A recent article in the Guardian suggests recently announced labor cuts at factories producing the PlayBook tablet for RIM coupled with building inventory levels and falling sales may signal building inventory of the RIM tablet.
Update: A report on 9/26 that PlayBook prices are being marked down in certain retail channels to reduce inventory.
Most technology companies are cognizant of how network effects influence adoption, but fail to adequately stimulate these network effects. However, a few recent service launches by Apple recognize the influence network effects can have on the uptake of Apple devices. AirPlay and AirPrint both illustrate Apple’s understanding that the greater the sphere of influence iOS devices can have, the stronger the network effects and therefore the greater the consumer adoption. For example, Canon recently announced they would add AirPrint support to their PIXMA printers. This simple adjustment allows these printers to become more relevant to the iOS ecosystem, but also strengthens the relative position of iOS devices within the broader device ecosystem. Being able to sent content – either audio in the case of AirPlay or print in the case of AirPrint – to adjacent devices like speakers and printers directly from iOS devices strengthens the network effects surrounding iOS devices and will only strengthen the consumer appetite for these devices.
Kevin Kelly has a great note on the futurist’s dilemma:
Any believable prediction will be wrong. Any correct prediction will be unbelievable. Either way, a futurist can’t win. He is either dismissed or wrong. Except if he hits that razor’s edge between the two realms, right on the cusp between plausibility and fantasy, where it is almost true in the improbable future. This is the sweet spot that science fiction authors aim for. Occasionally one hits it.
BCG recently published a short paper outlining why manufacturing will return to the US. Here a few additional thoughts and some they’ve missed:
1) As the paper points out, labor cost differentials will decline subsequently eroding a key benefit to manufacturing outside of the US. Moreover, because labor costs are declining as a share of total manufacturing costs, labor differentials will become increasingly less impactful. This reduces the reason to move manufacturing from the US, but doesn’t necessarily provide a reason to move manufacturing to the US.
2) By outsourcing the actual manufacturing aspect, companies are able to outsource one of the most volatile aspects of being a manufacturer. This won’t go away. Companies will focus on their comparative advantage (design, marketing, R&D) and outsource the actual production/manufacturing. Companies are also increasingly focusing on a global addressable market. Because companies will choose manufacturing partners based on this global marketplace they won’t always choose partners who manufacturer in the US which in turn could slow the amount of manufacturing that actually moves (back) to the US.
3) Manufacturing is no longer a single activity. It is broken into a myriad of steps completed by a diverse group of economic actors. Where to manufacturer – in other words where each one of these steps takes place – is therefore dependent or at least influenced by where the other steps are taking place. Therefore supply chain dynamics will to a certain degree influence where “manufacturing” takes place. Some aspects of manufacturing are capital intensive. For example, televisions and computer monitors require glass which is today a capital intensive part of the manufacturing process for these devices. There is a tremendous amount of capital deployed to making glass in Korea and other parts of Asia. This element of manufacturing televisions and monitors won’t move anytime soon (and might never move) and it will influence where other aspects of TV and monitor manufacturing take place. This isn’t meant to suggest manufacturing for these products won’t take place in the US, but simply that supply chains are dynamic and will naturally look for ways to reduce cost.
4) The paper suggests US labor productivity will continue to outpace China labor productivity and automation (ie capital deployment) in China won’t be enough to preserve the labor cost advantage of China. The key point they are missing is that as capital is deployed labor becomes a smaller component of the overall manufacturing costs. The cost of capital should be roughly consistent worldwide so it won’t matter where manufacturing is done when the bulk of the cost of manufacturing is capital.
5) As the paper points out, rising income levels (and a growing middle class) will increase the appetite for goods in China. This will consequently increase the demand for production capacity in China, but the level of capacity in China isn’t fixed so this alone shouldn’t suggest manufacturing moves back to the US.
6) I think the paper has missed the biggest reason why manufacturing will move back to the US. All of the points offered are supportive reasons, but don’t provide the catalyst for the drift back to the US. The paper indirectly hits on supply chain costs, but one of the key costs is time to market. Today a product must either be transported by air freight (expensive) or by boat. If shipped by sea, the average time-to-market is 4 weeks. By moving manufacturing to the US companies can reduce that 4 weeks to several days. While there are costs savings involved in a move like this, the biggest benefit of this change is the impact on financial ratios like inventory turns, etc. By producing within market, manufacturers are able improve their financial performance and free up capital trapped in inventory, etc.
[ted id=848]
A little over a week ago, HP decided to exit the WebOS tablet market and began to liquidate the HP Touchpad at the firesale price of $99. It should come as no surprise, these disappeared quickly. As I recently wrote, increasingly the future of tablets (and like devices) will be Web apps so good browser-enabled devices
will find traction within these markets if they are competitively priced. In the last 6 months I’ve constantly been asked what it will take to find traction in the tablet marketplace. I’ve suggested a $300-$350 price point would significantly stoke sales. A quick analysis of the secondary market pricing (ie eBay) of HP Touchpad’s suggest the $300-$350 price point is close.
I pulled data for 6,180 ended eBay auction listings for “16GB” “HP TouchPad” tablets. I narrowed my results by only including those listed as new. The closing prices ranged from a total price (closing price + shipping cost) of $110 to $1400. I excluded a few outliers that closed with a price below $110 or above $1,400. The data come from auctions ending on or between August 14th and August 27th.
I further narrowed the 6,180 observations by excluding all listings that didn’t end in a sale. I was left with 4,623 ended listings for a total value of 1,135,956.14. Here are a few summary statics and graphs of the underlying data.
Bids
Of the 4,632 listings nearly a quarter (23.8 percent) were ended with the Buy-It-Now option. An additional 12.4 percent ended with just one bid and 6.6 percent ended with a Best Offer price. A total of 69.6% of the listings ended with bids for a total of 60,469 bids. Remember I’ve excluded all listings that didn’t end in a purchase so we are only looking at purchased items. For the listings that ended with bids, the average listing received 18.8 bids and the median number of bids was 19.
Shipping
Shipping for the 4,623 listings ranged from $0.00 to $50.00. Of the 4,623 listings, 1,981 offered free shipping (42.85%). Including free shipping, the average shipping cost was $7.49 and the median shipping cost was $8.00. Including free shipping, 56.5 percent of the listings had a shipping cost below $10.
Price
The real story in the secondary market for HP TouchPad tablets is what happened to price and volume. Prior to the price cut, about 5 new 16GB HP TouchPad tablets sold each day on the secondary (eBay) market. Now, the secondary market is averaging about 600 tablets each day and this was nearly 1,000 completed listings on the Monday immediately following the price cut.
[table id=14 /]
Prior to the price cut, the secondary market price for HP Touchpads was about $350 – roughly 70 percent of the MSRP. With the official price cut, the secondary market price also fell quickly though it didn’t fall as low as the HP price of $99. The secondary market price dropped to and remained at about $250 – a decline of nearly 30 percent but still 150 percent above the liquidation price of $99.
[table id=15 /]
The $250 price point is a bit lower than the $300-$350 range I’ve been suggesting as the needed price point to significantly drive tablet unit volume. However, because some buying risks do exist for the secondary market, the price point for the primary market will naturally be higher than the price point in the secondary market. As I showed above, the secondary market had a 30 percent price discount to the primary market in advance of the price cut to $99. A simliar discount now would suggest a primary market price of $350.
Update: as TechCrunch reports, the cost on a Touchpad might be around $300 – close to the market clearing price. This uggests HP could sell the hardware near cost and cross subsidize with content sales.
Pudits like to point to apps (and importantly the availability of apps) as the deciding factor in the success (and failure) of tablets and other app-oriented devices. Most developers have the bandwidth to support at most two (and sometimes three) development platforms. The largest app developers – the Pandoras and Kindles of the world – will allocate resources for greater development. These business models are built on the ubiqitious availability of their offerings, but beyond say the top 20 percent most developers will only be able to support one or two platforms. With this, many suggest only the two largest platforms (iOS and Android) will survive thrive because their users will have access to the lifeblood of mobile computing devices – apps. Other platforms will still see development of course. This development will be focused more on niche applications and then of course the 20 percent who are developing for most available platforms.
But HTML5 is coming (quickly). There is an increasing amount of HTML5 Web app development happening. This will drive the app ecosystem to the cloud and means that any browser-enabled device will be able to compete against devices with large native app ecosystems. This will significantly open-up the battle within device hardware. The recent firesale of HP’s TouchPad tablets highlights the market dynamics at play. Despite selling for $99, the secondary market price for TouchPads is close to $250. Despite the fact that large-scale developement will slow significantly for WebOS devices, these devices have strong video and audio feature sets and a small selection (the 20 percent) of native applications for some of the more popular tablet activities collectively covering most of the services consumers are interested in.
Last month – while in NYC for the CleanSlate executive forum – I stayed at the Westin New York. I arrived in NYC at 1AM and knowing in advance that I’d be arriving late called the Westin to check-in earlier that day. I’ve been “walked” enough times to know that when I’m going to be arriving late at the hotel I should call in advance.
Like airlines and other service industries driven by capacity utilization, hotels tend to overbook their properties knowing that some guests will never arrive. The practice of overbooking is lucrative for the hotel when it bets right but is expensive when it bets wrong and sells more rooms than it has in inventory. “Walking” is hotel industry parlance for the practice of sending guests to another hotel property when they’ve oversold their rooms. Airlines will buy passengers off an over-sold flight by offering them vouchers for future travel. Rather than a voucher for future travel, hotels typically pay for the single night stay they turned you away for. When staying multiple days, they will typically have you come back to the hotel to complete the remaining days of your reservation. Because it is expensive for a hotel to “walk” guests, some hotels do not engage in the industry practice of overbooking.
When I call earlier in the day of arrive to let the hotel know I will be arriving late most hotels will just check me in, but I have been “walked” even when calling in advance to check-in (also at a Westin BTW).
I arrived at the Westin at about 1:30AM and they didn’t have my room nor had they checked me in when I’d call earlier that day to ensure my room. It begs the question, why won’t hotels let you check yourself in like airlines do?
There is of course a time coordination problem. Airline capacity is measured by the number of seats on a given flight. Because that flight leaves at a specific time the capacity of that flight goes utilized or underutilized at a very specific time. This enables the airline to fill all available seats just short of this very specific time. Because hotel guests arrive throughout the check-in time window – which is typically 4PM to midnight – hotels are forced to bet on the last guest – the marginal guest – not showing in an overbooked situation.
But why not allow hotel guests the ability to see the properties entire inventory like airlines do? When I check into a flight I can pick the exact seat I want. Customers can also pay a surcharge and upgrade their seat to a “premium” seat if they so desire. This is lucrative for airlines and contributes to their profit margins. Why not allow hotel guests the ability to pick their room? It might offer hotels a way of upselling their customers to “better” rooms.
By allowing customers to check-in their room online within 24 hours – or even 12 hours – of arrive hotels could get a better sense of what utilization will look like. Guests could specify what time they will arrive as they check-in and hotels could still sell that particular room if the hotel guests fail to arrive within 3-4 hours of they pre-specified time.
I was a (relatively) early adopter to FourSquare. Today FourSquare has over 10M users and I was one of the first two percent (#197,372). I’ve also written about FourSquare here. FourSquare does several things well. The discounts and offerings associated with checking-in have always worked for me and with recent updates they’ve improved the experience. Recently announced partnerships with Groupon and others highlight the importance discounts and deals (and especially location-sensitive
discounts and deals) represent for the burgeoning service. FourSquare has escalated quickly past other location-aware check-in services like Gowalla and Loopt. While these services were once close competitors in terms of users, FourSquare has taken a substantial lead.
The game dynamics of FourSquare surely helped it initially grow and gain acceptance among users and I’m sure there are a myriad of users who still focus in on points, badges, and mayorships, but I’ve personally become more interested in using FourSquare to add context to tweets or other postings to social sites. I’m also interested in capturing check-ins over-time to create mash-ups in the futures.
One area FourSquare hasn’t been successful is expanding the number of connections a user has. Of course users can proactively seek additional connections, but services like LinkedIn have done a better job of pushing potential connections to users thereby expanding the network and increasing the value of the service. As a result I don’t necessarily have many connections in FourSquare nor do I have much motivation to seek out additional connections.
Technology tends to reward first movers. Preferences can change over time and that results in the popularity of some technology services waning, but if tech services are able to remain current it is difficult for up-starts to significantly disrupt incumbents. There are tremendous network effects in technology and as long companies remain relevant, they retain a strong foothold. Despite gaining some ground, MSFT still has a strong hold of productivity software like document editing, spreadsheets, and presentation software in the enterprise and consumer markets as well as strong market share in the Internet browser market. Despite some recent success (with the emphasis on some), Google and others have been unsuccessful in creating a viable competitor for Facebook. LivingSocial and Groupon are winning the emerging daily deals business despite multiple new entries. Google still holds the majority share of search. Certainly tech service leadership does change, but if a given tech service can stay relevant it will be difficult to best. The same is true in location-based check-in services. Facebook recently entered this space with Facebook Places and despite the tremendous popularity of Facebook and the vast user base, my early take was that Facebook would have difficulty finding success in the arena given the foothold of services like FourSquare. This supposition changed for me the other night.
This past week I was in Utah visiting some extended family and showing the kids some of my old college haunts. I took them to CaféRio – a favorite restaurant from college. I checked-in on FourSquare and Andrea checked-in on Facebook Places. After getting our food and finding a table, an old college roommate walked in. He was a few blocks away when his wife saw that we had checked-in so he dropped by to say hello. Here-in is the beauty of a location-based check-in service. Sure the discounts will be an important aspect of the service, but the serendipitous crossings add tremendous value to geo-based social services. I thought Facebook would have difficulty getting into the geo-game. Until now.
The big news in tech today was of course Google’s acquisition of Motorola Mobility. Google dipped into it’s roughly $39 billion in cash and agreed to pay $12.5 billion (or $40/share) – a 60+ percent premium over Friday’s close. You can read some of the coverage here: Google’s blog post on the acquisition, TechCrunch, TechCocktail, Forbes and TheVerge.
It is an interesting acquisition given Moto was already all-in on Android. The implicit assumption is that Google can more effectively run what was already the equivalent of their mobile hardware business internally. Initially I didn’t really see this as patent acquisition despite acquiring 17,000+ patents (and other 7K+ pending), but here is what Google wrote on their official blog:
We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats
from Microsoft, Apple and other companies.
TechCrunch quotes Citi analyst Mark Mahaney in calling the acquisition “defensive and here is what Android partners have to say about the acquisition. TheVerge also wrote about Google’s newly acquired patent pool so clearly besting the competition through a large patent pool is an important dynamic to this acquisition.
Here are a few things that haven’t yet received much attention:
The acquisition gives Google tremendous distribution which is something Google has lacked. As TechCrunch points out, once the acquisition clears, Google will instantaneously become the #2 Android hardware vendor. Distribution is one of the key elements
to hardware partnerships. The new found distribution will help Google push out new devices without having to rely
solely on partners. With this, I suspect Google will use this new hardware division (and accompanying distribution) to
make a big push into tablets – a market which Android hasn’t yet been extremely successful in penetrating.
Despite this new distribution, it sounds like Google will remain committed to their Nexus strategy for the foreseeable future . Given the acquisition and the need to placate their other hardware partners, I suspect the next Nexus device will not be a Moto device.
A final area where little has been said is the set-top box business of Motorola Mobility. Last month Logitech (a key Google TV hardware partner) announced sales had been dismal. Logitech even announcing more boxes were being returned than sold (see here and here). Logitech also subsequently dropped the price to $99 – more in-line with the “other” TV box out there. The Moto
acquisition might allow Google to breathe new life into their TV ambitions.
Much of the chatter today went back and forth on whether this was a hardware transaction or a patent pool transaction. What this discussion subtly misses is that platforms require a hardware core. This is something I’ve talked a lot about over the last year. The current platform discussion has focused on software (Android v. iOS v. Other), but this fails to see the role hardware plays in developing the ecosystem of a platform. As you look through the history of platforms, hardware is at the core. Through this acquisition, Google ensures the hardware core of Android is secure.