Interesting Churchill Club discussion on location based services. The key take out that I took from it was the slow pace of inside wireless based location services. I know vendors that have been at it for over a decade and companies like EADS and Ruckus Wireless. Yet, it still seems to be an area of relatively slow adoption (at least at the moment). Ultrasound or BlueTooth LE beacons seem to have only esoteric adoption.
I initially looked at app constellations back in 2014, when Fred Wilson put a name to the the phenomena. And every two years or so I have gone back and looked at a number of major internet companies to see how many different types of apps that they had in play.
I originally selected the companies back in 2014 because I felt that they represented the largest and best of their ilk. It skews Asian because the west can be viewed as one eco-system represented by Google, Facebook and Microsoft.
China is an enclosed eco-system; though Microsoft is actively engaged in the app eco-system there. I chose Tencent and NetEase as being my Chinese bellwethers. DaumKakao and Naver were representative of the Korean eco-system which blends highly-used domestic services with western platforms. Finally LINE of Japan (a subsidiary of Korean company Naver) provided a similar bellwether of the hybrid Japanese eco-system which mirrors Korea.
App constellations survey methodology
For the sake of convenience I have compared the contents of Apple’s mobile app store for each of the companies. While most of the internet companies have some Android-only or iOS-only apps; the iOS app store is still a good indicator of their app activity.
I stayed true to the definition of app constellations in terms of deciding what kind of app should go in.
I manually assessed each app, rather than relying on the category that the app had been submitted into. Tencent and Netease, had a number of mobile utilities that aided discussion and kept players updated on their favourite game. These didn’t fit within the definition.
Changes in the environment
Since 2016, a couple of things have changed:
- Apple had a purge of apps that didn’t support 64 bit processing
- They moved away from supporting the app store within iTunes application and on the web; to within the app store on the device
2018 marks over a decade of mobile apps in the Apple store. Many of the major players have delisted almost as many Android and iOS apps as they currently have in the store. This happens for a number of reasons:
- The app was serving a purpose for a fixed time
- It is an application that has fallen so far out of favour that it is no longer worth maintaining
- The code base no longer meets Apple’s or Google’s minimum standards
I started off by looking at the number of apps. In terms of app constellations: Tencent, Microsoft and Google were clear winners.
Both Microsoft and Google’s growth has been driven by ‘experimental’ apps that they have put out in the public for their own reasons and enterprise focused apps.
But it was quickly apparent to me that the number of apps developed were only part of the story. What about the rate of change in numbers of apps developed? This would be indicative of the rate of change in moving to mobile. Here both Facebook and Microsoft’s pivot became immediately apparent. The Asian companies looked less impressive as they had been able to keep steady in their focus on mobile.
All of this growth in the number of apps developed by major internet companies is all the more remarkable when you consider the following:
- In mature markets consumers are not really downloading new apps
- They are sticking with a few in terms of regular usage. Many of the apps on their phones don’t get used
Notes on a few of the companies in terms of their app constellations
- Daum Kakao – notable for being the only company who I looked at who had a decline in the number of applications versus 2016. A lot of this seems to be in service consolidation of both Daum and Kakao to remove duplications or non-core services. It is the Daum brand that has taken the biggest impact. This is understandable, since Daum struggled on the move to smartphones and Kakao is a mobile-first brand.
- Dropbox – the growth in apps has been down to the larger business acquisition strategy at Dropbox. I don’t expect further growth like what we have seen with Facebook’s pivot to mobile
- Facebook – Facebook’s pivot to mobile was one of the reason why I decided to look at compound annual growth rate as well as the size of app constellation in terms of app numbers. In terms of raw app ‘SKUs’ Facebook is dwarfed by most of the other companies that I have looked at. It is only by looking at the growth in apps developed where one can really see their move to mobile
- Netease – was interesting for its focus in a couple of areas. Like other Asian internet companies, education was a big target area, but Netease went into it with major commitment. Both NetEase and Tencent were big in magazine and book apps as well. I think this is down to the fact that ‘traditional’ web surfing is harder to do with (at the moment) when URLs are written in western script and numbers.
- Tencent – the raw app numbers beggars belief. There are a number of reasons for this. Like NetEase, Tencent has a lot of apps solely optimised for the iPad and a separate iPhone app. There are free and paid-for product variants. Lastly Tencent will have four or five apps competing in a given category like streaming music which seems insane. Only time will tell if Tencent is spreading itself too thin; like when Yahoo! was described Brad Garlinghouse’s Peanut Butter Manifesto
Jargon watch: app constellation – back in 2014 when I wrote this post, it still took me the best part of a week to research and describe each of the apps in the main eco-systems. It would take me much longer today due to the growth in apps
Peanut Buttergate – analysis of Garlinghouse’s original memo about Yahoo! from back in 2006
Ok this isn’t the most technical video in terms of its review of the Chinese smartphone eco-system and it doesn’t touch on the WeChat eco-system, but its a good introductory video for westerners by Winston Sterzel, a YouTuber living in Shenzhen. It focuses on only the top domestic Chinese smartphone brands.
If I was looking to explain Chinese smartphone dynamics to a western client, this video is as good an introduction as any to the hardware side of the business.
Here are the key points I’d highlight and additional comments that I would add to the film.
Mobility in the working population drove Chinese smartphone adoption
The transitory nature of the Chinese workforce following China’s opening up has mean’t that many people are migrants and many only return home once a year (for lunar new year) if they are lucky. Staying in touch is critical to keep families together. Secondly being migrants, having a ‘computer’ that you can carry makes more sense than a traditional PC. Finally, the price point of smartphones puts the internet in the hands of pretty much anyone who wants one. These three factors explain why smartphones took off so dramatically in China. This started in the urban areas, but then migrants brought them home to relatives and gave them away as Chinese new year gifts.
China Mobile had a government mandate to build out connectivity into even the most rural areas in China. Data packages and the applications that run on it like WeChat made telecommunications even cheaper and easier.
The smartphone is where the majority of Chinese online shopping takes place, how families keep in touch and are starting to be a tool for the delivery of government services.
The price-value balance of smartphones
The development of the iPhone had an unintended on the Chinese smartphone contract manufacturers. If we go back to the early Samsung Galaxy models from the S to the S4; the industrial design of these phones owed a lot to Nokia. They had replaceable storage with micro SD cards and a replaceable battery with a battery hatch in plastic. If you dropped the phone the hatch may pop off. This was by design as it got rid of the some of the energy from the fall and the frame had a degree of flex to protect the innards. This is one of the reasons why Nokia 3310 feature phones ran and ran. The face and back might pop off your phone if you dropped it; but they could easily be snapped back on.
Manufacturing phones of that nature also helps with scaling up manufacturing based on mouldings.
Apple didn’t bother with external batteries, which at the time sparked a huge controversy. Their battery life was awful and most working stiffs kept their phone charging from their office PC during the day. By comparison I had a desktop charger with previous Ericsson and Nokia phones, along with a few spare batteries and felt comfortable going on holiday for a few days with a spare charged battery in a zip loc bag and no phone charger. Up until the 6 plus, Apple’s battery has been a real pain.
So Apple differentiated by done what seemed like an insane idea of using a CNC (computer numeric controlled) machine to make the phone chassis. This is like a robot version of the machine tools that you would have used in shop class individually making each phone chassis.
Apple tried this out with the stainless steel ‘belly band’ of the 4 series phone and then perfected it with the 5 series. I suspect the reason why they moved from stainless steel to aluminium alloy for manufacturing was to balance durability with optimising manufacturing time.
Over time these machines move from the Apple production lines onto another product. Soon you can’t be the smartphone chassis manufacturing business unless you have this capability. Apple’s machines may have been sold on, but there was probably an increase in the CNC machine makers manufacturing capacity as well.
So all of the smartphones shown, whether it cost £80 or £800; none of them felt cheap or had a ‘China penalty’ in terms of case design. This has affected the market in the Chinese smartphone eco-system. They are more durable, but there is less incentive to go premium when a cheap or medium priced phone looks and feels this good.
The durability of modern Chinese smartphones might be one fo the reasons why sales in smartphones have declined year-on-year. I’d argue a second reason is WeChat; so long as you can use WeChat your smartphone is fine. WeChat has had a similar effect on Chinese smartphones to what the web had on western PC sales over the past two decades – computers had become about as useful as they were going to be and performance became less of an issue.
Chinese smartphone market consolidation
Winston kind of alluded to it in his video but Oppo, Vivo and OnePlus are all related to BBK Electronics; a longtime Chinese phone and consumer electronics manufacturer. When I first went to visit China I bought a BBK ‘keitai’ style clamshell feature phone. At that time BBK competed with international players like Nokia or Samsung and domestic brands like Ningbo Bird. (Ningbo Bird was the largest manufacturer in China from 2003 – 2005).
Now they make everything from cheap TVs and speakers under the Memorex brand, to smartphones and high end Blu-Ray players as Oppo.
In the smartphone sector, they operate under three main brands. OnePlus is aimed at international users and kind of similar to Xiaomi in terms of the balance that it strikes between technology, features and price. Oppo is more of a Samsung or Huawei analogue. Vivo was launched to have a lower price youthful brand.
Between BBK, Xiaomi and Huawei you now have most of the Chinese smartphone eco-system, by value and sales volume. Just a few years ago there would have been far more players that would have merited a review including the following the companies and their sub-brands:
These are still big businesses, and I am not denigrating these brands. The analyst reports show that the Chinese smartphone eco-system is undergoing rapid consolidation; in the same way as Sony and HTC have been dwarfed by Samsung and Huawei.
The great big Spotify scam: Did a Bulgarian playlister swindle their way to a fortune on streaming service? – Music Business Worldwide – this also shows how topsy turvy the economics of Spotify are
China is quickly becoming the dominant force in startups | Quartz – makes you wonder about Silicon Valley
Opinion | The Tyranny of Convenience – The New York Times – Americans say they prize competition, a proliferation of choices, the little guy. Yet our taste for convenience begets more convenience, through a combination of the economics of scale and the power of habit. The easier it is to use Amazon, the more powerful Amazon becomes — and thus the easier it becomes to use Amazon. Convenience and monopoly seem to be natural bedfellows. – great article by Tim Wu
WPP Vows to Do Better After Weak Results, Nervous Outlook Send Shares Plunging – The New York Times – WPP plans to accelerate a programme to simplify the business by aligning digital systems, platforms and capabilities to provide bespoke teams for its clients as opposed to the different agencies that currently compete with each other to win contracts.
Smart homes and vegetable peelers — Benedict Evans – interesting starting point, but I think that there should be a second layer. Can the intelligence be local (like lighting sensors based on movement and presence in office buildings) or does it need cloud computing? Why can’t smart lightbulbs be at the edge rather than in the cloud. Why does a Nest thermostat need to be in the cloud?
WSJ City | Five signals sent by China’s Anbang takeover – Reining in big spenders (spending capital abroad in an untargeted manner), reduction of systemic financial risk, concern over complex short-term high-yielding wealth products
Wealthy Chinese Women Are Unique in APAC: Agility Research | Jing Daily – interesting dissonance between Hong Kong and Chinese high net worth consumers
Levi’s Invented A Laser-Wielding Robot That Makes Ethical Jeans | Fast Company – the laser and chemical free treatment remind me a lot of the work that Frontline Clothing in Hong Kong have been doing for years in association with their Chinese supply chain partners
Struggling Esprit to close more than 40 shops in Europe | South China Morning Post – it plans to close more than 40 “heavy loss-making” shops in “core” European countries, or make around a 10 to 15 per cent reduction in its controlled space in these countries
Amazon Has Officially Invaded The Advertising Industry | Forrester Research – the bit this misses is that consumers already use Amazon’s search page as a first port of call for things
Huawei distances itself from executive’s comments that rivals using politics to keep it out of US | South China Morning Post – Huawei did not authorise Yu to make comments about the US on behalf of the company, and does not agree with his views, Chen said. Yu did not immediately respond to a text message seeking comment – Richard Yu is known for going off-piste with media
LittleThings online publisher shuts down, blames Facebook’s algorithm – Business Insider – not terribly surprising, one only had to look at the games companies that built their businesses on Facebook and got eviscerated
Burson Cohn & Wolfe – SixtySecondView – like any other business merger the focus will keep the eye off the ball at a time when the PR industry is seeing exceptionally low growth rates. I have friends and former colleagues on both sides of this in both Asia and Europe; so I hope it works out well.
Samsung says it’s going to stop pumping out features and start making devices good instead – BGR – “We developed mobile phones earlier than China, and we were obsessed with being the world’s first and industry’s first rather than thinking about how this innovation would be meaningful to consumers,” Koh said. “Being the first turns out to be meaningless today, and our strategy is to launch something that consumers believe meaningful and valuable at a right time.” – this reads like a slap in the face to Huawei’s approach on innovation and features
Tea Turns Up Temperature in Fight Against Coffee – WSJ – what tea misses is ritual
Daring Fireball: Berkshire Hathaway’s 2017 Annual Report (PDF) – they know how to play to small town audiences well
Things that made my day this week:
A cheap facsimile of the classic Nokia 8110 managed to upstage the launch of of a range of premium Android phones at MWC. Nostalgia is powerful, but I don’t think what’s going on here. I could see this as a weekend phone allowing consumers to wind down at the weekend and go cold turkey on the app economy.
I think that the model of a single form factor based on common reference designs is broken. Apple managed to elevate the build quality of all smartphones as contract manufacturers moved towards an armada of CNC machines and advanced manufacturing. But in the process, the common designs, common components and new baseline in product integrity has homogenised and commoditised Android handsets to such a decree that only scale and advertising budgets are differentiators.
Amazing selection of music from the sound tracks of classic kung fu movies over at Shaolin Chamber 36.
Roni Size talks about the music that influenced him
Frank Herbert talks about creating the science fiction epic Dune
digitalethnography | Field Note Painting Booklet – done by Xinyuan Wang, a UCL social anthroplogist in a lower tier Chinese city. Ms Wang wrote a really good monograph on social media in industrial China.