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Month May 2010

What Happens When You Upgrade an HTC Hero to Android 2.1?

HTC:

TEXT AND PICTURE MESSAGES

Text and picture messages will be deleted with this software update. You can back up text and picture messages by forwarding them to an email address.

  • Open the Messaging application
  • Tap and hold on the desired text or picture message
  • Tap Forward
  • Enter an email address then tap Send

APPLICATIONS

Applications will be deleted with this software update. You will need to re-download the desired applications from the Market after this update completes.

Daring Fireball Linked List: What Happens When You Upgrade an HTC Hero to Android 2.1?.

From the Hacker’s Dictionary:

kluge /klooj/

[from the German `klug’, clever; poss. related to Polish `klucza’, a trick or hook] 1. /n./ A Rube Goldberg (or Heath Robinson) device, whether in hardware or software. 2. /n./ A clever programming trick intended to solve a particular nasty case in an expedient, if not clear, manner. Often used to repair bugs. Often involves ad-hockery and verges on being a crock.

Apple's Growth Scorecard

Apple’s growth and its disconnect with valuation has been a common theme on this blog. For another look at this conundrum I present here a table of Apple’s year on year sales growth by product line and its top and bottom lines.

I color coded the values so that a darker green signifies higher growth (and red, negative growth)

I call this the growth scorecard.

What does this scorecard say about the previous 24 months?

  • Earnings never grew slower than 30% for any quarter except for one quarter when the comp was ridiculously high at 155% (on the back of iPhone 3G launch).
  • Throughout the recession Apple grew sales.
  • The worst growth performance was on peripherals which is Apple’s smallest business
  • The fastest growth was the iPhone, now Apple’s largest business.
  • The iTunes store grew sales consistently throughout the previous 24 months.
  • Growth has been positive (green) across all lines for the past two quarters and has been accelerating.

My estimate for the current (June) quarter is that Net Sales will grow by 47% y/y and Earnings will grow by 60%.

Global smart phone OS shares (part II)

On May 5th, I tried to fill in the blanks on Global smart phone OS shares | Asymco. I estimated that the shares for the mobile OS’s were as follows (based on Canalys partial data):

  • Symbian (Nokia): 42%
  • Blackberry OS (RIM): 19%
  • iPhone OS (Apple): 16%
  • WinMo (Microsoft): 10%
  • Android (Google): 10%
  • WebOS (Palm): 2%

Now Gartner has published their sell-through estimates:

  • Symbian (Nokia):: 44%
  • Blackberry OS (RIM): 19%
  • iPhone OS (Apple): 15%
  • Android (Google): 10%
  • WinMo (Microsoft): 7%
  • Linux: 4%
  • Other OSs: 1%

My estimates were within 1 or 2 percent of actuals except for Windows Mobile where I over-estimated by 300 basis points.

The analysis of Android vs. iPhone market shares (globally and within the US) which depended on this estimation does not change materially.

The complete data from Gartner follows:

iPhone has 72% of Japanese smartphone market

In December I reported iPhone controls 46% of Japanese smartphone market | Asymco.  Five months later Apple’s share has reached 72%.

According the MM Research, 1.7 million iPhone were sold in the fiscal year ended March 31.  That’s not a huge number relative to the 110 million subscribers in the country. But Apple’s exclusive carrier Softbank has only 22 million subscribers so Apple may have penetrated over 10% of that user base.

Will Apple rule the iPad market? (part II)

Continuing from Will Apple rule the iPad market? | Asymco.

The first claim is that

it is unclear if [Apple] will end up dominating the market the way it has come to rule the digital music player market with the iPod.

After hearing a thousand voices cry out that the iPad is nothing more than a bigger iPod touch (which, plainly, it is) it’s amusing to read that its similarity with a sibling ends when it comes to market performance.

Let me make one claim up-front: the iPad is more of an iPod than the iPod.

The original iPod was successful because it had a significant integrated value chain bolted on. Apple disrupted music with a value chain, not a product. It changed the way music is bought, consumed and even how it is produced. It changed the economics from retail down to songwriting.

This is why it came to dominate its market. Every competitor that took a run at it did so with a partial solution to the value chain. Often it was nothing more than a music player, and in some cases (e.g. Zune) it was bundled with some other pieces of technology, but poorly executed and too late.

The iPad comes with an even bigger value chain bolted on: the App Store. Apple is flogging not just an “app player” but also a new way to develop and distribute software. If you cut “music” and paste “apps” you see the immediate parallel between iPod and iPad. The app ecosystem will quickly grow to be larger than the music ecosystem with the mobile software business already eclipsing the music business.

A competitor launching a tablet device will have to somehow overcome the momentum of billions of downloads fed by hundreds of thousands of apps built by tens of thousands of developers for hundreds of millions of users.

The iPod juggernaut pales in comparison to the iPad supernova. The iPod had no apps or dedicated developers. Its ecosystem consisted of a handful of music companies. The only thing that made it “sticky” was the tie-in with one type of content.

The iPad on the other hand has a thousand other jobs to do for its users. It has a rich tapestry of functionality and a multi-dimensional (literally) user experience.  It’s a platform. It’s even powerful enough to impose new standards on the web itself and to suggest that search is a bygone activity.

So to suggest that Asus or Dell will somehow build “iPad killers” sounds asinine. These competitors don’t even grasp what the product is and what it’s for.  Sony said they don’t see a market for it. Microsoft, trapped in the innovator’s dilemma and overshooting the market by miles, said they don’t understand what the point is because users want full PCs.  Google asked what’s the value of a big iPod. I could go on, but there was not a single company in the industry who recognized what they were looking at in January. Apple keeps a tight lid on new products so that competitors don’t get a head-start on copying, but in the case of the iPad, advance knowledge would not have had any impact. Competitors look at the iPad and see nothing.  They’ll only react once the market explodes and they start to feel belated pain.

If, and it’s a big if, they do recognize what an iPad is, their response cycle is going to be measured in years. On hardware, they were blown away with a product that had twice the power, half the bulk, twice the battery life with half the price of what they had on the shelf. They may catch up on hardware in a year or two and launch some sort of iPad-like assembly of components, but that is like making the first iPod killer in 2002.

Then there is software. Their software supplier (Microsoft of Google) will have to build a platform that works. That will take years. Years during which the iPad will penetrate every geography, demographic and vertical market.

Google might move more rapidly than Microsoft, but they will produce an open source poster child of a platform. Fragmented and rough around the edges to the point of looking like a hobby project. Their flea market store will also have the smell of fresh glue about it. Microsoft is so far behind the curve that I don’t even think they will try to move the tiller.  Their view of the market was betrayed by the recently knifed Courier demoware. To suggest a challenge to the PC/Windows model inside Microsoft is a career-limiting move so don’t expect their brightest to be lining up to propose new platforms to management.

What about HP? Assuming they overcome the pitfall of NIH that kills 80% of integration efforts, they will still need to perform an enormous amount of heavy lifting to get WebOS to be a competitive experience on a tablet. Most opinions were that Palm came pretty close with a smartphone, but that was nowhere near enough to stay alive, never mind challenge iPhone.

Then there is the ecosystem. Building it is just not something I can even begin to roadmap. What about developer tools, SDKs, frameworks and evangelism? With a Palm division, HP is the best positioned of the PC vendors but it has a chance at being a player as much as Creative did vs. the iPod, or needless to say, Palm vs. the iPhone.

So the iPad challengers face five daunting obstacles:

  1. Recognition of a threat from a seemingly benign product
  2. Execution on hardware against the best integrator on the planet
  3. Execution on software against a new UI metaphor fortress surrounded by a patent moat
  4. Integration of hardware and software to a sublime whole
  5. Re-building a value chain for which they have no handle vs. a broad and deep existing universe of app/content creation distribution and consumption enjoying logarithmic network effect value.

That does not even touch the logistics, sourcing, margin and pricing challenges of world-wide distribution of the whole value chain. Nor does it cover the lock-in of advertisers to new tools for creatives or the billions of daily views from a platform that is blindingly dazzling.

To put it in the language of disruption, by the time the competitors launch symmetric attacks on the iPad, Apple will be the incumbent. And we all know that symmetric attacks never work against entrenched incumbents who have all the levers of power at hand to deploy in a withering counter-attack.

Will Apple rule the iPad market?

This question sounds like a tautology. It’s like asking “Will Apple rule the iPod market?” But redundancy has not stopped WSJ journalist Benjamin Pimentel from asking. His answer to the question is below:

But while Apple apparently has the edge in the emerging tablet war, it is unclear if the company will end up dominating the market the way it has come to rule the digital music player market with the iPod.

Gartner’s Fiering said the iPad has “raised the bar and suppliers are now scrambling to make sure they get it right.”

IDC now projects 6 million tablet devices to ship this year, including 4 million iPads, Shim said. But while Apple has taken the lead, he added, the company faces the “burden of lifting or defining this entire new market,” because there are no other competitive devices available.

“In the iPhone market, they learned from everybody else,” he added in a video interview. “In this new space, there’s nobody else to kind of bounce ideas of so to speak.”

But Apple may not have to feel so alone for long.

Fiering specifically pointed to H-P’s as the best positioned challenger, given its scale, reach and its upcoming merger with Palm.

“There are not too many suppliers that can pull all those pieces together,” she said. “H-P could if they integrate the Palm acquisition properly.”

Another IDC analyst, Crawford Del Prete, agreed saying, while the “buzz” from H-P had generally been defensive in relation to the iPad, “the longer term story is far more interesting.”

“Given H-P’s massive scale, I think they have the ability to drive new price points for this kind of product,” he said. “With a lower price point, the category becomes far more interesting.”

via PC Makers Look To Challenge Apple’s IPad – WSJ.com.

Before diving into the statements above it’s worth noting where the journalist went to get opinions to fill his column. He called Gartner and IDC. Quoting industry analysts is a standard operating procedure to fill column-inches with material that does not offend. But how good are they?

In my years of watching those who watch markets I formed a ranking of analyst types and their likely accuracy with respect to prognosticating a market shift. In order from most accurate to least accurate:

  1. The most accurate are rank amateurs (deagol, Muller, et. al).  Independent bloggers who do some fact checking tend to make the boldest but most accurate forecasts.
  2. The next most accurate are sell-side analysts (purveyors of analyst reports from established brokerages).  They follow financials for individual companies.  You might think their record is quite poor, but in fact they are much better than..
  3. Industry analysts (like Gartner, IDC).  Their forecasts and sensitivity to disruption are often off by an order of magnitude.  This is partly because they forecast a bit further out than Wall St. but also because they are closer to their industry clients– the source of their ideas.  They spend a lot of time talking to the least accurate forecasters…
  4. The corporate analysts.  They are typically hired to advise management in the incumbent companies. These are people who have the most information about the way the industry is performing on a daily basis.

You might notice a pattern here: the closer you are to the market, the less likely you are to observe how that market is crumbling around you. You cannot see the forest for the trees.

How could this be? How can having more access give you a poorer picture? The answer lies in the asymmetry of a disruptive attack. The more you know about how things are the less you know about how things could be.

In practice, the analyst information value chain works like this:

Corporate analysts feed information to management that management is comfortable digesting. Those managers then hire industry analysts to validate their opinions. Industry analysts are keen to maintain a relationship with those firms and so they listen carefully to the prejudices of their clients. They then hold up a mirror to those myths and consolidate those opinions for wider distribution and quotation by journalists at respectable publications.

Stock analysts listen with one ear to the chatter but with the other to the way the wind blows with the stock market. Sometimes they actually sample the data in the value chain directly by calling acquaintances in the market and hire interns to watch what’s happening in the shops. They then build an opinion that has some level of surprise but that they hope will not stray too far into controversy so that they can keep their jobs in case they are wrong. The safe bet is always to say that things will stay mostly the way they are, but to say it in clever ways.

So that just leaves only one group of analysts with independence from a paycheck who can make an opinion on the basis of facts alone.

This post has become longer than I planned, so I’ll dive into the exact answer to the article claims in part II.

Apple's iPhone replaces Blackberry

British bank Standard Chartered is replacing the Blackberry, currently its standard corporate communication device, with the iPhone.

The process of migrating corporate email services from the Blackberry to the iPhone started about a month ago, said the spokeswoman, although she did not know how many of the Asia-focused bank’s 75,000 employees used company-issued Blackberries or when the switchover could be completed.

via Apple’s iPhone replaces Blackberry for some bankers | Reuters.

I remember reading once that the iPhone was not suitable for Enterprise use.

The mystery of the Quantum Leap in the App add rate

The app store crossed 200k apps in early may and is on its way to a quarter million apps approved by end of June.

On the way to this total, the rate of addition of apps has been increasing to around 630 apps added every day.  What’s perhaps interesting is that this app add rate has not been increasing in a steady way.

The graph below shows how the add rate has been increasing (sourced from 148apps.biz).  During the first year, the add rate was increasing steadily.  Then it reached a plateau of about ~350 apps/day for six months in the later half of 2009.  Then it jumped dramatically in December to over 800/day and then leveled off to an average of 680/day during the last 6 months.

The pattern could be due to the rate of applications being submitted changing or due to the rate apps are approved. Clearly there is a seasonal explanation for the December jump, but the rate has held pretty steady after that month and has remained far above the rate during the trailing six months.

My guess is that the app approval process and resourcing for the task has been improved during the last six months.  On a monthly basis the new normal seems to be around 20k apps/mo.

Mobile data use overtakes voice in US

Data use overtook voice on cellphones for the first time, according to CTIA data. Internet access and text messaging occupied more data on US carriers’ networks than did the equivalent in calls. The reversal came both through a 50 percent jump in text messaging but also the rise of data-first smartphones like the Droid and iPhone.

via Data use overtakes voice on cellphones | Electronista.

This is a fundamental shift.  Data use is disruptive to an industry built on voice.  With data come new business models, new value chains and new core values and processes and user interfaces.

The shift to mobile broadband will be more significant than the shift from fixed to mobile voice.

Google gives up on Nexus One online store

Google gives up on Nexus One online store, moves to retail | Electronista.

So much for Google the Shopkeeper.

UPDATE:  This also puts the idea of Android generating any revenue for Google at a logical dead end.  As it stands tactically and strategically, Android is a financial black hole in perpetuity.

Android remains, in my opinion, Google’s biggest failure.