Paul Wallbank – Brilliant Communications

Tag: smartphones

  • Preparing for the mobile data explosion

    Preparing for the mobile data explosion

    Late last month Cisco Systems released its annual Visual Networking Index that tracks the company’s predictions for the growth of global network traffic over the upcoming five years.

    It’s no surprise this year’s report predicts global data traffic will grow at over fifty percent compounded each year with Cisco expecting 24.3 exabytes to be pushed around the world’s networks each month by 2019.

    Most of that network traffic will come from tablet and smartphones with Cisco predicting data use will grow by up to a factor of five on those devices with devices like wearables growing fourfold.

    This growth creates a challenge for telcos as they invest in capacity to deal with the increased traffic and Cisco sees half of all smartphone connections will be handed off to WiFi networks by the decade’s end.

    Summary of Per-Device Usage Growth, MB per Month

    Device Type

    2014

    2019

    Nonsmartphone

    22 MB/month

    105 MB/month

    M2M Module

    70 MB/month

    366 MB/month

    Wearable Device

    141 MB/month

    479 MB/month

    Smartphone

    819 MB/month

    3,981 MB/month

    4G Smartphone

    2,000 MB/month

    5,458 MB/month

    Tablet

    2,076 MB/month

    10,767 MB/month

    4G Tablet

    2,913 MB/month

    12,314 MB/month

    Laptop

    2,641 MB/month

    5,589 MB/month

    Source: Cisco VNI Mobile, 2015

    Handing half the growth in mobile traffic over to Wi-Fi connections, most of which will be connected to fiber or ADSL services will provide challenges for fixed line operators as well who will see the demand for capacity also explode over the rest of the decade.

    Much of this explains the moves by companies like Telstra to roll out public Wi-Fi services to start locking users into their services. It also gives them, and consumers, an opportunity to understand how networks that mix both cellular and Wi-Fi behave.

    Cisco_M2M_connections_to_2019

    Another aspect of the Cisco VNI survey is the Internet of Things which is going to see exponential growth as industrial and household devices start being connected either directly through the telco networks, across unlicensed radio spectrum or over private Wi-Fi systems.

    While Cisco predicts the bulk of that traffic as being generated by smartphones, the company sees connected devices as growing by 45% per year over the next five years with 3.2 billion sensors connected to the internet by the end of the decade.

    Cisco-2015-VNI-M2M-connections

    Notable in the prediction that Low Powered Wide Area (LPWA) networks – non cellular systems mostly operating in the unlicensed spectrum used by Wi-Fi networks – will provide nearly a third of the connections by 2019. At the same time we can expect many M2M deployments to consolidate traffic locally with much of the data processing down locally before the residual information being passed up the network.

    As usual the Cisco VNI report underscores, and possibly understates, the growth in mobile data usage we’re going to see over the rest of the decade. For businesses, it’s time to plan for managing both the flow and application that smart devices are going to generate in our daily operations.

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  • Samsung needs a win with the Galaxy 6 smartphone

    Samsung needs a win with the Galaxy 6 smartphone

    Having seen its dominance of the smartphone market eroded by a resurgent Apple and a range of upstart Chinese vendors, Samsung has announced it will launch its Galaxy 6 smartphone on March 1 reports the Sammobile website.

    The new phone is reported to boast a curved screen measuring somewhere between 5.1 and 5.3-inches a fingerprint sensor and a 20 mega-pixel camera, which compares well to the iPhone 6’s eight mega-pixel camera.

    While the proposed specs are impressive, the company has a challenge ahead as consulting firm IDC reported its smartphone shipments dropped 11% year on year last quarter in an market that grew by quarter.

    Top Five Smartphone Vendors, Shipments, Market Share and Year-Over-Year Growth, Q4 2014 Preliminary Data (Units in Millions)  source IDC Research

    Vendor

    4Q14 Shipment Volumes

    4Q14 Market Share

    4Q13 Shipment Volumes

    4Q13 Market Share

    Year-Over-Year Change
    1. Samsung

    75.1

    20.01%

    84.4

    28.83%

    -11.0%
    2. Apple

    74.5

    19.85%

    51.0

    17.43%

    46.0%
    3. *Lenovo

    24.7

    6.59%

    13.9

    4.75%

    77.9%
    4. Huawei

    23.5

    6.25%

    16.6

    5.66%

    41.7%
    5. Xiaomi

    16.6

    4.42%

    5.9

    2.03%

    178.6%
    Others

    160.9

    42.9%

    120.9

    41.31%

    33.1%
    Total

    375.2

    100.0%

    292.7

    100.0%

    28.2%
    *Lenovo + Motorola

    24.7

    6.6%

    19.5

    6.7%

    26.4%

    While the numbers for the Chinese manufacturers are impressive, Apple’s shipments should also worry Samsung given the two companies are fighting for the top end consumers in the European and North America markets.

    For Samsung  its smartphones form a central part of its Internet of Things strategy so the success of the Galaxy 6 is critical to the company’s future plans, particularly given the lukewarm reception to the Tizen based Z1 phone on the Indian market last month.

    Samsung’s China Crisis

    With Samsung struggling with both its high end Android smartphones and its lower priced Tizen devices as Chinese manufacturers like Lenovo, Xiaomi and Huawei steal market share, the company  desperately needs to hit the mark with the Galaxy 6.

    Google as well has a stake in Samsung’s success as the Chinese manufacturers are increasingly turning to open source versions of Android for their smartphone systems. A flagship device for Android to counter the iPhone 6 is desperately needed to keep consumer and developer interest in the Google Play store and for Google’s consumer IoT ambitions.

    The stakes are high for both Google and Samsung, the South Korean giant getting a mis-step with the Galaxy 6 could see it following the faded fortunes of its Japanese competitors.

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  • Advertising and the mobile, digital consumer

    Advertising and the mobile, digital consumer

    Last week Google and Facebook announced their quarterly results with the search engine giant continuing its worrying slowing of advertising revenue. The respective changes of the two online services show how online advertising is changing.

    While Google slows, Facebook is showing accelerating growth for its advertising, driven mainly by mobile users, illustrating the shift in internet usage from desktops to smartphones.

    In its 2014 New Digital Consumer report, market research company Nielsen observed that US consumers in 2013 were spending more time accessing the internet on their smartphones than on personal computers; PC use had fallen seven percent to 27 hours a week while mobile use had surged 40% in 2013 to 34 hours.

    Television still remained dominant with the combination of live and time shifted TV viewing making up 144 hours of the average American’s week, although it did fall slightly.

    Nielsen-time-spent-per-device-2013

    Those figures are a year out of date and there’s no doubt the numbers have accelerated since then. One of Tim Cook’s triumphs at Apple has been the release of the iPhone 6 and the larger form factors in the current generation of smartphones is a response to consumers’ demand to watch video on their devices.

    Bigger Android, Windows and Apple smartphones will only seen even more people using their mobiles to watch video and surf the web.

    Which puts Google’s predicament in sharp focus; we are definitely in the post-PC world yet their revenue still overwhelmingly comes in from desktop users while Facebook’s is increasingly coming from mobile consumers.

    A strength Google has is that its revenues still dwarf the social media upstart’s – Google’s income is currently six times greater and its gross profit margin doubles that of Facebook’s – giving it plenty of leeway to change.

    The question is where do the new revenues come from? Probably the biggest opportunity Google missed was in replacing the Yellow Pages franchises with their own local small business listings with Google Your Business (aka Google Place and Google Plus for Business) being lost in a confused and bureaucratic corporate strategy.

    Compounding the problem for Google in the small business space is Apple’s entry and while Apple Maps is no contender against Google’s far superior product, an integration with Apple Pay would give Apple far more rich data to enhance listings with – not to mention more of an incentive for merchants to sign up.

    With the changing web, Google are going to have to change as well. If advertising is going to remain the mainstay of their business then the company needs to find a way to capture smartphone users.

    It could be worse however, a report from consulting firm Strategy Analytics estimates print media’s share of advertising revenue fell another seven percent this year. Time is running out for newspapers.

    strategy-analytics-share-of-advertising-revenue

    While print is ailing, the advertising battleground is mobile digital although TV still dwarfs the market. How this evolves in the next five years will define the next generation of media tycoons.

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  • A tale of two business models

    A tale of two business models

    The stunning quarterly results of Apple announced yesterday compared to Microsoft’s indifferent performance illustrate how the fortunes of two different business cultures have changed.

    Apple yesterday announced a spectacular result for its quarter finishing at the end of last year with  revenues up 30%, profits by 38% and Earnings Per Share just short of fifty percent.

    The announcement was an emphatic vindication for Tim Cook and his management team who made some big bets on the larger form factor iPhone 6 which paid off spectacularly with shipments growing 46% to 74.5 million and revenue reaching $51.2 billion, over two thirds of the company’s total sales.

    One notable aspect of Apple’s success is the difference with Microsoft’s and this shows how different business cultures come in and out of fashion.

    The Triumph of the MBA

    For two decades Microsoft’s licensing business model was dominant and this confirmed the MBA view that companies should do everything they can to move design, research, manufacturing and distribution out of their operations – the virtual corporation where there was no inventory, few costs and even fewer risks was the ultimate aim of the modern manager at the turn of the century.

    Microsoft encapsulated this philosophy with its licensing model, while the company made massive sales with huge margins – as it still does – all the business risks in the computer market were carried by resellers and equipment manufacturers. For many years the markets loved this.

    Apple tinkered with the licensing model under John Sculley in the mid 1990s during Steve Jobs’ exile but was never really serious about giving away its hardware capabilities and in 2001 moved into retail with the opening of the first Apple Store.

    Coupled with the App Store, Apple have come to control the entire customer journey from marketing, design, purchase and ongoing revenue after the product is bought.

    King of the new Millennium

    While the 1980s and 90s were the time of triumph for the Microsoft model, the 2000s have been good to Apple as shown by the revenue and profit figures.

    Apple and Microsoft Revenues 2000-2014
    Apple and Microsoft Revenues 2000-2014
    Apple and Microsoft Profits 2000-2014
    Apple and Microsoft Profits 2000-2014

    The key inflection point in these charts is, of course, the iPhone’s release in 2007. Apple caught the wave of change as computer use switched from personal computers to smartphones and is now the dominant vendor.

    For Microsoft the success of Apple is bittersweet; the company had a smartphone operating system in Windows CE but it was too early to the market and the devices vendors went to market with were, at best, substandard.

    Microsoft’s failure with the smartphone was also echoed with tablet computers and exposed the licensing model’s reliance on vendors to supply and support decent products, even today Microsoft’s hardware partners struggle to release decent tablet systems.

    Cloudy on the web

    Another problem that exposed Microsoft’s weaknesses was the rise of the web where hardware and operating systems really did matter so much any more. Along with pushing out personal computer lifecycles it also had the consequence of allowing other systems into the marketplace, notably Linux and Google Android.

    With OS X, Android and Linux systems no longer hampered with the compatibility issues that irritated non-Windows users in the 1990s the market was open to adopting those systems. While the PC market has remained quite loyal to Windows, although the Apple Macs are showing serious growth as well, Microsoft’s system has barely any marketshare in other device segments except servers which are also declining as business increasingly move to cloud services.

    Apple have shown in the computing and smartphone business that controlling the hardware products is as important as supplying the software, a lesson that Microsoft now acknowledges with its restructure into a ‘Devices and Services’ company under former CEO Steve Ballmer.

    The problem for Microsoft is its margins for hardware are a fraction of its own licensing operations and weak compared to Apple’s returns. Microsoft makes 14% profit on its phone operations while the iPhone is estimated to deliver over 60%.

    Under current CEO Satya Nadella Microsoft is focusing on cloud services which also aren’t as profitable as its legacy operations but see it competing with companies like Amazon and Google who don’t boast the profits from their online operations that Apple makes from its hardware.

    Microsoft aside, the lesson Apple gives the technology is pertinent for its competitors in the smartphone space as well; companies like Samsung, LG and the army of Chinese handset vendors are going to find their markets tough unless they can take control of their software development and distribution channels – relying on Google for Android and telcos to get their phones to customers leaves them exposed in similar ways to Microsoft’s partners in the last decade.

    In the battle between business models, Apple is the current winner and shows throwing all of your business operations over the fence to partners and licensees is a risky strategy. How those lessons are applied in other sectors will test the limits of both management philosophies.

    Photo of Steve Jobs and Bill Gates by Joi Ito through Flickr

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  • Microsoft’s cloudy future

    Microsoft’s cloudy future

    This morning Microsoft announced its quarterly results and, once again, they confirmed the company’s move into the cloud, a transition that means the company has to deal with reduced margins in once immensely profitable markets.

    While Microsoft’s earnings beat analyst estimates, the stock still dropped on out of hours trading on the US markets. The reason being margins showed a slight decline and the impending release of Windows 10, which will be free for customers upgrading, portends a further fall in income.

    The fading of Windows is best shown in the results for the company’s Devices and Consumer licensing division which covers licensing of the operating system and is the second biggest contributor to Microsoft’s revenues and profits. The segment’s takings are slowly declining although surprisingly the division’s margins are standing up.

    Microsoft division performance 2014-15
    Microsoft division performance 2014-15

    Windows’ decline shows the post XP recovery Microsoft was hoping for the division has failed to materialise beyond a bump last quarter, as the company explained in its media release;

    Windows OEM Pro revenue declined 13%; revenue was impacted by the business PC market and Pro mix returning to pre-Windows XP end of support levels and by new lower-priced licenses for devices sold to academic customers

    With company making various versions of Windows 8 and 10 free, it’s hard to see the division doing anything but accelerating its decline as fewer people actually pay for the operating system.

    Fading margins

    Also illustrating Windows’ falling fortunes is how the Computer and Gaming Hardware division’s revenue threatens to overtake the Devices and Consumer Licensing group’s contribution. The problem for Microsoft with this that the manufacture of Xboxes and Surface tablets only boasts a profit margin of 12% against consumer licensing’s 93%.

    Last week at its preview of Windows 10 Microsoft showcased its HoloLens virtual reality technology, while impressive it’s unlikely to boast margins any better than Xbox consoles or Surface tablets. At best it will be a trivial contribution to the company’s bottom line.

    Microsoft Margins by operating segment

    Percentage margins Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15
    Devices and Consumer Licensing 87% 90% 87% 92% 93% 93%
    Computing and Gaming Hardware 15% 9% 14% 1% 20% 12%
    Phone Hardware n/a n/a n/a 3% 18% 14%
    Devices and Consumer Other 21% 21% 21% 17% 17% 23%
    Commercial Licensing 92% 92% 91% 92% 92% 93%
    Commercial Other 17% 23% 25% 31% 33% 35%

    Dwarfing both divisions in both revenue and profit is the Commercial Licensing segment which also boasts fat margins of 93% and accounts for nearly half the money coming into the organisation. Commercial Licensing remains static and provides the bedrock for the company’s cashflow.

    The big growth area remains the cloud with the Other Commercial division, which includes most of the online and professional services growing steadily. While showing growth, this part of the business boasts a relatively low margin of 33% so any market moves from Enterprise licensing to the cloud will have a sharp effect on the company’s bottom line.

    Mobile black holes

    Of all Microsoft’s divisions, the problem remains the Phone Hardware segment with low margins, declining sales and a shrinking market share. Reports released overnight indicate that over a third of Lumia devices sold are not being activated which may indicate distribution channels are having to deal with unsold stock.

    Compounding Microsoft’s poor position in the phone marketplace is the resurgence of Apple’s iPhone, particularly in the Chinese market where Microsoft is failing dismally. Global market share figures are indicating Apple may soon overtake Samsung as the world’s largest smartphone vendor while Android systems are coming to dominate the global marketplace.

    Tomorrow Apple will announce their results and we’ll see how the two companies are travelling, the contrasts will almost certainly be striking. For Microsoft, even if they do manage a shift to mobility and the cloud, they are unlikely to repeat Apple’s success in reinventing themselves.

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