Apple gets its mojo back...for now

Earlier today, Apple held a multi-product announcement at the Flint Center in Cupertino. I'm going to skip the product specifications and discuss what it all means, at least to me:

iPhone 6

The long-rumored iPhone 6 was announced, in two flavors: The iPhone 6 with a 4.7" display, and the iPhone 6 Plus with a 5.5" display. Other than display size, the two phones are functionally identical to each other. The big news, obviously, is the bigger screens. Prior to today, if you wanted an iPhone, you could choose between a 4" display and...another 4" display. Android smartphone vendors have successfully competed against the iPhone with bigger phones--in fact, some analysts attribute a fair portion of the decline in iPad sales to substitution of bigger smartphones for tablets.

With the deliveries of the iPhone 6 models in September, Apple will have its own "phablet" to compete with big Android and Windows Phone models. The iPhone 6 Plus, in particular, is likely to cannibalize sales of iPads and iPad minis, but Apple would rather steal sales from itself and keep customers inside Apple's ecosystem than lose sales to competitors and risk having customers switch to Android or Windows Phone.

Apple has also adopted Near Field Communications (NFC) for use in financial transactions. The company's new Apple Pay service enables customers of five of the largest U.S. banks to make credit and debit card payments without taking out their cards. Apple says that over 220,000 stores are already equipped for Apple Pay transactions. Again, this is an area where Apple is catching up with competitors; the first NFC-equipped Android and Blackberry phones were released in 2011. NFC hasn't taken off in the U.S., largely because a relatively small number of customers had compatible smartphones, and partly because not enough banks and merchants were supporting it. Apple Pay goes a long way to cutting the Gordian Knot by bringing Apple, payment networks (American Express, MasterCard and Visa,) banks and merchants together. However, Apple Pay only works with the iPhone 6 and iPhone 6 Plus, so for quite some time, the vast majority of iPhones in customer hands will be incompatible.

From all appearances, the new iPhones are well-built, well-designed smartphones that compare well with the best phones from competitors. However, the key features that differentiate the iPhone 6 and iPhone 6 Plus from earlier iPhones, particularly the iPhone 5s, are features that competitors have had for some time. With today's announcement, the top iOS, Android and Windows Phone smartphones are largely at parity.

Apple Watch

Today's Apple Watch announcement (really a preannouncement--I'll explain in a moment) finally brought to an end most of the speculation about the "iWatch"--speculation that began in late 2012. Many, if not most of the current assortment of smartwatches from Pebble, Samsung, Motorola, LG, Sony and others, owe their genesis to a desire to get into the market ahead of Apple. Apple isn't in the market quite yet--they announced the Apple Watch with two different display sizes and three models, but didn't discuss the actual screen size, resolution, storage space, RAM size or battery life. We also don't know when the Apple Watch will ship, other than some time in early 2015. The prices was specified at "starting at $349" in the U.S., which suggests that the three models will be differentiated by screen size, bands, and possibly memory. (We've since learned that the models are also likely to be differentiated by case materials.) So, we know a lot about the Apple Watch, but if we don't know when we can buy it, how much it'll cost or how it's equipped, it's a preannouncement.

People have criticized Samsung for their tendency to throw everything but the kitchen sink into their smartphones, whether or not the features are actually going to be used or work very well. I felt the same way about the Apple Watch feature set. Some of the features, such as using a GPS-based time server to maintain the correct local time, and the ability to use the Watch as the "front end" for texts, phone calls and email, make a lot of sense. The exercise features make the Watch an effective substitute for a fitness tracker. However, some features, like the ability to draw on the crystal with your finger and to send your heartbeat to another Watch user, go into the "What were they thinking?" category.

It feels to me like no one--not Apple, Samsung, Motorola or the rest--knows what the real use cases for a smartwatch are. Of course it has to tell time; otherwise, it's not a watch. But anyone can buy a perfectly adequate watch for telling time for $25. How do you justify spending $250 or more for a smartwatch? One way is to let it act as a "front end" for the smartphone for the most common uses--phone calls, texts and emails. Using the watch for maps and navigation is also nice, and fairly common. And, of course, if the smartwatch can do everything that a fitness tracker can, you don't need the fitness tracker. But here's the problem: Other than telling time, the smartwatch doesn't do anything as well as a smartphone. The screen is too small, especially when people want smartphones with bigger and bigger screens. Fitness trackers aren't selling well, and many people who bought them have stopped using them. Will they use the fitness features longer or more regularly if they're part of a smartwatch? Perhaps. Will they want to feel someone else's heartbeat? Maybe once.

I don't think that anyone, Apple included, has as of yet either 1) Justified the prices of their smartwatches, or 2) Figured out the right feature set to make them a mass market item. At $349, I expect a watch that's a smartphone, not a watch that has to be connected to a smartphone in order to do anything more than tell time. Maybe at $199, smartwatches with comparable functionality to the Apple Watch will sell in big numbers, but at $349, or even the $249 that most Android Wear watches are priced at, they're going to be niche items.

Android, iOS and Windows Phone all increased their U.S. smartphone market share

ComScore has released its MobiLens report on U.S. smartphone market share, for the three months ending May 2012. Here's a summary:

• Android increased its market share to 50.9%, from 50.1% in the three months ending in February 2012. 
• iOS increased its market share to 31.9% from 30.2% in the previous three months. 
• Windows Phone 7's market share increased to 4% from 3.9% in the previous three months. (It remains to be seen whether Microsoft's market share will continue to grow, now that consumers have learned that no existing Windows Phone devices will be able to run the forthcoming Windows Phone 8 operating system.) 
• BlackBerry's market share declined to 11.4% from 13.4%. 
• Symbian's market share declined to 1.1% from 1.5%. 

In terms of hardware vendors, Samsung and Apple increased their market share, by 0.1% and 1.5% respectively, while LG (-0.3%), Motorola (-0.8%) and HTC (-0.2%) all lost market share. (Neither RIM nor Nokia are in the U.S. top five, so they've not been reported on by comScore.)

Microsoft just made all Windows Phone 7.X smartphones obsolete

Earlier today, Microsoft gave a technical preview of Windows Phone 8, the new version of its phone operating system. There were two big pieces of news, one good for developers and future Windows Phone buyers, the other very bad for current Windows Phone owners.

The good news is that Windows Phone 8 will be based on the same kernel, and many of the same drivers, as Windows 8. That means that it will be much easier for developers to move apps from Windows Phone 8 to Windows 8 and vice versa. I suspect that it won't be quite as smooth as Apple's iOS environment, where the iPhone and iPad run the same operating system, but it'll be much better than Windows' current situation, where there's virtually no commonality between Windows 7 and Windows Phone 7.X.

The bad (really bad) news is that owners of Windows Phone 7.X devices will not be able to upgrade to Windows Phone 8. All those folks that bought Nokia Lumia 900s, 800s, 600s and any other Windows Phone 7.X device are out of luck--no Windows Phone 8 for you. Microsoft will offer them a consolation prize, Windows Phone 7.8, with some of Windows Phone 8's user interface improvements, but with no way to run Windows Phone 8 apps.

Apple's had this "make your new operating system compatible with your old devices" thing down for a few years now, and I marvel at why neither Google nor now Microsoft can do it. Microsoft will undoubtedly argue that smartphones need new hardware to take advantage of Windows Phone 8, but that doesn't explain why the company didn't anticipate the problem when drawing up the specifications for Windows Phone 7.X devices. Did the Windows and Windows Phone teams not start talking to each other until a few weeks ago?

When Nokia launched the Lumia 900, it ran commercials in the U.S. with a spokesperson telling people that the "beta test is over"--they could buy the first "production" smartphone, the Lumia 900. Unfortunately, Nokia and Microsoft customers who bought that line now know that they were merely participating in yet another beta test.

The tablet makers' dilemma

Last week, DigiTimes wrote that "Android 4.0-based tablet PCs will be the dominant products in the segment in the third quarter of 2012 as most brand vendors will not rush to launch Windows 8-based models until the fourth quarter." The reasons for holding off on introducing Windows 8 tablets are fairly clear:

• Microsoft had been expected to release Windows 8 in Q2, but it's now looking like it won't be released until Q3 or possibly even Q4. 
• It will take time for vendors to test Windows 8 and related products for their tablets. 
• Vendors are suspicious of Microsoft's intentions with the Barnes & Noble deal--is B&N going to become Microsoft's "preferred" tablet vendor in the same way that Nokia is favored for Windows Phone 7 smartphones?
• Vendors see no reason to rush Windows 8 tablets to market. 

But, will Android 4.0 products be "dominant" in Q3? Not likely. According to Google's Android Developers site, all versions of Android 4 constitute less than 5% of the active Android installed base. That number overstates Android 4's true share because Google bases its installed base numbers on usage of the Google Play website, which only "authorized" devices can access. If the Kindle Fire and Barnes & Noble Nook Tablet and Nook Color were included, Android 2.3.3 to 2.3.7 would have even more market share than the 63.9% reported by Google.

That leaves tablet vendors other than Apple, Amazon and Barnes & Noble in a quandry. Should they continue to invest in Android tablets when, to date, Google hasn't been able to provide a version of Android for tablets that's compelling to consumers? How much hope should they place in Google getting it right with Android 5? Should they follow Amazon's model and fork a stable version of Android with their own user interface, perhaps even going back to 2.3.X?

Is Windows 8 the solution? Possibly--the Windows Phone user experience is superior to that of Android, and both Windows Phone and Windows 8 uses Microsoft's Metro design language  However, Windows 8 is the "floor wax/dessert topping" of operating systems. It's designed to be used for both touch-oriented tablets and keyboard-oriented personal computers, and as a result, it has compromises that iOS and Android don't have. The "tablet" portion of Windows 8 looks like its usability will be competitive with iOS, but there are likely to be very few apps available for it at launch, compared to more than 600,000 for iOS. The "personal computer" portion of Windows 8 looks and works almost identically to Windows 7, which means that it has nothing to do with the tablet apps.

One the one hand, computer companies can't afford to concede the tablet market to Apple. On the other, it's clear that Android, at least the stock version offered by Google, isn't competitive with iOS. Windows 8 is likely to be better, but as a tablet operating system, it's starting where Android was more than a year ago. So what should tablet vendors do? The safest approach is to wait and see: Develop prototypes of Android 5 and Windows 8 tablets that can be taken into production quickly, but let competitors test the waters first. Don't commit the resources to production or distribution until one of the operating systems proves that can compete with iOS. Another option is to fork and skin Android in order to improve its user interface--riskier, but possibly  the only way to make Android a viable alternative to iOS.