Twitter’s NFL gamble

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 Brings Down the Broadband Overage Hammer

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 Kickstarts the Upgrade Cycle with New Devices

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’s New Video Offers Show It’s Serious about Leveraging  DirecTV. 

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’s GigaPower Expansion Extends Leadership on Gigabit Internet

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’s Un-Carrier X is its Riskiest Move Yet

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’s restructuring: a tough start for Dorsey

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.

BlackBerry’s Android Move May Be Too Late

BlackBerry today confirmed that it will soon be releasing an Android-based smartphone. 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.

BlackBerry has been steadily inching its way towards an acceptable number of apps in its app store, which continues to be one of the main things holding it back in competing with the two major platforms. First they tried to build up their own app store, then they partnered with Amazon, and now they’re finally bowing to the inevitable and embracing Android. This will certainly help to solve that particular problem, but being an Android OEM is a pretty uncomfortable place to be right now. Competition is intensifying, the biggest players are struggling, and small lower-priced vendors are taking increasing share. The big question is whether BlackBerry can really turn handsets around at this point, or whether it’s simply too late for the brand, which has been tarnished by all that has happened over the last few years. My sense is that many users have moved on at this point, and that even if enterprises like the BlackBerry platform, employees won’t. The reality is that there are still some industries where BlackBerry devices are the only option, and therefore I think it’s likely that BlackBerry will continue to make devices for some time to come, but the question is whether that can ever be a profitable business for them again.

Meanwhile, BlackBerry’s other results continue to be disappointing, and the software turnaround is taking longer than expected, which helps to explain the Good Technology acquisition. While that acquisition should finally give BlackBerry the credibility it needs in the multi-platform device management business, it’s worrying that its own efforts have fared so poorly. Other than cost cutting, which was largely undertaken by John Chen’s predecessor, BlackBerry seems to be making very limited progress on its major goals.

Apple stokes the iPhone fire while creating new opportunities for developers

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 at the Apple Event in person.

Apple’s September event always sets the tone for its entire year – new iPhones are announced, and the iPhone makes up the majority of Apple’s revenue and profits, and the performance of the iPhone business largely determines overall growth rates, at least for now. But today’s event, like last year’s, added another new product category that should drive significant new revenue for Apple and for developers, and arguably the new Apple TV was one of the biggest and most important things announced today.

iPhone

The new iPhones have enough new features to make them an interesting upgrade for those who always have to have the latest device from Apple, with 3D Touch the biggest new feature. The name of Force Touch badly needed to change, since it always sounded a little like a form of assault. I’m no convinced 3D Touch is the right name, but it conveys the concept reasonably well, in that the functionality is about a more layered interaction. 3D Touch itself should make navigation and interaction much quicker and easier, but it will mean something of a learning curve for users, because there won’t be any visual cues indicating what a 3D Touch might do, a problem the Apple Watch suffers from as well. For anyone with a two-year old iPhone, which includes the vast majority of iPhone users who will upgrade in the next year, this will be a significant upgrade. For all the concerns about a down year for iPhones, I believe Apple will have another year of year on year growth, though likely significantly slower year on year than in the iPhone 6 cycle.

I’ve been saying since early last year that Apple should launch its own device installment plan for iPhones, and now it’s launching one, with the iPhone Upgrade Program. This is a huge opportunity for Apple to take control of the customer relationship away from the carriers, and that in turn is a big risk factor for carriers, which will now cede some of that relationship to Apple. Arguably, only Apple has the infrastructure in place to offer this kind of plan to customers, so this will also be a further differentiator against competitors.

Apple TV

The Apple TV has been described as a hobby at Apple for too long, and today the transition to a product worthy to sit alongside Apple’s other products begins. The new SDK will create a huge new opportunity for both existing and new developers, both in gaming and content, and in the process it’ll make the device more compelling for end users too. But what will really change the Apple TV is the launch of the Apple TV service a few months from now, because only then will the Apple TV be capable of becoming the only device you need to plug into your TV. In the meantime, Apple is going to bring casual gaming and a much broader range of apps to the platform, and especially for cord cutters, the Apple TV might well become the only device they need.

One interesting wrinkle is that Apple is giving developers less than two months to create apps for the Apple TV, which is by far the shortest time it’s ever given developers for a completely new SDK. The iPad, which leveraged what had been known as iPhone OS, gave developers 66 days, while the original iPhone gave them 127 days and the Apple Watch debuted 157 days after the SDK was released. That doesn’t give developers a lot of time, but it likely reflects the shared elements in tvOS compared with iOS on iPhones and iPads.

Apple Watch

Though a minor announcement at the event this week, Apple Watch OS 2 is going to be enormously important for the Apple Watch and for Apple. An Apple Watch running OS 2 is best thought of as the version of the Watch Apple would have wanted to launch right off the bat, if it could have. The first version of the Watch software was good, but the reality is that the apps are sorely lacking, in large part because of the heavy dependence on the iPhone for functionality. With Watch OS 2, that all changes, and apps should be snappier, more functional, and far more varied in their capabilities. I believe this new phase of its history will change the Watch as much as iPhone OS 2 changed the iPhone, and make it a much more compelling device, while creating big new opportunities for developers. The new watch and band options should also help diversify the appeal of the Apple Watch in both the premium and low-end segments, with both the Hermes watches and the new colors for the Sport option. This, coupled with the holiday season, should make for a really big calendar Q4 for Watch sales.

iPad

The iPad Pro has obvious similarities to Microsoft’s Surface, with its detachable keyboard and stylus. But the big difference is that the iPad is designed first and foremost as a standalone tablet, and the keyboard and stylus are optional extras. The Surface has always felt compromised as a pure tablet, because everything is geared around the use as a quasi-laptop. The Smart Keyboard and Pencil will add a lot of value for certain kinds of users, but the iPad Pro could easily be a replacement for a family PC for gaming or TV viewing. But with the keyboard, multi-tasking, and new apps and functionality from Microsoft and Adobe among others, it could also become a fairly compelling option in the enterprise. At a minimum of $1000 including the Keyboard and Pencil, the iPad won’t be all that price competitive against a basic PC, but with the new internals, it’s actually quite a powerful computer in its own right.

The key for the iPad is that Apple is now engaged in what you might call salami tactics here; in other words, Apple is seeking to add to the iPad opportunity incrementally with a number of smaller moves, and I see the iPad Pro in this context, along with Apple’s partnerships with IBM and Cisco. The iPad Pro by itself won’t dramatically change iPad sales, but should provide a good boost for sales, especially in conjunction with the advancements in multitasking and split-screen functionality in iOS 9. I’m still skeptical that iPad sales will start growing again over the longer term, but I think they might stabilize, and that will happen in large part due to increasing education and enterprise sales rather than renewed growth in the consumer market.

Apple WWDC 2015: Watch, Music, and more intelligence

Apple today announced a series of enhancements to its key platforms – iOS, OS X, and the Apple Watch – as well as to its key services. 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, and is on site at WWDC for in-person comment and interviews.

A major theme at today’s WWDC was increased intelligence, which is an interesting response to Google’s I/O two weeks ago. Siri, Spotlight, and other aspects of Apple’s operating systems and services are getting smarter, and better at understanding natural language queries. Though Google is arguably the leader in machine learning and artificial intelligence, Apple is showing that it’s perfectly capable of innovating in these areas too. But it’s doing it in a way that’s in keeping with its privacy stance, by keeping personal information on devices and not sharing it with third parties. The tension between getting better at showing users relevant information while preserving their privacy will be a major battleground between Apple and Google over the coming years.

For the most part, iOS and OS X are getting incremental upgrades, focusing on improvements in intelligence and proactivity. Following a big-bang release of OS X last year, the naming of this year’s OS X release as El Capitan, a mountain in Yosemite, seems symbolically appropriate. This is a stronger, better version of Yosemite rather than something entirely new. The biggest change in iOS only affects the iPad, and that’s split-screen multitasking. Apple has largely updated the iPhone and iPad versions of iOS in sync, so this is a sign that the two are starting to diverge. It’s also an important way to add real value to the iPad as a business device, as this has been a major limitation for getting certain types of work done on the iPad. Paired with a larger iPad, which might come in the next few months, this could finally be the shot in the arm the iPad needs.

The update to the Watch software will be a huge boost for third party apps on the Watch. App developers have been very limited so far in what they’ve been able to do on the Watch, and the apps available have been largely poor until now as a result. With native watch apps able to tap into the hardware features on the Watch, we should get much better and more innovative third party apps going forward. The Watch’s own software is getting better too in some significant ways, which is a rapid iteration cycle on what’s still an almost brand new device.

Apple’s Music service is Apple’s attempt to save the music industry from itself once again, just as it did in 2003 with the iTunes Store. Then, the threat was piracy, but today the threat is free music streaming services. In both cases, Apple wanted to use its muscle and skills to convince people that music was still worth paying for. That’s an uphill battle in a world where people have become accustomed not to pay for music and lots of services cater to those who want music for free. But Apple has a base of over four hundred million iPhone users, and these are also likely to be the users most likely to pay for music. Apple is also in a unique position to combine the music people already own and have on their phones with the new music they’ll discover through streaming services, and the new Music service will do this. But Apple’s new service feels like it’s targeted as much at SoundCloud and YouTube as Spotify, with its focus on allowing even undiscovered artists to connect with fans.

Overall, today’s keynote reinforced Apple’s position as the only company in consumer technology that is able to bring together all the crucial elements – hardware, software, content and communications – that people care about, in a way that’s tightly integrated and designed to work together. There was definitely some borrowing from other companies, but there was also much that was new, not least in Music and with the Watch. And much of what was announced today will be available in some way to at least some people this month.