Narrative: Hardware is Hard
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Narrative: Hardware is Hard (Jan 24, 2017)
Written: January 24, 2017
We live in a paradoxical time when it comes to hardware. On the one hand, it’s easier than it ever has been to create a new hardware product – the Shenzhen ecosystem in China makes every conceivable component available at low cost at volumes from tens to millions, and platforms like Kickstarter and Indiegogo make it possible for anyone with a great idea to raise money from would-be buyers to fund manufacturing. On the other hand, actually selling those products in larger numbers and building a sustainable business off the back of it is perhaps harder than it’s ever been, because hardware is increasingly part of an ecosystem, and those ecosystems have to compete with some of the biggest names on the planet – Apple, Facebook, Google, Microsoft, and Samsung.
Hardware is therefore both very easy and very hard – easy in the short term sense of getting a new product made, and hard in the sense of creating an ecosystem that can compete with the big players on an ongoing basis. Beyond that, smartphones are absorbing more and more functionality that was once provided by standalone devices – think of cameras, camcorders, fitness trackers, e-readers, PDAs, BlackBerries, and goodness knows how many other electronic devices. Being a one-trick hardware pony is particularly tough when you not only have to compete against other dedicated devices from big players but face the risk that the most widely adopted device in the world – smartphones – might eventually absorb the whole category.
Thirdly, competing with a quality product is increasingly tough when cheap alternatives from the very same Chinese manufacturers can easily undercut you on price with decent product quality. Again, the best brands build more than just hardware, but that means standalone hardware manufacturers need to get very good at software and services too, which is tough to do for a startup. Doing all this across multiple product categories at once to form an ecosystem is almost impossible without massive upfront funding, which again works against the new hardware company.
Even for large companies well established in other domains like software or services, getting into hardware can be hard. It may mean competing with erstwhile customers and partners, as both Google and Microsoft have begun to do in recent years, or it may mean learning entirely new skills, as Amazon has had to do, with mixed success (see the Kindle and Amazon Fire TV, but also the Fire Phone).
None of this is to say that it’s impossible to be successful in hardware from a standing start – several big Chinese companies have emerged in the smartphone space in recent years, with Oppo and Vivo becoming top 10 players seemingly out of nowhere. LeEco has become a hardware player from a services heritage with a decent amount of success, though it’s struggling to parlay that domestic success into a strong position in the US and elsewhere, and its rapid expansion is causing financial troubles. Successful non-Chinese hardware startups are harder to find – having a home base in both a massive and low-cost market helps enormously. GoPro and Fitbit have appeared to be success stories in recent years, but over the last few quarters it’s become clearer that both face significant challenges in taking their single-category model much further in the face of small total addressable markets and fierce competition from both cheaper alternatives and big ecosystem players. This is a tough market, and it’s going to take something really special to do well from a standing start in hardware over the next few years.
GoPro today held an event at which it announced two new cameras: the latest in its core Hero line, the Hero6, at $499; and a VR camera called the Fusion, which will sell for $699. The Fusion had been pre-announced back in April ahead of a pilot program which has been running over the last few months, but the suggestion at the time was that this was a camera for professionals, implying a price point in the thousands of dollars. However, what we’ve actually ended up with is something which – if not exactly consumer-grade – is at least within reach for serious hobbyists. The concept is very clever, combining video from two overlapping lenses to create 360° video in a unique way, which can eliminate the pole holding the camera from the shot and make it appear as if it’s floating in front of the subject. But it’s also designed to allow creators to edit videos after the effect, choosing the angle they want from the 5.2k video the camera outputs to create more conventional videos. The Hero6, meanwhile, is a more conventional device, with some predictable upgrades from earlier models, and it’s notable that it maxes out at exactly the same resolutions as the iPhone 8 – 1080p at up to 240 frames per second, and 4K and 60 frames per second – though obviously with a larger camera, sensor, and so on. As a reminder, GoPro has recently returned to growth at a rather lower scale than at its peak, and is losing money as a result, so devices that can provide new revenue streams are critical to its future. The Fusion looks like one of the more unique products it’s launched in recent memory, but at the $699 price it’s not likely to sell in huge numbers, while the Hero6 will be a nice upgrade for some existing owners but not likely by itself to pull new people into the GoPro ecosystem, something the company has anyway been de-emphasizing as a goal.
BayStreet Research financial analysts say that Sprint has sold just 5,000 Essential smartphones since its launch earlier this month, as reported here by FierceWireless. My guess is that the figure is based on channel checks, in which analysts call around random stores and ask how many units they’ve sold, and then add those up to create an estimate. Given the number is so low, I’m guessing the analysts found an average of just one sale per store. None of this should surprise anyone – I’ve been skeptical about Essential right from the start, and though I’d guess it’s sold quite a few more devices through its own online store than Sprint has, the numbers are likely still very small. Given the massive financial backing Essential has received, it’s got plenty of runway to go to figure all this out, possibly including a broader carrier distribution once its exclusivity arrangement with Sprint is over. But it’s increasingly clear that even a well-reviewed phone from a name with a history in the industry can’t break through the oligopoly that is the US smartphone market.
Snap Cuts Jobs, Changes Management for Hardware Unit (Sep 21, 2017)
Snap Inc has apparently cut about a dozen jobs and shuffled management in its hardware unit in recent weeks, according to Bloomberg. The only hardware this group has shipped so far are the Spectacles camera-glasses launched late last year, which had sold less than 150,000 units as of the end of June by my estimates, and accounted for less than 5% of revenue during that time. Hardware may still end up being an important future revenue stream for the company, but that future certainly isn’t here yet, even though there have been reports about drones and other hardware in the works. Eliminating marketing people from the group suggests either that Snap was unhappy with their work or that it won’t have new hardware to market anytime soon (or both), which reinforces the sense that a meaningful hardware revenue stream is still way off. To put the job cuts in context, though, 12 people represent a tiny fraction of Snap’s overall employee base, which sat at 2600 at the end of June and has likely risen significantly since then (it was under 2000 at the beginning of the year). I argued at the time of the launch that the vending-machine-based scarcity marketing for Spectacles was a very clever way to get far more attention than raw demand itself would warrant, but it never led to much more actual demand.
The Financial Times reports that Amazon is working on two new hardware categories: Alexa voice assistant-enabled glasses, and home security cameras which would integrate with Alexa hardware in various ways. The home security camera seems by far the less surprising of the two, given that it’s one of the bigger existing smart home market segments and a logical extension of what Amazon is doing with its Echo line (including the Echo Look, which already incorporates a camera). But it’s the voice-enabled glasses that are both surprising and somewhat baffling as a concept, especially because there’s no ostensible connection between glasses – a primarily vision-oriented product – and Alexa, a product centered on the ears. It sounds like the glasses are a way to hide bone-conduction audio in a less nerdy way than a bluetooth headset would, but for those who don’t normally wear glasses, aren’t they at least as nerdy, not to mention conspicuous? There’s arguably some logic to using bone conduction as a technology because it doesn’t block the ear in the same way as earbuds and headphones, but I’m really not convinced that glasses are the best way to deliver that experience. It’s also worth noting by way of context that Amazon has arguably never had a successful personal consumer device. Its one earlier attempt – the Fire Phone – was a huge failure, and all of its other devices are arguably less personal and more shared devices, often with fairly uninspiring industrial design which makes me skeptical that Amazon knows how to create appealing personal products. Given that the FT says both of these products could launch by the end of the year, I guess we’ll see the details soon enough, but I’m enormously skeptical on the glasses though the cameras seem like they’ll sell well, albeit now with stronger competition from Nest.
via Financial Times
AT&T Launches Own-Brand Tablet with DirecTV Front and Center (Aug 21, 2017)
AT&T today announced Primetime, an own-brand LTE-enabled tablet which it will sell under an installment model and allow customers to add on to their shared data plans. The device puts the DirecTV services AT&T also sells front and center, meaning that this is not just an opportunity to sell more connected tablets but also another push to connect its wireless and entertainment offerings in bundles. History here throws up some worries: Sprint and Verizon have seen terrible tablet subscriber growth in the past year because they’re passing the two-year anniversary of when they gave away lots of free tablets on two-year contracts, and customers are now churning in big numbers. This tablet from AT&T carries its own brand, and it’s not clear from AT&T’s press release what sort of specs the device has, but there’s a risk that AT&T sees the same churn in 20-24 months when customers have paid these things off. Overall, I’d also argue that AT&T’s bundling of wireless and entertainment hasn’t worked all that well either for its TV business or its wireless business, both of which continue to bleed subscribers, while Verizon bounced back in a big way in Q2 thanks to its big push around unlimited. That, and not TV/wireless bundles, seems to be what’s selling in the US wireless industry at the moment, and AT&T is the odd one out among the major carriers in not promoting the unlimited offerings it re-introduced earlier this year. I’m not sure this tablet changes any of that, and it feels like another attempt to shoehorn DirecTV into a wireless proposition rather than simply leading with what customers are looking for.