Tag Archives: Android

Google: The March to a Trillion Dollars

13 Feb

google vs microsoft

The appointment last week of Satya Nadella to lead Microsoft got me thinking about another company: Google.  There are many points of similarity between the two companies, but the differences are key.

Both companies are effectively monopoly businesses.  Microsoft was and on the desktop perhaps still is an OS software monopoly.  Until recently with the rise of tablets and smartphones, Microsoft never faced real competition in its market.  Similarly, Google possesses roughly 2/3 market share in the online search industry and its share of online search profits are higher.  Like the Microsoft of yore, Google faces few credible threats to its core search monopoly.  Bing and Yahoo’s efforts have largely failed, and the worry of Facebook challenging Google through social search  is much more benign than once thought.

Microsoft and Google’s monopolies in their respective core businesses leads to two of the biggest cash machines the business world has ever seen: Windows and AdWords/AdSense.  Both businesses are high margin and throw off tons of cash.  This has given both companies incredible leeway to do three things: #1. Enter new lines of business; #2. Be highly acquisitive in support of #1; and #3. Retain talent.

I think this is where the comparisons between the two companies largely ends.  The main difference I see is that Google is ambitious in a way that Microsoft never was and no other company is, and Google is much smarter at building around its core search business.  These are two sides of the same coin.

On the one hand, Google is expanding into new areas far afield from core search.  Take Google’s well publicized self-driving cars initiative.  This requires a huge level of technical talent and investment that very few companies can make.  It’s also incredibly audacious and a potentially huge new  business for Google.  Compare this to say Microsoft’s Xbox effort.  Xbox has been Microsoft’s most successful consumer business and its a great product (I own one).  Having said that, I’d argue that it’s a less ambitious effort than something like self-driving cars and the potential size of the business is more limited.  Google is tackling huge, unsolved technology problems with much larger market opportunities.

Aside from more ambitious efforts to expand beyond its core business, Google is also much better at and more strategic about defending and growing its core.  Microsoft is limited in some ways because it’s much harder to introduce new products that monetize off of the Windows monopoly, whereas Google has plenty of options to introduce new products that monetize off of core search and its ad platforms.

For example, Microsoft’s efforts at building an online business – Bing, MSNBC, etc. – have a completely different monetization model than Windows.  Ditto for Windows Mobile.  You could argue that Windows Mobile makes it easier for Microsoft to retain its desktop users and therefore defends their  OS monopoly, but the only way they’ve made new revenue off of Windows Mobile is by selling licenses to smartphone OEMs and now by selling Nokia hardware bundled with Windows.

Contrast this with Google where much of what it does not only defends its search monopoly, but also grows it and creates revenue.  Whereas Microsoft started off by licensing its Windows Mobile platform to OEMs, Android is free.  Google did this because Google is able to earn money off of mobile search ads.  It’s a way for Google to protect its core business as user’s spend more of their online time on mobile devices.  Similarly, Google Glass and self-driving cars may very well end up monetizing primarily through serving ads off of Google’s existing platform.

To summarize it all, I think Google is far more ambitious in entering potential new businesses than any large tech company today, and its in a much better position to defend and grows it search monopoly than Microsoft was with Windows.  AI have no doubt that Google will be the world’s most valuable company in the not-so-distant future, and that it will be the first company in history to reach $1 trillion of market cap.

Switching to iPhone after 2 Years on Android

19 Dec

I recently switched to an Apple iPhone 5s after 2 years as an Android user.  I had a Samsung S2 for half a year and then had been using a Samsung S3 for another 1.5 years.  After moving back to the US, I was increasingly disappointed with the selection and quality of apps offered on Android.  I was also increasingly frustrated by the lack of performance of the device.  So I ended up switching.

I don’t have a bone to pick in the whole open (Android) vs. closed (iOS) debate.  There are compelling business and product arguments in favor of both approaches.  This post is meant to merely highlight my views on the quality of both products from a user’s perspective. And in that regard, I think Apple is the winner.

The biggest difference you notice as an Android user is the selection the selection, stability, and quality of the apps on iOS vs Android.  For one, there are a number of iOS apps that just aren’t available on Android.  This is particularly true of any new app in the US.  And for those apps that are on both iOS and Android, generally speaking, the Android version is less polished.  The UX is worse, they crash more often, updates are pushed less frequently, etc.  On iOS, everything integrates more smoothly.  Facebook oauth is easier, for instance, or navigating from notifications to the actual apps is smoother.

Another huge pet peeve of mine on Android is all the crappy software the handset manufactures pre-load onto the device, in this case Samsung.  Samsung’s chat service (ChatON), Samsung’s app store, etc.  I don’t know who uses this stuff.  There are better versions of all these services from folks other than the OEMs.  Ultimately, the S3 was full of tech that just doesn’t quite work.  For instance, a facial recognition feature on the security screen that’s supposed to unlock the phone.  It doesn’t really work and it’s not secure, so why include it?  Compare this to the fingerprint scanner on the iPhone 5s, which works perfectly and is actually useful.

Android has its pros no doubt.  In terms of the hardware, there’s the larger screen.  This to me is the biggest plus of Android devices.  Once you’ve used a slightly larger screen, the iPhone feels cramped and typing is more difficult.  I expect Apple to introduce a larger screen option when it releases iPhone 6.  As we spend more and more of our online time on phones, having a slightly larger screen only makes sense.

The other thing you notice once you start using iOS after Android is how bad the autocorrect capability is.  On Android, Swiftkey is awesome – much, much better than the native iOS autocorrect.  I’m not sure why Apple isn’t better (they don’t do software well), but it isn’t.  And it doesn’t feel like it’s improved much over where it was a few years ago.  It may sound minor, but if you send a lot of email or other messages, you notice the difference between Swiftkey and Apple instantly.

All in all, I think Apple offers a more polished experience versus comparable Android devices.  I expect this to continue to give an edge to Apple in more developed markets, especially the US where handsets are carrier subsidized.  Outside the US, Android will continue to dominate (see here for more on this) given the range of price points it offers.

Was Ballmer Really That Bad?

9 Sep

There has been much criticism of Microsoft CEO Steven Ballmer over the last few weeks since he announced he’s leaving the company within a year.  Some have gone as far as to call him the “worst CEO ever.”  He certainly hasn’t been an exceptional CEO.  Microsoft’s stock has languished during his tenure, it’s organization has become bloated, and most importantly, it’s missed out on the big technology trends of the last decade – smartphones, tablet cannibalization of PCs, the rise of paid search, cheap cloud computing, Social, etc.  But, it seems to me, some of the criticism is overblown.

Without digging too deep, I can think of a few tech CEOs far worse than Ballmer.  Leo Apothekar at HP with his ill-conceived acquisition of Autonomy, decision to spin off its PC business, and relationship issues with the Board.  RIM’s co-CEOs for their corporate infighting and inability to create an OS challenge to iOS or Android (or go all in on the latter).  Or, if you’re looking for a CEO that truly lost his company, how about Stephen Elop, CEO of Nokia, which Microsoft just bought?  Nokia used to be one of the world’s most recognized brands, the dominant force in handsets.  And now, because of it’s strategic error in aligning itself with Windows Mobile instead of Android, (Nokia should have been what Samsung is to day), it’s selling itself for less than $8 billion.

In terms of stock price, yes, Microsoft’s stock has been essentially flat since the Dotcom bust, which is on Ballmer.  See this stock chart I pulled from Yahoo! Finance:

ImageBut Microsoft isn’t the only high-flying Dotcom era stock that has struggled in the last decade plus.  Check out Cisco to name one company with a similar price trend:

Image

Microsoft could have fared far worse these last 10 years.  Ballmer inherited a monopoly business tied to distributing incredibly high gross margin Windows software on PCs.  And he inherited this business at its peak.  With the growth of Google and mobile computing among other trends, it was always going to be hard to sustain Microsoft’s position as the kind of software and the top destination for tech talent.  Tripling revenue and doubling operating profits while creating new billion dollar business lines isn’t bad when seen in this context.

Great CEO?  No.  Worst CEO ever?  Hyperbole, for sure.

Monetizing Mobile the “Micro SaaS” Way

25 Aug

In June, I wrote a post about the  staggering growth of Android lately, especially in emerging markets.  And yet, despite this growth, Android doesn’t monetize nearly as well as Apple’s iOS platform:

iOS vs Android - Downloads vs. Revenue

The monetization gap is understandable given the huge difference in price points between the iPhone and the hundreds of Android devices.  Unlocked, the iPhone is the most expensive smartphone on the market.  There’s one device and the only option is storage  (and color).  In contrast, the cheapest Android can be had for <$50.  The vast majority of new smartphone users coming online in emerging markets are from the lower and middle income groups, many of whom are accessing the web for the first time ever.  They can’t afford a $1000 device, which is what an iPhone can sell for unlocked.

This helps explain the monetization gap among other reasons (Android fragmentation, etc.)  And it poses a problem for developers trying to make money from the millions of Android users in emerging markets.  Mobile advertising really isn’t an effective strategy since ad markets are nascent – extremely small in aggregate size and much less productive (i.e., lower CPMs).   And even on iPhone or in developed markets, ads can worsen the user experience and are tough to make money off of unless you have huge numbers of users or a highly valuable audience.  So ad-supported isn’t a viable model.

What about paid app models?  There are problems here as well.  For the lower end of the market, willingness to spend just isn’t there.  It’s hard enough to get someone to spend a few dollars upfront on a paid app download in developed markets, let alone in a market where a user might only be earning $5-10k a year, maybe less.  So charging upfront doesn’t work well.

So what’s the solution?  I think WhatsApp has figured out an interesting model.  A user can use the service for free for a year, but after 12 months has to pay a flat $1 per year to continue using the app.  It’s a sort of “micro SaaS” model.  You get a 12-month free trial period and then have to pay an annual upfront fee to subscribe to the service.

WhatsApp has a very strong network effect, so the likelihood that someone who’s used the service for a year and whose friends are all using the service will balk after a year at paying $1 to continue subscribing is low.

At a $1 per year, WhatsApp is reasonably priced for any user that’s able to afford even a cheap Android device.  A basic SMS plan will easily cost as much as WhatsApp charges for a year and will also be volume capped.  It’s a good value.

The downside of this model is that it really only works at large scale.  Having 10m users paying you $1 a year isn’t a venture-scale business (though very interesting if you can bootstrap).  At 300m, which is Whatsapp’s latest user count, this is a sweet business (see image below via Statista).  And, as I wrote last week, Messaging happens to be “one of the two killer apps on the smartphone,” so it has huge addressable reach.

chartoftheday_1341_Whatsapp_Reaches_300_Million_Active_Users_b

There’s also some risk that the service is challenged by free services that don’t ever charge for users to subscribe and look to advertising, freemium, or in-app purchases for monetization.  At a $1 subscription, there’s really no sunk cost and there’s no technical challenges around switching as there might be in an enterprise SaaS.  There is a huge switching barrier though in the network effect, so I think fears of WhatsApp displacement are overblown (not to mention the fact that it’s a simple, reliable, very well-designed product).

I’m not saying this model is for everyone.  Mobile ads, mobile commerce, and in-app purchases work extremely well in some cases, especially in developed markets.  But I’d like to see more services experiment with the “Micro SaaS” approach and would love to hear thoughts on other categories that are suitable.

Driven by Android, the Tablet Market in India is Exploding

25 Jun

Image

I wrote a post last week on what’s driving smartphone/Android adoption in emerging markets.  I wrote mostly about smartphones and largely ignored the tablet market.

And like clockwork, IDC just released a report on the tablet market in India.  In short:

  • The tablet market is booming as “shipments soared to 2.66 million in 2012, a mammoth 901 percent year-on-year growth from 2011…”;
  • It’s dominated by Android with Apple having <10% of the market;
  • Low-cost (<$250), 7″ tablets are vast majority of share;
  • Local players like Micromax and Karbonn and cheap Chinese imports are winning even though Samsung has the largest market share.  Note: local players still use contract manufacturing in China, but they’re Indian brands.

This article has a nice rundown of the report and quick summary from IDC here.

I wouldn’t expect any major changes to Android/non-Apple dominance in the near future.  Apple simply can’t compete on price in a market where most consumers can’t shell out hundreds of dollars for even an iPad mini.

Also, as with the smartphone market, I’d expect spending on cheap Android tablets in India to continue to grow rapidly.  Prices will continue to decline, there’s several government initiatives aimed at growing tablet access, and you have Reliance’s 4G rollout coming soon.  Expect Reliance 4G rollout to pair a cheap Android tablet with affordable data plans and bundled content/services.

The next really interesting question that needs to be answered is what killer apps and services are going to be built on top of all of these tablet and smartphone devices, especially in India.  And can they figure out a way to make money in a market where non-text, non-search mobile advertising is extremely low in $ terms and where consumers willingness to spend is low.

I think WhatsApp is the first app to really take advantage of the Android adoption trend in emerging markets like India, and it’s also showing the way in terms of how to monetize price-sensitive users at scale.  More on this soon.

Smartphone Adoption, Emerging Markets, & the Android Effect

17 Jun
There’s a huge explosion happening in smartphone usage.  Growth in penetration rates in developed markets has started to slow, but in emerging markets like China and especially places like India and Indonesia, smartphone ownership rates are still relatively low as a percentage of subscribers (see slide 40 of Mary Meeker’s latest Internet Trends report).

The main factor driving growth in emerging markets has been the decline in device prices being driven by cheap, local handset brands running pretty generic versions of Android, as well as the rise of Samsung as the premier Android handset maker.  In terms of local competitors, you have companies like Xiaomi and ZTE in China and Micromax and Karbonn in India.

Hardware prices are declining quickly and hardware is being commoditized by the use of low-cost contract manufacturers in China.  Also, the quality of the low-end Android devices being produced today is dramatically better than it was even 18 months ago.  They’re not iPhones or Samsung Galaxy level, but they’re quite good.  And for people using internet on their phone for the first time or having any internet access period, it’s more than adequate.

Most of the smartphone growth in emerging markets is going to Android.  In Q4 2012, ~70% of smartphones sold globally were running Android compared with 30% for iOS.  This is a significant increase in share over 2011.  Many of the market share losses from RIM, Nokia, etc. are accruing to Android.  The big point, though, is that most people in emerging markets cannot afford an expensive device and lower-end Androids are orders of magnitude cheaper than iPhones.

In addition to wealthier populations, the rise of the cheap Android device is less notable in the US because carriers subsidize a large portion of the handset price.  In the US, Android has ~52% of the market according to comScore and iPhone has 35% for the 3 months ending Nov 2012.  In India, an entry-level iPhone 5 retails for ~$800.  That same phone is $199 with a voice and data plan from a US carrier.  Of course wireless rates in the US are higher and you’re locked into a single plan for a fixed amount of time, but nonetheless the upfront investment in the device is relatively low.  At $199 or $299, it’s harder for Android to have as pronounced cost advantage over iPhone.

A couple of takeaways from all of this:
  1. Despite their impressive growth, I would be leery of investing in local handset brands.  They are producing a good whose price is consistently falling.  They’re also benefitting from the open runway that low smartphone penetration provides, but as ownership broadens, new purchases will be driven by the replacement cycle and their growth rate will fall.  Replacement cycles in emerging markets are longer as well, which exacerbates the problem.  Finally, I expect Apple to introduce a lower cost iPhone and also expect the cost advantage between “budget brand” Android handsets and “premium brand” handsets (i.e., Samsung) to narrow as the latter gets more aggressive on price.  We are on the upward part of a hardware cycle for these companies and I wouldn’t want to get caught on the tail end.  This isn’t to say that these aren’t great companies with impressive growth over the last few years, but just a reflection on their investment potential at this point.
  2. Hardware is hard.  This reminds me of the PC market.  You have punishing downward pressure on prices driven by ever declining component price declines and manufacturing efficiencies.  This isn’t the case in software and services.  Yes, as Apple and Samsung have shown, software can help differentiate your device and drive consumer preference, but it’s not an adequate bulwark against price erosion.  As Apple shows, margins still erode.
  3. Despite #1-2, there’s an opportunity for local players to build durable brands in their home country and region.  Clever marketing, pricing schemes, proprietary apps (thinks Messaging and Games), etc. can all help these players differentiate.  I wonder though if these become the Compaqs, Gateways, and Dells of their market.
  4. As many people are expecting it to do, Apple needs to introduce a lower cost iPhone.  It’s margins will decrease further if it does, but pure profit dollars should surge.
  5. Open source — in this case, Android — helps to commoditize hardware and to lower the cost of new technology adoption.
  6. The sheer number of Android users in markets like India and China (iPhone too) will be staggering.  Even if ARPU is low, there’s a huge opportunity for apps targeting these users.  WhatsApp and other mobile messaging apps might be the first examples of this.
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