Important Note
Tech Narratives was a subscription website, which offered expert commentary on the day's top tech news from Jan Dawson, along with various other features, for $10/month. As of Monday October 16, 2017, it will no longer be updated. An archive of past content will remain available for the time being. I've written more about this change in the post immediately below, and also here.
Spotify may delay IPO to 2018 as it rethinks licensing deals – TechCrunch (Feb 2, 2017)
As I’ve argued for some time now, it doesn’t bode well that Spotify, despite being the largest paid streaming music service in the world, doesn’t seem to be able to turn a profit. A big part of the problem is that its relationships with labels dictate sharing a very high percentage of revenue with them, which leaves Spotify with very little margin to cover all its other costs. It sounds like Spotify is now considering postponing what was to have been a 2017 IPO by another year while it goes back to the labels to renegotiate those problematic deals. The TechCrunch piece linked here suggests than appetites for IPOs of companies without profits has diminished, but that isn’t really the problem here – Spotify’s real problem has been that there hasn’t been an obvious route to profitability even if all its current growth trends continue – unlike a SaaS business with no profits, there’s no obvious growth lever that turns things around eventually. It’s Spotify’s fundamental business model that’s the problem here, and absent renegotiated contracts with the labels it’s hard to see how that changes.
via TechCrunch
Sony Reports Results for December 2016 Quarter (Feb 2, 2017)
Sony’s been such an interesting company to watch over recent years, because almost every aspect of its hardware business has been challenged, and it’s even exited some, like PCs. However, it’s had something of a renaissance in the gaming space, with the Playstation outperforming the Xbox in the current cycle, and actually growing year on year in the December quarter. The other interesting hardware business to watch at Sony its smartphones, because it’s taken a unique approach for an Android vendor, which appears to be paying off. That approach has involved focusing the smartphone business on the premium segment, resulting in a smaller but more profitable business. Sony’s smartphone shipments have dropped by about half from 2015 to 2016, but its margin rose to over 8% in Q4, well above the low single digit or negative margins most consumer electronics businesses generate. There’s an interesting signal here for other Android vendors about what it could take to find success, though there probably isn’t room for more than one or two vendors pursuing this premium strategy.
via Sony (PDF)
Apple is no longer the most valuable brand in the world as Google takes top spot – MarketWatch (Feb 2, 2017)
This is one of those exercises that seems almost entirely intended to garner interest for the company doing the evaluation, and indeed Brand Finance’s actual report starts by explaining how it does similar analyses for clients. As usual, the methodology is just opaque enough that we have no idea how the results are actually arrived at in detail, but it’s fairly clear that there is a financial component – in other words, it’s very likely that Apple’s drop in revenues in the past year had a big impact on its 27% “drop in brand value”. It’s ironic, then, that the report should arrive the same week as Apple announced its highest ever revenue and iPhone shipment quarter, not to mention highest Apple Watch shipments and revenue and highest Mac revenue. The short-term financial focus of the Brand Finance exercise is clearly something of a flaw in its methodology, but it’s generally worth discarding any such study entirely, unless it’s strongly rooted in customer perceptions of brands and the products they represent.
via MarketWatch
Samsung considers building US manufacturing base post-Trump – Reuters (Feb 2, 2017)
Another big tech company starts looking into US manufacturing in the wake of Donald Trump’s election as president. There’s no official statement yet, and Samsung hasn’t been the target of direct attacks from Trump in the same way Apple has, but it’s apparently feeling the heat regardless. It’s interesting to see even non-US tech companies start to respond to Trump’s calls for more US manufacturing – we’ve seen this already in the car industry, but now we’re seeing it with LG and Samsung too. This is a sign of just how unpredictable US government policy has become over the last few weeks compared with the relative stability of prior years.
via Business Insider
Target has stunned its employees by suddenly shutting down two big innovation projects – Recode (Feb 2, 2017)
Amazon got lots of attention around its Amazon Go store concept a few weeks back, though it’s still an extremely limited pilot program. Target, on the other hand, seems to have just killed off its own similar initiative out of nowhere. It’s obviously tempting to view this as some kind of response to Amazon’s moves, but given Amazon’s tiny presence in physical retail it seems far more likely Target simply felt the project wasn’t delivering meaningful results and its innovation budget was best spent elsewhere. Having said that, if physical retailers can’t at least attempt to compete with Amazon in innovating on their home turf, it doesn’t bode well for their ability to stand up to it more broadly.
via Recode
The Sky Is Falling For GoPro – Forbes (Feb 2, 2017)
The headline here is a pun a bit overblown, but only a bit. GoPro’s Karma drone literally fell out of the skies when it was first launched, and had to be recalled, finally going on sale again this week. This piece digs into the challenges GoPro faced in moving into a totally new hardware category, provides some broader context about how hard the drone market has been for others (see also Parrot), and GoPro’s broader challenges. GoPro was one of three companies I highlighted in a piece just over a year ago about the danger of being a one-trick pony in tech, along with Fitbit and Dropbox. Fitbit and GoPro have indeed been through the ringer since then, to differing degrees, with Fitbit having a really tough Q4, and GoPro struggling ever since its disastrous Session launch. Hardware is hard, and it’s even tougher when you’re in a category with a fairly low ceiling and that’s all you do. GoPro and Fitbit have both discovered that the hard way since I wrote that piece (though Dropbox is actually doing OK, partly by diversifying more effectively than either Fitbit or GoPro have).
via Forbes
Apple To Make iPhones in Bengaluru, India – Hindustan Times (Feb 2, 2017)
I haven’t seen any big US news outlets report this yet, and there’s been no official word from Apple, but several Indian publications are reporting that Apple has told officials in Karnataka that it intends to begin manufacturing iPhones through its partner Wistron in Bengaluru (Bangalore), in the province. Local manufacturing would help overcome some of Apple’s challenges in India, though certainly not all. They would help reduce prices by avoiding the import tax, and would allow Apple to permanently overcome the government’s ban on local retail for companies whose products aren’t made largely in India. That still leaves low incomes, tendencies towards thriftiness and favoring local brands, and other challenges for Apple in India, but it would be meaningful progress.
via Hindustan Times
Inside Libratus, the Poker AI That Out-Bluffed the Best Humans – WIRED (Feb 2, 2017)
When most of your news about AI comes from the tech world, it’s easy to imagine that big tech companies are the only ones doing interesting things in the field, but here as in autonomous driving there’s also lots of amazing work being done in academia, as in this case. Carnegie Mellon researchers have developed a poker-playing AI which combines three different methods for learning the game and ultimately beating human players. The piece is worth reading for the details of how this was done, but it’s also a good reminder that neither any single tech company nor the tech industry as a whole has a monopoly on big breakthroughs in AI.
via Wired
Apple Tops Samsung in the Fourth Quarter to Close Out a Roller Coaster Year for the Smartphone Market, According to IDC (Feb 2, 2017)
Pick your poison here – most of the big names have put out similar releases this week crowning Apple the victor in the December quarter for smartphone sales, narrowly pipping Samsung. This is an entirely symbolic victory, but it’s the kind of thing that often causes the more negatives around Apple to die down temporarily (which isn’t to say there haven’t still been various articles this week warning that Apple’s next phone had better be be a big deal or else). Two other things worth noting here: Apple only ever comes in at number 1 in the December quarter, when it sells massively more iPhones than in any other quarter, and so for the year as a whole Apple will always be behind Samsung. Secondly, the IDC figures and others I’ve seen seem to have used Apple’s official iPhone sell-in figure for its first fiscal quarter – there are issues with using sell-in as opposed to sell through in these contexts, but I see the logic in using an official figure rather than an estimated one. However, there’s a problem with this approach of taking Apple’s number this quarter, because Apple’s quarter actually started in the last week of September this year, giving an extra week of sales very early in the iPhone 7 cycle. Without that extra week of sales, it’s very likely Apple wouldn’t have been ahead of Samsung, but I’ve seen none of these market share numbers acknowledge that fact or adjust Apple’s number downward to account for it.
via IDC
Uber bows to government pressure and suspends its service in Taiwan – TechCrunch (Feb 2, 2017)
One of those rare occasions when Uber isn’t able to bulldoze its way through local regulations and ultimately gets what it wants (see also Austin, Texas). In this case, it looks like Uber followed its standard playbook of working in a market despite opposition and even fines from a government which wanted better compliance with laws and regulations, but despite some recent concessions wasn’t able to convince the government to let it operate legally. As such, Uber is now backing out of Taiwan, and it’s not clear when it will be allowed back. Uber’s approach ruffles feathers, but it is often able to use pressure from drivers and riders to overturn opposition. Uber often paints those opposing its entry or presence in a market as wanting to thwart progress, and there’s no doubt the Uber experience is often an improvement over what it replaces, but that doesn’t always justify taking a stubborn approach to flouting local regulations, and occasionally that approach backfires. (On the same topic today, Uber is also struggling with regulation in India’s Karnataka province)
via TechCrunch (see also Uber’s blog post)
iPhone 7, 7 Plus Grow US Installed Base – CIRP (Feb 2, 2017)
Consumer Intelligence Research Partners is often an interesting source of data, in particular on Amazon’s Prime base in the US, but also on other topics, in this case the US iPhone installed base. It suggests in this PDF press release that iPhone has a base of 132 million in the US, with the vast majority of devices in that base being models launched in the fall of 2014 or later, which puts the age of almost all of them at under 30 months. That’s striking at a time when upgrade cycles in the US have been lengthening, and Tim Cook was asked about that phenomenon on the Apple earnings call this week. The fact is that smartphone upgrade cycles have been lengthening, but the iPhone doesn’t seem to have been affected as much as other smartphones have. In part, that’s because iPhones have been the focus of both Apple’s own and carriers’ regular upgrade and leasing programs, and it’s partly the nature of the iPhone and those buying it. It’s also worth noting that the 132m figure is likely a tad high – it suggests a market share a little higher than most other sources I’ve seen. It also looks like the iPhone 7 sales cycle has kicked off faster than the 6S cycle, but more slowly than the 6 cycle, which is in line with evidence I’ve seen elsewhere.
via CIRP (PDF)
Google, Apple, Facebook, Uber plan to draft a joint letter opposing Trump’s travel ban – Recode (Feb 2, 2017)
It’s been interesting to watch the early separate responses of big tech companies to the immigration executive orders begin to coalesce into something more like a joined-up response, with both combined efforts on possible lawsuits in states like Washington, and now this letter from several companies. This letter could have focused merely on the practical aspects of the impact of the EOs on the companies and their employees, but goes further than that (at least in the the current draft) to address refugees and use words like compassion, going beyond mere self interest. The letter is measured and offers assistance in finding better ways to address the intended goals of the recent actions on immigration, which is at once less confrontational and also slightly condescending – I’m curious to see if the text evolves at all from this version. At any rate, it’s clear that we’re going to see ongoing engagement at various levels by the tech industry in this issue, including from a number of companies which participate in Trump’s tech councils.
via Recode
Warning Signs Abound As Snap Barrels Toward IPO – BuzzFeed (Feb 1, 2017)
Yet more signs that Snapchat is suffering both as a result of Instagram’s recent feature additions and perhaps because of broader cloning of its feature set by local alternatives in Asia. We’ll hear from the horse’s mouth shortly how Snap sees these changes, and it’ll have to work hard to refute these negative signals about engagement and growth in its app when it releases its public IPO filing shortly. The narrative around Snap is quickly turning negative, and it’ll have to intervene quickly to reset it (if it’s able to do so).
via BuzzFeed
Apple shareholder proposal seeks more diversity at top – USA Today (Feb 1, 2017)
Apple, along with most of the rest of the tech industry, could be much more diverse than it is in its employee makeup. It’s made progress in some areas (and can argue it’s the only major tech company to be run by an openly gay individual), but women and people of color are still unrepresented at all levels, and especially on the board and among senior management. This shareholder proposal wants Apple to move more quickly to change that, while Apple argues that it’s already working on increasing diversity, and the accelerated changes are focused too narrowly to be broadly beneficial in changing Apple’s workforce as a whole. It’s a reality that changing the composition of a workforce that’s over 100,000 strong is much harder than, say, Twitter’s workforce of a few thousand, and will take considerable time. And swapping out senior executives with full-time jobs based on increasing diversity alone obviously wouldn’t wash either, especially in a company that has as little movement in the upper ranks as Apple does. But board seats are one area where Apple could potentially move more quickly, because there’s a plethora of qualified individuals available. I’m betting the proposal gets voted down, but that’s not to say there isn’t some merit in it.
via USA Today
Apple Developing New Mac Chip in Test of Intel Independence – Bloomberg (Feb 1, 2017)
The first ARM-based chip in a Mac arrived with the new MacBook Pro with Touch Bar late last year, but it handled a brand-new function. Bloomberg is reporting that another ARM-based chip could take over functionality currently performed by the main Intel chip, which would be something of a first. Specifically, it’s the Power Nap function in macOS which the ARM chip would handle, something particularly well suited to a low-power, energy efficient chip. Naturally, all of this also enables Apple to continue testing ARM-based chips in Macs as a way of seeing which functions they might take over from Intel over time, with a possible endgame of replacing Intel entirely. Apple has been somewhat frustrated in recent years by its dependence on Intel’s roadmaps and the way PC makers have benefited more from recent upgrades to its chips than Apple has. Reducing its dependence on Intel in its Mac lineup might give Apple more freedom to move faster and differentiate versus PCs, and would also put pressure on Intel to help Apple do the same with its own chips.
via Bloomberg
Facebook Reports Fourth Quarter and Full Year 2016 Results (Feb 1, 2017)
Facebook is surely one of the most predictable tech companies in reporting massive growth and profitability at the moment, and today’s results were no exception. The same drivers that have powered growth were there again in Q4: massive growth in US & Canada ARPU (up 46% year on year), massive growth in users (MAUs up 17% or 269m), increasing ad load and ad prices globally, and ads in new places like Instagram Stories and Messenger. Facebook has even been driving desktop ad revenue again, despite a decline in underlying usage – it was up 22% thanks to better mitigation of ad blockers. The only tiny dark cloud is that this is all ad growth – Facebook’s revenue is absolutely dominated by ads, which were 98% of its revenue in Q4. Non-ad revenue continues to decline, despite its investments in Oculus and other new areas, and will do so throughout 2017 too. If you believe in long-term challenges around ad-based business models, whether for privacy reasons, hitting a ceiling, the perverse incentives they create for businesses that use them, or something else, that could be a problem, especially as Facebook has already said its ad growth will slow in 2017 due to saturating ad load. However, I’m still very bullish on Facebook overall, especially as I think there are lots of untapped markets, not least showing people more content that doesn’t come from their friends, especially video (which was mentioned by Zuckerberg on the call today).
via Facebook
Tesla Is Testing Self Driving Cars on California Roads – Bloomberg (Feb 1, 2017)
The headline is news, I guess, but far more interesting are the detailed reports each company testing autonomous vehicles in California has submitted for 2016. These reports lay out – in some cases in quite a bit of detail – the results of testing during the year, including the miles driven and the number of disengagements. This is a great counterpoint to the article last year which suggested Tesla had an edge over others in autonomous driving because its cars had driven many more miles – the reality is that Tesla’s truly autonomous cars drove just 550 miles on California roads, while Google/Waymo’s drove 636,000, or over a thousand times as many miles. What’s more, Waymo’s vehicles required just 0.2 driver interventions per thousand miles relative to Tesla’s 0.33 per mile. It’s also notable that the vast majority of Tesla’s disengagements were on wet roads – road conditions continue to be a major factor in the ability of many autonomous driving systems to function correctly, which obviously puts them a very long way from mass production and release to customers. I’m planning to dig into all these numbers some more.
via Bloomberg (see also this blog post from Waymo)
Facebook Loses $500 Million Virtual Reality Headset Verdict – Bloomberg (Feb 1, 2017)
I’ll have more on Facebook earnings shortly, and this is bound to come up, but this is a big loss for Facebook financially as well as embarrassing for some key figures from Mark Zuckerberg through the Oculus employees who were directly impacted in this verdict. Facebook will no doubt appeal, so this isn’t settled yet, and it only adds the equivalent of a quarter of the original purchase price to the $2 billion Facebook spent on Oculus, but it’s not chump change. Given how little revenue Oculus is likely to generate in the near term, this will put the acquisition further into the red for the time being. There are also eery echoes here of the Winkelvoss case against Zuckerberg himself, which of course was settled before a verdict like this was reached. Certainly not how Facebook would want to go into what looks at first glance like a really solid set of earnings.
via Bloomberg
Cheaper Rivals Eat Away at Apple Sales in China – WSJ (Feb 1, 2017)
This is a story that’s been going for a while now – China’s sales in China have been down, but ironically the quarter just reported was the first in quite a while in which its revenues in China itself were actually flat, per Tim Cook’s remarks on the earnings call yesterday. In other words, in China (as opposed to the Greater China region) Apple grew in constant currency by 6% year on year, its best performance in a year. However, as with other smartphone markets around the world, as the Chinese market continues to grow, more new users will choose cheaper Android phones than iPhones as their first phones, and those who prioritize price will always choose something other than an iPhone. The reason Tim Cook always emphasizes switchers and new users is that this is where future growth will come from, even as Apple’s market share falls – new users become upgraders in the next cycle, and as the market saturates, Apple’s share tends to rise. It’s too early to know yet whether that will happen in China, but that’s what Cook is banking on, not steadily increasing market share in a market that’s far from maturity.
via WSJ
Elon Musk’s Tesla Drops ‘Motors’ From Name – WSJ (Feb 1, 2017)
Corporate name changes are always interesting, especially when they’re mostly about cutting things from the name – Apple dropped the Computer from its name ten years ago the same month as it announced the iPhone, and Snapchat changed its name to Snapchat to coincide with its announcement of Spectacles. In both those cases and Tesla’s, the name change reflects a broadening of the company’s scope – Apple had added the iPod and was adding the iPhone, and perhaps already recognized that traditional computers wouldn’t provide the majority of revenue ever again, Snap was expanding beyond just its previously eponymous app, and Tesla is expanding into both solar power and home energy storage. It’s an entirely symbolic change, but also sets Tesla further apart as a carmaker in the breadth of its ambitions. I can’t see GM changing its name for the same reason anytime soon, but Tesla’s identity is always been more about innovation and change than simply making cars.
via WSJ