Siri Semester Exam Grade Improves to C From D+

Semester exam results are in. In our latest 800 question test of AI assistant Siri, she was able to understand 99% of queries and correctly answer 75% of them, earning a C grade. In April of 2017, Siri earned a D+ on the same test where she understood 94% of queries and correctly answered 66%. These tests are conducted with the same methodology and question set as our smart speaker tests found here. It involves asking 800 questions divided into five categories (local, commerce, navigation, information, and command) designed to test the full range of abilities and accuracy of an AI assistant.

Performance. Siri’s 9% improvement in correct answers over an 8 month period is more or less in line with the high rate of improvement we are noting with smart speaker-based assistants like Amazon Alexa and Google Home. For comparison, Alexa answered 64% of queries correctly and Google Home 81%. These results, however, can not be compared to one another directly as a smartphone-based digital assistant responds differently to queries, geared more toward calling up information on the device’s screen or controlling the device itself. Nonetheless, Siri’s December performance, compared to our test in April of this year, and to previous tests with a similar methodology and question set we conducted in 2012, 2013, and 2014, shows improvement in all five categories.

We’re tough graders at Loup Ventures. We’re tough graders in that during our testing of Siri, we only counted correct answers when she was able to deliver a single concise answer herself rather than bringing you to search results that might help you find an answer. This means, “I found this on the web for…” is counted as incorrect. Siri improved 9% since our April test but remains far away from the A grade that we expect will drive AI assistant technology to mainstream adoption. Test scores should be in the 90% range (90% of queries answered correctly) to receive an A grade. The takeaway is that Siri does not yet act as the fabric that connects our computing experience as we hope AI assistants one day will. We can live without Siri for now, but at the rate of improvement we are seeing, we expect her to be indispensable in 2 years.

Methodology. Methodology. Just as we have in April of this year, we asked 800 questions to Siri on an iPhone X and 8 Plus the last week of December 2017. The queries covered five categories: Local, Commerce, Navigation, Information, and Command. Siri was graded on two metrics: did she understand what was asked? (this can be seen on the device’s screen), and did she answer or execute correctly? It is important to note that we have slightly modified our question set to be more reflective of the changing abilities of AI assistants. As voice computing becomes more versatile and digital assistants become more capable, we will continue to update our question set to be reflective of those improvements going forward. Our changes included questions around the use of smart home devices. We tested Siri with the Philips Hue smart lighting and Wemo Mini smart plugs.

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 X Effectively at Full U.S. Availability

Conclusion. In the first week of January, average iPhone X supply inched up to 97% after a month of rapidly increasing availability for U.S. Apple in-store and online lead times in 8 countries improved from an average of 4 days to 3 days. We still believe iPhone X will reach global supply-demand equilibrium in the next week. This means the Mar-18 outlook will have a small bump up from December iPhone X demand getting pushed into the Mar-18 quarter. The bigger takeaway is that the Street is underestimating the positive ASP impact from the iPhone X over the next few quarters, which should be a long-term benefit to the Apple story. Our FY18 overall iPhone ASP is $740 vs. the Street at $705.

iPhone X effectively at full availability. As we have been tracking the iPhone X availability and lead times, we have also looked at lead times for the 8 Plus and 7 Plus for comparison. Currently, the lead times for the 8 Plus and 7 Plus are similar – longer in some countries, in fact – to the iPhone X, indicating that the X has reached full availability.  Today, you can expect the same delivery date for an iPhone X as you would a 7 Plus. The X’s in-store availability is slightly lower than its older cousins, at 97% compared to 99% or 100% depending on the day, but we believe these 2 or 3 percentage points to be immaterial. With equal or better lead times compared to older models and the phone being essentially fully available in-store, the takeaway is that the iPhone X has effectively reached supply-demand equilibrium.

Apple Store availability at 97%, up from 96% the previous week and 75% the second week of December. We continued our daily monitoring of iPhone X availability, capturing 2224 daily in-store data points for 139 of the 271 U.S. We’re approaching 100% U.S. Apple in-store availability, compared to 25% a month ago. Specifically, availability at U.S. Apple Stores increased to an average of 97% for the week of Jan 1st-Jan 8th, which is only a 1% increase from Dec 25th-Jan 1st, but that’s after 75% for Dec 18th-Dec 25th and 44% the week of Dec 11th-Dec 17th. The first week of December had 25% availability.

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  • 

App Store Retains Healthy Growth, ARKit Next Gold Rush

App Store revenue grew about 30% in 2017. Apple announced App Store revenue reached $300 million on New Year’s Day 2018, a single day record. They also reported for the period of Christmas Eve to New Year’s Eve, App Store revenue hit $890 million. Most importantly, Apple announced in 2017 iOS developer payouts increased 30% year over year, compared to 40% growth in 2016.  While not identical, developer payout growth mirrors App Store revenue growth.

Slower growth but still healthy. We estimate App Store revenue is the largest segment of Services accounting for 37% of Services revenue,  growing at 30%. Tonight’s App Store update is in line with our estimate calling for 30% App Store growth in 2017.  While 2017 App Store growth slowed to 30% from 40% in 2016, it’s still advancing at a healthy rate given the law of large numbers (largest segment of Services) and the fact that this growth is supported by only about 2% iPhone unit growth during that period.

Services revenue by segment. Below is our estimate of Services revenue by segment. Our full Services model expects growth to decline at a slow rate, going from 23% in 2017 to 15% in 2022.

ARKit, the next developer gold rush.  When Apple launched the iPhone SDK in March 2008, they correctly anticipated a gold rush for iOS developers selling apps on the new App Store, earning developers over $86 billion since launch. In the years to come, another iOS developer gold rush will begin around AR and ARKit. This is based on our belief that AR will fundamentally change how we interact with information throughout our days. AR (starting with ARKit), will enable the future of computing – a more immersive paradigm for computing in which the digital information we need is available within our real-world field of view.

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 X Availability; U.S. In-Store 96%, Online 3 Days

Conclusion. In the final week of December, average iPhone X supply dramatically increased for the fourth consecutive week to 96% for U.S. Apple in-store and online lead times in 8 countries remained essentially unchanged at 3 days as of Jan 1st. We still believe iPhone X will reach global supply-demand equilibrium in mid-January. This means the Mar-18 outlook will have a small bump up from December iPhone X demand getting pushed into the Mar-18 quarter. The bigger story is that the Street is underestimating the positive ASP impact from the iPhone X over the next few quarters, which should play out as a positive to the Apple story. Our FY18 overall iPhone ASP is $740 vs. the Street at $705.

Online lead times now globally at 3 days as of New Year’s day. We noted essentially no change in global iPhone X lead times (8 countries), exiting the week (Jan 1st) at 3 days, compared to 6 days at the beginning of the week. For the week of Dec 26th-Jan 1st, we measured an average of 5 days compared to an average of 4 days the week of Dec 18th-Dec 25th.

Apple Store availability at 96%, up from 75% the previous week and 44% the second week of December. We continued our daily monitoring of iPhone X availability, capturing 2224 daily in-store data points for 139 of the 271 U.S. We’re approaching 100% U.S. Apple in-store availability, compared to 25% a month ago. Specifically, availability at U.S. Apple Stores increased to an average of 96% for the week of Dec 26-Jan 1st, up from 75% for Dec 18th-Dec 25th, compared to 44% the week of Dec 11th-Dec 17th and 25% the week of Dec 4th-10th.

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  • 

8 Tech Predictions for 2018

Loup Ventures’ predictions of 2018:

  1. AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative.
  2. VR gets untethered but it still takes another year to take off.
  3. Google Home continues to gain market share in smart speaker market.
  4. Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.
  5. Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021.
  6. Bitcoin pulls back.
  7. iPhone ASP’s $740 vs. Street at $710.
  8. Amazon will acquire Target.

AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative. We believe the hype around AI is justified given it’s hard to understate the significance that AI will have on the future. In 2018 we expect the AI momentum to continue. In July of 2017, we counted 11% of Fortune 500 companies mentioned AI on their quarterly conference calls. We expect that number to grow in 2018. As for leaders, it’s clear that Google CEO Sundar Pichai is trying to get his point across: AI is the future of Google. We went back and looked at his opening comments over the last year and found he has led his prepared remarks by asserting Google’s evolution from a mobile to an AI-first company on each of the past four earnings calls. The company is pushing its AI into hardware devices (Google AI hardware note) and seeing its work pay off (Google Home’s the smartest smart speaker). Artificial narrow intelligence (ANI) is being mastered and we expect more news about the next frontier in AI, artificial general intelligence (AGI, the ability of a machine to think like a human), to be top of mind in 2018. We expect Google to play a thought leadership role in AGI with its Deepmind platform, but keep in mind true AGI is likely another 20 years away.

VR gets untethered but it still takes another year to take off.  The Wall Street Journal said it best in their Dec 30 article titled “Virtual Reality Needs to Cut the Cord”.  Oculus Go ($199 untethered) which comes out early in 2018 will be a step forward in ease of VR use, but it won’t be until 2019 until more powerful untethered hardware lay the groundwork for content developers and consumers to fully embrace VR. For those disappointed VR won’t be mainstream in 2018, you can at least look forward to Ready Player One’s release on March 30th. Here’s our Facebook in VR outlook.

Google Home continues to gain market share in smart speaker market.  In 2017 the smart speaker market was led by Amazon with the release of 3 new Echo devices (Echo, Echo Plus, Echo Spot), Alexa for Business, sub $50 pricing, and the Alexa app being the #1 downloaded app on Christmas Day vs. Google Home at #6 across Android and iPhone. That said the market is still up for grabs, as evidenced by Amazon and Google collectively spending more than $70m on TV ads from Thanksgiving through Christmas to push the theme. Despite Alexa owning 75% (Loup Ventures) of the global smart speaker market today, we expect in 2018 Google Home will be a share gainer in smart speakers given its performance lead. Here are the details of our recent face off between the smart speaker players.

Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.  Near-term, we expect another miss in Model 3 production, but in 2018 we predict production will turn the corner. We continue to stress that Model 3 production over the next several quarters will be largely a guessing game and that short-term production numbers do not materially affect the long-term story. The last update on Model 3 production calls for “a production rate of 5,000 Model 3 vehicles per week by late Q1 2018,” which we believe is ambitious. That said, we’re encouraged by hundreds of Model 3s have been spotted at delivery centers and at the Fremont factory shown in a video here, along with several suppliers reporting that they are back to delivering Model 3 parts at volume.

The reason we remain upbeat on the Tesla story despite the prolonged Model 3 production problems is that EV and autonomy are the future. Tesla is fighting to gain production scale to create that future. While other car manufacturers build gas-powered vehicles at scale, building autonomous EVs is a vastly different process that will require traditional auto manufacturers to re-engineer their production facilities. That means every automaker that wants to compete in the future needs to go through the production pain Tesla’s experiencing today. Here’s our recent note on Model 3 production outlook.

Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021. 2018 will likely be the year of announcements around expanded EV lineups from traditional automakers. The Detroit Auto Show (Jan 13-28th) is an obvious window for these announcements and we expect a steady drip of EV model announcements throughout the year. We don’t believe these new vehicles will be available until 2019 or 2020. The autonomy theme will be equally top of mind in 2018, lead by likely updates from Apple around their autonomous shuttle project. We continue to expect 2021 as the year autonomy begins to ramp, and our bet is Waymo, GM’s Cruise, and Tesla will be first to market.  Here’s our autonomous vehicle industry model.

Bitcoin pulls back. We feel cryptocurrencies are in a bubble, but something can be in a bubble and still over time become a foundational technology, just like the internet. Those who jumped on history’s greatest “get rich quick” event enjoyed 1409% increase in value in 2017 as the world watched a coin formerly synonymous with the “Silk Road” break into Wall Street. We believe that blockchain technology and cryptocurrencies are here to stay and represent the future of storing value, however, we anticipate that increased oversight (banking and government), speculation amongst institutional investors along with operational difficulties on trading platforms will trigger a crypto sell-off in 2018.  Here’s our recent Bitcoin outlook note.

iPhone ASP’s $740 vs. Street at $710. We remain optimistic that iPhone units in FY18 will be inline with the Street (~242m up 12% y/y), but the mix of iPhone X will exceed Street expectations and have a higher ASP of $740, up 13% y/y compared to the Street ASP of $710. Our ASP estimate is based on a 30% mix of iPhone X and iPhone 18% mix of iPhone 8 (iPhone 8+ and iPhone 8). In a typical iPhone cycle, the newest phone represents about half of the mix, in line with our FY18 outlook of a 48%new phone mix. Here’s our recent note on why we remain comfortable with our iPhone estimates.

Amazon will acquire Target. We saved our boldest 2018 prediction for last, Amazon acquiring Target. Getting the timing on this is difficult, but seeing the value of the combination is easy. Amazon believe’s the future of retail is a mix of mostly online and some offline. Target is the ideal offline partner for Amazon for two reasons, shared demographic and manageable but comprehensive store count. As for the demographic, Target’s focus on moms is central to Amazon’s approach to win wallet share. Amazon has, over the years, aggressively pursued moms through promotions around Prime along with loading Prime Video with kid-friendly content. As for retail stores, Amazon’s acquisition of Whole Foods 470 stores along with testing of the Amazon Go retail concept is evidence that Amazon sees the future of retail as a combination of mostly online and some offline. Despite gaining Whole Foods, Amazon’s ~470 store presence still dwarf’s Walmart at 11,695 (global).  If Amazon acquires Target’s that would jump its store count to about 2,300.  As for anti-trust, the Trump administration won’t do any favors for Jeff Bezos, but the market share numbers suggest the deal will be approved. Walmart will reach about $315B in U.S. sales in 2017 (total 2017 Walmart is expected to be $500B, up 2.6% y/y), and Amazon North American ($105B in 2017 up 31% y/y) and Target ($71B, up 2.4% YoY) would equal about $176B in U.S. revenue. Looking at the top 18 U.S. retailers (including grocery), Walmart has about 23% share and an Amazon/Target combination would have about 13% share. Lastly, Amazon can afford Target. If you assume they pay a 15% premium to the current TGT trading level would imply a take-out valuation of $41 billion, about 8% of the value of Amazon’s current $564 billion market cap.

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.