Wearables, Payments, Chickens & Eggs (@stratechery)

Another great take on Apple’s entry into mobile payments from Ben Thompson, who believes the wearable device will be the centerpiece in making this happen:

That’s where Apple’s ability to move units simply because they are Apple becomes something that is an incredible weapon: suppose 10% of iPhone customers are willing to buy a wearable with some cool fitness functionality mainly because it’s built by Apple. Boom – suddenly there are 80 million wearables with payment functionality out in the wild. Moreover, the customers sporting said wearable are likely to be both vocal about their desire to use said payments, and high spenders to boot. That’s a very good way to spur merchants to install what will likely be a free payment device, available at your local Apple Store. 

He also argues that having this functionality baked into a watch or other wearable makes payments a very different proposition than having it done through the phone:

Moreover, I’d bet the difference between using a wearable for payment and using your phone will be greater than most people expect. I have no particular evidence for this outside of my own experience with keyless ignition systems in cars; the first time we got it, I thought it was a tremendous waste of money (it was part of a package); since then, I can not imagine buying a car without it. Saving a bit of hassle and a few seconds on a daily basis really adds up; it’s the type of subtle experience improvement that is Apple’s biggest differentiation.

A mobile scan via a watch that’s always at-the-ready and alleviates the friction associated with pulling out of a phone, opening the proper app etc.? Sign me up.

h/t MediaREDEF

Going where the money is (@asymco)

Horace Dediu with the smartest take on why exactly Apple is (potentially) taking the mobile payments route after so many have failed in similar endeavors:

But one word of caution: if Apple does enable payments it’s important to realize that being a (payment) bit pipe is not a particularly profitable business. It will undoubtedly bind value to the iOS devices which make it possible, but I don’t think there will be a direct capture of profit from the transactions themselves.

So for a company that facilitates the payment clearing system, the margins are likely to be very thin and with costs being non-zero it may be nearly a wash. The real impact of the decision to support payments will be in the aura surrounding the iOS ecosystem. An aura which will glow intensely.

And an aura that will do even more to perpetuate lock-in to current hardware, which is where the real value is; not in facilitating your 99 cent cup of coffee. Makes a lot of sense.

Apple courts fashionistas as smartwatch expectations mount (@Reuters)

Apple Inc has invited top fashion editors and bloggers in unprecedented numbers to its Tuesday launch gala, further evidence that the iPhone maker is preparing to take the wraps off a smartwatch. Apple is forging closer ties to the fashion world as it plots its foray into the fertile field of wearable technology, trying to win over a critical crowd that may prove crucial to the success of consumer gadgets worn around the body.

On The Audience for an iWatch

Analyst Ross Rubin for VentureBeat:

Ultimately, Apple’s competition in the smartwatch space is not Samsung, LG or Motorola, at least not with the products that they are shipping today. It is brands such as Tag Heuer and Movado, brands that represent premium quality and materials while still being affordable and relatively mass market compared to elite luxury brands such as Cartier and Rolex.

I just don’t agree with this. Not that the current competition is any kind of barometer for what smartwatches can be but the last part about typical “premium” watches. Those purchases are still made for very different reasons. Yes, in some ways, it can be argued that gadgets have become as much of a fashion statement as clothes and accessories. But I think most people continue to make their gadget-purchasing decisions based primarily on functionality rather than fashion.

Eventually, these two markets will probably converge. But in the near-term, I believe the audience for the iWatch, aside from tech geeks and Apple loyalists, will consist of a lot of first-time watch buyers who have stopped wearing wristwatches (because their smartphone can tell time) or with younger millenials, have never worn a watch at all. I don’t think the folks buying Swatches and Tag Heuer watches are necessarily going to gravitate towards an iWatch because they’re looking for something fashionable first and foremost; not a gadget.

Seeing Through the Illusion: Understanding Apple’s Mastery of the Media (@9to5mac)

Great series from 9to5mac’s Mark Gurman on Apple’s media and PR strategy in recent years, with particular focus on the transition from longtime head honcho Katie Cotton (a Steve Jobs loyalist) to the current setup: a split of PR duties between Steve Dowling and Natalie Kerris both of whom report to current CEO Tim Cook.

Re:Code’s John Paczkowski: Apple Wearable Won’t Ship Until Next Year (@recode)

So that new wearable device Apple is introducing on September 9? It’s going to be a while before anyone is actually wearing it. Sources in position to know tell me it won’t arrive at market for a few months. “It’s not shipping anytime soon,” said one. So when does Apple plan to ship its eagerly anticipated wearable? That’s not clear, but my understanding is that we’re unlikely to see it at retail until after the holiday season — think early 2015. 

Even still, this is going to be one of the more eagerly anticipated Apple events in quite some time.

Why Android desperately needs a billion dollar success story (@andrewchen)

But a critical component, of having more apps, isn’t there. Remember how there was always some key games that’d run on Windows that wouldn’t exist on Mac? Or how there were a bunch of business applications that would only run on Windows? That meant that the Windows platform had the virtuous cycle between developers and users to drive total domination.

But Android is not Windows. When you look at the current mobile ecosystem, iPhone has more apps. It has better apps. It gets the designery, well-funded startups to build iPhone-first. Consumers and developers, together, will continue to choose the iPhone until that network effect is broken.

AM Roundup: Twitch, Facebook’s Clickbait Crackdown & Siracusa’s Reviews

Good morning. Some headlines in tech over the last 12 or so hours that aren’t mobile-specific but are making an impact on the larger tech ecosystem:

Amazon bought Twitch for a little over a billion dollars, $970 million of that in cash, according to Eric Johnson at Re:Code. The video game livestreaming service, which came out of Y-Combinator 2007 class’s Justin.tv, has 55 monthly active users, the brunt of which are free and being monetized off of advertising. However, there’s a growing subscription business that makes up 600,000 users, giving the service a more diversified revenue stream which I’m sure appealed to the folks at Amazon. What was especially interesting about this story is that Twitch was already marked as an acquisition target just days earlier by Google; however, sources at the WSJ say the search giant got cold feet over the last few weeks and pulled the plug on the deal. (edit: Business Insider, citing Forbes, claims it broke down due to antitrust issues)  That gave Amazon the opportunity to sneak in and complete the transaction. So was this a strategic move for Amazon or merely a defensive acquisition to make Google weaker by proxy?

Facebook’s news feed algorithm, EdgeRank, will attempt to crack down on linkbait-y headlines. So the media organizations that make a living off of hyperbolic headlining (BuzzFeed, Upworthy & a host of others) will now be subject to what amounts to informal penalties: their stories will be given less weight by the algorithm and will not show up nearly as frequently in most users’ news feeds. The algorithm will also be giving credence to publishers who post links using Facebook’s now-standard paste-a-link format (which automatically produces the URL/caption) rather than pasting that link within the context of the article itself. You can see examples of both scenarios on Facebook’s press page announcing the changes, which explains it in better detail.

Finally, this was an interesting interview with John Siracusa, he of the exponentially long Mac OSX review. (You can see examples of this at his Ars Technica author page) Some would say he’s swimming against the tide by writing such long-form content but his argument is that people are actually starving for this kind of in-depth analysis, which is hard to argue against considering his reviews actually sell as E-Books on Amazon….and more importantly, sell well.

iOS First. Android Much, Much Later (@semil)

Product-market fit is elusive in general, and acutely so on mobile, where distribution pipes are either constrained or flooded. I’m seeing too many teams building for Android too early. Unless there is a huge foundation under the iOS apps, building for Android is likely only to result in a few spikes in user growth and then a lifetime of hair pulling — too much for a small startup to handle. 

This is going to upset Android loyalists but but I think Semil’s right here. For most SV startups and those targeting primarily a Western audience, this is all true. You can always start with a baseline of iOS users and then scale from there, even if it’s a social/communications app which, at scale, you anticipate having say about 75% of your users running Android. The only exceptions to this might be localized apps that are targeting a developing market in particular, in which case the amount of iOS users will be so small as to be meaningless for testing purposes.

7 things the iWatch needs to do if Apple wants to win (@verge)

Most of the time, the iWatch should do nothing. It should sit forgotten on your wrist, alerting you only when there’s something worth paying attention to. And that won’t be every notification, every alert, every message. The iWatch needs tools to be finely tuned, and needs to be smart enough to tune itself to show me only what I need to see right now. Mostly it needs to just look good, and tell me the time. Everything else should be, and feel, secondary.

OK. But if that’s the case, are you going to fork over $300 for the privilege of owning one? Certainly, I agree with a curated approach to notifications and alerts. But if I wanted something that mostly just told me the time, I’d buy any of the thousands of watches for sale. There has to be an essential use case inherent to the watch itself; some reason I’m going to fork over a couple of hundred dollars.

Apple to Buy Radio App Swell for $30 Million (@recode)

Apple is close to buying the Pandora-for-talk-radio app Swell, according to multiple sources. The deal is worth about $30 million, these sources say.

It seems like a pretty clear-cut story: Despite Swell’s simple UI that lended itself to in-car listening, as well as high engagement among fans, the app had trouble finding a lot of users. As part of the deal, the Swell app is to be shut down this week.

I find a lot of music/radio apps have this same problem. Scale seems to be elusive for anything that isn’t IHeartRadio.

Apple, Swatch working together on an ‘iWatch’ (@venturebeat)

Apple has been working with at least one partner, Swatch, to release a line of smartwatches in variety of branded styles and price points, a source with knowledge of the situation tells VentureBeat.

While most Apple-watchers and media have been laser-focused on one or two “iWatches” from Apple itself, the Cupertino, Calif.-based electronics and media giant may actually be working a number of partners in the watch business.

Apple and its partners will offer a family of smartwatches to suit all tastes “from geek to chic,” our source says.

So is Apple going after traditional watch buyers here? I feel like the market for smart watches is going to be made up mostly of people who aren’t watch connoisseurs and indeed many who may have never worn a watch. Not that those folks aren’t fashion concious too but I think it’s more about the utility of the device and less about the look or how it may be perceived as a status symbol.

App Store Revenue (@benedictevans)

App store revenue is not an ideal way to scope the value of an ecosystem to developers. The majority of the revenue comes from games, mostly freemium using IAP, while a large proportion of the most valuable apps are offered for free and generate revenue through other means (Facebook or Amazon, for example). However, it does give a pretty good proxy for the broader behavior of the users, and it also of course is very relevant for developers who do want to to charge.

If the current market dynamics remain, Google Android’s user base will at least double in the next few years – the iPhone base is still growing, but it will probably not double. However, those users will be gained at progressively lower (much lower) device price points, and with at significantly lower spending profiles. 

And to Apple, that’s just fine with them. They’ll take higher ARPU over difficult-to-monetize reach in emerging markets any day of the week.

Apple’s Earnings: The Least You Should Know

Apple reported earnings earlier today for fiscal Q3.

From TechCrunch:

(The company reported) $37.4 billion in revenue, $7.7 billion in net profit representing $1.28 per share. Compared to the year-ago quarter, it corresponds to a growth of 5.9 percent in revenue, and 19.6 percent in EPS (adjusted for the7-for-1 split).

This was slightly below analysts’ expectations. From Re:code:

Analysts expected Apple to report earnings of $1.23 a share on revenue of $38 billion. Looking forward, Apple said to expect revenue of $37 billion to $40 billion for its July-to-September quarter. Analysts had been forecasting a revenue projection of around $40.4 billion, with per-share earnings pegged at $1.34. Apple didn’t give a per-share earnings forecast but did say to expect gross margins of 37 percent to 38 percent.

Of those numbers, the most strikingly off belonged to that of the iPad. It’s the second quarter in a row that iPad sales have taken a significant dip. Predictably, some are predicting gloom & doom punctuated from cannibalization by the smartphone: a threat some are certain to accelerate with the introduction of a larger iPhone 6 model in September.

From BusinessWeek:

The overall tablet market has been shaky, and many people think it’s because smartphones with more powerful processors and bigger, better screens make them seem less necessary. Whenever Apple does release its new iPhones, they will likely be both bigger and more powerful than the iPhone 5S. That’s likely to be good news for Apple as it tries to claw market share back from Samsung. It could also be bad news for the iPad, as it tries to sell iPads to people with big phones in their pockets. But Apple has never been shy of cannibalizing its own products, so the iPad’s loss could be the company’s gain.

Of course one thing that hasn’t been mentioned very much that may be contributing to the growth slowdown is that the product’s lifecycle may be more in line with that of the PC (or Mac) than the smartphone. Back in March, Fortune published information from a Consumer Intelligence Research Partners study that found that:

  • Replacement: Eight out of ten lost or broken iPhones are replaced within two days. Owners of a broken Mac or iPad may not get to it for a week or more.

  • Recycling: iPad owners are more than twice as likely as iPhone owners to give their old tablets to a friend or family member.

  • First-time buyers: Only 1-2% of iPhone buyers purchase their very first phone. By contrast, the percentage of first-time iPad buyers was 78% in December 2013, down only slightly from 84% in March 2013.

Even though people might not be buying as many new iPads as Apple might have originally hoped for, they continue to dominate the overall tablet market. So I don’t think there’s much to worry about. And while tablets may be in flux, iPhone sales jumped another 12.7% from the same time a year ago.

I know this is really going out on a limb but I think Apple’s going to be OK, despite what some alarmists (and Wall Street analysts) think.

Hey Business Insider: Here’s Why The App Store Sucks

Steven Tweedie from Business Insider penned a piece this morning ripping into Apple’s App Store saying it sucks, is outdated etc. It’s a well-researched piece with some good quotes and I agree with most of the concerns.

Of course Google Play is ancient and outdated as well. The most common complaints involved here relate to both major app stores. Search is probably the biggest one:

Fixing how search works within the App Store is a tough issue to tackle. Due to the App Store’s sheer size, many apps share a similar name, spelling, or keyword, which makes sifting through pages of obscure and aging apps a pain, especially when you have a specific app in mind.

On personalized search specifically:

Just as Google draws upon a user’s past search history to personalize search results, Apple could also introduce some sort of personalized recommendation feature that could directly feed into search, adding a wealth of context.

So why hasn’t Apple attacked these problems sooner? I’m just not sure it’s such a huge priority for them. Take this quote from the article as a starting point:

From Apple’s perspective, it needs to keep developers happy lest they run to Google and the Play Store. As Apple competes with Android, one of its key advantages is the the ability to retain developers who are making brilliant mobile applications. Without those people, Apple risks losing the platform war to Android.

Except the truth is it’s actually the other way around: developers build applications for users, not themselves. So long as users remain loyal to iOS, then developers will continue dealing with an imperfect App Store just to reach them. What do most users want? Their favorite apps, available to them at any given moment. And most of those are the same apps that have been in the top 30 for years and are easily reachable through the App Store. They don’t use very many and they don’t have very much patience for new apps.

So in that sense, Apple has very little incentive to make wholesale changes to the App Store. It’s not the open web where anyone can type in a query (e.g. traditional Google search). It’s a closed ecosystem with a great deal of inherent lock-in thanks to this availability of apps, as well as continuity between devices and a litany of other considerations. Smaller app developers looking for traction have a much greater incentive to push for a more equitable app store than platform operators or indeed major app developers.

The harsh truth is that Apple (or Google, for that matter) doesn’t need them to make huge profits from their respective app stores. The discovery problem is only a problem for one segment of the app ecosystem: and it’s not the segment that’s making Apple the most money.

Next iPhone Will Offer Bigger Screens (@WSJ)

Well, the worst kept secret in technology has finally been confirmed.

Apple Inc. is preparing for its largest initial production run of iPhones, betting that larger-screen models will lure consumers now attracted to similar phones from Samsung Electronics Co. and others.

The Cupertino, Calif., company is asking suppliers to manufacture between 70 million and 80 million units combined of two large-screen iPhones with 4.7-inch and 5.5-inch displays by Dec. 30, according to people familiar with the matter.

Personally, I think the 5.5 inch display will sell in huge numbers. It will be interesting to see if they have enough inventory to meet the need for both.

A lot of ramifications for developers and designers having to build experiences for the new phone.

Google won’t call games with in-app purchases free anymore (@engadget)

Google has already said it would implement several of the changes starting at the end of September. For instance, it won’t use the word “free” for in-app purchase games; it’ll come up with targeted guidelines for games to prevent encouragement of children to buy items; and will implement measures to monitor breaches of EU law.

Meanwhile, the EU said that Apple has “regrettably” not provided any firm solutions or timetable to address its concerns, though it added that Cupertino has promised to attack the problem.

Early Apple Designer Explains The Only Way The iWatch Will Work (@businessinsider)

In a recent interview with Business Insider, Esslinger said, “When Apple eventually launches the long-awaited iWatch, it has to top the iPhone in function, design, and prestige — anything else would be completely illogical.”

The current smartwatches are a misunderstood issue because I don’t think there’s a real need for another device to access a smartphone already in the hand or in the pocket of the user,” he said. “It makes sense to make technology more wearable, but it must be a complete device.”