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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. []

Micromobility Podcast with Henrik Føhns

It was a pleasure to spend a day with Henrik, the leading tech journalist in Denmark, and the Micromobility Summit at the Techfestival in Copenhagen.

We did the recording live in front of a large audience the evening after the event and it is already causing a stir in Denmark. I think it’s worth a listen (about 30 min.)

Here is a link:
Podcast with Henrik Føhns

There is a short Danish intro, which Henrik did while riding his bike.

 

techtopia.dk (Danish).

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Defining the 21st Century

The iPhone is the best selling product ever, making Apple perhaps the best business ever. Because of the iPhone, Apple has managed to survive to a relatively old age. Not only did it build a device base well over 1 billion it engendered loyalty and satisfaction described only by superlatives.

To summarize I can offer two numbers:

1,162,796,000 iPhones sold (to end of March 2017).

$742,912,000,000 in revenues. $1 trillion will be reached in less than 18 months.

But more important than any of these quantifiable measures of success are the unquantified accomplishments. These are the changes we note only when flipping an A/B switch on a decade. The changes ushered by the iPhone have been as momentous as those of the Ford Model T. Or those of electricity, telegraph, radio or TV.

These are epoch-making technologies. They shape the fiber of society and the definition of quality of life. They obsolete entire economies and change the balance of political power. They shift the center of gravity of society.

To glimpse the change you only need to observe how we shifted how we spend our time. The fact that 2 billion people are using Facebook every day. That the device is looked at for 2 hours a day. That it’s unlocked 80 times a day. That it holds almost all our memories and our conversations and all our secrets. That it created new modes of communication and destroyed others, ancient and respected.

That it substituted communications, entertainment, and interaction. That swiping became the most used human gesture. That we communicate with photos and not with words. That, like the voice call, transportation now comes to us rather than we to it. That it can answer to our voice. That we can never be lost again. That it makes us all publishers.

That all this happened while the product itself was always perceived as fragile, vulnerable, copyable, doomed to early demise. That imitators outnumber it 10 to 1. That it somehow found ways to become better even though we exhaust what we can ask of it.

For all these reasons I believe that future historians will point to the iPhone as the technological product that defined the 21st century. Much will follow from it and it may become something altogether different but it set humanity on a new course.

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