Tony Fadell today announced that he was stepping down as CEO at Nest, the Alphabet subsidiary focused on the smart home. He will be replaced by Marwan Fawaz, who formerly ran the Motorola Home set-top-box and modem business before its sale to Arris. 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.

On the one hand, the announcement comes a bit out of the blue – Fadell had seemed to be defending himself recently and holding on tight to the job, but it now appears he was mostly protecting his reputation and legacy, knowing that he was on the way out. Given the apparent tension between him and the Alphabet management over increased financial discipline on the one hand, and employee complaints on the other, his position was becoming pretty untenable, so it’s probably a good thing that he’s going. This should allow Nest to move on without the distraction of the recent news stories and criticisms.

One of the most interesting things about Fadell stepping down is how different his replacement, Marwan Fawaz, is. Whereas Fadell is legendary as a creator of compelling consumer electronics products, that’s not part of Fawaz’s DNA at all. He has very little experience in retail or consumer electronics, and instead is a guy that’s mostly sold products indirectly to consumers at best. That likely signals a change in direction for Nest, away from the retail model and towards more of a service model with a set of partners. There are references to service providers and enterprise channels in Fadell’s blog post today, and that also hints at a change in sales strategy for the company.

I actually think that’s very sensible – the retail model for the smart home seems pretty stuck right now, whereas the smart home as a service model seems to be doing rather better, and so Nest seems to be pivoting to the more promising part of the market. That will likely see Nest working with partners like telecoms operators, cable operators, security companies, and others to build Nest into smart home as a service-type offerings. The service models helps overcome some of the problems with the smart home market, including the high up-front cost and the challenges of installation, management, and integration. The other question is whether Nest starts to pursue more of a service model itself, either organically or through white-label relationships with third parties. Various similar models have been pioneered over the last few years by companies like Vivint, Alarm.com, and AT&T.

(For more on this model, listen to this week’s Beyond Devices Podcast episode, which happens to have covered just this dichotomy in the smart home market). 

Google today held its first-day keynote at its I/O developer conference in Mountain View, California. The comments below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan is at Google I/O in person this week and may be reached at jan@jackdawresearch.com for further comment.

Google’s announcements at I/O appear focused on trying to close gaps with major competitors including Amazon, Facebook, and Apple. This includes trying once again to break into messaging and video calling, and playing catchup in the home speaker space pioneered by Amazon Echo. The technology looks good in principle, but there’s a significant risk that Google is coming into some of these markets too late to make a difference. On the other hand, its VR and Instant Apps announcements are more likely to provide leadership in new markets.

Google’s new assistant is its attempt to bring together a set of disparate efforts at Google that have lacked a coherent brand. Referring to the combined functions of Google Now, OK Google, and other elements has been tough in the past, because there wasn’t a single name for this functionality. Google now has that in the assistant, and is planning to extend into the home with an Echo-like device called Home, as well as into messaging with Allo. This should help Google compete more effectively both with Amazon’s Echo device but also with better-branded personal assistants like Siri, Cortana, and Alexa. Assistant is somewhat unique in how it will combine voice and text-based inputs in a conversational UI. But it also steers clear of the more human naming conventions that have become common for such products, which may make it harder for users to engage with it on a personal level, but also avoids some of the problematic issues with generally female-gendered assistants.

Allo also appears to tap into Google’s unique skills in a way none of Google’s messaging apps have in the past. This is a good step forward for Google, which has consistently struggled with making a meaningful contribution to the messaging space. However, it’s not clear that features alone will make a difference for Google – another area where Google has failed repeatedly is social apps, and getting a critical mass of users for Allo will be the single biggest challenge. Though the integration of the Google assistant is unique and attractive, if your friends aren’t on Allo, it won’t be all that useful. Both Allo and Duo suffer from landing in the market late compared to competing apps, at a point where it may be too hard to get people to switch from apps they’ve come to rely on, and which all their friends use.

This edition of I/O was notable for its lack of real news around Android, since Google previewed its N release a few weeks ago. That made the Android portion of the keynote feel flat compared to previous years, but it also made the real news stand out more. The main focus here was virtual reality, where Google’s new Daydream program should help move VR on Android beyond its current domination by Samsung and Gear VR. While Gear VR has helped pioneer Android on mobile devices, it’s also limited as an experience, with a problematic touchpad and a limited range of compatible phones. The Daydream program should help open up VR opportunities to additional handset vendors without the resources to create their own programs, as well as additional accessory makers. The VR market is still nascent, but over the next year or two we will start to see it become more mainstream, which will increase the pressure on Apple and other holdouts to make a play. On the other hand, the Daydream specs for phones set a fairly high bar, and it looks like no current Android devices will make the cut. New devices should be out in the fall, but this means Daydream-based devices will take some time to build scale.

Perhaps the most meaningful other announcement is the creation of Android Instant Apps. Google has already played with the app streaming model with a handful of apps that don’t have web equivalents, but this model seems to be more broadly applicable, and actually downloads assets to the phone. Unlike app streaming, Instant Apps doesn’t appear to be an attempt to get users to stay on the web, the domain Google prefers because it can show advertising. Rather, it seems to be an attempt to better serve users and developers by allowing them to borrow apps for brief interactions without the baggage that comes with a traditional app download. More importantly, it looks like Google will make Instant Apps backward compatible with phones running all versions of Android back to Jellybean, which covers 95% of active Android users today, versus just 7.5% running the latest version, Marshmallow. This is a model that has potential to significantly change the way at least certain kinds of apps work, and it’s good to see Google innovating in this way.

Microsoft today announced that it will sell its feature phone business, acquired from Nokia in 2014, to a combination of Foxconn and a new entity led by former Nokians. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan may be reached by email for further comment at jan@jackdawresearch.com.

The sale of the feature phone business – especially for so little – is just the latest step in what’s been almost a complete unraveling of the strategy behind the original acquisition of Nokia’s devices business. The feature phone business was not the main target of the acquisition, but Microsoft attempted to justify acquiring it as part of the deal on the basis that it would provide a funnel for customers to upgrade to Windows Phones. Of course, that never really happened, and Windows Phone has largely been a disaster since the acquisition too. It’s hard to see the acquisition as anything but a complete failure at this point, and Microsoft has already admitted as much with the large write-down it took in July last year. The feature phone business has been in decline ever since the acquisition closed, as the chart below shows, but Microsoft still sold over 80 million feature phones over the last year (compared to just 21 million smartphones).

The press release does seem to suggest that Microsoft will support existing Lumia devices but not necessarily release any new ones. There are two ways to read that, one of which is that Microsoft is giving up on the smartphone business too, and the other of which is that Microsoft just plans to brand any future smartphones differently. For example, there’s been a lot of talk about a potential Surface phone in the future, so the wording of the announcement still leaves that door open. But you would have thought Microsoft would have been clearer about its future smartphone plans if that really was the case. It’s notable that the press release doesn’t say anywhere that Microsoft will continue to make smartphones. It’s certainly the latest indicator of how Microsoft’s commitment to its smartphone business has waned over the last couple of years.

Bloomberg broke the news this morning that Twitter is the winner of the digital rights package of Thursday night games the NFL has been auctioning off recently. Twitter came out of left field (if that’s not the wrong metaphor for this particular sport), and it’s worth thinking about both why Twitter would want this deal, and what the implications might be. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research, and Jan may also be reached at jan@jackdawresearch.com.

Firstly, we know now that Jack Dorsey really is serious about making live – and live video specifically – a focus in 2016! So far, Twitter has been used almost entirely for people to talk about live events being broadcast on other platforms, which has meant it hasn’t been able to benefit as directly as some other players from those live events, even if massive numbers of tweets were sent and even shown on television. Last night’s NCAA Championship basketball game is a great example of this. This deal suddenly gets Twitter directly into the business of showing these games and tapping into some of the additional associated revenue opportunities. It also significantly ups Twitter’s live video game from short, grainy videos to professionally produced content.

One of the most interesting things is going to be seeing how this fits into the Twitter product – with all the other bidders, there were obvious existing platforms for broadcasting NFL games, but with Twitter they’ll have to create a completely new home for this kind of thing. It’s possible they might use Periscope, but given the poor quality of most Periscope videos until now, I would think the NFL might have qualms about having their high-quality content appear there. Now that the news is out from the NFL, with comment from Twitter, we know that Twitter is describing the experience as being “right on Twitter,” but I’m curious to see the exact implementation.

The other big questions is how Twitter will do selling ads against this content – it’s obviously a very different type of advertising from what they’ve sold before, but it gives them their first real opportunity to cross-sell these different types of ads and break into television advertising for the first time. It may also be a first real opportunity to make really good money from the “logged-out users” Twitter has been talking up for so long, but who are so hard to advertise to effectively.

And then there’s the question of how much Twitter paid for the rights here. It’s hard to guess at because this package of rights is very different from any other similar package sold before – non-exclusive in the US, but exclusive internationally. But almost no matter what the exact number, it’s likely to be a meaningful fraction of Twitter’s overall revenue. That’s one of the reasons Twitter is such a surprising bidder (and winner) – it’s a much smaller company than most of the other names that were bidding, with just over $2 billion in revenue last year. If the rights costs in the hundreds of millions of dollars, which seems likely, then they may well cost 10-20% of revenue. That’s a huge gamble, and we all know the gamble didn’t pay off for Yahoo. The strangest thing is that the Twitter Investor Relations account tweeted this morning that all expenses associated with the rights are already baked into its guidance for the year. That seems particularly odd given that Twitter likely didn’t know whether they’d won the rights yet when they announced their guidance, and it’s a material amount of money.

AT&T today announced that it would begin enforcing the cab on U-verse broadband usage it’s had in place since 2011, and at the same time raised the cap while providing new options for buying unlimited broadband. 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. 

AT&T’s announcement is another sign of the ways in which it intends to leverage its DirecTV asset to cross-sell services. The offer of unlimited broadband for those who take either U-verse or DirecTV on the same bill as U-verse broadband is clearly intended to incentivize subscribers to both take that bundle of services and to consolidate their billing relationship with AT&T. However, the enforcement of the usage cap is a sign that AT&T doesn’t want customers cutting the cord on pay TV and then using their broadband for significant video consumption. AT&T says around 4% of its customers will fall afoul of the new caps, and there’s likely a very high correlation between these customers and those who don’t take pay TV and instead consume mostly Internet video. That online video habit will now either cost them $30 for unlimited broadband or an upgrade to a more expensive broadband package with a higher cap.

AT&T is spinning this move as being about choice, but there continues to be no evidence that modestly heavy usage of broadband plans actually incurs more incremental cost or puts any strain on landline broadband networks, especially those of recent vintage like AT&T’s U-verse. As such, it’s going to be hard to sell this to consumers as anything other than a money grab on AT&T’s part.

Apple today announced several new products, including a smaller iPhone and a revamped 10-inch iPad. 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 and is on-site at the Apple event in Cupertino.

Apple’s announcements today are best seen as attempts to kickstart the upgrade cycles for both iPhones and iPads. Larger iPhones are still selling in huge volumes, but there’s considerable evidence that some of those who own smaller iPhones are holding onto them rather than upgrading to the new, larger iPhones. Apple announced during the event that 30 million people had bought 4-inch phones in 2015, but the more significant number is all those who own smaller iPhones but haven’t bought one since the larger devices launched. There’s significant pent-up demand within Apple’s base of iPhone owners who want a smaller iPhone with up-to-date specs and newer features. The iPhone SE is designed for this group, and should unleash a decent upgrade cycle over the coming months. During a period when iPhone sales overall have slowed following a massive upgrade cycle driven by the iPhone 6 launch, a few million more sales in the quieter spring and summer months should help Apple close the gap with last year’s sales numbers. The $399 pricing suggests Apple really wants to sell this thing in large numbers, and the mix of features and pricing compares very favorably with the iPhone 5S, which it replaces in the lineup.

However, it’s worth noting that this pricing doesn’t get the iPhone down to the kind of prices needed to really spur sales in emerging markets, where older devices have been on sale for some time at similar or lower prices. In many of those markets, prices need to come down more significantly to make a real difference, and it’s actually the larger-screened devices that will meet users’ needs there better, rather than a new 4-inch device. As such, it will likely be refurbished iPhone 6 and 6S models which will be used to attract new customers in these markets, and not the iPhone SE, at least for now.

The new iPad Pro is an evolution of the iPad’s identity. The iPad has always been first and foremost a consumption device for the vast majority of users. That started to change with the 12-inch iPad Pro last year, which was the first to really go after a productivity-centric target market aggressively. The change in naming for the mid-sized iPad is an indication that Apple really wants to go after the productivity market in a bigger way, by aiming its most popular iPad model at that segment. This is a move designed to boost upgrades, as it will be the first really meaningful change in what the 10-inch iPad can do in several years, but it’s also intended to spur new people to buy an iPad to replace or augment a laptop they may have used in the past. At the event, Apple highlighted the 600 million PCs in use that are over 5 years old and pitched the new iPad Pro as the ultimate PC replacement. There was a serious clue that Apple was moving in this direction when it introduced the 12-inch iPad Pro last year, as Tim Cook referred to that device as “the clearest expression of [Apple’s] vision of the future of personal computing”. If that was the case, it was obvious that more of the iPad line (and perhaps the rest of Apple’s product line) would move in this direction.

However, all of this also means a change in the identity of the iPad line – the people who will buy an iPad Pro going forward will in some cases be different people, and in many cases will be buying them for different reasons compared with past iPad purchases. It also raises the price of new 9.7″ iPads by $100. That leaves questions about the role of the lower-end iPads in the lineup, including the aging iPad Air and the iPad Mini. If these never get upgraded or get upgraded less frequently it may signify that Apple is moving on from this part of the market, or at least sees it as less important going forward. This, in turn, may well further depress sales of iPads even as the new iPad is clearly intended to boost sales. On the other hand, the iPad Air may just get a two-year upgrade towards the end of this year, and that should reassure customers that the iPad Air line is sticking around and will continue to receive investment.

AT&T today announced new video offers under the DirecTV brand which will be available in the fourth quarter. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan may also be reached via email or phone at jan@jackdawresearch.com or 408 744 6244. 

These new offers demonstrate that AT&T is serious about leveraging its DirecTV assets. This is both a defensive strategy against cord cutting and cord thinning and an offensive strategy to grow its addressable market. The DirecTV Now offering is the most compelling, as it has the potential to be the first true pay TV replacement offered on non traditional devices. Offerings from Sling, Sony, and others have offered only partial alternatives which have each had serious shortcomings. While we don’t know exactly what the DirecTV Now bundle will look like, it sounds like the main difference versus traditional offerings will be the lack of multiple room support, which likely won’t be an issue for most of the potential market for the service. 

The other two offerings are probably best seen as sales and marketing channels for DirecTV Now. DirecTV Mobile harkens back to an earlier era of mobile specific content offerings, and seems a poor fit for this generation’s cross-platform content services. As such, it may be a decent fit for a few entirely smartphone centric customers, but will otherwise be unsatisfying for customers who want to watch video on other devices regularly. 

However, seen in the context of mobile video strategies from other US wireless carriers, DirecTV Mobile looks a lot more compelling, and is the first mobile video strategy from a US carrier that seems likely to make video pay. BingeOn’s main virtue is as a customer acquisition strategy for wireless services, while Verizon’s Go90 remains one of the more baffling services launched into this space and seems destined to remain marginal in the overall market. 

Overall, the new offerings leverage DirecTV’s assets, especially its content relationships and its brand, very effectively. Coupled with a bundling strategy across the AT&T family, they should drive better customer acquisition in both video and mobile as well as protecting and growing video revenue. The biggest risk is cannibalization of existing pay TV offerings under both the AT&T and DirecTV brands.  

AT&T today announced that it will be rolling out its GigaPower fiber-based broadband service to 38 additional markets, and that it now has service available in 20 major metropolitan areas. It also announced that it has now passed one million locations with its GigaPower service, and expects to double availability by the end of 2016. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan can be reached at jan@jackdawresearch.com or (408) 744-6244.

AT&T’s announcement today highlights its leadership in providing fiber-based broadband services. Despite Google’s pioneering role in launching gigabit services, it’s clear that it’s AT&T and other traditional broadband providers that will provide the lion’s share of gigabit connections in the US, and AT&T has already established a significant early lead. Google’s innovative approach to working with municipalities to extract concessions and incentives paved the way for experienced providers to build networks that would otherwise have been uneconomical to build, and AT&T is taking full advantage, while Google continues to move more slowly to roll out service in its existing markets and launch in new markets. AT&T’s existing scale as a telecoms provider gives it a significant edge in rolling out these services.

Despite today’s announcement, gigabit services still only serve a tiny minority of the total US population, and there’s a long way to go before these speeds reach a significant portion of the United States. In addition, gigabit speeds remain more of a marketing gimmick than a must-have for the vast majority of American consumers, with 30-40Mbit/s perfectly adequate for most households. Alongside these super-fast broadband connections, AT&T and other large providers need to be rolling out faster speeds at those more mainstream rates to the majority of their existing service areas, to provide more meaningful competition there.

An earlier analysis on the subject of AT&T and Google’s fiber rollouts is available at: http://www.beyonddevic.es/2015/07/06/google-fibers-real-innovation/

T-Mobile today announced the latest of its Un-Carrier moves, this one focused on mobile data usage. The headline was that T-Mobile customers will be able to watch unlimited video from 24 major video providers, but it also announced several other moves at the same time. The comment below may be attributed to Jan Dawson, Chief Analyst, Jackdaw Research. Jan can also be reached at jan@jackdawresearch.com or (408) 744-6244.

Embracing free video is the riskiest Un-Carrier move T-Mobile has launched yet, but it’s also potentially the most disruptive. T-Mobile previously allowed customers to stream music from major services for free, but music accounts for a relatively small percentage of data usage. Video is by far the largest contributor to data usage today, and including video from so many major providers risks a substantial increase in usage. T-Mobile’s proprietary optimization technology should help to reduce the bandwidth consumed, but T-Mobile hasn’t said quite how much bandwidth this will save. There’s also a risk that 480p video, which would have been fine on most smartphones a couple of years ago, will look subpar on today’s devices, many of which support 1080p HD or higher resolutions. It sounds like T-Mobile will improve the quality of the video provided through the BingeOn program over time, but it may have to do that sooner rather than later to keep customers happy.

However, the “free video” headline should make for compelling marketing for T-Mobile. Removing the worries associated with watching video on mobile devices will be hugely appealing for customers. T-Mobile’s phone subscriber growth has slowed a little in recent quarters, and it’s needed something to get growth going faster again – this move looks like it could do that. The big caveat for subscribers is that some major services like YouTube are missing, and customers may not understand or be able to keep track of which services are included.

Meanwhile, the Family Match program also announced today was a needlessly complex distraction from the main announcement. Having talked up the simplicity of T-Mobile’s plans at the beginning of the event, T-Mobile then muddied the waters considerably when it talked about Family Match. T-Mobile risks losing its reputation for simple pricing with the two elements of Family Match. The doubling of data allowances, on the other hand, was a far more straightforward change.

Twitter announced today that it will lay off 336 employees, or 8% of its workforce, as part of a restructuring designed to slim Twitter down as it works toward profitability. 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.

Jack Dorsey would doubtless have preferred not to begin his tenure as permanent CEO in a different way, but today’s move was necessary. It’s a tough way for Jack Dorsey to introduce himself to the company, but Twitter needs to tighten its belt until it can figure out its user growth problem. Monetization has been going really well, but it’s still not close to being consistently profitable and it’s been hiring pretty aggressively, so some cuts should help get things in better balance. But it’s unlikely to endear Dorsey to the staff, even the ones that stay. It’ll be important to make clear that this is a once-and-done move and not something that’s going to become a regular occurrence at Twitter. And over the next few weeks Dorsey needs to find ways to tell more good news stories, especially when it’s time to report earnings.

The good news is that it looks like Q3 earnings are at or above the company’s guidance, which is a good sign that the positive trends in at least some areas are continuing. And the remaining employees will be refocused on the things that matter most. I would hope that this also means that new features will be pushed through development more quickly than they have in the past – Twitter has suffered of late from a problem of pre-announcing features that then take ages to arrive in the product. Renewed focus should hopefully allow Twitter to move more quickly in making the changes it needs to make to return to user growth.