Will Dell Exist the Consumer Computer Business? 0

Dell announced earlier this week that it was going private in a $24.4 billion deal. The buyout is the largest since Blackstone’s $26 billion takeover of Hilton Hotels in 2007 and will add $15 billion of new debt to Dell.

Dell is clearly at a difficult crossroads. In 2005, Dell was the world’s largest maker of PCs while today it is now third behind HP and Lenovo.  Today Dell’s market share in PCs is roughly 11 percent – down from about 16.8 percent in 2005.  While PCs have suffered, some of Dell’s other business units continue to expand. Dell’s server & networking revenue grew 11 percent year-over-year during the third fiscal quarter ending November 2, 2012 – the only business unit to experience growth.  This growth enabled Enterprise Solutions and Services to grow three percent during a quarter wherein overall revenue was down 11 percent.  The most severe revenue declines came from client products like notebook and desktop PCs.  Mobility products – which include notebooks – experienced a revenue decline of 26 percent while desktop PCs declined 8 percent.

Here’s a view of things from that most recent 10Q:

During the third quarter of Fiscal 2013, net revenue from our Commercial segments decreased 7%, and represented approximately 82% of our total net revenue. The decrease in our Commercial net revenue was driven by an 11% decrease in net revenue from our Public customers, who continue to experience budget constraints, and an 8% decrease in net revenue from our Large Enterprise segment. Net revenue from our SMB segment decreased 1% during the third quarter of Fiscal 2013. All of our Commercial segments experienced declines in revenue from client products, and for our Large Enterprise and SMB segments, these declines were partially offset by increases in revenue from our enterprise solutions and services offerings. During the third quarter of Fiscal 2013, net revenue from our Consumer customers decreased 23%, and represented approximately 18% of our total net revenue

While Dell’s consumer business is still 18% of revenue – some $2.5 billion in the most recent quarter – it declined 23 percent. More importantly, while the segment added nearly $100 billion in operating income in the year-ago quarter, it had a $65 billion operating loss in the most recently concluded quarter.

In a memo to employees, Michael Dell wrote, ” “Dell’s transformation is well under way, but we recognize it will still take more time, investment and patience. I believe that we are better served with partners who will provide long-term support to help Dell innovate and accelerate the company’s transformation strategy.” Certainly it would be easier for Dell to exit the consumer PC market outside the scrutinizing eye of the financial markets.

A recent analyst report covering Tawainese ODMs suggested Dell and to a certain extent HP have few design-in and models targeting the consumer PC segment in 2013. This might support the belief Dell is pulling out of the consumer PC segment.

At the same time, the consumer PC segment is still a large one for Dell.  As I stated above, it generated $2.5 billion in the most recent quarter. But operating incomes have been recently negative – a $65 billion loss in the most recent nine months. In the last nine months, Dell’s consumer segment lost $19 billion in operating income while it made $372 billion in operating income in the same period a year-ago.

Should Dell exiting or even de-emphasize the consumer PC segment, it will probably likely benefit companies like Lenovo, Asustek, and even companies like Vizio who are steadily attempting to make inroads into the PC market.  Though Microsoft’s commitment to lend Dell $2 billion as part of this buyout does support the belief Dell won’t disrupt the PC market with a grand exit anytime soon. “Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future,” Microsoft said in a statement – one that doesn’t point to Dell making major changes within the PC business units.

How important the PC business – and specifically the consumer PC business – will be in helping Dell pay down its new found debt remains to be seen. The New York Times article on the buyout reads, “despite taking on an additional $15 billion in debt, Mr. Dell and Silver Lake argue that the company will survive, thanks to the cash that the PC business still generates” and “people involved in the transaction said that the buyers had prepared for potential further declines in the PC business, but intend on at least maintaining the company’s position. Dell’s cash from operations has held steady for four of the last five years, coming in at $5.5 billion for the most recent fiscal year.”

These statements don’t seem to take into account the financial reality of what’s happening at least within Dell’s consumer PC business. Over the last 9 months Dell’s consumer PC business has negative operating income so there is no “cash” to pay down debt from this division. If things continues, it will require some of said cash.  And since operating income contributes to net income which contributes to cash flow from operations, Dell’s consumer business doesn’t currently contribute to helping maintain Dell’s cash from operations.

 

 

The Superbowl’s Second Screen Experience 0

The Superbowl has come and gone.

Leading up to the Superbowl there was a lot written about what the Second Screen approach would be (see here and here and here).  I think alternative second screen approaches – second screen experiences designed by the rightsholder or the distribution network – can be especially effective when the digital platform competes as the primary screen.  This is also true when users are turning to the digital platform for additional richness to the first screen experience.

But in my opinion, with live events like the Superbowl Twitter remains the winner of the Second Screen experience.  I imagine in the next few days Twitter will announce a record number of tweets during #SuperBowl Sunday.  During the game there was an extended delay caused by an unexpected power outage. CBS was caught flat-footed and had to scramble quickly.  The Second Screen experience coming from rightsholders and distribution partners is still largely a highly choreographed experience.  It doesn’t handle improv well. On the other hand, this article from Forbes highlights some of the ways advertisers effectively took advantage of the mishap using Twitter.

UPDATE: here’s how Oreo got their “Dunk in the Dark” ad up so quickly. I predict this approach – a “war” room staffed with the agency and the brand team during the live event – will soon become the norm for large, live events.

UPDATE #2: Twitter reports Super Bowl related hashtags were used 300K times – up nearly 300 percent.

The Next Big Connected Device 0

The next big connected device is the wristwatch.  At the 2013 CES earlier this month, there were a myriad of watches launched.  Here are just a few examples:

 

I mentioned watches in my CES trends presentation when I talked about the next leg in connectivity and  the Verge covered many of these watches as part of their CES coverage.  There has been a tremendous written about watches – especially related to coverage of the dozen plus watches and similar devices we saw at CES earlier this year.

I believe watches can become the next big connected device segment because bringing relevant and meaningful connectivity to the wrist could prove useful to the end-user.  Herein is the key element that will determine if watches can become the next big connected device story. In order for it to matter, the device has to bring relevancy to the individual user.  The device has to enhance the value to the end user because it becomes yet another device that will need to be maintained.  If the value it provides doesn’t offset the cost of maintaining the device (keeping the software up-to-date, keeping it connected to the smartphone, charging the device) then consumers will naturally stop using it.

Let’s discuss what these new breed of connected devices are bringing to the table:

  1. Fashion: Watches are first and foremost worn. Like anything we carry with us frequently and especially the things we wear, fashion becomes a key element of the end-user experience. As Oscar Wilde once put it, “Fashion is a form of ugliness so intolerable that we have to alter it every six months.” The biggest hurdle for watches on this front is that they also serve a utilitarian purpose. Smart watches must balance fashion and functionality.
  2. Pairing: One of the key features of smart watches is the ability to pair with smartphones.  Either they do this so they can gain access to WiFi and cellular in order to upload (and download) information or they connect to smartphones so they can provide additional information and notifications on the watch interface (like text messages sent to the phone, alerts for incoming calls, etc).  Most smart watches on the market or coming to the market this year appear to pair with smartphones and other mobile devices over Bluetooth and many require a related app to customize the watch.
  3. Screen technology and size: Most smart watches are being built with OLED or e-ink screens with screen sizes between 1 and 2 inches.  Pebble’s screen size of 1.3 inches seems to be a good/optimal size though some watches with specific use-case scenarios (like say maps) are clocking much larger screens.  Watches like the Martian watch have dedicated more of the watch real estate to being a watch so it has a smaller screen within the watch interface that supports 40-character previews of text messages.
  4. Watch face: The art of telling time have historically been the primary purpose for watches.  While I don’t think that will be the case with smart watches, all smart watches will provide the user with a watch face by which they can determine the time.  Some of the smart watches like Pebble even allow the end-user to customize the watch face.
  5. Indicators, alerts, and notifications: Most of the smart watches have embedded speakers for audible cues, vibration motors for oscillation prompts or screens to visually provide signals and alerts. We are overrun with alerts and prompts.  Personally, I would turn off most alerts and only want alerts for incoming calls which would solve the digital age problem of not having the ringer of your phone on or having your phone buried deep in your bag. I could also imagine calendar alerts would be helpful.
  6. Bluetooth: Most smart watches are connecting to smartphones via Bluetooth and increasingly they are utilizing Bluetooth 4.0 (featuring Bluetooth low energy) to help extend battery life.
  7. Waterproofness: Smart watches come in a varying array of waterproofness – though perhaps surprisingly many/most are waterproof.
  8. Maps: several of the smart watches connect (or will eventually connect) to the map functionality of the phone to provide maps or turn-by-turn directions on the phone.
  9. ECG sensors: Several smart watches are embedding ECG sensors to measure the pulse in your wrist.  This can be used for health and fitness related services and can also be utilized to identify you based on your unique pulse and lock down features if someone else puts on your watch.  Given the explosion of health and fitness devices and services, I’d expect more smart watches to include ECG sensors.
  10. Accelerators: Accelerometers have become a mainstay in other connected devices and are a natural fit in a watch. With the accelerometer on the Martian Watch for example you can send incoming calls to voicemail with the shake of the wrist. Expect to see more here.
  11. Calendar: Several smart watches allow you to see upcoming calendar appointments on your watch.
  12. Email: Most smart watches alert you to incoming email and many will allow you to also read some or all of the incoming email.
  13. Text messages and incoming calls: Most smart watches alert you to incoming text messages and calls and provide relevant information like Caller ID.
  14. Social Updates:  Many of the smart watches also allow you to see/read incoming Facebook posts or Tweets on Twitter.
  15. Battery Life: Most of the early connected watches need to be charged every few days and most still need to be charged regularly but some of the smart watchers are seeing an improved battery life.  The Cookoo watch for example can run for a year on a standard button cell watch battery.
  16. Adjust Time Zone Automatically: The Casio G-shock can adjust time zones automatically based on location information retrieved from the iPhone.
  17. Music Control: Several of the watches allow you to control music on your smartphone which could be a useful feature if your phone is docked in a speaker dock or otherwise slightly out of reach.
  18. Voice Control: The Martian watch works with the voice command on iPhone or Android
  19. Apps, Widgets and Customization: Apps and widgets play an integral part in creating value on the smart watch. In some cases – as in the case of I’m Watch – the watch is running a version of Android and runs apps directly.  In other cases, the phone runs widgets that can be customized. For many of these devices, apps on smartphones are used to program and customize the watch with features.  Several of the smart watches are running an open source software open to 3rd-party developers so expect more to come for the watches that find mass market appeal and gain strong audiences.  In many cases users can customize their watch utilizing different watch faces and a host of widgets and apps.

The most successful smart watches will allow for strong customization from the end-user. Beyond being able to customize watch faces we are seeing smart watches that can be customized with features like a presenter app enabling you to control PowerPoint presentations. Sony’s smart watch for example has an app that allows you to directly tap-to-like on Facebook. You can also use smart watches as a remote control for your phone’s camera or find a misplaced phone. Eventually we’ll see integration with websites of the most successfully adopted smart watches so notifications and alerts can be sent directly to the watch from different web properties.

Gaming is not a strong category for smart watches today, but over the next few years as the category of smart watches matures and adoption increases expect to see a push in the  games arena.  Watches are a natural interface for games intended for short periods of play.

I’m most interested to see how features like notifications and alerts evolve. Beyond just being alerted, does the watch provide a unique position from which to consumer information and subsequently perform other tasks?  I look forward to seeing how features like the accelerometer are used in the future.  Being able to shake-off an incoming call makes a lot of sense to me.  It would seem to create some efficiencies which makes the device valuable and helps off-set the cost of maintaining another device.  It is clear, we are only at the initial chapter and only time will tell (pun intended) if smart watches can become the next be connectivity story.

 

 

Engineering Doesn’t Necessarily Win in the End 0

There is a misconception that engineering wins in the end.  It doesn’t. Perhaps it once did.  Certainly over the last 60 years of technology engineering won out more than it does today. But today, pure engineering is simply less powerful in influencing adoption and consumer use. This has become acutely evident over the last 24 months.

Nick Bilton hit on part of this in his New York Time’s column a few weeks ago entitled Disruption: Design Rivals Technology in Importance. One can certainly argue design – industrial design – at it’s purest level is engineering. But this element of engineering – design – is different than the engineering that dictates how a product functions, what it does, and all of the engineering that goes along with defining the embedded technologies of a device.

You can see how engineering historically influenced purchase decisions and how it now suddenly doesn’t.  Manufacturers use to market their devices with numbers – a classic engineering approach.  If model 8000 was good then clearly model 9000 is better. Let the numbers speak.  Let the specs define how useful the device is. But we’ve largely moved away from this approach.  Sure we still at times name things sequentially.  The iPhone 5 is “newer” and therefore probably “better” than the iPhone or the iPhone 4. But the iPhone experience isn’t really defined by a series of numbers. One of the touting features of the iPhone 5 is the inclusion of a secondary microphone on the back which is intended to cancel out ambient noise.

Last year I said 2012 was going to be the year of the interface.  I believe that is exactly what we’ve seen materialize.  For example, a large number of devices are now capturing information or performing other activities for the end user. But many of these devices lack much of a user interface.

fitbit

Think of devices like the new Fitbit Flex which was recently launched at the 2013 CES. The device itself doesn’t really have an interface. The device captures information, transmits that information to a cloud service (via bluetooth and the cellular or WiFi connectivity of the smartphone).  That service is essentially a curation service.  The Fitbit (cloud service) curates an experience for the end-user by aggregating the captured information and using algorithms to provide insights back to the end-user.  Those insights are provided back to the end-user not through the interface of the device – because remember the device doesn’t really have an interface – but rather through the smartphone. The smartphone becomes the interface for the device.  The smartphone becomes the interface for the curated experience delivered back to the consumer. I said recently that the smartphone has become the viewfinder for our digital life.  That is exactly what is happening here.

The engineering is clearly important. The engineering makes it all possible.  It still adds value and there is still a tremendous amount of engineering innovation taking place.  There is much more to come.  I think we have only scratched the service of what is possible when it comes to embedded MEMS technologies in consumer devices for example. But the really interesting things are happening at the application level.  MEMS sensors will digitize interesting information, but curation services will deliver value to the end-user. And because many/most elements of engineering can be replicated by others (especially given enough time), the interface is what differentiates the experience for the consumer.  Simply put, engineering continues to add value but the design of the experience is defining the ultimate value for the consumer.

Last week I spoke at an event at the Hanken School of Economics.  Timo Seppala also spoke and I’d like to highlight one of the points he made (you can read the underlying paper here). In talking about IP regimes, he argued there are two core types of patents – essential patents and platform patents.  The essential patents are fundamentally engineering patents. As Seppala and Kenney write, ” traditionally, the mobile telecommunications industry has been an industry where standard setting and ownership of the essential IPR, such as GSM (global system for mobile communications), 3G (third generation mobile telecommunications), LTE (long term evolution), and other similar standards that play a significant role in defining market structure and the positions of industry firms.” You can think of essential patents as patents that cover things like radio, transmission, and telephony engineering.

Platform patents are patents covering things like sensors, materials, optics, digital data, signaling, speech recognition, and picture communication). Seppala and Kenney point out that platform patents are becoming more numerous and in fact are becoming the majority of patents in the mobile device space.  More, companies like Apple, Google, and Microsoft come from a world of platform creation. They are each bringing mobile operating system (platforms) to mobile (and in the future other “smart”) devices.

We’ve seen significant leadership shifts within the mobile device marketplace over the last 24 to 36 months. Some of this shift is certainly explained by a shift in the way consumers are approaching these devices.  Consumers are perhaps focusing less on the pure engineering experience of devices and more on the platform experience of the device and in turn the companies who have approached marketplaces from a platform perspective have benefited.

The consumer experience is clearly influenced by the engineering of a device. But increasingly, the consumer experience is being defined explicitly by more than the engineering of a given device.

 

 

 

 

 

 

 

Scaling Disruption 0

On my flight over to Helsinki a day ago, I read the December issue of the Harvard Business Review.  Several articles focused on disruption and I want to spend a minute sharing my thoughts on the topic.

Disruption is a fickle influence on business and while we often talk about about disruptive change being binary – you are either being disrupted or you aren’t – the truth is much more discriminating. Disruption has a strong time component and most disruption plays out over long periods of time.  In fact, it is often the function of time that dictates if disruption will in fact shift the competitive landscape.

The key to disruption materializing – moving from a simple nuance to a true disruptive force that changes how business is down and how organizations compete – is to what degree the given disruption scales.

Tomorrow I’m speaking on the disruptive force of digital. Perhaps no single force has been as disruptive as digital has to so many different sectors of the economy.  A big reason behind this is the ability of it to scale. Digital by it’s very definition scales infinitely. It is also worth noting that digital has taken a significant amount of time to become fully disruptive. Time allows truly disruptive forces to build momentum.  In the case of digital, it first gained traction in the music sector.  In fact, the first real digital device outside of computers was the launch of the CD player at the 1981 CES. After successfully disrupting the music industry, digital moved onto other, more difficult, sectors of the economy. Print. Imaging. Video.  Each one succeedingly challenging, but time had allowed digital to gain enough momentum (and prove that it could be disruptive) that it was able to be disruptive in these subsequent sectors of the economy.

As the Internet took hold in late 1990s and early 200os it simply allowed digital to scale more fully and consequently become more disruptive.

2013 CES Trends to Watch 0

Here my is presentation on trends to watch at this year’s International CES and in the months/years to come.

Web Technologies – Things to Look for in 2013 0

Earlier this week, CNET wrote about 5 Web Technologies to Watch in 2013. I completely agree with the 4th one listed: High-res images on the Web. Prevalent at CES next week will be what I’m referring to as “HD Everywhere.” We’ve already seen the resolution on mobile phones increase and we are now seeing that spread up the device hierarchy. Tablets and laptops with higher resolution screens will be on display and of course televisions pushing to Ultra HD 4K resolution – twice the resolution of 1080P HD – will be one of the big stories for the 2013 CES.  Naturally, once these screens become capable of rendering high resolution images users will increasingly want access to high resolution images.  While I don’t think we see a big move to high resolution web images in 2013, this move will naturally follow a growing installed base of high resolution screens.

I’d like to add one additional thought.  The Web is big.  It is blotted.  Most of us can remember searching for things on the Web and receiving back 21 search results. Today the same search returns 21 million search results. Search results are being overrun by what I call Web Debris – information that was once relevant and accurate but now simply floats across the Web.  Web Debris is hindering productivity and efficiency.  Rarely do I search for something today without applying time parameters (last day, last month, last year).  I think narrowing parameters will eventually become standard search criteria. Today Google and others preemptively guess what I’m trying to search for. I imagine the same approach could be taken with narrowing parameters.

IBM’s Sixth Annual 5 in 5 Tech Picks 0

Read IBM’s sixth annual 5 in 5 tech picks here.  I think point two hold tremendous promise:

Recognition systems can pinpoint a face in a crowd. In the future, computer vision might save a life by analyzing patterns to make sense of visuals in the context of big data. In industries as varied as healthcare, retail and agriculture, a system could gather information and detect anomalies specific to the task—such as spotting a tiny area of diseased tissue in an MRI and applying it to the patient’s medical history for faster, more accurate diagnosis and treatment.

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