Smartphones and the PC Wars - Two Very Different Animals

Analysts after analyst, commenter after commenter, makes the comparison that only one handset and mobile OS will survive the "Smartphone Wars." After 12 years in digital, seven of which I continually worked with some of the top mobile and mobile technology firms, I was convinced every year, seeing the incredible opportunity smartphones will offer, that "this year is the year of mobile." Well, here we finally are! And I wanted to add my firmly-held belief that much of this conversation is off-base. This smartphone vertical is not going to play out anywhere near the way the Personal Computer vertical played out. Why? Lessons learned, and too many demographic segments that have demands that one handset producer or operating system can cater too.

The conversation is fairly redundant - no single carrier, handset, or mobile OS will dominate in the same fashion Windows has for so many years. Multiple players will thrive, and based on a particular users needs and opinions on what handset/OS/carrier serves their needs better than others, they will make that choice. Every serious study (and being involved in this space heavily for years until the past eight months) leaves me 100% convinced there will be several strong players. Each has their own merits and as the industry gains critical mass, the major players (survivors) will tailor their operating systems, handset design, and carriers to cater to 4-6 primary demographics. There is plenty of room for more than BlackBerry or iPhone or Android to survive. In my not so humble opinion, all the major hardware/operating system producers will thrive based on the synergistic lift smart phones are achieving, with mid-to-late 2010 being a real tipping point in smartphones (with the upcoming upgrades to hardware/chipsets) thriving, benefiting all the current (and any future) superior smartphone producers. Watch for iPhones next incarnation with a much more powerful chipset and further advancements to their already superior operating system, and I am watching Google's/Android's moves with great interest. And yes, Blackberry will retain a very nice market share, as they do cater to a more serious business-orientated consumer - but that is not to say Android, iPhone, Nokia, Palm (although they have their work cut out for them) and others won't also have versions to challenge Blackberry's current hold on that demographic segment.

Bottom line - to many analysts are holding on tight to the historical model of the Personal Computer wars, and this is an entirely different evolution. Just my two cents, for what it is worth - I will be writing further on this subject over the next few weeks as we head into 2010, the "Year of the Smartphone," and the smart investor is doing some serious due dilligence, studying the different smartphone user demographics, and making bets based on those factors. As a side note, I have noticed many articles from analysts that strongly endorse one handset or mobile OS over another - smartphones (especially iPhones and Blackberry, with Android emerging) endear a very strong personal attachment to many users. It bodes your investment strategy well to put aside those personal passions (I am using both my beloved iPhone, a Blackberry and an Android handset, and I am quickly seeing how each device has very strong appeal to large demographics - large demographics that, in relative terms, are still low in terms of percentage of adoption, leaving each segment with incredible sales opportunities) and dive into the research in a dispassionate fashion.

I hope this helps, and I am always happy to share any information I have with anyone interested!


Disclosure: No holdings in any companies mentioned in this article.

Bye, Bye iPhone - Not So Fast!

I wanted to follow up on my article, Bye, Bye Love: Leaving my Apple (AAPL) iPhone for Verizon's Droid. My main point of contention at the time I wrote the posting - AT&T (T) abysmal wireless coverage. And not just 3G coverage - I have never possessed a mobile phone that drops as many calls as my beloved iPhone (we are going back to 1991 and the OKI 900!). I wish I was kidding, but too many important dropped calls led me to experiment with another wireless device. As for the commentary, please hold all fire when it comes to Apple Fanatics - I am tapping this posting on an Airbook, I have the Apple TV, three iPhones, and multiple MacBooks and one iMac. I am with you, my peeps. But I also run a very service-intense sales and marketing business, where a dropped call can literally mean life or death for a large deal. So, how can I justify keeping as my main phone the single best device I have ever owned - outside of the fact I cannot complete 38% of my phone calls without either a drop, or a long moment of dead silence (I have been keeping careful track over the past month, hence the 38% figure)?

Well, I have tried the Droid. It is a fantastic device, and I have been pleasantly surprised by the Android operating system. It has a long ways to go in terms of the seamless feel the iPhone OS has, but it's a given Google is addressing that quickly. I can happily report I dropped 21% of my calls on the Droid - still a high figure, but as you can see, it heartily beats the iPhone. I do want to note I live in Los Angeles, and I did eliminate any dropped calls that are in obvious dead zones, like the canyon passes.

Here are some of my initial experiences with both phones:

1. I had used BlackBerry (RIMM) for years and years, and I could blow out huge emails on the physical keyboards. It took a while, but I can throw down on the iPhone - especially since the last upgrade to the OS allows my to utilize the larger horizontal touchscreen keyboard. To my disappointment, Droid's keyboard leaves much to be desired. The physical feedback feels clunky, the keyboard itself is bit crowded (even for my small fingers), and actually feels fairly fragile - not impressed with the fit and finish of the keyboard at all. That said, again I am an Apple fan, and not much beats their fit and finish, to be fair. However, Droid and Verizon have been touting their product as a direct competitor to the iPhone, so let's subtract points on the physical keyboard. Most BlackBerry models have far superior keyboards, and even the Palm Pre beats out the Droid when compared directly. In summary, the keyboard, while not horrid by any standard, nevertheless is lacking when compared to the competition. Final note: I have spoken to many who simply prefer a physical keyboard to the touchscreen keyboard iPhone employs. If you find yourself in that category, I would recommend either dealing with the Droid's keyboard until the next upgrade, or waiting for that upgrade, simply because the Android operating system is fantastic. Bypass RIM and Palm - they will be small potatoes in the mobile market share game.

2. No multi-touch makes a big difference in day-to-day usage. I have had this argument 100 times with even Google execs - bottom line, multi-touch on the iPhone makes the overall user experience much more seamless and fluid. Google and Android has a ways to go to match ease-of-use for the average user.

3. I have 95+ applications on my iPhone, and they all work wonderfully, and update fairly well, with only the occasional hiccup. Android really needs to focus on this part of the experience - I have had nothing but trouble with many applications on my Droid. Open Source is fantastic - but there is something to be said for the Apple model of melding hardware and software. Most average users don't have the technical ability to navigate the application issues. Add to that, I cannot get nearly as many Android application on my Droid - they simply don't have nearly the number of applications, and the incredible variety. This leads into my next, critical point for Droid and Android...

4. It is CRITICAL for Android to step up and create a much more cohesive, user-friendly mobile application procurement environment. Long term, their open strategy (which right now is all the vogue with pundits but, as I wrote in another posting, they are way off mark on this) will lead to a lot of applications that are sub-par in performance, or worse, are net-negative on the base operating system. This is a huge issue for Google and it needs to be addressed. I am not advocating Apple is 100% right - but as of right now, their strategy kills Androids. My Android application experience has been confusing and downright awful, to be frank. And if it is for me, many other users are even more frustrated. Their base set of applications are fantastic, but iPhone users smugly look down at their Android counterparts, with dozens and dozens of fantastic, user-friendly and stable applications, easily procured from one easy source.

5. Web browsing speeds - here we give Droid and Verizon an important win, which goes back to AT&T - good old AT&T simply needs to step it up with their coverage. It's great that I am zipping faster than my Droid on Safari at times, but when I move seven paces to the left and the data stream wanes, what is the point of a faster browsing experience? The 3G coverage is frustrating, period, and it needs to be addressed or AT&T will lose iPhone in 2011.

6. I have been speaking with several Droid users having issues with their cameras in certain situations. I have not had the chance to really dive into the camera, but intend to over the Thanksgiving holiday, and post some results for comparative purposes. I WILL say iPhone's camera has never been my favorite, but actually works just fine for the casual well-lit snapshot. Even utilizing third-party apps, any iPhone pic taken in a dimly-lit setting is an act of redundancy - here's hoping what I hear is true, and 2010's update brings us not just a flash, but a fairly revolutionary upgrade to the camera (both hardware and rendering software - my sources say early tests are VERY exciting).

Summary: The iPhone remains first-in-class, but I see a tremendous future for the Android mobile operating system. And the factor that has driven me to carry two phones this month - Droid doesn't drop my calls nearly as much as the iPhone. I don't care about blaming hardware, the carrier, what geographic locale I happen to be in...consumers don't care. It is a phone after all, and my dropped-call percentage of 38% (almost four in every ten calls!) is unacceptable. AT&T and Apple need to address this issue, because if I am pitching a Fortune 100 client, I simply cannot have the phone blank on me if I move three steps top the left. My beloved iPhone is still in the lead over Android's latest and greatest offering, but AT&T and Apple must get the coverage problem solved and reassure their customer base (so incredibly loyal to begin with - as a former advertising executive, this should be an easy public relations fix once the actual coverage problem is addressed and rectified) that they can complete phone calls and have ready and stable access to their data streams without worry.

I will be checking back in with a further update after the holidays, and I would very much enjoy feedback on anyone's experiences with either device!

Disclosure: No holdings in any of the companies referenced in this article.

Bye, Bye Love: Leaving My iPhone for Droid

You never forget your first love. Even harder is breaking up when you love the whole family that surrounds your love. But, as Gordon Lightfoot once sang, "I don't know where we went wrong, but the feelings gone and I just can't get it back..."

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 (NTDOY.PK) 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:

1. 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)
2. 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.