Tag Archives: Apple

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.

Wall St’s too short term? Look in the mirror.

11 Aug

A friend sent me a link today to Jeff Bezos’ letter to shareholders from Amazon’s 1997 Annual Report.  It’s a great read.  Bezos lays out his long-term operating principles and basically cautions investors that Amazon will (a) focus on long-term strategy and dominance; and (b) this will mean that it will sacrifice short-term profitability.  Amazon continues to follow this strategy today as it invests heavily in long-term bets (AWS, Kindle, logistics infrastructure, etc.) and runs a low-margin business.  And investors continue to reward the company.  The stock is at an all-time high and it’s market cap is approaching that of traditional software giants like Oracle.  The latter fact is pretty astounding when you realize that Oracle had $5b of operating income quarter, whereas Amazon had <$100m.

I say all of this because one of the big debates in Silicon Valley over the last 4 years has been over the merits of going public versus staying private.  And one of the most often cited reasons for staying private is the ability to “innovate” outside the quarterly earnings pressure of public markets (other reasons are the distraction of the IPO process itself, cost of filings and ongoing SOX compliance, etc.)  In most cases, I don’t think the idea that Wall St is too short-term is a valid reason to stay private, though there may be other reasons.

wall st bull

There are two related arguments people make.  One is that the market is too focused on short-term earnings.  The other is that public companies can’t innovate because of this.  So I ask: what’s the evidence for this?  Some of the most innovative companies in tech – Google, Apple, Amazon, VMWare, eBay, Tesla, Netflix, Linkedin – are public.  These companies don’t have any trouble pursuing new initiatives, speculative ventures, interesting M&A, high R&D spend, etc. under the glare of the public market.  And every company on this list has been richly rewarded by the market.

In fact, some of these companies actively shun Wall St’s supposedly myopic focus on short-term earnings.  Amazon continues to be an incredibly low margin business and continues to invest heavily in growth and new businesses.  Similarly, Google doesn’t even provide quarterly guidance to investors.

The reality is that the public companies that face supposed Wall St “short termism” are the ones that have flawed business models.  Would Zynga and Dell (to name two troubled companies) rather be private right now?  Of course, well at least we know for sure in the latter company’s case.  It would take the heat off.  But the reason there’s heat to begin with is they’re flawed companies.  People don’t want to play expense-to-produce Zynga style social games on their desktop, and PCs are rapidly losing favor to the tablet revolution.  Public markets are very efficient at recognizing this.

If Dell and Zynga laid out a credible, long-term story to investors then I public markets could be receptive.  But they haven’t.  Dell has been trying to transform itself in to an IBM style enterprise software and services company for years.  It has spent billions of dollars in the process, which incidentally it may not have had access to as a private company.  Similarly, Zynga hasn’t laid out a credible story for where it goes from here, for example backtracking on earlier talk of exploring the online gambling market.  Zynga might even be in a worse position right now if private because they wouldn’t have access to the $1.1b of cash they currently have on their balance sheet.  Ditto all of this for other companies like RIM, which is also reportedly thinking of going private to “refocus with less scrutiny.”

Maybe the point of all of this is that a few exceptions withstanding, the best companies go public and they have no problem doing so.  They’re able to think about the long-term and invest in innovation without difficulty.

If you can’t compete effectively under the lights of the public market, don’t blame Wall St.  Look in the mirror instead.

Driven by Android, the Tablet Market in India is Exploding

25 Jun

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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.

Apple, Taxes, & the Silly Investment Argument

22 May

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Apple CEO Tim Cook testified before Congress this week regarding the low overall amount that Apple pays on its earnings, much of which is overseas.  Some quick thoughts:

  1. The corporate tax code (and personal as well) is insanely complex.  This complexity creates an untold number of deductions, exemptions, etc. for companies to utilize to lower their tax rate.  Complexity in rules creates opportunities for avoidance.  The code should be simplified.  It would make it easier for the government to enforce, easier for companies to structure their tax policies, and would offer a win-win for companies (reduced compliance costs, better transparency, etc.) and the government (more revenue, easier enforcement).
  2. It’s not the job of Apple or any other business to decide the right level of taxation, set optimal social policy, etc.  The system is set up in such a way that it asks companies to maximize revenue and profit to the extent that they aren’t doing anything illegal.  If we want to change the system, fine.  But Apple is only playing its role (maximize profit to the extent legal) within the framework that we/Congress have created.  
  3. Similarly, if we want Apple or American businesses to pay more in taxes, we should change the tax code.  Nobody is accusing Apple of doing anything illegal.  They’re simply following the law, which happens to be extremely complex and allow for the type of tax structuring that Apple has followed.  If Congress is unhappy with Apple, then change the rules.
  4. Finally, this whole episode is bringing up the issue of what we should do about overseas cash that companies have sitting in offshore accounts.  In a nutshell, multinational US companies earn money overseas.  If they repatriate that money back to the US, they have to pay US corporate taxes on the overseas earnings, whereas many other countries don’t tax earnings outside their borders.  So cash sits overseas.  US companies have over $800b of cash sitting abroad.  Apple has about $100b of it’s $145b total abroad.  We need a way for US companies to bring some of this overseas cash into the US.  

There’s no sign that under the current regulations any US company plans to repatriate cash.  This is bad for the companies and it’s bad for the government since we’re earning no tax revenue on these earnings.  I don’t know what the right rate is for these overseas earnings, but it should be something that’s broadly acceptable to most companies as well as the government.  

Having said that, I don’t buy the argument that simply letting companies repatriate their cash with a lower tax burden is going to somehow spur new investment.  US companies, including Apple, are already sitting on record levels of cash here in the US.  If they want to invest in the US, they already have plenty of cash to do so.  The reason they aren’t investing isn’t a lack of cash, it’s a lack of aggregate demand from consumers and other businesses for the goods/services that businesses are selling.  Changing tax rates won’t solve this.  

We could lower Apple’s tax rate to 0% tomorrow and that won’t change the investment decisions they make.  Businesses are rational.  If Apple saw growth opportunities they could capture by investing in the US, they would do it irregardless of tax rates.  They have plenty of cash to do so.  

This also gets to some of the arguments around businesses and employment.  Many people argue that if we lower the corporate tax burden, this will kickstart hiring by companies.  The same argument applies.  The reason companies aren’t hiring more aggressively isn’t a lack of cash/margin to do so, it’s principally a lack of demand and other factors like increasing productivity from existing workers.  If order books, foot traffic, etc. were growing at a brisk pace, companies would hire to meet the demand.  Absent that, why would they hire additional workers?  

Some of this logic might not apply to small and medium size businesses.  For business with less scale, lowering their tax burden might provide those businesses with the additional capital they need to make investments.  Would love to hear a strong argument why this is also the case with large businesses.  

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