If you needed evidence of the growth of the smartphone market and its move into every part of our lives, then this week’s Mobile World Congress (MWC) provides it. It wasn’t that long ago that the event was dominated by network infrastructure companies, but now it is essentially a consumer electronics show in all but name. And one that looks far beyond the handset itself. Ford launched an electric bike, Ikea announced furniture that charged your smartphone and a crowdfunded startup showed a suitcase that knows where it is and how much it weighs.
Five years ago none of these companies would have even thought of attending MWC – and it is all down to the rise of the smartphone. It is difficult to comprehend that the first iPhone was only launched in 2007, at a time when Apple was a niche technology player. It is now worth more than any other company in the world and 2 billion people globally have an internet-connected smartphone. By 2020 analysts predict that 80% of the world’s adults will own a smartphone.
As any honest iPhone owner will freely admit, they may be sleek, but they are actually rubbish for making and receiving calls. What they do provide is two things – a truly personal computer that fits in your pocket, and access to a global network of cloud-based apps. It is the mixture of the personal and the industrial that make smartphones central to our lives. We can monitor our own vital signs, and the environment around us through fitness and health trackers and mapping apps, and at the same time access any piece of information in the world and monitor and control devices hundreds or thousands of miles away. Provided you have a signal……….
So, based on what is on show at MWC, what are the next steps for the smartphone? So far it seems to split into two strands – virtual reality and the Internet of Things. HTC launched a new virtual reality headset, joining the likes of Sony, Microsoft, Samsung and Oculus Rift, promising a more immersive experience. Sensors to measure (and control) everything from bikes and cars to tennis racquets are also on show. The sole common denominator is that they rely on a smartphone and its connectivity to get information in and out quickly.
It is easy to look at some of the more outlandish predictions for connected technology and write them off as unlikely to make it into the mainstream. But then, back in 2007, when Steve Jobs unveiled the first iPhone, there were plenty of people who thought it would never take off. The smartphone revolution will continue to take over our lives – though I’m not looking forward to navigating streets full of people wearing virtual reality headsets who think they are on the beach, rather than on their way to work…………
The cover story in last week’s Economist looked at the growing global dominance of internet giants such as Google and Facebook. This was partly driven by the fact that the European Parliament recently passed a resolution to more tightly regulate internet search and potentially break up Google, as well as by ongoing worries about competition and online privacy.
So are effective online monopolies (Google has 90% of the European search market for example) a good or bad thing?
Obviously in the real world monopolies are viewed with suspicion, particularly when a dominant position is then used to raise prices, unfairly squeeze competitors and generally provide a poor deal to customers. But a monopoly on its own is not enough for regulators to step in. In many niche markets (say chemicals) the investment needed to compete with a dominant incumbent would put off any new entrants, so it becomes a monopoly by default. If it doesn’t abuse its position regulators tend to just monitor the situation without taking action.
So, no-one would argue against the fact that monopolies need to be watched closely. But what is interesting is the difference between the online and offline worlds, in four key ways. Firstly, the cost of entering an internet market is relatively small – you’d don’t need to build an expensive factory, but can rely on scalable, inexpensive cloud-based servers and storage to host your business. This makes expansion easy, particularly given the widespread adoption of the internet and mobile phones across the globe, providing a proven way of connecting with customers.
The second factor that causes internet businesses to grow exponentially is the network effect. Essentially the more users on a service, such as Facebook, the better it is for everyone involved as there are more people to interact with. In turn this attracts more people in a virtuous circle. It can work the other way though – as the fate of early social networks such as MySpace show.
Thirdly, the majority of the internet services being discussed are free to consumers. So they don’t directly see any negative impact from the monopoly (such as a rise in costs). What isn’t immediately obvious to users is the price of free. Essentially their personal data is used to power advertising, direct mail and other marketing campaigns, with many consumers having a hazy understanding of what their information is being used for, or how to increase privacy settings. In fact, it is advertisers that can feel the impact of higher prices, given the online control of the internet giants.
The final difference, and one that The Economist makes much of, is the speed of change in the technology space, and how this makes today’s monopolies tomorrow’s has-beens. Companies find it hard to jump from leading one wave of innovation to competing in a new space. IBM dominated the mainframe market, but has had to reinvent itself in order to survive, while the replacement of the personal computer with tablets and smartphones has dealt a major blow to Microsoft.
However, these are still multi-billion dollar companies and have hardly withered away. Therefore in my view, technology innovation alone is not enough to regulate the internet giants. What is needed aren’t heavy handed rules, but a more measured approach that balances the needs of consumers with the speed of innovation and the potential competitive impact of monopoly positions. It is an incredibly difficult balancing act – and will require give and take from both sides if it is to succeed. Done right and new breakthrough services will be allowed to grow, but without trampling on other businesses. Get it wrong and innovation is stifled, potentially harming consumers and businesses who want to access the latest technology and services.
Rumours are currently rife that Apple is about to open an office, albeit a small one, in Cambridge. The research and development centre would initially employ 20 people, so while it is a coup for the city, it is obviously a drop in the ocean compared to the estimated 54,000 tech employees in Silicon Fen. I’d imagine more people currently work in the electronics department of the city’s John Lewis selling iPads and iPods.
The move comes on the back of Qualcomm buying CSR, HP acquiring Autonomy and the opening of research and development centres by Microsoft and AstraZeneca in the area. Taken together these investments can be seen as a real demonstration of the importance of the ideas and skills within Cambridge – and, the potential benefits (business and PR) of associating with the Cambridge Phenomenon.
However, I think there are positive and negative sides to the interest from tech giants in Cambridge. On the plus side, it reaffirms the city’s strengths as a hub, attracts more skilled staff to the area and, in turn, spawns new startups as employees with ideas leave corporate life to launch out on their own.
But there are also two downsides that potentially impact the good news stories. Firstly, there is a risk that with big investment the tech culture can become too corporate. After all, a lot of Cambridge innovation has come from finding solutions to problems in quirky, very different ways. For example, Intel wouldn’t sell Acorn chips for its new range of computers. The company couldn’t afford to build a billion dollar factory to make its own chips, so came up with the first fabless design. Acorn spun off this knowledge as ARM, now Intel’s biggest competitor.
Before that Clive Sinclair built a scientific calculator that used clever algorithms to run calculations on a single, relatively standard chip. Rivals such as HP used five chips and consequently built machines that were much more expensive. The SureFlap microchip controlled cat flap was created by a physicist who didn’t want neighbourhood moggies invading his house. All of these are examples of the lateral thinking that Cambridge is famous for – but could potentially be stifled by corporate politics (and, ironically too much money).
However I think that while the Cambridge culture may change, it won’t unduly impact its DNA. After all, in Silicon Valley enormous behemoths and nimble startups co-exist with people moving between the two. What is more serious is the second threat of a lack of infrastructure, particularly affordable housing within the city and its locality. It is currently as expensive to live in Cambridge as in London, but with less in the way of facilities. There are plans to build 33,000 more houses by 2031, but the majority are outside the city. And if people live further out and commute by car, rather than bike, it will add to congestion and put further strain on key roads.
Obviously Apple’s 20 researchers aren’t going to add too greatly to current housing woes, but as Silicon Fen grows, now is the time to address infrastructure concerns – or risk losing the city’s status as a tech hub to better equipped rivals.
This week’s takeover of Nokia’s handset division by Microsoft is easy to see as a marriage of desperation, or as Robert Peston put it, “two drunks supporting each other at the end of the party.”
Wind the clock back 10 years and the picture was very different. Nokia was dominant in the phone market and Microsoft held a similar position in the desktop/laptop market. The first Windows-powered smartphones were being released, but they were incredibly complex (I know, I had an Orange SPV), essentially transferring the desktop Windows experience to the mobile world. There were a whole raft of other mobile handset providers that have since disappeared or lost their independence – Motorola (now owned by Google), Ericsson, and Siemens.
Two things changed all this – Apple came along and made smartphones easy to use without losing their power and in a linked move, the world embraced mobile with the growth of 3G and wifi. As the existing market titans, with enormous user bases, Microsoft and Nokia couldn’t evolve fast enough to change their business models. The same process happened in previous waves of computing as the world moved from mainframes to mini computers and then PCs; few CEOs have the guts to bin their existing cash cow and launch a radically different business.
So could either of them have done things differently? I’ve talked before about Microsoft’s disastrous attempt to innovate with Windows 8 but you can argue that it didn’t invest enough in mobile early on. If it had combined ease of use and access to compelling content with the power of the SPV (which was heavily subsidised) and made it less ugly it could have had a chance of pre-empting Apple’s rise. But it never seemed to be a priority. And Nokia again seemed to view smartphones as a niche market until very late in the day, focusing on the Communicator which was a high end business tool rather than a consumer-friendly device.
All this means the combined unit has a tough job on its hands and is going to have to focus heavily on innovation and marketing to succeed. Ironically given Apple’s perceived lack of innovation and BlackBerry’s woes there is chance to seize the challenger position and become the quirky, cool alternative to Samsung and the iPhone. This does mean being brave and creating something radical that shakes up the market. Microsoft couldn’t do it with Windows 8 – so can an injection of Finnish thinking make the difference?
The PC market has obviously been having a tough time of it recently, with sales plummeting 14 per cent in the first quarter of 2013, according to analysts IDC. The combination of the rise of tablets and smartphones, the global recession and the resurgence of Mac sales at the top end have all put a dent in sales figures. And this has obviously hurt the divisions of Microsoft that make most of their money from PCs, particularly the Windows operating system.
At the same time Microsoft has realised that it needed to up its game in the faster growing smartphone and tablet market to compete with the likes of Apple and Android. But then someone somewhere decided that solving these problems required a single solution. The result? Windows 8, a new universal operating system that would work across PCs, tablets and smartphones, giving the same look and feel whatever device was being used.
Unsurprisingly for something that tries to appeal to everyone, Windows 8 is dreadful. Its completely new, tile based interface may work well on tablets and smartphones – though given Microsoft has sold less than a million of its Surface tablets (compared to 19.5 million iPads) it is difficult to make valid comparisons. But it has flummoxed traditional PC users who have to learn a completely new interface that seems very much focused on consumer needs, with fast links to music and videos, rather than business requirements. No wonder that companies are putting off PC purchases in the current climate – why splash out on something that will require a lot of training when Windows 7 works perfectly well.
The talk is now of a redesign for Windows 8, but my concern is how it has got to this stage. Microsoft has never really had a company-wide culture of innovation – from the original Windows it has tended to improve upon what is out there and deliver it well. Yes, it has areas of innovative research (the Cambridge office responsible for the Kinect for example), but (business) people buy Microsoft because it is the safe option.
Instead of following that path this time, it has thrown out everything that has come before and decided to re-invent the user interface. Not just on one device, but across three – PCs, tablets and smartphones. Neither Apple nor Android have attempted that, because there are significant differences between small screen size mobile devices and PCs/laptops. Given that lots of people (including myself) still moan about the changes made in the last version of Microsoft Office, this has resulted in perplexed users and falling sales.
Microsoft can still fix Windows 8, but what it really needs to address are the issues that led to its development direction. People (and their devices) aren’t ready for a universal operating system and the fall in PC sales mean that Microsoft isn’t in the position of power it occupied five years ago. No-one seemed to realise that, hence trying to force feed the PC market with a completely new concept that seemed doomed from the start. Everyone wants to be Apple the stylish innovator, but Microsoft needs to take step back and come to terms with its role as the boring bloke in the suit that makes things tick. After all, there’s nothing worse than Bill Gates trying to look cool…………
Video games are big business. Whether you measure it on the £1 billion contribution to UK GDP of the industry, or the amount of time my children spend playing Angry Birds, the impact is enormous. In Cambridge alone companies such as Jagex and Frontier Developments employ hundreds of staff, an estimated 10% of the UK’s games developers.
But the era of the blockbuster console game is coming to an end. Despite the recent announcement of the Sony PlayStation 4, more and more games are now played casually on smartphones, tablets or simply online. As the current furore about the in-app charges
run up on iPhones and iPads demonstrates, all of these small payments add up to a big (and ongoing) windfall for developers. Rovio, the creator of Angry Birds, and king of the casual game companies, is allegedly worth as much as fellow Finnish tech company Nokia.
Handheld consoles have suffered – now analysts predict it could be the turn of the big budget gaming devices such as the Microsoft Xbox or Nintendo Wii. Ouya, a new Android-based console is now shipping at the knockdown price of $99 following an $8m Kickstarter funding round. As any gamer/parent will know, it isn’t just cost of the console, but the price of the games that adds up. And the Ouya’s games are expected to be low cost apps as seen on Android devices but beefed up to use the power of the console. Ouya’s not alone, with UK-based PlayJam launching its own portable GameStick Android device.
But there’s a big marketing challenge for these low cost consoles. Casual gamers with a tablet or smartphone need persuading that they should shell out for a separate device, as well as investing in new games, particularly as many already have a PC. Serious gamers will look at the quality of the games available compared to the blockbusters available on big brand consoles while children (a key market for games) want to be able to play the same games as their friends. Additionally the likes of Microsoft and Sony have been working to turn their consoles into home entertainment hubs, acting as the bridge between the living room TV and the internet to try and cement their position in the market. Essentially it is chicken and egg – people won’t buy a console until they know there’s sufficient games available, while serious developers won’t invest until there’s a big enough target market.
I can see two ways for the likes of Ouya to get round this dilemma – and it’ll take bravery and a bit of radical thinking. Firstly, adopt the same business model as casual games themselves – give away the hardware and charge for anything beyond the basic, either as a one off or on a subscriber basis. Risky, but it gets consoles into people’s houses and if they then take 30-40% of each £1.99 spent on a game they will build a subscriber base and some revenues. The second way is to partner with companies with a big brand to bring the hardware prices down to under a tenner. Whether it is a telecoms company (Sky, BT or Virgin Media), a retailer (Amazon, Tesco) or actually an Angry Birds-badged console it would widen the audience beyond the early adopter. The worry here is that as we move to a cloud-based future traditional console makers will go down the same route and already have major brand recognition.
However the gaming wars play out, the old market of monolithic consoles is under serious pressure – now is the time for new business models and smart use of subscription and cloud-based ideas if new comers are going to emulate Rovio, rather than follow the likes of Atari into bankruptcy.
Last week Google’s executive chairman Eric Schmidt gave the prestigious MacTaggart lecture at the Edinburgh Television Festival, making him the first person from outside the broadcasting industry to do so.
As well as some crowd-pleasing attacks on Alan Sugar and a call for greater UK focus on technology innovation he used the platform to talk about the forthcoming launch of Google TV. Already out in the US, this allows viewers to access the internet while watching TV programmes and search content across both.
Google TV is a logical move for the search giant, and the desire to be the gateway between the TV and the internet is a major reason for the recent purchase of Motorola, which has a big business in set top boxes. Google exists as it is able to collect and analyse vast amounts of data and use the outputs to deliver up targeted content and adverts, and, given that bugging people is illegal, the TV is the one untapped area of our lives that they don’t currently have access to.
But I don’t think Google TV is going to have as easy a ride as some may think, for a number of reasons.
Firstly, the TV experience is still about content and this is something produced by broadcasters first and foremost, whether it is live, accessed through catch-up services like iPlayer or streamed, rented content from the likes of LoveFilm or Hulu. So Google needs to take the industry with it, hence the partnership tone of Schmidt’s Edinburgh speech.
Secondly, the TV market is still conservative and slow moving. In my experience people buy PCs/tablets more often than they change TV and, even then, normally buy from trusted brands. The aim for Google is therefore to become part of the ecosystem, such as through Motorola set top boxes and inclusion in new TVs. However this will take time, particularly to reach a critical mass of mainstream consumers.
Thirdly, there is a lot of competition. At a basic level you can have your laptop on your knee to access programme information while you are watching or hook your PC to your TV to see downloaded or streamed programmes. The advent of the iPad has given you the chance to add a second screen to find out more information and share it with your family and friends quickly and easily. And a whole range of other manufacturers, both technology players such as Apple and Microsoft and existing electronics brands are bidding to be the portal linking your TV to the internet. Winning the trust of consumers and getting on as many platforms as possible will dictate who wins this war.
Finally, there are a number of differences between how people watch TV and surf the net. One is public and the other is (we like to think) very personal. If Google combines your online search history with your TV viewing habits to serve up personalised ads, it may not work make for harmonious family viewing. Just imagine your partner’s reaction if Coronation Street is interrupted by adverts for dubious sites that you’ve ‘accidentally’ surfed to, while on your own………….
Overall, this is shaping up to be an intriguing struggle to control the TV, but Google will need to think smart if it wants to win its place in our living rooms…………
- Google Retains Optimism on Google TV (carocomarketing.com)
- Google TV, Despite Shaky Domestic Start, to Launch in Europe (pcworld.com)
- Watch Out, UK. Google TV Is Coming Your Way (techcrunch.com)