going on with Apple Stock
4. What is Apple Worth: The 'Gold Standard' Thesis
5. Get ready for the Apple + iPhone backlash

Why the mobile web vs. mobile apps debate is a false dichotomy (GigaOM)

The mobile web versus mobile native “grudge match” rages on, with over 300 comments to Super VC Fred Wilson’s post on whether now is the time to invest in mobile web apps (and services) over mobile native ones.

But the arguments presented in favor of the mobile web over mobile native represent a false dichotomy. Simply put, there is no universal truth in the mobile web vs. mobile native debate, and no “one right way,” despite what the pontificators would have you believe.

The argument in favor of mobile web goes like this: The web is open, ubiquitous, requires no special software, is globally searchable and algorithmically discoverable. As such, it is agile, extensible and readily manageable. Plus, there are lots of proven models for development, discovery, distribution and monetization. And, of course, mobile web development offers a higher degree of symmetry to PC browser-based web development than mobile native app development does.

The argument is favor of mobile native goes like this: There are over 400 million iOS devices and over 500 million Android devices, representing almost 1 billion devices worldwide. In the case of iOS, Apple has built a well-managed development, distribution and monetization platform that has yielded tremendous innovation and user engagement in areas ranging from photography to gaming, social networking, entertainment, education, music and other rich media.

On some level, the argument comes down to “good enough” and “universal” vs. the “richest possible experience” on the device type that is subsuming the PC.

Read the full article at GigaOM.

Related:

1. The iPhone, the Angry Bird and the Pink Elephant (O'Reilly)
2. The short 'half-life' of apps and the App Store 
3. OMG, WTF is going on with Apple Stock?

Amazon 'kindles' the competitive fire: “We’re the elephant in the room” (GigaOM)

“Here endeth the lesson.” —Jim Malone, “The Untouchables”

There is a great moment in the movie “The Untouchables,” when street-smart cop Jim Malone (played by Sean Connery) explains to federal agent Elliot Ness (played by Kevin Costner) the laws of the urban jungle that was 1920s Chicago, culminating his sermon by saying, “Here endeth the lesson.”

In his own way, Amazon CEO Jeff Bezos delivered a similar message today about the laws of the post-PC jungle when he unveiled the next generation of all things Kindle. In doing so, he accomplished two things.

One, he firmly anchored the precept that other than Apple, Amazon is the elephant in the room when it comes to tablet and media devices, aka the post-PC universe.

After all, there is no company out there (other than Apple) that can so seamlessly combine ecommerce, digital media, publishing, cloud computing and hardware know-how — and do so at wafer-thin margins.

Read the full post at GigaOM by clicking HERE.

Related:

1. Amazon's "Prime" challenger to the iPad (O'Reilly)
2. You say you want a revolution? It's called post-PC computing
3. Built-to-Thrive: The Standard Bearers: Apple, Google, Amazon
4. Existential Threats: Google v. Apple v. Amazon - who fares best?

Pink Elephants, Zombie Software and the App Store

Man, I hate when valid macro arguments (there **is** lots of zombie software in the App Store) are mucked up by clear bias and self-interest.

Writing in GigaOM, David Meyer, quotes a startup analytics founder's assertion that an estimated 400,000 out of 650,000 apps in the App Store are zombie software. Why so many zombies, pray tell?

“This is based on Apple’s closed system — it’s tough to discover those kinds of apps. You don’t have proper search, so the only way to discover new apps is through the top listing,” says Adeven CEO, Christian Henschel.

Really? This is based on Apple’s closed system? What data supports that conclusion? The greater success of apps in other more 'open' app stores?

I mean is there even a scintilla of data that suggests less zombies on Google Play or the Amazon Android app store?

Let's get real. More probably, app store economics are stilted towards few big hits, and the longer tail pool of utility & productivity perennials that get updated, cared and fed for, marketed beyond the app store, etc.

Think: Instapaper, GoodReader.

Everything else either has an orthogonal business model, venture funding, or both (e.g., Dropbox, Yelp, Path, Instagram).

Beyond that, it's debatable whether the preponderance of zombies is a BUG or a FEATURE of App Store economics.

After all, with 650K apps, 90%+ will ultimately fail, just as 90% of businesses in the real world fail, right?

The larger question, what I refer to as the pink elephant in the room in my O'Reilly Radar piece, 'The iPhone, the Angry Bird and the Pink Elephant,' is whether ANY form of app store economics support the kind of vibrant software industry that promulgated during the PC era, and even during the web era.

Let's talk about pink elephants, and not so much about personal biases, is my take.

Apple WWDC Keynote: On Capitulations, Steak, Sizzle and WOW!

 

“A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” – Wayne Gretzky

Here’s hoping that after today's WWDC Keynote, the Google troika of Page, Brin and Schmidt have finally capitulated (at least internally) AWAY from their 'loosely-coupled' mantra and TOWARDS the more craftsman-like goodness of Apple-style integration.

After all, while Android is absolutely ‘killing it’ in terms of 900K daily activations, at what point can we acknowledge that this is a pyrrhic victory, and that Android is a paper tiger?

I mean, who exactly is winning? Consumers? Uh, actually Android consumers tend to utilize the mobile web less than iOS users, and swear that they don’t need apps, which might have something to do with the fact that most Android devices are running the Windows 3.1 equivalent of Android.

Are developers winning? Hardly (see recent Flurry report). They have to support dozens of form-factors, not to mention, a wavy-gravy medley of Android OS variants, and all this for the prize of making less money on Android than on iOS. Is it any wonder that none of us can name a single game-changing app that originated on Android that wasn't specifically built by Google?

But surely, the hardware OEMs are loving it, cuz…Uh, the vibrant ecosystem where a thousand flowers bloom actually killed Motorola, then HTC, and left only Apple-impersonator, Samsung, standing. How is that a win?

Even for Google, I don’t believe that they still see this so blithely as a redux of Windows vs. Mac in terms of monetization, mindshare or momentum. Increasingly, they just look defensive, reactive...and conflicted.

Google, you are better than this. You are! And don’t start pulling out more empty numbers about Google Plus. No one cares. Aggregated is not integrated. Fragmented, me-too, and bolted together is not innovating. It just isn’t.

Okay, that point made, let me tell you why I believe that Apple’s WWDC Keynote today was stunning in its effectiveness, substance, shock and awe. 

The “We bring good things to life” Company

When I was a kid, GE built an enviable brand position around the core message that GE brings good things to life.

Well, is there any question that Apple is the post pc era torch-bearer of bringing good things to life?

I mean these guys have reinvented music, freed the mobile phone from the hegemony of carriers, brought innovation back to the PC, increasingly freed us from the PC, made design matter again, re-thought software, marketplaces and the cloud, embraced accessibility for the handicapped, brought an ethos to building products at scale in an environmental-friendly fashion, and shown a willingness to boldly lead in segment after segment.

A bit off topic, but isn’t the problem in America right now (and much of the world, for that matter) a lack of bold willingness, a lack of vision, an intellectual dishonesty about taking shortcuts and a tolerance for poor execution?

Ya know, we could do worse than emulating Apple.

Keynote Highlights: Steak, Sizzle and WOW!

Let’s get the Steak out of the way, as it provides context for the Sizzle and the WOW.

By steak, I mean those items that show that Apple knows what they are building, who their customer is and what their business is. Specifically:

• iOS Ecosystem: There are now 400M accounts in the app store (365M of which are iOS devices), all backed by credit cards, and a one-touch workflow for buying, installing and enjoying. No less, the model has proven to work grandly across both media (songs, movies, tv shows, books) and apps (30 billion downloads). Further, the platform has yielded 650K apps (225K for iPad), several of which are considered standard-bearers for the power of post-pc, in the process generating over $5B for developers. Oh, and it’s a global success, operating in 120 countries, with 32 more on the way.
• The Un-Fragmented Platform: iOS vs. Android is a study in wince-inducing contrasts. Consider this excerpt from the keynote: "Almost all of our users are running iOS 5. Now if you compare that to the competition, they released a dairy product, 4.0, about the same time as we released iOS 5. Yet, only about 7% of their users are running it." 
• The Integrated Platform: iCloud is currently on 125M devices, and with iCloud integration deeply within Macs when Mountain Lion ships next month that means a unified + synchronized flow across Macs, iPads, iPhones and iPod touches in the following services (to name a few): Mail, Browsing, Note Taking, Messages, Reminders, Notifications and even Documents. In restaurant terms, this is the distinction between delivering ingredients, and crafting recipes that are fully conceived with a tightly orchestrated ‘dining’ experience in mind. Even sharing has been thought through across both Macs and iOS devices, so you can take advantage of multiple services, including Twitter and Facebook, without having to jump between apps or through hoops to make these workflows happen.
• Cross-Pollination: To Apple’s credit, they have continually shown a willingness to leverage best practices from Macs and feed them into iOS devices, and more commonly, feed iOS innovations back into the Mac. Case in point, Tabs in Mobile Safari has fed a new Tabview in Safari for Mac. AirPlay Mirroring from iOS is now part of OSX, and Game Center  (used by over 130M users) is now part of OSX, opening up cool scenarios like Mac vs. iPad gameplay. Cross-pollination is something that I have blogged about extensively (See Holy Sh-t! Apple's Halo Effect: HERE).
• New MacBooks: The main takeaways here are that Apple pushed down the cost of MacBook Air about $100, and introduced a new MacBook Pro that brings their vaunted Retina display to notebook computers. Hence, unless you are specifically a Windows devotee; or have a business or application-specific reason for not going with a Mac, just know that you are sacrificing R&D, integration with your mobile/tablet devices and of course, well-trained human support for when questions pop up Apple has retail, after all). 

Netting it out: the above simply underscores the deft skill by which Apple navigates the PC legacy market (Mac sales will do even better now that they better fit under the iOS Halo), tightens its domination of post PC, and bottom line, delights customers (over 75% of iOS users called themselves very satisfied vs. <50% for Android).

Heck, they even added Chinese specific features in recognition of China's position as the largest ‘green field’ market opportunity on the planet, one where they are, unsurprisingly, already incredibly well-positioned.

Put another way, if I am an Apple shareholder, I am very bullish that the company has kept its eye not only on the ball, but the whole field of play.

So Hot, It Sizzles

Put me in the camp of those who have looked at Siri, Apple’s voice-activated assistant, as a great foundation that is still more gimmicky than game-changer.

Putting aside the fact that Siri is hard to demo in noisy Apple stores, the larger truth is that the system is imprecise; a solution to a problem that may or may not exist.

Recognizing this, Apple focused in iOS 6 on giving Siri more contextually specific tasks that generate richer outcomes for users.

The demo showcased things like Sports related questions, yielding baseball card style media units to questions like, “What was the score of the last Giants game?” Or, “What is Buster Posey's batting average?”

There were similar examples of movie reviews, restaurant recommendations and dinner reservations vis-à-vis partner integrations with Yelp, OpenTable and Rotten Tomatoes (you can ask about directors and their movies, for example).

Further, Apple is working with auto manufacturers to integrate Siri into new cars and trucks via a service they call Eyes Free. Inasmuch as Apple has already built a wedge into such vehicles with the music and phone side of iPhone, the efficacy of burrowing deeper into automobiles via Siri makes a lot of sense.

In fact, seeing how Apple is cultivating Siri, it is not too far of a leap to imagine them creating a paid search product where questions and answers are bid up by vendors that want to be part of the Siri directory.

In this regard, Siri just **feels** like a domain destined to make Google less relevant in the mobile universe. A sidebar is that such a bid placement model would be a retro return to the old model that dominated during the age of the portals and AOL. 

Mind you, this is in addition to Siri’s growing support for international languages, including Chinese, integration with Facebook, Twitter, voice-based launching of apps, notifications, and its new Map service (see below).

Speaking of Facebook, while some might see this as more steak than sizzle, I can tell you how wonderful having twitter integrated at the system level is in turning inspiration into tweets.

With Facebook, it has the potential to go deeper since this is really where my true social relationships live. Ironically, this linkage to may photos, music, apps, maps and notifications is the exact opposite of the walled garden experience that Apple naysayers wrongly ding the company for. Plus, all of this is baked into the Mac as well.

Two other iOS feature adds that stood out for me are:

1. Smart app banners, a feature in Mobile Safari that makes it easy for Safari users to jump into an app (or download it) directly from the mobile web, further blurring the line between mobile web and mobile native.
2. Shared Photo Streams:  This is a feature that evolves the current “one silo” approach with Photo Streams into multiple shareable Photo Streams, where a user can choose the photos they want to share and the friends they want to share it with. 

WOW! A Map and a Passbook

It was the worst kept secret that Apple was going to abandon Google Maps in lieu of a solution that they could fully control, but WOW, Apple’s forthcoming Maps look terrific.

It works with Siri, it features turn-by-turn navigation, incorporates over 100M business listings (via Yelp integration) and has a nice “info card” style listing interface.

Moreover, the system supports anonymous real-time incident reports, just-in-time re-routing options and even a flyover feature that is derived from rich 3D models of the major cities around the world. 

Now, I LOVE Google Maps so while this is a definite WOW, in truth, Maps is all about utility so the real story on this one won’t be clear until we see what we’ve lost for all of these bells and whistles.

In closing, I save my biggest WOW for a new feature that Apple presented called Passbook.

While Apple presented it as a consolidated place to organize things like gift cards, flight itineraries, movie tickets and the like, I believe that Passbook is the true beginning of Apple’s foray into being the defacto eWallet.

Think of it this way, Passbook will materialize just in time for the holiday season, a time when loads of (historically) boring gift cards are handed out.

Via Passbook, these cards and tickets become something cool, dynamic and even geo aware (Starbucks is nearby, you have $18.25 on your eCard).

Plus, these cards are alive, so if your gate changes at the airport, your boarding pass will be updated and you will be notified.

Given that type of service-aware handle, how far of a leap is it for vendors to be able to present cardholders a flash sale or other special offer based on time of day or locality?

My point is that Apple can segment their approach here to be to be anything from the organizer (think: iBooks, Newstand) to the facilitator (i.e., the platform building blocks) to the curator to the market maker.

And that’s the point, as Tim Cook flagged is closing his keynote.

"Only Apple could make such amazing hardware, software, and services…They are perfect examples of what Apple does best. Ultimately, it's why people come to work at Apple, and with Apple. To create products that empower people. To make a difference. The products we make, combined with the apps that you create, can fundamentally change the world."

Not only does Apple have the skill and the footing, but equally, they have the will; and that leaves them incredibly well positioned.

Related Posts:

1. Understanding Apple's Earnings: It’s about Value & Integration, and it’s Global
2. DIS-Integrated Systems: A Parable
3. It’s Time to ‘Think Different’ because Conventional Wisdom is Dead: Apple’s Q1 Earnings Call
4. Five reasons iPhone vs Android isn't Mac vs Windows

Understanding Apple's Earnings: It’s about Value & Integration, and it’s Global

We live in a world of extreme noise. So many stories, and so many competing narratives vie for our attention that what rises above the noise is perhaps the closest proxy to actual truth.

With that backdrop, and without restating ad nauseam the numbers behind another blowout Apple quarter, let me state the truth about Apple’s March Quarter Earnings as I see it:

1. It’s About Value: Every quarter, the prognosticators wait for the mythical other shoe to drop, be it the ‘inevitable,’ ‘unstoppable’ onslaught of Android, the depletion of fanbois, the resolve of carriers or the exhaustion of those who’ve yet to purchase an iPhone or iPad. But, on this topic, I would turn to the one quote that has swirled in my head continuously since I first heard it, and it’s from Ron Johnson, JC Penney’s new CEO, and Apple’s former head of Apple Retail, who says quite cogently that, “Customers will not pay literally a penny more than the true value of the product.” You can parse this any number of ways, but what it means to me is that when a consumer looks at an iPhone vs. an Android Phone, they see something real, that is supported, that is readily understandable and for which their investment will be rewarded. By contrast, with Android increasingly they grok that they are buying ‘Not Exactly.’ The efficacy of this truth is never more evident in the Tablet segment where, despite Android’s success in smartphones, and in spite of Apple’s clear proof that there is indeed a massive tablet market, Android Tablets are utterly stillborn. It’s about value, which simply can’t be smoke-screened. This truth is especially clear in the case of Carriers, who would no doubt love to reduce subsidies on iPhones (and other smartphones for that matter). But as Apple CEO Tim Cook sagely noted: A) The Subsidy is 'not that large' relative to the 24 months of revenue that the carrier is securing via subsidy; B) The Delta of the iPhone subsidy relative to other smartphones’ subsidy is not material; C) The Churn of iPhone buyers to other carriers is the lowest of any phone that the carriers sell; D) iPhone is the number one trigger for carriers upselling feature phone customers into smartphones – i.e., their largest untapped market; and E) Carriers want to sell what customers want to buy, and that’s iPhone. In other words for all of the puffery and noise about competition, commoditization, pricing pressure, etc., it’s fairly simple. Apple wins because its value is tangibly real, and for no other reason.
2. It’s About Integration: I blogged on this point yesterday, so read that post, but suffice it to say Apple’s success is best understood by looking at how an iPhone or iPad integrates beautifully designed hardware with iOS, iTunes, App Store, iCloud, Apple Retail and App Developers into one unified set of outcomes and experiences. Then, contrast that with how Android doesn’t (or even the sluggish rate of innovation on the slightly more integrated Amazon Kindle Fire). Integration vs. DIS-Integration. It’s the distinction between the restaurant where the food, service and dining experience is orchestrated into a synchronous whole vs. the Mongolian barbecue, where the whole never quite adds up to the sum of the individual parts. I'll leave the digestive visuals to you.
3. It’s Global: I think that the most YOWZA takeaway from the call was when Tim Cook talked about how Greater China has grown 3X year-over-year to $7.9 Billion on the most recent quarter (i.e., 20% of Apple’s total sales). Here Cook noted that there’s a massive, emerging middle class in China that (un) surprisingly aspires to the same products and experiences that consumers do in the US. For all of the easy quips about China being the land of knockoff imitation products, they want the same real products, and are willing to pay the real value for it. Apple has only brushed the tiny surface of this market, not just in China, and not just across the globe, but across industry segments (enterprise, education) and product categories as well (i.e., iOS is a scale-able platform for other types of devices, accessories and price points). In other words, the Apple 'halo' is global, and just getting started.

Mind you, that for all of the Apple accolades, the same company that grew earnings by 94%, that generated 77% of its revenue from iOS devices, which generated gross margins of 47.1% and which dropped another $14 billion into its coffers still trades at a mighty 20% discount to its gold-standard peers. Govern yourself accordingly.

Related Posts:

1. DIS-Integrated Systems: A parable for acolytes of Apple, Google and Amazon
2. It’s Time to ‘Think Different’ because Conventional Wisdom is Dead: Apple’s Q1 Earnings Call
3. What is Apple Worth? The Gold Standard Thesis
4. Is Google doubling-down on a losing hand with Android in Tablets?

 

Dis-Integrated Systems: A Parable

Once upon a time, there was a market segment called Embedded Systems, which was all about creating real-time operating systems for the 'headless,' often invisible, computers resident in networking equipment, industrial controls, set-top boxes, printers, automobiles, rocket ships and medical devices.

It was a fiercely competitive market with two aspiring market leaders, Integrated Systems (ISI), and Wind River (now part of Intel). 

For a time, ISI was the market leader, until Wind River started touting their more deeply integrated, solutions-oriented approach -- relative to ISI.

So focused was Wind River's positioning and messaging, that Wind River employees would pointedly and repeatedly call their competition ‘DIS-Integrated Systems,’ any time ISI's name came up in customer meetings, media events, analyst calls and industry tradeshows. Wind River even created 'DIS-Integrated Systems' t-shirts to belittle their competitor.

Long story, short, the message stuck, and from this point forward, Wind River began to whip ISI in the market.

Just a few years later, it was game-over for ISI when they were swallowed up by...wait for it...Wind River!

The moral of the story is that customers don't want to buy a bag of components (if they know better). They want real, integrated solutions where the piece parts work together in a mostly caveat free fashion.

Next time you wonder why Apple is winning, and why Google's Android, despire impressive unit counts, feels wobbly (platform fragmentation, no success in tablets, no real economic model, few developer success stories, Android OEM financial struggles), think about the story of DIS-Integrated Systems.

Related Posts:

1. Apple vs. Google: Lessons from Bill Gates' Playbook
2. Holy Shit! Apple's Halo Effect
3. Google Android: Inevitability, the Rise of Mobile, and the Missing Leg

 

Apple vs. Google: Lessons from Bill Gates’ playbook (GigaOM)

“There are three sides to every story: Your side, my side, and the truth.” —Robert Evans, 'The Kid Stays in the Picture'

I’ve been ruminating on how Apple and Google could have come up with such divergent takeaways from studying the incredible, terrifyingly dominant run of Microsoft under Bill Gates.

For those too young to remember, Microsoft had a run like no other. Through a combination of strategic brilliance, relentless focus and sheer determination, Microsoft leveraged its initial DOS beachhead into a PC industry-crushing market share and massive profits vis-a-vis Windows, Office, Internet Explorer and BackOffice, a position cemented by a unified foundation of developer tools and legions of dedicated Microsoft developers.

When Microsoft set its sights on a market, it would squeeze the life out of the market leader like an anconda wrapping itself around its prey. Before it was done, the company struck numerous segments, including personal computing (Apple and IBM), word processing (WordPerfect), spreadsheets (Lotus), databases (Borland and Sybase), networking (Novell) and Internet browsers (Netscape).

It’s not hyperbole to say that Apple’s phoenix-like rise and Google’s ascent are directly and positively correlated with Gates’ decision to step away from running his company as CEO in 2000

Read the full piece HERE.

Related:

1. Retail needs a 'reboot' (to survive)

Four thoughts on Google's Project Glass (Augmented Reality Glasses)

Google has officially taken the wraps off its Augmented Reality Glasses effort, dubbed 'Project Glass.'

If you haven't watched the concept video, you should, as it is well done, and provides a clear set of narratives that are both plausible and value-add to one's daily life. Nick Bilton of New York Times has an excellent write-up on it HERE.

When I think about a Google effort like this, four thoughts come to mind. One is kudos to Google for thinking outside of the box.

Even better, as opposed to (metaphorically speaking) assembling a bunch of disparate 'chicken parts,' and assuming that consumers can crystallize what the living, breathing chicken looks like, how it breathes and and how it manifests as a life form, they are actually SHOWING you. Good job!

I want these guys to succeed, and am in no small part motivated by a personal liking and professional respect for Steve Lee, one of the co-creators of the effort, and a good friend and former business partner.

Two, I can see lots of logical applications for this type of device that are non-obtrusive and value-add (SEE '3D Glasses:Virtual Reality, Meet the iPhone').

For example, imagine socially-powered or professionally curated walking tours? Wouldn't Yelp, Time Out, Foursquare or Fodors want to be all over that?

Heck, it even passes my 'Porn and Parody' litmus test.

What is that? Simply, if a new technology is easily and memorably mocked AND has logical use cases that the adult industry would be interested in, then it has a chance of succeeding in the market.

Well, in about two seconds of watching the video, I could come up with multiple NSFW-related applications. The porn industry, after all, is the cockroach of innovation. Every industry that has succeeded in tech (DVDs, Internet, Mobile, Cable TV) has seen the porn industry finds its niche within it. They are the consummate early adopters.

Similarly, watching the video, I was instantly imagining the parody video where we find out just how disturbed the A/R glass wearer is, as he calls upon deeply disturbing contexts that only he can see, or worse, hackers take over his overlay feed, and disrupt his day with snarky comments or offensive data.

Is a Project, a Product, or a Platform?

Three, though, is that with all things Google, I ask first if this is a Project, a Product, or a Platform (SEE: Lessons learned from Google Buzz). 

Projects are like concept cars. Cool, but the likelihood of yielding real products is unknown, and as a consumer, I am done caring until Google is committed.

After all, we have seen many such projects be launched, then abandoned by Google. Buzz, Wave and App Inventor are a few recent ones that come to mind.

(You can reach your own conclusions from the fact that they are calling this ''Project' Glass, although I am hopeful that this time is different).

Products, by contrast, take precision, execution, distribution channels, sales training, end-to-endness, and generally speaking, are outside the ken of what Google has done well to date.

That stated, I believe that this is exactly the category where Google should take the lead in committing to and delivering a best of breed product. They are the only ones that can cultivate it and sell it successfully, as it is a wholly new concept.

Platforms imply courting and cultivating software developers, and while this project is built on Android, what this means in terms of depth of focused support remains to be seen. As a developer, I would wait and see big-time how the uptick is with this as a product -- before committing to it as a platform.

In the real world, how does it work?

Four is the question of how all of this works in practice, in the real world, given the need of such a device to be lightweight and have reasonable battery power, but not sacrifice on functionality.  

Here, I am guessing that such a device is actually a peripheral that communicates via bluetooth to your Android powered phone; using it as a 'middle-tier' between your eye-line and the cloud, thus elevating the smart phone to personal hub.

That, in itself, would be a very Apple-like embrace of the totality of the solution domain, over the loosely, and often poorly, coupled that one associates with Google offerings.

Related:

1. 3D Glasses: Virtual Reality, Meet the iPhone (O'Reilly)
2. Google Buzz: Project, Product or Platform? (O'Reilly)
3. Don't Confuse a bunch of Chicken Parts for a Chicken