Google’s latest “moonshot” project is Project Loon, a phalanx of balloons that sail in the stratosphere like low level satellites. The objective is to bring broadband capability to less developed parts of the world, an ambition Google is also pursuing through its White Spaces project.
Google ran its first test on Saturday in New Zealand – here’s one report. It gave people 15 minutes of access before the balloon floated away.
However Loon takes us close to what Google is really about right now. Although Google has its “way-out” projects like Driverless Cars and Google Glass, those projects are adding nothing to the business. They create great press and clearly they have lifted the stock price, but Google is an ad company and autos and Glass will not add to that revenue stream. They might not provide alternatives for many years to come.
What does, and what will, is getting more people online with better connectivity, and controlling that process. In that sense Loon is really about the future of Google‘s core business.
Google Fiber, one of its three telco infrastructure projects, is too slow-build to matter in the near future. In White Spaces, the use of excess TV spectrum, Google is in a tight battle with Microsoft, especially in Africa where Microsoft seems to be moving ahead with rural access, much faster than Google has.
More generally, both are going to have to battle with Samsung in global wireless infrastructure because something strange, innovative and remarkable is going on with these companies (Huawei and ZTE are also players). Integration. Device to infrastructure and everything in between.
Integration is also on the agenda at Samsung. Go here for a summary of Samsung’s moves into 5G wireless. It’s a big play for all three and really illustrates how business is changing substantially. Yes, Loon is fun but integration is very serious.
Loon looks like a good bet on some possible, alternative access technology for Google. But as Google admits, its current status is highly experimental. The Loon website promises “Internet for all”, which is typical Google language these days. But many of us have good Internet. This is a project for the developing economies where both Microsoft and Google will have infrastructure, devices and services.
Loon relies on some beautiful reasoning “Winds in the stratosphere are generally steady and slow-moving at between 5 and 20 mph, and each layer of wind varies in direction and magnitude. Project Loon uses software algorithms to determine where its balloons need to go, then moves each one into a layer of wind blowing in the right direction. By moving with the wind, the balloons can be arranged to form one large communications network.”
So they might, and if they do then Google will have found a way to join the emerging global infrastructure club. It won’t be enough – by the time it rolls out, if it works, the world will have moved beyond 3G, the capacity Google expects from its balloons. Most interesting of all though we can now see the competitive, innovation landscape evolving alongside a new business strategy. Device, software, cloud, services, infrastructure. That makes Loon Google‘s second most important project, behind one that gets very little press – White Spaces for rural developing areas. All prosaic in comparison with Glass and driverless cars. But this is business.
Greenwich – Dark Heart of Codeness (Photo credit: uair01)
Ajit Jaokar is best known as a luminary of the mobile world – he runs the next generation telco program at Oxford University and has been a regular Mobile World Congress speaker as well as a member of the World Economic Forum’s Future of the Internet Council. We met in London’s Paddington station recently to discuss Feynlabs, Ajit’s developer/programming start-up. Here’s the basic proposition.
Many people who learn to code don’t really develop an understanding of computational thinking or reasoning. They learn a computer language. According to Ajit that limits their ability to play a full role in how we reason out how computing can solve problems.
We need to teach computing at a higher level of abstraction, putting computational thinking ahead of code. In fact great developers are able to do just that. I wrote recently about how algorithmic innovation is helping companies like Samsung (you can read about it here). We need more of it. Ajit is running a Kickstarter campaign to get his Feynlabs project funded and to expand the opportunity to acquire computational thinking.
Why is it important? There are signs of American and European companies falling behind to innovation from Asia. Countries with large engineering graduate populations are gaining and surpassing western countries. Think of South Korea.
Last year there was consternation that South Korea was outpacing the US in engineering graduates. The Washington Post pointed out that South Korean “undergraduate students are five times more likely to major in engineering than their counterparts in the United States.”
In recent years we’ve seen South Korean companies surge to the top of industries where computation is critical, like mobile and autos. And earlier this year Cognizant’s Malcolm Frank gave interviews where he said that even with a hundred recruiters on the road in the US, Cognizant could not find the employees it needed. Training a broader range of people in computational reasoning will have competitive and societal benefits.
I think it’s important on a personal level too. I do not code and nor do I really know computational logic. That means I don’t understand fully the direction that the developer ecosystem is taking society, business and the economy. I want to learn, but I don’t necessarily think I would be assisted by learning any one programming language. I need to learn at one level of abstraction higher.
Many people of my generation are in positions of power and don’t understand the general direction of the economy or how computing influences it. They use terms like digital divide and that’s it. They too need to learn.
A recent opinion column in EdSurge , from an active computer science teacher, made the point that:
Decades of research with children suggests that young learners who may be programming don’t necessarily learn problem solving well, and many, in fact, struggle with algorithmic concepts especially if they are left to tinker in programming environments, or if the learning is not scaffolded and designed using the right problems and pedagogies.
Initiatives like Khan Academy and Code Academy don’t necessarily address this problem. It also means students often give up on computing early on in their courses, especially those who learn computer languages in high school. It becomes one more school chore that doesn’t prepare students with the ability to learn about computing or to acquire new languages.
Ajit’s start-up is teaching students at school level all about computing rather than teaching them a language. The issue of how best to address the education of students has been around a long time. This is Jeanette Wing’s view from 2006.
Computational thinking is a fundamental skill for everyone, not just for computer scientists. To reading, writing, and arithmetic, we should add computational thinking to every child’s analytical ability. Just as the printing press facilitated the spread of the three Rs, what is appropriately incestuous about this vision is that computing and computers facilitate the spread of computational thinking.
Ajit’s program is meant to address precisely that. So far, he tells me, it’s been a labor of love. But after two years he’s ready for the roll out. I haven’t had a chance to use the courseware but it’s on my agenda. Just like I feel disadvantaged by more poor French I feel disenfranchised by the lack of opportunity to access learning in computational thinking. That’s not a hard admission to make at my advanced age but it is hard to change. The more opportunities to learn, the better.
Runkeeper and health on iPhone (Photo credit: Jason A. Howie)
When Apple collaborated with Nike on the Nike + it quickly helped Nike build a new kind of community, and behavior, a crowd that shared running data and then sought motivation and pleasure by competing virtually. The US Patent Office revealed today that Apple has applied to refine its body area sensing and monitoring IP. Apple is on the move in health.
I said yesterday that the new iOS 7 designs need to incorporate a future context for the smartphone, one where the phone is part of a broader system of services, and nobody has done more to prime this territory than Apple.
Apple exemplifies the strategy of radical adjacency that I’ve been writing and speaking about over the past two years.
Unlike Google, for example, which exhibits almost random adjacencies (Glass, autos, lending), Apple exhibits a very careful, astute broadening of its base of applications for computing technology (desktop, laptop, smartphone, tablet all serving as an interface for customers who interact with an increasingly large cloud of services).
When Microsoft introduced the Kinect it quickly became a favorite teaching tool among surgeons. Microsoft appears to have done little to pursue that opportunity. And that’s one major difference between the two. Apple has the smarts to broaden out. While the focus of attention lately has been on Apple‘s potential in the autos vertical, its next major move must surely be in health.
In contrast to the Apple-way, stealth, Samsung has gone the whole hog and bought up health-related companies. This is the next battle ground between the two. Who has the right strategy?
Samsung attempted a move into health monitoring with the Galaxy S3 and then made it a cornerstone of the S4 but not with a huge amount of success – nobody reviews the S4 for its health apps. More recently they have bought into medical imaging, for example with the purchase in January of Neurologica. Reuters reports that it also bought a controlling stake in Korean ultrasound equipment firm Medison in 2010. Bloomberg reports Samsung in talks with X-ray and other imaging targets through 2011 and in 2012 they bought cardiac point-of-care testing solution company Nexus.
Most observers of Samsung interpret all that as a way to take on GE and Siemens, two leaders in medical imaging. However, I think it is more likely that Samsung sees a convergence point between big imaging systems and small smartphones. That’s where Apple has a lead.
The current patent tweak, reported by Patently Apple, relates to:
applications covering sports, shipping, training, medicine, fitness, wellness and industrial production. The invention specifically relates to sensing and reporting events associated with movement, environmental factors such as temperature, health functions, fitness effects, and changing conditions.
And Patently Apple has a detailed analysis of how Apple‘s health related patents have evolved over the past five years – notably that has involved some conflict with other patent holders, prior to the success of Nike +. But it seems that now Apple has its hands on all kinds of movement monitoring IP.
The company is also winning favor with physicians who like to use the iPhone as a point of contact information system, for example to show patients images at bed side. But the idea is to go a stage further and use Apple “sensor strips” to do more remote sensing on vulnerable patients.
These possibilities are covered under Apple filings called personal item networks. Patently Apple speculate that improvements to the luminance and chrominance of Apple displays will have an increasingly important role to play in helping physicians to interpret medical imaging on the go.
It might also help explain why there’s been speculation around larger iPad and Samsung tablets, as these would find a ready market in health imaging. Medical would also benefit from 3D imaging, an advance that is just around the corner for smartphones.
But back to Samsung. Samsung has built a formidable capability in “old” medical imaging technology. The trick now is to render those images accurately on smartphone and tablet screens. That’s exactly what Samsung is researching at is advanced technology institute, SIAT:
better mobility and portability will lead to simpler and more accessible imaging devices while lower cost will also increase the range and scope of applications worldwide.
The issue for Samsung is how to play those innovations into the emerging market for mobile solutions rather than the traditional market for medical devices. Apple is already ahead of the game, using its experience in radical adjacencies to move coherently towards new markets. Samsung needs to learn that lesson.
smart
Google Maps for Android (Photo credit: Wikipedia)
Google‘s purchase of Waze has gripped commentators who see it as a defensive move against Facebook or Apple. But as I wrote earlier it is actually a move deeper into the crowd and we need to reflect on that broader significance.
With the Waze purchase, Google has given a major endorsement to crowd investors and the risks they’ve taken on this new model of business.
Google has moved crowd center stage and increased significantly the value of major exits in the crowdsourcing space. The most significant exits for investors in crowd projects over the past 18 months have been Instagram, Tumblr and Behance. But these are weak examples of the crowd business model.
Instagram was sold to Facebook for $1 billion back in April 2012, an exit that crowdsourcing.org counts as the biggest, until then, in a crowdsourced project. However, Instagram is more of a social network app than a crowd one. The crowd actually builds little other than the sum of its parts.
There is some confusion over what crowd businesses actually do. The idea that the “crowd” is every activity that more than two people engage in does not do justice to the business model. Robert Hof, for example, here on Forbes, says that crowd is in Google’s DNA because of Page Rank.
That’s a bit like saying the NASDAQ and NYSE are crowdsourced intelligence platforms. It’s true, in a very limited sense. But the crowd as a business model is not really about sensing and using patterns in human behavior. A similar case can be made for Skype and other peer-to-peer platforms where there is no real intent to collaborate.
Waze is much more than that – it is a conscious, elective decision to participate in an cooperative act, just like Google‘s other recent investment, Lending Club is a conscious decision to lend to peers. And it is different again from the Huffington Post, where people were selected for participation based on skills, networks or both.
Google said of the Waze deal:
“We’re excited about the prospect of enhancing Google Maps with some of the traffic update features provided by Waze and enhancing Waze with Google’s search capabilities. The Waze community and its dedicated team have created a great source of timely road corrections and updates.”
They don’t mention much of its community or social networking attributes, which anyway seem pretty thin. Waze allows you to “See other friends also driving to your destination, when you connect to Facebook. Coordinate everyone’s arrival times when you pick up or meet up with friends.” Sounds unlikely doesn’t it?
The second major exit in crowd projects recently was Behance, acquired by Adobe in December 2012. Behance was in fact more of a portfolio exhibition platform for creatives. Yahoo bought Tumblr recently, for the same price Google has paid for Waze, but Tumblr is a platform rather than a crowd.
Set alongside these three, Waze, arguably is the number one, major crowd exit. Google has drawn attention to crowd as a viable investment channel, and as a viable business model in the best sense, with strong growth and investor returns. Crowd-related projects have been having a sticky time with investors precisely because the exit route has not been as well signed as they would like. Platforms like eLance and oDesk have been around for a long time now.
eLance raised $16 million in investment earlier last year (from Kleiner Perkins, investors in Waze, among others) but the company goes back some way now. It was founded in 1998 and its long journey to exit must pain some investors.
Major investors like Kleiner Perkins and Google Ventures are increasingly involved in crowd projects without making it their number one priority. With the Waze purchase that might well change. Slowly, slowly the financial community are seeing the advantages of mass collaboration. Now they can see the financial benefits too. That’s a big endorsement of a new business model.
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Jony Ive’s new iOS designs for the iPhone are beautiful. He deserves success for his ambition alone: “True simplicity is derived from so much more than just the absences of clutter or ornamentation. It’s about bringing order to complexity.”
There’s still a fair bit of cant in the language he uses to describe the design, but the bigger problem is with the smartphones’ market.
Not only is is tightening up at the high end (though China still looks vibrant), and becoming more competitive, it is also headed towards much greater complexity and device diversity. Does the design do enough for that new environment?
Longer term, iOS 7 will be judged on how it helps Apple to expand the context of the smartphone. It’s no longer just about the phone but about the services you want to deliver, in future, and how you layer those across different devices.
The absence of that requirement in Ive’s explanation made me think he has not been forward thinking enough. But it is foolish to bet against Apple in design.
Yet reaction to the design has been mixed. Some say polarized. The Verge called it confusing, while here on Forbes it was described as subtly dimensional and exquisite. Others pointed out that this will make existing iPhones in the store look entirely new, clearly a benefit in a fast changing industry. Even without a Fall product launch Apple will look better.
Much of the criticism centers on Ive’s contention that this is a simplified design capable of bringing order to complexity – reviewers have called some of the icons for example, childish. And still wonder why Apple does not make it easier to get instant access to information.
But leave that aside for a moment. Apple is going to have to sell this design to its user base, and will rely on it for the iPhone 5s (it it comes) or iPhone 6. Whichever of those phones launches this Fall will face a more competitive environment that the iPhone 4 or 5 faced. Competitors like Samsung already have a six month march on Apple and its next generation iPhone.
It is not simply that phones like the Galaxy S4 are out there taking up a large swathe of the market, or that Blackberry has its act in place again, or that the HTC One is a favored phone among reviewers. Or that Microsoft and Android have overtaken Apple in design. Or that Apple no longer has a lead in display technology. The market looks saturated.
Back in January the Financial Times wrote:
Cautious comments from Samsung Electronics on Friday underlined the message conveyed by the latest quarterly results from Apple earlier in the week: even as it scales new heights, the smartphone market is entering a phase in which vaulting growth rates – and high profit margins – will be much harder to come by.
It’s not only a tighter market. We are already into the cycle of price reductions and special deals in high-end smartphones (Apple is reputed to be looking at a trade-in program). The market is beginning to cascade high-end functionality down into cheaper phones. And competitors are looking to draw people away from feature phones to the bottom end of the smartphone market.
This is a familiar process of commoditization. And Apple and Google are fighting it with new services, currently with music at the top of their list.
However, what we also know is that they want to offload functionality to wearables – the iWatch (Apple recently took delivery of a consignment of 1.5″ PHOLED screens) and Google Glass are part of the new process of layering complexity across devices.
That’s important because the next generation of smartphones will be sold more and more on essential services, for example the deeper integration of the smartphone into health services.
The time honored way to sustain market share under the pressure of commoditization is to innovate in services in exactly this way, services that create customer dependency. Services will naturally replace hardware functionality as the major selling point (we’ve already seen Samsung try and fail to do this with the S4).
That in turn means the interface will have to manage even more complexity, interaction and data visibility as people use the phone for things like monitoring, measurement and health interaction. But it will also need to be carried across at least one wearable device, a smartphone, and a tablet.
Apple has always been great at service development, so I read the iOS redesign as an attempt to prepare the way for a larger service layer. One big challenge lies in the timing – launching a new phone, with a radical new UI design into a highly competitive market where growth is slowing. Apple faces a tough Fall. And the question is can a new iOS help it over the bumps or will customer acceptance become one of the hurdles Apple faces when it looks to reignite growth with new product launches?
But the bigger question concerns the future of multiple device interaction. Is this design primed for that? Some of the most intelligent commentary suggests not – Apple‘s primary motivation was to play catch up with… no, not Android but with Microsoft. But Ive himself stresses simplicity, and the need to bring order as smartphones become more and more cluttered. Cliff Kuang at Wired agrees. I’d like to hear how Ive wants it to interact with the iWatch and those other great products Tim Cook has been promising.
Follow me on Twitter @haydn1701 or join me on Facebook. I am here on Google
Samsung Galaxy S4 (Photo credit: Janitors)
Apple‘s status as world’s most valued company owed a lot to its developer ecosystem. Hundreds of thousands of companies and developers exploding your innovation base and advocating your product… What a way to scale! Samsung has a new twist on the ecosystem model and it’s worth a closer look.
Last week Samsung announced it would set up a co-prosperity fund for its supplier ecosystem. According to the Yonhap news agency:
Samsung will spend 1.2 trillion won (US$1.07 billion) over the next five years to help its business partners and subcontractors.
In fact that’s at a group level. Family members like Samsung Electronics, the mobile device leader, will have their own co-prosperity budgets. The announcement comes two weeks after Samsung announced a new technology foundation (Samsung Future Technology Foundation) that will provide financial support to smaller company research projects. Samsung is investing $1.34 billion in the foundation but that will be spread out over 10 years.
The two initiatives together will cost Samsung $2.4 billion. That’s a substantial sum on primary research with no clear payback (it reminds me of GE’s healthymagination and WINK initiative) – the foundation will back “three areas such as basic sciences–physics, chemistry, life science, and mathematics, materials science, and ICT fusion-type projects,” according to Korea Times. It is also aiming to support smaller companies with patentable technologies and to help them interact with world class researchers.
The initiatives come on the 20th anniversary of Samsung’s so-called Frankfurt Declaration, when Samsung’s CEO challenged executives to become a world leading player in electronics.
So, ok,what does it mean? First it points to Samsung looking for all kinds of ways to go beyond its current businesses – I pointed out in an earlier post that Samsung also has a joint venture with the Russian Academy of Science to commercialize the Academy’s basic science research and has research centers and partnerships across the globe. But all that is really an extension of the old P&G open innovation model.
Investing billions in an ecosystem is pretty new. When GE has done this, as with healthymagination, it was with the intent of creating an ecosystem to address fundamental problems. The development of Apple‘s ecosystem has been relatively spontaneous, driven by the popularity of the iPhone. American companies have invested in university research (MIT thrives on it) but to my knowledge $2 billion on enhancing the capability of an ecosystem that might not, in many cases, be part of the supply chain is novel.
Some part of Samsung’ investment seems to be in companies that are being drawn into its inner circle – the rest is speculative and part of the S. Korean Government’s strategy to develop a creative economy through co-prosperity.
Will it be productive for Samsung? As reader Francis McInerny pointed out in a response to an earlier post Samsung has issues at the front-end of its businesses. While it is now a formidable innovator, its relentless launch program leaves it with considerable inventory and stretches the company. Some of its marketing strategies have been cool send-ups of Apple but others like its launch of the S4 are simply ill judged and reminders that Samsung has yet to master brand building.
There are also issues around how Samsung will deploy a revenue generating service layer around its smartphones. I said in an earlier piece that the health care sector looked like a good option and Samsung has growing business interests in health. The big issue is whether long-term ecosystem building will bring Samsung the customer loyalty and service revenues it needs as we pass beyond the peak of high-end smartphone buying.
FAIRFAX, CA – DECEMBER 13: The Google Maps app is seen on an Apple iPhone 4S on December 13, 2012 in Fairfax, California. (Image credit: Getty Images via @daylife)
What is it in the Google psyche that suddenly fell in love with crowdsourcing? It’s pursuit of Waze is further proof that Google has crowd top of mind. I covered some of its initiatives here – but don’t let’s forget that Google Glass is largely a crowdsourced project.
You could argue that the SEO ecosystem is actually Google‘s first foray into the crowd as a business model. But SEO is different – that’s a cadre of people who’ve gone after a market. Waze is all about people signing up to help each other, a crowd-based traffic aid app. It is part of a pattern with Google.
Google recently bought into Lending Club, the peer-to-peer lender. And in recent months they have bought into a string of crowd-type companies through Google ventures. That includes CustomMade, for people who want to make custom items with a community of makers; Luminate, an app for adding context to online images; Trada, the platform for finding SEO experts; SpaceMonkey peer-to-peer storage; and Smarterer.
The industrial scale application of crowd is very much a Singularity University meme and SU founder Ray Kurzweil now works with Google as head of engineering.
Of course there is the argument, put forward here on Forbes, that this is really a move to prevent Facebook from having WAZE:
“Google’s interest in Waze stems principally from its aim of blocking Facebook’s growth. The search company operates its own navigation service that competes head on with Waze. It has invested heavily in its system, including the ambitious Google Street View database of images and satellite images.”
That might be the case but it is also true that Nokia has been making a strong comeback in maps with Nokia Here. A recent head-to-head review of Here and Google Maps had Maps lagging on traffic data, particularly in real-time information. It’s not good to be Google and lagging in real-time data, nor to be lagging in community participation.
There were also cheaper options for Google – for example to incorporate OpenStreetMap data into Google Maps – and there remain cheaper options for business. OpenStreetMaps is free. But by and large the WAZE deal could make great sense. Tony Cripps, principal analyst at Ovum said this about the move:
“If confirmed this is as much an offensive as a defensive move by Google. As such it needs to be understood in light of the whole of Google and its overall business objectives, not just the parts. As Ovum’s Location Platform Scorecard reveals, Google already has a market leading location platform but it is clearly not ready to rest on its laurels. Acquiring Waze is further evidence that the company feels the need to deepen its mapping and location services functionality still further and Waze’s functionality would certainly help it achieve that, as it would have Google’s rivals.”
It is in the larger scope of Google‘s business that crowdsourcing’s importance though should register. As Ovum points out Google is poor at non-tech ecosystem or community development. But it wants to push deeper and deeper into the crowd. In fact while Singularity, where Kurzweil is Chancellor, talks about solving humanity’s problems, it talks just as much about how to use crowdsourcing to do it. In that sense it is an old fashioned collaboration play and Google is on board.
FAIRFAX, CA – DECEMBER 13: The Google Maps app is seen on an Apple iPhone 4S on December 13, 2012 in Fairfax, California. (Image credit: Getty Images via @daylife)
What is it in the Google psyche that suddenly fell in love with crowdsourcing? It’s pursuit of Waze is further proof that Google has crowd top of mind. I covered some of its initiatives here – but don’t let’s forget that Google Glass is largely a crowdsourced project.
You could argue that the SEO ecosystem is actually Google‘s first foray into the crowd as a business model. But SEO is different – that’s a cadre of people who’ve gone after a market. Waze is all about people signing up to help each other, a crowd-based traffic aid app. It is part of a pattern with Google.
Google recently bought into Lending Club, the peer-to-peer lender. And in recent months they have bought into a string of crowd-type companies through Google ventures. That includes CustomMade, for people who want to make custom items with a community of makers; Luminate, an app for adding context to online images; Trada, the platform for finding SEO experts; SpaceMonkey peer-to-peer storage; and Smarterer.
The industrial scale application of crowd is very much a Singularity University meme and SU founder Ray Kurzweil now works with Google as head of engineering.
Of course there is the argument, put forward here on Forbes, that this is really a move to prevent Facebook from having WAZE:
“Google’s interest in Waze stems principally from its aim of blocking Facebook’s growth. The search company operates its own navigation service that competes head on with Waze. It has invested heavily in its system, including the ambitious Google Street View database of images and satellite images.”
That might be the case but it is also true that Nokia has been making a strong comeback in maps with Nokia Here. A recent head-to-head review of Here and Google Maps had Maps lagging on traffic data, particularly in real-time information. It’s not good to be Google and lagging in real-time data, nor to be lagging in community participation.
There were also cheaper options for Google – for example to incorporate OpenStreetMap data into Google Maps – and there remain cheaper options for business. OpenStreetMaps is free. But by and large the WAZE deal could make great sense. Tony Cripps, principal analyst at Ovum said this about the move:
“If confirmed this is as much an offensive as a defensive move by Google. As such it needs to be understood in light of the whole of Google and its overall business objectives, not just the parts. As Ovum’s Location Platform Scorecard reveals, Google already has a market leading location platform but it is clearly not ready to rest on its laurels. Acquiring Waze is further evidence that the company feels the need to deepen its mapping and location services functionality still further and Waze’s functionality would certainly help it achieve that, as it would have Google’s rivals.”
It is in the larger scope of Google‘s business that crowdsourcing’s importance though should register. As Ovum points out Google is poor at non-tech ecosystem or community development. But it wants to push deeper and deeper into the crowd. In fact while Singularity, where Kurzweil is Chancellor, talks about solving humanity’s problems, it talks just as much about how to use crowdsourcing to do it. In that sense it is an old fashioned collaboration play and Google is on board.
Samsung’s Galaxy S4 is unveiled on March 14, 2013 at Radio City Music Hall in New York. (Image credit: AFP/Getty Images via @daylife)
At the end of last week shares in Samsung Electronics fell 6%, the largest single-day drop since Samsung lost is patent copycat case to Apple in August 2012. Does it signal a fundamental problem in Samsung’s innovation model? Or has Samsung simply entered the same volatile share price culture as Apple?
The answer to that question would give us a stronger sense of the types of innovation that will help economies prosper in the 21st century.
The share price slide was widely reported in the computing, mobile and business press. And among the reasons most quoted were the likelihood of Apple offering an iPhone trade-in program as it gears up to a new iPhone launch, Apple potentially launching a cheaper iPhone, Samsung launching too many stripped down versions of the S4, and the market for high-end phones beginning to dry up.
Of course all four of these could be true. But it is more likely that some are causes and some are consequences of underlying market conditions. It’s worth saying, in passing, that the mark down comes just after Samsung won its most important victory yet against Apple in the continuing patent saga – the ITC ruling against the iPhone 4. But back to the share price.
Apple‘s desire to offer a trade-in program signals, surely, its own belief that the market for high-end phones is softening. Apple doesn’t want to launch into a soft market. Samsung is out there facing one, hence it is producing S4 variants. Analysts worry that the variants will eat into Samsung’s margins.
The most likely reason for market difficulties is simple fatigue. Those who can afford high-end phones have them, and don’t want to change right now. The high-end is saturated but the mid-market is likely to grow by 50% and the low-end smartphone market (sub $250) will triple between now and 2018.
Nonetheless the S4 seemed to be selling well and on track for 10 million in sales by end June. The analysts who are marking Samsung down fear that sales might drop to 7 – 8 million monthly which still means the phone could sell close to 100 million in its first year.
Early indications are that the new S4s will cost the same as the original, so there is no sign of margin erosion there. Another overlooked factor, though, is that Samsung has very high initial costs on the S4. The tear down shows the S4 display with its new green PHOLEDs costs about $75 per unit, whereas when Apple introduced the Retina in the iPhone 4 the cost was only $28.
If there is a margin problem in the S4 it is precisely there. But Samsung manufactures its own OLED displays and ought to be bringing that cost down as its manufacturing lines ramp up for the S4 and other OLED customers. The point about Samsung’s model is that it will benefit across all of its display businesses as the S4 and other OLED users expand sales.
At the same time Samsung is aiming the Galaxy S4 Mini at the growing mid-market. It is priced higher than the S3 Mini and about the same as the S3 itself. And is a player in the lower end of the market where it recently launched the entry-level Galaxy Star. Here Galaxy has been entering deals with networks to ensure early uptake. A bit like BMW in autos Samsung can take those users up its phone range, over time, and cascade advanced features down the range as it looks for more manufacturing volume.
Samsung appear to have its bases covered. After the ITC ruling last week, the Financial Times predicted that it would feed into Samsung’s confidence and brand value. But then the share price took a hammering. So why the analyst reaction?
Executives at Samsung must be scratching their heads in exactly the same way that Apple‘s do. Other than factoring in a hard landing for the smartphone sector there is nothing fundamentally wrong with Samsung’s strategy. Of course if you do believe the smartphone slow down is now overdue, Samsung has a lot of cash tied up in its production lines. That is exactly the legacy problem that western companies wanted to do away with, and why they moved out of production. It will be interesting to see how Samsung copes.
Image via CrunchBase
You may already have read that the ITC has awarded Samsung a victory in one part of the long running battle between Apple and Samsung over smartphone and tablet markets. It’s easy to become immune to new developments in this case, it’s been going on so long. But you’ll probably remember Apple’s victory in a San Jose court last August – initially it looked like costing Samsung over $1 billion.
The significance of the current victory for Samsung is that it comes for a technology infringement and that it comes from the US International Trade Commission (ITC) – see here for the BBC’s coverage of the ruling. Most of the public heat around this battle, to date, has been caused by design patents and has been instigated by Apple in a bid to prevent Samsung selling its products, particularly in the US market
Why is it important? Theoretically it could lead to the iPhone 4 being taken off the market, though that is highly unlikely. It’s importance lies more in what it tells us about patents, IP and competitive advantage.
The development of design “patents” is, on the face of it, an anomaly. Patents are supposed to be awarded for inventive steps and while interface design can be said to be highly skilled and creative, it’s a stretch to compare them with inventions. Yet design patents are on the increase and Apple is a pioneer. I asked patent experts Article One Partners to comment on that and this is their take:
Although there has been an increase in the number of design patent applications, the data suggests that the proportion of design patent applications over total patent applications has been fairly stable for the past ten years. This does not mean that companies do not recognize the importance of design. The more interesting trend is the dramatic increase in overall patent applications.
What that means is that design patents are also dramatically increasing. And the reason, as Cheryl Milone, CEO at Article One points out, is that it is the design level of the product that is now leveraging large markets. Apple is an incredible example of that at work.
In fact the design patent is a feature of the evolving IP environment because American tech companies have moved away from manufacturing towards software and then services. Design patenting is becoming a critical area of IP protection for American companies but perhaps not for companies with deeper, manufacturing IP.
The ITC ruling will not be the last we hear of this current aspect of the dispute. Apple can appeal and President Obama can overturn the ITC ruling. More important, the fact that this is a technology patent makes it look like a much more solid win for Samsung.
Samsung, therefore, was acerbic in its comments on the ITC ruling. According to the BBC they reacted by commenting:
“We believe the ITC‘s final determination has confirmed Apple‘s history of free-riding on Samsung’s technological innovations.”
Now that this dispute is playing out at the level of technology it is also worth recalling that Apple is dependent on Samsung as a supplier and is in danger of being out-competed at the level of product elements like display technology.
Apple has recently been filing a number of patents that probably require PHOLED and AMOLED displays as it gears up a new rounded or flexible display smartphone (it is has also been receiving supplies of 1.5″ PHOLED screens for its reputed iWatch).
In this next generation of displays it is going to struggle to stay away from Samsung technology as Samsung has moved PHOLED technology on a step with the S4, owns the company that provides the PenTile technology that brings a truer blue to PHOLED displays, and owns a stake in the company, Nanosys, with the best claim to be advancing LCD screen technology, along with 3M.
The big question is how substantial can Apple make design patents? It’s not just a dilemma for Apple. As we move to a device economy, I suspect having hardware IP is going to prove to be a critical competitive advantage.
Design might open up new markets but new design opportunities exist in display hardware. There is abundant opportunity in hardware innovation right now and a lot of litigation ahead if your dependency lies in design. Apple‘s design case against Samsung has softened up over the past 10 months – the August 2012 design patent infringement fine was reduced to $600 million and is now up for retrial. So the significance of this week’s ruling has wide implications. It’s about where the future of IP lies. To right the balance, the US needs to legislate around design patents or to find some way to underline their legitimacy, fast.
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