Wearables and services are paying off for Apple

The iPhone is still the biggest contributor to the monstrous profits Apple claws in each quarter, but efforts in wearables and services are balancing out the company.

While Apple is not a company which is going to go bust at any point in the foreseeable future, the dependence on the performance of the iPhone was leaning onto the unhealthy side. With more consumers leaning towards second-hand, refurbished devices, or extending the life of products due to the eye-watering price of new iPhones, there was a threat to profitability.

For the most recent quarter, there are no worries about the profitability of Apple, however. Total revenues for the three-month period, including Christmas sales, stood at $91.8 billion, a 9% increase from the same period in 2019. Net income set a new record of $22.2 billion, while international sales accounted for 61%.

That said, efforts over the last few years to supercharge alternative revenue streams and diversify the profit channels have certainly been paying off. The iPhone is still king at Apple, but it is evolving into a different company.

Quarter Product Revenue Software and Services Revenue Ratio
Q1 2020 79,104 12,715 86.2/13.8
Q1 2019 73,435 10,875 88.2/12.8
Q1 2018 79,768 8,471 90.4/9.6

For the purpose of continuity, we have only selected Q1 for the above comparison. This is a quarter which contains the Christmas period and therefore revenues are almost incomparable to the rest of the year.

As you can see, there is a clear trend of Apple become less reliant on hardware for revenues and profits, with the Software and Services becoming more than a bolt-on bonus for investors. $12.715 billion is an amount most companies would be happy to call group revenues for the year.

Interestingly enough, even in the ‘product’ segment, the team is becoming less reliant on the iPhone to drive revenues and profits.

Quarter iPhone Mac iPad Wearables and Home
Q1 2020 55,957 (60.9%) 7,160 (7.8%) 5,977 (6.5%) 10,010 (10.9%)
Q1 2019 51,982 (61.6%) 7,416 (8.8%) 6,729 (8%) 7,308 (8.7%)
Q1 2018 61,576 (70%) 6,895 (7.9%) 5,862 (6.6%) 5,489 (6.2%)

In short, diversification of revenues is an excellent way forward for the Apple business and demonstrative of the power of the Apple brand.

Apple is a brand which certain consumer identify with, and such is the innovation and creativity of the Apple marketing department, loyalty has been almost cult-like. Cross-selling alternative products when the consumer is so heavily invested in the brand and ecosystem is a much simpler task, this will be one of the reasons Apple’s services division is becoming so successful, but it also explains the growing wearables segment.

Wearables is a family of technologies which has struggled through the years. The first smart watch, in its current form, was released in 2011, though the segment has never really gained the traction to make it an attractive business. Apple has been persisting with its own portfolio of smart watches for years, but it does now appear to have turned a corner.

“Apple Watch had a great start to fiscal 2020, setting an all-time revenue record during the quarter,” CEO Cook said during the earnings call. “It continues to have a profound impact on our customers’ lives and it continues to further its reach as over 75% of the customers purchasing Apple Watch during the quarter were new to Apple Watch.”

Apple is no-longer simply satisfying product refreshment cycles but attracting new customers into the smart watch bonanza. The more smart watch customers there are, the more normalised the product becomes, which then compounds the success, especially with more digital natives entering their 20s and collecting bigger salaries.

Apple is a company which is defined by iPhone. This will not change, such is the success of the product and the importance of the smartphone in today’s society, but diversifying the business was always viewed as critical to expanding the profitability of the firm. Apple is doing a remarkable job of capturing new revenues.

Sonos says Google has been stealing its patented tech for years

Wireless audio specialist Sonos is suing internet giant Google, claiming it has knowingly used its patented technology without paying for it since 2016.

The grievance relates to Google’s portfolio of smart, wireless, networked speakers, now going under the collective brand of Google Home. Sonos says it gave Google access to its patents in 2013 in order to allow Google Play Music to work on the Sonos platform. At the time Google had no competing hardware.

A couple of years later, however, the Chromecast Audio dongle was launched, which promised to connect regular speaker to the internet. Initially, as the Guardian reported, each connected speaker required its own audio source. But within a couple of months Google added a bunch of additional functionality, including multi-room support, which seems to be the first of the patent infringements.

Here are the main patents Sonos claims are being infringed, although there are another 23 not detailed in the suit:

  • US. Patent No. 8,588,949 – Method and Apparatus for Adjusting Volume Levels in a Multi-Zone System
  • US. Patent No. 9,195,258 – System and Method for Synchronizing Operations Among a Plurality of Independently Clocked Digital Data Processing Devices
  • US. Patent No. 9,219,959 – Multi Channel Pairing in a Media System
  • US. Patent No. 10,209,953 – Playback Device
  • US. Patent No. 10,439,896 – Playback Device Connection

“Google is an important partner with whom we have collaborated successfully for years, including bringing the Google Assistant to the Sonos platform last year,” said Sonos CEO, Patrick Spence. “However, Google has been blatantly and knowingly copying our patented technology in creating its audio products.

“Despite our repeated & extensive efforts over the last few years, Google has not shown any willingness to work with us on a mutually beneficial solution. We’re left with no choice but to litigate in the interest of protecting our inventions, our customers, and the spirit of innovation that’s defined Sonos from the beginning.”

We’re not aware of any public Google response, but even if they have it will just be templated legalese claiming innocence, so let’s just take that as read. Sonos has filed suit in the Central California district court and also asked the International Trade Commission to block the importing of any of the products claimed to infringe the patents into the US. If Google is guilty of any of this it would be well advised to settle quickly as the PR from exploiting such a well-loved tech brand is unlikely to be good.

Xiaomi makes big noises with $7bn 5G, AI and IOT plan

In an open letter from its CEO, Xiaomi has promised to increase its R&D investments in 5G, AI and IOT to $7.18 billion.

In years gone, Xiaomi was a backwater Chinese brand which hoovered up the scraps of mid- and low-tier smartphone shipments. But such is the momentum the Chinese technology industry is generating, Xiaomi is now a major force across the world, and this investment is further evidence of the success.

“2019 was significant year for our global expansion, our overseas revenue now accounts for almost half of our total group revenue,” CEO Lei Jun said in the letter.

“Xiaomi is now truly global technology leader. Our internet business also became more diversified and our AIoT business retained its global leadership. Xiaomi is now widely known as a ‘true AIoT leader’ in the industry.”

The Xiaomi strategy has been focused acutely on the convergence of 5G, AI and IOT. All of the components mean something important to somebody individually, but with Xiaomi’s broad portfolio of consumer products, it is in an interesting position. From smartphones, to home appliances, security products and scooters, if Xiaomi can nail the ‘AIoT’ proposition it can enter into an entirely new world, moving into the ‘software and services’ segments.

For many, AI and IOT are two technologies which work hand-in-hand. They can of course work separately, but the greatest value is achieved together. The consumer world is where Xiaomi can slip into naturally, but the emerging segment of Industry 4.0 is also open to the ambitious Chinese OEM.

What is worth noting is this is not a new investment but supercharging an existing one. Xiaomi had already committed $1.43 billion over the next five years, though this has now been aggressively pushed up to the $7.18 billion over the same period. Throwing cash at an opportunity is no guarantee of success, but it does certainly shift the odds.

Google launches a bunch of hardware

Internet giant Google has launched the latest version of its own smartphone, together with a bunch of other stuff, as it continues to expand its hardware offering.

The tagline for the Pixel 4 smartphone is that it’s the most helpful version yet. On the surface this is a reference to Google Assistant, which has been beefed up with even more AI power to ensure it knows what you want before you do, thus sparing you the pain and indignity of having to do things like choose, decide, think, etc.

On those rare occasions when the phone feels the need to consult its owner about their best interests, it’s further assisted by improved speech recognition, which is now largely processed locally. This feature also enables a new voice recorder app that will be able to transcribe in real time – very handy for lazy journalists.

Other than that the Pixel 4 seems to come with all the expected bells and whistles; an improved camera, better chips, etc. You can possibly find out a bit more in the first of the videos below, we’re not sure if the motion sensor will be more help or hinderance. It will ship globally on October 24, costing $799 for the regular one and $899 for one that’s a bit bigger.

On top of that Google also launched some new BlueTooth ear buds, a smart speaker called the Next Mini, a wifi router incorporating the Next Mini called Next Wifi and a new laptop called the Pixelbook Go. Goole has been generous with its YouTube videos for this launch so we’ll let them do the rest of the talking.

 

The battle for smart speaker market domination goes global

The latest smart speaker market data from Canalys shows significant gains from Chinese vendors and an international shift from the US giants.

The whole sector is on a bit of a tear, with unit shipments jumping 55% year-on-year, showing there is considerable appetite among the general population for totally surrendering the details of their lives to internet behemoths. Perhaps desensitized by their own government’s Orwellian levels of intrusiveness, the Chinese seem especially keen to embrace voluntary surveillance.

As a consequence shipments of the smart speakers made by Baidu, the Chinese equivalent of Google, exploded to 4.5 million in Q2 2019 from a standing start a year ago. China, with its population of 1.4 billion technophiles, can do that for you, but Baidu must be doing something even Alibaba and Xiaomi aren’t because it has overtaken both of them, as well as Google itself, to grab second place among global vendors.

canalys smart speaker q2 19 table

“Aggressive marketing and go-to-market campaigns built strong momentum for Baidu in China,” said Canalys Research Analyst Cynthia Chen. “The vendor stood out as a key driver of smart displays, to achieve 45% smart display product mix in its Q2 shipments. Local network operator’s interests on the device category soared recently. This bodes well for Baidu as it faces little competition in the smart display category, allowing the company to dominate in the operator channel.”

So it looks like standalone smart displays are lumped in with the speakers and that’s what Baidu is doing well. There’s little sign that the company will be honest enough to rebrand its smart displays from ‘Xiaodu’ to ‘Lao da ge’ but you never know. Rather worryingly for Google, the other reason it lost second spot is that its own shipments declined year-on-year.

“Amazon and Google are focused on growing their business outside the US,” said Canalys Senior Analyst Jason Low. “Google’s transition to the Nest branding while pivoting to smart displays proved to be a challenge, especially as it has begun rolling out its Nest Hub smart display globally. Google urgently requires a revamped non-display smart speaker portfolio to rekindle consumer interest, as well as a robust marketing strategy to build its Nest branding outside of the US.”

You can see evidence of this international pivot in the chart below, with at least half of Amazon and Google’s shipments now coming from outside the US, compared to more like a third a year ago. “Despite feeling upbeat about the market outlook, vendors are wary about the price sensitivity towards the relatively new category of smart displays,” said Low.

canalys smart speaker q2 19 chart

BBC set to take on Google and Amazon in the digital assistant game

The BBC has announced it will challenge Google and Amazon in the digital assistant market, with its own version built to understand regional dialects.

Although it is still early days with many questions still to be answered, the working name for the digital assistant will be ‘Beeb’. What, we hear you say (and would you double dare to ask ‘what’ again?), but the state-funded entertainment service will attempt to prove its software engineering smarts match-up to that of Silicon Valley’s finest.

“Around one in five adults have a smart speaker in their home – and millions more have voice-activated devices in their pockets – so there is growing demand from people to access programmes and services with their voice,” a BBC spokesperson said.

“But people are concerned about how these devices use their data. Much like we did with BBC iPlayer, we want to make sure everyone can benefit from this new technology, and bring people exciting new content, programmes and services – in a trusted, easy-to-use way.  This marks another step in ensuring public service values can be protected in a voice-enabled future.”

The selling point of the voice assistant is an interesting one. While those on the other side of the pond might want to monetize data collected through digital assistants, the BBC has promised an experience “free of commercial interests”. That might sound attractive to those who do not trust the internet giants with their personal data, but first and foremost, the BBC has to create an offering which is as good, if not better.

The voice user interface is becoming increasingly popular with consumers around the world, though it is another way in which the trust with the consumer can be broken. Few might consider their voice a potential risk, though with banks and other sensitive services using voice for identification and authentication, it will certainly become one (assuming it isn’t already of course).

With the BBC brand viewed by many favourably around the world, this could be an interesting element. The press statement is already laying the concept of trust on thickly, and we suspect this will be an important tool for the communications team in the future. Especially considering Silicon Valley constantly seems to be shooting itself in the face.

Another interest element is the regional dialects of the UK. While we all might sound the same to those from outside the isles, the difference in regional accents is very apparent to a Brit. In offices around the UK, BBC employees will be asked to record a couple of minutes of audio footage to help the team train the digital assistant in the variances of the UK.

The world is changing, and changing very quickly, therefore there is a risk the BBC could be left in the analogue age. Linear TV is dying, and while there might be generations who are sticking with the traditional means of entertainment, it won’t be long before the gathering around the TV is a nostalgic memory.

The BBC iPlayer has proven to be very successful, and this is another way in which the BBC is proving its relevance in the digital economy. What remains to be seen is whether ‘Beeb’ can compete against the smarts and head-start Silicon Valley has.

Google is now leading the European smart home segment

The smart home is increasingly becoming normalised in the eyes of the consumer, and Google is leading the way in Europe.

According to IDC’s Quarterly Smart Home Device Tracker, the smart home segment is growing healthily though there doesn’t seem to be any one manufacturer dominating the space. Google is holding down the largest market share, thanks to its smart speaker products, though there are gains for a quite a variety of products.

“Google had a stellar quarter and was the clear winner in the first quarter, reaching an important milestone in Europe,” said Antonio Arantes of IDC. “Google continues to expand to new countries and support new native languages at a faster pace than Amazon. This is also contributing to strengthening its position in voice assistant platforms.

“Google Assistant was present in 49.2% of all smart speakers sold in Europe in the first quarter of 2019. Meanwhile, Amazon faced supply issues, with the Amazon Echo Dot being out of stock in some countries for several weeks, leaving space for Google Home products to grow.”

The indirect win for Google is perhaps the most important aspect of this momentum. One-off sales to consumers are all well and good, but another interface with consumers offers recurring revenues through third-party relationships and advertising opportunities. This is more in-line with the traditional business model for Google.

This is far from the end of the story however; smart speakers should still be considered a niche segment though growth is impressive. The smart home market is forecast to reach 107.8 million units in 2019, up 21% year-on-year, before hitting 183.9 million a year in 2023.

Looking at the winners across the smart home segment as a whole, it’s the traditional consumer electronics heavyweights who are winning (aside from the smart speaker segment):

Brand Shipments (in 000’s) Market share
Google 3575 16.8%
Samsung 2853 13.4%
Amazon 2810 13.2%
LG Electronics 2129 10%
Sony 1231 5.8%
Others 8670 40.8%

Looking at the segment growth, home entertainment products are the largest area collecting 55.4%, while smart speakers sit in second place with 21.4%. Lighting, home security and thermostats collectively accounted for 20.8% of the smart home market, with IDC predicting 27.11% CAGR between 2019 and 2023. By 2023, these products could account for an additional 9.5% market share.

The smart speaker revolution isn’t quite here yet

A survey on voice assistant use in the US reveals the majority of consumers hardly ever use smart voice assistants and even when they do it’s on a smartphone.

The survey was conducted by digital commerce strategy firm Sumo Heavy. It chatted to around a thousand US punters to find out what their voice assistant habits are. The first thing it found was that 46% have never used  voice assistant and that 19% do so rarely, which probably means they did it once out of curiosity and concluded they didn’t fancy it.

sumo slide 1

So that means less than a third of US consumers use voice assistants with any regularity. Considering this sort of technology hit the mainstream when Siri was pre-integrated into the iPhone 4S back in 2011, it would be a stretch to say voice assistant adoption has exploded in the intervening 8 years.

The same could be said for smart speakers, which had their mainstream launch in 2014 with the launch of the first Amazon Echo. We have been led to believe they achieved near ubiquity in the subsequent 4-5 years but this survey begs to differ. By far the most common way of accessing voice assistants is smartphones, with smart speakers accounting for less than a fifth.

sumo slide 2

Unsurprisingly those people that do own smart speakers (Amazon is the clear market leader) use the voice assistant fairly frequently, with over half doing so at least once per week. Iphone users seem more into voice assistants than Android ones. Only 42% of regular voice assistant users ever buy stuff that way, but if they do it’s likely to domestic products or things like movie tickets.

Turns out real people sometimes hear what you say to smart speakers

The revelation that Amazon employs people to listen to voice recordings captured from its Echo devices has apparently surprised some people.

The scoop comes courtesy of Bloomberg and seems to have caught the public imagination, as it has been featured prominently by mainstream publications such as the Guardian and BBC News. Apparently Amazon employs thousands of people globally to help improve the voice recognition and general helpfulness of its smart speakers. That means they have to listen to real exchanges sometimes.

That’s it. Nothing more to see here folks. One extra bit of spice was added by the detail that sometimes workers use internal chatrooms to share funny audio files such as people singing in the shower. On a more serious note some of them reckon they’ve heard crimes being committed but were told it’s not their job to interfere.

Amazon sent Bloomberg a fairly generic response amounting to a justification of the necessity of human involvement in the AI and voice recognition process but stressing that nothing’s more important to it than privacy.

Bloomberg’s main issue seems to be that Amazon doesn’t make it explicit enough that another person may be able to listen into your private stuff through an Echo device. Surely anyone who knowingly installs and turns on a devices that is explicitly designed to listen to your voice at all times must be at least dimly aware that there may be someone else on the other end of the line, but even if they’re not it’s not obvious how explicit Amazon needs to be.

An underlying fact of life in the artificial intelligence era is that the development of AI relies on the input of as much ‘real life’ stuff as possible/ Only be experiencing loads of real interactions and scenarios can a machine learn to mimic them and participate in them. In case there is any remaining doubt, if you introduce a device into your house that is designed to listen at all times, that’s exactly what it will do.

Google wins first round in the battle for the living room

Smart speakers were only about developing a new dynamic in the relationship between the OTTs and the consumer, and Walmart’s new ‘Voice Order’ feature is a taste of things to come.

The new initiative from Walmart is perfect for the Google smart speaker ecosystem, as it plays to the strengths of the internet giant. By simply saying ‘Hey Google, talk to Walmart’ consumers will be able to use their voice to build shopping lists with the grocery mammoth, using any device which has the Google Assistant installed on it.

“With the new voice ordering capabilities we’re building across platforms with partners like Google, we’re helping customers simply say the word to have Walmart help them shop … literally,” said Tom Ward, SVP of Digital Operations at Walmart US.

Of course, the application will not be perfect to start with, but as with anything intelligence related it can be trained and personalised to each individual. At the beginning, users will have to specify what products to put into the cart, but soon enough the virtual assistant will remember these purchases. Saying ‘milk’ won’t put any brand or product into the cart, but the one you bought last time.

This is the futuristic world Silicon Valley had in mind when it started rolling smart speakers out to the world, and we imagine it won’t be too long before the innovation starts catching on.

Although some might suggest Google and Amazon have ambitions to disrupt the audio industry with the launch of their own smart speakers, this was most likely a ploy to drive user acceptance and demonstrate to the mainstream brands there is consumer appetite. If you actually look at the products which Google and Amazon have been championing, they would not compete with the calibre which could be manufactured by the likes of Bose or Bang & Olufsen, but it did start to get consumers using smart speakers.

Google and Amazon are the top-sellers of smart speakers across the world, with Amazon claiming to have now sold more than 100 million products, but the traditional audio giants are starting to release their own products. Sonos is releasing models, so is Samsung. But the traditional audio brands do not have the software smarts to create their own virtual assistants, this is where the likes of Google and Amazon come in.

Sooner or later, smart speakers will be the norm, with the internet giants battling for access to the consumer. A walled garden business model can be created, with the virtual assistant monetizing relationships between the consumer and a third-party. This creates a new dynamic between the consumer and Silicon Valley, offering more opportunities for the internet giants to sell to third-parties, and it looks like Google has won round one in the fight for control of the living room.

Walmart has said other assistants will be available to place orders before too long, but Google was selected as the first partner. This could mean one of two things. Firstly, Google nailed the partnership, commercial elements and technical issues to all for such a feature to be introduced. Then again, it could have paid for the right to be first.

Perhaps it should come as little surprise Google has won the first round here. While Amazon fortunes emerged from hosting an online marketplace and creating a dominant public cloud platform, this sort of feature is true to Google heritage. The Google dominance was created through software, intelligent algorithms and monetizing third-party relationships online. This is nothing more than an extension of this expertise onto a new user interface.

Whichever the case, it is largely irrelevant. Google is now ahead of Amazon when it comes to monetizing the voice user interface. This is a big step forward for the digital economy, and while it might be early days, it does give an indication of the futuristic world we are hurtling towards. With more ‘intelligent’ devices emerging, Google and Amazon could be set to become a lot more powerful and influential.