By Troy J. Jensen, Senior Vice President, SolVentus Energy, Inc.
Site: www.solventusenergy.com
Email: troy@solventusenergy.com
Twitter: www.twitter.com/troyjensen
The iPhone has finally lost my heart. It was a wonderful relationship, one I'll always have cherished memories of. I own a ton of Apple (APPL) products, and I have been extremely happy with all of them. But I have to move on from the iPhone. Otherwise, I am either going to lose my mind, or my life from a stress-induced heart attack. So fitting: I literally just dropped yet another call on my iPhone as I type these words. Enough is enough. It's time to pen a farewell, and look forward to the hot new smart phone in town that has all the guys attention: Droid.
I'm hoping Droid isn't another one of those sleek smart phones that charges into town, gets everyone excited, and then lets us down. But from both the reports I am reading, and a few industry insiders that have actually gotten their hands on working models I've spoken to, the Droid should be a contender. I think a lot of the rhetoric is overheated - this won't "bury the iPhone," as a noted technology columnist breathlessly wrote last week. But I think this is the device that will finally give the iPhone a competitor. I know one thing - I am just overwhelmed with excitement at the thought of calls not dropping at mind-boggling regularity.
If the initial reports we are hearing are accurate, this will provide the Google (GOOG) Android OS platform the traction we have all been waiting to see. I have used the iPhone since it was introduced, and have always immediately upgraded when the new versions have been released since. I have owned too many Macs to recall, and I have the Apple TV, the Time Capsule - suffice it to say, I like Apple products. But my iPhone actually hit the wall last Thursday after the 11th - I am not exaggerating, the 11th - drop on a VERY important call conference call. Now, I am fairly even-tempered, and have always chalked up the iPhone's dropped calls and terrible reception problem as one to live with in exchange for what I feel is the technology invention of the decade.
But eleven dropped calls over the course of an hour? And it wasn't like I was in a parking garage, or driving down a desert road through the mountains. I was in Los Angeles, on the fourth floor of a building. No one else on the call in the same office had a single drop. I hear and read it everywhere - it's AT&T (T), it's the iPhone, it's almost solved, etc. But now, I am actually doing the unthinkable - I am going to give the Droid a try.
Reasons Beyond the Dropped Calls Issue for Migrating to Droid
There are a few reasons for the switch to Droid, which is a major deal for an Apple guy like myself. Lately, I have been utilizing a lot more of Google's products, and have had a very positive experience with them. I am using Google Wave, a truly revolutionary product that, once a lot of bugs are worked out (it's complex new technology in early, early beta, but even so....wow, it's a game-changer), is going to go vertical quickly. I am in the GreenTech industry, and knowing a few senior executives at Google (who were the guys that finally convinced me to give all their products a test drive, and now I'm using a lot of them full-time), Google's PowerMeter is just a a tippy-toe of their plans for the Smart Grid. I started using Google Docs - solid, cloud-based solution, not as sleek as Apple's iWorks software products, but perfectly fine for day-to-day documents. Google Voice is my next trial, and I hear great things - including fantastic synergistic ability with the Droid.
So, all-in-all, Google continues to impress me. And if Droid truly does gain the critical mass the pundits are predicting, I am expecting a lot of these Google products will have some special integration abilities or applications to optimize their use on Android OS mobile devices. And, yes, mobile application programmers will begin to really push Android mobile apps out, I know many mobile app firms, and for a year, I have heard "once Android has enough market share..." way too many times. It won't be the landslide overheated pundits are breathlessly proclaiming. But will finally begin to see that acceleration compression point in Android application development needed to make the Droid a viable contender to the iPhone.
This leads me to a few final conclusions:
1. Droid is not an "iPhone Killer" - Droid won't be what is considered "Disruptive Technology," but could be a "Disruptive Innovation," and perhaps accelerate the pace of mobile smart-device adoption rates. But until we actually see the phone, and it has a few months on the market, the rhetoric needs to cool down (I was at CES when the PalmPre was debuted there, and people were exclaiming the iPhone was dead - neat device, but the iPhone keeps on trucking).
2. Clear and Present Danger to Apple is the iPhones Phone Feature - I love the statement, "I love everything about the iPhone except the phone feature. I don't know if it's the phone's design, if it's AT&T (I have never used another device on the AT&T network), if it's all of AT&T's bandwidth being swallowed by data-transfer overload - and I don't care anymore. I am trying the Droid, but will keep my iPhone, and by Christmas I will decide on the winner. I will not go into 2010 having daily dropped calls. I travel quite a bit, and I can find no geographical sense to it - my iPhone drops calls everywhere, my friend's iPhones drop calls...I am a devoted Apple fan, but something must be done. If a MacHead has had it, I must assume many are frustrated as well. I hear great things about Verizon (VZ) - I know I was using T-Mobile (DT) and a Blackberry prior to iPhone's arrival, and I never had a major issue with dropped calls.
3. Droid Will Hit Other Smart Phone Devices Harder Than it Hits iPhone - My strong opinion is, if Droid is everything we are hearing, and if the pricing news I hear is correct, Research in Motion (RIMM), Palm (PALM), Nokia (NOK)and others will feel Droid's debut harder than Apple. The iPhone may experience a slowing of their growth in the 30+ demographic, but all the data I have seen regarding smart phone devices suggests it's the 30+ users that are ripe and ready to be picked by Motorola (MOT).
4. Do Not Discount the Advantage Apple's Brand and Marketing Has Over Droid - Which phone will attract more first-time smart phone users remains to be seen. Apple's marketing (brilliant, and their agency, TBWA/Chiat/Day (OMC), are the absolute kings of "return fire messaging" - their new spots (Broken Promises is my favorite) mocking Windows 7 are fantastic creative), their overwhelming market share lead, the seamless integration with iTunes, the "cool" factor directly related to the iPhone's core demo (younger, affluent, hipsters, Gen Y and X, creative, etc) and finally, Apple's ability to innovate like no other consumer technology company on the planet, leads me to think Droid has it's work cut out for it to "bury" the iPhone. Also, the Apple brand is powerful - in The Centre for Brand Analysis' 2009 "CoolBrands" Study, Apple just absolutely dominated for the 5th straight year: iPhone was #1, Apple #3, and iPod #4. And while Google was a strong #8, they are starting to take a beating as they have grown so large - America loves the underdog, and Google is evolving into "The Evil Empire", taking that crown from Microsoft (MSFT). Additionally, many marketing surveys are showing consumers are not linking the Google, Android and Droid brands together - I can tell you I have had way too many people ask me what in the world that Droid spot was selling. The Droid spots are a classic example of very clever creative, winning rave reviews from many inside the advertising industry - but leaving consumers wondering what the hell was that all about?
5. The iPhone is a Gaming Device - An important factor often overlooked as we try to predict future market share in the smart phone category is Apple's tight relationship with the gaming industry. Games are predicted to make up 25% of all iPhone applications by next year, and a recent DFC Intelligence report has predicted the iPhone will overtake BOTH Nintendo (OTCPK:NTDOY) and Sony (SNE) for the lead in portable gaming device sales by 2014. Apple is well aware of this, and has heartily embraced gaming companies. I am also aware from insiders Apple is fully consulting with major gaming players in regards to future generation iPhones. Gaming is a fantastic sector to be part of, and will continue growing. Droid, and the Android OS, has an almost insurmountable disadvantage, being so late to the game, and leaving application developers the difficult task of programming games for an operating system deployed on multiple hardware executions (a game that rocks on Droid may be terrible on the MyTouch, for example). And again, back to branding - Android doesn't mean anything to a gamer, nor does Motorola or Verizon - and none of these brands are even close to Apple in terms of the buzz factor, important to the primary gamer demographic profile.
No One on the Corner Has Swagger Like Apple
There are a few reasons for the switch to Droid, which is a major deal for an Apple guy like myself. Lately, I have been utilizing a lot more of Google's products, and have had a very positive experience with them. I am using Google Wave, a truly revolutionary product that, once a lot of bugs are worked out (it's complex new technology in early, early beta, but even so....wow, it's a game-changer), is going to go vertical quickly. I am in the GreenTech industry, and knowing a few senior executives at Google (who were the guys that finally convinced me to give all their products a test drive, and now I'm using a lot of them full-time), Google's PowerMeter is just a a tippy-toe of their plans for the Smart Grid. I started using Google Docs - solid, cloud-based solution, not as sleek as Apple's iWorks software products, but perfectly fine for day-to-day documents. Google Voice is my next trial, and I hear great things - including fantastic synergistic ability with the Droid.
So, all-in-all, Google continues to impress me. And if Droid truly does gain the critical mass the pundits are predicting, I am expecting a lot of these Google products will have some special integration abilities or applications to optimize their use on Android OS mobile devices. And, yes, mobile application programmers will begin to really push Android mobile apps out, I know many mobile app firms, and for a year, I have heard "once Android has enough market share..." way too many times. It won't be the landslide overheated pundits are breathlessly proclaiming. But will finally begin to see that acceleration compression point in Android application development needed to make the Droid a viable contender to the iPhone.
This leads me to a few final conclusions:
1. Droid is not an "iPhone Killer" - Droid won't be what is considered "Disruptive Technology," but could be a "Disruptive Innovation," and perhaps accelerate the pace of mobile smart-device adoption rates. But until we actually see the phone, and it has a few months on the market, the rhetoric needs to cool down (I was at CES when the PalmPre was debuted there, and people were exclaiming the iPhone was dead - neat device, but the iPhone keeps on trucking).
2. Clear and Present Danger to Apple is the iPhones Phone Feature - I love the statement, "I love everything about the iPhone except the phone feature. I don't know if it's the phone's design, if it's AT&T (I have never used another device on the AT&T network), if it's all of AT&T's bandwidth being swallowed by data-transfer overload - and I don't care anymore. I am trying the Droid, but will keep my iPhone, and by Christmas I will decide on the winner. I will not go into 2010 having daily dropped calls. I travel quite a bit, and I can find no geographical sense to it - my iPhone drops calls everywhere, my friend's iPhones drop calls...I am a devoted Apple fan, but something must be done. If a MacHead has had it, I must assume many are frustrated as well. I hear great things about Verizon (VZ) - I know I was using T-Mobile (DT) and a Blackberry prior to iPhone's arrival, and I never had a major issue with dropped calls.
3. Droid Will Hit Other Smart Phone Devices Harder Than it Hits iPhone - My strong opinion is, if Droid is everything we are hearing, and if the pricing news I hear is correct, Research in Motion (RIMM), Palm (PALM), Nokia (NOK)and others will feel Droid's debut harder than Apple. The iPhone may experience a slowing of their growth in the 30+ demographic, but all the data I have seen regarding smart phone devices suggests it's the 30+ users that are ripe and ready to be picked by Motorola (MOT).
4. Do Not Discount the Advantage Apple's Brand and Marketing Has Over Droid - Which phone will attract more first-time smart phone users remains to be seen. Apple's marketing (brilliant, and their agency, TBWA/Chiat/Day (OMC), are the absolute kings of "return fire messaging" - their new spots (Broken Promises is my favorite) mocking Windows 7 are fantastic creative), their overwhelming market share lead, the seamless integration with iTunes, the "cool" factor directly related to the iPhone's core demo (younger, affluent, hipsters, Gen Y and X, creative, etc) and finally, Apple's ability to innovate like no other consumer technology company on the planet, leads me to think Droid has it's work cut out for it to "bury" the iPhone. Also, the Apple brand is powerful - in The Centre for Brand Analysis' 2009 "CoolBrands" Study, Apple just absolutely dominated for the 5th straight year: iPhone was #1, Apple #3, and iPod #4. And while Google was a strong #8, they are starting to take a beating as they have grown so large - America loves the underdog, and Google is evolving into "The Evil Empire", taking that crown from Microsoft (MSFT). Additionally, many marketing surveys are showing consumers are not linking the Google, Android and Droid brands together - I can tell you I have had way too many people ask me what in the world that Droid spot was selling. The Droid spots are a classic example of very clever creative, winning rave reviews from many inside the advertising industry - but leaving consumers wondering what the hell was that all about?
5. The iPhone is a Gaming Device - An important factor often overlooked as we try to predict future market share in the smart phone category is Apple's tight relationship with the gaming industry. Games are predicted to make up 25% of all iPhone applications by next year, and a recent DFC Intelligence report has predicted the iPhone will overtake BOTH Nintendo (OTCPK:NTDOY) and Sony (SNE) for the lead in portable gaming device sales by 2014. Apple is well aware of this, and has heartily embraced gaming companies. I am also aware from insiders Apple is fully consulting with major gaming players in regards to future generation iPhones. Gaming is a fantastic sector to be part of, and will continue growing. Droid, and the Android OS, has an almost insurmountable disadvantage, being so late to the game, and leaving application developers the difficult task of programming games for an operating system deployed on multiple hardware executions (a game that rocks on Droid may be terrible on the MyTouch, for example). And again, back to branding - Android doesn't mean anything to a gamer, nor does Motorola or Verizon - and none of these brands are even close to Apple in terms of the buzz factor, important to the primary gamer demographic profile.
No One on the Corner Has Swagger Like Apple
When asked about the new competition, Tim Cook, Apple's COO, responded, "“I think they’re trying to catch up with the first iPhone that we released two years ago, and we’ve long since moved beyond that." That is swagger Jay-Z would be proud of.
And the facts back that up: In Apple's latest earnings statement, "iPhone sales grew 7 percent from the same period last year. During the entire fiscal year, Apple sold about 21 million iPhones, a 78 percent increase from the previous year." That number may have been even higher, but the company had some trouble meeting the demand. And Apple didn't take advantage of the new GAAP accounting rule changes as they apply to iPhone and accounting of future subscription earnings, which would have lifted the numbers even higher. Although the changes won't affect Apple's actual cash flow, they will see large benefits from a technical and sentiment perspective, and their corresponding lift on the company's stock price and valuation. Key benefits from the changes:
And the facts back that up: In Apple's latest earnings statement, "iPhone sales grew 7 percent from the same period last year. During the entire fiscal year, Apple sold about 21 million iPhones, a 78 percent increase from the previous year." That number may have been even higher, but the company had some trouble meeting the demand. And Apple didn't take advantage of the new GAAP accounting rule changes as they apply to iPhone and accounting of future subscription earnings, which would have lifted the numbers even higher. Although the changes won't affect Apple's actual cash flow, they will see large benefits from a technical and sentiment perspective, and their corresponding lift on the company's stock price and valuation. Key benefits from the changes:
- Inflows from quant driven strategies and retail investors as AAPL shares will screen cheaper on “New” GAAP consensus estimates vs. “Current” GAAP (19x vs. 23x)
- Likelihood of larger earnings surprises given analysts have consistently underestimated iPhone gross margins which have ranged between 50-60% over the last year
The bottom line is that the new rules allow Apple to recognize the majority of the revenue and direct costs of an iPhone upfront (estimated 95%), shifting value from the balance sheet to the income statement.
Overall, it's much too early to make any serious statements about an "iPhone Killer." Yeah, I am excited, I will get one the first day, and I am going to give it until Christmas before I official stop using my iPhone. I do think it's great for the mobile space as a whole that Android is finally getting the traction it needs, and I was a devoted Motorola guy WAY back in the day - it would be great to see Droid be the beginning of their comeback.
One thing for sure, I am excited to get my hands on it and see if Droid lives up to the hyper-buzz!!!
Disclosure: No holdings in any of the companies referenced in this article.