Microsoft Announces Dell, Asus, and Lenovo VR Headsets (May 31, 2017)
The Verge seems to have secured the first of two exclusive looks at Android founder Andy Rubin’s new phone, from his company Essential (Recode’s Code Conference will have an interview with Rubin tonight where I’d expect him to share more). So far, there’s nothing about the software, beyond the assumption that it’ll run Android. So the focus is entirely on the hardware design, including the materials, connectors, and a theoretical ecosystem of modular add-ons (for now, there’s just one: a 360° camera). The reporting on this is all a little breathless – Andy Rubin has quite a reputation and anything he launches will be accorded a fair measure of respect. But the pitch here feels so much like almost every other new entrant in the market, a mix of straw man arguments about the current state of the market, grandiose claims about how all that will change, ambitions to build an ecosystem without any evidence that any other player is interested, and nothing at all about distribution, which continues to be the key question in the US smartphone market. We’ll hopefully know a little more by tonight, but I’m extremely skeptical that this phone will do any better than any other recent attempt to change the smartphone market. In the meantime, that won’t stop this project from getting tons of positive media attention in the run-up to an actual launch sometime later this year. It’s worth noting that beyond the phone there are some other bits and pieces too, including a smart home OS and speaker with a screen, but again the details are so short and claims so grand that I’m inclined to ignore them until we actually know something specific about them.
via The Verge
I’ve been both intrigued by and enormously skeptical of LeEco’s US market entry from the beginning, as this piece I wrote after its US launch back in October suggests. The company had been successful in China on the basis of a slow evolution from a content to a hardware company, and yet its US launch seemed to have turned that strategy almost entirely on its head without the compelling content that helped it succeed domestically. It also made many of the same mistakes as other Chinese companies attempting to expand into the US by not making enough changes to its playbook when it moved to the US. There have been reports for a few days now about an impending massive cut to the US business, and today has brought official confirmation. There’s no schadenfreude here from me given the large number of people losing their jobs, but hopefully LeEco’s story serves as a cautionary tale for other Chinese companies entering the US market. As the essay and video in the related narrative suggest, this has always been a tough task, and no Chinese company has really succeeded in building a big, successful ecosystem in the US. Even those that have done well more narrowly, such as in low-cost hardware, have taken years to get there and even then aren’t considered in the same class as leaders like Apple, Samsung, LG, or even Sony. Ironically, LeEco’s retrenchment now to serving Chinese-speaking residents of the US would have made a ton of sense as a market entry strategy last year, starting much smaller and more modestly, and slowly expanding out from that core into the broader US market. Instead, that new focus is the result of a somewhat humiliating defeat, caused in equal measures by an overly hubristic and poorly thought out market entry and financial constraints at headquarters that gave that strategy very little time to play out. This could – and should – have gone very differently.
Amazon Updates 7″ Tablet, Lowers Price on 8″ Version (May 18, 2017)
The tablet market continues to be one of the most interesting in consumer electronics. Having grown faster than any other previous new category, it’s been in decline now for several years, with almost all players seeing declines in sales. Amazon’s chunk of the market has always focused on smaller, cheaper tablets, partly a reflection of its inability to compete in premium hardware but also reflective of a broader strategy of selling devices at or below cost to stimulate investment in its ecosystem. It’s now refreshing its 7″ tablet, its cheapest and most popular version, and also lowering the price on its slightly higher end 8″ version, a sign that it’s still very interested in the category. That’s interesting at a time when Apple has said its sub-9.7″ tablets are the only segment of its iPad business that’s declining, and when it’s reported to be considering phasing the smaller iPad mini out altogether. What we’re seeing in some ways is an increasing bifurcation of the market between larger premium tablets used by adults for work and other more sophisticated tasks and smaller cheaper tablets used mostly for video watching and to a greater extent by kids.
Google’s Education Strategy Profiled in New York Times (May 15, 2017)
Snap, owner of the Snapchat app, today reported its first earnings as a public company, and it was a somewhat unique experience. Its press release, linked below, is entirely devoid of commentary, and although its call had a little more of that in prepared remarks, it was mostly focused on its evolving ad products. The results themselves are more of the same from the S-1 filing, which I suggested at the time was lousy preparation for an IPO because it featured significantly slowing user growth and a lack of clarity about the future. This first quarter of public earnings reinforces that perception, with more slower growth than last year. Massive stock-based compensation related to the IPO dramatically distorts the margin picture, but even stripping out SBC leaves a worsening margin picture as costs in several categories rose faster than revenue. Evan Spiegel and the other executives on the call seemed keener to talk trash about competitors, notably Facebook, than in really answering investors’ pressing questions about user growth, and that’s reflected in the stock price, which has dived since the release. The bombastic tone would have been justifiable if the company’s growth hadn’t slowed significantly since the introduction of Instagram Stories with no signs of recovery, but in the current context it feels like naivety or denial instead. Snap’s management argues that measures of engagement and “creation” are more important than user growth metrics. However, it provides very few of those, and then not consistently or with enough granularity to measure them over time. The conclusion from all of this is that Snap’s future is that of a niche company dominating narrow segments of the population rather than a company with broad mass market appeal, and that has significant implications for its valuation. Two other points worth making: the company provided enough data in today’s call to suggest it sold fewer than 100k Spectacles units since launch, confirming the perception that it’s been seen as an experiment than a meaningful new part of its business. Secondly, it continues to suggest that its sub-par Android app has hurt growth, and that recent improvements have moved the needle, though the numbers in question have moved so little that this isn’t going to turn around the growth trend.
via Snap Inc.
Android is notorious for its poor track record in supporting older devices, but one of the supposed advantages of the old Nexus program and the new Pixel devices was supposed to be solving that issue by removing the carrier and OEM middlemen from the process of OS updates. However, Google has officially stated that the Pixel devices aren’t guaranteed to get further OS updates beyond two years from their launch, while they will receive security patches for another year after that. Given that these are Google’s current and only devices, the idea that someone would buy one today with no guarantee of OS updates after 18 months is a bit much, especially given that average upgrade cycles are lengthening towards three years. Bear in mind, for example, that all iPhones back to the iPhone 5 (now four and a half years old) run iOS 10. For Google to offer such limited upgrade support even on its own devices is baffling and a sign that it’s not yet taking its first party hardware seriously enough. My guess is that these are bare minimum timeframes and that it may end up prolonging support beyond these official dates, but the message it’s sending here isn’t great.
Microsoft was one of numerous big tech companies that reported Q1 2017 financial results (its fiscal Q3 results) this afternoon, and the only one of the big three to miss on revenue. That revenue miss was largely due to a shortfall in hardware revenue as Surface had its first big year on year decline in a year and a half due to a lack of new mass market hardware, and phone revenue dropped to essentially zero. However, these two businesses together make up just 4% of Microsoft’s revenue, which continues to be dominated by software and to an increasing extent services, while growth is dominated by the move to the cloud. Microsoft’s cloud revenue run-rate is now at an annualized $15.2 billion, compared to Amazon’s $14.5 billion in actual annual revenue, though Microsoft’s definition of cloud here is far more expansive than Amazon’s. The productivity business had a particularly strong growth quarter at over 20%, while the Intelligent Cloud segment also improved a little to just over 10%. But margins continue to fall overall as the newer cloud services generate less profit than Microsoft’s old massively profitable software business did, and that picture isn’t likely to change. Microsoft is growing again after both lapping the introduction of Windows 10 and the revenue deferral associated with the new business model, and also getting past the biggest drops in the phone business, but it’s mostly doing so by doubling down on enterprise products and services while its consumer and hardware businesses mostly continue to struggle to find growth.
Nintendo Sells 2.74m Switch Units in First Month (Apr 27, 2017)
In case there was any doubt, Nintendo has a hit on its hands with the Switch, its hybrid console/portable gaming system. It sold 2.74m units in the first month after launch, which is apparently roughly the same number that the earlier Wii U sold in its first year, and 20% of total sales to date of the Wii U. That’s not hugely surprising – reviews were mostly decent, the device has been out of stock off and on since it debuted, and the company had already upped its production. That was enough to generate almost exactly a billion dollars in revenue, or a little over 20% of the company’s entire revenue for the fiscal year which ended last month. The company’s forecast for the new financial year, which ends next March, is 10 million unit sales. Remarkably, Nintendo has sold ever so slightly more copies of the Zelda game that’s the standout title for the device at launch than of the console itself, which might just be a reflection of those supply constraints. In total, Nintendo appears to have sold around twice as many software units as hardware units in the Switch category, suggesting that people have bought an average of two games from Nintendo for every console. Together with Nintendo’s belated push into mobile gaming, it’s doing pretty well at the moment, though that mobile push is still generating much less revenue – the category which includes smartphone gaming only generated around $200 million in revenue for the year.
Amazon Readying Launch of Echo Device with a Screen (Apr 27, 2017)
Spotify is Hiring for a Hardware Project (Apr 24, 2017)
Spotify is apparently hiring a senior hardware product manager, even though it doesn’t currently make any hardware of its own. The job listing (which is as far as I can tell no longer on the Spotify Jobs site) suggests that Spotify is looking to create a hardware product, although there are no real details about what form it might take. Predictably, the focus is music and talk content, so this is likely an audio player of some kind. The fact that Spotify has now removed the listing suggests that it probably gave a little too much away (or didn’t expect any reporters to find the listing), though the attention this is getting now may well spur just the kind of applications Spotify is looking for even without a formal listing. A move into hardware does and doesn’t make sense for Spotify. On the one hand, given the difficulty it’s had in generating a profit from music services, it might see hardware as a source of margin. But hardware is a notoriously low margin business, with single digit margins even for large scale players, and with many consumer electronics companies actually in the red frequently if not permanently. As such, coming from a standing start into what’s likely to be an established category feels like a steep uphill battle for Spotify, and I don’t rate their chances highly. To top it all off, of course, Spotify currently benefits enormously from being a device- and platform-agnostic service, which makes it appealing for other hardware vendors to integrate it. If it starts to compete with those vendors, that attitude might start to change. Also worth noting is that the company seems to be hiring people with voice technology and natural language processing skills, which may be part of the same project, but also looks like a wider initiative at Spotify.
Nintendo Kills off NES Mini but May be Working on SNES Mini (Apr 19, 2017)
Here’s our second LeEco story of the day, both fairly momentous (the first was news that the Vizio acquisition had fallen through). This one fits with the recent narrative of financial troubles at LeEco, and if the numbers in here are right, then things are indeed going very badly, with revenue of $15 million versus a target of $100 million in 2016 and layoffs of around a third of the US employee base planned. I’ve been skeptical of LeEco’s strategy from the beginning, and have only become more so as we’ve seen that strategy play out in the shadow of the financial troubles of the parent company. More broadly, LeEco’s struggles in the US demonstrate how different the US and China still are as markets, and how hard it is for companies to go either way across that chasm. No big Chinese company has yet been successful in the US, and Apple remains something of an exception as a US company that has done well long-term in China. LeEco was up against this from the beginning and its focus on an ecosystem play was always going to struggle without a big known brand like Vizio at the center of it here in the US.
This is an interesting strategy for Microsoft, which is releasing specs but not many more details for the next generation Xbox, which is codenamed Scorpio. On paper at least, it’ll be more powerful than its major competitor, the Sony Playstation 4 Pro, in several departments, but the consensus among gaming blogs seems to be that what Xbox needs isn’t so much better hardware as better software, or in other words more compelling games. This is where the Sony console has taken the lead in the current generation, and where it continues to do quite a bit better than the Xbox for now. It’s possible that the better hardware might spark better games from developers keen to push the limits, but Microsoft will obviously have to work hard and directly to get more developers and more titles on board. For now, this spec release by itself does little to tell us how the next-generation Xbox will do.