Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Bertrand: Hello Nuno, how are you today? 

Nuno: I am. Well, how are you Bertrand? 

Bertrand: Pretty good, pretty good. 

Nuno: Today we’re going to talk quite a bit about strategy, and how some very significant players Apple, Nike, and Google are thinking through their integration in terms of business model. Also in terms of tech, we’re going to leave some of the content discussion to another episode.

In particular around some of the movements that Google, Apple, Facebook and others are doing around content, around gaming, et cetera. 

Apple Vertical Integration Strategy (01:57)

But maybe just start with a really fascinating article around the A6, and on how Apple has really innovated around the system on chip space, and how that really is linked to it’s almost dominant position around the operating system stack as well. 

Bertrand: Yes, I think there was this fantastic article on Apple Insider talking about how the A6, the Apple CPU that was launched  in 2012 is representative of how Apple works differently from other tech companies. And myself, I remember one of the first time I was surprised by how Apple was working, is when I heard that story about how they cornered, the aluminum  market for laptops: they will buy in advance most of the sources of aluminum to make sure nobody else could make a MacBook . And apparently that story was not just a wake up call for me, but a wake up call for execs at other tech companies, including Microsoft, when suddenly they fully realized what they were up against in term of vertical integration. 

I think that the traditional PC space was not about this vertical integration. That’s for sure. That was about Intel and Microsoft creating that ecosystem where everyone compete pretty aggressively and the profit goes to Microsoft and Intel at the end of the day.

Apple has a different approach. Apple is Apple, so they don’t have an ecosystem as wide, and they focus very clearly about keeping the profits for them, not sharing with another one big strategic partner, or on another ecosystem – you could argue that actually there is some profit sharing with the app ecosystem. And that’s probably new for Apple. 

But going back to this A6 story, and that’s interesting because it’s bringing us back to memory lane in a way, years ago. And that’s where you see Apple has been very fast understanding and from there strategizing what to do, from that initial leadership position in the smartphone space, because to launch that in 2012, you had to prepare that a few years ago.

So it was relatively early  in the iPhone history that they started preparing a much bigger play around a much fuller vertical integration, that nearly no one, even today, maybe barely Samsung has truly deployed. 

Nuno: Yes, and I think there was a couple of interesting elements here that the article does mention, which is how Android became effectively unbundled because obviously Google is trying to bring as many OEMs to the table as possible.

And in some ways, Android has become the dominant operating system globally, but the experience of Android in some ways has historically lagged some of the aspects of iOS. I would argue maybe today it’s less visible, but certainly if we go back 2012, 2014, 2015, that’s certainly visible.

It also manifests itself in the quality of the apps, and the quality and the revenue that’s made in the app store space. But for me, there was  a more fundamental issue here, and I go back maybe to 2005 / 2004, when I was still with the GSM association. We’re having all these fascinating discussions with MIT professors and a few early stage startups that were really saying the future is going to be system on chip.

We’re going to have more and more integration down stack, and it does make sense if you have a really, really well framed stack around the hardware pieces, around the operating system and then around , basically the processing power, to actually do and pass more and more stuff to system on chips.

So in some ways, I think what Apple is doing is really the playbook that we’ve been discussing probably now for a decade and a half, even longer, that you’re going to have more and more integration downstream, on the one hand, but also basically you’re going to have a lot more integration into the chip, right?

And that will get you performance, that will get you a level of customization linked to operating system that basically was unheard of, even in the times of Microsoft and Intel. 

Bertrand: Yes, and for me, what’s really impressive is that this article is sharing a window in a sub-part of the full Apple vertical integration.

Because again, it goes from having a near controlling side on some output from some mines in some specific type of minerals, to an integration of hardware. And at the time, let’s remember in 2012 they had not yet integrated the GPU, the GPU for the iPhone designed and manufactured by Apple was a few years after, around 2016 if I remember well, that’s when they drop  their partner. But it goes beyond that, it goes not just to the app store that everybody knows, but it goes even to the programming tools and ecosystem. They have X-Code, very good programming tool, but they also have launched their own programming language.

They always have had Objective C, but then they move to Swift, we’re at Swift five now, and the latest one , the one I got actually very, very excited was  Swift UI. That was announced at WWDC in June, and has been released as part of iOS 13, the new MacOS Catalina, and this Swift UI is very impressive in term of how it lets you develop easily across all the Apple ecosystem in a way that puts shame, honestly shame to everybody else in the industry because no one has such an efficient set of tools, from A to Z. And not just that: all of their tools are fully optimized to their CPUs, their GPUs. Metal, Apple’s own 3D engine truly leverage their GPUs and CPUs combined, and their machine learning libraries and developer tools are also fully integrated with their hardware.

And now obviously the talk of everyone is around Apple services: the last layer, from mining aluminum to providing you TV shows, you have the full stack coming from Apple. 

Nuno: And if you look at the Android devices, for me the realization is in effect, the best Android devices are not really the Google flagship devices anymore.

We’ve heard some mixed feelings around the Pixel 4 and the Pixel 4 XL, even with the Pixel 3 XL, which was actually a really good device, it was clear to me at that point that there were better devices in the market. I think One Plus has done an incredible job of being ahead of the curve in many of these trends and almost keeping up to par with some of the things that we’re now seeing with Apple. Right. Like the nightscape on the One Plus 7 Pro has been around since March, obviously now with the iPhone 11 Pro we have that as well in the Apple ecosystem. So I think that there’s a lot of interesting things around how they’ve attached to the devices, and how the devices have provided this incredible experience to end users.

Where Android is seems to be playing catch up and certainly Google doesn’t seem to be sort of the clear innovator anymore. Maybe it was early on with the Nexus series, but certainly, probably not with the Pixel series in the last few years. 

Peak Google or the “Google Squeeze”? (08:49)

Maybe changing to Google and talking a little bit about Google, this fascinating Stratechery article on “the Google squeeze”, where there’s this admission, you know, I called it peak Google. It’s not peak Google, apparently they’re still doing really well. 

And it just sort of illustrates this really interesting thing that people have sort of been noticing, which is you really are getting a lot of stuff now to just searching Google. You’re getting flights, you’re getting hotels, you’re getting all this things. 

Bertrand: And you’re getting good stuff: like new tools, new format, but also a lot more ads. I mean, if you remember what was Google 10 years ago? It’s night and day. 

Nuno: Yes. And there’s a clear disintermediation of a lot of these players in the market, and that is significant.

So if we’re looking at what Google has done, and this is just talking a lot about travel, but there’s a lot of other dimensions of what Google is doing. It has become sort of the center of our universe in terms of search overall, for all sorts of things. Not just information anymore, but really a lot of utility as well, being provided by Google on a daily basis.

You search for a flight, I don’t know if you’ve noticed this, but actually the information that you get on flights is more accurate if you basically search on Google than sometimes you’re at the airport. And I’ve done this test and sometimes it’s showing the flights landing at X time, and you do a Google search, and it’s already showing the exact time it’s going to land at.

And it’s almost like getting scary. You’re like, you know what? I’m actually at the airport. These guys should have the proper information on when the flights landing, but Google has it . 

Bertrand: Yes. Actually, I remember I was delayed on a flight and I was so pissed that my app was not showing the right time for boarding, the right time for this, the right time for that. So I would say, I’m very happy that a player like Google is providing finally better service. 

I think it’s very confusing for consumers when they have multiple information: you have one info from the airport, one info from your United app or whatever airline you travel with, and then one info maybe from Google, even more precise. And  you have to play with 3 trying to guess: actually right now, for me, which one is right? Because you have doubt , I’m not sure which one is right.

And that’s on top of the alerts you receive 5 or 10 minutes after the event itself. So I think especially in travel, it can be pretty frustrating because it’s time sensitive and usually it has an impact: is your flight delayed / not delayed? Is there a new boarding time / not a new boarding time?

I still remember one episode in Barcelona, where I had to change gates. I think more than a half a dozen times. Yes that was pretty insane, and we were running from gate to gate: 100 people trying to catch their flight. 

Nuno: That must have been fun to to watch. 

Bertrand: Everyone’s at the airport, during one hour, moving from gate to gate. And that was insane. And of course we had different info from the airport itself versus the carrier app. 

Nuno: But I think one has to really look at Google at this stage as one of the dominating companies around the world. There’s been a lot of time spent on Amazon recently for a variety of reasons.

But actually if you look at Google and the level of integration it provides, the level utility they provide to end users, the level of traffic they generate across the board, right? It’s just massive, the assets that they own, and obviously there’s been discussions around whether these companies should be broken up or not.

We won’t go into that today. But it’s really fascinating to me how much Google has evolved to have become the center of our universes whenever we’re looking for information, for transactions, for tools, etc. And it’s really, really fascinating to me that we’re at that point, this is no longer about just organizing the world’s information.

I mean, it’s gone well beyond that. And we’re not even talking about Alphabet in general and the other things they’re doing . But just Google itself, it’s really incredible. 

Bertrand: But at the same time to be fair, even Ben Thompson recognizes that he a wrong analysis five years ago talking about “Peak Google”.

And I remember people at the time were wondering is it truly “Peak Google”? Because can you really put as many ads on a mobile device? Are apps going to fully kill their business? So my point is that with perfect hindsight it looks like they are doing very well, but I still remember 5 to 10 years ago there was this big question mark.

And the same way for Facebook, when you think about it, before Facebook had a true mobile strategy, a successful mobile app, that was around the time of their IPO there was a lot of question marks around: can Facebook adjust mobile. So yes, with perfect hindsight, it looks inevitable. 

What’s clear is that the Google experience, in my mind that has changed dramatically: It’s not a few ads, it’s nearly nonstop ads, and it’s also very useful tools. I think that’s how Google called them. 

Like a product search, like a travel search, like optimized tools and boxes in your search results where it’s coming directly from Google so you don’t waste time clicking, but for sure if you don’t waste time clicking, what does it mean, it means that where you used to click to go to another site is not getting the views anymore, is not getting the traffic, is not getting the ads. 

And it stays within Google and I think it’s raising very fair question about what’s left for some players who were fully designed on getting SEO from Google, and from this SEO on Google, aggregating demand, and making their business around that, because suddenly what they are all realizing is that Google is going to dis-intermediate you at some point. And in a way it’s better for consumers: I don’t want to move from one site to another one to get my answer if it can be answered directly. 

Nuno: It has become effectively, not just the gateway to the Internet, it has become almost the Internet, right? 

And the fascinating thing is obviously people go to Amazon to purchase items and for commerce in general, I would say obviously Amazon has other products that are interesting, and they’re trying to find other ways of channeling people to their services through the Alexa play, et cetera.

You have Facebook, which sort of dominates that part of the social interaction also with Instagram, to a certain extent on the messaging side with WhatsApp. 

But really Google has become the Internet. It’s the mainstream internet. You go for something, you go into Google, you might as well, right? 

Bertrand: And don’t forget they own Chrome: they developed and built Chrome from scratch, moving from zero to extreme success. So when you say they own the Internet, it was the resonating with me, because yes, it’s not just your search… 

Nuno: …they own the browser, they own the most dominating mobile operating system in the world in terms of just sheer volume, and one has to, at some point, ask where do they stop? Right? And I’m not sure, unless someone tells them to stop, they’ll stop. Us as consumers probably we will get a lot of benefit, then the key question is: is it really a monopoly or not? In what sense does it need to be broken or not? But we as consumers, we thank them for this. 

Bertrand: Yes. I don’t think a monopoly is bad per se, in the sense that they have built a great product, and that’s how they managed to get to such a position. And we are in tech after all, so once you start to be really successful, your success becomes a very, very strong and big success. 

Nike really goes Direct-to-Consumer (15:35)

Nuno: Yes.  Let’s talk about the last one of these integration plays: the article around Nike, and the fact that Nike will stop selling directly to Amazon, and they will really focus in particular on the online space, on direct to consumer, which has become a really significant business to them.

And how will that evolve? John Donahoe joining them recently, at some point in time the CEO of eBay, does seem to indicate that they are aggressively going to become an eCommerce play, and very very focused on being that. 

Cracks in Amazon’s armor (16:06)

Bertrand: Yes,  and it’s actually an interesting transition because we are talking about the power of Google. But actually, who is the leader in product search today? It’s actually Amazon, it’s not Google. Google is actually playing catch up because today, consumers search first for products on Amazon. And that’s probably one reason Amazon’s advertising has exploded in the past few years, because they didn’t try to mine that for advertising until very recently.

But when you are the main favorite destination for product search, ultimately yes, you are going to start to generate some pretty good advertising business pretty quickly. So it’s an interesting transition to go to Nike who decides to stop selling on Amazon, and I think that would be a big question for a lot of brands, it’s the biggest one: is how do you partner or not partner with Amazon?

And obviously there are a few issues highlighted in this article. One , if you’re Nike, you cannot control how you present your product, your brand as completely as you might want if you are doing that on Amazon. Amazon’s platform, to be frank, is pretty poor in term of UI, in term of design, in term of how you can express all of this.

It might be actually by design, because they want to level the playing field across every product: from the cheaply designed product to the very expensive luxury one. But obviously that has a negative impact on the ones who do better branding and advertising, or want this opportunity.

So that’s one big constraint. Another one is: obviously giving some commissions, it’ s giving some control, and probably one of the bigger problems also with Amazon is the mix up between, the original product you sell on Amazon and potentially some other merchants selling your products, when they are not authorized to sell them on Amazon. Or selling fake products on Amazon, and that’s a bigger issue because then you you got confusion from the consumer. You have five answers for the same Nike shoes instead of just the one from Nike. And I think that’s going to stay an issue.

And in the article they talk about Amazon spending $400 million a year on policing their marketplace, I was actually shocked. It doesn’t seem like a lot of money given how much is going through Amazon. If you look at the recent changes Facebook is doing to improve security in their platform: we are talking about billions a year, because they realize they have to do it and they have to increase significantly.

I wonder when Amazon will go to the same level?

Nuno: So a couple of points from me that are pretty interesting about this discussion when we discussed last time, which is really around customer ownership, not just the ownership of the customer experience, but customer ownership and understanding who customers are, et cetera, which we start seeing with digitally native brands, is really the focus. Right? 

They start by themselves with their own offerings in eCommerce, and they really push it to end consumers to have this understanding and ownership of end consumers, which in some ways if you go through Amazon you lose the visibility to the end consumer, not just from a user experience perspective, but also from just selling, having the data, understanding who they are, et cetera.

The second piece that is really interesting about this, and I think it’s often underestimated: the really profitable side of selling of Amazon is third party. Right? And from just a sheer profitability perspective, that’s what really makes more money to Amazon.

We always would think, well, it’s what they sell themselves and what they basically control from an inventory perspective. That’s not true. We know that for a fact that actually they make a lot more money with third parties. 

So in effect, the interesting piece is how does then Amazon deal with that, because they can’t simply become overly aggressive with their third party sellers. Right? 

Because that is obviously their main keep in terms of profitability. The reality is that. So how would Amazon react to that? How would Amazon actually start fulfilling these orders in a different way? How would they think it through? 

The third piece, for me, that’s really important about this is: if you are a brand that’s going to basically fulfill an order to me as an end user, there are elements of the convenience piece that I think is very difficult to do if you’re not Amazon. 

And I actually just, this just happened to me literally yesterday, I made an order, I won’t say the name of the brand, I made it directly from the brand. It’s a well known brand. And when it got to my place. The packaging, it’s sort of had an issue. There was a liquid and it came out and I was like, Oh man, this took like a week to arrive.

Bertrand: What are you transporting Nuno? What are you buying?

Nuno: This was like beauty products, like shampoo, and conditioner, and stuff like that. And I was thinking, you know, if this was on Amazon it would be very simple.

I would go on the website right now, in one minute I would get a refund or they would send me a new thing and it would have been done. We would have been done on this. And with these guys, I don’t want to wait another week. So, I was almost like thinking how much of the liquid is already come out and whatever.

As a user experience, probably to the brand, they think: oh this guy’s fulfilled, he’s happy, and I’m not. And in some ways, I think that’s the great thing that Amazon has brought to us: this amount of convenience that they bring us as users and the ability that you have to just, get refunds and stuff back. Sometimes not even need to stand back. 

It’s very difficult to replicate. So for me, I think we have these two major forces: which is brands wanting to own their own experience and customers, and then on the other side, this gigantically great user experience that we all as consumers get from Amazon. That to be very honest, does generate a lot of traffic.

And so we’re like, you know what, I probably will just order this from Amazon next time. 

Bertrand: Nuno, to double down on this, what’s interesting is that: you keep talking about user experience, but actually their website, the front end of Amazon when you’re buying, it’s pretty poor, pretty ugly.

I think when you talk about great user experience, it’s all that logistics system that does magic where: you get for free your shipments the next day, two day after, the perfect customer service, sending back easily, your stuff. Me, when I’m buying outside Amazon, I’m always shocked that: oh, it’s going to take three days, four days, a week, two weeks. How do I do a return? 

Nuno: We get antsy. If it takes a week, we’re like, why is it taking a week? Right? Why is it not tomorrow or in two days?

Bertrand: And you know the other piece that has shocked me that Amazon, for many products, it’s 3 months: you can return your products after 3 months. Can you imagine that? 

As a consumer, it’s fantastic, as a merchant, it’s a nightmare. You cannot really recognize the sale until 3 months, before you know for sure what level of return you’re going to get. Fantastic for consumer and I know all the other commerce website had to adjust to that. It was extremely painful for them to start forcing to similar policy.

So and as we know, Amazon has been investing in their own distribution system, and not just the distribution centers, automation, robotics, but also last mile delivery platform, to try to replace their UPS and other FedEx delivery. Actually, one of them, I think it was FedEx announced that they were dropping Amazon because it was just so much tiny for them at this stage.

Even Amazon, basically replaced them with their own system. So you’re totally right. As a consumer, how do you extract yourself from such perfectly efficient e-commerce distribution system. And I think we will see more of that: we will see players and Shopify is probably one of the players leading the space, trying to provide a different experience, a more private label, white label, fully integrated, backend and eCommerce solution.

And I guess that’s how you have to fight Amazon in a way. If you want to fight Amazon, you cannot fight Amazon with the same formula, they are the master of their formula. There’s no question to it. So you need, if you want to compete in that space, to attack from a different angle.

Nuno: And we’ve seen a lot of players from the investment side that are trying to rebuild the pipes that you’re talking about: the customer experience, the customer service piece, the logistics piece, that would basically give you an Amazon like experience if you’re selling through them or at least using them as your enabler. 

The difficulties: it requires huge amounts of scale, right? So, the importance is with players like Nike and others, which are significant product players that drive a lot of volume already direct to consumer through their own properties, website, apps, et cetera. Will those players adopt some of these systems, give those systems mass scale or not. Because at the end, if the big brands all do their own thing and some of them are more successful than others, in some ways, we’ll live in a very fragmented space where the pipes are actually not that innovative. Right? 

And then Amazon always wins. So for me, that’s the interesting piece and one of the discussions we’ve had certainly internally as investors is really: it does require a lot of scale for you to build new pipes, and to actually have, fundamental economics that work for you.

Bertrand: But you’re right that a lot of players from Nike and others might help you bring scale relatively quickly as long as you’re able to take it.

Because that’s a question. How do you take a Nike from day one? Probably not easy as a customer. I’m pretty optimistic: at the end of the day that we will see strong competitive response to Amazon. And at the same time I keep being very impressed, in a positive way, with what Amazon has brought to the market. 

Maybe just last one wish on Amazon is that: they really need to get a better app. It’s really bad. 

Nuno: It was much worse. I now use the app a lot more, obviously they push you into the app if you have the app installed, but if we go back, certainly two or three years, you’d prefer to go to the website, even on mobile and today, I think they’re probably getting there.

Bertrand: I still think when you compare to players like Alibaba for instance, who are app native on both sides for consumers and merchants, with really high quality, Amazon has quite a way to go in that direction.  

Nuno: For sure.

Fitbit & Garmin in opposite directions (25:37)

Nuno: So, two interesting, very different outcomes for companies in the wearable space, Fitbit and Garmin. Obviously Fitbit, to be acquired by Google, for a couple of billion dollars. Garmin, basically the Garmin stock hitting record highs as of today, a company that’s worth over $18 billion.

Bertrand: Yes, and actually, I was comparing their market cap, their stock price over the past five years and it’s a total opposite. Fitbit, got IPOed in 2015, managed to go up to close to $50 share, up to go very low, below $3 a share, and now that they’re getting acquired around potentially $7 a share. So when actually Garmin moved in the same period from around $40 a share to $95 a share. So one going down, dividing easily by 10 its market gap and the other one more than doubling its market cap, during the same time. 

Nuno: And the interesting thing here, it seems counter intuitive, right?

Because if we look at strategies, Fitbit went mainstream, mass market, let’s compete head on, for example, with Apple, let’s create offerings that are basically similar to Apple. They went into payments as well, they tried to create an experience that was in some ways also competing with the Apple Watch.

Whereas Garmin went the opposite direction direction. 

Bertrand: And competing with everyone. I mean, not just the Apple Watch, the Samsung Watch, Android wear. 

Nuno: Well, I’m sort of dismissing all of those, because those are small, those are already niche in the mainstream space. Apple was the winner, certainly until now has been the winner. We’ll see what Google does with the Fitbit acquisition.

But Garmin went the opposite direction, they seem to have gone niche. They seem to have gone after hikers, people that did boating, people that did other types of activities, and have really very focused device and service experiences for those users.

Bertrand: And I can tell you, I remember my first GPS watch, and it was at least more than 10 year ago, maybe 12 years ago, and it was a Garmin watch. It might have been the first GPS watch at the time. And my point is that I’ve been buying quite a few Garmin products from their sports watch to some specialized hiking gear.

And I’ve talked to a few people and yes people like their very dedicated products. I have actually another one, for biking to connect to your bike. So I think they have a very wide variety, very deep products, and there was this pretty good article comparing Garmin versus Fitbit strategies.

And I think they make very good points. One went niche, and that’s Garmin and succeed, and one didn’t go niche, and was in a tougher spot. Because I think these days it’s a question of: how can you fight a player like Apple or Samsung if you don’t have a differentiated strategy if you attack the exact same market? 

And we know Apple, we talk about their very verticalized strategy, but another piece of their strategy is to go into very wide markets. They are not going niche. They don’t do niche products. They don’t care about niche products. They only care about products that can scale to hundreds of millions of users, full-stop.

If it’s 5 million, 10 million for one product, no way they would build a product for that. So my point is that, it was relatively easy to read Apple strategy. It does not change that much from, especially from that perspective. 

And make a decision like Garmin, say you know what? We’re going to go niche: if we go niche, at least we don’t compete with this “uber” super successful guys with near infinite resources, like Apple, like Samsung, like Google; but on the contrary, we are going to build a platform of products: you can build a lot of stuff in similar ways they many different types of watches and other stuff.

So you can  create platforms, optimize your spend across all these products, go relatively expensive, but ultimately, you’re not on Apple and Samsung radar, where Fitbit, maybe they had no choice in a way, they invented the pre- smartwatch, with their different gadgets and suddenly they had no choice but to compete head to head with Apple.

And you could argue Apple waited for that space to become able to support the release of a true smartwatch. 

Nuno: Yes, it was innovator’s dilemma in some ways: I mean, they got stuck in their own innovation early on. But for me, there are two interesting points about this: 

One, Garmin has actually been innovative, and they’ve been very product and feature focused in specific areas, but they’ve actually been innovative. They did launch, as the article mentions, and always on color display before Apple. They’ve done things in terms of deployment of services like solar charging, smartwatch, et cetera, ahead of Apple, but they’ve been very, very feature-focused because they knew they couldn’t compete in mainstream and they couldn’t compete across features, right? They could just compete very specifically in the features that they were trying to deploy. 

For me, the second piece that’s really interesting about this, is what happens next for Google, and everyone says, well it’s natural because obviously, the smart wearables category is really big.

Android has not been as an operating system that pervasive in that space, because there hasn’t been huge scale on volume. Obviously Samsung tried to push, there’s been a lot of players in the market. 

Bertrand: But Samsung it’s its own Operating System, it’s Tyzen. 

Nuno: It’s Tizen on wearables. Correct. So how do you scale Android, into wearables? But it also creates an issue for Google, which is: Google works with a bunch of OEMs on Android in general, across smartphones, across wearables and other types of devices. And right now, again, we’re seeing them compete head to head: they did the same thing with Motorola, which didn’t go great. 

Bertrand: But they got patents.

Nuno: Exactly, are they getting patents and are they, sort of bulking up and trying to do a play like that, and obviously then do a write off at some point, or is this for real and they’re really finally going to get something right on hardware?

Bertrand: And actually to go back, to our initial talk about Apple verticalized integration, it’s also true of the smartwatch. Apple has the best integrated chipset for smartwatch. One issue that I kept hearing about why the Android Wear ecosystem has not been able to work well, is the lack of a good chipset from Qualcomm.

Qualcomm has not released every year, like Apple has done, a new version of a chipset specially dedicated to smartwatches. So in a way, the Google Android Wear ecosystem has been dependent on a chipset that never came, or was released on a not frequent enough schedule to be able to compete.

So I think that actually this strategy could make sense to acquire Fitbit, there is expertise. There will be a question of ultimately, which OS will win. Will Google drop Android Wear, or will Google keep Android Wear for the high-end, because let’s not forget that one of Fitbit benefit is that you can keep using it for a few days.

It’s not one day plus, like the last Apple Watch, it’s a few days like Garmin. So there will be that question about which operating system will be leveraged by Google. But the other question will be, and I seriously believe, if he doesn’t go with a chipset strategy, hand to hand, it will be trouble.

Nuno: But the cool thing here, for me, would be to see if Google goes the next step. Because wearables is a bit of a mess right now as you said, different operating systems, different players in the market. Nobody really quite at the scale of Apple. And so, they have a chance of doing this, of going full stack on that, right? 

Maybe they will piss off less their partners because nobody really is scaled anyway. They have to go Android. I don’t see a play where they don’t go with an operating system that is sort of serving them in this integration between the classic smartphone world and the wearable world.

That would be really strange to me. Because if you don’t have the win on operating system, which is the ultimate play here, and have this integration of user experience, why would you do it in the first place? For me, the cool part would be: are these guys going to go with a full on, full stack play, maybe still system on chip as well on top of it, or not.

That would be the cool play that Google could pull out of this acquisition. 

Bertrand: Yes. I would just be surprised it goes in that direction, because Google pushing hard hardware, that’s never been the case before. 

Nuno: But maybe they’ve learned. 

Bertrand: Yes, that’s a very good question because we will see where it goes. It can go in many directions, that’s for sure.It can be successful. It can be less successful. There will be the question of where Samsung goes from there. So yes, it’s a very very interesting move. And at the same time, when people talk about antitrust issue, I don’t think in that situation it really matters because Apple is a clear leader in the space, not Google, not others. So I don’t think it’s fair to hold that against Google. 

And, wishing them good luck fighting against Apple because let’s not forget the scope of the Apple watch now. They sell 4 version of them: you have every price point from $200 to $450, so you cannot go cheap, you can barely go premium on Apple – Garmin actually goes premium versus Apple.

Nuno: Yes.

Bertrand: So that would be interesting to see. 

Bertrand: Nuno let’s talk about gadgets. 

Nuno: Gadgets and services and stuff that we like. 

Macbook Pro (34:30)

We start with the new Mac Book Pro. 

Bertrand: Yes. Very exciting. 

Nuno: You are super excited a bout this.

Bertrand: Of course. 

Nuno: I’ve never, I haven’t seen someone so excited about a laptop in a while. So tell us, what is exciting about it?

Bertrand: First, you are fitting a 16 inch screen into a 15 inch laptop body. Same size, same weight, some small changes, but basically the same body size. So yes, more space to work. But it’s not just that, it’s back in a way to the old keyboard. So everyone’s excited to get back to the old keyboard. 

Nuno: The scissor keys. 

Bertrand: Which is kind of crazy, that we’re all excited to basically say goodbye to a three year period of what you could consider maybe not bad keyboard, but mediocre keyboard. 

Nuno: Why did you dislike the whole butterfly switch and whatever. 

Bertrand: So first, like actually other people, I had to change one of my MacBook Pro because the Space bar was not working anymore.

So yes, that’s a bit of a problem. But to be fair to Apple, it happened to me in a previous laptop as well, a Sony laptop, to have some keys not working anymore. So it’s not just Apple, but it’s the first time from Apple, I didn’t have that with any other Apple laptop, and it’s just not a great feeling when you type on it.

It’s OK. It’s quiet, which is good, but it’s not a great feeling. And I remember when I got it repaired, it took actually quite a bit. I was quite shocked. It was like at least a week to get it repaired, which was not my expectation for just a keyboard swap. So that’s painful. 

Nuno: You have more key travel now again. 

Bertrand: Yes

Nuno: You can feel the keys going down, which we all love. 

Bertrand: Exactly. Audio was a surprise, great audio, much better audio that you can listen to, coming from the speakers. So that’s great. 

And also a better mike, and apparently the reviews are pretty good. That this mike can hold up against some decent USB mic.

So that’s useful, if you are on the go, and you don’t have headset. But who doesn’t have Airpods to record when you do a chat. 

So for me the biggest disappointment is that, it’s still Intel 9th Gen CPU. So the same as a few months ago, when they released the latest MacBook Pros with 8 cores. So that was in May or June, so no change there. So if you just bought your MacBook 15, you’re not getting any CPU boost, that was kind of a surprise and disappointment. 

On the GPU side, yes, that’s a new change. Pretty big change. A new generation of Radeon graphic cards. Before it was crazy you had four or five different GPUs choice, and all as bad as the other one .

So I’m excited. I don’t think for sure it’s as good as what you could get from Nvidia. And that’s probably my still big remaining problem, now they solved the keyboard, that you cannot get Nvidia cards. And if you want to do 3D, if you want to do games, if you want to do machine learning, there is nothing beating an Nvidia card.

So that part is still a disappointment.

Nuno: I was a buyer of the first generation of the MacBook Pro. I was also a buyer, the first iteration of the MacBook Air. I haven’t really gotten very excited about laptops in quite awhile. I will definitely try this out. Maybe I’ll go back to the Pro.

At the end of the day, it just feels like an industry that it’s like: Apple does really well, there’s a couple of interesting plays, like Razer’s done some interesting stuff in the space, but it just seems like we’re not getting significant innovations. 

And we still have kids now that obviously grew up with tablets and smartphones and they keep pressing the screen. They keep like, can I do stuff with the screen? Basic stuff. 

Bertrand: Interestingly enough, when I was on the market for a new laptop not too long ago, and one thing I was surprised is, I wanted to look beyond Apple,   ended up going back to Apple and I was impressed how well rounded is their product.

You talk about touchscreen, it’s interesting. Yes, you have a lot of PC manufacturers with a 4K screen, higher resolution than Apple laptops. With touchscreen as well, and guess what? It’s killing the battery. Apple is one of the very very few manufacturers of PCs to have special screen made just for them, that are very optimized to provide at the same time the right level of resolution you need, while not providing too much and therefore hitting the battery hard. 

Microsoft is one of the other players with their Surface laptops that are providing more optimized screens and I think that’s something I’m looking at in the laptop. You want something that has a good resolution, but not so much and no stuff like touch, that are hitting your battery for no good reason.

And if you want touch now, by the way, that’s where I’m also excited with Apple laptops in general, is that you can combine them with, your iPad Pro, even your iPad mini as an external screen. 

It’s very nice. It’s very convenient. It works perfectly in full wireless. No lag, I mean, it’s amazing experience to use that. You can use a cable if you want, in this case where a cafe or something elsewhere might not work as well, but it’s very impressive to see how all their different devices are being tightly integrated together. Of course, you can use your Apple watch to unlock your Mac as well.

So there are some things that go beyond, the Mac laptop itself. And maybe my last point, the question everyone keep asking is: will Apple at some point, move beyond Intel for their laptops. Will they go ARM ? that way that will let them control fully the release cycle for their laptops.

And they will not end up like today, which is: too bad, there is not a new Intel chip ready for you, so you are going to launch with the old Intel chip. 

Nuno: But for me, one of the interesting things is: they’ve somehow, by being innovative, cornered the market, by being the innovator on smartphones, by being the innovator around tablets.

Certainly the first mover in some ways to redefine what a smartphone was and what was a tablet. Because there had been some previous attempts, but nobody really defined it. 

Bertrand: Tablet PC, remember? 

Nuno: Of course. And so these guys did define it. By doing that, they created very clear use cases that separate these categories. In some way, they do very well now in laptops and desktops experiences, et cetera. So it’s fascinating to me how they came back to a market that everyone said is fully commoditized. They still extract profits out of it, by actually being the innovator in categories that weren’t really well-defined, right? I wouldn’t say they created the categories, but they certainly were the innovators in those categories. 

Bertrand: Yes, and again, now, one of their plays, really the integration at every level from to the different OS, to the developer tools, to the app stores, to the services across all their range of hardware and providing user hardware most tailored and optimized for each experience: from TV, to Watch, to phones , to PCs, and providing you that purest experience for each device, while making them all work very well together. If for whatever reason you have a “funky” use case, you can use them in the right combination. 

Apple going into AR/VR (41:17)

Nuno: And this brings us to the next article in some ways. What’s the next wave of innovation for Apple? We’ve talked about watch already today, we talked about smart phone, we talked about tablets, but in some ways, these are now products that are just in their normal cycle of evolution. In some ways, everyone’s complaining. There isn’t that much innovation coming out of this process anymore. 

But in AR and VR, seemingly out of a leak or maybe not. There’s now some news on Apple as well. 

Bertrand: Yes, there was that news, and it’s interesting to guess: is it an organized leak not. I guess no one would ever know, but it’s rare to to see a leak so detailed coming from Apple in term of roadmap, their roadmap for AR and VR, and Jean-Louis Gassee actually published recently a pretty good  article on Medium talking about it. I was myself very, very surprised when I keep seeing analysts saying: Apple is going to launch an AR/ VR headset or AR glasses next year in 2020, that just sounded pretty crazy to me because the technology is not here. That’s as simple as that. 

If you want to put something on your face, that’s light, that’s powerful, that provide true customer value at scale. Meaning it can target a hundreds of millions of users. And don’t forget that’s the Apple playbook. They don’t do “one to 10 million” type of markets, and that’s the size of the VR market today, by the way. Then technology need to have improved beyond where it is today.

So I am not surprised. They are planning to put a launch tentatively in 2022 and let’s not forget, it’s Apple if they don’t feel it’s ready in 2022, they will delay to 2023, 2024, and that’s one thing where where Apple is pretty strong, they only launch serious product and commit their brand and their consumers, when they feel it’s truly ready and truly there. 

Which is also bad news for other players, because usually when Apple starts to get into a market, that’s also when the market starts to expand pretty significantly. 

Nuno: Do you think they have that much time? Obviously we’ve seen it in the past with smartphone-like plays that they did, because nobody had sort of reinvented the user experience.

But obviously Microsoft’s been in the market for a long time. Facebook with Oculus, Google with a bunch of different plays, including the things that they’ve done with Magic Leap. Do you think they will have the time to come to the market, after all this is a market that’s been around for while. 

Bertrand: I’ve not heard great news about Microsoft HoloLens. First version was pretty limited. Second version is less limited but is still limited to be franck. 

Magic Leap, I’m absolutely not a believer, we will see how it goes, I don’t think they can be a platform – you need the true backing of a company like Apple, Microsoft, and others. So, I’m not believing much. And by the way, I guess everyone heard a deafening silence since the launch of their headset. I’m not sure anyone care or is truly using it. 

One, I’ve been quite bullish actually is the Oculus Quest, I bought a Rift, stopped using it pretty quickly, too limited in many ways. But the Oculus Quest is quite fantastic: that full experience that you can use without any cable has been superbly executed. I still think it’s a niche product: it requires too much in term of moving  stuff in your home, being disconnected from the world. That’s not something you are going to use more than one hour a day, at best, it’s just too “niche”, but it’s a good product. 

So to answer your question, I think that Apple has time, Apple definitely has time. No one is in a acceleration trajectory. No player is there. If I had to bet one, it might be Facebook with their VR headset. 

New Foldable Moto Razr (44:46)

Nuno: So we’ve talked about the future. Now, a back to the future moment with the new Moto Razr, a foldable of course, because it makes sense, right? We love the Moto Razr. 

Bertrand: It came from nowhere. 

Nuno: It came from nowhere.

Question marks around a bunch of stuff for this device. As some of our listeners might know by now, I’m passionate about mobile phones and collecting mobile phones, and there’s some question marks around actually the folding and whether it’s will resist over the long time.

We’ve seen the same thing with Samsung when they first came out, they were saying they were launching their device, and there were issues with the folding piece, et cetera. $1,500 for an unlocked version. 

Bertrand: Even me I’m not buying it. 

Nuno: It’s great to have a clamshell in your pocket because it fits really nicely. Yes unfortunately I’m not going to get it either. Maybe I’ll wait for it to come downhill. My best guess is that inventory at some point will just decrease in price, but wonderful to see this.

It’s great innovation.

Bertrand: Oh yes. It’s fun. I’m happy some are doing it and planning to lose money for a while. I guess it’s probably a “hero” type of device meaning the device that’s showcasing your technology. Even if you know you’re not going to sell many of them.

Nuno: But you need scale, right?

I mean, I think Samsung has shown that your flagship device needs scale. It does need to sell, right? Even if you’re not making a ton of money out of it, once you put all the marketing dollars into it, et cetera,  you need scale. And I don’t think this is it. I think this is a novelty device at very best.

It’s just brings us back, brings us back. It’s wonderful, but just $1,500 really, unlocked. 

 Bertrand: From a price point, it makes absolutely no sense because you can buy  actually two iPhone 11 for this price. 

And it has not been fully tested yet, but I’m pretty sure it’s killing the device at every level from camera, battery life, CPU .

But actually, you know what? Even more interesting, what you can do for this price point is that you can buy an iPhone 11 or actually an 11 Pro plus an iPad mini for the same price point.

Nuno: Yes, so Motorola please make this cheaper. 

General Magic – the movie (46:47)

And that takes us to the last item for today, which is actually a movie, a documentary on General Magic, a company that some of us might have heard about, but probably not many of us have heard about. 

Bertrand: This company is kind of a legend in Silicon Valley.

Nuno: A legend that not a lot people know. 

Bertrand: Silicon Valley has its legends and, it’s hidden past, in some ways we have to read some books, read some articles to discover about it. And now you have this movie, a great documentary.  

Nuno: So General Magic was a company that effectively was incubated at Apple under John Sculley, and they came out of it. And their objective was to do what we now know as a smartphone, as an iPhone, effectively, like a smart phone that had a touch screen. It just so happened that they were trying to do it in 1992.

Bertrand: It was a bit tough for me to feel too sympathetic in a way, because if you are 10 years too early, yes of course you can dream, dream, dream, but you cannot achieve your dream because the tech is not there.

And 10 years wrong, or 15 years wrong in their case. It’s not a small mistake in term “oh, we are just two years too early” and we’re missing this or that. It was, it should have been for them relatively easy to see. Too much is missing, especially for a company with, yes, great financing for the time, but not backed by a huge corporation that could afford a lot of investment.

 And instead actually they missed the easier thing: doing some things that, Palm did with the Palm Pilot trying to do something more simple. If you remember, what was even more crazy is that they were building with AT&T their own network, to deliver the data. I mean, that’s pretty rare to see that.  

Nuno: But this is sort of circa AOL years, where your own networks made sense. So I’m not sure that was totally the mistake, maybe there was a little bit of too much reality distortion field with Andy Hertzfeld coming out of Apple and Macintosh, with Mark Porat who was the CEO of the company, was obviously a visionary.

And in some ways, I think the documentary does present him a little bit in analogy to Steve Jobs, as a great sort of presenter, someone who would convince people to come on board and fund, etcetera. 

Bertrand: But Steve Jobs delivered products that worked. 

Nuno: He did for the most, we can’t forget that there was a learning curve to it. He had his own failures as well, before his great comeback of the Phoenix at Apple. So I would say I’d be a little bit more thoughtful and not throwing all under the bus. 

Bertrand: I would definitely not do that. And for me, what’s impressive is that it was a fantastic training ground for a lot of the people that were going actually to build the true smartphone industry. Tony Fadel was there , we talked about, quite a few others, the father of Android , Andy Rubin was there. I am not sure he was in the documentary. 

Nuno: They just touch upon it very lightly, so I’m not sure what his role was in the company.

Bertrand: It’s pretty impressive to see that it was a strong training ground, incubation place for two stars to emerge. So I think from that angle, bringing the best of the best, in one place, under one roof, and in a way training them to do better things at other companies a decade or so later.

It has been a great place. So, I’m still pretty positive that they brought  some magic, but in a way, magic alone is not enough, you need timing, you need the right pieces of technologies to come together and maybe you can make one or two true bets of some specific piece of technology, but if absolutely everything all at once is a bet, including consumer use case. What you see in the documentary is that people had no clue what to use this device for. It was too early for the web. It was even too early for email. People were not really sure about what to use that for.

Nuno: It’s was too early for the Internet in effect. And we weren’t there yet. Just to sort of rewind to some of the incredible personalities that were at General Magic: 

Tony Fadell as you already mentioned, went on to deliver a bunch of iPods. Who went on to deliver the iPhone, went on to do Nest. 

Kevin Lynch, who went on to do great things at Adobe, and now the head of engineering at Apple. 

Andy Rubin is mentioned in passing, obviously Android fame. 

So he was making this slight joke that: we had two people that sort of commended 90 something percent of the smartphone operating systems of the world. 

And, Megan Smith went on to be CTO under president Obama for the US. 

Bertrand: The most amazing in term of success is  Pierre Omidyar who founded eBay in the middle of General Magic. 

Nuno: He did the right thing. 

Bertrand: And was told, you know what, your weird stuff. Not here, not a General Magic. 

Nuno: Sold Pez dispensers? And apparently he did well. 

 Bertrand: They were gently telling him, hey with your weird second hand, marketplace, get out. 

Nuno: Get out. Well he did get out. 

Bertrand: And at least from a dollar perspective, he’s by far the most the successful of all of them.

He did very well.

By very far. Easy only billionaire in the lot, I guess. 

Nuno: I am not sure. I don’t know how much Tony is worth, but certainly he did very well. He called it early. He went on to do great things. 

Bertrand: This is amazing that piece was like, wow. Total respect, about that team. So very impressive team at every level. But yeah. Sad to see it’s not enough. 

Nuno: And to me as an investor, one of the things I was sort of, bringing back to the team is like, can we figure out if there are these seminal plays that were incredibly, incredibly unsuccessful, but that they had so many resources into it and there was so much talent because of those resources that these people will spawn incredible innovation and will actually be the entrepreneurs that will be successful in the future. Is there a proxy for us to understand that? And as you know, I’m very analytically driven in how I think through some of these things. It’s like, is there a way for us to proxy huge failures that then, we should actually track some of the key engineers there and see where they end up afterwards.

And we’re still having this debate internally, but there’s something about that. That I think we should figure out, because we always look at the success. We always look at Fairchild into Intel, Google into Facebook, Yahoo into Google, and a bunch of other companies.

So we always look at spawns coming from a success standpoint at their moment in time. What about massive failures, right? Is there something about massive failures that we can learn as investors and I think there is: we’re still trying to figure out what are the right proxies into it. 

Bertrand: Yes, that’s a very good point, and when I talk about training ground, there was two levels. One is technical, they learnt a lot, and that could be re-used in different ways somewhere else, in a probably more pragmatic way. 

But there was also this lesson of failure and what happened? What failed? Why is it that it failed? That they can bring with them and make sure that in their next venture, either starting a company or not, they can bring this experience with the team around: hey guys, you know what this stuff, not ready, we need to wait. I mean, I’m sure they with them a lot of lessons of how to build a better company next time.

Nuno: Yes. So last thing, we recommend everyone watch this documentary: “General Magic”, the movie.