October 2017
Mon Tue Wed Thu Fri Sat Sun
« Sep   Nov »
 1
2345678
9101112131415
16171819202122
23242526272829
3031  

Month October 2017

Does the iPhone 8 have what it takes to be a success?

Source: ¿El iPhone 8 tiene lo que se necesita para ser un éxito?

The above interview was conducted October 17 with Carlos Morales
Editor en Jefe, Forbes Digital (Mexico).

The source questions and my answers in English are below:

How can we read the fact that the new iPhone lineup raised so little noise? There was no massive lines outside the Apple Stores and people demonstrated almost zero interest in the new models compared with the hype motivated by the iPhone 7.

I don’t know about you but I don’t like waiting in lines. I don’t think Apple considers waiting in lines to be a good user experience for its customers. Over the years Apple has been able to improve availability and online orders so that lines can be eliminated. I suggest a better way to gauge interest in new models and that would be to look at sales. Sales seem to be going up even as lines have been going down.

The iPhone 8. What do you think of the fact that the iPhone 7 is outselling the iPhone 8?

Is it a fact? I think this notion is coming from a survey of operator stores in the US over a short time period. The mix of phones has never been known and is a matter of speculation. The only data we do have is the average selling price derived by dividing the revenues by the number of units sold (and ignoring deferrals). This price set a new record during the last 12 months. Expectations are that it will increase to another record again next year. I might add that this has never been observed in the phone business as far as I know. The opposite has been the trend.

Whats the outlook for the the iPhone 8 vs the iPhone 7 and the iPhone X?

The iPhone 8 is likely to be the best selling model over the next 12 months. The iPhone X will be the best seller in the first quarter but I expect it will come second during the following quarters. The iPhone 7 will end up 3rd.

What do you think about the smartphone prices, aren’t they too high? How far can they be stretched ?

Smartphone prices are very low. World-wide, average smartphones sell for less than $300. You can see a break-down by region here.

iPhone prices are, on average, more than double the average of all smartphones. Note that apple’s latest line-up also includes the cheapest iPhone ever with the SE now starting at $350.

I don’t think the average selling price will increase in 2018 globally. It will probably decrease as it has for a long time. Average iPhone prices will increase but probably only by $10 or so.

The iPhone price tiers are well understood. I published an analysis here:

More important however is that the iPhone remains priced at about $1/day, no matter the model, and as such the value users perceive is very high. The most expensive iPhone costs about 8 cents per hour of use, 1.4 cents each time you unlock it and 1 cent for ever 25 interactions you have with it (touches or taps). On a per use basis the iPhone is extraordinarily cheap. I know of no consumer product that is cheaper. This is determined partly by the intensity of use and by the high resale value (I assume 30% residual value after 2 years).

Do we really need a borderless OLED display in a smartphone? What about the face recognition technology?

Having no borders means you can get a screen that is bigger than the iPhone Plus in a phone the size of an iPhone. I think users will value getting more screen in a smaller phone. I certainly would. Having OLED means it can be curved a bit and also have nicer, truer black.

Face recognition saves time and is more secure. I don’t know another way of making the experience better for something that you do 30,000 times a year.

What do you think about the Apple Watch, which seems to be—finally—on the right track?

The Apple Watch has been on the same track for 2.5 years. I don’t see any change in that trajectory.

 

 

Orthogonal Pivots

Microsoft has announced that by the end of the year the Groove music service will be phased out. Users are being offered the option to move their music libraries into Spotify.

This brings to an end a long story of Microsoft in the music distribution business. It started nearly 15 years ago with technologies in Windows that allowed for purchase and playback of various media formats. Microsoft sought to enable a large number of music retailers to market music through its formats and DRM and transaction clearing.

Services such as AOL MusicNow, Yahoo! Music Unlimited, Spiralfrog, MTV URGE, MSN Music, Musicmatch Jukebox, Wal-Mart Music Downloads, Ruckus, PassAlong, Rhapsody, iMesh and BearShare and dozens of hardware players licensed Windows formats. Almost all of these services have shut down and the devices disappeared.

The next stage was to offer an integrated experience through the Microsoft Zune player and Zune Marketplace music service. This too failed and was replaced by the Xbox Music brand in 2012. On July 6, 2015, Microsoft announced the re-branding of Xbox Music as Groove to tie in with the release of Windows 10.

There was a time when Microsoft was thought of as the certain winner in media distribution. Inserting media into the Windows hegemony was classic “control point” strategy: owning the access points was a sure way to collect a tax on what transacted through the network.

Instead we are facing a market where media is consumed through new access points: phones, tablets and TV boxes. Netflix, Spotify, Roku, Google, Amazon and Apple are all offering distribution and some are investing in original programming.

It’s perhaps worthwhile to recall that Microsoft and Apple both started their media efforts around the same time. Apple’s iTunes is 16 years old and the iTunes Music Store opened in 2003, almost 15 years ago. Today Apple is transitioning to streaming with 30 million subscribers. The graph below shows the history of subscription growth to Apple Music and Spotify.

Apple Music is a small part of Apple Services (part of the orange area below).

On a yearly basis Apple Services are this year crossing the $50 billion gross revenue run rate. This year Apple released a new Apple TV 4K and is releasing a new smart speaker called HomePod.

The contrast between Microsoft and Apple is most visibly between the Mac and PC. But the story of how media paralleled mobility and how Microsoft struggled with both is perhaps a cautionary tale.

Microsoft saw the limits of modularity when new product categories emerged and when new user behaviors were created. They attempted to pivot into being more integrated but those efforts also failed. The efforts continue today with Surface devices; looking forward they will continue with AR/VR and perhaps a pivot of Xbox..

But the long arc of history shows how hard it is to succeed in vertical integration after you build on horizontal foundations. Generations of managers graduated from the modular school of thought, specializing rather than generalizing. Now they are facing an integrated experiential world where progress depends on wrapping the mind around very broad systems problems.

Entire industries are facing this orthogonal pivot: media, computing and transportation come to mind. Huge blind spots exist as we see only what we’ve been trained to see.

S3X Appeal

On July 3rd, Elon Musk handed over the first 30 Model 3s and tweeted

“Production grows exponentially, so Aug should be 100 cars and Sept above 1500.”

He added,

“Looks like we can reach 20,000 Model 3 cars per month in Dec”.

In 2016 he stated

“So as a rough guess, I would say we would aim to produce 100,000 to 200,000 Model 3s in the second half of [2017]. That’s my expectation right now.”

He confirmed this estimate early in 2017

“Our Model 3 program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018.”

Overall 2018 production guidance has been 500,000 units and 1,000,000 units in 2020.

The company shipped 220 Model 3s in the July, August and September months. This is well below the expectation of 75,000 that the 2016 guidance would suggest[1] or the 1,630 that might be suggested by the “production grows exponentially” July proclamation.

I entered the Q3 production data and kept the previous run rate predictions for Q4 and 2018 and 2020 in the following graph.

 

Notes:
  1. 100,000 to 200,000 for the second half of 2017 suggests an average of 150,000 for the six months or 75,000 per quarter []

Silicon Valley

You’ve probably heard of Jony at Apple but probably don’t know about Johny.

Jony is a celebrity executive known as the face of Apple Design. Johny is the executive in charge of custom silicon and hardware technologies across Apple’s entire product line.

Under Johny’s leadership, Apple has shipped 1.7 billion processors in more than 20 models and 11 generations. Currently Apple ships more microprocessors than Intel.[1]

The Apple A11 Bionic processor has 4.3 billion transistors, six cores and an Apple custom GPU using a 10nm FinFET technology. Its performance appears to be almost double that of competitors and in some benchmarks exceeds the performance of current laptop PCs.

A decade after making the commitment to control its critical subsystems in its (mobile) products, Apple has come to the point where is dominates the processor space. But they have not stopped at processors. The effort now spans all manners of silicon including controllers for displays, storage, sensors and batteries. The S series in the Apple Watch the haptic T series in the MacBook, the wireless W series in AirPods are ongoing efforts. The GPU was conquered in the past year. Litigation with Qualcomm suggests the communications stack is next.

This across-the-board approach to silicon is not easy or fast or cheap. This multi-year, multi-billion dollar commitment is rooted in the Jobsian observation that the existing supplier network is not good enough for what you’re driving at. Tiny EarPods, Smart Watches, Augmented Reality, Adaptive Acoustics require wrapping your arms around all parts of the problem. The integration and control it demands are in contrast to the modular approach of assembling off-the-shelf components into a good-enough configuration.

There are times and places where modules are adequate and times and places where they aren’t. The decision depends on whether you are creating new experiences or new “measures of performance” vs. optimizing for cost within existing experiences or measures of performance.

The very notion of a microprocessor is a rejection of the discrete component designs that preceded it. Earlier computers had central processors made up of many discrete components. VLSI stands for Very Large Scale Integration with emphasis on Integration. As computing has progressed toward ambience and ubiquity the idea of using discrete components became normative again but that was not considered sufficient by Apple.

So while the “Silicon” in Silicon Valley has come to be seen as an anachronism, silicon development today means competitive advantage. The only problem is that it takes years, decades even to establish competence. The same duration that it took for the building of Apple as a design-centric business fronted by Jony Ive.

Apple also now needs to be understood along the dimension of silicon-centric engineering as led by Johny Srouji.

Notes:
  1. Trailing 12 months’ PC shipments 265 million. Equivalent iOS devices 281 million. Not included are Apple processors in Apple TV. []