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Snap Is A Camera Company Because Text Is Dead

Snap Is A Camera Company Because Text Is Dead

Human communications have done a complete reversal since the emergence of the smartphone. To prove it, let’s briefly review the history of how we communicate. We started communicating with hieroglyphics — pictures on cave walls. That allowed us to share experiences and knowledge with those that came after us, letting humanity evolve at a faster rate. But drawings could only convey so many meanings and needed interpretation, so we developed a written language with standardized symbols for the phonetic sounds of our spoken words — text. Text let us pass down even more knowledge, nuanced knowledge, increasing our rate of evolution; however, writing things down was time consuming and limited in scale, so we developed the printing press. That let us share knowledge as fast as we could print books, increasing our rate of evolution even more. The printing press took us roughly to the Internet age when books and newspapers were no longer physical, but digital. And, yes, that increased our rate of evolution again, despite the quality of some of the content that came from digital media.

Then the smartphone came along. More than 2 billion people have a screen with access to all of the digital knowledge brought about by the Internet. Smartphones also give us a camera in our pockets all the time. Not just a camera, but a video camera. Because of the smartphone, text is no longer the path for humanity to accelerate its rate of evolution through communication. It’s hieroglyphics again. We go out of our way to use hieroglyphics to replace text in “text messages” through emojis. Pictures and videos convey more than words. And they’re more fun. It’s why Snap simply calls itself “a camera company.” Snapchat is built specifically for communicating with a camera, not with text, because they see the same future as us. It’s why they built Spectacles, a camera on your face without all the bells and whistles of full-blown augmented reality.  Instagram’s mission is similar: a fun and quirky way to share your life with friends through a series of pictures. Not as broad as Snap’s, but maybe that’s why we haven’t seen Instagram move into wearables. In any case, Snapchat and Instagram are the new cave walls enabling rich, moving hieroglyphics.

The growth of Snapchat and Instagram indicate that the transition away from text is happening quickly.  Leaked investor pitch data shows that Snapchat grew from 50 million daily active users (DAUs) to 150 million in about nine quarters (March-14 to June-16). We believe Instagram did the same thing in about six quarters and Facebook did it in about four quarters. Although neither picture-based platform is growing as fast as Facebook did in its heyday, we saw that teens already value Snapchat and Instagram over the older, text-based platforms of Twitter and Facebook.  With Snapchat at over 150 million DAUs and Instagram at over 300 million, they still have plenty of runway to catch up to Facebook’s 1.1 billion DAUs.

As we move toward our vision of The Future Perfect, text will become even more marginalized because the computer interfaces of the future will cater for text even less than the small smartphone screen. If you’re using VR to immerse yourself in a new world, why would you take yourself out of that immersion to read a bunch of text? If you’re using AR to enhance the real world, why not just have graphical symbols and audio instructions as needed instead of having to scroll through menus of text that block a portion of your real world view?

Communication tools let us share experiences with others as content creators and experience what’s happening in the lives of others as content consumers. It’s true of drawings on cave walls, a written letter, a phone call, and a story on Snapchat. The tools have evolved full circle to bring us back to hieroglyphics, but the purpose has always been the same. We think the hieroglyph trend will be safe for a while. The camera will be an extremely important part of both VR and AR, so building social products around it is the best strategy to be relevant in social moving forward. It’s the evolution of the camera that will create the next big opportunity in communication and the next acceleration in human evolution.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. 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.

Augmented Reality, Facebook, Snapchat
3 min. read Show less
Apple Dec. Quarter  Preview: Stable iPhone, Focus On iPhone X, Services

Apple Dec. Quarter Preview: Stable iPhone, Focus On iPhone X, Services

Apple reports Dec-16 quarterly results on January 31st. We continue to be positive on the Apple story, given our thoughts on iPhone X and the features we expect to advance Apple’s lead in AR-enabled devices. We expect Apple’s Dec-16 quarter/Mar-17 guide to largely be a positive event based on our belief that Mar-17 guidance is inline with the Street and will imply iPhone unit growth of about 7% y/y, up from expected growth of 4% y/y in Dec-16.  This would suggest the tail on the iPhone 7 is stronger than last year’s iPhone 6S.  More importantly, Mar-17 guidance should give investors confidence that they can think forward to iPhone X in the fall, an OLED, AR-enabled phone, which should return iPhone to a more predictable 5-8% unit growth. See below for what to expect from iPhone X.

iPhone Dec-16 Units.  For the Dec-16 quarter, we are expecting 78m iPhones, a 4% y/y increase.  Based on our checks throughout the Dec-16 quarter, we believe iPhone reached supply demand equilibrium in the US the second week of December, much later than the iPhone 6S, which was at supply demand equilibrium late in October 2015. Outside the US, supply was near equilibrium.  On Apple’s Sep-16 earnings call, Tim Cook suggested Dec-16 guidance assumes iPhone may not reach supply demand equilibrium in Dec-16, stating “I wouldn’t say [iPhone will be at equilibrium] at this point, because the underlying demand looks extremely strong on both products but particularly on the iPhone 7 Plus versus our forecast going into the product launch.”  Since Dec-16 guidance did not factor iPhone at equilibrium, demand was “extremely strong”, and the iPhone did in fact reach equilibrium in the US and near equilibrium internationally, we now expect a stronger iPhone number than we had previously expected (77m in Dec-16).

iPhone Mar-17 Guidance, Comps Are Our Ally.  We expect guidance for the Mar-17 quarter to imply iPhone units of 56-57m units, which would be up 9-11% y/y, compared to Street expectations of up around 7%.  Apple does not guide for the iPhone, but we back into the iPhone guidance from the revenue guide and commentary around ASPs on the call. The rebound in the iPhone is partly attributed to features of the iPhone 7 Plus (e.g., portrait effect) and partly due to the easy comps.  In Dec-15, iPhone unit growth was flat y/y, down 16% y/y in Mar-16, and down 15% y/y in Jun-16.  These easy comps should allow the iPhone to grow in the 5-12% range going into the iPhone X launch, likely in Sept. 2017.

Services Momentum Continues.  For Dec-16, we expect Services (~13% of revenue) to grow at 23-25% y/y, compared to 24%  y/y in the Sep-16 quarter. On January 5th,  Apple announced that App Store developers earned over $20B in 2016, up 40% y/y.  Assuming a 30% revenue share implies App Store gross sales of $78M per day in 2016. Separately, Apple released New Years day App Store sales of $240M, above our $100M expectation. We estimate that the App Store accounts for more than 65% of Apple’s Services revenue. Given the significance of the App Store to Apple’s Services business coupled with this announcement, we believe Services revenue growth in 2017 may be closer to 20% y/y.

The 2016 App Store numbers and the New Year’s Day App Store sales underscore how quickly Apple is becoming a Services business. We previously shared our thoughts on Apple reinventing itself as a Services business here. In short: the transition to Services is important as new platforms like AR and VR emerge and transform Apple’s existing mobile device businesses.

Gross Margin. We expect Dec-16 gross margin of 39%, compared to guidance of 38-38.5%.  There are two positives and one negative factor impacting margins. The two on the positive side are higher than expected demand for the iPhone 7 Plus with higher storage configurations and Services strength, which carries over 60% gross margins.  Second, also increases our confidence on margin upside.  These two positives are partially offset by iPhone hardware margin (dual cameras) which has been drifting lower.

Expectations For iPhone X. We expect iPhone X to feature:

  • An OLED screen
  • Wireless charging (a step they’ve already taken with Apple Watch)
  • Dual lens camera systems on both the smaller- and larger-screen models
  • A (possibly dedicated) processor capable of 3D modeling and real-time 3D image processing
  • More sophisticated proximity sensors
  • The iPhone X may be the iPhone model we’ve discussed that removes the home button, using haptic feed back for button presses on the display itself for home button functions. This would enable an edge-to-edge display for an iPhone without a bezel.

With iPhone X, we see Apple doubling down on AR and extending it’s lead among AR-capable devices. iPhone is already significantly ahead of Google’s Tango platform in terms of units shipped, and we expect it to remain out front for the foreseeable future, setting up Apple for long term success in an AR world.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. 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.

Apple, Augmented Reality, Google
4 min. read Show less
Our Expectations For iPhone X

Our Expectations For iPhone X

Yesterday, we talked about the steps forward that Apple took with the iPhone 7 and iPhone 7 Plus. In short: we see Apple building a competitive advantage in augmented reality (AR). The dual lens camera is a precursor to greater augmented reality features that we expect in the next iPhone.

A word on the name: We expect the next iPhone to have a new design. Apple will likely break from it’s historical naming convention and call this iPhone something other than iPhone 7S or iPhone 8 because it will be the 10th anniversary iPhone. Like they did with the 10th version of the Mac OS, it seems logical that they’ll call the next iPhone: iPhone X. Regardless, it’s a suitable code name for those of us outside 1 Infinite Loop.

We expect iPhone X to feature:

  • An OLED screen
  • Wireless charging (a step they’ve already taken with Apple Watch)
  • Dual lens camera systems on both the smaller- and larger-screen models
  • A (possibly dedicated) processor capable of 3D modeling and real-time 3D image processing
  • More sophisticated proximity sensors
  • The iPhone X may be the iPhone model we’ve discussed that removes the home button, using haptic feed back for button presses on the display itself for home button functions. This would enable an edge-to-edge display for an iPhone without a bezel.

With iPhone X, we see Apple doubling down on AR and extending it’s lead among AR-capable devices. iPhone is already significantly ahead of Google’s Tango platform in terms of units shipped, and we expect it to remain out front for the foreseeable future.

The hardware features listed above would enable lots of new AR software use cases. And we expect the keynote to focus on demonstrating these new AR capabilities. Pokemon Go is just the beginning. Games are the obvious choice to highlight new AR features, but we envision killer AR apps in search and discovery, social, education, and many other use cases.

Note that AR goggles are not the type of product we envision Apple shipping in the next couple of years, despite recent rumors. While high speed wireless data transfer is emerging, compelling wearable optics are still tethered today and we don’t think Apple would launch that type of experience for customers.  Rather, we think the iPhone platform is a much stronger play for the company in its bet on AR in the near term.

Next up, services. We think it makes sense for Apple to reinvent itself as a world class digital services company (more here). And again, iPhone is their competitive advantage. But people will experience AR through a combination of mobile hardware and digital services. Tim Cook has acknowledged the company’s strong interest in AR, and we believe they are focusing more on services in preparation for an AR world where this combination is the future of mobile software. 

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. 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.

Apple, Augmented Reality, Google
2 min. read Show less