Apple today announced three new MacBook Pros and also introduced a new TV app for the Apple TV, iPad, and iPhone. The comments below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan is also at the Apple event and can be reached at 408 744 6244 or jan@jackdawresearch.com. 

Apple now has the most compelling and coherent lineup of laptops it’s had in several years. But Apple’s laptops no longer enjoy the kind of big hardware advantage they’ve had in the past. Instead, what we’re seeing is an increasingly stark difference in the philosophical approach taken by Apple and Microsoft in relation to touch on devices. Whereas Microsoft this week reemphasized its touch displays for Windows PCs with the Surface Studio, Apple reserves full touch displays for its iOS devices and focuses on the horizontal plane when it comes to interaction with Macs. The Touch Bar and larger trackpad reinforce this sense that Apple thinks you want to interact with your laptop while keeping your hands down rather than constantly reaching up and touching the screen. The Touch Bar clearly borrows heavily from some of the work done in recent years on iOS including predictive text and emoji translation, but does so in a way that’s optimized for the Mac, while Microsoft’s approach is more about the same interfaces everywhere. Apple has also come up with some clever adaptations for the Touch Bar based on the context, and it will be interesting to see how third party developers use this feature – there’s a lot of potential there. Touch ID will be a nice addition for security and online payments.

If you focus just on the most recently released devices, Apple’s laptop lineup now runs from the 12” MacBook through the more powerful new MacBook Pros, with sizes from 12 to 15 inches and weights from two to four pounds. This should provide options for everyone from those needing basic performance through to professionals working with processor-intensive creative apps, while every model in the lineup is now more portable as well. Apple is also borrowing from its iPhone and iPad strategy in keeping older devices around while the focus will shift to these newer models. The more powerful MacBook Pros are also now viable substitutes for desktops in all but the most demanding workflows, especially when paired with the new LG displays. Interestingly, the new models all feature the older Intel Skylake processors rather than the newer Kaby Lake processors, because the specific chips Apple is using don’t have equivalents in the Kaby Lake line yet.

Apple’s new TV app seems like yet another incremental step in the direction of a TV service. The biggest flaw in Apple’s vision of the future of TV being apps is that there are just so many apps (1600 video apps on the Apple TV alone), and dipping in and out of them isn’t a great user experience. The TV app provides a unifying interface that overcomes the fragmentation associated with an app model and brings much of the relevant content together. The big piece that’s missing at this point is live TV, which still requires individual apps, though Siri can help launch those. The new TV app should make Apple TV easier to use, and create something more analogous to the programming guides on pay TV services. However, Apple’s ability to get holdout app makers like Netflix on board will determine how useful the app ultimately is – the proposition breaks down pretty quickly if major apps are missing.

Microsoft today made a set of announcements including a new high-end all-in-one Windows PC called the Surface Studio as well as a new version of Windows 10 called Creators Update. The comments below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan may also be reached at 408 744 6244 or jan@jackdawresearch.com.

Microsoft has been refining its identity and strategy since Satya Nadella took over as CEO, and much of that focus and strategy has been centered on productivity and helping people get things done. That vision has married well with Microsoft’s renewed emphasis on business products and services, but it has also reinforced the sense that Microsoft doesn’t get consumers, or at least the consumer halves of its users’ lives. Microsoft has needed a rallying point for a set of efforts around consumer use cases, and it appears to have decided on creativity as the catchphrase for this push.

This new creativity emphasis includes both new creative tools within existing products like Windows and Office, and new hardware in the form of the Surface Studio and the existing Surface product line. Microsoft seems determined to challenge Apple’s historical edge among professional creatives, but it is also making a play for the creative element within a broad base of consumers and professionals. The Studio is a high-end PC that’s going to be out of reach for the vast majority of consumers, most of whom will be left with traditional PCs that don’t have all the capabilities Microsoft showed off today. But Microsoft’s new Paint 3D app and other enhancements in the new version of Windows 10 are more mainstream attempts to establish Microsoft as a creativity brand. Of course, with only 400 million of well over a billion worldwide users of Windows on Windows 10, many of Microsoft’s current users won’t see these enhancements anytime soon.

Though today’s products are a good start, it takes a long time to change deeply-entrenched perceptions, and Microsoft has its work cut out in trying to convince potential customers that its products are more than just the workhorses they’ve always been for many. Workflows and cultures in many creative companies are built around Apple products, and that won’t change overnight. However, Microsoft’s timing for these new products is great, coming at a time when Apple has been accused of neglecting its creative community. Apple, of course, has its own event on Thursday, and will get an opportunity to make its case for its own vision of the future of computing. It’s also easy to overestimate the role creative professionals play for Apple – though its Mac base was once heavily skewed towards these users, it’s long since broadened its appeal well beyond those users an well into the mainstream. Though losing creative professionals as a constituency might be painful for some at Apple, its mainstream appeal is what matters, and it needs to shore that up with its announcements this week and beyond.

Some quick thoughts on other topics:

• Microsoft’s promotion of VR headsets from its OEM partners today is the first sign we’ve seen that Microsoft might be rethinking its focus on augmented rather than virtual reality. Given that HoloLens is likely to continue to struggle to achieve mainstream appeal, supporting a more consumer-friendly VR push by laptop makers is a smart move, although $299 PC-based VR solutions may struggle against smartphone-based versions at $100-200 which are more portable.
• The Surface line at Microsoft continues to be a high-end proposition, will all the products in the line remaining at premium price points. That’s a great way to build a premium brand, and also to generate high margins, but it also competes with Microsoft’s OEMs at the most lucrative end of the market, while limiting its sales. Revenues for the entire Surface line continue to be a tiny fraction of those for other PC vendors.
• It’s interesting to see both Microsoft and Google now effectively incubating fairly compelling hardware divisions within their companies. Google’s recent push into hardware with the Pixel, Home, and Wifi products and Microsoft’s growing Surface line are indications that both companies are more serious about hardware, and about competing with Apple on its own terms.

AT&T tonight announced that it will seek to acquire Time Warner. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan also published a blog post earlier today which provides a more in-depth look at AT&T’s current consumer strategy and the context for the merger.

The AT&T Time Warner deal is straight out of AT&T’s recent consumer playbook, which has been focused on entertainment and building value by combining assets to create unique consumer benefit. The best previous example of this was the acquisition of DirecTV and the subsequent zero rating of DirecTV data on the AT&T wireless network. However, the rationale for the Time Warner deal is much less obvious, and risks repeating history as it borrows from the rationale for the AOL Time Warner deal sixteen years ago.

AT&T sees the TV value chain compressing, with content owners like Disney and Time Warner investing in distribution, while distributors like Amazon and Netflix invest in creating content. It is fear of this compression of the value chain and what will happen to those who don’t participate that’s motivating this merger. But the deal is also motivated by AT&T’s desire to offer unique content and content features to its TV and wireless customers. And that’s where the rationale feels thin.

The problem with distributors buying content companies is that content benefits most from receiving the broadest possible reach, while distributors are always incentivized to make reach narrower through exclusives. This creates massive strategic tensions that are almost impossible to resolve – AT&T risks either hurting Time Warner by restricting access to its content, or making its own differentiators too narrow out of fear of hurting Time Warner. Buying a large existing content asset with massive distribution is a very different value proposition from creating brand new content in-house with exclusivity designed in from the beginning. And at $84 billion, AT&T is paying a massive amount for minimal synergies and a thin layer of theoretical differentiation. We need look no further than Comcast’s acquisition of NBCU to see a recent example of the failure of a content-distribution tie-up to deliver any meaningful synergies.

Google today announced a range of new hardware devices, from the Pixel phone to Google Home, Google Wifi, and a new Chromecast. The comments below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan is also available at jan@jackdawresearch.com or (408) 744-6244 for further comment.

Google today demonstrated that it’s finally serious about hardware. It now has own-label products in a handful of major categories, from phones to tablets to laptops, and from WiFi routers to home speakers and TV devices. After several years of both abortive organic efforts like Nexus Q and short-lived ownership of Motorola’s device business, Google seems to have finally committed to building its own hardware broadly. In and of itself, that’s a huge capitulation to a notion Google had long resisted – that both hardware and software are better when they’re built together by the same company. Given Microsoft’s similar strategy around the Surface and phones, we now have all three major companies in this space pursuing the same strategy, after many years of Apple ploughing this furrow alone.

Among the companies who won’t be happy about this are Google’s major OEM partners. Google’s relationship with OEMs like Samsung has always been complicated, but today’s announcements made it even more so, especially given that Google appears to be aiming both at the premium smartphone and VR headset spaces which Samsung currently dominates when it comes to Android. Unlike Microsoft, Google made no attempt to justify its entry into first-party hardware in competition with its partners – there were no claims of merely showing OEMs the way, merely a displacement of erstwhile partners in the value chain. Google is building its own relationships with carriers and supplanting device partners (with the exception of HTC, whose name was never mentioned). With Google Wifi, too, Google appears to have sucked all the value out of its year-long partnerships with Asus and TP-Link in order to leave them in the dust as it creates its own hardware in this space.

The hardware itself was solid, probably the best set of hardware Google has ever introduced. Google always seemed a promising player in the home speaker space pioneered by Amazon, and the Home doesn’t disappoint, at least on paper. Google has always been very good at voice recognition, and its knowledge base is second to none, so it’s in a very strong position here. The lower retail price and unique features like Chromecast and Google service integration, as well as the broader availability of the Google Assistant are all positive differentiators over Echo.

The Pixel phones are clearly being positioned as peers to the iPhone, which the Nexus devices never were – even the pricing is identical. And the fact that the cameras look very good is a critical counterpoint to the iPhone. And yet in most respects Pixel won’t be any better than most other Android smartphones out there – rounded icons and faster software updates won’t be enough to offset the premium pricing, narrow carrier distribution, and consumers’ familiarity with Samsung and other existing vendors. Google is still fighting an uphill battle when it comes to mainstream adoption of its hardware beyond Chromecast, and there’s little here to suggest that this will change anytime soon.

Daydream View is an interesting new entrant in the VR space. Google has clearly thought through some of the design challenges of existing devices in the market and come up with some useful innovations. Given that such devices will mostly be used at home, the external colors likely aren’t that important, but the consideration Google has given to comfort and ease of use will be a useful differentiator. The pricing is aggressive, too – among the major players, only Google’s own Cardboard, which is the very definition of a minimum viable product – is cheaper. But of course for now the Pixel is the only phone that supports Daydream, and it’s not clear when other devices will hit the market.

Apple today announced a partnership with Deloitte to work on several fronts in the enterprise. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan may also be reached at (408) 744-6244 or jan@jackdawresearch.com for further comment.

The reality is that Apple is not first and foremost an enterprise technology provider, but almost all big companies now have a fleet of iPhones somewhere in their business, and Apple wants to make sure those devices perform as well as possible and are integrated into the companies’ business processes. The Deloitte deal gets at how companies can make the most of the iOS devices they have and the employees who use them, because that’s something Apple isn’t able to help them with in depth. Whereas Apple can sell and support iOS devices itself for generic uses, Deloitte can provide much deeper expertise around horizontal business functions and for specific vertical industries than Apple ever could.

The Deloitte relationship builds on several previous partnerships Apple has announced with IBM, Cisco, and SAP. Each of these partnerships is part of a strategy by Apple to augment its own skill set in the enterprise with help from partners. IBM brought enterprise mobile application development and a big sales team, Cisco brought networking optimization, SAP brought massive reach through its back end software for business transactions, and now Deloitte brings business process transformation expertise.

Deloitte is an interesting choice, given that Apple’s existing partner IBM has many of the same skills in its Global Business Services unit. But I expect Apple wanted to broaden its partnerships and felt Deloitte had specific skills in relation to digital transformation which it wanted to leverage. Though Deloitte and IBM compete on the consulting front, none of the new areas Deloitte will partner on with Apple are competitive with the earlier deal with IBM. Interestingly, like IBM, Deloitte has a big base of iPhones internally – 100,000 iOS devices are in use in the company – so it’s arguably eating its own dog food here too.

Apple hasn’t talked a great deal publicly about the size of its enterprise business, but just under a year ago it said on an earnings call that its enterprise revenue was around $25 billion on an annualized basis, which was a little under 10% of its total revenue during that period, and had grown by 40% year on year. It’s easy to imagine that enterprise revenues are around 10% of Apple’s total revenues at this point, and growing faster than its consumer revenues, so this is an increasingly important area of Apple’s business, especially when it comes to driving growth.

What Apple has to ensure moving forward with each of these partnerships is that it actually gets the promised value out of them. These partners get a good PR boost from announcing high-profile partnerships with Apple, and doubtless get a lot of benefit from that. But the challenge with such partnerships is often making sure that customers really see the benefits, and that the anticipated revenues actually flow. Apple and its partners have talked on earnings calls and elsewhere about the apps and features they’ve built, but less about the financial benefits of these deals, so it’ll be worth watching out for more information about this on future earnings calls.

Apple today announced the iPhone 7 and Apple Watch Series 2. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan may also be reached at jan@jackdawresearch.com or (408) 744-6244, and is also at the event in person.

Apple has rethought the Apple Watch significantly since its first release. It’s refocused the line, eliminating some of the earlier tiering, and has also refocused the purpose of the Watch. Apple’s original emphasis on apps and communication has faded into the background as health and fitness features have come to the fore. With Series 2, Apple appears to be focused mostly on the health and fitness features, while hoping watchOS 3 will finally spawn the apps the Apple Watch has arguably lacked in its first year and a half on sale. In the process, prices have come down fairly significantly too, especially on the Series 1 Watches. The new features and upgrades combined with the lower pricing for older Watches should help stimulate sales, but we’re talking about incremental growth and not a step change here.

The iPhone 7 packed few surprises given the many leaks over recent weeks. But the story and positioning around the new devices were always going to be the most important part of today’s event. Phil Schiller made a point of first talking up the iPhone 7 camera and its improvements before moving on to the iPhone 7 Plus and its dual cameras. And he also talked about the history of both the 3.5mm audio interface and Lightning, and the advantages of Lightning, while Jony Ive talked about Apple’s long push towards wireless interfaces. There will certainly be some people who prefer smaller phones who will be upset that the best camera is exclusive to the 7 Plus, but history suggests these advances will make their way down the line in future devices. And there will be those who are upset by the death of the headphone jack, but Apple will largely neutralize those concerns by providing an adapter in the box. Overall, the advances in this year’s phones on top of those in last year’s devices should make for a fairly significant upgrade for the typical two-year upgrader. This event was a big test of Apple’s ability to continue to tell a compelling story around its annual product upgrades, and early sales of the iPhone 7 will be a good indicator of whether it succeeded in weaving a narrative that people find compelling.

Overall, Apple’s new devices are typical of what’s now a fairly well-developed approach. It has used its ownership of the whole device to marry hardware and software advances in areas from camera performance to the new EarPods to the new home button. But it also continues to rely on partners like Nike, Hermès, and Nintendo to add value to its devices with accessories and software which go beyond what Apple itself can provide.

Two other things worth a brief mention. Apple managed to scoop itself on Twitter, which marks a rocky debut for the new @Apple Twitter account. The tweets were quickly deleted and didn’t share too much detail, but were an unfortunate distraction and detraction from the main event. The other thing worth noting is Tim Cook’s continued focus on social good at Apple – the time spent on the ConnectED grant and Apple’s part in it were an element of his traditional opening monologue. This focus on doing good in the world continues to be one of the main things that sets Tim Cook apart from Steve Jobs as CEO at Apple.

The last of the significant publicly traded US pay TV companies reported their results for Q2 2016 today, and as such we now have a complete picture of what happened with pay TV subscribers in the quarter. The comment below is based on data gathered on a quarterly basis by Jackdaw Research, and may be attributed to Jan Dawson, Chief Analyst. Jan may be reached for further comment at jan@jackdawresearch.com or (408) 744-6244.

The seventeen largest publicly-traded pay TV providers in the US collectively lost 834,000 subscribers in the year to June 2016. As the chart below shows, this is the latest set of data in a consistent trend which has been underway since 2014, with almost every quarter bringing an even higher number of cord cutters. The trend is becoming harder and harder for both pay TV operators and industry watchers to ignore, as defections grow consistently over time. The industry needs to confront this trend head-on and craft strategies which are more appropriate for a shrinking market. Those without solid broadband offerings, notably Dish, will be most threatened as this trend continues to play out. Though Sling TV may provide some respite, it’s becoming clear that it isn’t enough to offset declines in legacy pay TV services for Dish. Overall, the larger cable operators are faring better at the moment than any other group, with smaller cable companies continuing to shrink and telecom-based TV falling fast as Verizon sells assets and AT&T shifts its focus to satellite-delivered TV.

There is a lot more analysis and several more charts on the accompanying post published today on the Beyond Devices blog.

This data is based on public reporting from the seventeen largest pay TV providers in the US:

• AT&T
• Bright House
• Cable ONE
• Cablevision
• CenturyLink
• Charter
• Comcast
• Consolidated Communications
• DirecTV
• DISH
• Frontier
• Mediacom
• Suddenlink
• Time Warner Cable
• Verizon
• Windstream
• WideOpenWest.

The only major provider not covered in this data is Cox, which is privately held. On the basis of various estimates, it is likely that Cox is losing a few tens of thousands of pay TV subscribers per year on top of those reported above, so its inclusion would worsen the picture slightly. The data above also include Dish’s total reported subscriber base, which in turn includes its Sling TV subscribers. Without the Sling TV subscribers, the decline would be significantly worse, at around 1.4 million year on year losses. Again, there is more detail on this subject including additional charts in the accompanying blog post here.

Verizon Wireless today announced changes to its postpaid plans, with higher prices and significantly higher data allowances, among other changes. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research.

What Verizon is doing is raising prices by a small amount while raising data allowances by a greater amount – essentially charging you less per Gigabyte, but forcing the average price paid up in the process. What this comes down to is that there’s very little growth left in the traditional parts of the wireless industry, and as such revenue growth has to come from increased revenue per user. At the same time, smartphones are nearing saturation, and so the revenue growth that’s come from people adding data plans to their accounts is also almost over.

Since carrier add-ons like mobile music and video have largely been eclipsed by over the top services like Spotify and Netflix, the only real option left to drive new revenue per line is to move people to higher tiered data plans. In some cases, that can be done organically by setting prices in such a way that people voluntarily move up, but you’re going to see more of this kind of migration to new tiers, with higher data allowances making price increases somewhat more palatable. Verizon has always had the most loyal and conservative base, which has also been more willing to pay for quality, and so it’s betting to some extent that its customers will swallow these changes too. But raising prices is always a risky business when you’re facing strong competition, especially on price.

In general, we have an increasing bifurcation between AT&T and Verizon, which are largely using their own or third party prepaid brands to compete in the most price-sensitive segments, and Sprint and T-Mobile, which are more willing to engage in price wars with their postpaid brands. Both of the larger carriers have resisted engaging in too much price competition with their postpaid brands, because that’s a downward spiral that’s really hard to pull out of.

The other changes look like they’ll give T-Mobile more ammunition as they continue to accuse the other carriers of treating their customers badly. Charging customers to be able to avoid overages through throttling is perhaps the best example of this, and I’d expect John Legere to beat Verizon over the head with that one in particular, given that this is standard practice at T-Mobile, rather than something customers have to pay an additional fee for.

Apple today held the first day keynote for its developer conference, WWDC. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan is also on-site at WWDC and can be reached at jan@jackdawresearch.com or 408 744 6244.

As has become customary in recent years, the bulk of the keynote focused on iOS, but in some ways the star of the show wasn’t a particular product but Apple’s refutation of accusations that it can’t compete with Google and Facebook in artificial intelligence and deep learning. Both terms got shout outs during the keynote, and Apple highlighted several features which it said were based on these technologies. Apple has been accused of being behind in this area, and also of being handicapped by its privacy stance, but its on-stage demos today showed that it’s capable of competing effectively regardless. The changes to Siri should make it substantially more useful and effective as an assistant, and keep it competitive with alternatives from Google, Amazon, and others. Siri will also now be available on the Mac, but in a way that’s customized for the desktop experience. Given that Siri was already present on all other Apple devices, this was an obvious next step, and it remains to be seen how Siri will interact with the existing text-based Spotlight search function on macOS.

Apple Pay on the web should help to speed adoption for Apple Pay in a way that’s been more challenging with retail payments, where updated point of sale systems are required. Anything Apple can do to spread adoption of Apple Pay should help to push forward the cycle of adoption by merchants and users, so this is good news. Obviously, it’s dependent on adoption by retailers, so it will be important to watch how this goes over the coming months.

iOS

After more modest upgrades last year, Apple was back to making more significant changes throughout iOS this year. Aside from the Siri updates, Apple redesigned the lock and home screens, and provided significant updates to Photos, Maps, Music, News, the Phone, and Messages, among other things. Specifically, Apple has now turned Siri, Maps, and Messages into platforms, each of which expands the ways in which developers can make their functionality available. All of this raises again the number of things developers have to do to keep up with all the platforms Apple offers, but it also expands the number of opportunities for developers in areas of iOS which Apple has previously kept exclusively to itself. The Messages API in particular opens up opportunities for third parties to build new business models, but interestingly Apple won’t be trying to monetize its messaging app directly, instead leaving that opportunity to others, and presumably taking a cut of any in-app purchases. Combined, these new apps will also create new apps which will exist almost entirely as extensions within Siri, Messages, or Maps, rather than as standalone apps hiding behind an app icon, and that’s a fundamental shift in Apple’s app model. It began with content blockers and keyboards in earlier versions of iOS, but these changes will have a much more significant impact.

macOS

Aside from the name change, the biggest changes with Apple’s Mac operating system related to Siri, Continuity enhancements, and iCloud Drive changes. These should all help make macOS more useful and sticker for users, but they also build on Apple’s attempts to drive ecosystem lock in across devices, notably the iPhone and the Mac. Apple continues to move macOS forward in a way that focuses on how it becomes more useful when used in conjunction with its other devices.

WatchOS and tvOS

Apple also took the opportunity to update its two smaller operating systems, watchOS and tvOS. The updates to watchOS suggest that Apple understands the biggest frustrations with the first versions, and wants to address them even before it introduces new hardware, presumably in the fall. The new Dock is a recognition that the honeycomb of app icons is a poor model, while the Instant Launch capabilities should solve the single biggest frustration with using apps on the Watch. The new social features in the Activity app close an important gap relative to competitors like Fitbit, which have majored on the social and competitive functions of fitness tracking, and the wheelchair features build on Apple’s heritage of promoting accessibility. The biggest change to tvOS is single sign on for pay-TV services, which will again eliminate one of the biggest frustrations for those providers that support it.

T-Mobile today announced its “Un-Carrier 11” moves, the latest in a series of moves over the last several years designed to win new customers and increase customer loyalty. Today’s moves were mostly aimed at thanking existing customers, and were another sign that T-Mobile seems to be running out of steam in terms of making meaningful changes to the way the wireless industry works. The comments below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan can also be reached at jan@jackdawresearch.com or (408) 744-6244. 

It’s hard to avoid the sense that T-Mobile is running out of really meaningful things to do to attract new customers. Its rate of postpaid phone adds has been falling year on year for a while now (although it’s still adding significantly more than the other carriers). It’s questionable whether stock ownership and free junk food will really make much difference in either retaining existing customers or winning new customers – this certainly isn’t likely to move the needle in terms of boosting phone net adds. The free GoGo is a nice perk, but you do wonder whether a mobile carrier should be aligning itself so closely with an Internet experience that’s generally pretty terrible. These latest Un-Carrier moves feel more like gimmicks than things that are likely to meaningfully improve people’s experience with T-Mobile, let alone attract many new customers.