5by5 | The Critical Path #69: The Concentration of Power

A discussion on a forthcoming blog post titled “The Last Feature Phone”. Also why stock markets are intractable: the problem with understanding the motivation of buyers and sellers of equities, especially those who act on behalf of others as fund managers. Finally, a review of what’s on Horace’s to-do list for 2013 and a hint at the new 5by5 show High Density, the first episode which is linked in the show notes.

via 5by5 | The Critical Path #69: The Concentration of Power.

  • obarthelemy

    Listening to the podcast right now.

    I disagree with the “phones using an outdated version of Android can only be used as dumbphones” line. The huge majority of Android apps *will* work on a 2.x version. Look at Windows: very Old Win95 can run almost all Windows software. Ditto for Android:90+% of apps work on 2.x. Android 2.x has email, browsers, rss/newsreaders, FB/twitter, games, office suites… Supporting older versions of Android is a pain to the developpers, but mostly transparent for the users. The whole segment actually sounds like you both haven’t even *used* a 2.x Andorid phone recently ?

    On Seniors/technophobes/late adopters, you don’t discuss senior-optimized products much. I’m looking for something for my elderly parents, who are struggling with technology in general, eyesight, and touch-screens (a combination of motor issues and tentativeness I guess). On the Android side, I’ll probably go with a large, low-dpi midrange phone (Wiko Cink, 4″ Slim or 5″ King, a French rebrand of Tinno handsets), that go for $200-$300 w/o contract. Tacking on Big Launcher from the appstore, with huge colorful icons and larger text. I don’t think Apple offers equivalent hardware nor software.

    The piece on share price… sounded both rustic and confused to me.

    • Suggesting that older generations of Android are good enough is a very serious and grave condemnation of the platform. I would not (and did not) make that accusation.

      • obarthelemy

        Why can’t you do on 2.x ? It will be choppier and look less good, but what can’t you actually do ?

    • Padova44

      “R&C”. Gee, Horace must feel terrible he brought rusticity AND confusion upon you.

  • Your comments about the art & science of analysis reminded me of this quote:

    When I am working on a problem, I never think about beauty but when I have finished, if the solution is not beautiful, I know it is wrong.
    – R. Buckminster Fuller

  • WFA67

    Horace’s riff on the “intractable” stock market runs from 24:00 minutes in to 48:32.

    The people I’ve always wanted to hear from on this subject are the guys at institutions (analysts, managers, algorithm engineers) who actually press ‘Return’ on buys and sells of large positions. Perhaps if they read this blog they can enlighten us. Or if PED summarizes this talk on his blog, maybe we’ll hear from some there. However, since Horace’s viewpoint makes so much sense to me, and since it is potentially subversive to the existing set of institutional incentives, I would be surprised to hear from any.

  • normm


    I found your long disclaimer about the relevance of analysis to the stock market surprising. It seems to me that you’ve risen to prominence as an analyst who can accurately predict company performance metrics that people think are relevant to the stock market. You’ve also tried to find simple correlations that have held up, such as AAPL stock price at five times cash on hand.

    I believe the disconnect between traditional metrics and stock performance for AAPL has a lot to do with hedge funds and their affection for volatility. The ideal stock for them is one that always goes back up eventually, but which is highly volatile. Then they are safe to sell when the stock goes up significantly, and then buy back when it drops. Presumably they support negative and positive cycles of blog entries to help drive the price cycle.

    It also seems to me that there is positive feedback in the volatility, since by watching for it and basing buying and selling decisions on it they are amplifying it.

    As far as fundamentals, it seems to me that the only fundamental is that if AAPL’s price gets too low compared to the company value, AAPL (or someone else) will buy the company at the stock price. I don’t see anything else that sets a true floor on the price.

  • normm

    I’m sure you’re right about Android replacing feature phone OS’s. Once that transition is over, the competition between Android and iOS will be much more direct.

  • Doozer

    I have only listened to the first part of the podcast. Having listened to all your work I will say about using Wal-Mart as a proxy is that your getting there. I’m an analyst earning some extra cash, who has a part-time job selling mobile phones for let’s just call it a 2012 US election known retailer associated with Bain.

    So I look at the mix of prices each week, size up the competition vs Apple and do my own street research to test your thesis of (n-1) or is the iPhone 4 or 4s good enough, especially when your dealing with customers who are knowledgeable about when their upgrade is. The carriers have soon a good job about letting their subs know they are due for a new phone. I will say I have 3 types of customers.

    1) Savy and been through the upgrade cycle for smartphones. They may have an iPhone or iPhone fatigue so they are choosing between an IPhone or a Galaxy S3 but they want a smartphone. They are also conscious about their plan price and are either satisfied or indifferent about their carriers plan price.

    2) New to the smartphone world and needs to be educated. Minimal understanding between droid, Android, or even 4G. So phone choice is between price of the handset and the carrier plans.

    3) Customers on a fixed income or a limited income who do not want a smartphone features, have a low carrier ARPU, are willing to trade for pre-paid plan. These customers also have may have had a plan but feel squeezed because they do not have feature phone options.

    Based on carriers plans and offerings versus consumers needs, that last 49 % of non smartphone users will be an interesting group to capture. So even offering dumb cheap android phones will pull some of the market, as US carriers move to Share Everything plans, it’s interesting to see consumers learn that there call minutes and SMS are free, but there data is packaged how much data they really need (love to see James Allworths perspective).

    I think carriers will be willing to dump low ARPU customers for new high paying ones. Being able to mange subsidies will be interesting based upon the price what retailers and the carriers have been offering subsidized phones like the S3. I wish I knew what trade deals were in these offerings because in the 2 months I’ve done this job as an Apple fan boy, selling the Galaxy S3 for $50 hurts even though I do tell consumers, Apple products have higher resale value.

    We have reached the point of a good enough and offerings are less about brand for consumers entering the market. I would love to learn more about the trade deals and more about impact to carrier ARPU and understand further the marketing costs from deals with the OEM’S. Get this data then you could sense the market because retailers are paying a markup back to the carriers. That rate mix probably drives choice in offering 4 – $0.01, 2- $49.99, and 1 sub $150 android phone, 2 Windows phones (HTC and Nokia) versus 1 iPhone. I’ve been trying to crack the code but those $0.01 android phones and payback from carriers benefits to the retailers on margins is large. Plus 3rd party retailers also impose a 2nd penalty on new subs if they change there contract in a certain amount of time.

    A lot more to learn and explore. Enjoy going down the rabbit hole with you.

  • Eli

    Re: cheap “smartphones” being sold to do the job of old feature phones: Is there any data on what fraction of these cheap smartphones are sold with data plans? Because I would posit that if it isn’t being sold with a data plan then it probably isn’t performing the job of a “mobile computing device”.

    As a matter of fact, before asking this question I was curious if you could buy these phones without a data plan. Going to the walmart website shows that it is possible to buy something like an HTC One VX for free with only a voice contract. Though I assume they’ll push the data contract hard because if you don’t use it very much then this is free money for the service provider.

    • obarthelemy

      Actually, until the price of a data contract dropped to $20 last year (for unlimited everything), I was using my smartphone without a data contract. **As a smartphone**: I have wifi at home, at work, and I live in a city, so pretty much everywhere in between, including all my relatives and friends. I had not 100%, but probably 90-95% connectivity. Since I got a data contract, I do my rss reading and web browsing quicker, but the rest (music, videos, email, ebooks, games) hasn’t changed a bit. I’d say I had 80+% of the functionnality even w/o a data contract. That does depend on good wifi-connectivity, and on piggybacking on adsl providers’ free wifi.

  • Bruce_Mc

    I appreciate your comments about predicting and analyzing stock prices. Trying to find “what it means to be great” by looking at fluctuations in stock price doesn’t seem worthwhile.

  • DHS

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