The hardware that breaks the commoditisation rule

Insightful column about the iPhone phenomenon by Farhad Manjoo: The nub of it is this:

In many fundamental ways, the iPhone breaks the rules of business, especially the rules of the tech business. Those rules have more or less always held that hardware devices keep getting cheaper and less profitable over time. That happens because hardware is easy to commoditize; what seems magical today is widely copied and becomes commonplace tomorrow. It happened in personal computers; it happened in servers; it happened in cameras, music players, and — despite Apple’s best efforts — it may be happening in tablets.

In fact, commoditization has wreaked havoc in the smartphone business — just not for Apple. In the last half-decade, sales of devices running Google’s Android operating system have far surpassed sales of Apple’s devices, and now account for the vast majority of smartphones in use.

For years, observers predicted that Android’s rising market share would in turn lead to lower profits for Apple (profits, not market share, being the point of business). If that had happened, it would have roughly approximated the way the Windows PC industry eclipsed Apple’s Mac business. “Hey, Apple, wake up — it’s happening again,” Henry Blodget, of Business Insider, warned in 2010. And again in 2011, 2012, 2013 and 2014.

None of those predictions came true. While the iPhone’s sales growth slowed in 2013 and 2014, it rebounded to near-record levels later last year, and its profits have remained lofty.

Instead of killing Apple, commoditization caused something stranger — it hobbled Apple’s main competitor in the smartphone business: Samsung, which until last year was gaining a creeping share of the profits in the smartphone business. At its peak in mid-2013, Samsung was making close to half of every dollar in the smartphone business, according to the research firm Canaccord. (Apple was making the other half.)

But the rise of low-end, pretty great Android phones made by Chinese upstarts like Xiaomi — and the surging popularity of Apple’s large-screen iPhones — put Samsung in a bind. In July, Samsung reported its seventh straight quarter of declining profits.

Yep. The reason why the Apple phone defies the commoditisation rule is that it’s not a standalone device, but part of a highly-functional (and useful) ecosystem. That’s why iPhone users who hanker after, say, Samsung’s or Sony’s latest phone think twice before making the switch: do they really want to leave the comfort and ease of the Apple ecosystem. And Apple has just made joining that ecosystem easier — by releasing an Android App that allegedly makes it simple for Android users to take their data etc. across to their brand new iPhones! Given the amount of money Apple makes from the iPhone, it does now look set to become the world’s first trillion-dollar company.

Getting to bedrock

This morning’s Observer column:

The implication of these latest revelations is stark: the capabilities and ambitions of the intelligence services mean that no electronic communications device can now be regarded as trustworthy. It’s not only your mobile phone that might betray you: your hard disk could harbour a snake in the grass, too.

No wonder Andy Grove, the former boss of Intel, used to say that “only the paranoid survive” in the technology business. Given that we have become totally dependent on his industry’s products, that knowledge may not provide much consolation. But we now know where we stand. And we have Edward Snowden to thank for that.

Read on

The future in your pocket

This morning’s Observer column:

If a year is a long time in politics (and it is), then it’s an eternity in communications technology. Fourteen years ago, about 400 million people were using the internet. Today, the number of net users is pushing the 3 billion mark. But that’s not the really big news. What’s truly startling is that 2 billion of these folks are getting their internet connections primarily via smartphones, ie, handheld computers that can access the internet as well as make voice calls, send text messages and do the other things that old-fashioned “feature phones” could do.

This is startling because smartphones are a relatively new development, and when they first appeared less than a decade ago, most of us thought that they would remain an elite consumer product for a long time to come, staples of affluent professionals in the industrialised world, perhaps, but of no relevance to poor people in the developing world who would continue to be delighted with crude feature phones that could just about do SMS.

How wrong can you be? We underestimated both the power of Moore’s law and human nature…

Read on

The phablet controversy


Wading through the throng in an Apple store the other day, I had a look at the new iPhones. The iPhone 6 didn’t seem much of an advance on my 5s, but the even-bigger one, the 6 plus, seems odd. It’s far too big to be a credible phone, but too small to be a useable tablet. So why, one wonders, will people buy it?

One answer, I suppose, is that people buy preposterously large Samsung phones, even if they do wind up holding something the size of a dinner plate to their ears. (Or making calls surreptitiously, using headphones.)

Ages ago, I bought an iPad Mini with a SIM card for writing on the move, and kept my phone for texts and the occasional voice call. The Mini has turned out to be one of the most useful gadgets I’ve ever owned. Just big enough to be useful; just small enough to slip into a jacket pocket. The new iPhone isn’t a persuasive argument for abandoning that system. It ain’t broken, so I won’t be fixing it.

So is it good to talk… again?

This morning’s Observer column.

To the technology trade, I am what is known as an “early adopter” (translation: gadget freak, mug, sucker). I had a mobile phone in the mid-1980s, for example, when they were still regarded as weird. It was the size of a brick, cost the best part of a grand and exposed me to ridicule whenever I took it out in public. But I didn’t care because the last Soviet president, Mikhail Gorbachev, used the same phone and he was cool in those days. Besides, it had always seemed absurd to me that phones should be tethered to the wall, like goats. I still have that Nokia handset, by the way: it sits at the bottom of a drawer and I sometimes take it out to show my grandchildren what phones used to be like.

Over the decades since, I have always had latest-model phones – just like all the other early adopters. And of course I used them to make phone calls because basically that’s all you could do with those devices. (Well, almost all: one of mine had an FM radio built in.) And then in 2007 Steve Jobs launched the iPhone and the game changed. Why? Because the Apple device was really just a powerful computer that you could hold in your hand. And it was a real computer; its operating system was a derivative of BSD, the derivative of Unix developed by Bill Joy when he was a graduate student at Berkeley. (Note for non-techies: Unix is to Windows as a JCB is to a garden trowel.)

The fact that the iPhone could also make voice calls seemed, suddenly, a trivial afterthought. What mattered was that it provided mobile access to the internet. And that it could run programs, though it called them apps…

Read on

Why Apple Pay was the big news from Apple

This morning’s Observer column

In the long view of history, though, the innovation that may be seen as really significant is Apple Pay – an ingenious blend of contactless payment technology with security features that are baked into the new iPhones. Apple Pay will, burbled Tim Cook, “forever change the way all of us buy things… it’s what makes the iPhone 6 the biggest advancement in the history of iPhones”.

The idea is to do away with the rigmarole of having to pull out a credit/debit card, insert in a store’s card reader, type a pin, etc. Instead, you simply bump your iPhone (and, eventually, your Apple Watch) against the store’s contactless reader and – bingo! – you’ve paid, and the store never gets to see your card. Why? Because Apple has stored the card details in heavily encrypted form on your device and assigned each card a unique, device-specific number, which is accepted by the retailer’s contactless reader.

This only works, of course, if the retailer has already signed up with Apple. Cook claimed that 220,000 US retailers have already opted in to the system, as well as six major banks, plus MasterCard, Visa and American Express – which means that 83% of all US credit card payment volume can theoretically already be handled by Apple Pay.

If true, this is a really big deal, because it puts Apple at the heart of an unimaginable volume of financial transactions. In a way, the company is now doing to the card payment business what it did to the music business with the iTunes store…

Read on

Mobile phones: huge industry, no new ideas

This morning’s Observer column.

Leave aside the fact that it was Apple that triggered the most recent explosion in the mobile industry – the smartphone revolution – and ponder what was actually on show in Barcelona. The answer, in the words of one astute and unsentimental observer, Professor Barry Avery, was: “Many phones, little innovation.” (Shades of Yeats’s pithy description of his – and my – native land: “Great hatred, little room.”)

“The message coming out of this year’s event,” wrote Avery, “is that while there are lots of new phones coming, we shouldn’t expect a great technological leap from any of them. Most of the phones are incremental updates, running the latest version of Android’s mobile phone operating system KitKat.”

Avery is too polite. The truth is that the mobile phone industry has run out of ideas. Every single smartphone in the market is basically just a variation on the Apple iPhone theme. And the variations, such as they are, are looking increasingly – and desperately – baroque…