How many Apple Music users are on Android?


Apple Music: also on Android. Photo by tualamac on Flickr.

Apple announced on Wednesday that it now has 20 million subscribers to Apple Music after just 18 months – which feels like pretty good progress. Apple Music is also the only meaningful Apple service that’s also available on Android, as Apple tries to spread itself cross-platform.

Why is Music on Android as well as iOS? Because it’s not a distinguishing feature. Unlike Apple’s iMessage or its App Store, both of which are exclusive to Apple, and whose features are unique to it, you can already get lots of music services on both iOS and Android – Spotify, Tidal, Deezer, Google Play Music, Amazon Music and so on. (Not many, if any, of them are making money, but leave that aside.)

For Apple, every additional subscriber to Music is a bonus; it’s all money. The ones on Android are potential converts to iOS, where there’s more money to be made selling them iPhones, iPads and Macs, but time spent on Music is time not spent on Spotify, its principal rival, so that’s a benefit to Apple. App development costs aside, which are comparatively small, Android is a benefit. Additionally, if someone with an iPhone gets a Family Plan (allowing five people to use the same account; a Family Plan only counts as one subscription in Apple’s total), those five could include Android users.

So how many of those 20m are on Android? I’ve been tracking the stats on Google’s Play store for Apple Music downloads since its launch, including the download range and the number of 1-, 2-, 3-, 4- and 5-star reviews.

There are two things we need to work out: how many downloads there have been, and how many of those have resulted in subscriptions.

Download power

To estimate the number of downloads, I track the definite waypoints – when it passed 5,000, 50,000, 500,000, 1m, 5m – and the number of reviews against them.

Apple Music: how many downloads per comment?

The process is very standard across all apps: to begin with comments come quickly, so that almost every download prompts someone to review (about every 27 downloads, someone left a comment up to the 500,000 mark) which then tails off (only one in every 100 downloads prompted a comment by the 10m download mark). You can thus model how the number will change; and so even when you’re in the vague space between waypoints, you can estimate the number of downloads. (I’ve used this technique to calculate Android Wear downloads; it was accurate about when it would hit the 5m mark by a few weeks in a two-year timeframe.) The R-squared value is the correlation, which runs between 0 and 1: closer to 1 is nearer exact correlation.

Based on that, I calculate that this week Apple Music on Android hit 12.75m downloads. (It passed 10m around September 6.) It’s adding about 230,000 downloads per week, at a rate that seems to be holding pretty steady.

But downloads aren’t subscriptions. Apple Music offers a three-month trial period, after which you have to pony up. Clearly, some people will drop out. But what proportion of those who download it stay on and subscribe?

One subtlety here: the three-month trial means that strictly, we should ignore the downloads made in the past three months, since none of them will have qualified to become subscribers yet. (Downloads made to join a Family Plan don’t count as subscriptions.)

So the figure we’re looking at is from 6 September – which just happens to be when Apple Music hit the 10m download mark.

Star quality

Here’s an obvious way to estimate that: look at the high-quality reviews. It seems logical (Captain) that five-star reviews indicate people who are really happy with the service. Four-star reviews are people who are pretty happy, but find some hassles with it.

Apple Music reviews on Android

By the time you’re down to three-star and below, I think you’re talking about people who aren’t impressed and won’t be staying.

Although people don’t become subscribers until three months have elapsed, I think you can include recent ratings, since those could come from people who have become subscribers. (We don’t know what prompts people to review an app.)

So what do the ratings show? At present, five-star reviews are about 44% of all reviews; four-star ones, 11%. That ratio has been pretty consistent; five-star reviews have been at least 38% of all, and average 42% over the life of the app. Four-star reviews go down to 10%, and average 11%. (I don’t know what the average is across all apps on Google Play.) In fact, the data shows a gradual improvement in how the app is perceived, according to the reviews.

Apple Music on Android reviews

Based on this information, we can get some useful minima and maxima.

10m downloads, five-star users subscribe: 4.4m Apple Music subscribers on Android

10m downloads, four- and five-star users subscribe: 5.5m subscribers

12.75m downloads, five-star users subscribe: 5.61m subscribers

12.75m downloads, four- and five-star users subscribe: 7m subscribers.

I’d suggest the useful range is probably the 4.4m-5.5m one.

(One confounding caveat: we don’t know how many of the eager reviews come from people who downloaded it because they’re part of a Family Plan. I can’t think of a simple way to evaluate this unknown.)

Phoning home

If we accept those numbers, it suggests there are 14.5m-15.6m Apple Music subscribers on iOS.

What does that mean in the context of how many phones are out there?

There are about 550m iPhones in use, according to Neil Cybart. And there are around 1.2bn Android phones in use. (Apple Music is available in China, so it can run on phones there.)

This implies quite low penetration for Apple Music: about 2.5% on iPhones, and about 0.3%-0.4% on Android.

Then again, given that Spotify’s last published figure (in September) is 40m subscribers, and it is also available on both platforms, it’s clear that it’s just difficult to get people to sign up to these services. Given how many people Spotify has been available to in multiple countries, it has only been able to convert about 1% of the total available internet population during its life. It seems like getting people to sign up to music streaming really isn’t easy at all. So if you’re an Apple Music or Spotify subscriber, you’re very much in the minority.

Even though Apple’s progress in a short time looks strong compared to Spotify’s over the same period, it’s an open question how big the total addressable market is here. Are we just crossing over from the early adopters to the broader audience who will jump on streaming? Or is it going to struggle to break through? These are still open questions.

Is Android Wear going to make Google create the next Zune?


This isn’t an Android Wear watch, but there are similarities. Photo by David Lee King on Flickr.

Once upon a time there was a Big Software Company, and it wrote some Software for a Task, and that Software could run on Devices made by Other Companies. However, the Big Software Company didn’t want to get into the Devices business in any serious way; it much preferred to let the Other Companies deal with the (low-margin) hardware side of business, and stay principally on the high-earning Software side. (The Big Software Company did make some hardware, but it really didn’t make much money on it. In fact it even made a loss at times.)

Meanwhile Apple also began offering a thing for the Task, competing with both the Big Software Company and the Other Companies’ Devices. Except that Apple wrote its own software and built its own devices, which meant that it could extract profit from whichever part of the value chain it could, and subsidise the bits that weren’t profitable by its end pricing. If writing Software was a cost (which it is), it could make up for that by screwing down suppliers by buying up in volume, or raising prices subtly. The relationship between the Big Software Company and the Other Companies didn’t allow for that dynamic.

Pretty soon, Apple dominated sales of devices dedicated to the Task. This didn’t please the Big Software Company, which decided that the Other Companies needed someone to show them how to do it properly, and set about building its own Devices using its own Software to do the Task.

At this, the Other Companies looked askance at the Big Software Company, and essentially told it to go screw itself.

Not a moment too Zune

Reading this, you may – if your memory is long enough – have thought “oh, it’s the story of Microsoft, the MP3 makers, the iPod and the Zune.” And that story certainly fits. Microsoft wrote the Windows Media Player and controller software, which then had to synchronise with the music stores and with the music players made by OEMs, all with the intention of giving the customer the most delightful experience.

The reality was rather different – it was so hard to keep all the software and hardware synchronised that you never knew who to blame. Did your player not work because the OEM had been lazy in implementing Microsoft’s software, or because Microsoft had somehow screwed things up?

There was also the problem of marketing and advertising: despite having a powerful brand, Microsoft couldn’t really favour one OEM over all the others, so they all had to fight for themselves. You got different devices, different sizes, and no clear story about what to do.

Apple, meanwhile, came through the middle, launching into the MP3 player market just as it was ready to expand (in 2001, when MP3 was big on the desktop but not in the pocket) with a clearly identifiable design and really easy-to-use software. (Yeah, yeah, I know, you hate iTunes. Believe me, there was a time when it wasn’t overloaded.)

The rise of the iPod left other MP3 makers floundering; they just couldn’t get traction, because they couldn’t have a single message (they needed to differentiate themselves from each other) and they often didn’t update in sync. Apple, meanwhile, ruthlessly exploited advertising gaps, celebrity endorsement and an interested media (which ran endless “iPod killer” stories, the first in October 2002 – it was attached to a Creative Technologies player).

This went on from 2001-2006, by which time Microsoft decided that it had had enough of these messups – Steve Ballmer, then CEO, was particularly annoyed by Apple’s dominance – and so it made its own, the Zune. The project started in March 2006 and launched in November that year. You can guess that the timing wasn’t fortuitous; the Zune arrived as the MP3 player market was going into decline. It’s often overlooked that in the same January 2007 video where Steve Ballmer dissed the iPhone, he also talked up the prospects of the Zune:


(Jump to 1’00” for the iPod discussion)

(You can read more about the whole Microsoft/Windows Media/iPod/Zune debacle in my book Digital Wars. Also has chapters about search, smartphones, tablets and China. UK Amazon paperback, UK Amazon Kindle, US Amazon paperback, US Amazon Kindle, iBooks.)

Not only but also: Android Wear

However, you could read the above story and replace “Microsoft” with “Google”, the Task with “smartwatches”, and all the OEMs with… the OEMs who have struggled to sell Android Wear watches.

And it is a struggle. Last week, Android Wear finally passed 5m downloads on Google Play. As I understand it (from sources), each download is an activation of an Android Wear device.

Here’s how the download figure, using the waypoints on Play, has progressed since the release at Google I/O 2014, when all the attendees got one:

Android Wear downloads/activations by week
Android Wear downloads, definite waypoints; the polynomial fit is pretty good, according to the correlation coefficient (R-squared: 1 = perfect correlation, 0 = none).

That’s actually quite encouraging: it seems to suggest that after a slow start, sales are just beginning to take off.

And now here’s how it looks if you also include the number of reviews for the app on Google Play. The trend there suggests that reviews led downloads – that is, the ratio of reviews to downloads wasn’t steady, and has shifted down, so that over time fewer people who download the app leave a review. (I use that approach in my modelling to estimate download growth.)

Android Wear downloads v reviews
Android Wear downloads, and reviews left on the app page. (Some data for reviews missing.)

So, 5m sold in 115 weeks (just under 30 months). Here’s the problem, though: those 5m have been divided up between LG, Motorola, Huawei, Asus, Acer and the various other bit players in the Android Wear space.

Enter the Watch

But that’s before we consider Apple’s offering here. Apple doesn’t release official figures for individual sales of the Watch (“competitive reasons” is the line, and they’re sticking to it). According to Canalys though in its first two quarters of availability – April-October 2015 – it sold 7m. That was probably split 4m + 3m, given the estimates for a 4m first quarter.

And for the Christmas quarter, estimates (again, necessarily) put sales at 5.1m. And then for the first quarter of 2016 they were estimated (again) at 1.5m – a long way down, for certain, but not surprising for something which isn’t a necessity (like, say, a phone in the modern age) but more of a gift. A bit like iPods used to be, in fact.

So that takes us to 13.6m by March. Since then there have been two more quarters – well, we’re nearly through September. In the second, Apple was reckoned to have sold another 1.6m amid a widespread decline in smartwatch sales. Probably sales during this current about-to-end quarter have been similar, or even lower.

That’s a total so far of around 16.5m in five quarters. Those aren’t iPad-style numbers – that achieved 28.7m sales in its first five quarters – though it’s better than the iPhone (6.1m) over the same time from launch. (The iPod did 0.6m in its first five quarters, but they were different times.)

Here though is where Apple Watch/Android Wear starts to look like iPod/MP3 players. Apple gets all the revenue from the Watch, and it controls the software, and it decides how it’s going to move the business along. That’s why Apple’s trajectory looks a lot stronger at present:

Apple Watch sales v Android Wear activations
On cumulative sales, Apple Watch is outpacing Android Wear by a substantial margin.

By contrast the Android Wear OEMS don’t even get to personalise Android Wear; they just make the product, and still have the software support costs (those driver updates don’t write themselves) without getting any sort of side benefit. It’s not even as if using one model ties people to that brand of phone; interchangeability is the model with Android, unlike Apple. For the consumer who wants to pick and mix, it’s fine, but as a business model it brings some pain.

That’s clearly why, as Roger Cheng found out at CNet (by the shocking tactic of Asking People), the big Android Wear OEMs are going to hold fire for now:

LG, Huawei and Lenovo’s Motorola unit will not release a smartwatch in the waning months of the year, the companies confirmed to CNET. While LG launched a watch in the first half, it’ll have been more than a year since Huawei and Motorola offered an update on their wearables.

That marks a reversal from last year, when all three companies launched Android Wear smartwatches at the early September IFA trade show in Berlin in what was supposed to be a resurgence of the platform. At this year’s show, Chinese maker Asus was the only major tech company to return with a new Android Wear watch.

That’s perhaps a bit discouraging, since aside from chip companies, you’d struggle to see other OEMs in the big list on the Android Wear site:

Android Wear partners
Not many of these are selling Android Wear watches as their primary business. Or even secondary business.

According to Wareable, there are somewhere between 10 and 21, perhaps 24, Android Wear watches to choose from. (Its guide is pretty handy.) You can also get an idea of pricing, which tends to be around £200; again, that’s quite a bit less than Apple’s Watch used to be, though since the introduction of the new version the price for last year’s model has fallen to £269.

Altogether, Android Wear vendors have taken in a total of 5m x £200 = £1bn ($1.3bn). That’s spread across multiple vendors – let’s assume four of them – over 30 months. It’s not a great return on investment; it’s about $10m per month each, or $120m per year. Apple, in the meantime, has probably taken in $350 x 16.5m = $5.7bn.

(Sanity check: Tim Cook said Apple was second only to Rolex in watch revenues for 2015, and Rolex did $4.5bn in sales in 2015, and the sales estimate above is 12.1m; at $350 each that’s $4.2bn. That’s also ahead of Fossil, which did $3.2bn. So this all fits with what we know.)

This is the inherent weakness, for a device that needs to be personal, in the modular business model: OEMs can’t control enough of the story around it. Samsung’s decision to go its own way with Tizen looks sensible; its use of the watch bezel for a control is an inspired little bit of UX.

See you zune?

In the face of indifference by the OEMs, though, what’s a Big Software Company to do? Well, perhaps what Big Software Companies do: roll its own. Google is said to be working on not one but two Android Wear watches of its own, set for release very soon. One is big and one is smaller, and it’s reported (by Android Police) that the larger one will have LTE connectivity as well as GPS and a heart rate sensor, and be a “do-all device that will allow Google to demonstrate Wear’s most robust capabilities, including the announcement at Google I/O that Android Wear 2.0 will support standalone apps”.

The smaller one, meanwhile, won’t have LTE or GPS and maybe not even a heartrate sensor. Price unknown.

If they’re going to happen, then they’ll come with the October 4 announcement of the new Pixel phones. Google has already indicated that it’s going to try to move beyond the Nexus line (something which has occasionally annoyed its Android OEMs; that’s part of why the Nexus phone line has never been big in sales terms). Perhaps it has decided the same for smartwatches. I guess we’ll find out zune enough.

The 2Q 2016 smartphone scorecard: players searching for an exit


Exit. Who’s next? Photo by Today is a good day on Flickr.

There comes a time in every former top-ranking sports player’s career when they have to accept reality: they’re not up to it any more. They keep getting beaten by people whom they once would have trampled; what should have been easy wins are now struggles, or upsets. Eventually, they accept the reality everyone else has already seen: it’s time to exit.

And now we’re seeing that happen in the smartphone market. This isn’t really about sales of iPhones being down year-on-year – though they are, for the second quarter in a row, and though in the previous quarter Apple managed to keep its handset ASP (average selling price – calculated by total handset revenue divided by the number of handsets) up, in this quarter it was substantially down, below $600 for the first time since 2Q 2014.

But more generally, this is the quarter where China really began to muscle into the top ranks of Android OEMs – and all the players who used to be the big names there are inching towards the exit. The problem for the big-name Android OEMs is that, because it’s Android, they’re replaceable. Android on one handset is quite a lot like Android on another. But an Apple device, and its integrated software, is sui generis.

Numbers for all

So here are the numbers showing how that replacement is going. The list below is all in diminishing size of handset shipment volume. Other data sometimes has to be estimated, and in the case of Huawei, OPPO and vivo you’d have to be in one of the big analyst camps to know what their ASPs and hence revenues are, and you might have to be at the companies to know whether they’re profitable.

Standout elements from the quarter: Sony made a profit! (Even as it dwindled.) Lenovo kept shrinking; Apple’s ASP fell; Samsung trundled on; LG made more losses (the G5 flagship essentially sank); Microsoft barely turned up.

Q2 2016: the smartphone scorecard

* denotes estimate: explanations below

Company Handsets
(million)
Revenues Handset
ASP
Operating
profit/loss
Per-handset
profit/loss
% profit/loss
Samsung 77.0 $22.61bn $275.64* $3.75bn $48.66* 16.59%
Apple 40.4 $24.05bn $595.26 $6.71bn* $166.09* 27.9%*
Huawei 32.1 $7.06bn* $220 positive? positive? positive?
OPPO 22.6 $4bn?? $177* positive? positive? positive?
vivo 16.4 $3.7bn?? $225.60* positive? positive? positive?
ZTE 14.7 $2.5bn?? $170* ?? ?? ??
Xiaomi 14.5 $2.28bn* $150 negative? negative? negative?
LG 13.9 $2.88bn $207.52 –$177m –$12.73 –6.15%
Lenovo/
Motorola
11.3 $1.71bn $150.97 –$163m –$14.42 -9.53%
Sony 3.1 (not a misprint) $3.64bn $582.26 $4.03m $1.30 0.11%
HTC 2.3* $0.5bn* $217.39* –$128.50m –$55.87* -25.7%
Microsoft
Mobile
1.2 (not a misprint either) $0.23bn* $190.80* –$45m* –$38* –19.56%
Everyone else 135.4m

Assumptions:
Samsung: 6m tablets sold for $175 ASP at zero profit; 11.4m featurephones sold for $15 ASP at zero profit. (For every $1 fall in featurephone price, smartphone ASPs rise by $0.14 – so with zero featurephones and 6m $175 tablets, smartphone ASP would be $277.84. For tablets, every $5 rise in ASP lowers smartphone ASPs by $0.38 – so if tablets were free and there were no featurephones, smartphone ASPs would be $291.37. It isn’t a huge difference; tablets and featurephones are together generate about $880m, or less than 5% of overall mobile revenues.)

Apple: operating profit calculated at the historic figure of 27.9% (derived from multiple financial analysts). Might have been lower or higher – the 6S range maybe costs more to make than the 6 range, but there’s the SE range which might be cheaper because less retooling needed.

Huawei, OPPO, vivo, ZTE, Xiaomi: ASP figures all estimated, based on their perceived market power

How do I calculate the revenue figures (and hence ASPs) for OPPO, vivo, Xiaomi? According to According to Strategy Analytics,

Global Smartphone Industry revenues declined by -5% YoY in Q2 2016, due to softening of volumes. Apple was followed by Samsung, Huawei, Oppo and vivo from a revenue perspective. The report also captures the Wholesale Average Selling ASP’s for all major vendors across six regions. ASP’s in the quarter declined by -6% globally.

So if Oppo and vivo were bigger than Sony, they must have done more than 3.64bn. (Xiaomi must have been less than them too.) I’m guessing they weren’t that much bigger. For Huawei, which like those two doesn’t release revenue figures, I’ve estimated an ASP (up from the previous quarter) and generated the revenue figure from that.

LG: assume tablet sales were minimal, and had zero profit.

HTC: given that it now sells the Vive headset too, though not in large numbers (certainly not millions), it only takes a small adjustment from the overall revenue.

Microsoft Mobile: Microsoft gave figures for featurephone sales, of 9m; assuming an ASP of $15 for those and gross margin of $5 each (as before) gives the featurephone revenue. Assume the same manufacture cost as before, and you get zero gross margin; even with zero sales/marketing and R+D, you get a negative margin.

Rampant deflation

Everyone’s seeing price declines, which is what you’d expect in a growing market where you also have Moore’s Law and scale coming into play. But this is barely a growth market. Smartphone shipments were up just 0.26% year-on-year. When you look at the trend over the past nine years, we’ve really hit a wall here:

Smartphone growth year-on-year.png

The red line shows the four-quarter moving average, and that’s clearly down. What that suggestion of slowdown doesn’t quite tell is how the market is diverging. The premium end was long ago saturated: people who could buy expensive phones did so, but now there’s no new market to sell into in the developed countries – and consequently the US, China and western Europe are expected to see slowdowns, and even reductions in volume, this year (per IDC). The action, such as it is, will be in emerging markets such as the Middle East, Africa and Latin America – though even they will only see growth of about 5.6%.

In such a world, the companies which initially made Android a Huge Thing are beginning to head for the exit. HTC built the first Android phone. Sony had to go Android (as Sony Ericsson) because it was losing money hand over fist. LG had to figure out how to make smartphones quickly, because its featurephone business was being destroyed.

Now though they’re seeing those be destroyed all over again. You can see the numbers above. And here’s a graph of how pretty much everyone is seeing sales growth compared to the smartphone market turn negative (so if the market grows 10% and they grow 5%, they’re falling behind):

Smartphone OEMs: growth against the overall market

Year-on-year shipment growth measured against the overall market

But I’ve been collecting the revenue and profit/loss numbers too (and publishing them) going back to Q4 2014. That’s seven quarters. What if you add that up?

Seven quarters of hurt

Here’s the lineup when you calculate it over seven quarters:

Seven-quarter smartphone scorecard covering Q4 2014 to Q2 2016 inclusive

(all estimate elements as above)

Company Handsets
(million)
Revenues Handset
ASP
Total operating
profit/loss
Per-handset
profit/loss
% profit/loss
Samsung 555.4 $158.70bn $285.74 $17.95bn $32.32 11.31%
Apple 401.07 $263.59bn $657.22 $73.62bn* $183.56* 27.92%
Xiaomi 116.92 $18.62bn* $159.25 ? ? ?
LG 102.75 $21.58bn $210.02 –$428.39m –$4.17 –1.98%
Lenovo/
Motorola
121 $17.44bn $144.13 –$1,114m –$9.26 –6.39%
Sony 47.8 $17.13bn $358.37 –$908.33m –19.00 –5.30%
HTC 26.1 $6.45bn* $247.13 –$717.51m –$27.49 –11.12%
Microsoft
Mobile
41.3 $5.76bn $139.47 –$2,621m –$63.46 –45.50%
(Huawei, OPPO, vivo and ZTE aren’t included because I don’t have figures for them over the period; and there aren’t any financials for any of them.)

This bears out a truth that is borne out again and again by analyst reports into best-selling handsets, brand loyalty, and customer satisfaction: these days it’s a two-horse race, Apple and Samsung.

Xiaomi is an unknown, financially. But all the rest are losing money hand over fist, and as Vlad Savov wrote in a terrific piece entitled “Android OEM death watch: Sony, HTC and LG edition“, you do wonder why they soldier on:

The Android ecosystem has never been more diverse than it is today, but I suspect that what we’re witnessing now is a peak from which the basic economics of a maturing smartphone market will rapidly drag us down. Niche players like Nextbit, Vertu, and BlackBerry might survive thanks to their low volume of sales and correspondingly limited costs. But the big names we’ve known for so long, the Sonys and HTCs of this world, seem fated to fade from view.

I think this is absolutely right. Look at those numbers: why is LG putting up with a division that has lost money, and shows no sign of stopping? Although Sony made money this quarter, it’s fading from view. Lenovo’s ASP is so woefully low that it’s an obvious target for every up-and-coming Chinese OEM. (I was recently contacted by Meizu, which is launching into the Asian market: yet another rival for the uncommitted phone buyer.)

It isn’t even as if these struggling companies have scale: Sony has only sold 12% as many phones as Apple over the period (and 8.6% as many as Samsung, which might be the better comparison); LG has managed a more respectable 18.5% of Samsung’s number, but it’s losing money on them, over seven quarters.

Sure these companies have a lot invested in this business; you can’t just shut down a smartphone business like closing a corner shop. There are contracts, staff, distribution deals. But you can edge out, which is what Sony seems to be doing as its range and distribution shrinks. Will LG follow, or is its rivalry with Samsung in Korea just too strong to let it ever let go?

I’m honestly puzzled by companies which tot up millions in red ink and decide it’s fine to carry on. Microsoft is clearly getting out (who wouldn’t, looking at those margins) but how can Sony or Lenovo look at their returns and feel they’re OK? That’s the puzzle here.

Sure, there’s lots else going on: Apple’s falling ASPs and falling sales point to the saturation of the markets. Equally, the cheap hardware is getting really good – the Shenzhen effect, as volume of production means that the only distinguishing thing is software and, to a lesser extent, chip design ability. (Apple, Samsung and Huawei stand alone here.) I’m certainly impressed by Huawei, which offered a dual-lens camera on the new P9 which has a neat refocus/re-aperture effect, well ahead of Apple.

(Huawei’s problem is it doesn’t have a coherent strategy: it offered “3D Touch” before Apple too – as did ZTE – but hasn’t followed through; only the latest P9 still has it. Will the dual lens offering spread to the rest of its offerings, or fall by the wayside as happened with HTC’s dual system on the M8 in 2014?)

In search of the lost profits

What then happened to all the profits that HTC, Lenovo, and Sony used to earn? Simple: eaten by Samsung, Apple, and Chinese rivals. The growth of companies like OnePlus, Meizu, and of course Huawei, vivo and OPPO and (less so) Xiaomi means the potential for scale falls away from those already in the market.

However it can take a while for these effects to become visible. HTC’s sales peaked in 2011; LG’s, Sony’s and Microsoft’s in the second half of 2014. From around that time, all the Chinese OEMs began growing rapidly, first in their home market, and then India; and in Huawei’s case, Africa, Europe and the US.

Late exit

Apple looks to have peaked in 2015 – but it has a solid ecosystem and so many users that any erosion would take a long, long time. That’s in stark contrast to every Android OEM, which (as even Xiaomi is finding out) is disposable and replaceable.

But it can take a long time. BlackBerry’s handset sales peaked in 2010, and yet it’s still going. (Though will John Chen finally announce the company is getting out of hardware at the quarterly results on September 28? One to watch.) HTC has been ebbing for a while, for example. Sony has begun withdrawing to Asia. LG is being pushed aside in Europe by Huawei.

The only question is when some of the executives at these companies will finally ask why they’re still trying to play a losing hand. There comes a time for the players to leave the game. When is it?

The iOS 10 changes that actually matter: ad tracking, camera changes, “press to unlock” and more

It’s that time of year! Photo by fldspierings on Flickr.

It’s iOS 10 release day, and everyone and their best friend is doing “10 [geddit??] things you need to know about iOS 10”. Most of them aren’t worth knowing, because

• you’ll discover them immediately when you update
• they’ve already been announced.
(Though I do love “how to update to iOS 10” stories. TL;DR: do an iCloud backup, or an iTunes backup, and then press the “software update” button in Settings → General → Software Update. Then wait while the internet falls to its knees.)

Let’s instead go a little deeper into the new OS, and point out the elements which you might not spot at first but which could potentially make a significant difference to your experience. I’ve been using iOS 10 through the betas on an iPad Pro and an iPhone SE, so that’s both the phone and the tablet experience.

Ad tracking

Remember how Apple introduced “Content Blockers” in Safari in iOS 9, and in parallel introduced “Safari Web View” for all apps – which meant simultaneously that you could install a mobile adblocker, and that that adblocker could be used in any app which opened web pages (such as Tweetbot, my weapon of choice for Twitter)?

The ad business had a collective fit over iOS adblocking, and it’s ready to have a second one now. Dean Murphy, who profited handsomely (and rightly so) from his Crystal adblocker, points out that with iOS 10, Apple is taking your ability to block targeted advertising one step further, even if you don’t want to install an adblocker.

On his blog, Murphy explains that “Apple is changing the way that the ‘Limit Ad Tracking’ setting works in Settings → Privacy → Advertising, and it seems to be causing a mini storm in a teacup among the adtech world.”

As he points out, while Apple got rid of the “UDID” (Unique Device IDentifier) for iPhones some time ago, in iOS 6 it provided the IDFA – ID For Advertisers. If you turned on “Limit Ad Tracking”, you’d be given a random new IDFA, plus a flag would be set telling advertisers you didn’t want to be tracked. But guess what! Advertisers don’t seem interested in saluting when that’s run up the flagpole.

So, says Murphy:

In iOS 10, when you enable “Limit Ad Tracking”, it now returns a string of zeroes. So for the estimated 15-20% of people who enable this feature, they will all have the same IDFA instead of unique ones. This makes the IDFA pretty much useless when “Limit Ad Tracking” is on, which is a bonus, as this is what users will expect when they enable the feature. These users will still be served ads, but its more likely they will not be targeted to them based on their behaviour.

This didn’t stop one guy over at Ad Exchanger wailing that Apple is “giving consumers a way to opt out of advertising altogether” (it’s not) and that people shouldn’t have the right to opt out of advertising. Which is quite a stretch. Murphy has some more figures on how much the adtech people aren’t losing by this move. But it’s still a good one by Apple, which fits well with its privacy story.

Open the camera, Hal

So you lift up your iPhone to wake it – did every other article mention it now has “lift to wake”? Yes they did (it’s triggered by the orientation sensors) – and now you have a screen with three little dots at the bottom. You’re in the middle; swipe right (that is, pull from left to right) and you get a ton of widgets.

But swipe left (pull right to left) from the home screen, and you now get the camera. This is such an obvious and timesaving move that it’s amazing it has taken four iterations of the “swipe” motif introduced with iOS 7 (7, 8, 9, 10 – that’s four) to get it right.

Cameralock
The Lock Screen in iOS 10 now shows you that the camera is off to the right (ie, swipe left). My arrows and text, obviously.

Having the camera a swipe left from the lock screen is quick, easy and a hell of a lot more convenient than having to swipe up, as has been the case since Apple introduced that route to the lockscreen camera in iOS 5.1 in March 2012.

You can understand why iOS 7 didn’t change that. People had had less than 18 months to get used to “swipe up” when iOS 7 was released in September 2013. Apple doesn’t do UI changes all at once. It taught people how to swipe, then a year later it introduced bigger screens where they’d need to swipe. So we’ve now had “swipe up for the camera” for just over four years. But it’s logical, and faster, to swipe left: it’s a shorter distance, it’s more natural for your thumb (I always found “swipe up” a struggle if I had the phone in one hand), and that screen on the right is unused virtual space.

So all hail the new way of getting to the camera. Though in iOS 10’s first few weeks you’re going to hear lots of people saying “how do you get the camera?” and probably swiping up to Control Centre – though the camera is there. But be the helpful one, and show them the side swipe.

Not quite better: Control Centre/r access

I don’t know about you, but if I’m typing something in Messages and need to bring up the Control Centre, it’s akin to an Olympic event to raise it first time. More often I hit a few random keys first, and have to retry.

Pulling up Control Centre is tricky
Pulling up Control Centre is hit-and-miss if you have a keyboard running

This doesn’t seem any better in iOS 10; I think it needs some sort of border below the keyboard. It’s a difficulty that seems to have come in with iOS 7, so perhaps in a couple of years..

The other change in Control Centre (I’m going to use the British spelling dammit) is that it’s now split into two panes, which you swipe between as needed: non-audio stuff in the left, audio stuff (such as music playback and audio output direction) in the right.

Control centre
The new Control Centre in iOS 10 is split across two screens – swipe between them. It remembers which one you last accessed.


Update: I’m told by Ravi Hiranand that the Home app gets its own Control Centre screen, if you have it functioning. As I’ll explain below, I didn’t so I didn’t. (End update.)


This is another thing that will have lots of people saying “hunh?” as they try to get used to it; since iOS 7 (when it came in) it had been all in one place, but with the introduction of Night Shift on the iPhone 5S and above, it was all getting a bit crowded. One pleasing little touch: when you touch the volume slider to change it, the speaker buttons at either end light up. (Update: Marc Blank-Settle says this was already in iOS 9, and he’s right, it was. This is what makes software reviewing tough: you notice something for the first time just when it has always been there.)

Press to unlock

The most subtle change is that it’s no longer enough to rest your thumb (or other finger) on the TouchID button to unlock the phone/tablet. It certainly used to be the case that it was, but on the 6S range in particular this could mean that if you picked the device up to see what was on the notification lock screen, and particularly if you used a phone, chances were high you’d unlock the thing and miss what you actually wanted to see.

Now you have to actively press on the button to both identify yourself and to open the lockscreen. This also fits in with the new Taptic buttons on the iPhone 7 range, which don’t actually move, so that you have to tell them you’re there by actively pressing.

This seems like a trivial point, but in the first few weeks you’re going to hear lots of people whose muscle memory is built around resting their fingers on that button who don’t understand why doing that doesn’t unlock it. On such small things are perceptions of ease of use built.

However you can turn this off, at least on TouchID devices. You have to go to Settings ▶️ Accessibility ▶️ Home button, and there you’ll find “Rest Finger to Open” as an option. Lots of things are hidden down there in “Accessibility”.

Home button: accessibility options

You can revert to the old TouchID behaviour via Accessibility.

Deleting apps

Sure, you can delete the stock apps. Don’t bother. You’re not really saving any space. And that app you downloaded to replace it? Takes up more room and doesn’t get system-wide benefits.

Mail, now with filters

Speaking of stock apps, iOS’s Mail is creeping towards a vague parity with what OSX’s Mail could do in about 2000, when the latter was still in beta. Though it is way easier to triage email with swipes on a touchscreen than a keyboard and mouse.

In iOS 10, you can filter email, via a little “filter” icon at the bottom of the screen: tap it to change between filter criteria.

iOS 10's mailbox filter

You can filter mailboxes by Unread, Flagged and a few other criteria: tap the icon

We’re still stuck, though, with a very limited number of ongoing filter systems: you can’t set up a “smart mailbox” based on a phrase, for example, even though OSX has had that forever. Here are the options for filters:

Mailfilters

This “what does that do?” thing about the filter icon is something most people will probably come across by accident. It’s helpful, but Mail is still some way from being a powerful app. It’s still only useful.

Maps: you can get there from here

In iOS 9, Maps began getting public transport details, and that has quietly been enhanced over the past year. The key change is that it’s much more sensibly laid out: search is on the bottom, and location plus settings are in the top right.

Even better: search is coordinated among devices, so that if you do a search on your tablet, those searches will also be on your phone. (Finally.)

Ios9 10 maps
The Maps app is improved in iOS 10 (on right) over that on iOS 9 (left): it now puts search in a more accessible location at the bottom, remembers searches from other devices, and can offer ride-sharing app routes.

Notes, collaborate

Apple made something of collaborative editing coming to iWork at the iPhone introduction last week, but it’s offering exactly that in the new Notes: type up a note, and you can choose to share it with someone, who will see the changes that get made, and be able to edit it too.

Obvious use: shopping lists. As long as the person shopping (or suggesting shopping) doesn’t go out of range of data.

Under the hood: Siri and machine learning

The range of things that Siri can do hasn’t changed much in this update – at least, not visibly – but it is improving. And what’s really going to change is that it will be open to some developers, for a limited number of functions. I didn’t see any in the betas (you’ll have to see what developers do with it).

Photos are meant to get a tonne of machine learning. But it’s principally facial recognition, and the “Memories” function is – for me at least, having few photos with location tags – so-so. Yes, it’s nice to have photos collected together from particular days, but this isn’t Google Photos with its ability to find “photos of dogs” from an unlabelled corpus of pictures.


Update: Nick Heer points out that it does show you photos that match a keyword (singular is best). It hasn’t done this on the iPhone SE, but on checking my iPad and doing a search in the photos for “horse” I find that yes, he’s correct. iOS 10 calls them “categories”. You can discover what categories it has available by typing a single letter of the alphabet into the search box, and seeing what unravels. (Perhaps someone will make a list. What am I saying? For sure someone will make a list. And look – here it is.)

Photo search on iOS 10

Type a letter, get a list of categories


[end update]


Then again, the pictures sit on your phone, so possibly over time the capability will be there. (We simply don’t know how much processing power per photo is needed for Google Photos’ identification system, nor how many examples it has to see to hit its training targets.)

Finally: home screen widgets

Apple hasn’t gone as far as Google in Android, and nothing like as far Microsoft in Windows Phone, in terms of what widgets are able to do as a layer over the home screen. They don’t dynamically update while you’re not looking; they hurry to do it when you swipe across. Saves on background processing. But you can edit them, as before.

Home screen widgets on iOS 10

Yeah, that’s all

Sure, there’s a ton of other stuff. There’s:
• the update to Messages (annoy your iOS 10 friends by sending them “Happy Birthday” messages) which now means that it’s becoming something of a platform.
• Apple Pay on the web – possibly that should have been a feature above, but I never tried it out.
• Home. As an app. I couldn’t find any products that actually hooked into this, and I suspect it might be a while before I do. (Ravi Hiranand says Home found his Philips Hue light automatically, and “works better than the original app”.)
• Subtle thickening of fonts, so that text is easier to read. This is system-wide, and very noticeable in the re-thought Apple Music and in Maps.

Finally

So – should you upgrade to iOS 10? Don’t you love how this question is asked as if you might not? You’ve read a whole piece about it that you didn’t have to. You probably will. And yes, you should benefit. Some of the touches are clever, and some are overdue, and some are essential. But it’s all about getting the device out of the way.

The thing you’ll notice the most? Pressing the Home button. It’ll bug you gently for a couple of weeks. Then you’ll forget it. And after that, you’ll notice the Maps app’s improvements. And those you’ll probably forget; can you remember what it was like before? Hardly anyone can.

That’s the way with software: you change things wholesale, and within a few months nobody could draw what the old thing looked like. Believe me, though, if you came across a device running iOS 6 or earlier, you’d be amazed at how… primitive it looks. Pundits might have bitched about iOS 7, but it’s been a wholesale improvement in user interface.

One could wish for better, smarter AI, but that might have to wait a few years for more power on the device. Even so, the “Siripods” (aka AirPods) point towards Apple wanting us to have a closer verbal relationship with our devices.

Colours, names and numbers: why is it ‘iPhone 7’ but just ‘MacBook Air’?


Phil Schiller introducing the iPhone 7/Plus in San Francisco. Yes, but why “7”? Photo by tuaulamac on Flickr.

Yes, Apple launched new phones the other day. Yes, there isn’t a 3.5mm headphone jack – which will cause varying amounts of trouble for people and accessory makers. There are “AirPods” to buy ($159, or £159 – even with VAT that doesn’t make sense on the exchange rate front).

We know too that Apple faces challenges: the premium smartphone market is saturated, so that pretty much all sales now will be to people who are replacing an existing smartphone; and Apple only targets the premium end, since even the iPhone SE (which does have a 3.5mm headphone hack, and a 16GB model) starts at $350, which is the lower limit of what analysts call “premium”.

But there’s a subtler question around this iPhone. And it’s this: why does Apple call it “7”? Sure, they’ve moved things around, and redesigned this and tweaked that (oh, yeah, headphone jack has gone). This is known as a “refresh” in the business.


The MacBook. Who can tell which year they’re from? Only the colour indicates that the right-hand one isn’t from 2015. Photos by tuaulamac on Flickr.

So why do we have a number for this product, and yet when the MacBook line had a refresh earlier in 2016, that wasn’t called “MacBook 2” – or even “MacBook 3”, as there was one back in 2010?

Similarly, the expected and long overdue refresh of the Mac Pro isn’t going to be the “Mac Pro 2”; nor is the MacBook Pro line going to get a “MacBook Pro 9”, given that there have been eight iterations already since the line was introduced in February 2011.

On its face, this is puzzling. Apple wants people to upgrade their hardware – that’s where vast amounts of its revenue comes from – and with the iPhone, it signals to people that there are new models available through the numbering system, and also through the colours available. (In 2013, the 5S came in a “gold” colour; in 2015 there was the new “rose gold”.)

By contrast, the PCs come with very little variation in appearance – you have to be quite nerdy to spot the difference between a 2012-vintage model MacBook Pro and the 2015 one, say. Though the MacBook does come in multiple colours, and the “MacBook 2” added rose gold as a colour option. (Hence above we know the right-hand one is a 2016 model.)

Colour as a “novelty” signal has long been a favourite for Apple: remember the original iMac, in “Bondi blue”, where the colour range then expanded – signalling how much newer your model was – until it went mad with the Dalmatian range. Of course if the numbering system were used for the iMac, we’d be up to something like “iMac 20” by now, what with all the variations of the 1998 teardrop, the lampstand, and now the flat-panel version.

Yet the more you look across the product range, the more peculiar this choice of numbering only for phones becomes. It has even been dropped for the iPads; where we used to have iPad 2, 3, 4, and then “iPad mini”, and then Air and Air 2, we now just have iPad Pro and iPad Air. (And mini. Not sure how long that will survive. It’s something of an “iPod touch for the iPad range”.) There’s the Apple TV. Can you tell them apart? Only by size. They don’t get “Apple TV 4”. Airport Express? Airport Extreme?

And how about the iPod? That didn’t get numbers – though it did get descriptors as the range grew (“Classic”, “mini”, “nano”, “shuffle”, “touch”). The changing design was itself sufficient differentiation, perhaps.

Here’s another example from a saturated market: cars don’t get numbers. They get names. There’s the Ford Focus, the Vauxhall Zafira, the Chrysler Plymouth, and so on. Ah – except as John Dodds points out, BMW uses numbers for its ranges (BMW 3 series, 5 series). Hmm.

Note, by the way, that the Watch is getting a “Series 2” moniker, and also new materials and colours. But the descriptors (“Edition”, “Sport”) have been abandoned.

What’s in a name and a number?

What do we conclude? Perhaps those more steeped in marketing will provide a better analysis, but it feels to me as though there’s an urgency in using numbers to name a product: it immediately dates the old one and give the new one a sense of being right here, right now. (Except – odd detail – you won’t find the phone number on the phone itself. Nor is it even displayed in or on the phone. The back of the iPhone used to show the memory; now it doesn’t even do that.)

Why not do the same on the PCs then? It’s not that there’s suddenly a temptation to slide past a lengthening upgrade cycle; Apple used to upgrade them every six months or so like clockwork, but recently has become less interested in doing so. But it didn’t have a number or even descriptor for its PCs back when it was pushing new ones out.

Add in the fact that it’s almost impossible to differentiate between the iPhone 6/6S/7 (and 6+/6S+/7+ – except the latter has dual cameras) except if they’re in unusual colours, and you have a conundrum. Apple attaches numbers to these products in its marketing; yet there’s none on the devices themselves. Perhaps it’s to help people pretend that they have the latest when in fact they don’t; the “unashamedly plastic” 5C sold comparatively poorly (against expectations if Apple had simply continued the iPhone 5, which is what the 5C actually was inside) perhaps because owning one indicated to the world that you didn’t have enough money to buy the top-end new model, the 5S, and that you hadn’t had it the year before either (because you’d have had the 5).

So if the phones don’t have the numbers, why does the marketing? Possibly it’s just to do what marketing should: make you aware there’s a new product. Even if you can’t tell which one other people – or even you – are using. (Do you know which model of phone you have? This might be indicative of how susceptible you are to this marketing method.)

The only other question is: when will Apple stop numbering its iPhones? Will the 2017 version, being the tenth anniversary edition, be the “iPhone Edition” or some such? Once you’re on this thing, it seems unlikely to stop – but I can’t wrap my head around the concept of 2020 rolling around and the “iPhone 9” being unveiled while a few weeks later one of the PCs gets an update that makes it autonomously intelligent with VR, and yet it’s just called “the MacBook”.


(From an idea on Twitter by Joe Asbridge – thanks Joe. Told you I’d write it up eventually.)


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Lenovo’s Yoga Book: a brilliant idea – for 15 minutes or so


Lenovo’s Yoga Book: is this the new face of tablet computing? Not quite. Photo by bjtechnewsphotolibrary on Flickr.

I went to IFA in Berlin last week (courtesy of Harman Kardon; they have some interesting stuff I’ll write about presently) and during my time there got a chance to look at Lenovo’s new Yoga Book, which has attracted some interest.

(Here’s the TL;DR: it’s an interesting design, and it’s great that Lenovo is at least thinking of different ways to approach tablet design. But in the end it’s a short-term feature that doesn’t actually offer anything over other designs.)

Lenovo has a gigantic stand there, with the Motorola brand now limited to a little island in the middle of it. There were no smartwatches on view. There was a lot of space devoted to the Yoga Book.

Book your place

How to describe it? The photos mostly do it justice. If it were a laptop, you’d say it was very thin. There’s a hinge, and a tablet-style 10.1in display which is touch-sensitive, and then there’s a basalt-black lower (or side) slab which is where the keyboard would be in a laptop.


The Yoga Book’s “basalt slab” lights up to show an illuminated keyboard; otherwise it’s black. Photos by bjtechnewsphotolibrary on Flickr.

But rather than having moving keys, this lower part is just black – until you press a lit virtual button at the top right, which turns on the underlights (backlights isn’t right) to a virtual keyboard.

That is, indeed, impressive. Seeing the keyboard light into life is one of those “technology delight” moments. There was nothing, now there’s something! And you can type on it, as accurately and quickly as on any hard-surface virtual keyboard. (I can type pretty fast on them, and spent a little while proving it to myself on one of the Yoga Books.)

That isn’t quite all that the basalt slab can do: it’s also touch-sensitive, so that you can draw on it using a normal pencil or pen, though it might be advisable – as the photos show – to do that with a piece of paper in between. Great! You can copy your drawings that you made on the back of napkin into whichever drawing app you’re using. (I did not test this. No napkins to hand.) But I did see it being demonstrated plenty on the stand.

The screen itself is also touch-sensitive, in the same way as an iPad or any Android or Windows tablet. That’s because the Yoga Book is both of the last two – it can dual-boot, into Windows or Android or more precisely, either: you can buy a Windows version or Android one. (It doesn’t seem to be dual-boot.)

Here’s the thing, though. What else can the basalt slab do? Nothing. It can’t light up and display more content. It just does a keyboard. (I assume it can do different keyboards, according to language, though I didn’t check this.)

What’s the problem this solves?

So the basalt slab is nice, and it has a “delight the potential buyer” element. But let’s ask: how much better off are you with this than with, say, an iPad Pro with a detachable keyboard (or any iPad with a Logitech or similar attachable keyboard)? Or a Surface Pro?

The Yoga Book has one thing those don’t:
• you can alter the viewing angle for the screen to any angle, including bending the keyboard underneath the screen so that you have a tablet stand at any angle.

And that’s it.

But, but, but, you say: what about all the writing on the basalt slab?

OK, what about it? How is it better to be able to write with a pencil at one remove from the screen itself (rather like using a Wacom tablet) than being able to write directly onto the screen with an Apple Pencil or Surface stylus? I puzzled about this for a while, but I really cannot see any scenario where anyone but a serious artist would want this function. If you occasionally need to get some handwritten content into an app, get something that accommodates a Pencil/stylus. Or, hell, just take a picture of it and draw over it in an illustration app. (Apps such as Procreate make this easy.)

Target market

Lenovo does seem to be targeting the “real artist” slice, judging by its promo material (from the link above):

Draw with the included Real Pen that detects 2048 levels of pressure—capturing subtle nuances of every stroke. No need to worry about batteries; the Real Pen works without ever needing a charge. You can even be more creative by using two hands: one on the screen to select tools, pan, and pinch-to-zoom the other hand using the Real Pen to draw on the Create Pad.Best of all, you can see your creations come alive on the display – unlike most tablets, where your hand blocks the display as you draw.

Ah yeah – the Real Pen costs £43. (Apple’s Pencil costs £79, and doesn’t say how many pressure levels it detects.)



You can draw on the basalt slab with the Real Pen. But why would you, rather than just drawing directly onto the tablet screen? Photos by bjtechnewsphotolibrary on Flickr.`

Perhaps is the basalt slab giving tons more battery life? Apparently not: Lenovo talks of 13 hours’ battery life on Android, which is tablet-ish but not “oh wow that’s utterly incredible, did you do that by hiding the battery in the basalt slab, wow”; though for the Windows tablet it suggests 15 hours, which is a lot more impressive for a Windows tablet.

When you look at it like this, the basalt slab looks less like a “really clever thing” and more like “yeah, it’s a touch-sensitive display that doesn’t display anything but black and white keys”, which is a good way to keep costs down. (Windows developer Mike Hole points out that it’s a bit like the dual-screen Acer Iconia tablet – which he describes as “very niche and flat keyboard [is] a no-no”.)

For all that, the Yoga Book retails for £430 in the UK, which is substantially more than the other two tablets here, which go for £130 and £180. Lenovo’s problem has been that it couldn’t break out of the Android tablet morass, which led it to lose money on them. So the Yoga is a clever move in that regard.

That’s the real problem that it solves: making money in the tablet market.

But is the Yoga Book a breakthrough in tablet design, bringing us dazzling new possibilities? Afraid not. It’s neat, but after a while you realise that the innovation is sustaining, not disruptive.


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Inside the unprofitable world of (Lenovo’s) Android tablets (updated)

Lenovo’s Yoga Android tablet: likely not much profit here. Photo by pestoverde on Flickr.

Corporate reorganisations! What are they good for? Absolutely nothing – except in the rare cases when they force a company to restate its financial results using the new reporting lines. The fallout from this is that you can often figure out, at least for a few previous quarters, how previously hidden bits of the company were faring.

Which leads us to Lenovo, which in April reorganised itself from having a “PC” division which made PCs, and a “mobile” division which offered smartphones and tablets, to having a “PC and smart devices” group which offers PCs and tablets, and a “mobile” group which offers smartphones.

It restated its revenues and operating profits for those divisions for the previous four quarters. What happens when it does that is that you can see, by how the numbers shift, what sort of contribution tablets were making to the overall business.

Reshape, restate

The results for the April-June quarter (the calendar Q2, but Lenovo’s fiscal Q1) include this restatement:

Lenovo financial restatement

Of course the old numbers for the previous organisation are still there. So to find out how much business, and how much profit, we just go back and compare the old numbers with the new ones – that is, the PC-only figures for revenue and operating profit, and the PC-plus-tablet figures.

A quick bit of arithmetic then shows you the tablet revenues and operating profit.

(Note this is only the Android tablets – the Windows devices were already part of the PC division.)

Here’s what we get.

Lenovo Android tablet revenue
(“CQ” means “calendar quarter”, eg CQ1 is January-March.)

And as IDC records tablet shipment figures, we can also get the per-tablet average selling price (ASP) and per-tablet profit.

The raw figures for ASP, profitability and volume are these:
Lenovo tablet profitability

Which make this graph:

Lenovo tablet ASP and profitability
(figures in US$)

A bad business

What have we learnt? It’s long been fairly clear that Android tablets really aren’t a great business to be in. They’re low-volume, low-margin (if there’s any margin at all) and because it’s Android, people tend to have little brand loyalty – essentially, it’s a glorified screen.

I can’t see that any of the smaller competitors in Android tablets (Acer, Asus, Lenovo, Huawei, LG) are making an operating profit, or at least one worth considering. Sure, they will make gross profit – they get more money than the raw materials cost – but once you include other costs such as sales, marketing, administration and R&D, they’re sunk.

Samsung is the exception here: I’m confident its tablet business is profitable, because it has scale (it’s the largest Android tablet maker by some distance, with 6m shipped in the second quarter, making up about 25% of all Android tablet shipments) and also makes the components itself; that flywheel effect of creating your own scale with stuff you make yourself has a knock-on effect. But even Samsung has struggled with the idea of high-priced tablets; it has considered just giving them up and aiming for the low end. But it didn’t.

The lower you go

Looking at Lenovo’s ASPs, which wander around the $110 mark (I’ve previously guessed them at $100 and zero profit in my handset analysis; nice to have that confirmed), it’s easy to see why. There’s barely any money in Android tablets – a fact that was confirmed after I wrote this post (see the update at the end). Take a look at how small a part of Lenovo’s business they are:

Lenovo's PC, smartphone and tablet sectors

In his meta-analysis of the Android-iOS landscape, Benedict Evans estimated that there are 150m-200m Google Android tablets in use, and perhaps another 200m “naked Android” (no Google services) in China. For comparison, he reckons there are about 250m active iPads, of varying sizes.

The key difference is that Apple’s iPad sells for way more than Lenovo’s (or Samsung’s). The ASP for all iPads in the latest quarter was $490, and it has never fallen below $400. Sure, you can argue that the iPad is overpriced, but you can also expect that as long as it keeps selling, Apple will get the profit it needs to encourage it to keep going.

The other point: if you can can’t make a profit selling tablets, you won’t be able to improve them, or market them seriously.

Compare that with Apple’s efforts, where its True Tone screen (on the 9.7in iPad Pro) is likely – certain, really – to come to the new iPhones later this year. But in the tablets first. Lenovo can push – but only because it has the PC division. The tablets, have been dragging it down.

And finally..

There’s a nice coda. In its latest results, Lenovo says “Tablet: profitable with double-digit growth premium to the market”. Looking back, it has never before said that tablets were profitable; it’s done lots of talking about growth and position, but not profit. We can’t see how profitable, though, because we don’t have those comparative numbers as we did before.

The other coda: you can work out the tablet revenues and profits by using the pre- and post-split numbers from the smartphone division. But they come out different. Via the smartphone division, revenues come out as $1,231m v $1,150m via the PC division; operating profit comes out as -662m from the smartphone numbers, v -33m from the PC numbers. But I’ve gone with the PC figures, because there are all sorts of writeoffs – inventory, restructuring, redundancy, acquisition of Motorola – in the smartphone numbers which confuse things hugely. There are no such in the PC division numbers, so I’ve gone with them.


(Update: corrected typo of “if you can’t make a profit selling tablets..”)


Bigger update: a week after this appeared, Digitimes had two stories on the squeeze in the tablet market. The first noted that in 2Q 2016, the tablet market shrank again, to 40m units:

Among the three major camps [Apple, brand OEMs and cheap “white box” vendors], white box players performed the weakest in the second quarter. With more large-size independent design houses (IDH) quitting the market plus shortages of components including panels, memory and processors, white-box players saw their combined shipments drop to a new low at 13.8m units in the second quarter.

Non-Apple first-tier vendors’ inexpensive tablets were mostly released in the second quarter, but combined shipments were down 7.1% sequentially to reach only 16.98m units as product differentiation, number of models, and price competitiveness were all inferior to in 2015.

And then there was the news you might expect, of both brand names and white box vendors pulling out:

Asustek Computer and Acer have turned to focus more on niche applications, while Micro-Start International (MSI) has already phased out of the business and to focus mainly on gaming PC product lines. China-based white-box players that have joined Intel’s China Technology Ecosystem (CTE), have also mostly stopped pushing tablet products.

Dropping demand is expected to cause Asustek’s tablet shipments to fall below three million units in 2016, according to sources from the upstream supply chain, leaving Apple the only player that is still able to achieve strong profits from the tablet sector.

That’s pretty stark. (Note that the Digitimes stories go behind a paywall after a few days, if you’re coming to this late.)

Asus, you’ll recall, made the Nexus 7, which was probably the best-selling Android tablet ever – Sameer Singh estimated it at around 6m-8m units in 2012.

But a lot of the companies that jumped into the market thought that tablets would be like smartphones – updated every year, or perhaps every two. Turned out they were all wrong, including Apple; the sales cycle looks more like three or even four years, much closer to a PC. (The iPad 2, from 2011, is still widely used.) After the boom in 2012, the tablet bust has been abrupt – and only those with the manufacturing and financial muscle have been able to stay the course.

Premium Android hits the wall: the Q2 2015 smartphone scorecard


Premium Android phones went off track in the second quarter. Photo by -Jeffrey- on Flickr.

It’s late, yes. But all the results are now in for the second quarter (April-June) of the smartphone business.

The TL:DR: high-end Android OEMs had a terrible second quarter. The smartphone business generally grew less quickly than for a couple of years as China stagnated overall. But not for Apple; by contrast, it grew strongly. Samsung’s Galaxy S6 did not impress the punters. LG’s G4 sold less well than apparently the company hoped. Sony had a torrid time. HTC then redefined torrid. Premium Android has a real, immediate problem.

Details, details

A year back, in the second quarter of 2014, the combination of Samsung, HTC, LG, Sony, Motorola and Lenovo together shipped a total of 129.4m smartphones. (Samsung shipped 74.9m of them, or 58% of them.) The whole smartphone market constituted 301.4m devices, so that group had 43% of it.

In the second quarter of 2015, the combination of that same group (with Motorola now owned by Lenovo) shipped a total of 114.7m devices. Samsung shipped (an estimated, as always) 73.2m, or 64% of them. The whole smartphone market was 337.2m, so that group had 34% of it.

Note:
• None of the Android OEMs shipped more handsets than in the year-ago period.
• None made more operating profit than in the year-ago period. Quite a few lost money, including Sony and HTC – in the latter’s case, enough that its future as an independent company is in serious doubt.

Profit or loss, that’s a lot of handsets. It’s easy to underestimate how complex the process of designing, making and distributing millions – that’s millions – of handsets across the globe is. All of these companies is doing a remarkable job in making and getting hardware out there. The problem is that it’s a job which only two companies are doing with any great success. Here are how the financials stack up:

OEM Smartphone revenue US$ (approx) Operating profit US$m Operating margin % Smartphones shipped Implied ASP per smartphone Implied profit per smartphone
HTC $1.066bn -$166m -15.5% 4.5m $236.89 -$36.89
Sony $2.30bn -$187.9m -8.1% 7.2m $319.36 -$26.10
LG $3.16bn $0.22m 0.0069% 14.1m $235.98 $0.016
Samsung $20.95bn $2.44bn 11.6% 73.2m $286.10 $8.51 $33.33 [thanks Walter Milliken]
Lenovo
(inc Motorola)
$1.86bn -$292m -15.6% 16.2m $114.81 -$18.02
Total for ‘public’ Android $29.34bn $1.79bn 6.1% 115.2m $254.69 $15.54
Apple $31.37bn $8.78bn (28% est) 47.5m $660.00 $184.80
Microsoft Mobile $0.94bn -$646.8m -68.5% 8.4m $110.00 -$72.00

Working assumptions:
HTC: all revenues from smartphones – zero from the Nexus 9 tablet (pretty certainly true), zero from the HTC Re camera (probably true). The shipment figure comes from IDC, so is definitive.
Sony: all revenues and profits from smartphones; zero from tablets – of which it shifted fewer than 1.6m, given IDC’s numbers; and zero profit from tablets.
LG: $100 average selling price for the 1.6m tablets that IDC says it shifted in the quarter (and it seems to have a range of eight). Tablets assumed to have zero profit, though they might have made some loss that made everything else look worse.
Samsung: featurephones (it shipped 15.8m) sold for $15, zero profit; tablets (7.6m) sold for $175, zero profit. If the tablets or featurephones made any profit, then the profit from smartphones were lower.
Lenovo: assuming the 2.5m tablets it sold had an ASP of $100, and zero operating profit. If the tablet ASP was lower, Lenovo smartphone revenues were higher; if the tablets were profitable, per-smartphone loss was greater.
Apple: operating margin, as previously, of 28%. You could halve this, or even put it level with Samsung’s declared margin, and its operating profit would still be more than all the others’ profits (even ignoring losses) put together.
Microsoft Mobile: the figures here have to be backed out from the headline smartphone revenue ($1.23bn) and stated gross margin (-$104m). Microsoft shipped 19.4m featurephones; assume they had an ASP of $15 and made zero profit (same as with Samsung). The Lumia ASP has to be estimated, but seems reasonable.

The dire state of premium Android

In its explanation of how things had gone so horribly wrong, HTC said that “Weaker-than-expected demand at the high end, consistent with Android market, along with weak sales in China, lead to a year-on-year fall in the second quarter. Meanwhile, year-on-year shipment volume increases were seen across select key emerging markets.”

Perhaps, although HTC’s problem might be that the product is underwhelming. It’s the same product it’s been making for three years; nothing has changed. Meanwhile Sony can’t get the distribution: carriers seems to be edging away from it, and you have to go back to Q1 2012 to find it shipping fewer phones. And LG – despite having a great camera in the G4, which is usually what sells a phone – doesn’t seem to have broken through in a big way. And yes, that really is an operating profit of 1.6 cents per phone.

Samsung seems to have had the same problem: its Galaxy S6 and S6 Edge have sold below pretty much everyone’s expectations (especially those who gave it an overheated welcome for its iPhone-alikeness – which I never thought would be a selling point; who wants faux for the same price as real?).

And things aren’t improving for these OEMs. Compare those handset shipments compare to the same period a year and two years ago:

OEM 2013 2Q
shipments
2014 2Q
shipments
2015 2Q
shipments
HTC 6.8m 6.2m 4.5m
Sony 9.6m 9.4m 7.2m
LG 12.1m 14.5m 14.1m
Samsung 73.3m 74.9m 73.2m
Lenovo +
Motorola
15.7m 24.4m 16.2m
Top-end
Android OEMs
117.5m 129.4m 115.2m
Apple 31.2m 35.2m 47.5m
Microsoft/
Nokia
8.7m 5.8m 8.4m
Total
smartphone
market
240.5m 301.4m 337.2m

Note that the total number of handsets from the listed Android OEMs is down in 2015 compared to both previous years, despite the smartphone market being bigger than ever (figures from IDC). I’ve left out “Others”, which are principally lower-end Android phones.

The only one that’s doing better is Apple: not only is it selling more handsets, its average selling price (ASP) of $660 was one of its highest ever. It’s clearly not chasing the low-end buyers (or if it is, it’s not finding them).

A clearer way to see this is to graph the growth in revenues from smartphones for these companies.

Apple revenues growing, rivals falling

Apple has seen 50%+ revenue growth from iPhones in the past three quarters; rivals have faded.

Look also at ASPs. Those have fallen, which suggests fewer high-priced phones being sold. (Especially if you’re selling fewer phones, a falling ASP indicates you’re shifted towards cheaper phones.) First without Apple: note how all the ASPs are lower (in LG’s case, only just) than the year-ago period:

Falling ASPs at premium Android OEMs

Note that they’re all lower than the year-ago period. Add slowing revenues, and you get a picture of fewer top-end phones sold.

And now add Apple: note how its ASPs have risen.

Apple's ASP has risen in the past year

There’s a contrast with rivals.

This makes it pretty clear, I think, that Apple is cruising ahead, while the others are struggling recently. Lenovo/Motorola isn’t included because its figures aren’t comparable year-on-year.

(I tried lots of variations. In revenues alone, Apple’s seasonal fall distorts the picture. In profits alone, the huge disparity between Apple/Samsung and the rest makes the change invisible; in profit growth, the wild swings from loss to profit by Sony and others makes the numbers meaningless. I added ASPs after a discussion on Hacker News.)

Premium Android and the piranhas

“Premium” Android is getting torn apart, piranha-style. Cheaper phones from Chinese companies such as Xiaomi, Huawei, OnePlus, and Oppo are taking away their high-end Chinese business. Slowdowns in developing countries (notably south America) are killing sales there.

And in the west, there isn’t the same appetite for continued upgrades that there was; people are upgraded out. Does the Galaxy S6 really offer anything special over the S4 or S5? If anything, Samsung has pared back on both the software and hardware features – it doesn’t have some of the weird things where you waved hands to scroll screens, nor the microSD card and removable battery that a number of previous Samsung buyers liked. As I said before, Samsung must know how many people actually use the removable battery. But maybe that’s like buying a car with airbags: you don’t expect to need them, you just want to know they’re there in an emergency.

The peculiar thing is that Samsung is throwing everything it has at the premium end. You can now choose (depending on location) from the following:
• Galaxy S6
• Galaxy S6 Edge
• Galaxy S6 Edge Plus
• Galaxy Note 5
and that’s just this year’s models. The Galaxy S5 and Note 4 from last year are still on sale. Samsung seems to be trying to segment demand by not making the Edge Plus available in the same places as the Note 5.

I’m not convinced that will actually drive demand for Samsung premium handsets, though. Nor, it seems, are investors: Samsung Electronics shares have fallen for five straight months, Bloomberg says, and quoted Lee Seung Woo of IBK Securities, who said “We all know its smartphone business isn’t doing well. I can’t really figure out when the stock will stop declining. The fundamentals look problematic.”

The iPhone, meanwhile, pulls people in and generally keeps them there too. (Apple’s stock has hardly thrived lately, but not a five-month continuous drop.)

The point of no return?

I don’t think the crash in premium Android sales is a one-off. The competition from low- and mid-priced devices is fierce now, and yet these companies don’t seem to be putting any clear blue water between them; they’re not offering anything better than they did a year ago.

Case in point: Samsung’s Galaxy Note 5 has a smaller battery, also non-removable, than last year’s Note 4; and no SD card – which has pissed off some former Note buyers. How does that compete against the Xiaomis and Oppos and OnePlus phones of this world, which are much the same spec for less? Or even the iPhone 6 Plus, which has a better-adapted app store, and costs less?

Meanwhile HTC is talking big of releasing a premium phone late in the year; damned if I know who it thinks is going to buy it when Samsung and Apple will have new products in stores. (Meanwhile, the company is valued below its cash reserves, so it’s using some of those to buy back 6% of its stock. I cannot see how that is a smart use of resources.)

More than ever, the smartphone business is turning into one where only two companies make money from handsets – and increasingly, only one gets the top-end business. For the rest, they need something new to come along that they can get into and make some profit. Android Wear smartwatches don’t seem to be setting the world alight; will VR be the next big thing? Or IoT? Or self-driving cars? At this point, anyone that isn’t Apple or Samsung seems to be praying for a miracle.

Update: there’s a discussion on this post at Hacker News.

Previously in this series:
Android OEM profitability, and the most surprising number from Q4’s smartphone market
Android (and Apple, and BlackBerry, and Microsoft Mobile) handset profitability – the Q1 scorecard

Other stuff you might like:
The adblocking revolution is months* away with iOS 9 – with trouble for advertisers, publishers and Google
* weeks now, as this post was in July and iOS 9 is imminent

BlackBerry might have no BB7 users left by January 2016

The adblocking revolution is months away (with iOS 9) – with trouble for advertisers, publishers and Google


The thing about print adverts was that they stayed where they were. Photo by Bethan on Flickr.

TL:DR: when Apple’s iOS 9 comes out in September, there’s going to be a dramatic uptake of ad blockers on iOS – and it’s going to have far-reaching effects not just on websites and advertisers, but potentially also on the balance in mobile platforms and even on Google’s revenues.

Now, the longer version.

Remember newspapers?

In the old days, adverts appeared in print, on the radio and on the TV. Most ad-supported news organisations that have shifted to the internet began in print.

Ads in print were straightforward. Advertisers bought space, and editors could turn them down, or sometimes decide not to run them if a story broke that would bring about an awkward juxtaposition of, say, the advert for a shoe store on page 3 and the big breaking story now being placed on page 3 about people having feet crushed by a runaway steamroller. (The ad would get moved to another page.) Print ads were hard for advertisers to track, though they could use codes and so on that would clue them in to where someone had seen one if they responded directly.

Then came the internet, and the promise of measuring which adverts people had seen, and which they had clicked, followed swiftly by the realisation that you’d be able to follow what adverts people had seen between different sites by use of tracking cookies and scripts.

Now we have the situation where news websites are plentiful (some just rewriting, sometimes by machine, sometimes not) and adverts even more so: the attempt by The Verge’s Nilay Patel to pin the blame on mobile browsers’ lack of capability has been effectively shot down by Les Orchard, who pointed out the colossal amount of data that a simple page requires.

That’s where we’re at: websites are getting overloaded with ads, beacons, trackers and scripts that are all scrambling over each other in their attempt to squeeze the last bit of information about us from every page.

But nobody asked us, the readers, along the way whether that was OK. And now, people are deciding that it’s not OK.

Block that ad!

The uptake of AdBlock and its commercial sibling Adblock Plus has been gradual, but has now reached more than 150m users, and it’s accelerating. People are getting pissed off with the huge data loads pages impose without their consent, and the idea that they’re being tracked without their consent. In this post-Snowden age, the latter particularly bugs people. Fine, I came to your site; record the fact. But you’re watching me wherever I go online? That’s not acceptable.

People are also pissed off about what can happen when they view an advert online. In all the years I’ve viewed print adverts, I’ve never had one that:
• filled the page I was trying to read and insisted I either wait or click on a particular point on the page to read the article I came for;
• moved up from off the page to insert itself in front of the article I was reading and ask me to sign up for a mailing list;
• started automatically playing a video advert while I was reading some text;
• infected my computer with malware inserted in the ad;
• ran a Javascript script that pretended I need to pay a ransom, or otherwise blocked any interaction unless I pressed a button saying “OK”;
• turned me away from the page I was reading to a completely different one demanding I download an unrelated app.

You may well have other examples. (I’ve not had the malware/Javascript experience online, but other people certainly have.)

Apple: bite me

Into this comes Apple, which guards the user experience on the iOS platform, its biggest moneymaker, very jealously. Apple’s executives and staff aren’t blind to the things that are going on; they use their phones, and they get the same experiences. User experience is what Apple puts above pretty much everything else, and they’ve decided that they don’t like the experience available through the ad-supported web, and so they’re going to do something about it. Hence content blockers for Safari (and all web views) on iOS 9, which wasn’t announced onstage at WWDC but was one of those “Whoa!” moments on browsing through the Settings in the first iOS 9 beta. (Do read the link in the previous sentence, which explains what iOS 9 content blockers are, and are not.) Hence also Apple News, which is basically “all those sites but with the crap taken out”.

The ad intrusion situation on mobile is arguably worse than on desktop, since people are more sensitive about the amount of data they download on mobile, and their phones are less powerful so that complex layouts take longer.

You can get some adblockers for Android (though reviews for the main one are mixed), though you can’t get AdBlock Plus. You can get Ghostery (which shows you what you’re being tracked by) for Android. But there’s nothing like either presently for iOS.

That’s going to change, and I think the advent of iOS 9 and content blocking extensions will touch off a firestorm.

Update: just to clarify: content blocking extensions aren’t built in to iOS 9; only the capability to use them. But people are already working on them. You’ll have to download them and install them, rather like third-party keyboards.

Here’s a video of one presently being developed by Chris Aljoidi:

/Update

These blocking extensions will be paid for (at least initially), but the effect of people tweeting and updating Facebook about how much they enjoy the ad-free web will be hard to ignore. As Carl Howe observes, “Like it or not, once Apple supports ad-blocking in its browsers, it will become the default for people who don’t want tracking.” That also plays into Apple’s other general message, about how it doesn’t track what you do when you’re using its products.

Once this begins happening on mobile, it’s going to sweep back on to the desktop. “How do I do this on my PC?” will become quite a common question. People will load up with adblockers. That’s when websites will begin to face a real problem.

The moral conundrum

Of course, at this point we should step back and ask “why were the adverts there in the first place?” Oh yes, because they help pay for the content. In some – well, many, almost all – cases, they pay for all of the content. As Rene Ritchie of iMore explains, these days sites have to rely on getting ad inventory from all over to fill space; multiple networks vie to fill the space with the most apposite ad for the lowest price (to the advertiser) that the publisher will accept.

It’s worth considering what Ritchie wrote at length:

While we sell premium ads directly to advertisers, that only fills a small subset of the required “inventory” to support the network. Some 85% of ads we served last month were “programmatic”—provided by ad exchanges like Google Adx and Appnexus. Those exchanges are pretty much black boxes. We get a tag, we insert it, and ads appear.

Each ad gets its own iframe, so load is asynchronous and, if one fails, it doesn’t kill the entire site. Unfortunately, that also means each one fires its own trackers, even if those trackers are identical across ads. It’s terribly inefficient.

We’ve tried to find or figure out a way to streamline them, but haven’t been able to. They’re built into the foundations of all the major networks, ad and social, ostensibly to provide more “relevant” content.

When we do get good ads, as soon as they finish their allotted impressions, they go away, and the ad spot gets back-filled with “remnants” which get progressively worse and worse the more we refresh the site.

We also have no ability to screen ad exchange ads ahead of time; we get what they give us. We can and have set policies, for example, to disallow autoplay video or audio ads. But we get them anyway, even from Google. Whether advertisers make mistakes or try to sneak around the restrictions and don’t get caught, we can’t tell. It happens, though, all the time.

So ads are out of control even for sites. That’s so removed from the world of print, where an editor could veto or move an ad, that it’s boggling.

It’s this lack of control – the mad desire and demand by advertisers to get everything, indifferent to the effect of the user experience on the reader – that is driving people to adblockers. It’s a variant of the tragedy of the commons.

People don’t like it; here’s what a recent survey for Reuters shows. (What it doesn’t show is how many of those who don’t block ads know of the capability for doing it.)

Attitudes to advertising and use of adblocking

Not very legible; adblocking is the lower bars. People aren’t happy.

But wait, what about the moral dimension? The fact that if you block the ads, the sites lose their income?

I’ve previously written that the two sides on this are far apart; that adblocking is the new speeding: those who do it can justify why to themselves, while those who think it’s wrong are stern in their disapproval.

Entertainingly, when I noted on Twitter how many trackers I’d blocked using Ghostery (as part of an experiment using Ghostery, AdBlock, Javascript Blocker and uBlock to see how it changed my browsing experience), I was at once the object of finger-wagging and the accusation of the destruction of journalism:

Have I any responsibility to them? Well, not really. Certainly as a standard reader, here’s what happened: I accepted an invitation to read an article, but I don’t think that we quite got things straight at the top of the page over the extent to which I’d be tracked, and how multiple ad networks would profile me, and suck up my data allowance, and interfere with the reading experience. Don’t I get any say in the last two, at least?

Hence my response:

(You can view the entire conversation if you’re logged in to Twitter.)

Print evolved. Now it’s the web advertisers’ turn

This is the part of the debate that so interests (and, frankly, entertains) me. Print-based organisations were told they needed to evolve, and stop being such dinosaurs, because the web was where it was at: advertising was moving, and if they didn’t move too, they’d just die.

Now we’re all online, but somehow we’re meant to accept that web advertising is how it is, and never question or deviate from it? Nuh-uh. Why should web advertisers be immune from evolutionary or revolutionary change in user habits? What’s sauce for the print goose is sauce for the online gander. I don’t recall the people who scolded me for using tracking detectors previously saying that everyone had to stick with print adverts because they made more money (which those ads still do).

Furthermore, any argument that tries to put a moral dam in front of a technological river is doomed. Napster; Bittorrent; now adblocking.

Which quickly leads to…

If any significant number of users shift to using adblockers, web advertisers are going to have to move quickly to deal with that new reality. Web publishers too.

(Though I have to say I have very little sympathy for a lot of web “publishers”. Back in the early days of the web, the Guardian ran a brilliant ad which asked “Ever wondered how every day there’s just enough news to fit in the newspaper?” It was advertising the Guardian website, and the fact there was more there than you’d find in the paper.

Now? There are a gazillion websites – but tons of them are simple copies, monetised by adverts from Google or whoever, which leach from the originating sites by copying their content. We’ve now established the limits of how much news is generated each day: it’s more than fits in newspapers, but less than fits on all the websites currently dedicated to “news”. If adblocking puts some of the copiers on the skids, I won’t weep. That’s not journalism; it’s a sort of horrible stenography, even worse than some of the stenography that does pass for journalism at some bigger sites. Good journalism, and worthwhile sites, will survive. Or good journalists will.)

What form will the evolution take? Well, look at sites like Buzzfeed, and their use of native content. If the site generates the ad, it’s suddenly a lot harder to block. We’re back, in a way, in the land of print, where the printing of the editorial and the ads happened in the same place.

Ecosystem fights

Beyond all this, there’s a longer-term potential effect. I don’t think Apple was gleefully thinking of ways to nobble Google when it decided to introduce content blocking, but this could have quite an effect.

Consider: iOS 9 arrives, and lots of happy iOS users say how delighted they are to be blocking those annoying ads. (Don’t underestimate how quickly iOS 9 will be taken up: it’s going to be available for devices going back to the iPhone 4S and iPad 2 and will use less storage than iOS 8. Even iOS 8 was on half of iOS devices within two months of release.) Meanwhile Android users won’t be able to follow suit (to anything like the same extent). At least one of two things will happen:
• some Android users begin considering switching to iPhones
• Google comes under pressure to allow adblockers on the Play Store to prevent Android switching.

Neither of these is good for Google. The loss of Android users is probably more tolerable in the short term. Adblocking could pose an existential risk to Google (which is why it pays Adblock Plus’s makers to not block Google ads).

It’s unlikely that adblocking could ever reach a pitch where it really offers a grave threat to Google. But as more and more people from developing countries come online, paying for every kilobyte of data, they might want adblocking too. India in particular is a generally tech-savvy country where data prices are high; and it has embraced Android enthusiastically. Consider for a moment how that could play out.

Relevantly, Global Web Index has a survey of adblocking use which found that 27% of users aged 16-64 globally in its 33-country survey had used an adblocker, and 15% had blocked tracking.

Adblocking by region

Adblocking by region. Source: GlobalWebIndex.

Statista also had detail about European use:

Adblocking by country in the EU

Adblocking has relatively low use – but what happens when it arrives on mobile?

Consider: hardly any of that is mobile yet. Mobile is the biggest platform. Adblocking is coming to a key mobile platform in September.

Things could get ugly quite suddenly.


Update: there’s a discussion of this post on Hacker News. You don’t need root to read it.


Like this? Other analysis I’ve done you might like:
How Gresham’s Law explains why sites are turning off comments
The death of “Others”: how the PC market’s implosion is squeezing smaller players
Android (and Apple, and BlackBerry, and Microsoft Mobile) handset profitability – the Q1 scorecard (updated)
BlackBerry might have no BB7 users left by February 2016 – and that’s a big, bad problem

Enjoy!

The deaths of “Others”: how the PC market’s implosion is squeezing smaller players

PC market 1998 to 2015: rise and decline

IDC data shows how the PC business has grown – and shrunk. “Others” (grey) are selling fewer and fewer.

Back in April 2011, when the results for the first quarter of PC shipments for the year came in, I wrote a story beginning:

“The PC market is showing signs of having passed its peak. Weak demand by consumers for PCs, coupled with a switch to tablets such as Apple’s iPad, meant that worldwide PC shipments fell compared with the same period in 2010, according to two leading research groups.”

Perhaps predictably, this observation of what the numbers were saying riled some of the PC diehard commenters (generally sysadmins with time on their hands who obsessively trawl comment threads looking for places in which to be superior). “I’m looking forward to seeing the looks on Mac users’ faces when Apple – as they display every intention of eventually doing – pull out of the PC market altogether,” said one.

My own observation was that the principal downturn had come in the mature markets of the US and Europe, and that the forthcoming problem was that the rise of smartphones (especially cheap Android) would mean that in Asia/Pacific and Latin America “lots of those people who a few years ago would have been a prime target for a PC might now not need it.”

And so it turned out. The market actually hit its biggest-ever figure in the third quarter of 2011, with 96m PCs shipped. But since the third quarter of 2012, if you exclude Apple figures, the Windows PC market has shrunk for 12 straight quarters. Now it’s 31% down on that peak, and nobody’s quite ready to call the bottom. It’s going to be under 300m this year – the smallest since 2009, in the midst of the financial crash – and that’s even with the launch of Windows 10. (For those saying “aha, but it’s falling because people are making their own PCs using motherboards” – nope. The motherboard industry is trending down just as quickly as the general PC industry.)

What gets people buying computers? Seems that Apple has the answer – launch new products and promote the hell out of them. (In the second quarter it refreshed the MacBook Air, MacBook Pro and introduced the “MacBook”.) It’s working a lot better for them than for the Windows PC market.

Apple v Windows

For the past 12 quarters, Windows PCs shipment figures have shrunk – while Apple generally grows faster

Apple has stayed fairly consistent, shipping between 4m and 5m personal computers per quarter – apart from the first half of 2013, when it couldn’t supply enough new iMacs to meet demand.

The demand for Macs means that Apple is now the fourth-largest PC company for shipments, behind only Lenovo, Dell and HP, and ahead of Asus and Acer, on IDC’s measurement. (IDC doesn’t include Chromebooks and 2-in-1s.) It’s quite a turn of events, but one where it has grown faster than the Windows PC market for quite a long time.

Windows v Apple, long-term

Long-term trends for Windows PC v Apple growth show Apple ahead for almost all of the past 11 years

Dying in a ditch without a saviour

The deeper question is: what happens to the PC market? It’s become a replacement business, but one in which replacement cycles are also lengthening. There’s barely any innovation – Lenovo’s efforts with the Yoga 2-in-1 seems to be the only thing happening, and that’s a minority sport. Gartner and IDC don’t give clear figures, but there doesn’t seem to be a big move to the new form factors. Thing is, it’s usually new form factors that drive revivals in the market.

So far, though? No. Canalys reckons that in Q1 “hybrid and convertible” shipments (that’s the 2-in-1s, and includes the Surface) totalled 3m, and that was a doubling year-on-year. There’s likely money to be made, but not many buyers handing over the moolah. And Chromebooks? A mighty 1.3m in Q1, also according to Canalys, which reckoned 90% went to the US and Europe. I don’t hold out much hope for a gigantic leap in Q2, though education buyers (the principal ones) will likely bump those Chromebook numbers up in Q3.

Brutal reality: revenue down, profit down

I track the big PC companies’ results, where you can generally find both revenues and operating profits for their PC divisions, though not usually PCs shipped (I take the latter from IDC). Apple is different – it gives you shipments and revenues, but no calculation of operating profit (because it doesn’t split out its figures that way).

And over the past 10 years, there are two trends that stand out: per-PC revenues have been falling along with per-PC profits for Windows makers, while Apple has seen similar pressures but sits miles ahead of the rest.

Average revenues per PC for big 6

“Big six” per-PC revenues, based on financial reports and IDC data.

In fact Apple has such high per-PC revenues that it’s actually now the third-biggest PC maker by revenue – excluding Dell, because we don’t know what Dell’s revenues are, because it is privately owned. Acer and Asus, by contrast, are on a path downwards; it’s notable that for the past couple of quarters they haven’t figured on IDC’s numbers for US shipments, meaning they had fewer than a million sales there. (And in timely fashion, Asus just chopped its notebook shipment forecast for the year to 20m units, down from 22.8m it was aiming for, and below 2014’s 20.3m.)

Total PC revenues for the big 6

Figures to 1Q 2015: despite fewer shipments, Apple’s revenues outdo Acer and Asus

The picture gets even worse if you look at total profits. We have to assume an operating profit for Apple; I use 18.9% because that’s the historical figure, extracted from pre-iPod days. On that measure, Apple makes the largest profit from PCs by a mile.

Per-PC operating profit for the big 6

Apple is miles ahead of the rest, based on an estimated 18.9% historical operating margin

Total profits in the PC industry for the 'big 6'

Data to 1Q 2015: on a historical figure, Apple is miles ahead, while Asus and Acer struggle to break even

The figure for Apple is twice that of any of the others. The graph for Acer isn’t a mistake – its operating profit is all over the shop, and has been negative quite a lot. (Remember this is operating profit – what’s left after paying for the product components, assembly, shipping, associated R+D, sales and marketing.)

The deaths of Others

But if profits are squeezed for the “big five” (or six, now Apple’s in the club), what’s it like for the smaller players such as Toshiba, Samsung, LG? Logically, worse, because just as in the smartphone market they don’t get the economies of scale that let them compete.

The problem is, there just isn’t room for them. Having been above 50% of the whole market back in 2005, they’ve tumbled down until now they’re trending below 30%.

"Other" PC makers are a smaller segment of the market

From 50% before, “others” are now less than 30% of a smaller market. The red line is the four-quarter moving average.

Since the market began shrinking, shipments by “Others” – those Windows PC makers outside the top five (HP, Lenovo, Dell, Asus, Acer) – have really fallen off.

As the PC market has shrunk, the “Others” category has shrunk faster.

Windows market growth v "Others"

The Windows PC market is shrinking – but “Others” is shrinking faster

The deaths of "Others": fewer shipments

Shipments outside the “big 6” have roughly halved from the market peak

“Others” (the remainders outside the top six if you include Apple) has dropped from just under 36m to less than 18m in less than four years. That’s a real crunch.

That means fewer sales, less revenue and less profit (if any) for those bit players – which includes Samsung, LG and a few others. Sony gave up PCs as a bad idea a while back. Samsung pulled out of the European market in late 2014.

Samsung, in particular, doesn’t have anything to gain from making PCs: it can’t make the chips in its foundries (they’re Intel not ARM) and it’s not generally offering touchscreens, so it doesn’t get the “flywheel effects” that it relies on for smartphones, where it makes the parts as well as the finished object.

If I were to bet, I’d expect Samsung to exit the PC market in a year or two. There just isn’t much in it there; you can see from the part of its “IM” division revenues that aren’t smartphones that it’s dwindling.

Ride to the end

There isn’t any good news for the PC industry, and I don’t expect Windows 10 to bring about dramatic changes. (Nor do IDC and Gartner.) There’s always a PC sales lull ahead of a Windows launch, but there’s still not great driving reason for the average consumer to buy a new PC because of Windows 10; remember how Windows 8 didn’t help that downward plunge.

And for businesses, if they’re on Windows 7 then they probably won’t see any reason to shift to Windows 10. And they probably binged on upgrades moving up from XP last year.

So get used to the new normal: PC sales will be increasingly concentrated among the top five or six, for whom R&D is pretty much an afterthought, and Apple is coining it – and pushing with the R&D – just as it is in phones.

How long before Apple’s share is 10%, up from its current 7.8% (which has more than quadrupled from its sub-2% low in the end of 2004)? On current trends (falling PC sales/rising Apple sales), it might be a year or two, but it seems shockingly in reach.

And those “Others”? With less and less market to shoot for, I’d expect some to quietly exit. Sony can’t have been the only one losing money.