Facebook buys WhatsApp

The big news this week was Facebook acquiring WhatsApp for a cool $19 billion dollars.

That is $19,000,000,000. In full glory.

For perspective, it is exactly 19 times what Facebook paid for Instagram a while ago, or just a fraction of Facebook’s current market cap. Whichever way you look at it.

Here is my take on the deal size.

Another way to look at this deal is to think that Facebook got a huge discount on WhatsApp valuation. WhatsApp would surely have gone public within the next few years and enjoy a market cap of at least $50 billion, if not more.

WhatsApp has got a lot of things going for it to support this kind of market valuation. Here are a few :-

  1. Crazy Growth : It has a huge reach with 450 million users. A good chunk of these are active every single day. And a million new users join the service everyday. This makes WhatsApp one of the fastest growing companies, ever. Pinterest who?
  2. Usage : People use WhatsApp on their mobile phones way more than any other app or service. As mobile phones take away more and more share of everyday time, this will only increase.
  3. Phone Numbers : The social graph at play in WhatsApp is already a validated and real graph. People join WhatsApp using their very real phone numbers. This social graph is as sticky as it gets.
  4. Opportunity : WhatsApp plays in the mobile messaging space, with data volumes rivaling telecom SMS traffic. As more users join the service and move to better phones, the volume of data will increase manifolds. All of this information put together, including text, voice, photos and videos, presents a treasure trove of information for an internet/mobile advertising company.

Facebook can become the Google Adwords of mobile, without selling a single ad on WhatsApp. All this data is golden for advertisers.

Considering these points, one can argue that WhatsApp got a fair price for what it has built and where it is today. Whether this price was fair for Facebook, only time will tell.

New iPads

Its been a while since Apple announced the new iPads. I just got a chance to put together my opinions about the event. Not much in novelty, but here are my observations about the new launches.

Designed By Apple

1. Things started off with a repeat of the video we saw at WWDC. Nothing wrong with that, but it seemed more like “Me, Apple” talk rather than the usual “You, User” videos we are used to seeing. The video is great for a developer conference, but could have been put aside for an announcement event. We do see a couple of user centric videos later in the event though.

2. The iPhone blockbuster opening weekend, followed by iOS adoption numbers and iTunes Radio numbers were in line with expectation. All three points demonstrate the huge difference between iOS & Android ecosystems in terms of users, usage and adoption.

3. A million apps. 60 billion app downloads. $13 billion paid to developers. Apple has a good thing going with the App Store. App discovery is a real problem now and I had hoped Apple would do something about that. No luck on that front.

4. Mavericks recap and demo was really good. Craig Federighi has made a name for himself presenting at these events.

5. Apple is the only company that puts in decent efforts on improving performance of already sold hardware. Increased performance and improved battery life are a gift to the people running old hardware. This is a case study in brand building, customer loyalty and retention. Apple’s effort to improve performance, battery life and graphics through a software update is commendable and unprecedented.

MBP15_PF_iBooks_Maps_PRINT

6. iBooks and Maps app come to the Mac. A tighter integration between OS X and iOS rewards loyal Apple customers who run both of the operating systems.

7. Working on the Mars project, responding to a personal message during a live demo, add a fantastic touch to the demo. Nobody understands their users more than Apple. And they are gutsy enough to show this. Clearly when hiding behind the spec sheet is an easy way out.

8. Mavericks is not free, but a free update. Not being cynical here, but that is true. OS X update pricing was on a free fall anyways. Getting most of your users onto the latest and greatest software is very beneficial, something Apple has learned from iOS experience. This is in contrast to Microsoft, who relies on OEM OS license sales for its revenue. And, making older hardware better through a free software update, is a blow to the gazillion Android devices that get obsolete within months of release to the market.

9. Mavericks gives you a feeling of the impending integration of the two OSes down the line. OS X is waiting at number ten, running through all California location names, patiently waiting for iOS to catch up to release 10. I am not a betting man, but I would be willing to put down a decent wager for that to happen.

10. Supporting hardware as old as that sold in 2007, is a fantastic effort for which Apple needs to be applauded. Kudos fruit company.

11. Price drops and spec upgrades on the new MacBooks is a welcome move. For me, 11-inch MacBook Air is the best laptop out there. It is interesting to see that their is a $100 price difference between the 11 and 13 inch Air, but a whopping $700 difference between the 13 and 15 inch MacBook Pros with Retina display.

12. Mac Pro is not of much interest to me, except that it goes to show that Apple still does a lot of things because it likes doing them, not optimizing on markets or product lines.

13. Eddy Cue’s rock poster in Pages was a surprise. Normally, you expect Apple to take on something the users can associate with. What makes this even weirder was that Eddy was not the guy making the poster.

14. iWork going free was not a surprise. Apple’s productivity suite has a good following in its own community. If free productivity software helps Apple sell more hardware then so be it. Its not that more people will buy Macs now that iWork is free. Most probably, more people will stay in the Apple ecosystem because of the free software. It would have been great had these apps been made available to existing Mac customers as well.

15. It would have been completely OK to disclose that a few features did not make the cut, and the new versions are not at feature parity with the older apps. And running out of time is not an excuse Apple can make. The power users found out pretty quickly, especially since the apps were made available on the same day as the event. Maybe everybody is due a slip once in a while. This furor could have completely overshadowed all the other goodies Mac users got in this release. I am sure a few people would have moved camp to Microsoft’s Office, as a wait for the regressed features is not practically possible if you have a presentation to make. I do not think there will be any impact of this move on sales of Microsoft Office on OS X (for new Mac customers).

Life on iPad

16. With 170 million iPads sold. Apple is leading in tablet usage share and customer satisfaction ratings. I think we have just begun in this form factor but the iPad has already had a devastating impact on notebooks and PC sales. And they are definitely used more. My parents for one, see no need to power up the desktop/laptop at home now, with the iPad at their disposal.

17. The iPad Air and iPad Mini with Retina display are awesome. Making the iPad Air thinner, lighter and faster without impacting the battery life is MAGICAL. New colors were a nice touch, providing a physical differentiation to the new devices.

18. The last generation is sticking around, with a price drop. Not by much, but it breaks the psychological barrier of $300. And helps Apple cover more price points. New covers help beef up the margins.

18. The iPad 2′s perseverance in the lineup is very surprising. And it is the only iPad with a number against it. iPad Air, iPad Mini with Retina, iPad Mini and then there is iPad 2. And I believe atleast the dock connector on the iPad 2 could have been updated to ease cable hell.

19. The “Air” monicker is apt for use with the new iPad.

20. The fact that Apple has the same specs on iPad Mini with Retina and iPad Air, indicates that Apple thinks the customer categories do not overlap due to the form factor. They could have easily gone in for some harder differentiation, but chose to get all the latest chips across the range. This consolidation is a pretty good tell that something new is in the pipes. God knows what.

iPad Air TV Ad – Pencil

21. The new iPad Air ad is good. “Assembled in China” is conspicuous by its absence at the back.

That’s it! These are my observations from the event. What did you think about the event? Mention in comments below…

All images courtesy of Apple, Inc.

New iPhones

Its been a few days since Apple’s iPhone event. Apple introduced two new iPhones, 5C & 5S, and discontinued the iPhone 5.

Surprisingly, all the rumors related to fingerprint scanner, colors and even the names of the new iPhone were true. It looks like the Jobsian era of secrecy has come to an end.

Apple is the clear leader in the smartphone market, with over 70% of profits. With the new phones, the flagship model from the leader has just shed a cool $100 from the price tag, effectively bringing down the high water mark in the market. While Apple will recover the margins with a cheaper to manufacture 5C, iPhone 5S and accessories, Samsung will probably lose some market share from its Galaxy top range.

The new phones crown bluetooth as king for sharing and connections, making NFC’s mass adoption a distant dream now. When the leading provider does not carry the technology, its future is truly limited.

Cases and docks are once again in vogue for Apple. This will help Apple regain some lost margin. Cases are typically bought along with the phone. Even though the phone is cheaper, the overall impact considering the carrier subsidy, might be minimal. The phones are being launched in more countries, with Japan & China (not announced yet, but expected) being notable additions. This will add more volume in product distribution. Without a doubt we will see more iPhones sold this holiday quarter than ever before.

More money. Less impact on margins. I am going long on Apple.

I understand that from a portfolio perspective, the iPhone 5 had to be discontinued. People like to buy a newly released phone, and the new design preserves this notion even though the internals are all the same. Does this also hint at a iPhone 5X in the near future? Only time will tell.

iPhone 5C

Everybody agrees that the iPhone 5C is the new flagship model from Apple. It is the first one listed on the carousel at apple.com. It is also the first one available for pre-order. This despite the fact that it is essentially one-year-old internals in a new plastic skin. Personally, I would have loved to see a darker blue or a blood red option in the colors available. Maybe Apple would release them later. White color looks all alone, without its usual friends black and grey. It is understandable that the black & grey might overlap with the colors from iPhone 5S, but the curves and glossiness is a good enough difference to offer black & grey colors for the 5C.

The iPhone 5C is still not a product for the prepaid or unsubsidized market. It is a product focused on the top rung. Apple as a company has always focused itself on the high end of the market. The subsidy system hides this fact very well, a fact corroborated with iOS’s high market share in the US. The cases get people who are either against glossy finish or like rubbery textures on board. The logo error is a rare mistake in design from Apple. I expect it will be fixed before the holiday season.

The 5C screen is the same as its predecessor. This might aid developers with app layouts, but probably points to Apple thinking the screen is good enough for most tasks. Apple customers are the carriers. I would not be surprised to see some more price drops on contracts, making them free on two year contracts. And you cannot offer cheaper than free. iTunes gift cards could also be used by various retailers to bring the price down even further.

iPhone 5S

The iPhone 5 is a very good phone. I use it everyday. iPhone 5S doubles its performance and sports a new camera. But this performance boost has to suffice till the next round of phones are introduced. Quad core was not mentioned anywhere. Apple must have realized the processors are not the bottleneck on the phone performance. The iPhone 5 was in a way over-serving the market, and there was no point in adding more power and over-over-serving it. This bucks the current trend on Android phones with more processing power, bigger screens and more megapixels on the camera.

The new technology on the 5S indicates what Apple has in store for future. 64-bit architecture, M7 chip, iBeacon and fingerprint sensor are features that will become more powerful with time. They hint at the overall plan Apple has with the iPhone. These features cannot be imitated easily by the competition.

The new tech also tells us how clueless other players in the smartphone market are, with the notable exception of Nokia. We have seen two apps running simultaneously, multiple user accounts, face detection etc, but nothing along the lines of what Apple has introduced in the 5S. “Forward thinking” tagline is a huge hint for things to come. The fingerprint sensor is a welcome advancement. Unlocking the phone is now easier, and more secure. Same with iTunes purchases. Because of password length requirements, this saves typing at least 8 characters for everyone. On colors, Gold was probably the only color option that could be introduced. It is expected to be a huge draw in certain markets.

The iPhone camera sees an improvement on the sensor front, cementing its position as the best camera on smartphones for a few more months. A few other software features like slow motion recording & burst shooting mode will keep things interesting for the casual shooters.

These are my initial thoughts on the phone launch. iOS 7 has a few tweaks since last seen. Apple has listened to the feedback and made the font a bit more readable. I am planning to update to iOS 7 on my iPhone 5 as soon as it is available. I will write about the new OS experience soon!

Nokisoft

Past week, we were all shocked, but not surprised, by Microsoft’s decision to acquire Nokia’s phone division.

But it makes sense. Nokia is the only OEM who bet the house on Windows Phone 8. Although growing steadily, Windows Phone 8 is not setting the world on fire. PC sales are only going in one direction since the last few quarters. Microsoft’s own efforts on the Surface were a big dud in the market. All of these pointed to a serious change required in the setting. A bold move. Double or quits.

That is exactly what Microsoft’s Nokia acquisition tells us. Its a doubling down move on mobile. I consider this to be a good decision by Microsoft, and a wise use of the monies they have been accumulating. Office & Windows revenue streams are in an extremely risky position as momentum is surely with mobiles and tablets.

The deal has to be approved by various regulatory bodies. The integration will take atleast a few months to show any signs of success.

Microsoft has always been in the licensing business, be it operating systems or office productivity software. The business model is simple. They earn an x amount of dollars for every PC that is sold in the market. But this model is not working in the new post PC era. No phone/tablet hardware manufacturer is ready to pay for software (Samsung, HTC). Certainly not for a late entrant like WP8. And besides, Android is free. The rest are vertically integrated (Apple, RIM).

With the notable exception of Xbox, and to some extent Bing, Microsoft’s foray into digital media or consumer hardware have not been successful. Post PC era has arrived in the consumer space. It is only a matter of time before this shift happens in the enterprise market. Apple & Google are in a very good position to dislodge Microsoft from enterprise IT. Or worse, make Microsoft irrelevant.

This acquisition is Microsoft’s attempt to change that.

With the Nokia acquisition, Microsoft gets :-

  • A hardware manufacturer who knows how to build quality, differentiable hardware.
  • An efficient distribution system and a global supply chain, with an extremely lucrative share in the growing markets.
  • A strong patent portfolio, that can always come in handy.
  • Expertise and experience in mobile computing, with ready to use platforms like “Here Maps”.

These are good tools to have in your pocket. An integrated offering provides higher gross margins, as you save on markups and royalties. While many believe Microsoft was already late with WP7 when it launched a few years ago, there are some who are getting bored from both iOS & Android. And Blackberry is up for grabs. Plus, this market is crucial to Microsoft’s future. We need to wait and see how things pan out for them.

I also think Microsoft can win over a few million in sales from other OEMs by giving away WP8 for free. It might even be possible to arrange a barter system wherein companies like HTC et al get to pay nothing for x million of phones provided they commit to y million of Windows 8 devices per year. Or no $5 per Android phone sold, if they also sell z million of WP8s.

With these benefits and economies in scale, Microsoft’s bet to gain a significant market share in consumer space gets some wind underneath its wings. Whether that will be enough to take flight, only time will tell.

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September 03, 2013
Image: Web

Apple’s Q3 2013 numbers

Yesterday, everybody’s favorite fruit company came out with its Q3 numbers, for what is arguably the slowest quarter of the year. A few observations :-

1. Its been a long time since Apple released any new products. Holding on to last year’s numbers is commendable.

2. The iPhone numbers were the highlight of this earnings report. Contributing over half of revenues, and growing in a typically sluggish quarter is fantastic news. This might be fueled by the migration of smartphone users from other platforms. As people start using smartphones more and more, Apple benefits more and more.

3. The iPad numbers were a disappointment. The iPad and other tablets put together, provide the logical reason for the drop in PC sales. With fewer iPads sold than in the same quarter last year, it is a signal that a refresh is necessary, especially since Apple does not do discounts.

4. This quarter demonstrated the importance of Mac for Apple. With the average iPhone selling for $581 and iPad at $436, Mac has the highest average selling price at $1303. Clearly Apple needs to bring its focus back on the Mac before the holiday season sets in.

5. Europe, China & Asia Pacific dragged down all the growth in Americas & Japan. For some strange reason Japan grew by 27%. No idea why…

6. iTunes software & services revenue grew more than the iPhone sales, even though there was a drop in the iPad sales. This is a good sign. It probably means all the older iPads & iPhones and other iOS devices are still being used and new apps are regularly being purchased. Or maybe this is because iTunes is now available in more markets than last year.

A few predictions

1. It looks like September is going to be huge for Apple. My guess would be that iOS7 wont be the only new launch this fall. A new iPhone and an iPad refresh is probably in the pipeline.

2. A price correction on the MBP Retina Display would give the Mac sales a much needed boost. The recent MBA refresh added more memory to the base model. I suspect we will see a price correction across the Mac lineup.

3. Even if the US market is saturated for Apple, the Americas still grew a very healthy 12% year-on-year. I think the smartphone displacement cycle has begun in USA. Apple has a few good aces to win that battle, with the App Store chief amongst them.

Finally, did you notice that the data summary PDF download for the quarter results was an xlsx? Who knew…