Tag Archives: apple

In the best light

Microsoft may have, um, borrowed a lot from Apple in designing their own Microsoft Store retail experience, but beyond the superficial similarities are important differences.

To give but one example, I found browsing on the Surface RT to be slow, halting experience. Microsoft seemed to be blocking some of the websites I tried to visit and redirecting them to their own home page, but even when the sites weren’t blocked, they were slow to load. Some of it could have been a software issue, but I think a lot was related to the WiFi network in the Microsoft store, and the speed of its connection to the Internet.

Apple knows better. The WiFi and Internet connection at their store is speedy, allowing them to show their products in the best possible light, and it worked, the iPad Mini and iPad felt snappy when browsing the web. The Surface RT felt sluggish.

 

On Intel’s Decline

The latest installment in a theme I’ve been iterating on for a while now: The Decline of Intel.

This was posted as a comment on a recent post by Jean Louis Gassee on the subject of CPUs and SoCs:

Intel’s strategic position has been eroding since 3DFx came along 15 years ago. From that point on, every PC sold included a bunch of transistors that were paying off the amortization on someone else’s big fab investment. Intel is finally clawing some of that territory back, but I have my doubts that it is going to be enough.

The bottom line is that Intel’s competitive position depends in its ability to invest ahead of competitors in next gen fab technology. It can afford to do so because of its dominant position in desktop and server CPUs and the healthy margins that brings.

The problem for Intel is that each new fab generation is more expensive than the last, and doubles the number of transistors they can produce. Together, this more than doubles the number of transistors they have to sell to maintain their margins. History suggests that this has been a long term challenge. Their average selling price has declined over the last decade in order to balance the supply/demand equation.

They’ve been clever about maximizing their ROI. They use lower margin CPUs to keep the latest generation fabs full, underwriting the cost of fabbing their higher-margin server CPUs. They maximizing the productive life of their older fabs by using them to build support chips (this is why Intel made incursions with x86 chipset makers in the mid-2000s). Unfortunately, this model has its own limits. One of the ways they’ve been managing to schlep transistors is by integrating more and more features directly onto the CPU die, but by doing so, they undermine their own support chip business, cutting in to opportunities to continue to extract revenue from their older fabs.

Which brings us to mobile. Mobile devices can drive a lot of volume, but they don’t drive a lot of revenue. Apple’s new A6 SoC is roughly the same size of one of Intel’s low end i3 CPUs, but intel sells the i3 for 5-10x what Apple, or any other mobile vendor, is likely to pay for a cutting edge ARM SoC.

It appears that Intel may finally have achieved the power/performance ratio needed to play in mobile phones, but it will probably be at least another year before they even have a chance of having design wins that pay-off in significant volume. And even if they do, their growth is limited. Samsung is a major player in phones, and they tend to favor their own SoCs. Apple is the other big player, and they have obviously made their own bet. That leaves Qualcomm’s market share for Intel. I expect that will be a tough fight. Qualcomm will integrate the SoC with the baseband, and they have a lot of patents to bring to that fight. And then there are all these ARM licensees. It is crazy looking at the evolution of ARM SoCs going into cheap Chinese Android tablets.

I just don’t see a big opportunity for Intel. They have a narrow window to gain any sort of real foothold, and the territory they can gain is unlikely to be enough to hold back the tide of ARM licensees which will start eating into their server revenue.

Intel is vertically integrated around the design, fabrication and marketing of CPUs and related components. The advantages of that strategy are in decline. For chips, that seems to be giving way to merchant fabs, which can get the best ROI on their fab investment by leaving the design and marketing of chips to other companies, like Apple, who are vertically integrated around their end-user, and for whom designing their own SoC allows them best serve their customers and drive economies of scale.

Apple, Cricket & Virgin. Hints of the future?

Before I could finish a long overdue post on Apple’s evolving relationship with mobile carriers, events overtook me. Since I started writing that post, Virgin Mobile and Cricket Wireless will soon be selling iPhones for use with their pre-paid plans. The pre-paid plans offer significantly lower monthly rates than traditional iPhone plans from AT&T and Verizon, particularly, but the hardware is significantly more expensive than the subsidized prices offered by those carriers. I find these developments interesting for a few reasons.

First, I it fits the pattern I described in my earlier post in that Apple is experimenting with more expensive phones in combination with cheaper, more flexible service.

Second, it is coming sooner than I anticipated, in ways I didn’t anticipate. I thought it would start with TMobile, but it is instead starting with Sprint, which owns Virgin Mobile, and Cricket, which makes heavy use of Sprint’s network. While I thought this would start with TMobile, it makes sense that it is starting with Sprint, since Sprint, like TMobile, is a second tier carrier which needs to be open to new business models in order to stay in the game at all.

I’m interested to see what comes next. I expect we’ll hear more by the time the next iPhone is released, likely by fall. I wouldn’t be surprised too if iOS 6, which will be announced at Apple’s World Wide Developer’s Conference next week, contains new and improved features that help marginalize the mobile carriers.

Apple’s Evolving Relationship with Mobile Carriers

I’ve been thinking about Apple’s relationship to mobile carriers, and the related question of whether their overall marketshare matters for a while. I’m going to take a little time now to outline the evolution of my thinking, and the conclusions I’ve drawn.

It started when I realized how Apple was going to use iCloud to tie OS X and iOS apps together to provide a seamless, pervasive computing environment, which I finally got around to writing about last fall. That led to the realization that although iCloud was designed to be as efficient as possible when moving data around between devices, it was still bringing Apple into conflict with mobile carriers.  Apple was moving towards a future where fast connectivity was always available at the same time the carriers were raising prices and eliminating unlimited data plans.

One of the big innovations of the original iPhone is that Apple “owned” the customer relationship. Yes, people paid AT&T for service, and many people bought their iPhones from AT&T, but Apple controlled the phone, Apple provided the support, and the software updates, and AT&T could not load up the iPhone with their logos or crummy apps. This was unprecedented, and it scared the carriers, and drove them into the arms of Android. Nevertheless, the carriers still held an important piece of territory: your phone number. Numbers are portable, but as long as people are making phone calls and using SMS, its hard to switch carriers often.

However, we’ve seen a rise in services that bypass the carriers. GoogleVoice gives you a carrier independent phone number for SMS and phone calls. Apple FaceTime can use an email address as an identifier, and now, so does Messages, their SMS substitute. Add to those other services, like Skype, Viber, Ping and TextFree. The carriers are slowly but surely being marginalized, but for the time being, they are still in a position to dictate prices, because hardware subsidies and the accompanying service contracts inhibit the formation of a truly competitive marketplace. It’s clear to me though, something is going to have to give.

I think Republic Wireless may be a sign of things to come. Republic offers mobile phone and data service without a contract for $19/month. To take advantage of the service, you need to spend $200 on phone with a special version of the Android operating system that routes voice calls over WiFi when available. When WiFi isn’t available, they use Sprint’s network. It isn’t hard to imagine Apple moving towards something similar.

In broad outline, I think Apple’s goal is to ensure that the mobile carriers are unable to pose a challenge to Apple’s vision for the products and services they want to offer their users. Ideally, they would disappear from the customer’s view all together, becoming suppliers to Apple. How Apple achieves this remains to be seen, but I think the ingredients are:

  • Apple has lots of capital, and they use that capital to gain a favored position with suppliers to ensure that they have a ready supply of key inputs, like flash memory,  high resolution screens, and bleeding edge manufacturing tooling, while depriving competitors of access.
  • Mobile carriers need a lot of capital.
  • Second-tier mobile carriers, like Sprint and T-mobile, risk going out of business if they can’t bring in enough revenue to do the network upgrades they need to stay competitive.  This is why Sprint sells service to carriers like Republic Wireless.
  • T-mobile doesn’t yet have the iPhone in the US.
  • Moore’s law can manifest itself in improvements to price, performance, and power-consumption. So far, much of the progress in the smartphone industry has been channeled towards improving performance. I think we may be reaching a point of diminishing returns, performance-wise.  This may push down pricing to the point that carrier-subsidies are less and less relevant.
These factors could play out a few different ways, but I’ll suggest an illustrative example:
  1. T-mobile starts selling the next iPhone.  Apple gives T-Mobile very favorable terms on payments, allowing T-mobile to invest in their infrastructure. In exchange, T-mobile iPhone customers get unlimited data.
  2. The 2013 iPhone comes at a lower price. Existing carriers are happy that they can reduce their subsidy, and more customers find an unlocked iPhone within reach.
  3. The next iPad can be used with any compatible carrier.
  4. Unlocked iPhones start showing up in the US that can be used on any carrier. The hardware already supports this; when an iPhone 4s is “born” it is capable of connecting to GSM networks like AT&T and TMobile, and CDMA networks like Sprint and Verizon, but when the phone is sold, these capabilities are limited.
  5. Apple starts offering subsidized phones with their own mobile service.

However, since I started writing this post, there have been some new developments, which I’ll post about separately.

iPod Touch and the Kindle Fire

When Amazon first announced the Kindle Fire, many people heralded it as the first tablet with a chance in the market against Apple’s iPad by virtue of the fact that it was less than half the price, and more portable, with a 7″ screen.

Those predictions were recently validated, with Amazon selling an estimated 5.5M in the first quarter of release. Not bad, but we learned today that Apple sold 15.43 Million iPads, a 111% increase over the same period last year. It is an interesting contrast, but I wondered how the Kindle Fire’s sales compared to those of the iPod Touch.

My reasoning in comparing the two is that the Kindle Fire competes more directly with the Touch than the iPad. The iPad has a 10″ screen. When the first 7″ Android tablets hit the market, Steve Jobs said that Apple had considered smaller tablets, but found that the iPad was the smallest device they could make that allowed a significantly broader range of interactions than the iPhone. You can type on an iPad, as well as create documents, spreadsheets, and presentations. The Kindle Fire, on the other hand, is a lot like a big iPod Touch. The bigger screen is better for reading and browsing the web, and perhaps a little better for viewing movies. On the other hand, the iPod Touch is significantly more portable; it fits in a pocket, the Fire, in a purse.

I wondered how Kindle Fire sales compared to iPod Touch sales. Apple reported that iPod sales were down 21% to 15.4 million, but over 10 million of those were iPod touches. With a little digging, I found that Apple sold about that many iPod Touches during the same period a year prior. So, even without an update, the iPod touch is selling about twice as well as the similarly priced Kindle fire. Of course, the Fire seems to be on an upswing, while the Touch is just holding steady.

Will Hollywood Look to Apple to Lead them out of the Amazon?

After last week’s tremendous public outcry over the SOPA and PIPA bills forced the TV and movie industry and their hired hands in Washington DC to retreat, Paul Graham announced that he was interested in funding startups that might have what it takes to “kill hollywood.”

Graham is a successful software developer and entrepreneur who started YCombinator to take advantage of the mismatch between the traditional venture capital business model and the realities of post-dotcom boom Internet startups. He concluded that SOPA and PIPA were symptoms of a large but dying industry that could do “a lot of damage to civil liberties and the world economy on [its] way down.” Hastening their demise would be both a broad public good, and a good business.

Graham stated the problem broadly, asking entrepreneurs to think about what people are going to do for fun in 20 years, instead of what they do now. Graham sees the potential for continued growth in games, and other types of sites, but also sees alternatives to the ways movies and shows are currently produced and distrubuted.

A few days later, on Hacker News, YCombinator’s social news community, someone posted a link to Amazon Studios. Amazon Studios is at least a few months old, but if I’d heard about it before, I’d forgotten it. Amazon Studios says :

We believe 21st-century technology creates ways to make and share movies and scripts more easily than ever.

  • Get noticed. Your work will be shared with a global community of filmmakers and fans, who can offer revisions and advice.
  • Get your movie made. The goal of Amazon Studios is to work with Hollywood to turn the best projects into major feature films.

They run monthly contests with cash prizes for writers and film-makers.

Amazon Studios positions itself as a partner to Hollywood, but in thinking about it, I realized that Amazon already has Hollywood pretty much surrounded. Over the last 20-30 years, the overall importance of revenue from first-run TV, and movie box office has declined as a growing number of broadcast and cable TV channels created demand for TV show reruns, and revenues from movie rentals and DVD sales grew. Lately though, DVD sales have been declining, and BlueRay sales haven’t compensated, because more and more people are turning to digital distribution and streaming through Netflx, iTunes, and Amazon.

In other words, the makers of TV shows and movies have long depended on Amazon for a significant amount of their revenue, first from DVD sales, and now, increasingly from digital downloads. The Kindle Fire was aimed squarely at enhancing Amazon’s position in this market. It’s also worth considering that Amazon uses free digital downloads as an incentive to get people to subscribe to Amazon Prime.

On the other side, we have Amazon Studios, gets Amazon involved in the creation of new movies. They may be working with Hollywood, but part of their appeal is clearly to creative people who were, in one way or another, shut out of Hollywood.

This is similar to how Amazon approached the eBook market. They did deals with publishers to get the rights to distribute books on the Kindle. To secure those deals, they surely used their position as a major sales channel for traditional books. Once the Kindle was off to a good start, they started enabling independent authors and small publishers to sell their own eBooks through Amazon. Now they are starting to do deals directly with authors, taking over the role of publishers for both vetting and editing books, and underwriting their creation with cash advances.

So, how long before Amazon starts funding some of the movies themselves?  It might take longer, because movies are more complicated to make than books. Also, theatrical release is still an important part of the movie business; box office receipts are an important revenue, and it helps generate the awareness needed to drive the sale of the digital downloads.  Its also worth keeping in mind, that Amazon owns IMDB, which helps moviemakers find the collaborators they need to get movies made, and helps consumers find out about movies worth watching.

All of this puts Amazon in a strong position vs Hollywood, but its even stronger if you step back and consider how important the book industry is to the movie industry. One of the most valuable film franchises in the last few decades has been the Harry Potter films, which, if it isn’t obvious, owes its success to the Harry Potter books. The same is true for many other films. The movie industry reduces its risk by drawing on successful books.  Doing so gives them added confidence in the underlying story, and provides them with a built in audience, and built in cultural relevance. Unfortunately for Hollywood, Amazon seems likely to gain a favorable position for the film-rights for more and more books.

This is good for Amazon, but also, I think, for Apple. Apple doesn’t encircle Hollywood in quite the same way Amazon does, but iTunes is an important distribution channel for movies and TV shows. Another thing Apple has is cash, lots of it. Movies are often financed, in part, by distribution rights. Wariness over Amazon’s position is going to drive the movie studios towards Apple (just as of fear of Apple’s power drove the record labels towards Amazon), Apple’s ability to help fund new movies and shows, in exchange for favorable distribution rights, seems like it will draw them even closer to Apple.

We shall see soon enough, I guess…