Google’s Hardware Push: Ubiquitous AI

Yesterday, Google released eight devices that all screamed a single message – Google’s hardware ambitions are both serious and AI-centric. Google is doubling down on hardware, as a means to democratize the use of AI. The company has recently poured resources into hardware development, and while hardware will always be a fraction of their advertising and cloud businesses, these products will be key factors in Google’s future as a competitor with Apple, Samsung, and Amazon.

Last year, Google charged former Motorola president Rick Osterloh with unifying the new hardware division, and more recently, the company paid $1.1 billion to acquire over 2,000 smartphone engineers and some valuable IP from HTC (although their efforts won’t be reflected in this product line). Now all-in on hardware, the question becomes one of marketing, manufacturing, and distribution power that will determine if they can elbow a position among some of the world’s largest and most successful consumer product companies.

They keynote was heavy on Google’s “AI first” message, but now that sentiment seemed to take on a more tangible form as each presenter explained how the hardware products will facilitate AI first computing. In 2017 Sundar has opened each of his public remarks stating Google’s goal of becoming and AI first company. This has obvious implications for Google’s advertising, Maps, YouTube, and cloud business, but we are adding hardware to this list.

We are most excited to see how well Google has woven their AI Assistant into the fabric of the device ecosystem. This is important because integrating an array of devices (i.e. the handoff between the home and the road) is what will push us toward the next generation of our interaction with machines. Don’t mistake Amazon’s early lead in smart speaker market share for a lead in the AI first world. While Google is lightyears behind Alexa’s install base, we believe Google has the best AI (see our comparison here), and their more robust product line could catch up quickly.

In an AI first world (as opposed to mobile first), Sundar explains, computers will adapt to the humans that use them, instead of the other way around. 4 things They must be conversational and sensory, ambient and multi-device, thoughtfully contextual, and they must learn and adapt. How is Google’s hardware collection enabling the AI first transition?

Google’s stepped-up efforts in hardware will have little impact on the broader smartphone market share. We estimate in the U.S. today that Pixel accounts for about 1% of the market, iPhone for 50%, and Samsung for 30%. We believe this increased effort around the Pixel 2 could inch up market share from 1% to 2-3% in the U.S., likely at the cost of other Android devices. As for the smart speaker market, Google’s efforts in the next few years could yield a measurable increase in market share. Today, we estimate various forms of Alexa account for roughly 70-80% and we envision Google’s smart speaker share increasing from about 25% today to greater than 35% in the next 3-5 years.

Pixel 2 and Pixel 2 XL. As smartphones more or less reach parity on technical specs, the Pixel rises above the noise with pure utilitarianism. The phone may not be as aesthetically pleasing as the iPhone X or other competitors, but it is simply built to work around you. It’s most compelling feature is the pervasiveness of Assistant that can be summoned by squeezing the phone’s sides.

Google Home Mini and Max. Both of these devices are answers to the Echo Dot and the HomePod (diversifying on size and sound quality are table steaks now), with the aim is to bring the Assistant to as many homes as possible. The Max ($400) appeals to higher-budget audiophiles, and the Mini ($50) is positioned as an impulse buy. Google sweetened the purchase of a Pixel 2 by offering a Mini for free. One of the Pixel 2’s strengths is its integration with Google Home, giving an ambient presence to Assistant.

Google Clips. Clips is a wearable camera for capturing candid memories. This $250 product is a head scratcher and fit’s better in Facebook’s product roadmap.

Pixel Buds. Google is not kidding about making Assistant a ubiquitous presence. Their answer to AirPods are yet another way to stay connected to Assistant. On the positive side, we liked the real-time language translation. On the negative side the design of the buds seem clumsy given they’re connected by a rope-like cable.

Other product announcements. Google also announced a new Pixelbook, an upgraded Daydream VR headset, and plenty of new software features.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

iPhone 8 In-Store Availability Greater Than iPhone 7

Our checks of 190 Apple Stores in the U.S. show that 61% of iPhone 8 SKUs were in stock (54% iPhone 8 and 68% iPhone 8 Plus) compared to a year ago when we measured 20% of iPhone 7 SKUs were available and two years ago when we measured 50% of iPhone 6S SKUs in stock. We found that average iPhone 8 world wide lead time on Oct 2nd was about 1 week (average of 1-2 weeks and 3-5 days from lead time table). We believe there are two factors contributing to the increased iPhone 8 availability. The biggest factor being the reality that this cycle is split between the iPhone 8 and the iPhone X. The second factor is the iPhone 8 and the iPhone 7 have similar components and manufacturing which improve availability. We note this year we measured availability of the most popular models: both the 64GB and 256GB, Space Gray, iPhone 8 and 8 Plus on AT&T, which we believe is representative of overall iPhone 8 and 8 Plus availability.  See detail below.

Greater Availability Evidence iPhone 8 is Incremental. The iPhone 8 is the best phone Apple has produced, but only incremental to the iPhone 7. The material differences between the iPhone 7 and iPhone 8 include a faster processor, faster charging and the ability to charge wirelessly. However, fewer people want the iPhone 8 versus the iPhone 7. The good news is more people will buy the iPhone X than we previously expected (we believe 20-25% of iPhones will be the X), which carries a higher ASP and higher gross margins, and ultimately should lead to modest (1-3%) upside to Street estimates in CY18.

Lead Times Improving. We also track iPhone lead times on Apple.com. On Friday, September 15th Apple began taking pre-orders for the iPhone 8 and 8 Plus, and at that time Apple was quoting 1-2 week lead times for most configurations. When we checked on Sunday the 17th, we found that little had changed over the weekend (see our note here). This past Monday (Oct 2nd) we updated the lead times and found they improved, in particular for the 8 Plus. The iPhone 8 and 8 Plus worldwide improved from 1-2 weeks (Sep-17th) to 3-5 business days (Oct 2nd). There was one exception, the Space Gray iPhone 8 remained at a 1-2 week lead time. The lower iPhone 8 Plus lead times compared to the iPhone 8 suggests the consumers who previously opted for the larger form factor are waiting for the iPhone X.

 

Watch + Cellular Lead Times. We did similar Watch + Cellular spot checks on Friday morning, a more detailed check on Sunday the 17th, and revisited again this past weekend. All models quoted 3-4 week lead times with no exceptions (previously, the Silver Aluminum Case with Seashell Sport Loop was 4-5 weeks). Apple Watch accounts for 3% of Apple’s overall sales, but we believe adding cellular (despite the $10 per month up data up charge) will add about 2% to Apple’s overall revenue growth rate for FY18. We’re modeling for 15% revenue growth in FY18, inline with the Street.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Posted in Apple  • 

Feedback Loup: Early iPhone AR Apps

Since the launch of iOS 11, we’ve been testing popular AR apps available on the App Store. We’ve had fun, and found some useful new tools, but it doesn’t seem like we’ve unlocked the true utility of AR – yet.

After testing out a a few of the more popular AR apps, we have four takeaways:

  1. AR apps offer a new, semi-immersive experience. What began with Pokemon Go has expanded to an entire category of apps; AR enables an entirely new app experience, particularly as it relates to gaming. These apps have consumers using iPhones and iPads in an entirely new way, as a window into a mixed reality.
  2. AR apps demonstrate the novelty of AR but don’t provide true utility – yet. Outside of measuring distances and placing furniture, there is little utility value available in these early AR apps. iPhones and iPads can only provide a window into an augmented reality, not a fully augmented reality. Until some form of wearable technology comes along, we won’t have a seamless AR experience.
  3. AR apps are meaningfully better on the iPhone 8 and (soon) iPhone X. Right now, AR apps leveraging iOS 11 work on iPhone 6S and newer models. But while these apps can run on older phones, the experience isn’t the same. Older iPhones have a harder time picking up surfaces and objects.
  4. Don’t Forget About Audio AR. iOS 11 and ARKit have spawned a new category of AR apps layering digital objects on horizontal planes, but we view audio (not just visuals) as a huge opportunity for our devices, like AirPods, to augment our realities. Imagine a co-worker speaking to you in Mandarin, but hearing English in real-time translation.

Here are some of the AR applications that we reviewed:

Follow Me Dragon – The VR Company. Follow Me Dragon gives users their own imaginary dragon that follows them around. At one point, Magic Johnson even tweeted about Follow Me Dragon’s success.

My Very Hungry Caterpillar AR – StoryToys Entertainment Limited. I’ve been playing My Very Hungry Caterpillar with my 4 and 7 year-olds and they’re enthralled. More than a few times, they’ve looked around my iPhone to see the AR caterpillar directly, only to find that it’s not really there.

TapMeasure AR Utility – Occipital, Inc. One of the higher utility apps that we used, TapMeasure, allows users to measure distances with their iPhones. We used TapMeasure to help confirm that we were illegally parked – but just barely. Ultimately, though, distance measurement will be just one ingredient that developers will use to create killer AR apps.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Amazon Flooding Smart Speaker Market

With the smart speaker market still comfortably in its youth, and voice as a computing interface just beginning to take hold, no one is sure what the best use cases for the technology are, or what the device that best captures the tech (as the smartphone did for mobile apps) will look like. Amazon’s solution: make a device for just about everything and see what works.

Here’s a breakdown of the new devices announced on the 27th

Echo – $100

  • The new Echo offers much better sound quality thanks to a dedicated subwoofer and tweeter which means it will compete more directly with Sonos and HomePod. It also has six interchangeable metal or sport fabric finishes for a new look.

Echo Plus – $150

  • The Echo Plus looks the same as the original Echo, this time in silver, white, or black, that also includes upgraded sound. It will act as a hub for smarthome IoT devices like lightbulbs (it comes with a Philips Hue smart bulb), locks, or thermostats.

Echo Spot – $130

  • With a circular 2.5-inch display, the Spot is a cross between the Echo Dot and the Echo Show. It runs certain screen-based apps, makes video calls, and is geared towards use-cases like a smart bedside alarm clock.

Echo Connect – $35

  • This device more or less turns any Echo model into a landline phone that allows you to make VoIP and traditional calls from you home phone number on you echo device.

Echo Buttons – $20 for two

  • The buttons seem to be made for the singular purpose of interactive games like trivia or Simon Says. You can bet we will see designated games in the Alexa Skills market that require use of the Buttons shortly. It is also said to be “the first of many Alexa Gadgets.”

New Fire TV – $70

  • The streaming box is smaller than its previous iteration and supports 4K and HRD video at 60fps. You’ll be able to control the new Fire TV with any Alexa device.

These additions come on top of existing products like the Echo, Dot, Tap, Look, and Show. If Amazon’s device lineup seems experimental, that’s because it is. After effectively losing in the mobile space, Amazon’s real goal is to become the de facto platform for the voice-controlled smart home. By flooding the market with hardware for every conceivable use case, Alexa hopes that by the time people realize that voice computing is here to stay, she will already be in enough homes to be the go-to platform that all IoT devices run on. For third party developers of smart home hardware, this is a classic network effect – hardware manufacturers want to make devices compatible with the platform that has the most users, and users want to buy the software (on Alexa speakers) that can control the widest array of smart devices. Furthermore, each new Alexa device means another trove of user data that is used to constantly improve the underlying AI software.

Remember, this is still a miniscule portion of Amazon’s business. Even though they have more than quintupled the number of people working on Alexa to over 5,000, the vast majority of their revenue comes from other segments like ecommerce and web services. This means they are able to sell these devices at a narrow margin, focusing instead on penetrating as many homes as possible. This recent product-line revamp makes the flagship Echo less than half the price of Apple’s upcoming HomePod and about on par with Google’s $130 Home device. We have written about our long-term outlook on the smart speaker market (here), which remains unchanged – the winner will be the product that delivers frictionless connectivity between devices and real increased efficiency. Amazon’s sprawling product line and compelling price points are attractive early on, but they could face difficulties with their lack of an ecosystem of staple products like phones and computers in the future. Nonetheless, Amazon’s aggressive expansion into the space is exciting for both tech-hungry consumers and those of us watching voice-first computing take form before our eyes.

iPhone Survey Shows 28% Interest in iPhone X; Positive for ASPs

Intent to upgrade survey shows promise for the iPhone X, and higher ASPs. In addition to surveying consumers in launch lines, we surveyed a broader base of 511 consumers this week regarding their intent to purchase the upcoming iPhones. We found that 23% of respondents intend to purchase a new iPhone within the next year compared to about 25% a year ago. Of that those planning on purchasing an iPhone, 28% are planning to buy the iPhone X, and 40% an iPhone 8 or 8 Plus. We continue to model for 20% of FY18 iPhone units will be iPhone X, given we expect the U.S. to over index to iPhone X. It’s important to note that the most current iPhone typically accounts for 50-60% of overall iPhone unit sales. This survey suggests the most current iPhones will account for 68% of iPhone unit sales. This increases our confidence that ASPs for the iPhone will move higher in FY18. We are modeling for a 6% increase in ASPs in FY18 versus a 1% increase in FY17, and expect our ASP assumption will end up being on the conservative side.

There have been many reports expressing fear that demand for new iPhones is wavering, signaled by low initial sales numbers and short lines for the iPhone 8. However, it must be pointed out that we currently have only partial data. While the release of two devices with slightly different launch dates is unique, the iPhone 8 and iPhone X should be viewed more as a single cycle. Factoring in strong demand for iPhone X and higher ASPs, we believe this cycle will exceed last year’s in both revenue and unit shipments, modeling for iPhone units in FY18 to increase 9% and iPhone revenue to increase by 16%, compared to 3% and 4% in FY17.

Additional Survey Details

  • Total sample size: 511 U.S. consumers
  • iPhone 7 users: 87 of 511 (17.0%)
  • iPhone 6s users: 66 of 511 (12.9%)
  • iPhone 6 users: 65 of 511 (12.7%)
  • Other iPhone users: 38 of 511 (7.4%)
  • Android users: 255 of 511 (49.9%)
  • Users planning to upgrade iPhone in the next year: 119 of 511 (23.3%)
    • Users planning on upgrading to iPhone X: 32 of 116 (27.6%)
    • Users planning on upgrading to iPhone 8: 23 of 116 (19.8%)
    • Users planning on upgrading to iPhone 8 Plus: 23 of 116 (19.8%)
    • Users planning on upgrading to other iPhone: 38 of 116 (32.8%)
  • More interest in AR: 105 of 503 (20.9%)
  • Unchanged in AR: 314 of 503 (62.4%)
  • Less interest in AR: 84 of 503 (16.7%)
  • 18-29 (19.3%)
    • iPhone users: 56 of 97 (57.7%)
    • Purchasing the next iPhone: 26 of 97 (26.8%)
      • Users planning on upgrading to iPhone X: 8 of 26 (30.8%)
      • Users planning on upgrading to iPhone 8: 5 of 26 (19.2%)
      • Users planning on upgrading to iPhone 8 Plus: 6 of 26 (23.1%)
      • Users planning on upgrading to other iPhone: 7 of 26 (26.9%)
    • More interest in AR: 26 of 97 (26.8%)
    • Unchanged interest in AR: 59 of 97 (60.8%)
    • Less interest in AR: 12 of 97 (12.4%)
  • 30-44 (27.2%)
    • iPhone users: 70 of 137 (51.1%)
    • Purchasing the next iPhone: 36 of 137 (26.3%)
      • Users planning on upgrading to iPhone X: 9 of 35 (25.7%)
      • Users planning on upgrading to iPhone 8: 9 of 35 (25.7%)
      • Users planning on upgrading to iPhone 8 Plus: 7 of 35 (20.0%)
      • Users planning on upgrading to other iPhone: 10 of 35 (28.6%)
    • More interest in AR: 35 of 137 (25.6%)
    • Unchanged interest in AR: 80 of 137 (58.3%)
    • Less interest in AR: 22 of 137 (16.1%)
  • 45-59 (28.0%)
    • iPhone users: 82 of 141 (58.2%)
    • Purchasing the next iPhone: 34 of 141 (24.1%)
      • Users planning on upgrading to iPhone X: 9 of 33 (27.3%)
      • Users planning on upgrading to iPhone 8: 4 of 33 (12.1%)
      • Users planning on upgrading to iPhone 8 Plus: 6 of 33 (18.2%)
      • Users planning on upgrading to other iPhone: 14 of 33 (42.4%)
    • More interest in AR: 24 of 141 (17.0%)
    • Unchanged interest in AR: 91 of 141 (64.5%)
    • Less interest in AR: 26 of 141 (18.4%)
  • 60+ (25.5%)
    • iPhone users: 48 of 128 (37.5%)
    • Purchasing the next iPhone: 21 of 128 (16.4%)
      • Users planning on upgrading to iPhone X: 4 of 20 (20%)
      • Users planning on upgrading to iPhone 8: 5 of 20 (25%)
      • Users planning on upgrading to iPhone 8 Plus: 4 of 20 (20%)
      • Users planning on upgrading to other iPhone: 7 of 20 (35%)
    • More interest in AR: 20 of 128 (18.8%)
    • Unchanged interest in AR: 84 of 128 (65.6%)
    • Less interest in AR: 24 of 128 (18.8%)
  • Male (46.9%)
    • iPhone users: 112 of 236 males (47.5%)
    • Purchasing the next iPhone: 50 of 236 (21.2%)
      • Users planning on upgrading to iPhone X: 14 of 49 (28.6%)
      • Users planning on upgrading to iPhone 8: 10 of 49 (20.4%)
      • Users planning on upgrading to iPhone 8 Plus: 10 of 49 (20.4%)
      • Users planning on upgrading to other iPhone: 15 of 49 (30.6%)
    • More interest in AR: 58 of 236 (24.6%)
    • Unchanged interest in AR: 141 of 236 (59.8%)
    • Less interest in AR: 37 of 236 (15.7%)
  • Female (53.1%)
    • iPhone users: 144 of 267 (53.9%)
    • Purchasing the next iPhone: 67 of 267 (25.1%)
      • Users planning on upgrading to iPhone X: 16 of 65 (24.6%)
      • Users planning on upgrading to iPhone 8: 13 of 65 (20.0%)
      • Users planning on upgrading to iPhone 8 Plus: 13 of 65 (20.0%)
      • Users planning on upgrading to other iPhone: 23 of 65 (35.4%)
    • More interest in AR: 47 of 266 (17.6%)
    • Unchanged interest in AR: 173 of 266 (64.8%)
    • Less interest in AR: 47 of 266 (17.6%)
  • Plan to purchase next iPhone 119 of all 511 U.S. consumers (23.3%)
    • iPhone users: 91 of 119 (76%)
    • More interest in AR: 47 of 105 (40.2%)
    • Unchanged interest in AR: 49 of 105 (41.9%)
    • Less interest in AR: 21 of 105 (18.0%)
  • Not planning to purchase next iPhone 392 of all 511 U.S. consumers (76.7%)
    • iPhone users: 165 of 392 (42.1%)
    • More interest in AR: 58 of 386 (15.0%)
    • Unchanged interest in AR: 265 of 386 (68.7%)
    • Less interest in AR: 63 of 386 (16.3%)

It’s important to note that demographic information was not available for all respondents. In addition, some respondents did not complete the survey. For example, 119 out of 456 respondents shared that they intend to upgrade their iPhone in the next year, but only 116 specified their decision further.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.